UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended January 25, 2020
or
For the transition period from ______ to ______
COMMISSION FILE NUMBER 1-9656
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) | ||||
Registrant's telephone number, including area code (734 ) 242-144 4
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 | ||
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.
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).
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.
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. ☐
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company | |||
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 11, 2020 | |
Common Stock, $1.00 Par Value | ||
LA-Z-BOY INCORPORATED
FORM 10-Q THIRD QUARTER OF FISCAL 2020
TABLE OF CONTENTS
Page Number(s) | ||
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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) | 1/25/20 | 1/26/19 | 1/25/20 | 1/26/19 | ||||||||||||
Sales | $ | $ | $ | $ | ||||||||||||
Cost of sales | ||||||||||||||||
Gross profit | ||||||||||||||||
Selling, general and administrative expense | ||||||||||||||||
Operating income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Interest income | ||||||||||||||||
Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income before income taxes | ||||||||||||||||
Income tax expense | ||||||||||||||||
Net income | ||||||||||||||||
Net income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income attributable to La-Z-Boy Incorporated | $ | $ | $ | $ | ||||||||||||
Basic weighted average common shares | ||||||||||||||||
Basic net income attributable to La-Z-Boy Incorporated per share | $ | $ | $ | $ | ||||||||||||
Diluted weighted average common shares | ||||||||||||||||
Diluted net income attributable to La-Z-Boy Incorporated per share | $ | $ | $ | $ | ||||||||||||
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) | 01/25/20 | 01/26/19 | 01/25/20 | 01/26/19 | ||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Other comprehensive income (loss) | ||||||||||||||||
Currency translation adjustment | ( | ) | ( | ) | ||||||||||||
Change in fair value of cash flow hedges, net of tax | ( | ) | ||||||||||||||
Net unrealized gain on marketable securities, net of tax | ||||||||||||||||
Net pension amortization, net of tax | ||||||||||||||||
Total other comprehensive income (loss) | ( | ) | ||||||||||||||
Total comprehensive income before allocation to noncontrolling interests | ||||||||||||||||
Comprehensive income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Comprehensive income attributable to La-Z-Boy Incorporated | $ | $ | $ | $ | ||||||||||||
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) | 1/25/20 | 4/27/19 | ||||||
Current assets | ||||||||
Cash and equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Receivables, net of allowance of $2,191 at 1/25/20 and $2,180 at 4/27/19 | ||||||||
Inventories, net | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Property, plant and equipment, net | ||||||||
Goodwill | ||||||||
Other intangible assets, net | ||||||||
Deferred income taxes – long-term | ||||||||
Right of use lease asset | ||||||||
Other long-term assets, net | ||||||||
Total assets | $ | $ | ||||||
Current liabilities | ||||||||
Current portion of long-term debt | $ | $ | ||||||
Accounts payable | ||||||||
Lease liability, short-term | ||||||||
Accrued expenses and other current liabilities | ||||||||
Total current liabilities | ||||||||
Long-term debt | ||||||||
Lease liability, long-term | ||||||||
Other long-term liabilities | ||||||||
Shareholders' equity | ||||||||
Preferred shares – 5,000 authorized; none issued | ||||||||
Common shares, $1 par value – 150,000 authorized; 46,075 outstanding at 1/25/20 and 46,955 outstanding at 4/27/19 | ||||||||
Capital in excess of par value | ||||||||
Retained earnings | ||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total La-Z-Boy Incorporated shareholders' equity | ||||||||
Noncontrolling interests | ||||||||
Total equity | ||||||||
Total liabilities and equity | $ | $ | ||||||
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) | 1/25/20 | 1/26/19 | ||||||
Cash flows from operating activities | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to cash provided by (used for) operating activities | ||||||||
(Gain)/loss on disposal of assets | ( | ) | ||||||
Change in deferred taxes | ||||||||
Provision for doubtful accounts | ||||||||
Depreciation and amortization | ||||||||
Equity-based compensation expense | ||||||||
Pension plan contributions | ( | ) | ||||||
Change in receivables | ( | ) | ||||||
Change in inventories | ( | ) | ( | ) | ||||
Change in other assets | ( | ) | ||||||
Change in payables | ||||||||
Change in other liabilities | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities | ||||||||
Proceeds from disposals of assets | ||||||||
Proceeds from insurance | ||||||||
Capital expenditures | ( | ) | ( | ) | ||||
Purchases of investments | ( | ) | ( | ) | ||||
Proceeds from sales of investments | ||||||||
Acquisitions | ( | ) | ( | ) | ||||
Net cash used for investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities | ||||||||
Net proceeds from credit facility | ||||||||
Payments on debt and finance lease liabilities | ( | ) | ( | ) | ||||
Stock issued for stock and employee benefit plans, net of shares withheld for taxes | ||||||||
Purchases of common stock | ( | ) | ( | ) | ||||
Dividends paid | ( | ) | ( | ) | ||||
Net cash used for financing activities | ( | ) | ( | ) | ||||
Effect of exchange rate changes on cash and equivalents | ( | ) | ||||||
Change in cash, cash equivalents and restricted cash | ( | ) | ||||||
Cash, cash equivalents and restricted cash at beginning of period | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
Supplemental disclosure of non-cash investing activities | ||||||||
Capital expenditures included in payables | $ | $ | ||||||
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 Income (Loss) | Non-Controlling Interests | Total | ||||||||||||||||||
At April 27, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income (loss) | — | — | — | ( | ) | |||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | — | — | ( | ) | ||||||||||||||||||
Purchases of 391 shares of common stock | ( | ) | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Cumulative effect adjustment for leases, net of tax (1) | — | — | — | — | ||||||||||||||||||||
Reclassification of certain income tax effects (2) | — | — | ( | ) | — | |||||||||||||||||||
Dividends declared and paid ($0.13/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
At July 27, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | — | — | ||||||||||||||||||||
Purchases of 335 shares of common stock | ( | ) | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Dividends declared and paid ($0.13/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Dividends declared not paid ($0.13/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
At October 26, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income (loss) | — | — | — | |||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | ( | ) | ( | ) | |||||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | — | — | ||||||||||||||||||||
Purchases of 378 shares of common stock | ( | ) | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Dividends declared and paid ($0.14/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Dividends declared not paid ($0.14/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
At January 25, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
(1) | Cumulative effect adjustment of deferred gains on prior sale/leaseback transactions as a result of adopting ASU 2016-02. |
(2) | Income tax effects of the Tax Cuts and Jobs Act are reclassified from Accumulated Other Comprehensive Income ("AOCI") to retained earnings due to the adoption of ASU 2018-02. |
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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 28, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Other comprehensive (loss) | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||||
Purchases of 257 shares of common stock | ( | ) | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Cumulative effect adjustment for investments, net of tax | — | — | ( | ) | — | |||||||||||||||||||
Dividends declared and paid ($0.12/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
At July 28, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | — | — | ||||||||||||||||||||
Purchases of 121 shares of common stock | ( | ) | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Dividends declared and paid ($0.12/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Dividends declared not paid ($0.12/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
At October 27, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income | — | — | — | |||||||||||||||||||||
Other comprehensive loss | — | — | — | |||||||||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||||
Purchases of 177 shares of common stock | ( | ) | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Dividends declared and paid ($0.13/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
Dividends declared not paid ($0.13/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
At January 26, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
8
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 27, 2019, 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 2019 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 25, 2020.
To further strengthen our supply chain footprint, on August 8, 2019, we announced our plan to close our Redlands, California upholstered furniture manufacturing facility and move production to available capacity at our other North American facilities. The Company’s Redlands upholstered furniture plant employed about 350 people, accounted for approximately 10 % of the La-Z-Boy branded business total upholstery production, and manufactured recliners, motion sofas and classics (high-leg recliners). Production ceased at the Redlands plant as of the end of the second quarter of fiscal 2020 and in the third quarter of fiscal 2020, the facility, which is approximately 200,000 square feet, was sold for $10.8 million, net of closing costs. The sale of the Redlands property resulted in a $9.7 million pre-tax gain, recorded in selling, general and administrative expense ("SG&A") in our consolidated statement of income. In addition, we have transitioned the leather cut-and-sew operation from the Newton, Mississippi upholstered furniture manufacturing plant to another North American-based cut-and-sew facility. The move of the Newton leather cut-and-sew operation impacted about 105 of the 525 employees at that location.
As a part of our supply chain optimization initiative, we may incur expenses that qualify as exit and disposal costs under ASC 420, Exit or Disposal Cost Obligations. Other expenses that are an integral component of, and directly attributable to, restructuring activities do not qualify as exit and disposal costs, such as accelerated depreciation, asset impairments and other incremental costs. In the first nine months of fiscal 2020, we recognized pre-tax expenses associated with this initiative of $5.3 million within cost of sales. These costs do not qualify as exit and disposal costs under ASC 420.
