What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-06-20 compared with 2022-06-21 · 193 added, 214 removed, 1032 unchanged (28% of the section changed)

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of La-Z-Boy Incorporated and its subsidiaries (the “Company”) as of April 30, 2022 and April 24, 2021, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended April 30, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended April 30, 2022 appearing under Item 16 (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheet of La-Z-Boy Incorporated and its subsidiaries (the “Company”) as of April 29, 2023 and April 30, 2022, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended April 29, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended April 29, 2023 appearing under Item 16 (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO .

Change in Accounting Principle

As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020.

Basis for Opinions

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Product Warranties for the Wholesale Segment

As described in Note 12 to the consolidated financial statements, as of April 30, 2022, the Company had accrued product warranties of $27 million, of which the Wholesale segment comprises a significant portion.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accrued Product Warranties for the Wholesale Reportable Segment

As described in Note 12 to the consolidated financial statements, as of April 29, 2023, the Company’s consolidated accrued product warranties liability balance was $31.0 million, of which the Wholesale reportable segment comprises a significant portion.

Management accrues an estimated liability for product warranties when revenue is recognized on the sale of warrantied products.

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The liability estimate incorporates repair costs, including materials, labor and overhead amounts necessary to perform repairs, and any costs associated with delivering the repaired product to customers.

The principal considerations for our determination that performing procedures relating to the accrued product warranties for the Wholesale segment is a critical audit matter are (i) the significant judgment by management when developing the accrual and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures relating to the estimation methodology and the applicability of historical cost of materials and labor used in the methodology.

The principal considerations for our determination that performing procedures relating to the accrued product warranties for the Wholesale reportable segment is a critical audit matter are (i) the significant judgment by management when developing the accrual and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures relating to the estimation methodology and the applicability of historical cost of materials and labor used in the methodology.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the accrued product warranties for the Wholesale segment.

These procedures also included, among others, evaluating the appropriateness of the estimation methodology applied in the accrual, evaluating the applicability of the historical cost of materials and labor used in the methodology, and testing the historical cost of materials and labor.

These procedures included testing the effectiveness of controls relating to the accrued product warranties for the Wholesale reportable segment.

These procedures also included, among others (i) testing management’s process for developing the accrual;

(ii) evaluating the appropriateness of the estimation methodology applied in developing the accrual;

(iii) evaluating the applicability of the historical cost of materials and labor used in the methodology;

and (iv) testing the completeness and accuracy of the historical cost of materials and labor.

Goodwill Impairment Assessment – Joybird Reporting Unit

As described in Notes 1 and 7 to the consolidated financial statements, as of April 29, 2023, the Company’s consolidated goodwill balance was $205.0 million, and the goodwill associated with the Corporate and Other reportable segment was $55.4 million, which is inclusive of the Joybird reporting unit.

Management tests goodwill for impairment on an annual basis in the fourth quarter of the fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

In situations where the fair value is less than the carrying value, an impairment charge would be recorded for the shortfall.

To estimate the fair value of the Joybird reporting unit, management applied a combination of the income approach and the market approach, weighted 75% and 25%, respectively.

The income approach used discounted future cash flows and the market approach used the guideline public company method, which derives a valuation from market multiples based on revenue for comparable public companies and was adjusted for a control premium.

Management’s cash flow projections for the Joybird reporting unit included assumptions relating to sales and operating income projections and terminal growth rate as well as other assumptions relating to discount rate and tax rate which are used in the discounted cash flow model.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Joybird reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Joybird reporting unit;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to sales and operating income projections used in the discounted cash flow model;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Joybird reporting unit, which included controls over significant assumptions related to the sales and operating income projections.

These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Joybird reporting unit;

(ii) evaluating the appropriateness of the discounted cash flow model;

(iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model;

and (iv) evaluating the reasonableness of the significant assumptions used by management related to the sales and operating income projections used in the discounted cash flow model.

Evaluating management’s assumptions related to the sales and operating income projections involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Joybird reporting unit;

consistency with external market and industry data;

and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the Company’s discounted cash flow model.

/s/ PricewaterhouseCoopers LLP

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Selling, general and administrative expense 797,260 709,213 603,524

Goodwill impairment — — 26,862

Operating income 211,439 206,756 136,736

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Currency translation adjustment ( 604 ) ( 5,804 ) 5,466

Change in fair value of cash flow hedges, net of tax — — 10

Net unrealized gains (losses) on marketable securities, net of tax ( 668 ) ( 79 ) 185

Net pension amortization and actuarial gain (loss), net of tax 1,394 578 ( 1,197 )

Net unrealized gain (loss) on marketable securities, net of tax 153 ( 668 ) ( 79 )

Net pension amortization, net of tax 807 1,394 578

Total other comprehensive income (loss) 356 ( 5,078 ) 5,965

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Adjustments to reconcile net income to cash provided by operating activities

(Gain)/loss on disposal of assets ( 13,657 ) ( 37 ) ( 10,068 )

Gain on sale of investments ( 478 ) ( 954 ) ( 693 )

(Gain)/loss on disposal and impairment of assets 6,365 ( 13,657 ) ( 37 )

(Gain)/loss on sale of investments 148 ( 478 ) ( 954 )

Provision for doubtful accounts 1,546 ( 617 ) ( 3,169 )

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Amortization of right-of-use lease assets 76,511 72,942 65,571

Lease impairment 1,347 — —

Equity-based compensation expense 12,458 11,858 12,671

Goodwill impairment — — 26,862

Pension termination refund — — ( 1,900 )

Change in deferred taxes 3,895 1,022 8,790

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Proceeds from disposals of assets 136 22,588 2,770

