LA-Z-BOY INC 10-Q

ITEM 1. FINANCIAL STATEMENTS LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF INCOME Quarter Ended Nine Months Ended (Unaudited, amounts in thousands, except per share data) 1/22/2022 1/23/2021 1/22/2022 1/23/2021 Sales $ 571,573 $ 470,196 $ 1,672,245 $ 1,214,774 Cost of sales 352,208 268,944 1,027,503 696,604 Gross profit 219,365 201,252 644,742 518,170 Selling, general and administrative expense 179,878 166,838 516,771 431,492 Operating income 39,487 34,414 127,971 86,678 Interest expense ( 160 ) ( 298 ) ( 713 ) ( 1,103 ) Interest income 806 285 1,029 902 Other income (expense), net ( 1,460 ) 6,532 ( 522 ) 7,995 Income before income taxes 38,673 40,933 127,765 94,472 Income tax expense 9,591 11,344 33,059 24,900 Net income 29,082 29,589 94,706 69,572 Net income attributable to noncontrolling interests ( 615 ) ( 357 ) ( 2,157 ) ( 607 ) Net income attributable to La-Z-Boy Incorporated $ 28,467 $ 29,232 $ 92,549 $ 68,965 Basic weighted average common shares 43,701 46,261 44,342 46,064 Basic net income attributable to La-Z-Boy Incorporated per share $ 0.65 $ 0.63 $ 2.09 $ 1.50 Diluted weighted average common shares 43,968 46,818 44,640 46,407 Diluted net income attributable to La-Z-Boy Incorporated per share $ 0.65 $ 0.62 $ 2.07 $ 1.49 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3 Table of Contents LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021 Net income $ 29,082 $ 29,589 $ 94,706 $ 69,572 Other comprehensive income (loss) Currency translation adjustment ( 651 ) 2,286 ( 1,902 ) 5,751 Net unrealized loss on marketable securities, net of tax ( 140 ) ( 14 ) ( 190 ) ( 37 ) Net pension amortization, net of tax 56 65 175 195 Total other comprehensive income (loss) ( 735 ) 2,337 ( 1,917 ) 5,909 Total comprehensive income before allocation to noncontrolling interests 28,347 31,926 92,789 75,481 Comprehensive income attributable to noncontrolling interests ( 716 ) ( 719 ) ( 1,708 ) ( 1,546 ) Comprehensive income attributable to La-Z-Boy Incorporated $ 27,631 $ 31,207 $ 91,081 $ 73,935 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 Table of Contents LA-Z-BOY INCORPORATED CONSOLIDATED BALANCE SHEET (Unaudited, amounts in thousands, except par value) 1/22/2022 4/24/2021 Current assets Cash and equivalents $ 236,712 $ 391,213 Restricted cash 3,266 3,490 Receivables, net of allowance of $ 2,996 at 1/22/2022 and $ 4,011 at 4/24/2021 163,018 139,341 Inventories, net 315,595 226,137 Other current assets 243,713 165,979 Total current assets 962,304 926,160 Property, plant and equipment, net 250,945 219,194 Goodwill 195,010 175,814 Other intangible assets, net 34,469 30,431 Deferred income taxes – long-term 11,685 11,915 Right of use lease assets 388,713 343,800 Other long-term assets, net 86,438 79,008 Total assets $ 1,929,564 $ 1,786,322 Current liabilities Accounts payable $ 117,239 $ 94,152 Lease liabilities, current 73,222 67,614 Accrued expenses and other current liabilities 523,009 449,904 Total current liabilities 713,470 611,670 Lease liabilities, long-term 338,478 295,023 Other long-term liabilities 93,133 97,483 Shareholders' equity Preferred shares – 5,000 authorized; none issued — — Common shares, $ 1.00 par value – 150,000 authorized; 43,505 outstanding at 1/22/22 and 45,361 outstanding at 4/24/21 43,505 45,361 Capital in excess of par value 339,294 330,648 Retained earnings 395,577 399,010 Accumulated other comprehensive loss ( 2,989 ) ( 1,521 ) Total La-Z-Boy Incorporated shareholders' equity 775,387 773,498 Noncontrolling interests 9,096 8,648 Total equity 784,483 782,146 Total liabilities and equity $ 1,929,564 $ 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 Nine Months Ended (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 Cash flows from operating activities Net income $ 94,706 $ 69,572 Adjustments to reconcile net income to cash provided by operating activities (Gain)/loss on disposal of assets ( 3,149 ) 133 Gain on sale of investments ( 340 ) ( 438 ) Provision for doubtful accounts ( 1,070 ) ( 2,483 ) Depreciation and amortization 27,146 24,620 Amortization of right-of-use lease assets 53,949 48,864 Equity-based compensation expense 8,887 9,115 Change in deferred taxes 214 5,189 Change in receivables ( 20,317 ) ( 28,720 ) Change in inventories ( 83,109 ) ( 