SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549-1004
FORM 10-Q

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

FOR QUARTERLY PERIOD ENDED October 28, 2006 COMMISSION FILE NUMBER 1-9656

_{LA-Z-BOY INCORPORATED}

(Exact name of registrant as specified in its charter)

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

                                           None                                           

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

                          Large accelerated filer                  Accelerated filer    X              Non-accelerated filer          

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

                                          Yes                                                             No    X      

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

                       Class                                                                         Outstanding at October 28, 2006
Common Shares, $1.00 par value                                                                     51,364,209

LA-Z-BOY INCORPORATED
FORM 10-Q SECOND QUARTER OF FISCAL 2007

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited, amounts in thousands, except per share data)

*As a percent of pretax income, not sales.        

N/M = not meaningful                                                                                   

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

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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited, amounts in thousands, except per share data)

*As a percent of pretax income, not sales.
N/M = not meaningful

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

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LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET

(Unaudited, amounts in thousands)

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

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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts in thousands)

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

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

(Unaudited, amounts in thousands)

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

The interim financial information is prepared in conformity with generally accepted accounting principles and such principles are applied on a basis consistent with those reflected in our 2006 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, but does not include all the disclosures required by generally accepted accounting principles. In the opinion of management, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments, which are necessary for a fair presentation of results for the respective interim period.

Note 2: Interim Results

The foregoing interim results are not necessarily indicative of the results of operations which will occur for the full fiscal year ending April 28, 2007.

Note 3: Reclassification

Certain prior year information has been reclassified to be comparable with the current year presentation.  Most significantly, our consolidated statement of operations has been reclassified for our discontinued operations.

Note 4:  Stock-Based Compensation

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

SFAS No. 123(R) requires us to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statement of operations using a straight-line single-option method. Prior to the adoption of SFAS No. 123(R), we accounted for stock option awards to employees using the intrinsic value method in accordance with APB 25. Under the intrinsic value method, no stock option compensation expense was recognized in our consolidated statement of operations because the exercise price of our stock options granted to employees equaled the fair market value of the underlying stock at the date of grant.

As stock-based compensation expense recognized in the consolidated statement of operations for the quarter and six months ended October 28, 2006 was based on awards ultimately expected to vest, it was reduced for forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS No. 123(R) for the periods prior to fiscal 2007, we accounted for forfeitures as they occurred. In accordance with the modified-prospective transition method, prior periods have not been restated to include the impact of SFAS No. 123(R).

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As permitted by SFAS No. 123(R), we chose the nominal vesting period approach for recognizing the amount of stock option expense to be included in the pro forma compensation expense for retirement eligible employees. Under this method, expense was recognized over the normal four-year vesting period. With the adoption of SFAS No. 123(R), we were required to continue applying the nominal vesting period approach for unvested options granted prior to the date of adoption of April 30, 2006. For awards granted after that date we must apply the non-substantive vesting period approach where expense is recognized over the period from grant date to the date retirement eligibility is achieved, if expected to occur during the nominal vesting period. Our compensation expense for the quarter and six months ended October 28, 2006 would have increased by $0.1 million and less than $0.2 million, respectively, under the non-substantive vesting period approach.

Under the modified-prospective transition method, financial results for periods prior to fiscal 2007 were not restated. There was no stock-based compensation expense recognized related to employee stock options for the quarter or six months ended October 29, 2005.  The pro forma table below reflects basic and diluted net earnings per share for the quarter and six months ended October 29, 2005 assuming that we had accounted for our stock options using the fair value method promulgated by SFAS No. 123(R) at that time.

In fiscal 2005, our shareholders approved a long-term equity award plan which replaced the former employee incentive stock option plan, the former employee restricted share plan and the former performance-based stock plan.  The new plan allows for awards in the form of performance awards, restricted shares and non-qualified stock options.  Under this new plan, the aggregate number of common shares that may be issued through awards of any form is 5.0 million.  No further grants or awards may be issued under the former plans. 

