Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549-1004

FORM 10-Q

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

FOR QUARTERLY PERIOD ENDED JANUARY 23, 2016

COMMISSION FILE NUMBER 1-9656

LA-Z-BOY INCORPORATED

(Exact name of registrant as specified in its charter)

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

None

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

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

Yes  x             No  o

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

Yes  x             No  o

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.

Large accelerated filer  x

Accelerated filer  o

Non-accelerated filer  o

Smaller reporting company  o

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

Yes  o             No  x

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

Class		Outstanding at February 10, 2016
Common Shares, $1.00 par value		49,892,109

Table of Contents

LA-Z-BOY INCORPORATED
FORM 10-Q THIRD QUARTER OF FISCAL 2016

TABLE OF CONTENTS

					Page Number(s)
PART I Financial Information (Unaudited)					3
	Item 1.	Financial Statements			3
		Consolidated Statement of Income			3
		Consolidated Statement of Comprehensive Income			5
		Consolidated Balance Sheet			6
		Consolidated Statement of Cash Flows			7
		Consolidated Statement of Changes in Equity			8
		Notes to Consolidated Financial Statements			9
		Note 1. Basis of Presentation			9
		Note 2. Acquisitions			9
		Note 3. Restructuring			10
		Note 4. Discontinued Operations			11
		Note 5. Inventories			11
		Note 6. Investments			12
		Note 7. Pension Plans			13
		Note 8. Product Warranties			13
		Note 9. Stock-Based Compensation			14
		Note 10. Accumulated Other Comprehensive Loss			16
		Note 11. Segment Information			18
		Note 12. Income Taxes			19
		Note 13. Earnings per Share			20
		Note 14. Fair Value Measurements			21
		Note 15. Recent Accounting Pronouncements			22
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			22
		Cautionary Statement Concerning Forward-Looking Statements			23
		Introduction			24
		Results of Operations			26
		Liquidity and Capital Resources			31
		Critical Accounting Policies			34
		Recent Accounting Pronouncements			34
		Business Outlook			35
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk			35
	Item 4.	Controls and Procedures			35
PART II Other Information					35
	Item 1A.	Risk Factors			35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			36
	Item 6.	Exhibits			37
Signature Page					38

2

Table of Contents

PART I - FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME

		Quarter Ended
(Unaudited, amounts in thousands, except per share data)		1/23/16			1/24/15
Sales		$	384,014		$	357,876
Cost of sales		236,024			228,317
Gross profit		147,990			129,559
Selling, general and administrative expense		113,206			102,631
Operating income		34,784			26,928
Interest expense		120			131
Interest income		204			232
Income from Continued Dumping and Subsidy Offset Act, net		102			-
Other income (expense), net		(93		)	805
Income from continuing operations before income taxes		34,877			27,834
Income tax expense		12,643			9,477
Income from continuing operations		22,234			18,357
Income from discontinued operations, net of tax		-			115
Net income		22,234			18,472
Net income attributable to noncontrolling interests		(328		)	(524		)
Net income attributable to La-Z-Boy Incorporated		$	21,906		$	17,948
Net income attributable to La-Z-Boy Incorporated:
Income from continuing operations attributable to La-Z-Boy Incorporated		$	21,906		$	17,833
Income from discontinued operations		-			115
Net income attributable to La-Z-Boy Incorporated		$	21,906		$	17,948
Basic weighted average common shares		50,038			51,576
Basic net income attributable to La-Z-Boy Incorporated per share:
Income from continuing operations attributable to La-Z-Boy Incorporated		$	0.44		$	0.35
Income from discontinued operations		-			-
Basic net income attributable to La-Z-Boy Incorporated per share		$	0.44		$	0.35
Diluted weighted average common shares		50,539			52,139
Diluted net income attributable to La-Z-Boy Incorporated per share:
Income from continuing operations attributable to La-Z-Boy Incorporated		$	0.43		$	0.34
Income from discontinued operations		-			-
Diluted net income attributable to La-Z-Boy Incorporated per share		$	0.43		$	0.34
Dividends declared per share		$	0.10		$	0.08

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

3

Table of Contents

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME

		Nine Months Ended
(Unaudited, amounts in thousands, except per share data)		1/23/16			1/24/15
Sales		$	1,108,328		$	1,050,457
Cost of sales		690,300			679,497
Gross profit		418,028			370,960
Selling, general and administrative expense		329,884			297,349
Operating income		88,144			73,611
Interest expense		365			408
Interest income		573			667
Income from Continued Dumping and Subsidy Offset Act, net		102			-
Other income, net		2,387			699
Income from continuing operations before income taxes		90,841			74,569
Income tax expense		32,825			25,975
Income from continuing operations		58,016			48,594
Income from discontinued operations, net of tax		-			2,897
Net income		58,016			51,491
Net income attributable to noncontrolling interests		(1,482		)	(933		)
Net income attributable to La-Z-Boy Incorporated		$	56,534		$	50,558
Net income attributable to La-Z-Boy Incorporated:
Income from continuing operations attributable to La-Z-Boy Incorporated		$	56,534		$	47,661
Income from discontinued operations		-			2,897
Net income attributable to La-Z-Boy Incorporated		$	56,534		$	50,558
Basic weighted average common shares		50,371			52,015
Basic net income attributable to La-Z-Boy Incorporated per share:
Income from continuing operations attributable to La-Z-Boy Incorporated		$	1.12		$	0.91
Income from discontinued operations		-			0.06
Basic net income attributable to La-Z-Boy Incorporated per share		$	1.12		$	0.97
Diluted weighted average common shares		50,880			52,540
Diluted net income attributable to La-Z-Boy Incorporated per share:
Income from continuing operations attributable to La-Z-Boy Incorporated		$	1.11		$	0.90
Income from discontinued operations		-			0.06
Diluted net income attributable to La-Z-Boy Incorporated per share		$	1.11		$	0.96
Dividends declared per share		$	0.26		$	0.20

