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Item 1. Financial Statements

2023-08-22 compared with 2023-02-21 · 98 added, 248 removed, 411 unchanged (46% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENT OF INCOME

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands, except per share data) 7/29/2023 7/30/2022

10 unchanged sentences

Net income 27,926 38,940

Net (income) loss attributable to noncontrolling interests 149 ( 615 ) ( 1,005 ) ( 2,157 )

Net income attributable to noncontrolling interests ( 447 ) ( 452 )

Net income attributable to La-Z-Boy Incorporated $ 27,479 $ 38,488

6 unchanged sentences

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 7/30/2022

2 unchanged sentences

Currency translation adjustment 1,047 ( 2,160 )

Net unrealized gain (loss) on marketable securities, net of tax 287 ( 140 ) 84 ( 190 )

Net unrealized gain on marketable securities, net of tax 220 86

Net pension amortization, net of tax 23 36

44 unchanged sentences

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 7/30/2022

7 unchanged sentences

Amortization of right-of-use lease assets 17,265 18,845

Lease impairment 1,347 —

Lease impairment/(settlement) ( 1,175 ) —

Equity-based compensation expense 2,526 1,417

16 unchanged sentences

Payments on debt and finance lease liabilities ( 67 ) ( 31 )

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

Stock issued for stock and employee benefit plans, net of shares withheld for taxes ( 1,978 ) ( 1,703 )

1 unchanged sentence

Dividends paid to shareholders ( 7,852 ) ( 7,097 )

Dividends paid to minority interest joint venture partners (1)

Net cash used for financing activities ( 19,904 ) ( 13,835 )

5 unchanged sentences

Capital expenditures included in payables $ 7,188 $ 7,130

(1) Includes dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.

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

6 unchanged sentences

Comprehensive

Loss Non-Controlling

Income (Loss) Non-Controlling

Interests Total

1 unchanged sentence

Net income — — 27,479 — 447 27,926

Other comprehensive loss — — — ( 1,519 ) ( 519 ) ( 2,038 )

Other comprehensive income (loss) — — — 1,330 ( 40 ) 1,290

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 149 ( 221 ) ( 1,906 ) — — ( 1,978 )

7 unchanged sentences

At July 29, 2023 $ 43,110 $ 356,684 $ 557,666 $ ( 4,198 ) $ 10,668 $ 963,930

Net income — — 46,077 — 702 46,779

Other comprehensive loss — — — ( 3,201 ) ( 404 ) ( 3,605 )

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 100 ( 101 ) ( 7 ) — — ( 8 )

Stock option and restricted stock expense — 3,662 — — — 3,662

Dividends declared and paid ($ 0.165 /share)

— — ( 7,064 ) — — ( 7,064 )

Dividends declared not paid ($ 0.165 /share)

— — ( 70 ) — — ( 70 )

At October 29, 2022 $ 43,136 $ 347,036 $ 495,003 $ ( 10,517 ) $ 9,128 $ 883,786

Net income — — 31,726 — ( 149 ) 31,577

Other comprehensive income (loss) — — — 4,337 1,427 5,764

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 4 ( 7 ) ( 57 ) — — ( 60 )

Stock option and restricted stock expense — 3,377 — — — 3,377

Dividends declared and paid ($ 0.1815 /share)

— — ( 7,866 ) — — ( 7,866 )

Dividends declared not paid ($ 0.1815 /share)

— — ( 74 ) — — ( 74 )

At January 28, 2023 $ 43,140 $ 350,406 $ 518,732 $ ( 6,180 ) $ 10,406 $ 916,504

(Unaudited, amounts in thousands) Common

7 unchanged sentences

Net income — — 38,488 — 452 38,940

Other comprehensive loss — — — ( 302 ) ( 430 ) ( 732 )

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 181 291 ( 2,700 ) — — ( 2,228 )

Repurchases of 919 shares of common stock

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

Stock option and restricted stock expense — 2,460 — — — 2,460

Dividends declared and paid ($ 0.15 /share)