Proceeds from insurance — — 1,080

Capital expenditures ( 68,812 ) ( 76,580 ) ( 37,960 )

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Cash flows from financing activities

Net proceeds from credit facility — — 75,000

Payments on debt and finance lease liabilities ( 123 ) ( 121 ) ( 75,050 )

Holdback payments for acquisition purchases ( 23,000 ) ( 5,783 ) ( 6,850 )

Holdback payments for acquisitions ( 5,000 ) ( 23,000 ) ( 5,783 )

Stock issued for stock and employee benefit plans, net of shares withheld for taxes 2,857 ( 1,818 ) 9,030

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Stock option and restricted stock expense — 12,671 — — — 12,671

Cumulative effect adjustment for leases, net of tax (1) — — 574 — — 574

Reclassification of certain income tax effects (2) — — 547 ( 547 ) — —

Dividends declared and paid ($ 0.36 /share) (1)

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— — ( 104 ) — — ( 104 )

Change in noncontrolling interests — 320 — — ( 164 ) 156

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

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At April 29, 2023 $ 43,318 $ 358,891 $ 545,155 $ ( 5,528 ) $ 10,261 $ 952,097

(1) Cumulative effect adjustment of deferred gains on prior sale/leaseback transactions as a result of adopting ASU 2016-02 , Leases (Topic 842).

(2) Income tax effects of the Tax Cuts and Jobs Act are reclassified from Accumulated Other Comprehensive Income ("AOCI") to retained earnings due to the adoption of ASU 2018-02 , Income Statement-Reporting Comprehensive Income (Topic 220).

(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.

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Our fiscal year ends on the last Saturday of April.

Our 2022 fiscal year included 53 weeks, whereas our 2021 and 2020 fiscal years included 52 weeks.

Our 2023 and 2021 fiscal years included 52 weeks, whereas our 2022 fiscal year included 53 weeks.

The additional week in fiscal 2022 was included in the fourth quarter.

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The reporting unit for goodwill arising from retail store acquisitions is our Retail operating segment.

We have three geographic regions which are considered components of our Retail operating segment.

These three geographic regions are aggregated into one reporting unit for goodwill because they are economically similar, they operate in a consistent manner across the regions, and each store supports and benefits from common research and development projects.

We have two geographic regions which are considered components of our Retail operating segment.

These two geographic regions are aggregated into one reporting unit for goodwill because they are economically similar, they operate in a consistent manner across the regions, and each store supports and benefits from common research and development projects.

Additionally, the goodwill is recoverable from each of the geographic regions working in concert because we can change the composition of the regions to strategically rebalance management and distribution capacity as needed.

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.

Goodwill arising from the acquisition of our wholesale business in the United Kingdom and Ireland along with goodwill arising from the acquisition of our manufacturing business in the United Kingdom are combined into the United Kingdom reporting.

These two businesses are considered components of the International operating segment and are aggregated into one reporting unit for goodwill because they are economically similar and work in concert as they represent the manufacturing and selling entities within the United Kingdom.

The reporting unit for goodwill arising from the acquisition of Joybird is the Joybird operating segment.

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.

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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.

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.

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, the market approach, in which we utilize market multiples of comparable companies, or a combination of both approaches.

In situations where the fair value is less than the carrying value, an impairment charge would be recorded for the shortfall.

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Available-for-sale debt securities 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/(loss).

Equity securities are recorded at fair value with unrealized gains and losses recorded in other income (expense), net.

Equity securities are recorded at fair value with

unrealized gains and losses recorded in other income (expense), net.

We also hold 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.

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.

Realized gains and losses for all investments, charges for other-than-temporary impairments of debt securities, and charges for impairment on our equity investments without readily determinable values are included in determining net income, with related purchase costs based on the first-in, first-out method.

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The fair value of the investment then becomes the new amortized cost basis of the investment and it is not adjusted for subsequent recoveries in fair value.

There were no impairments recorded in the fiscal years ended April 30, 2022, or April 24, 2021, and there was an impairment charge for one of the investments of $ 6.0 million in fiscal 2020 that was recorded as a component of other income (expense), net.

During fiscal 2023, we recognized a $ 10.3 million impairment charge for one of the investments which was recorded as a component of other income (expense), net in the consolidated statement of income.

There were no impairment charges recorded in the fiscal 2022 or fiscal 2021.

Life Insurance

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This takes place when the product is delivered to the end consumer's home.

Home delivery is not a promised service to our customer, and is not a separate performance obligation, because home delivery is a fulfillment activity as the costs are incurred as part of transferring our product to the end consumer.

Home delivery is not a promised service to

our customer, and is not a separate performance obligation, because home delivery is a fulfillment activity as the costs are incurred as part of transferring our product to the end consumer.

At the time the customer places an order through our company-owned retail stores or www.la-z-boy.com, we collect a deposit on a portion of the total merchandise price.

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The balance of the order is paid in full prior to delivery of the product.

Once the order is taken through our company-owned retail stores or www.la-z-boy.com we recognize a contract asset and a corresponding deferred revenue liability for the difference

between the total order and the deposit collected.

Once the order is taken through our company-owned retail stores or www.la-z-boy.com we recognize a contract asset and a corresponding deferred revenue liability for the difference between the total order and the deposit collected.

The contract asset is included in other current assets on our consolidated balance sheet and the deferred revenue is included in accrued expenses and other current liabilities on our consolidated balance sheet.

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Selling expenses are primarily composed of commissions, advertising, warranty, bad debt expense, and compensation and benefits of employees performing various sales functions.

