##### Table of Contents



UNITED STATES
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 27, 2007
COMMISSION FILE NUMBER 1-9656
 LA-Z-BOY INCORPORATED
  MICHIGAN
    
    38-0751137(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1284 North Telegraph Road, Monroe, Michigan
    
    48162-3390(Address of principal executive offices)
    
    (Zip Code)
   (Former name, former address and former fiscal year, if changed since last report.)
  þ o
  o þ o
  o þ
  Class
    
    Outstanding at October 27, 2007Common Shares, $1.00 par value
    
    51,416,118




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##### 



PageNumber(s)PART I Financial InformationItem 1. Financial StatementsConsolidated Statement of OperationsConsolidated Balance SheetConsolidated Statement of Cash FlowsConsolidated Statement of Changes in Shareholders EquityNotes to Consolidated Financial StatementsNote 1. Basis of PresentationNote 2. Interim ResultsNote 3. ReclassificationNote 4. InventoriesNote 5. Goodwill and Other Intangible AssetsNote 6. DebtNote 7. Pension PlansNote 8. Financial Guarantees and Product WarrantiesNote 9. Stock-Based CompensationNote 10. Segment InformationNote 11. RestructuringNote 12. Uncertain Tax PositionsNote 13. Variable Interest EntitiesNote 14. Discontinued OperationsNote 15. Earnings per ShareItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsCautionary Statement Concerning Forward-Looking StatementsIntroductionResults of OperationsLiquidity and Capital ResourcesCritical Accounting PoliciesRestructuringRegulatory DevelopmentsRecent Accounting PronouncementsBusiness OutlookItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSignature PageThird Amendment to Credit AgreementCertifications of Chief Executive OfficerCertifications of Chief Financial OfficerSection 1350 Certifications of Executive OfficersPress Release, dated November 13, 2007




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##### Table of Contents



Item 1. Financial Statements
 LA-Z-BOY INCORPORATED
 
 CONSOLIDATED STATEMENT OF OPERATIONS
 Second Quarter EndedPercent of Sales(Unaudited, amounts in thousands, except
    
    
    
    
    
    
    
    
    
    % Overper share data)
    
    10/27/07
    
    
    10/28/06
    
    
    (Under)
    
    
    10/27/07
    
    
    10/28/06Sales
    
    $
    365,434
    
    
    $
    414,614
    
    
    
    -11.9
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of salesCost of goods sold
    
    
    266,658
    
    
    
    306,351
    
    
    
    -13.0
    %
    
    
    73.0
    %
    
    
    73.9
    %Restructuring
    
    
    518
    
    
    
    (400
    )
    
    
    -229.5
    %
    
    
    0.1
    %
    
    
    -0.1
    %Total cost of sales
    
    
    267,176
    
    
    
    305,951
    
    
    
    -12.7
    %
    
    
    73.1
    %
    
    
    73.8
    %Gross profit
    
    
    98,258
    
    
    
    108,663
    
    
    
    -9.6
    %
    
    
    26.9
    %
    
    
    26.2
    %Selling, general and
administrative
    
    
    98,098
    
    
    
    99,887
    
    
    
    -1.8
    %
    
    
    26.8
    %
    
    
    24.1
    %Write-down of intangibles
    
    
    5,809
    
    
    
    
    
    
    
    N/M
    
    
    
    1.6
    %
    
    
    Restructuring
    
    
    449
    
    
    
    2,265
    
    
    
    -80.2
    %
    
    
    0.1
    %
    
    
    0.5
    %Operating income (loss)
    
    
    (6,098
    )
    
    
    6,511
    
    
    
    -193.7
    %
    
    
    -1.7
    %
    
    
    1.6
    %Interest expense
    
    
    2,120
    
    
    
    2,614
    
    
    
    -18.9
    %
    
    
    0.6
    %
    
    
    0.6
    %Other income, net
    
    
    1,374
    
    
    
    1,348
    
    
    
    1.9
    %
    
    
    0.4
    %
    
    
    0.3
    %Income (loss) from continuing
operations before income taxes
    
    
    (6,844
    )
    
    
    5,245
    
    
    
    -230.5
    %
    
    
    -1.9
    %
    
    
    1.3
    %Income tax expense (benefit)
    
    
    (3,192
    )
    
    
    1,949
    
    
    
    -263.8
    %
    
    
    46.6
    %*
    
    
    37.2
    %*Income (loss) from continuing
operations
    
    
    (3,652
    )
    
    
    3,296
    
    
    
    -210.8
    %
    
    
    -1.0
    %
    
    
    0.8
    %Loss from discontinued
operations (net of tax)
    
    
    (6,282
    )
    
    
    (1,342
    )
    
    
    -368.1
    %
    
    
    -1.7
    %
    
    
    -0.3
    %Net income (loss)
    
    $
    (9,934
    )
    
    $
    1,954
    
    
    
    -608.4
    %
    
    
    -2.7
    %
    
    
    0.5
    %Basic average shares
    
    
    51,410
    
    
    
    51,373Basic income (loss) from
continuing operations per share
    
    $
    (0.07
    )
    
    $
    0.06Discontinued operations per share
(net of tax)
    
    $
    (0.12
    )
    
    $
    (0.02
    )Basic net income (loss) per share
    
    $
    (0.19
    )
    
    $
    0.04Diluted average shares
    
    
    51,410
    
    
    
    51,639Diluted income (loss) from
continuing operations per share
    
    $
    (0.07
    )
    
    $
    0.06Discontinued operations per share
(net of tax)
    
    $
    (0.12
    )
    
    $
    (0.02
    )Diluted net income (loss) per share
    
    $
    (0.19
    )
    
    $
    0.04Dividends paid per share
    
    $
    0.12
    
    
    $
    0.12
 
 *
    
    As a percent of pretax income, not sales.N/M = not meaningful  3




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##### Table of Contents



LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
 Six Months EndedPercent of Sales(Unaudited, amounts in thousands, except
    