26,419 ) Change in other assets ( 22,486 ) ( 1,193 ) Change in payables 23,690 42,354 Change in lease liabilities ( 54,400 ) ( 48,963 ) Change in other liabilities 21,471 158,200 Net cash provided by operating activities 45,192 249,831 Cash flows from investing activities Proceeds from disposals of assets 3,999 252 Capital expenditures ( 58,585 ) ( 26,722 ) Purchases of investments ( 28,058 ) ( 27,744 ) Proceeds from sales of investments 30,457 26,317 Acquisitions ( 24,849 ) ( 2,000 ) Net cash used for investing activities ( 77,036 ) ( 29,897 ) Cash flows from financing activities Payments on debt and finance lease liabilities ( 91 ) ( 75,020 ) Holdback payments for acquisition purchases ( 23,000 ) ( 5,783 ) Stock issued for stock and employee benefit plans, net of shares withheld for taxes ( 1,670 ) 6,259 Repurchases of common stock ( 75,646 ) ( 875 ) Dividends paid to shareholders ( 20,621 ) ( 9,700 ) Dividends paid to minority interest joint venture partners (1) ( 1,260 ) ( 8,507 ) Net cash used for financing activities ( 122,288 ) ( 93,626 ) Effect of exchange rate changes on cash and equivalents ( 593 ) 3,191 Change in cash, cash equivalents and restricted cash ( 154,725 ) 129,499 Cash, cash equivalents and restricted cash at beginning of period 394,703 263,528 Cash, cash equivalents and restricted cash at end of period $ 239,978 $ 393,027 Supplemental disclosure of non-cash investing activities Capital expenditures included in payables $ 4,564 $ 1,569 (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 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. 7 Table of Contents (Unaudited, amounts in thousands) Common Shares Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-Controlling Interests Total At April 25, 2020 $ 45,857 $ 318,215 $ 343,633 $ ( 6,952 ) $ 15,553 $ 716,306 Net income (loss) — — 4,798 — ( 119 ) 4,679 Other comprehensive income — — — 1,720 498 2,218 Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 132 ( 195 ) ( 1,686 ) — — ( 1,749 ) Stock option and restricted stock expense — 2,047 — — — 2,047 Dividends declared and paid (1) — — 5 — ( 8,507 ) ( 8,502 ) At July 25, 2020 $ 45,989 $ 320,067 $ 346,750 $ ( 5,232 ) $ 7,425 $ 714,999 Net income — — 34,935 — 369 35,304 Other comprehensive income — — — 1,275 79 1,354 Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 124 1,995 ( 6 ) — — 2,113 Stock option and restricted stock expense — 4,120 — — — 4,120 Dividends declared and paid ($ 0.07 /share) — — ( 3,221 ) — — ( 3,221 ) Dividends declared not paid ($ 0.07 /share) — — ( 20 ) — — ( 20 ) At October 24, 2020 $ 46,113 $ 326,182 $ 378,438 $ ( 3,957 ) $ 7,873 $ 754,649 Net income — — 29,232 — 357 29,589 Other comprehensive income — — — 1,975 362 2,337 Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 225 5,698 ( 28 ) — — 5,895 Purchases of 22 shares of common stock ( 22 ) ( 853 ) — — — ( 875 ) Stock option and restricted stock expense — 2,948 — — — 2,948 Dividends declared and paid ($ 0.14 /share) — — ( 6,484 ) — — ( 6,484 ) Dividends declared not paid ($ 0.14 /share) — — ( 41 ) — — ( 41 ) At January 23, 2021 $ 46,316 $ 333,975 $ 401,117 $ ( 1,982 ) $ 8,592 $ 788,018 (1) No dividends to shareholders were declared or paid during the first quarter of fiscal 2021; amount includes dividends forfeited from restricted stock awards previously granted. Non-controlling interests include dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 8 Table of Contents LA-Z-BOY INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries (collectively, the "Company"). We derived the April 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 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. 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 ASU 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance 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 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 9 Table of Contents 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. retailers. 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. 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. 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 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 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 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 following the acquisition as we gain additional data. 10 Table of Contents Prior Year Acquisitions 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. 