Additionally, the occupancy costs of our retail facilities and the warehousing costs of our regional distribution centers are included as a component of SG&A.

Additionally, the occupancy costs of our retail facilities and the warehousing costs of our distribution centers are included as a component of SG&A.

Other general and administrative expenses included in SG&A are composed primarily of compensation and benefit costs for administrative employees and other administrative costs.

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Other income (expense), net is made up primarily of foreign currency exchange net gain/(loss), gain/(loss) on the sale of investments, and unrealized gain/(loss) on equity securities.

Other income (expense), net for fiscal 2021 also includes the benefit of $ 5.2 million of payroll tax credits resulting from the CARES Act and other income (expense), net for fiscal 2020

includes a $ 1.9 million refund related to the fiscal 2019 termination of our defined benefit pension plan for eligible hourly employees in our La-Z-Boy operating unit.

Other income (expense), net for fiscal 2023 also includes a $ 10.3 million impairment of our investments in a privately-held start-up company and fiscal 2021 includes the benefit of $ 5.2 million of payroll tax credits resulting from the CARES Act.

Research and Development Costs

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A portion of our advertising program is a national advertising campaign.

This campaign is a shared advertising program with our dealers' La-Z-Boy Furniture Galleries ® stores, which reimburse us for about 25 % of the cost of the program (excluding company-owned stores).

This campaign is a shared advertising program with our dealers' La-Z-Boy Furniture Galleries ® stores, which reimburse us for over 20 % of the cost of the program (excluding company-owned stores).

Because of this shared cost arrangement, the advertising expense is reported as a component of SG&A, while the dealers' reimbursement portion is reported as a component of sales.

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We estimate the fair value of equity-based awards, including option awards and stock-based awards that vest based on market conditions, on the date of grant using option-pricing models.

The value of the portion of the equity-based awards that are ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statement of income using a straight-line single-option method.

The value of the portion of the equity-based awards that are

ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statement of income using a straight-line single-option method.

We measure stock-based compensation cost for liability-based awards based on the fair value of the award on the grant date, and recognize it as expense over the vesting period.

The liability for these awards is remeasured and adjusted to its fair value at the end of each reporting period until paid.

We record compensation cost for stock-

based awards that vest based on performance conditions ratably over the vesting periods when the vesting of such awards become probable.

We record compensation cost for stock-based awards that vest based on performance conditions ratably over the vesting periods when the vesting of such awards become probable.

Commitments and Contingencies

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As a litigation matter develops and in conjunction with any outside legal counsel handling the matter, we evaluate on an ongoing basis whether such matter presents a loss contingency that is probable and reasonably estimable.

When a loss contingency is not both probable and reasonably estimable, we do not establish an accrued liability.

If, at the time of evaluation, the loss contingency related to a litigation matter is not both probable and reasonably estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and reasonably estimable.

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Accounting pronouncement 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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ASU Description Adoption Date

ASU 2023-02 Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.

ASU 2021-08 Business Combinations (Topic 805):

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

Each of the acquisitions completed in fiscal 2022 noted below were not significant to our consolidated financial statements, and, therefore, pro-forma financial information is not presented.

All of our provisional purchase accounting estimates for these acquisitions 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.

None of the below acquisitions were significant to our consolidated financial statements, and, therefore, pro-forma financial information is not presented.

All of our provisional purchase accounting estimates for the acquisitions completed in fiscal 2023 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.

Each of the following Retail acquisitions completed in fiscal 2023, 2022 and 2021 reflect 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 each Retail acquisition completed in fiscal 2023, 2022, and 2021, we licensed to the counterparty the exclusive right to own and the operate La-Z-Boy Furniture Galleries ® stores (and to use the associated trademarks and trade name) in each of their respective markets, and we reacquired these rights when we consummated the transaction.

These required rights are indefinite-lived because our retailer agreements are perpetual agreements that have no specific expiration date and no renewal options.

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

For federal income tax purposes, we amortize and deduct these indefinite-lived intangible assets and goodwill, if any, over 15 years.

Baton Rouge, Louisiana acquisition

On March 20, 2023, we completed our acquisition of the Baton Rouge, Louisiana business that operates one independently owned La-Z-Boy Furniture Galleries ® store and one distribution center for $ 5.0 million, subject to customary adjustments.

We paid total cash of $ 4.9 million during the fourth quarter of fiscal 2023 and the remaining consideration includes forgiveness of accounts receivable and payments based on working capital adjustments.

As part of the acquisition, we recorded an indefinite-lived intangible asset of $ 0.5 million related to the reacquired rights described above.

Barboursville, West Virginia acquisition

On December 12, 2022, we completed our acquisition of the Barboursville, West Virginia business that operates one independently owned La-Z-Boy Furniture Galleries ® store.

This acquisition did not have a meaningful impact on our consolidated financial statements.

Spokane, Washington acquisition

On September 26, 2022, we completed our acquisition of the Spokane, Washington business that operates one independently owned La-Z-Boy Furniture Galleries ® store and one distribution center for $ 4.7 million, subject to customary adjustments.

We paid total cash of $ 4.0 million during the second quarter of fiscal 2023 and the remaining consideration includes forgiveness of accounts receivable and payments based on working capital adjustments.

As part of the acquisition, we recorded an indefinite-lived intangible asset of $ 1.2 million related to the reacquired rights described above.

We also recognized $ 3.0 million of goodwill in our Retail segment related primarily to synergies we expect from the integration of the acquired store and future benefits of these synergies.

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 $ 10.1 million, subject to customary adjustments.

We paid total cash of $ 7.7 million in the first and second quarters of fiscal 2023 and the remaining consideration includes forgiveness of accounts receivable and payments based on working capital adjustments.