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

4

Table of Contents

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Quarter Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15
Net income		$	22,234		$	18,472
Other comprehensive income (loss)
Currency translation adjustment		27			(761		)
Change in fair value of cash flow hedges, net of tax		(653		)	(291		)
Net unrealized gain (loss) on marketable securities, net of tax		(729		)	55
Net pension amortization, net of tax		488			434
Total other comprehensive income (loss)		(867		)	(563		)
Total comprehensive income before allocation to noncontrolling interests		21,367			17,909
Comprehensive income attributable to noncontrolling interests		(196		)	(474		)
Comprehensive income attributable to La-Z-Boy Incorporated		$	21,171		$	17,435

		Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15
Net income		$	58,016		$	51,491
Other comprehensive income (loss)
Currency translation adjustment		(3,251		)	(715		)
Change in fair value of cash flow hedges, net of tax		(618		)	(491		)
Net unrealized gain (loss) on marketable securities, net of tax		(1,042		)	154
Net pension amortization, net of tax		1,464			1,303
Total other comprehensive income (loss)		(3,447		)	251
Total comprehensive income before allocation to noncontrolling interests		54,569			51,742
Comprehensive income attributable to noncontrolling interests		(560		)	(861		)
Comprehensive income attributable to La-Z-Boy Incorporated		$	54,009		$	50,881

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

5

Table of Contents

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

(Unaudited, amounts in thousands)		1/23/16			4/25/15
Current assets
Cash and equivalents		$	97,698		$	98,302
Restricted cash		8,976			9,636
Receivables, net of allowance of $3,118 at 1/23/16 and $4,622 at 4/25/15		142,802			158,548
Inventories, net		183,245			156,789
Deferred income taxes - current		9,853			11,255
Other current assets		38,377			41,921
Total current assets		480,951			476,451
Property, plant and equipment, net		173,103			174,036
Goodwill		33,423			15,164
Other intangible assets		7,958			5,458
Deferred income taxes - long-term		31,594			35,072
Other long-term assets, net		60,173			68,423
Total assets		$	787,202		$	774,604
Current liabilities
Current portion of long-term debt		$	300		$	397
Accounts payable		46,017			46,168
Accrued expenses and other current liabilities		108,683			108,326
Total current liabilities		155,000			154,891
Long-term debt		555			433
Other long-term liabilities		80,442			86,180
Contingencies and commitments		-			-
Shareholders' equity
Preferred shares - 5,000 authorized; none issued		-			-
Common shares, $1 par value - 150,000 authorized; 49,891 outstanding at 1/23/16 and 50,747 outstanding at 4/25/15		49,891			50,747
Capital in excess of par value		277,428			270,032
Retained earnings		249,036			235,506
Accumulated other comprehensive loss		(34,664		)	(32,139		)
Total La-Z-Boy Incorporated shareholders' equity		541,691			524,146
Noncontrolling interests		9,514			8,954
Total equity		551,205			533,100
Total liabilities and equity		$	787,202		$	774,604

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

6

Table of Contents

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

		Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15
Cash flows from operating activities
Net income		$	58,016		$	51,491
Adjustments to reconcile net income to cash provided by (used for) operating activities
Restructuring		430			(1,106		)
Deferred income tax expense (benefit)		5,000			(3,987		)
Provision for doubtful accounts		(675		)	(2,060		)
Depreciation and amortization		19,308			16,297
Equity-based compensation expense		6,868			6,094
Pension plan contributions		(7,000		)	-
Change in receivables		15,284			7,011
Change in inventories		(23,121		)	(11,913		)
Change in other assets		1,991			5,794
Change in payables		349			(7,659		)
Change in other liabilities		(6,736		)	(4,898		)
Net cash provided by operating activities		69,714			55,064
Cash flows from investing activities
Proceeds from disposal of assets		2,506			8,940
Capital expenditures		(19,825		)	(56,512		)
Purchases of investments		(15,816		)	(30,544		)
Proceeds from sales of investments		23,896			23,987
Acquisitions, net of cash acquired		(19,232		)	(1,774		)
Change in restricted cash		660			2,935
Net cash used for investing activities		(27,811		)	(52,968		)
Cash flows from financing activities
Payments on debt		(415		)	(7,413		)
Payments for debt issuance costs		-			(164		)
Stock issued for stock and employee benefit plans		253			496
Excess tax benefit on stock option exercises		774			234
Purchases of common stock		(29,096		)	(35,752		)
Dividends paid		(13,137		)	(10,416		)
Net cash used for financing activities		(41,621		)	(53,015		)
Effect of exchange rate changes on cash and equivalents		(886		)	(332		)
Change in cash and equivalents		(604		)	(51,251		)
Cash and equivalents at beginning of period		98,302			149,661
Cash and equivalents at end of period		$	97,698		$	98,410
Supplemental disclosure of non-cash investing activities
Capital expenditures included in payables		$	-		$	6,275

