LA-Z-BOY INC - 10-K Annual Report

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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 27, 2002
Commission File No. 1-9656

LA-Z-BOY INCORPORATED
1284 N. Telegraph Road, Monroe, MI 48162
(734) 241-4414
Incorporated in Michigan I.R.S. Employer Identification Number 38-0751137

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchanges on Which Registered
- ------------------- -----------------------------
Common Shares, $1.00 Par Value New York Stock Exchange
Pacific Stock Exchange

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

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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
Indicate by check mark if the 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. X
---

Based on the closing price on the New York Stock Exchange on June 7, 2002, the
aggregate market value of Registrant's common shares held by nonaffiliates of
the Registrant was $1,594 million.

The number of common shares outstanding of the Registrant was 59,159,488 as of
June 7, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

(1) Portions of the Registrant's 2002 Annual Report to Shareholders for the
year ended April 27, 2002 are filed as an exhibit and incorporated by
reference into Parts I and II.

(2) Portions of the Registrant's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A for the
Annual Meeting of Shareholders to be held on August 14, 2002.

1

LA-Z-BOY INCORPORATED FORM 10-K ANNUAL REPORT - 2002
TABLE OF CONTENTS

Page
Number(s)
Cautionary Statement Concerning Forward-Looking Statements 3

PART I
Item 1. Business.............................................. 3-9
Item 2. Properties............................................ 9
Item 3. Legal Proceedings .................................... 9
Item 4. Submission of Matters to a Vote of Security Holders... 10
Executive Officers of the Registrant .......................... 10

PART II
Item 5. Market Price for Registrant's Common Equity and
Related Stockholder Matters......................... 11-12
Item 6. Selected Financial Data............................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.................. 12
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk......................................... 12
Item 8. Financial Statements and Supplementary Data........... 12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures............. 13

PART III
Item 10. Directors and Executive Officers of the Registrant... 13
Item 11. Executive Compensation............................... 13
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 13
Item 13. Certain Relationships and Related Transactions....... 13

PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 14-16

Note: The responses to Items 10 through 13 are included in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A for the Annual
Meeting of Shareholders to be held on August 14, 2002. The required information
is incorporated into this Form 10-K by reference to that document and is not
repeated herein.

2

Cautionary Statement Concerning Forward-Looking Statements

We are making forward-looking statements in Parts I and II of this document and
in the portions of Exhibit (13) incorporated by reference into those Parts,
which are subject to risks and uncertainties. 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 and margins future economic performance
future growth industry trends
adequacy and cost of financial resources management plans

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

Many important factors, including future economic, political and industry
conditions (for example, changes in interest rates, changes in consumer demand,
changes in currency exchange rates, changes in demographics and consumer
preferences, changes in housing sales, oil price changes, terrorism impacts and
changes in the availability and cost of capital); competitive factors (such as
the competitiveness of foreign-made products, new manufacturing technologies, or
other actions taken by current or new competitors); operating factors (for
example, supply, labor, or distribution disruptions, changes in operating
conditions or costs, effects of restructuring actions and changes in regulatory
environment), and factors relating to acquisitions, could affect our future
results and could cause those results or other outcomes to differ materially
from what may be expressed or implied in forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements for
new developments or otherwise.

PART I

Item 1. Business.
- ------------------
The successor to a business founded over 75 years ago, La-Z-Boy Incorporated is
the second largest residential furniture manufacturer in the United States in
terms of sales. During our fiscal year ended April 29, 2000 (fiscal 2000), we
acquired three furniture manufacturers: Bauhaus USA, Inc., Alexvale Furniture,
Inc. and LADD Furniture, Inc. These acquisitions, all of which were accounted
for as purchases, increased our sales and number of employees by about 50 % on
an annualized basis. During fiscal year 2002 and 2001, we recorded $22.2 million
and $11.2 million, respectively, in expenses relating to several restructuring
plans. During fiscal 2002, we also sold the operations of Pilliod Furniture, one
of the LADD divisions we had acquired as part of the LADD acquisition. Pilliod's
product line did not strategically align with our other product lines. You can
find more information about our restructurings, these acquisitions, and this
divestiture in Notes 2 and 3 to our consolidated financial statements (pages 35
through 37) included in Exhibit (13) and in the "Management's Discussion and
Analysis" section also included in Exhibit (13) (pages 50 through 62), both of
which are incorporated in this item by reference.

3

Principal Products and Industry Segments

Our reportable operating segments are the Upholstery Group and the Casegoods
Group. These segments are different than the segments used in our fiscal 2001
annual report. The new segments parallel the organizational restructuring
announced July 23, 2001 that realigned our top management team to streamline and
focus our business. The Upholstery Group segment and the Casegoods Group segment
each have a president (the Casegoods president position is currently vacant)
with support staff positions. Within each segment there are several operating
units that share best practices to achieve purchasing, cross-manufacturing and
cross-selling synergies.

Our largest segment in terms of sales is the Upholstery Group. The major
operating units in the Upholstery Group are Bauhaus, Centurion, Clayton Marcus,
England, HickoryMark, La-Z-Boy Residential, La-Z-Boy Contract Furniture Group
and Sam Moore. This group primarily manufactures and sells upholstered furniture
to furniture retailers. Upholstered furniture includes recliners and motion
furniture, sofas, loveseats, chairs, ottomans and sleeper sofas.

Our second segment is the Casegoods Group. The major operating units in the
Casegoods Group are Alexvale, American Drew, American of Martinsville, Hammary,
Kincaid, Lea and Pennsylvania House. This group primarily sells manufactured or
imported hardwood or hardwood veneer furniture to furniture retailers and the
hospitality industry. Approximately 21% of this segment's fiscal 2002 finished
goods sales was imported product. Casegoods product includes tables, chairs,
entertainment centers, headboards and dressers.

You can find additional detailed information regarding our segments and the
products which comprise the segments in Note 17 to our consolidated financial
statements (pages 47 through 49) and our "Management's Discussion and Analysis"
section (pages 50 through 62), both of which are included in Exhibit (13) and
are incorporated in this item by reference.

Raw Materials & Parts

In fiscal 2002, raw material costs were about 36% of sales for both the
Upholstery Group and the Casegoods Group. Price increases for raw materials have
been slightly lower than the inflation rate in recent years and we expect them
to continue at this rate or remain flat.

The principal raw materials for the Upholstery Group are purchased cover, steel
for motion mechanisms, polyester batting and non-chlorofluorocarbonated
polyurethane foam for cushioning and padding, and lumber and plywood for frames
and exposed wood parts. Purchased cover, primarily fabrics and leather, is the
largest raw material for this segment, representing about 45% of the Upholstery
Group's total raw material costs. We generally buy purchased cover from a few
sources, but we foresee no significant difficulty if we needed to switch to
other sources. Most of the purchased cover is in a raw state (a roll or hide),
then cut and sewn into parts in our plants. There is a growing interest,
especially for leather, to purchase fully cut and sewn parts from areas outside
of the United States including: Argentina, Brazil, Germany, Italy, Mexico and
Uruguay. We expect this trend to continue given the lower labor costs in these
areas, the strong U.S. dollar and other existing economic conditions.
Polyurethane foam batting, which is mainly purchased in the vicinity of any
given plant, is the Upholstery Group's next largest type of raw material cost
and is sensitive to changes in the price of oil.

4

The principal raw materials used in the Casegoods Group are hardwoods, plywood
and chipwood, veneers and liquid stains, paints and finishes. Hardwood lumber is
the Casegoods Group's largest raw material cost, representing about 18% of the
segment's total raw material costs. Hardwood lumber historically has had
measurable changes in prices over the short term. Over the past twelve months,
hardwood lumber costs have been declining ranging from a 1% decline in cherry to
a 9% decline in soft maple.

Purchased hardwood parts are a growing source of components for both the
Casegoods and Upholstery Groups. These purchased parts are generally external
(exposed wood) parts as opposed to frame or structural parts. The production
process of these parts is relatively labor intensive, making it more cost
effective to import these parts from countries which have lower labor costs. The
trend of importing these parts is expected to continue.

Finished Goods Imports

Imported finished goods for our Casegoods Group represented approximately 21% of
the segment's fiscal 2002 sales, and only about 6% of our consolidated fiscal
2002 sales. Most of these imports are from the Far East. Increased imported
casegoods is a trend being seen throughout the furniture industry and this trend
is expected to continue. This increased import activity was the major
contributor to our decision to restructure our casegoods manufacturing
capability over the last two years. We are improving our 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 for shipping to obtain favorable rates based on volume.

Seasonal Business

We generally experience our lowest level of sales during our first quarter for
our Upholstery Group and during our first and third quarters for the Casegoods
Group. When possible, we schedule production to maintain uniform manufacturing
activity throughout the year, except for mid-summer plant shutdowns, to coincide
with slower sales.

Economic Cycle and Purchasing Cycle

Housing activity, which encompasses new and existing home and apartment sales
and rentals, as well as residential remodeling, is a good leading indicator of
potential consumer furniture demand. Every time a household forms, moves or
modifies its living quarters, a subsequent consideration frequently is the
purchase of new furnishings to improve the new or remodeled living space or
furnish additional space. Other factors also come into play in determining the
actual level of demand during any particular period. These include interest
rates (as furniture is often purchased on credit) and overall consumer
confidence levels (as furniture is inherently a more easily postponed purchase
than many other durable goods). Typically, upholstery has a shorter life cycle
and a less volatile sales pattern over an economic cycle than casegoods. This is
because upholstery typically represents a smaller dollar purchase for the
consumer, is more fashion and design oriented, and is often purchased one or two
pieces at a time. In contrast, casegoods products tend to be longer-lived, less
fashion oriented, and are often purchased in groupings or "suites".

5

Practices Regarding Working Capital Items

We do not carry significant amounts of upholstered finished goods in inventory
as these goods are usually built to order. However, we generally build casegoods
inventory to stock, with warehousing, in order to attain manufacturing
efficiencies and to meet delivery requirements of customers. This results in
higher levels of finished casegoods product than upholstery products.

Due to longer lead times necessary on imported casegoods, higher levels of
inventory also are required. The increase in imported casegoods has been offset
by our closing of three casegoods plants and converting two others to
warehousing, sub-assembly and import service operations during the fiscal year
thus allowing us to consolidate our domestic production and reduce our overall
inventory quantities.

Dealer terms for stock orders range between 45 - 100 days. Terms are 30 - 45
days for sales to dealers that have received an order from a consumer. We often
offer extended dating as part of sales promotion programs.

Customers

We sell to over 9,000 customers. We did not have any customer whose sales
amounted to more than 3% of our fiscal year 2002 sales for either the Upholstery
Group or the Casegoods Group. Over 90% of the sales in our Upholstery Group are
to dealers or furniture retailers (our customers) at "wholesale" pricing. The
remaining Upholstery Group sales are directly to end users (our consumers)
through wholly-owned retail stores. Sales in our Casegoods Group are almost
entirely to furniture retailers and the hospitality industry.

We have formal agreements with many of our retailer customers for them to
display and merchandise products from one or more of our operating units and
sell them to end-user consumers in dedicated square footage, either in
stand-alone stores or in dedicated galleries within their stores. We consider
these stores, as well as our own retail stores, to be "proprietary." As a
percentage of total sales, our 2002 customer mix was about 38% proprietary,
(including sales to end users by our own retail stores) 13% major dealers (for
example, Federated, The May Company, Nebraska Furniture Mart) and 49% general
dealers.

Currently, we own 26 proprietary stores, and we have agreements with independent
dealers for 274 stand-alone stores and in-store galleries, all dedicated
entirely to our products and accessory products that we approve. Control of
retail square footage is important to the success of product distribution. This
distribution system originated with our La-Z-Boy Furniture Galleries(R) program,
which continues to have the largest number of proprietary stores and galleries,
but we are expanding that model to apply across all our operating units. Viewed
by itself, La-Z-Boy Furniture Galleries would be the fifth largest furniture
retailer in the U.S. Our total "proprietary" floor space is approximately 9.0
million square feet.

It is a key part of our marketing strategy to continue to expand proprietary
distribution. We select customers for this proprietary distribution based on the
dealer-customer's management and financial qualifications. The location of these
proprietary stores is based on our need for distribution in a certain
geographical area. This proprietary method of distribution is beneficial to both

6

La-Z-Boy and our dealer-customers. For us, 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 customers. As a part of this, we
offer conferences in order for these customers to share best practices among
their peers.

Sales Representatives

Similar to most of the U.S. furniture industry, independent sales
representatives sell our products to our dealer-customers. Typically these
representatives carry one or more of our operating unit's products, but they may
also carry products of other furniture companies. 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 dealer order with a down payment from a consumer. These orders are
typically shipped within two to six weeks following receipt of the order.
Casegoods primarily are 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 and greater batch size manufacturing
efficiencies.

As of June 1, 2002 and June 2, 2001, Upholstery Group backlogs were
approximately $151 million and $98 million, respectively. Casegoods backlogs as
of June 1, 2002 and June 2, 2001 were approximately $78 million and $96 million,
respectively. The measure of backlog at a point in time may not be indicative of
future sales performance. 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. Orders from pre-built stock inventory, though, may be canceled
up to the time of shipment.

