Welcome to the La-Z-Boy Incorporated second quarter 2009 conference call. (Operator Instructions) It is now my pleasure to introduce your host, Kathy Liebmann, Director, Investor Relations, and Corporate Communications for La-Z-Boy Incorporated.

Good morning and thank you for joining us on this morning’s call to discuss our fiscal 2009 second quarter results. Present today are Kurt Darrow, La-Z-Boy’s President and Chief Executive Officer and Mike Riccio our Chief Financial Officer. Kurt will open today’s call with some prepared remarks and then Mike will speak about the financials and more unusual items of the quarter. Following Kurt’s concluding remarks we will open the call to questions. These regular quarterly investor conference calls are one of La-Z-Boy’s primary vehicles to provide guidance and to communicate with investors about the company’s current operations and future prospects. We will make forward-looking statements during this call, so I will repeat our usual Safe Harbor remarks. While these statements reflect the best judgment of management at the present time, they are subject to numerous future risks and uncertainties as detailed in our regular SEC filings and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call. And with that, let me turn over the call to Kurt Darrow, La-Z-Boy’s President, and Chief Executive Officer.

Thank you Kathy, good morning everyone. By any measure the furniture industry is in the midst of one of the most difficult periods in its history. The turbulence in the financial and credit markets has exasperated the consumers’ willingness to make discretionary purchases, an environment of depressed housing and record low consumer confidence readings. While the greater macroeconomic issues are beyond our control, my teams’ mandate is to control the controlables, and aggressively manage our way through this unprecedented period. For the quarter we experienced a sales decline of 9.2% compared with last year’s second quarter with a notable steady decrease in sales as the quarter progressed particularly in the month of October. As a result of the rapid decline in our order rates, we announced a series of initiatives earlier this month that include a 10% reduction in our headcount, a significant reduction in capital spending and operating expenses, and with the withdrawal of credit, the anticipated closure of 15 to 20 primarily independently owned La-Z-Boy Furniture Gallery stores. These were very difficult decisions to make but in an environment of economic instability where we believe the economy will continue to falter, it was necessary to take aggressive action to align our operating structure with today’s order flow. Importantly however we remain focused on projects that will lead to significant improvement in our operating structure and are scrutinizing each and every expenditure and decision to ensure that we tightly manage this company given the current environment. On the wholesale side of the business upholstery sales decreased 8.1% and casegoods sales fell 17.7%. We experienced corresponding declines in our wholesale operating margins as a result of the significant reductions in our order rates. In upholstery our operating margin was 3.3% versus 7.1%, a result of the decline in sales, increased…

Thank you Kurt, we reported net sales of $331.9 million and a net loss of $53.7 million or a loss of $1.04 per share. These results include a $38.2 million or $0.74 per share non-cash charge for a valuation allowance against the company’s deferred tax assets and a $0.04 per share restructuring charge primarily related to the closure of our Tremonton, Utah upholstery facility and the La-Z-Boy UK operations. One item that I want to clear up before we delve into the financials, is that we stated in yesterday’s press release that the goodwill impairment charge was $0.11 per share for the second quarter of fiscal 2008. That number should be $0.07 per share as previously reported in the prior year’s second quarter press release. Now let me take a moment to talk about the valuation allowance, as a result of losses sustained during the quarter the impact of restructuring actions taken over the past three years, the significant decline in current and projected demand for consumer domestic furniture purchases, and resulting uncertainty in the economic climate, we reassessed the likelihood that we would be able to realize the benefit of our deferred tax assets. Due to these economic conditions we concluded that a valuation allowance of $38.2 million should be recorded against the deferred tax assets. We continue to closely monitor the credit of our dealers and record bad debt provisions where appropriate. As Kurt mentioned in his opening comments we will exit the markets by discontinuing shipments of goods to dealers which will reduce the impact those stores can have on our future bad debt expense. Now on the balance sheet, our debt to capitalization ratio increased from the prior quarter due to the effect the valuation allowance had on our equity, but it was still down from…

We are in the midst of an exceedingly difficult operating environment with economic indicators pointing to the likelihood of a prolonged recession. Due to the weakness in the financial and credit markets our order rates have declined and remain inconsistent with little or no visibility into the future. Accordingly we deemed it necessary to suspend our yearly guidance. While this period is disconcerting to all of us, as I said in my opening remarks we’re controlling all that we can and are moving ahead with plans and projects that will establish a strong foundation for us in the future. We’re the best-known brand in the furniture business, a large proprietary network of stores, and a lean operating structure we believe we will emerge from this period and will ultimately be a stronger company operating in a very different environment. Everything we are doing today is with the intention of positioning us to be a leader in that new environment and we have every confidence we will prevail. We thank you for being on our call today, and for your interest in La-Z-Boy. We are not ready for your questions.

(Operator Instructions) Your first question comes from the line of Budd Bugatch - Raymond James

If you look at your company-owned retail and compare it to the system-wide retail performance in comps, can you give us a feel of that difference and how that progressed during the quarter with total sales being down 14.5% at retail. I’m more concerned about how your company-owned is doing compared to the independent dealer base.

For clarity sake I will answer that question in two ways, one the statistic we give on the system is written sales and the numbers we report on our own retail segment is delivered. So there is a lag factor there between the two measurements. Number two, due to some of the markets we’re in particularly Florida and some other operational issues we have, we are not performing as well as many of our independents and that’s one of the reasons we’ve made a change in leadership and organizational structure within our retail group and we don’t think there’s any reason that we can’t perform at our independent dealer levels but we haven’t been doing that for some time and we’re intent on changing that trend.

How did it progress during the, you’re obviously October for everybody was a significant downdraft, many have said it had actually continued into November and I’m curious is you have any additional color on that, can you give us a feel of those issues?

We are experiencing the trend just like everyone else. October was a significant downdraft and we were not immune to that. We did change some of our reporting this quarter. We normally only give a quarter’s same store sales indicators, we gave the month of October to give you some idea of the impact its had on us and that’s the extent of what we want to comment on but obviously things are remaining very difficult.

Could you go through the mechanics, I know its somewhat arcane on the calculation of excess availability but that does impact as we go through the rest of the year your ability to avoid being in a covenant-tripping issue and which I think has an impact maybe on the balance of the dividend. Could you go through how that calculation works and maybe what were the LCs that impinge on that as well.

To give you some flavor, as you go back and look at the agreement there is a lot of complexity as I’ve mentioned before on the call in coming up with our excess availability because (a) you have a definition called eligible receivables and eligible inventory and there’s about seven or eight factors in each one of them that reduces eligibility based on the aging of the receivables or whether it’s a foreign receivable or not. So that’s where our starting point is and then you have to calculate what that is and then back out things. In our definition of things that come out is letters of credit, is reserves for deposits, those type of things. We just don’t, I’m just not [inaudible] to giving out the detail of all of our individual numbers but for logic sake, the agreement is going to allow us to, we have our [IRBs] which are about $16 million I think is what we reported in our end of the year 10-K. We have LCs, those aren’t any secret against all of our [IRBs] because that’s how the municipalities wanted it to be done in case they have to pull to pay payment. So all those LCs are reducing our availability. And then we’re required to have LCs for Workers’ Comp in some states and those type of things that are just common business practices for most companies. That’s about as much clarity as I can give on that to give you some idea. But there’s also many other things that we have to consider every quarter as our business changes to go against that. That’s why we try and give as much information on the excess availability on a quarterly basis so that everyone can understand our liquidity. As our receivables go up, our availability goes up but as time goes on if we have to borrow money to fund those receivables then it usually stays constant. As we collect the receivables and pay down the debt, we then obviously reduce the debt and we also reduce some of our availability because the receivables aren’t as high but we get dollar for dollar on the cash and we don’t get dollar for dollar for borrowings.

Your next question comes from the line of Matt McCall – BB&T Capital Matt McCall – BB&T Capital : You mentioned the bad debt expense and obviously the goal, the 15 to 20 dealers is to reduce that, can you talk about the percent of your bad debt and what’s total bad debt, I think you said 4.8, what was the percent of bad debt from those 15 to 20 and how much do you expect that to move lower as you close these locations.

In the 10-Q we put in that the bad debt for the first half of the year was $1.9 million was related to the 15 to 20 stores of the $9 million that’s on our cash flow. But going forward we are trying to reduce that impact and I’m pretty sure there will be some minor impact as we complete some of these transactions.

Also we have $28, $29 million in our bad debt reserves and the majority of that is allocated towards the La-Z-Boy store system in general, and not all of the money is reserved for our store dealers but a majority if it is so we think we’ve been very prudent and conservative with those calculations as well.

And doing it on a quarterly basis when the risk does come about so that we’re monitoring this on a daily basis to make sure that we are at the level we need to be to have the right valuation against our receivables on a monthly basis. Matt McCall – BB&T Capital : Outside of the 15 to 20 Furniture Galleries that you plan to close, are you stopping shipments to other wholesale customers and then if [inaudible], what’s the total impact here top line from these actions.

