What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-17 compared with 2020-08-18 · 208 added, 131 removed, 395 unchanged (46% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENT OF INCOME

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands, except per share data) 10/24/20 10/26/19 10/24/20 10/26/19

Sales $ 459,120 $ 447,212 $ 744,578 $ 860,845

Cost of sales 258,565 264,823 427,660 510,744

Gross profit 200,555 182,389 316,918 350,101

Selling, general and administrative expense 152,616 152,788 264,654 297,078

5 unchanged sentences

Income tax expense 12,401 8,279 13,556 13,362

Net loss attributable to noncontrolling interests

Net income 35,304 22,904 39,983 40,892

Net income attributable to noncontrolling interests ( 369 ) ( 311 ) ( 250 ) ( 230 )

Net income attributable to La-Z-Boy Incorporated $ 34,935 $ 22,593 $ 39,733 $ 40,662

6 unchanged sentences

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/24/20 10/26/19 10/24/20 10/26/19

Other comprehensive income

Net income $ 35,304 $ 22,904 $ 39,983 $ 40,892

Other comprehensive income (loss)

Currency translation adjustment 1,354 1,526 3,465 2,140

Change in fair value of cash flow hedges, net of tax — 6 — 10

Net unrealized gain on marketable securities, net of tax

Net unrealized gain (loss) on marketable securities, net of tax ( 65 ) 46 ( 23 ) 154

Net pension amortization, net of tax 65 41 130 82

11 unchanged sentences

Receivables, net of allowance of $ 5,890 at 10/24/20 and $ 7,541 at 4/25/20

128,324 99,351

Inventories, net 188,652 181,643

2 unchanged sentences

Property, plant and equipment, net 211,688 214,767

Goodwill 174,834 161,017

Other intangible assets, net 30,647 28,653

Deferred income taxes – long-term 18,990 20,839

Right of use lease asset

Right of use lease assets 341,765 318,647

Other long-term assets, net 76,017 64,640

Total assets $ 1,650,343 $ 1,434,889

Current liabilities

1 unchanged sentence

Short-term borrowings — 75,000

Lease liability, current

Lease liabilities, current 65,758 64,376

Accrued expenses and other current liabilities 335,294 155,282

Total current liabilities 490,312 350,169

Lease liability, long-term

Lease liabilities, long-term 294,601 270,162

Other long-term liabilities 110,781 98,252

3 unchanged sentences

46,113 outstanding at 10/24/20 and 45,857 outstanding at 4/25/20

46,113 45,857

Capital in excess of par value 326,182 318,215

3 unchanged sentences

Noncontrolling interests 7,873 15,553

Total equity 754,649 716,306

Total liabilities and equity $ 1,650,343 $ 1,434,889

2 unchanged sentences

CONSOLIDATED STATEMENT OF CASH FLOWS

Quarter Ended

Six Months Ended

(Unaudited, amounts in thousands) 10/24/20 10/26/19

Cash flows from operating activities

Net income $ 39,983 $ 40,892

Adjustments to reconcile net income to cash provided by (used for) operating activities

19 unchanged sentences

Proceeds from sales of investments 19,470 13,171

Net cash provided by (used for) investing activities

Acquisitions ( 7,783 ) ( 5,875 )

Net cash used for investing activities ( 21,383 ) ( 32,345 )

Cash flows from financing activities

15 unchanged sentences

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited, amounts in thousands)

Capital in Excess of

Accumulated Other

(Unaudited, amounts in thousands) Common

Shares Capital in Excess of

Par Value Retained

Earnings Accumulated Other

Comprehensive Income

Non-Controlling

(Loss) Non-Controlling

Interests Total

At April 25, 2020 $ 45,857 $ 318,215 $ 343,633 $ ( 6,952 ) $ 15,553 $ 716,306

5 unchanged sentences

At July 25, 2020 $ 45,989 $ 320,067 $ 346,750 $ ( 5,232 ) $ 7,425 $ 714,999

Net income — — 34,935 — 369 35,304

Other comprehensive income — — — 1,275 79 1,354

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 124 1,995 ( 6 ) — — 2,113

Stock option and restricted stock expense — 4,120 — — — 4,120

Dividends declared and paid ($ 0.07 /share)

— — ( 3,221 ) — — ( 3,221 )

Dividends declared not paid ($ 0.07 /share)

— — ( 20 ) — — ( 20 )

At October 24, 2020 $ 46,113 $ 326,182 $ 378,438 $ ( 3,957 ) $ 7,873 $ 754,649

(1) No dividends to shareholders were declared or paid during the first quarter of fiscal 2021;

1 unchanged sentence

Non-controlling interests include dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.

