SEC Filing | La-Z-Boy Incorporated

(Unaudited, amounts in thousands)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended October 26, 2019

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

For the transition period from ______ to ______

COMMISSION FILE NUMBER 1-9656

LA-Z-BOY INCORPORATED

(Exact name of registrant as specified in its charter)



Michigan		38-0751137
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



One La-Z-Boy Drive,	Monroe,	Michigan	48162-5138
(Address of principal executive offices)			(Zip Code)

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

None

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

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 Par Value	LZB	New York Stock Exchange

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Yes ☐ No ☒

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



Class		Outstanding at November 13, 2019
Common Stock, $1.00 Par Value		46,382,907

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LA-Z-BOY INCORPORATED

FORM 10-Q SECOND QUARTER OF FISCAL 2020

TABLE OF CONTENTS



		Page Number(s)
PART I Financial Information (Unaudited)		3
Item 1.	Financial Statements	3
	Consolidated Statement of Income	3
	Consolidated Statement of Comprehensive Income	4
	Consolidated Balance Sheet	5
	Consolidated Statement of Cash Flows	6
	Consolidated Statement of Changes in Equity	7
	Notes to Consolidated Financial Statements	8
	Note 1. Basis of Presentation	8
	Note 2. Acquisitions	9
	Note 3. Restricted Cash	10
	Note 4. Inventories	11
	Note 5. Leases	11
	Note 6. Goodwill and Other Intangible Assets	12
	Note 7. Investments	13
	Note 8. Employee Benefits	14
	Note 9. Product Warranties	15
	Note 10. Stock-Based Compensation	16
	Note 11. Accumulated Other Comprehensive Loss	17
	Note 12. Revenue Recognition	18
	Note 13. Segment Information	21
	Note 14. Income Taxes	22
	Note 15. Earnings per Share	22
	Note 16. Fair Value Measurements	23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Cautionary Statement Concerning Forward-Looking Statements	25
	Introduction	25
	Results of Operations	27
	Liquidity and Capital Resources	31
	Critical Accounting Policies	33
	Recent Accounting Pronouncements	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

PART II Other Information		35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	35

Signature Page		36

Table of Contents

PART I - FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME



	Quarter Ended						Six Months Ended
(Unaudited, amounts in thousands, except per share data)	10/26/19			10/27/18			10/26/19			10/27/18
Sales	$	447,212		$	439,333		$	860,845		$	824,028
Cost of sales	264,823			264,928			510,744			501,101
Gross profit	182,389			174,405			350,101			322,927
Selling, general and administrative expense	152,788			145,905			297,078			271,267
Operating income	29,601			28,500			53,023			51,660
Interest expense	(308		)	(501		)	(626		)	(605		)
Interest income	522			392			1,249			994
Other income (expense), net	1,368			(1,997		)	608			(1,105		)
Income before income taxes	31,183			26,394			54,254			50,944
Income tax expense	8,279			6,045			13,362			11,644
Net income	22,904			20,349			40,892			39,300
Net income attributable to noncontrolling interests	(311		)	(337		)	(230		)	(985		)
Net income attributable to La-Z-Boy Incorporated	$	22,593		$	20,012		$	40,662		$	38,315

Basic weighted average common shares	46,551			46,888			46,686			46,802
Basic net income attributable to La-Z-Boy Incorporated per share	$	0.48		$	0.43		$	0.87		$	0.82

Diluted weighted average common shares	46,879			47,259			47,010			47,219
Diluted net income attributable to La-Z-Boy Incorporated per share	$	0.48		$	0.42		$	0.86		$	0.81

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

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LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME



	Quarter Ended						Six Months Ended
(Unaudited, amounts in thousands)	10/26/19			10/27/18			10/26/19			10/27/18
Net income	$	22,904		$	20,349		$	40,892		$	39,300
Other comprehensive income (loss)
Currency translation adjustment	1,526			1,168			2,140			(3,021		)
Change in fair value of cash flow hedges, net of tax	6			155			10			(178		)
Net unrealized gain on marketable securities, net of tax	46			23			154			64
Net pension amortization, net of tax	41			517			82			1,033
Total other comprehensive income (loss)	1,619			1,863			2,386			(2,102		)
Total comprehensive income before allocation to noncontrolling interests	24,523			22,212			43,278			37,198
Comprehensive income attributable to noncontrolling interests	(671		)	(956		)	(1,076		)	(376		)
Comprehensive income attributable to La-Z-Boy Incorporated	$	23,852		$	21,256		$	42,202		$	36,822

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

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LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET



(Unaudited, amounts in thousands, except par value)	10/26/19			4/27/19
Current assets
Cash and equivalents	$	117,569		$	129,819
Restricted cash	1,972			1,968
Receivables, net of allowance of $2,273 at 10/26/19 and $2,180 at 4/27/19	155,086			143,288
Inventories, net	205,124			196,899
Other current assets	81,838			69,144
Total current assets	561,589			541,118
Property, plant and equipment, net	210,400			200,523
Goodwill	185,123			185,867
Other intangible assets, net	29,458			29,907
Deferred income taxes – long-term	20,911			20,670
Right of use lease asset	302,300			—
Other long-term assets, net	82,547			81,705
Total assets	$	1,392,328		$	1,059,790

Current liabilities
Current portion of long-term debt	$	—		$	180
Accounts payable	71,852			65,365
Lease liability, short-term	64,024			—
Accrued expenses and other current liabilities	181,730			173,091
Total current liabilities	317,606			238,636
Long-term debt	—			19
Lease liability, long-term	252,456			—
Other long-term liabilities	111,524			124,159
Shareholders' equity
Preferred shares – 5,000 authorized; none issued	—			—
Common shares, $1 par value – 150,000 authorized; 46,439 outstanding at 10/26/19 and 46,955 outstanding at 4/27/19	46,439			46,955
Capital in excess of par value	314,239			313,168
Retained earnings	336,989			325,847
Accumulated other comprehensive loss	(2,468		)	(3,462		)
Total La-Z-Boy Incorporated shareholders' equity	695,199			682,508
Noncontrolling interests	15,543			14,468
Total equity	710,742			696,976
Total liabilities and equity	$	1,392,328		$	1,059,790

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

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LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS



	Six Months Ended
(Unaudited, amounts in thousands)	10/26/19			10/27/18
Cash flows from operating activities
Net income	$	40,892		$	39,300
Adjustments to reconcile net income to cash provided by (used for) operating activities
Gain on disposal of assets	(283		)	(72		)
Change in deferred taxes	273			1,572
Provision for doubtful accounts	350			315
Depreciation and amortization	14,936			15,541
Equity-based compensation expense	4,707			5,679
Pension plan contributions	—			(7,000		)
Change in receivables	(12,722		)	122
Change in inventories	(7,645		)	(15,037		)
Change in other assets	28,136			(15,781		)
Change in payables	3,854			6,034
Change in other liabilities	(18,796		)	15,411
Net cash provided by operating activities	53,702			46,084

Cash flows from investing activities
Proceeds from disposals of assets	88			256
Proceeds from insurance	1,018			114
Capital expenditures	(22,949		)	(26,926		)
Purchases of investments	(17,798		)	(5,193		)
Proceeds from sales of investments	13,171			7,754
Acquisitions	(5,875		)	(78,145		)
Net cash used for investing activities	(32,345		)	(102,140		)

Cash flows from financing activities
Net proceeds from credit facility	—			35,000
Payments on debt and finance lease liabilities	(95		)	(116		)
Stock issued for stock and employee benefit plans, net of shares withheld for taxes	571			4,039
Purchases of common stock	(23,167		)	(11,610		)
Dividends paid	(12,151		)	(11,278		)
Net cash (used for) provided by financing activities	(34,842		)	16,035

