La-Z-Boy Incorporated Annual Report 2009

FY2009 Annual Report · La-Z-Boy Incorporated
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S hare hold ers’  Meeti ng

We d n e s d a y, A u g u s t  1 9, 2 0 0 9
1 1: 00 A.M. EDT

La-Z-Bo y Aud itor ium

1 2 8 4  N o r t h  Te l e g r a p h   R o a d 
Mon ro e,  M ichi gan  USA

Logan Stationary Occasional Chair 

2009 ANNUAL REPORT I La-Z-Boy Incorporated

To   O u r   S h a r e h o l d e r s

Fiscal 2009 will be remembered as a year of enormous economic challenges which affected nearly every part of 

the global economy. The difﬁcult macroeconomic environment, fueled by the crisis in the credit and ﬁnancial 
markets,  not  only  exacerbated  the  transformation  of  the  furniture  industry  that  started  at  the  beginning 
of  the  decade,  but  impacted  the  home-building  and  furniture  sectors  signiﬁcantly,  particularly  with  the  discretionary  nature  of  home 
furnishings  purchases. Although  we  faced  many  obstacles  throughout  the  year,  we  maintained  our  commitment  to  the  core  strategic 
initiatives we established to strengthen our company and to maintain the differentiation we view critical to long-term success. For La-Z-Boy 
Incorporated,  ﬁscal  2009  also  will  be  remembered  as  a  year  when  we  not  only  showed  our  resilience  and  adaptability  in  the  face  of 

unprecedented adversity, but also when our recent strategic investments and decisions began to take hold and propel us on a path to a much  

stronger future. 

In this letter, we will update you on what we have done over the past few years, which has enabled us to withstand the intensiﬁed downturn 

of the last six months of our ﬁscal year. We also will discuss the additional steps we took when we understood the magnitude of the 

economic crisis and how these measures have positioned us for strong growth and a more competitive footprint as the economy improves. 

We expect the coming year to present unforeseen challenges to which we will need to respond; however, we have proven to be nimble 

enough to do so, and will remain focused on long-term growth and enhanced performance.

Over the past few years, we have concentrated on several key strategic pillars: improving the efﬁciency of our manufacturing and distribution 

systems; strengthening our brand and the connection with our consumers; building our proprietary distribution network; and transitioning to 

become an integrated retailer. Having such a clear vision as to what is strategically essential has allowed us to more quickly and decisively 

make very tough calls to align our costs with the new reality while protecting our core strategic investments. And, importantly, because 

much of the heavy lifting is behind us, our business will require minimal capital expenditures over the next several years, allowing us 

signiﬁcant opportunities to improve our ﬁnancial ﬂexibility going forward.

Manufacturing and Distribution Efﬁciency

A core element of our drive to improve the efﬁciency of our manufacturing system was the development and implementation of a cellular 
production system. We completed our conversion to cellular manufacturing in early ﬁscal 2009 with the installation of the last of our cells 
in our La-Z-Boy® branded products manufacturing facilities. We are now experiencing the beneﬁts of this team-based production method 
in our operating results, with the cells delivering superior rates of high-quality product than was possible under our old batch-and-queue 
assembly-line approach. The fact that we could return to proﬁtability in our fourth quarter is due in large part to the productivity gains 
delivered by this new system.

In January, we completed the second major element of our manufacturing efﬁciency plan with the opening of our new 700,000-square- 
foot cut-and-sew facility in Coahuila, Mexico. This plant, which was completed in less than a year, cuts and sews fabric kits for the custom-
ordered furniture produced in our U.S. manufacturing facilities. With its proximity to the United States, the Mexican operation is able to 

quickly deliver the kits to our manufacturing sites where we assemble and upholster the furniture, enabling us to take advantage of the 

lower cost structure in Mexico without compromising on our ability to deliver custom-ordered product in 30 days or less. This is a basic 

tenet of our intended brand promise to the consumer – delivering comfortable, custom-ordered furniture quickly – and we believe it is a 

competitive differentiator in the marketplace. Once the cut-and-sew operations are fully transitioned, we expect to realize an annual cost 
savings in excess of $20 million with the full beneﬁt realized in ﬁscal 2011. 

La-Z-Boy Incorporated I 2009 ANNUAL REPORT I 1

To   O u r   S h a r e h o l d e r s ,   c o n t i n u e d

Another key element of improving our manufacturing and distribution efﬁciency is the expansion of our company-owned regional distribution 
centers to service our network of La-Z-Boy Furniture Galleries® store dealers in addition to our company-owned stores. This will beneﬁt our 
dealer base by allowing them to concentrate on the “front” or sales end of their business while we will be responsible for stocking, delivering 
and servicing the product. Overall, this will lower the cost structure of the system while allowing us to reduce our accounts receivable position 
and decrease our own warehouse costs. We expect our system to ultimately consist of 10 to 12 warehouses across North America which 
will service the majority of the La-Z-Boy Furniture Galleries® stores and will take place over a three-to-four-year period. To date, nine dealers 
representing 17 stores are utilizing our system and we plan to bring in an additional 10 dealers in ﬁscal 2010.  

Our casegoods operation was not immune to this year’s economic downturn and we made the decision to consolidate our manufacturing 

operations into one facility in Hudson, NC. We will cease manufacturing operations at our plant in North Wilkesboro, NC and also will vacate 

a leased warehouse in Statesville, NC, shifting its inventory to the North Wilkesboro facility. These moves will take place over a nine-month 

period and, when complete, are estimated to provide annual cost savings of $5 to $6 million, based on current volumes. Additionally, we are 

very proud of the fact that three of our casegoods brands have received the Sustainable by Design registration from the American Home 

Furnishings Alliance, demonstrating La-Z-Boy Incorporated’s commitment to environmental stewardship.

Brand and Consumer

Our commitment to build and leverage the La-Z-Boy® brand and to help our consumers live life more comfortably is as strong as ever. 
We remain focused on differentiating ourselves in consumers’ minds with the Comfort. It’s What We Do.SM television campaign and are 

continuing its evolution to increase the relevancy and differentiation of our messages to reﬂect the changing psychology of our consumers. 

For example, as consumers have shifted to more of a “mindful consumption” mentality, with the intensiﬁed objective of receiving value for 
their money, we have increased the emphasis that La-Z-Boy® furniture is not only affordable, but unlike many other furniture options, is of 

high quality and long lasting. 

On the casegoods side of our business, our team continues to identify new ways of marketing product while providing excellent service and 

value to our customers. One recent example of this is the licensing agreement between our Lea Division and Nickelodeon/Viacom Consumer 
Products, where we will develop youth furniture featuring some of the top-rated and most popular Nickelodeon® characters. 

The Internet has been of critical importance in the furniture-shopping process for years, and that role strengthens every day. Our approach 
to ensuring we provide the digital experience our consumers want and need is multifaceted, beginning with making it easier for them to ﬁnd 
us through search engine optimization and paid search marketing, which have allowed us to increase our site visits over the past year by 
more than 50%. In addition to continuously working to make the la-z-boy.com site a pleasant and productive experience for our consumers, 
early in ﬁscal 2009, we went live with e-commerce capabilities on la-z-boy.com in cooperation with our U.S. Furniture Galleries dealers. 
We believe this allows us to provide a more satisfactory multi-channel experience for our consumers and, with the pricing and delivery 
information available online, they are more likely to visit a store to shop for La-Z-Boy® furniture.

A third area of focus is research and innovation. The La-Z-Boy® brand was founded on the invention of the recliner and if we are to maximize 

our potential, we need to increase the role innovation plays in our products, services and business systems. In the past 12 months, we 

launched our Premier stationary sofa line featuring proprietary ComfortCoreTM cushion technology, as well as a line of Eco-Comfort furniture 

2 I 2009 ANNUAL REPORT I La-Z-Boy Incorporated

featuring soy-based cushions and eco-friendly fabrics. And, most recently, we introduced our new Proﬁle ComfortTouchTM recliner, which 

allows consumers to adjust the chair to their personal level of comfort and support using patented air-chamber technology.

Finally, this past ﬁscal year, we were delighted to become the ofﬁcial furniture provider for Ronald McDonald House Charities®, a cause in 

perfect alignment with our vision to help people live life comfortably – in this case, providing comfort to families at a time in their lives when 

they need it more than ever. It is a strong, highly visible and credible cause with which to associate our company and brand and it provides 

local participation opportunities in the vast majority of communities in which we operate, both corporately and for our dealer organization. 

We are humbled to be able to play a small part in providing comfort to these families during such difﬁcult times.

O u r   c o m m i t m e n t   t o   b u i l d   a n d   l e v e r a g e   t h e   
La-Z-B o y ®  b r a n d   a n d   t o   h e l p   o u r   c o n s u m e r s 
l i v e   l i f e   m o r e   c o m f o r t a b l y   i s   a s   s t r o n g   a s   e v e r. 

Proprietary Distribution and Company-Owned Retail

As  the  industry  evolves  and  the  distribution  landscape  changes,  our  steadfast  belief 

in  proprietary  distribution  has  not  wavered. With  many  furniture  stores  –  both  large 
and small – going out of business, the La-Z-Boy Furniture Galleries® store system and 
our  Comfort  StudioSM  store-within-a-store  concept  have  become  increasingly  more 

important.  Both  store  formats  are  venues  where  consumers  can  have  a  delightful, 

consistent  and  comfortable  shopping  experience  while  being  assured  of  purchasing 

quality furniture which can be customized to their personal preference. In the past 12 

months, we have opened or converted 133 Comfort Studios, bringing our total to 466 

stores  in  this  program. We  are  continuing  to  expand  this  channel,  and  our  Furniture 

Galleries system and Comfort Studios provide the backbone of our distribution. 

In  our  company-owned  retail  segment,  we  owned  68  La-Z-Boy  Furniture  Galleries® 
stores  in  eight  markets  at  the  end  of  ﬁscal  2009  and,  in  the  last  two  quarters,  we 
improved  the  results  of  the  segment  by  reducing  our  losses  on  signiﬁcantly  lower 
volume. This is due primarily to two factors. First, we put a new management team in 
place, bringing in a number of people from outside both the company and industry. This 
has given us some new ways of thinking, based on different perspectives and skill sets 
attained from other areas of the retail landscape. The new team has made structural 
changes to our operation, improving accountability for results, fundamentally shifting the 
selling process and cost basis of our retail stores, and intensifying our ability to leverage 

the power of our complimentary In-Home Design service. The second factor inﬂuencing 

our improved results is a more targeted and efﬁcient marketing spend where we are 

ﬁnding ways to increase our visibility in the marketplace with new approaches to buying 

as well as improved media and creative strategies.

TOTAL DEBT
FISCAL 2003 – 2009

(AMOUNTS IN MILLIONS)

224.0

224.4

226.3

185.7

151.2

104.4

60.9

2 5 0

2 0 0

1 5 0

1 0 0

5 0

FY03

FY04

FY05

FY06

FY07

FY08

FY09

La-Z-Boy Incorporated I 2009 ANNUAL REPORT I 3

To   O u r   S h a r e h o l d e r s ,   c o n t i n u e d

FISCAL 2009
SALES MIX

13% RETAIL

114%

13%

14% 
CASEGOODS

73%

73% UPHOLSTERY

Leadership

We are proud that La-Z-Boy Incorporated has always been able to attract and retain 
a  talented  group  of  individuals  who  are  focused  on  innovation,  quality,  speed  and 
proﬁtability.  As  part  of  our  new  retail  management  team,  this  past  year  we  were
pleased  to  appoint  Mark  S.  Bacon,  Sr.  as  our  new  Chief  Retail  Ofﬁcer.  Mark  is  a 
seasoned retail industry veteran and, in his short time with La-Z-Boy, has led a team 

which has signiﬁcantly changed the structure of our retail operation so that we are 

seeing improved results, even in the lower-volume environment.

We also appointed Janet E. Kerr to our Board of Directors, serving as a member of the 

Nominating and Governance Committee. Janet is a Professor of Law and the Executive 

Director and Founder of the Geoffrey H. Palmer Center for Entrepreneurship and the 

Law at Pepperdine University School of Law. In addition to her legal background and 

expertise in corporate governance, she sits on the Boards of CKE Restaurants, a New 

York Stock Exchange-listed company, as well as Tilly’s, a clothing retailer.

And, it was with great sadness that we lost our Chairman Emeritus, Patrick H. Norton, 

in December. Pat’s accomplishments within the furniture industry are too numerous 

to detail, but he will be remembered as a pioneer, visionary, industry leader and someone who dedicated his life to the furniture business. 
For La-Z-Boy, Pat led our marketing efforts to establish our proprietary store network and to position La-Z-Boy® as a pre-eminent brand. He 
also was responsible for the strong sales growth our company experienced during his tenure. Following his retirement, Pat continued to be 

a friend and advisor to the company. We were privileged to have an executive of his caliber working with us for 25 years and his spirit and 

wisdom will remain with us for a very long time.

Fiscal Responsibility and the Future

In this operating environment, it is not only necessary to make changes to our overall cost structure, but we are focused on enhancing the 
corporation’s liquidity. Fortunately, La-Z-Boy has always maintained a conservative stance with respect to its balance sheet and we believe 
managing our ﬁnances prudently has enabled us to endure this difﬁcult period. We generated $52 million in cash from operating activities 
in ﬁscal 2009 and reduced our debt signiﬁcantly, ending the year with a net debt position of less than $44 million, the lowest level we have 
experienced in this decade. 

We reacted swiftly in the fall when business came to an abrupt halt following the meltdown in the credit and ﬁnancial markets. Indeed, this 
was a difﬁcult time for all the players in our industry, including the many customers with whom we do business. The changes we made to our 
cost structure over the course of the year removed some $60 million in structural costs from the business on an annual basis. This came in the 
form of a reduction in employment, which declined by 23% compared with year-ago levels; changes to employee beneﬁt plans; a reduction 

in capital expenditures and other expenses; and the closure of two manufacturing facilities. These moves, combined with the structural 

changes made to our manufacturing processes over the past several years, all came to fruition as we ended the year on a positive note. 

4 I 2009 ANNUAL REPORT I La-Z-Boy Incorporated

Because it is impossible to predict what the future holds with respect to consumer conﬁdence and spending, the moves we made to align 
our cost structure with current order rates will allow us to operate the business proﬁtably going forward, barring a further reduction in 
volumes, to which we would respond accordingly. 

For the year, however, our results were signiﬁcantly impacted by a myriad of factors, most notably the reduction in volume caused by 
the macroeconomic environment and a series of signiﬁcant non-cash charges and write-downs we were required to take as a result of 
various accounting pronouncements. These accounting charges were triggered principally by the company’s market capitalization falling 

below our book value when the stock and credit markets tumbled. In ﬁscal 2009, our sales declined 15.5% to $1.2 billion and we posted 

a loss from continuing operations of $121.3 million, or $2.36 per share. The full-year results include income of $0.16 per share related to  

anti-dumping duties received on bedroom furniture imported from China; a restructuring charge of $0.24 per share related to various plant, 

warehouse facilities and retail store closures; a non-cash intangible write-down of $0.85 per share relating to goodwill and trade names; 

and a $0.15 per-share non-cash impairment of long-lived assets relating to the company’s retail operation. The company’s full-year results 

also include a non-cash $0.74 per-share charge for a valuation allowance against our deferred tax assets, which was recognized in the 

second quarter.

While ﬁscal 2009 may have been one of the most challenging periods in our company’s long history, the strategic actions we implemented 

over the past four years sustained us throughout this period and have established a strong platform from which to operate. We will continue 

to execute on the initiatives we laid out – improving the efﬁciencies of our manufacturing and distribution structure, strengthening the  
La-Z-Boy®  brand,  building  a  signiﬁcant  proprietary  store  network  and  transitioning  to  become  an  integrated  retailer. We  believe  these 
strategies  comprise  a  winning  plan  to  ensure  we  remain  not  only  competitive,  but  an  industry  leader,  while  managing  liquidity  and  

reducing costs. 

Lastly,  we  would  like  to  thank  our  Board  of  Directors  for  their  wisdom  and  guidance  throughout  this  difﬁcult  period  as  well  as  the 

talented team of people we have in place, all of whom made many sacriﬁces this year and are committed to building and leveraging the  

power of our company. Today, we are conﬁdent we will prevail in the new and dynamic marketplace and are determined to make La-Z-Boy 

Incorporated a stronger company for our customers, employees and shareholders. We thank you for your continued support. 

James W. Johnston   
Chairman of the Board 

Kurt L. Darrow 
President and Chief Executive Ofﬁcer

La-Z-Boy Incorporated I 2009 ANNUAL REPORT I 5

 
 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the ﬁscal year ended April 25, 2009

COMMISSION FILE NUMBER 1-9656

LA-Z-BOY INCORPORATED

(Exact name of registrant as speciﬁed in its charter)

MICHIGAN
(State or other jurisdiction of
incorporation or organization)

1284 North Telegraph Road, Monroe, Michigan
(Address of principal executive offices)

38-0751137
(I.R.S. Employer
Identiﬁcation No.)

48162-3390
(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Shares, $1.00 Par Value

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as deﬁned in rule 405 of the Securities Act. Yes (cid:1) No (cid:2)

Indicate by check mark if the Registrant is not required to ﬁle reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes (cid:1) No (cid:2)

Indicate by check mark whether the Registrant (1) has ﬁled all reports required to be ﬁled by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to ﬁle such
reports), and (2) has been subject to such ﬁling requirements for the past 90 days. Yes (cid:2) No (cid:1)

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such ﬁles). Yes (cid:1) No (cid:1)

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the Registrant’s knowledge, in deﬁnitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:2)

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

Large accelerated ﬁler □

Accelerated ﬁler (cid:2)

Non-accelerated ﬁler □

Smaller reporting company □

Indicate by check mark whether the Registrant is a shell company (as deﬁned in Rule 12b-2 of the Exchange Act). Yes (cid:1) No (cid:2)

Based on the closing price on the New York Stock Exchange on October 24, 2008, the aggregate market value of Registrant’s
common shares held by non-affiliates of the Registrant on that date was $237.3 million.

The number of common shares outstanding of the Registrant was 52,172,505 as of May 30, 2009.

(1) Portions of the Registrant’s Proxy Statement to be ﬁled with the Securities and Exchange Commission pursuant to Regulation

14A for its 2009 Annual Meeting of Shareholders are incorporated by reference into Part III.

DOCUMENTS INCORPORATED BY REFERENCE:

LA-Z-BOY INCORPORATED
FORM 10-K ANNUAL REPORT FISCAL 2009

TABLE OF CONTENTS

Cautionary Statement Concerning Forward-Looking Statements

. . . . . . . . . . . . . . . . . . . . . . .

PART I

Business
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties
Item 2.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
. . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders
Item 4.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers of the Registrant

PART II

Item 5.

Item 6.
Item 7.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of Equity Securities
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.
Item 11.
Item 12.

Item 13.
Item 14.

Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services

Item 15.

Exhibits and Financial Statement Schedules

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Page
Number(s)

2

3
9
10
10
11
11
12

13
16

19
38
39

75
75
75

76
76

76
76
76

77

Note: The responses to Items 10 through 14 will be included in the Company’s deﬁnitive proxy statement to
be ﬁled pursuant to Regulation 14A for the 2009 Annual Meeting of Shareholders. The required information is
incorporated into this Form 10-K by reference to that document and is not repeated herein.

1

Cautionary Statement Concerning Forward-Looking Statements

We are making forward-looking statements in this report. Generally, forward-looking statements include
information concerning possible or assumed future actions, events or results of operations. More speciﬁcally,
forward-looking statements include the information in this document regarding:

future income, margins and cash ﬂows
future growth
adequacy and cost of ﬁnancial resources

future economic performance
industry and importing trends
management plans

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

Actual results could differ materially from those anticipated or projected due to a number of factors. These
factors include, but are not limited to: (a) changes in consumer conﬁdence; (b) continued economic recession
and decline in our stock price; (c) changes in demographics; (d) further changes in residential housing and
commercial real estate market; (e) the impact of terrorism or war; (f) continued energy and other commodity
price changes; (g) the impact of logistics on imports; (h) the impact of interest rate changes; (i) changes in
currency exchange rates; (j) competitive factors; (k) operating factors, such as supply, labor or distribution
disruptions including changes in operating conditions or costs; (l) effects of restructuring actions; (m) changes
in the domestic or international regulatory environment; (n) ability to implement global sourcing organization
strategies; (o) the impact of adopting new accounting principles; (p) the impact from natural events such as
hurricanes, earthquakes and tornadoes; (q) the ability to procure fabric rolls and leather hides or cut and sewn
fabric and leather sets domestically or abroad; (r) continued decline in the credit market and potential impacts
on our customers and suppliers; (s) unanticipated labor/industrial actions; (t) those matters discussed in Item
1A of this Annual Report and factors relating to acquisitions and other factors identiﬁed from time-to-time in
our reports ﬁled with the Securities and Exchange Commission. We undertake no obligation to update or
revise any forward-looking statements, either to reﬂect new developments or for any other reason.

2

PART I

ITEM 1. BUSINESS.

Edward M. Knabusch and Edwin J. Shoemaker started Floral City Furniture in 1927, and in 1928 the newly
formed company introduced its ﬁrst recliner. In 1941, we were incorporated in the state of Michigan, and in
1996 the name was changed to La-Z-Boy Incorporated. The La-Z-Boy name is the most recognized brand in
the furniture industry. La-Z-Boy Incorporated operates in three segments - the Upholstery Group, the Case-
goods Group and the Retail Group.

La-Z-Boy is the largest reclining-chair manufacturer in the world and one of North America’s largest manu-
facturers of upholstered furniture. We also manufacture and import casegoods (wood) furniture products for
resale in North America. In addition, we have 68 company owned and operated retail stores located in eight
markets in the United States. La-Z-Boy Incorporated markets furniture for every room of the home. According
to the May, 2009 Top 100 ranking by Furniture Today, which is an industry trade publication, the third largest
retailer of single-brand upholstered furniture in the U.S. is the La-Z-Boy Furniture Galleries(cid:4) stores retail
network.

The following signiﬁcant changes in our business occurred during ﬁscal 2009:

In the fourth quarter of ﬁscal 2008, we committed to a restructuring plan to consolidate all of our North
American cutting and sewing operations in Mexico and transfer production from our Tremonton, Utah plant to
our ﬁve remaining La-Z-Boy branded upholstery manufacturing facilities. Our Utah facility, which employed
630 people, ceased operations during the ﬁrst quarter of ﬁscal 2009. We began start up production at our
Mexican facility in January 2009. As of the end of ﬁscal 2009, about 272 employees have completed training
and about 144 employees are currently in training at our Mexican facility. At the end of ﬁscal 2009, approxi-
mately 8% of our domestic cutting and sewing operations were coming from our Mexican facility. By the end
of ﬁscal 2010 we expect 75% to 80% of our domestic cutting and sewing operations to be shifted to our
Mexican facility, with the remainder in ﬁscal 2011. The decision to shift our domestic cutting and sewing
operations to our Mexican facility will strengthen our ability to competitively produce custom orders and
improve speed to market. We expect to see the full beneﬁt of these cost saving moves beginning in ﬁscal
2011.

In the ﬁrst quarter of ﬁscal 2009, we committed to a restructuring plan to close the operations of our
La-Z-Boy U.K. subsidiary. The closure of this operation occurred in the second quarter of ﬁscal 2009 and
impacted about 17 employees. This decision was made due to the change in our strategic direction for this
operation.

During the third quarter of ﬁscal 2009 we committed to a restructuring plan to close our plant in Sherman,
Mississippi related to our Bauhaus operations. The closure of this plant was completed in the fourth quarter of
ﬁscal 2009. During the third quarter of ﬁscal 2009, we also announced a plan to reduce our company-wide
employment to be more in line with our sales volume and the current economic environment. As a result of
this plan, our employment was reduced by approximately 850 people company-wide.

In the fourth quarter of ﬁscal 2009, we committed to a restructuring plan to consolidate our casegoods manu-
facturing plants in North Carolina related to our Kincaid and American Drew/Lea operations. The production
at our American Drew/Lea plant will be consolidated with one of our Kincaid plants and the American
Drew/Lea plant will convert to a distribution center. The consolidation of these plants is expected to be com-
pleted in the ﬁrst quarter of ﬁscal 2010, but the conversion of the distribution center will not be completed
until the fourth quarter of ﬁscal 2010. The decision to consolidate these operations was made in order to
reduce costs associated with having excess capacity at our casegoods manufacturing plants in North Carolina.

Principal Products and Industry Segments

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

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

3

Casegoods Group. The operating units in the Casegoods Group are American Drew/Lea, Hammary and
Kincaid. This group primarily sells manufactured or imported wood furniture to furniture retailers. Casegoods
product includes tables, chairs, entertainment centers, headboards, dressers, accent pieces and some coordi-
nated upholstered furniture.
Retail Group. The Retail Group consists of 68 company-owned La-Z-Boy Furniture Galleries(cid:4) stores located
in eight markets ranging from the Midwest to the East Coast of the United States and also including South-
eastern Florida. The Retail Group sells mostly upholstered furniture to end consumers through the retail
network.

Additional detailed information regarding our segments and the products which comprise the segments is
contained in Note 15 to our consolidated ﬁnancial statements and our ‘‘Management’s Discussion and Analy-
sis’’ section, both of which are included in this report.

Raw Materials and Parts

The principal raw materials for the Upholstery Group are purchased cover (primarily fabrics and leather),
polyester batting and non-chloroﬂuorocarbonated polyurethane foam for cushioning and padding, lumber and
plywood for frames and steel for motion mechanisms. Purchased cover is the largest raw material cost for this
segment, representing about 33% of the Upholstery Group’s total material costs. We purchase cover from
numerous sources, but we do rely on a limited number of major suppliers. If one of these sources experienced
ﬁnancial or other difficulties we could experience temporary disruptions in our manufacturing process until
another source could be found. Our cover is purchased either in a raw state (a roll or hide), then cut and sewn
into parts in our plants or as cut and sewn parts from third party offshore suppliers. The cover material costs
are 48% fabric rolls and hides and 52% for cut and sewn parts. There are ﬁve primary suppliers of cut and
sewn leather and fabric products, and the majority of our cut and sewn sets come from China. One supplier
manufactures the majority of the cut and sewn parts we receive from China. During the third quarter of ﬁscal
2009, we began shifting our domestic cutting and sewing operations to our facility in Mexico. We expect all
of our cut and sewn parts to be supplied from our Mexican facility or from suppliers in China given the lower
labor costs in these areas and because there are few sources of these products domestically and none at these
labor costs. By importing cut and sewn leather and fabric sets, we are able to recognize savings compared to
domestic purchases and fabrication of these parts.

By the end of ﬁscal 2010 we expect that 80% to 90% of our La-Z-Boy division’s cover to be received at our
manufacturing facilities as cut and sewn sets. We also expect to have transferred roughly 75% to 80% of our
La-Z-Boy division’s domestic cut and sew operations to our Mexican facility by the end of ﬁscal 2010, with
the remainder of our La-Z-Boy division’s domestic cut and sew operations to be transferred during ﬁscal
2011. Addtionally, we will continue to receive cut and sewn sets from China.

Given the current economic situation, we expect raw material pricing to remain somewhat stable through the
ﬁrst half of ﬁscal 2010. Raw material pricing for the remainder of ﬁscal 2010 will depend somewhat on the
timing of the economic turnaround. Speciﬁcally, the pricing on steel will be inﬂuenced by consumption in
other markets and world scrap prices. Pricing on polyurethane foam will be inﬂuenced by demand from other
industries, chemical prices and capacity which is normally adjusted based on demand.

Our Casegoods Group today is primarily an importer, marketer and distributor of casegoods furniture. In ﬁscal
2009, it also operated two manufacturing facilities in North Carolina. As previously mentioned, these manu-
facturing facilities are being consolidated in ﬁscal 2010. Over the last few years the amount of raw materials
purchased by the Casegoods Group has been declining. The principal raw materials used in the Casegoods
Group are hardwoods, plywood and chip wood, veneers and liquid stains, paints and ﬁnishes and decorative
hardware. Hardwood lumber and purchased hardwood components are the Casegoods Group’s largest raw
material costs, representing about 59% of the segment’s total raw material costs, on domestically manufac-
tured product.

Finished Goods Imports

The rapid growth of manufacturing capabilities in Asia has increased production capacities overseas. Due to
the low labor and overhead costs in those areas, the landed manufactured cost of product coming out of those
overseas manufacturing facilities is much lower than equivalent furniture produced domestically.