(Unaudited, amounts in thousands)

Capital in Excess of

Accumulated Other

(Unaudited, amounts in thousands) Common

Shares Capital in Excess of

Par Value Retained

Earnings Accumulated Other

Comprehensive Income

Non-Controlling

(Loss) Non-Controlling

Interests Total

At April 27, 2019 $ 46,955 $ 313,168 $ 325,847 $ ( 3,462 ) $ 14,468 $ 696,976

3 unchanged sentences

Repurchases of 391 shares of common stock

( 391 ) ( 3,762 ) ( 8,160 ) — — ( 12,313 )

Stock option and restricted stock expense — 1,675 — — — 1,675

2 unchanged sentences

Dividends declared and paid ($ 0.13 /share)

— — ( 6,112 ) — — ( 6,112 )

At July 27, 2019 $ 46,690 $ 311,207 $ 329,096 $ ( 3,728 ) $ 14,873 $ 698,138

Net income — — 22,593 — 311 22,904

Other comprehensive income — — — 1,260 359 1,619

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 84 1,908 ( 4 ) — — 1,988

Purchases of 335 shares of common stock

( 335 ) ( 1,908 ) ( 8,611 ) — — ( 10,854 )

Stock option and restricted stock expense — 3,032 — — — 3,032

Dividends declared and paid ($ 0.13 /share)

— — ( 6,039 ) — — ( 6,039 )

Dividends declared not paid ($ 0.13 /share)

— — ( 46 ) — — ( 46 )

At October 26, 2019 $ 46,439 $ 314,239 $ 336,989 $ ( 2,468 ) $ 15,543 $ 710,742

(1) Cumulative effect adjustment of deferred gains on prior sale/leaseback transactions as a result of adopting ASU 2016-02 .

9 unchanged sentences

The interim results reflected in the accompanying financial statements are not necessarily indicative of the results of operations that will occur for the full fiscal year ending April 24, 2021.

At July 25, 2020 , we owned preferred shares and warrants to purchase common shares of two privately held companies, both of which are variable interest entities.

At October 24, 2020, we owned preferred shares and warrants to purchase common shares of two privately held companies, both of which are variable interest entities.

We have not consolidated their results in our financial statements because we do not have the power to direct those activities that most significantly impact their economic performance and, therefore, are not the primary beneficiary.

As a part of our continued response to the impact of COVID-19, on June 4, 2020, we announced our business realignment plan, which included the immediate reduction of the Company's global workforce by approximately 10 % across our manufacturing, retail and corporate locations, including the closure of our Newton, Mississippi upholstery manufacturing facility.

Production from the Newton facility has been shifted to available capacity at the company’s Dayton, Tennessee, Neosho, Missouri, and Siloam Springs, Arkansas plants.

In the first quarter of fiscal 2021, we incurred expenses of $ 3.5 million associated with our business realignment plan, primarily due to severance costs and an impairment of the carrying value of the Newton manufacturing facility.

Given the positive trends in cash flows, during the first quarter of fiscal 2021, we repaid $ 25.0 million of the $ 75.0 million borrowed under our line of credit in the fourth quarter of 2020.

Subsequent to this financial report, in the second quarter of fiscal 2021, effective as of August 1, 2020, the temporary 50 % salary reductions for the named executive officers ended and full base salaries were reinstated, as was the Company's 401(k) match and cash compensation for the board of directors.

Further, on August 18, 2020, the board of directors elected to reinstate a regular quarterly dividend to shareholders of $ 0.07 per share, 50 % of the dividend amount paid quarterly prior to the Company's suspension of dividends.

As part of our continued response to the impact of COVID-19, on June 4, 2020, we announced our business realignment plan, which included the reduction of the Company's global workforce by approximately 10 % across our manufacturing, retail and corporate locations, including the closure of our Newton, Mississippi upholstery manufacturing facility.

In the first six months of fiscal 2021, we incurred expenses of $ 3.9 million associated with our business realignment plan, primarily due to severance costs and an impairment of the carrying value of the Newton manufacturing facility.

In the first six months of fiscal 2021, as consumers continued to allocate more discretionary spending to home furnishings, the demand for our products has outpaced our production capacity.

In response, we have added manufacturing cells at our Mexico Cut-and-Sew Center, temporarily re-activated a portion of our Newton, Mississippi upholstery manufacturing facility, and will open a leased upholstery plant, in San Luis Rio Colorado, Mexico early in the third quarter of fiscal 2021.

During the fourth quarter of fiscal 2020, in response to economic conditions resulting from COVID-19, to strengthen our financial position and maintain liquidity, we proactively borrowed $ 75.0 million from our revolving credit facility.

Given the positive trends in cash flows during the first six months of fiscal 2021, we repaid all of the $ 75.0 million borrowed under our line of credit in the first and second quarters of fiscal 2021.

