UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549-1004

FORM 10-Q

~~Quarterly Report Pursuant~~(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

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

For the transition period from ______ to ~~Section 13 or 15(d) of the Securities Exchange Act of 1934~~______

~~FOR QUARTERLY PERIOD ENDED OCTOBER 27, 2018~~

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~~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 x☒ No o☐

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 x☒ No o☐

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,” ~~“emerging growth~~“smaller reporting company,” and ~~“smaller reporting~~“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	☐

~~Large accelerated filer~~ x ~~Accelerated filer~~ o ~~Non-accelerated filer~~ o ~~Smaller reporting company~~ o ~~Emerging growth company~~ o

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. o☐

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

Yes o☐ No x⌧

~~The~~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 November 21, 2018~~
~~Common Shares, $1.00 par value~~Class		~~46,833,470~~Outstanding at August 13, 2019
Common Stock, $1.00 Par Value		46,632,617

Table of Contents

LA-Z-BOY INCORPORATED

FORM 10-Q ~~SECOND~~FIRST QUARTER OF FISCAL ~~2019~~2020

TABLE OF CONTENTS

			Page Number(s)
PART I Financial Information (Unaudited)			3
Item 1.	~~Item 1.~~Financial Statements	~~Financial Statements~~	3
		Consolidated Statement of Income		3
		Consolidated Statement of Comprehensive Income		4
	Consolidated Balance Sheet		5
	Consolidated Statement of Cash Flows	~~Consolidated Balance Sheet~~	6
		Consolidated Statement of ~~Cash Flows~~Changes in Equity		7
	Notes to Consolidated Financial Statements	~~Consolidated Statement of Changes in Equity~~	8
	Note 1. Basis of Presentation		8
	~~Notes to Consolidated Financial Statements~~Note 2. Acquisitions		9
	Note 3. Restricted Cash	~~Note 1. Basis of Presentation~~	9
		~~Note 2. Acquisitions~~	11
	Note 4. Inventories		11
	Note ~~3. Restricted Cash~~5. Leases		11
	Note 6. Goodwill and Other Intangible Assets		13
	Note 7. Investments		14
	Note 8. Employee Benefits	~~Note 4. Inventories~~	14
		~~Note 5. Goodwill and Other Intangible Assets~~	14
		~~Note 6. Investments~~	15
	Note 9. Product Warranties	~~Note 7. Pension Plans~~	16
	Note 10. Stock-Based Compensation	~~Note 8. Product Warranties~~	17
		Note ~~9. Stock-Based Compensation~~	17
		~~Note 10.~~11. Accumulated Other Comprehensive Loss		19
	Note 12. Revenue Recognition	~~Note 11. Revenue Recognition~~	2120
	Note 13. Segment Information		22
	Note ~~12. Segment Information~~14. Income Taxes		23
	Note 15. Earnings per Share	~~Note 13. Income Taxes~~	2523
	Note 16. Fair Value Measurements	~~Note 14. Earnings per Share~~	2524
		~~Note 15. Fair Value Measurements~~	26
Item 2.
	~~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	~~Cautionary Statement Concerning Forward-Looking Statements~~	2830
		~~Introduction~~	29
		~~Results of Operations~~	32
		Liquidity and Capital Resources	37	34
		Critical Accounting Policies	40	36
		Recent Accounting Pronouncements	40	36

Item 3.	~~Item 3.~~	Quantitative and Qualitative Disclosures About Market Risk	40	36
Item 4.	~~Item 4.~~	Controls and Procedures	40	37

PART II Other Information		41	37
Item 1A.	~~Item 1A.~~Risk Factors	~~Risk Factors~~	4137
Item 2.	~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	42	37
Item 6.	~~Item 6.~~Exhibits	~~Exhibits~~	4238

Signature Page		43	39

Table of Contents

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

Quarter Ended

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

10/27/18

10/28/17

Sales

$
439,333

$
393,205

Cost of sales

264,928

238,253

Gross profit

174,405

154,952

Selling, general and administrative expense

145,905

120,683

Operating income

28,500

34,269

Interest expense

(501
)
(160
)
Interest income

392

376

Other expense, net

(1,997
)
(926
)
Income before income taxes

26,394

33,559

Income tax expense

6,045

10,353

Net income

20,349

23,206

Net income attributable to noncontrolling interests

(337
)
(310
)
Net income attributable to La-Z-Boy Incorporated

$
20,012

$
22,896

Basic weighted average common shares

46,888

47,964

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

$
0.43

$
0.47

Diluted weighted average common shares

47,259

48,297

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

$
0.42

$
0.47

Dividends declared per share

$
0.12

$
0.11

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

Table of Contents

LA-Z-BOY INCORPORATED

~~LA-Z-BOY INCORPORATED~~
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Six Months Ended

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

10/27/18

10/28/17

Sales

$
824,028

$
750,284

Cost of sales

501,101

456,229

Gross profit

322,927

294,055

Selling, general and administrative expense

271,267

243,488

Operating income

51,660

50,567

Interest expense

(605
)
(317
)
Interest income

994

719

Other income (expense), net

(1,105
)
823

Income before income taxes

50,944

51,792

Income tax expense

11,644

16,842

Net income

39,300

34,950

Net income attributable to noncontrolling interests

(985
)
(403
)
Net income attributable to La-Z-Boy Incorporated

$
38,315

$
34,547

Basic weighted average common shares

46,802

48,160

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

$
0.82

$
0.71

Diluted weighted average common shares

47,219

48,537

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

$
0.81

$
0.71

Dividends declared per share

$
0.24

$
0.22


	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.

Table of Contents

LA-Z-BOY INCORPORATED

~~LA-Z-BOY INCORPORATED~~
CONSOLIDATED ~~STATEMENT OF COMPREHENSIVE INCOME~~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

Quarter Ended

(Unaudited, amounts in thousands)

10/27/18

10/28/17

Net income

$
20,349

$
23,206

Other comprehensive income (loss)

Currency translation adjustment

1,168

(147
)
Change in fair value of cash flow hedges, net of tax

155

(741
)
Net unrealized gain on marketable securities, net of tax

23

208

Net pension amortization, net of tax

517

517

Total other comprehensive income (loss)

1,863

(163
)
Total comprehensive income before allocation to noncontrolling interests

22,212

23,043

Comprehensive income attributable to noncontrolling interests

(956
)
(410
)
Comprehensive income attributable to La-Z-Boy Incorporated

$
21,256

$
22,633

Six Months Ended

(Unaudited, amounts in thousands)

10/27/18

10/28/17

Net income

$
39,300

$
34,950

Other comprehensive income (loss)

Currency translation adjustment

(3,021
)
2,169

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

(178
)
(263
)
Net unrealized gain (loss) on marketable securities, net of tax

64

(63
)
Net pension amortization, net of tax

1,033

1,034

Total other comprehensive income (loss)

(2,102
)
2,877

Total comprehensive income before allocation to noncontrolling interests

37,198

37,827

Comprehensive income attributable to noncontrolling interests

(376
)
(908
)
Comprehensive income attributable to La-Z-Boy Incorporated

$
36,822

$
36,919

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

Table of Contents

LA-Z-BOY INCORPORATED

~~LA-Z-BOY INCORPORATED~~CONSOLIDATED STATEMENT OF CASH FLOWS

~~CONSOLIDATED BALANCE SHEET~~


	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

(Unaudited, amounts in thousands, except par value)

10/27/18

4/28/18

Current assets

Cash and equivalents

$
93,867

$
134,515

Restricted cash

2,001

2,356

Receivables, net of allowance of $2,647 at 10/27/18 and $1,956 at 4/28/18

150,507

154,055

Inventories, net

214,948

184,841

Other current assets

76,093

42,451

Total current assets

537,416

518,218

Property, plant and equipment, net

195,327

180,882

Goodwill

182,116

75,254

Other intangible assets, net

30,500

18,190

Deferred income taxes — long-term

23,227

21,265

Other long-term assets, net

83,549

79,158

Total assets

$
1,052,135

$
892,967

Current liabilities

Short-term borrowings

$
35,000

$
—

Current portion of long-term debt

217

223

Accounts payable

75,090

62,403

Accrued expenses and other current liabilities

176,075

118,721

Total current liabilities

286,382

181,347

Long-term debt

89

199

Other long-term liabilities

116,433

86,205

Contingencies and commitments

Shareholders’ equity

Preferred shares — 5,000 authorized; none issued

—

—

Common shares, $1 par value — 150,000 authorized; 46,905 outstanding at 10/27/18 and 46,788 outstanding at 4/28/18

46,905

46,788

Capital in excess of par value

307,701

298,948

Retained earnings

309,543

291,644

Accumulated other comprehensive loss

(28,329
)
(25,199
)
Total La-Z-Boy Incorporated shareholders’ equity

635,820

612,181

Noncontrolling interests

13,411

13,035

Total equity

649,231

625,216

Total liabilities and equity

$
1,052,135

$
892,967

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

Table of Contents

LA-Z-BOY INCORPORATED

~~LA-Z-BOY INCORPORATED~~

CONSOLIDATED STATEMENT OF ~~CASH FLOWS~~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.

Six Months Ended

(Unaudited, amounts in thousands)

10/27/18

10/28/17

Cash flows from operating activities

Net income

$
39,300

$
34,950

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

Gain on disposal of assets

(72
)
(1,884
)
Gain on conversion of investment

—

(2,204
)
Change in deferred taxes

1,572

(403
)
Provision for doubtful accounts

315

74

Depreciation and amortization

15,541

15,869

Equity-based compensation expense

5,679

6,410

Pension plan contributions

(7,000
)
(2,000
)
Change in receivables

122

6,165

Change in inventories

(15,037
)
(4,096
)
Change in other assets

(15,781
)
(7,935
)
Change in payables

6,034

2,136

Change in other liabilities

15,411

4,142

Net cash provided by operating activities

46,084

51,224

Cash flows from investing activities

Proceeds from disposals of assets

256

608

Proceeds from property insurance

114

1,485

Capital expenditures

(26,926
)
(16,372
)
Purchases of investments

(5,193
)
(18,507
)
Proceeds from sales of investments

7,754

11,529

Acquisitions, net of cash acquired

(78,145
)
(15,879
)
Net cash used for investing activities

(102,140
)
(37,136
)

Cash flows from financing activities

Net proceeds from credit facility

35,000

—

Payments on debt

(116
)
(131
)
Stock issued for stock and employee benefit plans, net of shares withheld for taxes

4,039

356

Purchases of common stock

(11,610
)
(30,692
)
Dividends paid

(11,278
)
(10,648
)
Net cash provided by (used for) financing activities

16,035

(41,115
)

Effect of exchange rate changes on cash and equivalents

(982
)
865

Change in cash, cash equivalents and restricted cash

(41,003
)
(26,162
)
Cash, cash equivalents and restricted cash at beginning of period

136,871

150,859

Cash, cash equivalents and restricted cash at end of period

$
95,868

$
124,697

Supplemental disclosure of non-cash investing activities capital expenditures included in payables

$
4,442

$
1,631

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

Table of Contents

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 29, 2017

$
48,472

$
289,632

$
284,698

$
(32,883
)
$
11,186

$
601,105

Net income

80,866

729

81,595

Other comprehensive income

7,684

1,120

8,804

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

311

4,046

(1,380
)

2,977

Purchases of 1,995 shares of common stock

(1,995
)
(4,204
)
(50,531
)

(56,730
)
Stock option and restricted stock expense

9,474

9,474

Dividends paid

(22,009
)

(22,009
)
At April 28, 2018

46,788

298,948

291,644

(25,199
)
13,035

625,216

Net income

38,315

985

39,300

Other comprehensive loss

(1,493
)
(609
)
(2,102
)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax

495

5,706

(2,162
)

4,039

Purchases of 378 shares of common stock

(378
)
(2,632
)
(8,600
)

(11,610
)
Stock option and restricted stock expense

5,679

5,679

Cumulative effect adjustment for investments, net of tax

1,637

(1,637
)

—

Dividends paid

(11,278
)

(11,278
)
Dividends declared not paid

(13
)

(13
)
At October 27, 2018

$
46,905

$
307,701

$
309,543

$
(28,329
)
$
13,411

$
649,231

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

~~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 ~~28, 2018,~~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 ~~2018~~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 ~~27,~~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 ~~October~~July 27, ~~2018,~~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 ~~2019~~2020

~~In May 2014, the Financial Accounting Standards Board~~Each accounting standards updates (“~~FASB”~~ASUs”) issued a new accounting standard that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard supersedes virtually all existing authoritative accounting guidance on revenue recognition and requires additional disclosures and greater use of estimates and judgments. During July 2015, the FASB deferred the effective date of the revenue recognition standard by one year, thus making the new accounting standard effective beginning with our fiscal 2019. We adopted the new standard in the first quarter of fiscal 2019 with modified retrospective application. We reviewed substantially all of our contracts and other revenue streams and determined that while the application of the new standard did not have a material change in the amount of or timing for recognizing revenue, it did havebelow had a significant impact on our financial statement disclosures related to disaggregated revenue, customer deposits, other receivables and contract liabilities, as well as the presentation of other receivables and deferred revenues (contract liabilities) on our consolidated balance sheet. See Note 11 for information on these disclosures.

