Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We have prepared this Management's Discussion and Analysis as an aid to understanding our financial results. It should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to Consolidated Financial Statements. It also includes management’s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. See "Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report for a discussion of factors that may cause results to differ materially. Note that our 2022 fiscal year included 53 weeks, whereas 2021 and 2020 fiscal years included 52 weeks.
Introduction
Our Business
We are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the United States . The La-Z-Boy Furniture Galleries ® stores retail network is the third largest retailer of single-branded furniture in the United States . We manufacture, market, import, export, distribute and retail upholstery furniture products under the La-Z-Boy ® , England, Kincaid ® , and Joybird ® tradenames. In addition, we import, distribute and retail accessories and casegoods (wood) furniture products under the Kincaid ® , American Drew ® , Hammary ® , and Joybird ® tradenames.
As of April 30, 2022, our supply chain operations included the following:
• Five major manufacturing locations and nine regional distribution centers in the United States and five facilities in Mexico to support our speed-to-market and customization strategy
• A logistics company that distributes a portion of our products in the United States
• A wholesale sales office that is responsible for distribution of our product in the United Kingdom and Ireland
• An upholstery manufacturing business in the United Kingdom
• A global trading company in Hong Kong which helps us manage our Asian supply chain by establishing and maintaining relationships with our Asian suppliers, as well as identifying efficiencies and savings opportunities
We also participate in two consolidated joint ventures in Thailand that support our international businesses: one that operates a manufacturing facility and another that operates a wholesale sales office. Additionally, we have contracts with several suppliers in Asia to produce products that support our pure import model for casegoods.
22
Table of Contents
We sell our products through multiple channels: to furniture retailers or distributors in the United States, Canada, and approximately 55 other countries, including the United Kingdom, China, Australia, South Korea and New Zealand; directly to consumers through retail stores that we own and operate; and through our websites, www.la-z-boy.com and www.joybird.com.
• The centerpiece of our retail distribution strategy is our network of 348 La-Z-Boy Furniture Galleries ® stores and 531 La-Z-Boy Comfort Studio ® locations, each dedicated to marketing our La-Z-Boy branded products. We consider this dedicated space to be "proprietary."
◦ La-Z-Boy Furniture Galleries ® stores help consumers furnish their homes by combining the style, comfort, and quality of La-Z-Boy furniture with our available design services. We own 161 of the La-Z-Boy Furniture Galleries ® stores, while the remainder are independently owned and operated.
◦ La-Z-Boy Comfort Studio ® locations are defined spaces within larger independent retailers that are dedicated to displaying and selling La-Z-Boy branded products. All 531 La-Z-Boy Comfort Studio ® locations are independently owned and operated.
◦ In total, we have approximately 7.6 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America.
◦ We also have approximately 3.0 million square feet of floor space outside of the United States and Canada dedicated to selling La-Z-Boy branded products.
• Our other brands, England, American Drew, Hammary, and Kincaid enjoy distribution through many of the same outlets, with slightly over half of Hammary’s sales originating through the La-Z-Boy Furniture Galleries ® store network.
◦ Kincaid and England have their own dedicated proprietary in-store programs with 637 outlets and approximately 1.9 million square feet of proprietary floor space.
◦ In total, our proprietary floor space includes approximately 12.5 million square feet worldwide.
• Joybird sells product primarily online and has a limited amount of proprietary retail showroom floor space including small format stores in key urban markets.
Our goal is to deliver value to our shareholders over the long term through executing our strategic initiatives. The foundation of our strategic initiatives is driving profitable sales growth in all areas of our business.
We plan to drive growth in the following ways:
• Leveraging and reinvigorating our brand with a consumer focus and expanded omni-channel presence. Our strategic initiatives to leverage and reinvigorate our iconic La-Z-Boy brand center on a renewed focus on leveraging the compelling La-Z-Boy comfort message, accelerating our omni-channel offering, and identifying additional consumer-based growth opportunities. Our marketing platform featuring celebrity brand ambassador Kristen Bell drives brand recognition and injects youthful style and sensibility into our marketing campaign, which enhances the appeal of our brand with a younger consumer base. Further, our goal is to connect with consumers along their purchase journey through multiple means, whether online or in person. We are driving change throughout our digital platforms to improve the user experience, with a specific focus on the ease with which customers browse through our broad product assortment, customize products to their liking, find stores to make a purchase, or purchase at www.la-z-boy.com.
