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LZB-20220122_G1.JPG
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 22, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER 1-9656
LA-Z-BOY INCORPORATED
(Exact name of registrant as specified in its charter)
Michigan
38-0751137
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One La-Z-Boy Drive, Monroe, Michigan 48162-5138
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (734) 242-1444
None
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading  Symbol(s) Name of each exchange on which registered
Common Stock, $1.00 Par Value LZB New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ☒  No  ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Yes  ☒   No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
                     Yes  ☐   No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class Outstanding at February 8, 2022
Common Stock, $1.00 Par Value 43,222,357


LA-Z-BOY INCORPORATED
FORM 10-Q THIRD QUARTER OF FISCAL 2022
TABLE OF CONTENTS
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3
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PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands, except per share data) 1/22/2022 1/23/2021 1/22/2022 1/23/2021
Sales $ 571,573  $ 470,196  $ 1,672,245  $ 1,214,774 
Cost of sales 352,208  268,944  1,027,503  696,604 
Gross profit 219,365  201,252  644,742  518,170 
Selling, general and administrative expense 179,878  166,838  516,771  431,492 
Operating income  39,487  34,414  127,971  86,678 
Interest expense (160) (298) (713) (1,103)
Interest income 806  285  1,029  902 
Other income (expense), net (1,460) 6,532  (522) 7,995 
Income before income taxes 38,673  40,933  127,765  94,472 
Income tax expense 9,591  11,344  33,059  24,900 
Net income 29,082  29,589  94,706  69,572 
Net income attributable to noncontrolling interests (615) (357) (2,157) (607)
Net income attributable to La-Z-Boy Incorporated $ 28,467  $ 29,232  $ 92,549  $ 68,965 
Basic weighted average common shares 43,701  46,261  44,342  46,064 
Basic net income attributable to La-Z-Boy Incorporated per share $ 0.65  $ 0.63  $ 2.09  $ 1.50 
Diluted weighted average common shares 43,968  46,818  44,640  46,407 
Diluted net income attributable to La-Z-Boy Incorporated per share $ 0.65  $ 0.62  $ 2.07  $ 1.49 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021
Net income $ 29,082  $ 29,589  $ 94,706  $ 69,572 
Other comprehensive income (loss)
Currency translation adjustment (651) 2,286  (1,902) 5,751 
Net unrealized loss on marketable securities, net of tax (140) (14) (190) (37)
Net pension amortization, net of tax 56  65  175  195 
Total other comprehensive income (loss) (735) 2,337  (1,917) 5,909 
Total comprehensive income before allocation to noncontrolling interests 28,347  31,926  92,789  75,481 
Comprehensive income attributable to noncontrolling interests (716) (719) (1,708) (1,546)
Comprehensive income attributable to La-Z-Boy Incorporated $ 27,631  $ 31,207  $ 91,081  $ 73,935 
                        
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands, except par value) 1/22/2022 4/24/2021
Current assets
Cash and equivalents $ 236,712  $ 391,213 
Restricted cash 3,266  3,490 
Receivables, net of allowance of $2,996 at 1/22/2022 and $4,011 at 4/24/2021
163,018  139,341 
Inventories, net 315,595  226,137 
Other current assets 243,713  165,979 
Total current assets 962,304  926,160 
Property, plant and equipment, net 250,945  219,194 
Goodwill 195,010  175,814 
Other intangible assets, net 34,469  30,431 
Deferred income taxes – long-term 11,685  11,915 
Right of use lease assets 388,713  343,800 
Other long-term assets, net 86,438  79,008 
Total assets $ 1,929,564  $ 1,786,322 
Current liabilities
Accounts payable $ 117,239  $ 94,152 
Lease liabilities, current 73,222  67,614 
Accrued expenses and other current liabilities 523,009  449,904 
Total current liabilities 713,470  611,670 
Lease liabilities, long-term 338,478  295,023 
Other long-term liabilities 93,133  97,483 
Shareholders' equity
Preferred shares – 5,000 authorized; none issued
—  — 
Common shares, $1.00 par value – 150,000 authorized; 43,505 outstanding at 1/22/22 and 45,361 outstanding at 4/24/21
43,505  45,361 
Capital in excess of par value 339,294  330,648 
Retained earnings 395,577  399,010 
Accumulated other comprehensive loss (2,989) (1,521)
Total La-Z-Boy Incorporated shareholders' equity 775,387  773,498 
Noncontrolling interests 9,096  8,648 
Total equity 784,483  782,146 
Total liabilities and equity $ 1,929,564  $ 1,786,322 


