Greetings, and welcome to the La-Z-Boy, Inc. second quarterfiscal year 2008 conference call. Atthis time all participants are in a listen only mode. A brief question and answer session will followthe formal presentation. If anyoneshould require operator assistance during the conference please press *0 on yourtelephone key pad. As a reminder thisconference is being recorded. It is nowmy pleasure to introduce your host Ms. Kathy Liebmann Director, InvestorRelations and Corporate Communications for La-Z-Boy, Inc. Thank you. Ms. [Liebman] you may now begin.

Thank you Jackie, Good morning everyone and thank you forjoining us on this mornings call to discuss our fiscal 2008 second quarterresults. Present on the call today are Kurt Darrow, La-Z-Boy’s President andCEO and Mike Riccio our CFO. Kurt willopen today’s call with some prepared remarks on the quarter and will discussthe strategic direction of our business and Mike will speak about some of themore unusual items this quarter. We willthen open the call to questions. As isour custom, the time allotted for this call is one hour. In order to allow everyone an opportunity toask questions, please limit your questions to two and if you have follow up youmay reenter the queue. A telephonereplay of the call will be available for one week beginning this afternoon. These regular quarterly investor conference calls are one ofLa-Z-Boy’s primary vehicles to provide guidance and to communicate withinvestors about the company’s current operations and future prospects. We will make forward looking statementsduring this call so I will repeat our usual safe harbor remarks. While these statements reflect the best judgmentsof management at the present time, they are subject to numerous future risksand uncertainties as detailed in our regular SEC filings, and they may differmaterially from actual results due to a wide range of factors. We undertake no obligation to update anyforward looking statements made during this call. With that, let me turn over the call to KurtDarrow, La-Z-Boy’s President and CEO.

Thank you Kathy. Goodmorning everyone and thank you for participating this morning. As Kathy mentioned I will begin with anupdate on our strategic initiatives and our performance for the quarter andthen Mike will speak on several financial topics before I conclude with ourprepared remarks and move to the question and answer period. The credit crunch, the troubled housing market, lowerconsumer confidence, discretionary spending, you name it, they have allimpacted the consumers desire to spend money on furniture purchases. With these issues beyond our control, coupledwith the difficult retail environment, we as a company our focus on businessdrivers we can control to position La-Z-Boy for the time when the marketrecovers which it undoubtedly will. As Ihave highlighted in the past, La-Z-Boy, with its strong balance sheet and themost recognized brand in the industry, has the ability to weather the storm andI have every confidence we will emerge from this period as a stronger company,one that is strategically aligned to operate in a very different and newmarketplace. We will remain a competitive manufacturer and distributor ofhome furnishings and our proprietary store system will run as an integratedchain with all the efficiencies inherent in that model. Before I go through our results for the quarter, I wouldlike to give those of you who are new to our story and remind those of you whohave been following us for some time, some perspective on how much our industryhas changed over the last several years and concurrent changes we have made tothe La-Z-Boy business model to compete successfully in this dynamicenvironment. First, we have rationalized our portfolio of companies. Several years ago we had a group of 12companies that were not providing the desired results and we went about aprocess of focusing our portfolio on what we believe are our core businessesfor the future. We…

Thank you Kurt and good morning everyone. As you can see from our financials, our earningsper share for the quarter from continued operations before restructuring theright down of the good will and results of VIE’s were $.05. We had a $.01 restructuring change related totransition costs linked to the North Carolinaclosure. A $.07 unchangeable write-downrelated to the good will and South Eastern Florida market and a $.04 loss forour VIE’s. On substantially less volume in our wholesale segment asKurt said we were able to maintain fairly reasonable operating margins. Furthermore, even with the additional occupancycost retail combined with the 12% volume reduction our retail losses were essentiallythe same as last year’s comparable quarter. Given the state of the housing market and overall business decline in Floridaour store system in South Eastern Florida has suffered double digit declines inthe past 12 months. These issues led usto defer our store build out plans in that market for the time being. As a result our valuation model wassignificantly affected and therefore good will was impaired which led us towrite it off. While we still believe the Florida market will be a goodmarket in which to operate in in the future and it was when we entered it, wefell with the losses that we are sustaining currently we feel a delay in addingnew stores in the Southern Florida area is a prudent thing to do at the moment. We also completed the sale of both our Clayton Marcus andPennsylvania House operations this quarter. The Clayton Marcus deal resulted in about a $5.8 million loss for thequarter of which $3.4 million of the pre-tax loss relates to intangibleassets. The Pennsylvania House dealwhere we sold the trade name of the business for $1.7 million resulted in aloss of about $600,000 on the name itself. While we…