• Expanding the reach of our branded distribution channels, which include the La-Z-Boy Furniture Galleries ® store network and the La-Z-Boy Comfort Studio ® locations, our store-within-a-store format . While the consumer’s purchase journey may start digitally, our consumers also demonstrate an affinity for visiting our stores to shop, allowing us to frequently deliver the flagship La-Z-Boy Furniture Galleries ® store, or La-Z-Boy Comfort Studio ® , experience and provide design services. We expect our strategic initiatives in this area to generate growth in our Retail segment through an increased company-owned store count and in our Wholesale segment as our proprietary distribution network expands. We are not only focused on growing the number of locations, but also on upgrading existing store locations to our new concept designs.
• Growing our company-owned retail business. We are focused on growing this business by increasing same-store sales through improved execution at the store level and by opportunistically acquiring existing La-Z-Boy Furniture Galleries ® stores and opening new La-Z-Boy Furniture Galleries ® stores, primarily in markets that can be serviced through our regional distribution centers, where we see opportunity for growth, or where we believe we have opportunities for further market penetration.
23
Table of Contents
• Accelerating the growth of the Joybird brand. During fiscal 2019, we purchased Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture with a direct-to-consumer model. We believe that Joybird is a brand with significant potential and our strategic initiatives in this area focus on fueling profitable growth through an increase in digital marketing spend to drive awareness and customer acquisition, ongoing investments in technology, an expansion of product assortment, and providing additional small format stores in key urban markets to enhance our consumers' omni-channel experience.
• Enhancing our enterprise capabilities to support the growth of our consumer brands and enable potential acquisitions for growth. In addition to our branded distribution channels, approximately 2,200 other dealers sell La-Z-Boy products, providing us the benefit of multi-channel distribution. These outlets include some of the best-known names in the industry, including Slumberland, Nebraska Furniture Mart, Mathis Brothers and Raymour & Flanagan. We believe there is significant growth potential for our consumer brands through these retail channels. Our strategic initiatives focus on enhancing our enterprise capabilities to support the growth of our consumer brands and improving the agility of our supply chain so that it can more broadly support all our consumer brands.
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 161 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.
Impact of COVID-19
For a discussion of how COVID-19 has impacted and may continue to impact our business and financial condition, please refer to the discussion under the heading " COVID-19 Impact " in Part I, Item 1 of this report.
Results of Operations
The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2022 as compared with fiscal year 2021. See “Results of Operations” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2021 Annual Report on Form 10-K, filed with the SEC on June 15, 2021, for an analysis of the fiscal year 2021 results as compared to fiscal year 2020.
24
Table of Contents
Fiscal Year 2022 and Fiscal Year 2021
La-Z-Boy Incorporated
(53 weeks) (52 weeks) (FY22 vs FY21)
(Amounts in thousands, except percentages) 4/30/2022 4/24/2021 % Change
Sales $ 2,356,811 $ 1,734,244 35.9 %
Operating income 206,756 136,736 51.2 %
Operating margin 8.8% 7.9%
Sales
Consolidated sales in fiscal 2022 increased 36%, or $622.6 million, compared with the prior year. We estimate the additional week in fiscal 2022 contributed $48.9 million to the increase based on the average weekly sales for the fourth quarter of fiscal 2022. Since retail and manufacturing locations reopened after COVID-related shutdowns at the beginning of fiscal 2021, we have experienced strong written order trends while facing challenges in the global supply chain. In response to heightened demand, we have expanded our manufacturing capacity, increased our strategic raw material reserves, and taken pricing and surcharge actions to counteract rising materials and freight costs. Despite continued supply chain headwinds, the ongoing impact of these strategic actions and sustained demand led to record sales in fiscal 2022.
Operating Margin
Operating margin, which is calculated as operating income as a percentage of sales, increased 90 basis points in fiscal 2022 compared with the prior year.
• Gross margin decreased 380 basis points during fiscal 2022 compared with fiscal 2021.
◦ Continued increases in demand, as well as availability challenges in the global supply chain caused by the COVID-19 pandemic led to raw material and freight cost inflation. In response, we took pricing and surcharge actions which partially offset rising costs and were increasingly realized in the second half of the fiscal year.
◦ The expansion of our manufacturing capacity, in response to increased demand and sustained backlog, has led to higher production costs. Further, continued labor challenges and shortages of component parts resulted in temporary plant inefficiencies at various points throughout the fiscal year.
• Selling, general, and administrative ("SG&A") expense as a percentage of sales decreased 470 basis points during fiscal 2022 compared with fiscal 2021.
◦ Changes in the fair value of the Joybird contingent consideration liability resulted in a comparative 100 basis point decrease in SG&A as a percentage of sales. During fiscal 2021 we recognized a $14.1 million pre-tax charge resulting from the increase in the fair value of the Joybird contingent consideration liability based on improved financial projections at that time. During fiscal 2022 we recognized a $3.3 million pre-tax gain to reduce the fair value of the Joybird contingent consideration liability based on our most recent projections for the fiscal 2023 performance period.
◦ During the fourth quarter of fiscal 2022, we recognized a $10.7 million gain on sale-leaseback transactions for the buildings and related fixed assets of three retail stores, resulting in a 50 basis point decrease in SG&A as a percentage of sales.
◦ Fiscal 2022 included a gain resulting from the sale of our Newton, Mississippi manufacturing facility while fiscal 2021 included expenses resulting from our business realignment plan. These actions resulted in a comparative 30 basis point decrease in SG&A as a percentage of sales in fiscal 2022.
◦ The remaining decrease in SG&A as a percentage of sales in fiscal 2022 was due to higher sales volume relative to fixed costs.
We explain these items further when we discuss each segment's results later in this Management's Discussion and Analysis.
25
Table of Contents
Wholesale Segment
(53 weeks) (52 weeks) (FY22 vs FY21)
(Amounts in thousands, except percentages) 4/30/2022 4/24/2021 % Change
Sales $ 1,768,838 $ 1,301,298 35.9 %
Operating income 134,013 134,312 (0.2) %
Operating margin 7.6% 10.3%
Sales
The Wholesale segment's sales increased 36%, or $467.5 million, in fiscal 2022 compared with fiscal 2021. Approximately half of the sales increase during fiscal 2022 was the result of higher volume driven by increased demand following the reopening of our stores after COVID-related shutdowns at the beginning of fiscal 2021. Since that time, we have continued to expand and scale our manufacturing capabilities to meet demand and work through our record backlog resulting in significant sales growth. Further, we estimate the additional week in fiscal 2022 compared with fiscal 2021 contributed a $36.6 million increase in sales, based on the average weekly sales for the fourth quarter of fiscal 2022. The remaining increase in sales was primarily attributable to pricing and surcharge actions taken in response to rising manufacturing and freight costs, which were increasingly realized in the second half of fiscal 2022.
Operating Margin
The Wholesale segment's operating margin decreased 270 basis points in fiscal 2022 compared with fiscal 2021.
• Gross margin decreased 400 basis points during fiscal 2022 compared with fiscal 2021.
◦ Higher demand and global supply chain challenges led to rising raw material and freight costs, resulting in a 720 basis point decrease in gross margin.
◦ Pricing and surcharge actions taken to mitigate rising raw material and freight costs were increasingly realized over the course of fiscal 2022 as our backlog delayed the full benefit of these actions, resulting in a 550 basis point increase in gross margin.
◦ Continued manufacturing expansion, in response to significant increases in written order demand, along with temporary component part unavailability, and sustained labor challenges drove an increase in production costs resulting in a 240 basis point decrease in gross margin.
• SG&A expense as a percentage of sales decreased 130 basis points during fiscal 2022 compared with fiscal 2021.
◦ The decrease in SG&A as a percentage of sales in fiscal 2022 was primarily due to higher sales volume relative to both fixed costs and marketing spend.
◦ Fiscal 2022 included a gain resulting from the sale of our Newton, Mississippi manufacturing facility while fiscal 2021 included expenses resulting from our business realignment plan. These actions resulted in a comparative 30 basis point decrease in SG&A as a percentage of sales in fiscal 2022.
Retail Segment
(53 weeks) (52 weeks) (FY22 vs FY21)
(Amounts in thousands, except percentages) 4/30/2022 4/24/2021 % Change
Sales $ 804,394 $ 612,906 31.2 %
Operating income 109,546 46,724 134.5 %
Operating margin 13.6% 7.6%
Sales
The Retail segment's sales increased $191.5 million, or 31%, in fiscal 2022 compared with fiscal 2021 led by a 28% increase in delivered same-stores sales. Additionally, the Retail segment benefited from a $31.9 million increase in sales related to our fiscal 2022 retail store acquisitions and the full-year impact of our fiscal 2021 retail store acquisition (refer to Note 2, Acquisitions for further information). Further, we estimate the additional week in fiscal 2022 compared with fiscal 2021 contributed a $16.6 million increase in sales based on the average weekly sales for the fourth quarter of fiscal 2022.
26
Table of Contents
Since the reopening of our retail stores in the beginning of fiscal 2021, demand for products in the home furnishings category has increased and we have experienced strong sales trends. While written same-store sales in fiscal 2022 were relatively flat compared with fiscal 2021, compared to pre-pandemic fiscal 2020, written same-store sales have increased at a compound annual growth rate of 15%. Same-store sales include the sales of all currently active stores which were open for each comparable period.
Operating Margin
The Retail segment's operating margin increased 600 basis points in fiscal 2022 compared with the prior year.
• Gross margin decreased 90 basis points during fiscal 2022 compared with fiscal 2021, primarily due to the timing difference between higher product costs resulting from the pricing and surcharge actions taken by our manufacturing business and pricing actions taken by the Retail business which are realized upon delivery.
• SG&A expense as a percentage of sales decreased 690 basis points during fiscal 2022 compared with fiscal 2021, primarily due to higher delivered sales relative to selling expenses, marketing spend, and fixed costs, primarily occupancy expenses. Additionally, during the fourth quarter of fiscal 2022, we recognized a $10.7 million gain on sale-leaseback transactions for the buildings and related fixed assets of three retail stores, resulting in a 130 basis point decrease in SG&A expense as a percentage of sales.
Corporate and Other
(53 weeks) (52 weeks) (FY22 vs FY21)
(Amounts in thousands, except percentages) 4/30/2022 4/24/2021 % Change
Sales $ 195,959 $ 127,370 53.9 %
Eliminations (412,380) (307,330) 34.2 %
Operating loss (36,803) (44,300) (16.9) %
Sales
Sales increased $68.6 million in fiscal 2022 compared with fiscal 2021, primarily due to a $67.2 million, or 62% increase from Joybird, which contributed $176.4 million in sales in fiscal 2022. Of that increase, we estimate $3.8 million was attributable to the additional week in fiscal 2022 compared with fiscal 2021, based on the average weekly sales for the fourth quarter of fiscal 2022. The additional growth in Joybird sales was primarily driven by increased demand for products in the home furnishings category, investments in marketing and website enhancements resulting in higher online conversion, increased pricing and favorable product mix, and the addition of retail store locations. Further, sales in fiscal 2021 were negatively impacted by COVID-19, although to a lesser extent than our other retail businesses as Joybird primarily operates in the online, direct-to-consumer marketplace. Written sales for Joybird were up 27% in fiscal 2022 compared with fiscal 2021, driven by growth of the brand behind significant investments in marketing.
Intercompany eliminations increased in fiscal 2022 compared with fiscal 2021 due to higher sales from our Wholesale segment to our Retail segment, driven by increased sales in the Retail segment.
Operating Loss
Our Corporate and Other operating loss was $7.5 million lower in fiscal 2022 compared with fiscal 2021.
• Changes in the fair value of the Joybird contingent consideration liability resulted in a comparative $17.4 million decrease in operating loss. During fiscal 2021, we recognized a $14.1 million pre-tax charge resulting from the increase in the fair value of the Joybird contingent consideration liability based on financial projections at that time. During fiscal 2022, we recognized a $3.3 million pre-tax gain to reduce the fair value of the Joybird contingent consideration liability based on our most recent projections for the fiscal 2023 performance period.
• The items above were partially offset by decreased operating profits at Joybird as a result of significant investments in marketing to drive customer acquisition and awareness combined with rising raw material and freight costs due to higher demand and global supply chain challenges.
• Increased investments in our technology infrastructure further offset the comparative gain noted above.
27
Table of Contents
Non-Operating Income (Expense)
Interest Expense and Interest Income
Interest expense was $0.5 million lower and interest income was $0.2 million higher in fiscal 2022 compared with fiscal 2021. The decrease in interest expense was primarily due to lower rates associated with our new credit facility entered into during the second quarter of fiscal 2022. Refer to Note 10, Debt, to our consolidated financial statements for additional information.