4

During ﬁscal 2009 and 2008, about 73% and 72%, respectively of our casegoods ﬁnished goods sales were
imported. Imported ﬁnished goods represented approximately 13% of our consolidated ﬁscal 2009 sales.

During the second half of ﬁscal 2009 prices on imported casegoods began to stabilize. Prior to this we were
experiencing higher prices on our imported casegoods due to increases related to higher labor, raw materials,
currency valuations and transportation costs. We will continue to monitor our costs of imported casegoods and
review our sourcing of products.

The importing of furniture is also changing how some large retailers and dealers are purchasing goods for
their stores. Some retailers are sourcing direct from overseas and bypassing domestic distribution altogether;
thereby eliminating the middleman. As a result of these changes we have transitioned to an import model for
our casegoods business. The resulting signiﬁcant reductions in our cost structure have allowed us to become
more competitive. At the same time we have improved our service performance levels, purchasing, logistics
and warehousing capabilities for these imports across our different operating units as our importing continues
to grow. Speciﬁcally, we have negotiated contracts with freight forwarders that allow us to utilize consolidated
purchasing power, across all segments, for shipping to obtain favorable rates based on volume.

Seasonal Business

Historically we have experienced our lowest level of sales during our ﬁrst ﬁscal quarter for our Upholstery
Group and during our ﬁrst and third ﬁscal quarters for the Casegoods Group. During the past ﬁscal year, we
found our sales to be more evenly distributed across our four ﬁscal quarters with the third and fourth quarters
having our lowest level of sales. We believe this is a result of economic conditions during those quarters and
not a change in our historical patterns. When possible, we schedule production to maintain uniform manufac-
turing activity throughout the year. We do, however, shut down our plants in July to perform routine
maintenance on our equipment. A majority of our manufacturing facilities will shut down their production for
at least one week in July, 2009.

Economic Cycle and Purchasing Cycle

The success of our business depends to a signiﬁcant extent upon the level of consumer spending. A number of
economic conditions affect the level of consumer spending on the products that we offer, including, among
other things, the general state of the economy, general business conditions, uncertainty in the housing and
credit markets, level of consumer debt, interest rates, taxation, unemployment levels and consumer conﬁdence
in future economic conditions.

Our Retail division is continuing to feel the impact of these conditions, which has created an unprecedented
weakness in the retail environment. We continue to modify our cost structure in our Retail division to reduce
our operating expenses while attempting to reduce our losses and become proﬁtable on smaller volumes
within this division.

In terms of our product segments, upholstered furniture has a shorter life cycle and exhibits a less volatile
sales pattern over an economic cycle than does casegoods. This is because upholstery is typically more fash-
ion and design oriented, and is often purchased one or two pieces at a time. In contrast, casegoods products
are longer-lived, less fashion-oriented, and frequently purchased in groupings or ‘‘suites,’’ resulting in a much
larger dollar outlay by the consumer.

Practices Regarding Working Capital Items

With the exception of company-owned stores, we do not carry signiﬁcant amounts of upholstered ﬁnished
goods in inventory as these goods are usually built to order. However, we generally build or import casegoods
inventory to stock, in order to attain manufacturing efficiencies and/or to meet delivery requirements of cus-
tomers. This results in higher levels of ﬁnished casegoods inventories than upholstery products. Our
company-owned La-Z-Boy Furniture Galleries(cid:4) stores maintain ﬁnished goods inventory at the stores.

During ﬁscal 2009 and 2008, we made a concerted effort to reduce our inventory balances. These efforts have
led to the consolidation of some of our Casegoods Group warehousing and more effective management of our
inventory. Our overall inventory levels have declined 28% over the past two years, with the majority of the
decline in inventory coming from our Upholstery Group.

5

Over the past two years we have created four regional distribution centers in order to streamline our ware-
housing and distribution processes for our La-Z-Boy Furniture Galleries(cid:4) store network. In the third quarter of
ﬁscal 2009, ownership and management of these distribution centers were transferred from our Retail Group
to our La-Z-Boy division, within our Upholstery Group. The management of these distribution centers is
better suited in our La-Z-Boy division because these distribution centers also supply inventory to some inde-
pendent La-Z-Boy Furniture Galleries(cid:4) dealers. This change also allows our Retail Group to focus on the
retail side of the business. Our move to distribution centers allowed us to reduce the number of individual
warehouses needed to supply our retail outlets and helped us to manage our inventory levels.

Dealer terms generally range between net 30-120 days. We offer some extended payment terms as part of
sales promotion programs.

Customers

We sell to a signiﬁcant number of furniture retailers primarily throughout the United States and Canada. We
also sell to consumers through our company-owned La-Z-Boy Furniture Galleries(cid:4) stores. We did not have
any customers whose purchases amounted to more than 5% of our ﬁscal year 2009 sales for either the Uphol-
stery Group or the Casegoods Group. Sales in our Upholstery and Casegoods Groups are almost entirely to
furniture retailers. The Retail Group sales are to end-consumers.

We have formal agreements with many of our retailers for them to display and merchandise products from
one or more of our operating units and sell them to consumers in dedicated retail space, either in stand-alone
stores or in dedicated galleries or studios within their stores. We consider these stores, as well as our own
retail stores, to be ‘‘proprietary.’’ For our Upholstery and Casegoods Groups, our 2009 customer mix was
about 54% proprietary, 14% major dealers (for example, Art Van, Berkshire Hathaway, Havertys, Raymour &
Flanigan) and 32% other independent retail customers.

Currently, we own 68 stand-alone La-Z-Boy Furniture Galleries(cid:4) stores. Additionally, we have agreements
with independent dealers for 252 stand-alone La-Z-Boy Furniture Galleries(cid:4) stores, of which 30 stores are
owned by VIEs whom we consolidate. These stores also sell accessories that are purchased from approved
vendors. There are 224 stand-alone La-Z-Boy Furniture Galleries(cid:4) stores in the New Generation format
(representing 70% of the total number of stores), which generally has more space and a more updated appear-
ance. Having dedicated retail ﬂoor space is important to the success of product distribution. This distribution
system originated with our La-Z-Boy Furniture Galleries(cid:4) stores network, which continues to have the largest
number of proprietary stores and galleries among our other operating units. According to the May 25, 2009
Furniture Today, viewed by itself, the La-Z-Boy Furniture Galleries(cid:4) stores network would be the tenth
largest conventional furniture retailer in the U.S. In addition to the stand-alone stores we also have 466
ComfortStudios all dedicated to our upholstery furniture products. ComfortStudios are deﬁned space that is
completely dedicated to showcasing our products within a larger retailer. Our proprietary distribution also
includes in-store galleries for England, Kincaid and Lea’s La-Z-Boy KidzTM. Total ‘‘proprietary’’ ﬂoor space
is approximately 8.8 million square feet.

It is a key part of our marketing strategy to continue to expand proprietary distribution. We expect that
throughout the La-Z-Boy Furniture Galleries(cid:4) store network we will remodel another 5-10 stores into our
New Generation format during ﬁscal 2010. Given the current economic climate, the La-Z-Boy Furniture
Galleries(cid:4) store network plans to be opportunistic in opening any new stores during ﬁscal 2010. We select
dealers for this proprietary distribution based on the management and ﬁnancial qualiﬁcations of those dealers.
The location of these proprietary stores is based on the potential for distribution in a speciﬁc geographical
area. This proprietary method of distribution is beneﬁcial to La-Z-Boy, our dealers and the consumer. For
La-Z-Boy, it allows us to have a concentration of marketing of our product by sales personnel dedicated to
our entire product line, and only that line. For our dealers who join this proprietary group, it allows them to
take advantage of practices that have been proven successful based on past experiences of other proprietary
dealers. As a part of this, we facilitate forums and communications for these dealers to share best practices
among their peers. For our consumers, these stores provide a full-service shopping experience with knowl-
edgeable sales associates and in-home design consultants to support their purchasing process.

6

Sales Representatives

Similar to most of the U.S. furniture industry, independent sales representatives sell our products to our
dealer-customers. Independent sales representatives are usually compensated based on a percentage of their
actual sales for their territory plus other performance criteria. In general, we sign one-year contracts with our
independent sales representatives.

Orders and Backlog

Upholstery orders are primarily built to a speciﬁc dealer order (stock order) or a special order with a down
payment from a consumer (sold orders). These orders are typically shipped within two to six weeks following
receipt of the order. Casegoods are primarily produced to our internal order (not a customer or consumer
order), which results in higher ﬁnished goods inventory on hand but quicker availability to ship to customers.
Additionally, increased importing of ﬁnished product over the last few years in our Casegoods Group has
increased our imported ﬁnished goods inventories due to longer order lead times necessary for imported
product. Our Casegoods Group typically ships product to consumers within 14 days.

As of April 25, 2009 and April 26, 2008, Upholstery Group backlogs were approximately $57.4 million and
$80.0 million, respectively. Casegoods backlogs as of April 25, 2009 and April 26, 2008 were approximately
$10.1 million and $19.9 million, respectively. The measure of backlog at a point in time may not be indicative
of future sales performance. Due to manufacturing efficiencies gained over the past several years and our
casegoods inventory position, we do not rely entirely on backlogs to predict future sales. For most operating
units, an order cannot be canceled after it has been selected for production. The decline in backlog from ﬁscal
2008 was due to efficiencies gained from cellular manufacturing in addition to the overall decline in sales
volume.

Competitive Conditions

We are currently the third largest manufacturer/distributor of residential (bedroom, dining room, living and
family room) furniture in the United States, as measured by annual sales volume, according to industry trade
publication Furniture Today. Competitors include (in alphabetical order) Ashley, Bassett Furniture, Berkline,
Bernhardt, Ethan Allen, Flexsteel, Furniture Brands International, Hooker Furniture, Klaussner, Natuzzi,
Palliser, Stanley Furniture and Universal.

In the Upholstery Group, the largest competitors are Ashley, Bassett Furniture, Berkline, Bernhardt, Ethan
Allen, Flexsteel, Furniture Brands International, Klaussner, Natuzzi, and Palliser.

In the Casegoods Group, our main competitors are Ashley, Bernhardt, Ethan Allen, Furniture Brands Interna-
tional, Hooker, Stanley, and Universal. Additionally, there are market pressures related to foreign
manufacturers entering the United States market, as well as by increased direct purchasing from overseas by
some of the larger United States retailers.

The La-Z-Boy Furniture Galleries(cid:4) stores operate in the retail furniture industry throughout North America;
consequently, they have different competitors. La-Z-Boy Furniture Galleries(cid:4) stores competitors include but
are not limited to: Ashley, Bassett Furniture Direct, Ethan Allen, Thomasville Home Furnishings Stores,
several other regional competitors, and family-owned independent furniture stores.

In addition to the larger competitors listed above, a substantial number of small and medium-sized ﬁrms
operate within our business segments, all of which are highly competitive.

During the past couple of years there has been an increase in alternative distribution affecting our retail mar-
kets. Companies such as Costco, Home Depot, IKEA, Sam’s Club, Target, Wal-Mart, as well as the Internet,
and others are now offering products that compete with some of our product lines.

We compete primarily by emphasizing our brand names and the comfort, quality and styling of our products.
In addition, we strive to offer good product value, strong dealer support and above average customer service
and delivery. Our proprietary stores, discussed above under ‘‘Customers,’’ also are a key initiative for us in
striving to remain competitive with others in the furniture industry.

7

Research and Development Activities

We provide information regarding our research and development activities in Note 1 to our consolidated
ﬁnancial statements, which is included in Item 8 of this report.

Trademarks, Licenses and Patents

We own several trademarks including La-Z-Boy, our most valuable. The La-Z-Boy trademark is essential to
the upholstery and retail segments of our business. To protect our trademarks we have registered them in the
United States and various other countries where our products are sold. The trademarks remain valid for as
long as they are used properly for identiﬁcation purposes, and we actively monitor the correct use of our
trademarks. We license the use of the La-Z-Boy trademark on furniture sold outside the United States. We
also license the use of the La-Z-Boy trademark on contract office furniture, outdoor furniture and on non-
furniture products in the United States for the purpose of enhancing brand awareness. In addition, we license
our proprietary dealers to use our La-Z-Boy trademark in connection with the sale of our products and related
services, on their signs, and in other ways, which we consider to be a key part of our marketing strategies. We
provide more information about those dealers above, under ‘‘Customers.’’

We hold a number of patents that we actively enforce but we believe that the loss of any single patent or
group of patents would not materially impact our business.

Compliance with Environmental Regulations

We have been named as a defendant in various lawsuits arising in the ordinary course of business and as a
potentially responsible party at certain 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 currently do not
anticipate any material additional loss for legal or environmental matters.

Employees

We employed about 7,730 full-time equivalent persons as of April 25, 2009. The Upholstery Group employed
6,175, the Casegoods Group employed 654, the Retail Group employed 479, with the remainder being non-
segment personnel, which includes our VIEs. The majority of our employees are employed on a full-time
basis. As of April 26, 2008 we had 10,060 full-time equivalent employees.

Financial Information About Foreign and Domestic Operations and Export Sales

In ﬁscal 2009, our direct export sales, including sales in Canada, were approximately 12% of our total sales.
In addition to our Canadian customers, we also had European customers who received product from our
United Kingdom subsidiary. As previously mentioned this subsidiary was closed during the second quarter of
ﬁscal 2009. We have a manufacturing joint venture in Thailand, which distributes furniture in Australia, New
Zealand, England, Thailand and other countries in Asia. In addition, we have a sales and marketing joint
venture in Asia, which sells and distributes furniture in China, Japan and Korea among other Asian countries.
In the third quarter of ﬁscal 2009 we opened a facility in Mexico. Our facility in Mexico will be providing
cut and sewn sets for our domestic upholstery manufacturing facilities. Information about sales in the United
States and in Canada and other countries is contained in Note 15 to our consolidated ﬁnancial statements,
which is included in Item 8 of this report. Our property, plant, and equipment in the U.S. were $134.9 million
and $166.0 million at the end of ﬁscal 2009 and ﬁscal 2008, respectively. The property, plant, and equipment
in foreign countries were $15.3 million and $5.0 million in ﬁscal 2009 and ﬁscal 2008, respectively. Of the
$15.3 million of property, plant and equipment in foreign countries, $6.1 million relates to our plant in
Mexico. Additionally, $3.4 million of the increase was the result of the change in our Toronto market VIE.

See Item 1A of this report for information about the risks attendant to our foreign operations.

Internet Availability

Available free of charge through our internet website are links to our forms 10-K, 10-Q, 8-K and amendments
to those reports. These reports can be found on our internet website www.la-z-boy.com as soon as reasonably
practicable after being electronically ﬁled with, or furnished to, the Securities and Exchange Commission
(www.sec.gov). The information on our website is not part of this report.

8

ITEM 1A. RISK FACTORS.

Our business is subject to a variety of risks. You should carefully consider the risk factors detailed below in
conjunction with the other information contained in this document. These risks are not the only ones we face.
Interest rates, consumer conﬁdence, housing starts and the overall housing market, increased unemployment,
tightening of the ﬁnancial and consumer credit markets, downturns in the economy and other general eco-
nomic factors that affect many other businesses are particularly signiﬁcant to us because our principal products
are consumer goods. Additional factors that are presently unknown to us or that we currently believe to be
immaterial also could affect our business.

Our current retail markets and others we may acquire in the future may not achieve the growth and
proﬁtability we anticipated when we acquired or acquire them. We could incur charges for impairment
of long-lived assets if we cannot meet our earnings expectations for these markets.

We may remodel and relocate existing stores, as well as close underperforming stores. Proﬁtability will
depend on increased retail sales justifying the cost of remodeling and relocating these stores to support the
lease carrying costs and our ability to reduce support costs as a percent of sales in advertising, selling and
administration. In addition, while we are not currently planning on acquiring any new retail markets, we may
acquire additional retail markets in the future, and if we do, they may be subject to many of the same risks.

Increased reliance on foreign sourcing of our products makes us more reliant on the capabilities of our
foreign vendors and more vulnerable to potentially adverse actions by foreign governments.

We have been increasing our offshore capabilities to provide ﬂexibility in product offerings and pricing to
meet competitive pressures. Our Casegoods Group is primarily an importer of products manufactured from a
foreign source. In addition, our Upholstery Group purchases cut and sewn fabric and leather sets from foreign
sourced vendors. Our sourcing partners may not be able to produce these goods in a timely fashion, or the
quality of their product may be rejected by us, causing delays in shipping to our customers for Casegoods and
manufacturing disruptions in our Upholstery plants due to not receiving rolled fabric, leather hides and fabric
and leather cut and sewn sets. The majority of our cut and sewn leather sets are purchased from one supplier
in China. In the third quarter of ﬁscal 2009, we began operations at our cutting and sewing center in Mexico.
By the end of ﬁscal 2010, we expect 75% to 80% of our domestic cut and sewn sets will come from our
Mexican facility. All of our cut and sewn sets will be supplied from Mexico and China after this move.

Governments in the foreign countries where we do business may change their laws, regulations and policies,
including those related to tariffs and trade barriers, investments, taxation, and exchange controls. These coun-
tries may also experience periodic political, social and economic unrest, resulting in the disruption of supplies
to our U.S. based facilities. All these items could make it more difficult to service our customers or cause
disruptions in our plants that could reduce our sales, earnings, or both in the future.

Fluctuations in the price, availability and quality of raw materials could cause delays that could result
in our inability to provide goods to our customers and could increase our costs, either of which could
decrease our earnings.

We use various types of wood, fabrics, leathers, upholstered ﬁlling material, steel, and other raw materials in
manufacturing furniture. Because we are dependent on outside suppliers for our raw material needs, ﬂuctua-
tions in the price, availability and quality of the raw materials we use could have a negative effect on our cost
of sales and our ability to meet our customers’ demands. Inability to meet our customers’ demands could
result in the loss of future sales, and we may not always be able to pass along price increases to our custom-
ers due to competitive and marketing pressures. Since we have a higher concentration in upholstery sales
(73%) than most of our competitors, the effects of steel, polyurethane foam and fabric price increases or
quantity shortages are more signiﬁcant for our business than for most other furniture companies. About 70%
of our polyurethane foam comes from one supplier. A natural disaster that affects this supplier could result in
delays in shipments of polyurethane foam to our plants. We have attempted to minimize this risk by requiring
a minimum of 60 days worth of production to be stored at an off-site facility.

Speciﬁcally, the ﬁnancial condition of some of our domestic and foreign fabric suppliers could impede their
ability to provide these products to us in a timely manner. We have seen the number of domestic suppliers
declining, and a majority of those suppliers that remain are experiencing ﬁnancial difficulties. In addition,

9

upholstered furniture is highly fashion oriented, and if we are not able to acquire sufficient fabric variety, or if
we are unable to predict or respond to changes in fashion trends, we may lose sales and have to sell excess
inventory at reduced prices. This would lower our earnings as well as reduce our sales.

Credit risk may adversely affect our earnings through collection losses and/or consolidating variable
interest entities into our ﬁnancial statements.

Applicable accounting rules categorize some of our independent dealers that do not have sufficient equity to
carry out their businesses without our ﬁnancial support as ‘‘variable interest entities.’’ If we are considered the
primary beneﬁciary of a variable interest entity’s business activities, we are required to consolidate its assets,
liabilities, and results of operations into our consolidated ﬁnancial statements. Once consolidated, we recog-
nize a dealer’s net losses in excess of its equity and a dealer’s net earnings to the extent we have previously
recognized losses. Consolidating variable interest entities’ results into our ﬁnancial statements tends to reduce
our net income because these dealers often incur losses, and even if one of them does achieve net earnings,
we can only recognize its earnings to the extent we previously recognized its losses.

Although we have been working to reduce the number of these dealers, generally by acquiring their busi-
nesses, closing the operation or arranging for better capitalized operators to take over their territories, we are
still consolidating three of them. Despite our efforts, we may not be able to eliminate the necessity to consoli-
date these dealers as quickly as we would like, and we may be required to consolidate additional dealers in
the future if warranted by changes in their ﬁnancial condition. In addition, we continue to increase our allow-
ance for doubtful accounts due to the deteriorating ﬁnancial condition of some of our customers resulting from
the current state of the economy.

Manufacturing realignments could result in a decrease in our near-term earnings.

We continually review our domestic manufacturing operations and offshore (import) sourcing capabilities. As a
result, we sometimes realign those operations and capabilities and institute cost savings programs. These
programs can include the consolidation and integration of facilities, functions, systems and procedures. We
also may shift certain products from domestic manufacturing to foreign sourcing and manufacturing. These
realignments and cost savings programs generally involve some initial cost and can result in decreases in our
near-term earnings until we achieve the expected cost reductions. We may not always accomplish these
actions as quickly as anticipated, and we may not fully achieve the expected cost reductions.

Business failures of large dealers or customers could result in a decrease in our future sales and
earnings.

Although we have no customers who individually represent 5% or more of the annual sales of any of our
segments, business failures or consolidation of large dealers or customers could result in a decrease in our
future sales and earnings. Also, we are either lessee on or guarantor of some leases of proprietary stores
operated by independent furniture dealers. Defaults by any of these dealers could result in our becoming
responsible for payments under these leases thereby reducing our future earnings.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We owned or leased approximately 11.3 million square feet of manufacturing, warehousing distribution cen-
ters, office, showroom, and retail facilities, and had approximately 2.4 million square feet of idle facilities at
the end of ﬁscal 2009. Of the 11.3 million square feet occupied at the end of ﬁscal 2009, our Upholstery
Group occupied approximately 5.6 million square feet, our Casegoods Group occupied approximately 2.9
million square feet, our Retail Group occupied approximately 1.8 million square feet and our corporate and
other operations occupied the balance.

We sold several idle facilities during ﬁscal years 2009 and 2008, and we also sold a signiﬁcant amount of
equipment that had been idled in connection with our restructurings over the last few years. Our active facili-
ties are located in Arkansas, California, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Kansas,

10

Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, New Jersey, New York, North
Carolina, Pennsylvania, Rhode Island, Tennessee, Utah, Virginia, Washington D.C., Toronto (Canada),
Coahuila (Mexico) and Bangkok (Thailand). Most of them are less than 50 years old, and all of them are well
maintained and insured. We do not expect any major land or building additions will be needed to increase
capacity in the foreseeable future for our manufacturing operations. We own all of our domestic plants, some
of which have been ﬁnanced under long-term industrial revenue bonds, and we lease the majority of our retail
stores, as well as our manufacturing facility in Mexico. For information on terms of operating leases for our
properties, see Note 9 to our consolidated ﬁnancial statements, which is included in Item 8 of this report.

ITEM 3. LEGAL PROCEEDINGS.

We have been named as a defendant in various lawsuits arising in the ordinary course of business and as a
potentially responsible party at certain 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 currently do not
anticipate any material additional loss for legal or environmental matters.

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

Nothing was submitted for a vote by our shareholders during the fourth quarter of ﬁscal 2009.

11

EXECUTIVE OFFICERS OF REGISTRANT

Listed below are the names, ages and current positions of our executive officers and, if they have not held
those positions for at least ﬁve years, their former positions during that period with us or other companies.

Kurt L. Darrow, age 54

•

President and Chief Executive Officer since September 2003

Steven M. Kincaid, age 60

•

•

Senior Vice President of La-Z-Boy and President of Casegoods since November 2003

President, Kincaid Furniture Company, Incorporated since June 1983

Louis M. Riccio, Jr., age 46

•

•

•

Senior Vice President and Chief Financial Officer since July 2006

Treasurer from April 2007 through August 2007

Vice President and Corporate Controller from February 2002 through June 2006

Otis S. Sawyer, age 51

•

•

•

•

•

Senior Vice President of La-Z-Boy and President of Non-Branded Upholstery since February 2008

President, England, Incorporated since February 2008

Senior Vice President Corporate Operations from May 2006 through February 2008

Vice President and Chief Information Officer from August 2004 through April 2006

Senior Vice President of Finance, England, Incorporated from December 2001 through August 2004

Mark S. Bacon, Sr., age 46

•

•

Chief Retail Officer since October 2008

Executive Vice President of Sales, Commercial and Operations of The Pep Boys - Manny, Moe & Jack
from March 2004 through September 2007

12

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our common shares during the fourth quarter of ﬁscal year 2009.

Recent Sales of Unregistered Securities

There were no sales of unregistered securities during the fourth quarter of ﬁscal year 2009.

Equity Plans

The table below provides information concerning our compensation plans under which common shares may be
issued.

Equity Compensation Plan Information as of April 25, 2009

Plan category

Number of securities
to be issued
upon exercise of
outstanding options
(a)

Weighted-average
exercise prices of
outstanding options
(b)

Number of
securities remaining
available for future
issuance under equity
compensation plans
(excluding securities
reﬂected in column
(a))
(c)

Equity compensation plans approved by

shareholders . . . . . . . . . . . . . . . . . . . . . . .

2,426,530(1)

Equity compensation plans not approved by

shareholders (Note 3) . . . . . . . . . . . . . . . . .

4,130

$15.48

$16.42

2,484,080(2)

None

Note 1: These options were issued under our 2004 Long-Term Equity Award Plan and our 1997 Incentive
Stock Option Plan. No additional options can be awarded under the 1997 plan, but 632,605 are still outstand-
ing under the 1997 plan.
Note 2: This amount is the aggregate number of shares available for future issuance under our 2004
Long-Term Equity Award Plan, which has a stock option component, a restricted stock component and a
performance award component, and our Restricted Stock Plan for Non-Employee Directors. The long-term
equity award plan provides for awards of stock options, restricted stock, and performance awards (awards of
our common stock based on achievement of pre-set goals over a performance period) to selected key employ-
ees. The non-employee directors’ plan provides for grants of 30-day options on our common shares. The total
shown above consists of: (a) a maximum of 1,875,168 shares that may be issued under the long-term equity
award plan under previously granted performance awards for the performance periods ending in April 2009,
2010 and 2011; (b) 608,912 shares that may be issued under awards granted in the future under the long-term
equity award plan; and (c) 150,800 shares available for future issuance under the non-employee directors’
plan. This portion of the plan was discontinued in ﬁscal 2009.
Note 3: This line of the table relates only to an option plan that we adopted without shareholder approval at
the time we acquired LADD Furniture Inc. solely in order to replace options on LADD Furniture Inc. com-
mon shares with options on our common shares. No additional options or other awards may be made under
that plan. Subsequent to April 25, 2009, the 4,130 options under this plan expired.

13

Performance Graph

The graph below shows the return for our last ﬁve ﬁscal years that would have been realized (assuming
reinvestment of dividends) by an investor who invested $100 on April 30, 2004 in our common shares, in the
S&P 500 Composite Index, Dow Jones U.S. Furnishings and in a peer group comprised of the following
publicly traded furniture industry companies: Bassett Furniture, Chromcraft Revington, Inc., Ethan Allen
Interiors, Flexsteel Industries, Furniture Brands International, Hooker Furniture Company, and Stanley
Furniture. The stock performance of each company in the peer group has been weighted according to its
relative stock market capitalization for purposes of arriving at group averages.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among La-Z-Boy Incorporated, The S&P 500 Index,
The Dow Jones US Furnishings Index And A Peer Group

$160

$140

$120

$100

$80

$60

$40

$20

$0

4/04

4/05

4/06

4/07

La-Z-Boy Incorporated

Dow Jones US Furnishings

4/09

4/08

S&P 500

Peer Group

Company/Index/Market

La-Z-Boy Incorporated . . . . . . . . . . . . .
S&P 500 Composite Index . . . . . . . . . . .
Dow Jones U.S. Furnishings. . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . .

2004

$100
$100
$100
$100

2005

2006

2007

2008

2009

$ 58.42
$106.34
$ 99.80
$ 78.90

$ 78.02
$122.73
$111.69
$100.86

$ 61.60
$141.43
$107.46
$ 81.69

$ 35.10
$134.82
$ 74.41
$ 67.03

$14.92
$87.21
$50.28
$28.91

*$100 invested on 4/30/04 in stock or index, including reinvestment of dividends. Fiscal year ending April 30.

14

Dividend and Market Information

The New York Stock Exchange is the principal market in which our common stock is traded. The tables
below show the high and low sale prices of our common stock on the New York Stock Exchange during each
quarter of our last two ﬁscal years, as well as the dividends we paid during each quarter.

Fiscal 2009 Quarter End
July 26 . . . . . . . . . . . . . . . . . . .
October 25 . . . . . . . . . . . . . . . . .
January 24 . . . . . . . . . . . . . . . . .
April 25 . . . . . . . . . . . . . . . . . . .

Fiscal 2008 Quarter End
July 28 . . . . . . . . . . . . . . . . . . .
October 27 . . . . . . . . . . . . . . . . .
January 26 . . . . . . . . . . . . . . . . .
April 26 . . . . . . . . . . . . . . . . . . .