Competitive Conditions

We are currently the second largest manufacturer of residential (bedroom, dining
room and living room) furniture in the United States, measured by annual sales
volume. Our larger competitors include (in alphabetical order) Bassett
Furniture, Bernhardt, Ethan Allen, Furniture Brands International, Hooker
Furniture, Klaussner, Natuzzi and Stanley Furniture.

In the Upholstery Group, the largest competitors are Bassett Furniture, Ethan
Allen, Furniture Brands, Klaussner, and Natuzzi.

In the Casegoods Group, our main competitors are Bernhardt, Ethan Allen,
Fleetwood, Furniture Brands, Herman Miller, Hooker, Kimball International, and
Stanley. Legacy is also a large competitor with respect to imports. As the
volume of casegoods imports into the United States continues to increase, we

7

will need to continue to streamline our production processes and import as
necessary in order to remain competitive in this segment. Additional market
pressures may be created in the future due to foreign manufacturers entering the
United States market, as well as increased direct purchasing from overseas by
United States retailers.

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

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

In the past several years, our industry has witnessed the bankruptcies of
Montgomery Ward, HomeLife and Heilig-Meyers, three of the then top ten U.S.
furniture retailers. The current economic environment is currently stronger than
it was during that time period; however, there continues to be some risk of
additional retail fallout.

Research and Development Activities

We provide information regarding our research and development activities in Note
1 to our consolidated financial statements (page 34), which is included in
Exhibit (13) to this report and is incorporated in this item by reference.

Patents, Licenses and Franchises

We hold several patents but we believe that the loss of any single patent or
group of patents would not materially affect our business. We have no material
licenses or franchises. Our agreements with our "proprietary" dealers are a key
part of our marketing strategies. We provide more information about those
dealers above, under "Customers."

Compliance with Environmental Regulations

We are currently involved as a potentially responsible party at six
environmental clean-up sites. Based on a review of all currently known facts and
our experience with previous environmental clean-up sites, we believe we have
recorded expense in respect of probable and reasonably estimable environmental
matters. We do not expect continuing environmental compliance with existing
federal, state and local statutes dealing with protection of the environment to
have a material effect on our capital expenditures, earnings, competitive
position or liquidity. We are continuing a program of conducting voluntary
compliance audits at our facilities and also have taken steps to assure
compliance with provisions of Titles III and V of the 1990 Clean Air Act
Amendments.

8

Employees

We employed approximately 17,850 persons as of June 1, 2002. The Upholstery
Group employed approximately 13,400, the Casegoods Group employed approximately
4,300, and there were approximately 150 non-segment personnel. Substantially all
of our employees are employed on a full-time basis. Less than 7% of our
employees are unionized.

At the end of June last year we had 19,700 employees. The reduction in employees
since then has been due to restructuring and rationalization of our workforce in
response to falling demand and because we increasingly are purchasing parts and
finished goods from outside suppliers. We reduced our domestic casegoods
manufacturing square footage by about 45% in the last year.

Financial Information about Foreign and Domestic Operations and Export Sales

Less than 1% of our total sales are exports. We sell upholstered furniture to
Canadian customers through a Canadian subsidiary and to European customers
through a United Kingdom subsidiary and a joint venture, La-Z-Boy Europe, BV. We
have a small amount of sales in Mexico through a Mexican subsidiary and we have
a joint venture in Thailand, which sells furniture in Australia and the Far
East.

Item 2. Properties.
- --------------------
We owned or leased approximately 16 million square feet of manufacturing,
warehousing, office, showroom and retail facilities and had approximately 2
million square feet of idle facilities at the end of fiscal 2002. Of the 16
million in fiscal 2002, our Upholstery Group occupied approximately 10 million
square feet of space and our Casegoods Group occupied approximately 6 million
square feet of space. At the end of fiscal 2001 we owned or leased approximately
19 million square feet of facilities of which our Upholstery Group occupied
approximately 10 million square feet of space and our Casegoods Group occupied
approximately 9 million square feet of space. The reduction in floor space in
fiscal 2002 was due to rationalizing production capacity through restructuring
and other efforts, as well as to importing more parts and finished goods.

Our facilities are located in Arkansas, California, Delaware, Maryland,
Massachusetts, Michigan, Mississippi, Missouri, New Jersey, North Carolina,
Pennsylvania, South Carolina, Tennessee, Utah, Virginia, Washington D.C. and the
countries of Canada, the United Kingdom, Mexico and Thailand. Most of them are
less than 40 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. We own most of our plants, some of which
have been financed under long-term industrial revenue bonds and we lease the
majority of our retail stores. For information on terms of operating leases for
our properties, see Note 8 to our consolidated financial statements (pages 39
and 40), which is included in Exhibit (13) to this report and incorporated in
this item by reference.

Item 3. Legal Proceedings.
- ---------------------------
We have been named as a defendant in various lawsuits arising in the ordinary
course of business. While we cannot predict or precisely estimate the ultimate
outcome of any of these actions, based on our previous experience with lawsuits
of these types, management believes that we have provided for potential losses
and that the additional liability, if any, will not be material to us.

9

Item 4. Submission of Matters to a Vote of Security.
- -----------------------------------------------------
Nothing was submitted for a vote by our shareholders during the fourth quarter
of fiscal 2002.

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.

Patrick H. Norton, age 80
o Chairman of the Board since October 1997
o Formerly Senior Vice President Sales and Marketing

Gerald L. Kiser, age 55
o President and Chief Executive Officer since July 2001
o Formerly President and Chief Operating Officer (October 1997 - July 2001),
Executive Vice President and Chief Operating Officer (April - October 1997)

David M. Risley, age 57
o Senior Vice President and Chief Financial Officer since April 2001
o Formerly Vice President and Chief Financial Officer of Aeroquip-Vickers, a
global manufacturer servicing industrial, aerospace and the automotive
industry (October 1991 - December 1999)

John J. Case, age 51
o Senior Vice President and President Upholstery Group since July 2001
o President La-Z-Boy Residential since September 1999
o Formerly Vice President of Marketing, La-Z-Boy Residential

10

PART II

ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY and RELATED
- ----------------------------------------------------------------
STOCKHOLDER MATTERS.
- --------------------

EQUITY PLANS

The table below provides information, as of the end of fiscal 2002, concerning
our compensation plans under which common shares may be issued.

Equity Compensation Plan Information (see Note 1)

Number of securities
remaining available
Number of Weighted- for future issuance
securities to be average under equity
issued upon exercise compensation plans
exercise of prices of (excluding securities
outstanding outstanding reflected in column
options options (a)) Note 2
Plan category (a) (b) (c)
- -------------------------------------------------------------------------------
Equity compensation plans 1,897,945 $18.38 6,073,202
approved by shareholders

Note 1: This table relates only to our shareholder-approved equity plans. We
also have an option plan that we adopted without shareholder approval at the
time we acquired LADD solely in order to replace options on LADD common shares
with options on our common shares. At the end of fiscal 2002, options on 147,000
of our common shares were outstanding under that replacement plan, with a
weighted-average exercise price of $18.21 per share. No additional options or
other awards may be made under that plan. Except for that plan, the
shareholder-approved plans to which this table relates, and broad-based
retirement plans intended to meet the requirements of Section 401(a) of the
Internal Revenue Code, at the end of fiscal 2002 we had no plans (including
individual compensation arrangements) under which any equity securities were
authorized for issuance.

Note 2: The amount reported in this column is the aggregate number of shares
available for future issuance under our 1997 Incentive Stock Option Plan
(excluding shares reported in column (a)), our 1997 Restricted Share Plan, our
Restricted Stock Plan for Non-Employee Directors, or our 1993 Performance-Based
Stock Plan. Both restricted stock plans provide for grants of 30-day options on
our common shares. The performance-based plan provides for grants of our common
shares or 30-day options on common shares to selected key employees based on
achievement of pre-set goals over a performance period (normally of three fiscal
years). No options were outstanding under any of these plans except the
incentive plan at the end of fiscal 2002. At that time, 492,080 shares were
available for future issuance under the 1997 restricted plan, 70,500 shares were
available for future issuance under the non-employee directors restricted plan,
and 536,069 shares were available for future issuance under the
performance-based plan.

11

Shareholders
We had about 33,000 shareholders of record at June 7, 2002.

Other Information
All other information required to be reported under this item is included in
Exhibit (13) to this report (page 65) and incorporated in this item by
reference.

ITEM 6. SELECTED FINANCIAL DATA.
- ---------------------------------
All information required to be reported under this item is included in Exhibit
(13) to this report (page 63) and is incorporated in this item by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATION.
- -------------------------
Our "Management's Discussion and Analysis" section included in Exhibit (13) of
this report (pages 50 through 62) is incorporated by reference in response to
this item.

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 floating rate $300 million revolving credit
facility under which we had $70 million borrowed at April 27, 2002. We have
entered into several interest rate swap agreements with counter-parties that are
participants in the revolving credit facility to negate the impact of changes in
interest rates on this floating rate debt. We believe that potential credit loss
from counter-party non-performance is minimal. The purpose of these swaps is to
fix interest rates on a notional amount of $70 million for a three year period
at 6.095% plus our applicable borrowing spread under the revolving credit
facility, which can range from 0.475% to 0.800%. Management estimates that a 1%
change in interest rates would not have a material impact on the results of
operations for fiscal 2003 based upon the year end levels of exposed
liabilities.

We are exposed to market risk from changes in the value of foreign currencies.
Our exposure to changes in the value of foreign currencies is reduced through
our use of foreign currency forward contracts from time to time. At April 27,
2002, we had no foreign exchange forward contracts outstanding. Substantially
all of our imported purchased parts are denominated in U.S. dollars. Thus, 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
2003.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -----------------------------------------------------
Our consolidated financial statements and all other information required by this
item are included in Exhibit (13) of this report (pages 28 through 49 and page
63), and all of that information is incorporated in this item by reference.

12

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- -------------------------------------------------------------------
AND FINANCIAL DISCLOSURE.
- -------------------------
None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
We provide some information about our executive officers in Part I of this
report, under the heading "Executive Officers of Registrant." All other
information required to be reported under this item is included in our proxy
statement for our 2002 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 is included in our proxy
statement for our 2002 annual meeting, and all of that information is
incorporated in this item by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------------------------------------------------------------------------
All information required to be reported under this item is included in our proxy
statement for our 2002 annual meeting, and all of that information is
incorporated in this item by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
All information required to be reported under this item is included in our proxy
statement for our 2002 annual meeting, and all of that information is
incorporated in this item by reference.

13

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
- -------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1.) Financial Statements:
Report of Management Responsibilities
Report of Independent Accountants
Consolidated Statement of Income for each of the three fiscal
years ended April 27, 2002, April 28, 2001 and April
29, 2000
Consolidated Balance Sheet at April 27, 2002 and April 28, 2001
Consolidated Statement of Cash Flows for the fiscal years
ended April 27, 2002, April 28, 2001 and April 29, 2000
Consolidated Statement of Changes in Shareholders' Equity for
the fiscal years ended April 27, 2002, April 28, 2001
and April 29, 2000
Notes to Consolidated Financial Statements

(2.) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for each of the
three fiscal years in the period ended April 27, 2002.

Both immediately follow 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.

(3.) Exhibits
The following exhibits are filed as part of this report:

Exhibit
Number Description of Exhibit (Note 1)
- ------- ----------------------
(1) Not applicable
(2) Not applicable
(3.1) La-Z-Boy Incorporated Restated Articles of Incorporation (Note 2)
(3.2) Amendment to Restated Articles of Incorporation (Note 3)
(3.3) La-Z-Boy Incorporated Amended and Restated Bylaws (Note 4)

14

(4) $300 million Credit Agreement dated as of May 12, 2000 among
La-Z-Boy Incorporated, the banks listed therein, Comerica Bank,
as Syndication Agent, Suntrust Bank, as Documentation Agent,
and Wachovia Bank, N.A., as Administrative Agent (Note 5)
(Registrant hereby agrees to furnish to the SEC, upon its request,
a copy of each other instrument or agreement defining the rights of
holders of long-term debt of Registrant and its subsidiaries).
(5) Not applicable
(8) Not applicable
(9) Not applicable
(10.1.1)* La-Z-Boy Incorporated Amended and Restated 1993 Performance Based
Stock Plan (Note 6)
(10.1.2)* La-Z-Boy Incorporated Further Amended and Restated 1993 Performance-
Based Stock Plan (Note 7)
(10.2)* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee
Directors (Note 8)
(10.3)* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description (Note 9)
(10.4.1)* La-Z-Boy Chair Company Supplemental Executive Retirement Plan (as
revised in 1995) (Note 10)
(10.4.2)* First Amendment to the La-Z-Boy Chair Company Supplemental Executive
Retirement Plan
(10.4.3)* Second Amendment to the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan
(10.5)* La-Z-Boy Incorporated Amended and Restated 1997 Restricted Share
Plan (Note 11)
(10.6)* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 11)
(10.7)* Form of Change in Control Agreement (Note 10). Only directors or
executive officers currently covered: Patrick H. Norton, Gerald L.
Kiser, David M. Risley
(10.8)* Form of Indemnification Agreement (covering all directors, including
employee-directors) (Note 12)
(10.9)* Description of Agreements Related to Termination of Personal
Executive Life Insurance Program
(10.10)* Summary Plan Description and Partial Plan Document for the La-Z-Boy
Incorporated Personal Executive Life Insurance Program (Note 13).
Only director or executive officers covered: Gerald L. Kiser and
John J. Case
(10.11.1) Agreement and Plan of Merger, dated as of September 28, 1999,
among La-Z-Boy Incorporated, LZB Acquisition Corp., and LADD
Furniture, Inc. (Note 14)
(10.11.2) Amendment No. 1, dated as of December 13, 1999, to Agreement
and Plan of Merger among La-Z-Boy Incorporated, LZB Acquisition
Corp., and LADD Furniture, Inc. (Note 15)
(11) Statement regarding computation of per share earnings (See Note 14
to the Consolidated Financial Statements included in Exhibit (13)).
(12) Not applicable
(13) Portions of the 2002 Annual Report to Shareholders (Note 16)
(15) Not applicable
(16) Not applicable
(17) Not applicable
(18) Not applicable
(19) Not applicable

15

(20) Not applicable
(21) List of subsidiaries of La-Z-Boy Incorporated
(22) Not applicable
(23) Consent of PricewaterhouseCoopers LLP (EDGAR filing only)
(24) Not applicable
(25) Not applicable
(26) Not applicable

Notes to Exhibits
- -----------------
* Indicates a management contract or compensatory plan or arrangement
under which a director or executive officer may receive benefits.