As part of the acquisition, we recorded an indefinite-lived intangible asset of $ 4.3 million related to the reacquired rights described above.

We also recognized $ 7.6 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.

Prior Year Acquisitions

We completed the following acquisitions in fiscal 2022.

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 paid total cash of $ 8.0 million in the third quarter of fiscal 2022 and the remaining consideration includes forgiveness of accounts receivable and payments based on working capital adjustments.

As part of the acquisition, we recorded an indefinite-lived intangible asset of $ 4.1 million related to the reacquired rights described above.

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.

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 $ 13.3 million, subject to customary purchase price adjustments and in the third and fourth quarters of fiscal 2022, we paid total cash of $ 13.9 million for the purchase of the Furnico business.

On October 25, 2021, we completed the acquisition of Furnico Furniture Ltd ("Furnico"), an upholstery manufacturing business in the U.K for approximately $ 13.3 million, subject to customary adjustments and in the third and fourth quarters of fiscal 2022, we paid $ 13.9 million of cash for the purchase of the Furnico business.

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

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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 $ 9.2 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.

As part of the acquisition, we recognized $ 9.2 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.

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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.

Prior to this acquisition, we licensed to the counterparty the exclusive right to own and operate La-Z-Boy Furniture Galleries ® stores (and to use the associated trademarks and trade name) in the Long Island, New York market, and we reacquired these rights when we consummated the transaction.

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

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

We recorded an indefinite-lived intangible asset of $ 0.8 million related to these reacquired rights.

We paid $ 4.4 million of cash during the second quarter of fiscal 2022 and the remaining consideration includes forgiveness of accounts receivable and payments based on working capital adjustments.

As part of the acquisition, we recorded an indefinite-lived intangible asset of $ 0.8 million related to the reacquired rights described above.

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.

Prior Year Acquisitions

We completed the following acquisition in fiscal 2021.

We did not complete any acquisitions during fiscal 2020.

Seattle, Washington acquisition

On September 14, 2020, we completed our asset acquisition of the Seattle, Washington business that operated 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.

Prior to this acquisition, we licensed to the counterparty the exclusive right to own and operate La-Z-Boy Furniture Galleries ® stores (and to use the associated trademarks and trade name) in the Seattle, Washington market, and we reacquired these rights when we consummated the transaction.

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

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

We recorded an indefinite-lived intangible asset of $ 2.2 million related to these reacquired rights.

We paid $ 2.0 million of cash during the second quarter of fiscal 2021 and the remaining consideration includes forgiveness of accounts receivable, payments based on working capital adjustments, and 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.

As part of the acquisition, we recorded an indefinite-lived intangible asset of $ 2.2 million related to the reacquired rights described above.

We also recognized $ 12.9 million of goodwill in our Retail segment related primarily to synergies we expect from the integration of the acquired stores and future benefits of these synergies.

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

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

Restricted Cash

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Total inventories $ 276,257 $ 303,191

$ 303,191 $ 226,137

(1) Increased balance due to rising costs and higher volume to support increased sales demand and manufacturing capacity.

Property, Plant and Equipment

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Depreciation expense for the fiscal years ended April 29, 2023, April 30, 2022, and April 24, 2021, was $ 39.0 million, $ 38.3 million, and $ 31.7 million, respectively.

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, Leases (Topic 842), requiring lessees to record substantially all operating leases on their balance sheet.

Under this standard, the lessee is required to record an asset for the right to use the underlying asset for the lease term and a corresponding liability for the contractual lease payments.

We adopted this standard in the first quarter of fiscal 2020 using a modified retrospective approach.

The Company leases real estate for retail stores, distribution centers, warehouses, manufacturing plants, showrooms and office space.

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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)

Wholesale Segment United Kingdom

Wholesale business in the United Kingdom and Ireland

Wholesale Segment United Kingdom

La-Z-Boy United Kingdom Manufacturing (Furnico)

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

Corporate & Other Joybird Joybird

We test 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 it might be impaired.

We test 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 it may be impaired.

GAAP, 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 one of our reporting units is greater than its carrying value ("Step 0").

If the qualitative assessment leads to a determination that the reporting unit’s fair value is less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test ("Step 1") by calculating the fair value of the reporting unit and comparing the fair value with its associated carrying value.

Step 0 Assessment

During our fiscal 2023 annual impairment test, we first assessed goodwill recoverability qualitatively using the Step 0 approach for each of our reporting units.

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Lastly, we evaluated whether any events have occurred or any circumstances have changed since the fourth quarter of fiscal 2020 that would indicate that our goodwill may have become impaired since our last quantitative test.

Based on these qualitative assessments, we determined that it is more likely than not that the fair value of each of our reporting units exceeded their respective carrying value and as such, our goodwill was not considered impaired as of April 30, 2022, and the Step 1 quantitative goodwill impairment analysis was not necessary.

Fiscal 2020 Goodwill Impairment Charge

As a result of our fiscal 2020 annual impairment test, we recorded a non-cash pre-tax impairment charge of $ 26.9 million to reduce the carrying value of the goodwill for our Joybird reporting unit to its indicated fair value.

Factors contributing to the impairment charge included financial projections at that time, largely impacted by uncertainties around COVID-19, integration activities taking longer than anticipated, and a slower than anticipated growth rate due to a shifting focus on profitability.

Based on these qualitative assessments, we determined that it is more likely than not that the fair value of our Retail reporting unit exceeded its carrying value and as such, our goodwill for the Retail reporting unit was not considered impaired as of April 29, 2023 and the Step 1 quantitative goodwill impairment analysis was not necessary.