At January 25, 2020, we owned preferred shares of two privately held start-up companies, both of which are variable interest entities. We also hold a warrant to purchase common shares of one of these companies. We have not consolidated the results of either of these companies in our financial statements because we do not have the power to direct those activities that most significantly impact the economic performance of either of these companies and, therefore, are not the primary beneficiary.
Accounting pronouncement adopted in fiscal 2020
The accounting standards update (“ASU”) described in the paragraph below had a significant impact on our accounting policies and our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring lessees to record 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 have adopted this standard in the first quarter of fiscal 2020 using the modified retrospective approach. See Note 5 for further information.
9
The following table summarizes additional ASUs which were adopted in fiscal 2020, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.
ASU | Description | |
ASU 2017-06 | Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting | |
ASU 2017-12 | Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities | |
ASU 2018-02 | Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income | |
ASU 2018-07 | Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting | |
ASU 2018-13 | Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements | |
ASU 2018-16 | Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes | |
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 2016-13 | Financial Instruments – Credit losses (Topic 326): Measurement of Credit Losses on Financial Instruments | Fiscal 2021 | ||
ASU 2018-14 | Compensation – Retirement benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans | Fiscal 2022 | ||
ASU 2019-12 | Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes | Fiscal 2022 | ||
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 325, and Topic 815 | Fiscal 2022 | ||
Subsequent events
Subsequent to the end of the third quarter of fiscal 2020, one of our largest customers made a public statement that they are actively exploring a variety of options with creditors, investors and landlords in order to continue serving their customers. As of the end of the third quarter of fiscal 2020, we had a trade receivable from this customer of approximately $7 million, and have not provided for any potential credit losses. We are monitoring this fast-developing situation, including through direct discussions with this customer, and as of the date of this filing, based on all information available to us, believe that the amounts owed as of January 25, 2020, are materially collectible.
Note 2: Acquisitions
We did not complete any acquisitions during the nine months ended January 25, 2020.
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 first of which was paid in the first quarter of fiscal 2020. The merger agreement also includes two future earn-out opportunities based on Joybird’s financial performance in fiscal 2021 and fiscal 2023.
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The $7.5 million of prepaid compensation relates to the retention of the four Joybird founders, now our employees, each of whom will forfeit proportional amounts if one or more of them resigns in the two years following the acquisition. We are amortizing the $7.5 million to SG&A expense over the two-year retention period on a straight-line basis. 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 reflects 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.
We recorded $78.8 million of goodwill related to the Joybird acquisition, related primarily to synergies we expect from the integration of the acquisition and the anticipated future benefits of these synergies. The finite-lived intangible asset and goodwill asset for Joybird are not deductible for federal income tax purposes. We included the Joybird operating segment in our other business activities which we report within our Corporate and Other reportable segment.
Refer to Note 6. Goodwill and Other Intangible Assets and Note 16. Fair Value Measurements for further information regarding the valuation of the contingent consideration, goodwill and intangible assets related to Joybird.
The following table summarizes the purchase price allocation for Joybird at the date of acquisition:
(Unaudited, amounts in thousands) | Joybird Acquisition | |||
Fair value of consideration: | ||||
Cash (paid at closing) | $ | |||
Guaranteed payment | ||||
Acquisition earn-out | ||||
Assumption of liability | ||||
Working capital adjustment | ( | ) | ||
Total fair value of consideration | ||||
Amounts recognized for assets acquired and liabilities assumed: | ||||
Inventory | ||||
Other current assets | ||||
Property, plant and equipment | ||||
Finite-lived tradename | ||||
Other long-term assets | ||||
Accounts payable | ( | ) | ||
Customer deposits | ( | ) | ||
Other current liabilities | ( | ) | ||
Other long-term liabilities | ( | ) | ||
Total identifiable net liabilities acquired | ( | ) | ||
Goodwill | $ | |||
11
Note 3: 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) | 1/25/20 | 1/26/19 | ||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Total cash, cash equivalents and restricted cash | $ | $ | ||||||
Note 4: Inventories
A summary of inventories is as follows:
(Unaudited, amounts in thousands) | 1/25/20 | 4/27/19 | ||||||
Raw materials | $ | $ | ||||||
Work in process | ||||||||
Finished goods | ||||||||
FIFO inventories | ||||||||
Excess of FIFO over LIFO | ( | ) | ( | ) | ||||
Total inventories | $ | $ | ||||||
Note 5: Leases
During the first quarter of fiscal 2020, we adopted ASU 2016-02, Leases (Topic 842) and all related amendments. The guidance requires lessees to recognize substantially all leases on their balance sheet as a right-of-use (“ROU”) asset and a lease liability.
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 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.
The Company has elected to apply the practical expedients permitted under transition guidance to forgo the restatement of comparative periods and to not reassess leases entered into prior to adoption. In addition, we have elected the practical expedient to not separate lease and non-lease components when determining the ROU asset and lease liability. We have also made an accounting policy election to not recognize an ROU asset and lease liability on the balance sheet for those leases with an initial term of one year or less and instead, such liabilities will be expensed on a straight-line basis over the lease term.
Supplemental balance sheet information related to leases:
(Unaudited, amounts in thousands) | 1/25/20 | |||
Operating leases | ||||
ROU assets | $ | |||
Lease liabilities, short-term | ||||
Lease liabilities, long-term | ||||
Finance leases | ||||
ROU assets | $ | |||
Lease liabilities, short-term | ||||
Lease liabilities, long-term | ||||
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The ROU assets by segment are as follows:
(Unaudited, amounts in thousands) | 1/25/20 | |||
Upholstery | $ | |||
Casegoods | ||||
Retail | ||||
Corporate & Other | ||||
Total ROU assets | $ | |||
The components of lease cost are as follows for the respective periods ended January 25, 2020:
(Unaudited, amounts in thousands) | Quarter Ended | Nine Months Ended | ||||||
Operating lease cost | $ | $ | ||||||
Financing lease cost | ||||||||
Short-term lease cost | ||||||||
Variable lease cost | ||||||||
Less: Sublease income | ( | ) | ( | ) | ||||
Total lease cost | $ | $ | ||||||
The following tables present supplemental lease disclosures:
Nine Months Ended January 25, 2020 | ||||||||
(Unaudited, amounts in thousands) | Operating Leases | Financing Leases | ||||||
Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
Lease liabilities arising from new ROU assets | — | |||||||
1/25/20 | ||||||
(Unaudited, amounts in thousands) | Operating Leases | Financing Leases | ||||
Weighted-average remaining lease term (years) | ||||||
Weighted-average discount rate | % | % | ||||
The following table presents our undiscounted cash flows as of January 25, 2020, and our minimum contractual obligations on our leases as of April 27, 2019:
1/25/20 | 4/27/19 | |||||||||||||||
(Unaudited, amounts in thousands) | Operating Leases | Financing Leases | Operating Leases | Financing Leases | ||||||||||||
Within one year | $ | $ | $ | $ | ||||||||||||
After one year and within two years | ||||||||||||||||
After two years and within three years | ||||||||||||||||
After three years and within four years | ||||||||||||||||
After four years and within five years | ||||||||||||||||
After five years | ||||||||||||||||
Total lease payments | $ | $ | ||||||||||||||
Less: Interest | ||||||||||||||||
Total lease obligations | $ | $ | ||||||||||||||
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Note 6: Goodwill and Other Intangible Assets
We have goodwill on our consolidated balance sheet as follows:
Reportable Segment/Unit | Related Acquisition | |
Upholstery segment | Acquisition of the wholesale business in the United Kingdom and Ireland | |
Retail segment | Acquisitions of La-Z-Boy Furniture Galleries® stores | |
Corporate & Other | Acquisition of Joybird | |
The following is a roll-forward of goodwill for the nine months ended January 25, 2020:
(Unaudited, amounts in thousands) | Upholstery Segment | Retail Segment | Corporate and Other | Total Goodwill | ||||||||||||
Balance at April 27, 2019 | $ | $ | $ | $ | ||||||||||||
Acquisition adjustment | ( | ) | ( | ) | ||||||||||||
Translation adjustment | ||||||||||||||||
Balance at January 25, 2020 | $ | $ | $ | $ | ||||||||||||
We have intangible assets on our consolidated balance sheet as follows:
Reportable Segment/Unit | Intangible Asset | Useful Life | ||
Upholstery 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 | ||
Casegoods 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 is a roll-forward of our other intangible assets for the nine months ended January 25, 2020:
(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 27, 2019 | $ | $ | $ | $ | $ | |||||||||||||||
Amortization | — | ( | ) | — | ( | ) | ( | ) | ||||||||||||
Translation adjustment | — | — | ||||||||||||||||||
Balance at January 25, 2020 | $ | $ | $ | $ | $ | |||||||||||||||
Note 7: 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. 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.