Note 1. For all documents incorporated by reference, the SEC file number
is 1-9656 unless otherwise indicated below. All exhibit description
references to previous filings are references to filings by
La-Z-Boy. Unless otherwise indicated, the described exhibit is being
filed with this Report.
Note 2. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 26, 1996.
Note 3. Incorporated by reference to an exhibit to Form 10-K/A filed
September 27, 1999.
Note 4. Incorporated by reference to an exhibit to Form 10-K filed July
27, 2001.
Note 5. Incorporated by reference to an exhibit to Form 8-K dated May 31,
2000.
Note 6. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1996.
Note 7. Incorporated by reference to an exhibit to definitive proxy
statement dated June 29, 2001.
Note 8. Incorporated by reference to an exhibit to definitive proxy
statement dated July 6, 1989.
Note 9. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 10. Incorporated by reference to an exhibit to Form 8-K dated
February 6, 1995.
Note 11. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1997.
Note 12. Incorporated by reference to an exhibit to Form 8, Amendment No. 1,
dated November 3, 1989.
Note 13. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 14. Incorporated by reference to an exhibit to Form 8-K dated
September 28, 1999, and filed with the SEC on September 30, 1999.
Note 15. Incorporated by reference to an exhibit to Form S-4 Registration
Statement filed December 15, 1999; registration no. 333-92763.
Note 16. With the exception of the information incorporated in Parts I
and II, this document is not deemed to be filed as part of this
Report.

(b) Reports on Form 8-K

On April 11, 2002, we filed with the SEC a Report on Form 8-K, which
announced additional restructuring activities in our Casegoods Group. No
other Reports on Form 8-K were filed by the company during the fourth
quarter of fiscal 2002.

16

Report of Independent Accountants on Financial Statement Schedule

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

Our audits of the consolidated financial statements referred to in our report
dated May 29, 2002 appearing in the 2002 Annual Report to Shareholders of
La-Z-Boy Incorporated (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(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.

/s/PricewaterhouseCoopers LLP

Toledo, Ohio
May 29, 2002

17

18

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 24, 2002 LA-Z-BOY INCORPORATED

BY /s/ G.L. Kiser
-------------------------------------
G.L.Kiser
President and Chief Executive Officer

19

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of June 24, 2002, by the following persons on behalf
of the Registrant and in the capacities indicated.

/s/ P.H. Norton /s/ J.W. Johnston
- -------------------------------- --------------------------------
P.H. Norton J.W. Johnston
Chairman of the Board Director

/s/ G.L. Kiser /s/ H.G. Levy
- -------------------------------- --------------------------------
G.L. Kiser H.G. Levy
President and Chief Executive Director
Officer, Director

/s/ D.M. Risley /s/ R.E. Lipford
- -------------------------------- --------------------------------
D.M. Risley R.E. Lipford
Senior Vice President and Director
Chief Financial Officer

/s/ L.M. Riccio, Jr. /s/ H.O. Petrauskas
- -------------------------------- --------------------------------
L.M. Riccio, Jr. H.O. Petrauskas
Chief Accounting Officer and Director
Corporate Controller

/s/ J.H. Foss /s/ J.L. Thompson
- -------------------------------- --------------------------------
J.H. Foss J.L. Thompson
Director Director

/s/ D.K. Hehl /s/ J.F. Weaver
- -------------------------------- --------------------------------
D.K. Hehl J.F. Weaver
Director Director

20

EXHIBIT INDEX

Exhibit
Number Description of Exhibit (Note 1)
- ------- ----------------------
(1) Not applicable
(2) Not applicable
(3.1) La-Z-Boy Incorporated Restated Articles of Incorporation (Note 2)
(3.2) Amendment to Restated Articles of Incorporation (Note 3)
(3.3) La-Z-Boy Incorporated Amended and Restated Bylaws (Note 4)
(4) $300 million Credit Agreement dated as of May 12, 2000
among La-Z-Boy Incorporated, the banks listed therein, Comerica
Bank, as Syndication Agent, Suntrust Bank, as Documentation Agent,
and Wachovia Bank, N.A., as Administrative Agent (Note 5)
(Registrant hereby agrees to furnish to the SEC, upon its request,
a copy of each other instrument or agreement defining the rights of
holders of long-term debt of Registrant and its subsidiaries).
(5) Not applicable
(8) Not applicable
(9) Not applicable
(10.1.1)* La-Z-Boy Incorporated Amended and Restated 1993 Performance Based
Stock Plan (Note 6)
(10.1.2)* La-Z-Boy Incorporated Further Amended and Restated 1993
Performance-Based Stock Plan (Note 7)
(10.2)* La-Z-Boy Incorporated Restricted Stock Plan for Non-Employee
Directors (Note 8)
(10.3)* La-Z-Boy Incorporated Executive Incentive Compensation Plan
Description (Note 9)
(10.4.1)* La-Z-Boy Chair Company Supplemental Executive Retirement Plan (as
revised in 1995) (Note 10)
(10.4.2)* First Amendment to the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan
(10.4.3)* Second Amendment to the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan
(10.5)* La-Z-Boy Incorporated Amended and Restated 1997 Restricted Share
Plan (Note 11)
(10.6)* La-Z-Boy Incorporated 1997 Incentive Stock Option Plan (Note 11)
(10.7)* Form of Change in Control Agreement (Note 10). Only directors or
executive officers currently covered: Patrick H. Norton, Gerald L.
Kiser, David M. Risley
(10.8)* Form of Indemnification Agreement (covering all directors,
including employee-directors) (Note 12)
(10.9)* Description of Agreements Related to Termination of Personal
Executive Life Insurance Program
(10.10)* Summary Plan Description and Partial Plan Document for the La-Z-Boy
Incorporated Personal Executive Life Insurance Program (Note 13).
Only director or executive officers covered: Gerald L. Kiser and
John J. Case
(10.11.1) Agreement and Plan of Merger, dated as of September 28, 1999,
among La-Z-Boy Incorporated, LZB Acquisition Corp., and LADD
Furniture, Inc. (Note 14)
(10.11.2) Amendment No. 1, dated as of December 13, 1999, to Agreement
and Plan of Merger among La-Z-Boy Incorporated, LZB Acquisition
Corp., and LADD Furniture, Inc. (Note 15)

21

(11) Statement regarding computation of per share earnings (See Note 14
to the Consolidated Financial Statements included in Exhibit (13)).
(12) Not applicable
(13) Portions of the 2002 Annual Report to Shareholders (Note 16)
(15) Not applicable
(16) Not applicable
(17) Not applicable
(18) Not applicable
(19) Not applicable
(20) Not applicable
(21) List of subsidiaries of La-Z-Boy Incorporated
(22) Not applicable
(23) Consent of PricewaterhouseCoopers LLP (EDGAR filing only)
(24) Not applicable
(25) Not applicable
(26) Not applicable
(27) Not applicable

Notes to Exhibits
- -----------------
* Indicates a management contract or compensatory plan or arrangement
under which a director or executive officer may receive benefits.

Note 1. For all documents incorporated by reference, the SEC file number
is 1-9656 unless otherwise indicated below. All exhibit description
references to previous filings are references to filings by
La-Z-Boy. Unless otherwise indicated, the described exhibit is
being filed with this Report.
Note 2. Incorporated by reference to an exhibit to Form 10-Q for the
quarter ended October 26, 1996.
Note 3. Incorporated by reference to an exhibit to Form 10-K/A filed
September 27, 1999.
Note 4. Incorporated by reference to an exhibit to Form 10-K filed July
27, 2001.
Note 5. Incorporated by reference to an exhibit to Form 8-K dated May
31, 2000.
Note 6. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1996.
Note 7. Incorporated by reference to an exhibit to definitive proxy
statement dated June 29, 2001.
Note 8. Incorporated by reference to an exhibit to definitive proxy
statement dated July 6, 1989.
Note 9. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 10. Incorporated by reference to an exhibit to Form 8-K dated
February 6, 1995.
Note 11. Incorporated by reference to an exhibit to definitive proxy
statement dated June 27, 1997.
Note 12. Incorporated by reference to an exhibit to Form 8, Amendment No. 1,
dated November 3, 1989.
Note 13. Incorporated by reference to an exhibit to Form 10-K for the
fiscal year ended April 26, 1997.
Note 14. Incorporated by reference to an exhibit to Form 8-K dated
September 28, 1999, and filed with the SEC on September 30, 1999.
Note 15. Incorporated by reference to an exhibit to Form S-4 Registration
Statement filed December 15, 1999; registration no. 333-92763.

22

Note 16. With the exception of the information incorporated in Parts I
and II, this document is not deemed to be filed as part of this
Report.

Exhibit (10.4.2)

FIRST AMENDMENT TO
LA-Z-BOY CHAIR COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

This First Amendment made and executed on this 7th day of March, 2002, but
to be effective May 1, 2001, by La-Z-Boy Incorporated (formerly known as
La-Z-Boy Chair Company), ("Company"), a Michigan corporation.

WHEREAS, the Company established the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan ("Plan"), a nonqualified deferred compensation plan,
effective May 1, 1991.

WHEREAS, the Board of Directors of Company approved on June 18, 2001, an
amendment to the Plan which modified the timing of the valuation of
participants' accounts.

NOW, THEREFORE, the Plan is hereby amended as follows:

1. Section 2 - "Definitions" paragraph (i) entitled "Contingent Account" or
"Account" shall be amended effective May 1, 2001 to read in its entirety as
follows:

(i) "Contingent Account" or "Account" means the account established on
the books of the Company for a Participant credited with an allocation
hereunder. In addition to any allocations credited to a Participant, his
Contingent Account shall be credited with, and thereafter include, interest on
such Account at the end of each fiscal quarter (i.e. July, October, January
and April) pursuant to the following schedule:

- ---------------------------------- ------------------------------------
Taxable Year Beginning In Annual Rate
- ---------------------------------- ------------------------------------
1991 Greater of 9% or the rate announced
by the Committee
- ---------------------------------- ------------------------------------
1992 and thereafter The rate announced by the Committee
- ---------------------------------- ------------------------------------

Additionally, each Account shall be updated for interest in the event of
distribution from the last allocation date to the estimated date of
distribution.

2. Except as amended herein, the Plan shall remain in full force and effect.

IN WITNESS WHEREOF, La-Z-Boy Incorporated has caused this First Amendment to
be executed this 7th day of March, 2002.

Attest: La-Z-Boy Incorporated

____________________________ By__________________________
Secretary President and CEO

23

Exhibit (10.4.3)

SECOND AMENDMENT TO
LA-Z-BOY CHAIR COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

This Second Amendment made and executed on this 9th day of April, 2002, but
to be effective April 28, 2002, by La-Z-Boy Incorporated (formerly known as
La-Z-Boy Chair Company), ("Company"), a Michigan corporation.

WHEREAS, the Company established the La-Z-Boy Chair Company Supplemental
Executive Retirement Plan ("Plan"), a nonqualified deferred compensation plan,
effective May 1, 1991.

WHEREAS, the Company desires to amend the Plan to permit the deferral of
base compensation paid to selected employees of the Company who have
participated in the Personal Equity Plan (PEP).

