UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended July 25, 2020
or
For the transition period from ______ to ______
COMMISSION FILE NUMBER 1-9656
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) | ||||
Registrant's telephone number, including area code (734 ) 242-144 4
None
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company | |||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class | Outstanding at August 11, 2020 | |
Common Stock, $1.00 Par Value | ||
LA-Z-BOY INCORPORATED
FORM 10-Q FIRST QUARTER OF FISCAL 2021
TABLE OF CONTENTS
Page Number | ||
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PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
Quarter Ended | ||||||||
(Unaudited, amounts in thousands, except per share data) | 7/25/20 | 7/27/19 | ||||||
Sales | $ | $ | ||||||
Cost of sales | ||||||||
Gross profit | ||||||||
Selling, general and administrative expense | ||||||||
Operating income | ||||||||
Interest expense | ( | ) | ( | ) | ||||
Interest income | ||||||||
Other income (expense), net | ( | ) | ||||||
Income before income taxes | ||||||||
Income tax expense | ||||||||
Net income | ||||||||
Net loss attributable to noncontrolling interests | ||||||||
Net income attributable to La-Z-Boy Incorporated | $ | $ | ||||||
Basic weighted average common shares | ||||||||
Basic net income attributable to La-Z-Boy Incorporated per share | $ | $ | ||||||
Diluted weighted average common shares | ||||||||
Diluted net income attributable to La-Z-Boy Incorporated per share | $ | $ | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Quarter Ended | ||||||||
(Unaudited, amounts in thousands) | 7/25/20 | 7/27/19 | ||||||
Net income | $ | $ | ||||||
Other comprehensive income | ||||||||
Currency translation adjustment | ||||||||
Change in fair value of cash flow hedges, net of tax | ||||||||
Net unrealized gain on marketable securities, net of tax | ||||||||
Net pension amortization, net of tax | ||||||||
Total other comprehensive income | ||||||||
Total comprehensive income before allocation to noncontrolling interests | ||||||||
Comprehensive income attributable to noncontrolling interests | ( | ) | ( | ) | ||||
Comprehensive income attributable to La-Z-Boy Incorporated | $ | $ | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands, except par value) | 7/25/20 | 4/25/20 | ||||||
Current assets | ||||||||
Cash and equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Receivables, net of allowance of $5,983 at 7/25/20 and $7,541 at 4/25/20 | ||||||||
Inventories, net | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Property, plant and equipment, net | ||||||||
Goodwill | ||||||||
Other intangible assets, net | ||||||||
Deferred income taxes – long-term | ||||||||
Right of use lease asset | ||||||||
Other long-term assets, net | ||||||||
Total assets | $ | $ | ||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Short-term borrowings | ||||||||
Lease liability, current | ||||||||
Accrued expenses and other current liabilities | ||||||||
Total current liabilities | ||||||||
Lease liability, long-term | ||||||||
Other long-term liabilities | ||||||||
Shareholders' equity | ||||||||
Preferred shares – 5,000 authorized; none issued | ||||||||
Common shares, $1.00 par value – 150,000 authorized; 45,989 outstanding at 7/25/20 and 45,857 outstanding at 4/25/20 | ||||||||
Capital in excess of par value | ||||||||
Retained earnings | ||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total La-Z-Boy Incorporated shareholders' equity | ||||||||
Noncontrolling interests | ||||||||
Total equity | ||||||||
Total liabilities and equity | $ | $ | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarter Ended | ||||||||
(Unaudited, amounts in thousands) | 7/25/20 | 7/27/19 | ||||||
Cash flows from operating activities | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to cash provided by (used for) operating activities | ||||||||
(Gain)/loss on disposal of assets | ( | ) | ||||||
Gain on sale of investments | ( | ) | ( | ) | ||||
Change in deferred taxes | ( | ) | ||||||
Provision for doubtful accounts | ( | ) | ||||||
Depreciation and amortization | ||||||||
Equity-based compensation expense | ||||||||
Change in receivables | ||||||||
Change in inventories | ( | ) | ||||||
Change in right-of-use lease assets | ||||||||
Change in other assets | ( | ) | ||||||
Change in payables | ( | ) | ||||||
Change in lease liabilities | ( | ) | ( | ) | ||||
Change in other liabilities | ( | ) | ||||||
Net cash provided by operating activities | ||||||||
Cash flows from investing activities | ||||||||
Proceeds from disposals of assets | ||||||||
Proceeds from insurance | ||||||||
Capital expenditures | ( | ) | ( | ) | ||||
Purchases of investments | ( | ) | ( | ) | ||||
Proceeds from sales of investments | ||||||||
Acquisitions | ( | ) | ( | ) | ||||
