LA-Z-BOY INC 10-Q

ITEM 1. FINANCIAL STATEMENTS LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF INCOME Quarter Ended Nine Months Ended (Unaudited, amounts in thousands, except per share data) 1/23/21 1/25/20 1/23/21 1/25/20 Sales $ 470,196 $ 475,856 $ 1,214,774 $ 1,336,701 Cost of sales 268,944 276,218 696,604 786,962 Gross profit 201,252 199,638 518,170 549,739 Selling, general and administrative expense 166,838 147,325 431,492 444,403 Operating income 34,414 52,313 86,678 105,336 Interest expense ( 298 ) ( 265 ) ( 1,103 ) ( 891 ) Interest income 285 844 902 2,093 Other income (expense), net 6,532 ( 5,998 ) 7,995 ( 5,390 ) Income before income taxes 40,933 46,894 94,472 101,148 Income tax expense 11,344 12,178 24,900 25,540 Net income 29,589 34,716 69,572 75,608 Net income attributable to noncontrolling interests ( 357 ) ( 204 ) ( 607 ) ( 434 ) Net income attributable to La-Z-Boy Incorporated $ 29,232 $ 34,512 $ 68,965 $ 75,174 Basic weighted average common shares 46,261 46,262 46,064 46,545 Basic net income attributable to La-Z-Boy Incorporated per share $ 0.63 $ 0.75 $ 1.50 $ 1.61 Diluted weighted average common shares 46,818 46,584 46,407 46,867 Diluted net income attributable to La-Z-Boy Incorporated per share $ 0.62 $ 0.74 $ 1.49 $ 1.60 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3 Table of Contents LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/23/21 1/25/20 01/23/21 01/25/20 Net income $ 29,589 $ 34,716 $ 69,572 $ 75,608 Other comprehensive income (loss) Currency translation adjustment 2,286 ( 112 ) 5,751 2,028 Change in fair value of cash flow hedges, net of tax — — — 10 Net unrealized gain (loss) on marketable securities, net of tax ( 14 ) 16 ( 37 ) 170 Net pension amortization, net of tax 65 41 195 123 Total other comprehensive income (loss) 2,337 ( 55 ) 5,909 2,331 Total comprehensive income before allocation to noncontrolling interests 31,926 34,661 75,481 77,939 Comprehensive income attributable to noncontrolling interests ( 719 ) ( 42 ) ( 1,546 ) ( 1,118 ) Comprehensive income attributable to La-Z-Boy Incorporated $ 31,207 $ 34,619 $ 73,935 $ 76,821 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 Table of Contents LA-Z-BOY INCORPORATED CONSOLIDATED BALANCE SHEET (Unaudited, amounts in thousands, except par value) 1/23/21 4/25/20 Current assets Cash and equivalents $ 390,324 $ 261,553 Restricted cash 2,703 1,975 Receivables, net of allowance of $ 5,000 at 1/23/21 and $ 7,541 at 4/25/20 129,256 99,351 Inventories, net 212,114 181,643 Other current assets 153,800 81,804 Total current assets 888,197 626,326 Property, plant and equipment, net 213,088 214,767 Goodwill 175,560 161,017 Other intangible assets, net 30,597 28,653 Deferred income taxes – long-term 15,635 20,839 Right of use lease assets 337,337 318,647 Other long-term assets, net 79,758 64,640 Total assets $ 1,740,172 $ 1,434,889 Current liabilities Accounts payable $ 96,388 $ 55,511 Short-term borrowings — 75,000 Lease liabilities, current 66,416 64,376 Accrued expenses and other current liabilities 388,043 155,282 Total current liabilities 550,847 350,169 Lease liabilities, long-term 289,406 270,162 Other long-term liabilities 111,901 98,252 Shareholders' equity Preferred shares – 5,000 authorized; none issued — — Common shares, $ 1.00 par value – 150,000 authorized; 46,316 outstanding at 1/23/21 and 45,857 outstanding at 4/25/20 46,316 45,857 Capital in excess of par value 333,975 318,215 Retained earnings 401,117 343,633 Accumulated other comprehensive loss ( 1,982 ) ( 6,952 ) Total La-Z-Boy Incorporated shareholders' equity 779,426 700,753 Noncontrolling interests 8,592 15,553 Total equity 788,018 716,306 Total liabilities and equity $ 1,740,172 $ 1,434,889 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 Table of Contents LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended (Unaudited, amounts in thousands) 1/23/21 1/25/20 Cash flows from operating activities Net income $ 69,572 $ 75,608 Adjustments to reconcile net income to cash provided by (used for) operating activities (Gain)/loss on disposal of assets 133 ( 10,051 ) Gain on sale of investments ( 438 ) ( 468 ) Change in deferred taxes 5,189 1,238 Provision for doubtful accounts ( 2,483 ) 210 Depreciation and amortization 24,620 23,035 Equity-based compensation expense 9,115 7,235 Change in receivables ( 28,720 ) ( 11,178 ) Change in inventories ( 26,419 ) ( 62 ) Change in right-of-use lease assets 48,864 48,972 Change in other assets ( 1,193 ) 5,116 Change in payables 42,354 659 Change in lease liabilities ( 48,963 ) ( 48,534 ) Change in other liabilities 158,200 27,979 Net cash provided by operating activities 249,831 119,759 Cash flows from investing activities Proceeds from disposals of assets 252 11,242 Proceeds from insurance — 1,080 Capital expenditures ( 26,722 ) ( 35,464 ) Purchases of investments ( 27,744 ) ( 26,248 ) Proceeds from sales of investments 26,317 24,688 Acquisitions ( 7,783 ) ( 6,412 ) Net cash used for investing activities ( 35,680 ) ( 31,114 ) Cash flows from financing activities Payments on debt and finance lease liabilities ( 75,020 ) ( 135 ) Stock issued for stock and employee benefit plans, net of shares withheld for taxes 6,259 828 Purchases of common stock ( 875 ) ( 35,346 ) Dividends paid to shareholders ( 9,700 ) ( 18,641 ) Dividends paid to minority interest joint venture partners (1) ( 8,507 ) — Net cash used for financing activities ( 87,843 ) ( 53,294 ) Effect of exchange rate changes on cash and equivalents 3,191 1,107 Change in cash, cash equivalents and restricted cash 129,499 36,458 Cash, cash equivalents and restricted cash at beginning of period 263,528 131,787 Cash, cash equivalents and restricted cash at end of period $ 393,027 $ 168,245 Supplemental disclosure of non-cash investing activities Capital expenditures included in payables $ 1,569 $ 4,026 (1) Includes dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 6 Table of Contents LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited, amounts in thousands) Common Shares Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-Controlling Interests Total At April 25, 2020 $ 45,857 $ 318,215 $ 343,633 $ ( 6,952 ) $ 15,553 $ 716,306 Net income (loss) — — 4,798 — ( 119 ) 4,679 Other comprehensive income — — — 1,720 498 2,218 Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 132 ( 195 ) ( 1,686 ) — — ( 1,749 ) Stock option and restricted stock expense — 2,047 — — — 2,047 Dividends declared and paid (1) — — 5 — ( 8,507 ) ( 8,502 ) 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 Net income — — 29,232 — 357 29,589 Other comprehensive income — — — 1,975 362 2,337 Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 225 5,698 ( 28 ) — — 5,895 Purchases of 22 shares of common stock ( 22 ) ( 853 ) — — — ( 875 ) Stock option and restricted stock expense — 2,948 — — — 2,948 Dividends declared and paid ($ 0.14 /share) — — ( 6,484 ) — — ( 6,484 ) Dividends declared not paid ($ 0.14 /share) — — ( 41 ) — — ( 41 ) At January 23, 2021 $ 46,316 $ 333,975 $ 401,117 $ ( 1,982 ) $ 8,592 $ 788,018 (1) No dividends to shareholders were declared or paid during the first quarter of fiscal 2021; amount includes dividends forfeited from restricted stock awards previously granted. 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. 7 Table of Contents (Unaudited, amounts in thousands) Common Shares Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-Controlling Interests Total At April 27, 2019 $ 46,955 $ 313,168 $ 325,847 $ ( 3,462 ) $ 14,468 $ 696,976 Net income (loss) — — 18,069 — ( 81 ) 17,988 Other comprehensive income — — — 281 486 767 Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 126 126 ( 1,669 ) — — ( 1,417 ) Repurchases of 391 shares of common stock ( 391 ) ( 3,762 ) ( 8,160 ) — — ( 12,313 ) Stock option and restricted stock expense — 1,675 — — — 1,675 Cumulative effect adjustment for leases, net of tax (1) — — 574 — — 574 Reclassification of certain income tax effects (2) — — 547 ( 547 ) — — 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 Net income — — 34,512 — 204 34,716 Other comprehensive income (loss) — — — 107 ( 162 ) ( 55 ) Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 14 281 ( 37 ) — — 258 Purchases of 378 shares of common stock ( 378 ) ( 284 ) ( 11,520 ) — — ( 12,182 ) Stock option and restricted stock expense — 2,528 — — — 2,528 Cumulative effect adjustment for investments, net of tax — — — — — — Dividends declared and paid ($ 0.14 /share) — — ( 6,490 ) — — ( 6,490 ) Dividends declared not paid ($ 0.14 /share) — — ( 35 ) — — ( 35 ) At January 25, 2020 $ 46,075 $ 316,764 $ 353,419 $ ( 2,361 ) $ 15,585 $ 729,482 (1) Cumulative effect adjustment of deferred gains on prior sale/leaseback transactions as a result of adopting ASU 2016-02 . (2) Income tax effects of the Tax Cuts and Jobs Act are reclassified from Accumulated Other Comprehensive Income ("AOCI") to retained earnings due to the adoption of ASU 2018-02. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 8 Table of Contents LA-Z-BOY INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries (collectively, the "Company"). We derived the April 25, 2020, balance sheet from our audited financial statements. We prepared the interim financial information in conformity with generally accepted accounting principles, which we applied on a basis consistent with those reflected in our fiscal 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), but the information does not include all of the disclosures required by generally accepted accounting principles. In management’s opinion, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments (except as otherwise disclosed), that are necessary for a fair statement of results for the respective interim periods. 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 January 23, 2021, 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. COVID-19 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 nine 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. Subsequent to the announcement of our business realignment plan in the first quarter of fiscal 2021, consumers have continued to allocate more discretionary spending to home furnishings and as a result, the demand for our products has outpaced our production capacity. In response, we have added manufacturing cells at our Mexico Cut-and-Sew Center, added weekend production shifts to our U.S plants, temporarily re-activated a portion of our Newton, Mississippi upholstery manufacturing facility, and have opened a leased upholstery plant, in San Luis Rio Colorado, Mexico. 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. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act, among other things, includes provisions providing for refundable payroll tax credits, deferment of employer social security payments, lengthening net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In the third quarter of fiscal 2021, the Company determined amounts that it is eligible to claim for employee retention payroll tax credits and recognized $ 5.2 million in non-operating income for wages and healthcare costs paid to employees during suspension of operations due to government orders which qualify under the provisions of the CARES Act. The Company continues to evaluate the impact that the CARES Act may have on its results of operations, financial condition and/or financial statement disclosures. 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. 9 Table of Contents 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 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 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 Note 2: Acquisitions 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 36 months or less, with timing of payments dependent upon the achievement of sales thresholds defined in the purchase agreement. 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. 10 Table of Contents Note 3: Cash and Restricted Cash We have restricted cash on deposit with a bank as collateral for certain letters of credit. All our letters of credit have maturity dates within the next twelve months, but we expect to renew some of these letters of credit when they mature. (Unaudited, amounts in thousands) 1/23/21 1/25/20 Cash and cash equivalents $ 390,324 $ 166,272 Restricted cash 2,703 1,973 Total cash, cash equivalents and restricted cash $ 393,027 $ 168,245 Note 4: Inventories A summary of inventories is as follows: (Unaudited, amounts in thousands) 1/23/21 4/25/20 Raw materials $ 110,743 $ 92,174 Work in process 20,839 14,064 Finished goods 101,977 96,850 FIFO inventories 233,559 203,088 Excess of FIFO over LIFO ( 21,445 ) ( 21,445 ) Total inventories $ 212,114 $ 181,643 Note 5: Goodwill and Other Intangible Assets 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 Retail La-Z-Boy Furniture Galleries ® stores Corporate & Other Joybird Joybird The following is a roll-forward of goodwill for the nine months ended January 23, 2021: (Unaudited, amounts in thousands) Wholesale Segment Retail Segment Corporate and Other Total Goodwill Balance at April 25, 2020 $ 11,630 $ 93,941 $ 55,446 $ 161,017 Acquisitions — 12,936 — 12,936 Translation adjustment 1,245 362 — 1,607 Balance at January 23, 2021 $ 12,875 $ 107,239 $ 55,446 $ 175,560 We have intangible assets on our consolidated balance sheet as follows: 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 Indefinite-lived Corporate & Other Joybird ® trade name Amortizable over eight -year useful life 11 Table of Contents The following is a roll-forward of our other intangible assets for the nine months ended January 23, 2021: (Unaudited, amounts in thousands) Indefinite- Lived Trade Names Finite- Lived Trade Name Indefinite- Lived Reacquired Rights Other Intangible Assets Total Other Intangible Assets Balance at April 25, 2020 $ 1,155 $ 5,003 $ 19,996 $ 2,499 $ 28,653 Acquisitions — — 2,182 — 2,182 Amortization — ( 599 ) — ( 168 ) ( 767 ) Translation adjustment — — 271 258 529 Balance at January 23, 2021 $ 1,155 $ 4,404 $ 22,449 $ 2,589 $ 30,597 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. We test amortizable intangible assets for impairment if events or changes in circumstances indicate that the assets might be impaired. Note 6: Investments We have current and long-term investments intended to enhance returns on our cash as well as to fund future obligations of our non-qualified defined benefit retirement plan, our executive deferred compensation plan, and our performance compensation retirement plan. We also hold other investments consisting of cost-basis preferred shares of two privately held start-up companies. Our short-term investments are included in other current assets and our long-term investments are included in other long-term assets on our consolidated balance sheet. The following summarizes our investments: (Unaudited, amounts in thousands) 1/23/21 4/25/20 Short-term investments: Marketable securities $ 17,586 $ 18,634 Held-to-maturity investments 2,643 3,337 Total