The long-term equity award plan and the former employee incentive stock option plan provide grants to certain employees to purchase common shares at a specified price, which may not be less than 100% of the current market price of the stock at the date of grant. Granted options generally become exercisable at 25% per year, beginning one year from the date of grant for a term of five years. Granted options outstanding under the former plan remain in effect and become exercisable at 25% per year, beginning one year from the date of grant for a term of five or ten years.  Additionally, we have outstanding options that were issued to replace outstanding options of a company acquired in fiscal 2000. The options outstanding under this plan as of October 28, 2006, were 18,880 with a weighted average exercise price of $19.24 per share. There are no shares available for future grant under this plan.      

Stock option expense recognized in Selling, General and Administrative expense under SFAS No. 123(R) for the quarter and six months ended October 28, 2006 was $0.9 million and $1.5 million, respectively. This expense reduced net income by $0.6 million and earnings per share by $0.01 for the quarter ended October 28, 2006 and net income by $0.9 million and earnings per share by $0.02 for the six months ended October 28, 2006.  Less than $0.1 million in cash was received during the second quarter and first six months of fiscal 2007 for exercises of stock options. 

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

As of October 28, 2006, there was $4.5 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 3.0 years. During the quarter ended October 28, 2006, 0.4 million shares vested.

The fair value of each option grant was estimated using the Black-Scholes option-pricing model. For the options granted in the second quarter ended October 28, 2006, expected volatility was estimated based on the historical volatility of our common shares. The average expected life was based on the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. The  risk-free rate was based on U.S. Treasury issues with a term equal to the expected life assumed at the date of grant. Turnover Rate was estimated at the date of grant based on historical experience.  The fair value of employee stock options granted during the second quarter of fiscal 2007 was $3.47 per share using the following assumptions:

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Under the long-term equity award plan, the Compensation Subcommittee 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 for a period of three to five years.  In the event of an employee’s termination during the escrow period, the shares are returned to the company at no cost to the company.  Restricted stock issued is recorded based on the market value of our common shares on the date of the award and the related compensation expense is recognized over the vesting period.   Expense relating to the restricted shares recorded in Selling, General and Administrative expense was $0.9 million with an after tax effect of $0.6 million in the second quarter of fiscal 2007, and $0.3 million with an after-tax effect of $0.2 million in the second quarter of fiscal 2006.  Expense relating to the restricted shares recorded in Selling, General and Administrative expense was $1.2 million with an after tax effect of $0.8 million in the first six months of fiscal 2007, and $0.4 million with an after-tax effect of $0.3 million in the first six months of fiscal 2006.  The unrecognized compensation cost at October 28, 2006 was $4.3 million and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 3.9 years.

The following table summarizes information about non-vested share awards as of and for the six months ended October 28, 2006:

Our shareholders have approved a non-employee directors’ restricted share plan, under which shares are offered at 25% of the fair market value at the date of grant. The plan requires that all shares be held in an escrow account until the participant’s service as a director ceases unless otherwise approved by the Board of Directors.  In the event of a non-employee director’s termination during the escrow period, the shares must be sold back to us at their cost. Restricted stock issued is recorded based on the market value of our common shares on the date of the award and the related compensation expense is recognized when the grant occurs. Actual pre-tax expense relating to the restricted shares was $0.2 million and $0.2 million in the second quarter and first six months of fiscal 2007, respectively.   Actual pre-tax expense relating to the restricted shares was $0.2 million and $0.2 million in the second quarter and first six months of fiscal 2006, respectively.

Additionally under the long-term equity award plan, the Compensation Subcommittee 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 performance period, the potential right to earn shares under this program is generally forfeited.  No shares were issued in the first three and six months of fiscal 2007.  The cost of performance-based awards is expensed over the performance period.  No expense was recognized in the first three and six months of fiscal 2007 and the first three and six months of fiscal 2006, respectively, as we did not expect the financial goals to be attained for any of the outstanding performance periods.

