Note 14: Stock-Based Compensation

The La-Z-Boy Incorporated 2010 Omnibus Incentive 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, as amended, the aggregate number of common shares that may be issued through awards of any form is 8.7 million shares. No grants may be issued under our previous plans.

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

(Amounts in thousands)	4/25/2015		4/26/2014		4/27/2013
Equity-based awards expense	$	6,780	$	8,739	$	11,458
Liability-based awards expense		4,597		5,736		2,170

Total stock-based compensation expense	$	11,377	$	14,475	$	13,628

The table below summarizes the grants made during fiscal 2015:

(Shares/units in thousands)	Shares/units granted	Liability/ Equity award	Settlement
Stock options	374	Equity	Common shares
Restricted stock	116	Equity	Common shares
Restricted stock units—directors	33	Equity	Common shares
Performance-based shares	192	Equity	Common shares

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. We granted 373,711 stock options to employees during the first quarter of fiscal 2015, and we also have stock options outstanding from previous grants. We recognize compensation expense for stock options over the vesting period equal to the fair value on the date our compensation committee approved the awards. The vesting period for our stock options ranges from one to four years, with accelerated vesting upon retirement. We expense options granted to retirement eligible employees immediately. Granted options outstanding under the former long-term equity award plan remain in effect and have a term of five or ten years.

Stock option expense recognized in selling, general and administrative expense for fiscal years 2015, 2014, and 2013 was $3.0 million, $2.1 million, and $2.3 million, respectively. We received $1.4 million, $3.6 million, and $2.9 million in cash during fiscal 2015, fiscal 2014, and fiscal 2013, 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 (In Thousands)
Outstanding at April 26, 2014		798		$	11.79		7.5	$	10,185
Granted		374			23.63
Exercised		(130	)		10.71			$	2,011

Outstanding at April 25, 2015		1,042		$	16.15		7.6	$	11,773


Exercisable at April 25, 2015		382		$	10.78		6.4	$	6,387

The aggregate intrinsic value of options exercised was $8.3 million and $6.0 million in fiscal 2014 and fiscal 2013, respectively. As of April 25, 2015, our total unrecognized compensation cost related to non-vested stock option awards was $1.8 million, which we expect to recognize over a weighted-average remaining vesting term of all unvested awards of 1.8 years. During the year ended April 25, 2015, 0.2 million shares vested.

We estimate the fair value of the employee stock options at the date of grant using the Black-Scholes option-pricing model, which requires management to make certain assumptions. We estimate expected volatility based on the historical volatility of our common shares. We base the average expected life on the contractual term of the stock option and expected employee exercise trends. We base the risk-free rate on U.S. Treasury issues with a term equal to the expected life assumed at the date of the grant. The fair value of stock options granted during fiscal 2015, fiscal 2014, and fiscal 2013 were calculated using the following assumptions:

	4/25/2015			4/26/2014			4/27/2013
Risk-free interest rate		1.59	%		0.84	%		0.75	%
Dividend rate		1.00	%		0.84	%		0	%
Expected life in years		5.0			5.0			5.0
Stock price volatility		54.4	%		81.3	%		83.8	%
Fair value per share	$	10.45		$	11.63		$	7.87

Stock Appreciation Rights. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the Compensation Committee of the board of directors is authorized to award stock appreciation rights to certain employees. We did not grant any SARs to employees during fiscal 2015, but we have SARs outstanding from previous grants. SARs will be paid in cash upon exercise and, accordingly, we account for SARs as liability-based awards that we remeasure to reflect the fair value at the end of each reporting period. These awards vest at 25% per year, beginning one year from the grant date for a term of four years, with accelerated vesting upon retirement. We expense SARs granted to retirement eligible employees immediately. We estimate the fair value of SARs at the end of each reporting period using the Black-Scholes option-pricing model, which requires management to make certain assumptions. We base the average expected life on the contractual term of the SARs and expected employee exercise trends (which is consistent with the expected life of our option awards). We base the risk-free rate on U.S. Treasury issues with a term equal to the expected life assumed at the end of the reporting period. We recognized compensation expense of $0.7 million, $1.1 million, and $0.6 million related to SARs in selling, general and administrative expense for the years ended April 25, 2015, April 26, 2014, and April 27, 2013, respectively. Our unrecognized compensation cost at April 25, 2015, related to SARs was $0.7 million based on the fair value on that date, and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 1.3 years.

We granted SARs in each of the fiscal years ended April 26, 2014, and April 27, 2013. At April 25, 2015, we measured the fair value of the SARs granted during these fiscal years using the following assumptions:

	Fiscal 2014 grant			Fiscal 2013 grant
Risk-free interest rate		1.02	%		0.64	%
Dividend rate		1.16	%		1.16	%
Expected life in years		3.2			2.2
Stock price volatility		34.0	%		30.0	%
Fair value per share	$	10.24		$	15.09

Restricted Stock. 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. We awarded 115,811 shares of restricted stock to employees during fiscal 2015. We issue restricted stock at no cost to the employees, and the shares are 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. We account for restricted stock awards as equity-based awards because upon vesting they will be settled in common shares. The majority of the restricted stock shares were awarded in the first quarter of fiscal 2015 with a fair value of $23.63 per share, the market value of our common shares on the date of grant. We recognize compensation expense for restricted stock over the vesting period equal to the fair value on the date our compensation committee approved the awards. Restricted stock awards vest at 25% per year, beginning one year from the grant date for a term of four years. We recorded expense related to the restricted stock in selling, general and administrative expense of $0.8 million, $0.5 million, and $1.0 million during fiscal 2015, fiscal 2014, and fiscal 2013, respectively. Our unrecognized compensation cost at April 25, 2015, related to restricted shares was $2.2 million and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 3.2 years.

The following table summarizes information about non-vested share awards as of and for the year ended April 25, 2015:

	Number of Shares (In Thousands)			Weighted Average Grant Date Fair Value
Non-vested shares at April 26, 2014		102		$	7.77
Granted		116			23.68
Vested		(66	)		6.92
Canceled		(10	)		17.68

Non-vested shares at April 25, 2015		142		$	20.50

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 certain employees and our non-employee directors.

We did not grant any restricted stock units to employees during fiscal 2015, but we have restricted stock units outstanding from previous grants. We account for these units as liability-based awards because upon vesting these awards will be paid in cash. We measure and recognize initial compensation expense based on the market value (intrinsic value) of our common stock on the grant date and amortize the expense over the vesting period. We remeasure and adjust the liability based on the market value (intrinsic value) of our common shares on the last day of the reporting period until paid with a corresponding adjustment to reflect the cumulative amount of compensation expense. The fair value of each outstanding restricted stock unit at April 25, 2015, was $27.49, the market value of our common shares on the last day of the reporting period. Each restricted stock unit is the equivalent of one common share. Restricted stock units vest at 25% per year, beginning one year from the grant date for a term of four years. We recognized compensation expense related to restricted stock units granted to employees of $1.5 million, $1.6 million, and $0.5 million in selling, general and administrative expense for the years ended April 25, 2015, April 26, 2014, and April 27, 2013, respectively. Our unrecognized compensation cost at April 25, 2015, related to employee restricted stock units was $2.7 million based on the market value (intrinsic value) on that date, and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 1.8 years.

The following table summarizes information about non-vested stock units as of and for the year ended April 25, 2015:

	Number of Units (In Thousands)			Weighted Average Grant Date Fair Value
Non-vested units at April 26, 2014		221		$	15.90
Vested		(63	)		15.35
Canceled		(12	)		16.14

Non-vested units at April 25, 2015		146		$	16.12

Restricted stock units granted to directors are offered at no cost to the directors and vest when a director leaves the board. During fiscal 2015, fiscal 2014, and fiscal 2013 we granted less than 0.1 million restricted stock units each year to our non-employee directors. We account for these restricted stock units as equity-based awards as they will be settled in shares of our common stock upon vesting. We measure and recognize compensation expense for these awards based on the market price of our common shares on the date of grant, which was $21.81, $21.20, and $13.99 for the awards granted in fiscal 2015, fiscal 2014, and fiscal 2013, respectively. Our expense relating to the non-employee directors restricted stock units which we recorded in selling, general and administrative expense was $0.7 million in fiscal 2015, fiscal 2014, and fiscal 2013.

Performance Awards. Under the La-Z-Boy Incorporated 2010 Omnibus Incentive Plan, the Compensation Committee of the board of directors is authorized to award common shares and stock units to certain employees based on the attainment of certain financial goals over a given performance period. The awards 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/units under this program is generally forfeited.

Payout of these grants depends on our financial performance (80%) and a market-based condition based on the total return our shareholders receive on their investment in our stock relative to returns earned through investments in other public companies (20%). The performance award opportunity ranges from 50% of the employee's target award if minimum performance requirements are met to a maximum of 200% of the target award based on the attainment of certain financial and shareholder-return goals over a specific performance period, which is generally three fiscal years. The number of performance-based units/shares granted were as follows:

Performance-based awards granted (Shares/units in thousands)	Number of Units		Number of Shares
Fiscal 2013 grant		146		133
Fiscal 2014 grant		35		191
Fiscal 2015 grant		—		192

Based on our financial results for fiscal 2015, certain performance conditions were met for some of our outstanding performance-based awards. The number of awards earned based on performance conditions were as follows:

Performance-based awards earned (Shares/units in thousands)	Number of Shares/Units
Fiscal 2013 performance-based shares		171
Fiscal 2013 performance-based units		154
Fiscal 2014 performance-based shares		84
Fiscal 2014 performance-based units		14
Fiscal 2015 performance-based shares		49

The fiscal 2013, fiscal 2014, and fiscal 2015 shares will be settled in shares and the fiscal 2013 and fiscal 2014 units will be settled in cash if service conditions are met, requiring employees to remain employed with the company through the end of the three-year-performance periods.

We account for performance-based shares as equity-based awards because upon vesting they will be settled in common shares. For shares that vest based on our results relative to the performance goals, we expense as compensation cost the fair value of the shares as of the day we granted the awards recognized over the performance period, taking into account the probability that we will satisfy the performance goals. The fair value of each share of the awards we granted in fiscal 2015, fiscal 2014, and fiscal 2013 that vest based on attaining performance goals was $22.91, $18.58, and $11.97, respectively, the market value of our common shares on the date we granted the awards less the dividends we expect to pay before the shares vest. For shares that vest based on market conditions, we use a Monte Carlo valuation model to estimate each share's fair value as of the date of grant, and, similar to the way in which we expense awards of stock options, we expense compensation cost over the vesting period regardless of the value that award recipients ultimately receive. Based on the Monte Carlo model, the fair value as of the grant date of the fiscal 2015, fiscal 2014, and fiscal 2013 grants of shares that vest based on market conditions was $29.64, $26.08, and $15.41, respectively. Our unrecognized compensation cost at April 25, 2015, related to performance-based shares was $3.1 million based on the current estimates of the number of awards that will vest, and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 1.4 years.

Equity-based compensation expenses related to performance-based shares recognized in our consolidated statement of income were as follows (for the fiscal years ended):

(Amounts in thousands)	4/25/2015		4/26/2014		4/27/2013
Fiscal 2011 grant	$	—	$	—	$	1,707
Fiscal 2012 grant		—		3,603		5,442
Fiscal 2013 grant		568		849		440
Fiscal 2014 grant		769		1,006		—
Fiscal 2015 grant		908		—		—

We account for performance-based units as liability-based awards because upon vesting, they will be paid in cash. For units that vest based on our results relative to performance goals, we expense as compensation cost over the performance period the fair value of each unit, taking into account the probability that the performance goals will be attained. The fair value of each unit we granted in fiscal 2014 and fiscal 2013 that vest based on attaining performance goals was $27.09 and $27.41, respectively, the market value of our common shares on the last day of the reporting period less the dividends we expect to pay before the awards vest. For performance-based units that vest based on market conditions, we use a Monte Carlo valuation model to estimate each unit's fair value as of the last day of the reporting period. We remeasure and adjust the liability for these units based on the Monte Carlo valuation at the end of each reporting period until we pay out the units. Based on the Monte Carlo model, the fair value at April 25, 2015, of the fiscal 2014 and fiscal 2013 grants of units that vest based on market conditions was $42.37 and $51.75, respectively. During fiscal 2015, fiscal 2014, and fiscal 2013, we recognized $2.0 million, $2.2 million, and $0.7 million, respectively, of expense related to performance-based units. Our unrecognized compensation cost at April 25, 2015, related to performance-based units was $0.3 million based on the current share price and current estimates of the number of awards that will vest, and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 1.1 years.

Previously Granted Deferred Stock Units. We account for awards under our deferred stock unit plan for non-employee directors as liability-based awards because upon exercise these awards will be paid in cash. We measure and recognize compensation expense based on the market price of our common stock on the grant date. Our liability is remeasured 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 25, 2015, we had 0.1 million deferred stock units outstanding. We recorded expense relating to the deferred stock units in selling, general and administrative expense of $0.4 million, $0.8 million, and $0.3 million during fiscal 2015, fiscal 2014, and fiscal 2013, respectively. Our liability related to these awards was $3.4 million and $3.0 million at April 25, 2015, and April 26, 2014, respectively, and is included as a component of other long-term liabilities on our consolidated balance sheet.