Effect of exchange rate changes on cash and equivalents	1,239			(982		)
Change in cash, cash equivalents and restricted cash	(12,246		)	(41,003		)
Cash, cash equivalents and restricted cash at beginning of period	131,787			136,871
Cash, cash equivalents and restricted cash at end of period	$	119,541		$	95,868

Supplemental disclosure of non-cash investing activities
Capital expenditures included in payables	$	5,805		$	4,442

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

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LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY



(Unaudited, amounts in thousands)	Common Shares			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests			Total
At April 27, 2019	$	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
Net income	—			—			22,593			—			311			22,904
Other comprehensive income	—			—			—			1,260			359			1,619
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax	84			1,908			(4		)	—			—			1,988
Purchases of 335 shares of common stock	(335		)	(1,908		)	(8,611		)	—			—			(10,854		)
Stock option and restricted stock expense	—			3,032			—			—			—			3,032
Dividends declared and paid ($0.13/share)	—			—			(6,039		)	—			—			(6,039		)
Dividends declared not paid ($0.13/share)	—			—			(46		)	—			—			(46		)
At October 26, 2019	$	46,439		$	314,239		$	336,989		$	(2,468	)	$	15,543		$	710,742


(1)	Cumulative effect adjustment of deferred gains on prior sale/leaseback transactions as a result of adopting ASU 2016-02.


(2)	Income tax effects of the Tax Cuts and Jobs Act are reclassified from Accumulated Other Comprehensive Income ("AOCI") to retained earnings due to the adoption of ASU 2018-02.



(Unaudited, amounts in thousands)	Common Shares			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests			Total
At April 28, 2018	$	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
Net income	—			—			20,012			—			337			20,349
Other comprehensive income	—			—			—			1,244			619			1,863
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax	335			5,748			(35		)	—			—			6,048
Purchases of 121 shares of common stock	(121		)	(2,456		)	(1,089		)	—			—			(3,666		)
Stock option and restricted stock expense	—			3,639			—			—			—			3,639
Dividends declared and paid ($0.12/share)	—			—			(5,653		)	—			—			(5,653		)
Dividends declared not paid ($0.12/share)	—			—			(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.

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LA-Z-BOY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Basis of Presentation

The accompanying consolidated financial statements include the consolidated accounts of La-Z-Boy Incorporated and our majority-owned subsidiaries. We derived the April 27, 2019, balance sheet from our audited financial statements. We prepared the interim financial information in conformity with generally accepted accounting principles, which we applied on a basis consistent with those reflected in our fiscal 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), but the information does not include all of the disclosures required by generally accepted accounting principles. In management’s opinion, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments (except as otherwise disclosed), that are necessary for a fair statement of results for the respective interim periods. The interim results reflected in the accompanying financial statements are not necessarily indicative of the results of operations that will occur for the full fiscal year ending April 25, 2020.

To further strengthen our supply chain footprint, on August 8, 2019, we announced our plan to close our Redlands, California upholstered furniture manufacturing facility and move production to available capacity at our other North American facilities. In addition, we are transitioning 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 employed about 350 people, accounted for approximately 10% of the La-Z-Boy branded business total upholstery production and manufactured recliners, motion sofas and classics (high-leg recliners). Production has ceased at the Redlands plant as of the end of the second quarter of fiscal 2020. The move of the Newton leather cut-and-sew operation is expected to fully transition by the end of the third quarter of fiscal 2020 and will impact about 105 of the 525 employees at that location. The Redlands facility, which is approximately 200,000 square feet, has been idled 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 six months of fiscal 2020, we recognized pre-tax expenses associated with this initiative of $4.3 million within cost of sales. These costs do not qualify as exit and disposal costs under ASC 420.

At October 26, 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 pronouncement adopted in fiscal 2020

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

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), requiring lessees to record all operating leases on their balance sheet. Under this standard, the lessee is required to record an asset for the right to use the underlying asset for the lease term and a corresponding liability for the contractual lease payments. We have adopted this standard in the first quarter of fiscal 2020 using the modified retrospective approach. See Note 5 for further information.