Other Income (Expense), Net
Other income (expense), net was $1.7 million of expense in fiscal 2022 compared with $9.5 million of income in fiscal 2021. The expense in fiscal 2022 was primarily due to unrealized losses on investments. The income in fiscal 2021 was primarily due to the benefit of $5.2 million of payroll tax credits resulting from the CARES Act along with unrealized gains on investments.
Income Taxes
Our effective income tax rate was 25.9% for fiscal 2022 and 26.3% for fiscal 2021.
Impacting our effective tax rate for fiscal 2022 was a net tax benefit of $0.7 million from the tax effect of the fair value adjustment of contingent consideration liability related to the Joybird acquisition.
Liquidity and Capital Resources
Our sources of liquidity include cash and equivalents, short-term and long-term investments, cash from operations, and amounts available under our credit facility. We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, invest in capital expenditures, and fulfill other cash requirements for day-to-day operations, including fiscal 2023 contractual obligations.
We had cash, cash equivalents and restricted cash of $248.9 million at April 30, 2022, compared with $394.7 million at April 24, 2021. Included in our cash, cash equivalents and restricted cash at April 30, 2022, is $54.7 million held by foreign subsidiaries, the majority of which we have determined to be permanently reinvested. In addition, we had investments to enhance our returns on cash of $27.2 million at April 30, 2022, compared with $32.5 million at April 24, 2021.
The following table illustrates the main components of our cash flows:
Fiscal Year Ended
(53 weeks) (52 weeks)
(Amounts in thousands) 4/30/2022 4/24/2021
Cash Flows Provided By (Used For)
Net cash provided by operating activities (1)
$ 79,004 $ 309,917
Net cash used for investing activities (78,371) (40,703)
Net cash used for financing activities (144,561) (141,054)
Exchange rate changes (1,919) 3,015
Change in cash, cash equivalents and restricted cash $ (145,847) $ 131,175
(1) The decrease in net cash provided by operating activities year over year is primarily due to the significant increase in customer deposits during fiscal 2021 resulting from a surge in written sales once retail stores reopened, along with a significant increase in inventory balances in fiscal 2022 to support increased sales demand and manufacturing capacity.
Operating Activities
During fiscal 2022, net cash provided by operating activities was $79.0 million. Our cash provided by operating activities was primarily attributable to net income, adjusted for non-cash items, generated during the period partially offset by an increase in working capital. The increase in working capital was led by higher inventory to ensure input material availability to support increased sales demand and manufacturing capacity along with higher receivables due to increased sales.
28
Table of Contents
During fiscal 2021, net cash provided by operating activities was $309.9 million. Our cash provided by operating activities was primarily attributable to a $140.0 million increase in customer deposits driven by the increase in written Retail and Joybird sales in the period and net income, adjusted for non-cash items, generated during the period.
Investing Activities
During fiscal 2022, net cash used for investing activities was $78.4 million, primarily due to the following:
• Cash used for capital expenditures in the period was $76.6 million, which primarily related to plant upgrades to our upholstery manufacturing and distribution facilities in Neosho, Missouri, improvements to our retail stores, new upholstery manufacturing capacity in Mexico, and technology upgrades. We expect capital expenditures to be in the range of $85 to 95 million for fiscal 2023, primarily related to improvements and expansion of our retail and Joybird stores, the completion of plant upgrades to our upholstery manufacturing and distribution facilities in Neosho, Missouri, and technology upgrades. We have no material contractual commitments outstanding for future capital expenditures.
• Cash used for acquisitions was $26.3 million, related to the acquisition of the Furnico manufacturing business in the United Kingdom and the Alabama, Chattanooga, Tennessee, and Long Island, New York retail businesses. Refer to Note 2, Acquisitions, for additional information.
• Cash provided from disposals of assets was $22.6 million, primarily related to sale-leaseback transactions for the buildings and related fixed assets of three retail stores.
During fiscal 2021, net cash used for investing activities was $40.7 million, primarily due to the following:
• Cash used for capital expenditures in the period was $38.0 million, which primarily related to spending on manufacturing machinery and equipment, improvements to select retail stores, costs for new production capacity in Mexico, and upgrades to our upholstered furniture manufacturing facility in Dayton, Tennessee.