The challenge that we all have in this environment right now is to determine what the future run rate is going to be. Is October reflective of the new level of business? Will it bounce back a little from there? Is business going to be down 10%, 15%, 20%? That’s a very moving target right now and one we’re trying to get our arms around. We believe we can structure this business appropriately given wherever the volume ends up but we can’t continue to lose money on customers that have no ability to pay us. So we’re prepared to deal with that, make the adjustments in our business model from a cost standpoint if we lose more volume but we would be guessing right now on how many more people are struggling financially and how many normally good paying dealers may fall into another category here. If business remains like it was in October that universe gets larger. If business comes back some that universe is smaller so its something we’re very cognizant of, we’re very careful with and we are moving aggressively in those avenues. Matt McCall – BB&T Capital : Your operating expenses, there was a $10 million sequential increase on the top line and likewise there was a $10 million sequential increase this is from Q1 on the operating expense line, a bit surprising the magnitude of that move, I know there’s some bad debt in there. Maybe that’s part of it, I know there’s some advertising I think you spoke about it in the Q on a year-over-year basis, help me understand how you’re going to [save] that one for one move in operating expenses versus sales from the Q1 arena especially when you’re focused so much on managing your operating expenses.

I think philosophically you have to look at, we were as you can see from our same store sales through the end of September with our old system we were moving in a path that was close to our planned efforts and typically in the furniture industry the fall is a seasonal uptick and we anticipated in late August and early September that that would happen. The degree of change that happened in the month, the last week or two of September and the first two weeks of October, the degree that that magnitude changed and as rapidly as it changed, when we were planning on things improving a little bit, caught us at an apex that we had to make some substantial adjustments. So as we look at it it was a timing issue of planning business going in one direction, having the bottom fall out in the other direction, and having to adjust and we think we’ve made most of those adjustments with the announcements we made in early November. So there are areas of spending, our advertising was up for the quarter, as a percentage of sales, will be down in the second half of the year. We talked about the bad debts that we had issues with, raw material rising in the first half of the year, which we don’t feel is going to be the trend line in the second half. So there’s a number of different factors that we saw that we’ve reacted to and I think we reacted aggressively.

And also the second quarter is our market quarter so sequentially over the first quarter we have expenditures related to that that aren’t in the first quarter that won’t be in the third quarter.

Your next question comes from the line of Todd Schwartzman - Sidoti & Co. Todd Schwartzman - Sidoti & Co.: Exclusive of the stores you’ve targeted for closure and I also hope that you can maybe provide some color on the geographies involved there, but ex those, are there any new VIEs on the horizon that you likely need to consolidate?

We’re very cautious on what we’re trying to do. We’re doing everything we can to not add any more VIEs and monitoring our credit so that we do that. There’s always a chance that may happen, it is not in our strategy right now to try and do that. But we’re monitoring that pretty carefully to ensure that we can maintain where [we’re certain we] are at with our retail division as well as our current VIEs.

The issue on identifying the stores in some cases, we have had clear communication with our customers involved and other cases they may not have advised their staff and their employees of these changes and so we’re being respective of their personal situations. I would tell you however that we’ve talked about the states that have been under the most pressure the last year or two and can tell you because its been communicated in certain instances that some of the stores are in Florida and some of the stores are in California where we’ll be making some of the changes. Todd Schwartzman - Sidoti & Co.: Also which of your debt covenants is of most immediate concern right now?

The only one that we have of any, is having our excess availability drop below $30 million. There is no other covenant right now other then that. Todd Schwartzman - Sidoti & Co.: And is your leverage ratio covenant, is [inaudible] refreshed?

We have a fixed charge coverage ratio that only comes into play if its less then $30 million of excess availability. Todd Schwartzman - Sidoti & Co.: So there’s no debt to EBITDA covenant?

No.

Your next question is a follow-up from the line of Budd Bugatch - Raymond James

On the taxes, you said for modeling purposes we should use the 38% operating rate, do you think you’ll be presenting the financials that way or is it just to cloudy to tell yet?

Its to cloudy, obviously the deferred tax issue, the valuation allowance is mainly as we talked about based on the fact that we’ve lost money in the past so if I would lose money in the next quarter I would not be able to take a benefit for that. If I make money in the next quarter I would probably be able to reverse my valuation allowances to offset that and my income taxes would be minimal. So, the problem is I can’t give you modeling effective tax rate because it depends on what jurisdictions I make money in and how we make money depends on how the rate goes in. It’s a little more complicated now for us because of that. It depends on how we make the money and where we make the money. Our rate could be zero next quarter even if we make money. It just depends on how it goes about so I don’t know how to give you any better insight on that. I was just trying to give you some idea of the sense of what would happen and if you use 10%, 30%, I’m not sure that it really matters because it will be a non-cash number. I try to give you as much feel as I can but it just depends on how it works out in the future and I probably as we move through the year, I can give you more clarity on that.