~~In January 2016, the FASB issued a new~~ accounting standard that requires equity investments to be measured at fair value with the fair value changes to be recognized through net income. This standard does not apply to investments that are accounted for using the equity method of accounting policies and/or that result in consolidation of the invested entity. As of April 28, 2018, we held equity investments and recognized changes in fair value through other comprehensive income (loss) as unrealized gains (losses). We adopted the new standard in the first quarter of fiscal 2019 and consequently reclassified $2.1 million of net unrealized gains from accumulated other comprehensive income to retained earnings as a cumulative-effect adjustment during the first quarter of fiscal 2019. We also reclassified $0.5 million of tax expense related to these investments from accumulated other comprehensive loss to retained earnings. We will recognize the tax impact for these investments in the consolidated statement of income as the unrealized gains (losses) become realized. See Note 6 for additional information on our current investments.

In October 2016, the FASB issued a new accounting standard that requires entities to recognize the income tax consequences of an intra-entity transfer of assets other than inventory when the transfer occurs. We adopted this standard in the first quarter of fiscal 2019. Adoption of this standard did not impact our current practices because intra-entity transfers, as the standard defines them, did not occur in the first six months of fiscal 2019.

In January 2017, the FASB issued a new accounting standard clarifying the definition of a business with the objective of adding guidance to entities evaluating whether a transaction should be accounted for as an acquisition. We adopted this standard in the first quarter of fiscal 2019. Adoption of this standard did not change the accounting treatment of acquisitions completed during fiscal 2019.

In January 2017, the FASB issued a new accounting standard simplifying the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should now perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. We are required to adopt this standard by our fiscal 2021, but the standard permits us to adopt it early. We have elected to adopt this standard in fiscal 2019, and we will perform our goodwill impairment test in the fourth quarter of fiscal 2019. We do not believe that adoption of this standard will have a material impact on our consolidated financial statements or disclosures.

In August 2018, the FASB issued a new accounting standard that aligns the accounting for implementation costs in hosting arrangements that are service contracts with accounting for implementation costs on internal-use software. The standard allows certain implementation costs in specified phases of the project to be capitalized and expensed over the term of the hosting arrangement. We are required to adopt this standard by our fiscal 2021, but the standard permits early adoption in any interim period. We have elected to adopt this standard beginning with our second quarter of fiscal 2019. We have not capitalized any costs to date related to the implementation of hosting arrangements, but we anticipate capitalizing costs in the future. We do not expect the capitalization of these costs to have a material impact on our consolidated financial statements and related disclosures.

~~Accounting pronouncements not yet adopted~~

In February 2016, the FASB issued ~~a new accounting standard~~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. ~~This standard will be effective beginning with our fiscal 2020.~~ We ~~are currently reviewing our leases and gathering the necessary information to adopt~~have adopted this standard ~~when it becomes effective. We anticipate that adopting this standard will~~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 ~~consolidated balance sheet as we have a significant number of operating leases.~~

~~In June 2016, the FASB issued a new~~ accounting standard that amends current guidance on other-than-temporary impairments of available-for-sale debt securities. This new standard requires the use of an allowance to record estimated credit losses on these assets when the fair value is below the amortized cost of the asset. This standard also removes the evaluation of the length of time that a security has been in a loss position to avoid recording a credit loss. We are required to adopt this standard for our fiscal 2021 and apply it through a cumulative-effect adjustment to retained earnings. We are still assessing the impact this standard will have onpolicies 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

~~In August 2017, the FASB issued a new~~Accounting pronouncements not yet adopted

The following table summarizes additional accounting standard designed to improve and simplify the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This standard is intended to better align the recognition and presentation of

~~the effects of hedging instruments with the hedged item in the financial statements, and requires additional disclosures on hedging instruments. This standard~~pronouncements which we have not yet adopted, but we believe will ~~be effective for our fiscal 2020. As of October 27, 2018, we do~~ not have ~~any outstanding hedging relationships~~a material impact on our accounting policies or ~~instruments that would be affected by this standard.~~

The Tax Cut and Jobs Act of 2017 (the “Tax Act”) required corporations to adjust deferred taxes to reflect the reduction of the corporate income tax rate, leaving items within accumulated other comprehensive income stranded at the historical tax rate. In February 2018, the FASB issued a new accounting standard that allows corporations in their consolidated financial statements to reclassify these stranded income tax effects from accumulated other comprehensive income to retained earnings. This standard will be effective for our fiscal 2020, and companies are permitted to adopt it in any interim period. Companies are to apply the standard either in the period they adopt or retrospectively to each period that was affected by the Tax Act’s change in the federal corporate tax rate. We are still assessing the impact this standard will have on 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

~~In August 2018,~~

Note 2: Acquisitions

We did not complete any acquisitions during the FASB issued a new accounting standard that modifies the disclosure requirements for fair value measurements. The standard removes certain disclosures for transfers between levels in the fair value hierarchy and the valuation processes for Level 3 measurements. The standard adds disclosure requirements for unrealized gains/losses included in other comprehensive income related to Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This standard will be effective forquarter ended July 27, 2019. Information regarding our fiscal ~~2021, with early adoption permitted. We do not believe these changes will have a significant impact~~2019 acquisition below reflects revised estimates based on ~~our financial statement disclosures.~~updated information obtained during the first quarter of fiscal 2020.

In August 2018, the FASB issued a new accounting standard that modifies the disclosure requirements for defined benefit pension or other postretirement obligations. The standard removes certain disclosures that are no longer considered cost beneficial, clarifies the requirements of certain other disclosures, and adds new disclosure requirements. This standard will be effective for our fiscal 2022, with early adoption permitted. We do not believe these changes will have a significant impact on our financial statement disclosures.

~~Note 2: Acquisitions~~

~~Retail segment acquisitions~~

~~On August 15, 2018 and September 30, 2018, respectively, we acquired the assets of two independent operators of La-Z-Boy Furniture Galleries~~® stores: one that operated nine stores and two warehouses in Arizona and one that operated one store in Massachusetts, for an aggregate $42.8 million, including $38.9 million of cash, $2.6 million of forgiveness of accounts receivable, and $1.3 million of guaranteed future payments. We will pay the guaranteed future payments over the next 34 months. These acquisitions are a core part of our strategy to grow our company-owned retail business and leverage our integrated retail model where we earn a combined profit on both the wholesale and retail sides of the business.

~~Prior to our retail acquisitions, we licensed the exclusive right to own and operate La-Z-Boy Furniture Galleries~~® stores (and to use the associated trademarks and trade name) in those markets to the dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers’ other assets. The reacquired rights are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options. A Retailer Agreement remains in effect as long as the independent retailer is not in default under the terms of the agreement. The effective settlement of these arrangements resulted in no settlement gain or loss as the contractual terms were at market. We recorded an indefinite-lived intangible asset of $6.6 million related to these reacquired rights. We also recognized $32.0 million of goodwill in fiscal 2019 related primarily to synergies we expect from the integration of the acquired stores and future

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

~~We based the purchase price allocations on fair values at the dates of acquisition, and summarize them in~~ ~~the following table:~~

(Unaudited, amounts in thousands)

Second quarter
fiscal 2019
acquisitions

Fair value of consideration:

Cash

$
38,904

Forgiveness of accounts receivable

2,610

Guaranteed future payments

1,300

Total fair value of consideration

42,814

Amounts recognized for identifiable assets acquired and liabilities assumed:

Inventory

10,491

Other current assets

4,194

Property, plant and equipment

929

Indefinite-lived reacquired rights

6,600

Other long-term assets

183

Customer deposits

(6,515
)
Other current liabilities

(5,055
)
Total identifiable net assets acquired

10,827

Goodwill

$
31,987

~~All acquired stores were included in our Retail segment results upon acquisition.~~

Corporate and Other acquisitions

On July 30, 2018, we completed our acquisition of Stitch Industries, Inc. ~~(“Joybird”~~("Joybird"), an e-commerce retailer and manufacturer of upholstered furniture, for guaranteed cash payments of $75 million, which was subject to working capital adjustments. We acquired Joybird as they are a leading e-commerce retailer and manufacturer of upholstered furniture, which positions us for growth in the online selling environment and allows us to better reach millennial and Gen X consumers, while leveraging our supply chain assets.

The guaranteed payments include a closing date cash payment of $37.5 million in purchase price consideration, $7.5 million in prepaid compensation, and the assumption of $5.0 million of liabilities that will be paid over the next two years, with the remaining $25 million to be paid annually in $5 million installments over the next five years. The merger agreement also includes two future earn-out opportunities based on Joybird’s financial performance in fiscal 2021 and fiscal 2023. The merger agreement also included a working capital adjustment ~~and as~~ of ~~October 27, 2018, we have recorded a receivable for approximately~~ $2.5 ~~million for~~million. We received the working capital ~~adjustments. We received this $2.5 million~~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, ~~who~~each of whom will forfeit proportional amounts if one or more of them ~~resign~~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 ~~$3.3~~acquisition of $7.5 million, which reflects the provisional fair value of the earn-out opportunities as of the date of ~~acquisition, and~~acquisition. We also recorded a finite-lived intangible asset of $6.4 million ~~which reflects~~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 on a straight-line basis.~~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 ~~selling, general & administrative~~SG&A expense in our consolidated statement of income.

We recorded ~~$75.8~~$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.

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

(Unaudited, amounts in thousands)	Second quarter fiscal 2019 acquisitions

				Second quarter
				fiscal 2019
				Corporate and
				Other
(Amounts in thousands)				acquisitions
Fair value of consideration:
Cash	$	37,482
Cash (paid at closing)				$	37,482
Guaranteed payment	22,489				22,489
Acquisition earn-out	3,300				7,500
Assumption of liability	5,000				5,000
Working capital adjustment	(2,486		)		(2,486)
Total fair value of consideration	65,785				69,985


Amounts recognized for assets acquired and liabilities assumed:
Inventory	5,258				5,258
Other current assets	3,258				3,733
Property, plant and equipment	2,057				2,057
Finite-lived tradename	6,400				6,400
Other long-term assets	4,010				3,647
Accounts payable	(8,399		)		(8,222)
Customer deposits	(9,619		)		(13,904)
Other current liabilities	(12,876		)		(7,681)
Other long-term liabilities	(150		)		(150)
Total identifiable net liabilities acquired	(10,061		)		(8,862)


Goodwill	$	75,846		$	78,847

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

~~None of the~~The above ~~acquisitions were~~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 ~~amount~~amounts used in measuring goodwill. ~~All~~As we are beyond the provisional period, all of ~~our provisional~~the purchase accounting ~~estimates~~ shown above for both our Retail acquisitions and our acquisition of Joybird are based on the information and data available to us as of the time of the issuance of these financial statements, and are subject to change within the first 12 months of acquisition as we have access to additional data.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)	10/27/18		10/28/17		7/27/19		7/28/18
Cash and cash equivalents	$	93,867	$	122,345	$	111,622	$	134,247
Restricted cash	2,001		2,352			1,970		2,358
Total cash, cash equivalents and restricted cash	$	95,868	$	124,697	$	113,592	$	136,605

Note 4: Inventories

A summary of inventories is as follows:


(Unaudited, amounts in thousands)	10/27/18			4/28/18			7/27/19		4/27/19
Raw materials	$	95,485		$	86,214		$	94,384	$	90,359
Work in process	13,816			12,254				13,514		13,728
Finished goods	128,457			109,183				111,469		114,478
FIFO inventories	237,758			207,651				219,367		218,565
Excess of FIFO over LIFO	(22,810		)	(22,810		)		(21,666)		(21,666)
Total inventories	$	214,948		$	184,841		$	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 5:6: Goodwill and Other Intangible Assets