Dividends
Paid
$0.04
$0.04
$0.02
$0.00
$0.10

Dividends
Paid
$0.12
$0.12
$0.12
$0.04
$0.40

High
$ 7.93
$11.76
$ 5.78
$ 2.23

High
$12.30
$10.47
$ 8.99
$ 9.27

Market Price

Low
$5.84
$4.50
$1.20
$0.53

Market Price

Low
$10.29
$ 6.94
$ 5.46
$ 6.91

Close
$7.60
$4.61
$1.21
$2.17

Close
$10.29
$ 7.04
$ 7.32
$ 6.91

Our credit agreement would prohibit us from paying dividends if our ‘‘excess availability,’’ as deﬁned in the
credit agreement, falls below $30 million. As of April 25, 2009 we had $65.0 million of excess availability
under the credit agreement. Refer to Note 8 of the consolidated ﬁnancial statements in Item 8 for further
discussion of our credit agreement. As a result of the continued recessionary economic climate and the uncer-
tainity with respect to when the economy will improve, we made the decision in the fourth quarter of ﬁscal
2009 to suspend our quarterly dividend to shareholders in order to conserve cash and increase our ﬁnancial
ﬂexibility. On a quarterly basis, we will continue to review our decision on whether or not to pay a dividend.

Shareholders

We had about 16,700 shareholders of record at June 12, 2009.

15

ITEM 6. SELECTED FINANCIAL DATA.

The following table presents our selected ﬁnancial data. The table should be read in conjunction with Item 7, Management’s Discus-
sion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, of
this Annual Report on Form 10-K. This information is derived from our audited ﬁnancial statements and should be read in conjunc-
tion with those statements, including the related notes.

Consolidated Five-Year Summary of Financial Data

(Dollar 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 . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of long-lived assets. . . . . . . . . . . . . . . . . . . .
Write-down of intangibles. . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy Offset Act,

net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before income

taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations. . . . . . . . . . . .
Income (loss) 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 . . . . . . . . . . . . . . . . .
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 (loss) 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 (loss) from continuing operations

(52 weeks)
4/25/2009
$1,226,674

(52 weeks)
4/26/2008
$1,450,941

(52 weeks)
4/28/2007
$1,621,460

(52 weeks)
4/29/2006
$1,699,806

(53 weeks)
4/30/2005
$1,820,408

878,089
9,818
887,907
338,767
375,011
2,642
7,503
47,677
(94,066)
5,581

8,124
2,504
(7,998)

1,051,656
5,057
1,056,713
394,228
399,470
3,078
—
8,426
(16,746)
13,899

7,147
3,614
5,393

(97,017)
24,330
(121,347)
—
—
$ (121,347)
51,460
(2.36)
(2.36)
0.10
5.94
(32.1)%
27.6 %
(7.7)%
(25.1)%
(9.9)%

$
$
$
$

(14,491)
(6,954)
(7,537)
(6,000)
—
$ (13,537)
51,408
(0.15)
(0.26)
0.40
8.76
(1.6)%
27.2 %
(1.2)%
48.0 %
(0.5)%

$
$
$
$

$

$
$
$
$

1,189,734
3,371
1,193,105
428,355
388,738
7,662
—
—
31,955
10,206

1,275,053
8,479
1,283,532
416,274
379,039
—
—
22,695
14,540
11,540

1,373,046
2,931
1,375,977
444,431
366,370
—
—
—
78,061
10,442

3,430
3,952
727

29,858
10,090
19,768
(15,629)
—
4,139
51,606
0.38
0.08
0.48
9.45
4.0%
26.4%
2.0%
33.8%
1.2%

$

$
$
$
$

—
3,101
(933)

5,168
10,758
(5,590)
2,549
—
(3,041)
51,801
(0.11)
(0.06)
0.44
9.86
(1.1)%
24.5 %
0.9 %
208.2 %
(0.3)%

$

$
$
$
$

—
3,744
(3,571)

67,792
25,363
42,429
(7,338)
2,094
37,185
52,138
0.81
0.71
0.44
10.10

8.1%
24.4%
4.3%
37.4%
2.3%

23,479
$
$
15,625
$ 150,234
$ 221,752
2.8 to 1
$ 552,545
52,148
$
$
60,872
$ 305,733

24,696
$
$
27,386
$ 171,001
$ 263,575
2.6 to 1
$ 768,870
$
99,578
$ 104,370
$ 450,596

27,204
$
$
25,811
$ 183,218
$ 314,046
2.4 to 1
$ 878,691
$ 113,172
$ 151,248
$ 485,348

29,234
$
$
27,991
$ 209,986
$ 346,667
2.5 to 1
$ 956,752
$ 174,680
$ 185,682
$ 510,345

28,329
$
$
34,771
$ 210,565
$ 409,641
2.8 to 1
$1,026,357
$ 213,549
$ 226,309
$ 527,286

19.9 %
16.6 %

16,700
7,730

23.2 %
18.8 %

20,200
10,060

31.2%
23.8%

23,900
11,700

36.4 %
26.7 %

31,900
13,400

42.9%
30.0%

26,500
14,820

16

Unaudited Quarterly Financial Information Fiscal 2009

(Dollar amounts in thousands, except per share data)
Fiscal Quarter Ended

(13 weeks)
7/26/2008

(13 weeks)
10/25/2008

(13 weeks)
1/24/2009

(13 weeks)
4/25/2009

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales

Cost of goods sold. . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . . .
Gross proﬁt . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of long-lived assets . . . . . . . . . . . . .
Write-down of intangibles . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy

Offset Act, net

. . . . . . . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . .
Pretax income (loss) . . . . . . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . .

$321,652

$331,948

$288,576

$284,498

235,115
5,795
240,910
80,742
91,837
781
—
1,292
(13,168)
1,495

—
932
143
(13,588)
(5,044)
$ (8,544)

242,681
2,236
244,917
87,031
101,942
687
—
408
(16,006)
1,651

—
630
(685)
(17,712)
36,032
$ (53,744)

207,356
1,664
209,020
79,556
94,092
741
7,036
45,977
(68,290)
1,386

8,124
323
(7,433)
(68,662)
(4,280)
$ (64,382)

192,937
123
193,060
91,438
87,140
433
467
—
3,398
1,049

—
619
(23)
2,945
(2,378)
$ 5,323

Diluted weighted average shares outstanding. . . . .

51,428

51,458

51,475

52,035

Diluted net income (loss) per share . . . . . . . . . . .

$

(0.17)

$

(1.04)

$

(1.25)

$

0.10

17

Unaudited Quarterly Financial Information Fiscal 2008

(Dollar amounts in thousands, except per share data)
Fiscal Quarter Ended

(13 weeks)
7/28/2007

(13 weeks)
10/27/2007

(13 weeks)
1/26/2008

(13 weeks)
4/26/2008

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . . .
Gross proﬁt . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of intangibles . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and

Subsidy Offset Act, net. . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (beneﬁt) . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . .
Income (loss) from discontinued operations

$344,396

$365,434

$373,081

$368,030

259,143
2,561
261,704
82,692
94,508
1,120
—
(12,936)
2,097

—
882
566

(13,585)
(5,043)
(8,542)

266,658
518
267,176
98,258
98,098
449
5,809
(6,098)
2,120

—
1,023
351

(6,844)
(3,192)
(3,652)

265,078
(632)
264,446
108,635
104,672
877
—
3,086
2,148

7,147
1,134
3,785

13,004
3,876
9,128

260,777
2,610
263,387
104,643
102,192
632
2,617
(798)
7,534

—
575
691

(7,066)
(2,595)
(4,471)

(net of tax) . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . .

(152)
$ (8,694)

(6,282)
$ (9,934)

384
$ 9,512

50
$ (4,421)

Diluted weighted average shares outstanding. . . . .

51,380

51,410

51,590

51,425

Diluted income (loss) from continuing operations

per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net income (loss) per share . . . . . . . . . . .

$
$

(0.17)
(0.17)

$
$

(0.07)
(0.19)

$
$

0.18
0.18

$
$

(0.09)
(0.09)

18

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS.

Our Management’s Discussion and Analysis is an integral part of understanding our ﬁnancial results. This
Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated
Financial Statements and related Notes to Consolidated Financial Statements. We begin the Management’s
Discussion and Analysis with an introduction to La-Z-Boy Incorporated’s key businesses, strategies and sig-
niﬁcant operational events in ﬁscal 2009. We then provide a discussion of our results of operations, liquidity
and capital resources, critical accounting policies and other matters.

Introduction

La-Z-Boy Incorporated manufactures, markets, imports, distributes and retails upholstery products and case-
goods (wood) furniture products. Our La-Z-Boy brand is the most recognized brand in the furniture industry,
and we are the leading global producer of reclining chairs. We own 68 La-Z-Boy Furniture Galleries(cid:4) stores,
which are retail locations dedicated to marketing our La-Z-Boy branded product. These 68 stores are part of
the larger network of La-Z-Boy Furniture Galleries(cid:4) stores, which includes a total of 320 stores, the balance
of which are independently owned and operated. The network constitutes the industry’s largest single-branded
upholstered furniture retailer in North America. These stores combine the style, comfort and quality of La-Z-
Boy furniture with our in-home design service to help consumers furnish their homes.

In addition to our company-owned stores, we consolidate certain of our independent dealers who did not have
sufficient equity to carry out their principal business activities without our ﬁnancial support. These dealers are
referred to as Variable Interest Entities (‘‘VIEs’’). During the third quarter of ﬁscal 2009, we terminated our
relationship with our Toronto VIE. However, four of the stores operated by the former dealer were assumed
by another dealer in the Toronto market and one was closed. As a result this dealer became a VIE. Addition-
ally, in the fourth quarter of ﬁscal 2009 it was determined that we were no longer the primary beneﬁciary of
our Cleveland dealer, that was previously consolidated as a VIE, and therefore this dealer is no longer consoli-
dated. This dealer was included in our Consolidated Statement of Operations for the ﬁrst 11 months of ﬁscal
2009. At the end of ﬁscal 2009, we had three VIEs, operating 30 stores, in our Consolidated Statement of
Operations. At the end of ﬁscal 2008, we had four VIEs, operating 34 stores, in our Consolidated Statement of
Operations.

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

Upholstery Group. In terms of revenue, our largest segment is the Upholstery Group, which includes La-Z-
Boy, our largest operating unit. Also included in the Upholstery Group are the operating units Bauhaus and
England. This group primarily manufactures and sells upholstered furniture to furniture retailers and propri-
etary stores. We import cut and sewn fabric and leather kits that allow us to take full advantage of both the
cost-saving opportunities presented in Asia and the speed to market advantages of a North American manufac-
turing base. The Upholstery Group sells furniture mainly to La-Z-Boy Furniture Galleries(cid:4) stores, general
dealers and department stores. Upholstered furniture includes recliners and motion furniture, sofas, loveseats,
chairs, ottomans and sleeper sofas.

Casegoods Group. Our Casegoods Group today is primarily an importer, marketer and distributor of case-
goods (wood) furniture. It also operated two manufacturing facilities in North Carolina in ﬁscal 2009. As
previously mentioned these two facilities are being consolidated in ﬁscal 2010. The operating units in the
Casegoods Group are American Drew/Lea, Hammary and Kincaid. Casegoods product includes tables, chairs,
entertainment centers, headboards, dressers, accent pieces and some coordinated upholstered furniture.

Retail Group. The Retail Group consists of 68 company-owned La-Z-Boy Furniture Galleries(cid:4) stores located
in eight markets ranging from the Midwest to the East Coast of the United States and also including South-
eastern Florida. The Retail Group sells mostly upholstered furniture to end consumers through the retail
network.

19

The chart below shows the current structure of the La-Z-Boy Furniture Galleries(cid:4) store network.

La-Z-Boy Furniture Galleries® Store System
(320 Total Stores)

Company-Owned Stores
(68 Stores)

VIE Stores – Independently Owned
(30 Stores)
(3 Dealers)

Independently Owned
(222 Stores)
(89 Dealers)

Consolidated in La-Z-Boy 
Statements

During the ﬁrst quarter of ﬁscal 2008, we began rolling out a new proprietary distribution model referred to as
ComfortStudios. ComfortStudios are deﬁned spaces within a larger retailer that are dedicated to showcasing
La-Z-Boy branded furniture. At the end of ﬁscal 2009, we had 466 ComfortStudios, of which some were new
studios and the rest were conversions of former in-store galleries and general dealers. We expect to open
approximately 30 more ComfortStudios during ﬁscal 2010. Kincaid, England and Lea also have in-store
gallery programs.

Signiﬁcant Operational Events in Fiscal 2009

All of our segments experienced a decline in sales during ﬁscal 2009 when compared with ﬁscal 2008.
Towards the end of the ﬁscal 2009 second quarter, we realized signiﬁcant declines in consumer demand
brought on by a weak job market, declining home prices and tightening consumer credit which were factors in
the failure of several prominent ﬁnancial institutions. These events intensiﬁed concerns about credit and
liquidity risks in the ﬁnancial markets and had a major impact on the economy as a whole and our business in
particular. The collapse of the credit markets, the related tightening of access to capital and the ensuing write-
downs of troubled loans by ﬁnancial institutions had a signiﬁcant impact on the decline in consumer
conﬁdence and the discretionary spending on home furnishing purchases.

As a result of these events and the recessionary economic climate and its impact on the furniture industry, we
made several changes to our business in order to align our operating structure with the current level of busi-
ness. We have reduced employment by about 23% across all levels of the company since the year ended
April 26, 2008, we reduced capital expenditures to $15.6 million from a plan of about $27 million, we sus-
pended our bonus, proﬁt sharing, company match portion of our 401(k) plan and our quarterly dividend to
shareholders, and we reduced our exposure to the tightening ﬁnancial markets by withdrawing credit support
from certain independent dealers. We reduced inventories by 21% or $38.2 million compared to ﬁscal 2008
and reduced debt by $43.5 million in ﬁscal 2009. In addition, we plan to continue focusing on reducing our
overall operating expenses and keeping our inventories in alignment with today’s volumes. We believe the
reduction in employment alone will result in savings of $25 million to $30 million annually. We are continu-
ing to focus on cash ﬂow and liquidity to ensure that our balance sheet remains strong enough to withstand
any further changes or declines in the economic climate.

During the fourth quarter of ﬁscal 2008, we committed to a restructuring plan to consolidate all of our North
American cutting and sewing operations in Mexico and transfer production from our Tremonton, Utah plant,
to our ﬁve remaining La-Z-Boy branded upholstery manufacturing facilities. We began start up production at

20

our Mexican facility in January 2009. As of the end of ﬁscal 2009, about 272 employees completed training
and about 144 employees were in training at our Mexican facility. At the end of ﬁscal 2009, approximately
8% of our domestic cutting and sewing operations were coming from our Mexican facility. The cut and sewn
sets that we receive from our domestic cutting and sewing operations represent approximately half of our total
cut and sewn sets. The remainder of our cut and sewn sets come from our China suppliers. By the end of
ﬁscal 2010 we expect 75% to 80% of our domestic cutting and sewing operations to be shifted to our Mexi-
can facility, with the remainder in ﬁscal 2011. In connection with these activities, we have incurred $10.3
million in charges since the inception of this plan for severance and beneﬁts, write-down of certain ﬁxed
assets, and other restructuring costs. We expect to incur additional pre-tax restructuring charges of $2 to $3
million. As a result of these moves, we expect to realize in excess of $25.0 million in annual cost savings,
with the full beneﬁt beginning in ﬁscal 2011.

During ﬁscal 2009 we committed to restructuring plans relating to the closure of our La-Z-Boy U.K. subsid-
iary, the closure of our plant in Sherman, Mississippi related to our Bauhaus operations, reduction in our
company-wide employment to be more in line with today’s sales volume and the consolidation of our case-
goods manufacturing plants in North Carolina. In connection with these plans, we recorded $3.7 million in
restructuring charges in ﬁscal 2009, covering the write-down of inventory and ﬁxed assets and severance and
beneﬁts. Additionally, as a result of these plans, we recorded a non-cash impairment charge of $1.3 million
which represented the entire goodwill amount of our La-Z-Boy U.K. subsidiary.

During the ﬁscal 2009 year, our stock price declined approximately 69%, bringing our market capitalization
signiﬁcantly below our company’s book value. As a result, we had to analyze the overall valuation of the
company, our ﬁxed assets and our intangible assets. Although we tested the valuation of our Retail segment’s
goodwill during the second quarter, the major decline in the stock market and the freezing of money in the
capital markets resulted in an increase in our weighted average cost of capital from 11% at the end of the
second quarter of ﬁscal 2009 to 16% at the end of the third quarter of ﬁscal 2009. This increase in the
weighted average cost of capital had the effect of reducing our fair value estimates and resulted in signiﬁcant
write-downs in our intangible assets. We recorded a non-cash impairment charge of $40.4 million relating to
the goodwill in our Retail and Upholstery segments and a non-cash impairment charge of $5.5 million relating
to the trade names of operating units in our Casegoods segment in the third quarter of ﬁscal 2009. We evalu-
ated the recoverability of our long-lived assets of our asset groups. Due to our operating losses and a
deterioration of economic conditions, which reduced our estimated future cash ﬂows for certain asset groups,
in ﬁscal 2009 we recognized a $7.5 million non-cash impairment charge relating to the long-lived assets of
our Retail Group.

As a result of our ﬁscal 2009 losses, the impact of the restructuring actions we have taken over the past two
years, the signiﬁcant decline in current and projected demand for consumer domestic furniture purchases and
resulting uncertainty in the economic climate, we reassessed the likelihood that we will be able to realize the
beneﬁt of our deferred tax assets. As a result, we recorded a valuation allowance of $38.2 million against our
deferred taxes assets in the second quarter of ﬁscal 2009. As of the end of ﬁscal 2009, our total valuation
allowance was $64.7 million.

21

Results of Operations
Analysis of Operations: Year Ended April 25, 2009
(Fiscal 2009 compared with 2008)

(Amounts in thousands, except per share amounts and percentages)

(52 weeks)
4/25/2009

(52 weeks)
4/26/2008

Percent
change

Upholstery sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other/eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 899,204
178,000
160,838
(11,368)
$1,226,674

$1,084,418
213,896
190,180
(37,553)
$1,450,941

(17.1) %
(16.8) %
(15.4) %
69.7 %
(15.5) %

Consolidated gross proﬁt
. . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated gross margin . . . . . . . . . . . . . . . . . . . . . . . .

338,767

394,228

(14.1) %

27.6 %

27.2 %

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

375,011

399,470

(6.1) %

30.6 %

27.5 %

Upholstery operating income
. . . . . . . . . . . . . . . . . . . . . . .
Casegoods operating income . . . . . . . . . . . . . . . . . . . . . . . .
Retail operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Write-down of long-lived assets
Write-down of intangible assets . . . . . . . . . . . . . . . . . . . . . .
Consolidated operating loss
. . . . . . . . . . . . . . . . . . . . . . .

35,410
554
(34,841)
(27,549)
(12,460)
(7,503)
(47,677)
$ (94,066)

70,332
10,151
(40,265)
(40,403)
(8,135)
—
(8,426)
$ (16,746)

(49.7) %
(94.5) %
13.5 %
31.8 %
(53.2) %
N/A
(465.8) %
(461.7) %

Upholstery operating margin . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods operating margin . . . . . . . . . . . . . . . . . . . . . . . .
Retail operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated operating margin . . . . . . . . . . . . . . . . . . . . .

3.9 %
0.3 %
(21.7)%
(7.7)%

6.5 %
4.7 %
(21.2)%
(1.2)%

Loss from continuing operations . . . . . . . . . . . . . . . . . . . .

$ (121,347)

Diluted loss per share from continuing operations . . . . . . .

$

(2.36)

$

$

(7,537)

(0.15)

22

Sales

Consolidated sales were down 15.5% when compared with ﬁscal 2008 due in large part to the challenging
economic conditions including the weak retail environment, record low consumer conﬁdence, an uncertain
housing market and a deteriorating credit environment.

Upholstery Group sales were down 17.1% compared with ﬁscal 2008. Sales price increases resulted in a
2.8% increase in sales; however this was offset by a decrease in sales volume due to the challenging eco-
nomic conditions. Additionally, the change in reporting of the Retail distribution centers to the Upholstery
Group affected the timing of inter-company sales resulting in a reduction in inter-company sales for the
Upholstery Group of $12.1 million when compared to the prior year. The decline in sales volume was par-
tially offset by a change in contractual relationships with our third party carriers, which resulted in revenue
recognition at shipping point. As reported in our Form 10-K for the ﬁscal year ended April 26, 2008, revenue
for our largest upholstery operation had previously been recognized upon delivery.

Our Casegoods Group sales decreased 16.8% compared with ﬁscal 2008. The decrease in sales volume
occurred across all of our Casegoods operating units due to weak consumer demand and the challenging
economic conditions.

Retail Group sales decreased 15.4% when compared with ﬁscal 2008. The decrease in sales was related to
the challenging economic conditions, which had an extremely negative effect on the home furnishings market.

Included in Other/eliminations are the sales by our VIEs and the elimination of sales from our Upholstery
and Casegoods Groups to our Retail Group. The majority of the change in Other/eliminations was attributable
to a $23.6 million decrease in intercompany sales eliminations for ﬁscal 2009, when compared to ﬁscal 2008.
Due to the previously mentioned change in reporting of the Retail distribution centers, this elimination was
adjusted by $12.1 million during ﬁscal 2009, which decreased the eliminations for the ﬁscal year. Sales of our
VIEs decreased $1.1 million in ﬁscal 2009 when compared to ﬁscal 2008.

Gross Margin

Gross margin increased 0.4 percentage points during ﬁscal 2009 in comparison to ﬁscal 2008. The major
components affecting gross margin in ﬁscal 2009 compared to ﬁscal 2008 were selling price increases, raw
material costs and restructuring costs. Gross margin was positively impacted by selling price increases, net of
discounts, which increased our gross margin by 2.4 percentage points. Raw material cost increases had a 1.8
percentage point negative impact on gross margin. Additionally, restructuring costs negatively impacted gross
margin by 0.5 percentage points.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (S,G&A) decreased $24.5 million or 6.1% when compared with
the prior year. S,G&A as a percent of sales increased 3.1% percentage points in ﬁscal 2009 compared with
ﬁscal 2008. During ﬁscal 2009, the Florida, Michigan, and West Coast markets were impacted to a greater
extent by the weak retail environment and declining housing market than other parts of the country. The La-Z-
Boy Furniture Galleries(cid:4) store network includes 4 stores in Michigan, 24 stores in Florida, 37 stores in
California, 9 stores in Oregon, 6 stores in Washington and 4 stores in Nevada. Accordingly, we revised our
estimates of amounts expected to be collected on past due accounts and increased our allowance for bad debts,
net of write offs, by $12.0 million when compared with ﬁscal 2008. Our reserve balance against accounts and
notes receivable as of April 25, 2009 was $32.7 million, compared to $20.7 million at April 26, 2008.

This increase was offset by a $9.0 million decrease in advertising in our Retail and Wholesale segments
during ﬁscal 2009 as compared to ﬁscal 2008 due to our attempt to keep our advertising expenditures in line
with our volume, as well as reducing production costs of new advertisements. Advertising expense was 4.4%
of sales in ﬁscal 2009 and ﬁscal 2008.

Additionally, we realized gains on property sales of $2.8 million compared to $0.3 million of losses on prop-
erty sales in ﬁscal 2008. The remainder of the decrease in selling, general and administrative expenses was a
result of our overall reduction in operating expenses to be more in alignment with today’s volumes.

23

Restructuring

Restructuring costs (including those in total cost of sales) totaled $12.5 million for ﬁscal 2009 as compared
with $8.1 million in ﬁscal 2008. The restructuring costs in ﬁscal 2009 related to the closure of our Tremonton,
Utah facility, the closure of our Sherman, Mississippi facility, the restructuring of our La-Z-Boy U.K. subsid-
iary, the consolidation of our North Carolina casegoods manufacturing plants, the restructuring of our
company-wide employment and the ongoing costs for the closure of retail facilities. These costs were com-
prised mainly of severance and beneﬁts, ﬁxed asset and inventory impairments, transition costs for the Utah
plant closure and North Carolina plant consolidation and the ongoing lease cost for our closed retail facilities.
The restructuring costs in ﬁscal 2008 related to the closure of several manufacturing facilities, the consolida-
tion of retail warehouses and the closure of underperforming retail stores. The expense relating to the closure
of several manufacturing facilities was partially offset by a gain on the sale of a property held for sale relating
to a previous restructuring. Of the $12.5 million in ﬁscal 2009 restructuring costs, $9.8 million were classiﬁed
in total cost of sales. The remaining ﬁscal 2009 restructuring costs of $2.7 million were classiﬁed as an oper-
ating expense line item below S,G&A. Of the $8.1 million in ﬁscal 2008 restructuring costs, $5.0 million
were classiﬁed in total cost of sales. The remaining ﬁscal 2008 restructuring costs of $3.1 million were classi-
ﬁed as an operating expense line item below S,G&A. The restructuring costs in S,G&A for ﬁscal 2009 and
2008 related to the consolidation of retail warehouses, closure of underperforming retail stores, severance and
beneﬁts related to the restructuring of our company-wide employment and some expenses associated with the
closing of our La-Z-Boy U.K. subsidiary.

Operating Margin

Our consolidated operating margin was (7.7)% for ﬁscal 2009 and included 1.0 percentage points of restruc-
turing charges, 3.9 percentage points for the write-down of intangibles and 0.6 percentage points for the
long-lived asset write-down. Operating margin for ﬁscal 2008 was (1.2)% and included 0.6 percentage points
of restructuring charges and 0.6 percentage points for a write-down of intangibles. With the signiﬁcant decline
in sales as compared to ﬁscal 2008, coupled with the write-downs of intangibles and long-lived assets, we
were unable to reduce our ﬁxed S,G&A expenses to maintain our operating margin.

The Upholstery Group operating margin decreased 2.6 percentage points to 3.9% for ﬁscal 2009 when com-
pared with the prior year. With a $185.2 million decrease in sales volume and a $14.8 million increase in bad
debt expense, we were unable to maintain our operating margin. Additionally, our upholstery operating margin
was negatively impacted due to increased costs associated with steel, polyurethane foam, plywood, fabric and
leather. Additionally, in the third quarter of ﬁscal 2009, the Upholstery Group operating income was reduced
by $3.3 million for the inter-company proﬁt resulting from the previously mentioned change in reporting of
the retail warehouse operations. Selling price increases positively impacted the Upholstery Group operating
margin, however the signiﬁcant decrease in volume more than offset the beneﬁt received from increasing our
sales prices. In addition, the upholstery operating income beneﬁted from the change in third party freight
carrier contracts as noted previously in our sales discussion.

Our Casegoods Group operating margin decreased 4.4 percentage points during ﬁscal 2009 versus ﬁscal
2008. With a 16.8% decrease in sales volume, we were unable to reduce our costs enough to maintain our
operating margin.

Our Retail Group operating margin decreased by 0.5 percentage points during ﬁscal 2009 when compared
with the prior year. The decrease primarily resulted from the ﬁxed occupancy costs of our Retail operations
coupled with the decline in sales, partially offset by selling price increases, reduced advertising expense and
reduced warehousing costs.

Corporate and Other operating loss decreased $12.9 million during ﬁscal 2009 when compared with ﬁscal
2008. Our VIEs’ losses for ﬁscal 2009 were $0.8 million less than ﬁscal 2008 and realized gains on property
sales for ﬁscal 2009 were $2.8 million as compared to a $0.3 million loss in ﬁscal 2008. Additionally, during
the ﬁrst six months of ﬁscal 2008, we continued a retail test market program which increased our ﬁscal 2008
expenses by $2.4 million. This program was not repeated in ﬁscal 2009. The remaining decrease was a result
of our overall reduction in selling, general and administrative expenses, in particular professional fees, which
decreased $3.0 million during ﬁscal 2009 compared to ﬁscal 2008.

24

Long-lived Asset Write-down

During ﬁscal 2009, we evaluated the recoverability of our long-lived assets of our asset groups. Due to our
operating losses and a deterioration of economic conditions which reduced our estimated future cash ﬂows for
certain asset groups, we recognized a $7.0 million non-cash impairment charge relating to the long-lived
assets of our Retail Group. In addition, during ﬁscal 2009 we recorded a non-cash impairment charge of $0.5
million relating to two of our retail properties that are currently being held for sale.