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 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. 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 nine 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 nine months ended January 23, 2021. Note 3: Cash and Restricted Cash We have restricted cash on deposit with a bank as collateral for certain letters of credit. All our letters of credit have maturity dates within the next twelve months, but we expect to renew some of these letters of credit when they mature. (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 Cash and cash equivalents $ 236,712 $ 390,324 Restricted cash 3,266 2,703 Total cash, cash equivalents and restricted cash $ 239,978 $ 393,027 Note 4: Inventories A summary of inventories is as follows: (Unaudited, amounts in thousands) 1/22/2022 4/24/2021 Raw materials $ 175,372 $ 112,371 Work in process 40,243 24,791 Finished goods 150,186 121,182 FIFO inventories 365,801 258,344 Excess of FIFO over LIFO ( 50,206 ) ( 32,207 ) Total inventories (1) $ 315,595 $ 226,137 (1) Increased balance to ensure input material availability to support increased sales demand and manufacturing capacity 11 Table of Contents 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 Wholesale Segment La-Z-Boy United Kingdom Manufacturing La-Z-Boy United Kingdom Manufacturing (Furnico) 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 7,926 11,748 — 19,674 Translation adjustment ( 445 ) ( 33 ) — ( 478 ) Balance at January 22, 2022 $ 20,533 $ 119,031 $ 55,446 $ 195,010 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 — — 4,896 — 4,896 Amortization — ( 599 ) — ( 178 ) ( 777 ) Translation adjustment — — ( 25 ) ( 56 ) ( 81 ) 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. 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. 12 Table of Contents The following summarizes our investments: (Unaudited, amounts in thousands) 1/22/2022 4/24/2021 Short-term investments: Marketable securities $ 14,835 $ 18,037 Held-to-maturity investments 1,391 2,532 Total short-term investments 16,226 20,569 Long-term investments: Marketable securities 28,864 27,256 Cost basis investments 7,579 7,579 Total long-term investments 36,443 34,835 Total investments $ 52,669 $ 55,404 Investments to enhance returns on cash $ 29,754 $ 32,475 Investments to fund compensation/retirement plans 15,336 15,350 Other investments 7,579 7,579 Total investments $ 52,669 $ 55,404 The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type: 1/22/2022 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 $ 2,004 $ ( 55 ) $ 14,535 $ 2,798 $ ( 5 ) $ 14,954 Fixed income 92 ( 204 ) 33,780 136 ( 29 ) 35,631 Other 1,290 — 4,354 559 — 4,819 Total securities $ 3,386 $ ( 259 ) $ 52,669 $ 3,493 $ ( 34 ) $ 55,404 The following table summarizes sales of marketable securities: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021 Proceeds from sales $ 7,784 $ 6,807 $ 29,437 $ 23,824 Gross realized gains 142 169 696 479 Gross realized losses ( 20 ) ( 15 ) ( 356 ) ( 41 ) The following is a summary of the fair value of fixed income marketable securities, classified as available-for-sale securities, by contractual maturity: (Unaudited, amounts in thousands) 1/22/2022 Within one year $ 14,832 Within two to five years 16,341 Within six to ten years 967 Thereafter 1,640 Total $ 33,780 13 Table of Contents Note 7: Accrued Expenses and Other Current Liabilities (Unaudited, amounts in thousands) 1/22/2022 4/24/2021 Payroll and other compensation $ 56,182 $ 62,546 Accrued product warranty, current portion 15,848 14,447 Customer deposits 199,874 180,766 Deferred revenue 151,698 108,460 Other current liabilities 99,407 83,685 Accrued expenses and other current liabilities $ 523,009 $ 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 Nine Months Ended (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 (1) 1/23/2021 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 Settlements during the period ( 6,612 ) ( 5,734 ) ( 19,067 ) ( 15,185 ) Balance as of the end of the period $ 26,361 $ 22,995 $ 26,361 $ 22,995 (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. 