However, for our United Kingdom and Joybird reporting units, we determined that the quantitative Step 1 goodwill impairment test was necessary as noted below.

Step 1 Assessment

United Kingdom Reporting Unit

Our United Kingdom reporting unit includes the goodwill from our wholesale business in the United Kingdom and Ireland along with our manufacturing business in the United Kingdom, both of which were considered their own reporting unit in fiscal 2022.

In fiscal 2023, we determined that in accordance with ASC 350, these businesses, or components, should be aggregated into a single reporting unit as they have similar economic characteristics.

As this represented a change in our reporting unit structure, we elected to perform the quantitative Step 1 goodwill impairment test for the new United Kingdom reporting unit.

To estimate the fair value of this reporting unit, we applied the income approach using discounted future cash flows.

Sales and operating income projections were based on assumptions driven by the current economic conditions.

Other key assumptions used in the quantitative assessment of the reporting units' goodwill were a discount rate of 8.7 % , reflecting a market participant weighted average cost of capital, and a tax rate of 25.0 %, which was specific to the United Kingdom reporting unit.

Based on our testing, the fair value of the United Kingdom reporting unit exceeded its carrying value as of April 29, 2023 and no impairment was recorded.

Joybird Reporting Unit

Due to a decline in Joybird's financial performance in fiscal 2023, we deemed it necessary to perform the quantitative Step 1 goodwill impairment test for the Joybird reporting unit.

To estimate the fair value of this reporting unit, we applied a combination of the income approach and the market approach, weighted 75 % and 25 %, respectively.

The income approach used discounted future cash flows in which sales and operating income projections were based on assumptions driven by current eco nomic conditions and assumed a 2.0 % terminal growth rate.

Other key assumptions used in the discounted future cash flow model were a discount rate of 18.0 %, reflecting a market participant weighted average cost of capital assuming Joybird would be sold as a stand-alone business, and a tax rate of 24.9 %, which was specific to the Joybird reporting unit.

The market approach used the guideline public company method, which derives a valuation from market multiples based on revenue for comparable public companies and was adjusted for a control premium based on recent merger and acquisition transaction data of target companies similar to the Joybird reporting unit.

Based on our testing, the fair value of the Joybird reporting unit exceeded its carrying value as of April 29, 2023 by approximately 50% and no impairment was recorded.

Further, a sensitivity analysis was performed on key assumptions used in the valuation, primarily the discount rate and terminal growth rate, and using a range of reasonable inputs, the fair value of the Joybird reporting unit exceeded its carrying value in the various scenarios analyzed.

However, changes to other valuation inputs or failure to meet our forecasts, in particular our sales and operating income projections, could reduce the fair value of the Joybird reporting unit and thus increase the possibility that our goodwill may be impaired in the future.

The following table summarizes changes in the carrying amount of our goodwill by reportable segment:

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Balance at April 29, 2023 $ 1,155 $ 2,594 $ 33,739 $ 1,887 $ 39,375

For our intangible assets recorded as of April 30, 2022, we estimate annual amortization expense to be $ 1.0 million for each of the four succeeding fiscal years and $ 0.4 million in the fifth succeeding fiscal year.

For our intangible assets recorded as of April 29, 2023, we estimate annual amortization expense to be $ 1.0 million for each of the three succeeding fiscal years, $ 0.4 million in the fourth succeeding fiscal year, and $ 0.2 million in the fifth succeeding fiscal year.

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 20, Fair Value Measurement).

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

In the fourth quarter of fiscal 2023, we recognized an impairment of $ 10.3 million, consisting of $ 7.6 million in cost-basis investments and $ 2.7 million in convertible notes, which in total represents the full cost-basis value of the investment in one of these privately held start-up companies.

The impairment loss is recognized in other income (expense), net, on the consolidated statement of income (refer to Note 20, Fair Value Measurement for additional information).

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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Accrued expenses and other current liabilities $ 290,650 $ 496,393

Customer deposits and deferred revenue decreased during fiscal 2023 as we continue to work down the backlog built up in prior periods back to pre-pandemic levels .

On October 15, 2021, we entered into a new five-year $ 200 million unsecured revolving credit facility (the “Credit Facility”).

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401(k) Retirement Plan $ 12,877 $ 11,763 $ 7,313

$ 11,763 $ 7,313 $ 9,380

Performance Compensation Retirement Plan 160 1,654 3,810

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Non-Qualified Defined Benefit Retirement Plan (1)

(1) Increase in fiscal 2022 compared with fiscal 2021 is primarily due to the temporary freeze on matching contributions started during the fourth quarter of fiscal 2020 as part of our COVID-19 action plan.

Matching contributions were reinstated during the second quarter of fiscal 2021.

(1) Primarily related to interest cost

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A performance compensation retirement plan ("PCRP") is maintained for eligible highly compensated employees.

The Company contributions to the plan are based on achievement of performance targets.

Employees vest in these contributions if they achieve certain age and years of service with the Company, and can elect to receive benefit payments over a period ranging between five to twenty years after they leave the Company.

Further information related to the plan is as follows:

Beginning in fiscal 2023, contributions into the plan are no longer being made.

Prior year contributions were based on achievement of performance targets.

Employees vest in these prior period contributions if they achieve certain age and years of service with the Company and can elect to receive benefit payments over a period ranging between five to twenty years after they leave the Company.

While the Company no longer makes contributions, the outstanding liability balance related to the plan is as follows:

(Amounts in thousands) 4/29/2023 4/30/2022

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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 the Joybird products, which are a part of our Corporate and Other results.