NOW, THEREFORE, the Plan is hereby amended as follows:

1. Section 3 - "Allocations to Participants" shall be amended effective
April 28, 2002 to add the following paragraph (c):

(c) An Eligible Employee who is also a former participant in La-Z-Boy
Incorporated Personal Equity Plan "PEP", may elect to defer receipt of any
portion of his base compensation paid to him by the Company or a Subsidiary for
the Taxable Year by delivering a written election to that effect to the
Committee at such time and in such manner as the Committee may determine and
subject to any restriction or limitation which may be imposed by the Committee,
as to the portion of such base compensation. The Committee shall credit such
portion of a Participant's base compensation as an additional allocation to be
credited to his Contingent Account as of the end of each quarter in the Taxable
Year for which the base compensation was deferred. Such allocations shall be
credited with interest in the form and manner provided for under Section 2 (i)
herein.

2. Except as amended herein, the Plan shall remain in full force and
effect.

IN WITNESS WHEREOF, La-Z-Boy Incorporated has caused this Second Amendment
to be executed this 9th day of April, 2002

Attest: La-Z-Boy Incorporated

____________________________ By__________________________
Secretary President and CEO

24

Exhibit (10.9)

DESCRIPTION OF AGREEMENTS RELATED TO
TERMINATION OF PERSONAL EXECUTIVE LIFE INSURANCE PROGRAM

At the end of our fiscal year ended April 27, 2002, we terminated our
Personal Executive Life Insurance Program ("PEP"). In May 2002, we agreed to
purchase from each person who had participated in the PEP at the end of fiscal
2002, including John J. Case and Gerald L. Kiser, his life insurance policy
under the PEP, for the amount he would have received had he surrendered it to
the insurer (approximately $106,600 and $203,100, respectively, in the cases of
Mr. Case and Mr. Kiser). The sale proceeds, plus interest at five percent per
annum, are to be paid over twelve months beginning June 2002, and each seller,
including Mr. Case and Mr. Kiser, agreed to defer, and irrevocably has elected
to defer, an amount equal to his sale proceeds into his Supplemental
Executive Retirement Plan ("SERP") account over twelve months beginning June
2002. In lieu of making payments pursuant to PEP for fiscal 2002, we credited
each former PEP participant's SERP account with the additional amount he would
have received under the SERP had he been eligible to participate in it
throughout fiscal 2002, and we have agreed to credit each seller's SERP account
during fiscal 2003 with an amount intended to approximate the balance the
seller would have had in his SERP account at the end of fiscal 2002, including
earnings at the stated earnings rates, had he never participated in the PEP,
reduced by his existing SERP balance and the purchase price of his life
insurance policy. (The fiscal 2002 and 2003 contributions to the SERP for
Mr. Case and Mr. Kiser will total $118,000 and $144,500, respectively.) In
addition, we agreed to pay each seller a tax gross-up amount for the taxes he
paid (approximately $32,900 and $72,900, respectively, in the cases of Mr. Case
and Mr. Kiser) on past bonuses used to pay the premiums for his life insurance
policy and an additional tax gross-up amount (approximately $10,900 and $10,800,
respectively, in the cases of Mr. Case and Mr. Kiser) for the taxable gain on
the sale of his life insurance policy.

25

Exhibit (13)

Financial Report

Report of Management Responsibilities

The management of La-Z-Boy Incorporated is responsible for the preparation
of the accompanying consolidated financial statements, related financial data
and all other information included in the following pages. These financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and include amounts based on
management's best estimates and judgments where appropriate.
Management is further responsible for maintaining the adequacy and
effectiveness of established internal controls. These controls provide
reasonable assurance that the assets of La-Z-Boy Incorporated are safeguarded
and that transactions are executed in accordance with management's authorization
and are recorded properly for the preparation of financial statements. Our
internal control system is supported by written policies and procedures, the
careful selection and training of qualified personnel and a program of internal
auditing.
The Board of Directors, through its Audit Committee composed exclusively of
outside directors, is responsible for reviewing and monitoring the financial
statements and accounting practices. The Audit Committee meets periodically with
the internal auditors, management and the independent accountants to ensure that
each is meeting its responsibilities. The Audit Committee and the independent
accountants have free access to each other with or without management being
present.
The accompanying report of our independent accountants states their opinion
on our consolidated financial statements, based on audits conducted in
accordance with auditing standards generally accepted in the United States of
America.

Gerald L. Kiser
President and Chief Executive Officer

David M. Risley
Chief Financial Officer

26

Report of Independent Accountants

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

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity, including pages 28 through 49, present fairly, in all material respects,
the financial position of La-Z-Boy Incorporated and its subsidiaries at April
27, 2002, and April 28, 2001, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended April 27, 2002, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Toledo, Ohio
May 29, 2002

27

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

28

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

29

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

30

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

31

Notes to Consolidated Financial Statements

Note 1: Accounting Policies

The following is a summary of significant accounting policies followed in
the preparation of these consolidated financial statements. Fiscal years 2002
and 2001 included 52 weeks, whereas fiscal year 2000 included 53 weeks.

Principles of Consolidation
The consolidated financial statements include the accounts of La-Z-Boy
Incorporated and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated.

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.
Actual results could differ from those estimates.

New Pronouncements
During fiscal 2002, the Financial Accounting Standards Board (FASB)
approved SFAS No. 142, "Goodwill and Other Intangible Assets,"SFAS No. 143,
"Accounting for Asset Retirement Obligations," SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" and SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections."
SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived
intangible assets and requires a review at least annually for impairment. Our
amortization of goodwill and other indefinite-lived intangible assets will be
affected upon our adoption of this SFAS in fiscal 2003. This SFAS will require
us to cease amortization of our remaining goodwill and indefinite-lived
intangible asset balances. We believe the impact of discontinuing this
amortization will be to increase annual earnings by approximately $7.5 million,
net of taxes. In addition, this SFAS will require us to perform an impairment
test of our existing goodwill and other indefinite-lived intangible assets based
on a fair value concept. We have not yet determined the effects of impairment
charges upon adoption.
We have not yet determined the impact, if any, on our financial statements
of SFAS No. 143 and SFAS No. 145, which are effective in our fiscal 2004.
SFAS No. 144 was adopted on April 28, 2002, and had no impact on our
financial statements.

32

Cash and Equivalents
For purposes of the consolidated statement of cash flows, we consider all
highly liquid debt instruments purchased with 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 77% and 79% of our
inventories at April 27, 2002, and April 28, 2001, respectively. Cost is
determined for all other inventories on a first-in, first-out (FIFO) basis.
Excess of FIFO over the LIFO basis at April 27, 2002, and April 28, 2001,
includes $11 million and $15 million, respectively, for inventory written-up to
fair value for acquisitions that occurred in fiscal 2000. This purchase
accounting adjustment reduces earnings in periods that the related inventory is
sold.

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.
Buildings, land improvements and building fixtures are depreciated over
periods of 15-30 years. Machinery and equipment are depreciated over a period of
8-10 years. Information systems are depreciated over periods of 2-10 years.
Transportation equipment is depreciated over a period of 4-5 years.

Goodwill and Trade Names
Goodwill and trade names are amortized on a straight-line basis over 30
years from the date of acquisition. Both are evaluated periodically for
impairment. See information on SFAS No. 142 under "New Pronouncements" for
details on future changes to accounting policies for goodwill and trade names.

Revenue Recognition
Revenue is primarily recognized upon shipment of product. 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.

Other incentives offered to customers include cash discounts, volume discounts
and advertising agreements. Cash discounts are recorded as a reduction of
revenues when the revenue is recognized. Volume discounts are recorded at the
time of sale as a reduction of revenue. Our advertising agreements, which give
customers advertising allowances based on revenues, are recorded when the
revenue is recognized as a reduction to revenue.

33

Research and Development Costs
Research and development costs are charged to expense in the periods
incurred. Expenditures for research and development costs were $20.4 million,
$19.4 million, and $10.4 million for the fiscal years ended April 27, 2002,
April 28, 2001 and April 29, 2000, respectively.

Advertising Expenses
Production costs of commercials and programming are charged to expense when
the advertising is first aired. The costs of other advertising, promotion and
marketing programs are charged to income in the period incurred. Cooperative
advertising agreements exist with some customers to reimburse them for actual
advertising expenses. The reimbursements are recorded as advertising expense.
Advertising expense was $40.1 million, $35.8 million, and $30.7 million for the
fiscal years ended April 27, 2002, April 28, 2001 and April 29, 2000,
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 carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled.

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.

Financial Instruments and Hedging
We implemented SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended, beginning with the first quarter of fiscal
2002.
Our derivative instruments consist 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. These agreements, which match the
terms of the credit facility, are designated and accounted for as cash flow
hedges. Currently, there is no gain or loss recognized in earnings relating to
the changes in the fair value of these interest rate swap agreements. The effect
of marking these contracts to fair value is recorded as a component of
shareholders' equity in other comprehensive income.

34

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

Note 2: Restructuring

In the fourth quarter of fiscal 2002, we recorded an expense of $9.0
million ($5.5 million after tax) as a result of a restructuring plan. This plan
involved closing one manufacturing facility and converting a second facility to
warehousing. The impact of this plan is a reduction of manufacturing space of
0.7 million square feet and a reduction of 252 employees. The remaining assets,
which include buildings and equipment of $4.4 million, are part of the Casegoods
segment and are expected to be disposed of by the end of fiscal year 2004. This
plan is expected to be completed in June 2002. As of April 27, 2002, 240 of the
252 employees remained employed with the company.
In the second quarter of fiscal 2002, we recorded an expense of $13.2
million ($8.1 million after tax) as a result of a restructuring plan. This plan
involved closing down three manufacturing facilities and converting two others
to warehousing, sub-assembly and import service operations. The impact of this
plan was a reduction of manufacturing space of 1.25 million square feet and
reduction across the company of 570 employees in management and manufacturing
positions. The remaining assets, which include buildings of $0.9 million, are
expected to be disposed of by the end of fiscal year 2004. Of this $0.9 million,
$0.7 million of these assets are part of the Upholstery segment. The remaining
$0.2 million are part of the Casegoods segment. This plan is expected to be
completed by July, 2002. All except 23 of the 570 employees have been terminated
as of the end of the fiscal year.
In the fourth quarter of fiscal 2001, we recorded a restructuring charge of
$11.2 million ($6.9 million after tax) as a result of strategic decisions to
rationalize production capacity to achieve more efficient production utilization
and exit certain unprofitable product lines. The effect of this plan was a
reduction of 310 employees in management and manufacturing positions. The
remaining assets, which include $1.0 million of buildings, are part of the
Casegoods segment and are expected to be disposed of by the end of fiscal year
2004. This plan was complete and all of the 310 employees were terminated as of
the end of this fiscal year.

35

The impact by segment of these restructuring charges is included in "Note
17: Segments" on pages 47 through 49 of this report.
The restructuring liabilities, charges to expense, and cash payments or
asset write-downs are as follows:

Fiscal 2002
-----------------------
Cash
Payment
4/28/01 Charges or Asset 4/27/02
(Amounts in thousands) Balance to expense Write-down Balance
- ---------------------------------------------------------------------------
Fixed asset write-downs... $-- $11,000 ($11,000) $--
Severance and benefit
related costs........... 1,200 4,600 (4,300) 1,500
Inventory write-downs..... -- 3,500 (3,500) --
Other..................... 2,700 3,100 (2,700) 3,100
------------------------------------------------
Total.................. $3,900 $22,200 ($21,500) $4,600
------------------------------------------------

Fiscal 2001
-----------------------
Cash
Payment
4/29/00 Charges or Asset 4/28/01
(Amounts in thousands) Balance to expense Write-down Balance
- ---------------------------------------------------------------------------
Fixed asset write-downs... -- $4,000 ($4,000) $--
Severance and benefit
related costs.......... -- 1,200 -- 1,200
Inventory write-downs..... -- 3,300 (3,300) --
Other..................... -- 2,700 -- 2,700
------------------------------------------------
Total.................. -- $11,200 ($7,300) $3,900
------------------------------------------------

Note 3: Acquisitions and Divestiture

On November 30, 2001, we sold the operations of our Pilliod Furniture unit.
We acquired Pilliod, which produces promotionally priced bedroom and occasional
furniture at its manufacturing facility in Nichols, S.C., as part of our
acquisition of LADD Furniture, Inc., discussed below. The product line produced
by Pilliod did not strategically align with our other product lines. The
transaction generated a pretax loss of $11.7 million. A tax benefit of $11.8
million was generated, resulting in a small net gain with no earnings per share
effect.
On January 29, 2000, we acquired LADD Furniture, Inc., then a publicly
traded furniture manufacturer, in a stock-for-stock merger, at which time LADD
became our wholly-owned subsidiary. The holders of LADD stock received
approximately 9.2 million shares of La-Z-Boy common stock in consideration for
their LADD shares. In addition, LADD employee stock options then outstanding
were replaced by approximately 1 million La-Z-Boy common stock options. Total
consideration, including acquisition costs, was $190 million. On December 28,

36

1999, we acquired all of the outstanding stock of Alexvale Furniture, Inc., a
manufacturer of medium-priced upholstered furniture, for a combination of cash
and La-Z-Boy common stock totaling $17 million. On June 1, 1999, we acquired
Bauhaus USA, Inc., a manufacturer of upholstered furniture primarily marketed to
department stores, for $59 million, in a cash transaction.
The above acquisitions have been accounted for as purchases. The acquired
companies were included in our financial results immediately following the
acquisition dates. The excess of the aggregate purchase prices over the fair
value of the net identifiable assets acquired of $74 million has been recorded
as goodwill.
The following unaudited proforma financial information presents combined
results of operations of the above companies with us as if the acquisitions had
occurred as of the beginning of fiscal 2000. The proforma financial information
gives effect to certain adjustments resulting from the acquisitions and related
financing. The proforma financial information does not necessarily reflect the
results of operations that would have occurred had the separate operations of
each company constituted a single entity during such periods.

