What changed in this filing

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Item 1. Financial Statements

2022-02-15 compared with 2021-11-16 · 106 added, 58 removed, 566 unchanged (22% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENT OF INCOME

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except per share data) 1/22/2022 1/23/2021 1/22/2022 1/23/2021

19 unchanged sentences

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021

2 unchanged sentences

Currency translation adjustment ( 651 ) 2,286 ( 1,902 ) 5,751

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

Net unrealized loss on marketable securities, net of tax ( 140 ) ( 14 ) ( 190 ) ( 37 )

Net pension amortization, net of tax 56 65 175 195

44 unchanged sentences

CONSOLIDATED STATEMENT OF CASH FLOWS

Six Months Ended

Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022 1/23/2021

72 unchanged sentences

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

Net income — — 28,467 — 615 29,082

Other comprehensive income (loss) — — — ( 836 ) 101 ( 735 )

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 8 204 ( 12 ) — — 200

Repurchases of 703 shares of common stock

( 703 ) ( 363 ) ( 23,940 ) — — ( 25,006 )

Stock option and restricted stock expense — 2,533 — — 2,533

Dividends declared and paid ($ 0.165 /share)

— — ( 7,223 ) — — ( 7,223 )

Dividends declared not paid ($ 0.165 /share)

— — ( 50 ) — — ( 50 )

At January 22, 2022 $ 43,505 $ 339,294 $ 395,577 $ ( 2,989 ) $ 9,096 $ 784,483

(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.

22 unchanged sentences

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;

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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 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.

At January 22, 2022, 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

ASU 2021-10 Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance

Accounting pronouncements not yet adopted

3 unchanged sentences

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.

Alabama and Chattanooga, Tennessee acquisition

On December 6, 2021, we completed our acquisition of the Alabama and Chattanooga, Tennessee businesses that operate four independently owned La-Z-Boy Furniture Galleries ® stores in Alabama and one in Chattanooga, Tennessee, for $ 8.3 million, subject to customary purchase price adjustments.

In the third quarter of fiscal 2022, we paid $ 8.0 million of cash for the purchase of the Alabama and Chattanooga, Tennessee stores and assets.

This acquisition reflects a core component 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) in suitable geographic markets, alongside the existing 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 Alabama and Chattanooga, Tennessee markets, 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 $ 4.1 million related to these reacquired rights.

We also recognized $ 7.4 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 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 Alabama and Chattanooga, Tennessee businesses 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 following the acquisition as we gain additional data.

Furnico (La-Z-Boy United Kingdom Manufacturing) acquisition

On October 25, 2021, we completed the acquisition of Furnico Furniture Ltd ("Furnico"), an upholstery manufacturing business in the U.K for approximately $ 11.8 million, subject to customary purchase price adjustments and in the third quarter of fiscal 2022, we paid $ 12.4 million of cash for the purchase of the Furnico business.

Furnico produces La-Z-Boy branded product for the La-Z-Boy U.K.

business and 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 to support growth in the La-Z-Boy U.K business.

We recognized $ 7.9 million of goodwill in our Wholesale segment related primarily to synergies we expect from the integration of the acquired business and future benefits of these synergies.

The goodwill asset for Furnico is not deductible for federal income tax purposes.

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

Long Island, New York acquisition

On August 16, 2021, we completed our 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.

2 unchanged sentences

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

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 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.

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 following the 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.

On September 14, 2020, we completed our 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 purchase price 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.

5 unchanged sentences

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

13 unchanged sentences

Total inventories (1)

$ 315,595 $ 226,137

(1) Increased balance to ensure input material availability to support increased sales demand and manufacturing capacity

Goodwill and Other Intangible Assets

2 unchanged sentences

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

Wholesale Segment La-Z-Boy United Kingdom Manufacturing La-Z-Boy United Kingdom Manufacturing (Furnico)

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

8 unchanged sentences

Translation adjustment ( 445 ) ( 33 ) — ( 478 )

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

Balance at January 22, 2022 $ 20,533 $ 119,031 $ 55,446 $ 195,010

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

15 unchanged sentences

Translation adjustment — — ( 25 ) ( 56 ) ( 81 )

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

Balance at January 22, 2022 $ 1,155 $ 3,606 $ 27,378 $ 2,330 $ 34,469

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 Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021

27 unchanged sentences

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

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022

1 unchanged sentence

Balance as of the beginning of the period $ 25,068 $ 22,938 $ 23,636 $ 23,255

Acquisitions 634 — 634 —

Accruals during the period 7,271 5,791 21,158 14,925

1 unchanged sentence

Balance as of the end of the period $ 26,361 $ 22,995 $ 26,361 $ 22,995

(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.