• Cash used for acquisitions was $2.0 million, related to the acquisition of the Seattle, Washington retail business.
Financing Activities
On October 15, 2021, we entered into a new five-year $200 million unsecured revolving credit facility (the “Credit Facility”). Borrowings under the Credit Facility may be used by the Company for general corporate purposes. 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 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 April 30, 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 April 30, 2022, we were in compliance with our financial covenants under the Credit Facility. We believe our cash on hand, in addition to our available Credit Facility, will provide adequate liquidity for our business operations over the next 12 months.
The Credit Facility replaces our previous $150 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.
During fiscal 2022, net cash used for financing activities was $144.6 million, primarily due to the following:
• Our board of directors has authorized the repurchase of Company stock and we spent $90.6 million during fiscal 2022 to repurchase 2.5 million shares.
• Cash paid for holdback payments made on prior-period acquisitions was $23.0 million, which primarily included contingent consideration and guaranteed payments related to the acquisition of Joybird and guaranteed payments related to the acquisition of the Seattle, Washington retail business.
• Cash paid to our shareholders in quarterly dividends was $27.7 million. Our board of directors has sole authority to determine if and when we will declare future dividends and on what terms. We expect the board to continue declaring regular quarterly cash dividends for the foreseeable future, but it may discontinue doing so at any time.
29
Table of Contents
During fiscal 2021, net cash used for financing activities was $141.1 million, primarily due to the following:
• Cash payments of $75.1 million on our previously held revolving credit facility.
• Cash paid to repurchase 1.1 million shares of Company stock was $44.2 million.
• Cash paid to our shareholders in quarterly dividends was $16.5 million.
• Cash paid in dividends to our joint venture minority partners, resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested, was $8.5 million.
Exchange Rate Changes
Due to changes in exchange rates, our cash, cash equivalents, and restricted cash decreased by $1.9 million from the end of fiscal year 2021 to the end of fiscal year 2022. These changes impacted our cash balances held in Canada, Thailand, and the United Kingdom.
Contractual Obligations
Lease Obligations. We lease real estate for retail stores, distribution centers, warehouses, plants, showrooms and office space and also have equipment leases for tractors/trailers, IT and office equipment, and vehicles. As of April 30, 2022, we had operating and finance lease payment obligations of $477.1 million and $0.5 million, respectively, with $86.6 million and $0.1 million, payable within 12 months, respectively. Refer to Note 6, Leases, to our consolidated financial statements for additional information.
Purchase Obligations. We had purchase obligations of $267.9 million, all payable within 12 months, related to open purchase orders, primarily with foreign and domestic casegoods, leather, and fabric suppliers, which are generally cancellable if production has not begun.
Acquisition Payment Obligations. Consideration for prior acquisitions may include future guaranteed payments and payments contingent on future performance. As of April 30, 2022, we had future guaranteed payments and contingent payments related to our Joybird acquisition of $10.8 million with $5.0 million payable within 12 months.
Other
Our consolidated balance sheet as April 30, 2022 reflected a $1.0 million net liability for uncertain income tax positions. We do not expect that the net liability for uncertain income tax positions will significantly change within the next 12 months. The remaining balance will be settled or released as tax audits are effectively settled, statutes of limitation expire, or other new information becomes available.
We do not expect our continuing compliance with existing federal, state and local statutes dealing with protection of the environment to have a material effect on our capital expenditures, earnings, competitive position or liquidity.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles ("US GAAP"). In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures. We base our estimates on currently known facts and circumstances, prior experience and other assumptions we believe to be reasonable. We use our best judgment in valuing these estimates and may, as warranted, use external advice. Actual results could differ from these estimates, assumptions, and judgments and these differences could be significant. We make frequent comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments. We record adjustments when differences are known. We consider the following accounting estimates to be critical as they require us to make assumptions that are uncertain at the time the estimate was made and changes to the estimate would have a material impact on our financial statements.
Indefinite-Lived Intangible Assets and Goodwill
Indefinite-lived intangible assets include our American Drew trade name and the reacquired right to own and operate La-Z-Boy Furniture Galleries ® stores we have acquired. Prior to our retail acquisitions, we licensed the exclusive right to own and operate
30
Table of Contents
La-Z-Boy Furniture Galleries ® stores (and to use the associated trademarks and trade name) in those markets to the dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers' other assets. The reacquired right to own and operate La-Z-Boy Furniture Galleries ® stores are indefinite-lived because our retailer agreements are perpetual agreements that have no specific expiration date and no renewal options. A Retailer Agreement remains in effect as long as the independent retailer is not in default under the terms of the agreement.
Our goodwill relates to the acquisitions of La-Z-Boy Furniture Galleries ® stores, the La-Z-Boy wholesale business in the United Kingdom and Ireland, the La-Z-Boy manufacturing business in the United Kingdom, and Joybird ® , an e-commerce retailer and manufacturer of upholstered furniture. The reporting unit for goodwill arising from retail store acquisitions is our Retail operating segment. The reporting unit for goodwill arising from the acquisition of the La-Z-Boy wholesale business in the United Kingdom and Ireland, the acquisition of the La-Z-Boy manufacturing business in the United Kingdom, and the acquisition of Joybird is each respective business.
We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value might be impaired. We have the option to first assess qualitative factors in order to determine if it is more likely than not that the fair value of our intangible assets or reporting units are greater than their carrying value. If the qualitative assessment leads to a determination that the intangible asset/reporting unit’s fair value may be less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test by calculating the fair value of the intangible asset/reporting unit and comparing the fair value with its associated carrying value. When we perform the quantitative test for indefinite-lived intangible assets, we establish the fair value of our indefinite-lived trade names and reacquired rights based upon the relief from royalty method, which requires the use of significant estimates and assumptions including forecasted sales growth and royalty rates. When we perform the quantitative test for goodwill, we establish the fair value for the reporting unit based on the income approach in which we utilize a discounted cash flow model. This approach requires the use of significant estimates and assumptions including forecasted sales growth, operating income projections, and discount rates and changes in these assumptions may materially impact our fair value assessment. Refer to Note 7, Goodwill and Other Intangible Assets, for further information regarding our fiscal 2022 impairment testing.
Product Warranties
We account for product warranties by accruing an estimated liability when we recognize revenue on the sale of warrantied product. We estimate future warranty claims on product sales based on claim experience and periodically make adjustments to reflect changes in actual experience. We incorporate repair costs in our liability estimates, including materials, labor, and overhead amounts necessary to perform repairs, and any costs associated with delivering repaired product to our customers and consumers. We use considerable judgment in making our estimates and record differences between our estimated and actual costs when the differences are known.
Stock-Based Compensation
We measure stock-based compensation cost for equity-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period. We measure stock-based compensation cost for liability-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period. We remeasure the liability for these awards and adjust their fair value at the end of each reporting period until paid. We recognize compensation cost for stock-based awards that vest based on performance conditions ratably over the vesting periods when the vesting of such awards becomes probable. Determining the probability of award vesting requires judgment, including assumptions about future operating performance. While the assumptions we use to calculate and account for stock-based compensation awards represent management's best estimates, these estimates involve inherent uncertainties and the application of our management's best judgment. As a result, if we revise our assumptions and estimates, our stock-based compensation expense could be materially different in the future.
We estimate the fair value of each option grant using a Black-Scholes option-pricing model. We estimate expected volatility based on the historic volatility of our common shares. We estimate the average expected life using the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. We base the risk-free rate on U.S. Treasury issues with a term equal to the expected life assumed at 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 estimate the fair value of each performance award grant that vests based on a market condition using a Monte Carlo valuation model. The Monte Carlo model incorporates more complex variables than closed-form models such as the Black-
31
Table of Contents
Scholes option valuation model used for option grants. The Monte Carlo valuation model simulates a distribution of stock prices to yield an expected distribution of stock prices over the remaining performance period. The stock-paths are simulated using volatilities calculated with historical information using data from a look-back period that is equal to the vesting period. The model assumes a zero-coupon, risk-free interest rate with a term equal to the vesting period. The simulations are repeated many times and the mean of the discounted values is calculated as the grant date fair value for the award. The final payout of the award as calculated by the model is then discounted back to the grant date using the risk-free interest rate.
Recent Accounting Pronouncements
See Note 1, Accounting Policies, to our consolidated financial statements included in this Form 10-K for a discussion of recently adopted accounting standards and other new accounting standards.