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

7

Table of Contents

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited, amounts in thousands)		Common Shares			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Loss			Non- Controlling Interests			Total
At April 26, 2014		$	51,981		$	262,901		$	238,384		$	(31,380	)	$	7,832		$	529,718
Net income								70,773						1,198			71,971
Other comprehensive loss											(759		)	(76		)	(835		)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax		898			26			(10,684		)							(9,760		)
Purchases of common stock		(2,132		)	(1,267		)	(48,454		)							(51,853		)
Stock option and restricted stock expense					6,780												6,780
Tax benefit from exercise of options					1,592												1,592
Dividends paid								(14,513		)							(14,513		)
At April 25, 2015		50,747			270,032			235,506			(32,139		)	8,954			533,100
Net income								56,534						1,482			58,016
Other comprehensive loss											(2,525		)	(922		)	(3,447		)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax		222			(49		)	(2,046		)							(1,873		)
Purchases of common stock		(1,078		)	(197		)	(27,821		)							(29,096		)
Stock option and restricted stock expense					6,868												6,868
Tax benefit from exercise of options					774												774
Dividends paid								(13,137		)							(13,137		)
At January 23, 2016		$	49,891		$	277,428		$	249,036		$	(34,664	)	$	9,514		$	551,205

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

8

Table of Contents

LA-Z-BOY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Basis of Presentation

The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries. We derived the April 25, 2015, balance sheet from our audited financial statements. We prepared the interim financial information in conformity with generally accepted accounting principles, which we applied on a basis consistent with those reflected in our fiscal 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission, but the information does not include all of the disclosures required by generally accepted accounting principles. In management's opinion, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments (except as otherwise disclosed), that are necessary for a fair statement of results for the respective interim periods. The interim results reflected in the accompanying financial statements are not necessarily indicative of the results of operations which will occur for the full fiscal year ending April 30, 2016. Fiscal 2016 is a 53-week year as compared with fiscal 2015, which was 52 weeks, with the additional week occurring in the fourth quarter of fiscal 2016.

During the third quarter and first nine months of fiscal 2016 and fiscal 2015, we recorded a benefit related to legal settlements as part of cost of sales. Due to the legal settlements, gross margin improved 0.3 percentage point during the nine months ended January 23, 2016, and improved 1.5 percentage points and 0.5 percentage point in the third quarter and first nine months of fiscal 2015, respectively. Gross margin for the third quarter of fiscal 2016 was not impacted by legal settlements.

Note 2: Acquisitions

In the second quarter of fiscal 2016, we acquired the assets of three independent operators of ten La-Z-Boy Furniture Galleries ®  stores in Wisconsin, North and South Carolina, and Ohio for $21.6 million, composed of $19.2 million of cash and $2.4 million of prepaid expenses and forgiveness of these dealers' accounts receivable. We began including the ten stores in our Retail segment results upon acquisition.

Prior to the acquisitions, we licensed the exclusive right to own and operate La-Z-Boy Furniture Galleries ®  stores (and to use the associated trademarks and trade name) in those markets to the dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers' other assets. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market. We recorded an indefinite-lived intangible asset of $2.5 million related to these reacquired rights. We also recognized $18.3 million of goodwill, which primarily relates to the expected synergies resulting from the integration of the acquired stores and the anticipated future benefits. We recorded the goodwill and other intangible assets in our Retail segment and will amortize and deduct them for federal income tax purposes over 15 years.

9

Table of Contents

We based the purchase price allocations on fair values at the dates of acquisition and summarize them in the following table:

(Unaudited, amounts in thousands)		10/24/15
Current assets		$	3,302
Goodwill and other intangible assets		20,758
Net property, plant, and equipment		162
Total assets acquired		24,222
Current liabilities		(2,600		)
Net assets acquired		$	21,622

Since the impact of these acquisitions on our results of operations was not material pro forma financial information is not required.

Note 3: Restructuring

During fiscal 2014, we committed to a restructuring of our casegoods business to transition to an all-import model for our wood furniture. We ceased casegoods manufacturing operations at our Hudson, North Carolina facility during the second quarter of fiscal 2015. As a result of this restructuring, we transitioned our remaining Kincaid and American Drew bedroom product lines to imported product. We exited the hospitality business as we had manufactured those products in our Hudson facility. We transitioned our warehouse and repair functions from two North Wilkesboro, North Carolina facilities to our Hudson plant. In addition, during fiscal 2015, we sold both of the North Wilkesboro facilities and most of the wood-working equipment from our Hudson plant and completed the consolidation of our casegoods showroom.

We have recorded pre-tax restructuring charges of $8.1 million ($5.2 million after tax) since the inception of this restructuring plan, with $4.9 million pre-tax ($3.1 million after tax) related to continuing operations and $3.2 million pre-tax ($2.1 million after tax) related to discontinued operations. These charges relate to severance and benefit-related costs, rent for an idled showroom and various asset write-downs, including fixed assets, inventory and trade names.

During the quarter and nine months ended January 23, 2016, we recorded pre-tax restructuring expense of $0.1 million (less than $0.1 million after tax) and $0.4 million ($0.3 million after tax), respectively. During the quarter and nine months ended January 24, 2015, we recorded pre-tax restructuring income of $0.8 million and $1.1 million, respectively ($0.5 million and $0.7 million after tax, respectively). The pre-tax restructuring expense we recorded in fiscal 2016 resulted primarily from rent for an idled showroom, depreciation, and severance and benefit-related costs, while the pre-tax restructuring income we recorded in fiscal 2015 mainly related to gains realized on the sale of the North Wilkesboro warehouse in the third quarter, as well as inventory recoveries.  This income was slightly offset by severance and benefit-related costs, as well as rent expense related to the idled showroom. We recorded the restructuring expense (income) from continuing operations in fiscal 2016 and fiscal 2015 as a component of cost of sales and a component of selling, general and administrative expense. We included restructuring expenses related to discontinued operations in income (loss) from discontinued operations in our consolidated statement of income.

We had $0.2 million of restructuring liability remaining as of January 23, 2016, related to severance and warranty, which we expect to be settled by the end of fiscal 2016.

10

Table of Contents

Note 4: Discontinued Operations

During fiscal 2015, we ceased operations and liquidated all the assets, consisting mostly of inventory, of Lea Industries, a division of La-Z-Boy Casegoods, Inc. (formerly La-Z-Boy Greensboro, Inc.). We reported Lea Industries' operating results as discontinued operations for the period ended January 24, 2015. Historically, we had reported the results of Lea Industries as a component of our Casegoods segment.

In the first quarter of fiscal 2015, we recorded $3.8 million of income in discontinued operations related to our previously owned subsidiary, American Furniture Company, Incorporated. We sold this subsidiary in fiscal 2007, and reported it as discontinued operations at that time. The income we recorded related to the Continued Dumping and Subsidy Offset Act of 2000, which provides for distribution of duties, collected by U.S. Customs and Border Protection from antidumping cases, to domestic producers that supported the antidumping petition related to wooden bedroom furniture imported from China. When we sold American Furniture Company, Incorporated, our contract provided that we would receive a portion of any such duties to which that entity was entitled. That entity subsequently filed for bankruptcy. The funds were distributed by U.S. Customs to the bankruptcy trustee and by the trustee to be held in trust for us during the first quarter of fiscal 2015 and were received by us early in the second quarter of fiscal 2015.

The results of our discontinued operations for the quarter and nine months ended January 24, 2015, were as follows:

		Quarter Ended			Nine Months  Ended
(Unaudited, amounts in thousands)		1/24/15			1/24/15
Net sales		$	1,075		$	7,863
Operating income from discontinued operations		$	186		$	747
Income from Continued Dumping and Subsidy Offset Act, net		-			3,763
Income tax expense		(71		)	(1,613		)
Income from discontinued operations, net of tax		$	115		$	2,897

We included the activity of these operating units in our consolidated statement of cash flows with our continuing operations for the nine months ended January 24, 2015.

Note 5: Inventories

A summary of inventories is as follows:

(Unaudited, amounts in thousands)		1/23/16			4/25/15
Raw materials		$	97,280		$	75,024
Work in process		12,158			14,310
Finished goods		98,765			92,295
FIFO inventories		208,203			181,629
Excess of FIFO over LIFO		(24,958		)	(24,840		)
Inventories, net		$	183,245		$	156,789

11

Table of Contents

Note 6: Investments

Our consolidated balance sheet at January 23, 2016, included $12.4 million of available-for-sale investments in other current assets and $31.8 million of available-for-sale investments in other long-term assets. We included available-for-sale investments of $16.8 million and trading securities of $1.1 million in other current assets and included available-for-sale investments of $43.3 million in other long-term assets in our consolidated balance sheet at April 25, 2015. At January 23, 2016, and April 25, 2015, $31.4 million and $45.5 million, respectively, of these investments were to enhance returns on our cash. We designated the remaining investments to fund future obligations of our non-qualified defined benefit retirement plan, our executive deferred compensation plan, and our performance compensation retirement plan.

The following is a summary of investments at January 23, 2016, and April 25, 2015:

At January 23, 2016

(Unaudited, amounts in thousands)		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Equity securities		$	664		$	(244	)	$	7,457
Fixed income		98			(56		)	36,432
Other		1			(21		)	325
Total securities		$	763		$	(321	)	$	44,214

At April 25, 2015

(Unaudited, amounts in thousands)		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Equity securities		$	2,014		$	(78	)	$	9,251
Fixed income		224			(14		)	50,358
Mutual funds		-			-			1,127
Other		1			(22		)	459
Total securities		$	2,239		$	(114	)	$	61,195

The following table summarizes sales of available-for-sale securities:

		Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15			1/23/16			1/24/15
Proceeds from sales		$	4,487		$	6,160		$	23,896		$	23,987
Gross realized gains		267			209			970			254
Gross realized losses		(18		)	(23		)	(557		)	(53		)

The fair value of fixed income available-for-sale securities by contractual maturity was $12.6 million within one year, $22.2 million within two to five years, $1.5 million within six to ten years and $0.1 million thereafter.