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 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. 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 certain assets. As of January 22, 2022, we were in compliance with our financial covenants under the Credit Facility. 14 Table of Contents 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. 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 Nine Months Ended (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021 Equity-based awards expense $ 2,533 $ 2,948 $ 8,887 $ 9,115 Liability-based awards expense (1) ( 73 ) 587 ( 696 ) 1,925 Total stock-based compensation expense $ 2,460 $ 3,535 $ 8,191 $ 11,040 (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 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. 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 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. 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 . Restricted Stock Units . 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. 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. 15 Table of Contents 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 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 October 23, 2021 $ 2,340 $ 320 $ ( 4,813 ) $ ( 2,153 ) Changes before reclassifications ( 752 ) ( 201 ) — ( 953 ) Amounts reclassified to net income — 16 75 91 Tax effect — 45 ( 19 ) 26 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 ) Changes before reclassifications 1,924 ( 27 ) — 1,897 Amounts reclassified to net income — 9 86 95 Tax effect — 4 ( 21 ) ( 17 ) Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 1,924 ( 14 ) 65 1,975 Balance at January 23, 2021 $ 2,921 $ 412 $ ( 5,315 ) $ ( 1,982 ) 16 Table of Contents 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) Balance at April 24, 2021 $ 3,041 $ 370 $ ( 4,932 ) $ ( 1,521 ) Changes before reclassifications ( 1,453 ) ( 270 ) — ( 1,723 ) Amounts reclassified to net income — 18 225 243 Tax effect — 62 ( 50 ) 12 Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 1,453 ) ( 190 ) 175 ( 1,468 ) Balance at January 22, 2022 $ 1,588 $ 180 $ ( 4,757 ) $ ( 2,989 ) Balance at April 25, 2020 $ ( 1,891 ) $ 449 $ ( 5,510 ) $ ( 6,952 ) Changes before reclassifications 4,812 ( 11 ) — 4,801 Amounts reclassified to net income — ( 38 ) 259 221 Tax effect — 12 ( 64 ) ( 52 ) Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 4,812 ( 37 ) 195 4,970 Balance at January 23, 2021 $ 2,921 $ 412 $ ( 5,315 ) $ ( 1,982 ) 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 Nine Months Ended (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021 Balance as of the beginning of the period $ 8,380 $ 7,873 $ 8,648 $ 15,553 Net income 615 357 2,157 607 Other comprehensive income (loss) 101 362 ( 449 ) 939 Dividends distributed to joint venture minority partners — — ( 1,260 ) ( 8,507 ) Balance as of the end of the period $ 9,096 $ 8,592 $ 9,096 $ 8,592 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. 17 Table of Contents The following table presents our revenue disaggregated by product category and by segment or unit: Quarter Ended January 22, 2022 Quarter Ended January 23, 2021 (Unaudited, amounts in thousands) Wholesale Retail Corporate and Other Total Wholesale Retail Corporate and Other Total Motion Upholstery Furniture $ 238,119 $ 113,767 $ 288 $ 352,174 $ 205,522 $ 102,111 $ 174 $ 307,807 Stationary Upholstery Furniture 94,216 46,938 55,971 197,125 89,059 30,469 35,728 155,256 Bedroom Furniture 6,723 1,598 3,674 11,995 10,269 1,723 2,622 14,614 Dining Room Furniture 5,562 2,802 1,063 9,427 7,034 3,340 672 11,046 Occasional Furniture 7,396 6,672 1,153 15,221 11,585 6,118 623 18,326 Delivery 45,168 6,342 2,097 53,607 30,021 6,081 1,394 37,496 Other (1) 26,097 18,933 ( 14,267 ) 30,763 ( 2,782 ) 16,117 ( 7,522 ) 5,813 Total $ 423,281 $ 197,052 $ 49,979 $ 670,312 $ 350,708 $ 165,959 $ 33,691 $ 550,358 Eliminations ( 98,739 ) ( 80,162 ) Consolidated Net Sales $ 571,573 $ 470,196 Nine Months Ended January 22, 2022 Nine Months Ended January 23, 2021 (Unaudited, amounts in thousands) Wholesale Retail Corporate and Other Total Wholesale Retail Corporate and Other Total Motion Upholstery Furniture $ 699,433 $ 326,251 $ 538 $ 1,026,222 $ 538,234 $ 255,020 $ 397 $ 793,651 Stationary Upholstery Furniture 284,318 133,449 153,590 571,357 240,052 79,104 88,225 407,381 Bedroom Furniture 30,030 5,386 10,524 45,940 25,818 4,141 6,149 36,108 Dining Room Furniture 20,941 9,462 3,270 33,673 18,455 7,957 2,173 28,585 Occasional Furniture 31,746 19,659 2,966 54,371 32,236 14,879 2,158 49,273 Delivery 128,318 20,007 5,629 153,954 80,596 15,116 3,498 99,210 Other (1) 61,086 57,105 ( 37,891 ) 80,300 ( 18,094 ) 43,154 ( 18,451 ) 6,609 Total $ 1,255,872 $ 571,319 $ 138,626 $ 1,965,817 $ 917,297 $ 419,371 $ 84,149 $ 1,420,817 Eliminations ( 293,572 ) ( 206,043 ) Consolidated Net Sales $ 1,672,245 $ 1,214,774 (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. 18 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) 1/22/2022 4/24/2021 Contract assets $ 151,698 $ 108,460 Customer deposits $ 199,874 $ 180,766 Deferred revenue 151,698 108,460 Total contract liabilities (1) $ 351,572 $ 289,226 (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. 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 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. 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 163 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. 19 Table of Contents The following table presents sales and operating income (loss) by segment: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021 Sales Wholesale segment: Sales to external customers $ 328,533 $ 274,314 $ 973,973 $ 720,258 Intersegment sales 94,748 76,394 281,899 197,039 Wholesale segment sales 423,281 350,708 1,255,872 917,297 Retail segment sales 197,052 165,959 571,319 419,371 Corporate and Other: Sales to external customers 45,988 29,923 126,953 75,145 Intersegment sales 3,991 3,768 11,673 9,004 Corporate and Other sales 49,979 33,691 138,626 84,149 Eliminations ( 98,739 ) ( 80,162 ) ( 293,572 ) ( 206,043 ) Consolidated sales $ 571,573 $ 470,196 $ 1,672,245 $ 1,214,774 Operating Income (Loss) Wholesale segment $ 27,639 $ 35,686 $ 89,098 $ 95,309 Retail segment 24,102 14,707 68,502 23,173 Corporate and Other ( 12,254 ) ( 15,979 ) ( 29,629 ) ( 31,804 ) Consolidated operating income 39,487 34,414 127,971 86,678 Interest expense ( 160 ) ( 298 ) ( 713 ) ( 1,103 ) Interest income 806 285 1,029 902 Other income (expense), net ( 1,460 ) 6,532 ( 522 ) 7,995 Income before income taxes $ 38,673 $ 40,933 $ 127,765 $ 94,472 Note 14: Income Taxes 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. 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. 20 Table of Contents The following is a reconciliation of the numerators and denominators we used in our computations of basic and diluted earnings per share: Quarter Ended Nine Months Ended (Unaudited, amounts in thousands, except per share data) 1/22/2022 1/23/2021 1/22/2022 1/23/2021 Numerator (basic and diluted): Net income attributable to La-Z-Boy Incorporated $ 28,467 $ 29,232 $ 92,549 $ 68,965 Income allocated to participating securities — ( 9 ) ( 6 ) ( 33 ) Net income available to common Shareholders $ 28,467 $ 29,223 $ 92,543 $ 68,932 Denominator: Basic weighted average common shares outstanding 43,701 46,261 44,342 46,064 Contingent common shares 55 224 59 195 Stock option dilution 212 333 239 148 Diluted weighted average common shares outstanding 43,968 46,818 44,640 46,407 Earnings per Share: Basic $ 0.65 $ 0.63 $ 2.09 $ 1.50 Diluted $ 0.65 $ 0.62 $ 2.07 $ 1.49 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 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. 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. 21 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 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 January 22, 2022 Fair Value Measurements (Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total Assets Marketable securities $ — $ 36,381 $ — $ 7,318 $ 43,699 Held-to-maturity investments 1,391 — — — 1,391 Cost basis investments — — 7,579 — 7,579 Total assets $ 1,391 $ 36,381 $ 7,579 $ 7,318 $ 52,669 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 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 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 nine months ended January 22, 2022. 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 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 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. 22 Table of Contents