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
(Unaudited, amounts in thousands) 1/22/2022 1/23/2021
Cash flows from operating activities
Net income $ 94,706  $ 69,572 
Adjustments to reconcile net income to cash provided by operating activities
(Gain)/loss on disposal of assets (3,149) 133 
Gain on sale of investments (340) (438)
Provision for doubtful accounts (1,070) (2,483)
Depreciation and amortization 27,146  24,620 
Amortization of right-of-use lease assets 53,949  48,864 
Equity-based compensation expense 8,887  9,115 
Change in deferred taxes 214  5,189 
Change in receivables (20,317) (28,720)
Change in inventories (83,109) (26,419)
Change in other assets (22,486) (1,193)
Change in payables 23,690  42,354 
Change in lease liabilities (54,400) (48,963)
Change in other liabilities 21,471  158,200 
Net cash provided by operating activities 45,192  249,831 
Cash flows from investing activities
Proceeds from disposals of assets 3,999  252 
Capital expenditures (58,585) (26,722)
Purchases of investments (28,058) (27,744)
Proceeds from sales of investments 30,457  26,317 
Acquisitions (24,849) (2,000)
Net cash used for investing activities (77,036) (29,897)
Cash flows from financing activities
Payments on debt and finance lease liabilities (91) (75,020)
Holdback payments for acquisition purchases (23,000) (5,783)
Stock issued for stock and employee benefit plans, net of shares withheld for taxes (1,670) 6,259 
Repurchases of common stock (75,646) (875)
Dividends paid to shareholders (20,621) (9,700)
Dividends paid to minority interest joint venture partners (1)
(1,260) (8,507)
Net cash used for financing activities (122,288) (93,626)
Effect of exchange rate changes on cash and equivalents (593) 3,191 
Change in cash, cash equivalents and restricted cash (154,725) 129,499 
Cash, cash equivalents and restricted cash at beginning of period 394,703  263,528 
Cash, cash equivalents and restricted cash at end of period $ 239,978  $ 393,027 
Supplemental disclosure of non-cash investing activities
Capital expenditures included in payables $ 4,564  $ 1,569 
(1)Includes dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited, amounts in thousands) Common
Shares
Capital in Excess of
Par Value
Retained
Earnings
Accumulated Other
Comprehensive
Loss
Non-Controlling
Interests
Total
At April 24, 2021 $ 45,361  $ 330,648  $ 399,010  $ (1,521) $ 8,648  $ 782,146 
Net income —  —  24,566  —  700  25,266 
Other comprehensive loss —  —  —  (302) (430) (732)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 181  291  (2,700) —  —  (2,228)
Repurchases of 919 shares of common stock
(919) (530) (34,191) —  —  (35,640)
Stock option and restricted stock expense —  2,460  —  —  —  2,460 
Dividends declared and paid ($0.15/share)
—  —  (6,777) —  —  (6,777)
Dividends declared not paid ($0.15/share)
—  —  (46) —  —  (46)
At July 24, 2021 $ 44,623  $ 332,869  $ 379,862  $ (1,823) $ 8,918  $ 764,449 
Net income —  —  39,516  —  842  40,358 
Other comprehensive loss —  —  —  (330) (120) (450)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 11  353  (6) —  —  358 
Repurchases of 434 shares of common stock
(434) (196) (14,370) —  —  (15,000)
Stock option and restricted stock expense —  3,894  —  —  —  3,894 
Dividends declared and paid ($0.15/share) (1)
—  —  (6,621) —  (1,260) (7,881)
Dividends declared not paid ($0.15/share)
—  —  (46) —  —  (46)
At October 23, 2021 $ 44,200  $ 336,920  $ 398,335  $ (2,153) $ 8,380  $ 785,682 
Net income —  —  28,467  —  615  29,082 
Other comprehensive income (loss) —  —  —  (836) 101  (735)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 204  (12) —  —  200 
Repurchases of 703 shares of common stock
(703) (363) (23,940) —  —  (25,006)
Stock option and restricted stock expense —  2,533  —  —  2,533 
Dividends declared and paid ($0.165/share)
—  —  (7,223) —  —  (7,223)
Dividends declared not paid ($0.165/share)
—  —  (50) —  —  (50)
At January 22, 2022 $ 43,505  $ 339,294  $ 395,577  $ (2,989) $ 9,096  $ 784,483 
                                
(1)Non-controlling interests include dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.
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(Unaudited, amounts in thousands) Common
Shares
Capital in Excess of
Par Value
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Non-Controlling
Interests
Total
At April 25, 2020 $ 45,857  $ 318,215  $ 343,633  $ (6,952) $ 15,553  $ 716,306 
Net income (loss) —  —  4,798  —  (119) 4,679 
Other comprehensive income —  —  —  1,720  498  2,218 
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 132  (195) (1,686) —  —  (1,749)
Stock option and restricted stock expense —  2,047  —  —  —  2,047 
Dividends declared and paid (1) —  —  —  (8,507) (8,502)
At July 25, 2020 $ 45,989  $ 320,067  $ 346,750  $ (5,232) $ 7,425  $ 714,999 
Net income —  —  34,935  —  369  35,304 
Other comprehensive income —  —  —  1,275  79  1,354 
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 124  1,995  (6) —  —  2,113 
Stock option and restricted stock expense —  4,120  —  —  —  4,120 
Dividends declared and paid ($0.07/share)
—  —  (3,221) —  —  (3,221)
Dividends declared not paid ($0.07/share)
—  —  (20) —  —  (20)
At October 24, 2020 $ 46,113  $ 326,182  $ 378,438  $ (3,957) $ 7,873  $ 754,649 
Net income —  —  29,232  —  357  29,589 
Other comprehensive income —  —  —  1,975  362  2,337 
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax 225  5,698  (28) —  —  5,895 
Purchases of 22 shares of common stock
(22) (853) —  —  —  (875)
Stock option and restricted stock expense —  2,948  —  —  —  2,948 
Dividends declared and paid ($0.14/share)
—  —  (6,484) —  —  (6,484)
Dividends declared not paid ($0.14/share)
—  —  (41) —  —  (41)
At January 23, 2021 $ 46,316  $ 333,975  $ 401,117  $ (1,982) $ 8,592  $ 788,018 
    
(1)No dividends to shareholders were declared or paid during the first quarter of fiscal 2021; amount includes dividends forfeited from restricted stock awards previously granted. Non-controlling interests include dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Basis of Presentation

The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries (collectively, the "Company"). We derived the April 24, 2021 balance sheet from our audited financial statements. We prepared the interim financial information in conformity with generally accepted accounting principles, which we applied on a basis consistent with those reflected in our fiscal 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), but the information does not include all of the disclosures required by generally accepted accounting principles. In management’s opinion, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments (except as otherwise disclosed), that are necessary for a fair statement of results for the respective interim periods. The interim results reflected in the accompanying financial statements are not necessarily indicative of the results of operations that will occur for the full fiscal year ending April 30, 2022.

At January 22, 2022, we owned preferred shares and warrants to purchase common shares of two privately-held companies, both of which are variable interest entities. We have not consolidated their results in our financial statements because we do not have the power to direct those activities that most significantly impact their economic performance and, therefore, are not the primary beneficiary.

Accounting pronouncements adopted in fiscal 2022

The following table summarizes Accounting Standards Updates ("ASUs") which were adopted in fiscal 2022, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.

ASU Description
ASU 2018-14 Compensation – Retirement benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans
ASU 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
ASU 2020-01 Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815
ASU 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance

Accounting pronouncements not yet adopted
The following table summarizes additional accounting pronouncements which we have not yet adopted, but we believe will not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.

ASU Description Adoption Date
ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers Fiscal 2024

Note 2: Acquisitions

Alabama and Chattanooga, Tennessee acquisition

On December 6, 2021, we completed our acquisition of the Alabama and Chattanooga, Tennessee businesses that operate four independently owned La-Z-Boy Furniture Galleries® stores in Alabama and one in Chattanooga, Tennessee, for $8.3 million, subject to customary purchase price adjustments. In the third quarter of fiscal 2022, we paid $8.0 million of cash for the purchase of the Alabama and Chattanooga, Tennessee stores and assets. This acquisition reflects a core component of our strategic priorities, which is to grow our company-owned retail business and leverage our integrated retail model (where we earn a combined profit on both the wholesale and retail sales) in suitable geographic markets, alongside the existing La-Z-Boy Furniture Galleries® network.