short-term investments 20,229 21,971 Long-term investments: Marketable securities 25,243 19,572 Cost basis investments 7,579 6,479 Total long-term investments 32,822 26,051 Total investments $ 53,051 $ 48,022 Investments to enhance returns on cash $ 30,553 $ 28,622 Investments to fund compensation/retirement plans 14,919 12,921 Other investments 7,579 6,479 Total investments $ 53,051 $ 48,022 The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type: 1/23/21 4/25/20 (Unaudited, amounts in thousands) Gross Unrealized Gains Gross Unrealized Losses Fair Value Gross Unrealized Gains Gross Unrealized Losses Fair Value Equity securities $ 2,671 $ — $ 15,492 $ 1,011 $ ( 6,390 ) $ 12,692 Fixed income 182 ( 19 ) 32,932 268 ( 56 ) 30,213 Other 604 — 4,627 372 — 5,117 Total securities $ 3,457 $ ( 19 ) $ 53,051 $ 1,651 $ ( 6,446 ) $ 48,022 12 Table of Contents The following table summarizes sales of marketable securities: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/23/21 1/25/20 1/23/21 1/25/20 Proceeds from sales $ 6,807 $ 11,517 $ 23,824 $ 23,887 Gross realized gains 169 431 479 618 Gross realized losses ( 15 ) ( 62 ) ( 41 ) ( 150 ) The following is a summary of the fair value of fixed income marketable securities, classified as available-for-sale securities, by contractual maturity: (Unaudited, amounts in thousands) 1/23/21 Within one year $ 17,678 Within two to five years 12,472 Within six to ten years 1,114 Thereafter 1,668 Total $ 32,932 Note 7: Accrued Expenses and Other Current Liabilities (Unaudited, amounts in thousands) 1/23/21 4/25/20 Payroll and other compensation $ 48,403 $ 34,980 Accrued product warranty, current portion 14,322 14,264 Customer deposits 162,576 40,721 Deferred revenue 93,914 17,086 Other current liabilities 68,828 48,231 Accrued expenses and other current liabilities $ 388,043 $ 155,282 The increase in customer deposits and deferred revenue was primarily driven by higher Retail segment and Joybird written sales in the first nine 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. Refer to Note 11, Revenue Recognition, for additional details regarding our contract assets and contract liabilities. Note 8: Product Warranties We accrue an estimated liability for product warranties when we recognize revenue on the sale of warranted products. We estimate future warranty claims on new sales based on our historical claims experience and any additional anticipated future costs on previously sold products. We incorporate repair costs into our liability estimates, including materials, labor and overhead amounts necessary to perform repairs and any costs associated with delivering repaired product to our customers. Over 90 % of our warranty liability relates to our Wholesale segment as we generally warrant our products against defects for one year on fabric and leather, from one to ten years on cushions and padding, and provide a limited lifetime warranty on certain mechanisms and frames. Our Wholesale segment warranties cover labor costs relating to our parts for one year . We provide a limited lifetime warranty against defects on a majority of Joybird products, which are a part of our Corporate and Other results. For all of our manufacturer warranties, the warranty period begins when the consumer receives our product. We use considerable judgment in making our estimates, and we record differences between our actual and estimated costs when the differences are known. 13 Table of Contents A reconciliation of the changes in our product warranty liability is as follows: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/23/21 1/25/20 01/23/21 01/25/20 Balance as of the beginning of the period $ 22,938 $ 23,081 $ 23,255 $ 22,736 Accruals during the period 5,791 6,321 14,925 17,746 Settlements during the period ( 5,734 ) ( 6,057 ) ( 15,185 ) ( 17,137 ) Balance as of the end of the period (1) $ 22,995 $ 23,345 $ 22,995 $ 23,345 (1) $ 14.3 million recorded in accrued expenses and other current liabilities at both January 23, 2021 and April 25, 2020, 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. Note 9: Stock-Based Compensation The table below summarizes the total stock-based compensation expense we recognized for all outstanding grants in our consolidated statement of income: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/23/21 1/25/20 01/23/21 01/25/20 Equity-based awards expense $ 2,948 $ 2,528 $ 9,115 $ 7,235 Liability-based awards expense 587 ( 303 ) 1,925 37 Total stock-based compensation expense $ 3,535 $ 2,225 $ 11,040 $ 7,272 Stock Options. We granted 315,584 stock options to employees during the first quarter of fiscal 2021 and we have stock options outstanding from previous grants. We account for stock options as equity-based awards because when they are exercised, they will be settled in common shares. We recognize compensation expense for stock options over the vesting period equal to the fair value on the date our Compensation Committee approved the awards. The vesting period for our stock options ranges from one to four years, with accelerated vesting upon retirement. The vesting date for retirement-eligible employees is the later of the date they meet the criteria for retirement or the end of the fiscal year in which the grant was made. We accelerate the expense for options granted to retirement-eligible employees over the vesting period, with expense recognized from the grant date through their retirement eligibility date or over the ten months following the grant date, whichever period is longer. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. 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 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 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 Restricted Stock . We granted 121,385 shares of restricted stock to employees during the first nine 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 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 nine months of fiscal 2021 was $ 27.63 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. We recognize compensation expense for restricted stock over the vesting period equal to the fair value on the grant date of the award. Restricted stock awards vest at 25 % per year, beginning one year from the grant date over a term of four years. 14 Table of Contents 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. During the first quarter of fiscal 2021, we granted 168,719 performance-based shares. We also have performance-based share awards outstanding from previous grants. 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. 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. We account for performance-based shares as equity-based awards because when they vest, they will be settled in common shares. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. 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. 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 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 . Note 10: Accumulated Other Comprehensive Income (Loss) The activity in accumulated other comprehensive income (loss) for the quarters ended January 23, 2021, and January 25, 2020, 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 October 24, 2020 $ 997 $ — $ 426 $ ( 5,380 ) $ ( 3,957 ) Changes before reclassifications 1,924 — ( 27 ) — 1,897 Amounts reclassified to net income — — 9 86 95 Tax effect — — 4 ( 21 ) ( 17 ) Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 1,924 — ( 14 ) 65 1,975 Balance at January 23, 2021 $ 2,921 $ — $ 412 $ ( 5,315 ) $ ( 1,982 ) Balance at October 26, 2019 $ 1,345 $ — $ 418 $ ( 4,231 ) $ ( 2,468 ) Changes before reclassifications 50 — 41 — 91 Amounts reclassified to net income — — ( 20 ) 55 35 Tax effect — — ( 5 ) ( 14 ) ( 19 ) Other comprehensive income attributable to La-Z-Boy Incorporated 50 — 16 41 107 Balance at January 25, 2020 $ 1,395 $ — $ 434 $ ( 4,190 ) $ ( 2,361 ) 15 Table of Contents The activity in accumulated other comprehensive income (loss) for the nine months ended January 23, 2021, and January 25, 2020, 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 April 25, 2020 $ ( 1,891 ) $ — $ 449 $ ( 5,510 ) $ ( 6,952 ) Changes before reclassifications 4,812 — ( 11 ) — 4,801 Amounts reclassified to net income — — ( 38 ) 259 221 Tax effect — — 12 ( 64 ) ( 52 ) Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 4,812 — ( 37 ) 195 4,970 Balance at January 23, 2021 $ 2,921 $ — $ 412 $ ( 5,315 ) $ ( 1,982 ) Balance at April 27, 2019 $ 50 $ 87 $ 6 $ ( 3,605 ) $ ( 3,462 ) Changes before reclassifications 1,345 — 253 — 1,598 Reclassification of certain income tax effects (1) — ( 97 ) 258 ( 708 ) ( 547 ) Amounts reclassified to net income — 14 ( 28 ) 164 150 Tax effect — ( 4 ) ( 55 ) ( 41 ) ( 100 ) Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 1,345 ( 87 ) 428 ( 585 ) 1,101 Balance at January 25, 2020 $ 1,395 $ — $ 434 $ ( 4,190 ) $ ( 2,361 ) (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. We reclassified the unrealized gain/(loss) on marketable securities from accumulated other comprehensive loss to net income through other income (expense), net, reclassified the change in fair value of cash flow hedges to net income through cost of sales, and reclassified the net pension amortization to net income through other income (expense), net. The components of non-controlling interest were as follows: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/23/21 1/25/20 1/23/21 1/25/20 Balance as of the beginning of the period $ 7,873 $ 15,543 $ 15,553 $ 14,468 Net income 357 204 607 434 Other comprehensive income (loss) 362 ( 162 ) 939 683 Dividends distributed to joint venture minority partners — — ( 8,507 ) — Balance as of the end of the period $ 8,592 $ 15,585 $ 8,592 $ 15,585 Note 11: Revenue Recognition Our revenue is primarily derived from product sales. We report product sales net of discounts and recognize them when control (rights and obligations associated with the product) passes to the customer. For sales to furniture retailers or distributors, control typically transfers when we ship the product. In cases where we sell directly to the end consumer, control of the product is generally transferred upon delivery. For shipping and handling activities, we have elected to apply the accounting policy election permitted in ASC 606-10-25-18B, which allows an entity to account for shipping and handling activities as fulfillment activities (rather than as a promised good or service) when the activities are performed even if those activities are performed after the control of the good has been transferred. We expense shipping and handling costs at the time we recognize revenue in accordance with this election. 