LA-Z-BOY INC 10-Q

ITEM 1. FINANCIAL STATEMENTS LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF INCOME Quarter Ended (Unaudited, amounts in thousands, except per share data) 7/30/2022 7/24/2021 Sales $ 604,091 $ 524,783 Cost of sales 362,631 322,701 Gross profit 241,460 202,082 Selling, general and administrative expense 188,817 167,711 Operating income 52,643 34,371 Interest expense ( 159 ) ( 311 ) Interest income 474 117 Other income (expense), net 45 ( 93 ) Income before income taxes 53,003 34,084 Income tax expense 14,063 8,818 Net income 38,940 25,266 Net income attributable to noncontrolling interests ( 452 ) ( 700 ) Net income attributable to La-Z-Boy Incorporated $ 38,488 $ 24,566 Basic weighted average common shares 43,092 45,072 Basic net income attributable to La-Z-Boy Incorporated per share $ 0.89 $ 0.54 Diluted weighted average common shares 43,142 45,404 Diluted net income attributable to La-Z-Boy Incorporated per share $ 0.89 $ 0.54 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 (Unaudited, amounts in thousands) 7/30/2022 7/24/2021 Net income $ 38,940 $ 25,266 Other comprehensive income (loss) Currency translation adjustment ( 2,160 ) ( 1,242 ) 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 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 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) 7/30/2022 4/30/2022 Current assets Cash and equivalents $ 238,170 $ 245,589 Restricted cash 3,267 3,267 Receivables, net of allowance of $ 3,665 at 7/30/2022 and $ 3,406 at 4/30/2022 156,027 183,747 Inventories, net 331,846 303,191 Other current assets 190,516 215,982 Total current assets 919,826 951,776 Property, plant and equipment, net 262,620 253,144 Goodwill 201,679 194,604 Other intangible assets, net 37,929 33,971 Deferred income taxes – long-term 10,041 10,632 Right of use lease assets 409,051 405,755 Other long-term assets, net 77,839 82,207 Total assets $ 1,918,985 $ 1,932,089 Current liabilities Accounts payable $ 123,832 $ 104,025 Lease liabilities, short-term 77,300 75,271 Accrued expenses and other current liabilities 437,930 496,393 Total current liabilities 639,062 675,689 Lease liabilities, long-term 357,468 354,843 Other long-term liabilities 78,363 81,935 Shareholders' equity Preferred shares – 5,000 authorized; none issued — — Common shares, $ 1.00 par value – 150,000 authorized; 43,036 outstanding at 7/30/22 and 43,089 outstanding at 4/30/22 43,036 43,089 Capital in excess of par value 343,475 342,252 Retained earnings 456,067 431,181 Accumulated other comprehensive loss ( 7,316 ) ( 5,797 ) Total La-Z-Boy Incorporated shareholders' equity 835,262 810,725 Noncontrolling interests 8,830 8,897 Total equity 844,092 819,622 Total liabilities and equity $ 1,918,985 $ 1,932,089 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 Quarter Ended (Unaudited, amounts in thousands) 7/30/2022 7/24/2021 Cash flows from operating activities Net income $ 38,940 $ 25,266 Adjustments to reconcile net income to cash provided by operating activities (Gain)/loss on disposal of assets ( 4 ) 44 (Gain)/loss on sale of investments 30 ( 256 ) Provision for doubtful accounts 293 ( 611 ) Depreciation and amortization 9,516 8,553 Amortization of right-of-use lease assets 18,845 17,245 Equity-based compensation expense 1,417 2,460 Change in deferred taxes 544 370 Change in receivables 25,098 ( 1,783 ) Change in inventories ( 25,954 ) ( 38,921 ) Change in other assets ( 1,229 ) ( 10,380 ) Change in payables 22,113 24,767 Change in lease liabilities ( 19,256 ) ( 17,263 ) Change in other liabilities ( 37,249 ) ( 3,328 ) Net cash provided by operating activities 33,104 6,163 Cash flows from investing activities Proceeds from disposals of assets 46 8 Capital expenditures ( 20,999 ) ( 19,343 ) Purchases of investments ( 2,176 ) ( 9,900 ) Proceeds from sales of investments 4,421 9,716 Acquisitions ( 7,230 ) — Net cash used for investing activities ( 25,938 ) ( 19,519 ) Cash flows from financing activities Payments on debt and finance lease liabilities ( 31 ) ( 30 ) Stock issued for stock and employee benefit plans, net of shares withheld for taxes ( 1,703 ) ( 2,228 ) Repurchases of common stock ( 5,004 ) ( 35,640 ) Dividends paid to shareholders ( 7,097 ) ( 6,777 ) Net cash used for financing activities ( 13,835 ) ( 44,675 ) Effect of exchange rate changes on cash and equivalents ( 