We have goodwill inon our ~~Retail Segment related to our acquisitions of La-Z-Boy Furniture Galleries~~® stores. In our Corporate and Other results, we have goodwill related to our acquisition of Joybird. The remainder of our goodwill is related to our acquisition of the La-Z-Boy wholesale business in the United Kingdom and Ireland, which we recorded in our Upholstery reportable segment. 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 ~~six months~~quarter ended ~~October~~July 27, ~~2018:~~2019:

(Unaudited, amounts in thousands)

Upholstery
Segment

Retail
Segment

Corporate
and Other

Total
Goodwill

Balance at April 28, 2018

$
12,967

$
62,287

$
—

$
75,254

Acquisitions

—

31,987

75,846

107,833

Translation adjustment

(894
)
(77
)
—

(971
)
Balance at October 27, 2018

$
12,073

$
94,197

$
75,846

$
182,116


	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

~~Our~~13

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We have intangible assets ~~include the indefinite-lived trade name for American Drew~~®~~, a brand in~~on our ~~Casegoods segment, and the finite-lived trade name for Joybird~~®~~, a brand within Corporate and Other. Indefinite-lived reacquired rights relate to our acquisition of La-Z-Boy Furniture Galleries~~® ~~stores, and are recorded in our Retail segment. Other intangible assets are primarily acquired customer relationships from our acquisition of the~~consolidated balance sheet as follows:

~~La-Z-Boy wholesale business in the United Kingdom and Ireland, and are recorded in our Upholstery reportable segment.~~


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 ~~six months~~quarter ended ~~October~~July 27, ~~2018:~~2019:

(Unaudited, amounts in thousands)

Indefinite-
Lived
Trade
Names

Finite-Lived
Trade
Names

Indefinite-
Lived
Reacquired
Rights

Other
Intangible
Assets

Total
Other
Intangible
Assets

Balance at April 28, 2018

$
1,155

$
—

$
13,645

$
3,390

$
18,190

Acquisitions

—

6,400

6,600

—

13,000

Amortization

—

(200
)
—

(204
)
(404
)
Translation adjustment

—

—

(57
)
(229
)
(286
)
Balance at October 27, 2018

$
1,155

$
6,200

$
20,188

$
2,957

$
30,500


	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 6:7: 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 ~~October~~July 27, ~~2018,~~2019, and April ~~28, 2018:~~27, 2019:


(Unaudited, amounts in thousands)	10/27/18		4/28/18		7/27/19		4/27/19
Short-term investments:
Marketable securities	$	13,052	$	12,926	$	26,002	$	18,016
Held-to-maturity investments	3,218		3,340			3,454		3,341
Total short-term investments	16,270		16,266			29,456		21,357


Long-term investments:
Marketable securities	27,061		32,134			21,023		24,085
Cost basis investments	10,954		10,954			11,979		11,979
Total long-term investments	38,015		43,088			33,002		36,064


Total investments	$	54,285	$	59,354	$	62,458	$	57,421


Investments to enhance returns on cash	$	29,795	$	34,359	$	32,884	$	31,470
Investments to fund compensation/retirement plans	$	13,536	$	14,041	$	17,595	$	13,972
Other investments	$	10,954	$	10,954	$	11,979	$	11,979

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The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type at ~~October~~July 27, ~~2018,~~2019, and April ~~28, 2018:~~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 October 27, 2018~~


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

(Unaudited, amounts in thousands)

Gross
Unrealized Gains

Gross
Unrealized Losses

Fair Value

Equity securities

$
1,889

$
(99
)
$
18,525

Fixed income

27

(333
)
31,339

Other

221

(11
)
4,421

Total securities

$
2,137

$
(443
)
$
54,285

~~At April 28, 2018~~

(Unaudited, amounts in thousands)

Gross
Unrealized Gains

Gross
Unrealized Losses

Fair Value

Equity securities

$
2,142

$
(39
)
$
18,765

Fixed income

29

(418
)
36,312

Other

72

—

4,277

Total securities

$
2,243

$
(457
)
$
59,354

The following table summarizes sales of marketable securities:

	Quarter Ended						Six Months Ended

													Quarter Ended
(Unaudited, amounts in thousands)	10/27/18			10/28/17			10/27/18			10/28/17			7/27/19		7/28/18
Proceeds from sales	$	2,992		$	5,672		$	7,754		$	11,529		$	4,060	$	4,762
Gross realized gains	10			16			85			418				6		75
Gross realized losses	(11		)	(7		)	(66		)	(228		)		(2)		(55)

At ~~October~~July 27, ~~2018,~~2019, the fair value of fixed income marketable securities, ~~which are~~ classified as available-for-sale securities, by contractual maturity was ~~$13.0~~$22.6 million within one year, ~~$16.3~~$9.4 million within two to five years, ~~$1.2~~$1.6 million within six to ten years, and $0.8 million thereafter.

Note 8: Employee Benefits

~~Note 7:~~ 

Pension ~~Plans~~

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 transferred any remaining benefit obligations under the plan to a highly rated insurance company.

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~~Net~~There were no net periodic pension costs associated with the terminated pension plan in the quarter ended July 27, 2019. For the quarter ended July 28, 2018, net periodic pension costs were as follows:

	Quarter Ended						Six Months Ended

													Quarter Ended
(Unaudited, amounts in thousands)	10/27/18			10/28/17			10/27/18			10/28/17			7/28/18
Service cost	$	323		$	329		$	646		$	658		$	323
Interest cost	1,116			1,147			2,232			2,294				1,116
Expected return on plan assets	(1,136		)	(1,204		)	(2,272		)	(2,408		)		(1,136)
Net amortization	639			780			1,278			1,560				639
Net periodic pension cost	$	942		$	1,052		$	1,884		$	2,104		$	942

The components of net periodic pension cost other than the service cost are included in other income (expense), net in our consolidated statement of income. Service cost is recorded in cost of sales in our consolidated statement of income.

Employee Vacation Policy Changes

We enacted changes to our employee vacation policies that became effective on January 1, 2019. Our new vacation policies enhanced the amount of vacation time earned by our employees. Additionally, under these vacation policies, our salary and office hourly employees now accrue vacation in the current calendar year for use in the current calendar year, and any vacation time earned but not used will be forfeited at the end of each calendar year.

Note 8:9: 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 ~~80%~~90% of our warranty liability relates to our Upholstery ~~reportable~~ segment as we generally warrant our products against defects for one year on fabric and leather, from one to ten years on cushions and padding, and provide a limited lifetime warranty on certain mechanisms and frames. Our Upholstery segment warranties cover labor costs relating to our parts for one ~~year.~~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.

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

	Quarter Ended						Six Months Ended

													Quarter Ended
(Unaudited, amounts in thousands)	10/27/18			10/28/17			10/27/18			10/28/17			7/27/19		7/28/18
Balance as of the beginning of the period	$	21,093		$	21,882		$	21,205		$	21,870		$	22,736	$	21,205
Acquisitions	4,100			—			4,100			—
Accruals during the period	5,489			4,648			10,610			9,501				5,657		5,121
Settlements during the period	(5,485		)	(4,924		)	(10,718		)	(9,765		)		(5,557)		(5,233)
Balance as of the end of the period	$	25,197		$	21,606		$	25,197		$	21,606		$	22,836	$	21,093

As of ~~October~~July 27, ~~2018,~~2019, and April ~~28, 2018,~~27, 2019, we included ~~$16.6~~$13.9 million ~~and $12.7 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

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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. The acquired warranty liability reflects our provisional estimate of the acquired warranty liabilities of Joybird on the acquisition date. See Note 2 for further information on our acquisition of Joybird.

Note 9:10: 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						Six Months Ended

												Quarter Ended
(Unaudited, amounts in thousands)	10/27/18			10/28/17			10/27/18			10/28/17		7/27/19		7/28/18
Equity-based awards expense	$	3,639		$	2,852		$	5,679		$	6,410	$	1,675	$	2,040
Liability-based awards (income) expense	(300		)	(588		)	(134		)	308
Liability-based awards expense													(60)		166
Total stock-based compensation expense	$	3,339		$	2,264		$	5,545		$	6,718	$	1,615	$	2,206

Stock Options. We granted ~~423,273~~248,662 stock options to employees during the first quarter of fiscal ~~2019,~~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 ~~2019~~2020 using the following assumptions:


				Fiscal 2020
(Unaudited)	Fiscal 2019 grant			grant
Risk-free interest rate	2.82		%		2.19	%
Dividend rate	1.45		%		1.72	%
Expected life in years	5.00				5.0
Stock price volatility	33.07		%		34.27	%
Fair value per share	$	9.65		$	7.94

Stock Appreciation Rights (“SARs”). We ~~did~~have not ~~grant~~granted any SARs to employees ~~during the first six months of~~since fiscal ~~2019,~~2014, but we have SARs outstanding from ~~previous~~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 ~~October~~July 27, ~~2018,~~2019, we had 7,149 and ~~17,918~~14,580 SARs outstanding for the fiscal 2013 and fiscal 2014 awards, respectively. These awards have exceeded their expected life and ~~are being~~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 ~~October~~July 27, ~~2018,~~2019, the intrinsic value per share of the fiscal 2013 and fiscal 2014 awards were ~~$15.54~~$19.71 and ~~$8.45,~~$12.62, respectively.

Restricted Stock.We granted ~~100,426~~166,399 shares of restricted stock to employees during the first ~~six months~~quarter of fiscal ~~2019.~~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 ~~six months~~quarter of fiscal ~~2019~~2020 was ~~$33.11~~$30.24 per share, the market value of our common shares on the date of grant. We estimate forfeiture rates based on our ~~employees’~~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 2019, we granted 21,240 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 grant, which was $33.15.~~

Performance Shares. During the first quarter of fiscal ~~2019,~~2020, we granted ~~146,107~~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’~~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 ~~2019~~2020 that vest based on attaining performance goals was ~~$31.71,~~$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, and, similar~~grant. The Monte Carlo valuation model uses multiple simulations to ~~the way in which we expense awards~~evaluate our probability of achieving various stock ~~options,~~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 ~~value that award recipients~~market condition is ultimately ~~receive.~~satisfied. Based on the Monte Carlo model, the fair value as of the grant date of the fiscal ~~2019~~2020 grant of shares that vest based on market conditions was ~~$46.39.~~$38.75.

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Note ~~10:~~11: Accumulated Other Comprehensive Loss

The activity in accumulated other comprehensive loss for the ~~quarter~~quarters ended ~~October~~July 27, ~~2018,~~2019, and ~~October~~July 28, ~~2017,~~2018, is as follows:

(Unaudited, amounts in thousands)

Translation
adjustment

Change in
fair value
of cash
flow
hedge

Unrealized
gain on
marketable
securities

Net pension
amortization
and net
actuarial loss

Accumulated
other
comprehensive
loss

Balance at July 28, 2018

$
(573
)
$
(179
)
$
(220
)
$
(28,601
)
$
(29,573
)
Changes before reclassifications

549

140

30

—

719

Amounts reclassified to net income

—

65

—

686

751

Tax effect

—

(50
)
(7
)
(169
)
(226
)
Other comprehensive income attributable to La-Z- Boy Incorporated

549

155

23

517

1,244

Balance at October 27, 2018

$
(24
)
$
(24
)
$
(197
)
$
(28,084
)
$
(28,329
)


																				Unrealized
																		Change in		gain		Net pension		Accumulated
																		fair value		on		amortization		other
																Translation		of cash		marketable		and net		comprehensive
(Unaudited, amounts in thousands)	Translation adjustment			Change in fair value of cash flow hedge			Unrealized gain on marketable securities			Net pension amortization and net actuarial loss			Accumulated other comprehensive loss			adjustment		flow hedge		securities		actuarial loss		loss
Balance at July 29, 2017	$	984		$	552		$	1,481		$	(33,265	)	$	(30,248	)
Balance at April 27, 2019																$	50	$	87	$	6	$	(3,605)	$	(3,462)
Changes before reclassifications	(247		)	(1,094		)	344			—			(997		)		128		—		143		—		271
Reclassification of certain income tax effects (1)																	—		(97)		258		(708)		(547)
Amounts reclassified to net income	—			(103		)	(8		)	836			725				—		5		—		55		60
Tax effect	—			456			(128		)	(319		)	9				—		(1)		(35)		(14)		(50)
Other comprehensive income (loss) attributable to La-Z- Boy Incorporated	(247		)	(741		)	208			517			(263		)
Balance at October 28, 2017	$	737		$	(189	)	$	1,689		$	(32,748	)	$	(30,511	)
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated																	128		(93)		366		(667)		(266)
Balance at July 27, 2019																$	178	$	(6)	$	372	$	(4,272)	$	(3,728)

(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.