Net cash provided by (used for) investing activities | ( | ) | ||||||
Cash flows from financing activities | ||||||||
Payments on debt and finance lease liabilities | ( | ) | ( | ) | ||||
Stock issued for stock and employee benefit plans, net of shares withheld for taxes | ( | ) | ( | ) | ||||
Purchases of common stock | ( | ) | ||||||
Dividends paid to shareholders | ( | ) | ||||||
Dividends paid to minority interest joint venture partners (1) | ( | ) | ||||||
Net cash used for financing activities | ( | ) | ( | ) | ||||
Effect of exchange rate changes on cash and equivalents | ||||||||
Change in cash, cash equivalents and restricted cash | ( | ) | ||||||
Cash, cash equivalents and restricted cash at beginning of period | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
Supplemental disclosure of non-cash investing activities | ||||||||
Capital expenditures included in payables | $ | $ | ||||||
(1) | Includes dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested. |
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 25, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income (loss) | — | — | — | ( | ) | |||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Dividends declared and paid (1) | — | — | — | ( | ) | ( | ) | |||||||||||||||||
At July 25, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
(1) |
(Unaudited, amounts in thousands) | Common Shares | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non-Controlling Interests | Total | ||||||||||||||||||
At April 27, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
Net income (loss) | — | — | — | ( | ) | |||||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||||||
Stock issued for stock and employee benefit plans, net of cancellations and withholding tax | ( | ) | — | — | ( | ) | ||||||||||||||||||
Repurchases of 391 shares of common stock | ( | ) | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||||
Stock option and restricted stock expense | — | — | — | — | ||||||||||||||||||||
Cumulative effect adjustment for leases, net of tax (1) | — | — | — | — | ||||||||||||||||||||
Reclassification of certain income tax effects (2) | — | — | ( | ) | — | |||||||||||||||||||
Dividends declared and paid ($0.13/share) | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||
At July 27, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
(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. |
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 25, 2020, 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 2020 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 24, 2021.
At July 25, 2020, we owned preferred shares and warrants to purchase common shares of two privately held companies, both of which are variable interest entities. We have not consolidated their results in our financial statements because we do not have the power to direct those activities that most significantly impact their economic performance and, therefore, are not the primary beneficiary.
COVID-19
As a part of our continued response to the impact of COVID-19, on June 4, 2020, we announced our business realignment plan, which included the immediate reduction of the Company's global workforce by approximately 10 % across our manufacturing, retail and corporate locations, including the closure of our Newton, Mississippi upholstery manufacturing facility. Production from the Newton facility has been shifted to available capacity at the company’s Dayton, Tennessee, Neosho, Missouri, and Siloam Springs, Arkansas plants. In the first quarter of fiscal 2021, we incurred expenses of $3.5 million associated with our business realignment plan, primarily due to severance costs and an impairment of the carrying value of the Newton manufacturing facility.
Given the positive trends in cash flows, during the first quarter of fiscal 2021, we repaid $25.0 million of the $75.0 million borrowed under our line of credit in the fourth quarter of 2020. Subsequent to this financial report, in the second quarter of fiscal 2021, effective as of August 1, 2020, the temporary 50 % salary reductions for the named executive officers ended and full base salaries were reinstated, as was the Company's 401(k) match and cash compensation for the board of directors. Further, on August 18, 2020, the board of directors elected to reinstate a regular quarterly dividend to shareholders of $0.07 per share, 50 % of the dividend amount paid quarterly prior to the Company's suspension of dividends. We continue to actively manage the impact of the COVID-19 crisis and there is uncertainty regarding the impact COVID-19 will have on our financial operations in the near and long term.
Accounting pronouncement adopted in fiscal 2021
The following table summarizes additional ASUs which were adopted in fiscal 2021, but did not have a material impact on our accounting policies or our consolidated financial statements and related disclosures.