Prior to this acquisition, we licensed to the counterparty the exclusive right to own and operate La-Z-Boy Furniture Galleries® stores (and to use the associated trademarks and trade name) in the Alabama and Chattanooga, Tennessee markets, and we
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reacquired these rights when we consummated the transaction. The reacquired rights are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market. We recorded an indefinite-lived intangible asset of $4.1 million related to these reacquired rights. We also recognized $7.4 million of goodwill in our Retail segment related primarily to synergies we expect from the integration of the acquired stores and future benefits of these synergies. For federal income tax purposes, we will amortize and appropriately deduct all of the indefinite-lived intangible assets and goodwill assets over 15 years.

The acquisition of the Alabama and Chattanooga, Tennessee businesses was not significant to our consolidated financial statements and, therefore, pro-forma financial information is not presented. All of our provisional purchase accounting estimates for this acquisition are based on the information and data available to us as of the time of the issuance of these financial statements and, in accordance with Accounting Standard Codification Topic 805-10-25-15, are subject to change within the first 12 months following the acquisition as we gain additional data.

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

On October 25, 2021, we completed the acquisition of Furnico Furniture Ltd ("Furnico"), an upholstery manufacturing business in the U.K for approximately $11.8 million, subject to customary purchase price adjustments and in the third quarter of fiscal 2022, we paid $12.4 million of cash for the purchase of the Furnico business. Furnico produces La-Z-Boy branded product for the La-Z-Boy U.K. business and also operates a wholesale business, selling white label products to key U.K. retailers. With this acquisition, we expect to realize production synergies, cost savings through materials procurement, and increases in production capacity to support growth in the La-Z-Boy U.K business.

We recognized $7.9 million of goodwill in our Wholesale segment related primarily to synergies we expect from the integration of the acquired business and future benefits of these synergies. The goodwill asset for Furnico is not deductible for federal income tax purposes.

The acquisition of the Furnico business was not significant to our consolidated financial statements and, therefore, pro-forma financial information is not presented. All of our provisional purchase accounting estimates for this acquisition are based on the information and data available to us as of the time of the issuance of these financial statements and, in accordance with Accounting Standard Codification Topic 805-10-25-15, are subject to change within the first 12 months following the acquisition as we gain additional data.

Long Island, New York acquisition

On August 16, 2021, we completed our acquisition of the Long Island, New York business that operates three independently owned La-Z-Boy Furniture Galleries® stores for $4.5 million, subject to customary adjustments. In the second quarter of fiscal 2022, we paid $4.4 million of cash for the purchase of the Long Island, New York stores and assets. This acquisition reflects a core component of our strategic priorities, which is to grow our company-owned retail business and leverage our integrated retail model (where we earn a combined profit on both the wholesale and retail sales) in suitable geographic markets, alongside the existing La-Z-Boy Furniture Galleries® network.

Prior to this acquisition, we licensed to the counterparty the exclusive right to own and operate La-Z-Boy Furniture Galleries® stores (and to use the associated trademarks and trade name) in the Long Island, New York market, and we reacquired these rights when we consummated the transaction. The reacquired rights are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market. We recorded an indefinite-lived intangible asset of $0.8 million related to these reacquired rights. We also recognized $4.4 million of goodwill in our Retail segment related primarily to synergies we expect from the integration of the acquired stores and future benefits of these synergies. For federal income tax purposes, we will amortize and appropriately deduct all of the indefinite-lived intangible assets and goodwill assets over 15 years.

The acquisition of the Long Island, New York business was not significant to our consolidated financial statements, and, therefore, pro-forma financial information is not presented. All of our provisional purchase accounting estimates for this acquisition are based on the information and data available to us as of the time of the issuance of these financial statements, and in accordance with Accounting Standard Codification Topic 805-10-25-15, are subject to change within the first 12 months following the acquisition as we gain additional data.

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Prior Year Acquisitions

On September 14, 2020, we completed our acquisition of the Seattle, Washington business that operates six independently owned La-Z-Boy Furniture Galleries® stores and one warehouse for $13.5 million, subject to customary purchase price adjustments. In the second quarter of fiscal 2021, a $2.0 million cash payment was made for the purchase with future guaranteed payments of $9.4 million to be paid over 36 months or fewer, with timing of payments dependent upon the achievement of sales thresholds defined in the purchase agreement. This acquisition reflects a core component of our strategic priorities, which is to grow our company-owned retail business and leverage our integrated retail model (where we earn a combined profit on both the wholesale and retail sales) in suitable geographic markets, alongside the existing La-Z-Boy Furniture Galleries® network.

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

Comparability

During fiscal 2021, we determined that holdback payments for acquisition purchases of $5.8 million included in net cash used by investing activities should have been included in net cash used by financing activities for the first nine months of fiscal 2021. Although the amount impacting payments for acquisitions was not material to the fiscal 2021 consolidated financial statements, the classification of these amounts has been corrected by revising the consolidated statements of cash flows for the nine months ended January 23, 2021.

Note 3: Cash and Restricted Cash

We have restricted cash on deposit with a bank as collateral for certain letters of credit. All our letters of credit have maturity dates within the next twelve months, but we expect to renew some of these letters of credit when they mature.
(Unaudited, amounts in thousands) 1/22/2022 1/23/2021
Cash and cash equivalents $ 236,712  $ 390,324 
Restricted cash 3,266  2,703 
Total cash, cash equivalents and restricted cash $ 239,978  $ 393,027 

Note 4: Inventories

A summary of inventories is as follows:

(Unaudited, amounts in thousands) 1/22/2022 4/24/2021
Raw materials $ 175,372  $ 112,371 
Work in process 40,243  24,791 
Finished goods 150,186  121,182 
FIFO inventories 365,801  258,344 
Excess of FIFO over LIFO (50,206) (32,207)
Total inventories (1)
$ 315,595  $ 226,137 
(1)Increased balance to ensure input material availability to support increased sales demand and manufacturing capacity

