NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Accounting Policies
The following is a summary of significant accounting policies followed in the preparation of La-Z-Boy Incorporated and its subsidiaries' (individually and collectively, "we," "our," "us," "La-Z-Boy" or the "Company") consolidated financial statements. Our 2021, 2020 and 2019 fiscal years included 52 weeks.
Principles of Consolidation
The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries. The portion of less than wholly-owned subsidiaries is included as non-controlling interest. All intercompany transactions have been eliminated, including any related profit on intercompany sales.
At April 24, 2021, we owned preferred shares and warrants to purchase common shares of two privately-held companies, both of which are variable interest entities. We have not consolidated their results in our financial statements because we do not have the power to direct those activities that most significantly impact their economic performance and, therefore, are not the primary beneficiary.
Use of Estimates
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that affect the reported amounts or disclosures of assets, liabilities (including contingent liabilities), sales, and expenses at the date of the financial statements. Actual results could differ from those estimates.
Cash and Equivalents
For purposes of the consolidated balance sheet and statement of cash flows, we consider all highly liquid debt instruments purchased with initial maturities of three months or less to be cash equivalents.
Restricted Cash
We have cash on deposit with a bank as collateral for certain letters of credit.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") basis for approximately 61% and 62% of our inventories at April 24, 2021, and April 25, 2020, respectively. Cost is determined for all other inventories on a first-in, first-out ("FIFO") basis. The majority of our La-Z-Boy Wholesale segment inventory uses the LIFO method of accounting, while the FIFO method is used primarily in our Retail segment and Joybird business.
Property, Plant and Equipment
Items capitalized, including significant betterments to existing facilities, are recorded at cost. Capitalized computer software costs include internal and external costs incurred during the software's development stage. Internal costs relate primarily to employee activities for coding and testing the software under development. Computer software costs are depreciated over three to seven years. All maintenance and repair costs are expensed when incurred. Depreciation is computed principally using straight-line methods over the estimated useful lives of the assets.
Disposal and Impairment of Long-Lived Assets
Retirement or dispositions of long-lived assets are recorded based on carrying value and proceeds received. Any resulting gains or losses are recorded as a component of selling, general and administrative (SG&A) expenses.
We review the carrying value of our long-lived assets, which includes our right-of-use lease assets, for impairment if events or changes in circumstances indicate that their carrying amounts may not be recoverable. Our assessment of recoverability is based on our best estimates using either quoted market prices or an analysis of the undiscounted projected future cash flows by asset
groups in order to determine if there is any indicator of impairment requiring us to further assess the fair value of our long-lived assets. Our asset groups consist of our operating segments in our Wholesale reportable segment, each of our retail stores, our Joybird operating segment, and other corporate assets, which are evaluated at the consolidated level.
Indefinite-Lived Intangible Assets and Goodwill
Indefinite-lived intangible assets include our American Drew trade name and the reacquired right to own and operate La-Z-Boy Furniture Galleries® stores we have acquired. Prior to our retail acquisitions, we licensed the exclusive right to own and operate La-Z-Boy Furniture Galleries® stores (and to use the associated trademarks and trade name) in those markets to the dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers' other assets. The reacquired right to own and operate La-Z-Boy Furniture Galleries® stores are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options. A Retailer Agreement remains in effect as long as the independent retailer is not in default under the terms of the agreement.
Our goodwill relates to the acquisition of La-Z-Boy Furniture Galleries® stores, the acquisition of the La-Z-Boy wholesale business in the United Kingdom and Ireland, and the acquisition of Joybird®, an e-commerce retailer and manufacturer of upholstered furniture. The reporting unit for goodwill arising from retail store acquisitions is our Retail operating segment. 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. 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 and the acquisition of Joybird is each respective operating segment.
We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value might be impaired. We have the option to first assess qualitative factors in order to determine if it is more likely than not that the fair value of our intangible assets or reporting units are greater than their carrying value. If the qualitative assessment leads to a determination that the intangible asset/reporting unit’s fair value may be less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test by calculating the fair value of the intangible asset/reporting unit and comparing the fair value with its associated carrying value. We establish the fair value of our indefinite-lived trade names and reacquired rights based upon the relief from royalty method. The estimated fair value of our reporting units is determined based upon the income approach using discounted future cash flows. In situations where the fair value is less than the carrying value, an impairment charge would be recorded for the shortfall.
Amortizable Intangible Assets
We test amortizable intangible assets for impairment if events or changes in circumstances indicate that the assets might be impaired. We have amortizable intangible assets related to the acquisition of the La-Z-Boy wholesale business in the United Kingdom and Ireland, which primarily include acquired customer relationships. These intangible assets are amortized on a straight-line basis over their estimated useful lives, which do not exceed 15 years. We also have an amortizable intangible asset for the Joybird® trade name, which is amortized on a straight-line basis over its estimated useful life of eight years. All intangible amortization expense is recorded as a component of SG&A expense. We established the fair value of these amortizable intangible assets based on the multi-period excess earnings method, a variant of the income approach, and the relief from royalty method, as applicable.
Investments
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. We also hold non-marketable preferred shares and warrants to purchase common shares of two privately-held start-up companies. The fair value of these equity investments 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. 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. We evaluate our available-for-sale debt investments for possible other-than-temporary impairments by reviewing factors such as the extent to which an investment's fair value is below our cost basis, the issuer's
financial condition, and our ability and intent to hold the investment for sufficient time for its market value to recover. For impairments that are other-than-temporary, an impairment loss is recognized in earnings equal to the difference between the investment's cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. 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.
Life Insurance
Life insurance policies are recorded at the amount that could be realized under the insurance contract as of the date of our consolidated balance sheet. These assets are classified as other long-term assets on our consolidated balance sheet and are used to fund our executive deferred compensation plan and performance compensation retirement plan. The change in cash surrender or contract value is recorded as income or expense, in other income (expense), net, during each period.
Customer Deposits
We collect a deposit on a portion of the total merchandise price at the time a customer order is placed in one of our company-owned retail stores, and through our website, www.la-z-boy.com. We record this as a customer deposit, which is included in our accrued expenses and other current liabilities on our consolidated balance sheet. The balance of the order is paid in full prior to delivery of the product. At the time the customer places an order through www.joybird.com, we collect the entire amount owed and record this as a customer deposit.
Revenue Recognition and Related Allowances
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. We generate revenues primarily by manufacturing/importing and delivering upholstery and casegoods (wood) furniture products to independent furniture retailers, independently-owned La-Z-Boy Furniture Galleries® stores or the end consumer. Each unit of furniture is a separate performance obligation, and we satisfy our performance obligation when control of our product is passed to our customer, which is the point in time that our customers are able to direct the use of and obtain substantially all of the remaining economic benefit of the goods or services.
The majority of our wholesale shipping agreements are freight-on-board shipping point and risk of loss transfers to our customer once the product is out of our control. Accordingly, revenue is recognized for product shipments on third-party carriers at the point in time that our product is loaded onto the third-party container or truck and that container or truck leaves our facility. For our imported products, we recognize revenue at the point in time that legal ownership is transferred, which may not occur until after the goods have passed through U.S. Customs. In all cases, this revenue includes amounts we bill to customers for freight charges, because we have elected to treat shipping activities that occur after the customer has obtained control of our product as a fulfillment cost rather than an additional promised service. Because of this election, we recognize revenue for shipping when control of our product passes to our customer, and the shipping costs are accrued when the freight revenue is recognized. Revenue for product shipments on company-owned trucks is recognized for the product and freight at the point in time that our product is delivered to our customer's location.
We recognize revenue for retail sales and online sales to the end consumer through our company-owned retail stores, www.la-z-boy.com or www.joybird.com once the end consumer has taken control of the furniture, at which point legal title has passed to them. 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. 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. We record this as a customer deposit, which is included in accrued expenses and other current liabilities on our consolidated balance sheet. 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. 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. At the time the customer places an order through www.joybird.com, we collect the entire amount owed and record this as a customer deposit. Because the entire amount owed is collected at the time of the order, there is no contract asset recorded for Joybird sales.
At the time we recognize revenue, we make provisions for estimated refunds, product returns, and warranties, as well as other incentives that we may offer to customers. When estimating our incentives, we utilize either the expected value method or the
most likely amount to determine the amount of variable consideration. We use either method depending on which method will provide the best estimate of the variable consideration, and we only include variable consideration when it is probable that there will not be a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is subsequently resolved. Incentives offered to customers include cash discounts, rebates, advertising agreements and other sales incentive programs. Our sales incentives, including cash discounts and rebates, are recorded as a reduction to revenues. Service allowances are for a distinct good or service received from our customer and are recorded as a component of SG&A expense in our consolidated statement of income, and are not recorded as a reduction of revenue and are not considered variable consideration. We use substantial judgment based on the type of variable consideration or service allowance, historical experience and expected sales volume when estimating these provisions. The expected costs associated with our warranties and service allowances are recognized as expense when our products are sold. For sales tax, we elected to exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes). This allows us to present revenue net of these certain types of taxes.
All orders are fulfilled within one year of order date, therefore we do not have any unfulfilled performance obligations. Additionally, we elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component because at contract inception we expect the period between when we transfer our product to our customer and when the customer pays for the product to be one year or less.
Allowance for Credit Losses
Trade accounts receivable arise from the sale of products on trade credit terms. On a quarterly basis, we review all significant accounts as to their past due balances, as well as collectability of the outstanding trade accounts receivable for possible write off. It is our policy to write off the accounts receivable against the allowance account when we deem the receivable to be uncollectible. Additionally, we review orders from dealers that are significantly past due, and we ship product only when our ability to collect payment from our customer for the new order is probable.
Our allowances for credit losses reflect our best estimate of losses inherent in the trade accounts receivable balance. We determine the allowance based on known troubled accounts, weighing probabilities of future conditions and expected outcomes, and other currently available evidence.
Cost of Sales
Our cost of sales consists primarily of the cost to manufacture or purchase our merchandise, inspection costs, internal transfer costs, in-bound freight costs, outbound shipping costs, as well as warehousing costs, occupancy costs, and depreciation expense related to our manufacturing facilities and equipment.