Write-down of Intangibles

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

During the second quarter of ﬁscal 2009, we committed to a plan to reorganize the Toronto, Ontario retail
market which we consolidate as a VIE. As a result of this plan we recorded a non-cash impairment charge of
$0.4 million which represented the entire goodwill balance of this market.

In the ﬁrst quarter of ﬁscal 2009, we committed to a plan to close the operations of our La-Z-Boy U.K.
subsidiary due to a change in our strategic direction for this operation. As a result of this plan, we recorded a
non-cash impairment charge of $1.3 million which represented the entire goodwill amount of the operating
unit.

During the second quarter of ﬁscal 2008, we evaluated the goodwill at our South Florida retail market as a
result of a decision to delay our planned store openings in this market. This delay was the result of a slow
housing market causing double-digit declines in sales in the market over the previous twelve months. We
recognized a $5.8 million non-cash impairment charge for the full amount of the goodwill of this retail market
in the second quarter of ﬁscal 2008.

In addition to the above mentioned evaluations of our goodwill and trade names, we performed our annual
fourth quarter testing of our remaining trade names and found no additional impairments. Our assumptions did
not materially change from the third quarter of ﬁscal 2009.

Income from Continued Dumping and Subsidy Offset Act

We received $8.1 million and $7.1 million in payments and funds related to the anti-dumping order on
wooden bedroom furniture from China, during ﬁscal 2009 and ﬁscal 2008, respectively, for duties collected on
imports entered into the United States before September 30, 2007. The Continued Dumping and Subsidy
Offset Act (‘‘CDSOA’’) provides for distribution of monies collected by U.S. Customs and Border Protection
from anti-dumping cases to domestic producers that supported the anti-dumping petition. In view of the
uncertainties associated with this program, we are unable to predict the amounts, if any, we may receive in the
future under CDSOA.

Interest Expense

Interest expense decreased $8.3 million for ﬁscal 2009 compared to ﬁscal 2008. Interest expense for ﬁscal
2008 included a $6.0 million make-whole premium paid to our private placement note-holders when we
settled the notes with the proceeds from our credit facility obtained in the fourth quarter of ﬁscal 2008. Addi-
tionally, interest expense decreased in ﬁscal 2009 due to a $37.4 million decrease in our average debt and a
0.7 percentage point decrease in our weighted average interest rate. Interest expense is expected to be less in
ﬁscal 2010 compared to ﬁscal 2009 as we continue to decrease our overall debt and interest rates are expected
to stay at historically low levels.

Income Taxes

Our effective tax rate was (25.1)% in ﬁscal 2009 compared to 48.0% in ﬁscal 2008. During ﬁscal 2009 we
recorded a substantial valuation reserve against the majority of our federal, state, and foreign deferred tax
assets, which reduced our tax rate by 47.5 percentage points. In addition during the ﬁscal year ended

25

April 25, 2009, the tax rate was reduced by 10.6 percentage points by the impairment of goodwill recorded
during the year. During ﬁscal 2008 we realized a beneﬁt from the prior years’ losses of our European joint
venture. In addition the tax rate was signiﬁcantly affected by the foreign tax rate differential primarily related
to the dividend from our operating unit in the United Kingdom. The rate for ﬁscal 2008 also was unfavorably
impacted due to the decrease in the cash surrender value of company owned life insurance policies, which
resulted in an expense under accounting rules but no deductions for income tax purposes.

Other Income/(Expense)

Other income (expense), net, was $8.0 million of expense during ﬁscal 2009, compared to $5.4 million of
income during ﬁscal 2008. The majority of the decrease was due to a gain on sale of investments in ﬁscal
2008 of $3.8 million compared to a recognized loss of $5.3 million in ﬁscal 2009. Of the $5.3 million loss,
$5.1 million was the result of an impairment we recognized in the third quarter of ﬁscal 2009. We sold sev-
eral investments in ﬁscal 2008 at a gain in order to utilize capital loss carry-forwards. In ﬁscal 2009 we
recognized a loss on our investments due to our intent to sell those investments in the near term and the
losses being considered other-than-temporary.

Discontinued Operations

We had no discontinued operations during ﬁscal 2009. During ﬁscal 2008, our discontinued operations recog-
nized a loss of $6.0 million after-tax. During the second quarter of ﬁscal 2008, we completed the sale of our
Clayton Marcus operating unit and we completed the sale of our Pennsylvania House trade name. The stock of
Clayton Marcus was sold to Rowe Fine Furniture, Incorporated, resulting in a loss of about $5.8 million or $3.6
million after-tax. Of this loss, about $3.4 million pre-tax related to the intangible assets of Clayton Marcus. The
Pennsylvania House trade name was sold to Universal Furniture for $1.7 million, resulting in a pre-tax charge of
about $0.6 million ($0.4 million net of taxes). We also recorded an additional loss of $3.0 million to adjust the
inventory to fair value due to the liquidation of the remaining inventory at discounted prices.

26

Results of Operations
Analysis of Operations: Year Ended April 26, 2008
(Fiscal 2008 compared with 2007)

(Amounts in thousands, except per share amounts and percentages)

(52 weeks)
4/26/2008

(52 weeks)
4/28/2007

Percent
change

Upholstery sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other/eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,084,418
213,896
190,180
(37,553)
$1,450,941

$1,198,378
262,721
220,319
(59,958)
$1,621,460

(9.5) %
(18.6) %
(13.7) %
37.4 %
(10.5) %

Consolidated gross proﬁt
. . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated gross margin . . . . . . . . . . . . . . . . . . . . . . . .

394,228

428,355

(8.0) %

27.2 %

26.4 %

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

399,470

388,738

2.8 %

27.5 %

24.0 %

Upholstery operating income
. . . . . . . . . . . . . . . . . . . . . . .
Casegoods operating income . . . . . . . . . . . . . . . . . . . . . . . .
Retail operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of intangible assets . . . . . . . . . . . . . . . . . . . . . .
Consolidated operating income (loss) . . . . . . . . . . . . . . . . .

70,332
10,151
(40,265)
(40,403)
(8,135)
(8,426)
$ (16,746)

Upholstery operating margin . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods operating margin . . . . . . . . . . . . . . . . . . . . . . . .
Retail operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated operating margin . . . . . . . . . . . . . . . . . . . . .

6.5 %
4.7 %
(21.2)%
(1.2)%

Income (loss) from continuing operations

. . . . . . . . . . . . .

Diluted income (loss) per share from continuing operations

$

$

(7,537)

(0.15)

78,724
20,289
(31,161)
(24,864)
(11,033)
—
31,955

(10.7) %
(50.0) %
(29.2) %
(62.5) %
26.3 %
N/A
(152.4) %

6.6 %
7.7 %
(14.1)%
2.0 %

19,768

(138.1) %

0.38

(139.5) %

$

$

$

27

Sales

Consolidated sales were down 10.5% for ﬁscal 2008 when compared to ﬁscal 2007 due in large part to a
weak retail environment attributable to weak consumer demand.

Upholstery Group sales were down 9.5% for ﬁscal 2008 when compared to ﬁscal 2007. Sales price increases
resulted in a 2.1% increase in sales; however this was offset by a decrease in sales volume due to the overall
weak consumer demand, which we associated with the signiﬁcant decline in consumer conﬁdence and the
uncertainty in the housing market.

Our Casegoods Group sales decreased 18.6% for ﬁscal 2008 when compared to ﬁscal 2007. Sales price
increases resulted in a 1.1% increase in sales; however, this was offset by a decrease in sales volume which
occurred across all of our Casegoods operating units due to weak consumer demand. In addition to weak
demand, our sales also were impacted by the increase in liquidation sales of distressed furniture of other
companies, which ﬂooded the market with deeply discounted product.

Retail Group sales decreased 13.7% for ﬁscal 2008 when compared to ﬁscal 2007. During the second half of
ﬁscal 2008, we exited the Pittsburgh, Pennsylvania and Rochester, New York markets which resulted in a
6.9% decline in sales in ﬁscal 2008 when compared to ﬁscal 2007. The remaining decrease in sales was
related to the negative effect that housing sales declines had on the home furnishings market and the weak
consumer demand.

Included in Other/eliminations are the sales by our VIEs and the elimination of sales from our Upholstery
and Casegoods Groups to our Retail Group. The majority of the change in Other/eliminations was attributable
to a $3.4 million decrease in intercompany sales eliminations. The reduction of inter-company sales elimina-
tions was a result of a decrease in same store sales to company-owned stores due to the weak consumer
demand. Sales of our VIEs increased in ﬁscal 2008 when compared to ﬁscal 2007 as result of having ﬁve
additional stores in ﬁscal 2008 compared to ﬁscal 2007.

Gross Margin

Gross margin increased during ﬁscal 2008 in comparison to ﬁscal 2007. Over the preceding several years we
closed several manufacturing plants and converted our remaining plants to a cellular manufacturing process.
These changes increased our gross margin in ﬁscal 2008. In addition to these changes, sales price increases
increased our gross margin by 1.8 percentage points. In the fall of 2007, we began a joint national advertising
campaign with our La-Z-Boy Furniture Galleries(cid:4) stores where costs were shared between our company-
owned and dealer-owned stores. In ﬁscal 2008 the reimbursed advertising from our dealers that was included
in sales increased our gross margin by 0.3 percentage points. Restructuring related expense increased during
ﬁscal 2008 when compared to ﬁscal 2007, which reduced gross margin by 0.1 percentage points. The
increased restructuring charges were primarily related to the Tremonton, Utah plant closure.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (S,G&A) increased $10.7 million or 2.8% during ﬁscal 2008
when compared with ﬁscal 2007. S,G&A also increased as a percent of sales in ﬁscal 2008 compared with
ﬁscal 2007. During ﬁscal 2007, we recorded $14.4 million in gains from the sale of several properties whereas
in ﬁscal 2008 we recorded a loss of $0.3 million related to several property sales. During ﬁscal 2008, expense
for bad debts increased by about $4.1 million when compared with ﬁscal 2007 due to the overall weakness in
the retail environment and an increase in our past due accounts. In ﬁscal 2007, we reduced our warranty
reserve by $3.9 million due to a trend of lower warranty costs incurred beyond one year after the sale of the
product. Our trends showed that a majority of our claims were from product sold in the past twelve months
thus reducing our liability, along with estimated amounts required for currently known warranty issues. This
adjustment was not duplicated in ﬁscal 2008. Advertising costs increased compared to ﬁscal 2007 by approxi-
mately $3.0 million due to our national advertising campaign which began in the fall of 2007. This campaign
was a shared advertising program with our La-Z-Boy Furniture Galleries(cid:4) stores. Independent dealers reim-
burse us for about 33% of the cost of the program. Because of this shared cost arrangement, the increase in
advertising expense was reported as a component of SG&A and was partially offset by the reimbursement of
the dealers’ portion of the cost which was reported as a component of sales.

28

Restructuring

Restructuring costs (including those in total cost of sales) totaled $8.1 million for ﬁscal 2008 as compared
with $11.0 million in ﬁscal 2007. The restructuring costs in ﬁscal 2008 related to our closure of several manu-
facturing facilities, consolidation of retail warehouses and closure of underperforming retail stores. These costs
were comprised mainly of ﬁxed asset impairments and lease terminations, severance and other restructuring
costs. Of the $8.1 million and $11.0 million in restructuring costs during ﬁscal 2008 and 2007, respectively,
$5.0 million and $3.4 million were classiﬁed in total cost of sales. The remaining restructuring costs of $3.1
million and $7.6 million were classiﬁed as an operating expense line item below S,G&A related to Retail
operations. The restructuring costs in S,G&A for ﬁscal 2008 and 2007 related to the consolidation of retail
warehouses and the closure of underperforming retail stores.

Operating Margin

Our consolidated operating margin was (1.2)% for ﬁscal 2008 and included 0.6 percentage points of restruc-
turing charges and an additional 0.6 percentage points for a write-down of intangibles related to one of our
VIEs. Operating margin for ﬁscal 2007 was 2.0% and included 0.7 percentage points of restructuring charges
and 0.9 percentage points of income related to gains on property sales. While we increased our gross margin
as a percent of sales as compared to ﬁscal 2007, our S,G&A expenses increased both in dollars and as a
percent of net sales. With the signiﬁcant decline in sales as compared to ﬁscal 2007, we were unable to absorb
the ﬁxed S,G&A expenses to maintain our operating margin in ﬁscal 2008.

The Upholstery Group operating margin was ﬂat for ﬁscal 2008 when compared with the prior year. Selling
price increases accounted for a 2.1 percentage point increase in our operating margin over ﬁscal 2007, how-
ever the signiﬁcant decrease in volume more than offset the beneﬁt received from increasing our sales price.
Provision for doubtful accounts increases in ﬁscal 2008 accounted for a 0.4 percentage point decrease when
compared with ﬁscal 2007 due to the overall depressed economic climate. Increases in advertising expense
during ﬁscal 2008 accounted for a 0.4 percentage point decrease due to the previously discussed national
advertising campaign.

Our Casegoods Group operating margin decreased 3.0 percentage points during ﬁscal 2008 versus ﬁscal
2007. The changes that were made in the overhead structure as a result of transitioning to a primarily import
business model from a manufacturing based business model reduced the effect that the signiﬁcant volume
reduction had on margins; however, with the 18.6% decline in sales volume, we were unable to offset our
ﬁxed costs.

Our Retail Group operating margin decreased by 7.1 percentage points during ﬁscal 2008 in comparison to
ﬁscal 2007. Our occupancy costs increased 6.4 percentage points during ﬁscal 2008 as we continued to con-
vert, relocate and build new stores in our retail markets, but the signiﬁcant decline in our net sales
signiﬁcantly impacted our operating margins as we were not able to absorb these higher ﬁxed costs. In addi-
tion, we completed the consolidation of our warehouses and computer systems during ﬁscal 2008, which
further affected our margins as we absorbed duplicate costs, start-up costs and additional discounting of prod-
uct as we consolidated warehouses.

Corporate and Other operating loss increased $15.5 million during ﬁscal 2008 when compared with ﬁscal
2007. Gains recognized in S,G&A in ﬁscal 2007 on long-lived assets that we sold were $14.4 million higher
than in ﬁscal 2008. Additionally, during the ﬁrst half of ﬁscal 2008, we concluded an overall retail test mar-
keting program which increased our expenses by $1.9 million. In contrast, our VIEs’ operating losses for ﬁscal
2008 were $0.6 million less than ﬁscal 2007, which related in part to a $2.6 million legal settlement. This
favorable settlement was offset by lower operating results.

Write-down of Intangibles

After our acquisition of the South Florida retail market during the ﬁrst quarter of ﬁscal 2007, the housing
market in that area experienced signiﬁcant decline; therefore, at the end of the second quarter of ﬁscal 2008
we re-evaluated our goodwill in the South Florida market. As a result of the signiﬁcant change in our
expected future cash ﬂows for this business, we recorded an impairment charge of $5.8 million, $3.7 million
net of tax in the second quarter of ﬁscal 2008, which represented the entire goodwill amount related to the
South Florida market.

29

In the fourth quarter of ﬁscal 2008, we completed our annual testing of goodwill and trade names and as a
result of this test we recorded an additional impairment charge of $2.6 million ($1.9 million net of tax), which
represented a portion of the goodwill related to one of our VIEs due to a decline in expected future cash ﬂows.

Income from Continued Dumping and Subsidy Offset Act

We recorded $7.1 million and $3.4 million as Income from Continued Dumping and Subsidy Offset Act, net
of legal expenses, during ﬁscal 2008 and ﬁscal 2007, respectively, from the receipt of funds under the
CDSOA in connection with the case involving wooden bedroom furniture from China.

Interest Expense

Interest expense for ﬁscal 2008 was signiﬁcantly more than ﬁscal 2007 due primarily to a $6.0 million make-
whole premium paid to our private placement note-holders when we settled the notes with the proceeds from
our new credit facility.

Income Taxes

Our effective tax rate for continuing operations was 48.0% in ﬁscal 2008 compared with 33.8% in ﬁscal 2007.
During ﬁscal 2008 we realized a beneﬁt from the prior years’ losses of our European joint venture. In addition
during ﬁscal 2008 the tax rate was signiﬁcantly affected by the foreign tax rate differential, which was prima-
rily related to the dividend from our operating unit in the United Kingdom.

The rate for ﬁscal 2008 was also unfavorably impacted by a decrease in the cash surrender value of company
owned life insurance policies, which resulted in an expense under accounting rules but no deductions for
income tax purposes.

Other Income/(Expense)

Other income (expense), net, increased during ﬁscal 2008 by $4.7 million when compared with ﬁscal 2007.
During the third quarter of ﬁscal 2008 we sold several investments resulting in a $3.8 million gain in order to
utilize the capital loss carry-forwards we had available at that time.

Discontinued Operations

During ﬁscal 2008, we recognized a loss from discontinued operations of $6.0 million after tax. We completed
the sale of our Clayton Marcus operating unit and our Pennsylvania House trade name. The stock of Clayton
Marcus was sold to Rowe Fine Furniture, Incorporated and resulted in a loss of about $5.8 million ($3.6
million net of taxes), of which about $3.4 million related to the intangible assets of Clayton Marcus. The
Pennsylvania House trade name was sold to Universal Furniture for $1.7 million resulting in a pre-tax charge
of about $0.6 million ($0.4 million net of taxes). We liquidated the remaining Pennsylvania House inventory
and as a result recorded an additional loss of $3.0 million.

Liquidity and Capital Resources

Our total assets at the end of ﬁscal 2009 decreased $216.3 million compared with the end of ﬁscal 2008. The
majority of this decrease was attributed to an increase in the deferred tax valuation allowance, the write-down
of intangibles, and the write-down of long-lived assets, along with decreases in inventory and accounts receiv-
able associated with our sales volume.

Our sources of cash liquidity include cash and equivalents, cash from operations and amounts available under
our credit facility. These sources have been adequate for day-to-day operations and capital expenditures. We
had cash and cash equivalents of $17.4 million at the end of ﬁscal 2009, compared to $14.5 million at the end
of ﬁscal 2008. Subsequent to April 25, 2009, restricted cash of about $18.0 million became available to be
used for operations due to a change in our captive insurance company.

Further deterioration of market conditions could reduce our sales volume further and have a negative impact
on our results of operations, cash ﬂows and ﬁnancial position including, but not limited to, signiﬁcant operat-
ing losses. Continued disruption in the capital markets could continue to adversely affect the cost and
availability of funding. With the failure of some large ﬁnancial institutions, other lenders have reduced or
discontinued lending to borrowers. However, our lenders have not indicated to us that they would stop provid-
ing funding or not honor their obligations in our credit agreement.

30

Under our credit agreement we have certain covenants and restrictions, including a ﬁxed charge coverage ratio
which would become effective if excess availability fell below $30.0 million. Excess availability is the differ-
ence between our eligible accounts receivable and inventory less the total of our outstanding letters of credit,
other reserves as denoted in our credit agreement and our outstanding borrowings on our revolving credit
agreement. We do not expect to fall below the required excess availability thresholds in the next twelve
months. As of April 25, 2009 we had $35.0 million outstanding on our credit facility and $65.0 million of
excess availability, compared to $75.0 million outstanding and $74.9 million of excess availability as of
April 26, 2008. If our excess availability would have been below $30.0 million at April 25, 2009, we would
not have been able to meet our 1.05 to 1.00 ﬁxed charge coverage ratio.

Our borrowing capacity is based on eligible trade accounts receivables and inventory of the company. Since
our accounts receivable decreased at about the same level as our debt, the capacity to borrow on the line
remained somewhat ﬂat during the ﬁscal year. While our accounts receivable declined during ﬁscal 2009, the
majority of the decrease was the result of additional reserves recorded during ﬁscal 2009 on receivables which
were not included in our eligible accounts receivable; therefore the additional reserves had virtually no impact
on our availability. However, continued further deterioration of the overall economic conditions could impact
the credit worthiness of our customers and could have a negative impact our availability.

In the fourth quarter of ﬁscal 2009 we made the decision to suspend our quarterly dividend because of the
deteriorating economic conditions. At that time we found it more prudent to conserve cash and redirect those
funds back into the company.

Capital expenditures for ﬁscal 2009 were $15.6 million compared with $27.4 million during ﬁscal 2008. In
ﬁscal 2008, we exercised a $5.2 million option to purchase property, which we subsequently sold and leased
back. There are no material purchase commitments for capital expenditures, which are expected to be in the
range of $12.0 million to $14.0 million in ﬁscal 2010. We expect restructuring costs from our plan to consoli-
date the cutting and sewing operations in Mexico, our plan to consolidate our North Carolina casegoods
manufacturing plants and the corporate initiatives announced in the third quarter of ﬁscal 2009 to impact cash
by $5.5 million during ﬁscal 2010 and $1.2 million in ﬁscal 2011.

We believe that we will continue to have adequate liquidity to meet our business needs. We expect to pay our
ﬁscal 2010 contractual obligations of $56.0 million using cash ﬂow from operations, our $17.4 million of cash
on hand as of April 25, 2009, our $18.0 million of restricted cash that became available subsequent to the
balance sheet date and the approximately $35.0 million of availability under our credit facility. We plan to
continue to manage our liquidity in ﬁscal 2010 by aggressively reducing our operating expenses based on
sales volumes, limiting capital expenditures to those necessary to improve productivity, and managing inven-
tory levels based on sales trends.

31

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

Cash Flows Provided By (Used For)
(Amounts in thousands)
Operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash add backs and changes in deferred taxes . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Working capital and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash provided by operating activities
. . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

04/25/2009

04/26/2008

$(121,347)
151,675
12,460
8,900
51,688

$(13,537)
46,027
8,135
8,614
49,239

Investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets, net of purchases of investments . . . . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financing activities
Net decrease in debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other ﬁnancing activities, mainly dividends . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used for ﬁnancing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(15,625)
32,405
(18,207)
(581)
(2,008)

(41,345)
(5,177)
(46,522)

(27,386)
13,948
160
(705)
(13,983)

(50,929)
(21,015)
(71,944)

Exchange rate changes
Net increase (decrease) in cash and equivalents . . . . . . . . . . . . . . . . . . . . . .

(901)
2,257

$

109
$(36,579)

Operating Activities

For ﬁscal 2009, net cash provided by operating activities was $51.7 million, compared with $49.2 million for
ﬁscal 2008. The increase in ﬁscal 2009 cash provided by operating activities was due primarily by an overall
reduction in net working capital. The cash provided by operating activities in ﬁscal 2009 was generated pri-
marily through collections of accounts receivable, reduction in inventory and the $8.1 million in anti-dumping
duties received on bedroom furniture imported from China.

Investing Activities

During ﬁscal 2009, net cash used by investing activities was $2.0 million compared to $14.0 million during
ﬁscal 2008. In ﬁscal 2009, $9.1 million in proceeds were received from the sale of several properties, offset
by $15.6 million of capital expenditures. Additionally, $34.7 million in proceeds from the sale of investments
were received, offset by investment purchases of $11.3 million in ﬁscal 2009. The majority of the $34.7
million in proceeds from the sale of investments was the result of our decision to liquidate the investments of
our captive insurance company. The decision to liquidate the investments of our captive insurance company
resulted in $18.2 million change in our restricted cash. In ﬁscal 2008, $6.4 million in proceeds was generated
by a sale-leaseback transaction we entered into with a third party. Also, during ﬁscal 2008, $4.2 million of
proceeds were received for the sale of our Clayton Marcus operating unit and Pennsylvania House trade name.
These proceeds were offset by capital expenditures of $27.4 million in ﬁscal 2008.

Financing Activities

Our ﬁnancing activities included borrowings and payments on our debt facilities and dividend payments. We
used $46.5 million of cash for ﬁnancing activities in ﬁscal 2009 compared with $71.9 million of cash used for
ﬁnancing activities during ﬁscal 2008. In ﬁscal 2009 we had a $41.3 million net pay down of debt, compared
to a $50.9 million net pay down of debt in ﬁscal 2008. Our decrease in cash used for ﬁnancing activities is
primarily a result of the reduction of dividends paid in ﬁscal 2009 compared to ﬁscal 2008.

32

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 liabilities not

Total
$ 60,297
575
361,341
8,276

reﬂected on our balance sheet . . .
Total contractual obligations . . . .

105
$430,594

Less than
1 Year
$ 8,359
365
44,644
2,484

105
$55,957

Payments by Period

1-3 Years
$ 5,486
210
79,460
4,227

—
$89,383

4-5 Years
$ 38,106
—
65,196
1,535

—
$104,837

More than
5 Years
$ 8,346
—
172,041
30

—
$180,417

In the ﬁrst quarter of ﬁscal 2008 we adopted FIN 48, and as a consequence the balance sheet at the end of the
ﬁscal year reﬂected a $2.9 million liability for uncertain income tax positions. We expect that a portion of this
liability will be settled within the next 12 months. The amount expected to be resolved within the next
12 months is comprised of gross unrecognized tax beneﬁts of $0.5 million and interest of $0.2 million, net of
deferred taxes of $0.2 million and penalties of $0.1 million. The remaining balance, to the extent it is ever
paid, will be paid as tax audits are completed or settled.

Our debt-to-capitalization ratio was 16.6% at April 25, 2009, 18.8% at April 26, 2008, and 23.8% at April 28,
2007.

Our Board of Directors has authorized the repurchase of company stock. As of April 25, 2009, 5.4 million
additional shares could be purchased pursuant to this authorization. No shares were repurchased during ﬁscal
2009.

We have guaranteed various leases and notes of dealers with proprietary stores. The total amount of these
guarantees is $3.1 million as of April 25, 2009, compared to $13.4 million as of April 26, 2008. Of the $3.1
million as of April 25, 2009, $1.6 million will expire within one year and $1.5 million in one to three years.
During the third quarter of ﬁscal 2009 we assumed the lease obligation on two stores as a result of a change
in the Michigan market. As a result of the change in the VIE for our Toronto market, we now include an
additional Toronto store in our lease obligations. These changes caused a decrease of $9.9 million in our
guarantees. Offsetting these decreases was $1.3 million in additional guarantees of our Cleveland market VIE
who is no longer being consolidated because we are not the primary beneﬁciary. The remaining $1.7 million
decrease is the result of expirations in our guarantees during ﬁscal 2009.

In recent years, we have increased our imports of casegoods product and leather and fabric for upholstery
product. At the end of ﬁscal 2009, we had $34.2 million in open purchase orders with foreign casegoods,
leather and fabric sources. Our open purchase orders that have not begun production are cancelable.

We are not required to make any contributions to our qualiﬁed deﬁned beneﬁt plans during ﬁscal 2010;
however, we may make contributions.

Continuing compliance with existing federal, state and local statutes dealing with protection of the environ-
ment is not expected to have a material effect upon our capital expenditures, earnings, competitive position or
liquidity.

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, as a
result, such estimates may signiﬁcantly impact our ﬁnancial results. These policies were identiﬁed as critical
because they are broadly applicable within our operating units. The expenses and accrued liabilities or allow-
ances related to certain of these policies are initially based on our best estimates at the time of original entry
in our accounting records. Adjustments are recorded when our actual experience differs from the assumptions
underlying the estimates. These adjustments could be material if our experience were to change signiﬁcantly

33

in a short period of time. We make frequent comparisons of actual experience to our assumptions in order to
mitigate the likelihood of material adjustments.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, ﬁrst-out (‘‘LIFO’’)
basis for approximately 68% and 61% of our inventories at April 25, 2009, and April 26, 2008, respectively.
Cost is determined for all other inventories on a ﬁrst-in, ﬁrst-out (‘‘FIFO’’) basis.

Revenue Recognition and Related Allowances

For our largest division, from inception through the third quarter of ﬁscal 2008, we recognized revenue for
shipments using third-party carriers upon shipment of the product. In the fourth quarter of ﬁscal 2008, we
determined that we should not recognize revenue until product delivery date for this division. We performed a
detailed analysis and determined that the impact of recording the cumulative effect of the correction in the
fourth quarter of ﬁscal 2008 was immaterial to the full year and fourth quarter of ﬁscal 2008 and all prior
periods. As a result, the Company recorded the cumulative effect of this correction in the fourth quarter of
ﬁscal 2008. This change resulted in a deferral of $11.0 million of revenue, and a decrease in cost of goods
sold of $8.2 million, which increased our net loss by $1.5 million in ﬁscal 2008. During the ﬁrst quarter of
ﬁscal 2009, our largest division revised certain shipping agreements with third-party carriers such that risk of
loss transfers to our customers upon shipment rather than upon delivery. Accordingly, substantially all of our
shipments with third-party carriers for this division are now recognized upon shipment of the product.