Thank you Mike. Before we move to our guidance I would like to reiterate that we areaggressively managing our business and taking the necessary steps to grow ourbusiness profitably. Unfortunately theheadwinds from the retail environment are making it difficult to see the fruitsof our labor. There may be a long roadahead of us but we are confident we are positioning our company for thefuture. However, given the difficultenvironment and our lack of visibility and based on our performance for thefirst six months of this fiscal year our current annual guidance will not beattainable. With the unusual items in the first half of the year, we areupdating our guidance for the second half to give you better perspective forthe remainder of the year. We expectsales for fiscal 2008 period to be down 4-8% and earnings per share to be inthe range of $.06-$.14 per share compared with $.30 per share from continuingoperations in the second half of 07’ which included an $.11 per share chargefor restructuring a $.14 per share gain on property sales and a $.04 per sharein income from anti-dumping monies. The2008 second half range does not include any restructuring charges, potentialincome from anti-dumping or the sale of any discontinued operations. We want to thank you for being on our call today and I willturn things back to Kathy to begin our question and answer period.

Thank you Kurt. Wewill begin the question and answer period now. Jackie, please review the instructions for getting into the queue forasking questions.

[Operator Instructions]

Our first question is coming from Chad Bolen of RaymondJames & Associates Chad Bolen – Raymond James & Associates: Good morning Kurt, Kathy and Mike. This is Chadfilling in for Budd, he is traveling this morning. In the past you guys discussed operatingmargin targets for the segments of I believe 7-9% for upholstery, 6-8% for cashbased goods and 3-5% for retail. Arethose targets still valid and when do you anticipate the retail division willbreak even?

Good questions Chad. I think those targets are still valid but we,given the tough retail demand out there without more volume, I think it isgoing to be difficult for us to get in those ranges in the near term and thatis pretty much the same answer on our retail position, we continue to takecosts out but we have more costs we can take out but at the rate of decline inthe consumer spending out there on furnishings without some lift to make somespread on additional volume, getting to those margin targets it will be astretch for us in this environment. Chad Bolen – Raymond James & Associates: Could you give us any color around the retail margin in thequarter and maybe a sense of a level of discounting and markdowns out there?

It is a difficult environment out there Chad and we have hadto do our share of being aggressive to make sure we get the consumers attentionbut frankly its not a margin issue for us we have been able frankly over lastyear increase our gross margins but it is a traffic issue, it’s a consumer pullback issue, it’s a lower average ticket issue so it’s just a tough environmentand our people are working very hard to take care of every customer that comesinto our stores but everybody is being a little cautious at this time. Chad Bolen – Raymond James & Associates: Last question, then I will defer to others. As far as the renegotiation of the bankagreements, what do you anticipate the timing of that will be and do youanticipate any additional expense associated with that?

Chad,I expect that we will be completed with everything in early January. It will take us a little bit of time to,since we are going to a more secured environment it takes a little time foreveryone to do their due diligence and get that completed. We will have, which we have noted in there wethink our make hold provision will be $2.5-3 million that is not obviouslyincluded in our guidance because it is a one off charge doing that. We think we will have that charge about theonly significant charge, the rest of the fees will be, that we will have to payto get into the bank agreement, will be amortized over an essential five yearterm that we are trying to negotiate. Chad Bolen – Raymond James & Associates: Thank you very much

Thank you, our next question comes from Matt McCall fromBB&T Capital Markets Matt McCall –BB&T Capital Markets: Thank you, good morning everybody. Looking at the pre cash flow it looks likeyou did a good job generating some pre cash managed work in capital. As we look to the outlook for 08’ could yougive me some idea what working capitals is going to look like in the back halfand remind me of some seasonality impact there and really was the pre cash flowgeneration can look like in the back half of the year?