Unaudited
------------
(Amounts in thousands, 4/29/00
except per share data) (53 weeks)
--------------------------------------
Sales.................... $2,297,219
Net income............... $97,850
Net income per share..... $1.60

Note 4: Inventories

(Amounts in thousands) 4/27/02 4/28/01
- ----------------------------------------------------------
Raw materials................... $72,389 $90,381
Work-in-progress................ 53,947 62,465
Finished goods.................. 94,062 115,425
----------- ----------
FIFO inventories........... 220,398 268,271
Excess of FIFO over LIFO... (11,741) (10,384)
----------- ----------
Total inventories..... $208,657 $257,887
----------- ----------

37

Note 5: Property, Plant and Equipment

(Amounts in thousands) 4/27/02 4/28/01
- ---------------------------------------------------------------
Buildings and building fixtures............ $189,051 $199,473
Machinery and equipment.................... 178,222 177,851
Information systems........................ 39,597 37,361
Land and land improvements................. 27,423 25,490
Transportation equipment................... 17,425 17,909
Other...................................... 23,408 24,284
---------- ---------
475,126 482,368
Less: accumulated depreciation........... 269,663 252,027
---------- ---------
Property, plant and equipment, net...... $205,463 $230,341
---------- ---------

Note 6: Accrued Expenses and Other Current Liabilities

(Amounts in thousands) 4/27/02 4/28/01
- ---------------------------------------------------------------
Payroll and other compensation............. $84,304 $78,550
Accrued warranty........................... 15,039 14,208
Income taxes............................... 18,379 11,490
Other current liabilities.................. 38,398 36,612
---------- ---------
Accrued expenses and other
current liabilities................. $156,120 $140,860
---------- ---------

Note 7: Debt

Interest
(Amounts in thousands) Rate Maturity 4/27/02 4/28/01
- ---------------------------------------------------------------------
Revolving credit
facility............... 6.6% 2005 $70,000 $130,000
Industrial 1.7%-
revenue bonds.......... 7.0% 2004-26 30,855 37,227

Private placement notes... 6.5% 2008 35,000 35,000
Other debt................ 2.5% 2003-5 3,319 --
--------- ---------
Total debt.............................. 139,174 202,227
Less: current portion ............. 1,730 5,304
--------- ---------
Long-term debt .............. $137,444 $196,923
--------- ---------
Weighted avg. interest rate ............... 5.6% 5.5%
--------- ---------
Fair value of debt ................ $140,215 $202,850
--------- ---------

We have a $300 million unsecured revolving credit facility with a group of
banks which uses a performance based interest rate grid with pricing ranging
from LIBOR plus 0.475% to LIBOR plus 0.800% based on our consolidated debt to
capital ratio and also requires that certain covenants be met. The revolving
credit facility expires on May 12, 2005. At April 27, 2002 we are in compliance
with all of the covenants under this facility.

38

Industrial revenue bonds were used to finance the construction of
manufacturing facilities. The facilities constructed from the bond proceeds are
pledged as collateral for the bonds.
We have entered into several interest rate swap agreements with
counter-parties that are participants in the revolving credit facility to reduce
the impact of changes in interest rates on the floating rate debt. We believe
that the risk of potential credit loss from counter-party non-performance is
minimal. The purpose of these swaps is to fix interest rates on a notional
amount of $70 million through December 8, 2003 at 6.095% plus the applicable
borrowing spread under the revolving credit facility. The fair market value of
the swaps would require payment of $3.6 million at April 27, 2002, if we were to
have terminated the agreement.
Maturities of long-term debt, other than the revolving credit facility,
subsequent to April 27, 2002 are $2 million in 2003, $1 million in 2004, $4
million in 2005, $2 million in 2006, $0 million in 2007 and $60 million
thereafter. As of April 27, 2002, unused lines of credit and commitments were
$360 million under several credit arrangements.
Cash paid for interest during fiscal years 2002, 2001 and 2000 was $10.2
million, $17.5 million and $7.1 million, respectively.

Note 8: Leases

We have operating leases for manufacturing facilities, executive and sales
offices, warehouses, showrooms and retail facilities as well as for equipment
for manufacturing, transportation and data processing. The operating leases
expire at various dates through 2026. Certain transportation leases contain a
provision for the payment of contingent rentals based on mileage in excess of
stipulated amounts. We lease additional transportation and other equipment under
capital leases expiring at various dates through 2007. The majority of these
capital leases include bargain purchase options.
The future minimum lease payments under non-cancelable leases are as
follows (for the fiscal years):

(Amounts in Operating Capital
thousands) Leases Leases
------------------------------------------
2003............... $16,703 $760
2004............... 15,657 773
2005............... 11,843 847
2006............... 8,181 320
2007............... 6,133 87
2008 and beyond.... 23,722 --
--------- --------
Total........... $82,239 $2,787
--------- --------

39

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

4/27/02 4/28/01 4/29/00
(Amounts in thousands) (52 weeks) (52 weeks) (53 weeks)
- -----------------------------------------------------------------
Rental expense.............. $20,215 $22,591 $10,387
Contingent rentals.......... $615 $573 $232

Note 9: Financial Guarantees

We have provided unsecured financial guarantees relating to loans and
leases in connection with certain La-Z-Boy Furniture Galleries(R). The amounts
of the guarantees are shown in the following table. Because almost all
guarantees are expected to retire without being funded, the contract amounts are
not estimates of future cash flows.

(Contract amounts in thousands) 4/27/02 4/28/01
-------------------------------------------------
Loan guarantees................ $18,825 $20,034
Lease guarantees............... $10,017 $10,651

The guarantees require the dealers to make periodic payments to us in
exchange for the guarantees. Terms of current guarantees generally range from
one to five years.
The guarantees have off-balance-sheet credit risk because only the periodic
payments and any accrual for probable loss are recognized until a guarantee
expires. Credit risk represents the accounting loss that would be recognized at
the reporting date if counter-parties failed to perform completely as
contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that no amounts could be
recovered from third parties.

Note 10: Stock Option Plans

Shareholders approved an employee Incentive Stock Option Plan that provides
grants to certain employees to purchase common shares at not less than their
fair market value at the date of grant. Granted options become exercisable at
25% per year beginning one year from the date of grant for up to five or ten
years. The plan authorized option grants of up to 7,500,000 common shares.

40

Number of Weighted avg.
shares exercise price
- -------------------------------------------------------------------
Outstanding at April 24, 1999......... 1,404,186 $13.02
Granted............................... 1,423,822 17.33
Exercised............................. (351,919) 10.64
Expired or cancelled.................. (75,185) 17.87
----------- ------
Outstanding at April 29, 2000......... 2,400,904 15.65
Granted............................... 716,930 15.50
Exercised............................. (449,852) 10.84
Expired or cancelled.................. (139,697) 18.11
----------- ------
Outstanding at April 28, 2001......... 2,528,285 16.33
Granted................................ 663,885 19.80
Exercised.............................. (935,735) 13.80
Expired or cancelled.................. (211,500) 18.59
----------- ------
Outstanding at April 27, 2002......... 2,044,935 18.37
=========== ======
Exercisable at April 27, 2002......... 744,202 $17.64
Shares available for grants at
April 27, 2002..................... 4,974,553

Information regarding currently outstanding and exercisable options is as
follows:

Weighted
Number Weighted remaining
Range of outstanding avg. contractual
exercise at April 27, exercise life in
prices 2002 price years
- ---------------------------------------------------------------
$9.54-$14.41 213,829 $13.08 1.21
14.62- 19.80 1,472,124 17.76 3.49
$23.75-$34.33 358,982 24.05 2.43
- ---------------------------------------------------------------
2,044,935 $18.37 3.06
========= ====== ====
Number
exercisable Weighted
Range of at April 27, avg. exercise
exercise prices 2002 price
--------------------------------------------------
$9.54-$14.41 206,749 $13.04
14.62- 19.80 347,242 16.75
$23.75-$34.33 190,211 24.28
--------------------------------------------------
744,202 $17.64
======= ======
The tables above include options that were issued to replace outstanding
options of an acquired company at the time of acquisition. The options
outstanding as of April 27, 2002, were 147,000 with a weighted average exercise
price of $18.21 per share. There are no shares available for future grant under
this plan.

41

The shareholders have also approved two Restricted Share Plans. Under one
plan, a committee of the board of directors is authorized to offer for sale up
to an aggregate of 750,000 common shares to certain employees. Under a second
plan, up to an aggregate of 150,000 common shares are authorized for sale to
non-employee directors. Under the Restricted Share Plans, shares are offered at
25% of the fair market value at the date of grant. The plans require that all
shares be held in an escrow account for a period of three years in the case of
an employee, or until the participant's service as a director ceases in the case
of a non-employee director. In the event of an employee's or non-employee
director's termination during the escrow period, the shares must be sold back to
us at their cost.
Common shares aggregating 13,200 and 8,700 were granted and issued during
fiscal years 2002 and 2001, respectively, under the non-employee directors'
Restricted Share Plan. Common shares remaining for future grants under this plan
amounted to 70,500 at April 27, 2002.
Common shares aggregating 71,875 and 68,750 were granted and issued during
fiscal years 2002 and 2001, respectively, under the employee Restricted Share
Plan. Common shares remaining for future grants under this plan amounted to
492,080 at April 27, 2002.
Shareholders have also approved a Performance-Based Restricted Stock Plan.
This plan authorized awards up to an aggregate of 1,200,000 common shares to key
employees. Grants of shares or short-term options to purchase shares are based
on achievement of goals over a three-year performance period. At April 27, 2002,
target awards were outstanding for which up to approximately 495,000 common
shares may be issued in fiscal years 2003 through 2005 based on three
outstanding target awards, depending on the extent to which certain performance
objectives are met. The cost of awards is expensed over the performance period.
In 2002, 55,290 common shares were issued for the three-year period that ended
in 2001.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," we
have chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
Had we elected to recognize compensation cost for stock options based on
the fair value method of accounting prescribed by SFAS No. 123, the additional
after tax expense relating to the stock options would have been $2.6 million in
2002, $2.6 million in 2001 and $1.8 million in 2000. Actual expense relating to
the stock options was $2.4 million in 2002, $0.8 million in 2001 and $1.5
million in 2000.

42

Proforma net income and earnings per share would have been as follows (for
the fiscal years ended):

(Amounts in thousands, 4/27/02 4/28/01 4/29/00
except per share data) (52 weeks) (52 weeks) (53 weeks)
- ----------------------------------------------------------------
Net income................... $59,128 $65,718 $85,832
Basic net income per
share..................... $0.97 $1.09 $1.58
Diluted net income per share. $0.97 $1.08 $1.56

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes model with the following assumptions:

4/27/02 4/28/01 4/29/00
(52 weeks) (52 weeks) (53 weeks)
---------------------------------------------------------------
Risk free interest rate.. 4.4% 4.95% 6.6%
Dividend rate............ 1.7% 1.9% 2.0%
Expected life in years... 5.0 5.0 5.0
Stock price volatility... 43.0% 45.0% 41.0%

Note 11: Retirement/Welfare

Eligible salaried employees are covered under a trusteed profit sharing
retirement plan. Discretionary cash contributions to a trust are made annually
based on profits. We maintain certain Non-Qualified Deferred Compensation (NQDC)
plans for eligible highly compensated employees.
We maintain a non-qualified defined benefit retirement plan for certain
existing and former salaried employees. Included in other long-term liabilities
were plan obligations of $12.2 million and $11.7 million at April 27, 2002, and
April 28, 2001, respectively. Included in other long-term assets were $12.4
million and $7.6 million at April 27, 2002, and April 28, 2001, respectively, of
available for-sale marketable securities to fund future obligations of this
plan. This plan is excluded from the obligation charts that follow.
Voluntary 401(k) retirement plans are offered to eligible employees within
certain U.S. operating units. Currently about 68% of eligible employees are
participating in these plans. For most operating units, we make matching
contributions based on specific formulas and this match is made in our common
shares. We also maintain defined benefit pension plans for eligible factory
hourly employees at some operating units.

43

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

4/27/02 4/28/01 4/29/00
(Amounts in thousands) (52 weeks) (52 weeks) (53 weeks)
-------------------------------------------------------------
Service cost................ $2,918 $2,676 $2,791
Interest cost............... 4,254 4,013 3,644
Actual return on plan
assets................... (109) (1,903) 999
Net amortization
and deferral............. (4,260) (2,648) (5,793)
----------- ---------- --------
Net periodic pension cost... 2,803 2,138 1,641

Profit sharing*/NQDC........ 10,864 10,579 7,522
401(k)*..................... 4,191 3,744 2,954
Other*...................... 3,875 1,716 1,871
----------- ---------- --------
Total retirement costs...... $21,733 $18,177 $13,988
----------- ---------- --------

* Not determined by an actuary.