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. 16 Table of Contents We have elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to recognize the promised amount of consideration without adjusting for the effects of a significant financing component if the contract has a duration of one year or less. As our contracts typically are less than one year in length and do not have significant financing components, we have not adjusted consideration. The following table presents our revenue disaggregated by product category and by segment or unit: Quarter Ended January 23, 2021 Quarter Ended January 25, 2020 (Unaudited, amounts in thousands) Wholesale Retail Corporate and Other Total Wholesale Retail Corporate and Other Total Motion Upholstery Furniture $ 205,522 $ 102,111 $ 174 $ 307,807 $ 212,079 $ 100,662 $ 104 $ 312,845 Stationary Upholstery Furniture 89,059 30,469 35,728 155,256 100,560 33,348 28,990 162,898 Bedroom Furniture 10,269 1,723 2,622 14,614 7,772 1,517 1,842 11,131 Dining Room Furniture 7,034 3,340 672 11,046 5,981 3,040 596 9,617 Occasional Furniture 11,585 6,118 623 18,326 12,002 6,148 516 18,666 Other (1) 27,239 22,198 ( 6,128 ) 43,309 26,417 22,779 ( 6,379 ) 42,817 Total $ 350,708 $ 165,959 $ 33,691 $ 550,358 $ 364,811 $ 167,494 $ 25,669 $ 557,974 Eliminations ( 80,162 ) ( 82,118 ) Consolidated Net Sales $ 470,196 $ 475,856 Nine Months Ended January 23, 2021 Nine Months Ended January 25, 2020 (Unaudited, amounts in thousands) Wholesale Retail Corporate and Other Total Wholesale Retail Corporate and Other Total Motion Upholstery Furniture $ 538,234 $ 255,020 $ 397 $ 793,651 $ 588,820 $ 270,301 $ 264 $ 859,385 Stationary Upholstery Furniture 240,052 79,104 88,225 407,381 294,572 96,306 79,213 470,091 Bedroom Furniture 25,818 4,141 6,149 36,108 24,711 4,513 4,800 34,024 Dining Room Furniture 18,455 7,957 2,173 28,585 17,656 8,036 1,436 27,128 Occasional Furniture 32,236 14,879 2,158 49,273 35,071 16,728 1,374 53,173 Other (1) 62,502 58,270 ( 14,953 ) 105,819 74,777 63,010 ( 16,555 ) 121,232 Total $ 917,297 $ 419,371 $ 84,149 $ 1,420,817 $ 1,035,607 $ 458,894 $ 70,532 $ 1,565,033 Eliminations ( 206,043 ) ( 228,332 ) Consolidated Net Sales $ 1,214,774 $ 1,336,701 (1) Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, tariff surcharges, discounts and allowances, rebates and other sales incentives. Motion Upholstery Furniture - Includes gross revenue for upholstered furniture, such as recliners, sofas, loveseats, chairs, sectionals and modulars that have a mechanism that allows the back of the product to recline or the product's footrest to extend. This gross revenue includes sales to La-Z-Boy Furniture Galleries ® stores (including company-owned stores), operators of La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, other major dealers, independent retailers, and the end consumer. Stationary Upholstery Furniture - Includes gross revenue for upholstered furniture, such as sofas, loveseats, chairs, sectionals, modulars, and ottomans that do not have a mechanism. This gross revenue includes sales to La-Z-Boy Furniture Galleries ® stores (including company-owned stores), operators of La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, other major dealers, independent retailers, and the end consumer. Bedroom Furniture - Includes gross revenue for casegoods furniture typically found in a bedroom, such as beds, chests, dressers, nightstands and benches. This gross revenue includes sales to La-Z-Boy Furniture Galleries ® stores (including company-owned stores), independent retailers, and the end consumer. 