Just trying to figure out how best to present that number. We’ve come across this before and we just usually have gone, in a modeling sense, gone to zero tax until we get some assurance that that valuation allowance is going to go back the other way.

I couldn’t counter that argument.

When you look at the operating utilization of both the casegoods, the remaining factories that are open and the upholstery what kind of utilization rate, I know that’s a nebulous term, but its kind of an investment feel of how you’re operating and what kind future we look at in terms of those facilities. Where would you peg that if you were forced to give an answer, like I’m trying to do.

I would tell you in the quarter our upholstery operations were in the low 90% capacity utilization. The only problem with that number is the quarter got progressively worse so if you would rollout three months of October we wouldn’t be at the 90% but that’s where we were for the quarter with the upholstery groups and for our two casegoods plant our utilization was slightly under 50%. So that’s the magnitude of that and that is at quarter of volume that we may not see here in the near-term so that’s why we had to make some changes with headcount and other things as well.

When will all that be effective? Is it done and when do we see the annualized savings?

I believe that probably 90% of what we announced in early November is done. There was immediate action taken. There’s a few things that are trickling out between now and the end of the calendar year but the majority of it was immediate because our decline in volume was immediate so we had to move aggressively on that.

So the savings, you’ll start to book that in third quarter, you’re starting to see it now?

We would have immediate impact, obviously we’ll have to book some severance and some benefit cost in our quarter but overall for the quarter we should see some benefit from this as well whether it offsets the severance but the fourth quarter we would see 100% of the savings.

And we tried to give you some magnitude in the press release of what the headcount reduction would mean on an annual basis.

As I do my numbers, trying to come up with what I think has happened to the individual segment operating expenses it looks to me like the gross margin in the wholesale group declined a half a point or so, I’m just making some other assumptions, but then kind of working that backwards, it looked like segment operating expenses were up year-over-year. Is that an accurate way to look at it? The SG&A side of the segment, wholesale segment, sorry.

We told you that a couple of the big drivers in the SG&A percentage was the bad debt and the advertising, both of which we think we can positively effect going forward by some of the changes we’ve made and how we’re going to spend and which dealers we’re going to support. That was the primary driver. There are some other things involved there and the discretionary spending controls that we put in place will help that. But those are the biggest two components of the SG&A run up.

And that bad debt, obviously the bad debt appears in the wholesale segment, because those are independent dealers, is the advertising also primarily in the wholesale segment, is that where that’s showing?

It is in both but its primarily, the extra is primarily in the wholesale section.

Your next question is a follow-up from the line of Matt McCall – BB&T Capital Matt McCall – BB&T Capital: Going back to one of the earlier questions, on the potential or the fixed charge coverage ratio do you know what that calculation is today to make sure I’m including all of the pertinent details, do you know what that would be today?

We’ve been pretty consistent on this only because, what we’re just trying to only disclose things that are in play, as long as we’re above the $30 million that’s not in play and so we’re not disclosing that information at the present time. Matt McCall – BB&T Capital: The only reason I ask and maybe, I just want to clarify some of the language in the Q, you were taking about managing the liquidity in the back half of the year, one of the items you listed was suspension of the dividend, just wanted to clarify that that was if things were to get worse. I didn’t see that language in there, I just saw that that was listed as one of the items would be suspension of the dividend, I don’t know that’s, would be another result of moving below $30 million.

There is two things on that, the suspension of the dividend obviously gives us more cash, but it also is a factor in the calculation of the fixed charge coverage ratio. Matt McCall – BB&T Capital: But the language is more of a what if. If we need to we’ll suspend the entire dividend.

Our dividend decision is discussed every quarter and made based on the current conditions but what we have attempted to do philosophically is to look at our business model today, make what we believe is appropriate cuts. Our bias right now is October is not the new norm. If we have to slash and burn even more and stop all advertising and suspend all dividends and do all those things we think at this point that would be a knee-jerk reaction and one that would not be appropriate given what we know today. But obviously if business conditions get worse, if the recession deepens, all options are on the table and we would consider whatever we have to do to keep this company strong.

Also just to clarify, there is a provision if it goes below $30 million excess availability that is a restriction within the bank agreement about the dividend as well. Matt McCall – BB&T Capital: I saw in one section of the Q it talks about managing the liquidity of the company through the end of the fiscal year and one of the items you mentioned as a way to manage was suspension of the dividend and this is just after you talked about cutting it by 50%. I’m just making sure that that’s a what if, what occurs thus is just the reduction of the $0.02.

That’s correct.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Thank you everybody for participating on our call today. If you have follow-ups please give me a call. Have a good day.