SEC Filing | La-Z-Boy Incorporated

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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 January 25, 2020

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

For the transition period from ______ to ______

COMMISSION FILE NUMBER 1-9656

LA-Z-BOY INCORPORATED

(Exact name of registrant as specified in its charter)



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



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

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

None

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

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



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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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



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

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

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

Yes ☐ No ☒

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



Class		Outstanding at February 11, 2020
Common Stock, $1.00 Par Value		46,032,716

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LA-Z-BOY INCORPORATED

FORM 10-Q THIRD 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	9
	Note 1. Basis of Presentation	9
	Note 2. Acquisitions	10
	Note 3. Restricted Cash	11
	Note 4. Inventories	12
	Note 5. Leases	12
	Note 6. Goodwill and Other Intangible Assets	14
	Note 7. Investments	14
	Note 8. Employee Benefits	16
	Note 9. Product Warranties	16
	Note 10. Stock-Based Compensation	17
	Note 11. Accumulated Other Comprehensive Loss	19
	Note 12. Revenue Recognition	20
	Note 13. Segment Information	23
	Note 14. Income Taxes	24
	Note 15. Earnings per Share	24
	Note 16. Fair Value Measurements	25

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Cautionary Statement Concerning Forward-Looking Statements	28
	Introduction	28
	Results of Operations	30
	Liquidity and Capital Resources	34
	Critical Accounting Policies	36
	Recent Accounting Pronouncements	36

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

PART II Other Information		38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6.	Exhibits	38

Signature Page		39

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PART I - FINANCIAL INFORMATION (UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME



	Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands, except per share data)	1/25/20			1/26/19			1/25/20			1/26/19
Sales	$	475,856		$	467,582		$	1,336,701		$	1,291,610
Cost of sales	276,218			277,712			786,962			778,813
Gross profit	199,638			189,870			549,739			512,797
Selling, general and administrative expense	147,325			149,027			444,403			420,294
Operating income	52,313			40,843			105,336			92,503
Interest expense	(265		)	(538		)	(891		)	(1,143		)
Interest income	844			540			2,093			1,534
Other expense, net	(5,998		)	(941		)	(5,390		)	(2,046		)
Income before income taxes	46,894			39,904			101,148			90,848
Income tax expense	12,178			10,730			25,540			22,374
Net income	34,716			29,174			75,608			68,474
Net income attributable to noncontrolling interests	(204		)	(443		)	(434		)	(1,428		)
Net income attributable to La-Z-Boy Incorporated	$	34,512		$	28,731		$	75,174		$	67,046

Basic weighted average common shares	46,262			46,820			46,545			46,808
Basic net income attributable to La-Z-Boy Incorporated per share	$	0.75		$	0.61		$	1.61		$	1.43

Diluted weighted average common shares	46,584			47,091			46,867			47,212
Diluted net income attributable to La-Z-Boy Incorporated per share	$	0.74		$	0.61		$	1.60		$	1.42

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

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LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME



	Quarter Ended						Nine Months Ended
(Unaudited, amounts in thousands)	01/25/20			01/26/19			01/25/20			01/26/19
Net income	$	34,716		$	29,174		$	75,608		$	68,474
Other comprehensive income (loss)
Currency translation adjustment	(112		)	1,469			2,028			(1,552		)
Change in fair value of cash flow hedges, net of tax	—			70			10			(108		)
Net unrealized gain on marketable securities, net of tax	16			90			170			154
Net pension amortization, net of tax	41			515			123			1,548
Total other comprehensive income (loss)	(55		)	2,144			2,331			42
Total comprehensive income before allocation to noncontrolling interests	34,661			31,318			77,939			68,516
Comprehensive income attributable to noncontrolling interests	(42		)	(1,112		)	(1,118		)	(1,488		)
Comprehensive income attributable to La-Z-Boy Incorporated	$	34,619		$	30,206		$	76,821		$	67,028

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

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LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET



(Unaudited, amounts in thousands, except par value)	1/25/20			4/27/19
Current assets
Cash and equivalents	$	166,272		$	129,819
Restricted cash	1,973			1,968
Receivables, net of allowance of $2,191 at 1/25/20 and $2,180 at 4/27/19	153,721			143,288
Inventories, net	198,567			196,899
Other current assets	82,765			69,144
Total current assets	603,298			541,118
Property, plant and equipment, net	212,851			200,523
Goodwill	185,328			185,867
Other intangible assets, net	29,235			29,907
Deferred income taxes – long-term	19,928			20,670
Right of use lease asset	318,162			—
Other long-term assets, net	73,831			81,705
Total assets	$	1,442,633		$	1,059,790