750 ) ( 446 ) Change in cash, cash equivalents and restricted cash ( 7,419 ) ( 58,477 ) Cash, cash equivalents and restricted cash at beginning of period 248,856 394,703 Cash, cash equivalents and restricted cash at end of period $ 241,437 $ 336,226 Supplemental disclosure of non-cash investing activities Capital expenditures included in payables $ 7,130 $ 3,957 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 30, 2022 $ 43,089 $ 342,252 $ 431,181 $ ( 5,797 ) $ 8,897 $ 819,622 Net income — — 38,488 — 452 38,940 Other comprehensive loss — — — ( 1,519 ) ( 519 ) ( 2,038 ) Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 151 ( 194 ) ( 1,660 ) — — ( 1,703 ) Repurchases of 204 shares of common stock ( 204 ) — ( 4,800 ) — — ( 5,004 ) Stock option and restricted stock expense — 1,417 — — — 1,417 Dividends declared and paid ($ 0.165 /share) — — ( 7,097 ) — — ( 7,097 ) Dividends declared not paid ($ 0.165 /share) — — ( 45 ) — — ( 45 ) At July 30, 2022 $ 43,036 $ 343,475 $ 456,067 $ ( 7,316 ) $ 8,830 $ 844,092 (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 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 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 7 Table of Contents LA-Z-BOY INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries (collectively, the "Company"). We derived the April 30, 2022 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 2022 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 29, 2023. 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 We did not adopt any Accounting Standards Updates ("ASUs") in fiscal 2023. 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 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. 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. 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 Denver, Colorado 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 $ 4.3 million related to these reacquired rights. 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 8 Table of Contents synergies. For federal income tax purposes, we will amortize and appropriately deduct all of the indefinite-lived intangible assets and goodwill assets over 15 years. 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) 7/30/2022 7/24/2021 Cash and cash equivalents $ 238,170 $ 332,960 Restricted cash 3,267 3,266 Total cash, cash equivalents and restricted cash $ 241,437 $ 336,226 Note 4: Inventories A summary of inventories is as follows: (Unaudited, amounts in thousands) 7/30/2022 4/30/2022 Raw materials $ 153,299 $ 146,896 Work in process 32,671 36,834 Finished goods 209,895 185,870 FIFO inventories 395,865 369,600 Excess of FIFO over LIFO ( 64,019 ) ( 66,409 ) Total inventories $ 331,846 $ 303,191 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 30, 2022 (1) $ 20,207 $ 118,951 $ 55,446 $ 194,604 Acquisitions — 7,688 — 7,688 Translation adjustment ( 630 ) 17 — ( 613 ) 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. 9 Table of Contents 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 Intangible Assets Balance at April 30, 2022 $ 1,155 $ 3,392 $ 27,319 $ 2,105 $ 33,971 Acquisitions — — 4,262 — 4,262 Amortization — ( 200 ) — ( 53 ) ( 253 ) Translation adjustment — — 13 ( 64 ) ( 51 ) 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. 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 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. The following summarizes our investments: (Unaudited, amounts in thousands) 7/30/2022 4/30/2022 Short-term investments: Marketable securities $ 14,787 $ 16,022 Held-to-maturity investments 1,267 1,337 Total short-term investments 16,054 17,359 Long-term investments: Marketable securities 25,332 26,599 Cost basis investments 7,579 7,579 Total long-term investments 32,911 34,178 Total investments $ 48,965 $ 51,537 Investments to enhance returns on cash $ 24,914 $ 27,239 Investments to fund compensation/retirement plans 13,972 14,219 Other investments 10,079 10,079 Total investments $ 48,965 $ 51,537 10 Table of Contents The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type: 7/30/2022 4/30/2022 (Unaudited, amounts in thousands) Gross Unrealized Gains Gross Unrealized Losses Fair Value Gross Unrealized Gains Gross Unrealized Losses Fair Value Equity securities $ 1,415 $ ( 95 ) $ 13,909 $ 1,448 $ ( 86 ) $ 13,905 Fixed income 39 ( 705 ) 30,944 28 ( 809 ) 33,521 Other 1,228 — 