We continue to actively manage the impact of the COVID-19 crisis and there is uncertainty regarding the impact COVID-19 will have on our financial operations in the near and long term.

Accounting pronouncement adopted in fiscal 2021

The following table summarizes additional ASUs which were adopted in fiscal 2021 , but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.

Financial Instruments – Credit losses (Topic 326):

Accounting pronouncements adopted in fiscal 2021

The following table summarizes Accounting Standards Updates ("ASUs") which were adopted in fiscal 2021, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.

ASU Description

ASU 2016-13 Financial Instruments – Credit losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

Reference Rate Reform (Topic 848):

ASU 2020-04 Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Accounting pronouncements not yet adopted

The following table summarizes additional accounting pronouncements which we have not yet adopted, but we believe will not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.

Adoption Date

Compensation – Retirement benefits – Defined Benefit Plans – General (Subtopic 715-20):

Changes to the Disclosure Requirements for Defined Benefit Plans

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes

Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815

The following table summarizes accounting pronouncements which we have not yet adopted, but we believe will not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.

ASU Description Adoption Date

ASU 2018-14 Compensation – Retirement benefits – Defined Benefit Plans – General (Subtopic 715-20):

Changes to the Disclosure Requirements for Defined Benefit Plans Fiscal 2022

ASU 2019-12 Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes Fiscal 2022

ASU 2020-01 Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 Fiscal 2022

On September 14, 2020, we completed our asset acquisition of the Seattle, Washington business that operated six independently owned La-Z-Boy Furniture Galleries ® stores and one warehouse for $ 13.5 million, subject to customary adjustments.

In the second quarter of fiscal 2021, a $ 2.0 million cash payment was made for the purchase with future guaranteed payments of $ 9.4 million to be paid over the next 36 months.

This acquisition is a core part of our strategy to grow our company-owned retail business and leverage our integrated retail model where we earn a combined profit on both the wholesale and retail sales.

Prior to this acquisition, we licensed to the counterparty the exclusive right to own and operate La-Z-Boy Furniture Galleries ® stores (and to use the associated trademarks and trade name) in the Seattle, Washington market, and we reacquired these rights when we consummated the transaction.

The reacquired rights are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options.

The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market.

We recorded an indefinite-lived intangible asset of $ 2.2 million related to these reacquired rights.

We also recognized $ 12.9 million of goodwill in our Retail segment related primarily to synergies we expect from the integration of the acquired stores and future benefits of these synergies.

For federal income tax purposes, we will amortize and appropriately deduct all of the indefinite-lived intangible assets and goodwill assets over 15 years.

The acquisition of the Seattle, Washington business was not significant to our consolidated financial statements, and, therefore, pro-forma financial information is not presented.

All of our provisional purchase accounting estimates for this acquisition are based on the information and data available to us as of the time of the issuance of these financial statements, and in accordance with Accounting Standard Codification Topic 805-10-25-15, are subject to change within the first 12 months of acquisition as we have access to additional data.

Restricted Cash

15 unchanged sentences

We have goodwill on our consolidated balance sheet as follows:

Reportable Segment/Unit

Reporting Unit

Related Acquisition

Wholesale Segment

La-Z-Boy United Kingdom

Wholesale business in the United Kingdom and Ireland

Retail Segment

La-Z-Boy Furniture Galleries ® stores

Corporate & Other

The following is a summary of activity of goodwill for the quarter ended July 25, 2020 :

(Unaudited, amounts in thousands)

Reportable Segment/Unit Reporting Unit Related Acquisition

Wholesale Segment La-Z-Boy United Kingdom Wholesale business in the United Kingdom and Ireland

Retail Segment Retail La-Z-Boy Furniture Galleries ® stores

Corporate & Other Joybird Joybird

The following is a roll-forward of goodwill for the six months ended October 24, 2020:

(Unaudited, amounts in thousands) Wholesale

Segment Retail

Segment Corporate

and Other Total

Balance at April 25, 2020 $ 11,630 $ 93,941 $ 55,446 $ 161,017

Acquisitions — 12,931 — 12,931

Translation adjustment 636 250 — 886

Balance at July 25, 2020

Balance at October 24, 2020 $ 12,266 $ 107,122 $ 55,446 $ 174,834

We have intangible assets on our consolidated balance sheet as follows:

Reportable Segment/Unit

Intangible Asset

Wholesale Segment

Primarily acquired customer relationships from our acquisition of the wholesale business in the United Kingdom and Ireland

Amortizable over useful lives that do not exceed 15 years

Wholesale Segment

American Drew ® trade name

Reportable Segment/Unit Intangible Asset Useful Life

Wholesale Segment Primarily acquired customer relationships from our acquisition of the wholesale business in the United Kingdom and Ireland Amortizable over useful lives that do not exceed 15 years