14
We also hold other investments consisting of cost-basis preferred shares of two privately held start-up companies. In the third quarter of fiscal year 2020, we recognized an other-than-temporary impairment of $6.0 million, which represents the full cost-basis value of the investment in one of these privately held start-up companies. The impairment loss is recognized in Other income (expense), net on the consolidated statement of income. Refer to Note 16, Fair Value Measurements for further information.
The following summarizes our investments:
(Unaudited, amounts in thousands) | 1/25/20 | 4/27/19 | ||||||
Short-term investments: | ||||||||
Marketable securities | $ | $ | ||||||
Held-to-maturity investments | ||||||||
Total short-term investments | ||||||||
Long-term investments: | ||||||||
Marketable securities | ||||||||
Cost basis investments | ||||||||
Total long-term investments | ||||||||
Total investments | $ | $ | ||||||
Investments to enhance returns on cash | $ | $ | ||||||
Investments to fund compensation/retirement plans | ||||||||
Other investments | ||||||||
Total investments | $ | $ | ||||||
The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type:
1/25/20 | 4/27/19 | |||||||||||||||||||||||
(Unaudited, amounts in thousands) | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||
Equity securities | $ | $ | (6,000 | ) | $ | $ | $ | — | $ | |||||||||||||||
Fixed income | ( | ) | ( | ) | ||||||||||||||||||||
Other | ( | ) | ||||||||||||||||||||||
Total securities | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
(Unaudited, amounts in thousands) | 1/25/20 | 1/26/19 | 1/25/20 | 1/26/19 | ||||||||||||
Proceeds from sales | $ | $ | $ | $ | ||||||||||||
Gross realized gains | ||||||||||||||||
Gross realized losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
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) | 1/25/20 | |||
Within one year | $ | |||
Within two to five years | ||||
Within six to ten years | ||||
Thereafter | ||||
Total | $ | |||
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Note 8: Employee Benefits
Pension
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.
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. The refund was recorded as a component of other income (expense), net in our consolidated statement of income.
There were no net periodic pension costs associated with the terminated pension plan in the quarter and nine months ended January 25, 2020. For the quarter and nine months ended January 26, 2019, net periodic pension costs were as follows:
Quarter Ended | Nine Months Ended | |||||||
(Unaudited, amounts in thousands) | 01/26/19 | 01/26/19 | ||||||
Service cost | $ | $ | ||||||
Interest cost | ||||||||
Expected return on plan assets | ( | ) | ( | ) | ||||
Net amortization | ||||||||
Net periodic pension cost | $ | $ | ||||||
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.
Employee Vacation Policy Changes
Note 9: Product Warranties
We accrue an estimated liability for product warranties when we recognize revenue on the sale of warranted products. We estimate future warranty claims on new sales based on our historical claims experience and also provide for any additional anticipated future costs on previously sold products. 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 Upholstery 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 Upholstery 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 products sold by Joybird, which is 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.
16
A reconciliation of the changes in our product warranty liability is as follows:
Quarter Ended | Nine Months Ended | |||||||||||||||
(Unaudited, amounts in thousands) | 01/25/20 | 01/26/19 | 01/25/20 | 01/26/19 | ||||||||||||
Balance as of the beginning of the period | $ | $ | $ | $ | ||||||||||||
Acquisitions | ||||||||||||||||
Accruals during the period | ||||||||||||||||
Settlements during the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Balance as of the end of the period | $ | $ | $ | $ | ||||||||||||
As of January 25, 2020 and April 27, 2019, we included $14.3 million and $13.9 million, respectively, of our product warranty liability in accrued expenses and other current liabilities on our consolidated balance sheet, and included the remainder 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 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) | 01/25/20 | 01/26/19 | 01/25/20 | 01/26/19 | ||||||||||||
Equity-based awards expense | $ | $ | $ | $ | ||||||||||||
Liability-based awards expense | ( | ) | ||||||||||||||
Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||
Stock Options. We granted 248,662 stock options to employees during the first quarter of fiscal 2020 and we have stock options outstanding from previous grants. In fiscal 2020, we have changed the grant mix to include fewer stock options and have replaced those awards with restricted shares. 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 estimate forfeiture rates based on our employees’ forfeiture history and believe they will approximate future results. 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.
We calculated the fair value of stock options granted during the first quarter of fiscal 2020 using the following assumptions:
(Unaudited) | Fiscal 2020 grant | |||
Risk-free interest rate | % | |||
Dividend rate | % | |||
Expected life in years | ||||
Stock price volatility | % | |||
Fair value per share | $ | |||
Stock Appreciation Rights (“SARs”). We have not granted any SARs to employees since fiscal 2014, but we have SARs outstanding from the fiscal 2013 and fiscal 2014 grants. 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 re-measure to fair value at the end of each reporting period.
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In fiscal 2013 and fiscal 2014, we granted SARs as described in our Annual Report on Form 10-K for the fiscal year ended April 27, 2013 and April 26, 2014, respectively. As of January 25, 2020, we had 7,149 and 13,869 SARs outstanding for the fiscal 2013 and fiscal 2014 awards, respectively. These awards have exceeded their expected life and will be re-measured 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 January 25, 2020, the intrinsic value per share of the fiscal 2013 and fiscal 2014 awards were $20.59 and $13.50 , respectively.
Restricted Stock. We granted 166,649 shares of restricted stock to employees during the first nine months of fiscal 2020. We also have shares of restricted stock outstanding from previous grants. 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 awarded in the first nine months of fiscal 2020 was $30.41 per share, the market value of our common shares on the date of grant. We estimate forfeiture rates based on our employees' forfeiture history and believe they will approximate future results. We recognize compensation expense for restricted stock over the vesting period equal to the fair value on the grant date of the award. 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 second quarter of fiscal 2020, we granted 28,332 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, which was $31.77 .
Performance Shares. During the first quarter of fiscal 2020, we granted 155,605 performance-based shares. We also have performance-based share awards outstanding from previous grants. Payout of these grants depends on our financial performance (80 %) 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 (20 %). The performance share opportunity ranges from 50 % of the employee’s target award if minimum performance requirements are met to a maximum of 200 % of the target award based on the attainment of certain financial and shareholder-return goals over a specific performance period, which is generally three fiscal years.
We account for performance-based shares as equity-based awards because when they vest, they will be settled in common shares. We estimate forfeiture rates based on our employees' forfeiture history and believe they will approximate future results. 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 2020 that vest based on attaining performance goals was $28.68 , 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, net of estimated forfeitures, 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 2020 grant of shares that vest based on market conditions was $38.75 .
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Note 11: Accumulated Other Comprehensive Income (Loss)
The activity in accumulated other comprehensive income (loss) for the quarters ended January 25, 2020, and January 26, 2019, is as follows:
(Unaudited, 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 October 26, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Changes before reclassifications | — | — | ||||||||||||||||||
Amounts reclassified to net income | — | ( | ) | |||||||||||||||||
Tax effect | — | ( | ) | ( | ) | ( | ) | |||||||||||||
Other comprehensive income attributable to La-Z-Boy Incorporated | ||||||||||||||||||||
Balance at January 25, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Balance at October 27, 2018 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
Changes before reclassifications | — | |||||||||||||||||||
Amounts reclassified to net income | — | |||||||||||||||||||
Tax effect | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
Other comprehensive income attributable to La-Z-Boy Incorporated | ||||||||||||||||||||
Balance at January 26, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||
The activity in accumulated other comprehensive income (loss) for the nine months ended January 25, 2020, and January 26, 2019, is as follows:
(Unaudited, 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 27, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Changes before reclassifications | — | — | ||||||||||||||||||
Reclassification of certain income tax effects (1) | — | ( | ) | ( | ) | ( | ) | |||||||||||||
Amounts reclassified to net income | — | ( | ) | |||||||||||||||||
Tax effect | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated | ( | ) | ( | ) | ||||||||||||||||
Balance at January 25, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Balance at April 28, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Changes before reclassifications | ( | ) | ( | ) | — | ( | ) | |||||||||||||
Cumulative effect adjustment for investments (2) | — | — | ( | ) | — | ( | ) | |||||||||||||
Amounts reclassified to net income | — | |||||||||||||||||||
Tax effect | — | ( | ) | ( | ) | ( | ) | |||||||||||||
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Balance at January 26, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||
(1) | Income tax effects of the Tax Cuts and Jobs Act are reclassified from AOCI to retained earnings due to adoption of ASU 2018-02. |
(2) | The cumulative effect adjustment for investments is composed of $ |
19
We reclassified the unrealized gain/(loss) on marketable securities from accumulated other comprehensive loss to net income through other income (expense), net in our consolidated statement of income, 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 non-controlling interest were as follows:
Quarter Ended | Nine Months Ended | |||||||||||||||
(Unaudited, amounts in thousands) | 1/25/20 | 1/26/19 | 1/25/20 | 1/26/19 | ||||||||||||
Balance as of the beginning of the period | $ | $ | $ | $ | ||||||||||||
Net income | ||||||||||||||||
Other comprehensive income (loss) | ( | ) | ||||||||||||||
Balance as of the end of the period | $ | $ | $ | $ | ||||||||||||
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 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.