For the remainder of the company, shipping terms using third-party carriers are FOB shipping point and
revenue is recognized upon shipment of product. In all cases, for product shipped on our company-owned
trucks, revenue is recognized upon delivery. This revenue includes amounts billed to customers for shipping.
Provisions are made at the time revenue is recognized for estimated product returns and warranties, as well as
other incentives that may be offered 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.

Other incentives offered to customers include cash discounts, advertising agreements and other sales incentive
programs. Cash discounts and other sales incentives are recorded as a reduction of revenues when the revenue
is recognized. Our advertising agreements give customers advertising allowances based on revenues and are
recorded when the revenue is recognized as expense.

Other Than Temporary Impairment

We evaluate our investments periodically for possible other-than-temporary impairment by reviewing factors
such as the length of time and extent to which fair value has been below cost basis, the ﬁnancial condition of
the issuer and our ability and intent to hold the investment for a period of time which may be sufficient for
anticipated recovery of market value. If the impairment is determined to be other-than-temporary, the amount
of the impairment is recognized as part of earnings. If the impairment is determined to be temporary, then the
resulting change in market value is recorded as part of other comprehensive income in our statement of share-
holder’s equity.

Long-lived Assets Impairment

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be recoverable in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Our assessment of recoverability is based on
our best estimates using quoted market prices, as well as analysis of the undiscounted cash ﬂows by asset
groups in order to determine the fair value of our long-lived assets. Our asset groups consisted of our operat-
ing units in our Upholstery and Casegoods Group (American Drew and Lea, Bauhaus, England, Hammary,
Kincaid, La-Z-Boy) and each of our retail stores.

Goodwill and Trade Names

In accordance with SFAS No. 142, goodwill and trade names are tested at least annually for impairment by
comparing their fair value to their carrying values. The fair value for each trade name is estimated based upon
management’s estimates using a royalty savings approach, which is based on the principle that, if the business

34

did not own the asset, it would have to license it in order to earn the returns that it was earning. The fair
value is calculated based on the present value of the royalty stream that the business was saving by owning
the asset. Additionally, goodwill is tested for impairment by comparing the fair value of our operating units to
their carrying values. The fair value for each operating unit is established based on the discounted cash ﬂows
which require us to make signiﬁcant estimates and assumptions, including long-term projections of cash ﬂows,
market conditions and discount rates. While we believe that the estimates and assumptions, underlying the
valuation methodology are reasonable, different estimates and assumptions and changes in economic condi-
tions could result in additional impairment. In situations where the fair value is less than the carrying value,
indicating a potential impairment, a second comparison is performed using a calculation of implied fair value
of goodwill to determine the monetary value of impairment.

In the fourth quarter of ﬁscal 2009, we performed our annual testing on our remaining trade names and found
no additional impairments. Our assumptions did not materially change from the third quarter of ﬁscal 2009.

Other Loss Reserves

The allowance for doubtful accounts reﬂects our best estimate of probable losses inherent in the accounts
receivable balance. We maintain an allowance for estimated note losses based on our best judgment and
experience regarding notes receivable. We have other loss exposures arising from the ordinary course of
business, including inventory obsolescence, litigation, environmental claims, health insurance, product liability,
warranty, restructuring charges and the recoverability of deferred income tax beneﬁts. Establishing loss
reserves requires the estimate and judgment of management with respect to risk and ultimate liability. We use
legal counsel or other experts, including actuaries as appropriate, to assist in developing estimates. Due to the
uncertainties and potential changes in facts and circumstances, additional charges related to these reserves
could be required in the future.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the ﬁnancial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carry-forwards. 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. In periods when deferred
tax assets are recorded, we are required to estimate whether recoverability is more likely than not, based on
forecasts of taxable earnings in the related tax jurisdiction. We use historical and projected future operating
results, including a review of the eligible carry-forward period, tax planning opportunities and other relevant
considerations. Additional factors that we consider when making judgments about the deferred tax valuation
include tax law changes, a recent history of cumulative losses, and variances in future projected proﬁtability.

Pensions

We maintain a deﬁned beneﬁt pension plan for eligible factory hourly employees at one operating unit. This
plan has been frozen for new participants since January 1, 2001, but active participants still earn service cost.
Annual net periodic expense and beneﬁt liabilities under our deﬁned beneﬁt plans are determined on an actu-
arial basis using various assumptions and estimates including discount rates, long-term rates of return,
estimated remaining years of service and estimated life expectancy. Each year, we compare the actual experi-
ence to the more signiﬁcant assumptions used; if warranted, we make adjustments to the assumptions.

Our pension plan discount rate assumption is evaluated annually. The discount rate is based upon a single rate
developed after matching expected beneﬁt payments to a yield curve for high-quality ﬁxed-income invest-
ments. Yields on high-quality ﬁxed-income investments, were 6.81% based on the Citigroup High Grade
Credit index at the end of ﬁscal 2009. We utilized a discount rate of 7.20% at April 25, 2009, compared with
a rate of 6.60% at April 26, 2008, and 6.05% at April 28, 2007.

Pension beneﬁts are funded through deposits with trustees and satisfy, at a minimum, the applicable funding
regulations. The expected long-term rates of return on fund assets are based upon actual historical returns
modiﬁed for known changes in the markets and any expected changes in investment policy.

Besides evaluating the discount rate used to determine our pension obligation, we also evaluate our assump-
tion relating to the expected return on plan assets annually. In selecting the expected long-term rate of return

35

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, investment strategy,
and the expected returns likely to be earned over the life of the plans. The rate of return assumption as of
April 25, 2009, and April 26, 2008, was 8.0%. The expected rate of return assumption as of April 25, 2009,
will be used to determine pension expense for plans in 2010.

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.

Our non-qualiﬁed retirement plan was not required to be funded at April 25, 2009; however, we hold invest-
ments in a Rabbi trust that support the liability of the plan. We are not required to make any contributions to
the qualiﬁed deﬁned beneﬁt plans in ﬁscal 2010.

We expect that the ﬁscal 2010 pension expense for our deﬁned beneﬁt pension plan, after considering all
relevant assumptions will be $3.9 million compared with income of $0.2 million in ﬁscal 2009. We do not
believe that a 25 basis point change in our discount rate or our expected return on plan assets would have a
material impact on our ﬁnancial statements.

Financial Guarantees and Product Warranties

We have provided secured and unsecured ﬁnancial guarantees relating to leases and notes in connection with
certain La-Z-Boy Furniture Galleries(cid:4) stores which are not operated by the company. The guarantees are
generally for real estate leases and have remaining terms from one to three years. These guarantees enhance
the credit of these dealers. The dealer is required to make periodic fee payments to compensate us for our
guarantees. We would be required to perform under these agreements only if the dealer were to default on the
lease or note.

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

Our accounting policy for product warranties is to accrue an estimated liability at the time the revenue is
recognized. This estimate is based on historical claims and adjusted for currently known warranty issues.

Variable Interest Entities

Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities
(‘‘FIN 46’’), requires the ‘‘primary beneﬁciary’’ of a VIE to include the VIE’s assets, liabilities and operating
results in its consolidated ﬁnancial statements. In general, a VIE is a corporation, partnership, limited-liability
company, trust or any other legal structure used to conduct activities or hold assets that either (a) has an
insufficient amount of equity to carry out its principal activities without additional subordinated ﬁnancial
support, (b) has a group of equity owners that are unable to make signiﬁcant decisions about its activities, or
(c) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns
generated by its operations.
La-Z-Boy Furniture Galleries(cid:4) stores that are not operated by us are operated by independent dealers. These
stores sell La-Z-Boy manufactured products as well as various accessories purchased from approved La-Z-Boy
vendors. Most of these independent dealers have sufficient equity to carry out their principal operating activi-
ties without subordinated ﬁnancial support. However, there are certain independent dealers that we have
determined may not have sufficient equity. In some cases we have extended credit beyond normal trade terms
to the independent dealers, made direct loans, entered into leases and/or guaranteed certain leases.
We evaluate our transactions and relationships with our La-Z-Boy Furniture Galleries(cid:4) dealers on a quarterly
basis to determine if any of our independent dealers qualify as a variable interest entity and additionally whether
we are primary beneﬁciary for any of the dealers who do qualify as a variable interest entity. We also evaluate
our current VIEs on a quarterly basis to determine if they no longer qualify as a variable interest entity.

Based on the criteria for consolidation of VIEs, we have consolidated several dealers where we were the
primary beneﬁciary based on the fair value of our variable interests. All of our consolidated VIEs were

36

recorded at fair value on the date we became the primary beneﬁciary. 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
their equity. We recognize all net earnings of these VIEs to the extent of recouping the losses previously
recorded. Earnings in excess of losses are attributed to equity owners of the dealers and are recorded as
minority interest.

Restructuring

We have entered into various restructuring plans to rationalize our manufacturing facilities and to consolidate
warehouse distribution centers and close underperforming retail facilities. The majority of our restructuring
charges related to our manufacturing and wholesale distribution facilities were reported as a component of
Cost of Sales on our Consolidated Statement of Operations, while restructuring charges related to our retail
operations were reported as a line item within our Selling, General and Administrative expenses section of our
Consolidated Statement of Operations. With these restructuring plans, we have written-down various ﬁxed
assets which were accounted for in accordance with SFAS No. 144. Additionally, we recorded charges for
severance and beneﬁts, contract terminations and other transition costs related to relocating manufacturing and
closing facilities, in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities.

Stock-Based Compensation

On April 30, 2006, we adopted the fair-value recognition provisions of SFAS No. 123(R) using a modiﬁed-
prospective transition method. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees and requires us to record compensation cost for all stock awards granted after the required
effective date and for awards modiﬁed, repurchased or 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 of adoption. In March 2005, the SEC issued Staff Account-
ing Bulletin No. 107, Share Based Payments (‘‘SAB 107’’) relating to SFAS No. 123(R). We have applied the
provisions of SAB 107 in our adoption of SFAS No. 123(R).

Under the fair value recognition provisions of this statement, share-based compensation cost is measured at
the grant date based on the value of the award and is recognized as expense over the vesting period. Deter-
mining the fair value of share-based awards at the grant date requires judgment, including estimating expected
dividends, future stock-price volatility, expected option lives and the amount of share-based awards that are
expected to be forfeited. We do not expect that changes in these assumptions would have a material impact on
our results of operations.

The fair value of each option grant was estimated using a Black-Scholes option-pricing model. Expected
volatility was estimated based on the historical volatility of our common shares. The average expected life
was based on the contractual term of the stock option and expected employee exercise and post-vesting
employment termination trends. The risk-free rate was based on U.S. Treasury issues with a term equal to the
expected life assumed at the date of grant. Forfeitures were estimated at the date of grant based on historical
experience. There were no stock options granted in ﬁscal 2009.

Regulatory Developments

The Continued Dumping and Subsidy Offset Act of 2000 (‘‘CDSOA’’) provides for distribution of monies
collected by U.S. Customs and Border Protection (‘‘CBP’’) from anti-dumping cases to domestic producers that
supported the anti-dumping petition. The Dispute Settlement Body of the World Trade Organization (‘‘WTO’’)
ruled that such payments violate the United States’ WTO obligations. In response to that ruling, on February 8,
2006, the President signed legislation passed by Congress that repeals CDSOA distributions to eligible domestic
producers for duties collected on imports entered into the United States after September 30, 2007. The govern-
ment set aside CDSOA funds in connection with two lower court cases involving the CDSOA that were
decided against the government on constitutional grounds and that have been appealed. The resolution of these
legal appeals will have a signiﬁcant impact on the amount of additional CDSOA funds we receive.

37

In view of the uncertainties associated with this program, we are unable to predict the amounts, if any, we
may receive in the future under CDSOA. However, assuming CDSOA distributions continue, these distribu-
tions could be material depending on the results of legal appeals and administrative reviews and our actual
percentage allocation.

Recent Accounting Pronouncements

Refer to Note 1 of the consolidated ﬁnancial statements in Item 8 for detailed information regarding account-
ing pronouncements.

Business Outlook

We anticipate business conditions to remain difficult throughout the year and are structuring our business
accordingly. Should conditions change in either direction, we will react swiftly and make the necessary
changes to our operating structure. Due to seasonality factors and plant shutdowns for vacation and mainte-
nance, the summer period is usually the slowest for the furniture industry and, historically, our ﬁrst quarter,
which ends in July, is typically the weakest in terms of sales and proﬁts.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risk from changes in interest rates. Our exposure to interest rate risk results from
our variable rate debt under which we had $36.1 million of borrowings at April 25, 2009. In May 2008, we
entered into an interest rate swap agreement to mitigate the impact of changes in interest rates on $20.0
million of our ﬂoating rate debt. Management estimates that a one percentage point change in interest rates
would not have a material impact on our results of operations for ﬁscal 2010 based upon the current levels of
exposed liabilities.

We are exposed to market risk from changes in the value of foreign currencies. Substantially all of our
imports purchased outside of North America are denominated in U.S. dollars. Therefore, we believe that gains
or losses resulting from changes in the value of foreign currencies will not be material to our results from
operations in ﬁscal year 2010.

38

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Management’s Report to our Shareholders

Management’s Responsibility for Financial Information

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 Annual
Report on Form 10-K. Those consolidated ﬁnancial statements were prepared in conformity with accounting
principles generally accepted in the United States of America. In preparing those consolidated ﬁnancial state-
ments, Management was required to make certain estimates and judgments, which are based upon currently
available information and Management’s view of current conditions and circumstances.

The Audit Committee of the Board of Directors, which consists solely of independent directors, oversees our
process of reporting ﬁnancial information and the audit of our consolidated ﬁnancial statements. The Audit
Committee is informed of the ﬁnancial condition of La-Z-Boy Incorporated and regularly reviews Manage-
ment’s critical accounting policies, the independence of our independent auditors, our internal controls and the
objectivity of our ﬁnancial reporting. Both the independent auditors and the internal auditors have free access
to the Audit Committee and meet with the Audit Committee periodically, both with and without Management
present.

On September 2, 2008, La-Z-Boy Incorporated’s Chief Executive Officer submitted his annual certiﬁcation to
the New York Stock Exchange stating that he was not aware of any violation by the corporation of the
Exchange’s corporate governance listing standards. La-Z-Boy ﬁled the certiﬁcations by its Chief Executive
Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to
its Annual Report on Form 10-K for the ﬁscal year ended April 25, 2009.

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, we con-
ducted an evaluation of the effectiveness of our internal controls over ﬁnancial reporting based upon the
framework in ‘‘Internal Control – Integrated Framework’’ issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission. Based on that evaluation, our management concluded that our internal
control over ﬁnancial reporting was effective as of April 25, 2009. The effectiveness of the Company’s inter-
nal control over ﬁnancial reporting as of April 25, 2009, has been audited by PricewaterhouseCoopers, LLP,
an independent registered public accounting ﬁrm, as stated in their report which appears herein.

Management has excluded two La-Z-Boy Furniture Galleries(cid:4) operations from our assessment of internal
control over ﬁnancial reporting because we do not have the right or authority to assess the internal controls of
the consolidated entity and we also lack the ability, in practice, to make that assessment. These two retail
furniture businesses were created prior to December 15, 2003, and were consolidated by La-Z-Boy Incorpo-
rated on April 24, 2004 upon the adoption of Financial Accounting Standards Board Interpretation No. 46R,
Consolidation of Variable Interest Entities. The combined total assets and total revenues of the excluded
businesses represented 2.8% and 4.4%, respectively, of the related consolidated ﬁnancial statement amounts as
of and for the year ended April 25, 2009. One of these excluded businesses was deconsolidated during the
fourth quarter of ﬁscal 2009.

Kurt L. Darrow
President and Chief Executive Officer

Louis M. Riccio, Jr.
Senior VP and Chief Financial Officer

39

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of La-Z-Boy Incorporated:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations, changes in shareholders’ equity and cash ﬂows present fairly, in all material respects, the ﬁnancial
position of La-Z-Boy Incorporated and its subsidiaries at April 25, 2009 and April 26, 2008, and the results of
their operations and their cash ﬂows for each of the three years in the period ended April 25, 2009 in confor-
mity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over ﬁnancial reporting as of April 25,
2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for these ﬁnancial statements, for maintaining effective internal control over ﬁnancial reporting and for its
assessment of the effectiveness of internal control over ﬁnancial reporting, included in Management’s Report
on Internal Control over Financial Reporting. Our responsibility is to express opinions on these ﬁnancial
statements and on the Company’s internal control over ﬁnancial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the ﬁnancial statements are free of material misstatement and whether effective internal control
over ﬁnancial reporting was maintained in all material respects. Our audits of the ﬁnancial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements, assess-
ing the accounting principles used and signiﬁcant estimates made by management, and evaluating the overall
ﬁnancial statement presentation. Our audit of internal control over ﬁnancial reporting included obtaining an
understanding of internal control over ﬁnancial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the circum-
stances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 13 to the consolidated ﬁnancial statements the Company changed its method of account-
ing for share based compensation effective April 30, 2006. As discussed in Note 10 to the consolidated
ﬁnancial statements the Company changed its method of accounting for deﬁned beneﬁt pension plans effective
April 28, 2007. As discussed in Note 17 to the consolidated ﬁnancial statements the Company changed its
method of accounting for uncertainties in income taxes effective April 29, 2007.

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company; (ii)
provide reasonable 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; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial
statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

40

As described in the accompanying Management’s Report on Internal Control over Financial Reporting, man-
agement has excluded two La-Z-Boy Furniture Galleries operations from its assessment of internal control
over ﬁnancial reporting as of April 25, 2009 because the Company does not have the right or authority to
assess the internal controls of the excluded operations and also lacks the ability in practice, to make that
assessment. The two retail furniture operations were created prior to December 15, 2003, and were consoli-
dated by the Company on April 24, 2004 upon the adoption of Financial Accounting Standards Board
Interpretation (FIN) No. 46R, Consolidation of Variable Interest Entities. The combined total assets and total
revenues of the excluded businesses represent 2.8% and 4.4% respectively, of the related consolidated ﬁnan-
cial statement amounts as of and for the year ended April 25, 2009. We have also excluded these operations
from our assessment.

PricewaterhouseCoopers LLP
Detroit, Michigan
June 15, 2009

41

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS

Fiscal Year Ended

(52 weeks)
4/25/2009
$1,226,674

(52 weeks)
4/26/2008
$1,450,941

(52 weeks)
4/28/2007
$1,621,460

(Amounts in thousands, except per share data)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross proﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of long-lived assets . . . . . . . . . . . . . . . . . . . . . . .
Write-down of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from Continued Dumping and Subsidy Act, net . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net

Operating income (loss)

Income (loss) from continuing operations before income taxes
Income tax (beneﬁt) expense . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations . . . . . . . . . . . . . . .
Loss from discontinued operations (net of tax of $(3,990) in

878,089
9,818
887,907
338,767
375,011
2,642
7,503
47,677
(94,066)
5,581
8,124
2,504
(7,998)
(97,017)
24,330
(121,347)

1,051,656
5,057
1,056,713
394,228
399,470
3,078
—
8,426
(16,746)
13,899
7,147
3,614
5,393
(14,491)
(6,954)
(7,537)

2008 and $(4,682) in 2007)

. . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
$ (121,347)

(6,000)
$ (13,537)

Basic average shares

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

51,460

51,408

Basic income (loss) from continuing operations per share . . . . .
Discontinued operations per share (net of tax)
. . . . . . . . . . . . .
Basic net income (loss) per share . . . . . . . . . . . . . . . . . . . . . .

Diluted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted income (loss) from continuing operations per share . . . .
. . . . . . . . . . . . .
Discontinued operations per share (net of tax)
Diluted net income (loss) per share . . . . . . . . . . . . . . . . . . .

Dividends paid per share

. . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

$

$

$

(2.36)
—
(2.36)

51,460

(2.36)
—
(2.36)

0.10

$

$

$

$

$

(0.15)
(0.11)
(0.26)

51,408

(0.15)
(0.11)
(0.26)

0.40

1,189,734
3,371
1,193,105
428,355
388,738
7,662
—
—
31,955
10,206
3,430
3,952
727
29,858
10,090
19,768

(15,629)
4,139

51,475

0.38
(0.30)
0.08

51,606

0.38
(0.30)
0.08

0.48

$

$

$

$

$

$

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

42

LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET

(Amounts in thousands, except par value)
Current assets

Cash and equivalents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables, net of allowance of $28,385 in 2009 and $17,942 in 2008 . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes – current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes – long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets, net of allowance of $4,309 in 2009 and $2,801 in 2008. . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Current liabilities

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

Common shares, $1 par value – 150,000 authorized; 51,478 outstanding in 2009
and 51,428 outstanding in 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .

As of

4/25/2009

4/26/2008

$ 17,364
18,713
147,858
140,178
795
22,872
347,780
150,234
—
—
3,100
51,431
$552,545

$ 8,724
41,571
75,733
126,028
52,148
724
67,912
—

$ 14,476
506
200,422
178,361
12,398
21,325
427,488
171,001
26,922
47,233
9,006
87,220
$768,870

$ 4,792
56,421
102,700
163,913
99,578
—
54,783
—

51,478
205,945
70,769
(22,459)
305,733
$552,545

51,428
209,388
190,215
(435)
450,596
$768,870

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

43

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS

Fiscal Year Ended

4/25/2009

4/26/2008

4/28/2007

$(121,347)

$ (13,537)

$

4,139

(Amounts in thousands)
Cash ﬂows from operating activities

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to cash provided by

operating activities

(Gain) loss on sale of assets . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Write-down of investments
Write-down of intangibles . . . . . . . . . . . . . . . . . . . . . . . . .
Write-down of long-lived assets . . . . . . . . . . . . . . . . . . . . .
Write-down of assets from businesses held for sale

(net of tax) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of discontinued operations (net of tax)
. . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts
. . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . .
Change in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other assets and liabilities . . . . . . . . . . . . . . . . . .
Change in deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total adjustments

(2,813)
5,140
47,677
7,503

—
—
12,460
25,254
23,479
3,819
27,223
36,995
(14,544)
(37,961)
38,803
173,035

Net cash provided by operating activities

. . . . . . . . . . .

51,688

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 . . . . . . . . . . . . . . . . . . .
Change in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Change in other long-term assets
Net cash provided by (used for) investing activities . . . . . .

Cash ﬂows from ﬁnancing activities

Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock issued/(canceled) 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 period . . . . . . . . . . . . . .
Cash and equivalents at end of period . . . . . . . . . . . . . . . . . . .

9,060
—
(15,625)
(11,330)
34,675
(18,207)
(581)
(2,008)

50,794
(92,139)
—
—
(5,177)
(46,522)
(901)
2,257
631
14,476
$ 17,364

270
—
8,426
—

2,159
3,696
8,135
8,550
24,696
4,527
20,956
23,471
(10,394)
(25,689)
(6,027)
62,776

49,239

8,761
4,169
(27,386)
(34,562)
35,580
160
(705)
(13,983)

(14,147)
—
—
—

14,936
(935)
11,033
3,790
27,204
3,959
5,064
4,486
(11,607)
1,701
(16,390)
29,094

33,233

46,974
42,659
(25,811)
(18,165)
17,342
(116)
(955)
61,928

93,861
(144,790)
(269)
—
(20,746)
(71,944)
109
(36,579)
—
51,055
$ 14,476

91,787
(128,483)
1,340
(6,947)
(24,886)
(67,189)
(456)
27,516
—
23,539
$ 51,055

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

44

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in thousands)

Retained
Earnings
At April 29, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,782 $210,826 $ 246,387

Common
Shares

Capital in
Excess of
Par Value

Reclassiﬁcation of unearned compensation due to adoption of

SFAS No. 123(R) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . .
Stock issued for stock and employee beneﬁt plans
. . . . . . . . .
Stock option, restricted stock and performance based stock

expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax beneﬁt from exercise of options . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on marketable securities (net of tax of $0.5

million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Realization of gains on marketable securities (net of tax of

(540)
135

(3,083)

(3,458)

3,959
39

(6,407)
4,663

(24,886)

4,139

Unearned
Compensation
$(3,083)

3,083

Accumulated
Other
Comprehensive
Income(Loss)
$ 4,433

Total
$ 510,345

$0.1 million)

$0.3 million)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of cash ﬂow hedges (net of tax) . . . . . .
Change in additional minimum pension liability (net of tax of
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment upon adoption of SFAS No. 158 for Pension (net of
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
At April 28, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .

Stock issued for stock and employee beneﬁt plans
Stock option, restricted stock and performance based stock

tax of $3.2 million)

expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income (loss)

Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on marketable securities (net of tax of $0.1

million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Realized gain on marketable securities (net of tax of $1.4

million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial gain (net of tax of $0.2 million) . . . . . . . . . . .
Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . . .
Impact of adoption of FIN 48 . . . . . . . . . . . . . . . . . . . . .
At April 26, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Stock issued for stock and employee beneﬁt plans, net of can-

cellations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock option, performance-based and restricted stock expense . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on marketable securities arising during the

period (net of tax of $0.4 million) . . . . . . . . . . . . . . . . .

Reclassiﬁcation adjustment for loss on marketable securities

included in net loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of cash ﬂow hedges . . . . . . . . . . . . . .
Net actuarial (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . .

51,377
51

208,283
(3,422)

223,896
3,102

—

(4,947)
1,792

4,527

(20,746)

(13,537)

(222)

(2,420)
(117)
532

—

(435)

51,428

209,388

50

(7,262)
3,819

(2,500)
190,215

7,078

(5,177)

(121,347)

At April 25, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,478 $205,945 $ 70,769

$ —

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

45

1,145

(458)
1,418
(118)

319

—
(6,947)
1,340

3,959
39
(24,886)

6,445

(4,947)
485,348
(269)

4,527
(20,746)

(15,764)
(2,500)
450,596

(134)
3,819
(5,177)

(4,332)

5,180
(175)
(723)
(21,974)

(143,371)
$(22,459) $ 305,733

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies

The following is a summary of signiﬁcant accounting policies followed in the preparation of these consoli-
dated ﬁnancial statements. Our ﬁscal year ends on the last Saturday of April. Fiscal years 2009, 2008 and
2007 included 52 weeks.

Principles of Consolidation

The consolidated ﬁnancial statements include the accounts of La-Z-Boy Incorporated and its majority-owned
subsidiaries (‘‘the Company’’). All signiﬁcant intercompany transactions have been eliminated. Additionally,
the consolidated ﬁnancial statements include the accounts of certain entities in which the company holds a
controlling interest based on exposure to economic risks and potential rewards (variable interests) for which it
is the primary beneﬁciary.

Use of Estimates

The consolidated ﬁnancial statements are prepared in conformity with accounting principles generally accepted
in the United States of America, which require management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, sales and expenses for the reporting periods. Some of the more signiﬁ-
cant estimates include depreciation, valuation of inventories, valuation of trade names, valuation of deferred
taxes, allowances for doubtful accounts, sales returns, legal, environmental, restructuring, product liability,
insurance reserves and warranty accruals. Actual results could differ from those estimates.

New Pronouncements

FASB Statement of Financial Accounting Standards No. 159

The FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (‘‘SFAS No. 159’’), which allows a company to choose to measure selected
ﬁnancial assets and ﬁnancial liabilities at fair value. Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings. SFAS No. 159 is effective for ﬁscal years beginning
after November 15, 2007.

We adopted SFAS No. 159 on April 27, 2008 and have not elected the permitted fair value measurement
provisions of this statement.

FASB Statement of Financial Accounting Standards No. 160

The FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consoli-
dated Financial Statements — an amendment of ARB No. 51 (‘‘SFAS No. 160’’). It is effective for ﬁnancial
statements issued for ﬁscal years beginning after December 15, 2008, and interim periods within those ﬁscal
years. Earlier application is prohibited. SFAS No. 160 requires that accounting and reporting for minority
interests will be re-characterized as non-controlling interests and classiﬁed as a component of equity. SFAS
No. 160 also establishes reporting requirements that provide disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling owners.

We are currently evaluating the impact SFAS No. 160 will have on our ﬁnancial statements. This statement
will be effective for interim periods beginning in ﬁscal 2010.

FASB Statement of Financial Accounting Standards No. 141(R)

The FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combina-
tions, (‘‘SFAS No. 141(R)’’), which replaces FASB Statement No. 141. SFAS No. 141(R) establishes
principles and requirements for how an acquirer recognizes and measures in its ﬁnancial statements the identi-
ﬁable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill
acquired. SFAS No. 141(R) also establishes disclosure requirements that will enable users to evaluate the
nature and ﬁnancial effects of the business combination. SFAS No. 141(R) is effective for business combina-
tions that occur during or after ﬁscal years that begin after December 15, 2008.