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Note 5: Earnings per Share

Basic earnings per share is computed using the weighted average number of shares outstanding during the period. Diluted net income per share uses the weighted average number of shares outstanding during the period plus the additional common shares that would be outstanding if the dilutive potential common shares issuable under employee stock options and unvested restricted stock were issued. A reconciliation of basic and diluted weighted average common shares outstanding follows:

Note 6: Inventories

     A summary of inventory follows:

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Note 7: Restructuring

In the second quarter of fiscal 2007, several of our Retail warehouses were consolidated into larger facilities and several underperforming stores were closed.  Approximately 30 jobs were eliminated as a result of these closures.  We recorded pre-tax restructuring charges of $2.3 million or $0.03 per share covering contract termination costs for the leases on these facilities, severance and benefits, write-down of certain leasehold improvements in addition to other relocation costs which were expensed as incurred.   These costs were reported as a component of Selling, General and Administrative costs.  The write-down was accounted for in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. All other costs were accounted for in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  Offsetting these expenses during the quarter was a pre-tax gain of $0.4 million or $0.01 per share relating to the sale of a property idled as part of a previous restructuring.  This gain was recorded as a component of cost of sales.

In the second quarter of fiscal 2006, the decision was made to close our Canadian upholstery manufacturing facility due to underutilization of capacity.  The plant closure occurred in the third quarter of fiscal 2006 and production was absorbed in other upholstery facilities.   Approximately 413 jobs were eliminated as a result of this closure.   During fiscal 2006, pre-tax restructuring charges for our Canadian facility were $8.9 million, or $0.11 per diluted share, covering severance and benefits, appropriate adjustments to our pension liability and the write-down of certain fixed assets.  Severance costs and other costs for this restructuring were expensed  in accordance with SFAS No. 112, Employers' Accounting for Postemployment Benefits and  SFAS No. 146.  The write-down was accounted for in accordance with SFAS No. 144. We expect to dispose of this facility by sale.

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

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Note 8: Segment Information

Our reportable operating segments are the Upholstery Group, the Casegoods Group and the Retail Group.  On July 29, 2006, we sold our American of Martinsville division as it was not strategically aligned with our current business model as a residential furniture company. Additionally, we combined Clayton Marcus and Pennsylvania House into one operating unit which reports to our President of Casegoods.  Due to this change we have moved Clayton Marcus from our Upholstery Group to our Casegoods Group.  Prior year quarterly information was restated for discontinued operations and the change in composition of our Upholstery and Casegoods segments.  All information presented below is restated accordingly.

Upholstery Group.  The operating units in the Upholstery Group are Bauhaus, England, La-Z-Boy, La-Z-Boy UK 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.

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

Retail Group. The Retail Group consists of 68 company-owned La-Z-Boy Furniture Galleries® stores.  The Retail Group primarily sells upholstered furniture to end consumers. 

*Variable Interest Entities ("VIEs") are included in corporate and other.

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Note 9: Goodwill and Other Intangible Assets

In accordance with SFAS No. 142, trade names are tested at least annually for impairment by comparing their fair value to their carrying values. The fair value for each trade name is established based upon a royalty savings approach. Additionally, goodwill is tested for impairment by comparing the fair value of our operating units to their carrying values. The fair value for each operating unit is established based upon a combination of the discounted cash flows and the projected profitability of the market in which the entity operates.

During the first quarter of fiscal 2007, we acquired several La-Z-Boy Furniture Galleries® stores in southeast Florida that were independently owned.  We recorded goodwill of $5.8 million relating to the acquisition of this market.  This acquisition is expected to impact our consolidated net sales by less than 1.0%.

The following table summarizes the changes to goodwill and trade names during the first six months of fiscal 2007:

Note 10: Financial Guarantees and Product Warranties

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

We would be required to perform under these agreements only if the dealer were to default on the lease. The maximum amount of potential future payments under lease guarantees was $5.3 million as of October 28, 2006.

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

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

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

Other adjustments of $1.5 million for the second quarter and $2.3 million for the six months ended October 28, 2007 resulted from reductions in historical claims due to improved product quality, and reductions in estimated amounts required for currently known warranty issues.

Note 11: Variable Interest Entities

Financial Accounting Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities (“FIN 46”), requires the “primary beneficiary” of a VIE to include the VIE’s assets, liabilities and operating results in its consolidated financial statements.   In general, a VIE is a corporation, partnership, limited-liability company, trust or any other legal structure used to conduct activities or hold assets that either (a) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (b) has a group of equity owners that are unable to make significant decisions about its activities, or (c) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.

La-Z-Boy Furniture Galleries® stores that are not operated by us are operated by independent dealers. These stores sell La-Z-Boy manufactured products as well as various accessories purchased from approved La-Z-Boy vendors.  In some cases we have extended credit beyond normal trade terms to the independent dealers, made direct loans and/or guaranteed certain leases.  Most of these independent dealers have sufficient equity to carry out their principal operating activities without subordinated financial support.  However, there are certain independent dealers that we have determined may not have sufficient equity.

Based on the criteria for consolidation of VIEs, we have consolidated several dealers where we were the primary beneficiary based on the fair value of our variable interests.  All of our consolidated VIEs were recorded at fair value on the date we became the primary beneficiary.  Because these entities are accounted for as if the entities were consolidated based on voting interests, we absorb all net losses of the VIEs in excess of the equity at the dealerships.  We recognize all net earnings of these VIEs to the extent of recouping the losses we recorded.  Earnings in excess of our losses are attributed to equity owners of the dealers and are recorded as minority interest.   We had three consolidated VIEs for the first quarter of fiscal 2006 and had four consolidated VIEs for the second quarter of fiscal 2006 and throughout the first half of fiscal 2007.

Our consolidated VIEs recognized $10.2 million and $7.8 million in sales, net of intercompany eliminations, in the second quarter of fiscal 2007 and the second quarter of fiscal 2006, respectively.  Additionally, we recognized a net loss per share of $0.04 in the second quarter of fiscal 2007 and $0.03 in the second quarter of fiscal 2006 based on the operating results of these VIEs.  Our consolidated VIEs recognized $21.9 million and $16.4 million in sales, net of intercompany eliminations, in the six months ended October 28, 2006 and the six months ended October 29, 2005, respectively.  Additionally, we recognized a net loss per share of $0.06 in the six months ended October 28, 2006 and $0.05 in six months ended October 29, 2005 based on the operating results of these VIEs.  The VIEs had $4.9 million and $9.2 million of assets net of elimination of intercompany activity at the end of the second quarter of fiscal 2007 and the second quarter of fiscal 2006, respectively.   

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Note 12: Pension Plans

The net periodic pension costs were as follows:

We are not required to make any contributions to the defined benefit plans in fiscal year 2007, however we contributed $0.2 million to the plans during the first six months of fiscal 2007 and may make additional discretionary contributions. 

Note 13: Dispositions/Acquisitions

Discontinued Operations

On July 28, 2006, we completed the sale of our American of Martinsville operating unit, which supplied contract furniture to the hospitality, assisted-living and governmental markets. This operating unit was not a strategic fit with our current business model, which is centered on providing comfortable and stylish furnishings for the home, and was not a large enough component of our overall business (about 5% of sales) to justify our continued corporate focus and resources. We sold the business for $33.2 million, including $30.0 million in cash and a $3.2 million receivable which was subsequently collected in the second quarter of fiscal 2007, recognizing a pre-tax gain in the first quarter of $2.1 million.  This disposition qualified as discontinued operations.  Accordingly, our consolidated statement of operations for the prior year has been reclassified to reflect the results of operations of this divested business as discontinued operations. The business unit was previously included in the Casegoods segment, which has also been reclassified to reflect the discontinued operations.

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The results of the discontinued operations for the six months ended October and quarter and six months ended October 29, 2005 were as follows:

In the consolidated statement of cash flows, the cash flows of discontinued operations are not reclassified for fiscal 2006 and 2007.  The assets and liabilities of this operating unit were not reclassified for fiscal 2006.  They are reported in the respective categories of the consolidated balance sheet and statement of cash flows along with those of our continuing operations.

Acquisitions

In the first quarter of fiscal 2007, we acquired six stores in the southeastern Florida market.  This acquisition is expected to impact our consolidated net sales by less than 1.0%.  Pro forma sales and results of operations are not presented as they are not materially different from that of our consolidated results of operations as reported.

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Note 14:  Recent Accounting Pronouncements

The FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, during June, 2006. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The interpretation is effective for fiscal years beginning after December 15, 2006. Earlier application is encouraged if the enterprise has not yet issued financial statements, including interim financial statements, in the period the Interpretation is adopted. We are currently evaluating this pronouncement to determine the impact it will have on our financial statements upon implementation. We elected not to early adopt this interpretation.

The FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years, with early adoption permitted. We are currently in the process of determining the impact this pronouncement may have on our financial statements.

 The FASB issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The new reporting requirements and related new footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending after December 15, 2006.  We are currently evaluating the impact this statement will have on our consolidated financial statements and expect the adoption of SFAS No.158 will result in a $9.0 million increase in our pension liability.  The new measurement date requirement applies for fiscal years ending after December 15, 2008, however this requirement will not have an impact on our financial statements as we currently measure the funded status of our plans as of our year end date.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”). SAB No. 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material and therefore must be quantified. SAB No. 108 is effective for fiscal years ending on or after November 15, 2006. We have not yet determined the effect that the application of SAB No. 108 will have on our results of operations or financial condition.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis is an integral part of understanding our financial results. This Management’s Discussion and Analysis should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to Consolidated Financial Statements. We begin the Management’s Discussion and Analysis with an introduction of La-Z-Boy Incorporated’s key businesses, strategies and significant operational events in fiscal 2007. We then provide a discussion of our results of operations, liquidity and capital resources, quantitative and qualitative disclosures about market risk, and critical accounting policies.

Cautionary Statement Concerning Forward-Looking Statements

We are making forward-looking statements in this item. 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:

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

Actual results could differ materially from those anticipated or projected due to a number of factors. These factors include, but are not limited to: (a) changes in consumer confidence; (b) changes in demographics; (c) changes in housing sales; (d) the impact of terrorism or war; (e) continued energy price changes; (f) the impact of logistics on imports; (g) the impact of interest rate changes; (h) the potential disruptions from Chinese imports; (i) inventory supply price fluctuations; (j) the impact of imports as it relates to continued domestic production; (k) changes in currency exchange rates; (l) competitive factors; (m) operating factors, such as supply, labor or distribution disruptions including changes in operating conditions or costs; (n) effects of restructuring actions; (o) changes in the domestic or international regulatory environment; (p) not fully realizing cost reductions through restructurings; (q) ability to implement global sourcing organization strategies; (r) the impact of new manufacturing technologies; (s) the future financial performance and condition of independently operated dealers that we are required to consolidate into our financial statements or changes requiring us to consolidate additional independently operated dealers; (t) fair value changes to our intangible assets due to actual results differing from projected; (u) the impact of adopting new accounting principles; (v) the impact from natural events such as hurricanes, earthquakes and tornadoes; (w) the ability to turn around under-performing retail stores; (x) the impact of retail store relocation costs, the success of new stores or the timing of converting stores to the New Generation format; (y) the ability to procure fabric rolls or cut and sewn fabric sets domestically or abroad; and (z) factors relating to acquisitions and other factors identified from time to time in our reports filed with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statements, either to reflect new developments or for any other reason.

Introduction