ASU | Description | |
ASU 2016-13 | Financial Instruments – Credit losses (Topic 326): Measurement of Credit Losses on Financial Instruments | |
ASU 2020-04 | Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | |
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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 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 323, and Topic 815 | Fiscal 2022 | ||
Note 2: 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) | 7/25/20 | 7/27/19 | ||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Total cash, cash equivalents and restricted cash | $ | $ | ||||||
Note 3: Inventories
A summary of inventories is as follows:
(Unaudited, amounts in thousands) | 7/25/20 | 4/25/20 | ||||||
Raw materials | $ | $ | ||||||
Work in process | ||||||||
Finished goods | ||||||||
FIFO inventories | ||||||||
Excess of FIFO over LIFO | ( | ) | ( | ) | ||||
Total inventories | $ | $ | ||||||
Note 4: Goodwill and Other Intangible Assets
We have goodwill on our consolidated balance sheet as follows:
Reportable Segment/Unit | Reporting Unit | Related Acquisition | ||
Wholesale Segment | La-Z-Boy United Kingdom | Wholesale business in the United Kingdom and Ireland | ||
Retail Segment | Retail | La-Z-Boy Furniture Galleries® stores | ||
Corporate & Other | Joybird | Joybird | ||
The following is a summary of activity of goodwill for the quarter ended July 25, 2020:
(Unaudited, amounts in thousands) | Wholesale Segment | Retail Segment | Corporate and Other | Total Goodwill | ||||||||||||
Balance at April 25, 2020 | $ | $ | $ | $ | ||||||||||||
Translation adjustment | ||||||||||||||||
Balance at July 25, 2020 | $ | $ | $ | $ | ||||||||||||
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We have intangible assets on our consolidated balance sheet as follows:
Reportable Segment/Unit | Intangible Asset | Useful Life | ||
Wholesale 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 | ||
Wholesale Segment | American Drew® trade name | Indefinite-lived | ||
Retail Segment | Reacquired rights to own and operate La-Z-Boy Furniture Galleries® stores | Indefinite-lived | ||
Corporate & Other | Joybird® trade name | Amortizable over eight-year useful life | ||
The following is a roll-forward of our other intangible assets for the quarter ended July 25, 2020:
(Unaudited, amounts in thousands) | Indefinite- Lived Trade Names | Finite- Lived Trade Name | Indefinite- Lived Reacquired Rights | Other Intangible Assets | Total Other Intangible Assets | |||||||||||||||
Balance at April 25, 2020 | $ | $ | $ | $ | $ | |||||||||||||||
Amortization | ( | ) | ( | ) | ( | ) | ||||||||||||||
Translation adjustment | ||||||||||||||||||||
Balance at July 25, 2020 | $ | $ | $ | $ | $ | |||||||||||||||
We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that an asset might be impaired. We test amortizable intangible assets for impairment if events or changes in circumstances indicate that the assets might be impaired.
Note 5: 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 start-up 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:
(Unaudited, amounts in thousands) | 7/25/20 | 4/25/20 | ||||||
Short-term investments: | ||||||||
Marketable securities | $ | $ | ||||||
Held-to-maturity investments | ||||||||
Total short-term investments | ||||||||
Long-term investments: | ||||||||
Marketable securities | ||||||||
Cost basis investments | ||||||||
Total long-term investments | ||||||||
Total investments | $ | $ | ||||||
Investments to enhance returns on cash | $ | $ | ||||||
Investments to fund compensation/retirement plans | ||||||||
Other investments | ||||||||
Total investments | $ | $ | ||||||
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The following is a summary of the unrealized gains, unrealized losses, and fair value by investment type:
7/25/20 | 4/25/20 | |||||||||||||||||||||||
(Unaudited, amounts in thousands) | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||
Equity securities | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Fixed income | ( | ) | ( | ) | ||||||||||||||||||||
Other | ||||||||||||||||||||||||
Total securities | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
Quarter Ended | ||||||||
(Unaudited, amounts in thousands) | 7/25/20 | 7/27/19 | ||||||
Proceeds from sales | $ | $ | ||||||
Gross realized gains | ||||||||
Gross realized losses | ( | ) | ( | ) | ||||
The following is a summary of the fair value of fixed income marketable securities, classified as available-for-sale securities, by contractual maturity:
(Unaudited, amounts in thousands) | 7/25/20 | |||
Within one year | $ | |||
Within two to five years | ||||
Within six to ten years | ||||
Thereafter | ||||
Total | $ | |||
Note 6: Accrued Expenses and Other Current Liabilities
(Unaudited, amounts in thousands) | 7/25/20 | 4/25/20 | ||||||
Payroll and other compensation | $ | $ | ||||||
Accrued product warranty, current portion | ||||||||
Customer deposits | ||||||||
Deferred revenue | ||||||||
Other current liabilities | ||||||||
Accrued expenses and other current liabilities | $ | $ | ||||||
The increase in customer deposits and deferred revenue was primarily driven by higher written Retail and Joybird sales in the first quarter of fiscal 2021. Higher written sales also led to an increase in contract assets, which are included in other current assets on the consolidated balance sheet, consistent with the increase in deferred revenue. Refer to Note 10, Revenue Recognition, for additional details regarding our contract assets and contract liabilities.
Note 7: 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 any additional anticipated future costs on previously sold products. We incorporate repair costs into our liability estimates, including materials, labor and overhead amounts necessary to perform repairs and any costs associated with delivering repaired product to our customers. Over 90 % of our warranty liability relates to our Wholesale 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 Wholesale segment warranties cover labor costs relating to our parts for one year . We provide a limited lifetime warranty against defects on a majority of Joybird products, which are a part of our Corporate and Other results. For all our manufacturer warranties, the warranty period begins when the consumer receives our product. We use
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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 | ||||||||
(Unaudited, amounts in thousands) | 7/25/20 | 7/27/19 | ||||||
Balance as of the beginning of the period | $ | $ | ||||||
Accruals during the period | ||||||||
Settlements during the period | ( | ) | ( | ) | ||||
Balance as of the end of the period (1) | $ | $ | ||||||
(1) | $ |
We recorded accruals during the periods presented in the table above, primarily to reflect charges that relate to warranties issued during the respective periods.
