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Item 1. Financial Statements

2022-08-23 compared with 2022-02-15 · 75 added, 216 removed, 456 unchanged (39% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENT OF INCOME

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands, except per share data) 7/30/2022 7/24/2021

19 unchanged sentences

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/30/2022 7/24/2021

2 unchanged sentences

Currency translation adjustment ( 2,160 ) ( 1,242 )

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

Net unrealized gain on marketable securities, net of tax 86 448

Net pension amortization, net of tax 36 62

Total other comprehensive income (loss) ( 2,038 ) ( 732 )

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 )

Total comprehensive income before noncontrolling interests 36,902 24,534

Comprehensive (income) loss attributable to noncontrolling interests 67 ( 270 )

Comprehensive income attributable to La-Z-Boy Incorporated $ 36,969 $ 24,264

20 unchanged sentences

Accounts payable $ 123,832 $ 104,025

Lease liabilities, current 73,222 67,614

Lease liabilities, short-term 77,300 75,271

Accrued expenses and other current liabilities 437,930 496,393

17 unchanged sentences

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/30/2022 7/24/2021

3 unchanged sentences

(Gain)/loss on disposal of assets ( 4 ) 44

Gain on sale of investments ( 340 ) ( 438 )

(Gain)/loss on sale of investments 30 ( 256 )

Provision for doubtful accounts 293 ( 611 )

19 unchanged sentences

Payments on debt and finance lease liabilities ( 31 ) ( 30 )

Holdback payments for acquisition purchases ( 23,000 ) ( 5,783 )

Stock issued for stock and employee benefit plans, net of shares withheld for taxes ( 1,703 ) ( 2,228 )

1 unchanged sentence

Dividends paid to shareholders ( 7,097 ) ( 6,777 )

Dividends paid to minority interest joint venture partners (1)

( 1,260 ) ( 8,507 )

Net cash used for financing activities ( 13,835 ) ( 44,675 )

5 unchanged sentences

Capital expenditures included in payables $ 7,130 $ 3,957

(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.

20 unchanged sentences

At July 30, 2022 $ 43,036 $ 343,475 $ 456,067 $ ( 7,316 ) $ 8,830 $ 844,092

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.

(Unaudited, amounts in thousands) Common

6 unchanged sentences

At April 24, 2021 $ 45,361 $ 330,648 $ 399,010 $ ( 1,521 ) $ 8,648 $ 782,146

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 — — 24,566 — 700 25,266

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

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 )

Purchases of 22 shares of common stock

Repurchases of 919 shares of common stock

( 919 ) ( 530 ) ( 34,191 ) — — ( 35,640 )

4 unchanged sentences

— — ( 46 ) — — ( 46 )

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.

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

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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The interim results reflected in the accompanying financial statements are not necessarily indicative of the results of operations that will occur for the full fiscal year ending April 29, 2023.

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.

At July 30, 2022, we owned investments in two privately-held companies consisting of non-marketable preferred shares, warrants to purchase common shares, and convertible notes.

Each of these companies is a variable interest entity and 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 2023

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

We did not adopt any Accounting Standards Updates ("ASUs") in fiscal 2023.

Accounting pronouncements not yet adopted

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

Alabama and Chattanooga, Tennessee acquisition

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

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

This acquisition reflects a core component of our strategic priorities, which is to grow our company-owned retail business and leverage our integrated retail model (where we earn a combined profit on both the wholesale and retail sales) in suitable geographic markets, alongside the existing La-Z-Boy Furniture Galleries ® network.

Prior to this acquisition, we licensed to the counterparty the exclusive right to own and operate La-Z-Boy Furniture Galleries ® stores (and to use the associated trademarks and trade name) in the Alabama and Chattanooga, Tennessee markets, and we

reacquired these rights when we consummated the transaction.

The reacquired rights are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options.

The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market.

We recorded an indefinite-lived intangible asset of $ 4.1 million related to these reacquired rights.

We also recognized $ 7.4 million of goodwill in our Retail segment related primarily to synergies we expect from the integration of the acquired stores and future benefits of these synergies.

For federal income tax purposes, we will amortize and appropriately deduct all of the indefinite-lived intangible assets and goodwill assets over 15 years.

The acquisition of the Alabama and Chattanooga, Tennessee businesses was not significant to our consolidated financial statements and, therefore, pro-forma financial information is not presented.

All of our provisional purchase accounting estimates for this acquisition are based on the information and data available to us as of the time of the issuance of these financial statements and, in accordance with Accounting Standard Codification Topic 805-10-25-15, are subject to change within the first 12 months following the acquisition as we gain additional data.