Matt if you look at our historical times, our third quarteris our highest generation of cash flow, historically for us because we build upour receivables during the second quarter and then as volumes decrease somewhatin the third, since our second, I guess worst quarter in line of how ourquarter go, we usually generate pretty good cash in the third quarter then thefourth quarter is pretty much just a wash. We are just going to keep controlling our inventories, that is our majorfocus right now, is making sure that on the volumes we are currently selling atour inventories don’t get out of alignment so we don’t have to go into anydiscounting to then get rid of it. Our receivables would be a function of what our sales end upbeing, but I think we will generate good cash in the third quarter the fourthquarter will be relatively flat. Matt McCall –BB&T Capital Markets: Good cash, sensing a little stronger than your…

Q2 level? I’m justtrying to give you a historical perspective. Historically our third quarter has been significantly better, cash flowwise, than our second. Matt McCall –BB&T Capital Markets: One clarification the Capex number that you give is that Xthe benefit [inaudible] some inflow there is that number you gave X just a purecapex number for the outflow.

Yes Matt McCall –BB&T Capital Markets: You may want to comment Kurt a minute ago you still havesome costs you can take out I know you quantify in the past some of the costsavings you expect from any of these initiatives. What benefit if left and can you give us someidea of the timing of some of these non top line cost savings efforts.

Matt, we have two major initiatives that are going to becompleted in the second half of the year, one which has been a two and a halfyear project which has been transitioning our manufacturing facility to sellyour manufacturing and we are on the downward slide of that but we do have 30%more of our factory space to transition over to [selliar] and we will getthrough that this fiscal year and the second part of that we are finishing ourdistribution rationalization of closing down multiple retail warehouses andgetting down to four to service our network and also putting a common IT andpoint of sales system to all 70 stores and we expect that to be done by thefourth quarter as well. So those twoprojects, major initiatives that we have talked about in the past a couple oftimes we expect to get the further benefit of being through that as we roll outthe end of the year. Matt McCall –BB&T Capital Markets: And the benefit of those initiatives would be fullyreflected on a run rate in the Q4 numbers that you have there. Show a little bit of a benefit on the marginlines.

That’s correct, the run rate of them isn’t a big as weoriginally thought because of less volume and the conversion on less volume youdon’t get totally the original expectations but I think the real benefit isgoing to be reflected in fiscal year 09’ when changing all the processes, runningduplicate systems, having all the things going on, we will be fresh to go in09’ with our manufacturing transition and our retail distribution transitionbehind us. Matt McCall –BB&T Capital Markets: To follow up on that, the benefit is not going to be as muchas you originally thought at the current run rate of business. You have broken out the levels of benefitthat you expected from those, what level you can actually achieve next year atthe current run rate of business maybe as a percent of the total you originallyexpected.

I would think that as guidepost, if our business is down 10%the cost savings that we would get would probably be down 10%. It is proportionate, but the dollar numberswe put out there before won’t totally be realized if we don’t have the volume. Matt McCall –BB&T Capital Markets: Thank you all.

Thank you; our next question is from, John Baugh from StifelNicholas & Company John Baugh – StifelNicholas & Company: Thank you, good morning. Cash proceeds from the sales of Clayton Marcus in Pennsylvania,what have they been to date and any more inventory wind down, I think youmentioned $2-3 million going forward. Isthere anything in Clayton Marcus?