    
    
    
    
    
    
    
    
    % Overper share data)
    
    10/27/07
    
    
    10/28/06
    
    
    (Under)
    
    
    10/27/07
    
    
    10/28/06Sales
    
    $
    709,830
    
    
    $
    808,537
    
    
    
    -12.2
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of salesCost of goods sold
    
    
    525,801
    
    
    
    602,359
    
    
    
    -12.7
    %
    
    
    74.1
    %
    
    
    74.5
    %Restructuring
    
    
    3,079
    
    
    
    (400
    )
    
    
    -869.8
    %
    
    
    0.4
    %
    
    
    Total cost of sales
    
    
    528,880
    
    
    
    601,959
    
    
    
    -12.1
    %
    
    
    74.5
    %
    
    
    74.5
    %Gross profit
    
    
    180,950
    
    
    
    206,578
    
    
    
    -12.4
    %
    
    
    25.5
    %
    
    
    25.5
    %Selling, general and
administrative
    
    
    192,606
    
    
    
    194,570
    
    
    
    -1.0
    %
    
    
    27.1
    %
    
    
    24.1
    %Write-down of intangibles
    
    
    5,809
    
    
    
    
    
    
    
    N/M
    
    
    
    0.8
    %
    
    
    Restructuring
    
    
    1,569
    
    
    
    2,265
    
    
    
    -30.7
    %
    
    
    0.2
    %
    
    
    0.3
    %Operating income (loss)
    
    
    (19,034
    )
    
    
    9,743
    
    
    
    -295.4
    %
    
    
    -2.7
    %
    
    
    1.2
    %Interest expense
    
    
    4,217
    
    
    
    5,140
    
    
    
    -18.0
    %
    
    
    0.6
    %
    
    
    0.6
    %Other income, net
    
    
    2,822
    
    
    
    1,618
    
    
    
    74.4
    %
    
    
    0.4
    %
    
    
    0.2
    %Income (loss) from continuing
operations before income taxes
    
    
    (20,429
    )
    
    
    6,221
    
    
    
    -428.4
    %
    
    
    -2.9
    %
    
    
    0.8
    %Income tax expense (benefit)
    
    
    (8,235
    )
    
    
    1,833
    
    
    
    -549.3
    %
    
    
    40.3
    %*
    
    
    29.5
    %*Income (loss) from continuing
operations
    
    
    (12,194
    )
    
    
    4,388
    
    
    
    -377.9
    %
    
    
    -1.7
    %
    
    
    0.5
    %Loss from discontinued
operations (net of tax)
    
    
    (6,434
    )
    
    
    (139
    )
    
    
    N/M
    %
    
    
    -0.9
    %
    
    
    Net income (loss)
    
    $
    (18,628
    )
    
    $
    4,249
    
    
    
    -538.4
    %
    
    
    -2.6
    %
    
    
    0.5
    %Basic average shares
    
    
    51,395
    
    
    
    51,580Basic income (loss) from
continuing operations per share
    
    $
    (0.24
    )
    
    $
    0.08Discontinued operations per share
(net of tax)
    
    $
    (0.12
    )
    
    
    Basic net income (loss) per share
    
    $
    (0.36
    )
    
    $
    0.08Diluted average shares
    
    
    51,395
    
    
    
    51,806Diluted income (loss) from
continuing operations per share
    
    $
    (0.24
    )
    
    $
    0.08Discontinued operations per share
(net of tax)
    
    $
    (0.12
    )
    
    
    Diluted net income (loss) per share
    
    $
    (0.36
    )
    
    $
    0.08Dividends paid per share
    
    $
    0.24
    
    
    $
    0.24
 
 *
    
    As a percent of pretax income, not sales.N/M = not meaningful  4




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##### Table of Contents



LA-Z-BOY INCORPORATED
 
 CONSOLIDATED BALANCE SHEET
 Increase/(Decrease)(Unaudited, amounts in thousands)
    
    10/27/07
    
    
    10/28/06
    
    
    Dollars
    
    
    Percent
    
    
    4/28/07Current assetsCash and equivalents
    
    $
    32,692
    
    
    $
    20,529
    
    
    $
    12,163
    
    
    
    59.2
    %
    
    $
    51,721Receivables, net
    
    
    215,275
    
    
    
    253,519
    
    
    
    (38,244
    )
    
    
    -15.1
    %
    
    
    230,399Inventories, net
    
    
    190,985
    
    
    
    237,885
    
    
    
    (46,900
    )
    
    
    -19.7
    %
    
    
    197,790Deferred income taxescurrent
    
    
    14,337
    
    
    
    16,043
    
    
    
    (1,706
    )
    
    
    -10.6
    %
    
    
    17,283Assets of discontinued operations
    
    
    3,634
    
    
    
    
    
    
    
    3,634
    
    
    
    N/M
    
    
    
    24,278Other current assets
    
    
    27,073
    
    
    
    29,076
    
    
    
    (2,003
    )
    
    
    -6.9
    %
    
    
    19,327Total current assets
    
    
    483,996
    
    
    
    557,052
    
    
    
    (73,056
    )
    
    
    -13.1
    %
    
    
    540,798Property, plant and equipment, net
    
    
    180,912
    
    
    
    204,904
    
    
    
    (23,992
    )
    
    
    -11.7
    %
    
    
    183,218Deferred income taxeslong term
    
    
    25,608
    
    
    
    3,451
    
    
    
    22,157
    
    
    
    N/M
    
    
    
    15,380Goodwill
    
    
    49,850
    
    
    
    62,736
    
    
    
    (12,886
    )
    
    
    -20.5
    %
    
    
    55,659Trade names
    
    
    9,006
    
    
    
    18,794
    
    
    
    (9,788
    )
    