~~The activity in accumulated other comprehensive loss for the six months ended October 27, 2018, and October 28, 2017, is as follows:~~


			Change in				Net pension
			fair value		Unrealized		amortization		Accumulated
			of cash		gain on		and net		other
	Translation		flow		marketable		actuarial		comprehensive
(Unaudited, amounts in thousands)	adjustment		hedge		securities		loss		loss
Balance at April 28, 2018	$	2,388	$	154	$	1,376	$	(29,117)	$	(25,199)
Changes before reclassifications		(2,961)		(509)		73		—		(3,397)
Cumulative effect adjustment for investments (1)		—		—		(1,637)		—		(1,637)
Amounts reclassified to net income		—		67		(19)		686		734
Tax effect		—		109		(13)		(170)		(74)
Other comprehensive income attributable to La-Z-Boy Incorporated		(2,961)		(333)		(1,596)		516		(4,374)
Balance at July 28, 2018	$	(573)	$	(179)	$	(220)	$	(28,601)	$	(29,573)

(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 28, 2018

$
2,388

$
154

$
1,376

$
(29,117
)
$
(25,199
)
Changes before reclassifications

(2,412
)
(369
)
103

—

(2,678
)
Cumulative effect adjustment for investments (1)

—

—

(1,637
)
—

(1,637
)
Amounts reclassified to net income

—

132

(19
)
1,372

1,485

Tax effect

—

59

(20
)
(339
)
(300
)
Other comprehensive income (loss) attributable to La-Z- Boy Incorporated

(2,412
)
(178
)
(1,573
)
1,033

(3,130
)
Balance at October 27, 2018

$
(24
)
$
(24
)
$
(197
)
$
(28,084
)
$
(28,329
)

(1)

The cumulative effect adjustment for investments is composed of $2.1 million of unrealized gains on equity investments offset by $0.5 million of tax expense. We reclassified the net $1.6 million of cumulative effect adjustment from accumulated other comprehensive loss to retained earnings as a result of adopting Accounting Standards Update 2016-01 (see Note 1 for further information).

~~(1)~~ The cumulative effect adjustment for investments is composed of $2.1 million of unrealized gains on equity investments offset by $0.5 million of tax expense. We reclassified the net $1.6 million of cumulative effect adjustment from accumulated other comprehensive loss to retained earnings as a result of adopting Accounting Standards Update 2016-01 (see Note 1 for further information).

(Unaudited, amounts in thousands)

Translation
adjustment

Change in
fair value
of cash
flow
hedge

Unrealized
gain on
marketable
securities

Net pension
amortization
and net
actuarial
loss

Accumulated
other
comprehensive
loss

Balance at April 29, 2017

$
(927
)
$
74

$
1,752

$
(33,782
)
$
(32,883
)
Changes before reclassifications

1,664

(239
)
738

—

2,163

Amounts reclassified to net income

—

(186
)
(840
)
1,671

645

Tax effect

—

162

39

(637
)
(436
)
Other comprehensive income (loss) attributable to La-Z- Boy Incorporated

1,664

(263
)
(63
)
1,034

2,372

Balance at October 28, 2017

$
737

$
(189
)
$
1,689

$
(32,748
)
$
(30,511
)

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.

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The components of non-controlling interest for the ~~quarter~~quarters ended July 27, 2019, and ~~six months ended October 27,~~July 28, 2018, ~~and October 28, 2017,~~ were as follows:

	Quarter Ended				Six Months Ended

										Quarter Ended
(Unaudited, amounts in thousands)	10/27/18		10/28/17		10/27/18			10/28/17		7/27/19		7/28/18
Balance as of the beginning of the period	$	12,455	$	11,684	$	13,035		$	11,186	$	14,468	$	13,035
Net income	337		310		985			403			(81)		648
Other comprehensive income (loss)	619		100		(609		)	505
Other comprehensive income											486		(1,228)
Balance as of the end of the period	$	13,411	$	12,094	$	13,411		$	12,094	$	14,873	$	12,455

Note ~~11:~~12: Revenue Recognition

We implemented Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606, “ASC 606”), in the first quarter of fiscal 2019 using the modified-retrospective approach, which required us to apply the new guidance retrospectively to revenue transactions completed on or after the effective date. Adopting this new standard did not have a material impact on our consolidated financial statements except for our enhanced presentation and disclosures. As of the beginning of our fiscal 2019, we had identified and implemented all changes required by the new standard, including those related to our accounting policies, controls, and disclosures.

Our revenue ~~consists substantially of~~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 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.

The following table disaggregates our revenue by product category by segment or unit for the quarter ended July 27, 2019:


							Corporate
(Unaudited, amounts in thousands)	Upholstery		Casegoods		Retail		and Other		Total
Motion Upholstery Furniture	$	179,522	$	—	$	85,184	$	—	$	264,706
Stationary Upholstery Furniture		87,509		4,144		29,153		22,952		143,758
Bedroom Furniture		—		8,193		1,447		1,182		10,822
Dining Room Furniture		—		5,405		2,599		394		8,398
Occasional Furniture		312		10,823		5,125		361		16,621
Other (1)		26,073		(1,430)		19,488		(4,337)		39,794
Total	$	293,416	$	27,135	$	142,996	$	20,552		484,099

				Eliminations						(70,466)
				Consolidated Net Sales					$	413,633

(1)

Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, tariff surcharges, discounts & allowances, rebates and other sales incentives.

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The following table disaggregates our revenue by product category by segment for the quarter ended ~~October 27,~~July 28, 2018:



(Unaudited, amounts in thousands)	Upholstery		Casegoods		Retail		Total
Motion Upholstery Furniture	$	187,659	$	—	$	74,957	$	262,616
Stationary Upholstery Furniture		85,290		3,942		23,164		112,396
Bedroom Furniture		—		8,364		855		9,219
Dining Room Furniture		—		5,929		1,583		7,512
Occasional Furniture		393		11,988		3,974		16,355
Other (1)		20,056		(1,837)		14,695		32,914
Total	$	293,398	$	28,386	$	119,228		441,012

				Corporate and Other (2)				3,865
				Eliminations				(60,182)
				Consolidated Net Sales			$	384,695

(Unaudited, amounts in thousands)

Upholstery

Casegoods

Retail

Corporate
and Other

Total

Motion Upholstery Furniture

$
202,168

$
—

$
85,735

$
—

$
287,903

Stationary Upholstery Furniture

92,246

4,429

25,701

23,695

146,071

Bedroom Furniture

—

8,234

1,450

2,460

12,144

Dining Room Furniture

—

6,406

2,613

819

9,838

Occasional Furniture

418

13,723

5,067

490

19,698

Other (a)

22,261

(1,415
)
19,120

(5,086
)
34,880

Total

$
317,093

$
31,377

$
139,686

$
22,378

510,534

Eliminations

(71,201
)

Consolidated Net Sales

$
439,333

(1)

Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, discounts & allowances, rebates and other sales incentives

(2)

Primarily includes revenue for royalties and intercompany commissions

~~(a)~~ ~~Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, discounts & allowances, rebates and other sales incentives~~

~~The following table disaggregates our revenue by product category by segment for the six months ended October 27, 2018:~~

(Unaudited, amounts in thousands)

Upholstery

Casegoods

Retail

Corporate
and Other

Total

Motion Upholstery Furniture

$
389,827

$
—

$
160,692

$
—

$
550,519

Stationary Upholstery Furniture

177,536

8,371

48,865

23,695

258,467

Bedroom Furniture

—

16,598

2,305

2,460

21,363

Dining Room Furniture

—

12,335

4,196

819

17,350

Occasional Furniture

811

25,711

9,041

490

36,053

Other (b)

42,317

(3,252
)
33,815

(1,221
)
71,659

Total

$
610,491

$
59,763

$
258,914

$
26,243

955,411

Eliminations

(131,383
)

Consolidated Net Sales

$
824,028

~~(b)~~ ~~Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, discounts & allowances, rebates and other sales incentives~~

Motion Upholstery Furniture — - Includes gross revenue for upholstered furniture, such as recliners, sofas, loveseats, chairs, sectionals and modulars that have a mechanism that allows the back of the product to recline or the ~~product’s~~product's footrest to extend. This gross revenue includes sales to La-Z-Boy Furniture Galleries^® stores

~~(including~~ (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.

Our consolidated balance sheet includes current assets of ~~$19.6~~$18.9 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 ~~2019,~~2020, we had ~~$12.1~~$17.0 million of other receivables.

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We receive deposits from end consumers before we recognize revenue, resulting in customer deposits, 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 ~~the beginning of fiscal~~July 27, 2019, ~~we had $31.3 million of customer deposits and $12.1 million of deferred revenues. At October 27, 2018,~~ we included $48.8 million of customer deposits and ~~$19.6~~$18.9 million of deferred revenues in accrued expenses and other current liabilities on our consolidated balance sheet. ~~During the quarter and six months ended October 27, 2018, we recognized $1.4 million and $41.5 million, respectively, of revenue that was recorded as a contract liability at~~At the beginning of fiscal ~~2019.~~2020, we had $42.8 million of customer deposits and $17.0 million of deferred revenues. During the quarter ended July 27, 2019, we recognized revenue of $52.4 million related to our contract liabilities.

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 ~~12:~~13: Segment Information

Our reportable operating segments are the Upholstery segment, the Casegoods segment and the Retail segment.

Upholstery Segment. Our Upholstery ~~reportable~~ 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 ~~157~~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 exclusively online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments.

Quarter Ended

Six Months Ended

(Unaudited, amounts in thousands)

10/27/18

10/28/17

10/27/18

10/28/17

Sales

Upholstery segment:

Sales to external customers

$
254,028

$
251,741

$
494,082

$
476,555

Intersegment sales

63,065

53,020

116,409

102,613

Upholstery segment sales

317,093

304,761

610,491

579,168

Casegoods segment:

Sales to external customers

26,242

23,915

50,645

44,934

Intersegment sales

5,135

4,150

9,118

8,641

Casegoods segment sales

31,377

28,065

59,763

53,575

Retail segment sales

139,686

116,737

258,914

227,253

Corporate and Other:

Sales to external customers

19,377

812

20,387

1,542

Intersegment sales

3,001

2,091

5,856

4,021

Corporate and Other sales

22,378

2,903

26,243

5,563

Eliminations

(71,201
)
(59,261
)
(131,383
)
(115,275
)
Consolidated sales

$
439,333

$
393,205

$
824,028

$
750,284

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Quarter Ended

Six Months Ended

(Unaudited, amounts in thousands)

10/27/18

10/28/17

10/27/18

10/28/17

Operating Income (Loss)

Upholstery segment

$
32,152

$
33,424

$
56,036

$
56,723

Casegoods segment

3,761

3,302

6,841

6,041

Retail segment

6,563

3,903

11,021

5,670

Corporate and Other

(13,976
)
(6,360
)
(22,238
)
(17,867
)
Consolidated operating income

28,500

34,269

51,660

50,567

Interest expense

(501
)
(160
)
(605
)
(317
)
Interest income

392

376

994

719

Other income (expense), net

(1,997
)
(926
)
(1,105
)
823

Income before income taxes

$
26,394

$
33,559

$
50,944

$
51,792


	Quarter Ended
(Unaudited, amounts in thousands)	7/27/19		7/28/18
Sales
Upholstery segment:
Sales to external customers	$	230,767	$	240,054
Intersegment sales		62,649		53,344
Upholstery segment sales		293,416		293,398

Casegoods segment:
Sales to external customers		22,006		24,403
Intersegment sales		5,129		3,983
Casegoods segment sales		27,135		28,386

Retail segment sales		142,996		119,228

Corporate and Other:
Sales to external customers		17,864		1,010
Intersegment sales		2,688		2,855
Corporate and Other sales		20,552		3,865

Eliminations		(70,466)		(60,182)
Consolidated sales	$	413,633	$	384,695

Operating Income (Loss)
Upholstery segment	$	26,267	$	23,884
Casegoods segment		2,597		3,080
Retail segment		8,477		4,458
Corporate and Other		(13,919)		(8,262)
Consolidated 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

Note ~~13:~~14: Income Taxes

We determine our tax provision using an estimated annual effective tax rate and adjusting for discrete taxable events that occur during the quarter. We recognize the effects of tax legislation in the period in which the law is enacted. We re-measure our deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years we estimate the related temporary differences to reverse.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Most of its provisions are effective for tax years beginning on or after January 1, 2018. Because we are a fiscal year U.S. taxpayer, the majority of the provisions, such as elimination of the domestic manufacturing deduction, new taxes on certain foreign-sourced income and new limitations on certain business deductions, began applying to us in fiscal 2019. In December of 2017, the SEC staff issued SAB 118, which provides that companies that have not completed their accounting for the effects of the Tax Act but can determine a reasonable estimate of those effects should include in their financial statements a provisional amount based on their reasonable estimate. The guidance in SAB 118 also allows companies to adjust the provisional amounts during a one year measurement period similar to the measurement period used when accounting for business combinations. We continue to analyze provisions of the Tax Act and review guidance issued from regulators to determine if they will impact our effective tax rate in fiscal 2019 or in the future. As of October 27, 2018, we have not recorded any adjustments to the provisional estimates we previously recorded as of the prior year end related to the transition tax. We will continue to refine our provisional adjustments through the permissible measurement period, which is not to extend beyond one year of the enactment date.

Our effective tax rate was 22.0% for the ~~second~~first quarter ~~and six months ended October 27, 2018, was 22.9%. For~~of fiscal 2020, as compared with 22.8% in the ~~second~~first quarter ~~and six months ended October 28, 2017, our effective tax rate was 30.8% and 32.5%, respectively.~~of fiscal 2019. Our effective tax rate varies from the ~~21%~~21% federal statutory rate primarily due to state taxes. Absent discrete adjustments, our effective tax rate in the ~~second~~first quarter of fiscal ~~2019~~2020 would have been ~~24.7%~~25.2%.

Note ~~14:~~15: Earnings per Share

Certain share-based compensation awards that entitle their holders to receive non-forfeitable dividends prior to vesting are considered participating securities. Prior to fiscal 2019, we granted restricted stock awards that contained non-forfeitable rights to dividends on unvested shares, and we are required to include these participating securities in calculating our basic earnings per common share, using the two-class method. The restricted stock awards we granted in fiscal 2019 and fiscal 2020 do not have non-forfeitable rights to dividends

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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.

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

	Quarter Ended						Six Months Ended

													Quarter Ended
(Unaudited, amounts in thousands)	10/27/18			10/28/17			10/27/18			10/28/17			7/27/19		7/28/18
Numerator (basic and diluted):
Net income attributable to La-Z-Boy Incorporated	$	20,012		$	22,896		$	38,315		$	34,547		$	18,069	$	18,303
Income allocated to participating securities	(63		)	(117		)	(139		)	(172		)		(39)		(76)
Net income available to common shareholders	$	19,949		$	22,779		$	38,176		$	34,375

Net income available to common Shareholders													$	18,030	$	18,227

Denominator:
Basic weighted average common shares outstanding	46,888			47,964			46,802			48,160				46,820		46,716
Add:
Contingent common shares	85			96			85			99				130		66
Stock option dilution	286			237			332			278				175		379
Diluted weighted average common shares outstanding	47,259			48,297			47,219			48,537				47,125		47,161

Earnings per Share:
Basic													$	0.39	$	0.39
Diluted													$	0.38	$	0.39

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

We had outstanding options to purchase 0.4 million shares for the quarter ~~and six months~~ ended ~~October~~July 27, ~~2018,~~2019, with a weighted average exercise price of $33.15. We excluded the effect of these options from our diluted share calculation since the weighted average exercise price of the options was higher than the average market price and including the options’ effect would have been anti-dilutive. ~~We did not exclude any outstanding~~Similarly, we excluded options to purchase 0.4 million shares from the diluted share calculation for the quarter ~~and six months~~ ended ~~October~~July 28, ~~2017.~~2018.

Note ~~15:~~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.

Table 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.~~Contents

· 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.

●

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 ~~October~~July 27, ~~2018,~~2019, and April ~~28, 2018.~~27, 2019. There were no transfers into or out of Level 1, Level 2, or Level 3 for any of the periods presented.


At July 27, 2019
	Fair Value Measurements
(Unaudited, amounts in thousands)	Level 1		Level 2		Level 3
Assets
Marketable securities	$	10	$	35,627	$	—
Held-to-maturity investments		3,454		—		—
Cost basis investments		—		—		11,979
Total assets	$	3,464	$	35,627	$	11,979

Liabilities
Contingent consideration liability	$	—	$	—	$	7,900

~~At October 27, 2018~~


At April 27, 2019
	Fair Value Measurements
(Unaudited, amounts in thousands)	Level 1		Level 2		Level 3
Assets
Marketable securities	$	5	$	34,390	$	—
Held-to-maturity investments		3,341		—		—
Cost basis investment		—		—		11,979
Total assets	$	3,346	$	34,390	$	11,979

Liabilities
Contingent consideration liability	$	—	$	—	$	7,900

Fair Value Measurements

(Unaudited, amounts in thousands)

Level 1

Level 2

Level 3

Assets

Marketable securities

$
969

$
32,377

$
—

Held-to-maturity investments

3,218

—

—

Cost basis investments

—

—

10,954

Total assets

$
4,187

$
32,377

$
10,954

Liabilities

Contingent consideration liability

$
—

$
—

$
3,621

~~At April 28, 2018~~

Fair Value Measurements

(Unaudited, amounts in thousands)

Level 1

Level 2

Level 3

Assets

Marketable securities

$
1,141

$
37,173

$
—

Held-to-maturity investments

3,340

—

—

Cost basis investment

—

—

10,954

Total assets

$
4,481

$
37,173

$
10,954

Liabilities

Contingent consideration liability

$
—

$
—

$
344

At ~~October~~July 27, ~~2018,~~2019 and April ~~28, 2018,~~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 ~~October~~July 27, ~~2018,~~2019, our Level 3 investments included preferred shares of two privately-held companies, and a warrant to purchase common shares of one of these ~~privately-held~~privately-

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held companies. The fair value for our Level 3 investments is not readily available 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. Our Level 3 liability includes our contingent consideration liabilities on recent acquisitions. We estimated the provisional fair value of the ~~$3.3~~$7.9 million contingent consideration liability for the acquisition of ~~Joybird (see Note 2 for more information).~~Joybird. The fair value of contingent consideration is 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 ~~was~~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 ~~4.65%~~4.2% for the fiscal 2021 milestone and ~~5.05%~~4.7% for the fiscal 2023 milestone. We estimated the fair value of the remainder of our Level 3 contingent consideration liabilities using the present value of the probability-weighted future cash flows.

There were no changes to the fair value of our Level 3 assets and liabilities during the first ~~six months~~quarter of fiscal ~~2019. The following table is a reconciliation of our Level 3 liabilities recorded at fair value using significant unobservable inputs:~~

(Unaudited, amounts in thousands)

Level 3

Liabilities

Balance at April 28, 2018

$
344

Acquisitions

3,300

Translation adjustment

(23
)
Balance at October 27, 2018

$
3,621

2020. Our asset leveling presented above does not include certain marketable securities investments that are measured at fair value using net asset value per share under the practical expedient methodology. These investments are still included in the total fair value column of the table in our investment footnote (see Note 6)7). The fair value of the investments measured using net asset value at ~~October~~July 27, ~~2018,~~2019, and April ~~28, 2018,~~27, 2019, was ~~$6.8~~$11.4 million and ~~$6.7~~$7.7 million, respectively.

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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 ~~the North American Free Trade Agreement;~~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 ~~fiscal 2018~~ 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 ~~Securities and Exchange Commission.~~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.

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Introduction

~~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. We have~~productsunder the Kincaid^®, American Drew^®, Hammary^®, and Joybird^® tradenames. As of July 27, 2019, we had seven 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. On August 8, 2019, we announced that as part of our supply chain optimization initiative, we will be closing one of our manufacturing facilities, located in Redlands, California. We expect to cease operations in Redlands by the end of October 2019. 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 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, ~~la-z-boy.com~~www.la-z-boy.com and ~~joybird.com.~~www.joybird.com. The centerpiece of our retail distribution strategy is our network of ~~353~~352 La-Z-Boy Furniture Galleries^® stores and ~~543~~554 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 ~~157~~155 of the La-Z-Boy Furniture Galleries^® stores. The

remainder of the La-Z-Boy Furniture Galleries^® stores, as well as all ~~543~~554 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~~7.8 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America. ~~Additionally,~~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 totals approximately 2.5 million square feet.~~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 ~~572~~595 outlets and approximately ~~1.7~~1.9 million square feet of proprietary floor space. In total, our proprietary floor space includes approximately ~~12.1~~12.4 million square feet worldwide. Joybird, which we acquired in the second quarter of fiscal 2019, sells product almost exclusively online and has a limited amount of proprietary retail floor space it uses as a showroom 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.

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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 2,100 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 a 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 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^TMand eco-friendly Conserve ^TMfabrics and our power products, some of which include dual mechanisms and articulating headrests. Our recent 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.

●

Our multi-faceted online strategy to participate in and leverage the growth of online furniture sales. On July 30, 2019, 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 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 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, over 2,000 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 innovative and on-trend product 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, we are focusing 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 assortment, customize products to their liking, find stores to make a purchase, or purchase at la-z-boy.com.

·~~Our innovative products, including stain-resistant iClean~~TM ~~fabrics and our power products, some of which include dual mechanisms and articulating headrests.~~ ~~Our newest 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 are finalizing our new state-of-the-art Innovation Center at our Dayton, Tennessee campus. We expect construction of the Innovation Center to be completed by the end of this fiscal year.~~

·~~Our multi-faceted online strategy to participate in and leverage the growth of online furniture sales.~~ In July 2018 we purchased Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture, which will position us for growth in the ever-changing online selling environment and allow 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 ~~reportable~~ 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

Table 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 Contents

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 comprising of our 157 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 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 exclusively online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments at this time.

●

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 that 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 almost exclusively online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments at this time.

Results of Operations

Fiscal ~~2019 Second~~2020 First Quarter ~~and Six Months~~ Compared with Fiscal ~~2018 Comparable Periods~~2019 First Quarter

La-Z-Boy Incorporated


	Quarter			Quarter
	Ended			Ended			%
(Unaudited, amounts in thousands, except percentages)	7/27/19			7/28/18			Change
Sales	$	413,633		$	384,695		7.5	%
Operating income		23,422			23,160		1.1	%
Operating margin		5.7	%		6.0	%

~~La-Z-Boy Incorporated~~Sales

(Unaudited, amounts
in thousands,
except percentages)

Quarter
Ended
10/27/18

Quarter
Ended
10/28/17

%
Change

Six Months
Ended
10/27/18

Six Months
Ended
10/28/17

%
Change

Sales

$
439,333

$
393,205

11.7
%
$
824,028

$
750,284

9.8
%
Operating income

28,500

34,269

(16.8
)%
51,660

50,567

2.2
%
Operating margin

6.5
%
8.7
%

6.3
%
6.7
%

~~Sales~~

Consolidated sales increased ~~$46.1 million and $73.7~~$28.9 million in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019, respectively,~~2020 compared with the ~~same periods a year ago,~~first quarter of fiscal 2019, due to growth in our ~~core businesses~~Retail segment and ~~sales~~ from our recent ~~acquisitions.~~acquisition of Joybird. Sales in our Upholstery segment ~~increased due to favorable changes in our product mix and higher selling prices.~~were flat. Sales in our Casegoods segment ~~increased~~decreased due to ~~higher volume. In~~lower units. Sales increased in our Retail segment, ~~sales increased~~primarily due to our acquired stores ~~and~~as well as delivered same-store sales ~~increases during the quarter and first six months.~~increases. Sales also benefitted from the acquisition of the Joybird ecommerce business reflected in Corporate & Other.

Operating Margin

Operating margin decreased ~~220 basis points and 40 basis points in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.~~

· ~~Gross margin increased~~ 30 basis points ~~in the second quarter and was flat in the first six months of fiscal 2019, compared with the same periods a year ago.~~

· ~~Our consolidated gross margin increased due to the inclusion of Joybird, which has a higher gross margin than our Upholstery and Casegoods reportable segments.~~

· The Upholstery segment’s gross margin declined in the second quarter due to inflationary pressures in our supply chain, as well as changes in our product mix, offset somewhat by higher selling prices.