We are currently evaluating the impact SFAS No. 141(R) will have on our ﬁnancial statements. This statement
will be effective in ﬁscal 2010.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies − (continued)

FASB Staff Position FAS 141(R)-1: Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies

In April 2009, the FASB issued FASB Staff Position No. 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies, (‘‘FSP 141(R)-1’’). FSP
141(R)-1 amends and clariﬁes SFAS No. 141(R). FSP 141(R)-1 requires an acquirer to recognize at fair value,
at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a
contingency if the acquisition-date fair value of that asset or liability can be determined during the measure-
ment period. If the fair value cannot be determined during the measurement period, an asset or a liability shall
be recognized at the acquisition date if the asset or liability can be reasonably estimated and if information
available before the end of the measurement period indicates that it is probable that an asset existed or that a
liability had been incurred at the acquisition date. FSP 141(R)-1 amends the disclosure requirements of SFAS
No. 141(R) to include business combinations that occur either during the current reporting period or after the
reporting period but before the ﬁnancial statements are issued. FSP 141(R)-1 is effective for ﬁscal years
beginning after December 15, 2008 and interim periods within those years.

At this time we do not believe FSP 141(R)-1 will have an impact on our consolidated ﬁnancial statements.
This statement will be effective in ﬁscal 2010.

FASB Statement of Financial Accounting Standards No. 161

The FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instru-
ments and Hedging Activities, (‘‘SFAS No. 161’’). It is effective for ﬁnancial statements issued for ﬁscal years
and interim periods beginning after November 15, 2008, with early adoption encouraged. The objective of this
statement is to require enhanced disclosures about an entity’s derivative and hedging activities and to improve
the transparency of ﬁnancial reporting. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s ﬁnancial position, ﬁnancial performance, and cash ﬂows. SFAS No. 161
requires disclosure of the fair values of derivative instruments and their gains and losses in tabular format and
derivative features that are credit risk related.

We adopted SFAS No. 161 in the fourth quarter of ﬁscal 2009. As the requirements of this literature only
impact our disclosures, there was no impact to our ﬁnancial results.

FASB Staff Position EITF 03-6-1: Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities, (‘‘FSP EITF 03-6-1’’). FSP EITF
03-6-1 requires that unvested share-based payment awards containing non-forfeited rights to dividends be
included in the computation of earnings per common share. The adoption of FSP EITF 03-6-1 is effective for
ﬁscal years beginning after December 15, 2008 and interim periods within those years, retrospective applica-
tion is required.

This statement will be effective beginning with our ﬁrst quarter of ﬁscal 2010 and we do not believe that the
adoption of this statement will have a material impact on our loss per share.

FASB Staff Position FAS 140-4 and FIN 46(R)-8: Disclosures by Public Entities (Enterprises) about
Transfers of Financial Assets and Interests in Variable Interest Entities

In December 2008, the FASB issued FASB Staff Position (‘‘FSP’’) FAS 140-4 and FIN 46(R)-8, Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.
This document increases disclosure requirements for public companies and is effective for reporting periods
(interim and annual) that end after December 15, 2008. The purpose of this FSP is to promptly improve
disclosures by public entities and enterprises until the pending amendments to FASB Statement No. 140,

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies − (continued)

Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, are ﬁnalized and
approved by the Board. The FSP amends Statement 140 to require public entities to provide additional disclo-
sures about transferors’ continuing involvements with transferred ﬁnancial assets. It also amends Interpretation
46(R) to require public enterprises, including sponsors that have a variable interest in a variable interest entity,
to provide additional disclosures about their involvement with variable interest entities.

We implemented the requirements of FSP FAS 140-4 and FIN 46(R)-8 in the third quarter of ﬁscal 2009. As
the requirements of this literature only impact our disclosures, there was no impact to our ﬁnancial results.

FASB Staff Position FAS 132R-1: Employers’ Disclosures about Postretirement Beneﬁt Plan Assets

In December 2008, FASB issued FASB Staff Position (‘‘FSP’’) FAS 132R-1, Employers’ Disclosures about
Postretirement Beneﬁt Plan Assets. This document expands the disclosures related to postretirement beneﬁt
plan assets to include disclosures concerning a company’s investment policies for beneﬁt plan assets and
categories of plan assets. This document further expands the disclosure requirements to include fair value of
plan assets, including the levels within the fair value hierarchy and other related disclosures under SFAS No.
157, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronounce-
ments That Address Fair Value Measurements for Purposes of Lease Classiﬁcation or Measurement under
Statement 13, and any concentrations of risk related to the plan assets.

This statement is effective for our ﬁscal 2010 year end. We are currently determining the impact this statement
will have on our consolidated ﬁnancial statements and disclosures.

FASB Staff Position FAS 157-4: Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Signiﬁcantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued FASB Staff Position No. 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Signiﬁcantly Decreased and Identifying Transactions That Are
Not Orderly, (‘‘FSP 157-4’’). FSP 157-4 provides additional guidance for estimating fair value in accordance
with SFAS No. 157 when the volume and level of activity for the asset or liability have signiﬁcantly
decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not
orderly. FSP 157-4 requires the disclosure of the inputs and valuation technique used to measure fair value
and a discussion of changes in valuation techniques and related inputs, if any, during the period. FSP 157-4
also requires that the entity deﬁne major categories for equity securities and debt securities to be major secu-
rity types. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009.

We are required to adopt FSP 157-4 in our ﬁrst quarter of ﬁscal 2010. We do not currently believe that adopt-
ing this FSP will have a material impact on our consolidated ﬁnancial statements.

FASB Staff Position FAS 115-2 and FAS 124-2: Recognition and Presentation of Other-Than-Temporary
Impairments

In April 2009, the FASB issued FASB Staff Position No. 115-2 and FAS 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments, (‘‘FSP 115-2 and FSP 124-2’’). This FSP amends the other-than-
temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and
to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities
in the ﬁnancial statements. This FSP does not amend existing recognition and measurement guidance related
to other-than-temporary impairments of equity securities. FSP 115-2 and 124-2 requires the entity to assess
whether the impairment is other-than-temporary if the fair value of a debt security is less than its amortized
cost basis at the balance sheet date. This statement also provides guidance to assessing whether or not the
impairment is other-than-temporary and guidance on determining the amount of the other-than-temporary
impairment that should be recognized in earnings and other comprehensive income. FSP 115-2 and 124-2 also
requires an entity to disclose information that enables users to understand the types of securities held, includ-
ing those investments in an unrealized loss position for which the other-than-temporary impairment has or has
not been recognized. FSP 115-2 and 124-2 are effective for interim and annual reporting periods ending after
June 15, 2009.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies − (continued)

We are required to adopt FSP 115-2 and 124-2 in our ﬁrst quarter of ﬁscal 2010. We do not currently believe
that adopting this FSP will have a material impact on our consolidated ﬁnancial statements.

Cash and Equivalents

For purposes of the consolidated balance sheet and statement of cash ﬂows, we consider all highly liquid debt
instruments purchased with initial maturities of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, ﬁrst-out (‘‘LIFO’’)
basis for approximately 68% and 61% of our inventories at April 25, 2009, and April 26, 2008, respectively.
Cost is determined for all other inventories on a ﬁrst-in, ﬁrst-out (‘‘FIFO’’) basis.

Property, Plant and Equipment

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 straight-line
methods over the estimated useful lives of the assets.

Disposal and Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we
review the carrying value of our long-lived assets for impairment when conditions arise that warrant an evalu-
ation.

Goodwill and Trade Names

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we test goodwill and indeﬁnite
lived intangibles for impairment on an annual basis as of the end of our ﬁscal year, unless conditions arise
that warrant a more frequent evaluation. See Note 5 for additional information on our goodwill and trade
names.

Investments

Available-for-sale securities are recorded at fair value with the net unrealized gains and losses (that are
deemed to be temporary) reported as a component of other comprehensive income. Realized gains and losses
and charges for other-than-temporary impairments are included in determining net income, with related pur-
chase costs based on the ﬁrst-in, ﬁrst-out method. Realized gains and losses on investments sold during the
period that had previously had other-than-temporary impairment charges recognized are realized based on the
adjusted cost basis of the investment.

Life Insurance

Life insurance policies are recorded at the amount that could be realized under the insurance contract as of the
date of our consolidated balance sheet. These assets are classiﬁed as other long-term assets on our balance
sheet. The change in cash surrender or contract value is recorded as income or expense during each period.

Revenue Recognition and Related Allowances

For our largest division, from inception through the third quarter of ﬁscal 2008, we recognized revenue for
shipments using third-party carriers upon shipment of the product. In the fourth quarter of ﬁscal 2008, we
determined that we should not recognize revenue until product delivery date for this division. We performed a
detailed analysis and determined that the impact of recording the cumulative effect of the correction in the
fourth quarter of ﬁscal 2008 was immaterial to the full year and fourth quarter of ﬁscal 2008 and all prior
periods. As a result, we recorded the cumulative effect of this correction in the fourth quarter of ﬁscal 2008.
This change resulted in a deferral of $11.0 million of revenue, and a decrease in cost of goods sold of $8.2
million, which increased our net loss by $1.5 million in ﬁscal 2008. During the ﬁrst quarter of ﬁscal 2009, our

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies − (continued)

largest division revised certain shipping agreements with third-party carriers such that risk of loss transfers to
our customers upon shipment rather than upon delivery. Accordingly, substantially all of our shipments with
third-party carriers for this division are now recognized upon shipment of the product.

For the remainder of the company, shipping terms using third-party carriers are FOB shipping point and
revenue is recognized upon shipment of product. In all cases, 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 recognized for estimated product returns and warranties, as well as
other incentives that may be offered 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.

Other incentives offered to customers include cash discounts, advertising agreements and other sales incentive
programs. Cash discounts and other sales incentives are recorded as a reduction of revenues when the revenue
is recognized. Our advertising agreements give customers advertising allowances based on revenues and are
recorded when the revenue is recognized as a reduction to revenue.

Research and Development Costs

Research and development costs are charged to expense in the periods incurred. Expenditures for research and
development costs were $9.5 million, $9.5 million and $11.7 million for the ﬁscal years ended April 25, 2009,
April 26, 2008, and April 28, 2007, respectively.

Advertising Expenses

Production costs of commercials, programming and costs of other advertising, promotion and marketing
programs are charged to expense in the period incurred. In the fall of 2007, we began a national advertising
campaign. This campaign is a shared advertising program with our La-Z-Boy Furniture Galleries(cid:4) stores,
which are reimbursing us for about 33% of the cost of the program. Because of this shared cost arrangement,
the increase in advertising expense was reported as a component of SG&A and was partially offset by the
reimbursement of the dealers’ portion of the cost which was reported as a component of sales. Advertising
expenses were $54.4 million, $63.4 million and $60.4 million for the ﬁscal years ended April 25, 2009,
April 26, 2008, and April 28, 2007, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between the ﬁnancial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax
credit carry-forwards. 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.

In periods when deferred tax assets are recorded, we are required to estimate whether recoverability is more
likely than not, based on forecasts of taxable earnings in the related tax jurisdiction. We use historical and
projected future operating results, including a review of the eligible carry-forward period, tax planning oppor-
tunities and other relevant considerations. Additional factors that we consider when making judgments about
the deferred tax valuation include tax law changes, a recent history of cumulative losses, and variances in
future projected proﬁtability.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies − (continued)

Foreign Currency Translation

The functional currency of each foreign subsidiary is the respective local currency. Assets and liabilities are
translated at the year-end exchange rates, and revenues and expenses are translated at average exchange rates
for the period. Resulting translation adjustments are recorded as a component of shareholders’ equity in other
comprehensive income. When the foreign subsidiary has substantially ended operations, the remaining transla-
tion adjustments are recognized in other income (expense).

Financial Instruments and Hedging

We have a derivative instrument consisting of interest rate swap agreements that are used to ﬁx the interest
rate on a portion of the variable interest rate borrowings on our revolving credit facility. This agreement is
designated and accounted for as cash ﬂow hedge. The effect of marking this contract to fair value is recorded
as a component of shareholders’ equity in other comprehensive income. The interest rate swap agreement
expires in May 2011.

We have historically entered into forward foreign currency exchange contracts to limit our exposure from
changes in foreign currency exchange rates. These foreign exchange contracts are entered into to support
product 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
designated and accounted for as cash ﬂow hedges. The fair value of our foreign currency contracts is based on
quoted market prices and the effect of marking these contracts to fair value is recorded as a component of
shareholders’ equity in other comprehensive income. We had no forward contracts as of April 25, 2009.

Accounting for Stock-Based Compensation

We estimate the fair value of share-based awards on the date of grant using an option-pricing model. The
value of the portion of the award that is ultimately expected to vest is recognized as expense over the requi-
site service periods in our Consolidated Statement of Operations using a straight-line single-option method. As
permitted by SFAS No. 123(R), we chose the nominal vesting period approach for recognizing the amount of
stock option expense to be included in the pro forma compensation expense for retirement eligible employees.
Under this method, expense was recognized over the normal four-year vesting period. With the adoption of
SFAS No. 123(R), we were required to continue applying the nominal vesting period approach for unvested
options granted prior to the date of adoption of April 30, 2006. For awards granted after that date we must
apply the non-substantive vesting period approach where expense is recognized over the period from grant
date to the date retirement eligibility is achieved, if expected to occur during the nominal vesting period. The
impact on our compensation expense for the twelve months ended April 25, 2009 would have been immaterial
under the non-substantive vesting period approach for unvested options granted prior to the date of adoption
of April 30, 2006.

Reclassiﬁcations

Certain prior year information has been reclassiﬁed to be comparable to the current year presentation.

Insurance/Self-Insurance

We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation,
general liability, vehicle liability and the company-funded portion of employee-related health care beneﬁts.
Liabilities associated with these risks are estimated in part by considering historical claims experience, demo-
graphic factors, severity factors and other actuarial assumptions.

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 or has been approved to be disposed of as a discontin-
ued operation. The results of operations of our discontinued operations, including any gains or losses on

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies − (continued)

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 2008 were reclassiﬁed to comply with SFAS
No. 144.

Allowance for Doubtful Accounts

The allowance for doubtful accounts reﬂects our best estimate of probable losses inherent in the accounts
receivable balance. We determine the allowance based on known troubled accounts, historical experience and
other currently available evidence.

Note 2: Restricted Cash

At April 25, 2009 and April 26, 2008, we had short-term restricted cash of $18.7 million and $0.5 million,
respectively, related to our captive insurance company. Prior year amounts were reclassiﬁed from cash and
equivalents to restricted cash to be comparative with current year presentation. This cash was primarily used
to support our liability for workers’ compensation claims and premiums. In the ﬁrst quarter of ﬁscal 2010 the
workers’ compensation liability will be transferred from our captive insurance company to La-Z-Boy Incorpo-
rated. In addition, La-Z-Boy Incorporated will be obligated for the workers’ compensation liability. Therefore
cash in the amount of about $18.0 million will be transferred from our captive insurance company to La-Z-
Boy Incorporated reducing our restricted cash by this same amount in the ﬁrst quarter of ﬁscal 2010.

Note 3: Inventories

(Amounts in thousands)

4/25/2009

4/26/2008

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods
FIFO inventories
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of FIFO over LIFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 53,498
11,281
101,147
166,926
(25,748)
$140,178

$ 71,346
14,624
119,270
205,240
(26,879)
$178,361

During ﬁscal 2009, inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inven-
tory quantities carried at lower costs in prior years as compared to the cost of ﬁscal 2009 purchases; the effect
of which decreased cost of goods sold by approximately $2.6 million.

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Estimated
Useful Lives

3-40 years
3-30 years
3-10 years
3-40 years
3-10 years
3-20 years

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . .
Net property, plant and equipment . . . . . . . . . . . . . . . . . .

4/25/2009

4/26/2008

$ 164,394
142,735
44,399
23,689
16,220
23,658
2,506
417,601
(267,367)
$ 150,234

$ 172,824
151,982
50,005
24,977
16,248
12,819
9,729
438,584
(267,583)
$ 171,001

Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be recoverable in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. During the quarter ended January 24, 2009,

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4: Property, Plant and Equipment − (continued)

economic conditions deteriorated, which led to reduced volumes and continued operating losses. In addition,
we experienced a signiﬁcant decline in our stock price, resulting in a signiﬁcant reduction in our market
capitalization. Accordingly, we performed an assessment of our ﬁxed assets to test for recoverability in accor-
dance with SFAS No. 144. The assessment of recoverability was based on management’s best estimates. The
fair value was determined by using quoted current market prices, as well as an analysis of the undiscounted
cash ﬂows by asset group. Our key asset groups consisted of our operating units in our Upholstery and Case-
goods Group (La-Z-Boy, England, Bauhaus, Kincaid, Hammary, American Drew and Lea) and each of our
retail stores.

Based on the assessment of undiscounted projected future operating cash ﬂows of our retail stores, the undis-
counted cash ﬂows did not exceed the net book value of leasehold improvements, furniture, ﬁxtures, and
office equipment at some stores, indicating that an impairment had occurred. As a result of our review we
recorded an impairment charge of $7.0 million, relating to our Retail Group, in the third quarter of ﬁscal
2009. Additionally, based on the results of the review it was determined that the undiscounted cash ﬂows
related to Upholstery and Casegoods Groups exceeded their carrying value and therefore no impairment
existed.

Note 5: Goodwill and Other Intangible Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and trade names are tested
at least annually for impairment by comparing their fair value to their carrying values. The fair value for each
trade name is established based upon management’s estimates using a royalty savings approach which is based
on the principle that, if the business did not own the asset, it would have to license it in order to earn the
returns that it is earning. The fair value was calculated based on the present value of the royalty stream that
the business was saving by owning the asset. Additionally, goodwill is tested for impairment by comparing the
fair value of our operating units to their carrying values. The fair value for each operating unit is established
based upon the discounted cash ﬂows. In situations where the fair value is less than the carrying value, indi-
cating a potential impairment, a second comparison is performed using a calculation of implied fair value of
goodwill to measure the impairment.

Solely for purposes of establishing inputs for the fair value calculations described above related to goodwill
impairment testing, in the third quarter of ﬁscal 2009 we used a 16% discount rate to calculate the fair value
of our reporting units, which is higher than the 11% discount rate we used in our previous calculations given
the continued declining market conditions. The increase in our discount rate was primarily due to deteriorating
market conditions during the third quarter of ﬁscal 2009 when our business was impacted by signiﬁcant
declines in consumer demand. At that time our average market capitalization was below the book value of the
company. Accordingly, we reviewed the valuations of the goodwill for our Upholstery and Retail operating
segments, in advance of our normal fourth quarter testing and we recorded an impairment charge of $40.4
million in the third quarter of ﬁscal 2009.

In the fourth quarter of ﬁscal 2009 we deconsolidated an independent dealer that was previously consolidated
as a VIE. As a result of this VIE no longer being consolidated, $5.1 million in goodwill was removed from
our balance sheet.

In the third quarter of ﬁscal 2009, we completed a valuation of the tax reserves relating to the acquisitions of
the operating units in the Casegoods segment, and a reduction of the tax reserves was required. This reduction
was recorded as a reduction in trade names and totaled $0.4 million. Additionally, as a result of the decline in
consumer conﬁdence and challenging economic environment, we reviewed the valuations of our trade names.
It was determined that the carrying value of trade names exceeded their fair value and an impairment loss of
$5.5 million was recorded as a component of operating income.

During the second quarter of ﬁscal 2009, we committed to a plan to reorganize our Toronto, Ontario market
which we consolidated as a VIE. As a result of this plan, we recorded an impairment charge of $0.4 million
which represented the entire goodwill amount of this market.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5: Goodwill and Other Intangible Assets − (continued)

During the ﬁrst quarter of ﬁscal 2009, we committed to a plan to close the operations of our La-Z-Boy U.K.
subsidiary. As a result of this plan, we recorded an impairment charge of $1.3 million which represented the
entire goodwill amount of this operating unit.

The following table summarizes the changes to goodwill and trade names during ﬁscal 2009 and ﬁscal 2008:

Fiscal 2009
(Amounts in thousands)

Goodwill

Balance
as of 4/26/2008

Acquisitions,
Dispositions
and Other

Intangible
Write-Down

Balance
as of 4/25/2009

Upholstery Group . . . . . . . . . .
Retail Group . . . . . . . . . . . . .
Corporate and Other* . . . . . . .
Consolidated . . . . . . . . . . . .

$19,632
22,096
5,505
$47,233

$ —
—
(5,505)
$(5,505)

$(19,632)
(22,096)
—
$(41,728)

$ —
—
—
$ —

Trade names

Casegoods Group . . . . . . . . . .

$ 9,006

$ (365)

$ (5,541)

$ 3,100

Fiscal 2008
(Amounts in thousands)

Goodwill

Balance
as of 4/28/2007

Acquisitions,
Dispositions
and Other

Intangible
Write-Down

Balance
as of 4/26/2008

Upholstery Group . . . . . . . . . .
Retail Group . . . . . . . . . . . . .
Corporate and Other* . . . . . . .
Consolidated . . . . . . . . . . . .

$19,632
27,905
8,122
$55,659

$ —
—
—
$ —

$

—
(5,809)
(2,617)
$ (8,426)

$19,632
22,096
5,505
$47,233

Trade names

Casegoods Group . . . . . . . . . .

$ 9,472

$ (466)

$

—

$ 9,006

*

Corporate and Other includes goodwill from our VIEs.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6: Investments

Included in other long-term assets were investments of $10.8 million and $34.0 million at April 25, 2009 and
April 26, 2008, respectively, of available-for-sale marketable securities to fund future obligations of one our
non-qualiﬁed retirement plans and our captive insurance company. All unrealized gains or losses which have
not been recognized as other than temporary losses were included in accumulated other comprehensive loss
within Shareholders’ Equity. The net unrealized gain was $0.4 million at April 25, 2009, compared to a net
unrealized loss of $0.9 million at April 26, 2008. In the third quarter of ﬁscal 2009 we recognized $5.1 mil-
lion of losses, recorded in other income (expense), net, related to other than temporary impairments of the
previously mentioned investments. The following is a summary of available-for-sale securities at April 25,
2009, and April 26, 2008:

Fiscal 2009
(Amounts in thousands)

Gross
Unrealized Gains

Gross
Unrealized Losses

Equity securities . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities . . . . . . . . . . . . . . . . . . . . .

$419
132
—
$551

$(153)
(44)
—
$(197)

Fiscal 2008
(Amounts in thousands)

Gross
Unrealized Gains

Gross
Unrealized Losses

Equity securities . . . . . . . . . . . . . . . . . . . . . . .
Fixed income . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total securities . . . . . . . . . . . . . . . . . . . . . . .

$247
456
—
$703

$(1,543)
(100)
—
$(1,643)

Fair Value

$ 6,152
4,069
575
$10,796

Fair Value

$ 11,111
21,947
925
$33,983

The following table summarizes sales of available-for-sale securities (for the ﬁscal years ended):

(Amounts in thousands)

4/25/2009

4/26/2008

4/28/2007

Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses

$29,986
1,468
(1,540)

$35,580
4,078
(213)

$17,342
987
(256)

The fair value of ﬁxed income available-for-sale securities by contractual maturity was $0.3 million within
one year, $1.5 million within two to ﬁve years, $1.3 million within six to ten years and $1.0 million thereaf-
ter.

Note 7: Accrued Expenses and Other Current Liabilities

(Amounts in thousands)

4/25/2009

4/26/2008

Payroll and other compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued product warranty, current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . .

$32,632
9,179
9,277
24,645
$75,733

$ 47,337
9,184
14,100
32,079
$102,700

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8: Debt

(Amounts in thousands)

4/25/2009

4/26/2008

Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt
Capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$35,000
16,841
8,456
575
60,872
(8,724)
$52,148

$ 75,000
16,845
11,250
1,275
104,370
(4,792)
$ 99,578

In the fourth quarter of ﬁscal 2008, we entered into a $220 million 5-year revolving credit agreement with a
group of banks. This credit agreement superseded and terminated a $150 million dollar credit agreement dated
as of March 30, 2004 (subsequently amended to $100 million). Our credit agreement is secured primarily by
all of our accounts receivable, inventory, cash deposit and securities accounts, and substantially all patents and
trademarks, including the La-Z-Boy brand name. Availability under our credit agreement ﬂuctuates based on a
borrowing base calculation consisting of eligible accounts receivable and inventory. This agreement includes
affirmative and negative covenants, and certain restrictions, including a ﬁxed charge coverage ratio that would
become effective if our excess availability under the credit agreement falls below $30 million. Excess avail-
ability is the difference between our eligible accounts receivable and inventory less the total of our
outstanding letters of credit, other reserves as denoted in our credit agreement and our outstanding borrowings
on our revolving credit agreement. As of April 25, 2009 our excess availability was $65.0 million. We do not
expect to fall below the required excess availability thresholds in the next twelve months. However, if our
excess availability had been below $30.0 million at April 25, 2009, we would not have been able to meet our
1.05 to 1.00 ﬁxed charge coverage ratio.

Further deterioration of market conditions resulting in a sustained adverse impact on the global retail sector
could negatively impact our results of operations, cash ﬂows and ﬁnancial position as well as the credit wor-
thiness of our customers, and could result in reduced availability under the credit agreement.

As of June 3, 2009, our credit facility was reduced to $200 million. We requested that our credit facility be
reduced to $200 million from $220 million in order to reduce the expense of the credit facility. Additionally,
due to our decrease in accounts receivable and inventory levels during the previous 12 months, we believe we
will not need the additional $20 million. This change does not affect our availability under our credit facility.

We are able to select interest rates based on LIBOR or the prime rate. Our LIBOR spread ﬂuctuates between
1.75% and 2.25% based on liquidity. During ﬁscal 2009 this spread was 2.0%. Our prime rate spread ﬂuctu-
ates between 0.0% and 0.5% based on liquidity. During ﬁscal year 2009 this spread was 0.25%. At April 25,
2009 our borrowing rates ranged from 2.5% to 3.5%.

Our credit agreement contains customary events of default, including nonpayment of principal when due,
nonpayment of interest after a stated grace period; inaccuracy of representations and warranties; violations of
covenants; certain acts of bankruptcy and liquidation; defaults of certain material contracts; certain ERISA-
related events; certain material environmental claims; and a change in control (as deﬁned in the new credit
agreement). In the event of a default under our credit agreement, the lenders may terminate the commitments
made under our credit agreement, declare amounts outstanding, including accrued interest and fees, payable
immediately, and enforce any and all rights and interests. In addition, following an event of default, the Lend-
ers could exercise remedies with respect to the collateral including foreclosure and other remedies available to
secured creditors.

Industrial revenue bonds were used to ﬁnance the construction of some of our manufacturing facilities. The
facilities constructed from the bond proceeds are mortgaged as collateral for the bonds. Interest for these
bonds is at a variable rate and at ﬁscal year end was approximately 0.7%. Maturities range from June 2009 to
June 2023.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8: Debt − (continued)

Other debt includes foreign and domestic debt as well as $1.5 million of VIE debt. Maturities range from
ﬁscal 2010 to ﬁscal 2013 with interest rates ranging from 4.3%-20.0%.

Capital leases consist primarily of long-term commitments for the purchase of IT equipment and transportation
equipment and have maturities ranging from ﬁscal 2010 to ﬁscal 2012. Interest rates range from 7.0%-9.4%.

Maturities of long-term debt, subsequent to April 25, 2009, are $8.7 million in ﬁscal 2010, $0.8 million in
ﬁscal 2011, $4.9 million in ﬁscal 2012, $37.7 million in ﬁscal 2013, $0.4 million in ﬁscal 2014 and $8.4
million thereafter.

Cash paid for interest during ﬁscal years 2009, 2008 and 2007 was $4.6 million, $15.4 million and $10.3
million, respectively.

Note 9: Operating Leases

We have operating leases for manufacturing facilities, executive and sales offices, warehouses, showrooms and
retail facilities, as well as for transportation and data processing equipment. The operating leases expire at
various dates through ﬁscal 2027. Certain transportation leases contain a provision for the payment of contin-
gent rentals based on mileage in excess of stipulated amounts. We lease additional transportation, data
processing and other equipment under capital leases expiring at various dates through ﬁscal 2012.

We have certain retail facilities which we sublease to outside parties.