4,112 1,250 — 4,111 Total securities $ 2,682 $ ( 800 ) $ 48,965 $ 2,726 $ ( 895 ) $ 51,537 The following table summarizes sales of marketable securities: Quarter Ended (Unaudited, amounts in thousands) 7/30/2022 7/24/2021 Proceeds from sales $ 4,246 $ 9,715 Gross realized gains 27 267 Gross realized losses ( 56 ) ( 11 ) 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) 7/30/2022 Within one year $ 14,784 Within two to five years 13,595 Within six to ten years 717 Thereafter 1,848 Total $ 30,944 Note 7: Accrued Expenses and Other Current Liabilities (Unaudited, amounts in thousands) 7/30/2022 4/30/2022 Payroll and other compensation $ 44,557 $ 62,373 Accrued product warranty, current portion 17,066 16,436 Customer deposits 164,474 183,233 Deferred revenue 108,351 139,006 Other current liabilities 103,482 95,345 Accrued expenses and other current liabilities $ 437,930 $ 496,393 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 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. 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. 11 Table of Contents A reconciliation of the changes in our product warranty liability is as follows: Quarter Ended (Unaudited, amounts in thousands) 7/30/2022 (1) 7/24/2021 Balance as of the beginning of the period $ 27,036 $ 23,636 Accruals during the period 7,826 7,214 Settlements during the period ( 7,346 ) ( 6,417 ) Balance as of the end of the period $ 27,516 $ 24,433 (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. Note 9: 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 (Unaudited, amounts in thousands) 7/30/2022 7/24/2021 Equity-based awards expense $ 1,417 $ 2,460 Liability-based awards expense (1) 128 ( 684 ) Total stock-based compensation expense $ 1,545 $ 1,776 (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 318,411 stock options to employees during the first quarter of fiscal 2023 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 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. 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 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: (Unaudited) Fiscal 2023 grant Assumption Risk-free interest rate 2.87 % U.S. Treasury issues with term equal to expected life at grant date Dividend rate 2.70 % 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 42.78 % Historical volatility of our common shares Fair value per option $ 7.90 Restricted Stock . 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 12 Table of Contents 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. 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 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. We account for performance-based shares as equity-based awards because when they vest, they will be settled in common shares. 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 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. 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 2023 grant of shares that vest based on market conditions was $ 36.63 . Note 10: Accumulated Other Comprehensive Income (Loss) 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) Balance at April 30, 2022 $ ( 1,961 ) $ ( 298 ) $ ( 3,538 ) $ ( 5,797 ) Changes before reclassifications ( 1,641 ) 55 — ( 1,586 ) Amounts reclassified to net income — 59 48 107 Tax effect — ( 28 ) ( 12 ) ( 40 ) Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 1,641 ) 86 36 ( 1,519 ) Balance at July 30, 2022 $ ( 3,602 ) $ ( 212 ) $ ( 3,502 ) $ ( 7,316 ) Balance at April 24, 2021 $ 3,041 $ 370 $ ( 4,932 ) $ ( 1,521 ) Changes before reclassifications ( 812 ) 591 — ( 221 ) Amounts reclassified to net income — 4 75 79 Tax effect — ( 147 ) ( 13 ) ( 160 ) Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 812 ) 448 62 ( 302 ) Balance at July 24, 2021 $ 2,229 $ 818 $ ( 4,870 ) $ ( 1,823 ) 13 Table of Contents 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 (Unaudited, amounts in thousands) 7/30/2022 7/24/2021 Balance as of the beginning of the period $ 8,897 $ 8,648 Net income 452 700 Other comprehensive loss ( 519 ) ( 430 ) Balance as of the end of the period $ 8,830 $ 8,918 Note 11: 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. The following table presents our revenue disaggregated by product category and by segment or unit: Quarter Ended July 30, 2022 Quarter Ended July 24, 2021 (Unaudited, amounts in thousands) Wholesale