— — ( 6,777 ) — — ( 6,777 )

Dividends declared not paid ($ 0.15 /share)

— — ( 46 ) — — ( 46 )

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

Net income — — 39,516 — 842 40,358

Other comprehensive income — — — ( 330 ) ( 120 ) ( 450 )

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 11 353 ( 6 ) — — 358

Repurchases of 434 shares of common stock

( 434 ) ( 196 ) ( 14,370 ) — — ( 15,000 )

Stock option and restricted stock expense — 3,894 — — — 3,894

Dividends declared and paid ($ 0.15 /share) (1)

— — ( 6,621 ) — ( 1,260 ) ( 7,881 )

Dividends declared not paid ($ 0.15 /share)

— — ( 46 ) — — ( 46 )

At October 23, 2021 $ 44,200 $ 336,920 $ 398,335 $ ( 2,153 ) $ 8,380 $ 785,682

Net income — — 28,467 — 615 29,082

Other comprehensive income (loss) — — — ( 1,519 ) ( 519 ) ( 2,038 )

7 unchanged sentences

— — ( 45 ) — — ( 45 )

At January 22, 2022 $ 43,505 $ 339,294 $ 395,577 $ ( 2,989 ) $ 9,096 $ 784,483

(1) Non-controlling interests include dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.

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

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

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We derived the April 29, 2023 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.

We prepared the interim financial information in conformity with generally accepted accounting principles ("US GAAP"), which we applied on a basis consistent with those reflected in our fiscal 2023 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 US GAAP.

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 27, 2024.

At January 28, 2023, we owned investments in two privately-held companies consisting of non-marketable preferred shares, warrants to purchase common shares, and convertible notes.

At July 29, 2023, 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 2024

We did not adopt any Accounting Standards Updates ("ASUs") in the first nine months of 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.

The following table summarizes Accounting Standards Updates ("ASUs") which were adopted in fiscal 2024, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.

ASU Description Adoption Date

1 unchanged sentence

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers Fiscal 2024

Accounting Pronouncements not yet Adopted

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 Fiscal 2025

Change in Accounting Policy - Distribution Center Costs

In the first quarter of fiscal 2024, we made a voluntary change to the presentation of costs directly attributable to our distribution activities conducted through our distribution centers in the United States.

Our policy has changed from presenting these costs within selling, general and administrative ("SG&A") expense to presenting them as cost of sales.

We believe this presentation is preferable because it will enhance the comparability of our financial statements with those of our industry peers and align with how we internally manage supply chain costs and margin.

In accordance with US GAAP, the period presented below has been retrospectively adjusted to reflect the change to cost of sales and SG&A expense.

This change had no impact to sales, income from operations, net income, earnings per share, retained earnings or other components of equity or net assets.

(Unaudited, amounts in thousands) For the Quarter Ended July 30, 2022

Previously Reported Effect of Change As Adjusted

Cost of sales $ 362,631 $ 10,430 $ 373,061

Gross profit 241,460 ( 10,430 ) 231,030

Selling, general and administrative expense 188,817 ( 10,430 ) 178,387

Torreón Closure

During the third quarter of fiscal 2023, we made the decision to close our manufacturing facility in Torreón, Mexico as part of our initiative to drive improved efficiencies through optimized staffing levels within our plants.

Torreón was the last facility to begin operating as part of our broader Mexico manufacturing expansion in fiscal 2021 and 2022 and accounted for approximately 3 % of our La-Z-Boy branded production.

As a result of this action, charges were recorded within the Wholesale segment in the third quarter of fiscal 2023 of $ 9.2 million in selling, general, and administrative expense for the impairment of various assets, primarily long-lived assets, and $ 0.9 million in cost of sales, primarily related to severance.

To determine the impairment of our long-lived assets, which included fixed assets utilized by the facility and the right-of-use-lease asset, we calculated the fair value of the Torreón asset group using the income approach based on the expected future cash flows associated with the facility, primarily those associated with an assumed sublease.

Based on this evaluation, we recorded an impairment charge as the difference between the asset group's fair value and its carrying value.

As a result of this action, charges were recorded within the Wholesale segment in the third and fourth quarters of fiscal 2023, totaling $ 9.2 million in SG&A expense for the impairment of various assets, primarily long-lived assets, and $ 1.6 million in cost of sales, primarily related to severance.

During the first quarter of fiscal 2024, we terminated our lease on the Torreón facility and recognized a $ 1.2 million gain in SG&A expense within the Wholesale segment related to the settlement of our lease obligation on the previously impaired long-lived assets.

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

1 unchanged sentence

Each of the following Retail acquisitions completed in fiscal 2024 and 2023 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.

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.

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 Spokane, 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 $ 1.2 million related to these reacquired rights.

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.

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 to each Retail acquisition completed in fiscal 2024 and 2023, we licensed to the counterparty the exclusive right to own and operate the 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.

Colorado Springs, Colorado Acquisition

On July 17, 2023, we completed our acquisition of the Colorado Springs, Colorado business that operates two independently owned La-Z-Boy Furniture Galleries ® stores and one distribution center for $ 6.0 million, subject to customary adjustments.

We paid total cash of $ 4.3 million in the first quarter of fiscal 2024 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 $ 2.3 million related to the reacquired rights described above.

We also recognized $ 2.0 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

Denver, Colorado Acquisition

1 unchanged sentence

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.

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 $ 7.6 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.

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

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 adjustments.

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.

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

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

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

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

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

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

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 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.

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

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

We recognized $ 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.

Long Island, New York acquisition

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

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.

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.

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.

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

Cash and Restricted Cash

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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

Corporate and Other Joybird Joybird

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

7 unchanged sentences

Translation adjustment 450 79 — 529

Balance at January 28, 2023 (1)

Balance at July 29, 2023 (1)

$ 20,652 $ 131,390 $ 55,446 $ 207,488

1 unchanged sentence

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

Reportable Segment/Unit Intangible Asset Useful Life

Reportable Segment 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

3 unchanged sentences

Indefinite-lived

Corporate & Other Joybird ® trade name

Corporate and Other Joybird ® trade name

Amortizable over eight -year useful life

7 unchanged sentences

Translation adjustment — — 60 42 102

Balance at January 28, 2023 $ 1,155 $ 2,793 $ 33,317 $ 1,915 $ 39,180

Balance at July 29, 2023 $ 1,155 $ 2,394 $ 36,106 $ 1,874 $ 41,529

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.

1 unchanged sentence

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.

7 unchanged sentences

Marketable securities 15,107 18,509

Cost basis investments 7,579 7,579

Total long-term investments 27,335 34,178

Total investments $ 23,858 $ 24,903

1 unchanged sentence

Investments to fund compensation/retirement plans 13,212 13,286

Other investments 10,315 10,079

Total investments $ 23,858 $ 24,903

9 unchanged sentences

The following table summarizes sales of marketable securities:

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 7/30/2022

9 unchanged sentences

Total $ 12,545

Accrued Expenses and Other Current Liabilities

(Unaudited, amounts in thousands) 1/28/2023 4/30/2022

Payroll and other compensation $ 59,534 $ 62,373

Accrued product warranty, current portion 18,517 16,436

Customer deposits 129,019 183,233

Deferred revenue 60,986 139,006

Other current liabilities 77,304 95,345

Accrued expenses and other current liabilities $ 345,360 $ 496,393

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

Product Warranties

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

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 (1)

1/22/2022 1/28/2023 (1) 1/22/2022

Balance as of the beginning of the period $ 30,984 $ 27,036

Acquisitions — 634 — 634

Accruals during the period 6,665 7,826

1 unchanged sentence

Balance as of the end of the period $ 30,794 $ 27,516

(1) $ 18.5 million and $ 16.4 million is recorded in accrued expenses and other current liabilities as of January 28, 2023, and April 30, 2022, respectively, while the remainder is included in other long-term liabilities.

(1) $ 20.0 million and $ 19.9 million is recorded in accrued expenses and other current liabilities as of July 29, 2023, and April 29, 2023, 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.

1 unchanged sentence

The table below summarizes the total stock-based compensation expense we recognized for all outstanding grants in our consolidated statement of income:

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 7/30/2022

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Liability-based awards expense (1)

( 54 ) ( 73 ) 92 ( 696 )

Total stock-based compensation expense $ 2,614 $ 1,545

(1) Liability-based awards are comprised primarily of deferred stock units granted to non-employee directors.

(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.

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 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 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.

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 256,128 shares of restricted stock units to employees during the first nine months 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 of directors approved the awards.

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

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

We granted 330,140 shares of restricted stock units to employees during the first quarter of fiscal 2024 and we also have restricted stock awards outstanding from previous grants.

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 and 2024 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.

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

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 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 the second quarter of fiscal 2023, we granted 36,656 restricted stock units to our non-employee directors.

We account for these restricted stock units as equity-based awards because when they vest, they will be settled in shares of our common stock.

We measure and recognize compensation expense for these awards based on the market price of our common shares on the date of grant, which was $ 26.19 .

The weighted-average fair value of the restricted stock that was awarded in the first quarter of fiscal 2024 was $ 27.66 per share, the market value of our common shares on the date of grant.

Performance Shares.

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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.

The fair value of each share of the awards we granted in fiscal 2024 that vest based on attaining performance goals was $ 25.48 , the market value of our common shares on the date we granted the awards less the dividends we expect to pay before the shares vest.

For shares that vest based on market conditions, we use a Monte Carlo valuation model to estimate each share’s fair value as of the date of grant.

2 unchanged sentences

Based on the Monte Carlo model, the fair value as of the grant date of the fiscal 2024 grant of shares that vest based on market conditions was $ 34.15 .

Stock Options.

We did not grant stock options to employees during fiscal 2024, but we have stock options outstanding from grants from prior years.

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 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 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.

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

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

We estimated the fair value of the employee stock options granted in prior years at their respective grant date using the Black-Scholes option-pricing model, which requires management to make certain assumptions.

Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the quarters ended January 28, 2023, and January 22, 2022, is as follows:

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

Balance at October 29, 2022 $ ( 6,551 ) $ ( 501 ) $ ( 3,465 ) $ ( 10,517 )

Changes before reclassifications 4,014 303 — 4,317

Amounts reclassified to net income — 78 49 127

Tax effect — ( 94 ) ( 13 ) ( 107 )

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 4,014 287 36 4,337

Balance at January 28, 2023 $ ( 2,537 ) $ ( 214 ) $ ( 3,429 ) $ ( 6,180 )

Balance at October 23, 2021 $ 2,340 $ 320 $ ( 4,813 ) $ ( 2,153 )

Changes before reclassifications ( 752 ) ( 201 ) — ( 953 )

Amounts reclassified to net income — 16 75 91

Tax effect — 45 ( 19 ) 26

Other comprehensive income (loss) attributable to La-Z-Boy Incorporated ( 752 ) ( 140 ) 56 ( 836 )

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

The activity in accumulated other comprehensive income (loss) for the nine months ended January 28, 2023 and January 22, 2022, is as follows:

Activity in accumulated other comprehensive income (loss) for the quarters ended July 29, 2023, and July 30, 2022, 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)

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Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 1,087 220 23 1,330

Balance at January 28, 2023 $ ( 2,537 ) $ ( 214 ) $ ( 3,429 ) $ ( 6,180 )

Balance at July 29, 2023 $ ( 1,565 ) $ 75 $ ( 2,708 ) $ ( 4,198 )

Balance at April 30, 2022 $ ( 1,961 ) $ ( 298 ) $ ( 3,538 ) $ ( 5,797 )

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

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

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

We reclassified both the unrealized gain (loss) on marketable securities and the net pension amortization from accumulated other comprehensive loss to net income through other income (expense), net.

The components of non-controlling interest were as follows:

Quarter Ended Nine Months Ended

The components of noncontrolling interest were as follows:

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 7/30/2022

Balance as of the beginning of the period $ 10,261 $ 8,897

Net income (loss) ( 149 ) 615 1,005 2,157

Other comprehensive loss 1,427 101 504 ( 449 )

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

Net income 447 452

Other comprehensive income (loss) ( 40 ) ( 519 )

Balance as of the end of the period $ 10,668 $ 8,830

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The following table presents our revenue disaggregated by product category and by segment or unit:

Quarter Ended January 28, 2023 Quarter Ended January 22, 2022

(Unaudited, amounts in thousands) Wholesale Retail Corporate

and Other Total Wholesale Retail Corporate

and Other Total

Motion Upholstery Furniture $ 224,726 $ 153,194 $ 5 $ 377,925 $ 238,119 $ 113,767 $ 288 $ 352,174

Stationary Upholstery Furniture 97,736 52,497 35,248 185,481 94,216 46,938 55,971 197,125

Bedroom Furniture 9,853 2,189 3,121 15,163 6,723 1,598 3,674 11,995

Dining Room Furniture 6,926 3,300 1,025 11,251 5,562 2,802 1,063 9,427

Occasional Furniture 11,550 9,567 875 21,992 7,396 6,672 1,153 15,221

Delivery 50,008 6,881 1,654 58,543 45,168 6,342 2,097 53,607

6,804 23,529 ( 8,418 ) 21,915 26,097 18,933 ( 14,267 ) 30,763

Total $ 407,603 $ 251,157 $ 33,510 $ 692,270 $ 423,281 $ 197,052 $ 49,979 $ 670,312

Eliminations ( 119,547 ) ( 98,739 )

Consolidated Net Sales $ 572,723 $ 571,573

Nine Months Ended January 28, 2023 Nine Months Ended January 22, 2022

Quarter Ended July 29, 2023 Quarter Ended July 30, 2022

(Unaudited, amounts in thousands) Wholesale Retail Corporate

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and Other Total

Motion Upholstery Furniture $ 683,809 $ 444,110 $ 64 $ 1,127,983 $ 699,433 $ 326,251 $ 538 $ 1,026,222

Stationary Upholstery Furniture 307,128 162,452 132,869 602,449 284,318 133,449 153,590 571,357

Bedroom Furniture 30,145 6,590 12,361 49,096 30,030 5,386 10,524 45,940

Dining Room Furniture 21,778 9,343 3,864 34,985 20,941 9,462 3,270 33,673

Occasional Furniture 34,957 25,300 3,065 63,322 31,746 19,659 2,966 54,371

Upholstered Furniture $ 283,418 $ 170,714 $ 46,434 $ 500,566 $ 330,478 $ 196,802 $ 51,242 $ 578,522

Casegoods Furniture 20,376 11,833 4,708 36,917 28,006 12,454 7,728 48,188

Delivery 40,043 8,243 1,902 50,188 56,237 8,016 1,903 66,156

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Consolidated Net Sales $ 481,651 $ 604,091

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

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

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

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

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

In fiscal 2024, certain amounts that were previously charged as surcharges in fiscal 2023 are now included in the base product pricing and reflected in the amounts by product category.

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.

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$ 138,776 $ 150,705

(1) During the nine months ended January 28, 2023, we recognized revenue of $ 292.7 million related to our contract liability balance at April 30, 2022.

(1) During the quarter ended July 29, 2023, we recognized revenue of $ 126.0 million related to our contract liability balance at April 29, 2023.

Segment Information

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American Drew ® , Hammary ® and Kincaid ® .

The Wholesale segment also includes our international wholesale and manufacturing businesses.

The Wholesale segment also includes our international wholesale and manufacturing

We aggregate these operating segments into one reportable segment because they are economically similar and meet the other aggregation criteria for determining reportable segments.

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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.

Corporate and Other.

Corporate and Other includes the shared costs for corporate functions, including human resources, information technology, finance and legal, in addition to revenue generated through royalty agreements with companies licensed to use the La-Z-Boy ® brand name on various products.

We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segments, including our global trading company in Hong Kong and Joybird, an e-commerce retailer that manufactures upholstered furniture, such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports casegoods (wood) furniture, such as occasional tables and other accessories.

Joybird sells to the end consumer primarily online through its website, www.joybird.com.

None of the operating segments included in Corporate & Other meet the requirements of reportable segments.

None of the operating segments included in Corporate and Other meet the requirements of reportable segments.

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

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 7/30/2022

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Income before income taxes $ 38,016 $ 53,003

Our effective tax rate was 27.7 % and 26.6 % for the third quarter and nine months ended January 28, 2023, respectively, compared with 24.8 % and 25.9 % for the third quarter and nine months ended January 22, 2022, respectively.

The effective tax rate in the third quarter and first nine months of fiscal 2022 was lower partially due to non-taxable gains on corporate owned life insurance and state taxes.

Our effective tax rate was 26.5 % for both the quarter ended July 29, 2023 and the quarter ended July 30, 2022.

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

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The following is a reconciliation of the numerators and denominators we used in our computations of basic and diluted earnings per share:

Quarter Ended Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands, except per share data) 7/29/2023 7/30/2022

Numerator (basic and diluted):

Net income attributable to La-Z-Boy Incorporated $ 31,726 $ 28,467 $ 116,291 $ 92,549

Income allocated to participating securities (1)

Net income available to common Shareholders $ 27,479 $ 38,488

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Diluted $ 0.63 $ 0.89

(1) Prior to fiscal 2019, we granted restricted stock awards that contained non-forfeitable rights to dividends on unvested shares, and we are required to include these participating securities in calculating our basic earnings per common share, using the two-class method.

The values for contingent common shares set forth above reflect the dilutive effect of common shares that we would have issued to employees under the terms of performance-based share awards if the relevant performance period for the award had been the reporting period.

We exclude the effect of options from our diluted share calculation when the weighted average exercise price of the options is higher than the average market price, since including the options' effect would be anti-dilutive.

For the third quarter and nine months ended January 28, 2023, we excluded options to purchase 1.5 million shares from the diluted share calculation.

For the third quarter and nine months ended January 22, 2022, we excluded options to purchase 0.2 million shares from the diluted share calculation.

For the quarters ended July 29, 2023 and July 30, 2022, we excluded options to purchase 0.7 million shares and 1.5 million shares from the diluted share calculation, respectively.

Fair Value Measurements

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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.

Refer to Note 1, Basis of Presentation, for additional information.

The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at January 28, 2023 and April 30, 2022.

The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at July 29, 2023 and April 29, 2023.

There were no transfers into or out of Level 1, Level 2, or Level 3 for any of the periods presented.

At January 28, 2023

At July 29, 2023

Fair Value Measurements

2 unchanged sentences

Held-to-maturity investments 1,349 — — — 1,349

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

Total assets $ 1,349 $ 11,815 $ — $ 10,694 $ 23,858

4 unchanged sentences

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

Cost basis investment — — 7,579 — 7,579

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

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 January 28, 2023 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.

At July 29, 2023 and April 29, 2023, 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.

The fair value measurements for our Level 1 and Level 2 securities are based on quoted prices in active markets, as well as through broker quotes and independent valuation providers, multiplied by the number of shares owned exclusive of any transaction costs.

At January 28, 2023 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 cost 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.

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.

There were no other changes to the fair value of our Level 3 assets during the nine months ended January 28, 2023.

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

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 6.8 %.

The fair value of our contingent consideration liability as of January 28, 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 the consolidated statement of income.

There were no other changes to the fair value of our Level 3 liabilities during the nine months ended January 28, 2023.

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

What changed 10-Q

Item 1. Financial Statements