Dear Fellow Shareholders:

Since the beginning of this decade, extensive change has permeated the U.S. furniture industry with incredible speed. Retail distribution has grown beyond traditional furniture retailers, and competition from Asia has completely transformed the marketplace. In the 79-year history of La-Z-Boy, change and evolution have always played significant roles and helped to build our company into what it is today – La-Z-Boy® – the best known brand in furniture, North America’s largest upholstery manufacturer, the world’s leading producer of reclining chairs and the largest proprietary upholstery retailer in North America. We know that ongoing evolution is essential as we position our company for the future.

Fiscal 2006 Accomplishments and Challenges

As we continued to adapt our business model, we had many accomplishments, including those highlighted below:

• Transitioned the Casegoods Segment – We completed the shift from a domestic casegoods manufacturer to primarily an importer, and realized a $13 million improvement in operating margin compared with last year – a significant turnaround;

• Expanded the La-Z-Boy Furniture Galleries® System – The quality of our store system was improved as we increased the number of New Generation stores by 49. At year end, with 154 new format stores out of 337, approximately 50% of our total stores are less than five years old. These stores increase our retail appeal to consumers, drive more traffic, generate greater sales, strengthen our brand name with “permanent billboards” and differentiate us from our competition;