    
    -52.1
    %
    
    
    9,472Other long-term assets
    
    
    76,545
    
    
    
    80,166
    
    
    
    (3,621
    )
    
    
    -4.5
    %
    
    
    74,164Total assets
    
    $
    825,917
    
    
    $
    927,103
    
    
    $
    (101,186
    )
    
    
    -10.9
    %
    
    $
    878,691Current liabilitiesShort-term borrowings
    
    $
    
    
    
    $
    35,000
    
    
    $
    (35,000
    )
    
    
    -100.0
    %
    
    $
    Current portion of long-term debt
    
    
    38,353
    
    
    
    3,295
    
    
    
    35,058
    
    
    
    N/M
    
    
    
    37,688Accounts payable
    
    
    54,194
    
    
    
    72,308
    
    
    
    (18,114
    )
    
    
    -25.1
    %
    
    
    68,089Liabilities of discontinued operations
    
    
    1,664
    
    
    
    
    
    
    
    1,664
    
    
    
    N/M
    
    
    
    3,843Accrued expenses and other current
liabilities
    
    
    103,130
    
    
    
    114,762
    
    
    
    (11,632
    )
    
    
    -10.1
    %
    
    
    118,590Total current liabilities
    
    
    197,341
    
    
    
    225,365
    
    
    
    (28,024
    )
    
    
    -12.4
    %
    
    
    228,210Long-term debt
    
    
    110,774
    
    
    
    147,799
    
    
    
    (37,025
    )
    
    
    -25.1
    %
    
    
    111,714Income taxes payable  long term
    
    
    7,084
    
    
    
    
    
    
    
    7,084
    
    
    
    N/M
    
    
    
    Other long-term liabilities
    
    
    56,474
    
    
    
    54,920
    
    
    
    1,554
    
    
    
    2.8
    %
    
    
    53,419Contingencies and commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders equityCommon shares, $1 par value
    
    
    51,416
    
    
    
    51,364
    
    
    
    52
    
    
    
    0.1
    %
    
    
    51,377Capital in excess of par value
    
    
    206,636
    
    
    
    206,145
    
    
    
    491
    
    
    
    0.2
    %
    
    
    208,283Retained earnings
    
    
    193,681
    
    
    
    236,635
    
    
    
    (42,954
    )
    
    
    -18.2
    %
    
    
    223,896Accumulated other comprehensive income
    
    
    2,511
    
    
    
    4,875
    
    
    
    (2,364
    )
    
    
    -48.5
    %
    
    
    1,792Total shareholders equity
    
    
    454,244
    
    
    
    499,019
    
    
    
    (44,775
    )
    
    
    -9.0
    %
    
    
    485,348Total liabilities and shareholders equity
    
    $
    825,917
    
    
    $
    927,103
    
    
    $
    (101,186
    )
    
    
    -10.9
    %
    
    $
    878,691
  5




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##### Table of Contents



LA-Z-BOY INCORPORATED
 
 CONSOLIDATED STATEMENT OF CASH FLOWS
 Second Quarter Ended
    
    
    Six Months Ended(Unaudited, amounts in thousands)
    
    10/27/07
    
    
    10/28/06
    
    
    10/27/07
    
    
    10/28/06Cash flows from operating activitiesNet income (loss)
    
    $
    (9,934
    )
    
    $
    1,954
    
    
    $
    (18,628
    )
    
    $
    4,249Adjustments to reconcile net income
(loss) to cash used for operating
activitiesLoss (gain) on sale of discontinued
operations (net of tax)
    
    
    3,990
    
    
    
    
    
    
    
    3,990
    
    
    
    (1,280
    )Write-down of businesses held for sale
(net of tax)
    
    
    2,159
    
    
    
    
    
    
    
    2,159
    
    
    
    Write-down of intangibles (net of tax)
    
    
    3,689
    
    
    
    
    
    
    
    3,689
    
    
    
    Restructuring
    
    
    967
    
    
    
    1,865
    
    
    
    4,648
    
    
    
    1,865Provision for doubtful accounts
    
    
    1,505
    
    
    
    1,643
    
    
    
    3,619
    
    
    
    2,807Depreciation and amortization
    
    
    6,093
    
    
    
    6,809
    
    
    
    12,313
    
    
    
    13,889Stock-based compensation expense
    
    
    1,001
    
    
    
    1,861
    
    
    
    1,862
    
    
    
    2,732Change in receivables
    
    
    (13,409
    )
    
    
    (24,228
    )
    
    
    9,188
    
    
    
    (2,945
    )Change in inventories
    
    
    15,323
    
    
    
    873
    
    
    
    9,252
    
    
    
    (17,117
    )Change in payables
    
    
    1,000
    
    
    
    (2,060
    )
    
    
    (14,414
    )
    
    
    (9,379
    )Change in other assets and liabilities
    
    
    6,568
    
    
    
    (8,623
    )
    
    
    (16,678
    )
    
    
    (15,570
    )Change in deferred taxes
    
    
    (4,671
    )
    
    
    (3,110
    )
    
    
    (6,146
    )
    
    
    (6,766
    )Total adjustments
    
    
    24,215
    
    
    
    (24,970
    )
    
    
    13,482
    
    
    
    (31,764
    )Net cash provided by (used for) operating
activities
    
    
    14,281
    
    
    
    (23,016
    )
    
    
    (5,146
    )
    
    
    (27,515
    )Cash flows from investing activitiesProceeds from disposals of assets
    
    
    867
    
    
    
    3,633
    
    
    
    7,282
    
    
    
    24,962Proceeds from sale of discontinued
operations
    
    
    4,019
    
    
    
    3,184
    
    
    
    4,019
    
    
    
    33,166Capital expenditures
    
    
    (5,970
    )
    
    
    (5,767
    )
    
    
    (15,599
    )
    
    
    (15,010
    )Purchases of investments
    
    
    (6,648
    )
    