20
The following table presents our revenue disaggregated by product category and by segment or unit:
Quarter Ended January 25, 2020 | ||||||||||||||||||||
(Unaudited, amounts in thousands) | Upholstery | Casegoods | Retail | Corporate and Other | Total | |||||||||||||||
Motion Upholstery Furniture | $ | $ | — | $ | $ | — | $ | |||||||||||||
Stationary Upholstery Furniture | ||||||||||||||||||||
Bedroom Furniture | — | |||||||||||||||||||
Dining Room Furniture | — | |||||||||||||||||||
Occasional Furniture | ||||||||||||||||||||
Other (1) | ( | ) | ( | ) | ||||||||||||||||
Total | $ | $ | $ | $ | $ | |||||||||||||||
Eliminations | ( | ) | ||||||||||||||||||
Consolidated Net Sales | $ | |||||||||||||||||||
Quarter Ended January 26, 2019 | ||||||||||||||||||||
Upholstery | Casegoods | Retail | Corporate and Other | Total | ||||||||||||||||
Motion Upholstery Furniture | $ | $ | — | $ | $ | — | $ | |||||||||||||
Stationary Upholstery Furniture | ||||||||||||||||||||
Bedroom Furniture | — | |||||||||||||||||||
Dining Room Furniture | — | |||||||||||||||||||
Occasional Furniture | ||||||||||||||||||||
Other (1) | ( | ) | ( | ) | ||||||||||||||||
Total | $ | $ | $ | $ | $ | |||||||||||||||
Eliminations | ( | ) | ||||||||||||||||||
Consolidated Net Sales | $ | |||||||||||||||||||
(1) | Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, tariff surcharges, discounts & allowances, rebates and other sales incentives. |
21
Nine Months Ended January 25, 2020 | ||||||||||||||||||||
(Unaudited, amounts in thousands) | Upholstery | Casegoods | Retail | Corporate and Other | Total | |||||||||||||||
Motion Upholstery Furniture | $ | $ | — | $ | $ | — | $ | |||||||||||||
Stationary Upholstery Furniture | ||||||||||||||||||||
Bedroom Furniture | — | |||||||||||||||||||
Dining Room Furniture | — | |||||||||||||||||||
Occasional Furniture | ||||||||||||||||||||
Other (1) | ( | ) | ( | ) | ||||||||||||||||
Total | $ | $ | $ | $ | $ | |||||||||||||||
Eliminations | ( | ) | ||||||||||||||||||
Consolidated Net Sales | $ | |||||||||||||||||||
Nine Months Ended January 26, 2019 | ||||||||||||||||||||
Upholstery | Casegoods | Retail | Corporate and Other | Total | ||||||||||||||||
Motion Upholstery Furniture | $ | $ | — | $ | $ | — | $ | |||||||||||||
Stationary Upholstery Furniture | ||||||||||||||||||||
Bedroom Furniture | — | |||||||||||||||||||
Dining Room Furniture | — | |||||||||||||||||||
Occasional Furniture | ||||||||||||||||||||
Other (1) | ( | ) | ( | ) | ||||||||||||||||
Total | $ | $ | $ | $ | $ | |||||||||||||||
Eliminations | ( | ) | ||||||||||||||||||
Consolidated Net Sales | $ | |||||||||||||||||||
(1) |
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 January 25, 2020, our consolidated balance sheet includes current assets of $25.3 million that we reported as other receivables. These other receivables represent the remaining consideration to which we are entitled prior to fulfilling our performance obligation. At the beginning of fiscal 2020, we had $17.0 million of other receivables.
22
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 January 25, 2020, we included $60.9 million of customer deposits and $25.3 million of deferred revenues in accrued expenses and other current liabilities on our consolidated balance sheet. At the beginning of fiscal 2020, we had $42.8 million of customer deposits and $17.0 million of deferred revenues. During the quarter and nine months ended January 25, 2020 we recognized revenue of $0.5 million and $55.0 million, respectively, related to our contract liability balance at April 27, 2019.
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 13: Segment Information
Our reportable operating segments are the Upholstery segment, the Casegoods segment and the Retail segment.
Upholstery Segment. Our Upholstery segment is our largest business segment and consists primarily of two operating segments: La-Z-Boy, our largest operating segment, and the operating segment for our England subsidiary. The Upholstery segment also includes our international wholesale businesses. We aggregate these operating segments into one reportable segment because they are economically similar and because they meet the other aggregation criteria for determining reportable segments. Our Upholstery segment manufactures and imports upholstered furniture such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas. The Upholstery segment sells directly to La-Z-Boy Furniture Galleries® stores, operators of La-Z-Boy Comfort Studio® locations and England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.
Casegoods Segment. Our Casegoods segment consists of one operating segment that sells furniture under three brands: American Drew®, Hammary®, and Kincaid®. The Casegoods segment is an importer, marketer, and distributor of casegoods (wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional pieces, and also manufactures some coordinated upholstered furniture. The Casegoods segment sells directly to major dealers, as well as La-Z-Boy Furniture Galleries® stores, and a wide cross-section of other independent retailers.
Retail Segment. Our Retail segment consists of one operating segment comprised of our 155 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) | 1/25/20 | 1/26/19 | 1/25/20 | 1/26/19 | ||||||||||||
Sales | ||||||||||||||||
Upholstery segment: | ||||||||||||||||
Sales to external customers | $ | $ | $ | $ | ||||||||||||
Intersegment sales | ||||||||||||||||
Upholstery segment sales | ||||||||||||||||
Casegoods segment: | ||||||||||||||||
Sales to external customers | ||||||||||||||||
Intersegment sales | ||||||||||||||||
Casegoods segment sales | ||||||||||||||||
Retail segment sales | ||||||||||||||||
Corporate and Other: | ||||||||||||||||
Sales to external customers | ||||||||||||||||
Intersegment sales | ||||||||||||||||
Corporate and Other sales | ||||||||||||||||
Eliminations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Consolidated sales | $ | $ | $ | $ | ||||||||||||
Operating Income (Loss) | ||||||||||||||||
Upholstery segment | $ | $ | $ | $ | ||||||||||||
Casegoods segment | ||||||||||||||||
Retail segment | ||||||||||||||||
Corporate and Other | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Consolidated operating income | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Interest income | ||||||||||||||||
Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income before income taxes | $ | $ | $ | $ | ||||||||||||
Note 14: Income 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 2020, 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 2019 and fiscal 2020 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 2019 and fiscal 2020 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) | 1/25/20 | 1/26/19 | 1/25/20 | 1/26/19 | ||||||||||||
Numerator (basic and diluted): | ||||||||||||||||
Net income attributable to La-Z-Boy Incorporated | $ | $ | $ | $ | ||||||||||||
Income allocated to participating securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income available to common Shareholders | $ | $ | $ | $ | ||||||||||||
Denominator: | ||||||||||||||||
Basic weighted average common shares outstanding | ||||||||||||||||
Add: | ||||||||||||||||
Contingent common shares | ||||||||||||||||
Stock option dilution | ||||||||||||||||
Diluted weighted average common shares outstanding | ||||||||||||||||
Earnings per Share: | ||||||||||||||||
Basic | $ | $ | $ | $ | ||||||||||||
Diluted | $ | $ | $ | $ | ||||||||||||
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.
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.
The following table presents the fair value hierarchy for those assets and liabilities we measured at fair value on a recurring basis at January 25, 2020 and April 27, 2019. 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 January 25, 2020 | ||||||||||||||||||||
Fair Value Measurements | ||||||||||||||||||||
(Unaudited, amounts in thousands) | Level 1 | Level 2 | Level 3 | NAV(1) | Total | |||||||||||||||
Assets | ||||||||||||||||||||
Marketable securities | $ | $ | $ | — | $ | $ | ||||||||||||||
Held-to-maturity investments | — | — | — | |||||||||||||||||
Cost basis investments | — | — | — | |||||||||||||||||
Total assets | $ | $ | $ | $ | $ | |||||||||||||||
Liabilities | ||||||||||||||||||||
Contingent consideration liability | $ | — | $ | — | $ | $ | — | $ | ||||||||||||
At April 27, 2019 | ||||||||||||||||||||
Fair Value Measurements | ||||||||||||||||||||
(Unaudited, amounts in thousands) | Level 1 | Level 2 | Level 3 | NAV(1) | Total | |||||||||||||||
Assets | ||||||||||||||||||||
Marketable securities | $ | $ | $ | — | $ | $ | ||||||||||||||
Held-to-maturity investments | — | — | — | |||||||||||||||||
Cost basis investment | — | — | — | |||||||||||||||||
Total assets | $ | $ | $ | $ | $ | |||||||||||||||
Liabilities | ||||||||||||||||||||
Contingent consideration liability | $ | — | $ | — | $ | $ | — | $ | ||||||||||||
(1) | Certain marketable securities investments are measured at fair value using net asset value per share under the practical expedient methodology. |
At January 25, 2020 and April 27, 2019, 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 25, 2020, our Level 3 assets included non-marketable preferred shares of two privately held start-up companies, and a warrant to purchase common shares of one of these 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 the quarter ended October 26, 2019, we invested an additional $0.5 million in one of these privately held start-up companies. Subsequently and during the quarter ended January 25, 2020, with respect to the same investee, we recorded an impairment charge of $6.0 million for the full carrying value as it was determined the value of the investment was not recoverable. For non-marketable equity investments, the measurement of fair value requires significant judgment and includes quantitative and qualitative analysis of identified events or circumstances that impact the fair value of the investment. Among other factors, we assessed the investee’s ability to meet business milestones, its financial condition and near-term prospects (including the rate at which the investee was using its cash), the investee’s need for possible additional funding at a lower valuation, and the competitive environment in which the investee operates its business.
There were no other changes to the fair value of our Level 3 assets during the quarter and nine months ended January 25, 2020.
Our Level 3 liability includes our contingent consideration liability from the Joybird acquisition. We estimated the contingent consideration liability based on future revenues and earnings in fiscal 2021 and fiscal 2023. The fair value was determined using a variation of the income approach, known as the real options method, whereby revenue and earnings were simulated over the earn-out periods in a risk-neutral framework using Geometric Brownian Motion. For each simulation path, the potential earn-out payments were calculated based on management’s probability estimates for achievement of the revenue and earnings milestones and then were discounted to the valuation date using a discount rate of 4.2 % for the fiscal 2021 milestone
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and 4.7 % for the fiscal 2023 milestone. There were no changes to the fair value of our Level 3 liabilities during the first nine months of fiscal 2020. However, our integration efforts related to the acquired Joybird business are taking longer than anticipated. Consistent with our policy of testing of non-financial assets annually in the fourth quarter or more frequently, if an impairment indicator is identified, we will be undertaking a review of the Joybird business next quarter, which will include future revenue and earnings projections, and which could result in an adjustment to the fair value of the contingent consideration liability as well as intangible assets and goodwill related to Joybird.
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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 about 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 Statement Concerning Forward-Looking Statements
La-Z-Boy Incorporated and its subsidiaries (individually and collectively, “we,” “our” or the “Company”) make forward-looking statements in this report, and its representatives may make oral forward-looking statements from time to time. Generally, forward-looking statements include information concerning possible or assumed future actions, events or results of operations. More specifically, forward-looking statements may include information regarding:
● future income, margins and cash flows | ● future economic performance |
● future sales | ● industry and importing trends |
● adequacy and cost of financial resources | ● management plans and strategic initiatives |
Forward-looking statements also include those preceded or followed by the words “anticipates,” “believes,” “estimates,” “hopes,” “plans,” “could,” “intends” and “expects” or similar expressions. With respect to all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those we anticipate or project due to a number of factors, including: (a) changes in consumer confidence and demographics; (b) the possibility of a recession; (c) changes in the real estate and credit markets and their effects on our customers, consumers and suppliers; (d) international political unrest, terrorism or war; (e) volatility in energy and other commodities prices; (f) the impact of logistics on imports and exports; (g) tax rate, interest rate, and currency exchange rate changes; (h) changes in the stock market impacting our profitability and our effective tax rate; (i) operating factors, such as supply, labor or distribution disruptions (e.g. port strikes); (j) changes in legislation, including the tax code, or changes in the domestic or international regulatory environment or trade policies, including new or increased duties, tariffs, retaliatory tariffs, trade limitations and termination or renegotiation of bilateral and multilateral trade agreements impacting our business; (k) adoption of new accounting principles; (l) fires, severe weather or other natural events such as hurricanes, earthquakes, flooding, tornadoes and tsunamis; (m) our ability to procure, transport or import, or material increases to the cost of transporting or importing, fabric rolls, leather hides or cut-and-sewn fabric and leather sets domestically or abroad; (n) information technology conversions or system failures and our ability to recover from a system failure; (o) effects of our brand awareness and marketing programs; (p) the discovery of defects in our products resulting in delays in manufacturing, recall campaigns, reputational damage, or increased warranty costs; (q) litigation arising out of alleged defects in our products; (r) unusual or significant litigation; (s) our ability to locate new La-Z-Boy Furniture Galleries® stores (or store owners) and negotiate favorable lease terms for new or existing locations; (t) the ability to increase volume through our e-commerce initiatives; (u) the impact of potential goodwill or intangible asset impairments; and (v) those matters discussed in Item 1A of our Annual Report on Form 10-K for the year ended April 27, 2019, and other factors identified from time-to-time in our reports filed with the SEC. We undertake no obligation to update or revise any forward-looking statements, whether to reflect new information or new developments 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 25, 2020, we had six major manufacturing locations and six regional distribution centers in the United States and two facilities in Mexico to support our speed-to-market and customization strategy. We have closed our manufacturing facility located in Redlands, California as of the end of the second quarter of fiscal 2020. We operate a wholesale sales office that is responsible for distribution of our product in the United Kingdom and Ireland. We also participate in two joint ventures in Thailand that support our international businesses: one that operates a manufacturing facility and another that operates a
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wholesale sales office. We operate 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. We also have contracts with several suppliers in Asia to produce products that support our pure import model for casegoods.
We sell our products to furniture retailers or distributors in the United States, Canada, and approximately 60 other countries, including the United Kingdom, China, Australia, South Korea and New Zealand, directly to consumers through 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 355 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.” We own 155 of the La-Z-Boy Furniture Galleries® stores. The remainder of the La-Z-Boy Furniture Galleries® stores, as well as all 559 La-Z-Boy Comfort Studio® locations, are independently owned and operated. 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. 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. In total, we have approximately 7.9 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America. We also have approximately 2.7 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 approximately 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 602 outlets and approximately 1.8 million square feet of proprietary floor space. In total, our proprietary floor space includes approximately 12.5 million square feet worldwide. Joybird sells product primarily online and has a limited amount of proprietary retail showroom floor space it uses to develop its brand.
Our goal is to deliver value to our shareholders over the long term through executing our strategic initiatives. The foundation of our strategic initiatives is driving profitable sales growth in all areas of our business.
We drive growth in the following ways:
• | Our branded distribution channels, which include the La-Z-Boy Furniture Galleries® store network and the La-Z-Boy Comfort Studio® locations, our store-within-a-store format. We expect this initiative to generate growth in our Retail segment through an increased company-owned store count and in our wholesale Upholstery segment as our proprietary distribution network expands. We are not only focused on growing the number of locations, but also on upgrading existing store locations to our new concept designs. |
• | Our company-owned retail business. We are growing this business by increasing same-store sales through improved execution at the store level and by acquiring existing La-Z-Boy Furniture Galleries® stores and opening new La-Z-Boy Furniture Galleries® stores, primarily in markets that can be serviced through our regional distribution centers, where we see opportunity for growth, or where we believe we have opportunities for further market penetration. |
• | Our unique multi-channel distribution network. In addition to our branded distribution channels, nearly 2,200 other dealers sell La-Z-Boy products, providing us the benefit of multi-channel distribution. These outlets include some of the best-known names in the industry, including Art Van, Nebraska Furniture Mart, and Slumberland. Our other brands, England, American Drew, Hammary, and Kincaid, enjoy distribution through many of the same outlets. We believe there is significant growth potential for our brands through these retail channels. |
• | Our on-trend products including stationary upholstered furniture featured in our Live Life Comfortably® marketing campaign. While we are known for our iconic recliners, they account for less than half of our sales in dollars, and we believe we have the potential to expand sales of our other products. To stimulate growth, our Live Life Comfortably® marketing campaign features celebrity brand ambassador, Kristen Bell, and focuses on expanding our digital marketing and e-commerce capabilities to build traffic across our multiple digital and physical properties. We are driving change throughout our digital platforms to improve the user experience, with a specific focus on the ease by which customers browse through our broad product assortment, customize products to their liking, find stores to make a purchase, or purchase at www.la-z-boy.com. |
• | Our innovative products, including stain-resistant iClean™ and eco-friendly Conserve ™ fabrics and our power products, some of which include wireless hand remote, dual mechanisms and articulating headrests. Our innovation, duo®, is a revolutionary product line that features the look of stationary furniture with the power to recline at the push of a button. We are committed to innovation throughout our business, and to support these efforts we opened our new state-of-the-art Innovation Center in January 2019 at our Dayton, Tennessee campus. |
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• | Our multi-faceted online strategy to participate in and leverage the growth of online furniture sales. On July 30, 2018, we purchased Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture, which positions us for growth in the ever-changing online selling environment and allows us to better reach millennial and Gen X consumers and leverage our supply chain assets. In addition, we continue to increase online sales of La-Z-Boy furniture through la-z-boy.com and other digital players, such as Wayfair and Amazon. |
Our reportable operating segments are the Upholstery segment, the Casegoods segment and the Retail segment.
• | Upholstery Segment. Our Upholstery segment is our largest business segment and consists primarily of two operating segments: La-Z-Boy, our largest operating segment, and the operating segment for our England subsidiary. The Upholstery segment also includes our international wholesale businesses. We aggregate these operating segments into one reportable segment because they are economically similar and because they meet the other aggregation criteria for determining reportable segments. Our Upholstery segment manufactures and imports upholstered furniture such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas. The Upholstery 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. |
• | Casegoods Segment. Our Casegoods segment consists of one operating segment that sells furniture under three brands: American Drew®, Hammary®, and Kincaid®. The Casegoods segment is an importer, marketer, and distributor of casegoods (wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional pieces, and also manufactures some custom upholstered furniture. The Casegoods segment sells directly to major dealers, as well as La-Z-Boy Furniture Galleries® stores, and a wide cross-section of other independent retailers. |
• | Retail Segment. Our Retail segment consists of one operating segment comprising our 155 company-owned La-Z-Boy Furniture Galleries® stores. The Retail segment primarily sells upholstered furniture, in addition to some casegoods and other accessories, to the end consumer 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. Joybird manufactures and sells upholstered furniture such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports and sells casegoods (wood) furniture such as occasional tables and other accessories. Joybird sells to end consumers primarily online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meets the requirements of reportable segments at this time. |
Results of Operations
Fiscal 2020 Third Quarter Compared with Fiscal 2019 Third Quarter
La-Z-Boy Incorporated
Quarter Ended | Nine Months Ended | |||||||||||||||||||
(Unaudited, amounts in thousands, except percentages) | 01/25/20 | 01/26/19 | % Change | 01/25/20 | 01/26/19 | % Change | ||||||||||||||
Sales | $ | 475,856 | $ | 467,582 | 1.8 | % | $1,336,701 | $1,291,610 | 3.5 | % | ||||||||||
Operating income | 52,313 | 40,843 | 28.1 | % | 105,336 | 92,503 | 13.9 | % | ||||||||||||
Operating margin | 11.0 | % | 8.7 | % | 7.9 | % | 7.2 | % | ||||||||||||
Sales
Consolidated sales increased $8.3 million and $45.1 million in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago. The sales increase in the fiscal 2020 periods was primarily due to sales growth in our Retail segment, higher tariff surcharge revenue in our Upholstery segment and higher Joybird sales. Additionally, sales in the first nine months of fiscal 2020 included the benefit of second quarter fiscal 2019 acquisitions, both in our Retail segment and from the acquisition of Joybird.
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Operating Margin
Operating margin, which is calculated as operating income as a percentage of sales, increased 230 basis points and 70 basis points in the third quarter and first nine months of fiscal 2020, respectively, compared with the same periods a year ago.
● | Gross margin, which is calculated as gross profit as a percentage of sales, increased 140 basis points in both the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago. |
• | Changes in our consolidated sales mix improved gross margin by 60 basis points and 100 basis points in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods last fiscal year. This benefit was driven by the growth of our Retail segment and Joybird, which have higher gross margins than our Upholstery and Casegoods segments. |
• | In both the third quarter and the first nine months of fiscal 2020, the Upholstery gross margin was impacted by supply chain inflationary pressures which were more than offset by efficiencies and lower commodity costs. Additionally, the prior year third quarter included a one-time benefit due to changes to our employee vacation policies, which absent this quarter, resulted in a decreased the Upholstery segment's gross margin in the third quarter and first nine months of this year. |
• | Partly offsetting these benefits was a decline in our Casegoods segment’s gross margin, primarily due to higher ocean freight costs and the impact of higher tariff costs on certain occasional tables. |
• | In connection with our supply chain initiative, we recognized costs resulting from the shift in manufacturing operations from closed facilities to other manufacturing locations in the third quarter and the first nine months of fiscal 2020, which resulted in a gross margin decrease of 20 basis points and 40 basis points, respectively. |
● | SG&A expenses as a percentage of sales decreased 90 basis points in the third quarter but increased 70 basis points in the first nine months of fiscal 2020, compared with the same periods a year ago. |
• | Changes in our consolidated sales mix increased SG&A expenses as a percentage of sales by 70 basis points and 140 basis points in the third quarter and first nine months of fiscal 2020, respectively, compared with the same periods last fiscal year. This increase was driven by the growth of our Retail segment and the acquisition of Joybird, which have higher levels of SG&A expense as a percentage of sales than our Upholstery and Casegoods segments. |
• | The sale of our Redlands facility, which resulted in a $9.7 million pre-tax gain, drove a 200 basis point and 70 basis point improvement in SG&A expense as a percent of sales in the third quarter and first nine months of fiscal 2020, respectively. |
• | In the third quarter of fiscal 2019 we recognized a one-time benefit of $3.8 million due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 80 basis point and a 30 basis point increase in SG&A as percent of sales in the third quarter and first nine months of this year, respectively. |
We discuss each segment’s results in the following section.
Upholstery Segment
Quarter Ended | Nine Months Ended | |||||||||||||||||||||
(Unaudited, amounts in thousands, except percentages) | 01/25/20 | 01/26/19 | % Change | 01/25/20 | 01/26/19 | % Change | ||||||||||||||||
Sales | $ | 336,696 | $ | 334,448 | 0.7 | % | $ | 950,967 | $ | 944,939 | 0.6 | % | ||||||||||
Operating income | 46,512 | 34,566 | 34.6 | % | 104,859 | 90,602 | 15.7 | % | ||||||||||||||
Operating margin | 13.8 | % | 10.3 | % | 11.0 | % | 9.6 | % | ||||||||||||||
Sales
The Upholstery segment’s sales increased $2.2 million and $6.0 million in the third quarter and first nine months of fiscal 2020, respectively, compared with the same periods a year ago. In response to an increase in tariff rates, our tariff surcharges increased sales by 0.7% and 1.4% in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago. The tariff rate on goods from China was increased to 25% at the start of the current fiscal year, compared to 10% in the prior year comparative periods. In the third quarter of fiscal 2020, unit volume increased 0.3% but was offset by increased promotional activity. For the first nine months of fiscal 2020, we experienced an unfavorable change in our
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product mix, which drove lower sales of our higher-priced products including power motion sofas and leather products, with a shift to stationary sofas and sectionals.
Operating Margin
Operating margin increased 350 basis points and 140 basis points in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago.
● | Gross margin increased 60 basis points and 50 basis points in the third quarter and in first nine months of fiscal 2020, respectively, compared with the same periods a year ago. |
• | Inflationary pressures in our supply chain were more than offset by efficiencies in the third quarter and the first nine months of fiscal 2020, respectively. |
• | Lower raw material commodity prices provided an 80 basis point and a 110 basis point benefit to the segment’s gross margin in the third quarter and the first nine months of fiscal 2020, respectively. |
• | Partially offsetting this, costs recognized in connection with our supply chain optimization initiative resulted in a gross margin decrease of 30 basis points and 60 basis points in the third quarter and the first nine months of fiscal 2020, respectively. |
• | Additionally, the prior year third quarter included a one-time benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 40 basis point and 10 basis point decrease in the segment's gross margin in the third quarter and first nine months of this year, respectively. |
● | SG&A expense as a percentage of sales decreased 290 basis points and 90 basis points in the third quarter and first nine months of fiscal 2020, respectively, compared with the same periods a year ago, primarily due to the $9.7 million pre-tax gain on the sale of the Redlands facility. Partly offsetting this, the prior year third quarter included a one-time benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 40 basis point and 20 basis point increase in the third quarter and first nine months of this year, respectively. |
Casegoods Segment
Quarter Ended | Nine Months Ended | |||||||||||||||||||||
(Unaudited, amounts in thousands except percentages) | 01/25/20 | 01/26/19 | % Change | 01/25/20 | 01/26/19 | % Change | ||||||||||||||||
Sales | $ | 28,115 | $ | 28,065 | 0.2 | % | $ | 84,640 | $ | 87,828 | (3.6 | )% | ||||||||||
Operating income | 2,534 | 3,332 | (23.9 | )% | 7,336 | 10,173 | (27.9 | )% | ||||||||||||||
Operating margin | 9.0 | % | 11.9 | % | 8.7 | % | 11.6 | % | ||||||||||||||
Sales
The Casegoods segment’s sales were flat in the third quarter of fiscal 2020, but decreased $3.2 million in the first nine months of fiscal 2020, when compared with the same periods a year ago. The decrease in the first nine months was primarily due to lower sales volume on certain occasional tables that have been impacted by higher tariff costs.
Operating Margin
Operating margin decreased 290 basis points in both the third quarter and the first nine months of fiscal 2020 compared with the same periods a year ago.
● | Gross margin decreased 330 basis points and 290 basis points in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago, primarily due to higher ocean freight costs and the impact of higher tariff costs on certain occasional tables. |
● | SG&A expense as a percentage of sales was 40 basis points lower in the third quarter of fiscal 2020 and flat in the first nine months of fiscal 2020, compared with the same periods a year ago, primarily due to disciplined spending in response to lower sales volume. Partly offsetting this, the prior year third quarter included a one-time benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 70 basis point and 20 basis point increase in the third quarter and first nine months of this year, respectively. |
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Retail Segment
Quarter Ended | Nine Months Ended | |||||||||||||||||||||
(Unaudited, amounts in thousands, except percentages) | 01/25/20 | 01/26/19 | % Change | 01/25/20 | 01/26/19 | % Change | ||||||||||||||||
Sales | $ | 167,494 | $ | 159,417 | 5.1 | % | $ | 458,894 | $ | 418,331 | 9.7 | % | ||||||||||
Operating income | 16,383 | 14,158 | 15.7 | % | 33,272 | 25,179 | 32.1 | % | ||||||||||||||
Operating margin | 9.8 | % | 8.9 | % | 7.3 | % | 6.0 | % | ||||||||||||||
Sales
The Retail segment’s sales increased $8.1 million and $40.6 million in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago. The increase in sales in the third quarter of fiscal 2020 compared to the same period a year ago was primarily due to a 5.5%, or $8.6 million, increase in delivered same-store sales driven by improved traffic trends and continued strong execution at the store level. Same-store delivered sales include the sales of all currently active stores which have been open for each comparable period. Sales in the first nine months of fiscal 2020 increased compared to the same period a year ago primarily due to $22.3 million in sales from acquired stores and a 3.6% increase in delivered same-store sales, or $18.6 million.
Operating Margin
Operating margin increased 90 basis points and 130 basis points in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago.
● | Gross margin increased 80 basis points and 40 basis points in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same period a year ago, primarily due to favorable product mix and lower purchase accounting charges. |
● | SG&A expense as a percentage of sales improved 10 basis points and 90 basis points in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago, as we were better able to leverage our fixed costs (primarily occupancy and advertising) on increased delivered sales. The improvement in the first nine months of fiscal 2020 was primarily attributable to acquired stores which operate with lower SG&A expense as a percentage of sales compared with our existing stores. Partly offsetting this, the prior year third quarter included a one-time benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 60 basis point and 20 basis point increase in the third quarter and first nine months of this year, respectively. |
Corporate and Other
Quarter Ended | Nine Months Ended | |||||||||||||||||||||
(Unaudited, amounts in thousands, except percentages) | 01/25/20 | 01/26/19 | % Change | 01/25/20 | 01/26/19 | % Change | ||||||||||||||||
Sales | $ | 25,669 | $ | 22,849 | 12.3 | % | $ | 70,532 | $ | 49,092 | 43.7 | % | ||||||||||
Intercompany eliminations | (82,118 | ) | (77,197 | ) | (6.4 | )% | (228,332 | ) | (208,580 | ) | (9.5 | )% | ||||||||||
Operating loss | (13,116 | ) | (11,213 | ) | (17.0 | )% | (40,131 | ) | (33,451 | ) | (20.0 | )% | ||||||||||
Sales
Sales increased $2.8 million in the third quarter and $21.4 million in the first nine months of fiscal 2020 compared with the same periods a year ago. The sales increase in the third quarter of fiscal 2020 was primarily due to $3.3 million higher Joybird sales, a 17.9% increase to $21.9 million for the quarter. Joybird was acquired at the start of the second quarter of fiscal 2019, and the sales comparison for the first nine months includes the benefit of two additional quarters of sales in fiscal 2020.
Intercompany eliminations increased in the third quarter and the first nine months of fiscal 2020 compared with the same periods a year ago due to higher sales from our Upholstery and Casegoods segments to our Retail segment, resulting from increased sales in the Retail segment and the impact of acquired stores.
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Operating Loss
Our Corporate and Other operating loss increased $1.9 million and $6.7 million in the third quarter and the first nine months of fiscal 2020, respectively, compared with the same periods a year ago. Joybird operating loss for the quarter improved compared with the same quarter in the prior year, and has improved sequentially in each quarter of fiscal year 2020. The Company is continuing to make improvements across the business model with the objective to balance investments in growth with bottom-line performance. Our integration efforts are taking longer than anticipated and, as such, near-term growth and profitability expectations have been somewhat tempered. Nine-month results for Joybird also reflect these trends.
In addition, the prior year third quarter operating loss in Corporate and Other included a $1.1 million one-time benefit due to changes to our employee vacation policies.
Non-Operating Income (Expense)
Other Income (Expense), Net
Other income (expense), net was $6.0 million of expense in the third quarter of fiscal 2020 compared with $0.9 million of expense in the third quarter of fiscal 2019. The expense in third quarter of fiscal year 2020 was primarily due to a $6.0 million impairment of our investment in a privately held start-up company. The expense in fiscal 2019 was primarily due to pension and retirement-related expenses.
Other income (expense), net was $5.4 million of expense during the first nine months of fiscal 2020 compared with $2.0 million of expense during the first nine months of fiscal 2019. The expense in the first nine months of fiscal 2020 was due to the investment impairment charge noted above, partially offset by exchange rate gains. The expense in the first nine months of 2019 was primarily due to pension and retirement-related expenses, partially offset by exchange rate gains.
Income Taxes
Our effective tax rate was 26.0% and 25.3% for the third quarter and the first nine months of fiscal 2020, respectively, compared with 26.9% and 24.6% in the third quarter and the first nine months of fiscal 2019, respectively. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes. Absent discrete adjustments, our effective tax rate in the third quarter of fiscal 2020 would have been 25.8%.
Liquidity and Capital Resources
Our sources of liquidity include cash and equivalents, short-term and long-term investments, cash from operations, and amounts available under our credit facility. We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, and fulfill other cash requirements for day-to-day operations, dividends to shareholders, and capital expenditures. We had cash, cash equivalents and restricted cash of $168.2 million at January 25, 2020, compared with $131.8 million at April 27, 2019. In addition, we had investments to enhance our returns on cash of $30.1 million at January 25, 2020, compared with $31.5 million at April 27, 2019.
We maintain a revolving credit facility secured primarily by our accounts receivable, inventory, and cash deposit and securities accounts. Availability under the credit agreement fluctuates according to a borrowing base calculated on eligible accounts receivable and inventory. We amended this agreement on December 19, 2017, to extend 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 credit line is less than certain thresholds. At January 25, 2020, we were not subject to the fixed-charge coverage ratio requirement, had no borrowings outstanding under the agreement, and had excess availability of $145.5 million of the $150.0 million credit commitment.
Capital expenditures for the first nine months of fiscal 2020 were $35.5 million compared with $35.8 million during the first nine months of fiscal 2019. Capital expenditures in the first nine months of fiscal 2020 included spending on manufacturing machinery and equipment, upgrades to our upholstered furniture manufacturing plant in Dayton, Tennessee, and improvements to select retail stores. We have no material contractual commitments outstanding for future capital expenditures. We expect capital expenditures to be in the range of $45 to $55 million for fiscal 2020, consisting of, among other things, plant upgrades to our upholstered furniture manufacturing facilities in Dayton, Tennessee and Neosho, Missouri, as well as improvements to several of our retail stores.
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Our board of directors has sole authority to determine if and when we will declare future dividends and on what terms. We expect the board to continue declaring regular quarterly cash dividends for the foreseeable future, but it may discontinue doing so at any time.
Our board of directors has authorized the purchase of company stock. As of January 25, 2020, 4.8 million shares remained available for purchase pursuant to this authorization. We purchased 1.1 million shares during the first nine months of fiscal 2020, for a total of $35.3 million. With the cash flows we anticipate generating in fiscal 2020, we expect to continue being opportunistic in purchasing company stock.
The following table illustrates the main components of our cash flows:
Nine Months Ended | ||||||||
(Unaudited, amounts in thousands) | 1/25/20 | 1/26/19 | ||||||
Cash Flows Provided By (Used For) | ||||||||
Net cash provided by operating activities | $ | 119,759 | $ | 91,448 | ||||
Net cash used for investing activities | (31,114 | ) | (114,399 | ) | ||||
Net cash used for financing activities | (53,294 | ) | (10,264 | ) | ||||
Exchange rate changes | 1,107 | (74 | ) | |||||
Change in cash, cash equivalents and restricted cash | $ | 36,458 | $ | (33,289 | ) | |||
Operating Activities
During the first nine months of fiscal 2020, net cash provided by operating activities was $119.8 million. Our cash provided by operating activities was primarily attributable to net income generated during the period, an increase in customer deposits driven from growth in our Retail business and improved working capital management.
During the first nine months of fiscal 2019, net cash provided by operating activities was $91.4 million. Our cash provided by
operating activities was primarily attributable to net income generated during the first nine months of the year, as well as an $18.5 million increase in accrued expenses, primarily related to accrued incentive compensation costs. Partially offsetting net income was $19.0 million to fund seasonal inventory growth in advance of Chinese New Year, $7.0 million used for a discretionary pension contribution, and $7.5 million used for prepaid compensation related to the Joybird acquisition.
Investing Activities
During the first nine months of fiscal 2020, net cash used for investing activities was $31.1 million primarily due to $35.5 million used for capital expenditures and $6.4 million used to fund guaranteed payments related to the acquisition of Joybird. This was partially offset by $11.2 million in proceeds from the disposal of assets primarily due to the sale of the Redlands upholstery facility in the third quarter of fiscal 2020. Our capital expenditures during the period primarily related to spending on manufacturing machinery and equipment, upgrades to our Dayton, Tennessee upholstered furniture manufacturing facility and improvements to select retail stores.
During the first nine months of fiscal 2019, net cash used for investing activities was $114.4 million, primarily due to $78.6 million used for acquisitions and $35.8 million used for capital expenditures. Our cash used for acquisitions during the period included the acquisition of 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, as well as our acquisition of Joybird, an e-commerce retailer and manufacturer of upholstered furniture. Our capital expenditures during the period primarily related to spending on manufacturing machinery and equipment, construction of our new Innovation Center, upgrades to our Dayton, Tennessee Upholstery manufacturing facility, expansion of our England subsidiary’s plant and construction of their new corporate office building, and relocation of one of our regional distribution centers.
Financing Activities
During the first nine months of fiscal 2020, net cash used for financing activities was $53.3 million, primarily due to $35.3 million used to purchase our common stock pursuant to our share repurchase authorization and $18.6 million paid to our shareholders in quarterly dividends.
During the first nine months of fiscal 2019, net cash used for financing activities was $10.3 million, primarily due to $16.7 million used to purchase our common stock and $17.4 million paid to our shareholders in quarterly dividends. This was partly
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offset by a net $20.0 million borrowed from our credit facility, including $35.0 million of borrowings during the second quarter, of which $15.0 million was repaid during the third quarter.
Exchange Rate Changes
Due to changes in exchange rates, our cash, cash equivalents, and restricted cash increased by $1.1 million and decreased by $0.1 million from the end of fiscal year 2019 to the end of the third quarter of fiscal 2020 and from the end of fiscal 2018 to the end of the third quarter of fiscal 2019, respectively. These changes impacted our cash balances held in Canada, the United Kingdom, and Thailand.
Other
During the third quarter of fiscal 2020, there were no material changes to the information about our contractual obligations and commitments shown in the table contained in our fiscal 2019 Annual Report on Form 10-K.
We do not expect our continuing compliance with existing federal, state and local statutes dealing with protection of the environment to have a material effect on our capital expenditures, earnings, competitive position or liquidity.
Critical Accounting Policies
We disclosed our critical accounting policies in our Annual Report on Form 10-K for the fiscal year ended April 27, 2019. There were no material changes to our critical accounting policies during the nine months ended January 25, 2020 except for changes related to our adoption of Accounting Standards Codification Topic 842 as described in Note 1 and Note 5 to the condensed consolidated financial statements included in this Form 10-Q.
Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements included in this Form 10-Q for a discussion of recently adopted accounting standards and other new accounting standards.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the first nine months of fiscal 2020, there were no material changes from the information contained in Item 7A of our Annual Report on Form 10-K for the fiscal year ended April 27, 2019.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There were no changes in our internal controls over financial reporting that occurred during the third quarter of fiscal 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. During the quarter ended October 27, 2018, we acquired Stitch Industries, Inc. (“Joybird”) and the business comprising the assets acquired from EBCO, Inc., an independent operator of nine La-Z-Boy Furniture Galleries® stores in Arizona. We are currently integrating Joybird and the business comprising the assets acquired from EBCO, Inc. into our operations, compliance programs, and internal control processes.
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PART II — OTHER INFORMATION
ITEM 1A. RISK FACTORS
We disclosed our risk factors in our Form 10-K for the fiscal year ended April 27, 2019. There have been no material changes to our risk factors during the first nine months of fiscal 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our board of directors has authorized the purchase of company stock. During the fourth quarter of fiscal 2019, pursuant to the existing board authorization, we adopted a plan to purchase company stock pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The plan was effective October 28, 2019. Under this plan, our broker has the authority to purchase company shares on our behalf, subject to SEC regulations and the price, market volume and timing constraints specified in the plan. The plan expired at the close of business on January 24, 2020. We spent $12.2 million in the third quarter of fiscal 2020 to purchase 0.4 million shares. As of January 25, 2020, 4.8 million shares remained available for purchase pursuant to the board authorization. With the cash flows we anticipate generating in fiscal 2020, we expect to continue being opportunistic in purchasing company stock.
The following table summarizes our purchases of company stock during the quarter ended January 25, 2020:
(Unaudited, amounts in thousands, except per share data) | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plan (2) | Maximum number of shares that may yet be purchased under the plan | |||||||||
Fiscal November (October 27 – November 30, 2019) | 103 | $ | 34.09 | 103 | 5,105 | ||||||||
Fiscal December (December 1 – December 28, 2019) | 163 | $ | 31.42 | 163 | 4,942 | ||||||||
Fiscal January (December 29 – January 25, 2020) | 113 | $ | 31.70 | 112 | 4,830 | ||||||||
Fiscal Third Quarter of 2020 | 379 | $ | 32.23 | 378 | 4,830 | ||||||||
(1) | In addition to the 377,662 shares we purchased during the quarter as part of our publicly announced, board-authorized plan described above, this column includes 1,215 shares purchased from employees to satisfy their withholding tax obligations upon vesting of restricted shares. |
(2) | On October 28, 1987, our board of directors announced the authorization of the plan to repurchase company stock. The plan originally authorized 1.0 million shares, and since October 1987, 27.0 million shares have been added to the plan for repurchase. The authorization has no expiration date. |
ITEM 6. EXHIBITS
Exhibit Number | Description | ||
(4.1 | ) | ||
(31.1 | ) | ||
(31.2 | ) | ||
(32 | ) | ||
(101.INS) | Inline XBRL Instance Document | ||
(101.SCH) | Inline XBRL Taxonomy Extension Schema Document | ||
(101.CAL) | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
(101.LAB) | Inline XBRL Taxonomy Extension Label Linkbase Document | ||
(101.PRE) | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
(101.DEF) | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
(104 | ) | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended January 25, 2020, formatted in Inline XBRL (included in Exhibit 101) | |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LA-Z-BOY INCORPORATED | ||
(Registrant) | ||
Date: February 18, 2020 | ||
BY: | /s/ Lindsay A. Barnes | |
Lindsay A. Barnes Vice President, Corporate Controller and Chief Accounting Officer | ||
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