(1) $ 15.8 million and $ 14.4 million is recorded in accrued expenses and other current liabilities as of January 22, 2022 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.

2 unchanged sentences

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 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 the satisfaction of customary conditions.

As of January 22, 2022, we have no borrowings outstanding under the Credit Facility.

As of January 22, 2022, we were in compliance with our financial covenants under the Credit Facility.

The Credit Facility replaced 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.

1 unchanged sentence

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

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021

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Restricted Stock .

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

We granted 121,963 shares of restricted stock to employees during the first nine 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 six months of fiscal 2022 was $ 38.43 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 nine months of fiscal 2022 was $ 38.27 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.

2 unchanged sentences

Restricted Stock Units .

During the second quarter of fiscal 2022, we granted 29,910 restricted stock units to our non-employee directors.

During the first nine months of fiscal 2022, we granted 33,794 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 .

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

The weighted-average fair value of the restricted stock units that were awarded in the first nine months of fiscal 2022 was $ 35.34 per share.

Performance Shares.

13 unchanged sentences

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:

The activity in accumulated other comprehensive income (loss) for the quarters ended January 22, 2022, and January 23, 2021, 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 )

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

Changes before reclassifications ( 752 ) ( 201 ) — ( 953 )

2 unchanged sentences

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 752 ) ( 140 ) 56 ( 836 )

Balance at January 22, 2022 $ 1,588 $ 180 $ ( 4,757 ) $ ( 2,989 )

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

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

Changes before reclassifications 1,924 ( 27 ) — 1,897

2 unchanged sentences

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 1,924 ( 14 ) 65 1,975

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:

Balance at January 23, 2021 $ 2,921 $ 412 $ ( 5,315 ) $ ( 1,982 )

The activity in accumulated other comprehensive income (loss) for the nine months ended January 22, 2022 and January 23, 2021, 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)

4 unchanged sentences

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 1,453 ) ( 190 ) 175 ( 1,468 )

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

Balance at January 22, 2022 $ 1,588 $ 180 $ ( 4,757 ) $ ( 2,989 )

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

3 unchanged sentences

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 4,812 ( 37 ) 195 4,970

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

Balance at January 23, 2021 $ 2,921 $ 412 $ ( 5,315 ) $ ( 1,982 )

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

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021

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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

Quarter Ended January 22, 2022 Quarter Ended January 23, 2021

(Unaudited, amounts in thousands) Wholesale Retail Corporate

11 unchanged sentences

Consolidated Net Sales $ 571,573 $ 470,196

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

Nine Months Ended January 22, 2022 Nine Months Ended January 23, 2021

(Unaudited, amounts in thousands) Wholesale Retail Corporate

32 unchanged sentences

$ 351,572 $ 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.

(1) During the nine months ended January 22, 2022, we recognized revenue of $ 264.2 million related to our contract liability balance at April 24, 2021.

Segment Information

4 unchanged sentences

American Drew ® , Hammary ® and Kincaid ® .

The Wholesale segment also includes our international wholesale businesses.

The Wholesale segment also includes our international wholesale and manufacturing 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.

10 unchanged sentences

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

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021

19 unchanged sentences

Income before income taxes $ 38,673 $ 40,933 $ 127,765 $ 94,472

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 was 24.8 % and 25.9 % for the third quarter and nine months ended January 22, 2022, respectively, compared with 27.7 % and 26.4 % for the third quarter and nine months ended January 23, 2021, respectively.

The effective tax rate in the third quarter and nine months ended January 23, 2021, was impacted by a non-deductible fair value adjustment of the contingent consideration liability related to our Joybird acquisition.

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

5 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 Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except per share data) 1/22/2022 1/23/2021 1/22/2022 1/23/2021

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 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.

For the third quarter and nine months ended January 22, 2022, we excluded options to purchase 0.2 million shares from the diluted share calculation.

For the third quarter ended January 23, 2021, we did not exclude any options as the effect would have been anti-dilutive and for the nine months ended January 23, 2021, we excluded 0.3 million shares 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 October 23, 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 January 22, 2022 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

At January 22, 2022

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 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.

At January 22, 2022 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.

At January 22, 2022, 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.

There were no changes to the fair value of our Level 3 assets during the nine months ended January 22, 2022.

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

1 unchanged sentence

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 of our contingent consideration liability as of January 22, 2022, 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.

During the first nine months 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 nine months ended January 22, 2022.

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