    
    (2,760
    )
    
    
    (13,270
    )
    
    
    (8,392
    )Proceeds from sales of investments
    
    
    7,801
    
    
    
    2,320
    
    
    
    14,593
    
    
    
    8,017Change in other long-term assets
    
    
    365
    
    
    
    (701
    )
    
    
    385
    
    
    
    (196
    )Net cash provided by (used for)
investing activities
    
    
    434
    
    
    
    (91
    )
    
    
    (2,590
    )
    
    
    42,547Cash flows from financing activitiesProceeds from debt
    
    
    171
    
    
    
    56,276
    
    
    
    817
    
    
    
    78,675Payments on debt
    
    
    (192
    )
    
    
    (31,266
    )
    
    
    (1,092
    )
    
    
    (78,680
    )Stock issued for stock and employee
benefit plans
    
    
    (94
    )
    
    
    (342
    )
    
    
    (116
    )
    
    
    766Repurchases of common stock
    
    
    
    
    
    
    (3,261
    )
    
    
    
    
    
    
    (6,947
    )Dividends paid
    
    
    (6,232
    )
    
    
    (6,213
    )
    
    
    (12,441
    )
    
    
    (12,462
    )Net cash provided by (used for)
financing activities
    
    
    (6,347
    )
    
    
    15,194
    
    
    
    (12,832
    )
    
    
    (18,648
    )Effect of exchange rate changes on cash
and equivalents
    
    
    538
    
    
    
    49
    
    
    
    1,539
    
    
    
    56Change in cash and equivalents
    
    
    8,906
    
    
    
    (7,864
    )
    
    
    (19,029
    )
    
    
    (3,560
    )Cash and equivalents at beginning of period
    
    
    23,786
    
    
    
    28,393
    
    
    
    51,721
    
    
    
    24,089Cash and equivalents at end of period
    
    $
    32,692
    
    
    $
    20,529
    
    
    $
    32,692
    
    
    $
    20,529Cash paid (net of refunds) during period
 income taxes
    
    $
    758
    
    
    $
    16,889
    
    
    $
    3,893
    
    
    $
    17,097Cash paid during period  interest
    
    $
    1,495
    
    
    $
    1,748
    
    
    $
    3,405
    
    
    $
    4,660
  6




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LA-Z-BOY INCORPORATED
 
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
 AccumulatedOtherCapital in
    
    
    
    
    
    
    Unearned
    
    
    Compre-Common
    
    
    Excess of Par
    
    
    Retained
    
    
    Compen-
    
    
    hensive(Unaudited, amounts in thousands)
    
    Shares
    
    
    Value
    
    
    Earnings
    
    
    sation
    
    
    Income(Loss)
    
    
    TotalAt April 29, 2006
    
    $
    51,782
    
    
    $
    210,826
    
    
    $
    246,387
    
    
    ($
    3,083
    )
    
    $
    4,433
    
    
    $
    510,345Reclassification of unearned
compensation due to adoption of SFAS No.
123(R)
    
    
    
    
    
    
    (3,083
    )
    
    
    
    
    
    
    3,083
    
    
    
    
    
    
    
    Repurchases of common stock
    
    
    (540
    )
    
    
    
    
    
    
    (6,407
    )
    
    
    
    
    
    
    
    
    
    
    (6,947
    )Stock issued for stock and employee
benefit plans
    
    
    135
    
    
    
    (3,458
    )
    
    
    4,663
    
    
    
    
    
    
    
    
    
    
    
    1,340Stock option and restricted stock expense
    
    
    
    
    
    
    3,959
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,959Tax benefit from exercise of options
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39Dividends paid
    
    
    
    
    
    
    
    
    
    
    (24,886
    )
    
    
    
    
    
    
    
    
    
    
    (24,886
    )Comprehensive income (loss)Net income
    
    
    
    
    
    
    
    
    
    
    4,139Unrealized gain on marketable
securities (net of tax of $0.5
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,145Realized gain on marketable
securities (net of tax of $0.3
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (458
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,418Change in fair value of cash flow
hedges (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )Change in additional minimum pension
liability (net of tax of $0.1
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,445Adjustment upon adoption of SFAS No. 158
for pension (net of tax of $3.2 million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,947
    )
    
    
    (4,947
    )At April 28, 2007
    
    $
    51,377
    
    
    $
    208,283
    
    
    $
    223,896
    
    
    $
    
    
    
    $
    1,792
    
    
    $
    485,348Stock issued for stock and employee
benefit plans
    
    
    39
    
    
    
    (3,509
    )
    
    
    3,354
    
    
    
    
    
    
    
    
    
    
    
    (116
    )Stock option and restricted stock expense
    
    
    
    
    
    
    1,862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,862Dividends paid
    
    
    
    
    
    
    
    
    
    
    (12,441
    )
    
    
    
    
    
    
    
    
    
    
    (12,441
    )Comprehensive income (loss)Net loss
    
    
    
    
    
    
    
    
    
    
    (18,628
    )Unrealized gain on marketable
securities (net of tax of $0.2
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    409Realized gain on marketable
securities (net of tax of $0.1
million)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    443Change in the fair value of cash flow
hedges (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,909
    )Impact of adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    
    
    
    
    
    
    
    
    (2,500
    )At October 27, 2007
    
    $
    51,416
    
    
    $
    206,636
    
    
    $
    193,681
    
    
    $
    
    
    
    $
    2,511
    
    
    $
    454,244
  7




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Note 1: Basis of Presentation
  
 Note 2: Interim Results
  
 Note 3: Reclassification
  
 Note 4: Inventories
  (Amounts in thousands)
    
    10/27/07
    
    
    10/28/06
    
    
    4/28/07Raw materials
    
    $
    71,742
    
    
    $
    80,331
    
    
    $
    69,562Work in process
    
    
    17,652
    
    
    
    23,115
    
    
    