The future minimum rentals for all non-cancelable leases and future rental income from subleases are as
follows (for the ﬁscal years):

(Amounts in thousands)

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

Future
Minimum
Rentals

$ 44,644
41,436
38,024
34,088
31,108
172,041
$361,341

Future
Minimum
Income

$ 400
408
417
374
125
1,505
$3,229

Rental expense, rental income and contingent rentals for operating leases were as follows (for the ﬁscal years
ended):

(Amounts in thousands)

4/25/2009

4/26/2008

4/28/2007

Rental expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent rents

$52,030
1,331
—

$52,240
1,547
12

$47,357
1,812
388

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10: Retirement and 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.
As of April 25, 2009 and April 26, 2008, we had $8.2 million and $13.7 million, respectively, of obligations
for this plan included in other long-term liabilities. We had life insurance contracts at April 25, 2009, and
April 26, 2008, of $7.6 million and $17.1 million, respectively, included in other long-term assets related to
this plan.

We maintain a non-qualiﬁed deﬁned beneﬁt retirement plan for certain former salaried employees. Included in
our liabilities were plan obligations of $13.0 million and $13.7 million at April 25, 2009 and April 26, 2008,
respectively. During ﬁscal 2009, the interest cost recognized for this plan was $0.8 million, the actuarial gain
recognized was $0.5 million and the beneﬁt payments during the year were $1.0 million. Beneﬁt payments are
expected to be approximately $1.1 million annually over the next ten years. During ﬁscal 2008, the interest
cost recognized for this plan was $0.9 million, the actuarial gain recognized was $0.6 million and the beneﬁt
payments during the year were $1.0 million. This plan is not funded and is excluded from the obligation
charts and disclosures that follow.

Voluntary 401(k) retirement plans are offered to eligible employees within certain U.S. operating units. For
most operating units, we formerly made matching contributions based on speciﬁc formulas. Effective
August 1, 2006, these contributions were made in cash. Prior to this date, the match was made in our common
shares. In the third quarter of ﬁscal 2009 we made the decision to suspend the matching contributions portion
of these plans in order to reduce our operating costs. This was a direct result of the current economic climate.
We also maintain a deﬁned beneﬁt pension plan for eligible factory hourly employees at some operating units.
This plan has been frozen for new participants since January 1, 2001, but active participants still earn service
cost.

The measurement dates for the pension plan assets and beneﬁt obligations were April 25, 2009, April 26,
2008, and April 28, 2007, in the years presented.

As of April 28, 2007, previously unrecognized differences between actual amounts and estimates based on
actuarial assumptions are included in Accumulated Other Comprehensive Income (Loss) in our Consolidated
Balance Sheet as required by SFAS No. 158. For ﬁscal 2008, we had $8.0 million pre-tax ($4.9 million after
tax) for net actuarial losses in Accumulated Other Comprehensive Income. During ﬁscal 2009, we recognized
$22.5 million for net actuarial losses in Other Comprehensive Income increasing net actuarial losses in Accu-
mulated Other Comprehensive Income to $30.5 million pre-tax ($27.4 million after tax).

The net periodic pension cost and retirement costs for retirement plans were as follows (for the ﬁscal years
ended):

(Amounts in thousands)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization and deferral
. . . . . . . . . . . . . . . . . . . . . . . .
Curtailment/settlement loss . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Proﬁt sharing/SERP* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
401(k)* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total retirement costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net periodic pension cost

4/25/2009
$ 1,314
5,436
(6,915)
—
—
(165)
765
3,004
82
$ 3,686

4/26/2008
$ 1,764
5,382
(7,354)
—
—
(208)
2,197
5,145
97
$ 7,231

4/28/2007
$ 2,190
5,489
(6,717)
98
1,323
2,383
2,551
5,414
98
$10,446

*

Not determined by an actuary

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10: Retirement and Welfare − (continued)

The funded status of the deﬁned beneﬁt pension plan was as follows:

(Amounts in thousands)

4/25/2009

4/26/2008

Change in beneﬁt obligation
Beneﬁt obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain)/loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁt obligation at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in plan assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneﬁts paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plans in which accumulated beneﬁt obligation exceeds plan assets

at end of year

$ 83,475
1,314
5,436
(5,390)
(5,050)
—
79,785

88,843
(20,977)
(5,050)
$ 62,816
$(16,969)

$89,195
1,764
5,382
(8,050)
(4,685)
(131)
83,475

93,926
(398)
(4,685)
$88,843
$ 5,368

Accumulated beneﬁt obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 79,785
$ 62,816

$ —
$ —

Amounts recognized in the Consolidated Balance Sheet consist of:

(Amounts in thousands)

4/25/2009

4/26/2008

Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
—
(16,969)
$(16,969)

$5,368
—
$5,368

The weighted average actuarial assumptions were as follows (for the ﬁscal years ended):

4/25/2009

4/26/2008

4/28/2007

Discount rate used to determine beneﬁt obligations . . . . . . . . . .
Discount rate used to determine net beneﬁt cost . . . . . . . . . . . .
Long-term rate of return . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.2%
6.6%
8.0%

6.6%
6.1%
8.0%

6.1%
6.4%
8.0%

Our non-qualiﬁed retirement plan was not funded at April 25, 2009 or April 26, 2008. We hold funds to
support the liability of the plan in a Rabbi trust. We are not required to make any contributions to the deﬁned
beneﬁt plan in ﬁscal year 2010; however, we have the discretion to make contributions. In ﬁscal 2010, we
expect to amortize $2.1 million of unrecognized actuarial losses as a component of pension expense.

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.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10: Retirement and Welfare − (continued)

The weighted average asset allocations at year end were as follows:

Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

64%
33%
3%
100%

63%
37%
—
100%

The expected beneﬁt payments by our pension plan for each of the next ﬁve ﬁscal years and for periods
thereafter are presented in the following table:

4/25/2009

4/26/2008

(Amounts in thousands)

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 to 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Beneﬁt
Payments

$ 5,098
4,527
4,654
4,810
4,994
34,333
$58,416

Note 11: Financial Guarantees and Product Warranties

We have provided secured and unsecured ﬁnancial guarantees relating to notes and leases in connection with
certain La-Z-Boy Furniture Galleries(cid:4) stores which are not operated by the company. The guarantees are
generally for real estate leases and have remaining terms from one to three years. These guarantees enhance
the credit of these dealers. The dealer is required to make periodic fee payments to compensate us for our
guarantees. We have recognized liabilities for the fair values of these agreements that we have entered into,
but they are not material to our ﬁnancial position.

We would be required to perform under these agreements only if the dealer were to default on the lease or
note. The maximum amount of potential future payments under these guarantees was $3.1 million as of
April 25, 2009, compared to $13.4 million as of April 26, 2008. During the third quarter of ﬁscal 2009, we
assumed the lease obligation on two stores as a result of a change in the Michigan market. As a result of the
change in the VIE for our Toronto market, we now include an additional Toronto store in our lease obliga-
tions. These changes caused a decrease of $9.9 million in our guarantees. Offsetting these decreases was $1.3
million in additional guarantees of our Cleveland market VIE who is no longer being consolidated because we
are not the primary beneﬁciary. The remaining $1.7 million decrease is the result of expirations in our guaran-
tees during ﬁscal 2009.

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

Our accounting policy for product warranties is to accrue an estimated liability at the time the revenue is
recognized. This estimate is based on historical claims and adjusted for currently known warranty issues.
While our claims in ﬁscal 2009 declined, our experience indicated that it is taking slightly longer to settle
claims, so we did not see a corresponding decrease in our outstanding liability.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11: Financial Guarantees and Product Warranties − (continued)

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

(Amounts in thousands)

4/25/2009

4/26/2008

Balance as of the beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals and other adjustments during the year
. . . . . . . . . . . . . . . . . . . . . .
Settlements during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 14,334
15,640
(15,580)
$ 14,394

$ 14,283
17,478
(17,427)
$ 14,334

Note 12: Contingencies and Commitments

We have been named as a defendant in various lawsuits arising in the ordinary course of business and as a
potentially responsible party at certain 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 currently do not
anticipate any material additional loss for legal or environmental matters.

Note 13: Stock-Based Compensation

On April 30, 2006, we adopted the fair-value recognition provisions of Statement of Financial Accounting
Standards No. 123 (revised 2004) Share-Based Payment (‘‘SFAS No. 123(R)’’) using a modiﬁed-prospective
transition method. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employ-
ees and requires us to record compensation cost for all stock awards granted after the required effective date
and for awards modiﬁed, repurchased or canceled after that date. In addition, we are required to record com-
pensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards
that remain outstanding at the date of adoption. In March 2005, the SEC issued SAB 107 relating to SFAS
No. 123(R). We have applied the provisions of SAB 107 in our adoption of SFAS No. 123(R).

In ﬁscal 2005, our shareholders approved a long-term equity award plan which replaced the former employee
incentive stock option plan, the former employee restricted share plan and the former performance-based stock
plan. No further grants or awards may be issued under the former plans. The current plan allows for awards in
the form of performance awards, restricted shares and non-qualiﬁed stock options. Under this current plan, the
aggregate number of common shares that may be issued through awards of any form is 5.0 million. As dis-
cussed below, no performance goals were met for the performance period ended April 25, 2009 leaving 2.1
million shares available under this plan.

The long-term equity award plan and the former employee incentive stock option plan provide grants to
certain employees to purchase common shares at a speciﬁed price, which may not be less than 100% of the
current market price of the stock 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. Additionally, we have outstanding options that were issued to
replace outstanding options of a company acquired in ﬁscal 2000. The options outstanding under this plan as
of April 25, 2009, were 4,130 with a weighted average exercise price of $16.42 per share. There are no shares
available for future grant under this plan. Subsequent to April 25, 2009, the 4,130 options under this plan
expired.

Stock option expense recognized in Selling, General and Administrative expense under SFAS No. 123(R) for
the twelve months ended April 25, 2009 and April 26, 2008 was $1.2 million and $1.8 million, respectively.
There were no exercises of stock options in ﬁscal 2009 or ﬁscal 2008.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13: Stock-Based Compensation − (continued)

Plan activity for stock options under the above plans is as follows:

Outstanding at April 26, 2008 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at April 25, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .

Exercisable at April 25, 2009 . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Shares
(In
Thousands)

2,668
—
—
(145)
(92)
2,431

1,708

Weighted
Average
Exercise
Price

$15.51
—
—
17.43
12.41
15.48

$16.81

Weighted
Average
Remaining
Contractual
Term (Years)

3.4

2.5

2.4

As of April 25, 2009, there was $1.1 million of total unrecognized compensation cost related to non-vested
stock option awards which is expected to be recognized over a weighted-average remaining vesting term of all
unvested awards of 1.1 years. During the twelve months ended April 25, 2009, 0.4 million shares vested.

The fair value of each option grant was estimated using a Black-Scholes option-pricing model. Expected
volatility was estimated based on the historical volatility of our common shares. The average expected life
was based on the contractual term of the stock option and expected employee exercise and post-vesting
employment termination trends. The risk-free rate was based on U.S. Treasury issues with a term equal to the
expected life assumed at the date of grant. Turnover rate was estimated at the date of grant based on historical
experience. There were no stock options granted during ﬁscal 2009. The fair value of employee stock options
granted during the ﬁrst quarter of ﬁscal 2008 and ﬁscal 2007 were calculated using the following assumptions:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4/26/2008

4/28/2007

5.0%
3.8%
4.0
35.0%
2.5%

4.8%
3.2%
4.0
35.0%
3.0%

$2.88

$3.47

Under the long-term equity award plan, the Compensation Committee of the Board of Directors is also autho-
rized to award restricted common shares to certain employees. The shares are offered at no cost to the
employees, and the plan requires that all shares be held in an escrow account for a 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. Restricted stock issued is recorded based on the market value of our
common shares on the date of the award and the related compensation expense is recognized over the vesting
period. Expense relating to the restricted shares recorded in Selling, General and Administrative expense was
$1.9 million during ﬁscal 2009 and $1.8 million during ﬁscal 2008. The unrecognized compensation cost at
April 25, 2009 was $2.9 million and is expected to be recognized over a weighted-average remaining contrac-
tual term of all unvested awards of 3.3 years.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13: Stock-Based Compensation − (continued)

The following table summarizes information about non-vested share awards as of and for the year ended
April 25, 2009:

Number of
Shares
(In Thousands)

Weighted
Average Grant
Date Fair Value

Non-vested shares at April 26, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at April 25, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

459
413
(67)
(88)
717

$12.97
6.37
6.93
9.46
$ 9.47

In addition to options and restricted shares, under the long-term equity award plan, the Compensation Com-
mittee of the Board of Directors is authorized to award common shares to certain employees based on the
attainment of certain ﬁnancial goals over a given performance period. The shares are offered at no cost to the
employees. In the event of an employee’s termination during the vesting period, the potential right to earn
shares under this program is generally forfeited. No shares were issued during ﬁscal 2009 or ﬁscal 2008. The
cost of performance-based awards is expensed over the vesting period. Expense of $0.7 million and $0.9
million was recognized during ﬁscal 2009 and 2008, respectively for the performance period ended April 26,
2008. The awards for this performance period will be issued to recipients still employed by the company on
April 24, 2010. We did not meet performance goals for the period ended April 25, 2009. As a result, the
potential right to earn 1.6 million shares has expired.

Our shareholders approved a restricted stock plan for non-employee directors, under which we formerly
granted non-employee directors options to purchase shares at 25% of the fair market value at the date of
grant. The plan requires that shares are restricted and certiﬁcates will not be delivered until the participant dies
or becomes disabled, reaches mandatory retirement age, or is not renominated or reelected to the board despite
being willing to serve, unless otherwise approved by the Board of Directors. In the event of a non-employee
director’s ceasing to be a director during the restricted period for any other reason, the shares must be sold
back to us at their cost. Restricted stock issued is recorded based on the market value of our common shares
on the date of the award and the related compensation expense is recognized when the grant occurs. Actual
pre-tax expense relating to the restricted shares was $0.1 million during ﬁscal 2008. There was not a grant
under the restricted stock plan for non-employee directors in ﬁscal 2009.

During ﬁscal 2009, we began awarding deferred stock units to our non-employee directors under our deferred
stock unit plan for non-employee directors. We account for deferred stock units as liability based awards; the
compensation expense is initially measured and recognized based on the market price of our common stock at
the grant date. The liability is re-measured and adjusted at the end of each reporting period until paid. For
purposes of dividends, each deferred stock unit is the equivalent of one common share. Upon retirement from
our board of directors, the non-employee director is entitled to receive a cash payment equal to the number of
deferred stock units outstanding that he or she has been awarded times our common stock price on the date of
retirement. As of April 25, 2009 we had 82,283 deferred stock units outstanding. Expense relating to the
deferred stock units recorded in Selling, General and Administrative expense was $0.2 million during ﬁscal
2009.

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14: Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, are as follows:

(Amounts in thousands)

4/25/2009

4/26/2008

Translation adjustment
Cash ﬂow hedges
Unrealized gains/(losses) on marketable securities arising

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . .

$ 5,191
(723)

170
(27,097)
$(22,459)

$ 5,366
—

(678)
(5,123)
$ (435)

Note 15: Segment Information

Our reportable operating segments are the Upholstery Group, the Casegoods Group and the Retail Group.
During the second quarter of ﬁscal 2008, we completed the sale of our Clayton Marcus operating unit and our
Pennsylvania House trade name. These businesses were presented as discontinued operations and prior ﬁnan-
cial information was restated for the change in composition of our Upholstery and Casegoods Groups. Income
statement information presented below is restated accordingly.

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

Casegoods Group. The operating units in the Casegoods Group are American Drew/Lea, Hammary and
Kincaid. This group primarily sells manufactured or imported wood furniture to furniture retailers. Casegoods
product includes tables, chairs, entertainment centers, headboards, dressers, accent pieces and some uphol-
stered furniture.

Retail Group. The Retail Group consists of 68 company-owned La-Z-Boy Furniture Galleries(cid:4) stores. The
Retail Group primarily sells upholstered furniture to end consumers.

Our largest customer represents less than 5.0% of each of our segments’ sales.

The accounting policies of the operating segments are the same as those described in Note 1. Segment operat-
ing income is based on proﬁt or loss from operations before interest expense, other income (expense) 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), assets of our VIEs and various other
assets. Substantially all of our long-lived assets were located within the U.S.

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15: Segment Information − (continued)

(Amounts in thousands)

Sales

4/25/2009

4/26/2008

4/28/2007

Upholstery Group . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods Group . . . . . . . . . . . . . . . . . . . . . . . . .
Retail Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
VIEs/Eliminations
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 899,204
178,000
160,838
(11,368)
1,226,674

$1,084,418
213,896
190,180
(37,553)
1,450,941

$1,198,378
262,721
220,319
(59,958)
1,621,460

Operating Income (Loss)

Upholstery Group . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods Group . . . . . . . . . . . . . . . . . . . . . . . . .
Retail Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other* . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-lived asset write-down . . . . . . . . . . . . . . . . .
Intangible write-down . . . . . . . . . . . . . . . . . . . . . .
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

35,410
554
(34,841)
(27,549)
(12,460)
(7,503)
(47,677)
(94,066)

12,062
2,042
4,704
4,671
23,479

11,866
170
1,922
1,667
15,625

70,332
10,151
(40,265)
(40,403)
(8,135)
—
(8,426)
(16,746)

13,211
2,370
4,910
4,205
24,696

10,245
392
5,910
10,839
27,386

78,724
20,289
(31,161)
(24,864)
(11,033)
—
—
31,955

13,723
3,002
4,806
4,065
25,596

10,172
1,051
7,356
7,232
25,811

Upholstery Group . . . . . . . . . . . . . . . . . . . . . . . . .
Casegoods Group . . . . . . . . . . . . . . . . . . . . . . . . .
Retail Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated Assets . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . .

303,898
92,487
54,380
101,780
$ 552,545

428,177
107,338
107,835
125,520
$ 768,870

472,854
125,234
123,208
157,395
$ 878,691

Sales by Country

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

88%
9%
3%
100%

89%
8%
3%
100%

90%
7%
3%
100%

*

Variable Interest Entities (‘‘VIEs’’) are included in Corporate and Other.

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15: Segment Information − (continued)

During the third quarter of ﬁscal 2009, the reporting of the warehouse operations was changed to the Uphol-
stery Group from the Retail Group. Since the warehouse operations were expanded to incorporate the
warehousing, staging and delivery of independent La-Z-Boy Furniture Galleries(cid:4) dealers’ products as well as
for our Retail Group, the reporting of those warehouses was more appropriately included in our La-Z-Boy
wholesale operating unit. This reporting change affected the timing of inter-company revenue and proﬁt recog-
nition for the Upholstery Group. This resulted in a reduction in inter-company sales for the Upholstery Group
of $12.1 million and a decrease in inter-company proﬁt of $3.3 million with a corresponding offset recorded
in VIEs/Eliminations sales and Corporate and Other operating income. The adjustments did not affect our
consolidated operating results.

Note 16: Restructuring

During the past several years, we have entered into various restructuring plans to rationalize our manufactur-
ing facilities and to consolidate warehouse distribution centers and close underperforming retail facilities. In
ﬁscal 2009, restructuring charges reported as a component of Cost of Sales on our Consolidated Statement of
Operations were $9.8 million, while restructuring charges of $2.7 million were reported as a line item within
our Selling, General and Administrative expenses section of our Consolidated Statement of Operations. In
ﬁscal 2008, restructuring charges reported as a component of Cost of Sales on our Consolidated Statement of
Operations were $5.0 million, while restructuring charges of $3.1 million were reported as a line item within
our Selling, General and Administrative expenses section of our Consolidated Statement of Operations. With
these restructuring plans, we have written-down various ﬁxed assets which were accounted for in accordance
with SFAS No. 144. Additionally, we recorded charges for severance and beneﬁts, contract terminations and
other transition costs related to relocating manufacturing and closing facilities, in accordance with SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities.

In the fourth quarter of ﬁscal 2009, we committed to a restructuring plan to consolidate our casegoods manu-
facturing plants in North Carolina related to our Kincaid and American Drew/Lea operations. The
consolidation of these plants is expected to be completed in the ﬁrst quarter of ﬁscal 2010, but the conversion
of the distribution center will not be completed until the fourth quarter of ﬁscal 2010. In connection with this
consolidation, we recorded pre-tax restructuring charges of $0.2 million in ﬁscal 2009, covering severance and
beneﬁts and the write-down of ﬁxed assets. We expect to incur approximately $2.2 million in additional
charges in ﬁscal 2010.

In the third quarter of ﬁscal 2009, we committed to a restructuring plan to close our plant in Sherman, Missis-
sippi related to our Bauhaus operations. The closure of this plant was completed in the fourth quarter of ﬁscal
2009. In connection with this plant closure, we recorded pre-tax restructuring charges of $0.6 million in ﬁscal
2009, covering severance and beneﬁts ($0.2 million) and the write-down of ﬁxed assets ($0.4 million).

In the third quarter of ﬁscal 2009, we announced a plan to reduce our company-wide employment to be more
in line with today’s sales volume. In connection with this plan, we recorded pre-tax restructuring charges of
$1.0 million in ﬁscal 2009, covering severance and beneﬁts.

In the ﬁrst quarter of ﬁscal 2009, we committed to a restructuring plan to close the operations of our La-Z-
Boy U.K. subsidiary due to a change in our strategic direction for this operation. The closure of this operation
occurred in the second quarter of ﬁscal 2009. In connection with this closure, we recorded pre-tax restructur-
ing charges of $1.9 million in ﬁscal 2009, covering the write-down of inventory ($1.2 million), the
write-down of ﬁxed assets and other restructuring charges ($0.7 million).

During the fourth quarter of ﬁscal 2008, we committed to a restructuring plan to consolidate all of our North
American cutting and sewing operations in Mexico and transfer production from our Tremonton, Utah plant,
to our ﬁve remaining La-Z-Boy branded upholstery manufacturing facilities. Our Utah facility ceased opera-
tions during the ﬁrst quarter of ﬁscal 2009 and production was shifted to our remaining manufacturing
facilities. We began start up production at our Mexican facility in January 2009. As of the end of ﬁscal 2009,
about 272 employees had completed training and about 144 employees were currently in training at our

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16: Restructuring − (continued)

Mexican facility. At the end of ﬁscal 2009, approximately 8% of our domestic cutting and sewing operations
were coming from our Mexican facility. By the end of ﬁscal 2010 we expect 75% to 80% of our domestic
cutting and sewing operations to be shifted to our Mexican facility, with the remainder in ﬁscal 2011. In
connection with these activities, we have incurred $10.3 million in restructuring charges since the inception of
this plan for severance and beneﬁts, write-down of certain ﬁxed assets, and other restructuring costs. We
expect to incur additional pre-tax restructuring charges of $2 to $3 million. During ﬁscal 2009, we had
restructuring charges of $7.7 million, covering severance and beneﬁts ($3.1 million) and other restructuring
costs ($4.6 million). Other restructuring costs include transportation, freight surcharges and other transition
costs as we moved production to other plants.

In the fourth quarter of ﬁscal 2007, we committed to a restructuring plan which included the closures of two
upholstery manufacturing facilities, the closure of a rough mill lumber operation, the consolidation of opera-
tions at another upholstery operation and the elimination of a number of positions throughout the remainder of
the organization. This plan occurred in the fourth quarter of ﬁscal 2007 and the ﬁrst quarter of ﬁscal 2008.
During ﬁscal 2009, we had restructuring reversals of $0.5 million relating to these activities due to lower
beneﬁt costs than originally estimated.

During ﬁscal 2007 and 2008, several of our retail warehouses were consolidated into larger facilities and
several underperforming stores were closed. In ﬁscal 2009, we had restructuring charges of $1.6 million, due
to contract terminations relating to these actions. We expect to incur approximately $1.0 million in additional
charges in ﬁscal 2010.

As of April 25, 2009, we had a remaining restructuring liability of $2.6 million which is expected to be
settled as follows: $2.4 million in ﬁscal 2010 and $0.2 million thereafter.

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

Fiscal 2009

(Amounts in thousands)
Severance and beneﬁt-related costs . . . . . . . . . . .
Fixed asset write-downs, net of gains . . . . . . . . .
Contract termination costs . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring . . . . . . . . . . . . . . . . . . . .

4/26/2008
Balance
$2,842
—
939
—
$3,781

Charges to
Expense*
$ 4,149
512
1,528
6,271
$12,460

Cash
Payments
or Asset
Write-offs
$ (4,969)
(512)
(1,937)
(6,271)
$(13,689)

4/25/2009
Balance
$2,022
—
530
—
$2,552

*

Charges to expense include $1.8 million of non-cash charges for contract termination costs, ﬁxed asset
and inventory write-downs.

Fiscal 2008

(Amounts in thousands)
Severance and beneﬁt-related costs . . . . . . . . . . .
Fixed asset write-downs, net of gains . . . . . . . . .
Contract termination costs . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total restructuring . . . . . . . . . . . . . . . . . . . .

4/28/2007
Balance
$2,177
—
1,257
—
$3,434

Charges to
Expense**
$ 3,253
364
2,019
2,499
$ 8,135

Cash
Payments
or Asset
Write-offs
$ (2,588)
(364)
(2,337)
(2,499)
$ (7,788)

4/26/2008
Balance
$2,842
—
939
—
$3,781

** Charges to expense include $1.1 million of non-cash charges for contract termination costs, ﬁxed asset

and inventory write-downs.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17: Income Taxes

In accordance with SFAS No. 109, Accounting for Income Taxes, we evaluate our deferred taxes to determine
if a valuation allowance is required. SFAS No. 109 requires that companies assess whether a valuation allow-
ance should be established based on the consideration of all available evidence using a ‘‘more likely than not’’
standard with signiﬁcant weight being given to evidence that can be objectively veriﬁed. Our current and prior
year losses present the most signiﬁcant negative evidence as to whether we need to record a valuation allow-
ance against our net deferred tax assets. Given the current economic climate and the losses that we have
sustained, we have recorded a $50.1 million valuation allowance against the majority of the deferred tax assets
of the U.S. operations. State deferred tax assets of $2.0 million for proﬁtable U.S. subsidiaries that ﬁle on a
separate basis in certain states are considered more likely than not to be realized and therefore do not have a
valuation reserve recorded against them. The total valuation allowance recorded for U.S. deferred tax assets
was $61.7 million at the end of ﬁscal 2009 and $11.6 million at the end of ﬁscal 2008.

At both April 25, 2009 and April 26, 2008 we had state tax assets due to net operating losses and credits of
approximately $13.5 million and $12.4 million, respectively. Due to the uncertainty of their actual utilization
we have established a valuation reserve at the end of each ﬁscal year in the amounts of $12.3 million and
$9.5 million, respectively. These state net operating losses and credits expire between ﬁscal year 2010 and
ﬁscal year 2029.

During ﬁscal 2008 we incurred a federal capital loss on our stock sale of Clayton Marcus. We have recorded a
valuation reserve of $2.1 million against the full amount of this potential beneﬁt. This loss can be carried
forward three years.

At April 25, 2009 and April 26, 2008, we had non-U.S. tax assets due to net operating losses of $3.0 million
and $1.7 million, respectively. The total valuation allowance recorded for non-U.S. deferred tax assets was
$3.0 million at the end of ﬁscal 2009 and $0.5 million at the end of ﬁscal 2008. The additional reserve
recorded during ﬁscal 2009 related to cumulative losses incurred in our Canadian subsidiary primarily arising
from bad debt expenses. Based on the level of cumulative losses, we concluded that it is not more likely than
not that the deferred tax asset would be realized and therefore recorded a valuation reserve.

The carry forward periods for using the non-U.S. net operating losses varies by tax jurisdiction and range
from 10 to 20 years.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17: Income Taxes − (continued)

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 − net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee beneﬁts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal capital loss
Foreign net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred tax assets

Liabilities
Trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4/25/2009

4/26/2008

$ 15,328
5,647
12,541
2,364
14,031
147
413
3,014
2,063
3,000
6,539
2,676
4,712
(64,742)
7,733

(1,964)
—
(4,903)
(795)
(7,662)
71

$

$ 14,639
5,802
6,933
12,275
11,948
1,078
462
2,889
1,901
—
—
—
7,466
(12,119)
53,274

(5,695)
(2,179)
(5,336)
(744)
(13,954)
$ 39,320

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
Repatriation of foreign earnings . . . . . . . . . . . . . . . . . . . . .
Non-deductible meals and entertainment
. . . . . . . . . . . . . . .
ESOP beneﬁt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate differential
. . . . . . . . . . . . . . . . . . . . . . . .
Change in value of life insurance contracts . . . . . . . . . . . . . .
Federal income tax credits . . . . . . . . . . . . . . . . . . . . . . . . .
Deduction for U.S. manufacturing . . . . . . . . . . . . . . . . . . . .
Change in tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible stock option expense . . . . . . . . . . . . . . . . . .
Miscellaneous items . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4/25/2009
35.0%

4/26/2008
35.0%

4/28/2007
35.0%

—
(10.6)
—
(0.2)
0.1
(47.5)
(0.7)
(1.7)
0.1
—
—
—
0.4
(25.1)%

6.2
—
0.6
(1.7)
1.9
3.6
3.6
(2.0)
1.4
—
(0.8)
(0.8)
1.0
48.0%

1.6
—
3.2
1.1
(1.4)
(2.2)
(1.7)
(0.1)
(1.6)
(0.5)
—
1.0
(0.6)
33.8%

For our Thailand operating unit, we continue to reinvest its earnings and consequently do not record a
deferred tax liability relative to its undistributed earnings. We have reinvested approximately $3.0 million of
its earnings. The potential deferred tax attributable to these earnings is not currently estimable.