The funded status of the pension plans was as follows:

(Amounts in thousands) 4/27/02 4/28/01
- ------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year.. $55,543 $56,168
Service cost............................. 2,918 2,676
Interest cost............................ 4,254 4,013
Amendments and new plans................. 2,016 (5,142)
Actuarial gain (loss).................... (128) 472
Benefits paid............................ (2,650) (2,644)
-------- --------
Benefit obligation at year end......... 61,953 55,543

Change in plan assets
Fair value of plan assets at
beginning of year....................... 56,417 56,565
Actual return on plan assets............. 109 1,573
Employer contribution.................... 5,931 923
Benefits paid............................ (2,650) (2,644)
-------- --------
Fair value of plan assets at year end... 59,807 56,417
-------- --------
Funded (underfunded) status................ (2,146) 874
Unrecognized actuarial loss................ 8,821 2,430
Unamortized prior service cost............. 769 934
-------- --------
Prepaid benefit cost.................... $7,444 $4,238
-------- --------

The expected long-term rate of return on defined benefit plan assets was
8.0% for fiscal years 2002, 2001 and 2000. The weighted-average discount rate
used in determining the actuarial present value of projected benefit obligations
was 7.2% in fiscal year 2002, 7.7% in fiscal year 2001 and 6.8% for fiscal year
2000. Plan assets are invested in a diversified portfolio that consists
primarily of debt and equity securities.

44

Note 12: Health Care

Eligible employees have an opportunity to participate in group health
plans. Most participating employees pay their portion of health care costs
through pretax payroll deductions. Health-care expenses were as follows (for the
fiscal years ended):

4/27/02 4/28/01 4/29/00
(Amounts in thousands) (52 weeks) (52 weeks) (53 weeks)
- ------------------------------------------------------------------
Gross health care......... $76,071 $76,989 $50,895
Participant payments...... (19,178) (19,132) (13,277)
---------- ---------- ----------
Net health care........ $56,893 $57,857 $37,618
---------- ---------- ----------

We make annual provisions for any current and future retirement health-care
costs which may not be covered by retirees' collected premiums.

Note 13: Income Taxes

The primary components of our deferred tax assets and (liabilities) were as
follows:

(Amounts in thousands) 4/27/02 4/28/01
- ---------------------------------------------------------------
Current
Bad debt.............................. $13,760 $16,302
Warranty.............................. 9,222 8,660
Workers' compensation................. 2,951 2,933
NQDC/other............................ 3,819 2,313
Inventory............................. (6,459) (9,332)
State income tax...................... 820 995
Stock options......................... 567 1,155
Receivables - mark to market -- (2,634)
Restructuring......................... 3,881 1,501
Other................................. 6,474 4,275
--------- ---------
Total current deferred tax assets.... 35,035 26,168

Noncurrent
Trade names........................... (43,142) (44,703)
Pension............................... 1,760 (2,254)
Other................................. (4,763) 1,248
--------- ---------
Total noncurrent deferred tax
liabilities....................... (46,145) (45,709)
--------- ---------
Net deferred tax liability........ ($11,110) ($19,541)
--------- ---------

45

Our effective tax rate differs from the U.S. federal income tax rate for
the following reasons:

(% of pretax income) 4/27/02 4/28/01 4/29/00
- --------------------------------------------------------------------
Statutory tax rate.............. 35.0% 35.0% 35.0%
Increase (reduction) in income
taxes resulting from:
State income taxes net of
federal benefit............ 3.2 3.4 3.0
Tax credits.................. (0.1) (0.3) (0.1)
Goodwill..................... 1.8 1.4 0.9
Worthless stock deduction.... (8.4) -- --
Tax loss carryforwards....... -- -- (1.1)
Miscellaneous items.......... (0.9) (0.5) (0.1)
----- ----- ----
Effective tax rate........... 30.6% 39.0% 37.6%
----- ----- ----

As a result of the sale of the operations of Pilliod Furniture during
fiscal year 2002, we recognized a substantial "worthless stock" deduction. This
deduction is attributable to the difference between the tax basis in the stock
of Pilliod and its underlying assets and resulted in a net reduction of federal
and state income tax of $7.5 million.
Cash paid for taxes during the fiscal years ended April 27, 2002, April 28,
2001 and April 29, 2000, was $24.0 million, $57.4 million and $52.2 million,
respectively.

Note 14: Earnings Per Share

Basic net income per share is computed using the weighted-average number of
shares outstanding during the period. Diluted net income per share uses the
weighted average number of shares outstanding during the period plus the
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. Our dilutive potential common shares
are for employee stock related plans described in Note 10. Outstanding share
information is as follows (for the fiscal years ended):

(Amounts in thousands) 4/27/02 4/28/01 4/29/00
- ----------------------------------------------------------------
Weighted average common shares
outstanding (basic)........... 60,739 60,550 54,488
Effect of options................ 386 142 372
------- -------- -------
Weighted average common shares
outstanding (diluted)......... 61,125 60,692 54,860
------- -------- -------

46

Note 15: Contingencies

We have been named as a defendant in various lawsuits arising in the
ordinary course of business. It is not possible at the present time to estimate
the ultimate outcome of these actions; however, management believes that we have
recorded expense in respect of probable and reasonably estimable legal matters,
and any additional resultant liability will not be material based on our
previous experience with lawsuits of these types.
We have been named as a potentially responsible party (PRP) at six
environmental clean-up sites. Based on a review of all currently known facts and
our experience with previous environmental clean-up sites, management believes
that we have recorded expense in respect of probable and reasonably estimable
environmental matters and does not anticipate that future expenditures for
environmental clean-up sites will have a material adverse effect on our results
of operations or financial condition.

Note 16: Related Parties

We invest in cash and equivalents with a bank whose board of directors
includes two members of our board of directors. At the end of fiscal years 2002
and 2001, $3 million and $22 million, respectively, was invested in cash and
equivalents with this bank. This bank also provided trust and investment
management services.
Trade and notes receivables as of April 27, 2002 include $10.7 million due
from a dealer who is a relative of a retired executive and former member of our
board of directors.

Note 17: Segments

During fiscal 2002, we realigned our top management team to reflect an
organizational restructuring announced July 23, 2001. This organizational
restructuring resulted in our reportable operating segments changing to an
Upholstery Group segment and a Casegoods Group segment. The prior year segment
information included below has been reclassified in accordance with this change.

47

The Upholstery Group is comprised of operating units that primarily
manufacture and sell to dealers, furniture which is mostly or fully covered with
fabric, leather or vinyl. Upholstered furniture includes products which function
as seating for the home and commercial markets such as reclining and
non-reclining chairs, motion and stationary sofas, loveseats, chaises and
ottomans. The operating units included in the Upholstery Group are Bauhaus USA,
Centurion, Clayton Marcus, England, HickoryMark, La-Z-Boy Residential, La-Z-Boy
Contract Furniture and Sam Moore.
The Casegoods Group is comprised of operating units that primarily
manufacture or sell to dealers, products that function as storage, display or
table units for the home and commercial markets, such as dining room furniture,
bedroom suites, occasional tables, chests, desks, wall units and accent pieces.
These products are mostly made of hardwood or hardwood veneers. The operating
units included in the Casegoods Group are Alexvale, American Drew, American of
Martinsville, Hammary, Kincaid, Lea and Pennsylvania House. Pilliod Furniture is
included in the segment information provided through its sale date of November
30, 2001.
Our largest customer is less than 3% of each of our segment's sales.
The accounting policies of the operating segments are the same as those
described in Note 1. Segment operating income is based on profit or loss from
operations before interest income and expense, other income and income taxes.
Certain corporate costs are allocated to the segments based on revenues and
identifiable assets. Identifiable assets are cash and cash equivalents, notes
and accounts receivable, FIFO inventories, net property, plant, and equipment,
goodwill and trade names. Our unallocated assets include deferred income taxes,
corporate assets and various other assets.

48

Information used to evaluate segments is as follows (for the fiscal years
ended):

4/27/02 4/28/01 4/29/00
(Amounts in thousands) (52 weeks) (52 weeks) (53 weeks)
- --------------------------------------------------------------
Sales
Upholstery Group......... $1,543,756 $1,488,111 $1,393,421
Casegoods Group.......... 611,268 762,159 385,517
Eliminations............. (1,072) (1,779) (713)
---------- ----------- -----------
Consolidated............ 2,153,952 2,248,491 1,778,225
---------- ----------- -----------
Operating income
Upholstery Group......... 134,337 129,178 137,494
Restructuring............ (3,735) (2,300) --
---------- ----------- -----------
Net upholstery group... 130,602 126,878 137,494
Casegoods Group.......... 19,569 23,231 25,719
Restructuring............ (18,452) (8,900) --
Loss on divestiture...... (11,689) -- --
---------- ----------- -----------
Net casegoods group.... (10,572) 14,331 25,719
Other.................... (23,330) (20,415) (20,365)
---------- ----------- -----------

Consolidated............. 130,576 131,994 142,848
Restructuring............ (22,187) (11,200) --
Loss on divestiture...... (11,689) -- --
---------- ----------- -----------
Net consolidated....... 96,700 120,794 142,848
---------- ----------- -----------
Depreciation and amortization
Upholstery Group......... 20,655 21,972 18,659
Casegoods Group.......... 12,560 12,979 5,771
Corporate and other...... 10,773 10,746 5,912
---------- ----------- -----------
Consolidated............ 43,988 45,697 30,342
---------- ----------- -----------
Capital expenditures
Upholstery Group......... 21,997 20,966 30,279
Casegoods Group.......... 9,206 14,231 5,479
Corporate and other...... 1,763 2,219 2,210
---------- ----------- -----------
Consolidated............ 32,966 37,416 37,968
---------- ----------- -----------
Assets
Upholstery Group......... 617,093 637,198 622,907
Casegoods Group.......... 397,277 488,718 507,315
Unallocated assets....... 146,406 99,881 90,673
---------- ----------- -----------
Consolidated............ $1,160,776 $1,225,797 $1,220,895
---------- ----------- -----------
Sales by country
United States............ 95% 96% 94%
Canada and other......... 5% 4% 6%
---- ---- -----
100% 100% 100%
---- ---- -----

49

Management's Discussion and Analysis

This Management's Discussion and Analysis should be read in conjunction
with the accompanying Report of Management Responsibilities, Report of
Independent Accountants, Consolidated Financial Statements and related Notes to
Consolidated Financial Statements.
In terms of sales, we are the second largest furniture manufacturer in the
United States of America, the largest reclining-chair manufacturer in the world
and North America's largest manufacturer of upholstered furniture. We also
import furniture products from outside the U.S. and resell them domestically. We
sell mostly to independent retailers who resell to end-users, and we also own a
small number of retail stores where we sell our own manufactured and imported
products to end-users. Besides our own retail stores, we have formal agreements
with many independent retailers to display and merchandise products from one or
more of our operating units and sell them to end-user consumers in dedicated
square footage of retail space, either throughout stand-alone stores or in
dedicated galleries within their stores. We consider these stores as well as our
own retail stores to be "proprietary" and one of the keys to our success.
During fiscal 2002, we realigned our top management team to reflect an
organizational restructuring announced July 23, 2001. This organizational
restructuring resulted in our reportable operating segments changing to an
Upholstery Group segment and a Casegoods Group segment. The prior year segment
information included below has been reclassified in accordance with this change.

Analysis of Operations
Year Ended April 27, 2002
(2002 compared with 2001)

FY02
over Fiscal year ended
(under) -----------------------
FY01 4/27/02 4/28/01
- -------------------------------------------------------------------
Sales........................... (4%) 100.0% 100.0%
Cost of sales.................... (6%) 76.5% 78.0%
----- -------- -------
Gross profit.................. 2% 23.5% 22.0%
Selling, general and
administrative................ 6% 18.5% 16.6%
Loss on divestiture.............. N/M 0.5% --
----- -------- -------
Operating income.............. (20%) 4.5% 5.4%
Interest expense................. (44%) 0.5% 0.8%
Interest income.................. (23%) 0.1% 0.1%
Other income..................... (87%) -- 0.3%
----- -------- -------
Pretax income................. (21%) 4.1% 5.0%
Income tax expense*.............. (38%) 30.6% 39.0%
----- -------- -------
Net income.................... (10%) 2.9% 3.0%
----- -------- -------
Diluted earnings per share.... (11%)
Dividends per share........... 3%

*As a percent of pretax income.

50

Segment Analysis
- -----------------------------------------------------------------
Operating Income
Sales -------------------------
FY02 FY02 Percent of
Over Over Sales
(Under) (Under) --------------
FY01 FY01 FY02 FY01
- -----------------------------------------------------------------
Upholstery Group............. 4% 3% 8.5% 8.5%
Casegoods Group.............. (20%) (174%) (1.7%) 1.9%
Unallocated corporate
costs & eliminations....... N/M (14%) N/M N/M
Consolidated................ (4%) (20%) 4.5% 5.4%

Segment Operating Income Analysis Excluding
Restructuring and Divestiture
==========================================================
FY02
Over Percent of Sales
(Under) -------------------
FY01 FY02 FY01
----------------------------------------------------------
Upholstery Group............ 4% 8.7% 8.7%
Casegoods Group............. (16%) 3.2% 3.0%
Unallocated corporate
costs & eliminations....... (14%) N/M N/M

Consolidated................ (1%) 6.1% 5.9%

N/M = not meaningful

Fiscal 2002 sales declined 4% to $2.154 billion from the prior year due to
the following factors: (i) the divestiture of Pilliod Furniture on November 30,
2001; (ii) continued weak furniture industry demand for most of the year; and
(iii) the impact of retailers going out of business or experiencing financial
difficulty. This decline was somewhat offset by the strength of the La-Z-Boy
Furniture Galleries(R) store system (part of our proprietary distribution system
dedicated to La-Z-Boy products), which enjoyed an 11% increase over the same
store sales for the 2002 fiscal year.
Our Upholstery Group sales increased 4% from last year. This is mainly due
to the strength of the above-mentioned La-Z-Boy Furniture Galleries(R) store
system. With 297 stand-alone Gallery stores, most of which are independently

51

owned, and 317 in-store La-Z-Boy galleries, exclusively promoting and selling
the La-Z-Boy brand name, we are able to focus our marketing efforts and
concentrate our advertising dollars to allow us to gain market share.
The Casegoods Group sales declined 20%. The Pilliod divestiture accounted
for about 1/3 of the decline in casegoods sales. In addition, our casegoods
sales are still being negatively impacted by the bankruptcies of HomeLife,
Montgomery Ward, and Heilig-Meyers. It has taken some time for us to fill the
sales void that these major bankruptcies created in fiscal 2001. The continued
weakness in the hospitality sector of our casegoods business has also
significantly contributed to the sales decline in our Casegoods segment.
Gross profit as a percent of sales for 2002 increased to 23.5% from 22.0%
in 2001. This improvement, despite a 4% sales decline, primarily reflects the
results of management's efforts to adjust capacity and fixed costs in response
to a weak sales environment. In particular, restructuring and other productivity
improvements announced in April 2001 and October 2001 are now positively
impacting gross profit margins. Restructuring charges included in gross profit
for fiscal 2002 and 2001 were $22.2 million and $11.2 million, respectively.
Selling, general and administrative expense (S,G&A) increased to 18.5% of
sales in 2002 from 16.6% in 2001 due in part to decreased sales volume that was
unable to absorb the fixed portion of the S,G&A expenses. Additionally, as of
April 27, 2002 we own 23 retail stores which have a higher percentage of S,G&A
expenses as compared to our manufacturing operating units. As the sales of our
retail stores have grown through the acquisition of stores and same store sales
increases, there is a larger mix of S,G&A from the retail stores causing an
increase in the percentage.
The operating income margin declined to 4.5% in 2002 from 5.4% in 2001.
Since April 2001, we have closed three casegoods plants and one upholstery
plant, converted two other casegood plants into warehouse, sub-assembly and
import service operations, divested a casegoods business and announced the
closing of another casegoods plant to be effective in June 2002. These actions
are a result of an increased ratio of imported components and finished products
compared to the domestically produced products, which allowed us to reduce our
domestic production capacity. The restructuring charges in fiscal 2002
contributed to approximately half of the decline in the margin over the charges
in fiscal 2001. The pre-tax loss on our Pilliod divestiture contributed the
remaining margin degradation in the current year.
The Upholstery Group operating margin remained flat at 8.5% of sales.
Although the Upholstery Group has had increased sales due to the strength of its

52

proprietary store network, the $3.7 million restructuring charge for the closing
of an upholstery plant and declines in the profitability of some lower price
point product lines has offset the gains from the sales increase.
The Casegoods Group operating margin declined to (1.7%) of sales from 1.9%.
A majority of the decline is a result of the restructuring charges absorbed in
the fiscal 2002 operating profit, as well as the $11.7 million pre-tax loss on
the Pilliod divestiture. We continue to experience some disruptions in the
casegoods plants as we blend our domestic production needs with our import
purchases. We believe that the actions taken during the past two years will
enable us to return this segment back to profitability.
Interest expense declined 44% over last year mainly due to a net decline of
$74.0 million in our total debt for the year. A majority of the debt decline
occurred in the first nine months of the year. As a result of our interest rate
swap agreements, we have fixed interest rates at 6.095% plus the applicable
borrowing spread under the revolving credit facility on a notional amount of $70
million. Therefore, there has not been a significant fluctuation in our weighted
average interest rate.
Income tax expense as a percent of pretax income of 30.6% in 2002 is down
from 39.0% in 2001 primarily due to the $11.8 million tax benefit recorded on
the divestiture of the Pilliod operating unit. Without the Pilliod effect
included, our tax rate would have remained flat at 39.0%.
Other income decreased $6.5 million or 87% over the prior year. Fiscal 2001
included an increase of about $5.0 million as a result of a one-time business
interruption insurance recovery offset in part by $2.4 million of miscellaneous
non-operating expenses. In fiscal 2002 there was a realized loss of $2.0 million
recorded in the fourth quarter from the sale of marketable securities available
for sale. We do not anticipate significant realized losses to occur in fiscal
2003.

Analysis of Operations
Year Ended April 28, 2001
(2001 compared with 2000)

Year 2001 sales of $2.2 billion were 26% greater than 2000 because of
acquisitions. On a proforma basis adjusting for acquisitions and the extra week
in 2000, sales were flat.
The Upholstery Group proforma sales increased 2%. This small growth in
sales was due primarily to weakened furniture demand. Selling price increases
were nominal given the competitive environment and frail economy, while the

53

sales growth rate was stronger than in the other segment. This relative sales
strength was due to a higher percentage of sales coming from proprietary
dealers, growth in proprietary dealer locations, growth in proprietary sales per
square foot, and strong brand names. Historically, the growth in sales in the
Upholstery Group segment, which contains our largest operating unit, La-Z-Boy
Residential, has been stronger than our other segment and the rest of the
furniture industry in slow times. Fiscal 2001 was no exception.
The Casegoods Group proforma sales declined 4%. The loss of sales due to
the financial difficulties of large national or regional retailers was the
primary reason for the decline. Competition from imports, primarily from the Far
East, also contributed to the decline in sales. Also, the Casegoods Group
segment has a greater percentage of its sales in middle and lower price points
than the Upholstery Group. Middle and lower price points historically have been
harder hit by unfavorable demand declines than upper price points when the
economy slows, in part because consumers typically defer casegoods purchases
longer than upholstered product purchases.
Gross profit as a percent of sales for 2001 decreased to 22.0% from 24.1%
in 2000. The primary causes of this decrease included the sales slowdown,
production declines, restructuring expenses to better adjust capacity to demand
and acquisitions with below average gross margin compared to those businesses
that made up the company during the majority of fiscal 2000.
Selling, general and administrative expense (S,G&A) increased to 16.7% of
sales in 2001 from 16.0% in 2000. Bad debt expense increased to $17.3 million
from $5.6 million and was the primary reason for the increase in S,G&A as a
percent of sales. Several major retailers either declared bankruptcy or
experienced significant financial difficulties. This financially weak retailer
environment was present throughout the furniture industry for most of 2001.
Higher research and development expenditures were another reason for the
increase in S,G&A expense as a percent of sales. These R&D expenses were planned
and represent targeted efforts to both improve existing products and develop new
products. Various other expenses such as sales and administrative expenses also
increased as a percent of sales due to the unfavorable effects of acquisitions
that had higher than average S,G&A expenses as a percent of sales. Bonus and
warranty expenses declined as a percent of sales.
Consolidated operating margin decreased to 5.4% in 2001 from 8.0% in 2000
due primarily to the items discussed above. Unfavorable company mix also
affected operating profit margin. That is, acquired operating units had lower
than average margins compared with previously existing operating units.

54

The Upholstery Group operating margin declined to 8.5% of sales from 9.9%
primarily due to declines in profitability in some lower price point product
lines. To maintain sales volume to adequately cover fixed costs, aggressive
pricing, advertising and other promotional efforts contributed to lower margins.
The Casegoods Group operating margin declined to 1.9% of sales from 6.7%.
This segment was affected more than the Upholstery segment by declining sales
and the higher bad debt expense caused by major retailers in bankruptcy or
financial difficulty. Additionally, the majority of the restructuring costs were
in this segment. This segment also had more unfavorable company mix effects on
operating margin than the Upholstery segment. Similar to the Upholstery segment,
part of the decline in margin was also due to aggressive merchandising and other
efforts relating to some lower price point product lines to maintain production
volume to adequately cover fixed costs.
Interest expense in 2001 increased 86% compared to fiscal 2000 primarily
from increased debt associated with 2000 acquisitions.
Income tax expense as a percent of pretax income of 39.0% in 2001 is up
from 37.6% in 2000 primarily due to the utilization of tax loss carryforwards
which benefited the prior year as well as the larger impact in 2001 of non-
deductible goodwill amortization on lower pretax income.
Other income in 2001 increased $2.3 million or 44% compared to 2000. An
increase of about $5.0 million occurred as a result of a one-time business
interruption insurance recovery offset in part by $2.4 million of miscellaneous
non-operating expenses.

Liquidity and Financial Condition

Our sources of cash liquidity include cash and equivalents, cash from
operations and amounts available under credit facilities. These sources have
been adequate for day-to-day expenditures, dividends to shareholders and capital
expenditures. We expect these sources of liquidity to continue to be adequate
for the future. Capital expenditures for fiscal 2003 are planned at $35 million
to $40 million compared to $33 million in fiscal 2002.
Cash flows from operations amounted to $133 million in 2002, $116 million
in 2001 and $58 million in 2000. The increase in cash flows from operations is
mainly due to a reduction in inventories, resulting from the closing of several
plants throughout the year. This reduction in inventory was somewhat offset by
the corresponding decrease in trade accounts payable. Capital expenditures,

55

dividends and stock repurchases totaled approximately $97.2 million in 2002,
$82.5 million in 2001 and $86.5 million in 2000.
As of April 27, 2002 there were unused lines of credit and commitments of
$360 million under several credit arrangements. Our main credit arrangement is a
$300 million unsecured revolving credit facility, maturing in fiscal 2006. The
borrowing rate under this credit agreement can range from LIBOR plus 0.475% to
LIBOR plus 0.800% based on the consolidated debt to capital ratio. We have
entered into several interest rate swap agreements with counter-parties that are
participants in the revolving credit facility to reduce the impact of changes in
interest rates on the floating rate debt. We believe that the risk of potential
credit loss from counter-party non-performance is minimal. The purpose of these
swaps is to fix interest rates on a notional amount of $70 million through
December 8, 2003 at 6.095% plus the applicable borrowing spread under the
revolving credit facility.
We believe we have a strong capital structure as evidenced by a low debt to
capitalization ratio of 16.6% as well as a strong current ratio of 3.0 to 1. Our
debt to capitalization ratio is total debt as a percent of shareholders' equity
plus total debt. Our current ratio is current assets divided by current
liabilities. We feel that the availability of funds under our unused lines of
credit and the cash flows from operations are sufficient to fund our capital
needs.
The following table summarizes our contractual obligations:

Payments by Period
------------------------------------
Less
than 1 1-3 4-5 After 5
(Amounts in millions) Total Year Years Years years
- -------------------------------------------------------------------
Long-term debt....... $139.2 $1.7 $5.0 $72.0 $60.5
Capital lease
obligations........ 2.8 0.8 1.6 0.4 --
Operating leases..... 82.2 16.7 27.5 14.3 23.7
------- ------ ------ ------- -------
Total contractual
obligations...... $224.2 $19.2 $34.1 $86.7 $84.2
======= ====== ====== ======= =======

In addition to the above obligations, we have guaranteed various mortgages
and leases of dealers with proprietary stores. The total amount of these
guarantees is $28.8 million. Of this, $3.2 million will expire within less than
one year, $17.0 million in 1 to 3 years, $5.4 million in 4 to 5 years and $3.2
million thereafter.
Our board of directors has authorized the repurchase of Company stock.
Shares acquired in 2002, 2001 and 2000 totaled 1.6 million, 1.6 million and 1.7
million, respectively. As of April 27, 2002, 3.6 million additional shares could
be purchased pursuant to this authorization. With the expected cash flows we

56

anticipate generating in fiscal 2003, we will continue to be opportunistic in
our repurchase program but we have no commitments for repurchases.
Continuing environmental compliance with existing federal, state and local
statutes dealing with protection of the environment is not expected to have a
material effect upon our capital expenditures, earnings, competitive position or
liquidity. We will continue a program of conducting voluntary compliance audits
at our facilities. We have also taken steps to assure compliance with provisions
of Titles III and V of the 1990 Clean Air Act Amendments.

Critical Accounting Policies
- ----------------------------

The following is a discussion of our significant accounting policies. These
policies were selected because they are broadly applicable within our operating
units. The expenses and accrued liabilities or allowances 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 expected experience underlying the estimates. These
adjustments could be material if our experience were to change significantly in
a short period of time. We make frequent comparisons of actual experience and
expected experience in order to mitigate the likelihood of material adjustments.

Allowance for Doubtful Accounts
- -------------------------------
Allowances for doubtful accounts are recorded based on the use of estimates
and judgment in regards to risk exposure and collectibility. We estimate losses
for our bad debt provision using consistent and appropriate methods. Changes to
our assumptions relating to these estimates could affect our recorded provision.

Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) basis for approximately 77% and 79% of our
inventories at April 27, 2002 and April 28, 2001, respectively. Cost is
determined for all other inventories on a first-in, first-out (FIFO) basis.
Excess of FIFO over the LIFO basis at April 27, 2002 and April 28, 2001
includes $11 million and $15 million, respectively, for inventory written-up to
fair value for acquisitions that occurred in fiscal 2000. This purchase
accounting adjustment reduces earnings in the periods that the related inventory
is sold.

57

Revenue Recognition and Related Allowances
- ------------------------------------------
Revenue is primarily recognized upon shipment of product. 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. Estimated costs for the
provisions are based upon historical expenses and current sales trends.
Other incentives offered to customers include cash discounts, volume
discounts and advertising agreements. Cash discounts are recorded as a reduction
of revenues when the revenue is recognized. Volume discounts are recorded at the
time of sale as a reduction of revenue. Our advertising agreements, which give
customers advertising allowances based on revenues, are recorded when the
revenue is recognized as a reduction to revenue.

Restructuring
- -------------
In the fourth quarter of fiscal 2002, we recorded an expense of $9.0
million ($5.5 million after tax) as a result of a restructuring plan. This plan
involved closing one manufacturing facility and converting a second facility to
warehousing. The impact of this plan is a reduction of manufacturing space of
0.7 million square feet and a reduction of 252 employees. The remaining assets,
which include buildings and equipment of $4.4 million, are part of the Casegoods
segment and are expected to be disposed of by the end of fiscal year 2004. This
plan is expected to be completed in June, 2002. As of April 27, 2002, 240 of the
252 employees remained with the company.
In the second quarter of fiscal 2002, we recorded an expense of $13.2
million ($8.1 million after tax) as a result of a restructuring plan. This plan
involved closing down three manufacturing facilities and converting two others
to warehousing, sub-assembly and import service operations. The impact of this
plan was a reduction of manufacturing space of 1.25 million square feet and
reduction across the company of 570 employees in management and manufacturing
positions. The remaining assets, which include buildings of $0.9 million, are
expected to be disposed of by the end of fiscal year 2004. Of this $0.9 million,
$0.7 million of these assets are part of the Upholstery segment. The remaining
$0.2 million are part of the Casegoods segment. This plan is expected to be
completed by July, 2002. All except 23 of the 570 employees have been terminated
as of the end of the fiscal year.
In the fourth quarter of fiscal 2001, we recorded a restructuring charge of
$11.2 million ($6.9 million after tax) as a result of strategic decisions to
rationalize production capacity to achieve more efficient production utilization

58

and exit certain unprofitable product lines. The effect of this plan was a
reduction of 310 employees in management and manufacturing positions. The
remaining assets, which include $1.0 million of buildings, are part of the
Casegoods segment and are expected to be disposed of by the end of fiscal year
2004. This plan was complete and all of the 310 employees were terminated as of
the end of this fiscal year.
The impact by segment of these restructuring charges is included in "Note
17: Segments" on pages 47 through 49 of this report.
The restructuring liabilities, charges to expense, and cash payments or
asset write-downs are as follows:

Fiscal 2002
--------------------------
Cash
Payment or
4/28/01 Charges Asset 4/27/02
(Amounts in thousands) Balance to expense Write-down Balance
- ----------------------------------------------------------------------------
Fixed asset write-downs.. $ -- $11,000 ($11,000) $ --
Severance and benefit
related costs......... 1,200 4,600 (4,300) 1,500
Inventory write-downs.... -- 3,500 (3,500) --
Other.................... 2,700 3,100 (2,700) 3,100
------- -------- --------- --------
Total................. $3,900 $22,200 ($21,500) $4,600
======= ======== ========= ========

Fiscal 2001
--------------------------
Cash
Payment or
4/29/00 Charges Asset 4/28/01
(Amounts in thousands) Balance to expense Write-down Balance
- ----------------------------------------------------------------------------
Fixed asset write-downs.. -- $4,000 ($4,000) $ --
Severance and benefit
related costs......... -- 1,200 -- 1,200
Inventory write-downs.... -- 3,300 (3,300) --
Other.................... -- 2,700 -- 2,700
------- -------- --------- --------
Total................. -- $11,200 ($7,300) $3,900
======= ======== ========= ========

Outlook Section
- ---------------

Statements in this Outlook Section and throughout this Management's
Discussion and Analysis are forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. As conditions change in the future,
actual results may not match our expectations. In particular, many important
factors, including future economic, political and industry conditions (for
example, changes in interest rates, changes in consumer demand, changes in
currency exchange rates, changes in demographics and consumer preferences,

59

changes in housing sales, oil price changes, terrorism impacts and changes in
the availability and cost of capital), competitive factors (such as the
competitiveness of foreign-made products, new manufacturing technologies, or
other actions taken by current or new competitors), operating factors (for
example, supply, labor, or distribution disruptions, changes in operating
conditions or costs, effects of restructuring actions and changes in regulatory
environment), and factors relating to acquisitions could affect our future
results and could cause those results or other outcomes to differ materially
from what may be expressed or implied in forward-looking statements. We
undertake no obligation to update or revise any forward-looking statements for
new developments or otherwise.

Short-Term Outlook
- ------------------
Last year at this time, the furniture industry was in the midst of a sharp
decline. Weakness in consumer demand was exacerbated by a rash of retailer
bankruptcies, including several of the nation's largest furniture stores in
addition to a number of smaller ones. This caused our July 2001 first quarter to
be especially weak. We expect this year's first fiscal quarter, which ends July
27, 2002, to show significant improvement over those depressed year-earlier
levels. As we stated in our fiscal 2002 year-end press release, we anticipate
low single digit percentage sales growth in the July quarter, compared to the
prior year, and earnings per diluted share in the $0.22-$0.27 range, compared to
$0.05 per diluted share in the first quarter of fiscal 2002.
This anticipated improvement reflects several factors. First, industry
sales trends have improved, especially in the upholstery sector - which accounts
for over 70 percent of our total sales. Second, the retailer climate has also
strengthened somewhat following the distress of last year, with the remaining
retailers in better financial condition. And, third, we are beginning to realize
bottom line benefits from our fiscal 2002 cost-cutting, downsizing and
restructuring actions.

Longer-Term Outlook
- -------------------
Our long-term outlook is closely linked to the outlook for our industry in
general. Excluding last year's sharp decline, the residential furniture industry
over the past ten years has grown at an annual rate exceeding 5%, with the
upholstery segment growing somewhat faster than the casegoods segment and
exhibiting less volatility. Demand should remain favorable over the next few
years at least, as a result of the very strong level of new and existing U.S.
home sales of the past several years. In addition, demographic factors remain
positive, with the prime furniture buying years being ages 35-54, and even older
in the case of certain furniture categories such as upholstered chairs and
recliners.
Our company's goal is to grow sales from existing operations at a rate
faster than that of the overall North American furniture industry (the
"industry"). Continued growth in the number of our proprietary outlets is one
reason our sales growth rates can continue to exceed those of the industry at
large. We have a substantial number of proprietary outlets in each of our two
business segments and, as a whole, our proprietary distribution (retail sales
through these proprietary outlets) accounts for approximately 38% of our total
sales volume. This proprietary percentage has been growing, excluding the effect
of acquisitions. It is management's objective to keep it growing in the years
immediately ahead.
Continued growth in the sales per square foot generated by these
proprietary outlets is another reason our sales can continue to exceed industry
growth rates. Dedicated marketing focus associated with proprietary distribution
in specific metropolitan areas typically results in actions that improve sales
per square foot of retail floor space over time.
The industry has been consolidating at both the retail and manufacturing
levels, and this trend is expected to continue. Smaller and/or financially
weaker retailers are finding it increasingly difficult to remain competitive
with larger, better-managed and/or financially stronger retailers. On the
production side, progress in manufacturing methodologies, information systems
and other technologies, business processes and financial and general management
methods, combined with economies of scale, has continually put additional
competitive pressure on smaller manufacturers. Additional market pressures may
be created in the future due to foreign manufacturers entering the U.S. market,
as well as increased direct purchasing from overseas by U.S. retailers.
Our continued ability to leverage dealer relationships across a large
number of distinct La-Z-Boy business units is another reason we believe our
sales growth can exceed that of the industry. We believe that each of our
operating units will continue to benefit by their association with the La-Z-Boy
name. The development and implementation of various "cross-marketing" and
"cross-manufacturing" programs to facilitate this benefit by association is an
area of substantial management interest and emphasis.
Finally, our importation of finished goods and furniture components
continues to increase, representing another avenue for our company to be able to
sustain our market share and a competitive sales price. These imports are either
resold fully assembled or have additional manufacturing value added prior to
being marketed. Imported finished goods currently account for approximately 6%
of our total sales. For our Casegoods segment, imports accounted for 21% of our

60

sales in fiscal 2002 and are growing at a much faster rate than our overall
business. This above-average growth trend is expected to continue for the
foreseeable future - for both our industry and our company.
While furniture imports are sourced from many different countries, the
majority of our fiscal 2002 imports came from the Far East, and we expect we
will increase our Far East imports even more in the future. These products
typically benefit from substantially lower overseas labor costs and, as a
result, provide higher value to our domestic customers whether delivered fully
assembled or blended with our domestically-manufactured products prior to
resale. In many cases, retailers buy these products from La-Z-Boy companies, as
opposed to importing them directly, in order to minimize their inventories,
obtain quicker delivery, have access to a broader assortment of products,
receive service assurance and reduce their freight costs.
Another financial goal is to continually improve the company's operating
margin - operating income as a percent of sales - with a goal of 10.0%.
Operating margin hit a recent high of 8.0% in both fiscal 1999 and fiscal 2000
before declining to 5.4% in 2001. Fiscal 2002 "normalized" operating margin
(excluding restructuring and divestiture expenses) was 6.1%. On a quarterly
basis, our overall normalized operating margin in fiscal 2002 hit a low point of
1.5% in the July first quarter reaching 8.6% in the April fourth quarter. The
margin improvement last year was due to a combination of improving sales trends,
and progressively increasing benefits from our cost-cutting actions and
restructuring moves. Our fiscal 2003 quarterly operating margins are expected to
show improvements over the comparable fiscal 2002 margins. Our first quarter is
historically our lowest quarter for both sales and operating margins.
We expect the restructurings that occurred over the past two fiscal years
to help improve profitability next year by adjusting capacity and other types of
overhead costs. The full-year benefits of our restructuring and other cost
reduction measures of fiscal 2002 should benefit our operating margin in fiscal
2003
Corporate overhead costs improved as a percent of sales with a full year of
integration of newly acquired units' similar functions. We expect more
improvement in fiscal 2003 in these and other corporate areas.
We also expect increased outsourcing of components to lower cost suppliers
outside of North America to help improve profitability. Increased importing of
components has been an industry trend over the last three to five years. Changes
in foreign exchange rates are not expected to affect this outsourcing trend in
the next year.
During fiscal 2002, the Financial Accounting Standards Board (FASB)
approved SFAS No. 142, "Goodwill and Other Intangible Assets," SFAS No. 143,
"Accounting for Asset Retirement Obligations," SFAS No. 144, "Accounting

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for the Impairment or Disposal of Long-Lived Assets" and SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections."
SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived
intangible assets and requires a review at least annually for impairment. Our
amortization of goodwill and other indefinite-lived intangible assets will be
affected upon our adoption of this SFAS in fiscal 2003. This SFAS will require
us to cease amortization of our remaining goodwill and indefinite-lived
intangible asset balances. We believe the impact of discontinuing this
amortization will be to increase annual earnings by approximately $7.5 million,
net of taxes. In addition, this SFAS will require us to perform an impairment
test of our existing goodwill and other indefinite-lived intangible assets based
on a fair value concept. We have not yet determined the effects of impairment
charges upon adoption.
We have not yet determined the impact, if any, on our financial
statements of SFAS No. 143 and SFAS No. 145, which are effective in our fiscal
2004.
SFAS No. 144 was adopted on April 28, 2002 and had no impact on our
financial statements.

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Exhibit (23)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-8996, 33-8997, 333-34155, 333-34157, 333-03097,
033-54743, and 333-95651) of La-Z-Boy Incorporated of our report dated May 29,
2002 relating to the financial statements, which appears in the Annual Report to
Shareholders, which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report dated May 29, 2002
relating to the financial statement schedule, which appears in this Form 10-K.

/s/PricewaterhouseCoopers LLP

Toledo, Ohio

June 20, 2002

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