Current liabilities
Current portion of long-term debt	$	—		$	180
Accounts payable	68,045			65,365
Lease liability, short-term	65,128			—
Accrued expenses and other current liabilities	195,349			173,091
Total current liabilities	328,522			238,636
Long-term debt	—			19
Lease liability, long-term	267,955			—
Other long-term liabilities	116,674			124,159
Shareholders' equity
Preferred shares – 5,000 authorized; none issued	—			—
Common shares, $1 par value – 150,000 authorized; 46,075 outstanding at 1/25/20 and 46,955 outstanding at 4/27/19	46,075			46,955
Capital in excess of par value	316,764			313,168
Retained earnings	353,419			325,847
Accumulated other comprehensive loss	(2,361		)	(3,462		)
Total La-Z-Boy Incorporated shareholders' equity	713,897			682,508
Noncontrolling interests	15,585			14,468
Total equity	729,482			696,976
Total liabilities and equity	$	1,442,633		$	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



	Nine Months Ended
(Unaudited, amounts in thousands)	1/25/20			1/26/19
Cash flows from operating activities
Net income	$	75,608		$	68,474
Adjustments to reconcile net income to cash provided by (used for) operating activities
(Gain)/loss on disposal of assets	(10,051		)	41
Change in deferred taxes	1,238			2,538
Provision for doubtful accounts	210			477
Depreciation and amortization	23,035			23,182
Equity-based compensation expense	7,235			8,174
Pension plan contributions	—			(7,000		)
Change in receivables	(11,178		)	1,152
Change in inventories	(62		)	(18,950		)
Change in other assets	53,620			(10,103		)
Change in payables	659			4,954
Change in other liabilities	(20,555		)	18,509
Net cash provided by operating activities	119,759			91,448

Cash flows from investing activities
Proceeds from disposals of assets	11,242			447
Proceeds from insurance	1,080			154
Capital expenditures	(35,464		)	(35,766		)
Purchases of investments	(26,248		)	(14,956		)
Proceeds from sales of investments	24,688			14,304
Acquisitions	(6,412		)	(78,582		)
Net cash used for investing activities	(31,114		)	(114,399		)

Cash flows from financing activities
Net proceeds from credit facility	—			20,000
Payments on debt and finance lease liabilities	(135		)	(169		)
Stock issued for stock and employee benefit plans, net of shares withheld for taxes	828			4,012
Purchases of common stock	(35,346		)	(16,726		)
Dividends paid	(18,641		)	(17,381		)
Net cash used for financing activities	(53,294		)	(10,264		)

Effect of exchange rate changes on cash and equivalents	1,107			(74		)
Change in cash, cash equivalents and restricted cash	36,458			(33,289		)
Cash, cash equivalents and restricted cash at beginning of period	131,787			136,871
Cash, cash equivalents and restricted cash at end of period	$	168,245		$	103,582

Supplemental disclosure of non-cash investing activities
Capital expenditures included in payables	$	4,026		$	2,827

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
Net income (loss)	—			—			34,512			—			204			34,716
Other comprehensive income (loss)	—			—			—			107			(162		)	(55		)
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax	14			281			(37		)	—			—			258
Purchases of 378 shares of common stock	(378		)	(284		)	(11,520		)	—			—			(12,182		)
Stock option and restricted stock expense	—			2,528			—			—			—			2,528
Dividends declared and paid ($0.14/share)	—			—			(6,490		)	—			—			(6,490		)
Dividends declared not paid ($0.14/share)	—			—			(35		)	—			—			(35		)
At January 25, 2020	$	46,075		$	316,764		$	353,419		$	(2,361	)	$	15,585		$	729,482


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


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

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(Unaudited, amounts in thousands)	Common Shares			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Non-Controlling Interests			Total
At April 28, 2018	$	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
Net income	—			—			28,731			—			443			29,174
Other comprehensive loss	—			—			—			1,475			669			2,144
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax	2			(5		)	(24		)	—			—			(27		)
Purchases of 177 shares of common stock	(177		)	(3,295		)	(1,644		)	—			—			(5,116		)
Stock option and restricted stock expense	—			2,495			—			—			—			2,495
Dividends declared and paid ($0.13/share)	—			—			(6,103		)	—			—			(6,103		)
Dividends declared not paid ($0.13/share)	—			—			(12		)	—			—			(12		)
At January 26, 2019	$	46,730		$	306,896		$	330,491		$	(26,854	)	$	14,523		$	671,786

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

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LA-Z-BOY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Basis of Presentation