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17: Income Taxes − (continued)

Income tax expense applicable to continuing operations consists of the following components (for the ﬁscal
years ended):

(Amounts in thousands)
Federal − current

State

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
− deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
− current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
− deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign − current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
− deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . .

4/25/2009
$(12,988)
32,814
(207)
3,933
(926)
1,704
$ 24,330

4/26/2008
$ (652)
(5,556)
(68)
(600)
(4)
(74)
$(6,954)

4/28/2007
$14,475
(7,976)
3,501
(2,144)
2,682
(448)
$10,090

Income from continuing operations before income taxes consists of the following (for the ﬁscal years ended):

(Amounts in thousands)
United States
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

4/25/2009
$(84,907)
(12,110)
$(97,017)

4/26/2008
$(14,431)
(60)
$(14,491)

4/28/2007
$20,043
9,815
$29,858

We adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on
April 29, 2007. As a result of the adoption of this new accounting standard, we recorded a $3.4 million
increase in our liability for uncertain tax positions and related interest and penalties ($2.5 million net of tax),
which was accounted for as a cumulative effect of an accounting change, reducing the opening balance of
retained earnings. As of April 25, 2009, we had a gross unrecognized tax beneﬁt of $6.0 million. A reconcilia-
tion of the beginning and ending balance of unrecognized tax beneﬁts is as follows:

(Amounts in thousands)
Balance as of April 26, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions:

Positions taken during the current year
. . . . . . . . . . . . . . . . . . . . . . . . . .
Positions taken during the prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reductions:

Positions taken during the current year
. . . . . . . . . . . . . . . . . . . . . . . . . .
Positions taken during the prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to settlements with taxing authorities
. . . . . . . . . . . . . . .
Reductions resulting from the lapse of the statute of limitations . . . . . . . . . .
Balance as of April 25, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4/25/2009
$7,231

4/26/2008
$ 9,628

73
118

(38)
—
(908)
(457)
$6,019

337
303

—
(1,317)
(721)
(999)
$ 7,231

We recognize interest and penalties associated with uncertain tax positions in income tax expense. Accrued
interest and penalties decreased by $0.7 million during ﬁscal year 2009. We had approximately $0.8 million
accrued for interest and penalties as of April 25, 2009. We had approximately $1.5 million accrued for interest
and penalties as of April 26, 2008.

It is reasonably possible that various issues relating to $0.5 million of the total gross unrecognized tax beneﬁts
totaling $6.0 million as of April 25, 2009 will be resolved within the next twelve months. If recognized $4.4
million of the total $6.0 million of unrecognized tax beneﬁts would decrease our effective tax rate. The major-
ity of this accrual for uncertain income tax positions relates to issues with various state taxing authorities. The
issues related to our U.S. federal return are minimal, relating primarily to potential timing adjustments.

Our U.S. federal income tax returns for ﬁscal years 2006 and subsequent are still subject to audit. In addition,
we conduct business in various states. The potential audit periods range from ﬁscal year April 29, 2000 to
April 25, 2009.

Cash paid for taxes, (net of refunds received) during the ﬁscal years ended April 25, 2009, April 26, 2008 and
April 28, 2007 was $(2.2) million, $2.6 million and $16.7 million, respectively.

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18: Variable Interest Entities

Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities
(‘‘FIN 46’’), requires the ‘‘primary beneﬁciary’’ of a VIE to include the VIE’s assets, liabilities and operating
results in its consolidated ﬁnancial statements. In general, a VIE is a corporation, partnership, limited-liability
company, trust or any other legal structure used to conduct activities or hold assets that either (a) has an
insufficient amount of equity to carry out its principal activities without additional subordinated ﬁnancial
support, (b) has a group of equity owners that are unable to make signiﬁcant decisions about its activities, or
(c) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns
generated by its operations.
La-Z-Boy Furniture Galleries(cid:4) stores that are not operated by us are operated by independent dealers. These
stores sell La-Z-Boy manufactured products as well as various accessories purchased from approved La-Z-Boy
vendors. Most of these independent dealers have sufficient equity to carry out their principal operating activi-
ties without subordinated ﬁnancial support. However, there are certain independent dealers that we have
determined may not have sufficient equity. In some cases we have extended credit beyond normal trade terms
to the independent dealers, made direct loans, entered into leases and/or guaranteed certain loans or leases.
We evaluate our transactions and relationships with our La-Z-Boy Furniture Galleries(cid:4) dealers on a quarterly
basis to determine if any of our independent dealers qualify as a variable interest entity and additionally
whether we are primary beneﬁciary for any of the dealers who do qualify as a variable interest entity. We also
evaluate our current VIEs on a quarterly basis to determine if they no longer qualify as a variable interest
entity.

Based on the criteria for consolidation of VIEs, we have consolidated several dealers where we were the
primary beneﬁciary based on the fair value of our variable interests. All of our consolidated VIEs were
recorded at fair value on the date we became the primary beneﬁciary. 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
their equity. We recognize all net earnings of these VIEs to the extent of recouping the losses previously
recorded. Earnings in excess of losses are attributed to equity owners of the dealers and are recorded as
minority interest.

During the third quarter of ﬁscal 2009, we terminated our relationship with our Toronto VIE. However, four
of the stores operated by the former dealer were assumed by another dealer in the Toronto market and one
was closed. As a result, the dealer who assumed these stores became a VIE. During the fourth quarter of ﬁscal
2009 it was determined that one of our current VIEs no longer qualiﬁed as a variable interest entity. As a
result, we deconsolidated this independent dealer. With this change, the total markets decreased by one and
the VIE store count decreased by seven in the fourth quarter. We had three consolidated VIEs at April 25,
2009 representing 30 stores and four VIEs at April 26, 2008 representing 34 stores.

The table below shows the impact the VIEs had on our ﬁnancial statements during ﬁscal 2009 and ﬁscal
2008:

(Amounts in thousands)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4/25/2009
$16,220
13,132
$29,352

$ 5,983
3,770
$ 9,753

As of

4/26/2008
$21,202
17,591
$38,793

$ 9,705
3,408
$13,113

Year Ended

(Unaudited, amounts in thousands)
. . . . . . . . . . . . . . . . . . . . . . . .
Net sales, net of inter-company eliminations
Pre-tax loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4/25/2009
$50,856
$ (7,255)

4/26/2008
$51,934
$ (8,037)

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18: Variable Interest Entities − (continued)
As of the end of ﬁscal 2009, we had signiﬁcant interests in three independent La-Z-Boy Furniture Galleries(cid:4)
dealers for which we were not the primary beneﬁciary. Our total exposure to losses related to these dealers
was $2.3 million which consists of past due accounts receivable as well as notes receivable, net of reserves
and collateral on inventory and real estate. We do not have any obligations or commitments to provide addi-
tional ﬁnancial support to these dealers for the remainder of ﬁscal 2010.

Note 19: Acquisitions, Dispositions, and Discontinued Operations

Acquisitions
In the ﬁrst quarter of ﬁscal 2007, we acquired six stores in the southeastern Florida market from a dealer who
was previously a VIE of which we were not the primary beneﬁciary.

Dispositions
During ﬁscal 2007, we sold several long-lived assets which generated $47.0 million in cash and $14.1 million
of gains, which were recorded as a component of S,G&A.

Discontinued Operations
During ﬁscal 2007 and ﬁscal 2008, we completed the sale of our Sam Moore, American of Martinsville, and
Clayton Marcus operating units, in addition to our Pennsylvania House trade name. These dispositions were
accounted for as discontinued operations.
The results of the discontinued operations for Sam Moore, Clayton Marcus, Pennsylvania House, and Ameri-
can of Martinsville for ﬁscal 2008 and ﬁscal 2007 were as follows:

(Amounts in thousands)

4/26/2008

4/28/2007

Net sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . .
Gain (loss) on sale of discontinued operations, net of tax . . . . . . . . . . . . . . . .

$22,622
(2,304)
(3,696)

$122,713
(16,564)
935

In the Consolidated Statement of Cash Flows, the cash ﬂows of discontinued operations were not reclassiﬁed
for ﬁscal 2008 and 2007.

Note 20: Earnings per Share
Basic earnings 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 during the
period plus the additional common shares that would be outstanding if the dilutive potential common shares
issuable under employee stock options and unvested restricted stock were issued. A reconciliation of basic and
diluted weighted average common shares outstanding follows:

(Amounts in thousands)

4/25/2009

4/26/2008

4/28/2007

Weighted average common shares outstanding (basic) . . . . . . . .
Effect of options and unvested restricted stock . . . . . . . . . . . . .
Weighted average common shares outstanding (diluted) . . . . . . .

51,460
—
51,460

51,408
—
51,408

51,475
131
51,606

The weighted average common shares outstanding (diluted) at April 25, 2009 and April 26, 2008 exclude
outstanding stock options and unvested restricted stock of 0.5 million and 0.2 million, respectively, because
the net loss from continuing operations in the ﬁscal year would cause the effect of options and unvested
restricted stock to be anti-dilutive.

The effect of options to purchase 2.4 million, 2.7 million and 1.7 million shares for the ﬁscal years ended
April 25, 2009, April 26, 2008, and April 28, 2007, with a weighted average exercise price of $15.48, $15.51
and $17.86, respectively, were excluded from the diluted share calculation because the exercise prices of these
options were higher than the weighted average share price for the ﬁscal years and would have been anti-
dilutive.

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21: Fair Value Measurements

We adopted FASB Statement of Financial Accounting Standards No. 157 (‘‘SFAS No. 157’’), Fair Value
Measurements, effective April 27, 2008 for our ﬁnancial assets and liabilities. Adoption of SFAS No. 157 did
not have a material effect on our ﬁnancial position, results of operations or cash ﬂows.

In February 2008, the Financial Accounting Standards Board issued FASB Staff Position FAS 157-1, Applica-
tion of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classiﬁcation or Measurement under Statement 13
(‘‘FSP 157-1’’). FSP FAS 157-1 amended SFAS No. 157 to exclude from its scope SFAS No. 13, Accounting
for Leases, and its related interpretive accounting pronouncements that address leasing transactions. Also in
February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157
(‘‘FSP 157-2’’). FSP 157-2 amended SFAS No. 157 to defer the effective date of SFAS No. 157 until ﬁscal
years beginning after November 15, 2008 for non-ﬁnancial assets and non-ﬁnancial liabilities, except for items
that are recognized or disclosed at fair value in the ﬁnancial statements on a recurring basis, at least annually.
We are currently assessing the impact of SFAS No. 157 on our non-ﬁnancial assets and non-ﬁnancial liabili-
ties measured at fair value on a nonrecurring basis.

SFAS No. 157 requires the categorization of ﬁnancial assets and liabilities, based on the inputs to the valua-
tion technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the
quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.
The various levels of the SFAS No. 157 fair value hierarchy are described as follows:

•

•

•

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

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

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

SFAS No. 157 requires the use of observable market data, when available, in making fair value measurements.
When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the
fair value measurement is categorized is based on the lowest level input that is signiﬁcant to the fair value
measurement.

The following table presents the fair value hierarchy for those assets measured at fair value on a recurring
basis as of April 25, 2009:

(Unaudited, amounts in thousands)
Assets

Level 1

Fair Value Measurements
Level 2

Level 3

Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . .

$7,319

$3,477

Liabilities

Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
$7,319

(723)
$2,754

$—

—
$—

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

We entered into a three year interest rate swap agreement in order to ﬁx a portion of our ﬂoating rate debt.
The fair value of the swap agreement was measured as the present value of all expected future cash ﬂows

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 21: Fair Value Measurements − (continued)

based on the LIBOR-based swap yield curve as of the date of the valuation and considered counterparty
non-performance risk. These assumptions can be derived from observable data or are supported by observable
levels at which transactions are executed in the marketplace.

Note 22: Hedging Activities

During the ﬁrst quarter of ﬁscal 2009, we entered into an interest rate swap agreement which we accounted
for as a cash ﬂow hedge. This swap hedges the interest on $20 million of ﬂoating rate debt. Under the swap,
we are required to pay 3.33% through May 16, 2011 and we receive three month LIBOR from the counter-
party. This offsets the three month LIBOR component of interest which we are required to pay under $20
million of ﬂoating rate debt. Interest under this debt as of April 25, 2009 was three month LIBOR plus 2.0%.

We executed this interest rate cash ﬂow hedge in order to mitigate our exposure to variability in cash ﬂows
for the future interest payments on a designated portion of borrowings. The gains and losses are deferred into
accumulated other comprehensive income/loss (with an offset to the hedged item in other current liabilities)
until the hedged transaction impacts our earnings. Our interest rate swap agreement was tested for ineffective-
ness during the ﬁrst quarter of ﬁscal 2009 and was determined to be effective. Our agreement also qualiﬁed
for the ‘‘short cut’’ method of accounting and therefore we believe that our agreement continues to be effec-
tive and therefore, no gains or losses have been recorded in our earnings.

During the year ended April 25, 2009, we deferred losses of $0.7 million into accumulated other comprehen-
sive loss. The fair value of our interest rate swap at April 25, 2009 was $0.7 million, which was included in
other current liabilities.

Note 23: Income from Continued Dumping and Subsidy Offset Act

We recorded $8.1 million, $7.1 million and $3.4 million as Income from the Continued Dumping and Subsidy
Offset Act, net of legal expenses, during ﬁscal 2009, ﬁscal 2008, and ﬁscal 2007, respectively, from the
receipt of funds under the Continued Dumping and Subsidy Act (‘‘CDSOA’’) of 2000 in connection with the
case involving wooden bedroom furniture from China. The CDSOA provides for distribution of monies col-
lected by U.S. Customs and Border Protection from anti-dumping cases to domestic producers that supported
the anti-dumping petition.

74

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures, as such term is deﬁned in Rule 13a-15(e) of the Exchange Act. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and proce-
dures are effective to ensure that information required to be disclosed in our periodic reports ﬁled under the
Exchange Act is recorded, processed, summarized and reported within the time periods speciﬁed by the Secu-
rities and Exchange Commission’s rules and forms and is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting. Our management’s report on
internal control over ﬁnancial reporting is included in Item 8 of this report.

Changes in Internal Control over Financial Reporting. During the fourth quarter of ﬁscal 2009, we imple-
mented a new manufacturing reporting system at our Mexico facility. We have assessed the internal controls
over the key processes affected by the implementation of this system and concluded that we have maintained
adequate internal control over ﬁnancial reporting.

There were no other changes in our internal controls over ﬁnancial reporting that occurred during our fourth
quarter of ﬁscal 2009 that have materially affected, or are reasonably likely to materially affect, our internal
control over ﬁnancial reporting.

ITEM 9B. OTHER INFORMATION

On June 11, 2009, the Compensation Committee of the Board of Directors adopted two amendments to the
La-Z-Boy Incorporated 2004 Long-term Equity Award Plan that, among other things:

•

•

provides the chief executive officer discretion, within prescribed parameters, to determine the size of
awards to certain participants, but not any of the named executive officers.

requires reimbursement from a participant who engages in, and beneﬁts from, any intentional mis-
conduct that cause a material inaccuracy in our ﬁnancial statements or performance metrics under
the plan, for the amount of the gain received.

The foregoing is only a summary. Please refer to the copy of the amendments ﬁled as an exhibit to this report
for more detailed information.

75

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

We have adopted a Code of Business Conduct, which applies to all of our officers, directors, and employees.
A current copy of the code is posted at our website ‘‘http://www.la-z-boy.com’’.

We provide some information about our executive officers in Part I of this report, under the heading ‘‘Execu-
tive Officers of Registrant.’’ All other information required to be reported under this item will be included in
our proxy statement for our 2009 annual meeting, and all of that information is incorporated in this item by
reference.

ITEM 11. EXECUTIVE COMPENSATION.

All information required to be reported under this item will be included in our proxy statement for our 2009
annual meeting, and all of that information is incorporated in this item by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS.

The information required to be reported under Item 201(d) of Regulation S-K is contained in Item 5 of this
report. All other information required to be reported under this item will be included in our proxy statement
for our 2009 annual meeting, and all of that information is incorporated in this item by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE.

All information required to be reported under this item will be included in our proxy statement for our 2009
annual meeting, and all of that information is incorporated in this item by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

All information required to be reported under this item will be included in our proxy statement for our 2009
annual meeting, and all of that information is incorporated in this item by reference.

76

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following documents are ﬁled as part of this report:

(1) Financial Statements:

Consolidated Statement of Operations for each of the three ﬁscal years ended

April 25, 2009, April 26, 2008 and April 28, 2007

Consolidated Balance Sheet at April 25, 2009 and April 26, 2008
Consolidated Statement of Cash Flows for the ﬁscal years ended April 25, 2009,

April 26, 2008 and April 28, 2007

Consolidated Statement of Changes in Shareholders’ Equity for the ﬁscal years ended

April 25, 2009, April 26, 2008 and April 28, 2007

Notes to Consolidated Financial Statements
Management’s Report to Our Shareholders
Report of Independent Registered Public Accounting Firm

(2) Financial Statement Schedules:

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts for each of the three ﬁscal years in the

period ended April 25, 2009

The Report of Independent Registered Public Accounting Firm and Schedule II immedi-

ately following this item.

All other schedules are omitted because they are not applicable or not required because the

required information is included in the ﬁnancial statements or notes thereto.

Note: For all exhibits incorporated by reference, the SEC ﬁle number is 1-9656. Exhibits not incorporated by
reference are being ﬁled or furnished with this report.

(3) Exhibits:

77

The following exhibits are ﬁled as part of this report:

Exhibit
Number

Description

(2)
(3.1)

(3.2)

(3.3)

(3.4)

(4.1)

(9)
(10.1)*

(10.2)*

(10.3)*

(10.4)*

(10.5)*

(10.6)*

(10.7)*

(10.8)*

(10.9)*

(10.10)*

(10.11)*

(11)

(12)
(13)
(14)
(16)
(18)
(21)
(22)
(23)

Not applicable
La-Z-Boy Incorporated Restated Articles of Incorporation (Incorporated by reference to an
exhibit to Form 10-Q for the quarter ended October 26, 1996)
Amendment to Restated Articles of Incorporation (Incorporated by reference to an exhibit to
Form 10-K/A ﬁled September 27, 1999)
La-Z-Boy Incorporated Amendment to Restated Articles of Incorporation effective August 22,
2008 (Incorporated by reference to an exhibit to Form 10-Q for the quarter ended October 25,
2008)
La-Z-Boy Incorporated Amended and Restated Bylaws (as of June 13, 2008) (Incorporated by
reference to an exhibit to Form 10-K for the ﬁscal year ended April 26, 2008)
Credit Agreement dated as of February 6, 2008 among La-Z-Boy Incorporated, certain of its
subsidiaries, the lenders named therein, and Wachovia Capital Finance Corporation (Central),
as administrative agent for the lenders (Incorporated by reference to an exhibit to Form 8-K
ﬁled February 12, 2008).
Not applicable
La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee Directors, amended and
restated through August 12, 2003 (Incorporated by reference to an exhibit to deﬁnitive proxy
statement dated July 9, 2003)
La-Z-Boy Incorporated Deferred Stock Unit Plan for Non-Employee Directors (Incorporated
by reference to an exhibit to Form 10-Q for the quarter ended October 25, 2008)
La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Incorporated by reference to an
exhibit to deﬁnitive proxy statement dated June 27, 1997)
Form of Change in Control Agreement (Incorporated by reference to an exhibit to Form 8-K
dated February 6, 1995). In effect for: Kurt L. Darrow, Steven M. Kincaid, Louis M. Riccio,
Jr., Otis Sawyer and Mark S. Bacon, Sr.
Form of Indemniﬁcation Agreement (covering all directors, including employee-directors)
(Incorporated by reference to an exhibit to Form 8-K, ﬁled January 22, 2009)
2005 La-Z-Boy Incorporated Executive Deferred Compensation Plan (Incorporated by refer-
ence to an exhibit to Form 10-Q for the quarter ended January 28, 2006)
La-Z-Boy Incorporated 2004 Long-Term Equity Award Plan as amended through June 13,
2008 (Incorporated by reference to an exhibit to Form 10-K for the ﬁscal year ended April 26,
2008)
Sample award agreement under the 2004 Long-Term Equity Award Plan (Incorporated by
reference to an exhibit to Form 10-K for the ﬁscal year ended April 29, 2006)
Executive Incentive Compensation Plan - Description as of June 16, 2006 (Incorporated by
reference to an exhibit to Form 10-K for the ﬁscal year ended April 29, 2006)
First 2009 Amendment to La-Z-Boy Incorporated 2004 Long-Term Equity Award Plan effec-
tive June 11, 2009.
Second 2009 Amendment to La-Z-Boy Incorporated 2004 Long-Term Equity Award Plan
effective June 15, 2009.
Statement regarding computation of per share earnings (See Note 20 to the Consolidated
Financial Statements included in Item 8)
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
List of subsidiaries of La-Z-Boy Incorporated
Not applicable
Consent of PricewaterhouseCoopers LLP (EDGAR ﬁling only)

78

Exhibit
Number

Description

(24)
(31)
(32)
(33)
(34)
(35)
(99)
(100)
*

Not applicable
Certiﬁcations pursuant to Rule 13a-14(a)
Certiﬁcations pursuant to 18 U.S.C. Section 1350
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Indicates a management contract or compensatory plan or arrangement under which a director
or executive officer may receive beneﬁts.

79

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

To the Board of Directors of La-Z-Boy Incorporated:

Our audits of the consolidated ﬁnancial statements and of the effectiveness of internal control over ﬁnancial
reporting referred to in our report dated June 15, 2009 appearing in this Annual Report on Form 10-K also
included an audit of the ﬁnancial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion,
this ﬁnancial statement schedule presents fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated ﬁnancial statements.

PricewaterhouseCoopers LLP
Detroit, Michigan
June 15, 2009

80

LA-Z-BOY INCORPORATED AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)

Description
Allowance for doubtful accounts,
deducted from accounts and
notes receivable in the balance
sheet:
April 25, 2009 . . . . . . . . . . . .
April 26, 2008 . . . . . . . . . . . .
April 28, 2007 . . . . . . . . . . . .

Allowance for deferred tax assets:
April 25, 2009 . . . . . . . . . . . .
April 26, 2008 . . . . . . . . . . . .
April 28, 2007 . . . . . . . . . . . .

Additions

Balance at
Beginning of
Year

Charged to
Costs and
Expenses

Charged to
Other
Accounts

Deductions

Balance at
End of Year

$20,743
15,577
17,431

$12,119
11,520
10,422

$28,123(a)
8,550
3,790

$ —
—
(925)(b)

$(16,172)(c)
(3,384)(c)
(4,719)(c)

$52,623
3,449
1,098

$

$ —
(2,850)(b)
—

—
—
—

$32,694
20,743
15,577

$64,742
12,119
11,520

Includes $2,869 related to accounts receivable from a VIE that was deconsolidated in ﬁscal 2009.

(a)
(b) Allowance of companies disposed of.
(c) Deductions, representing uncollectible accounts written off less recoveries of accounts receivable written

off in prior years.

81

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

DATE: June 15, 2009

LA-Z-BOY INCORPORATED

BY /s/ Kurt L. Darrow

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below, as of
June 15, 2009, by the following persons on behalf of the Registrant and in the capacities indicated.

/s/ J.W. Johnston
J.W. Johnston
Chairman of the Board of Directors

/s/ K.L. Darrow
K.L. Darrow
President and Chief Executive Officer, Director

/s/ R.M. Gabrys
R.M. Gabrys
Director

/s/ H.G. Levy
H.G. Levy
Director

/s/ W.A. McCollough
W.A. McCollough
Director

/s/ J.E. Kerr
J.E. Kerr
Director

/s/ M.L. Mueller
M.L. Mueller
Vice President, Corporate Controller and Chief
Accounting Officer

/s/ J.H. Foss
J.H. Foss
Director

/s/ D.K. Hehl
D.K. Hehl
Director

/s/ R.E. Lipford
R.E. Lipford
Director

/s/ N.R. Qubein
N.R. Qubein
Director

/s/ J.L. Thompson
J.L. Thompson
Director

/s/ L.M. Riccio, Jr.
L.M. Riccio, Jr.
Senior Vice President and Chief Financial Officer

82

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[This page intentionally left blank.] 

BOARD OF DIRECTORS

CORPORATE EXECUTIVES

INVESTOR INFORMATION

James W. Johnston 
Chairman of the Board, La-Z-Boy Incorporated

Kurt L. Darrow 
President and Chief Executive Ofﬁcer

Kurt L. Darrow 
President and Chief Executive Ofﬁcer, 
La-Z-Boy Incorporated

John H. Foss 
Retired Manufacturing Financial Executive 
Director of United Bancorp, Inc.

Richard M. Gabrys 
Retired Vice Chairman of Deloitte & Touche LLP 
Director of CMS Energy Corp. 
Director of Massey Energy Company 
Director of TriMas Corporation

David K. Hehl 
Member, Cooley Hehl Wohlgamuth & Carlton, PLLC

Janet E. Kerr 
Professor of Law and Executive Director, The Palmer 
Center for Entrepreneurship and the Law at  
Pepperdine University School of Law 
Director of CKE Restaurants, Inc. 
Director of Tilly’s, Inc.

Dr. H. George Levy 
Otorhinolaryngologist

Rocque E. Lipford 
Of Counsel, Miller, Canﬁeld, Paddock and Stone, PLC 
Director of MBT Financial Corp. 

W. Alan McCollough 
Former Chairman and CEO, Circuit City Stores, Inc. 
Director of The Goodyear Tire & Rubber Company 
Director of VF Corporation

Nido R. Qubein 
President, High Point University 
Chairman, Great Harvest Bread Company 
Director of BB&T Corporation

Jack L. Thompson 
Chairman of the Board, The Plastics Group, Inc. 
Acting CEO, Union Corrugating Company

Mark S. Bacon, Sr. 
Senior VP and Chief Retail Ofﬁcer

Steven M. Kincaid 
Senior VP and President Casegoods and  
President, Kincaid

Louis M. Riccio, Jr. 
Senior VP and Chief Financial Ofﬁcer 

Otis S. Sawyer 
Senior VP and President Non-Branded Upholstery 
and President, England, Inc.

J. Douglas Collier 
Chief Marketing Ofﬁcer

Daniel F. Deland 
Chief Information Ofﬁcer

James P. Klarr 
Secretary and Corporate Counsel

Margaret L. Mueller 
VP and Corporate Controller

Steven P. Rindskopf 
VP Corporate Human Resources

Michael S. Skrzypczak 
VP and Treasurer

R. Rand Tucker 
Assistant Secretary and Corporate Counsel

OTHER EXECUTIVES  

John V. Labarowski 
President, Hammary Furniture

R. Jack Richardson, Jr. 
President, American Drew and Lea Industries

James A. Wiygul 
President, Bauhaus

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

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

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

  734-241-2438

©2009 La-Z-Boy Incorpora ted

Ronald McDonald House Chari ties is a registered  trademark of McDonald’s Corporation and its affiliates.

Nickelodeon is a registered  trademark of Viacom International Inc.

Except as noted, all designated trademarks and service marks utilized in this report are owned by La-Z-Boy Incorporated or its subsidiary companies. 

La-Z-Boy Incorporated   2009 ANNUAL REPORT

 
 
1284 North Telegraph Road
Monroe, Michigan, 48162-3390 USA

L A - Z - B OY
C O M P A N I E S   O N L I N E

LA-Z-BOY.COM

AMERICANDREW.COM

BAUHAUSUSA.COM

ENGLANDFURNITURE.COM

HAMMARY.COM

KINCAIDFURNITURE.COM

LEAFURNITURE.COM

LA-Z-BOYHOSPITALITY.COM

LAZBOYKIDZ.COM

On the cover: Collins Room Group