· ~~The Casegoods segment’s gross margin declined in the second quarter primarily due to higher freight costs on imported product.~~

· Our Retail segment’s gross margin declined in the second quarter due to the incremental expense recorded upon the sale of inventory acquired at fair value during the quarter in conjunction with the purchase accounting on our business acquisitions.

· Selling, general, and administrative (“SG&A”) expenses as a percentage of sales increased 250 basis points and 40 basis points in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.

· Advertising expense as a percentage of sales was 100 basis points and 30 basis points higher during the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago. The increase is primarily due to the acquisition of Joybird, which is advertising at a higher rate than our core businesses as it continues to grow the brand.

· Incentive compensation costs as a percentage of sales were 60 basis points higher during the second quarter compared with the same period a year ago, and were essentially flat for the first six months of fiscal 2019 compared with the same period a year ago.

· ~~The increase in the second quarter was due to a change in the vesting provisions of certain equity awards granted to our retirement-eligible employees, which resulted in~~

~~our recognizing the expense over the full fiscal year 2019, compared with fully recognizing the expense~~ in the first quarter of fiscal 2018. Additionally, we incurred higher costs in the first six months of fiscal 2019 due to our improved financial performance against certain performance metrics during fiscal 2019. Partly offsetting these cost increases was a decline in our stock price during the first six months of fiscal 2019, which affected the cost we recognized for certain stock-based compensation awards that are accounted for as liabilities.

· ~~Joybird acquisition related costs increased our SG&A expense as a percentage of sales by 20 basis points and 10 basis points in the second quarter and first six months of fiscal 2019, respectively,~~2020 compared with the ~~same periods a year ago. These costs included compensation expense related to the forfeitable portion of the purchase price should any of the four co-founders resign within the~~ first ~~two years and expense related to amortization of the Joybird~~® ~~trade name over its useful life.~~

· ~~In fiscal 2018, we recorded a $1.7 million insurance gain in the second~~ quarter and first six months related to the fire in our England subsidiary’s corporate office building, and this negatively impacted the comparison of our SG&A expense as a percentage of sales by 40 basis points and 20 basis points in the second quarter and first six months of fiscal ~~2019, respectively, compared with the same periods a year ago.~~2019.

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●

Gross margin increased 200 basis points in the first quarter of fiscal 2020 compared with the same period a year ago.

Changes in our consolidated sales mix increased gross margin 140 basis points in the first quarter of fiscal 2020 compared with the same quarter last fiscal year. This benefit was driven by the growth of our Retail segment and the acquisition of Joybird, which have higher gross margins than our Upholstery and Casegoods segments.

As announced on August 8, 2019, to further strengthen our supply chain manufacturing footprint, the company will close its Redlands, California upholstered furniture manufacturing facility and move production to available capacity at its other North American facilities. In addition, the company will transition the leather cut-and-sew operation from its Newton, Mississippi upholstered furniture manufacturing plant to its other North American-based cut and sew facility. In connection with these actions, we recognized a severance liability that was probable and estimable at the end of the reporting period, which resulted in a gross margin decrease of 40 basis points.

Our Upholstery segment’s gross margin increased primarily due to improved raw material costs and improved supply chain performance which offset other higher input costs.

Our Casegoods segment’s gross margin decreased primarily due to decreased sales volume, higher ocean freight costs, and the impact of tariffs on goods imported from China.

Our Retail segment’s gross margin decreased primarily due to higher tariff costs, partly offset by our acquired stores, which have gross margins that are slightly higher than our average store, as well as higher design services and custom sales.

●

Selling, general, and administrative (“SG&A”) expenses as a percentage of sales increased 230 basis points in the first quarter of fiscal 2020 compared with the same period a year ago.

Changes in our consolidated sales mix increased SG&A expenses as a percentage of sales by 300 basis points in the first quarter of fiscal 2020 compared to the same quarter 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.

Additionally, purchase accounting charges related to our acquisitions increased SG&A expenses as a percentage of sales 30 basis points.

Offsetting these changes, SG&A expense as a percentage of sales benefitted from the leverage of fixed costs on higher sales volume in our Retail segment.

We discuss each segment’s results in the following section.

Upholstery Segment



	Quarter			Quarter
	Ended			Ended			%
(Unaudited, amounts in thousands, except percentages)	7/27/19			7/28/18			Change
Sales	$	293,416		$	293,398		0.0	%
Operating income		26,267			23,884		10.0	%
Operating margin		9.0	%		8.1	%

~~Upholstery Segment~~Sales

(Unaudited, amounts
in thousands,
except percentages)

Quarter
Ended
10/27/18

Quarter
Ended
10/28/17

%
Change

Six Months
Ended
10/27/18

Six Months
Ended
10/28/17

%
Change

Sales

$
317,093

$
304,761

4.0
%
$
610,491

$
579,168

5.4
%
Operating income

32,152

33,424

(3.8
)%
56,036

56,723

(1.2
)%
Operating margin

10.1
%
11.0
%

9.2
%
9.8
%

~~Sales~~

The Upholstery segment’s sales ~~increased $12.3 million, or 4.0%, and $31.3 million, or 5.4%,~~were flat in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019, respectively,~~2020 compared with the ~~same periods a year ago, primarily due to favorable changes in our product mix~~first quarter of fiscal 2019. Tariff surcharges and higher selling ~~prices. Changes in product mix resulted in a 2.4%~~prices increased sales by 1.8% and ~~a 2.6% increase in sales in the second quarter and first six months of fiscal 2019,~~0.5%, respectively, ~~compared with the same periods a year ago, primarily due to higher sales of our duo~~® product. Price increases we took over the last eleven months in response to inflationary pressure on raw materials resulted in a 1.0% and a 1.2% increase in sales in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago. Higher unit volume resulted in a 0.6% increase in sales in the first ~~six months~~quarter of fiscal ~~2019~~2020 compared with the same period a year ago. Lower unit sales from our England

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subsidiary and our international distribution channel more than offset North American La-Z-Boy sales, resulting in a 1.8% decrease in sales. Changes in our product mix drove a reduction in sales due to lower sales of our duo^® product partly offset by higher sales of occasional chairs and sectionals.

Operating Margin

Operating margin ~~decreased 90 basis points and 60 basis points in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.~~

· ~~Gross margin declined 70 basis points and~~improved 90 basis points in the ~~second~~first quarter ~~and~~of fiscal 2020 compared with the first ~~six months~~quarter of fiscal 2019.

●

Gross margin increased 100 basis points in the first quarter of fiscal 2020 compared with the same period a year ago.

Changes in raw material prices, primarily for polyurethane foam, plywood and leather sets, provided an 80 basis point benefit to the segment’s gross margin.

We experienced improvements in our supply chain, including procurement, manufacturing operations and logistics, which increased the segment’s gross margin by 50 basis points.

Higher selling prices, net of discounts, resulted in a 40 basis point increase in gross margin.

In connection with our supply chain optimization initiative, we recognized a severance liability that was probable and estimable at the end of the reporting period, which resulted in a gross margin decrease of 50 basis points.

●

SG&A expense as a percentage of sales was essentially flat, increasing 10 basis points in the first quarter of fiscal 2020 compared with the same period a year ago.

Casegoods Segment



	Quarter			Quarter
	Ended			Ended			%
(Unaudited, amounts in thousands, except percentages)	7/27/19			7/28/18			Change
Sales	$	27,135		$	28,386		(4.4)	%
Operating income		2,597			3,080		(15.7)	%
Operating margin		9.6	%		10.9	%

Sales

The Casegoods segment’s sales decreased $1.3 million in the first quarter of fiscal 2020 compared with the first quarter of fiscal 2019 ~~respectively, compared with the same periods a year ago.~~primarily due to lower sales volume that was partly due to inventory delays from one of our Asian suppliers.

· ~~We experienced inflationary pressures in our supply chain, including procurement, manufacturing operations and logistics, which~~Operating Margin

Operating margin decreased ~~the segment’s gross margin by 90~~

~~basis points and 140 basis points in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.~~

· A shift in product mix resulted in a 50 basis point and a 40 basis point reduction in the segment’s gross margin for the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.

· Partially offsetting these items were selling price increases, which provided a 70 basis point and a 90 basis point benefit to gross margin in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.

· ~~SG&A expense as a percentage of sales increased 20 basis points in the second quarter and improved 30~~130 basis points in the first ~~six months~~quarter of fiscal ~~2019,~~2020 compared with the ~~same periods a year ago. The increase during the~~first quarter was primarily a result of an increase in incentive compensation expense due to the segment’s improved financial performance against certain performance metrics. The improvement in the first six months was primarily due to favorable absorption of fixed costs on our higher sales volume, partly offset by higher incentive compensation costs.

~~Casegoods Segment~~

(Unaudited, amounts in
thousands,
except percentages)

Quarter
Ended
10/27/18

Quarter
Ended
10/28/17

%
Change

Six Months
Ended
10/27/18

Six Months
Ended
10/28/17

%
Change

Sales

$
31,377

$
28,065

11.8
%
$
59,763

$
53,575

11.6
%
Operating income

3,761

3,302

13.9
%
6,841

6,041

13.2
%
Operating margin

12.0
%
11.8
%

11.4
%
11.3
%

~~Sales~~

~~The Casegoods segment’s sales increased $3.3 million and $6.2 million in the second quarter and first six months~~ of fiscal 2019, respectively, compared with the same periods a year ago, primarily due to higher volume achieved through improved product styling, expanding floor space with existing retailers, and a reliable in-stock position.2019.

●

Gross margin decreased 70 basis points in the first quarter of fiscal 2020, compared with the same quarter a year ago primarily due to a decrease in units sold, higher ocean freight costs, and the impact of tariffs on goods imported from China.

●

SG&A expense as a percentage of sales was 60 basis points higher in the first quarter of fiscal 2020 compared with the same quarter a year ago, primarily due to the inability to absorb fixed selling costs on lower sales volume.

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Retail Segment


	Quarter			Quarter
	Ended			Ended			%
(Unaudited, amounts in thousands, except percentages)	7/27/19			7/28/18			Change
Sales	$	142,996		$	119,228		19.9	%
Operating income		8,477			4,458		90.2	%
Operating margin		5.9	%		3.7	%

~~Operating Margin~~Sales

~~Operating margin increased 20 basis points and 10 basis points in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.~~

· Gross margin declined 10 basis points and 20 basis points in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago, primarily due to higher freight costs on imported product.

· SG&A expense as a percentage of sales improved 30 basis points in both the second quarter and first six months of fiscal 2019, compared with the same periods a year ago due to favorable absorption of fixed SG&A costs on our higher sales volume.

~~Retail Segment~~

(Unaudited, amounts
in thousands,
except percentages)

Quarter
Ended
10/27/18

Quarter
Ended
10/28/17

%
Change

Six Months
Ended
10/27/18

Six Months
Ended
10/28/17

%
Change

Sales

$
139,686

$
116,737

19.7
%
$
258,914

$
227,253

13.9
%
Operating income

6,563

3,903

68.2
%
11,021

5,670

94.4
%
Operating margin

4.7
%
3.3
%

4.3
%
2.5
%

~~Sales~~

The Retail segment’s sales increased ~~$22.9 million~~ ~~and $31.7~~$23.8 million in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019, respectively,~~2020 compared with the ~~same periods a year ago.~~first quarter of fiscal 2019. In the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019,~~2020, sales ~~increased by $16.8 million and $18.4 million, respectively, due~~attributable to acquired ~~stores. In the second quarter~~stores increased $18.9 million and ~~first six months of fiscal 2019,~~ delivered same-store sales increased ~~$4.6~~3.5%, or $4.2 million, ~~and $9.4 million, increases~~compared to the first quarter of ~~4.0% and 4.3%, respectively.~~fiscal year 2019. The higher delivered same-store sales were primarily driven by ~~our~~improved execution at the store level. The remainder of a variety of strategies to drive traffic to our stores and convert that traffic into sales. These strategies resulted in improved conversion of store traffic, increased design services and custom orders, all of which resulted in a higher average ticket. Additionally, during the ~~second quarter and first six months of fiscal 2019, we added $1.6 million and $3.9 million, respectively,~~increase in sales ~~from~~was due to the impact of new ~~stores that were not open in the prior-year period.~~and closed stores.