Retail Corporate and Other Total Wholesale Retail Corporate and Other Total Motion Upholstery Furniture $ 225,544 $ 135,304 $ 30 $ 360,878 $ 226,612 $ 102,504 $ 154 $ 329,270 Stationary Upholstery Furniture 104,934 59,800 51,212 215,946 91,409 42,365 47,347 181,121 Bedroom Furniture 10,664 1,870 5,008 17,542 11,925 1,985 3,248 17,158 Dining Room Furniture 6,275 3,180 1,509 10,964 6,986 3,249 1,100 11,335 Occasional Furniture 11,067 7,100 1,212 19,379 12,599 6,022 995 19,616 Delivery 56,237 7,054 1,902 65,193 38,829 6,840 1,767 47,436 Other (1) 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 Eliminations ( 122,478 ) ( 94,197 ) Consolidated Net Sales $ 604,091 $ 524,783 (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- 14 Table of Contents 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. 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) 7/30/2022 4/30/2022 Contract assets $ 108,351 $ 139,006 Customer deposits $ 164,474 $ 183,233 Deferred revenue 108,351 139,006 Total contract liabilities (1) $ 272,825 $ 322,239 (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. Note 12: 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 166 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 15 Table of Contents 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. The following table presents sales and operating income (loss) by segment: Quarter Ended (Unaudited, amounts in thousands) 7/30/2022 7/24/2021 Sales Wholesale segment: Sales to external customers $ 323,728 $ 303,617 Intersegment sales 118,090 89,882 Wholesale segment sales 441,818 393,499 Retail segment sales 236,021 181,847 Corporate and Other: Sales to external customers 44,342 39,319 Intersegment sales 4,388 4,315 Corporate and Other sales 48,730 43,634 Eliminations ( 122,478 ) ( 94,197 ) Consolidated sales $ 604,091 $ 524,783 Operating Income (Loss) Wholesale segment $ 26,142 $ 18,331 Retail segment 38,152 20,438 Corporate and Other ( 11,651 ) ( 4,398 ) Consolidated operating income 52,643 34,371 Interest expense ( 159 ) ( 311 ) Interest income 474 117 Other income (expense), net 45 ( 93 ) Income before income taxes $ 53,003 $ 34,084 Note 13: Income Taxes 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. 16 Table of Contents Note 14: Earnings per Share The following is a reconciliation of the numerators and denominators we used in our computations of basic and diluted earnings per share: Quarter Ended (Unaudited, amounts in thousands, except per share data) 7/30/2022 7/24/2021 Numerator (basic and diluted): Net income attributable to La-Z-Boy Incorporated $ 38,488 $ 24,566 Income allocated to participating securities (1) — ( 5 ) Net income available to common Shareholders $ 38,488 $ 24,561 Denominator: Basic weighted average common shares outstanding 43,092 45,072 Contingent common shares 50 — Stock option dilution — 332 Diluted weighted average common shares outstanding 43,142 45,404 Earnings per Share: Basic $ 0.89 $ 0.54 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 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. Note 15: 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. 17 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 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 July 30, 2022 Fair Value Measurements (Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total Assets Marketable securities $ — $ 31,024 $ 2,500 $ 6,595 $ 40,119 Held-to-maturity investments 1,267 — — — 1,267 Cost basis investments — — 7,579 — 7,579 Total assets $ 1,267 $ 31,024 $ 10,079 $ 6,595 $ 48,965 Liabilities Contingent consideration liability $ — $ — $ 800 $ — $ 800 At April 30, 2022 Fair Value Measurements (Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total Assets Marketable securities $ — $ 33,578 $ 2,500 $ 6,543 $ 42,621 Held-to-maturity investments 1,337 — — — 1,337 Cost basis investment — — 7,579 — 7,579 Total assets $ 1,337 $ 33,578 $ 10,079 $ 6,543 $ 51,537 Liabilities Contingent consideration liability $ — $ — $ 800 $ — $ 800 (1) Certain marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology. 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 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. 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 %. There were no changes to the fair value of our Level 3 liabilities during the quarter ended July 30, 2022. 18 Table of Contents