Note 12: Stock-Based Compensation

In fiscal 2011, our shareholders approved the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan. This plan provides for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, dividend equivalent rights, and short-term cash incentive awards. Under this plan, the aggregate number of common shares that may be issued through awards of any form is 4.6 million shares. No grants may be issued under our previous plans.

Stock Options. The La-Z-Boy Incorporated 2010 Omnibus Incentive Plan authorizes grants to certain employees and directors to purchase common shares at a specified price, which may not be less than 100% of the current market price of the stock at the date of grant. Options granted to retirement eligible employees are expensed immediately because they vest upon retirement. Granted options generally become exercisable at 25% per year, beginning one year from the date of grant for a term of four years. Granted options outstanding under the former long-term equity award plan and employee incentive stock option plan remain in effect and have a term of five or ten years.

Stock option expense recognized in selling, general and administrative expense for the years ended April 28, 2012, and April 30, 2011, was $1.9 million and $1.7 million, respectively. We received $4.9 million and $0.3 million in cash during fiscal 2012 and fiscal 2011, respectively, for exercises of stock options.

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

	Number of Shares (In Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at April 25, 2009		2,431		$	15.48		2.5
Granted		1,360			4.37
Exercised		(79	)		13.01			$	105
Expired		(603	)		17.21
Canceled		(61	)		8.43
Outstanding at April 24, 2010		3,048			10.41		2.8
Granted		164			7.75
Exercised		(58	)		4.63			$	371
Expired		(522	)		14.88
Canceled		(56	)		6.70
Outstanding at April 30, 2011		2,576			9.54		2.6
Granted		329			9.35
Exercised		(734	)		7.70			$	4,573
Expired		(415	)		13.54
Canceled		(1	)		11.45
Outstanding at April 28, 2012		1,755		$	9.33		3.7	$	12,744
Exercisable at April 24, 2010		1,363		$	15.87		1.7
Exercisable at April 30, 2011		1,445		$	12.85		1.9
Exercisable at April 28, 2012		735		$	13.65		2.1	$	3,437

As of April 28, 2012, there was $1.5 million of total unrecognized compensation cost related to non-vested stock option awards, which is expected to be recognized over a weighted-average remaining vesting term of all unvested awards of 1.5 years. During the year ended April 28, 2012, 0.6 million shares vested.

The fair value of each option grant was estimated at the date of the grant using a Black-Scholes option-pricing model, which requires management to make certain assumptions. Expected volatility was estimated based on the historical volatility of our common shares. The average expected life was based on the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. The risk-free rate was based on U.S. Treasury issues with a term equal to the expected life assumed at the date of grant. The turnover rate was estimated at the date of grant based on historical experience. The fair value of stock options granted during fiscal 2012, fiscal 2011, and fiscal 2010 were calculated using the following assumptions:

	4/28/2012			4/30/2011			4/24/2010
Risk-free interest rate		1.5	%		0.75	%		1.5	%
Dividend rate		0	%		0	%		0	%
Expected life in years		5.5			3.0			4.0
Stock price volatility		88.8	%		86.6	%		80.7	%
Turnover rate		4.0	%		3.0	%		3.0	%
Fair value per share	$	6.68		$	4.27		$	2.59

Restricted Shares. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the Compensation Committee of the Board of Directors is authorized to award restricted common shares to certain employees. The shares are offered at no cost to the employees, and the plan requires that all shares be held in an escrow account until the vesting period ends. In the event of an employee’s termination during the escrow period, the shares are returned at no cost to the company. Compensation expense for restricted stock is equal to the market value of our common shares on the date the award is approved and is recognized over the service period. Expense relating to the restricted shares recorded in selling, general and administrative expense was $1.6 million and $1.4 million during fiscal 2012 and fiscal 2011, respectively. The unrecognized compensation cost at April 28, 2012, was $2.2 million and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 2.5 years.

The following table summarizes information about non-vested share awards as of and for the year ended April 28, 2012:

	Number of Shares (In Thousands)			Weighted Average Grant Date Fair Value
Non-vested shares at April 30, 2011		1,040		$	6.41
Granted		178			9.35
Vested		(204	)		8.14
Canceled		(41	)		6.46
Non-vested at April 28, 2012		973		$	6.58

Performance Awards. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan and the previous long-term equity award plan, the Compensation Committee of the Board of Directors is authorized to award common shares to certain employees based on the attainment of certain financial goals over a given performance period. The shares are offered at no cost to the employees. In the event of an employee's termination during the vesting period, the potential right to earn shares under this program is generally forfeited. The grant date fair value of performance-based awards is expensed over the service period. For awards that vest based on performance conditions, the fair value of the award is the share price on the date of grant, and compensation cost is expensed based on the probability that the performance goals will be obtained. For awards that vest based on market conditions, the fair value of the award was estimated using a Monte Carlo valuation model, and compensation cost is expensed over the vesting period, regardless of the ultimate vesting of the award, similar to the expensing of a stock option award.

We granted 0.7 million performance awards during fiscal 2012 and 0.4 million performance awards during fiscal 2011. The fiscal 2012 awards have both performance and market-based vesting provisions and the fiscal 2011 awards have only a performance condition. Based upon the terms of these awards, they can vest at 200% depending on the performance and market-based levels achieved. Our current estimate is that no additional performance awards will vest in excess of those initially granted. As such, during fiscal 2012, we recorded $1.4 million ($0.8 million of which related to marked based amortization) for the fiscal 2012 grant with a service period ending April 26, 2014 and $0.2 million for the fiscal 2011 grant with a service period ending April 27, 2013 in fiscal 2012 due to the probability that certain goals would be obtained. There was no expense recognized for performance shares during fiscal 2011.

Restricted Stock Units. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the Compensation Committee of the Board of Directors is authorized to award restricted stock units to our non-employee directors. These units are offered at no cost to the directors and the awards vest upon the director leaving the board. These awards will be paid in shares of our common stock upon exercise and, consequently, we account for them as equity based awards. Compensation expense for these awards is measured and recognized based on the market price of our common shares at the date the grant was approved. During fiscal 2012 and fiscal 2011 we granted 0.1 million restricted stock units each year to our non-employee directors. Expense relating to the restricted stock units recorded in selling, general and administrative expense was $0.6 million in fiscal 2012 and $0.7 million during fiscal 2011.

Previously Granted Deferred Stock Units. Awards under our deferred stock unit plan for non-employee directors are accounted for as liability-based awards because upon exercise these awards will be paid in cash. Compensation expense is initially measured and recognized based on the market price of our common stock on the grant date. The liability is re-measured and adjusted at the end of each reporting period until paid. For purposes of dividends and for measuring the liability, each deferred stock unit is the equivalent of one common share. As of April 28, 2012, we had 0.1 million deferred stock units outstanding. Expense/ (benefit) relating to the deferred stock units recorded in selling, general and administrative expense was $0.4 million and $(0.5) million during fiscal 2012 and fiscal 2011, respectively. We settled shares in the amount of $0.1 million during the year. The liability related to these awards was $1.9 million and $1.6 million at April 28, 2012, and April 30, 2011, respectively, and is included as a component of other long-term liabilities on our consolidated balance sheet.