Wholesale Segment American Drew ® trade name

Indefinite-lived

Retail Segment

Reacquired rights to own and operate La-Z-Boy Furniture Galleries ® stores

Retail Segment Reacquired rights to own and operate La-Z-Boy Furniture Galleries ® stores

Indefinite-lived

Corporate & Other

Joybird ® trade name

Corporate & Other Joybird ® trade name

Amortizable over eight -year useful life

The following is a roll-forward of our other intangible assets for the quarter ended July 25, 2020 :

(Unaudited, amounts in thousands)

The following is a roll-forward of our other intangible assets for the six months ended October 24, 2020:

(Unaudited, amounts in thousands) Indefinite-

Names Finite-

Name Indefinite-

Balance at April 25, 2020 $ 1,155 $ 5,003 $ 19,996 $ 2,499 $ 28,653

Acquisitions — — 2,182 — 2,182

Amortization — ( 399 ) — ( 110 ) ( 509 )

Translation adjustment — — 187 134 321

Balance at July 25, 2020

Balance at October 24, 2020 $ 1,155 $ 4,604 $ 22,365 $ 2,523 $ 30,647

We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that an asset might be impaired.

19 unchanged sentences

The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type:

(Unaudited, amounts in thousands)

10/24/20 4/25/20

(Unaudited, amounts in thousands) Gross

Losses Fair Value Gross

Losses Fair Value

Equity securities $ 1,873 $ — $ 16,224 $ 1,011 $ ( 6,390 ) $ 12,692

Fixed income 206 ( 25 ) 29,735 268 ( 56 ) 30,213

Other 452 — 4,429 372 — 5,117

Total securities $ 2,531 $ ( 25 ) $ 50,388 $ 1,651 $ ( 6,446 ) $ 48,022

The following table summarizes sales of marketable securities:

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/24/20 10/26/19 10/24/20 10/26/19

7 unchanged sentences

Within six to ten years 1,149

Thereafter 1,821

Total $ 29,735

Accrued Expenses and Other Current Liabilities

6 unchanged sentences

Accrued expenses and other current liabilities $ 335,294 $ 155,282

The increase in customer deposits and deferred revenue was primarily driven by higher written Retail and Joybird sales in the first quarter of fiscal 2021.

The increase in customer deposits and deferred revenue was primarily driven by higher Retail segment and Joybird written sales in the first six months of fiscal 2021.

Higher written sales also led to an increase in contract assets, which are included in other current assets on the consolidated balance sheet, consistent with the increase in deferred revenue.

8 unchanged sentences

For all our manufacturer warranties, the warranty period begins when the consumer receives our product.

considerable judgment in making our estimates, and we record differences between our actual and estimated costs when the differences are known.

We use considerable judgment in making our estimates, and we record differences between our actual and estimated costs when the differences are known.

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

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/24/20 10/26/19 10/24/20 10/26/19

3 unchanged sentences

Balance as of the end of the period (1)

$ 14.2 million and $ 14.3 million recorded in accrued expenses and other current liabilities as of July 25, 2020 and April 25, 2020 , respectively, while the remainder is in included in other long-term liabilities.

$ 22,938 $ 23,081 $ 22,938 $ 23,081

(1) $ 14.2 million and $ 14.3 million recorded in accrued expenses and other current liabilities as of October 24, 2020 and April 25, 2020, respectively, while the remainder is in included in other long-term liabilities.

We recorded accruals during the periods presented in the table above, primarily to reflect charges that relate to warranties issued during the respective periods.

1 unchanged sentence

The table below summarizes the total stock-based compensation expense we recognized for all outstanding grants in our consolidated statement of income:

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/24/20 10/26/19 10/24/20 10/26/19

11 unchanged sentences

We estimate the fair value of the employee stock options at the date of grant using the Black-Scholes option-pricing model, which requires management to make certain assumptions.

The fair value of stock options granted during the first quarter of fiscal 2021 were calculated using the following assumptions:

Fiscal 2021 grant

Risk-free interest rate

The fair value of stock options granted during the first quarter of fiscal 2021 was calculated using the following assumptions:

(Unaudited) Fiscal 2021 grant Assumption

Risk-free interest rate 0.34 % U.S.

Treasury issues with term equal to expected life at grant date

Dividend rate

Estimated future dividend rate and common share price at grant date

Expected life in years

Contractual term of stock option and expected employee exercise trends

Stock price volatility

Historical volatility of our common shares

Dividend rate 0 % Estimated future dividend rate and common share price at grant date

Expected life 5 years Contractual term of stock option and expected employee exercise trends

Stock price volatility 41.79 % Historical volatility of our common shares

Fair value per share $ 10.06

Stock Appreciation Rights (“SARs”).