    19,972Finished goods
    
    
    126,014
    
    
    
    156,245
    
    
    
    132,679FIFO inventories
    
    
    215,408
    
    
    
    259,691
    
    
    
    222,213Excess of FIFO over LIFO
    
    
    (24,423
    )
    
    
    (21,806
    )
    
    
    (24,423
    )Inventories, net
    
    $
    190,985
    
    
    $
    237,885
    
    
    $
    197,790
 8




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##### Table of Contents



Note 5: Goodwill and Other Intangible Assets
 Goodwill and Other
Intangible Assets,
    Balance
    
    
    Impairments
    
    
    Balanceas of
    
    
    and
    
    
    as of(Amounts in thousands)
    
    4/28/07
    
    
    Dispositions
    
    
    10/27/07GoodwillUpholstery Group
    
    $
    19,632
    
    
    $
    
    
    
    $
    19,632Retail Group
    
    
    27,905
    
    
    
    (5,809
    )
    
    
    22,096Corporate and Other
    
    
    8,122
    
    
    
    
    
    
    
    8,122Consolidated
    
    $
    55,659
    
    
    $
    (5,809
    )
    
    $
    49,850Trade namesCasegoods Group
    
    $
    9,472
    
    
    $
    (466
    )
    
    $
    9,006
 9




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##### Table of Contents



Note 6: Debt
 FiscalYear(Amounts in thousands)
    
    Maturity
    
    
    10/27/07
    
    
    4/28/07Revolving credit facility
    
    
    2010
    
    
    $
    
    
    
    $
    Industrial revenue bonds
    
    
    2010-2023
    
    
    
    16,851
    
    
    
    16,851Private placement notes
    
    
    2008
    
    
    
    35,000
    
    
    
    35,0002010
    
    
    
    36,000
    
    
    
    36,0002013
    
    
    
    50,000
    
    
    
    50,000Other debt
    
    
    2008-2011
    
    
    
    9,948
    
    
    
    9,768Capital leases
    
    
    2008-2011
    
    
    
    1,328
    
    
    
    1,783Total debt
    
    
    
    
    
    
    149,127
    
    
    
    149,402Less: current portion
    
    
    
    
    
    
    (38,353
    )
    
    
    (37,688
    )Long-term debt
    
    
    
    
    
    $
    110,774
    
    
    $
    111,714
    10




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##### Table of Contents



Note 7: Pension Plans
  Second Quarter Ended
    
    
    Six Months Ended(Amounts in thousands)
    
    10/27/07
    
    
    10/28/06
    
    
    10/27/07
    
    
    10/28/06Service cost
    
    $
    441
    
    
    $
    578
    
    
    $
    882
    
    
    $
    1,154Interest cost
    
    
    1,346
    
    
    
    1,338
    
    
    
    2,692
    
    
    
    2,676Expected return on plan assets
    
    
    (1,839
    )
    
    
    (1,719
    )
    
    
    (3,678
    )
    
    
    (3,438
    )Net amortization and deferral
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    18Net periodic pension cost (benefit)
    
    $
    (52
    )
    
    $
    206
    
    
    $
    (104
    )
    
    $
    410
  
 Note 8: Financial Guarantees and Product Warranties
     11




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##### Table of Contents



Second Quarter Ended
    
    
    Six Months Ended(Amounts in thousands)
    
    10/27/07
    
    
    10/28/06
    
    
    10/27/07
    
    
    10/28/06Balance as of the beginning of the
period
    
    $
    13,960
    
    
    $
    17,816
    
    
    $
    13,983
    
    
    $
    19,655Accruals during the period
    
    
    4,148
    
    
    
    3,574
    
    
    
    8,331
    
    
    
    7,007Adjustments for discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (956
    )Other adjustments during the period
    
    
    
    
    
    
    (1,496
    )
    
    
    
    
    
    
    (2,267
    )Settlements during the period
    
    
    (4,198
    )
    
    
    (3,503
    )
    
    
    (8,404
    )
    
    
    (7,048
    )Balance as of the end of the period
    
    $
    13,910
    
    
    $
    16,391
    
    
    $
    13,910
    
    
    $
    16,391
  
 Note 9: Stock-Based Compensation
 Share-Based Payment
  
 Note 10: Segment Information
  Upholstery Group
 Casegoods Group
 12




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Retail Group
 Second Quarter Ended
    
    
    Six Months Ended10/27/07
    
    
    10/28/06
    
    
    10/27/07
    
    
    10/28/06(Amounts in thousands)
    
    (13 weeks)
    
    
    (13 weeks)
    
    
    (26 weeks)
    
    
    (26 weeks)SalesUpholstery Group
    
    $
    269,749
    
    
    $
    304,598
    
    
    $
    524,506
    
    
    $
    599,995Casegoods Group
    
    
    58,892
    
    
    
    74,164
    
    
    
    112,466
    
    
    
    135,190Retail Group
    
    
    46,163
    
    
    
    52,485
    
    
    
    91,394
    
    
    
    104,689VIEs/Eliminations
    
    
    (9,370
    )
    
    
    (16,633
    )
    
    
    (18,536
    )
    
    
    (31,337
    )Consolidated
    
    $
    365,434
    
    
    $
    414,614
    
    
    $
    709,830
    
    
    $
    808,537Operating income (loss)Upholstery Group
    
    $
    19,036
    
    
    $
    20,162
    
    
    $
    27,903
    
    
    $
    37,787Casegoods Group
    
    
    3,577
    
    
    
    6,200
    
    
    
    6,177
    
    
    
    9,442Retail Group
    
    
    (9,119
    )
    
    
    (8,769
    )
    
    
    (19,193
    )
    
    
    (16,484
    )Corporate and Other*
    
    
    (12,816
    )
    
    
    (9,217
    )
    
    
    (23,464
    )
    
