What changed in this filing

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Item 1. Financial Statements

2021-11-16 compared with 2021-08-17 · 142 added, 48 removed, 482 unchanged (28% 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) 10/23/2021 10/24/2020 10/23/2021 10/24/2020

10 unchanged sentences

Net income 40,358 35,304 65,624 39,983

Net (income) loss attributable to noncontrolling interests ( 700 ) 119

Net income attributable to noncontrolling interests ( 842 ) ( 369 ) ( 1,542 ) ( 250 )

Net income attributable to La-Z-Boy Incorporated $ 39,516 $ 34,935 $ 64,082 $ 39,733

6 unchanged sentences

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020

2 unchanged sentences

Currency translation adjustment ( 9 ) 1,354 ( 1,251 ) 3,465

Net unrealized gain on marketable securities, net of tax 448 42

Net unrealized gain (loss) on marketable securities, net of tax ( 498 ) ( 65 ) ( 50 ) ( 23 )

Net pension amortization, net of tax 57 65 119 130

44 unchanged sentences

CONSOLIDATED STATEMENT OF CASH FLOWS

Quarter Ended

Six Months Ended

(Unaudited, amounts in thousands) 10/23/2021 10/24/2020

2 unchanged sentences

Adjustments to reconcile net income to cash provided by operating activities

Loss on disposal of assets 44 14

(Gain)/loss on disposal of assets ( 3,151 ) 140

Gain on sale of investments ( 218 ) ( 284 )

16 unchanged sentences

Proceeds from sales of investments 22,666 19,470

Net cash provided by (used for) investing activities ( 19,519 ) 1,248

Acquisitions ( 4,396 ) ( 2,000 )

Net cash used for investing activities ( 32,472 ) ( 15,600 )

Cash flows from financing activities

5 unchanged sentences

Dividends paid to minority interest joint venture partners (1)

( 1,260 ) ( 8,507 )

Net cash used for financing activities ( 80,728 ) ( 92,155 )

28 unchanged sentences

At July 24, 2021 $ 44,623 $ 332,869 $ 379,862 $ ( 1,823 ) $ 8,918 $ 764,449

Net income — — 39,516 — 842 40,358

Other comprehensive loss — — — ( 330 ) ( 120 ) ( 450 )

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 11 353 ( 6 ) — — 358

Repurchases of 434 shares of common stock

( 434 ) ( 196 ) ( 14,370 ) — — ( 15,000 )

Stock option and restricted stock expense — 3,894 — — — 3,894

Dividends declared and paid ($ 0.15 /share) (1)

— — ( 6,621 ) — ( 1,260 ) ( 7,881 )

Dividends declared not paid ($ 0.15 /share)

— — ( 46 ) — — ( 46 )

At October 23, 2021 $ 44,200 $ 336,920 $ 398,335 $ ( 2,153 ) $ 8,380 $ 785,682

(1) 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) Common

12 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;

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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 30, 2022.

At July 24, 2021, we owned preferred shares and warrants to purchase common shares of two privately-held companies, both of which are variable interest entities.

At October 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.

8 unchanged sentences

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

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.

ASU Description Adoption Date

ASU 2021-08 Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities From Contracts With Customers Fiscal 2024

On August 16, 2021, we completed our asset acquisition of the Long Island, New York business that operates three independently owned La-Z-Boy Furniture Galleries ® stores for $ 4.5 million, subject to customary adjustments.

In the second quarter of fiscal 2022, we paid $ 4.4 million of cash for the purchase of the Long Island, New York stores and assets.

This acquisition is a core part of one of our strategic priorities, which is 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) where the model makes sense geographically, alongside of the La-Z-Boy Furniture Galleries ® network.

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 Long Island, New York 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 $ 0.8 million related to these reacquired rights.

We also recognized $ 4.4 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

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 Long Island, New York 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 gain additional data.

Prior Year Acquisitions

On September 14, 2020, we completed our asset acquisition of the Seattle, Washington business that operates 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 fewer, with timing of payments dependent upon the achievement of sales thresholds defined in the purchase agreement.

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.

Post-Quarter End Acquisition

On October 25, 2021 we completed the acquisition of Furnico Furniture Ltd ("Furnico"), an upholstery manufacturing business in the U.K for approximately $ 11.5 million.

Furnico also operates a wholesale business, selling white label products to key U.K.