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The following table summarizes additional ASUs which were adopted in fiscal 2020, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.



ASU		Description
ASU 2017-06		Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting (a consensus of the Emerging Issues Task Force)
ASU 2017-12		Targeted Improvements to Accounting for Hedging Activities
ASU 2018-02		Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
ASU 2018-07		Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
ASU 2018-13		Fair Value Measurement – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements
ASU 2018-16		Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes

Accounting pronouncements not yet adopted

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



ASU	Description	Adoption Date
ASU 2016-13	Financial Instruments – Credit losses	Fiscal 2021
ASU 2018-14	Compensation – Retirement benefits – Defined Benefit Plans – General – Changes to the Disclosure Requirements for Defined Benefit Plans	Fiscal 2022

Note 2: Acquisitions

We did not complete any acquisitions during the six months ended October 26, 2019.

Joybird acquisition

On July 30, 2018, we completed our acquisition of Stitch Industries, Inc. ("Joybird"), an e-commerce retailer and manufacturer of upholstered furniture, for guaranteed cash payments of $75 million, which was subject to a working capital adjustment of $2.5 million. We received the working capital adjustment during the third quarter of fiscal 2019 from amounts placed in escrow at the time of the closing of the transaction. We acquired Joybird to better position ourselves for growth in the online selling environment and increase our visibility with millennial and Gen X consumers, while simultaneously leveraging our supply chain assets.

The guaranteed payments include a closing date cash payment of $37.5 million in purchase price consideration (net of the working capital adjustment), $7.5 million in prepaid compensation, and the assumption of $5.0 million of liabilities that will be paid within two years following the acquisition. The remaining $25 million will be paid in five annual installments of $5 million on the anniversary date of the acquisition, the first of which was paid in the first quarter of fiscal 2020. The merger agreement also includes two future earn-out opportunities based on Joybird’s financial performance in fiscal 2021 and fiscal 2023.

The $7.5 million of prepaid compensation relates to the retention of the four Joybird founders, now our employees, each of whom will forfeit proportional amounts if one or more of them resigns in the two years following the acquisition. We are amortizing the $7.5 million to selling, general & administrative ("SG&A") expense over the two-year retention period on a straight-line basis. In addition to the guaranteed cash payments of $75 million, we recorded a contingent consideration liability on the date of acquisition of $7.5 million, which reflects the fair value of the earn-out opportunities as of the date of acquisition. We also recorded a finite-lived intangible asset of $6.4 million reflecting the fair value of the acquired Joybird^® trade name, which we are amortizing to SG&A expense on a straight-line basis over its useful life of eight years. The undiscounted range of the contingent consideration is zero to $65 million and is based on sales and profitability of Joybird in fiscal 2021 and fiscal 2023. Subsequent adjustments to the fair value of the contingent consideration will impact SG&A expense in our consolidated statement of income.

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We recorded $78.8 million of goodwill related to the Joybird acquisition, related primarily to synergies we expect from the integration of the acquisition and the anticipated future benefits of these synergies. The finite-lived intangible asset and goodwill asset for Joybird are not deductible for federal income tax purposes. We included the Joybird operating segment in our other business activities which we report within our Corporate and Other reportable segment.

The following table summarizes the purchase price allocation for Joybird at the date of acquisition:



(Unaudited, amounts in thousands)	Joybird Acquisition
Fair value of consideration:
Cash (paid at closing)	$	37,482
Guaranteed payment	22,489
Acquisition earn-out	7,500
Assumption of liability	5,000
Working capital adjustment	(2,486		)
Total fair value of consideration	69,985

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

Goodwill	$	78,847

The Joybird acquisition was not material to our financial position or our results of operations, and therefore, pro-forma financial information is not presented.