We have not granted any SARs to employees since fiscal 2014, but we have SARs outstanding from the fiscal 2013 and fiscal 2014 grants.

All outstanding SARs are fully vested and have a term of ten years .

SARs will be paid in cash upon exercise and, accordingly, we account for SARs as liability-based awards that we re-measure to fair value at the end of each reporting period.

We have no remaining unrecognized compensation cost at July 25, 2020 , relating to SARs awards as they are all fully vested, but we will continue to remeasure these awards to reflect the fair value at the end of each reporting period until all awards are exercised or forfeited.

As of July 25, 2020 , we had 7,149 and 13,869 SARs outstanding for the fiscal 2013 and fiscal 2014 awards, respectively.

These awards have exceeded their expected life and will be re-measured to fair value based on their intrinsic value, which is the market value of our common stock on the last day of the

reporting period less the exercise price, until the earlier of the exercise date or the contractual term date.

At July 25, 2020 , the intrinsic value per share of the fiscal 2013 and fiscal 2014 awards were $ 15.53 and $ 8.44 , respectively.

Restricted Stock .

We granted 119,535 shares of restricted stock to employees during the first quarter of fiscal 2021 .

We granted 120,385 shares of restricted stock to employees during the first six months of fiscal 2021.

We also have shares of restricted stock outstanding from previous grants.

We issue restricted stock at no cost to the employees and the shares are held in an escrow account until the vesting period ends.

If a recipient’s employment ends during the escrow period (other than through death or disability), the shares are returned at no cost to the Company.

If a recipient’s employment ends during the escrow period (other than as a result of death or disability), the shares are returned at no cost to the Company.

We account for restricted stock awards as equity-based awards because when they vest, they will be settled in common shares.

The weighted-average fair value of the restricted stock awarded in the first quarter of fiscal 2021 was $ 27.54 per share, the market value of our common shares on the date of grant.

The weighted-average fair value of the restricted stock awarded in the first six months of fiscal 2021 was $ 27.55 per share, the market value of our common shares on the date of grant.

We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur.

1 unchanged sentence

Restricted stock awards vest at 25 % per year, beginning one year from the grant date over a term of four years.

Restricted Stock Units.

During the second quarter of fiscal 2021, we granted 26,192 restricted stock units to our non-employee directors.

These restricted stock units vest when the director leaves the board.

We account for these restricted stock units as equity-based awards because when they vest, they will be settled in shares of our common stock.

We measure and recognize compensation expense for these awards based on the market price of our common shares on the date of the grant, which was $ 32.08 .

Performance Shares.

2 unchanged sentences

Payout of the fiscal 2021 grant depends on our financial performance ( 50 %) and a market-based condition based on the total return our shareholders receive on their investment in our stock relative to returns earned through investments in other public companies ( 50 %).

The performance share opportunity ranges from 50 % of the employee’s target award if minimum performance requirements are met to a maximum of 200 % of the target award based on the attainment of certain financial and shareholder-return goals over a specific performance period, which is generally three fiscal years.

is generally three fiscal years.

Grants of performance-based shares during fiscal 2019 and fiscal 2020 were weighted ( 80 %) on financial performance and ( 20 %) on market-based conditions consistent with those in the fiscal 2021 grant.

2 unchanged sentences

For shares that vest based on our results relative to the performance goals, we expense as compensation cost the fair value of the shares as of the day we granted the awards recognized over the performance period, taking into account the probability that we will satisfy the performance goals.

For performance-based shares granted in the first quarter of fiscal 2021, due to COVID-19 we have deferred setting our performance targets for such and as such, the grant date requirements under ASC 718 have not been met.

Once performance goals are defined by the Compensation Committee, we will determine the awards' fair value.

The fair value of each share of the awards we granted in fiscal 2021 that vest based on attaining performance goals was $ 30.75 , the market value of our common shares on the date we granted the awards less the dividends we expect to pay before the shares vest.

For shares that vest based on market conditions, we use a Monte Carlo valuation model to estimate each share’s fair value as of the date of grant.

The Monte Carlo valuation model uses multiple simulations to evaluate our probability of achieving various stock price levels to determine our expected performance ranking relative to our peer group.

For shares that vest based on market conditions, we expense compensation cost, net of estimated forfeitures, over the vesting period regardless of whether the market condition is ultimately satisfied.

For shares that vest based on market conditions, we expense compensation cost over the vesting period regardless of whether the market condition is ultimately satisfied.

Based on the Monte Carlo model, the fair value as of the grant date of the fiscal 2021 grant of shares that vest based on market conditions was $ 38.14 .

Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the quarters ended July 25, 2020 , and July 27, 2019 , is as follows:

(Unaudited, amounts in thousands)

Translation adjustment

Change in fair value of cash flow hedge

Unrealized gain (loss) on marketable securities

Net pension amortization and net actuarial loss

Accumulated other comprehensive loss

Balance at April 25, 2020

The activity in accumulated other comprehensive income (loss) for the quarters ended October 24, 2020, and October 26, 2019, is as follows:

(Unaudited, amounts in thousands) Translation adjustment Change in fair value of cash flow hedge Unrealized gain (loss) on marketable securities Net pension amortization and net actuarial loss Accumulated other comprehensive income (loss)

Balance at July 25, 2020 $ ( 278 ) $ — $ 491 $ ( 5,445 ) $ ( 5,232 )

Changes before reclassifications 1,275 — ( 61 ) — 1,214

Amounts reclassified to net income — — ( 25 ) 86 61

Tax effect — — 21 ( 21 ) —

Other comprehensive income attributable to La-Z-Boy Incorporated 1,275 — ( 65 ) 65 1,275

Balance at October 24, 2020 $ 997 $ — $ 426 $ ( 5,380 ) $ ( 3,957 )

Balance at July 27, 2019 $ 178 $ ( 6 ) $ 372 $ ( 4,272 ) $ ( 3,728 )

Changes before reclassifications 1,167 — 69 — 1,236

Amounts reclassified to net income — 9 ( 8 ) 54 55

Tax effect — ( 3 ) ( 15 ) ( 13 ) ( 31 )

Other comprehensive income attributable to La-Z-Boy Incorporated 1,167 6 46 41 1,260

Balance at October 26, 2019 $ 1,345 $ — $ 418 $ ( 4,231 ) $ ( 2,468 )

The activity in accumulated other comprehensive income (loss) for the six months ended October 24, 2020, and October 26, 2019, is as follows:

Balance at April 25, 2020 $ ( 1,891 ) $ — $ 449 $ ( 5,510 ) $ ( 6,952 )

Changes before reclassifications 2,888 — 16 — 2,904

Amounts reclassified to net income — — ( 47 ) 173 126

Tax effect — — 8 ( 43 ) ( 35 )

Other comprehensive income attributable to La-Z-Boy Incorporated 2,888 — ( 23 ) 130 2,995

Balance at October 24, 2020 $ 997 $ — $ 426 $ ( 5,380 ) $ ( 3,957 )

Balance at April 27, 2019 $ 50 $ 87 $ 6 $ ( 3,605 ) $ ( 3,462 )

Changes before reclassifications 1,295 — 212 — 1,507

Reclassification of certain income tax effects (1) — ( 97 ) 258 ( 708 ) ( 547 )

Amounts reclassified to net income — 14 ( 8 ) 109 115

Tax effect — ( 4 ) ( 50 ) ( 27 ) ( 81 )

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 1,295 ( 87 ) 412 ( 626 ) 994

Balance at July 27, 2019

Balance at October 26, 2019 $ 1,345 $ — $ 418 $ ( 4,231 ) $ ( 2,468 )

(1) Income tax effects of the Tax Cuts and Jobs Act are reclassified from AOCI to retained earnings due to adoption of ASU 2018-02.

1 unchanged sentence

The components of non-controlling interest were as follows:

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/24/20 10/26/19 10/24/20 10/26/19

Balance as of the beginning of the period $ 7,425 $ 14,873 $ 15,553 $ 14,468

Net income 369 311 250 230

Other comprehensive income 79 359 577 845

8 unchanged sentences

We expense shipping and handling costs at the time we recognize revenue in accordance with this election.

For sales tax, we elected to apply the accounting policy election permitted in ASC 606-10-32-2A, which allows an entity to exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes).

For sales tax, we have elected to apply the accounting policy election permitted in ASC 606-10-32-2A, which allows an entity to exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes).

This allows us to present revenue net of these certain types of taxes.

2 unchanged sentences

The following table presents our revenue disaggregated by product category and by segment or unit:

Quarter Ended July 25, 2020

(Unaudited, amounts in thousands)

Quarter Ended October 24, 2020 Quarter Ended October 26, 2019

(Unaudited, amounts in thousands) Wholesale Retail Corporate

and Other Total Wholesale Retail Corporate

and Other Total

Motion Upholstery Furniture $ 200,448 $ 99,462 $ 162 $ 300,072 $ 197,219 $ 84,455 $ 71 $ 281,745

3 unchanged sentences

Occasional Furniture 12,541 5,351 806 18,698 11,934 5,455 497 17,886

Other (1) 22,037 22,360 ( 6,815 ) 37,582 23,717 20,743 ( 5,839 ) 38,621

Total $ 343,016 $ 162,275 $ 33,717 $ 539,008 $ 350,245 $ 148,404 $ 24,311 $ 522,960