Selling, General and Administrative Expenses
SG&A expenses include the costs of selling our products and other general and administrative costs. 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. Other general and administrative expenses included in SG&A are composed primarily of compensation and benefit costs for administrative employees and other administrative costs.
Other Income (Expense), Net
Other income (expense), net is made up primarily of foreign currency exchange net gain/(loss), gain/(loss) on the sale of investments, unrealized gain/(loss) on equity securities, and all components of pension costs other than service costs and the refund/(charge) related to the termination of our defined benefit pension plan for eligible factory hourly employees in our La-Z-Boy operating unit in fiscal 2019. Other income (expense), net also includes the benefit of $5.2 million of payroll tax credits resulting from the CARES Act recognized during the third quarter of fiscal 2021 and a $6.0 million impairment of our investment in a privately-held start-up company recognized in fiscal 2020.
Research and Development Costs
Research and development costs are charged to expense in the periods incurred. Expenditures for research and development costs were $7.6 million, $10.8 million, and $9.1 million for the fiscal years ended April 24, 2021, April 25, 2020, and April 27, 2019, respectively, and are included as a component of SG&A.
Advertising Expenses
Production costs of commercials, programming and costs of other advertising, promotion and marketing programs are charged to expense in the period in which the commercial or advertisement is first aired or released. Gross advertising expenses were $94.6 million, $108.3 million, and $106.4 million for the fiscal years ended April 24, 2021, April 25, 2020, and April 27, 2019, respectively.
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 30% 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.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
In periods when deferred tax assets are recorded, we are required to estimate whether recoverability is more likely than not (i.e. a likelihood of more than 50%), based on, among other things, forecasts of taxable earnings in the related tax jurisdiction. We consider historical and projected future results of operations, the eligible carry-forward period, tax law changes, tax planning opportunities, and other relevant considerations when making judgments about realizing the value of our deferred tax assets.
We recognize in our consolidated financial statements the benefit of a position taken or expected to be taken in a tax return when it is more likely than not that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is more likely than not to be realized upon settlement. Changes in judgment that result in subsequent recognition, derecognition or change in a measurement date of a tax position taken in a prior annual period (including any related interest and penalties) are recognized as a discrete item in the interim period in which the change occurs.
Foreign Currency Translation
Foreign currency transaction gains and losses associated with translating assets and liabilities denominated in a currency that is different than a subsidiaries' functional currency, are recorded in cost of sales and other income (expense), net in our consolidated statement of income. Assets and liabilities of foreign subsidiaries whose functional currency is their local currency are translated at the year-end exchange rates, and revenues and expenses are translated at average exchange rates for the period, with the corresponding translation effect included as a component of other comprehensive income.
Accounting for Stock-Based Compensation
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. 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.
Commitments and Contingencies
We establish an accrued liability for legal matters when those matters present loss contingencies that are both probable and reasonably estimable. 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. Once the loss contingency related to a litigation matter is deemed to be both probable and reasonably estimable, we will establish an accrued liability with respect to such loss contingency and record a corresponding amount of litigation-related expense. We continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established.
Insurance/Self-Insurance
We use a combination of insurance and self-insurance for a number of risks, including workers' compensation, general liability, vehicle liability and the company-funded portion of employee-related health care benefits. Liabilities associated with these risks are estimated in part by considering historic claims experience, demographic factors, severity factors and other assumptions. Our workers' compensation reserve is an undiscounted liability. We have various excess loss coverages for employee-related health care benefits, vehicle liability, product liability, and workers' compensation liabilities. Our deductibles generally do not exceed $2.0 million.
Recent Accounting Pronouncements
Accounting pronouncement adopted in fiscal 2021
The following table summarizes Accounting Standards Updates ("ASUs") which were adopted in fiscal 2021, but did not have a
material impact on our accounting policies or our consolidated financial statements and related disclosures.
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ASU
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Description
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ASU 2016-13
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Financial Instruments – Credit losses (Topic 326): Measurement of Credit Losses on Financial Instruments
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ASU 2020-04
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Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
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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.
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ASU
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Description
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Adoption Date
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ASU 2018-14
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Compensation – Retirement benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans
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Fiscal 2022
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ASU 2019-12
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Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
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Fiscal 2022
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ASU 2020-01
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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
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Fiscal 2022
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Note 2: Acquisitions
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 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. This acquisition is a core part of our strategy 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.
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 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. All of our provisional purchase accounting estimates for this acquisition are based on the information and data available to us as of the time of the issuance of these financial statements, and in accordance with Accounting Standard Codification Topic 805-10-25-15, are subject to change within the first 12 months of acquisition as we have access to additional data.
Prior Year Acquisitions
We did not complete any acquisitions during fiscal 2020. Acquisitions completed in fiscal 2019 are described below.
Retail acquisitions
On August 15, 2018, and September 30, 2018, respectively, we acquired the assets of two independent operators of La-Z-Boy Furniture Galleries® stores: one that operated nine stores and two warehouses in Arizona and one that operated one store in Massachusetts, for an aggregate $42.8 million, including $38.9 million of cash, $2.6 million of forgiveness of accounts receivable, and $1.3 million of guaranteed future payments. We will pay the guaranteed future payments as they are due, with the last payment being completed in the second quarter of fiscal 2022. These acquisitions are an integral part of our ongoing strategy 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 sides of the business. All acquired stores were included in our Retail segment results upon acquisition.
Joybird acquisition
On July 30, 2018, we completed our acquisition of Stitch Industries, Inc. ("Joybird"), an e-commerce retailer and manufacturer of upholstered furniture, for guaranteed cash payments of $75 million, which was subject to a working capital adjustment of $2.5 million. We received the working capital adjustment during the third quarter of fiscal 2019 from amounts placed in escrow at the time of the closing of the transaction. We acquired Joybird to better position ourselves for growth in the online selling environment and increase our visibility with millennial and Gen X consumers, while simultaneously leveraging our supply chain assets.
The guaranteed payments include a closing date cash payment of $37.5 million in purchase price consideration (net of the working capital adjustment), $7.5 million in prepaid compensation, and the assumption of $5.0 million of liabilities that will be paid within two years following the acquisition. The remaining $25 million will be paid in five annual installments of $5 million on the anniversary date of the acquisition.
The $7.5 million of prepaid compensation relates to the retention of the four Joybird founders, who became our employees, each of whom agreed to forfeit proportional amounts if one or more of them resigns in the two years following the acquisition. We amortized the $7.5 million to SG&A expense over the two-year retention period on a straight-line basis. As we neared the end of the period for which four founders of Joybird were required to remain with the organization, we separated two of the founders during the fourth quarter of fiscal 2020. We waived our right to recover any compensation from these two founders, as we believe their work and two years of service commitment were substantially fulfilled, and accordingly we accelerated the amortization of the proportional amount of their respective retention agreement.
In addition to the guaranteed cash payments of $75 million, we recorded a contingent consideration liability on the date of acquisition of $7.5 million, which reflected the fair value of the earn-out opportunities as of the date of acquisition. We also recorded a finite-lived intangible asset of $6.4 million reflecting the fair value of the acquired Joybird® trade name, which we are amortizing to SG&A expense on a straight-line basis over its useful life of eight years. The undiscounted range of the contingent consideration is zero to $65 million and is based on sales and profitability of Joybird in fiscal 2021 and fiscal 2023. Subsequent adjustments to the fair value of the contingent consideration will impact SG&A expense in our consolidated statement of income.
Comparability
During fiscal 2021, we determined that holdback payments for acquisition purchases of $6.9 million and $0.9 million included in net cash used by investing activities should have been included in net cash used by financing activities for the fiscal years ended April 25, 2020 and April 27, 2019, respectively. Although the amounts impacting payments for acquisitions were not material to the fiscal 2020 or 2019 consolidated financial statements, the classification of these amounts has been corrected by revising the consolidated statements of cash flows for the fiscal years ended April 25, 2020 and April 27, 2019.
Note 3: Restricted Cash
We have restricted cash on deposit with a bank as collateral for certain letters of credit. All of our letters of credit have maturity dates within the next 12 months, and we expect to renew some of these letters of credit when they mature.
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(Amounts in thousands)
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4/24/2021
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4/25/2020
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Cash and cash equivalents
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$
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391,213
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$
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261,553
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Restricted cash
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3,490
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1,975
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Total cash, cash equivalents and restricted cash
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$
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394,703
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$
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263,528
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Note 4: Inventories
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(Amounts in thousands)
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4/24/2021
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4/25/2020
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Raw materials
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$
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112,371
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$
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92,174
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Work in process
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24,791
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14,064
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Finished goods
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121,182
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96,850
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FIFO inventories
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258,344
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203,088
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Excess of FIFO over LIFO
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(32,207)
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(21,445)
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Total inventories
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$
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226,137
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$
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181,643
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Note 5: Property, Plant and Equipment
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(Amounts in thousands)
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Estimated Useful Lives
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4/24/2021
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4/25/2020
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Buildings and building fixtures
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3 - 40 years
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$
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234,375
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$
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233,063
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Machinery and equipment
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3 - 15 years
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167,577
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155,776
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Information systems and software
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3 - 7 years
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93,174
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90,705
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Furniture and fixtures
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3 - 15 years
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23,441
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23,890
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Land improvements
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3 - 30 years
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23,855
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17,427
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Transportation equipment
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3 - 10 years
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15,372
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15,092
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Land
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N/A
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12,405
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14,236
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Construction in progress
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N/A
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24,848
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28,234
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595,047
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578,423
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Accumulated depreciation
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(375,853)
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(363,656)
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Net property, plant and equipment
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$
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219,194
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$
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214,767
|
|
Depreciation expense for the fiscal years ended April 24, 2021, April 25, 2020, and April 27, 2019, was $31.7 million, $30.0 million, and $27.5 million, respectively.
Note 6: Leases
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, plants, showrooms and office space. We also have equipment leases for tractors/trailers, IT and office equipment, and vehicles. We determine if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all the economic benefits from the use of that identified asset. Most of our real estate leases include options to renew or terminate early. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet these criteria are included in the lease term at lease commencement.
Most of our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our right of use ("ROU") asset and lease liability, we determine our incremental borrowing rate by applying a spread above the U.S. Treasury borrowing rates. In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease. Some of our leases contain variable rent payments based on a Consumer Price Index or percentage of sales. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.