Clayton Marcus we sold and we gave that number, I think inthe cash flow we’ve got a little over $4 million from the sale in discontinuedoperations. Since we just sold PennsylvaniaHouse’s name, we will collect the receivables on it then we will sell the restof the inventory off. Of course now thatwe have sold the company, we are liquidating the inventory we have to take somereserve against the inventory because on an ongoing basis the inventory isworth a lot more and you say you are not going to replace it ongoing onit. I think you will see we are doneselling the companies, the proceeds we have some small receivables out thereabout $500,000 that were held back untilwe did some final working capital adjustments. But other than that, other than collecting the additional inventory and receivablesthere will be no cash generated from the sale of those companies going forward. John Baugh – StifelNicholas & Company: Kurt are you comfortable with what you mentioned your down6, 12, is that where you want to be, is that it?

Good question John, that is it, obviously for the timebeing, we certainly feel very good about where we are at as I mentioned in myprepared remarks, all the companies are profitable, our wholesale companies aredoing a good job of keeping up respectable margins given the down volume theyare doing, they are working hard every day to control their costs. My comment on the future would be we stillhave the same size profitability and strategic fit issues and should one of ourcompanies fall into that area in the future we would have to evaluate it butthey all met our strategic rigor testing at this point and we are verycomfortable where we ended up with our six wholesale companies. John Baugh – StifelNicholas & Company: On the retail, it looks like you are running $180 millionannual run rate revenues; to me it looks like it could get a little worsebefore it gets better cyclically. Is thestrategy, you mentioned some cutting of costs still coming from the finishingof the distribution IT sales systems, it strikes me as though the savings fromthat aren’t going to be massive or significant, if the volumes are down that iswhy you are losing $8-9 million even a quarter. If you would assume that we are going to stay in a very difficult retailenvironment for the next 12-24 months, is there a different strategy you arelooking at employing or are you just going to allow the wholesales businessessentially offset the retail and right through the cycles or however long ittakes.

That is a very good observation. We are looking at all types of alternativesand I think the way that we look at this and the way the investment communityought to look at this is we are looking at it as integrated retail, operationand system and we think that there’s a margin expansion opportunities on thehost sales side. By being involved in aproprietary distribution system there is also the associated risks and it isapparent that you have to look at the operating profit generated on thewholesales side negated against the loses on the retail side but we are lookingat options. We are looking atunderperforming stores, stores that don’t cash flow positive. We are looking at all kinds of options, nonethat I really want to reveal today, but it isn’t our intent to sit here andride it out. We’ve got some other thingsthat we are investigating and looking at but obviously it is the biggestchallenge the company has going forward and one we are prepared to address. John Baugh – StifelNicholas & Company: I guess my perspective is obviously cyclical, you can’t domuch I guess another way to phrase the question is are you confident you’ve gotthe right size box with the right structure? I know you referenced how you are making money I think in the DC areabefore the cycle went bad and I’m sure you sort of used that formula elsewhereand I’m wondering how easy or difficult it is for you to delineate the issuesor strictly cyclical we just stick to the format, sales staff and everythingyou do. Maybe the box doesn’t work thesame in this area versus that area. Anythoughts there?

Your observation of how much is us and how much is themarket, if you have any clarity on that we would enjoy hearing that because wewould look at that continually. We arenot positive we have the perfect box, we are not positive we are offeringeverything that the consumer wants to see when she comes into the store and weare going to be doing some test stores at the first of the year on somedifferent size and different product assortments, some things that aren’ttotally fully developed, but I think whether times were good or bad I don’tthink retail is a stagnant business and we always have to be looking at perhapswhat is the next format what can we do a little different how do we makeourselves different than the other retailers selling home furnishings. That is something else that we are in theplanning stages for and we will have some test stores out there in the firsthalf of 08’. John Baugh – StifelNicholas & Company: Will it be smaller stores?

Not necessarily, we have stores throughout our system thatrange from about 11,000-16,000 feet and given the cost of real estate in someof the more expensive markets you have to go with smaller square feet but Idon’t think for the size of our program and to be a legitimate competitor Idon’t think we can go much below the 10,000 feet and really offer a compellingexperience for the consumer. John Baugh – StifelNicholas & Company: Great, thanks for answering the questions.