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Note 5: Goodwill and Other Intangible Assets

We have goodwill on our consolidated balance sheet as follows:

Reportable Segment/Unit Reporting Unit Related Acquisition
Wholesale Segment La-Z-Boy United Kingdom Wholesale business in the United Kingdom and Ireland
Wholesale Segment La-Z-Boy United Kingdom Manufacturing La-Z-Boy United Kingdom Manufacturing (Furnico)
Retail Segment Retail
La-Z-Boy Furniture Galleries® stores
Corporate & Other Joybird Joybird

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

(Unaudited, amounts in thousands) Wholesale
Segment
Retail
Segment
Corporate
and Other
Total
Goodwill
Balance at April 24, 2021 $ 13,052  $ 107,316  $ 55,446  $ 175,814 
Acquisitions 7,926  11,748  —  19,674 
Translation adjustment (445) (33) —  (478)
Balance at January 22, 2022 $ 20,533  $ 119,031  $ 55,446  $ 195,010 

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

Reportable Segment/Unit Intangible Asset Useful Life
Wholesale Segment Primarily acquired customer relationships from our acquisition of the wholesale business in the United Kingdom and Ireland
Amortizable over useful lives that do not exceed 15 years
Wholesale Segment
American Drew® trade name
Indefinite-lived
Retail Segment
Reacquired rights to own and operate La-Z-Boy Furniture Galleries® stores
Indefinite-lived
Corporate & Other
Joybird® trade name
Amortizable over eight-year useful life

The following summarizes changes in our intangible assets:

(Unaudited, amounts in thousands) Indefinite-
Lived
Trade
Names
Finite-
Lived
Trade
Name
Indefinite-
Lived
Reacquired
Rights
Other
Intangible
Assets
Total
Other
Intangible
Assets
Balance at April 24, 2021 $ 1,155  $ 4,205  $ 22,507  $ 2,564  $ 30,431 
Acquisitions —  —  4,896  —  4,896 
Amortization —  (599) —  (178) (777)
Translation adjustment —  —  (25) (56) (81)
Balance at January 22, 2022 $ 1,155  $ 3,606  $ 27,378  $ 2,330  $ 34,469 

We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that an asset might be impaired. We test amortizable intangible assets for impairment if events or changes in circumstances indicate that the assets might be impaired.

Note 6: Investments
We have current and long-term investments intended to enhance returns on our cash as well as to fund future obligations of our non-qualified defined benefit retirement plan, our executive deferred compensation plan, and our performance compensation retirement plan. We also hold other investments consisting of cost-basis preferred shares of two privately-held start-up companies (refer to Note 16, Fair Value Measurements). Our short-term investments are included in other current assets and our long-term investments are included in other long-term assets on our consolidated balance sheet.
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The following summarizes our investments:

(Unaudited, amounts in thousands) 1/22/2022 4/24/2021
Short-term investments:
Marketable securities $ 14,835  $ 18,037 
Held-to-maturity investments 1,391  2,532 
Total short-term investments 16,226  20,569 
Long-term investments:
Marketable securities 28,864  27,256 
Cost basis investments 7,579  7,579 
Total long-term investments 36,443  34,835 
Total investments $ 52,669  $ 55,404 
Investments to enhance returns on cash $ 29,754  $ 32,475 
Investments to fund compensation/retirement plans 15,336  15,350 
Other investments 7,579  7,579 
Total investments $ 52,669  $ 55,404 

The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type:

1/22/2022 4/24/2021
(Unaudited, amounts in thousands) Gross
Unrealized 
Gains
Gross
Unrealized 
Losses
Fair Value Gross
Unrealized 
Gains
Gross
Unrealized 
Losses
Fair Value
Equity securities $ 2,004  $ (55) $ 14,535  $ 2,798  $ (5) $ 14,954 
Fixed income 92  (204) 33,780  136  (29) 35,631 
Other 1,290  —  4,354  559  —  4,819 
Total securities $ 3,386  $ (259) $ 52,669  $ 3,493  $ (34) $ 55,404 

The following table summarizes sales of marketable securities:

Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021
Proceeds from sales $ 7,784  $ 6,807  $ 29,437  $ 23,824 
Gross realized gains 142  169  696  479 
Gross realized losses (20) (15) (356) (41)

The following is a summary of the fair value of fixed income marketable securities, classified as available-for-sale securities, by contractual maturity:
(Unaudited, amounts in thousands) 1/22/2022
Within one year $ 14,832 
Within two to five years 16,341 
Within six to ten years 967 
Thereafter 1,640 
Total $ 33,780 
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Note 7: Accrued Expenses and Other Current Liabilities
(Unaudited, amounts in thousands) 1/22/2022 4/24/2021
Payroll and other compensation $ 56,182  $ 62,546 
Accrued product warranty, current portion 15,848  14,447 
Customer deposits 199,874  180,766 
Deferred revenue 151,698  108,460 
Other current liabilities 99,407  83,685 
Accrued expenses and other current liabilities $ 523,009  $ 449,904 

Note 8: Product Warranties

We accrue an estimated liability for product warranties when we recognize revenue on the sale of warrantied products. We estimate future warranty claims on product sales based on our historical claims experience and periodically adjust the provision to reflect changes in actual experience. We incorporate repair costs into our liability estimates, including materials, labor and overhead amounts necessary to perform repairs, and any costs associated with delivering repaired product to our customers. Over 90% of our warranty liability relates to our Wholesale reportable segment as we generally warrant our products against defects for one 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 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:

Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands)
1/22/2022
1/23/2021 1/22/2022 (1) 1/23/2021
Balance as of the beginning of the period $ 25,068  $ 22,938  $ 23,636  $ 23,255 
Acquisitions 634  —  634  — 
Accruals during the period 7,271  5,791  21,158  14,925 
Settlements during the period (6,612) (5,734) (19,067) (15,185)
Balance as of the end of the period $ 26,361  $ 22,995  $ 26,361  $ 22,995 
(1)$15.8 million and $14.4 million is recorded in accrued expenses and other current liabilities as of January 22, 2022 and April 24, 2021, respectively, while the remainder is included in other long-term liabilities.