With this acquisition, we expect to realize production synergies, cost savings through materials procurement, and increases in production capacity for the La-Z-Boy product.

Comparability

During fiscal 2021, we determined that holdback payments for acquisition purchases of $ 5.8 million included in net cash used by investing activities should have been included in net cash used by financing activities for the first six months of fiscal 2021.

Although the amount impacting payments for acquisitions was not material to the fiscal 2021 consolidated financial statements, the classification of these amounts has been corrected by revising the consolidated statements of cash flows for the six months ended October 24, 2020.

Cash and Restricted Cash

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Balance at April 24, 2021 $ 13,052 $ 107,316 $ 55,446 $ 175,814

Acquisitions — 4,374 — 4,374

Translation adjustment ( 114 ) 34 — ( 80 )

Balance at July 24, 2021 $ 12,936 $ 107,289 $ 55,446 $ 175,671

Balance at October 23, 2021 $ 12,938 $ 111,724 $ 55,446 $ 180,108

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

12 unchanged sentences

Balance at April 24, 2021 $ 1,155 $ 4,205 $ 22,507 $ 2,564 $ 30,431

Acquisitions — — 822 — 822

Amortization — ( 399 ) — ( 120 ) ( 519 )

Translation adjustment — — 25 ( 21 ) 4

Balance at July 24, 2021 $ 1,155 $ 4,005 $ 22,487 $ 2,482 $ 30,129

Balance at October 23, 2021 $ 1,155 $ 3,806 $ 23,354 $ 2,423 $ 30,738

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.

28 unchanged sentences

The following table summarizes sales of marketable securities:

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020

27 unchanged sentences

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

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/23/2021

10/24/2020 10/23/2021 (1) 10/24/2020

Balance as of the beginning of the period $ 24,433 $ 23,123 $ 23,636 $ 23,255

2 unchanged sentences

Balance as of the end of the period $ 25,068 $ 22,938 $ 25,068 $ 22,938

(1) $ 14.8 million and $ 14.4 million is recorded in accrued expenses and other current liabilities as of July 24, 2021 and April 24, 2021, respectively, while the remainder is included in other long-term liabilities.

(1) $ 15.1 million and $ 14.4 million is recorded in accrued expenses and other current liabilities as of October 23, 2021 and April 24, 2021, respectively, while the remainder is 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.

On October 15, 2021, we entered into a new five-year $ 200.0 million unsecured revolving credit facility (the “Credit Facility”).

Borrowings under the Credit Facility may be used by the Company for general corporate purposes and working capital.

We may increase the size of the facility, either in the form of additional revolving commitments or new term loans, subject to the discretion of each lender to participate in such increase, up to an additional amount of $ 100.0 million.

The Credit Facility will

mature on October 15, 2026 and provides us the ability to extend the maturity date for two additional one-year periods, subject to customary conditions.

As of October 23, 2021, we have no borrowings outstanding under the Credit Facility.

The Credit Facility contains certain restrictive loan covenants, including, among others, financial covenants requiring a maximum consolidated net lease adjusted leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as customary covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets.

As of October 23, 2021, we were in compliance with our financial covenants under the Credit Facility.

The Credit Facility replaces our previous $ 150.0 million revolving credit facility, which had been secured primarily by all of our accounts receivable, inventory, cash deposits, and securities accounts.

The previous revolving credit facility was terminated on October 15, 2021, and is no longer in effect.

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

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020

1 unchanged sentence

Liability-based awards expense (1)

61 754 ( 623 ) 1,338

Total stock-based compensation expense $ 3,955 $ 4,874 $ 5,731 $ 7,505

5 unchanged sentences

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 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.

9 unchanged sentences

Stock price volatility 42.16 % Historical volatility of our common shares

Fair value per share $ 12.29

Fair value per option $ 12.29

Restricted Stock .

We granted 112,713 shares of restricted stock to employees during the first quarter of fiscal 2022.

We granted 114,963 shares of restricted stock to employees during the first six months of fiscal 2022.

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

1 unchanged sentence

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 that was awarded in the first quarter of fiscal 2022 was $ 38.52 per share, the market value of our common shares on the date of grant.

The weighted-average fair value of the restricted stock that was awarded in the first six months of fiscal 2022 was $ 38.43 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 2022, we granted 29,910 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 $ 35.11 .