John, the only think I wanted to clarify was that you madean annualization comment about our sales. Just for reference point, over the past years our first and secondquarter retail are usually our weakest quarters and our third and fourthquarters are usually stronger quarters for sales. I just didn’t want to leave thatannualization out there.

Thank you our next question is coming from John Kernen orMorgan Keegan & Company [John Kernen] –Morgan Keegan & Company: This is John Kernen of Morgan Keegan calling in for Laura Champine. Can you explain how total written sales werebelow same store written sales?

We shut more stores down than we opened up. On a total store basis our sales weredown. On total stores you are normallylooking saying that we added more stores but we have actually closed moreunderperforming stores than we opened up so our total sales were down becauseof that. [John Kernen] –Morgan Keegan & Company: Okay, that explains it, thank you.

Thank you, our next question is coming from David Cullenfrom Midwood Capital Partners David Cohen – MidwoodCapital Partners: Hi everyone. I hadsome questions about in the past there have been a series of costs savingstargets and you already answered one lowered improvement from cellular conversion. I think you mentioned for example in Marchthere was restructuring that was targeted to save $11 million. There was retail consolidation as a system $9million, retail gross margin improvement of $7 million. It goes across that set of specific actionswhat is the current thinking on the level of savings that comes from thoseactions.

I think those savings are still within the ranges that wewould be looking at with the caveat of the down volumes. As I said earlier, the wholesale margins onapproximately $50 million less volume this quarter were essentially the same aslast year, so obviously the costs are coming out and some efficiencies areimprovements are happening. We are stillconfident about our three large initiatives, higher capacities, utilization becauseof the plant closings the benefits from [cellar] the benefits of retaildistribution alignment. Again, they arenot fully realized if you keep having double digit sales decreases. David Cohen – MidwoodCapital Partners: You think about the retail business. Ultimately what kind of target margins do youthink you can get in that or what kind of return can you get? It seems to me there aren’t benchmarks tolook at the possibility of that strategy in Ethan Allen and they look like theystill make all their money and have all their return on capital, coming fromtheir wholesale business. I understandthe strategy element of controlling your distribution, what is the financialreturn in a better environment like Ethan?

I would answer that question even though Ethan Allen is notshowing huge margins in their retail business it allows them to make an aboveaverage margin in their wholesale business and you have to look at the twoblended and you still get a pretty good return. That is certainly how we are looking at it as well. The extra volume provided and the marginopportunity provided by having a proprietary distribution system is all partand parcel to the strategic reason behind it and looking at them stand alone,it is a little more difficult to do because there are so many interdependenciesbut I think the overall operating margin even with essentially a break evenretail business like Ethan Allen has today is still pretty respectable in thisindustry given the tough times. David Cohen – MidwoodCapital Partners: Thanks guys.

Thank you, our next question is coming from Jan Dellow of LehmanBrothers Inc. Jan Billow – LehmanBrothers, Inc.: I have a couple of questions. I wanted to ask first about the availabilityunder the bank line right now and I know you are renegotiating it?

In our 10-Q we put in there it is $48 million approximatelyright now. On the amendment, an asset testas we are renegotiating to be able to maintain. We have nothing borrowed on it right now. Then we are allowed $5 million of additionaldebt besides that. Jan Billow – LehmanBrothers, Inc.: So the size of it is basically premised on your asset base?

The current availability has no basis for what ouravailability on a new line. That is justa transition debt over the period. Itwill be based on our eligible inventory and our eligible receivables and how wedo that going forward. Jan Billow – LehmanBrothers, Inc.: Are you targeting a certain amount?

I’m not prepared to discuss that right now. We will be putting something out probably inJanuary where we stand on that. Jan Billow – LehmanBrothers, Inc.: Are you expecting to use your bank line for the 2008maturity for private places that is coming due or is that something that youthink you will be paying out of cash?