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

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

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

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

With this acquisition, we expect to realize production synergies, cost savings through materials procurement, and increases in production capacity to support growth in the La-Z-Boy U.K business.

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

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

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

Long Island, New York acquisition

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

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

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.

The acquisition noted below 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.

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.

Denver, Colorado acquisition

On July 18, 2022, we completed our acquisition of the Denver, Colorado business that operates five independently owned La-Z-Boy Furniture Galleries ® stores and one distribution center for $ 10.2 million, subject to customary adjustments.

We paid $ 7.2 million of cash during the first quarter of fiscal 2023 and the remaining consideration includes forgiveness of accounts receivable and future payments based on final working capital adjustments.

The reacquired rights are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options.

1 unchanged sentence

We recorded an indefinite-lived intangible asset of $ 4.3 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.

We also recognized $ 7.7 million of goodwill in our Retail segment related primarily to synergies we expect from the integration of the acquired stores and future benefits of these

For federal income tax purposes, we will amortize and appropriately deduct all of the indefinite-lived intangible assets and goodwill assets over 15 years.

The acquisition of the 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.

Cash and Restricted Cash

13 unchanged sentences

Total inventories $ 331,846 $ 303,191

$ 315,595 $ 226,137

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

Goodwill and Other Intangible Assets

11 unchanged sentences

Balance at April 30, 2022 (1)

$ 20,207 $ 118,951 $ 55,446 $ 194,604

Acquisitions — 7,688 — 7,688

Translation adjustment ( 630 ) 17 — ( 613 )

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

Balance at July 30, 2022 (1)

$ 19,577 $ 126,656 $ 55,446 $ 201,679

(1) Includes $ 26.9 million of accumulated impairment losses in Corporate and Other.

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

9 unchanged sentences

(Unaudited, amounts in thousands) Indefinite-

Names Finite-

Name Indefinite-

Names Finite-Lived

Trade Name Indefinite-

Balance at April 30, 2022 $ 1,155 $ 3,392 $ 27,319 $ 2,105 $ 33,971

2 unchanged sentences

Translation adjustment — — 13 ( 64 ) ( 51 )

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

Balance at July 30, 2022 $ 1,155 $ 3,192 $ 31,594 $ 1,988 $ 37,929

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.

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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).

We also hold investments of two privately-held companies consisting of non-marketable preferred shares, warrants to purchase common shares, and convertible notes (refer to Note 15, 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.

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The following table summarizes sales of marketable securities:

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/30/2022 7/24/2021

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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 .

Over 90 % of our warranty liability relates to our Wholesale reportable segment as we generally warrant our products against defects for one to three years on fabric and leather, from one to ten years on cushions and padding, and provide a limited lifetime warranty on certain mechanisms and frames, unless otherwise noted in the warranty.

Additionally, 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.

2 unchanged sentences

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

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/30/2022 (1)

1/23/2021 1/22/2022 (1) 1/23/2021

Balance as of the beginning of the period $ 27,036 $ 23,636

Acquisitions 634 — 634 —

Accruals during the period 7,826 7,214

1 unchanged sentence

Balance as of the end of the period $ 27,516 $ 24,433

(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.

(1) $ 17.1 million and $ 16.4 million is recorded in accrued expenses and other current liabilities as of July 30, 2022, and April 30, 2022, respectively, while the remainder is included in other long-term liabilities.

We recorded accruals during the periods presented in the table above, primarily to reflect charges that relate to warranties issued during the respective periods.

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

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

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

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

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.

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

Quarter Ended

(Unaudited, amounts in thousands) 7/30/2022 7/24/2021

1 unchanged sentence

Liability-based awards expense (1)

( 73 ) 587 ( 696 ) 1,925

Total stock-based compensation expense $ 1,545 $ 1,776

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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.

We recognize compensation expense for stock options over the vesting period equal to the fair value on the date the Compensation and Talent Oversight Committee of our Board approved the awards.

The vesting period for our stock options ranges from one to four years , with accelerated vesting upon retirement.

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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.

We estimate the fair value of the employee stock options at the grant date 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 2023 was calculated using the following assumptions:

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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 granted 239,883 shares of restricted stock units to employees during the first quarter of fiscal 2023 and we also have restricted stock awards outstanding from previous grants.

We issue restricted stock at no cost to employees and account for restricted stock awards as equity-based awards because when they vest, they will be settled in common shares.

We recognize compensation expense for restricted stock over the vesting period equal to the fair value on the date the Compensation and Talent Oversight Committee of our Board approved the awards.

Restricted stock awards generally vest at 25 % per year, beginning one year from the grant date over a term of four years , with continued vesting upon retirement with

respect to the fiscal 2023 grants.