12

Table of Contents

Note 7: Pension Plans

Net periodic pension costs were as follows:

		Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15			1/23/16			1/24/15
Service cost		$	333		$	279		$	999		$	837
Interest cost		1,211			1,267			3,633			3,801
Expected return on plan assets		(1,226		)	(1,269		)	(3,678		)	(3,807		)
Net amortization		736			665			2,208			1,995
Net periodic pension cost		$	1,054		$	942		$	3,162		$	2,826

Note 8: Product Warranties

We accrue an estimated liability for product warranties when we recognize revenue on the sale of warranted products. We estimate future warranty claims based on our claims experience and any additional anticipated future costs on previously sold products. We incorporate repair costs into our liability estimates, including materials, labor and overhead amounts necessary to perform repairs and any costs associated with delivering repaired product to our customers. Approximately 95% of our warranty liability relates to our Upholstery segment as we generally warrant our products against defects for one year on fabric and leather, from one to ten years on cushions and padding, and provide a limited lifetime warranty on certain mechanisms and frames. Our warranties cover labor costs relating to our parts for one year. Our warranty period begins when the consumer receives our product. We use considerable judgment in making our estimates, and we record differences between our actual and estimated costs when the differences are known.

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

		Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15			1/23/16			1/24/15
Balance as of the beginning of the period		$	18,061		$	15,540		$	16,870		$	16,013
Accruals during the period		5,330			5,000			16,092			13,729
Accrual adjustments		-			-			-			(953		)
Settlements during the period		(4,655		)	(4,104		)	(14,226		)	(12,353		)
Balance as of the end of the period		$	18,736		$	16,436		$	18,736		$	16,436

As of January 23, 2016, and April 25, 2015, we included $11.2 million and $10.2 million, respectively, of our product warranty liability in accrued expenses and other current liabilities in our consolidated balance sheet, and included the remainder in other long-term liabilities. We recorded accruals during the periods presented primarily to reflect charges that relate to warranties issued during the respective periods. Our accrual adjustments reflect a change in the prior estimates of our product warranty liability.

13

Table of Contents

Note 9: Stock-Based Compensation

The table below summarizes the total stock-based compensation expense we recognized for all outstanding grants in our consolidated statement of income:

		Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15			1/23/16			1/24/15
Equity-based awards expense		$	1,745		$	1,047		$	6,868		$	6,094
Liability-based awards (income) expense		(1,645		)	3,322			(577		)	3,695
Total stock-based compensation expense		$	100		$	4,369		$	6,291		$	9,789

Stock Options. We granted 429,754 stock options to employees during the first quarter of fiscal 2016, and we have stock options outstanding from previous grants. We account for stock options as equity-based awards because when they are exercised, they will be settled in common shares. We recognize compensation expense for stock options over the vesting period equal to the fair value on the date our compensation committee approved the awards. The vesting period for our stock options ranges from one to four years, with accelerated vesting upon retirement. We expense options granted to retirement-eligible employees immediately. We estimate the fair value of the employee stock options at the date of grant using the Black-Scholes option-pricing model, which requires management to make certain assumptions. We estimate expected volatility based on the historical volatility of our common shares. We base the average expected life on the contractual term of the stock option and expected employee exercise trends. We base the risk-free rate on U.S. Treasury issues with a term equal to the expected life assumed at the date of the grant.

We calculated the fair value of stock options granted during the first quarter of fiscal 2016 using the following assumptions:

(Unaudited)		7/25/15
Risk-free interest rate		1.54		%
Dividend rate		1.20		%
Expected life in years		5.0
Stock price volatility		44.37		%
Fair value per share		$	9.69

Stock Appreciation Rights ("SARs"). We did not grant any SARs to employees during the first nine months of fiscal 2016, but we have SARs outstanding from previous grants. SARs will be paid in cash upon exercise and, accordingly, we account for SARs as liability-based awards that we re-measure to reflect their fair value at the end of each reporting period. These awards vest at 25% per year, beginning one year from the grant date for a term of four years, with accelerated vesting upon retirement. We expense SARs granted to retirement-eligible employees immediately. We estimate the fair value of SARs at the end of each reporting period using the Black-Scholes option-pricing model, which requires management to make certain assumptions. We base the average expected life on the contractual term of the SARs and expected employee exercise trends (which is consistent with the expected life of our option awards). We base the risk-free rate on U.S. Treasury issues with a term equal to the expected life assumed at the end of the reporting period.