    
    (19,137
    )Intangible write-down
    
    
    (5,809
    )
    
    
    
    
    
    
    (5,809
    )
    
    
    Restructuring
    
    
    (967
    )
    
    
    (1,865
    )
    
    
    (4,648
    )
    
    
    (1,865
    )$
    (6,098
    )
    
    $
    6,511
    
    
    $
    (19,034
    )
    
    $
    9,743
 
 *
    
    Variable Interest Entities (VIEs) are included in corporate and other. 
 Note 11: Restructuring
  Accounting for the Impairment
or Disposal of Long-Lived Assets . Accounting for Costs Associated with Exit
or Disposal Activities .
 13




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##### Table of Contents



. .
   Fiscal 2008CashPayments4/28/07
    
    Charges to
    
    or Asset
    
    10/27/07(Amounts in thousands)
    
    Balance
    
    Expense
    
    Write-Offs
    
    BalanceSeverance and benefit-related costs
    
    $
    2,177
    
    
    $
    1,828
    
    
    $
    (1,988
    )
    
    $
    2,017Fixed asset write-downs, net of gains
    
    
    
    
    
    
    (144
    )
    
    
    144
    
    
    
    Contract termination costs
    
    
    1,257
    
    
    
    1,197
    
    
    
    (1,277
    )
    
    
    1,177Other
    
    
    
    
    
    
    1,767
    
    
    
    (1,767
    )
    
    
    Total restructuring
    
    $
    3,434
    
    
    $
    4,648
    
    
    $
    (4,888
    )
    
    $
    3,194
 Fiscal 2007CashPayments4/29/06
    
    Charges to
    
    or Asset
    
    4/28/07(Amounts in thousands)
    
    Balance
    
    Expense
    
    Write-Offs
    
    BalanceSeverance and benefit-related costs
    
    $
    891
    
    
    $
    2,537
    
    
    $
    (1,251
    )
    
    $
    2,177Fixed asset write-downs, net of gains
    
    
    
    
    
    
    1,091
    
    
    
    (1,091
    )
    
    
    Contract termination costs
    
    
    
    
    
    
    3,441
    
    
    
    (2,184
    )
    
    
    1,257Other
    
    
    
    
    
    
    3,964
    
    
    
    (3,964
    )
    
    
    Total restructuring
    
    $
    891
    
    
    $
    11,033
    
    
    $
    (8,490
    )
    
    $
    3,434
 14




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Note 12: Uncertain Tax Positions
 Accounting for Uncertainty in Income Taxes  an
interpretation of FASB 109 ,
    
 Note 13: Variable Interest Entities
 Consolidation of Variable Interest
Entities
   15




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Note 14: Discontinued Operations
      16




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##### Table of Contents



(Amounts in thousands)
    
    10/27/07
    
    
    4/28/07Assets of discontinued operations:Receivables, net
    
    $
    2,038
    
    
    $
    7,140Inventories, net
    
    
    1,596
    
    
    
    10,978Trade names
    
    
    
    
    
    
    5,740Other assets
    
    
    
    
    
    
    420$
    3,634
    
    
    $
    24,278Liabilities of discontinued operations:Accounts payable
    
    $
    84
    
    
    $
    1,591Accrued expenses
    
    
    1,298
    
    
    
    2,057Non-current liabilities
    
    
    282
    
    
    
    195$
    1,664
    
    
    $
    3,843
  Second Quarter Ended
    
    Six Months Ended(Amounts in thousands)
    
    10/27/07
    
    10/28/06
    
    10/27/07
    
    10/28/06Net sales
    
    $
    10,323
    
    
    $
    26,910
    
    
    $
    21,058
    
    
    $
    76,309Loss from discontinued operations, net of tax
    
    $
    (2,292
    )
    
    $
    (1,342
    )
    
    $
    (2,444
    )
    
    $
    (1,419
    )Gain (loss) on sale of discontinued
operations, net of tax
    
    $
    (3,990
    )
    
    $
    
    
    
    $
    (3,990
    )
    
    $
    1,280
  17




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##### Table of Contents



Note 15: Earnings per Share
  Second Quarter
    
    Six MonthsEnded
    
    Ended(Amounts in thousands)
    
    10/27/07
    
    10/28/06
    
    10/27/07
    
    10/28/06Weighted average common shares outstanding (basic)
    
    
    51,410
    
    
    
    51,373
    
    
    
    51,395
    
    
    
    51,580Effect of options and unvested restricted stock
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    226Weighted average common shares outstanding
(diluted)
    
    
    51,410
    
    
    
    51,639
    
    
    
    51,395
    
    
    
    51,806
   18




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 .
 
 Cautionary Statement Concerning Forward-Looking Statements
  future income, margins and cash flows
    
    future economic performancefuture growth
    
    industry and importing trendsadequacy and cost of financial resources
    
    management plans
   
 INTRODUCTION
 Our Business
  19




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Furniture Today
 20




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##### Table of Contents



Highlights of Our Current Quarter
   
    
    Centralize certain of our advertising and marketing functions, and take advantage of the
efficiencies gained as we continue the warehouse consolidation we began during the second
quarter of fiscal 2007.
 
    
    Continue to consolidate information systems and eliminate redundant processes. We are
currently in the process of consolidating our information systems into one system and
expect to complete this process by the end of this fiscal year.
    
    Expand our in-home design service, which has increased the average sale per customer
where employed. Currently, 71% of our company-owned locations have this service available.
    
    Improve our gross margins based on better merchandising and pricing of product and
services.
 21




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22




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Results of Operations
Analysis of Operations: Quarter Ended October 27, 2007
(Second Quarter 2008 compared with 2007)
 Quarter Ended
    
    Percent(Amounts in thousands, except per share amounts and percentages)
    
    10/27/07
    
    10/28/06
    
    changeUpholstery sales
    
    $
    269,749
    
    
    $
    304,598
    
    
    
    -11.4
    %Casegoods sales
    
    
    58,892
    
    
    
    74,164
    
    
    
    -20.6
    %Retail sales
    
    
    46,163
    
    
    
    52,485
    
    
    
    -12.0
    %Other/eliminations*
    
    
    (9,370
    )
    
    
    (16,633
    )
    
    
    43.7
    %Consolidated sales
    
    $
    365,434
    
    
    $
    414,614
    
    
    
    -11.9
    %Consolidated gross profit
    
    $
    98,258
    
    
    $
    108,663
    
    
    
    -9.6
    %Consolidated gross margin
    
    
    26.9
    %
    
    
    26.2
    %Consolidated S,G&A
    
    $
    98,098
    
    
    $
    99,887
    
    
    
    -1.8
    %S,G&A as a percent of sales
    
    
    26.8
    %
    
    
    24.1
    %Upholstery operating income
    
    $
    19,036
    
    
    $
    20,162
    
    
    
    -5.6
    %Casegoods operating income
    
    
    3,577
    
    
    
    6,200
    
    
    
    -42.3
    %Retail operating loss
    
    
    (9,119
    )
    
    
    (8,769
    )
    
    
    -4.0
    %Corporate and other
    
    
    (12,816
    )
    
    
    (9,217
    )
    
    
    -39.0
    %Intangible write-down
    
    
    (5,809
    )
    
    
    
    
    
    
    N/MRestructuring
    
    
    (967
    )
    
    
    (1,865
    )
    
    
    48.2
    %Consolidated operating income (loss)
    
    $
    (6,098
    )
    
    $
    6,511
    
    
    
    -193.7
    %Upholstery operating margin
    
    
    7.1
    %
    
    
    6.6
    %Casegoods operating margin
    
    
    6.1
    %
    
    
    8.4
    %Retail operating margin
    
    
    -19.8
    %
    
    
    -16.7
    %Consolidated operating margin
    
    
    -1.7
    %
    
    
    1.6
    %Income (loss) from continuing operations
    
    $
    (3,652
    )
    
    $
    3,296Diluted income (loss) per share from continuing operations
    
    $
    (0.07
    )
    
    $
    0.06Loss from discontinued operations
    
    $
    (6,282
    )
    
    $
    (1,342
    )Diluted loss per share from discontinued operations
    
    $
    (0.12
    )
    
    $
    (0.02
    )
 
 *
    
    Includes sales from our VIEs.N/M = Not Meaningful 23




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Sales
 Consolidated sales
 Upholstery Group
 Casegoods Group
 Retail Group
  Gross Margin
  Selling, General and Administrative Expenses
  
    
    In the second quarter of fiscal 2007, we recognized a gain of $2.6 million relating to
the sale of several properties which was not repeated in fiscal 2008.
    
    In the second quarter of fiscal 2007, we reduced our warranty reserve by $1.5 million
due to a trend of lower warranty costs incurred beyond one year after the sale of the
product. Our current trends show that a majority of our claims were from product sold in
the past twelve months thus reducing our
 24




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liability, along with changes in estimated amounts
required for currently known warranty issues. This adjustment was not repeated in fiscal
2008.
    
    During the second quarter of fiscal 2008, we continued to have consulting costs related
to our strategic planning for retail excellence and other company initiatives. These costs
were about $1.3 million greater in the second quarter of fiscal 2008 when compared to the
second quarter of fiscal 2007. We expect this activity to come to a close during the 2008
third quarter.
  Restructuring
  Intangible Write-down
  Operating Margin
  Upholstery Group
 25




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Casegoods Group
 Retail Group
 Corporate and Other .
 Interest Expense
  Income Tax Expense
  Discontinued Operations
  26




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##### Table of Contents



Results of Operations
Analysis of Operations: Six Months Ended October 27, 2007
(First Six Months of 2008 compared with 2007)
 Six Months Ended
    
    Percent(Amounts in thousands, except per share amounts and percentages)
    
    10/27/07
    
    10/28/06
    
    changeUpholstery sales
    
    $
    524,506
    
    
    $
    599,995
    
    
    
    -12.6
    %Casegoods sales
    
    
    112,466
    
    
    
    135,190
    
    
    
    -16.8
    %Retail sales
    
    
    91,394
    
    
    
    104,689
    
    
    
    -12.7
    %Other/eliminations*
    
    
    (18,536
    )
    
    
    (31,337
    )
    
    
    40.8
    %Consolidated sales
    
    $
    709,830
    
    
    $
    808,537
    
    
    
    -12.2
    %Consolidated gross profit
    
    $
    180,950
    
    
    $
    206,578
    
    
    
    -12.4
    %Consolidated gross margin
    
    
    25.5
    %
    
    
    25.5
    %Consolidated S,G&A
    
    $
    192,606
    
    
    $
    194,570
    
    
    
    -1.0
    %S,G&A as a percent of sales
    
    
    27.1
    %
    
    
    24.1
    %Upholstery operating income
    
    $
    27,903
    
    
    $
    37,787
    
    
    
    -26.2
    %Casegoods operating income
    
    
    6,177
    
    
    
    9,442
    
    
    
    -34.6
    %Retail operating loss
    
    
    (19,193
    )
    
    
    (16,484
    )
    
    
    -16.4
    %Corporate and other
    
    
    (23,464
    )
    
    
    (19,137
    )
    
    
    -22.6
    %Intangible write-down
    
    
    (5,809
    )
    
    
    
    
    
    
    Restructuring
    
    
    (4,648
    )
    
    
    (1,865
    )
    
    
    -149.2
    %Consolidated operating income (loss)
    
    $
    (19,034
    )
    
    $
    9,743
    
    
    
    -295.4
    %Upholstery operating margin
    
    
    5.3
    %
    
    
    6.3
    %Casegoods operating margin
    
    
    5.5
    %
    
    
    7.0
    %Retail operating margin
    
    
    -21.0
    %
    
    
    -15.7
    %Consolidated operating margin
    
    
    -2.7
    %
    
    
    1.2
    %Income (loss) from continuing operations
    
    $
    (12,194
    )
    
    $
    4,388Diluted income (loss) per share from continuing operations
    
    $
    (0.24
    )
    
    $
    0.08Loss from discontinued operations
    
    $
    (6,434
    )
    
    $
    (139
    )Diluted income (loss) per share from discontinued operations
    
    $
    (0.12
    )
    
    
    
 
 *
    
    Includes sales from our VIEs. 27




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##### Table of Contents



Sales
 Consolidated sales
 Upholstery Group
 Casegoods Group
 Retail Group
  Gross Margin
  Selling, General and Administrative Expenses
  
    
    In the first six months of fiscal 2007, we recognized a gain of $2.6 million relating to
the sale of several properties which was not repeated in fiscal 2008.
    
    In the first six months of fiscal 2007, we reduced our warranty reserve by $2.3 million
due to a trend of lower warranty costs incurred beyond one year after the sale of the
product. Our current trends show that a majority of our claims were from product sold in
the past twelve months thus reducing our liability, along with changes in estimated amounts
required for currently known warranty issues. This adjustment was not repeated in fiscal
2008.
    
    The remaining increase as a percent of sales was a result of a reduction in sales volume
during the first six months, when compared to the high fixed costs associated with the business,
especially as it relates to our Retail operations.
 28




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##### Table of Contents



Restructuring
  Operating Margin
  Upholstery Group
 Casegoods Group
 Retail Group
 Corporate and Other
 Interest Expense
  29




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##### Table of Contents



Other Income
  Income Tax Expense
  Discontinued Operations
  30




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##### Table of Contents



Liquidity and Capital Resources
       31




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##### Table of Contents



Cash Flows Provided From (Used For)
    
    Six Months Ended(Amounts in thousands)
    
    10/27/07
    
    
    10/28/06Operating activitiesNet income (loss), depreciation and deferred taxes
    
    $
    (12,461
    )
    
    $
    11,372Loss/(gain) on sales of discontinued operations (net of tax)
    
    
    3,990
    
    
    
    (1,280
    )Write-down of businesses held for sale
    
    
    2,159
    
    
    
    Write-down of intangibles
    
    
    3,689
    
    
    
    Restructuring
    
    
    4,648
    
    
    
    1,865Working capital and other
    
    
    (7,171
    )
    
    
    (39,472
    )Cash used for operating activities
    
    
    (5,146
    )
    
    
    (27,515
    )Investing activities
    
    
    (2,590
    )
    
    
    42,547Financing activitiesRepurchase of common stock
    
    
    
    
    
    
    (6,947
    )Net decrease in debt
    
    
    (275
    )
    
    
    (5
    )Other financing activities
    
    
    (12,557
    )
    
    
    (11,696
    )Cash used for financing activities
    
    
    (12,832
    )
    
    
    (18,648
    )Exchange rate changes
    
    
    1,539
    
    
    
    56Net decrease in cash and equivalents
    
    $
    (19,029
    )
    
    $
    (3,560
    )
 Operating Activities
  Investing Activities
  32




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##### Table of Contents



Financing Activities
        
 Critical Accounting Policies
  
 Restructuring
  33




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##### Table of Contents



. .
 . .
  
 Regulatory Developments
  34




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##### Table of Contents



Recent Accounting Pronouncements
 FASB Statement of Financial Accounting Standards No. 157
 Fair Value Measurements
  FASB Statement of Financial Accounting Standards No. 159
 The Fair Value Option for
Financial Assets and Financial Liabilities
  
 Business Outlook
  35




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
   36




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  If we are unable to complete the refinancing of our debt obligation, we would be unable to repay
our private placement debt if the lenders were to accelerate the maturity of this debt.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Number of Shares
    
    Per Share
    
    AggregateDate of Sale
    
    Sold
    
    Price
    
    PriceAugust 2007
    
    
    18,000
    
    
    $
    2.16
    
    
    $
    38,925
 37




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Proposal
    
    
    
    
    
    PercentShares Voted
    
    Shares
    
    SharesElection of Directors for terms
expiring in 2010:
    
    In Favor
    
    In Favor
    
    WithheldDavid K. Hehl
    
    
    37,997,979
    
    
    
    89.7
    %
    
    
    4,382,460Rocque E. Lipford
    
    
    27,411,899
    
    
    
    64.7
    %
    
    
    14,968,540Jack L. Thompson
    
    
    38,015,635
    
    
    
    89.7
    %
    
    
    4,364,804Election of Director for term expiring in 2008:W. Alan McCollough
    
    
    41,597,469
    
    
    
    98.2
    %
    
    
    782,970
 SharesShares Voted
    
    Voted
    
    SharesProposal
    
    In Favor
    
    Against
    
    AbstainedRatify the
selection of the
independent
registered public
accounting firm for
FYE 2008
    
    
    42,163,666
    
    
    
    89,461
    
    
    
    127,310
 
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description(4.1)
    
    Third Amendment dated as of
November 13, 2007 to Credit Agreement dated as
of March 30, 2004(31.1)
    
    Certifications of Chief Executive Officer pursuant to Rule 13a-14(a)(31.2)
    
    Certifications of Chief Financial Officer pursuant to Rule 13a-14(a)(32)
    
    Certifications of Executive Officers pursuant to 18 U.S.C. Section 1350(b)(99.1)
    
    Press Release dated November 13, 2007
 38




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##### Table of Contents



SIGNATURE
  LA-Z-BOY INCORPORATED(Registrant)Date: November 13, 2007BY: /s/ Louis M. Riccio, Jr.Louis M. Riccio, Jr.Chief Financial OfficerOn behalf of the registrant and asChief Financial Officer
 39