The vesting date for retirement-eligible employees is the later of the date they meet the criteria for retirement or ten months after the grant date.

We accelerate the expense for restricted stock 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 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.

The weighted-average fair value of the restricted stock that was awarded in the first quarter of fiscal 2023 was $ 24.44 per share, the market value of our common shares on the dates of grant.

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 %).

During the first quarter of fiscal 2023, we granted 240,833 performance-based shares and we also have performance-based share awards outstanding from previous grants.

Payouts of these grants depend 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.

In the event of an employee's termination during the vesting period, the potential right to earn shares under this program is generally forfeited and we have elected to recognize forfeitures as an adjustment to compensation expense in the same period in which 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.

The fair value of each share of the awards we granted in fiscal 2023 that vest based on attaining performance goals was $ 22.43 , the market value of our common shares on the date we granted the awards less the value of the dividends we expect to pay shareholders 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.

3 unchanged sentences

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 )

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

The activity in accumulated other comprehensive income (loss) for the quarters ended July 30, 2022, and July 24, 2021, is as follows:

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

4 unchanged sentences

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 1,641 ) 86 36 ( 1,519 )

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

Balance at July 30, 2022 $ ( 3,602 ) $ ( 212 ) $ ( 3,502 ) $ ( 7,316 )

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

3 unchanged sentences

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 812 ) 448 62 ( 302 )

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

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

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

Quarter Ended

(Unaudited, amounts in thousands) 7/30/2022 7/24/2021

1 unchanged sentence

Net income 452 700

Other comprehensive income (loss) 101 362 ( 449 ) 939

Dividends distributed to joint venture minority partners — — ( 1,260 ) ( 8,507 )

Other comprehensive loss ( 519 ) ( 430 )

Balance as of the end of the period $ 8,830 $ 8,918

11 unchanged sentences

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

Quarter Ended July 30, 2022 Quarter Ended July 24, 2021

(Unaudited, amounts in thousands) Wholesale Retail Corporate

7 unchanged sentences

Delivery 56,237 7,054 1,902 65,193 38,829 6,840 1,767 47,436

Other (1) 61,086 57,105 ( 37,891 ) 80,300 ( 18,094 ) 43,154 ( 18,451 ) 6,609

27,097 21,713 ( 12,143 ) 36,667 5,139 18,882 ( 10,977 ) 13,044

Total $ 441,818 $ 236,021 $ 48,730 $ 726,569 $ 393,499 $ 181,847 $ 43,634 $ 618,980

3 unchanged sentences

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.

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.

16 unchanged sentences

$ 272,825 $ 322,239

(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.

(1) During the quarter ended July 30, 2022, we recognized revenue of $ 192.4 million related to our contract liability balance at April 30, 2022.

Segment Information

13 unchanged sentences

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.

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.

1 unchanged sentence

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

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/30/2022 7/24/2021

19 unchanged sentences

Income before income taxes $ 53,003 $ 34,084

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 was 26.5 % for the first quarter ended July 30, 2022, compared with 25.9 % for the first quarter ended July 24, 2021.

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

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.

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

Quarter Ended

(Unaudited, amounts in thousands, except per share data) 7/30/2022 7/24/2021

10 unchanged sentences

Diluted $ 0.89 $ 0.54

(1) 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.

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.

For the quarter ended July 30, 2022, we excluded options to purchase 1.5 million shares from the diluted share calculation.

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

Fair Value Measurements

8 unchanged sentences

We measure non-financial assets such as other intangible assets, goodwill, and other long-lived assets at fair value when there is an indicator of impairment, and we record them at fair value only when we recognize an impairment loss.

The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at January 22, 2022 and April 24, 2021.

The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at July 30, 2022 and April 30, 2022.

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

At July 30, 2022

Fair Value Measurements

14 unchanged sentences

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

At 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.

At July 30, 2022 and April 30, 2022, we held marketable securities intended to enhance returns on our cash and 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 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.

At July 30, 2022 and April 30, 2022, our Level 3 assets included investments in two privately-held companies consisting of non-marketable preferred shares, warrants to purchase common shares, and convertible notes.

The fair value of these equity investments (preferred shares and warrants) is not readily determinable and therefore, 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.

The convertible notes are recorded at fair value with the net unrealized gains and losses (that are deemed to be temporary) reported as a component of other comprehensive income, consistent with our other available-for-sale debt securities.

There were no changes to the fair value of our Level 3 assets during the quarter ended July 30, 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 of our contingent consideration liability as of July 30, 2022 reflects our expectation that consideration will be owed under the terms of the earnout 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 4.5 %.

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.

There were no changes to the fair value of our Level 3 liabilities during the quarter ended July 30, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements