LA-Z-BOY INC 10-Q

ITEM 1. FINANCIAL STATEMENTS LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF INCOME 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 Sales $ 575,889 $ 459,120 $ 1,100,672 $ 744,578 Cost of sales 352,594 258,565 675,295 427,660 Gross profit 223,295 200,555 425,377 316,918 Selling, general and administrative expense 169,182 152,616 336,893 264,654 Operating income 54,113 47,939 88,484 52,264 Interest expense ( 242 ) ( 346 ) ( 553 ) ( 805 ) Interest income 106 123 223 617 Other income (expense), net 1,031 ( 11 ) 938 1,463 Income before income taxes 55,008 47,705 89,092 53,539 Income tax expense 14,650 12,401 23,468 13,556 Net income 40,358 35,304 65,624 39,983 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 Basic weighted average common shares 44,251 46,023 44,662 45,966 Basic net income attributable to La-Z-Boy Incorporated per share $ 0.89 $ 0.76 $ 1.43 $ 0.86 Diluted weighted average common shares 44,423 46,323 44,915 46,167 Diluted net income attributable to La-Z-Boy Incorporated per share $ 0.89 $ 0.75 $ 1.43 $ 0.86 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 Six Months Ended (Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020 Net income $ 40,358 $ 35,304 $ 65,624 $ 39,983 Other comprehensive income (loss) Currency translation adjustment ( 9 ) 1,354 ( 1,251 ) 3,465 Net unrealized gain (loss) on marketable securities, net of tax ( 498 ) ( 65 ) ( 50 ) ( 23 ) Net pension amortization, net of tax 57 65 119 130 Total other comprehensive income (loss) ( 450 ) 1,354 ( 1,182 ) 3,572 Total comprehensive income before allocation to noncontrolling interests 39,908 36,658 64,442 43,555 Comprehensive income attributable to noncontrolling interests ( 722 ) ( 448 ) ( 992 ) ( 827 ) Comprehensive income attributable to La-Z-Boy Incorporated $ 39,186 $ 36,210 $ 63,450 $ 42,728 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) 10/23/2021 4/24/2021 Current assets Cash and equivalents $ 293,341 $ 391,213 Restricted cash 3,266 3,490 Receivables, net of allowance of $ 3,016 at 10/23/2021 and $ 4,011 at 4/24/2021 173,998 139,341 Inventories, net 285,770 226,137 Other current assets 208,793 165,979 Total current assets 965,168 926,160 Property, plant and equipment, net 237,518 219,194 Goodwill 180,108 175,814 Other intangible assets, net 30,738 30,431 Deferred income taxes – long-term 11,727 11,915 Right of use lease assets 341,363 343,800 Other long-term assets, net 85,472 79,008 Total assets $ 1,852,094 $ 1,786,322 Current liabilities Accounts payable $ 119,971 $ 94,152 Lease liabilities, current 67,859 67,614 Accrued expenses and other current liabilities 492,710 449,904 Total current liabilities 680,540 611,670 Lease liabilities, long-term 294,252 295,023 Other long-term liabilities 91,620 97,483 Shareholders' equity Preferred shares – 5,000 authorized; none issued — — Common shares, $ 1.00 par value – 150,000 authorized; 44,200 outstanding at 10/23/21 and 45,361 outstanding at 4/24/21 44,200 45,361 Capital in excess of par value 336,920 330,648 Retained earnings 398,335 399,010 Accumulated other comprehensive loss ( 2,153 ) ( 1,521 ) Total La-Z-Boy Incorporated shareholders' equity 777,302 773,498 Noncontrolling interests 8,380 8,648 Total equity 785,682 782,146 Total liabilities and equity $ 1,852,094 $ 1,786,322 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 Six Months Ended (Unaudited, amounts in thousands) 10/23/2021 10/24/2020 Cash flows from operating activities Net income $ 65,624 $ 39,983 Adjustments to reconcile net income to cash provided by operating activities (Gain)/loss on disposal of assets ( 3,151 ) 140 Gain on sale of investments ( 218 ) ( 284 ) Provision for doubtful accounts ( 944 ) ( 1,568 ) Depreciation and amortization 17,785 16,351 Amortization of right-of-use lease assets 34,368 35,137 Equity-based compensation expense 6,354 6,167 Change in deferred taxes 170 1,849 Change in receivables ( 33,937 ) ( 28,949 ) Change in inventories ( 59,336 ) ( 3,511 ) Change in other assets ( 20,666 ) ( 1,926 ) Change in payables 22,683 33,236 Change in lease liabilities ( 34,598 ) ( 32,422 ) Change in other liabilities 21,300 131,507 Net cash provided by operating activities 15,434 195,710 Cash flows from investing activities Proceeds from disposals of assets 3,998 21 