I expect that I’ll be replacing my private placement withthis new line when I get it in place. Jan Billow – LehmanBrothers, Inc.: I just wanted to make sure that understood correctly theconversation about the proceeds from the asset sale. Proceeds from all the asset sales are to bein the neighborhood of $4 million and the majority is already on the balancesheet, am I understanding that correctly?

I think what I would say just to be clear we sold thecompanies in the quarter and collected the cash. The assets that are still left on the booksand are discontinued operations are the items that we didn’t sell as part ofthe deal. The Pennsylvania House we justsold the trade name, we kept the inventory and receivables, we will collect thereceivables and inventory that will be in the range of anywhere from $3-5million additional from what we have on the books. After that we will have nothing left indiscontinued operations. Jan Billow – LehmanBrothers, Inc.: So, another $3-5 million from basically working capital runoff.

Yes, but it won’t be for the sale of discontinued ops, it’lljust be collection of their working capital. Jan Billow – LehmanBrothers, Inc.: I guess the other question that I had was about covenants,you’ve got no waiver, you are talking to your bank, but usually places have faroff the bank covenant. I guess I amwondering are there discussions ongoing with the private placement people aswell?

Yes, but as we said in our 10-Q we will get this loancompleted in the third quarter and then if and when we determine we are notgoing to make the covenants going forward then we will discuss with our privateplacements about making them whole and paying them off as we have provided inour agreement that we are allowed to do. Jan Billow – LehmanBrothers, Inc.: Great, thank you

Our next question is coming from John Pinto from Brightleaf Capital. John Pinto –Brightleaf Capital: Kurt, if you could talk a little more about the retail sideand looking at what Ethan Allen has done so well in terms of sales training onthe floor and then maybe also looking at your assortment or aggressive productsversus theirs, is there anything can you walk us through what you are doing onthe sales side in terms of your own company stores and dealer stores as well asmaybe looking at either products to bring in or the brand.

I think Ethan Allen certainly has been at this longer thanwe have and we have great admiration for what they have been able to do, wehave a retail division that is very focused on hiring quality people, gettingthem trained. We too have an in homedesign program that we are utilizing throughout a lot of our own stores but itis a difficult environment for sales people. There is a tendency to want to look around for other opportunities and Idon’t believe we are as good as we can be with all of our sales processes andworking with the customers to the degree that we should but certainly weunderstand where some of the gaps are. We do some mystery shopping to make sure we know what is going on atretail. We have fairly robust trainingprograms and detailed selling processes that we go through. I don’t think you are ever satisfied with howyou are doing in that area and I’m sure we have some improvement that we canmake. John Pinto –Brightleaf Capital: The environment is not going to get better until sometimemiddle or late, who knows when, is there some sort of event that happens thatmakes you start to pull back your retail exposure? I know you have closed some stores but youare repositioning more than anything. Isthere something you are going to say too much fixed cost here I need to pullback just like you have done in the manufacturing and sourcing side but now inthis other area where you’ve got fixed costs?

That’s a good question as well. I think last year we vacated both thePittsburg and the Rochester market because we didn’t think they had the size orscale that we wanted long term and I answered previously we are looking at allat this point. We have a network of 338stores out there and a lot of them are doing fairly well right now even in atough environment and we could do some repositioning, but we are very committedto our store program. It is something wehave had for over 25 years and we think is a key strategy for us. We are not going to put our head in the sand,as one of the other questions was asked about just riding it out. I think there are lots of things we can do toimprove but could we vacate a few stores, could we look at a certain number ofmarkets, absolutely, but we’ve got three or four markets where we’ve got nine,ten, twelve stores operating right now. We wouldn’t consider at this point pulling back from that we think weare positioned well for the long term. John Pinto –Brightleaf Capital: Okay, great, thank you.

Thank you; there are no further questions at this time. I’d like to hand the floor back over tomanagement for any closing comments.

Thank you everybody for participating this morning. I will be available for the remainder of theday should anybody have any follow up questions. Have a good day.