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Stock-Based Compensation

In fiscal 2018, our shareholders approved the La-Z-Boy Incorporated 2017 Omnibus Incentive Plan which provides for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, dividend equivalent rights, and short-term cash incentive awards.

Under this plan, as amended, the aggregate number of common shares that may be issued through awards of any form is 5.9 million shares.

In fiscal 2023, our shareholders approved the La-Z-Boy Incorporated 2022 Omnibus Incentive Plan which provides for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units, unrestricted stock, performance awards, dividend equivalent rights, and short-term cash incentive awards.

Under this plan, the aggregate number of common shares that may be issued through awards of any form is 2.8 million shares, reduced by the number of shares subject to awards granted under the La-Z-Boy Incorporated 2017 Omnibus Incentive Plan after April 30, 2022 and prior to the Annual Meeting of Shareholders of La-Z-Boy Incorporated held on August 30, 2022.

Awards granted in fiscal 2023 were made under our La-Z-Boy Incorporated 2017 Omnibus Incentive Plan.

As of the end of fiscal 2023, no grants may be issued under this plan or any of our previous plans.

The table below summarizes the total stock-based compensation expense we recognized for all outstanding grants.

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Stock options $ 2,076 $ 1,973 $ 2,959

Restricted stock awards 3,720 3,367 2,913

Restricted stock 5,069 3,720 3,367

Restricted stock units issued to Directors 1,020 1,194 840

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Liability-based awards expense (1)

Stock appreciation rights ( 102 ) 375 ( 240 )

Deferred stock units issued to Directors ( 1,058 ) 1,437 ( 768 )

Total liability-based awards expense (2)

162 ( 1,131 ) 1,878

Total stock-based compensation expense $ 12,620 $ 10,727 $ 14,549

(1) Includes restricted stock units and performance-based units.

(1) Includes stock appreciation rights, deferred stock units issued to Directors, restricted stock units, and performance-based units.

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.

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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 our Compensation and Talent Oversight Committee of our board of directors 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.

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 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.

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Granted options outstanding under the former long-term equity award plan remain in effect and have a term of 10 years.

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 fiscal years 2023, 2022, and 2021 were calculated using the following assumptions:

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Restricted Stock .

We awarded 121,963 shares of restricted stock to employees during 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 fiscal 2022 was $ 38.27 per share, the market value of our common shares on the date of grant.

We granted 256,128 shares of restricted stock units to employees during fiscal 2023.

We issue restricted stock at no cost to the 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 our Compensation and Talent Oversight Committee of our board of directors approved the awards.

Restricted stock awards vest at 25 % per year, beginning one year from the grant date for a term of four years , with continued vesting upon retirement with respect to the fiscal 2023 grants.

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 for a term of four years .

The following table summarizes information about non-vested share awards as of and for the year ended April 30, 2022:

The weighted average fair value of the restricted stock that was awarded in fiscal 2023 was $ 24.58 per share, the market value of our common shares on the date of grant.

The following table summarizes information about non-vested awards as of and for the year ended April 29, 2023:

Shares or Units

(In Thousands)

Weighted Average Grant Date Fair Value

Non-vested shares at April 24, 2021 320 $ 30.14

Non-vested awards at April 30, 2022 287 $ 33.45

Granted 256 24.58

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Canceled ( 43 ) 31.15

Non-vested shares at April 30, 2022 287 33.45

Non-vested awards at April 29, 2023 393 28.10

Unrecognized compensation cost related to non-vested restricted shares was $ 6.7 million and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 1.5 years.

Restricted Stock Units Issued to Directors.

Restricted stock units granted to our non-employee directors are offered at no cost to the directors and vest when a director leaves the board.

Restricted stock units granted to our non-employee directors are offered at no cost to the directors and vest the earlier of the date a director ceases to be a member of the board (for any reason other than the termination of service for cause) or the one-year anniversary of the grant date.

During fiscal 2023, fiscal 2022, and fiscal 2021 we granted less than 0.1 million restricted stock units each year to our non-employee directors.

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The weighted-average fair value of the restricted stock units that were granted during fiscal 2023, fiscal 2022, and fiscal 2021 was $ 26.49 , $ 35.34 , and $ 32.08 , respectively.

Performance Awards.

Under the La-Z-Boy Incorporated 2017 Omnibus Incentive Plan, the Compensation Committee of the board of directors is authorized to award common shares to certain employees based on the attainment of certain financial goals over a given performance period.

Performance Shares.

Under the La-Z-Boy Incorporated 2017 Omnibus Incentive Plan, the Compensation and Talent Oversight Committee of our board of directors is authorized to award common shares to certain employees based on the attainment of certain financial goals over a given performance period.

The awards are offered at no cost to the employees.

In the event of an employee's termination during the vesting period, the potential right to earn shares under this program is generally forfeited.

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 grants in fiscal 2022 and fiscal 2021.

Payout 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.

The number of awards that will vest, as well as unearned and canceled awards, depend on the achievement of certain financial and shareholder-return goals over the three-year performance periods, and will be settled in shares if service conditions are met, requiring employees to remain employed with the Company through the end of the three-year performance periods.

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We account for performance-based shares as equity-based awards because when they vest, they will be settled in common shares.

We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur.

For shares that vest based on our results relative to the performance goals, we expense as compensation cost the fair value of the shares as of the day we granted the awards recognized over the performance period, taking into account the

probability that we will satisfy the performance goals.

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.

The fair value of each share of the awards we granted in fiscal 2023, fiscal 2022, and fiscal 2021 that vest based on attaining performance goals was $ 22.43 , $ 36.13 , and $ 30.75 , respectively, 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.

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Total expense $ 4,293 $ 4,971 $ 5,505

Stock Appreciation Rights ("SARs").

We have not granted any SARs to employees since fiscal 2014, but we have SARs outstanding from the fiscal 2014 award.

All outstanding SARs are fully vested and have a term of ten years .

SARs will be paid in cash upon exercise and, accordingly, we account for SARs as liability-based awards that we remeasure to fair value at the end of each reporting period.

We have no remaining unrecognized compensation cost at April 30, 2022, relating to SARs awards as they are all fully vested, but we will continue to remeasure these awards to reflect the fair value at the end of each reporting period until all awards are exercised or forfeited.

As of April 30, 2022, we had 6,010 SARs outstanding for the fiscal 2014 award.

These awards have exceeded their expected life and are remeasured to fair value based on their intrinsic value, which is the market value of our common stock on the last day of the reporting period less the exercise price, until the earlier of the exercise date or the contractual term date.

At April 30, 2022, the intrinsic value per share of the fiscal 2014 award was $ 7.22 .

Deferred Stock Units Issued to Directors.

We have not granted any deferred stock units to non-employee directors since fiscal 2010, but we have units outstanding from the fiscal 2009 and fiscal 2010 awards.

We account for awards under our deferred stock unit plan for non-employee directors as liability-based awards because upon exercise these awards will be paid in cash.

We measure and recognize compensation expense based on the market price of our common stock on the grant date.

We remeasure and adjust the liability based on the market value (intrinsic value) of our common shares on the last day of the reporting period until paid with a corresponding adjustment to reflect the cumulative amount of compensation expense.

For purposes of dividends and for measuring the liability, each deferred stock unit is the equivalent of one common share.

As of April 30, 2022, we had 0.1 million deferred stock units outstanding.

Our liability related to these awards was $ 1.6 million and $ 2.7 million at April 30, 2022, and April 24, 2021, respectively, and is included as a component of other long-term liabilities on our consolidated balance sheet.

Accumulated Other Comprehensive Loss

Activity in accumulated other comprehensive loss was as follows:

(Amounts in thousands) Translation adjustment Change in fair value of cash flow hedge Unrealized gain (loss) on marketable securities Net pension amortization and net actuarial loss Accumulated other comprehensive loss

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

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

Changes before reclassifications 4,932 ( 96 ) 428 5,264

Reclassification of certain income tax effects (1) — ( 97 ) 258 ( 708 ) ( 547 )

Amounts reclassified to net income — ( 9 ) 347 338

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Balance at April 29, 2023 $ ( 2,652 ) $ ( 145 ) $ ( 2,731 ) $ ( 5,528 )

(1) Income tax effects of the Tax Cuts and Jobs Act are reclassified from AOCI to retained earnings due to adoption of ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220).

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.

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

Other changes in noncontrolling interests — — ( 164 )

Balance as of the end of the year $ 10,261 $ 8,897 $ 8,648

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and Other Total

Motion Upholstery Furniture $ 975,624 $ 450,438 $ 613 $ 1,426,675

Stationary Upholstery Furniture 402,953 200,639 219,354 822,946

Bedroom Furniture 38,963 6,937 15,579 61,479

Dining Room Furniture 26,013 12,408 4,677 43,098

Occasional Furniture 45,150 26,940 4,303 76,393

Upholstered Furniture $ 1,326,327 $ 811,955 $ 179,815 $ 2,318,097

Casegoods Furniture 108,098 58,455 24,673 191,226

Delivery 210,963 32,653 7,652 251,268

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and Other Total

Motion Upholstery Furniture $ 759,451 $ 371,587 $ 523 $ 1,131,561

Stationary Upholstery Furniture 332,046 118,913 134,296 585,255

Bedroom Furniture 37,351 5,785 9,629 52,765

Dining Room Furniture 25,394 10,931 3,096 39,421

Occasional Furniture 44,897 20,682 3,171 68,750

Upholstered Furniture $ 1,378,577 $ 654,272 $ 219,967 $ 2,252,816

Casegoods Furniture 110,126 47,162 24,559 181,847

Delivery 190,110 30,171 7,999 228,280

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(1) Primarily includes revenue for advertising, royalties, parts, accessories, after-treatment products, surcharges, discounts & allowances, rebates and other sales incentives.

The increase year-over-year is primarily due to an increase in surcharges in response to higher material and input costs.

Motion Upholstery Furniture - Includes gross revenue for upholstered furniture, such as recliners, sofas, loveseats, chairs, sectionals and modulars that have a mechanism that allows the back of the product to recline or the product's footrest to extend.

This gross revenue includes sales to La-Z-Boy Furniture Galleries ® stores (including company-owned stores), operators of La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, other major dealers, independent retailers, and the end consumer.

Stationary Upholstery Furniture - Includes gross revenue for upholstered furniture, such as sofas, loveseats, chairs, sectionals, modulars, and ottomans that do not have a mechanism.

Upholstered Furniture - Includes gross revenue for upholstered furniture, such as recliners, sofas, loveseats, chairs, sectionals, modulars, and ottomans.

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.

Casegoods Furniture - Includes gross revenue for casegoods furniture typically found in a bedroom, such as beds, chests, dressers, nightstands and benches;

furniture typically found in the dining room, such as dining tables, storage units, and stools;

and furniture typically 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

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) 4/29/2023 4/30/2022

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(1) During the year ended April 29, 2023, we recognized revenue of $ 293.7 million related to our contract liability balance at April 30, 2022.

Contract assets, customer deposits and deferred revenue decreased during fiscal 2023 as we continue to work down the backlog built up in prior periods back to pre-pandemic levels.

Segment Information

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Losses/(gains) on corporate owned life insurance 0.2 % — % ( 1.2 ) %

Change in valuation allowance 0.1 % 0.7 % 0.7 %

research tax credits ( 0.2 ) % ( 0.5 ) % ( 0.6 ) %

Non-deductible asset impairment — % — % 4.9 %

Fair value adjustment of contingent consideration liability ( 0.1 ) % ( 0.3 ) % 2.0 %

Tax on undistributed foreign earnings 0.2 % — % 1.1 %

Miscellaneous items 0.6 % 1.3 % 0.2 %

Effective tax rate 26.2 % 25.9 % 26.3 %

For our Canada, Mexico, and United Kingdom foreign operating units, we permanently reinvest the earnings and consequently do not record a deferred tax liability relative to the undistributed earnings.

For our Canada and Mexico foreign operating units, we permanently reinvest the earnings and consequently do not record a deferred tax liability relative to the undistributed earnings.

We have reinvested approximately $ 61.0 million of the earnings.

After enactment of the Tax Cuts and Jobs Act in 2017, the potential deferred tax attributable to these earnings would be approximately $ 2.6 million, primarily related to foreign withholding taxes and state income taxes.

The Company is not permanently reinvested on undistributed earnings for its Thailand foreign operating units and has provided for deferred tax attributable to those earnings of approximately $ 1.1 million in fiscal 2022.

The Company is not permanently reinvested on undistributed earnings for its Thailand and United Kingdom foreign operating units and has provided for deferred tax attributable to those earnings of approximately $ 1.2 million in fiscal 2023.

The primary components of our deferred tax assets and (liabilities) were as follows:

9 unchanged sentences

Federal net operating losses, credits 530 908

Other 2,198 81

Valuation allowance ( 3,468 ) ( 3,517 )

2 unchanged sentences

Property, plant and equipment ( 19,936 ) ( 20,412 )

Inventory ( 1,802 ) —

Goodwill and other intangibles ( 14,128 ) ( 11,914 )

Tax on undistributed foreign earnings ( 1,152 ) ( 1,102 )

Other — ( 910 )

Net deferred tax assets $ 6,433 $ 10,632

46 unchanged sentences

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:

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Income allocated to participating securities (1)

— ( 7 ) ( 46 )

Net income available to common Shareholders $ 150,664 $ 150,010 $ 106,415

6 unchanged sentences

Diluted $ 3.48 $ 3.39 $ 2.30

(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 are higher than the average market price, since including the options' effect would be anti-dilutive.

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.

We excluded options to purchase 1.4 million and 0.2 million shares from the diluted share calculation for the years ended April 29, 2023 and April 30, 2022, respectively.

17 unchanged sentences

Held-to-maturity investments 1,351 — — — 1,351

Cost basis investments — — 7,579 — 7,579

Total assets $ 1,351 $ 16,557 $ — $ 6,995 $ 24,903

Contingent consideration liability $ — $ — $ 800 $ — $ 800

At April 30, 2022

10 unchanged sentences

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 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 for our Level 3 equity 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.

During fiscal 2022, we invested $ 2.5 million in a convertible note from one of these privately-held start-up companies.

The convertible note is considered a fixed income marketable security, classified as available-for-sale.

There were no other changes to the fair value of our Level 3 assets during fiscal 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 April 30, 2022, reflects our expectation that consideration will be owed under the terms of the earn out agreement based on fiscal 2023 projections of Joybird revenue and earnings.

The fair value is determined using a variation of the income approach, known as the real options method, whereby revenue and earnings are simulated over the earnout periods in a risk-neutral framework using Geometric Brownian Motion.

For each simulation path, the potential earnout payments were calculated based on management’s probability estimates for achievement of the revenue and earnings milestones and then were discounted to the valuation date using a discount rate of 4.5 %.

During fiscal 2022, we recognized a decrease in the fair value of our contingent consideration liability of $ 3.3 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 year ended April 30, 2022.

At April 29, 2023, 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 for our Level 3 equity 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.

During the third quarter of fiscal 2023, we invested an additional $ 0.2 million in convertible notes in one of these privately-held start-up companies.

Subsequently and during the fourth quarter of fiscal 2023, with respect to the same investee, we recorded an impairment charge of $ 10.3 million to other income (expense), net in the consolidated statement of income for the full carrying value of the preferred shares ($ 7.6 million) and convertible notes ($ 2.7 million), as it was determined the value of the investments was not recoverable.

For non-marketable equity investments, the measurement of fair value requires significant judgment and includes quantitative and qualitative analysis of identified events or circumstances that impact the fair value of the investment.

Among other factors, we assessed the investee's ability to meet business milestones, its financial condition and near-term prospects (including the rate at which the investee was using cash and its current debt obligations and impending debt maturities), the investee's need for additional funding, and the competitive environment in which the investee operates its business.

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

The fair value of our contingent consideration liability as of April 29, 2023 reflects our expectation that no additional consideration will be owed based on our most recent financial projections and the terms of the earnout agreement.

As a result, during the second quarter of fiscal 2023, we reduced the fair value of the contingent consideration liability by its full carrying value of $ 0.8 million which was recorded as a favorable impact to selling, general and administrative expense in our consolidated statement of income.

The following table is a reconciliation of our Level 3 assets and liabilities recorded at fair value using significant unobservable inputs:

2 unchanged sentences

Purchases 2,500 —

Settlements — ( 10,000 )

Fair value adjustment — ( 3,300 )

1 unchanged sentence

Purchases 237 —

Settlements — ( 10,000 )

Impairment ( 10,316 ) —

Fair value adjustment — ( 800 )

2 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data