Eliminations ( 79,888 ) ( 75,748 )

Consolidated Net Sales $ 459,120 $ 447,212

Quarter Ended July 27, 2019

(Unaudited, amounts in thousands)

Six Months Ended October 24, 2020 Six Months Ended October 26, 2019

(Unaudited, amounts in thousands) Wholesale Retail Corporate

and Other Total Wholesale Retail Corporate

and Other Total

Motion Upholstery Furniture $ 332,712 $ 152,909 $ 223 $ 485,844 $ 376,741 $ 169,639 $ 160 $ 546,540

3 unchanged sentences

Occasional Furniture 20,651 8,761 1,535 30,947 23,069 10,580 858 34,507

Other (1) 35,263 36,072 ( 8,825 ) 62,510 48,360 40,231 ( 10,176 ) 78,415

Total $ 566,589 $ 253,412 $ 50,458 $ 870,459 $ 670,796 $ 291,400 $ 44,863 $ 1,007,059

Eliminations ( 125,881 ) ( 146,214 )

Consolidated Net Sales $ 744,578 $ 860,845

10 unchanged sentences

This gross revenue includes sales to La-Z-Boy Furniture Galleries ® stores (including company-owned stores), independent retailers, and the end consumer.

At July 25, 2020 , our consolidated balance sheet includes current assets of $ 39.7 million that we reported as other receivables.

These other receivables represent the remaining consideration to which we are entitled prior to fulfilling our performance obligation.

At the beginning of fiscal 2021 , we had $ 17.1 million of other receivables.

At October 24, 2020 and at April 25, 2020, our consolidated balance sheet included $ 67.9 million and $ 17.1 million, respectively, of contract assets that represent the remaining consideration to which we are entitled prior to fulfilling our performance obligation.

These assets are reported as other current assets in our consolidated balance sheet.

We receive customer deposits from end consumers before we recognize revenue and in some cases we have the unconditional right to collect the remaining portion of the order price before we fulfill our performance obligation, resulting in deferred revenue (collectively, the “contract liabilities”).

At July 25, 2020 , we included $ 101.8 million of customer deposits and $ 39.7 million of deferred revenues in accrued expenses and other current liabilities on our consolidated balance sheet.

At October 24, 2020, we included $ 140.7 million of customer deposits and $ 67.9 million of deferred revenues in accrued expenses and other current liabilities on our consolidated balance sheet.

At the beginning of fiscal 2021, we had $ 40.7 million of customer deposits and $ 17.1 million of deferred revenues.

During the quarter ended July 25, 2020 , we recognized revenue of $ 49.7 million related to our contract liability balance at April 25, 2020 .

The increase in our contract assets and contract liabilities at July 25, 2020 was primarily the result of increased written sales during the first quarter of fiscal 2021 compared with those in the fourth quarter of fiscal 2020.

During the quarter and six months ended October 24, 2020, we recognized revenue of $ 1.8 million and $ 51.5 million, respectively, related to our contract liability balance at April 25, 2020.

The increase in our contract assets and contract liabilities at October 24, 2020 was primarily the result of increased written sales during the first six months of fiscal 2021 compared with those in the fourth quarter of fiscal 2020.

Segment Information

21 unchanged sentences

The following table presents sales and operating income (loss) by segment:

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/24/20 10/26/19 10/24/20 10/26/19

8 unchanged sentences

Corporate and Other sales 33,717 24,311 50,458 44,863

Eliminations ( 79,888 ) ( 75,748 ) ( 125,881 ) ( 146,214 )

Consolidated sales $ 459,120 $ 447,212 $ 744,578 $ 860,845

8 unchanged sentences

Income before income taxes $ 47,705 $ 31,183 $ 53,539 $ 54,254

Our effective tax rate was 19.8 % for the quarter ended July 25, 2020 , compared with 22.0 % for the quarter ended July 27, 2019 .

Absent discrete adjustments, primarily related to tax deductions from stock-based compensation, our effective tax rate in the first quarter of fiscal 2021 would have been 26.1 % .

Our effective tax rate was 26.0 % and 25.3 % for the second quarter and six months ended October 24, 2020, respectively, compared with 26.6 % and 24.6 % for the second quarter and six months ended October 26, 2019, respectively.

Our effective tax rate varies from the 21 % federal statutory rate primarily due to state taxes.

3 unchanged sentences

The following is a reconciliation of the numerators and denominators we used in our computations of basic and diluted earnings per share:

Quarter Ended

(Unaudited, amounts in thousands)

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands, except per share data) 10/24/20 10/26/19 10/24/20 10/26/19

Numerator (basic and diluted):

7 unchanged sentences

Earnings per Share:

Basic $ 0.76 $ 0.48 $ 0.86 $ 0.87

Diluted $ 0.75 $ 0.48 $ 0.86 $ 0.86

The values for contingent common shares set forth above reflect the dilutive effect of common shares that we would have issued to employees under the terms of performance-based share awards if the relevant performance period for the award had been the reporting period.