Operating Margin

Operating margin increased ~~140 basis points~~ ~~and 180~~220 basis points in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019, respectively,~~2020 compared with the ~~same periods a year ago.~~

· ~~Gross margin declined 30 basis points and 10 basis points in the second~~first quarter ~~and first six months~~ of fiscal 2019, respectively, compared with the same periods a year ago, primarily due to recognizing $1.1 million of incremental expense upon the sale of inventory acquired at fair value during the quarter in conjunction with the purchase accounting on our business acquisitions. Partly offsetting these charges was the benefit of acquired stores, which drove an improvement in gross margin in the fiscal 2019 periods.2019.

· SG&A expense as a percentage of sales improved 170 basis points and 190 basis points in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago. We were better able to leverage our fixed costs (primarily occupancy and administrative costs) on increased sales at stores that have been open for at least 12 months. Additionally, acquired stores operate with lower SG&A as a percentage of sales compared with our existing stores.

●

Gross margin decreased 30 basis points in the first quarter of fiscal 2020 compared with the first quarter of fiscal 2019, primarily due to tariff costs for finished goods imported from China, primarily on occasional tables. This impact was partially offset by the benefit of acquired stores, which have gross margins that are slightly higher than our average store.

●

SG&A expense as a percentage of sales improved 250 basis points in the first quarter of fiscal 2020 compared with the same period a year ago as we were better able to leverage our fixed costs (primarily occupancy, advertising and administrative costs) on increased delivered same-store sales. Additionally, acquired stores operate with lower SG&A expense as a percentage of sales compared with our existing stores.

Corporate and Other

Quarter

Quarter

Ended

Ended

%

(Unaudited, amounts in thousands, except percentages)

7/27/19

7/28/18

Change

Sales

$
20,552

$
3,865

431.7
%
Eliminations

(70,466)

(60,182)

(17.1)
%
Operating loss

(13,919)

(8,262)

(68.5)
%

Sales
(Unaudited, amounts in
thousands,
except percentages)

Quarter
Ended
10/27/18

Quarter
Ended
10/28/17

%
Change

Six Months
Ended
10/27/18

Six Months
Ended
10/28/17

%
Change

Sales

$
22,378

$
2,903

670.9
%
$
26,243

$
5,563

371.7
%
Eliminations

(71,201
)
(59,261
)
(20.1
)%
(131,383
)
(115,275
)
(14.0
)%
Operating loss

(13,976
)
(6,360
)
(119.7
)%
(22,238
)
(17,867
)
(24.5
)%
~~Sales~~

Sales increased in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019~~2020 compared with the ~~same periods a year ago~~first quarter of fiscal 2019 primarily due to the acquisition of Joybird, which contributed ~~$18.5~~$17.2 million in sales in the fiscal 2019 periods. Additionally, an increase in intercompany commission revenue charged to our reportable segments by our global trading company in Hong Kong contributed to the sales increase in both periods.sales.

Eliminations increased in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019~~2020 compared with the ~~same periods a year ago~~first quarter of fiscal 2019 due to higher sales from our Upholstery and Casegoods segments to our Retail segment, ~~mainly because of the~~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 ~~was $7.6~~increased $5.7 million ~~and $4.4 million higher in the second quarter and first six months of fiscal 2019, respectively, compared with the same periods a year ago.~~

· We incurred higher incentive compensation costs in the second quarter, primarily due to a change in the vesting provisions of certain equity awards granted to our retirement eligible employees, which resulted in the expense being recognized over the full fiscal year 2019, compared with being recognized fully in the first quarter of fiscal ~~2018. Additionally, we incurred higher costs during~~2020 compared with the first ~~six months~~quarter of fiscal 2019, ~~due to our improved financial performance against certain performance metrics during fiscal 2019. Partly offsetting these cost increases~~and was ~~a decline in our stock price during the first six months of fiscal 2019, which affected the cost recognized for certain stock-based compensation awards that are accounted for as liabilities.~~

· ~~Fiscal 2019 periods include~~primarily driven by the operating ~~loss and~~results of our Joybird acquisition as well as $1.1 million of purchase accounting ~~adjustments related to~~charges. The Joybird operating loss was higher in the ~~Joybird acquisition.~~

· ~~In the second~~first quarter of fiscal ~~2018, we recognized a $1.7 million insurance gain related to~~2020 than in the ~~fire in~~prior three quarters since our ~~England subsidiary’s corporate office building,~~acquisition, driven by lower seasonal sales volume and ~~this negatively impacted our operating results when compared to the respective fiscal 2019 periods.~~consistent customer acquisition costs.

Non-Operating Income (Expense)

Other Income (Expense), Net

Other income (expense), net was ~~$2.0~~$0.8 million of expense in the ~~second~~first quarter of fiscal ~~2019~~2020 compared with $0.9 million of ~~expense~~income in the ~~second~~first quarter of fiscal ~~2018.~~2019. The expense in first quarter of fiscal year 2020 was primarily due to foreign exchange losses, partially offset by unrealized gains on investments. The income in fiscal 2019 was primarily due to exchange rate ~~changes, unrealized losses on investments,~~ and ~~pension and retirement-related expenses. The expense in fiscal 2018 was primarily due to exchange rate changes and pension and retirement-related expenses.~~

Other income (expense), net was $1.1 million of expense in the first six months of fiscal 2019 compared with $0.8 million of income in the first six months of fiscal 2018. The expense in the first six months of fiscal 2019

was primarily due to unrealized losses on investments, pension and retirement-related expenses, which was somewhat offset by exchange rate gains. The income in the first six months of fiscal 2018 was primarily due to a gain on investments when our available-for-sale convertible debt security converted to preferred shares of a privately-held company and exchange rateinvestment gains, ~~which was somewhat~~partially offset by pension ~~and retirement-related expenses.~~costs.

Income Taxes

Our effective tax rate was 22.0% for the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2019 was 22.9%,~~2020, as compared with ~~30.8% and 32.5%~~22.8% in the ~~second~~first quarter ~~and first six months~~ of fiscal ~~2018, respectively.~~2019. 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 ~~second~~first quarter of fiscal ~~2019~~2020 would have been ~~24.7%~~25.2%.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law. Most of its provisions are effective for tax years beginning on or after January 1, 2018. Because we are a fiscal year U.S. taxpayer, the majority of the provisions, such as elimination of the domestic manufacturing deduction, new taxes on certain foreign-sourced income and new limitations on certain business deductions, began applying to us in fiscal 2019. In December of 2017, the SEC staff issued SAB 118, which provides that companies that have not completed their accounting for the effects of the Tax Act but can determine a reasonable estimate of those effects should include in their financial statements a provisional amount based on their reasonable estimate. The guidance in SAB 118 also allows companies to adjust the provisional amounts during a one year measurement period similar to the measurement period used when accounting for business combinations. We continue to analyze provisions of the Tax Act and review guidance issued from regulators to determine if they will impact our effective tax rate in fiscal 2019 or in the future. As of October 27, 2018, we have not recorded any adjustments to the provisional estimates we previously recorded as of the prior year end related to the transition tax. We will continue to refine our provisional adjustments through the permissible measurement period, which is not to extend beyond one year of the enactment date.
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 ~~$95.9~~$113.6 million at ~~October~~July 27, ~~2018,~~2019, compared with ~~$136.9~~$131.8 million at April ~~28, 2018.~~27, 2019. In addition, we had investments to enhance our returns on cash of ~~$29.8~~$32.9 million at ~~October~~July 27, ~~2018,~~2019, compared with ~~$34.4~~$31.5 million at April ~~28, 2018.~~27, 2019.

We maintain a revolving credit facility secured primarily by all of 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 ~~October~~July 27, ~~2018,~~2019, we were not subject to the fixed-charge coverage ratio requirement, had ~~$35.0 million of~~no borrowings outstanding under the agreement, and had excess availability of ~~$113.1~~$138.8 million of the $150.0 million credit commitment.

~~Our capital~~Capital expenditures for ~~the~~ first ~~six months~~quarter of fiscal ~~2019~~2020 were ~~$26.9~~$12.3 million compared with ~~$16.4~~$15.9 million during the first ~~six months~~quarter of fiscal ~~2018.~~2019. Capital expenditures in the first ~~six months~~quarter of fiscal ~~2019 were~~
~~primarily related to the construction of our new Innovation Center in Dayton, Tennessee,~~2020 included spending on manufacturing machinery and equipment, upgrades to our ~~Upholstery~~upholstered furniture manufacturing plant in Dayton, Tennessee, ~~expansion~~and completion of our England ~~subsidiary plant, and~~subsidiary’s construction of atheir new corporate office ~~building for our England subsidiary, all of which we expect to be completed this fiscal year.~~building. We have no material contractual commitments outstanding for future capital expenditures. We expect ~~total~~ capital expenditures to be in the range of ~~$45~~$50 to ~~$50~~$60 million for fiscal ~~2019. We expect capital expenditures to be higher during fiscal 2019 than fiscal 2018 due to the construction~~2020, consisting of, ~~a new corporate office building and a~~among other things, plant ~~expansion for our England subsidiary, plant~~

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upgrades to our ~~Upholstery~~upholstered furniture manufacturing ~~facility~~facilities in Dayton, Tennessee and ~~the relocation of one~~Neosho, Missouri, as well as improvements to several of our ~~regional distribution centers, all of which we anticipate being completed by the end of fiscal 2019.~~retail stores.

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 ~~October~~July 27, ~~2018, 6.3~~2019, 5.5 million shares remained available for purchase pursuant to this authorization. ~~The authorization has no expiration date.~~ We purchased 0.4 million shares during the first ~~six months~~quarter of fiscal ~~2019,~~2020, for a total of ~~$11.6~~$12.3 million. With the cash flows we anticipate generating in fiscal ~~2019,~~2020, we expect to continue being opportunistic in purchasing company stock.

The following table illustrates the main components of our cash flows:

	Six Months Ended

							Quarter Ended
(Unaudited, amounts in thousands)	10/27/18			10/28/17			7/27/19		7/28/18
Cash Flows Provided By (Used For)
Net cash provided by operating activities	$	46,084		$	51,224		$	19,340	$	32,154
Net cash used for investing activities	(102,140		)	(37,136		)		(18,301)		(15,182)
Net cash provided by (used for) financing activities	16,035			(41,115		)
Net cash used for financing activities								(19,889)		(15,637)
Exchange rate changes	(982		)	865				655		(1,601)
Change in cash, cash equivalents and restricted cash	$	(41,003	)	$	(26,162	)	$	(18,195)	$	(266)

Operating Activities

During the first ~~six months~~quarter of fiscal ~~2019,~~2020, net cash provided by operating activities was ~~$46.1~~$19.3 million. Our cash provided by operating activities was primarily attributable to net income generated during the ~~first six months. Partially offsetting net income~~quarter and $8.5 million from the collection of accounts receivable. This was ~~$7.0~~partially offset by a $15.2 million ~~used for a discretionary pension contribution and $7.5 million used for prepaid compensation related~~decrease in accrued expenses due to the ~~Joybird acquisition.~~payout of fiscal 2019 incentive compensation awards during the first quarter of fiscal 2020.

During the first ~~six months~~quarter of fiscal ~~2018,~~2019, net cash provided by operating activities was ~~$51.2~~$32.2 million and was primarily attributable to net income we generated during the ~~first six months~~quarter and cash collections of ~~fiscal 2018 and $6.2~~$14.2 million from ~~a reduction in~~ accounts receivable. Our accounts receivable are typically at a lower level in the first quarter of our fiscal year primarily due to lower sales volume and ongoing collection of prior receivables. In the first ~~six months~~quarter of fiscal ~~2018,~~2019, the net income we generated and cash we collected was somewhat offset by ~~an increase in~~cash used to fund inventory growth during the quarter to ensure that our inventories ~~of $4.1 million and a $2.0 million discretionary pension contribution.~~were aligned with our sales volume.

Investing Activities

During the first ~~six months~~quarter of fiscal ~~2019,~~2020, net cash used for investing activities was ~~$102.1~~$18.3 million primarily due to ~~$78.1 million used for acquisitions and $26.9~~$12.3 million used for capital ~~expenditures. Our cash used for acquisitions during the period included~~expenditures and $5.4 million related to 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.~~Joybird. 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~~upholstered furniture manufacturing facility, ~~expansion~~and completion of our England subsidiary’s ~~plant and construction of their~~ new corporate office ~~building, and relocation of one of our regional distribution centers.~~building.

During the first ~~six months~~quarter of fiscal ~~2018,~~2019, net cash used for investing activities was ~~$37.1~~$15.2 million ~~which included $15.9 million~~primarily due to ~~fund the acquisition of the La-Z-Boy wholesale business in the United Kingdom and Ireland, $16.4 million for~~ capital ~~expenditures, and $7.0 million for net investment increases.~~expenditures. Our capital expenditures during the period primarily related to spending on manufacturing machinery and equipment ~~our continued ERP system implementation,~~ and construction onof our new Innovation Center. ~~Additionally, per the terms~~

Table of the purchase agreement for the La-Z-Boy wholesale business in the United Kingdom and Ireland, payment for the business was due 90 business days following the date of acquisition, and accordingly, we made that payment duringContents

Financing Activities

During the first quarter of fiscal ~~2018.~~

~~Financing Activities~~

~~During the first six months of fiscal 2019,~~2020, net cash ~~provided by~~used for financing activities was ~~$16.0~~$19.9 million, primarily due to ~~$35.0 million borrowed from our credit facility during the second quarter. This was partly offset by $11.6~~$12.3 million used to purchase our common stock pursuant to our share repurchase authorization and ~~$11.3~~$6.1 million paid to our shareholders in quarterly dividends.

During the first ~~six months~~quarter of fiscal ~~2018,~~2019, net cash used for financing activities was ~~$41.1~~$15.6 million, including ~~$30.7~~$7.9 million used to purchase our common stock pursuant to our share repurchase authorization and ~~$10.6~~$5.6 million paid to our shareholders in quarterly dividends.

Exchange Rate Changes

~~During the first six months of fiscal 2019, our cash, cash equivalents, and restricted cash decreased by $1.0 million due~~Due to changes in exchange rates, ~~since the end of fiscal 2018, which negatively impacted our cash balances held in Canada, Thailand and the United Kingdom.~~

~~During the first six months of fiscal 2018,~~ our cash, cash equivalents, and restricted cash increased by ~~$0.9~~$0.7 million ~~due to changes in exchange rates since~~and decreased by $1.6 million from the end of fiscal ~~2017, which positively~~year 2019 to the end of the first quarter of fiscal 2020 and from the end of fiscal 2018 to the end of the first quarter of fiscal 2019, respectively. These changes impacted our cash balances held in Canada, ~~Thailand and~~ the United ~~Kingdom.~~

~~Other~~Kingdom, and Thailand.

~~The following table summarizes~~Other

During the first quarter of fiscal 2020, there were no material changes to the information about our contractual obligations ofand commitment shown in the ~~types specified:~~table contained in our fiscal 2019 Annual Report on Form 10-K.

Payments Due by Period

(Unaudited, amounts in thousands)

Total

Less than
1 Year

1-3 Years

4-5
Years

More
than 5
Years

Short-term debt obligations

$
35,000

$
35,000

$
—

$
—

$
—

Capital lease obligations

306

217

89

—

—

Operating lease obligations

408,783

75,936

135,021

87,746

110,080

Purchase obligations*

97,443

97,443

—

—

—

Interest obligations

2,511

928

1,121

462

—

Contingent consideration

3,621

—

2,521

1,100

—

Future guaranteed payments

23,789

4,885

10,464

8,440

—

Legal liability

3,208

1,750

1,458

—

—

Total contractual obligations

$
574,661

$
216,159

$
150,674

$
97,748

$
110,080

*We have purchase order commitments of $97.4 million related to open purchase orders, primarily with foreign and domestic casegoods, leather and fabric suppliers, which are generally cancellable if production has not begun.

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 ~~fiscal 2018~~ Annual Report on Form ~~10-K.~~10-K for the fiscal year ended April 27, 2019. There were no material changes to our critical accounting policies during the ~~first six~~three months ~~of fiscal~~ended July 27, 2019, except for changes related to our adoption of Accounting Standards Codification Topic ~~606~~842 as described in Note ~~11.~~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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the first ~~six months~~quarter of fiscal ~~2019,~~2020, there were no material changes from the information contained in Item 7A of our Annual Report on Form 10-K for the fiscal ~~2018.~~year ended April 27, 2019.

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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 ~~Securities and~~
~~Exchange Commission’s~~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 first ~~six months~~quarter of fiscal ~~2019~~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 ofacquired 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 ofacquired from EBCO, Inc. into our operations, compliance programs, and internal control processes. ~~As permitted by SEC guidance, management intends to exclude Joybird and the EBCO, Inc. operations from its assessment of internal controls over financial reporting as of April 27, 2019.~~

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS

We disclosed our risk factors in our Form 10-K for the fiscal year ended April ~~28, 2018.~~27, 2019. There have been no material changes to our risk factors during the first ~~six months~~quarter of fiscal ~~2019.~~2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Our board of directors has authorized the purchase of company stock. As of October 27, 2018, 6.3 million shares remained available for purchase pursuant to this authorization. We spent $11.6 million in the first six months of fiscal 2019 to purchase 0.4 million shares. During the ~~second~~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 ~~September 10, 2018.~~April 1, 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 ~~expires~~expired at the close of business on ~~December 28, 2018.~~July 26, 2019. We spent $12.3 million in the first quarter of fiscal 2020 to purchase 0.4 million shares. As of July 27, 2019, 5.5 million shares remained available for purchase pursuant to the board authorization. With the cash flows we anticipate generating in fiscal ~~2019,~~2020, we expect to continue being opportunistic in purchasing company stock.

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The following table summarizes our purchases of company stock during the quarter ended ~~October~~July 27, ~~2018:~~2019:

(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 August (July 29 — September 1, 2018)

8

$
31.35

8

6,420

Fiscal September (September 2 — September 29, 2018)

39

$
32.34

38

6,382

Fiscal October (September 30 — October 27, 2018)

75

$
29.17

74

6,308

Fiscal Second Quarter of 2019

122

$
30.34

120

6,308

Total number

Maximum

of shares

number of

Total

purchased as

shares that

number of

Average

part of

may yet be

shares

price

publicly

purchased

purchased

paid per

announced

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

(1)

share

plan (2)

plan
Fiscal May (April 28 – June 1, 2019)

99

$
33.24

99

5,834
Fiscal June (June 2 – June 29, 2019)

280

$
30.79

224

5,610
Fiscal July (June 30 – July 27, 2019)

68

$
30.98

68

5,542
Fiscal First Quarter of 2020

447

$
31.36

391

5,542

(1)In addition to the ~~120,770~~391,004 shares we purchased during the quarter as part of our publicly announced, board-authorized plan described above, this column includes ~~1,206~~56,389 shares purchased from employees to satisfy their withholding tax obligations upon vesting of restricted shares and performance based 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 were added to the plan for repurchase. The authorization has no expiration date.

ITEM 6. EXHIBITS

Exhibit

Number

Description
(31.1)

Certifications of Chief Executive Officer pursuant to Rule ~~13a-14(a)~~13a14(a)
(31.2)

Certifications of Chief Financial Officer pursuant to Rule ~~13a-14(a)~~13a14(a)
(32)

Certifications of Executive Officers pursuant to 18 U.S.C. Section 1350(b)
(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 July 27, 2019, formatted in Inline XBRL (included in Exhibit 101)

38
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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: November 28, 2018~~

Date: August 20, 2019

BY:
/s/ Lindsay A. Barnes

Lindsay A. Barnes

Vice President, Corporate Controller and Chief Accounting Officer

43

39

(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 29, 2017	$	48,472		$	289,632		$	284,698		$	(32,883	)	$	11,186		$	601,105
Net income							80,866						729			81,595
Other comprehensive income										7,684			1,120			8,804
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax	311			4,046			(1,380		)							2,977
Purchases of 1,995 shares of common stock	(1,995		)	(4,204		)	(50,531		)							(56,730		)
Stock option and restricted stock expense				9,474												9,474
Dividends paid							(22,009		)							(22,009		)
At April 28, 2018	46,788			298,948			291,644			(25,199		)	13,035			625,216
Net income							38,315						985			39,300
Other comprehensive loss										(1,493		)	(609		)	(2,102		)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax	495			5,706			(2,162		)							4,039
Purchases of 378 shares of common stock	(378		)	(2,632		)	(8,600		)							(11,610		)
Stock option and restricted stock expense				5,679												5,679
Cumulative effect adjustment for investments, net of tax							1,637			(1,637		)				—
Dividends paid							(11,278		)							(11,278		)
Dividends declared not paid							(13		)							(13		)
At October 27, 2018	$	46,905		$	307,701		$	309,543		$	(28,329	)	$	13,411		$	649,231

(Unaudited, amounts in thousands)	Upholstery Segment			Retail Segment			Corporate and Other		Total Goodwill
Balance at April 28, 2018	$	12,967		$	62,287		$	—	$	75,254
Acquisitions	—			31,987			75,846		107,833
Translation adjustment	(894		)	(77		)	—		(971		)
Balance at October 27, 2018	$	12,073		$	94,197		$	75,846	$	182,116

(Unaudited, amounts in thousands)	Indefinite- Lived Trade Names		Finite-Lived Trade Names			Indefinite- Lived Reacquired Rights			Other Intangible Assets			Total Other Intangible Assets
Balance at April 28, 2018	$	1,155	$	—		$	13,645		$	3,390		$	18,190
Acquisitions	—		6,400			6,600			—			13,000
Amortization	—		(200		)	—			(204		)	(404		)
Translation adjustment	—		—			(57		)	(229		)	(286		)
Balance at October 27, 2018	$	1,155	$	6,200		$	20,188		$	2,957		$	30,500

(Unaudited, amounts in thousands)	Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity securities	$	1,889	$	(99	)	$	18,525
Fixed income	27		(333		)	31,339
Other	221		(11		)	4,421
Total securities	$	2,137	$	(443	)	$	54,285

(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 28, 2018	$	2,388		$	154		$	1,376		$	(29,117	)	$	(25,199	)
Changes before reclassifications	(2,412		)	(369		)	103			—			(2,678		)
Cumulative effect adjustment for investments (1)	—			—			(1,637		)	—			(1,637		)
Amounts reclassified to net income	—			132			(19		)	1,372			1,485
Tax effect	—			59			(20		)	(339		)	(300		)
Other comprehensive income (loss) attributable to La-Z- Boy Incorporated	(2,412		)	(178		)	(1,573		)	1,033			(3,130		)
Balance at October 27, 2018	$	(24	)	$	(24	)	$	(197	)	$	(28,084	)	$	(28,329	)

(Unaudited, amounts in thousands, except percentages)	Quarter Ended 10/27/18			Quarter Ended 10/28/17			% Change		Six Months Ended 10/27/18			Six Months Ended 10/28/17			% Change
Sales	$	439,333		$	393,205		11.7	%	$	824,028		$	750,284		9.8	%
Operating income	28,500			34,269			(16.8	)%	51,660			50,567			2.2	%
Operating margin	6.5		%	8.7		%			6.3		%	6.7		%

			Payments Due by Period
(Unaudited, amounts in thousands)	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Short-term debt obligations	$	35,000	$	35,000	$	—	$	—	$	—
Capital lease obligations	306		217		89		—		—
Operating lease obligations	408,783		75,936		135,021		87,746		110,080
Purchase obligations*	97,443		97,443		—		—		—
Interest obligations	2,511		928		1,121		462		—
Contingent consideration	3,621		—		2,521		1,100		—
Future guaranteed payments	23,789		4,885		10,464		8,440		—
Legal liability	3,208		1,750		1,458		—		—
Total contractual obligations	$	574,661	$	216,159	$	150,674	$	97,748	$	110,080

(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 August (July 29 — September 1, 2018)	8	$	31.35	8	6,420
Fiscal September (September 2 — September 29, 2018)	39	$	32.34	38	6,382
Fiscal October (September 30 — October 27, 2018)	75	$	29.17	74	6,308
Fiscal Second Quarter of 2019	122	$	30.34	120	6,308


				Total number	Maximum
				of shares	number of
	Total			purchased as	shares that
	number of	Average		part of	may yet be
	shares	price		publicly	purchased
	purchased	paid per		announced	under the
(Unaudited, amounts in thousands, except per share data)	(1)	share		plan (2)	plan
Fiscal May (April 28 – June 1, 2019)	99	$	33.24	99	5,834
Fiscal June (June 2 – June 29, 2019)	280	$	30.79	224	5,610
Fiscal July (June 30 – July 27, 2019)	68	$	30.98	68	5,542
Fiscal First Quarter of 2020	447	$	31.36	391	5,542