17 Table of Contents Dining Room Furniture - Includes gross revenue for casegoods furniture typically found in a dining room, such as dining tables, dining chairs, storage units and stools. This gross revenue includes sales to La-Z-Boy Furniture Galleries ® stores (including company-owned stores), independent retailers, and the end consumer. Occasional Furniture - Includes gross revenue for casegoods furniture found throughout the home, such as cocktail tables, chairsides, sofa tables, end tables, and entertainment centers. This gross revenue includes sales to La-Z-Boy Furniture Galleries ® stores (including company-owned stores), independent retailers, and the end consumer. At January 23, 2021 and at April 25, 2020, our consolidated balance sheet included $ 93.9 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 January 23, 2021, we included $ 162.6 million of customer deposits and $ 93.9 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 and nine months ended January 23, 2021, we recognized revenue of $ 3.4 million and $ 54.9 million, respectively, related to our contract liability balance at April 25, 2020. The increase in our contract assets and contract liabilities at January 23, 2021 was primarily the result of increased written sales during the first nine months of fiscal 2021 compared with those in the fourth quarter of fiscal 2020. Note 12: Segment Information Our reportable operating segments include the Wholesale segment and the Retail segment. Effective in the first quarter of fiscal 2021, in order to better align with the manner in which we view and manage the business, coupled with economic and customer channel similarities, we revised our reportable operating segments by aggregating the former Upholstery segment with the former Casegoods segment to form the newly combined Wholesale segment. The change in our reportable operating segments reflects how the Company evaluates financial information used to make operating decisions. There were no changes to our Retail operating segment or Corporate & Other as part of this revision. Prior period results disclosed in the tables below have been revised to reflect these changes. Wholesale Segment . Our Wholesale segment consists primarily of three operating segments: La-Z-Boy, our largest operating segment, our England subsidiary, and our casegoods operating segment that sells furniture under three brands: American Drew ® , Hammary ® and Kincaid ® . The Wholesale segment also includes our international wholesale businesses. We aggregate these operating segments into one reportable segment because they are economically similar and because they meet the other aggregation criteria for determining reportable segments. Our Wholesale segment manufactures and imports upholstered furniture such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas and imports casegoods (wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional pieces. The Wholesale segment sells directly to La-Z-Boy Furniture Galleries ® stores, operators of La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers. Retail Segment . Our Retail segment consists of one operating segment comprised of our 158 company-owned La-Z-Boy Furniture Galleries ® stores. The Retail segment sells primarily upholstered furniture, in addition to some casegoods and other accessories, to end consumers through these stores. Corporate & Other . Corporate & Other includes the shared costs for corporate functions, including human resources, information technology, finance and legal, in addition to revenue generated through royalty agreements with companies licensed to use the La-Z-Boy ® brand name on various products. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segments including our global trading company in Hong Kong and Joybird, an e-commerce retailer that manufactures upholstered furniture such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports casegoods (wood) furniture such as occasional tables and other accessories. Joybird sells to the end consumer primarily online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments. 18 Table of Contents The following table presents sales and operating income (loss) by segment: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/23/21 1/25/20 1/23/21 1/25/20 Sales Wholesale segment: Sales to external customers $ 274,314 $ 285,418 $ 720,258 $ 815,412 Intersegment sales 76,394 79,393 197,039 220,195 Wholesale segment sales 350,708 364,811 917,297 1,035,607 Retail segment sales 165,959 167,494 419,371 458,894 Corporate and Other: Sales to external customers 29,923 22,944 75,145 62,395 Intersegment sales 3,768 2,725 9,004 8,137 Corporate and Other sales 33,691 25,669 84,149 70,532 Eliminations ( 80,162 ) ( 82,118 ) ( 206,043 ) ( 228,332 ) Consolidated sales $ 470,196 $ 475,856 $ 1,214,774 $ 1,336,701 Operating Income (Loss) Wholesale segment $ 35,686 $ 49,046 $ 95,309 $ 112,195 Retail segment 14,707 16,383 23,173 33,272 Corporate and Other ( 15,979 ) ( 13,116 ) ( 31,804 ) ( 40,131 ) Consolidated operating income 34,414 52,313 86,678 105,336 Interest expense ( 298 ) ( 265 ) ( 1,103 ) ( 891 ) Interest income 285 844 902 2,093 Other income (expense), net 6,532 ( 5,998 ) 7,995 ( 5,390 ) Income before income taxes $ 40,933 $ 46,894 $ 94,472 $ 101,148 Note 13: Income Taxes Our effective tax rate was 27.7 % and 26.4 % for the third quarter and nine months ended January 23, 2021, respectively, compared with 26.0 % and 25.3 % for the third quarter and nine months ended January 25, 2020, respectively. Our effective tax rate varies from the 21 % federal statutory rate primarily due to state taxes. Note 14: Earnings per Share Certain share-based compensation awards that entitle their holders to receive non-forfeitable dividends prior to vesting are considered participating securities. Prior to fiscal 2019, we granted restricted stock awards that contained non-forfeitable rights to dividends on unvested shares, and we are required to include these participating securities in calculating our basic earnings per common share, using the two-class method. 19 Table of Contents The following is a reconciliation of the numerators and denominators we used in our computations of basic and diluted earnings per share: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands, except per share data) 1/23/21 1/25/20 1/23/21 1/25/20 Numerator (basic and diluted): Net income attributable to La-Z-Boy Incorporated $ 29,232 $ 34,512 $ 68,965 $ 75,174 Income allocated to participating securities ( 9 ) ( 45 ) ( 33 ) ( 121 ) Net income available to common Shareholders $ 29,223 $ 34,467 $ 68,932 $ 75,053 Denominator: Basic weighted average common shares outstanding 46,261 46,262 46,064 46,545 Add: Contingent common shares 224 148 195 147 Stock option dilution 333 174 148 175 Diluted weighted average common shares outstanding 46,818 46,584 46,407 46,867 Earnings per Share: Basic $ 0.63 $ 0.75 $ 1.50 $ 1.61 Diluted $ 0.62 $ 0.74 $ 1.49 $ 1.60 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 0.3 million shares for the nine months ended January 23, 2021, with a weighted average exercise price of $ 33.15 . 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 0.3 million shares from the diluted share calculation for the nine months ended January 25, 2020. Note 15: Fair Value Measurements Accounting standards require that we put financial assets and liabilities into one of three categories based on the inputs we use to value them: • Level 1 — Financial assets and liabilities, the values of which are based on unadjusted quoted market prices for identical assets and liabilities in an active market that we have the ability to access. • Level 2 — Financial assets and liabilities, the values of which are based on quoted prices in markets that are not active or on model inputs that are observable for substantially the full term of the asset or liability. • Level 3 — Financial assets and liabilities, the values of which are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Accounting standards require that in making fair value measurements, we use observable market data when available. When inputs used to measure fair value fall within different levels of the hierarchy, we categorize the fair value measurement as being in the lowest level that is significant to the measurement. We recognize transfers between levels of the fair value hierarchy at the end of the reporting period in which they occur. In addition to assets and liabilities that we record at fair value on a recurring basis, we are required to record assets and liabilities at fair value on a non-recurring basis. 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. 20 Table of Contents The following table presents the fair value hierarchy for those assets we measured at fair value on a recurring basis at January 23, 2021 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 January 23, 2021 Fair Value Measurements (Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total Assets Marketable securities $ — $ 34,766 $ — $ 8,063 $ 42,829 Held-to-maturity investments 2,643 — — — 2,643 Cost basis investments — — 7,579 — 7,579 Total assets $ 2,643 $ 34,766 $ 7,579 $ 8,063 $ 53,051 Liabilities Contingent consideration liability $ — $ — $ 12,500 $ — $ 12,500 At April 25, 2020 Fair Value Measurements (Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total Assets Marketable securities $ — $ 31,691 $ — $ 6,515 $ 38,206 Held-to-maturity investments 3,337 — — — 3,337 Cost basis investment — — 6,479 — 6,479 Total assets $ 3,337 $ 31,691 $ 6,479 $ 6,515 $ 48,022 Liabilities Contingent consideration liability $ — $ — $ — $ — $ — (1) Certain marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology. At January 23, 2021 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 January 23, 2021, 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 nine months ended January 23, 2021, 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 nine months ended January 23, 2021. Our Level 3 liability includes our contingent consideration liability resulting from the Joybird acquisition. During the nine months ended January 23, 2021 we recognized an increase in the fair value of our liability of $ 12.5 million, with a $ 10.0 million increase during the third quarter and a $ 2.5 million increase during the second quarter, as we expect consideration will be owed under the terms of the earnout agreement based on significant improvements to 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 1.3 % for the fiscal 2021 milestone and 1.9 % for the fiscal 2023 milestone. There were no other changes to the fair value of our Level 3 liabilities during the nine months ended January 23, 2021. 21 Table of Contents