Capital expenditures ( 33,314 ) ( 15,442 ) Purchases of investments ( 21,426 ) ( 17,649 ) Proceeds from sales of investments 22,666 19,470 Acquisitions ( 4,396 ) ( 2,000 ) Net cash used for investing activities ( 32,472 ) ( 15,600 ) Cash flows from financing activities Payments on debt and finance lease liabilities ( 60 ) ( 75,013 ) Holdback payments for acquisition purchases ( 13,500 ) ( 5,783 ) Stock issued for stock and employee benefit plans, net of shares withheld for taxes ( 1,870 ) 364 Repurchases of common stock ( 50,640 ) — Dividends paid to shareholders ( 13,398 ) ( 3,216 ) Dividends paid to minority interest joint venture partners (1) ( 1,260 ) ( 8,507 ) Net cash used for financing activities ( 80,728 ) ( 92,155 ) Effect of exchange rate changes on cash and equivalents ( 330 ) 1,944 Change in cash, cash equivalents and restricted cash ( 98,096 ) 89,899 Cash, cash equivalents and restricted cash at beginning of period 394,703 263,528 Cash, cash equivalents and restricted cash at end of period $ 296,607 $ 353,427 Supplemental disclosure of non-cash investing activities Capital expenditures included in payables $ 7,900 $ 3,769 (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 Loss Non-Controlling Interests Total At April 24, 2021 $ 45,361 $ 330,648 $ 399,010 $ ( 1,521 ) $ 8,648 $ 782,146 Net income — — 24,566 — 700 25,266 Other comprehensive loss — — — ( 302 ) ( 430 ) ( 732 ) Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 181 291 ( 2,700 ) — — ( 2,228 ) Repurchases of 919 shares of common stock ( 919 ) ( 530 ) ( 34,191 ) — — ( 35,640 ) Stock option and restricted stock expense — 2,460 — — — 2,460 Dividends declared and paid ($ 0.15 /share) — — ( 6,777 ) — — ( 6,777 ) Dividends declared not paid ($ 0.15 /share) — — ( 46 ) — — ( 46 ) 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 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 (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. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 7 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 24, 2021 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 2021 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 30, 2022. 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. Accounting pronouncements adopted in fiscal 2022 The following table summarizes Accounting Standards Updates ("ASUs") which were adopted in fiscal 2022, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures. ASU Description ASU 2018-14 Compensation – Retirement benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans ASU 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes 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 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 Note 2: Acquisitions 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 8 Table of Contents 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 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. 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 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. retailers. 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. 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) 10/23/2021 10/24/2020 Cash and cash equivalents $ 293,341 $ 350,949 Restricted cash 3,266 2,478 Total cash, cash equivalents and restricted cash $ 296,607 $ 353,427 9 Table of Contents Note 4: Inventories A summary of inventories is as follows: (Unaudited, amounts in thousands) 10/23/2021 4/24/2021 Raw materials $ 159,079 $ 112,371 Work in process 34,665 24,791 Finished goods 133,471 121,182 FIFO inventories 327,215 258,344 Excess of FIFO over LIFO ( 41,445 ) ( 32,207 ) Total inventories $ 285,770 $ 226,137 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 table summarizes changes in the carrying amount of our goodwill by reportable segment: (Unaudited, amounts in thousands) Wholesale Segment Retail Segment Corporate and Other Total Goodwill 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 October 23, 2021 $ 12,938 $ 111,724 $ 55,446 $ 180,108 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 The following summarizes changes in our intangible assets: (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 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 October 23, 2021 $ 1,155 $ 3,806 $ 23,354 $ 2,423 $ 30,738 10 Table of Contents 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 (refer to Note 16, Fair Value Measurements). 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) 10/23/2021 4/24/2021 Short-term investments: Marketable securities $ 16,512 $ 18,037 Held-to-maturity investments 1,371 2,532 Total short-term investments 17,883 20,569 Long-term investments: Marketable securities 29,079 27,256 Cost basis investments 7,579 7,579 Total long-term investments 36,658 34,835 Total investments $ 54,541 $ 55,404 Investments to enhance returns on cash $ 31,029 $ 32,475 Investments to fund compensation/retirement plans 15,933 15,350 Other investments 7,579 7,579 Total investments $ 54,541 $ 55,404 The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type: 10/23/2021 4/24/2021 (Unaudited, amounts in thousands) Gross Unrealized Gains Gross Unrealized Losses Fair Value Gross Unrealized Gains Gross Unrealized Losses Fair Value Equity securities $ 3,096 $ ( 1 ) $ 15,094 $ 2,798 $ ( 5 ) $ 14,954 Fixed income 124 ( 83 ) 35,057 136 ( 29 ) 35,631 Other 1,180 — 4,390 559 — 4,819 Total securities $ 4,400 $ ( 84 ) $ 54,541 $ 3,493 $ ( 34 ) $ 55,404 The following table summarizes sales of marketable securities: Quarter Ended Six Months Ended (Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020 Proceeds from sales $ 11,938 $ 3,292 $ 21,653 $ 17,017 Gross realized gains 287 184 554 310 Gross realized losses ( 325 ) ( 8 ) ( 336 ) ( 26 ) 11 Table of Contents 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) 10/23/2021 Within one year $ 16,777 Within two to five years 15,668 Within six to ten years 975 Thereafter 1,637 Total $ 35,057 Note 7: Accrued Expenses and Other Current Liabilities (Unaudited, amounts in thousands) 10/23/2021 4/24/2021 Payroll and other compensation $ 53,696 $ 62,546 Accrued product warranty, current portion 15,139 14,447 Customer deposits 194,015 180,766 Deferred revenue 135,542 108,460 Other current liabilities 94,318 83,685 Accrued expenses and other current liabilities $ 492,710 $ 449,904 Note 8: Product Warranties We accrue an estimated liability for product warranties when we recognize revenue on the sale of warrantied products. We estimate future warranty claims on product sales based on our historical claims experience and periodically adjust the provision to reflect changes in actual experience. 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 reportable 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 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. A reconciliation of the changes in our product warranty liability is as follows: 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 Accruals during the period 6,673 5,306 13,887 9,134 Settlements during the period ( 6,038 ) ( 5,491 ) ( 12,455 ) ( 9,451 ) Balance as of the end of the period $ 25,068 $ 22,938 $ 25,068 $ 22,938 (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. Note 9: Debt 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 12 Table of Contents 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. Note 10: 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 Six Months Ended (Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020 Equity-based awards expense $ 3,894 $ 4,120 $ 6,354 $ 6,167 Liability-based awards expense (1) 61 754 ( 623 ) 1,338 Total stock-based compensation expense $ 3,955 $ 4,874 $ 5,731 $ 7,505 (1) Liability-based awards are comprised primarily of deferred stock units granted to non-employee directors. Compensation expense for these awards is based on the market price of our common stock on the grant date and is remeasured each reporting period based on the market value of our common shares on the last day of the reported period. Stock Options. We granted 252,996 stock options to employees during the first quarter of fiscal 2022 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 2022 was calculated using the following assumptions: (Unaudited) Fiscal 2022 grant Assumption Risk-free interest rate 0.82 % U.S. Treasury issues with term equal to expected life at grant date Dividend rate 1.58 % Estimated future dividend rate and common share price at grant date Expected life 5.0 years Contractual term of stock option and expected employee exercise trends Stock price volatility 42.16 % Historical volatility of our common shares Fair value per option $ 12.29 Restricted Stock . 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. 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. 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 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. We recognize compensation expense for restricted stock over the vesting period equal to the fair value on the date our Compensation Committee approved the awards. Restricted stock awards vest at 25 % per year, beginning one year from the grant date over a term of four years . 13 Table of Contents 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. During the first quarter of fiscal 2022, we granted 125,021 performance-based shares. We also have performance-based share awards outstanding from previous grants. Payout of the fiscal 2022 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 2021 were weighted the same as those granted during fiscal 2022 while grants of performance-based shares during fiscal 2020 were weighted ( 80 %) on financial performance and ( 20 %) on market-based conditions. 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 2022 that vest based on attaining performance goals was $ 36.13 , 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 2022 grant of shares that vest based on market conditions was $ 51.85 . Note 11: Accumulated Other Comprehensive Income (Loss) 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 July 24, 2021 $ 2,229 $ 818 $ ( 4,870 ) $ ( 1,823 ) Changes before reclassifications 111 ( 660 ) — ( 549 ) Amounts reclassified to net income — ( 2 ) 75 73 Tax effect — 164 ( 18 ) 146 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 ) 14 Table of Contents 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 ) Changes before reclassifications ( 701 ) ( 69 ) — ( 770 ) Amounts reclassified to net income — 2 150 152 Tax effect — 17 ( 31 ) ( 14 ) 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 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 842 369 1,542 250 Other comprehensive income (loss) ( 120 ) 79 ( 550 ) 577 Dividends distributed to joint venture minority partners ( 1,260 ) — ( 1,260 ) ( 8,507 ) Balance as of the end of the period $ 8,380 $ 7,873 $ 8,380 $ 7,873 Note 12: 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. 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. 15 Table of Contents The following table presents our revenue disaggregated by product category and by segment or unit: 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 Motion Upholstery Furniture $ 234,702 $ 109,980 $ 96 $ 344,778 $ 200,448 $ 99,462 $ 162 $ 300,072 Stationary Upholstery Furniture 98,693 44,146 50,272 193,111 92,679 30,980 36,424 160,083 Bedroom Furniture 11,382 1,803 3,602 16,787 8,437 1,323 2,296 12,056 Dining Room Furniture 8,393 3,411 1,107 12,911 6,874 2,799 844 10,517 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 ) Total $ 439,092 $ 192,420 $ 45,013 $ 676,525 $ 343,016 $ 162,275 $ 33,717 $ 539,008 Eliminations ( 100,636 ) ( 79,888 ) Consolidated Net Sales $ 575,889 $ 459,120 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 Motion Upholstery Furniture $ 461,314 $ 212,484 $ 250 $ 674,048 $ 332,712 $ 152,909 $ 223 $ 485,844 Stationary Upholstery Furniture 190,102 86,511 97,619 374,232 150,993 48,635 52,497 252,125 Bedroom Furniture 23,307 3,788 6,850 33,945 15,549 2,418 3,527 21,494 Dining Room Furniture 15,379 6,660 2,207 24,246 11,421 4,617 1,501 17,539 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 Total $ 832,591 $ 374,267 $ 88,647 $ 1,295,505 $ 566,589 $ 253,412 $ 50,458 $ 870,459 Eliminations ( 194,833 ) ( 125,881 ) Consolidated Net Sales $ 1,100,672 $ 744,578 (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. 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. 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. 16 Table of Contents 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 table presents our contract assets and liabilities: (Unaudited, amounts in thousands) 10/23/2021 4/24/2021 Contract assets $ 135,542 $ 108,460 Customer deposits $ 194,015 $ 180,766 Deferred revenue 135,542 108,460 Total contract liabilities (1) $ 329,557 $ 289,226 (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. Note 13: Segment Information Our reportable operating segments include the Wholesale segment and the Retail segment. 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 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 159 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. 17 Table of Contents The following table presents sales and operating income (loss) by segment: Quarter Ended Six Months Ended (Unaudited, amounts in thousands) 10/23/2021 10/24/2020 10/23/2021 10/24/2020 Sales Wholesale segment: Sales to external customers $ 341,823 $ 266,189 $ 645,440 $ 445,944 Intersegment sales 97,269 76,827 187,151 120,645 Wholesale segment sales 439,092 343,016 832,591 566,589 Retail segment sales 192,420 162,275 374,267 253,412 Corporate and Other: Sales to external customers 41,646 30,656 80,965 45,222 Intersegment sales 3,367 3,061 7,682 5,236 Corporate and Other sales 45,013 33,717 88,647 50,458 Eliminations ( 100,636 ) ( 79,888 ) ( 194,833 ) ( 125,881 ) Consolidated sales $ 575,889 $ 459,120 $ 1,100,672 $ 744,578 Operating Income (Loss) Wholesale segment $ 43,128 $ 41,683 $ 61,459 $ 59,623 Retail segment 23,962 15,093 44,400 8,466 Corporate and Other ( 12,977 ) ( 8,837 ) ( 17,375 ) ( 15,825 ) Consolidated operating income 54,113 47,939 88,484 52,264 Interest expense ( 242 ) ( 346 ) ( 553 ) ( 805 ) Interest income 106 123 223 617 Other income (expense), net 1,031 ( 11 ) 938 1,463 Income before income taxes $ 55,008 $ 47,705 $ 89,092 $ 53,539 Note 14: Income Taxes 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. Note 15: 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. Beginning in fiscal 2019 and going forward, the restricted stock awards we granted do not have non-forfeitable rights to dividends and therefore are not considered participating securities. The dividends on these restricted stock awards are, and will continue to be, held in escrow until the stock awards vest at which time we will pay any accumulated dividends. 18 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 Six Months Ended (Unaudited, amounts in thousands, except per share data) 10/23/2021 10/24/2020 10/23/2021 10/24/2020 Numerator (basic and diluted): Net income attributable to La-Z-Boy Incorporated $ 39,516 $ 34,935 $ 64,082 $ 39,733 Income allocated to participating securities — ( 11 ) ( 6 ) ( 22 ) Net income available to common Shareholders $ 39,516 $ 34,924 $ 64,076 $ 39,711 Denominator: Basic weighted average common shares outstanding 44,251 46,023 44,662 45,966 Contingent common shares — 148 — 127 Stock option dilution 172 152 253 74 Diluted weighted average common shares outstanding 44,423 46,323 44,915 46,167 Earnings per Share: Basic $ 0.89 $ 0.76 $ 1.43 $ 0.86 Diluted $ 0.89 $ 0.75 $ 1.43 $ 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 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 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. Note 16: 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. 19 Table of Contents 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 October 23, 2021 Fair Value Measurements (Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total Assets Marketable securities $ — $ 37,580 $ — $ 8,011 $ 45,591 Held-to-maturity investments 1,371 — — — 1,371 Cost basis investments — — 7,579 — 7,579 Total assets $ 1,371 $ 37,580 $ 7,579 $ 8,011 $ 54,541 Liabilities Contingent consideration liability $ — $ — $ 4,600 $ — $ 4,600 At April 24, 2021 Fair Value Measurements (Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total Assets Marketable securities $ 119 $ 37,572 $ — $ 7,602 $ 45,293 Held-to-maturity investments 2,532 — — — 2,532 Cost basis investment — — 7,579 — 7,579 Total assets $ 2,651 $ 37,572 $ 7,579 $ 7,602 $ 55,404 Liabilities Contingent consideration liability $ — $ — $ 14,100 $ — $ 14,100 (1) Certain marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology. 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 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 six months ended October 23, 2021. Our Level 3 liability includes our contingent consideration liability resulting from the Joybird acquisition. 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. 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 1.8 %. 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. 20 Table of Contents