In fiscal 2014 and fiscal 2013, we granted SARs as described in our Annual Reports on Form 10-K for the fiscal years ended April 26, 2014, and April 27, 2013, respectively. At January 23, 2016, we measured the fair value of the SARs granted during these fiscal years using the following assumptions:

14

Table of Contents

(Unaudited)		Fiscal 2014  grant			Fiscal 2013  grant
Risk-free interest rate		0.98		%	0.65		%
Dividend rate		1.87		%	1.87		%
Expected life in years		2.40			1.48
Stock price volatility		28.39		%	25.69		%
Fair value per share		$	4.37		$	8.98

Restricted Stock . We awarded 89,563 shares of restricted stock to employees during the first quarter of fiscal 2016. We issue restricted stock at no cost to the employees, and the shares are held in an escrow account until the vesting period ends. If a recipient's employment ends during the escrow period (other than through death or disability), the shares are returned at no cost to the company. We account for restricted stock awards as equity-based awards because upon vesting, they will be settled in common shares. The fair value of the restricted stock that was awarded in the first quarter of fiscal 2016 was $26.69 per share, the market value of our common shares on the date of grant. We recognize compensation expense for restricted stock over the vesting period equal to the fair value on the date our compensation committee approved the awards. Restricted stock awards vest at 25% per year, beginning one year from the grant date for a term of four years.

Restricted Stock Units. We did not grant any restricted stock units to employees during the first nine months of fiscal 2016, but we have restricted stock units outstanding from previous grants. We account for these units as liability-based awards because upon vesting, these awards will be paid in cash. We measure and recognize initial compensation expense based on the market value (intrinsic value) of our common stock on the grant date and amortize the expense over the vesting period. We re-measure and adjust the liability based on the market value (intrinsic value) of our common shares on the last day of the reporting period until paid with a corresponding adjustment to reflect the cumulative amount of compensation expense. The fair value of each outstanding restricted stock unit at January 23, 2016, was $21.35, the market value of our common shares on the last day of the reporting period. Each restricted stock unit is the equivalent of one common share. Restricted stock units vest at 25% per year, beginning one year from the grant date for a term of four years.

During the second quarter of fiscal 2016, we granted 21,632 restricted stock units to our non-employee directors. These restricted stock units vest when the director leaves the board. We account for these restricted stock units as equity-based awards as they will be settled in shares of our common stock upon vesting. We measure and recognize compensation expense for these awards based on the market price of our common shares on the date of grant, which was $27.74.

Performance Awards. During the first quarter of fiscal 2016, we granted 182,008 performance-based shares, and we have performance-based share awards outstanding from previous grants. Payout of these grants depends on our financial performance (80%) and a market-based condition based on the total return our shareholders receive on their investment in our stock relative to returns earned through investments in other public companies (20%). The performance award opportunity ranges from 50% of the employee's target award if minimum performance requirements are met to a maximum of 200% of the target award based on the attainment of certain financial and shareholder-return goals over a specific performance period, which is generally three fiscal years.

We account for performance-based shares as equity-based awards because upon vesting, they will be settled in common shares. For shares that vest based on our results relative to the performance goals, we expense as compensation cost the fair value of the shares as of the day we granted the awards recognized over the performance period, taking into account the probability that we will satisfy the performance goals. The fair

15

Table of Contents

value of each share of the awards we granted in fiscal 2016 that vest based on attaining performance goals was $25.73, the market value of our common shares on the date we granted the awards less the dividends we expect to pay before the shares vest. For shares that vest based on market conditions, we use a Monte Carlo valuation model to estimate each share's fair value as of the date of grant, and, similar to the way in which we expense awards of stock options, we expense compensation cost over the vesting period regardless of the value that award recipients ultimately receive. Based on the Monte Carlo model, the fair value as of the grant date of the fiscal 2016 grant of shares that vest based on market conditions was $34.40.

We did not grant any performance-based units during the first nine months of fiscal 2016, but we have outstanding performance-based unit awards from our fiscal 2014 grant. We account for performance-based units as liability-based awards because upon vesting, they will be paid in cash. For units that vest based on our results relative to performance goals, we expense as compensation cost over the performance period the fair value of each unit, taking into account the probability that the performance goals will be attained. The fair value of each unit we granted in fiscal 2014 that vests based on attaining performance goals was $21.15, the market value of our common shares on the last day of the reporting period less the dividends we expect to pay before the awards vest. For performance-based units that vest based on market conditions, we use a Monte Carlo valuation model to estimate each unit's fair value as of the last day of the reporting period. We re-measure and adjust the liability for these units based on the Monte Carlo valuation at the end of each reporting period until we pay out the units. Based on the Monte Carlo model, the fair value at January 23, 2016, of the fiscal 2014 grant of units that vest based on market conditions was $26.41.