COVID-19 Impact
In response to the COVID-19 global pandemic, beginning in April of fiscal 2020, we secured rent relief from several of our lessors, most often in the form of the deferral of rent payments for one or more months. Under these agreements, certain rent payments were deferred without penalty and are to be paid back over varying periods. In accordance with FASB Staff Q&A - Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Staff Q&A") issued in April 2020, we elected to account for lease deferrals resulting directly from COVID-19 as if the enforceable rights and obligations for the deferrals existed in the respective contracts at lease inception and as such we did not account for the deferrals as lease modifications. Guidance from the FASB Staff Q&A provided methods to account for such rent deferrals which included the option to treat the lease as if no changes to the lease contract were made or to treat the deferred payments as variable lease payments. The FASB Staff Q&A allowed entities to select the most practical approach and did not require the same approach be applied consistently to all leases. For the majority of our leases, we elected to account for the deferrals as if no changes to the lease contract were made and continued to recognize lease expense, on a straight-line basis, during the deferral period. As of April 24, 2021, we have paid back the majority of our deferred rent.
Supplemental balance sheet information pertaining to our leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Operating leases
|
|
|
|
|
ROU assets
|
|
$
|
343,207
|
|
|
$
|
318,634
|
|
Lease liabilities, short-term
|
|
67,493
|
|
|
64,363
|
|
Lease liabilities, long-term
|
|
294,550
|
|
|
270,162
|
|
Financing leases
|
|
|
|
|
ROU assets
|
|
$
|
593
|
|
|
$
|
13
|
|
Lease liabilities, short-term
|
|
121
|
|
|
13
|
|
Lease liabilities, long-term
|
|
473
|
|
|
—
|
|
|
|
|
|
|
The ROU assets by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Wholesale
|
|
$
|
76,899
|
|
|
$
|
69,665
|
|
Retail
|
|
253,910
|
|
|
236,719
|
|
Corporate & Other
|
|
12,991
|
|
|
12,263
|
|
Total ROU assets
|
|
$
|
343,800
|
|
|
$
|
318,647
|
|
The components of lease cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended (1)
|
|
|
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
|
|
4/24/2021
|
|
4/25/2020
|
Operating lease cost
|
|
|
|
$
|
79,072
|
|
|
$
|
76,223
|
|
Financing lease cost
|
|
|
|
53
|
|
|
166
|
|
Short-term lease cost
|
|
|
|
545
|
|
|
248
|
|
Variable lease cost (2)
|
|
|
|
(245)
|
|
|
(40)
|
|
Less: Sublease income
|
|
|
|
(1,546)
|
|
|
(2,504)
|
|
Total lease cost
|
|
|
|
$
|
77,879
|
|
|
$
|
74,093
|
|
(1)Rental expense for fiscal year ended 4/27/2019 was $77.2 million.
(2)Includes deferred payments on select leases in accordance with the FASB Staff Q&A.
The following tables present supplemental lease disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
|
4/24/2021
|
|
4/25/2020
|
(Amounts in thousands)
|
|
Operating Leases
|
|
Financing Leases
|
|
Operating Leases
|
|
Financing Leases
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
79,707
|
|
|
$
|
53
|
|
|
$
|
77,176
|
|
|
$
|
165
|
|
Lease liabilities arising from new ROU assets
|
|
93,399
|
|
|
631
|
|
|
72,061
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2021
|
|
4/25/2020
|
(Amounts in thousands)
|
|
Operating Leases
|
|
Financing Leases
|
|
Operating Leases
|
|
Financing Leases
|
Weighted-average remaining lease term (years)
|
|
6.8
|
|
4.8
|
|
7.0
|
|
0.3
|
Weighted-average discount rate
|
|
3.3
|
%
|
|
1.7
|
%
|
|
3.9
|
%
|
|
3.9
|
%
|
The following table presents our maturity of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2021
|
|
|
(Amounts in thousands)
|
|
Operating Leases (1)
|
|
Financing Leases
|
|
|
|
|
Within one year
|
|
$
|
78,079
|
|
|
$
|
130
|
|
|
|
|
|
After one year and within two years
|
|
68,593
|
|
|
130
|
|
|
|
|
|
After two years and within three years
|
|
59,561
|
|
|
130
|
|
|
|
|
|
After three years and within four years
|
|
48,304
|
|
|
130
|
|
|
|
|
|
After four years and within five years
|
|
38,122
|
|
|
98
|
|
|
|
|
|
After five years
|
|
110,735
|
|
|
—
|
|
|
|
|
|
Total lease payments
|
|
403,394
|
|
|
618
|
|
|
|
|
|
Less: Interest
|
|
41,351
|
|
|
24
|
|
|
|
|
|
Total lease obligations
|
|
$
|
362,043
|
|
|
$
|
594
|
|
|
|
|
|
(1)Excludes approximately $29.7 million in future lease payments for various operating leases commencing in a future period
Note 7: Goodwill and Other Intangible Assets
We have goodwill on our consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment/Unit
|
|
Reporting Unit
|
|
Related Acquisition
|
Wholesale Segment
|
|
La-Z-Boy United Kingdom
|
|
Wholesale business in the United Kingdom and Ireland
|
Retail Segment
|
|
Retail
|
|
La-Z-Boy Furniture Galleries® stores
|
Corporate & Other Segment
|
|
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. Under US 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.
During our fiscal 2021 annual impairment test, we first assessed goodwill recoverability qualitatively using the Step 0 approach for each of our reporting units. For our qualitative assessment, we considered the most recent quantitative analysis, which was performed during the fourth quarter of fiscal 2020, including assumptions used, such as discount rates and tax rates, indicated fair values, and the amounts in which those fair values exceeded their carrying amounts. Further, we compared actual performance in fiscal 2021, along with future financial projections to the internal financial projections used in the prior quantitative analysis. Additionally, we considered various other factors including macroeconomic conditions, relevant industry and market trends, and factors specific to the Company that could indicate a potential change in the fair value of our reporting units. 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 24, 2021, 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.
The following table summarizes changes in the carrying amount of our goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Wholesale
Segment
|
|
Retail
Segment
|
|
Corporate
and Other
|
|
Total
Goodwill
|
|
|
Balance at April 27, 2019
|
|
$
|
12,148
|
|
|
$
|
94,103
|
|
|
$
|
79,616
|
|
|
$
|
185,867
|
|
|
|
Prior period adjustment (1)
|
|
—
|
|
|
—
|
|
|
2,692
|
|
|
2,692
|
|
|
|
Impairment charge
|
|
—
|
|
|
—
|
|
|
(26,862)
|
|
|
(26,862)
|
|
|
|
Translation adjustment
|
|
(518)
|
|
|
(162)
|
|
|
—
|
|
|
(680)
|
|
|
|
Balance at April 25, 2020
|
|
11,630
|
|
|
93,941
|
|
|
55,446
|
|
|
161,017
|
|
|
|
Acquisitions
|
|
—
|
|
|
12,936
|
|
|
—
|
|
|
12,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
1,422
|
|
|
439
|
|
|
—
|
|
|
1,861
|
|
|
|
Balance at April 24, 2021
|
|
$
|
13,052
|
|
|
$
|
107,316
|
|
|
$
|
55,446
|
|
|
$
|
175,814
|
|
|
|
(1)Includes $3.5 million adjustment made during the fourth quarter of fiscal 2020, as we determined that both goodwill and the customer deposit liability were understated, partially offset by a $0.8 million working capital adjustment made in the first quarter of fiscal 2020.
We have intangible assets on our consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
Wholesale Segment
|
|
American Drew® trade name
|
|
Indefinite-lived
|
Retail segment
|
|
Reacquired rights to own and operate La-Z-Boy Furniture Galleries® stores
|
|
Indefinite-lived
|
Corporate & Other
|
|
Joybird® trade name
|
|
Amortizable over eight-year useful life
|
We test amortizable intangible assets and indefinite-lived intangibles 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. Similar to our goodwill testing, we used the qualitative Step 0 approach to assess if it was more likely than not that the fair values of our intangible assets were greater than their carrying values. Based on the same qualitative factors outlined above, we determined that it is more likely than not that the fair value of each of our intangible assets exceeded their respective carrying value and as such, our intangible assets were not considered impaired as of April 24, 2021, and the Step 1 quantitative impairment analysis was not necessary.
The following summarizes changes in our intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Indefinite-Lived Trade Names
|
|
Finite-Lived Trade Name
|
|
Indefinite-Lived Reacquired Rights
|
|
Other Intangible Assets
|
|
Total Intangible Assets
|
Balance at April 27, 2019
|
|
$
|
1,155
|
|
|
$
|
5,801
|
|
|
$
|
20,117
|
|
|
$
|
2,834
|
|
|
$
|
29,907
|
|
Amortization
|
|
—
|
|
|
(798)
|
|
|
—
|
|
|
(220)
|
|
|
(1,018)
|
|
Translation adjustment
|
|
—
|
|
|
—
|
|
|
(121)
|
|
|
(115)
|
|
|
(236)
|
|
Balance at April 25, 2020
|
|
$
|
1,155
|
|
|
$
|
5,003
|
|
|
$
|
19,996
|
|
|
$
|
2,499
|
|
|
$
|
28,653
|
|
Acquisitions
|
|
—
|
|
|
—
|
|
|
2,182
|
|
|
—
|
|
|
2,182
|
|
Amortization
|
|
—
|
|
|
(798)
|
|
|
—
|
|
|
(228)
|
|
|
(1,026)
|
|
Translation adjustment
|
|
—
|
|
|
—
|
|
|
329
|
|
|
293
|
|
|
622
|
|
Balance at April 24, 2021
|
|
$
|
1,155
|
|
|
$
|
4,205
|
|
|
$
|
22,507
|
|
|
$
|
2,564
|
|
|
$
|
30,431
|
|
For our intangible assets recorded as of April 24, 2021, we estimate annual amortization expense to be $1.0 million for each of the five succeeding fiscal years.
Note 8: Investments
We have current and long-term investments intended to enhance returns on our cash as well as to fund future obligations of our non-qualified defined benefit retirement plan, our executive deferred compensation plan, and our performance compensation retirement plan. We also hold other investments consisting of cost-basis preferred shares of two privately-held start-up companies (refer to Note 20, Fair Value Measurement). Our short-term investments are included in other current assets and our long-term investments are included in other long-term assets on our consolidated balance sheet.
The following summarizes our investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Short-term investments:
|
|
|
|
|
Marketable securities
|
|
$
|
18,037
|
|
|
$
|
18,634
|
|
Held-to-maturity investments
|
|
2,532
|
|
|
3,337
|
|
Total short-term investments
|
|
20,569
|
|
|
21,971
|
|
Long-term investments:
|
|
|
|
|
Marketable securities
|
|
27,256
|
|
|
19,572
|
|
Cost basis investments
|
|
7,579
|
|
|
6,479
|
|
Total long-term investments
|
|
34,835
|
|
|
26,051
|
|
Total investments
|
|
$
|
55,404
|
|
|
$
|
48,022
|
|
|
|
|
|
|
Investments to enhance returns on cash
|
|
$
|
32,475
|
|
|
$
|
28,622
|
|
Investments to fund compensation/retirement plans
|
|
15,350
|
|
|
12,921
|
|
Other investments
|
|
7,579
|
|
|
6,479
|
|
Total investments
|
|
$
|
55,404
|
|
|
$
|
48,022
|
|
The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/24/2021
|
|
4/25/2020
|
(Amounts in thousands)
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Equity securities
|
|
$
|
2,798
|
|
|
$
|
(5)
|
|
|
$
|
14,954
|
|
|
$
|
1,011
|
|
|
$
|
(6,390)
|
|
|
$
|
12,692
|
|
Fixed income
|
|
136
|
|
|
(29)
|
|
|
35,631
|
|
|
268
|
|
|
(56)
|
|
|
30,213
|
|
Other
|
|
559
|
|
|
—
|
|
|
4,819
|
|
|
372
|
|
|
—
|
|
|
5,117
|
|
Total securities
|
|
$
|
3,493
|
|
|
$
|
(34)
|
|
|
$
|
55,404
|
|
|
$
|
1,651
|
|
|
$
|
(6,446)
|
|
|
$
|
48,022
|
|
The following table summarizes sales of marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Proceeds from sales
|
|
$
|
33,631
|
|
|
$
|
36,443
|
|
|
$
|
20,944
|
|
Gross realized gains
|
|
1,026
|
|
|
852
|
|
|
1,152
|
|
Gross realized losses
|
|
(71)
|
|
|
(159)
|
|
|
(496)
|
|
The following is a summary of the fair value of fixed income marketable securities, classified as available-for-sale securities, by contractual maturity:
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
Within one year
|
|
$
|
18,069
|
|
Within two to five years
|
|
14,490
|
|
Within six to ten years
|
|
1,268
|
|
Thereafter
|
|
1,804
|
|
Total
|
|
$
|
35,631
|
|
Note 9: Accrued Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Payroll and other compensation
|
|
$
|
62,546
|
|
|
$
|
34,980
|
|
Accrued product warranty, current portion
|
|
14,447
|
|
|
14,264
|
|
Customer deposits
|
|
180,766
|
|
|
40,721
|
|
Deferred revenue
|
|
108,460
|
|
|
17,086
|
|
Other current liabilities
|
|
83,685
|
|
|
48,231
|
|
Accrued expenses and other current liabilities
|
|
$
|
449,904
|
|
|
$
|
155,282
|
|
The increase in customer deposits and deferred revenue was primarily driven by higher Retail segment and Joybird written sales in fiscal 2021. Higher written sales also led to an increase in contract assets, which are included in other current assets on the consolidated balance sheet, consistent with the increase in deferred revenue. Refer to Note 16, Revenue Recognition, for additional details regarding our contract assets and contract liabilities.
Note 10: Debt
We maintain a revolving credit facility secured primarily by all of our accounts receivable, inventory, cash deposits, and securities accounts. Availability under the agreement fluctuates according to a borrowing base calculated on eligible accounts receivable and inventory, net of customer deposits. We amended this agreement on December 19, 2017, extending its maturity date to December 19, 2022. The credit agreement includes affirmative and negative covenants that apply under certain circumstances, including a fixed-charge coverage ratio requirement that applies when excess availability under the line is less than certain thresholds. At April 24, 2021, we were not subject to the fixed-charge coverage ratio requirement, as we had no borrowings outstanding under the agreement, and had excess availability of $61.7 million of the $150.0 million credit
commitment. Excess availability was lower than the total remaining credit commitment, primarily due to higher reserves required due to the $140.0 million increase in customer deposits during the year. At April 25, 2020, we had $75.0 million in borrowings outstanding under the agreement, which was proactively borrowed to manage liquidity in response to economic conditions resulting from COVID-19 in the fourth quarter of 2020 and was repaid during the first half of fiscal 2021. At April 25, 2020, we were not subject to the fixed-charge coverage ratio requirement and had excess availability of $43.2 million of the $150.0 million credit commitment.
Cash paid for interest during fiscal years 2021, 2020, and 2019 was $0.8 million, $0.6 million, and $1.0 million, respectively.
Note 11: Employee Benefits
The table below summarizes the total costs associated with our employee retirement and welfare plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
401(k) Retirement Plan
|
|
$
|
7,313
|
|
|
$
|
9,380
|
|
|
$
|
9,128
|
|
Performance Compensation Retirement Plan
|
|
3,810
|
|
|
1,115
|
|
|
3,084
|
|
Deferred Compensation Plan
|
|
24
|
|
|
719
|
|
|
284
|
|
Non-Qualified Defined Benefit Retirement Plan (1)
|
|
803
|
|
|
796
|
|
|
805
|
|
Net Periodic Pension Cost (2)
|
|
—
|
|
|
—
|
|
|
35,998
|
|
(1)Primarily related to interest cost.
(2)Refer below for breakdown of net periodic pension cost.
401(k) Retirement Plan. Voluntary 401(k) retirement plans are offered to eligible employees within certain U.S. operating units. For most operating units, we make matching contributions based on specific formulas. On January 1, 2019, we increased our matching contributions for eligible employees which resulted in an additional expense of $1.7 million in fiscal 2019. As a result of the increased matching contributions, supplemental contributions awarded to eligible employees based on achievement of operating performance targets during fiscal 2019 were discontinued starting fiscal 2020. Additionally, on March 29, 2020, we announced a temporary freeze on 401(k) matching contributions as part of our COVID-19 action plan. During the second quarter of fiscal 2021 we reinstated 401(k) match for employees.
Performance Compensation Retirement Plan. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Short-term obligation included in other current liabilities
|
|
$
|
716
|
|
|
$
|
638
|
|
Long-term obligation included in other long-term liabilities
|
|
15,194
|
|
|
12,492
|
|
Executive Deferred Compensation Plan. We maintain an executive deferred compensation plan for eligible highly compensated employees, an element of which may include Company contributions. Further information related to the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Plan obligation included in other long-term liabilities
|
|
$
|
26,548
|
|
|
$
|
22,282
|
|
Cash surrender value on life insurance contracts included in other long-term assets (1)
|
|
41,133
|
|
|
34,562
|
|
Mutual funds held by plan included in other current assets (2)
|
|
10
|
|
|
76
|
|
(1)Life insurance contracts are related to the Executive Deferred Compensation Plan and the PCRP.
(2)Mutual funds are considered trading securities.
Non-Qualified Defined Benefit Retirement Plan. We maintain a non-qualified defined benefit retirement plan for certain former salaried employees. We hold available-for-sale marketable securities to fund future obligations of this plan in a Rabbi trust (refer to Note 8, Investments, and Note 20, Fair Value Measurements, for additional information on these investments). We are
not required to fund the non-qualified defined benefit retirement plan in fiscal 2022; however, we have the discretion to make contributions to the Rabbi trust. Further information related to the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Plan obligation included in long-term liabilities
|
|
$
|
15,783
|
|
|
$
|
16,846
|
|
Discount rate used to determine obligation
|
|
3.0
|
%
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Actuarial loss recognized in AOCI
|
|
$
|
347
|
|
|
$
|
218
|
|
|
$
|
190
|
|
Benefit payments (1)
|
|
1,091
|
|
|
1,091
|
|
|
1,091
|
|
(1)Benefit payments are scheduled to be between $1.0 million and $1.1 million annually for the next 10 years.
Defined Benefit Pension Plan. During the fourth quarter of fiscal 2019, we terminated our defined benefit pension plan for eligible factory hourly employees in our La-Z-Boy operating unit. In connection with the plan termination, we settled all future obligations under the plan through a combination of lump-sum payments to eligible participants who elected to receive them, and the transfer of any remaining benefit obligations under the plan to a highly rated insurance company.
As a result of these actions, we recognized a non-cash pre-tax pension termination charge of $32.7 million during the fourth quarter of fiscal 2019. During the second quarter of fiscal 2020, we received a pre-tax refund of $1.9 million from the insurance company, representing an overpayment of the expected benefit obligations that were settled during the fourth quarter of fiscal 2019. Both the initial charge and the refund were recorded as pension termination refund (charge) in our consolidated statement of income.
There were no net periodic pension costs associated with the terminated pension plan in the fiscal years ended April 24, 2021, or April 25, 2020. For the fiscal year ended April 27, 2019, net periodic pension costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/27/2019
|
Service cost
|
|
$
|
851
|
|
Interest cost
|
|
4,464
|
|
Expected return on plan assets
|
|
(4,544)
|
|
Net amortization
|
|
2,556
|
|
Pension termination charge
|
|
32,671
|
|
Net periodic pension cost
|
|
$
|
35,998
|
|
The components of net periodic pension cost, other than the service cost, were included in other income (expense), net in our consolidated statement of income. Service cost was recorded in cost of sales in our consolidated statement of income.
Note 12: Product Warranties
We accrue an estimated liability for product warranties when we recognize revenue on the sale of warrantied products. We estimate future warranty claims on product sales based on our historical claims experience and periodically adjust the provision to reflect changes in actual experience. We incorporate repair costs into our liability estimates, including materials, labor and overhead amounts necessary to perform repairs, and any costs associated with delivering repaired product to our customers. Over 90% of our warranty liability relates to our Wholesale reportable segment as we generally warrant our products against defects for one 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. 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. For all our manufacturer warranties, the warranty period begins when the consumer receives our product. We use considerable judgment in making our estimates, and we record differences between our actual and estimated costs when the differences are known.