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

Note 9: Debt

On October 15, 2021, we entered into a new five-year $200.0 million unsecured revolving credit facility (the “Credit Facility”). Borrowings under the Credit Facility may be used by the Company for general corporate purposes and working capital. We may increase the size of the facility, either in the form of additional revolving commitments or new term loans, subject to the discretion of each lender to participate in such increase, up to an additional amount of $100.0 million. The Credit Facility will mature on October 15, 2026 and provides us the ability to extend the maturity date for two additional one-year periods, subject to the satisfaction of customary conditions. As of January 22, 2022, we have no borrowings outstanding under the Credit Facility.

The Credit Facility contains certain restrictive loan covenants, including, among others, financial covenants requiring a maximum consolidated net lease adjusted leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as customary covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of certain assets. As of January 22, 2022, we were in compliance with our financial covenants under the Credit Facility.

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The Credit Facility replaced our previous $150.0 million revolving credit facility, which had been secured primarily by all of our accounts receivable, inventory, cash deposits, and securities accounts. The previous revolving credit facility was terminated on October 15, 2021, and is no longer in effect.

Note 10: Stock-Based Compensation

The table below summarizes the total stock-based compensation expense we recognized for all outstanding grants in our consolidated statement of income:
Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021
Equity-based awards expense $ 2,533  $ 2,948  $ 8,887  $ 9,115 
Liability-based awards expense (1)
(73) 587  (696) 1,925 
Total stock-based compensation expense $ 2,460  $ 3,535  $ 8,191  $ 11,040 
(1)Liability-based awards are comprised primarily of deferred stock units granted to non-employee directors. Compensation expense for these awards is based on the market price of our common stock on the grant date and is remeasured each reporting period based on the market value of our common shares on the last day of the reported period.

Stock Options. We granted 252,996 stock options to employees during the first quarter of fiscal 2022 and we have stock options outstanding from previous grants. We account for stock options as equity-based awards because when they are exercised, they will be settled in common shares. We recognize compensation expense for stock options over the vesting period equal to the fair value on the date 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.

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. The fair value of stock options granted during the first quarter of fiscal 2022 was calculated using the following assumptions:

(Unaudited) Fiscal 2022 grant Assumption
Risk-free interest rate 0.82  % U.S. Treasury issues with term equal to expected life at grant date
Dividend rate 1.58  % Estimated future dividend rate and common share price at grant date
Expected life 5.0 years Contractual term of stock option and expected employee exercise trends
Stock price volatility 42.16  % Historical volatility of our common shares
Fair value per option $ 12.29 

Restricted Stock. We granted 121,963 shares of restricted stock to employees during the first nine months of fiscal 2022. We issue restricted stock at no cost to the employees, and the shares are held in an escrow account until the vesting period ends. If a recipient's employment ends during the escrow period (other than through death or disability), the shares are returned at no cost to the Company. We account for restricted stock awards as equity-based awards because when they vest, they will be settled in common shares. The weighted-average fair value of the restricted stock that was awarded in the first nine months of fiscal 2022 was $38.27 per share, the market value of our common shares on the date of grant. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. We recognize compensation expense for restricted stock over the vesting period equal to the fair value on the date our Compensation Committee approved the awards. Restricted stock awards vest at 25% per year, beginning one year from the grant date over a term of four years.

Restricted Stock Units. During the first nine months of fiscal 2022, we granted 33,794 restricted stock units to our non-employee directors. These restricted stock units vest when the director leaves the board. We account for these restricted stock units as equity-based awards because when they vest, they will be settled in shares of our common stock. We measure and recognize compensation expense for these awards based on the market price of our common shares on the date of the grant. The weighted-average fair value of the restricted stock units that were awarded in the first nine months of fiscal 2022 was $35.34 per share.

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Performance Shares. During the first quarter of fiscal 2022, we granted 125,021 performance-based shares. We also have performance-based share awards outstanding from previous grants. Payout of the fiscal 2022 grant depends on our financial performance (50%) and a market-based condition based on the total return our shareholders receive on their investment in our stock relative to returns earned through investments in other public companies (50%). The performance share opportunity ranges from 50% of the employee’s target award if minimum performance requirements are met to a maximum of 200% of the target award based on the attainment of certain financial and shareholder-return goals over a specific performance period, which is generally three fiscal years. Grants of performance-based shares during fiscal 2021 were weighted the same as those granted during fiscal 2022 while grants of performance-based shares during fiscal 2020 were weighted (80%) on financial performance and (20%) on market-based conditions.

We account for performance-based shares as equity-based awards because when they vest, they will be settled in common shares. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. For shares that vest based on our results relative to the performance goals, we expense as compensation cost the fair value of the shares as of the day we granted the awards recognized over the performance period, taking into account the probability that we will satisfy the performance goals. The fair value of each share of the awards we granted in fiscal 2022 that vest based on attaining performance goals was $36.13, the market value of our common shares on the date we granted the awards less the dividends we expect to pay before the shares vest. For shares that vest based on market conditions, we use a Monte Carlo valuation model to estimate each share’s fair value as of the date of grant. The Monte Carlo valuation model uses multiple simulations to evaluate our probability of achieving various stock price levels to determine our expected performance ranking relative to our peer group. For shares that vest based on market conditions, we expense compensation cost over the vesting period regardless of whether the market condition is ultimately satisfied. Based on the Monte Carlo model, the fair value as of the grant date of the fiscal 2022 grant of shares that vest based on market conditions was $51.85.

Note 11: Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the quarters ended January 22, 2022, and January 23, 2021, is as follows:
(Unaudited, amounts in thousands) Translation adjustment Unrealized gain (loss) on marketable securities Net pension amortization and net actuarial loss Accumulated other comprehensive income (loss)
Balance at October 23, 2021 $ 2,340  $ 320  $ (4,813) $ (2,153)
Changes before reclassifications (752) (201) —  (953)
Amounts reclassified to net income —  16  75  91 
Tax effect —  45  (19) 26 
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated (752) (140) 56  (836)
Balance at January 22, 2022 $ 1,588  $ 180  $ (4,757) $ (2,989)
Balance at October 24, 2020 $ 997  $ 426  $ (5,380) $ (3,957)
Changes before reclassifications 1,924  (27) —  1,897 
Amounts reclassified to net income —  86  95 
Tax effect —  (21) (17)
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 1,924  (14) 65  1,975 
Balance at January 23, 2021 $ 2,921  $ 412  $ (5,315) $ (1,982)
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The activity in accumulated other comprehensive income (loss) for the nine months ended January 22, 2022 and January 23, 2021, is as follows:
(Unaudited, amounts in thousands) Translation adjustment Unrealized gain (loss) on marketable securities Net pension amortization and net actuarial loss Accumulated other comprehensive income (loss)
Balance at April 24, 2021 $ 3,041  $ 370  $ (4,932) $ (1,521)
Changes before reclassifications (1,453) (270) —  (1,723)
Amounts reclassified to net income —  18  225  243 
Tax effect —  62  (50) 12 
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated (1,453) (190) 175  (1,468)
Balance at January 22, 2022 $ 1,588  $ 180  $ (4,757) $ (2,989)
Balance at April 25, 2020 $ (1,891) $ 449  $ (5,510) $ (6,952)
Changes before reclassifications 4,812  (11) —  4,801 
Amounts reclassified to net income —  (38) 259  221 
Tax effect —  12  (64) (52)
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated 4,812  (37) 195  4,970 
Balance at January 23, 2021 $ 2,921  $ 412  $ (5,315) $ (1,982)
            
We reclassified both the unrealized gain (loss) on marketable securities and the net pension amortization from accumulated other comprehensive loss to net income through other income (expense), net.

The components of non-controlling interest were as follows:
Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021
Balance as of the beginning of the period $ 8,380  $ 7,873  $ 8,648  $ 15,553 
Net income 615  357  2,157  607 
Other comprehensive income (loss) 101  362  (449) 939 
Dividends distributed to joint venture minority partners —  —  (1,260) (8,507)
Balance as of the end of the period $ 9,096  $ 8,592  $ 9,096  $ 8,592 

Note 12: Revenue Recognition

Our revenue is primarily derived from product sales. We report product sales net of discounts and recognize them when control (rights and obligations associated with the product) passes to the customer. For sales to furniture retailers or distributors, control typically transfers when we ship the product. In cases where we sell directly to the end consumer, control of the product is generally transferred upon delivery.

For shipping and handling activities, we have elected to apply the accounting policy election permitted in ASC 606-10-25-18B, which allows an entity to account for shipping and handling activities as fulfillment activities (rather than as a promised good or service) when the activities are performed even if those activities are performed after the control of the good has been transferred. We expense shipping and handling costs at the time we recognize revenue in accordance with this election.

For sales tax, we have elected to apply the accounting policy election permitted in ASC 606-10-32-2A, which allows an entity to exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes). This allows us to present revenue net of these certain types of taxes.

We have elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to recognize the promised amount of consideration without adjusting for the effects of a significant financing component if the contract has a duration of one year or less. As our contracts typically are less than one year in length and do not have significant financing components, we have not adjusted consideration.

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

Quarter Ended January 22, 2022 Quarter Ended January 23, 2021
(Unaudited, amounts in thousands) Wholesale Retail Corporate
and Other
Total Wholesale Retail Corporate
and Other
Total
Motion Upholstery Furniture $ 238,119  $ 113,767  $ 288  $ 352,174  $ 205,522  $ 102,111  $ 174  $ 307,807 
Stationary Upholstery Furniture 94,216  46,938  55,971  197,125  89,059  30,469  35,728  155,256 
Bedroom Furniture 6,723  1,598  3,674  11,995  10,269  1,723  2,622  14,614 
Dining Room Furniture 5,562  2,802  1,063  9,427  7,034  3,340  672  11,046 
Occasional Furniture 7,396  6,672  1,153  15,221  11,585  6,118  623  18,326 
Delivery 45,168  6,342  2,097  53,607  30,021  6,081  1,394  37,496 
Other (1) 26,097  18,933  (14,267) 30,763  (2,782) 16,117  (7,522) 5,813 
Total $ 423,281  $ 197,052  $ 49,979  $ 670,312  $ 350,708  $ 165,959  $ 33,691  $ 550,358 
Eliminations (98,739) (80,162)
Consolidated Net Sales $ 571,573  $ 470,196 
Nine Months Ended January 22, 2022 Nine Months Ended January 23, 2021
(Unaudited, amounts in thousands) Wholesale Retail Corporate
and Other
Total Wholesale Retail Corporate
and Other
Total
Motion Upholstery Furniture $ 699,433  $ 326,251  $ 538  $ 1,026,222  $ 538,234  $ 255,020  $ 397  $ 793,651 
Stationary Upholstery Furniture 284,318  133,449  153,590  571,357  240,052  79,104  88,225  407,381 
Bedroom Furniture 30,030  5,386  10,524  45,940  25,818  4,141  6,149  36,108 
Dining Room Furniture 20,941  9,462  3,270  33,673  18,455  7,957  2,173  28,585 
Occasional Furniture 31,746  19,659  2,966  54,371  32,236  14,879  2,158  49,273 
Delivery 128,318  20,007  5,629  153,954  80,596  15,116  3,498  99,210 
Other (1) 61,086  57,105  (37,891) 80,300  (18,094) 43,154  (18,451) 6,609 
Total $ 1,255,872  $ 571,319  $ 138,626  $ 1,965,817  $ 917,297  $ 419,371  $ 84,149  $ 1,420,817 
Eliminations (293,572) (206,043)
Consolidated Net Sales $ 1,672,245  $ 1,214,774 
(1)Primarily includes revenue for advertising, royalties, parts, accessories, after-treatment products, surcharges, discounts and allowances, rebates and other sales incentives.

Motion Upholstery Furniture - Includes gross revenue for upholstered furniture, such as recliners, sofas, loveseats, chairs, sectionals, and modulars that have a mechanism that allows the back of the product to recline or the product's footrest to extend. This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), operators of La-Z-Boy Comfort Studio® locations, England Custom Comfort Center locations, other major dealers, independent retailers, and the end consumer.

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

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Contract Assets and Liabilities. We receive customer deposits from end consumers before we recognize revenue and in some cases we have the unconditional right to collect the remaining portion of the order price before we fulfill our performance obligation, resulting in a contract asset and a corresponding deferred revenue liability. In our consolidated balance sheet, customer deposits and deferred revenue (collectively, the "contract liabilities") are reported in accrued expenses and other current liabilities while contract assets are reported as other current assets. The following table presents our contract assets and liabilities:

(Unaudited, amounts in thousands) 1/22/2022 4/24/2021
Contract assets $ 151,698  $ 108,460 
Customer deposits $ 199,874  $ 180,766 
Deferred revenue 151,698  108,460 
Total contract liabilities (1)
$ 351,572  $ 289,226 
(1)During the nine months ended January 22, 2022, we recognized revenue of $264.2 million related to our contract liability balance at April 24, 2021.

Note 13: Segment Information

Our reportable operating segments include the Wholesale segment and the Retail segment.

Wholesale Segment. Our Wholesale segment consists primarily of three operating segments: La-Z-Boy, our largest operating segment, our England subsidiary, and our casegoods operating segment that sells furniture under three brands: American Drew®, Hammary® and Kincaid®. The Wholesale segment also includes our international wholesale and manufacturing businesses. We aggregate these operating segments into one reportable segment because they are economically similar and meet the other aggregation criteria for determining reportable segments. Our Wholesale segment manufactures and imports upholstered furniture such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas and imports casegoods (wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional pieces. The Wholesale segment sells directly to La-Z-Boy Furniture Galleries® stores, operators of La-Z-Boy Comfort Studio® locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.

Retail Segment. Our Retail segment consists of one operating segment comprised of our 163 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.

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The following table presents sales and operating income (loss) by segment:
Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands) 1/22/2022 1/23/2021 1/22/2022 1/23/2021
Sales
Wholesale segment:
Sales to external customers $ 328,533  $ 274,314  $ 973,973  $ 720,258 
Intersegment sales 94,748  76,394  281,899  197,039 
Wholesale segment sales 423,281  350,708  1,255,872  917,297 
Retail segment sales 197,052  165,959  571,319  419,371 
Corporate and Other:
Sales to external customers 45,988  29,923  126,953  75,145 
Intersegment sales 3,991  3,768  11,673  9,004 
Corporate and Other sales 49,979  33,691  138,626  84,149 
Eliminations (98,739) (80,162) (293,572) (206,043)
Consolidated sales $ 571,573  $ 470,196  $ 1,672,245  $ 1,214,774 
Operating Income (Loss)
Wholesale segment $ 27,639  $ 35,686  $ 89,098  $ 95,309 
Retail segment 24,102  14,707  68,502  23,173 
Corporate and Other (12,254) (15,979) (29,629) (31,804)
Consolidated operating income 39,487  34,414  127,971  86,678 
Interest expense (160) (298) (713) (1,103)
Interest income 806  285  1,029  902 
Other income (expense), net (1,460) 6,532  (522) 7,995 
Income before income taxes $ 38,673  $ 40,933  $ 127,765  $ 94,472 

Note 14: Income Taxes

Our effective tax rate was 24.8% and 25.9% for the third quarter and nine months ended January 22, 2022, respectively, compared with 27.7% and 26.4% for the third quarter and nine months ended January 23, 2021, respectively. The effective tax rate in the third quarter and nine months ended January 23, 2021, was impacted by a non-deductible fair value adjustment of the contingent consideration liability related to our Joybird acquisition. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes.

Note 15: Earnings per Share

Certain share-based compensation awards that entitle their holders to receive non-forfeitable dividends prior to vesting are considered participating securities. Prior to fiscal 2019, we granted restricted stock awards that contained non-forfeitable rights to dividends on unvested shares, and we are required to include these participating securities in calculating our basic earnings per common share, using the two-class method. Beginning in fiscal 2019 and going forward, the restricted stock awards we granted do not have non-forfeitable rights to dividends and therefore are not considered participating securities. The dividends on these restricted stock awards are, and will continue to be, held in escrow until the stock awards vest at which time we will pay any accumulated dividends.
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The following is a reconciliation of the numerators and denominators we used in our computations of basic and diluted earnings per share:
Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands, except per share data) 1/22/2022 1/23/2021 1/22/2022 1/23/2021
Numerator (basic and diluted):
Net income attributable to La-Z-Boy Incorporated $ 28,467  $ 29,232  $ 92,549  $ 68,965 
Income allocated to participating securities —  (9) (6) (33)
Net income available to common Shareholders $ 28,467  $ 29,223  $ 92,543  $ 68,932 
Denominator:
Basic weighted average common shares outstanding 43,701  46,261  44,342  46,064 
Contingent common shares 55  224  59  195 
Stock option dilution 212  333  239  148 
Diluted weighted average common shares outstanding 43,968  46,818  44,640  46,407 
Earnings per Share:
Basic $ 0.65  $ 0.63  $ 2.09  $ 1.50 
Diluted $ 0.65  $ 0.62  $ 2.07  $ 1.49 
        
The values for contingent common shares set forth above reflect the dilutive effect of common shares that we would have issued to employees under the terms of performance-based share awards if the relevant performance period for the award had been the reporting period.

We exclude the effect of options from our diluted share calculation when the weighted average exercise price of the options is higher than the average market price, since including the options' effect would be anti-dilutive. For the third quarter and nine months ended January 22, 2022, we excluded options to purchase 0.2 million shares from the diluted share calculation. For the third quarter ended January 23, 2021, we did not exclude any options as the effect would have been anti-dilutive and for the nine months ended January 23, 2021, we excluded 0.3 million shares from the diluted share calculation.

Note 16: 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.

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The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at January 22, 2022 and April 24, 2021. There were no transfers into or out of Level 1, Level 2, or Level 3 for any of the periods presented.

At January 22, 2022
Fair Value Measurements
(Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total
Assets
Marketable securities $ —  $ 36,381  $ —  $ 7,318  $ 43,699 
Held-to-maturity investments 1,391  —  —  —  1,391 
Cost basis investments —  —  7,579  —  7,579 
Total assets $ 1,391  $ 36,381  $ 7,579  $ 7,318  $ 52,669 
Liabilities
Contingent consideration liability $ —  $ —  $ 4,600  $ —  $ 4,600 

At April 24, 2021
Fair Value Measurements
(Unaudited, amounts in thousands) Level 1 Level 2 Level 3 NAV(1) Total
Assets
Marketable securities $ 119  $ 37,572  $ —  $ 7,602  $ 45,293 
Held-to-maturity investments 2,532  —  —  —  2,532 
Cost basis investment —  —  7,579  —  7,579 
Total assets $ 2,651  $ 37,572  $ 7,579  $ 7,602  $ 55,404 
Liabilities
Contingent consideration liability $ —  $ —  $ 14,100  $ —  $ 14,100 
(1)Certain marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology.

At January 22, 2022 and April 24, 2021, we held marketable securities intended to enhance returns on our cash and to fund future obligations of our non-qualified defined benefit retirement plan, as well as marketable securities to fund future obligations of our executive deferred compensation plan and our performance compensation retirement plan. We also held other fixed income and cost basis investments.

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

At January 22, 2022, our Level 3 assets included non-marketable preferred shares and warrants to purchase common shares of two privately held start-up companies. The fair value for our Level 3 investments is not readily determinable so we estimate the fair value as costs minus impairment, if any, plus or minus adjustments resulting from observable price changes in orderly transactions for identical or similar investments with the same issuer. There were no changes to the fair value of our Level 3 assets during the nine months ended January 22, 2022.

Our Level 3 liability includes our contingent consideration liability resulting from the Joybird acquisition. Based on the achievement of fiscal 2021 performance metrics, we paid $10.0 million of contingent consideration during the
second quarter of fiscal 2022. The fair value of our contingent consideration liability as of January 22, 2022, reflects our expectation that consideration will be owed under the terms of the earn out agreement based on fiscal 2023 projections of Joybird revenue and earnings. The fair value is determined using a variation of the income approach, known as the real options method, whereby revenue and earnings are simulated over the earnout periods in a risk-neutral framework using Geometric Brownian Motion. For each simulation path, the potential earnout payments were calculated based on management’s probability estimates for achievement of the revenue and earnings milestones and then were discounted to the valuation date using a discount rate of 1.8%. During the first nine months of fiscal 2022, we recognized an increase in the fair value of our contingent consideration liability of $0.5 million based on an updated valuation reflecting our most recent financial projections. There were no other changes to the fair value of our Level 3 liabilities during the nine months ended January 22, 2022.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We have prepared this Management’s Discussion and Analysis as an aid to understanding our financial results. It should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to Consolidated Financial Statements. After a cautionary note regarding forward-looking statements, we begin with an introduction to our key businesses and then provide discussions of our results of operations, liquidity and capital resources, and critical accounting policies.

Cautionary Note Regarding Forward-Looking Statements

La-Z-Boy Incorporated and its subsidiaries (individually and collectively, "we," "our," "us," "La-Z-Boy" or the "Company") make "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, forward-looking statements include information concerning expectations, projections or trends relating to our results of operations, financial results, financial condition, strategic initiatives and plans, expenses, dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, future economic performance, business and industry and the effect of the novel coronavirus ("COVID-19") pandemic on our business operations and financial results.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements may include words such as "anticipates," "believes," "continues," "estimates," "expects," "feels," "forecasts," "hopes," "intends," "plans," "projects," "likely," "seeks," "short-term," "non-recurring," "one-time," "outlook," "target," "unusual," or words of similar meaning, or future or conditional verbs, such as "will," "should," "could," or "may." A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak to our views only as of the date of this report. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control, such as the continuing and developing impact of, and uncertainty caused by, the COVID-19 pandemic. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial performance.

Our actual future results and trends may differ materially from those we anticipate depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed in our Annual Report for the year ended April 24, 2021, under Item 1A, "Risk Factors" and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in our Annual Report or any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or for any other reason.

Introduction

Our Business

We are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the United States. The La-Z-Boy Furniture Galleries® stores retail network is the third largest retailer of single-branded furniture in the United States. We manufacture, market, import, export, distribute and retail upholstery furniture products under the La-Z-Boy®, England, Kincaid®, and Joybird® tradenames. In addition, we import, distribute and retail accessories and casegoods (wood) furniture products under the Kincaid®, American Drew®, Hammary®, and Joybird® tradenames.

As of January 22, 2022, our supply chain operations included the following:

Five major manufacturing locations and nine regional distribution centers in the United States and five facilities in Mexico to support our speed-to-market and customization strategy
A logistics company that distributes a portion of our products in the United States
A wholesale sales office that is responsible for distribution of our product in the United Kingdom and Ireland
An upholstery manufacturing business in the United Kingdom
A global trading company in Hong Kong which helps us manage our Asian supply chain by establishing and maintaining relationships with our Asian suppliers, as well as identifying efficiencies and savings opportunities

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We also participate in two consolidated joint ventures in Thailand that support our international businesses: one that operates a manufacturing facility and another that operates a wholesale sales office. Additionally, we also have contracts with several suppliers in Asia to produce products that support our pure import model for casegoods.

We sell our products through multiple channels: to furniture retailers or distributors in the United States, Canada, and approximately 65 other countries, including the United Kingdom, China, Australia, South Korea and New Zealand, directly to consumers through retail stores that we own and operate, and through our websites, www.la-z-boy.com and www.joybird.com.

The centerpiece of our retail distribution strategy is our network of 350 La-Z-Boy Furniture Galleries® stores and 559 La-Z-Boy Comfort Studio® locations, each dedicated to marketing our La-Z-Boy branded products. We consider this dedicated space to be “proprietary.”

La-Z-Boy Furniture Galleries® stores help consumers furnish their homes by combining the style, comfort, and quality of La-Z-Boy furniture with our available design services. We own 163 of the La-Z-Boy Furniture Galleries® stores, while the remainder are independently owned and operated.
La-Z-Boy Comfort Studio® locations are defined spaces within larger independent retailers that are dedicated to displaying and selling La-Z-Boy branded products. All 559 La-Z-Boy Comfort Studio® locations are independently owned and operated.
In total, we have approximately 7.8 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America.
We also have approximately 3.0 million square feet of floor space outside of the United States and Canada dedicated to selling La-Z-Boy branded products.

Our other brands, England, American Drew, Hammary, and Kincaid enjoy distribution through many of the same outlets, with slightly over half of Hammary’s sales originating through the La-Z-Boy Furniture Galleries® store network.

Kincaid and England have their own dedicated proprietary in-store programs with 635 outlets and approximately 2.0 million square feet of proprietary floor space.
In total, our proprietary floor space includes approximately 12.8 million square feet worldwide.

Joybird sells product primarily online and has a limited amount of proprietary retail showroom floor space including small format stores in key urban markets.

Our goal is to deliver value to our shareholders over the long term through executing our strategic initiative