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

To further strengthen our supply chain footprint, on August 8, 2019, we announced our plan to close our Redlands, California upholstered furniture manufacturing facility and move production to available capacity at our other North American facilities. The Company’s Redlands upholstered furniture plant employed about 350 people, accounted for approximately 10% of the La-Z-Boy branded business total upholstery production, and manufactured recliners, motion sofas and classics (high-leg recliners). Production ceased at the Redlands plant as of the end of the second quarter of fiscal 2020 and in the third quarter of fiscal 2020, the facility, which is approximately 200,000 square feet, was sold for $10.8 million, net of closing costs. The sale of the Redlands property resulted in a $9.7 million pre-tax gain, recorded in selling, general and administrative expense ("SG&A") in our consolidated statement of income. In addition, we have transitioned the leather cut-and-sew operation from the Newton, Mississippi upholstered furniture manufacturing plant to another North American-based cut-and-sew facility. The move of the Newton leather cut-and-sew operation impacted about 105 of the 525 employees at that location.

As a part of our supply chain optimization initiative, we may incur expenses that qualify as exit and disposal costs under ASC 420, Exit or Disposal Cost Obligations. Other expenses that are an integral component of, and directly attributable to, restructuring activities do not qualify as exit and disposal costs, such as accelerated depreciation, asset impairments and other incremental costs. In the first nine months of fiscal 2020, we recognized pre-tax expenses associated with this initiative of $5.3 million within cost of sales. These costs do not qualify as exit and disposal costs under ASC 420.

At January 25, 2020, we owned preferred shares of two privately held start-up companies, both of which are variable interest entities. We also hold a warrant to purchase common shares of one of these companies. We have not consolidated the results of either of these companies in our financial statements because we do not have the power to direct those activities that most significantly impact the economic performance of either of these companies and, therefore, are not the primary beneficiary.

Accounting pronouncement adopted in fiscal 2020

The accounting standards update (“ASU”) described in the paragraph below had a significant impact on our accounting policies and our consolidated financial statements and related disclosures.

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

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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
ASU 2017-12		Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
ASU 2018-02		Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
ASU 2018-07		Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
ASU 2018-13		Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements
ASU 2018-16		Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes

Accounting pronouncements not yet adopted

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



ASU	Description	Adoption Date
ASU 2016-13	Financial Instruments – Credit losses (Topic 326): Measurement of Credit Losses on Financial Instruments	Fiscal 2021
ASU 2018-14	Compensation – Retirement benefits – Defined Benefit Plans – General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans	Fiscal 2022
ASU 2019-12	Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	Fiscal 2022
ASU 2020-01	Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 325, and Topic 815	Fiscal 2022

Subsequent events

Subsequent to the end of the third quarter of fiscal 2020, one of our largest customers made a public statement that they are actively exploring a variety of options with creditors, investors and landlords in order to continue serving their customers. As of the end of the third quarter of fiscal 2020, we had a trade receivable from this customer of approximately $7 million, and have not provided for any potential credit losses. We are monitoring this fast-developing situation, including through direct discussions with this customer, and as of the date of this filing, based on all information available to us, believe that the amounts owed as of January 25, 2020, are materially collectible.

Note 2: Acquisitions

We did not complete any acquisitions during the nine months ended January 25, 2020.

Joybird acquisition

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

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

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

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

Refer to Note 6. Goodwill and Other Intangible Assets and Note 16. Fair Value Measurements for further information regarding the valuation of the contingent consideration, goodwill and intangible assets related to Joybird.

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



(Unaudited, amounts in thousands)	Joybird Acquisition
Fair value of consideration:
Cash (paid at closing)	$	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.

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Note 3: Restricted Cash

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



(Unaudited, amounts in thousands)	1/25/20		1/26/19
Cash and cash equivalents	$	166,272	$	101,579
Restricted cash	1,973		2,003
Total cash, cash equivalents and restricted cash	$	168,245	$	103,582

Note 4: Inventories

A summary of inventories is as follows:



(Unaudited, amounts in thousands)	1/25/20			4/27/19
Raw materials	$	96,010		$	90,359
Work in process	14,055			13,728
Finished goods	110,168			114,478
FIFO inventories	220,233			218,565
Excess of FIFO over LIFO	(21,666		)	(21,666		)
Total inventories	$	198,567		$	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 the economic benefits from the use of that identified asset. Most of our real estate leases include options to renew or terminate early. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet these criteria are included in the lease term at lease commencement.

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

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

Supplemental balance sheet information related to leases:



(Unaudited, amounts in thousands)	1/25/20
Operating leases
ROU assets	$	318,124
Lease liabilities, short-term	65,089
Lease liabilities, long-term	267,955