Note 10: Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss for the quarter ended January 23, 2016, and January 24, 2015, is as follows:

(Unaudited, amounts in thousands)		Translation  adjustment			Change in  fair value  of cash  flow hedge			Unrealized  gain on  marketable  securities			Net pension  amortization  and net  actuarial  loss			Accumulated  other  comprehensive loss
Balance at October 24, 2015		$	(971	)	$	(525	)	$	1,292		$	(33,725	)	$	(33,929	)
Changes before reclassifications		159			(1,616		)	(929		)	-			(2,386		)
Amounts reclassified to net income		-			560			(248		)	789			1,101
Tax effect		-			403			448			(301		)	550
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated		159			(653		)	(729		)	488			(735		)
Balance at January 23, 2016		$	(812	)	$	(1,178	)	$	563		$	(33,237	)	$	(34,664	)

16

Table of Contents

(Unaudited, amounts in thousands)		Translation  adjustment			Change in  fair value  of cash  flow hedge			Unrealized  gain on  marketable  securities			Net pension  amortization  and net  actuarial  loss			Accumulated  other  comprehensive loss
Balance at October 25, 2014		$	2,523		$	(253	)	$	1,197		$	(34,011	)	$	(30,544	)
Changes before reclassifications		(711		)	(874		)	275			-			(1,310		)
Amounts reclassified to net income		-			403			(186		)	702			919
Tax effect		-			180			(34		)	(268		)	(122		)
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated		(711		)	(291		)	55			434			(513		)
Balance at January 24, 2015		$	1,812		$	(544	)	$	1,252		$	(33,577	)	$	(31,057	)

The activity in accumulated other comprehensive loss for the nine months ended January 23, 2016, and January 24, 2015, is as follows:

(Unaudited, amounts in thousands)		Translation  adjustment			Change in  fair value  of cash  flow hedge			Unrealized  gain on  marketable  securities			Net pension  amortization  and net  actuarial  loss			Accumulated  other  comprehensive loss
Balance at April 25, 2015		$	1,517		$	(560	)	$	1,605		$	(34,701	)	$	(32,139	)
Changes before reclassifications		(2,329		)	(2,671		)	(1,270		)	-			(6,270		)
Amounts reclassified to net income		-			1,672			(413		)	2,366			3,625
Tax effect		-			381			641			(902		)	120
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated		(2,329		)	(618		)	(1,042		)	1,464			(2,525		)
Balance at January 23, 2016		$	(812	)	$	(1,178	)	$	563		$	(33,237	)	$	(34,664	)

(Unaudited, amounts in thousands)		Translation  adjustment			Change in  fair value  of cash  flow hedge			Unrealized  gain on  marketable  securities			Net pension  amortization  and net  actuarial  loss			Accumulated  other  comprehensive loss
Balance at April 26, 2014		$	2,455		$	(53	)	$	1,098		$	(34,880	)	$	(31,380	)
Changes before reclassifications		(643		)	(1,254		)	449			-			(1,448		)
Amounts reclassified to net income		-			461			(201		)	2,105			2,365
Tax effect		-			302			(94		)	(802		)	(594		)
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated		(643		)	(491		)	154			1,303			323
Balance at January 24, 2015		$	1,812		$	(544	)	$	1,252		$	(33,577	)	$	(31,057	)

17

Table of Contents

We reclassified the unrealized gain on marketable securities from accumulated other comprehensive loss to net income through other income in our consolidated statement of income, reclassified the change in fair value of cash flow hedges to net income through cost of sales, and reclassified the net pension amortization to net income through selling, general and administrative expense.

The components of noncontrolling interest for the quarter and nine months ended January 23, 2016, and January 24, 2015, were as follows:

		Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15			1/23/16			1/24/15
Balance as of the beginning of the period		$	9,318		$	8,219		$	8,954		$	7,832
Net income		328			524			1,482			933
Other comprehensive loss		(132		)	(50		)	(922		)	(72		)
Balance as of the end of the period		$	9,514		$	8,693		$	9,514		$	8,693

Note 11: Segment Information

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

Upholstery Segment . The Upholstery segment consists primarily of two operating units: La-Z-Boy and England. This segment manufactures and imports upholstered furniture. Upholstered furniture includes recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas. The Upholstery segment sells directly to La-Z-Boy Furniture Galleries ®  stores, operators of La-Z-Boy Comfort Studio ®  locations and England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.

Casegoods Segment . The Casegoods segment consists of three brands: American Drew, Hammary, and Kincaid. This segment sells imported wood furniture to furniture retailers. Casegoods product includes bedroom, dining room, entertainment centers, occasional pieces and some manufactured coordinated upholstered furniture. The Casegoods segment sells directly to major dealers, as well as La-Z-Boy Furniture Galleries ®  stores, and a wide cross-section of other independent retailers.

Retail Segment . The Retail segment consists of 123 company-owned La-Z-Boy Furniture Galleries ®  stores. The Retail segment sells upholstered furniture, and some casegoods and other accessories, to end consumers through the retail network.