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)	10/26/19		10/27/18
Cash and cash equivalents	$	117,569	$	93,867
Restricted cash	1,972		2,001
Total cash, cash equivalents and restricted cash	$	119,541	$	95,868

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Note 4: Inventories

A summary of inventories is as follows:



(Unaudited, amounts in thousands)	10/26/19			4/27/19
Raw materials	$	95,842		$	90,359
Work in process	13,913			13,728
Finished goods	117,035			114,478
FIFO inventories	226,790			218,565
Excess of FIFO over LIFO	(21,666		)	(21,666		)
Total inventories	$	205,124		$	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.

Most of our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our ROU asset and lease liability, we determine our incremental borrowing rate by applying a spread above the U.S. Treasury borrowing rates. In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease. Some of our leases contain variable rent payments based on a Consumer Price Index or percentage of sales. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.

The Company has elected to apply the practical expedients permitted under transition guidance to forgo the restatement of comparative periods and to not reassess leases entered into prior to adoption. In addition, we have elected the practical expedient to not separate lease and non-lease components when determining the ROU asset and lease liability. We have also made an accounting policy election to not recognize an ROU asset and lease liability on the balance sheet for those leases with an initial term of one year or less and instead, such liabilities will be expensed on a straight-line basis over the lease term.

Supplemental balance sheet information related to leases:



(Unaudited, amounts in thousands)	10/26/19
Operating leases
ROU assets	$	302,224
Lease liabilities, short-term	63,945
Lease liabilities, long-term	252,456
Finance leases
ROU assets	$	76
Lease liabilities, short-term	79
Lease liabilities, long-term	—

The ROU assets by segment are as follows:



(Unaudited, amounts in thousands)	10/26/19
Upholstery	$	55,114
Casegoods	1,995
Retail	238,865
Corporate & Other	6,326
Total ROU assets	$	302,300

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The components of lease cost are as follows for the respective periods ended October 26, 2019:



(Unaudited, amounts in thousands)	Quarter Ended			Six Months Ended
Operating lease cost	$	19,019		$	38,037
Financing lease cost	50			99
Short-term lease cost	26			51
Variable lease cost	54			94
Less: Sublease income	(632		)	(1,260		)
Total lease cost	$	18,517		$	37,021

The following tables present supplemental lease disclosures:



	Six Months Ended October 26, 2019
(Unaudited, amounts in thousands)	Operating Leases		Financing Leases
Cash paid for amounts included in the measurement of lease liabilities	$	38,514	$	98
Lease liabilities arising from new ROU assets	20,442		—

The following table presents our undiscounted cash flows as of October 26, 2019, and our minimum contractual obligations on our leases as of April 27, 2019:



	10/26/19				4/27/19
(Unaudited, amounts in thousands)	Operating Leases		Financing Leases		Operating Leases		Financing Leases
Within one year	$	74,814	$	80	$	76,508	$	180
After one year and within two years	65,711		—		71,544		19
After two years and within three years	52,539		—		58,763		—
After three years and within four years	40,424		—		46,541		—
After four years and within five years	33,358		—		36,082		—
After five years	91,630		—		102,782		—
Total lease payments	358,476		80		$	392,220	$	199
Less: Interest	42,075		1
Total lease obligations	$	316,401	$	79

Note 6: Goodwill and Other Intangible Assets

We have goodwill on our consolidated balance sheet as follows:




Reportable Segment/Unit		Related Acquisition
Upholstery segment		Acquisition of the wholesale business in the United Kingdom and Ireland
Retail segment		Acquisitions of La-Z-Boy Furniture Galleries^® stores
Corporate & Other		Acquisition of Joybird

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The following is a roll-forward of goodwill for the six months ended October 26, 2019:



(Unaudited, amounts in thousands)	Upholstery Segment			Retail Segment		Corporate and Other			Total Goodwill
Balance at April 27, 2019	$	12,148		$	94,103	$	79,616		$	185,867
Acquisition adjustment	—			—		(769		)	(769		)
Translation adjustment	(82		)	107		—