A reconciliation of the changes in our product warranty liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Balance as of the beginning of the year
|
|
$
|
23,255
|
|
|
$
|
22,736
|
|
|
|
|
|
|
Accruals during the year
|
|
21,956
|
|
|
22,563
|
|
Settlements during the year
|
|
(21,575)
|
|
|
(22,044)
|
|
Balance as of the end of the year (1)
|
|
$
|
23,636
|
|
|
$
|
23,255
|
|
(1)$14.4 million and $14.3 million recorded in accrued expenses and other current liabilities as of April 24, 2021, and April 25, 2020, respectively, while the remainder is included in other long-term liabilities.
We recorded accruals during the periods presented in the table above, primarily to reflect charges that relate to warranties issued during the respective periods.
Note 13: Contingencies and Commitments
We have been named as a defendant in various lawsuits arising in the ordinary course of business and as a potentially responsible party at certain environmental clean-up sites, the effect of which are not considered significant. Based on a review of all currently known facts and our experience with previous legal and environmental matters, we have recorded expense in respect of probable and reasonably estimable losses arising from legal matters, and we currently do not believe it is probable that we will have any additional loss for legal or environmental matters that would be material to our consolidated financial statements.
In view of the inherent difficulty of predicting the outcome of litigation, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories, we generally cannot predict the eventual outcome, timing, or related loss, if any, of pending matters.
Note 14: 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.
The table below summarizes the total stock-based compensation expense recognized for all outstanding grants in our consolidated statement of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Equity-based awards expense
|
|
|
|
|
|
|
Stock options
|
|
$
|
2,959
|
|
|
$
|
2,000
|
|
|
$
|
3,507
|
|
Restricted stock awards
|
|
3,367
|
|
|
2,913
|
|
|
2,548
|
|
Restricted stock units issued to Directors
|
|
840
|
|
|
900
|
|
|
704
|
|
Performance-based shares
|
|
5,505
|
|
|
2,558
|
|
|
4,222
|
|
Total equity-based awards expense
|
|
12,671
|
|
|
8,371
|
|
|
10,981
|
|
Liability-based awards expense
|
|
|
|
|
|
|
Stock appreciation rights
|
|
375
|
|
|
(240)
|
|
|
98
|
|
Restricted stock units
|
|
43
|
|
|
20
|
|
|
22
|
|
Performance-based units
|
|
23
|
|
|
6
|
|
|
7
|
|
Deferred stock units
|
|
1,437
|
|
|
(768)
|
|
|
212
|
|
Total liability-based awards expense
|
|
1,878
|
|
|
(982)
|
|
|
339
|
|
Total stock-based compensation expense (1)
|
|
$
|
14,549
|
|
|
$
|
7,389
|
|
|
$
|
11,320
|
|
(1)Stock-based compensation expense is recorded in SG&A expense in the consolidated statement of income.
Stock Options. The La-Z-Boy Incorporated 2017 Omnibus Incentive Plan authorized grants to certain employees and directors to purchase common shares at a specified price, which may not be less than 100% of the current market price of the stock at the date of grant. We granted 315,584 stock options to employees during the first quarter of fiscal 2021, and we also have stock options outstanding from previous grants. 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. The vesting period for our stock options ranges from one to four years, with accelerated vesting upon retirement. The vesting date for retirement-eligible employees is the later of the date they meet the criteria for retirement or the end of the fiscal year in which the grant was made. We accelerate the expense for options granted to retirement eligible employees over the vesting period, with expense recognized from the grant date through their retirement eligibility date or over the ten months following the grant date, whichever period is longer. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. Granted options outstanding under the former long-term equity award plan remain in effect and have a term of 10 years.
We received $10.8 million, $4.8 million, and $16.2 million in cash during fiscal 2021, 2020, and 2019, respectively, for exercises of stock options.
Plan activity for stock options under the above plans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
(In Thousands)
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
(Years)
|
|
Aggregate Intrinsic Value
(In Thousands)
|
Outstanding at April 25, 2020
|
1,438
|
|
|
$
|
28.76
|
|
|
7.2
|
|
$
|
103
|
|
Granted
|
316
|
|
|
27.54
|
|
|
N/A
|
|
N/A
|
Canceled
|
(7)
|
|
|
31.34
|
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
Exercised
|
(405)
|
|
|
26.79
|
|
|
N/A
|
|
5,102
|
|
Outstanding at April 24, 2021
|
1,342
|
|
|
29.05
|
|
|
7.2
|
|
19,008
|
|
|
|
|
|
|
|
|
|
Exercisable at April 24, 2021
|
592
|
|
|
$
|
28.67
|
|
|
6.0
|
|
$
|
8,609
|
|
The aggregate intrinsic value of options exercised was $1.7 million and $9.9 million in fiscal 2020 and fiscal 2019, respectively. As of April 24, 2021, our total unrecognized compensation cost related to non-vested stock option awards was $1.6 million, which we expect to recognize over a weighted-average remaining vesting term of all unvested awards of 1.7 years. During the year ended April 24, 2021, stock options with respect to 0.4 million shares vested.
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 expected volatility based on the historical volatility of our common shares. We base the average expected life on the contractual term of the stock option and expected employee exercise trends. We base the risk-free rate on U.S. Treasury issues with a term equal to the expected life assumed at the date of the grant. The fair value of stock options granted during fiscal 2021, fiscal 2020, and fiscal 2019 were calculated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2021 grant
|
|
Fiscal 2020 grant
|
|
Fiscal 2019 grant
|
Risk-free interest rate
|
0.34
|
%
|
|
2.19
|
%
|
|
2.82
|
%
|
Dividend rate
|
—
|
%
|
|
1.72
|
%
|
|
1.45
|
%
|
Expected life in years
|
5.0
|
|
5.0
|
|
5.0
|
Stock price volatility
|
41.79
|
%
|
|
34.27
|
%
|
|
33.07
|
%
|
Fair value per share
|
$
|
10.06
|
|
|
$
|
7.94
|
|
|
$
|
9.65
|
|
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 24, 2021, 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 24, 2021, 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 24, 2021, the intrinsic value per share of the fiscal 2014 award was $24.16.
Restricted Stock. We awarded 137,885 shares of restricted stock to employees during fiscal 2021. 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 2021 was $29.35 per share, the market value of our common shares on the date of grant. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. We 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 24, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(In Thousands)
|
|
Weighted Average Grant Date Fair Value
|
Non-vested shares at April 25, 2020
|
|
293
|
|
|
$
|
30.34
|
|
Granted
|
|
138
|
|
|
29.35
|
|
Vested
|
|
(102)
|
|
|
29.66
|
|
Canceled
|
|
(9)
|
|
|
30.20
|
|
Non-vested shares at April 24, 2021
|
|
320
|
|
|
30.14
|
|
Unrecognized compensation cost related to non-vested restricted shares was $6.9 million and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 1.7 years.
Restricted Stock Units. 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. During fiscal 2021, fiscal 2020, and fiscal 2019 we granted less than 0.1 million restricted stock units each year 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 $32.08, $31.77, and $33.15 for the awards granted in fiscal 2021, fiscal 2020, and fiscal 2019, 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. 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.
Payout of the fiscal 2021 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%). The performance award 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 2019 and fiscal 2020 were weighted (80%) on financial performance and (20%) on market-based conditions consistent with those in the fiscal 2021 grant
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.
The following table summarizes the performance-based shares outstanding at the maximum award amounts based upon the respective performance share agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(In Thousands)
|
|
Weighted Average Grant Date Fair Value
|
Outstanding shares at April 25, 2020
|
|
534
|
|
|
$
|
29.21
|
|
Granted
|
|
337
|
|
|
30.75
|
|
Vested
|
|
(98)
|
|
|
25.93
|
|
Unearned or canceled
|
|
(104)
|
|
|
30.30
|
|
Outstanding shares at April 24, 2021
|
|
669
|
|
|
30.32
|
|
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. The fair value of each share of the awards we granted in fiscal 2021, fiscal 2020, and fiscal 2019 that vest based on attaining performance goals was $30.75, $28.68, and $31.71, 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. For shares that vest based on market conditions, we use a Monte Carlo valuation model to estimate each share's fair value as of the date of grant. The Monte Carlo valuation model uses multiple simulations to evaluate our probability of achieving various stock price levels to determine our expected performance ranking relative to our peer group. Similar to the way in which we expense the awards of stock options, we expense compensation cost over the vesting period regardless of whether the market condition is ultimately satisfied. Based on the Monte Carlo model, the fair value as of the grant date of the fiscal 2021, fiscal 2020, and fiscal 2019 grants of shares that vest based on market conditions was $38.14, $38.75, and $46.39, respectively. Our unrecognized compensation cost at April 24, 2021, related to performance-based shares was $6.8 million based on the current estimates of the number of awards that will vest, and is expected to be recognized over a weighted-average remaining contractual term of all unvested awards of 1.4 years.
Equity-based compensation expenses related to performance-based shares recognized in our consolidated statement of income were as follows (for the fiscal years ended):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Fiscal 2017 grant
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,044
|
|
Fiscal 2018 grant
|
|
—
|
|
|
611
|
|
|
1,402
|
|
Fiscal 2019 grant
|
|
1,545
|
|
|
996
|
|
|
1,776
|
|
Fiscal 2020 grant
|
|
2,051
|
|
|
951
|
|
|
—
|
|
Fiscal 2021 grant
|
|
1,909
|
|
|
—
|
|
|
—
|
|
Total expense
|
|
$
|
5,505
|
|
|
$
|
2,558
|
|
|
$
|
4,222
|
|
Deferred Stock Units. 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 24, 2021, we had 0.1 million deferred stock units outstanding. Our liability related to these awards was $2.7 million and $1.4 million at April 24, 2021, and April 25, 2020, respectively, and is included as a component of other long-term liabilities on our consolidated balance sheet.
Note 15: 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
|
Balance at April 28, 2018
|
|
$
|
2,388
|
|
|
$
|
154
|
|
|
$
|
1,376
|
|
|
$
|
(29,117)
|
|
|
$
|
(25,199)
|
|
Changes before reclassifications
|
|
(2,338)
|
|
|
(369)
|
|
|
330
|
|
|
(479)
|
|
|
(2,856)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect adjustment for investments (1)
|
|
—
|
|
|
—
|
|
|
(1,637)
|
|
|
|
|
(1,637)
|
|
Amounts reclassified to net income (3)
|
|
—
|
|
|
280
|
|
|
25
|
|
|
26,553
|
|
|
26,858
|
|
Tax effect
|
|
—
|
|
|
22
|
|
|
(88)
|
|
|
(562)
|
|
|
(628)
|
|
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated
|
|
(2,338)
|
|
|
(67)
|
|
|
(1,370)
|
|
|
25,512
|
|
|
21,737
|
|
Balance at April 27, 2019
|
|
$
|
50
|
|
|
$
|
87
|
|
|
$
|
6
|
|
|
$
|
(3,605)
|
|
|
$
|
(3,462)
|
|
Changes before reclassifications
|
|
(1,941)
|
|
|
—
|
|
|
387
|
|
|
(1,809)
|
|
|
(3,363)
|
|
Reclassification of certain income tax effects (2)
|
|
—
|
|
|
(97)
|
|
|
258
|
|
|
(708)
|
|
|
(547)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified to net income
|
|
—
|
|
|
14
|
|
|
(141)
|
|
|
218
|
|
|
91
|
|
Tax effect
|
|
—
|
|
|
(4)
|
|
|
(61)
|
|
|
394
|
|
|
329
|
|
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated
|
|
(1,941)
|
|
|
(87)
|
|
|
443
|
|
|
(1,905)
|
|
|
(3,490)
|
|
Balance at April 25, 2020
|
|
$
|
(1,891)
|
|
|
$
|
—
|
|
|
$
|
449
|
|
|
$
|
(5,510)
|
|
|
$
|
(6,952)
|
|
Changes before reclassifications
|
|
4,932
|
|
|
—
|
|
|
(96)
|
|
|
428
|
|
|
5,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified to net income
|
|
—
|
|
|
—
|
|
|
(9)
|
|
|
347
|
|
|
338
|
|
Tax effect
|
|
—
|
|
|
—
|
|
|
26
|
|
|
(197)
|
|
|
(171)
|
|
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated
|
|
4,932
|
|
|
—
|
|
|
(79)
|
|
|
578
|
|
|
5,431
|
|
Balance at April 24, 2021
|
|
$
|
3,041
|
|
|
$
|
—
|
|
|
$
|
370
|
|
|
$
|
(4,932)
|
|
|
$
|
(1,521)
|
|
(1)The cumulative effect adjustment for investments is composed of $2.1 million of unrealized gains on equity investments offset by $0.5 million of tax expense. We reclassified the net $1.6 million of cumulative effect adjustment from accumulated other comprehensive loss to retained earnings as a result of adopting ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10).
(2)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).
(3)Includes a net $23.8 million charge related to the pension termination that occurred in the fourth quarter of fiscal 2019. Of this amount, $28.2 million of expense was recorded as pension termination charge and $4.4 million of income was recorded in income tax expense in our consolidated statement of income. For further information, refer to Note 11, Employee Benefits.
We reclassified the unrealized gain/(loss) on marketable securities from accumulated other comprehensive loss to net income through other income (expense), net, reclassified the change in fair value of cash flow hedges to net income through cost of sales, and reclassified the net pension amortization to net income through other income (expense), net.
The components of noncontrolling interest were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Balance as of the beginning of the year
|
|
$
|
15,553
|
|
|
$
|
14,468
|
|
|
$
|
13,035
|
|
Net income
|
|
1,068
|
|
|
1,515
|
|
|
1,567
|
|
Other comprehensive income (loss)
|
|
534
|
|
|
(266)
|
|
|
(134)
|
|
Dividends distributed to joint venture minority partners
|
|
(8,507)
|
|
|
—
|
|
|
—
|
|
Other changes in noncontrolling interests
|
|
—
|
|
|
(164)
|
|
|
—
|
|
Balance as of the end of the year
|
|
$
|
8,648
|
|
|
$
|
15,553
|
|
|
$
|
14,468
|
|
Note 16: Revenue Recognition
The following table presents our revenue disaggregated by product category and by segment or unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 24, 2021
|
(Amounts in thousands)
|
|
Wholesale
|
|
Retail
|
|
Corporate
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
|
|
Other (1)
|
|
102,159
|
|
|
85,008
|
|
|
(23,345)
|
|
|
163,822
|
|
Total
|
|
$
|
1,301,298
|
|
|
$
|
612,906
|
|
|
$
|
127,370
|
|
|
$
|
2,041,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
|
(307,330)
|
|
|
|
Consolidated Net Sales
|
|
|
|
$
|
1,734,244
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 25, 2020
|
(Amounts in thousands)
|
|
Wholesale
|
|
Retail
|
|
Corporate
and Other
|
|
Total
|
Motion Upholstery Furniture
|
|
$
|
751,697
|
|
|
$
|
355,427
|
|
|
$
|
364
|
|
|
$
|
1,107,488
|
|
Stationary Upholstery Furniture
|
|
364,027
|
|
|
124,772
|
|
|
102,522
|
|
|
591,321
|
|
Bedroom Furniture
|
|
31,195
|
|
|
7,408
|
|
|
6,426
|
|
|
45,029
|
|
Dining Room Furniture
|
|
21,944
|
|
|
10,894
|
|
|
1,847
|
|
|
34,685
|
|
Occasional Furniture
|
|
43,933
|
|
|
20,069
|
|
|
1,931
|
|
|
65,933
|
|
Other (1)
|
|
97,498
|
|
|
79,984
|
|
|
(23,998)
|
|
|
153,484
|
|
Total
|
|
$
|
1,310,294
|
|
|
$
|
598,554
|
|
|
$
|
89,092
|
|
|
$
|
1,997,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
|
(293,958)
|
|
|
|
Consolidated Net Sales
|
|
|
|
$
|
1,703,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, surcharges, discounts & 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. This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), operators of La-Z-Boy Comfort Studio® locations, England Custom Comfort Center locations, other major dealers, independent retailers, and the end consumer.
Bedroom Furniture - Includes gross revenue for casegoods furniture typically found in a bedroom, such as beds, chests, dressers, nightstands and benches. This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), independent retailers, and the end consumer.
Dining Room Furniture - Includes gross revenue for casegoods furniture typically found in a dining room, such as dining tables, dining chairs, storage units and stools. This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), independent retailers, and the end consumer.
Occasional Furniture - Includes gross revenue for casegoods furniture found throughout the home, such as cocktail tables, chairsides, sofa tables, end tables, and entertainment centers. This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), independent retailers, and the end consumer.
At April 24, 2021, our consolidated balance sheet includes contract assets of $108.5 million, reported as other current assets, that represent the remaining consideration to which we are entitled prior to fulfilling our performance obligation. At the beginning of fiscal 2021, we had $17.1 million of contract assets. The increase from the beginning of fiscal year 2021 compared with April 24, 2021, was driven by the unprecedented demand for our products during fiscal 2021 which resulted in an increase in written orders and a higher product backlog.
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 deferred revenue (collectively, the "contract liabilities"). At April 24, 2021, we included $180.8 million of customer deposits and $108.5 million of deferred revenues in accrued expenses and other current liabilities on our consolidated balance sheet. At the beginning of fiscal 2020, we had $40.7 million of customer deposits and $17.1 million of deferred revenues. These increases from prior year to current year are primarily related to the increased demand and written orders for our products during fiscal 2021. During the fiscal year ended April 24, 2021, we recognized $55.1 million of revenue related to our contract liability balance at April 25, 2020.
We have elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to recognize the promised amount of consideration without adjusting for the effects of a significant financing component if the contract has a duration of one year or less. As our contracts typically are less than one year in length and do not have significant financing components, we have not adjusted consideration.
Note 17: Segment Information
Our reportable operating segments include the Wholesale segment and the Retail segment. Effective in the first quarter of fiscal 2021, in order to better align with the manner in which we view and manage the business, coupled with economic and customer channel similarities, we revised our reportable operating segments by aggregating the former Upholstery segment with the former Casegoods segment to form the newly combined Wholesale segment. The change in our reportable operating segments reflects how the Company evaluates financial information used to make operating decisions. There were no changes to our Retail operating segment or Corporate & Other as part of this revision. Prior period results disclosed in the tables below have been revised to reflect these changes.
Wholesale Segment. Our Wholesale segment consists primarily of three operating segments: La-Z-Boy, our largest operating segment, our England subsidiary, and our casegoods operating segment that sells furniture under three brands: American Drew®, Hammary and Kincaid®. The Wholesale segment also includes our international wholesale businesses. We aggregate these operating segments into one reportable segment because they are economically similar and meet the other aggregation criteria for determining reportable segments. Our Wholesale segment manufactures and imports upholstered furniture, such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas and imports casegoods (wood) furniture such as occasional pieces, bedroom sets, dining room sets and entertainment centers. The Wholesale segment sells directly to La-Z-Boy Furniture Galleries® stores, operators of La-Z-Boy Comfort Studio® locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.
Retail Segment. Our Retail segment consists of one operating segment comprised of our 159 company-owned La-Z-Boy Furniture Galleries® stores. The Retail segment sells primarily upholstered furniture, in addition to some casegoods and other accessories, to end consumers through these stores.
Corporate & Other. Corporate & Other includes the shared costs for corporate functions, including human resources, information technology, finance and legal, in addition to revenue generated through royalty agreements with companies licensed to use the La-Z-Boy® brand name on various products. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segments, including our global trading company in Hong Kong and Joybird, an e-commerce retailer that manufactures upholstered furniture such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports casegoods (wood) furniture such as occasional tables and other accessories. Joybird sells to the end consumer primarily online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments.
The accounting policies of the operating segments are the same as those described in Note 1, Accounting Policies. We account for intersegment revenue transactions between our segments consistent with independent third-party transactions, that is, at current market prices. As a result, the manufacturing profit related to sales to our Retail segment is included within the Wholesale segment. Operating income realized on intersegment revenue transactions is therefore generally consistent with the operating income realized on our revenue from independent third-party transactions. Segment operating income is based on profit or loss from operations before interest expense, interest income, pension termination refunds (charges), other income (expense), net and income taxes. Identifiable assets are cash and equivalents, notes and accounts receivable, net inventories, net property, plant and equipment, right-of-use lease assets, goodwill and other intangible assets. Our unallocated assets include deferred income taxes, corporate assets (including a portion of cash and equivalents), and various other assets. Sales are attributed to countries on the basis of the customer's location.
The following table presents sales and operating income (loss) by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Sales
|
|
|
|
|
|
|
Wholesale segment:
|
|
|
|
|
|
|
Sales to external customers
|
|
$
|
1,006,377
|
|
|
$
|
1,026,630
|
|
|
$
|
1,112,634
|
|
Intersegment sales
|
|
294,921
|
|
|
283,664
|
|
|
270,081
|
|
Wholesale segment sales
|
|
1,301,298
|
|
|
1,310,294
|
|
|
1,382,715
|
|
|
|
|
|
|
|
|
Retail segment sales
|
|
612,906
|
|
|
598,554
|
|
|
570,201
|
|
|
|
|
|
|
|
|
Corporate and Other:
|
|
|
|
|
|
|
Sales to external customers
|
|
114,961
|
|
|
78,798
|
|
|
62,566
|
|
Intersegment sales
|
|
12,409
|
|
|
10,294
|
|
|
11,446
|
|
Corporate and Other sales
|
|
127,370
|
|
|
89,092
|
|
|
74,012
|
|
|
|
|
|
|
|
|
Eliminations
|
|
(307,330)
|
|
|
(293,958)
|
|
|
(281,527)
|
|
Consolidated sales
|
|
$
|
1,734,244
|
|
|
$
|
1,703,982
|
|
|
$
|
1,745,401
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
134,312
|
|
|
$
|
142,440
|
|
|
$
|
140,495
|
|
Retail segment
|
|
46,724
|
|
|
48,256
|
|
|
37,922
|
|
Corporate and Other
|
|
(44,300)
|
|
|
(71,934)
|
|
|
(48,743)
|
|
Consolidated operating income
|
|
136,736
|
|
|
118,762
|
|
|
129,674
|
|
Interest expense
|
|
(1,390)
|
|
|
(1,291)
|
|
|
(1,542)
|
|
Interest income
|
|
1,101
|
|
|
2,785
|
|
|
2,103
|
|
Pension termination refund (charge)
|
|
—
|
|
|
1,900
|
|
|
(32,671)
|
|
Other income (expense), net
|
|
9,466
|
|
|
(6,983)
|
|
|
(2,237)
|
|
Income before income taxes
|
|
$
|
145,913
|
|
|
$
|
115,173
|
|
|
$
|
95,327
|
|
The following tables present additional financial information by segment and location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Depreciation and Amortization
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
19,029
|
|
|
$
|
17,612
|
|
|
$
|
17,265
|
|
Retail segment
|
|
4,894
|
|
|
4,271
|
|
|
4,007
|
|
Corporate and Other
|
|
9,098
|
|
|
9,309
|
|
|
9,875
|
|
Consolidated depreciation and amortization
|
|
$
|
33,021
|
|
|
$
|
31,192
|
|
|
$
|
31,147
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
27,303
|
|
|
$
|
36,602
|
|
|
$
|
39,063
|
|
Retail segment
|
|
8,958
|
|
|
7,597
|
|
|
4,604
|
|
Corporate and Other
|
|
1,699
|
|
|
1,836
|
|
|
4,766
|
|
Consolidated capital expenditures
|
|
$
|
37,960
|
|
|
$
|
46,035
|
|
|
$
|
48,433
|
|
|
|
|
|
|
|
|
Sales by Country
|
|
|
|
|
|
|
United States
|
|
91
|
%
|
|
89
|
%
|
|
89
|
%
|
Canada
|
|
5
|
%
|
|
6
|
%
|
|
6
|
%
|
Other
|
|
4
|
%
|
|
5
|
%
|
|
5
|
%
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
Assets
|
|
|
|
|
Wholesale segment
|
|
$
|
720,721
|
|
|
$
|
531,295
|
|
Retail segment
|
|
546,299
|
|
|
495,970
|
|
Unallocated assets
|
|
519,302
|
|
|
407,624
|
|
Consolidated assets
|
|
$
|
1,786,322
|
|
|
$
|
1,434,889
|
|
|
|
|
|
|
Long-Lived Assets by Geographic Location
|
|
|
|
|
Domestic
|
|
$
|
713,525
|
|
|
$
|
662,623
|
|
International
|
|
55,714
|
|
|
48,852
|
|
Consolidated long-lived assets
|
|
$
|
769,239
|
|
|
$
|
711,475
|
|
Note 18: Income Taxes
Income before income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
United States
|
|
$
|
124,547
|
|
|
$
|
102,125
|
|
|
$
|
73,058
|
|
Foreign
|
|
21,366
|
|
|
13,048
|
|
|
22,269
|
|
Total
|
|
$
|
145,913
|
|
|
$
|
115,173
|
|
|
$
|
95,327
|
|
Income tax expense (benefit) consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Federal
|
|
|
|
|
|
|
Current
|
|
$
|
18,327
|
|
|
$
|
25,026
|
|
|
$
|
17,629
|
|
Deferred
|
|
6,771
|
|
|
1,440
|
|
|
(2,649)
|
|
State
|
|
|
|
|
|
|
Current
|
|
6,475
|
|
|
7,901
|
|
|
6,199
|
|
Deferred
|
|
2,339
|
|
|
(1,409)
|
|
|
(933)
|
|
Foreign
|
|
|
|
|
|
|
Current
|
|
4,451
|
|
|
3,025
|
|
|
4,919
|
|
Deferred
|
|
21
|
|
|
206
|
|
|
21
|
|
Total income tax expense
|
|
$
|
38,384
|
|
|
$
|
36,189
|
|
|
$
|
25,186
|
|
Our effective tax rate differs from the U.S. federal income tax rate for the following reasons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(% of income before income taxes)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Statutory tax rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
4.3
|
%
|
|
4.2
|
%
|
|
4.1
|
%
|
Tax effect of defined benefit pension plan termination
|
|
—
|
%
|
|
—
|
%
|
|
2.7
|
%
|
Gains and losses on corporate owned life insurance
|
|
(1.2)
|
%
|
|
0.5
|
%
|
|
(0.2)
|
%
|
Change in valuation allowance
|
|
0.7
|
%
|
|
0.7
|
%
|
|
0.6
|
%
|
U.S. research tax credits
|
|
(0.5)
|
%
|
|
(0.6)
|
%
|
|
(0.8)
|
%
|
Non-deductible asset impairment
|
|
—
|
%
|
|
4.9
|
%
|
|
—
|
%
|
Fair value adjustment of contingent consideration liability
|
|
2.0
|
%
|
|
(1.4)
|
%
|
|
—
|
%
|
Tax on undistributed foreign earnings
|
|
—
|
%
|
|
1.1
|
%
|
|
—
|
%
|
Miscellaneous items
|
|
—
|
%
|
|
1.0
|
%
|
|
(1.0)
|
%
|
Effective tax rate
|
|
26.3
|
%
|
|
31.4
|
%
|
|
26.4
|
%
|
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. We have reinvested approximately $45.8 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 $1.4 million, primarily related to foreign withholding taxes and state income taxes. The Company changed its permanent reinvestment position on undistributed earnings for its Thailand foreign operating units and provided for deferred tax attributable to those earnings of approximately $1.3 million in fiscal 2020.
The primary components of our deferred tax assets and (liabilities) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
|
Assets
|
|
|
|
|
|
|
Leases
|
|
$
|
88,536
|
|
|
$
|
81,537
|
|
|
|
Deferred and other compensation
|
|
21,361
|
|
|
20,821
|
|
|
|
State income tax—net operating losses, credits and other
|
|
6,222
|
|
|
5,536
|
|
|
|
Warranty
|
|
5,709
|
|
|
5,797
|
|
|
|
Inventory
|
|
530
|
|
|
—
|
|
|
|
Workers' compensation
|
|
2,559
|
|
|
2,567
|
|
|
|
Bad debt
|
|
1,326
|
|
|
2,061
|
|
|
|
Employee benefits
|
|
1,904
|
|
|
3,441
|
|
|
|
Federal net operating losses, credits
|
|
1,286
|
|
|
1,663
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
—
|
|
|
2,354
|
|
|
|
Valuation allowance
|
|
(3,495)
|
|
|
(2,137)
|
|
|
|
Total deferred tax assets
|
|
125,938
|
|
|
123,640
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Right of use lease assets
|
|
(84,440)
|
|
|
(77,479)
|
|
|
|
Property, plant and equipment
|
|
(17,837)
|
|
|
(14,893)
|
|
|
|
Inventory
|
|
—
|
|
|
(827)
|
|
|
|
Goodwill and other intangibles
|
|
(10,084)
|
|
|
(8,286)
|
|
|
|
Tax on undistributed foreign earnings
|
|
(752)
|
|
|
(1,316)
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
(910)
|
|
|
—
|
|
|
|
Net deferred tax assets
|
|
$
|
11,915
|
|
|
$
|
20,839
|
|
|
|
The deferred tax assets associated with loss carry forwards and the related expiration dates are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Amount
|
|
Expiration
|
Federal net operating losses
|
|
$
|
1,286
|
|
|
Fiscal 2038 - 2039
|
Various U.S. state net operating losses (excluding federal tax effect)
|
|
2,698
|
|
|
Fiscal 2022 - 2037
|
Foreign capital losses
|
|
17
|
|
|
Indefinite
|
We evaluate our deferred taxes to determine if a valuation allowance is required. Accounting standards require that we assess whether a valuation allowance should be established based on the consideration of all available evidence using a "more likely than not" standard with significant weight being given to evidence that can be objectively verified.
The evaluation of the amount of net deferred tax assets expected to be realized necessarily involves forecasting the amount of taxable income that will be generated in future years. We have forecasted future results using estimates management believes to be reasonable. We based these estimates on objective evidence such as expected trends resulting from certain leading economic indicators. Based upon our net deferred tax asset position at April 24, 2021, we estimate that approximately $31.6 million of future taxable income would need to be generated to fully recover our net deferred tax assets. The realization of deferred income tax assets is dependent on future events. Actual results inevitably will vary from management's forecasts which may be impacted by the COVID-19 pandemic, possibly resulting in a sustained economic downturn, or significantly extended economic recovery. Such variances could result in adjustments to the valuation allowance on deferred tax assets in future periods, and such adjustments could be material to the financial statements.
During fiscal 2021, we recorded a $1.4 million increase in our valuation allowance for deferred tax assets that are not considered more likely than not to be realized. This determination was primarily due to state tax credits and the limitations on the realization of deferred tax assets related to executive compensation.
A summary of the valuation allowance by jurisdiction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
Change
|
U.S. Federal
|
|
$
|
1,391
|
|
|
$
|
1,172
|
|
|
$
|
219
|
|
U.S. State
|
|
2,087
|
|
|
948
|
|
|
1,139
|
|
Foreign
|
|
17
|
|
|
17
|
|
|
—
|
|
Total
|
|
$
|
3,495
|
|
|
$
|
2,137
|
|
|
$
|
1,358
|
|
The remaining valuation allowance of $3.5 million primarily related to certain U.S. federal, state and foreign deferred tax assets. The U.S. federal deferred taxes are primarily due to limitations on the realization of deferred taxes related to executive compensation. The U.S. state deferred taxes are primarily related to state net operating losses.
As of April 24, 2021, we had a gross unrecognized tax benefit of $1.1 million related to uncertain tax positions in various jurisdictions. A reconciliation of the beginning and ending balance of these unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Balance at the beginning of the period
|
|
$
|
1,030
|
|
|
$
|
1,069
|
|
|
$
|
1,014
|
|
Additions:
|
|
|
|
|
|
|
Positions taken during the current year
|
|
176
|
|
|
174
|
|
|
187
|
|
Positions taken during the prior year
|
|
35
|
|
|
106
|
|
|
—
|
|
Reductions:
|
|
|
|
|
|
|
Positions taken during the prior year
|
|
(19)
|
|
|
—
|
|
|
(36)
|
|
Decreases related to settlements with taxing authorities
|
|
—
|
|
|
(211)
|
|
|
—
|
|
Reductions resulting from the lapse of the statute of limitations
|
|
(153)
|
|
|
(108)
|
|
|
(96)
|
|
Balance at the end of the period
|
|
$
|
1,069
|
|
|
$
|
1,030
|
|
|
$
|
1,069
|
|
We recognize interest and penalties associated with uncertain tax positions in income tax expense. We had approximately $0.4 million and $0.3 million accrued for interest and penalties as of April 24, 2021, and April 25, 2020, respectively.
If recognized, $0.9 million of the total $1.1 million of unrecognized tax benefits would decrease our effective tax rate. We do not expect that the net liability for uncertain income tax positions will significantly change within the next 12 months. The remaining balance will be settled or released as tax audits are effectively settled, statutes of limitation expire, or other new information becomes available.
Our U.S. federal income tax returns for fiscal years 2018 and subsequent are still subject to audit. In addition, we conduct business in various states. The major states in which we conduct business are subject to audit for fiscal years 2017 and subsequent. Our foreign operations are subject to audit for fiscal years 2011 and subsequent.
Cash paid for taxes (net of refunds received) during the fiscal years ended April 24, 2021, April 25, 2020, and April 27, 2019, was $40.5 million, $24.7 million, and $23.8 million, respectively.
Note 19: 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. The restricted stock awards we granted in fiscal 2021, 2020 and 2019 do not have non-forfeitable rights to dividends and therefore are not considered participating securities. The dividends on the restricted stock awards granted in fiscal 2021, 2020 and 2019 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
(52 weeks)
|
|
(52 weeks)
|
|
(52 weeks)
|
(Amounts in thousands)
|
|
4/24/2021
|
|
4/25/2020
|
|
4/27/2019
|
Numerator (basic and diluted):
|
|
|
|
|
|
|
Net income attributable to La-Z-Boy Incorporated
|
|
$
|
106,461
|
|
|
$
|
77,469
|
|
|
$
|
68,574
|
|
Income allocated to participating securities
|
|
(46)
|
|
|
(117)
|
|
|
(225)
|
|
Net income available to common Shareholders
|
|
$
|
106,415
|
|
|
$
|
77,352
|
|
|
$
|
68,349
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
45,983
|
|
|
46,399
|
|
|
46,828
|
|
Add:
|
|
|
|
|
|
|
Contingent common shares
|
|
171
|
|
|
211
|
|
|
242
|
|
Stock option dilution
|
|
213
|
|
|
126
|
|
|
263
|
|
Diluted weighted average common shares outstanding
|
|
46,367
|
|
|
46,736
|
|
|
47,333
|
|
|
|
|
|
|
|
|
Earnings per Share:
|
|
|
|
|
|
|
Basic
|
|
$
|
2.31
|
|
|
$
|
1.67
|
|
|
$
|
1.46
|
|
Diluted
|
|
$
|
2.30
|
|
|
$
|
1.66
|
|
|
$
|
1.44
|
|
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 did not exclude any outstanding options from the diluted share calculation for the fiscal year ended April 24, 2021. 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 excluded options to purchase 0.3 million and 0.4 million shares from the diluted share calculation for the years ended April 25, 2020 and April 27, 2019, respectively.
Note 20: Fair Value Measurements
Accounting standards require that we put financial assets and liabilities into one of three categories based on the inputs we use to value them:
•Level 1 — Financial assets and liabilities, the values of which are based on unadjusted quoted market prices for identical assets and liabilities in an active market that we have the ability to access.
•Level 2 — Financial assets and liabilities, the values of which are based on quoted prices in markets that are not active or on model inputs that are observable for substantially the full term of the asset or liability.
•Level 3 — Financial assets and liabilities, the values of which are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
Accounting standards require that in making fair value measurements, we use observable market data when available. When inputs used to measure fair value fall within different levels of the hierarchy, we categorize the fair value measurement as being in the lowest level that is significant to the measurement. We recognize transfers between levels of the fair value hierarchy at the end of the reporting period in which they occur.
In addition to assets and liabilities that we record at fair value on a recurring basis, we are required to record assets and liabilities at fair value on a non-recurring basis. We measure non-financial assets such as other intangible assets, goodwill, and other long-lived assets at fair value when there is an indicator of impairment, and we record them at fair value only when we recognize an impairment loss.
The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at April 24, 2021 and April 25, 2020. There were no transfers into or out of Level 1, Level 2, or Level 3 for any of the periods presented.
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At April 24, 2021
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Fair Value Measurements
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(Amounts in thousands)
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Level 1
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Level 2
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Level 3
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NAV(1)
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Total
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Assets
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Marketable securities
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$
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119
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$
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37,572
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$
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—
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|
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$
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7,602
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$
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45,293
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Held-to-maturity investments
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2,532
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—
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|
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—
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|
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—
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|
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2,532
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Cost basis investments
|
|
—
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|
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—
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|
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7,579
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|
|
—
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|
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7,579
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Total assets
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$
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2,651
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$
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37,572
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|
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$
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7,579
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$
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7,602
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$
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55,404
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Liabilities
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Contingent consideration liability
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$
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—
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|
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$
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—
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|
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$
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14,100
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|
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$
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—
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|
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$
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14,100
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|
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At April 25, 2020
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Fair Value Measurements
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(Amounts in thousands)
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Level 1
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Level 2
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Level 3
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NAV(1)
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Total
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Assets
|
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Marketable securities
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$
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—
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|
|
$
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31,691
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|
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$
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—
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|
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$
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6,515
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|
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$
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38,206
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Held-to-maturity investments
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3,337
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|
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—
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|
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—
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|
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—
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3,337
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Cost basis investment
|
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—
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|
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—
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6,479
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|
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—
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|
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6,479
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Total assets
|
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$
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3,337
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$
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31,691
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|
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$
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6,479
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|
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$
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6,515
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|
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$
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48,022
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Liabilities
|
|
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Contingent consideration liability
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$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
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—
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(1)Certain marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology.
At April 24, 2021 and April 25, 2020, we held marketable securities intended to enhance returns on our cash and to fund future obligations of our non-qualified defined benefit retirement plan, as well as marketable securities to fund future obligations of our executive deferred compensation plan and our performance compensation retirement plan. We also held other fixed income and cost basis investments.
The fair value measurements for our Level 1 and Level 2 securities are based on quoted prices in active markets, as well as through broker quotes and independent valuation providers, multiplied by the number of shares owned exclusive of any transaction costs.
At April 24, 2021, our Level 3 assets included non-marketable preferred shares and warrants to purchase common shares of two privately-held start-up companies. The fair value for our Level 3 investments is not readily determinable so we estimate the fair value as costs minus impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for identical or similar investments with the same issuer. During fiscal 2021, we invested an additional $1.1 million in one of these privately-held start-up companies. There were no other changes to the fair value of our Level 3 assets during fiscal 2021.
Our Level 3 liability includes our contingent consideration liability resulting from the Joybird acquisition. During fiscal 2021, we recognized an increase in the fair value of our liability of $14.1 million, as we expect consideration will be owed under the terms of the earnout agreement based on significant improvements to our most recent financial projections. The fair value of contingent consideration is based on revenues and earnings of the Joybird business in fiscal 2021, and future revenues and earnings of the Joybird business in fiscal 2023. 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 earn-out payments are 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 1.0% for the fiscal 2021 milestone and 1.7% for the fiscal 2023 milestone. There were no other changes to the fair value of our Level 3 liabilities during fiscal 2021.
The following table is a reconciliation of our Level 3 assets and liabilities recorded at fair value using significant unobservable inputs:
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(Amounts in thousands)
|
|
Assets
|
|
Liabilities
|
Balance at April 27, 2019
|
|
$
|
11,979
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|
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$
|
7,900
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Purchases
|
|
500
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|
|
—
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Write-off
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(6,000)
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|
|
(7,900)
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|
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|
|
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Balance at April 25, 2020
|
|
6,479
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|
|
—
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Purchases
|
|
1,100
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|
|
—
|
|
|
|
|
|
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Fair value adjustment
|
|
—
|
|
|
14,100
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Balance at April 24, 2021
|
|
$
|
7,579
|
|
|
$
|
14,100
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