Performance Shares.

13 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the quarters ended July 24, 2021, and July 25, 2020, is as follows:

The activity in accumulated other comprehensive income (loss) for the quarters ended October 23, 2021, and October 24, 2020, is as follows:

(Unaudited, amounts in thousands) Translation adjustment Unrealized gain (loss) on marketable securities Net pension amortization and net actuarial loss Accumulated other comprehensive income (loss)

Balance at April 24, 2021 $ 3,041 $ 370 $ ( 4,932 ) $ ( 1,521 )

Balance at July 24, 2021 $ 2,229 $ 818 $ ( 4,870 ) $ ( 1,823 )

Changes before reclassifications 111 ( 660 ) — ( 549 )

2 unchanged sentences

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 111 ( 498 ) 57 ( 330 )

Balance at October 23, 2021 $ 2,340 $ 320 $ ( 4,813 ) $ ( 2,153 )

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 (loss) attributable to La-Z-Boy Incorporated 1,275 ( 65 ) 65 1,275

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

The activity in accumulated other comprehensive income (loss) for the six months ended October 23, 2021 and October 24, 2020, is as follows:

(Unaudited, amounts in thousands) Translation adjustment Unrealized gain (loss) on marketable securities Net pension amortization and net actuarial loss Accumulated other comprehensive income (loss)

Balance at April 24, 2021 $ 3,041 $ 370 $ ( 4,932 ) $ ( 1,521 )

2 unchanged sentences

Tax effect — 17 ( 31 ) ( 14 )

Other comprehensive income attributable to La-Z-Boy Incorporated 1,613 42 65 1,720

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

We reclassified the unrealized gain (loss) on marketable securities from accumulated other comprehensive loss to net income through other income (expense), net, and reclassified the net pension amortization to net income through other income (expense), net.

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 701 ) ( 50 ) 119 ( 632 )

Balance at October 23, 2021 $ 2,340 $ 320 $ ( 4,813 ) $ ( 2,153 )

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 (loss) attributable to La-Z-Boy Incorporated 2,888 ( 23 ) 130 2,995

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

We reclassified both the unrealized gain (loss) on marketable securities and the net pension amortization from accumulated other comprehensive loss to net income through other income (expense), net.

The components of non-controlling interest were as follows:

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020

Balance as of the beginning of the period $ 8,918 $ 7,425 $ 8,648 $ 15,553

Net income (loss) 700 ( 119 )

Net income 842 369 1,542 250

Other comprehensive income (loss) ( 120 ) 79 ( 550 ) 577

13 unchanged sentences

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

Quarter Ended July 24, 2021

Quarter Ended October 23, 2021 Quarter Ended October 24, 2020

(Unaudited, amounts in thousands) Wholesale Retail Corporate

and Other Total Wholesale Retail Corporate

and Other Total

4 unchanged sentences

Occasional Furniture 11,751 6,965 818 19,534 12,541 5,351 806 18,698

Delivery 44,321 6,825 1,765 52,911 31,039 6,135 1,396 38,570

Other (1) 29,850 19,290 ( 12,647 ) 36,493 ( 9,002 ) 16,225 ( 8,211 ) ( 988 )

2 unchanged sentences

Consolidated Net Sales $ 575,889 $ 459,120

Quarter Ended July 25, 2020

Six Months Ended October 23, 2021 Six Months Ended October 24, 2020

(Unaudited, amounts in thousands) Wholesale Retail Corporate

and Other Total Wholesale Retail Corporate

and Other Total

4 unchanged sentences

Occasional Furniture 24,350 12,987 1,813 39,150 20,651 8,761 1,535 30,947

Delivery 83,150 13,665 3,532 100,347 50,575 9,035 2,104 61,714

Other (1) 34,989 38,172 ( 23,624 ) 49,537 ( 15,312 ) 27,037 ( 10,929 ) 796

2 unchanged sentences

Consolidated Net Sales $ 1,100,672 $ 744,578

(1) Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, surcharges, discounts and allowances, rebates and other sales incentives.

(1) Primarily includes revenue for advertising, royalties, parts, accessories, after-treatment products, 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.

8 unchanged sentences

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

Contract Assets and Liabilities.

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 a contract asset and a corresponding deferred revenue liability.

In our consolidated balance sheet, customer deposits and deferred revenue (collectively, the "contract liabilities") are reported in accrued expenses and other current liabilities while contract assets are reported as other current assets.

The following presents our contract assets and liabilities:

The following table presents our contract assets and liabilities:

(Unaudited, amounts in thousands) 10/23/2021 4/24/2021

4 unchanged sentences

$ 329,557 $ 289,226

(1) During the quarter ended July 24, 2021, we recognized revenue of $ 165.5 million, related to our contract liability balance at April 24, 2021.

(1) During the six months ended October 23, 2021, we recognized revenue of $ 244.0 million related to our contract liability balance at April 24, 2021.

Segment Information

17 unchanged sentences

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

Quarter Ended

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020

19 unchanged sentences

Income before income taxes $ 55,008 $ 47,705 $ 89,092 $ 53,539

Our effective tax rate was 25.9 % for the quarter ended July 24, 2021, compared with 19.8 % for the quarter ended July 25, 2020.

Our effective tax rate was 26.6 % and 26.3 % for the second quarter and six months ended October 23, 2021, respectively, compared with 26.0 % and 25.3 % for the second quarter and six months ended October 24, 2020, respectively.

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

The increase in our effective tax rate in fiscal 2022 compared with fiscal 2021 is primarily due to additional tax benefits from stock compensation in fiscal 2021.

Absent discrete adjustments, our effective tax rate would have been 25.3 % and 26.1 % in the first quarter of fiscal 2022 and the first quarter of fiscal 2021, respectively.

Earnings per Share

4 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

Quarter Ended Six Months Ended

(Unaudited, amounts in thousands, except per share data) 10/23/2021 10/24/2020 10/23/2021 10/24/2020

12 unchanged sentences

We exclude the effect of options from our diluted share calculation when the weighted average exercise price of the options is higher than the average market price, since including the options' effect would be anti-dilutive.

For the quarter ended July 24, 2021, all outstanding options were included in the diluted share calculation.

For the quarter ended July 25, 2020, we excluded options to purchase 1.5 million shares from the diluted share calculation.

For the second quarter and six months ended October 23, 2021, we excluded options to purchase 0.3 million shares from the diluted share calculation.

For the second quarter and six months ended October 24, 2020, we excluded 0.3 million and 0.6 million shares, respectively, from the diluted share calculation.

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 and liabilities we measured at fair value on a recurring basis at July 24, 2021 and April 24, 2021.

The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at October 23, 2021 and April 24, 2021.

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

At July 24, 2021

At October 23, 2021

Fair Value Measurements

14 unchanged sentences

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

At July 24, 2021 and April 24, 2021, 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 23, 2021 and April 24, 2021, 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 24, 2021, our Level 3 assets included non-marketable preferred shares and warrants to purchase common shares of two privately held start-up companies.

At October 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.

There were no changes to the fair value of our Level 3 assets during the quarter ended July 24, 2021.

There were no changes to the fair value of our Level 3 assets during the six months ended October 23, 2021.

Our Level 3 liability includes our contingent consideration liability resulting from the Joybird acquisition.

The contingent consideration fair value is based on revenue and earnings of the Joybird business in fiscal 2021, and future revenue and earnings of the Joybird business in fiscal 2023.

The fair value 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 1.0 % for the fiscal 2021 milestone and 1.6 % for the fiscal 2023 milestone.

There were no changes to the fair value of our Level 3 liabilities during the quarter ended July 24, 2021.

Based on the achievement of fiscal 2021 performance metrics, we expect to pay $ 10.0 million of the contingent consideration during the second quarter of fiscal 2022.

Based on the achievement of fiscal 2021 performance metrics, we paid $ 10.0 million of contingent consideration during the

second quarter of fiscal 2022.

The fair value of our contingent consideration liability as of October 23, 2021, reflects our expectation that consideration will be owed under the terms of the earn out agreement based on fiscal 2023 projections of Joybird revenue and earnings.

The fair value is determined using a variation of the income approach, known as the real options method, whereby revenue and earnings are simulated over the earnout periods in a risk-neutral framework using Geometric Brownian Motion.

During the second quarter of fiscal 2022, we recognized an increase in the fair value of our contingent consideration liability of $ 0.5 million based on an updated valuation reflecting our most recent financial projections.

There were no other changes to the fair value of our Level 3 liabilities during the six months ended October 23, 2021.

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