18

Table of Contents

		Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15			1/23/16			1/24/15
Sales
Upholstery segment:
Sales to external customers		$	250,740		$	243,390		$	743,304		$	725,590
Intersegment sales		51,652			42,946			137,581			120,872
Upholstery segment sales		302,392			286,336			880,885			846,462
Casegoods segment:
Sales to external customers		22,528			24,134			69,517			75,542
Intersegment sales		2,091			1,866			6,714			8,269
Casegoods segment sales		24,619			26,000			76,231			83,811
Retail segment sales		110,160			89,791			293,291			247,285
Corporate and Other:
Sales to external customers		586			561			2,216			2,040
Intersegment sales		1,328			-			2,594			-
Corporate and Other sales		1,914			561			4,810			2,040
Eliminations		(55,071		)	(44,812		)	(146,889		)	(129,141		)
Consolidated sales		$	384,014		$	357,876		$	1,108,328		$	1,050,457
Operating Income (Loss)
Upholstery segment		$	33,022		$	31,479		$	94,656		$	86,103
Casegoods segment		1,768			860			6,092			5,380
Retail segment		8,834			4,202			19,279			8,199
Restructuring		(78		)	771			(430		)	1,118
Corporate and Other		(8,762		)	(10,384		)	(31,453		)	(27,189		)
Consolidated operating income		34,784			26,928			88,144			73,611
Interest expense		120			131			365			408
Interest income		204			232			573			667
Income from Continued Dumping and Subsidy Offset Act, net		102			-			102			-
Other income (expense), net		(93		)	805			2,387			699
Income from continuing operations before income taxes		$	34,877		$	27,834		$	90,841		$	74,569

Note 12: Income Taxes

Our effective tax rates for continuing operations for the third quarter and nine months ended January 23, 2016, were 36.2% and 36.1%, respectively, compared with 34.0% and 34.8% for the third quarter and nine months ended January 24, 2015. Our effective tax rate varies from the 35% statutory rate primarily due to state taxes, less the benefit of the U.S. manufacturing deduction and foreign earnings in jurisdictions with lower tax rates than the U.S.

19

Table of Contents

Our consolidated balance sheet at the end of the third quarter of fiscal 2016 reflected a $0.9 million net liability for uncertain income tax positions. We do not expect this net liability to change significantly in the next 12 months. We will either pay or release the liability for uncertain income tax positions as tax audits are completed or settled, statutes of limitation expire or other new information becomes available.

Note 13: Earnings per Share

Certain share-based compensation awards that entitle their holders to receive non-forfeitable dividends prior to vesting are considered participating securities. We grant restricted stock awards that contain non-forfeitable rights to dividends on unvested shares, and we are required to include these participating securities in calculating our basic earnings per common share, using the two-class method.

The following is a reconciliation of the numerators and denominators we used in our computations of basic and diluted earnings per share:

		Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)		1/23/16			1/24/15			1/23/16			1/24/15
Numerator (basic and diluted):
Net income attributable to La-Z-Boy Incorporated		$	21,906		$	17,948		$	56,534		$	50,558
Income allocated to participating securities		(107		)	(97		)	(292		)	(283		)
Net income available to common shareholders		$	21,799		$	17,851		$	56,242		$	50,275
Denominator:
Basic weighted average common shares outstanding		50,038			51,576			50,371			52,015
Add:
Contingent common shares		171			210			172			223
Stock option dilution		330			353			337			302
Diluted weighted average common shares outstanding		50,539			52,139			50,880			52,540

The above values for contingent common shares reflect the dilutive effect of common shares that we would have issued to employees under the terms of performance-based share awards if the relevant performance period for the award had been the reporting period.

We had outstanding options to purchase 0.4 million shares for the quarter and nine months ended January 23, 2016, and January 24, 2015, with a weighted average exercise price of $26.69 and $23.63, respectively. We excluded the effect of these options from our diluted share calculation since, for each period presented, the weighted average exercise price of the options was higher than the average market price, and including the options' effect would have been anti-dilutive.

20

Table of Contents

Note 14: Fair Value Measurements

Accounting standards require that we put financial assets and liabilities into one of three categories based on the inputs we use to value them:

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

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

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

Accounting standards require that in making fair value measurements, we use observable market data when they are available. When inputs used to measure fair value fall within different levels of the hierarchy, we categorize the fair value measurement as being in the lowest level that is significant to the measurement. We recognize transfers between levels of the fair value hierarchy at the end of the reporting period in which they occur.

In addition to assets and liabilities that we record at fair value on a recurring basis, we are required to record assets and liabilities at fair value on a non-recurring basis. We measure non-financial assets such as trade names, goodwill, and other long-lived assets at fair value when there is an indicator of impairment, and we record them at fair value only when we recognize an impairment loss.

The following table presents the fair value hierarchy for those assets we measured at fair value on a recurring basis at January 23, 2016, and April 25, 2015:

At January 23, 2016

		Fair Value Measurements
(Unaudited, amounts in thousands)		Level 1(a)			Level 2(a)			Level 3
Assets
Available-for-sale securities		$	1,231		$	42,983		$	-

(a) There were no transfers between Level 1 and Level 2 during fiscal 2016.

At April 25, 2015

		Fair Value Measurements
(Unaudited, amounts in thousands)		Level 1(b)			Level 2(b)			Level 3
Assets
Available-for-sale securities		$	1,552		$	58,516		$	-
Trading securities		-			1,127			-
Total		$	1,552		$	59,643		$	-

(b) There were no transfers between Level 1 and Level 2 during fiscal 2015.

At January 23, 2016, and April 25, 2015, we held available-for-sale marketable securities intended to enhance returns on our cash and to fund future obligations of our non-qualified defined benefit retirement plan, as well as trading securities to fund future obligations of our executive deferred compensation plan and our performance compensation retirement plan. The fair value measurements for our securities are based on 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.

21