We had outstanding options to purchase 1.5 million shares for the quarter ended July 25, 2020 , with a weighted average exercise price of $ 29.08 .

We had outstanding options to purchase 0.6 million shares for the six months ended October 24, 2020, with a weighted average exercise price of $ 31.94 .

We excluded the effect of these options from our diluted share calculation since the weighted average exercise price of the options was higher than the average market price and including the options’ effect would have been anti-dilutive.

Similarly, we excluded options to purchase 0.4 million shares from the diluted share calculation for the quarter ended July 27, 2019 .

Similarly, we excluded options to purchase 0.3 million shares from the diluted share calculation for the six months ended October 26, 2019.

Fair Value Measurements

8 unchanged sentences

We measure non-financial assets such as other intangible assets, goodwill, and other long-lived assets at fair value when there is an indicator of impairment, and we record them at fair value only when we recognize an impairment loss.

The following table presents the fair value hierarchy for those assets we measured at fair value on a recurring basis at July 25, 2020 and April 25, 2020 .

The following table presents the fair value hierarchy for those assets we measured at fair value on a recurring basis at October 24, 2020 and April 25, 2020.

There were no transfers into or out of Level 1, Level 2, or Level 3 for any of the periods presented.

At July 25, 2020

At October 24, 2020

Fair Value Measurements

(Unaudited, amounts in thousands)

(Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total

Marketable securities $ — $ 31,358 $ — $ 8,920 $ 40,278

1 unchanged sentence

Cost basis investments — — 7,579 — 7,579

Total assets $ 2,531 $ 31,358 $ 7,579 $ 8,920 $ 50,388

Contingent consideration liability $ — $ — $ 2,500 $ — $ 2,500

At April 25, 2020

Fair Value Measurements

(Unaudited, amounts in thousands)

(Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total

Marketable securities $ — $ 31,691 $ — $ 6,515 $ 38,206

1 unchanged sentence

Cost basis investment — — 6,479 — 6,479

Total assets $ 3,337 $ 31,691 $ 6,479 $ 6,515 $ 48,022

(1) Certain marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology.

At July 25, 2020 and April 25, 2020 , we held marketable securities intended to enhance returns on our cash and to fund future obligations of our non-qualified defined benefit retirement plan, as well as marketable securities to fund future obligations of our executive deferred compensation plan and our performance compensation retirement plan.

At October 24, 2020 and April 25, 2020, we held marketable securities intended to enhance returns on our cash and to fund future obligations of our non-qualified defined benefit retirement plan, as well as marketable securities to fund future obligations of our executive deferred compensation plan and our performance compensation retirement plan.

We also held other fixed income and cost basis investments.

The fair value measurements for our Level 1 and Level 2 securities are based on quoted prices in active markets, as well as through broker quotes and independent valuation providers, multiplied by the number of shares owned exclusive of any transaction costs.

At July 25, 2020 , our Level 3 assets included non-marketable preferred shares and warrants to purchase common shares of two privately held start-up companies.

At October 24, 2020, our Level 3 assets included non-marketable preferred shares and warrants to purchase common shares of two privately held start-up companies.

The fair value for our Level 3 investments is not readily determinable so we estimate the fair value as costs minus impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for identical or similar investments with the same issuer.

During the quarter ended July 25, 2020 , we invested an additional $ 1.1 million in one of these privately held start-up companies.

There were no other changes to the fair value of our Level 3 assets during the quarter ended July 25, 2020 .

During the six months ended October 24, 2020, we invested an additional $ 1.1 million in one of these privately held start-up companies.

There were no other changes to the fair value of our Level 3 assets during the six months ended October 24, 2020.

Our Level 3 liability includes our contingent consideration liability resulting from the Joybird acquisition as we expect consideration will be owed under the terms of the earnout agreement in connection with the acquisition based on our most recent financial projections.

The fair value of contingent consideration is based on future revenues and earnings of the Joybird business in fiscal 2021 and fiscal 2023 and is determined using a variation of the income approach, known as the real options method, whereby revenue and earnings were simulated over the earnout periods in a risk-neutral framework using Geometric Brownian Motion.

For each simulation path, the potential earnout payments were calculated based on management’s probability estimates for achievement of the revenue and earnings milestones and then were discounted to the valuation date using a discount rate of 2.2 % for the fiscal 2021 milestone and 3.2 % for the fiscal 2023 milestone.

There were no other changes to the fair value of our Level 3 liabilities during the six months ended October 24, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements