Company Quick10K Filing
Quick10K
La-Z-Boy
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$31.16 47 $1,459
10-Q 2019-07-27 Quarter: 2019-07-27
10-K 2019-04-27 Annual: 2019-04-27
10-Q 2019-01-26 Quarter: 2019-01-26
10-Q 2018-10-27 Quarter: 2018-10-27
10-Q 2018-07-28 Quarter: 2018-07-28
10-K 2018-04-28 Annual: 2018-04-28
10-Q 2018-01-27 Quarter: 2018-01-27
10-Q 2017-10-28 Quarter: 2017-10-28
10-Q 2017-07-29 Quarter: 2017-07-29
10-K 2017-04-29 Annual: 2017-04-29
10-Q 2017-01-28 Quarter: 2017-01-28
10-Q 2016-10-29 Quarter: 2016-10-29
10-Q 2016-07-30 Quarter: 2016-07-30
10-K 2016-04-30 Annual: 2016-04-30
10-Q 2016-01-23 Quarter: 2016-01-23
10-Q 2015-10-24 Quarter: 2015-10-24
10-Q 2015-07-25 Quarter: 2015-07-25
10-K 2015-04-25 Annual: 2015-04-25
10-Q 2015-01-24 Quarter: 2015-01-24
10-Q 2014-10-25 Quarter: 2014-10-25
10-Q 2014-07-26 Quarter: 2014-07-26
10-K 2014-04-26 Annual: 2014-04-26
10-Q 2014-01-25 Quarter: 2014-01-25
8-K 2019-08-27 Shareholder Vote
8-K 2019-08-20 Earnings, Regulation FD, Exhibits
8-K 2019-08-08 Regulation FD, Exhibits
8-K 2019-06-18 Earnings, Regulation FD, Exhibits
8-K 2019-06-05 Earnings, Regulation FD, Exhibits
8-K 2019-05-08 Officers, Regulation FD, Exhibits
8-K 2019-04-18 Officers, Regulation FD, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2018-11-28 Earnings, Exhibits
8-K 2018-08-28 Shareholder Vote
8-K 2018-08-21 Earnings, Exhibits
8-K 2018-06-19 Earnings, Exhibits
8-K 2018-05-24 Officers, Other Events, Exhibits
MHK Mohawk Industries 8,197
SNBR Sleep Number 1,284
CSWI CSW Industrials 996
KBAL Kimball 646
TCS Container Store 227
TTS Tile Shop Holdings 143
DXYN Dixie Group 20
NVFY Nova Lifestyle 19
ARCI Appliance Recycling Centers of America 8
PRPL Purple Innovation 0
LZB 2019-07-27
Part I - Financial Information (Unaudited)
Item 1. Financial Statements
Note 1: Basis of Presentation
Note 2: Acquisitions
Note 3: Restricted Cash
Note 4: Inventories
Note 5: Leases
Note 6: Goodwill and Other Intangible Assets
Note 7: Investments
Note 8: Employee Benefits
Note 9: Product Warranties
Note 10: Stock-Based Compensation
Note 11: Accumulated Other Comprehensive Loss
Note 12: Revenue Recognition
Note 13: Segment Information
Note 14: Income Taxes
Note 15: Earnings per Share
Note 16: Fair Value Measurements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 lzb-20190727ex311a1d832.htm
EX-31.2 lzb-20190727ex3122cd75c.htm
EX-32 lzb-20190727xex32.htm

La-Z-Boy Earnings 2019-07-27

LZB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549-1004

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 27, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

COMMISSION FILE NUMBER 1-9656

LA-Z-BOY INCORPORATED

(Exact name of registrant as specified in its charter)

MICHIGAN

38-0751137

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One La-Z-Boy Drive, Monroe, Michigan

48162-5138

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code (734) 242-1444

None

(Former name, former address and former fiscal year, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading  Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 Par Value

LZB

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes     No  

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes     No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class

    

Outstanding at August 13, 2019

Common Stock, $1.00 Par Value

46,632,617

Table of Contents

LA-Z-BOY INCORPORATED

FORM 10-Q FIRST QUARTER OF FISCAL 2020

TABLE OF CONTENTS

    

Page
Number(s)

PART I Financial Information (Unaudited)

3

Item 1.

Financial Statements

3

Consolidated Statement of Income

3

Consolidated Statement of Comprehensive Income

4

Consolidated Balance Sheet

5

Consolidated Statement of Cash Flows

6

Consolidated Statement of Changes in Equity

7

Notes to Consolidated Financial Statements

8

Note 1. Basis of Presentation

8

Note 2. Acquisitions

9

Note 3. Restricted Cash

11

Note 4. Inventories

11

Note 5. Leases

11

Note 6. Goodwill and Other Intangible Assets

13

Note 7. Investments

14

Note 8. Employee Benefits

15

Note 9. Product Warranties

16

Note 10. Stock-Based Compensation

17

Note 11. Accumulated Other Comprehensive Loss

19

Note 12. Revenue Recognition

20

Note 13. Segment Information

22

Note 14. Income Taxes

23

Note 15. Earnings per Share

23

Note 16. Fair Value Measurements

24

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Cautionary Statement Concerning Forward-Looking Statements

27

Introduction

28

Results of Operations

30

Liquidity and Capital Resources

34

Critical Accounting Policies

36

Recent Accounting Pronouncements

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

37

PART II Other Information

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 6.

Exhibits

38

Signature Page

39

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PART I - FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

Quarter Ended

(Unaudited, amounts in thousands, except per share data)

    

7/27/19

    

7/28/18

Sales

$

413,633

$

384,695

Cost of sales

245,921

236,173

Gross profit

167,712

148,522

Selling, general and administrative expense

 

144,290

 

125,362

Operating income 

 

23,422

 

23,160

Interest expense

 

(318)

 

(104)

Interest income

 

727

 

602

Other income (expense), net

 

(760)

 

892

Income before income taxes

23,071

24,550

Income tax expense

 

5,083

 

5,599

Net income

 

17,988

 

18,951

Net (income) loss attributable to noncontrolling interests

 

81

 

(648)

Net income attributable to La-Z-Boy Incorporated

$

18,069

$

18,303

Basic weighted average common shares

 

46,820

 

46,716

Basic net income attributable to La-Z-Boy Incorporated per share

$

0.39

$

0.39

Diluted weighted average common shares

 

47,125

 

47,161

Diluted net income attributable to La-Z-Boy Incorporated per share

$

0.38

$

0.39

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

(Unaudited, amounts in thousands)

    

7/27/19

    

7/28/18

Net income

$

17,988

$

18,951

Other comprehensive income (loss)

Currency translation adjustment

 

614

 

(4,189)

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

 

4

 

(333)

Net unrealized gain on marketable securities, net of tax

 

108

 

41

Net pension amortization, net of tax

 

41

 

516

Total other comprehensive income (loss)

 

767

 

(3,965)

Total comprehensive income before allocation to noncontrolling interests

 

18,755

 

14,986

Comprehensive (income) loss attributable to noncontrolling interests

 

(405)

 

580

Comprehensive income attributable to La-Z-Boy Incorporated

$

18,350

$

15,566

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)

    

7/27/19

    

4/27/19

Current assets

Cash and equivalents

$

111,622

$

129,819

Restricted cash

 

1,970

 

1,968

Receivables, net of allowance of $2,177 at 7/27/19 and $2,180 at 4/27/19

 

134,379

 

143,288

Inventories, net

 

197,701

 

196,899

Other current assets

 

85,631

 

69,144

Total current assets

 

531,303

 

541,118

Property, plant and equipment, net

 

204,789

 

200,523

Goodwill

 

184,675

 

185,867

Other intangible assets, net

 

29,595

 

29,907

Deferred income taxes – long-term

 

21,906

 

20,670

Right of use lease asset

312,433

Other long-term assets, net

 

77,449

 

81,705

Total assets

$

1,362,150

$

1,059,790

Current liabilities

Current portion of long-term debt

$

$

180

Accounts payable

 

62,935

 

65,365

Lease liability, short-term

64,158

Accrued expenses and other current liabilities

 

168,757

 

173,091

Total current liabilities

 

295,850

 

238,636

Long-term debt

 

 

19

Lease liability, long-term

 

262,264

 

Other long-term liabilities

 

105,898

 

124,159

Shareholders' equity

Preferred shares – 5,000 authorized; none issued

 

 

Common shares, $1 par value – 150,000 authorized; 46,690 outstanding at 7/27/19 and 46,955 outstanding at 4/27/19

 

46,690

 

46,955

Capital in excess of par value

 

311,207

 

313,168

Retained earnings

 

329,096

 

325,847

Accumulated other comprehensive loss

 

(3,728)

 

(3,462)

Total La-Z-Boy Incorporated shareholders' equity

 

683,265

 

682,508

Noncontrolling interests

 

14,873

 

14,468

Total equity

 

698,138

 

696,976

Total liabilities and equity

$

1,362,150

$

1,059,790

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

Quarter Ended

(Unaudited, amounts in thousands)

    

7/27/19

    

7/28/18

Cash flows from operating activities

Net income

$

17,988

$

18,951

Adjustments to reconcile net income to cash provided by (used for) operating activities

Gain on disposal of assets

(536)

Change in deferred taxes

(677)

(183)

Provision for doubtful accounts

 

116

 

279

Depreciation and amortization

 

7,298

 

7,541

Equity-based compensation expense

 

1,675

 

2,040

Change in receivables

 

8,535

 

14,236

Change in inventories

 

(527)

 

(11,092)

Change in other assets

 

7,305

 

463

Change in payables

 

(1,391)

 

2,491

Change in other liabilities

 

(20,446)

 

(2,572)

Net cash provided by operating activities

 

19,340

 

32,154

Cash flows from investing activities

Proceeds from disposals of assets

 

22

 

61

Proceeds from insurance

642

58

Capital expenditures

 

(12,299)

 

(15,873)

Purchases of investments

 

(5,288)

 

(4,190)

Proceeds from sales of investments

 

4,060

 

4,762

Acquisitions

(5,438)

Net cash used for investing activities

 

(18,301)

 

(15,182)

Cash flows from financing activities

Payments on debt and finance lease liabilities

 

(47)

 

(59)

Stock issued for stock and employee benefit plans, net of shares withheld for taxes

 

(1,417)

 

(2,009)

Purchases of common stock

 

(12,313)

 

(7,944)

Dividends paid

 

(6,112)

 

(5,625)

Net cash used for financing activities

 

(19,889)

 

(15,637)

Effect of exchange rate changes on cash and equivalents

 

655

 

(1,601)

Change in cash, cash equivalents and restricted cash

 

(18,195)

 

(266)

Cash, cash equivalents and restricted cash at beginning of period

 

131,787

 

136,871

Cash, cash equivalents and restricted cash at end of period

$

113,592

$

136,605

Supplemental disclosure of non-cash investing activities

Capital expenditures included in payables

$

2,416

$

4,122

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

    

    

    

    

Accumulated

    

    

Other

Capital in

Comprehensive

Non-

Common

Excess of

Retained

Income

Controlling

(Unaudited, amounts in thousands)

Shares

Par Value

Earnings

(Loss)

Interests

Total

At April 28, 2018

$

46,788

$

298,948

$

291,644

$

(25,199)

$

13,035

$

625,216

Net income

 

18,303

 

648

 

18,951

Other comprehensive loss

 

(2,737)

 

(1,228)

 

(3,965)

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax

 

160

 

(42)

 

(2,127)

 

(2,009)

Purchases of 257 shares of common stock

 

(257)

 

(176)

 

(7,511)

 

(7,944)

Stock option and restricted stock expense

 

2,040

 

2,040

Cumulative effect adjustment for investments, net of tax

 

1,637

(1,637)

 

Dividends declared and paid ($0.12/share)

(5,625)

(5,625)

At July 28, 2018

$

46,691

$

300,770

$

296,321

$

(29,573)

$

12,455

$

626,664

    

    

    

    

Accumulated

    

    

Other

Capital in

Comprehensive

Non-

Common

Excess of

Retained

Income

Controlling

(Unaudited, amounts in thousands)

Shares

Par Value

Earnings

(Loss)

Interests

Total

At April 27, 2019

$

46,955

$

313,168

$

325,847

$

(3,462)

$

14,468

$

696,976

Net income (loss)

 

18,069

 

(81)

 

17,988

Other comprehensive income

 

281

 

486

 

767

Stock issued for stock and employee benefit plans, net of cancellations and withholding tax

 

126

 

126

 

(1,669)

 

(1,417)

Purchases of 391 shares of common stock

 

(391)

 

(3,762)

 

(8,160)

 

(12,313)

Stock option and restricted stock expense

 

1,675

 

1,675

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

574

574

Reclassification of certain income tax effects (2)

547

(547)

Dividends declared and paid ($0.13/share)

(6,112)

(6,112)

At July 27, 2019

$

46,690

$

311,207

$

329,096

$

(3,728)

$

14,873

$

698,138

(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 AOCI to retained earnings due to the adoption of ASU 2018-02.

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

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LA-Z-BOY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Basis of Presentation

The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries. 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. In addition, we will transition the leather cut-and-sew operation from the Newton, Mississippi upholstered furniture manufacturing plant to another North American-based cut-and-sew facility. The company’s Redlands upholstered furniture plant currently employs about 350 people, accounts for approximately 10% of the La-Z-Boy branded business total upholstery production and manufactures recliners, motion sofas and classics (high-leg recliners). We plan to cease production at the Redlands plant in October 2019. The move of the Newton leather cut-and-sew operation is expected to fully transition by the end of calendar 2019 and will impact about 105 of the 525 employees at that location. The Redlands facility, which is approximately 200,000 square feet, will be idled after operations cease and marketed for sale.

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 quarter of fiscal 2020, we recognized a severance liability of $1.5 million within cost of sales that was probable and estimable at the end of the reporting period. These costs do not qualify as exit and disposal costs under ASC 420.

At July 27, 2019, we owned preferred shares of two privately-held 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 pronouncements adopted in fiscal 2020

Each accounting standards updates (“ASUs”) adopted below had a significant impact on our accounting policies and/or our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02 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.

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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 (a consensus of the Emerging Issues Task Force)

ASU 2017-12

Targeted Improvements to Accounting for Hedging Activities

ASU 2018-02

Income Statement – Reporting Comprehensive Income: 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 2018-16

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

Fiscal 2021

ASU 2018-13

Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements

Fiscal 2021

ASU 2018-14

Compensation – Retirement benefits – Defined Benefit Plans – General – Changes to the Disclosure Requirements for Defined Benefit Plans

Fiscal 2022

Note 2: Acquisitions

We did not complete any acquisitions during the quarter ended July 27, 2019. Information regarding our fiscal 2019 acquisition below reflects revised estimates based on updated information obtained during the first quarter of fiscal 2020.

Corporate and Other acquisitions

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

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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.

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 selling, general & administrative 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 provisional 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 provisional fair value of the acquired Joybird® trade name, which we are amortizing to selling, general, and administrative (“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.

When we acquired Joybird, we based the purchase price allocations on provisional fair values at the date of acquisition. During the first quarter of fiscal 2020, we obtained additional data and have revised certain of our estimates, resulting in the purchase price allocations shown below:

Second quarter

fiscal 2019

Corporate and

Other

(Amounts in thousands)

    

acquisitions

Fair value of consideration:

Cash (paid at closing)

$

37,482

Guaranteed payment

 

22,489

Acquisition earn-out

 

7,500

Assumption of liability

5,000

Working capital adjustment

 

(2,486)

Total fair value of consideration

 

69,985

Amounts recognized for assets acquired and liabilities assumed:

Inventory

5,258

Other current assets

3,733

Property, plant and equipment

2,057

Finite-lived tradename

 

6,400

Other long-term assets

 

3,647

Accounts payable

 

(8,222)

Customer deposits

 

(13,904)

Other current liabilities

 

(7,681)

Other long-term liabilities

 

(150)

Total identifiable net liabilities acquired

 

(8,862)

Goodwill

$

78,847

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We included the Joybird operating segment in our other business activities which we report as Corporate and Other results upon acquisition.

The above acquisition was not material to our financial position or our results of operations, and therefore, pro-forma financial information is not presented. In accordance with Accounting Standard Codification Topic 805-10-25-15, the acquirer has a period of time, referred to as the measurement period, to finalize the accounting for a business combination. The measurement period provides companies with a reasonable period of time to determine, among other things, the identifiable assets acquired, liabilities assumed and consideration transferred for the acquisition, or other amounts used in measuring goodwill. As we are beyond the provisional period, all of the purchase accounting shown above is final.

Note 3: Restricted Cash

We have restricted cash on deposit with a bank as collateral for certain letters of credit. All of our letters of credit have maturity dates within the next twelve months, but we expect to renew some of these letters of credit when they mature.

(Unaudited, amounts in thousands)

    

7/27/19

    

7/28/18

Cash and cash equivalents

$

111,622

$

134,247

Restricted cash

 

1,970

 

2,358

Total cash, cash equivalents and restricted cash

$

113,592

$

136,605

Note 4: Inventories

A summary of inventories is as follows:

(Unaudited, amounts in thousands)

    

7/27/19

    

4/27/19

Raw materials

$

94,384

$

90,359

Work in process

 

13,514

 

13,728

Finished goods

 

111,469

 

114,478

FIFO inventories

 

219,367

 

218,565

Excess of FIFO over LIFO

 

(21,666)

 

(21,666)

Total inventories

$

197,701

$

196,899

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 of 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 this criteria are included in the lease term at lease commencement.

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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 (in thousands) related to leases as of July 27, 2019:

Operating leases

ROU assets

 

$

312,312

Lease liabilities, short-term

 

64,031

Lease liabilities, long-term

 

262,264

Finance leases

 

  

ROU assets

 

$

121

Lease liabilities, short-term

 

127

Lease liabilities, long-term

 

The ROU assets by segment are as follows (in thousands) as of July 27, 2019:

Upholstery

    

$

55,057

Casegoods

 

2,205

Retail

 

248,338

Corporate & Other

 

6,833

Total ROU assets

$

312,433

The components of lease cost are as follows (in thousands) for the quarter ended July 27, 2019:

Operating lease cost

    

$

19,018

Financing lease cost

 

49

Short-term lease cost

 

25

Variable lease cost

 

40

Less: Sublease income

 

(628)

Total lease cost

$

18,504

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The following table presents supplemental lease disclosures for the quarter ended July 27, 2019:

(Dollars in thousands)

Operating

    

Financing

  

Cash paid for amounts included in the measurement of lease liabilities

$

19,303

$

49

Lease liabilities arising from new ROU assets

14,353

Weighted-average remaining lease term (years)

 

6.6

 

0.8

Weighted-average discount rate

 

3.9

%  

3.9

%

The following table presents our undiscounted cash flows as of July 27, 2019 and our minimum contractual obligations on our leases as of April 27, 2019:

7/27/19

4/27/19

(Amounts in thousands)

    

Operating Leases

    

Financing Leases

    

Operating Leases

    

Financing Leases

Within one year

$

75,357

$

129

$

76,508

$

180

After one year and within two years

 

68,610

 

 

71,544

 

19

After two years and within three years

 

55,219

 

 

58,763

 

After three years and within four years

 

43,029

 

 

46,541

 

After four years and within five years

 

34,193

 

 

36,082

 

After five years

 

93,658

 

 

102,782

 

Total lease payments

 

370,066

 

129

$

392,220

$

199

Less: Interest

 

43,771

 

2

 

 

Total lease obligations

$

326,295

$

127

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 quarter ended July 27, 2019:

Upholstery

Retail

Corporate

Total

(Unaudited, amounts in thousands)

    

Segment

    

Segment

    

and Other

    

Goodwill

Balance at April 27, 2019

$

12,148

$

94,103

$

79,616

$

185,867

Acquisition adjustment

(769)

(769)

Translation adjustment

(500)

77

(423)

Balance at July 27, 2019

$

11,648

$

94,180

$

78,847

$

184,675

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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 quarter ended July 27, 2019:

Indefinite-

Finite-

Indefinite-

Total

Lived

Lived

Lived

Other

Other

Trade

Trade

Reacquired

Intangible

Intangible

(Amounts in thousands)

    

Names

    

Names

    

Rights

    

Assets

    

Assets

Balance at April 27, 2019

$

1,155

$

5,801

$

20,117

$

2,834

$

29,907

Amortization

(200)

(55)

(255)

Translation adjustment

58

(115)

(57)

Balance at July 27, 2019

$

1,155

$

5,601

$

20,175

$

2,664

$

29,595

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. We also hold other investments consisting of cost-basis preferred shares of two privately-held companies. Our short-term investments are included in other current assets and our long-term investments are included in other long-term assets on our consolidated balance sheet.

The following summarizes our investments at July 27, 2019, and April 27, 2019:

(Unaudited, amounts in thousands)

    

7/27/19

    

4/27/19

Short-term investments:

Marketable securities

$

26,002

$

18,016

Held-to-maturity investments

 

3,454

 

3,341

Total short-term investments

 

29,456

 

21,357

Long-term investments:

Marketable securities

 

21,023

 

24,085

Cost basis investments

11,979

11,979

Total long-term investments

33,002

36,064

Total investments

$

62,458

$

57,421

Investments to enhance returns on cash

$

32,884

$

31,470

Investments to fund compensation/retirement plans

$

17,595

$

13,972

Other investments

$

11,979

$

11,979

14

Table of Contents

The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type at July 27, 2019, and April 27, 2019:

At July 27, 2019

Gross

Gross

(Unaudited, amounts in thousands)

    

Unrealized Gains

    

Unrealized Losses

    

Fair Value

Equity securities

$

2,066

$

$

23,268

Fixed income

 

155

 

(47)

 

34,382

Other

 

324

 

(16)

 

4,808

Total securities

$

2,545

$

(63)

$

62,458

At April 27, 2019

Gross

Gross

(Unaudited, amounts in thousands)

    

Unrealized Gains

    

Unrealized Losses

    

Fair Value

Equity securities

$

1,841

$

$

19,535

Fixed income

 

75

 

(111)

 

33,217

Other

 

258

 

(13)

 

4,669

Total securities

$

2,174

$

(124)

$

57,421

The following table summarizes sales of marketable securities:

&