Note 8: 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 | ||||||||
(Unaudited, amounts in thousands) | 7/25/20 | 7/27/19 | ||||||
Equity-based awards expense | $ | $ | ||||||
Liability-based awards expense | ( | ) | ||||||
Total stock-based compensation expense | $ | $ | ||||||
Stock Options. We granted 315,584 stock options to employees during the first quarter of fiscal 2021 and we have stock options outstanding from previous grants. 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 have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur.
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. The fair value of stock options granted during the first quarter of fiscal 2021 were calculated using the following assumptions:
(Unaudited) | Fiscal 2021 grant | Assumption | ||||
Risk-free interest rate | % | U.S. Treasury issues with term equal to expected life at grant date | ||||
Dividend rate | % | Estimated future dividend rate and common share price at grant date | ||||
Expected life in years | Contractual term of stock option and expected employee exercise trends | |||||
Stock price volatility | % | Historical volatility of our common shares | ||||
Fair value per share | $ | |||||
Stock Appreciation Rights (“SARs”). We have not granted any SARs to employees since fiscal 2014, but we have SARs outstanding from the fiscal 2013 and fiscal 2014 grants. All outstanding SARs are fully vested and have a term of ten years . SARs will be paid in cash upon exercise and, accordingly, we account for SARs as liability-based awards that we re-measure to fair value at the end of each reporting period. We have no remaining unrecognized compensation cost at July 25, 2020, relating to SARs awards as they are all fully vested, but we will continue to remeasure these awards to reflect the fair value at the end of each reporting period until all awards are exercised or forfeited. As of July 25, 2020, we had 7,149 and 13,869 SARs outstanding for the fiscal 2013 and fiscal 2014 awards, respectively. These awards have exceeded their expected life and will be re-measured to fair value based on their intrinsic value, which is the market value of our common stock on the last day of the
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reporting period less the exercise price, until the earlier of the exercise date or the contractual term date. At July 25, 2020, the intrinsic value per share of the fiscal 2013 and fiscal 2014 awards were $15.53 and $8.44 , respectively.
Restricted Stock. We granted 119,535 shares of restricted stock to employees during the first quarter of fiscal 2021. 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 quarter of fiscal 2021 was $27.54 per share, the market value of our common shares on the date of grant. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. 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 .
Performance Shares. During the first quarter of fiscal 2021, we granted 168,719 performance-based shares. We also have performance-based share awards outstanding from previous grants. Payout of the fiscal 2021 grant depends on our financial performance (50 %) 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 (50 %). 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. Grants of performance-based shares during fiscal 2019 and fiscal 2020 were weighted (80 %) on financial performance and (20 %) on market-based conditions consistent with those in the fiscal 2021 grant.
We account for performance-based shares as equity-based awards because when they vest, they will be settled in common shares. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur. 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. For performance-based shares granted in the first quarter of fiscal 2021, due to COVID-19 we have deferred setting our performance targets for such and as such, the grant date requirements under ASC 718 have not been met. Once performance goals are defined by the Compensation Committee, we will determine the awards' fair value. For shares that vest based on market conditions, we use a Monte Carlo valuation model to estimate each share’s fair value as of the date of grant. The Monte Carlo valuation model uses multiple simulations to evaluate our probability of achieving various stock price levels to determine our expected performance ranking relative to our peer group. For shares that vest based on market conditions, we expense compensation cost, net of estimated forfeitures, over the vesting period regardless of whether the market condition is ultimately satisfied. Based on the Monte Carlo model, the fair value as of the grant date of the fiscal 2021 grant of shares that vest based on market conditions was $38.14 .
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Note 9: Accumulated Other Comprehensive Income (Loss)
The activity in accumulated other comprehensive income (loss) for the quarters ended July 25, 2020, and July 27, 2019, is as follows:
(Unaudited, amounts in thousands) | Translation adjustment | Change in fair value of cash flow hedge | Unrealized gain (loss) on marketable securities | Net pension amortization and net actuarial loss | Accumulated other comprehensive loss | |||||||||||||||
Balance at April 25, 2020 | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
Changes before reclassifications | ||||||||||||||||||||
Amounts reclassified to net income | ( | ) | ||||||||||||||||||
Tax effect | ( | ) | ( | ) | ( | ) | ||||||||||||||
Other comprehensive income attributable to La-Z-Boy Incorporated | ||||||||||||||||||||
Balance at July 25, 2020 | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
Balance at April 27, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||
Changes before reclassifications | ||||||||||||||||||||
Reclassification of certain income tax effects (1) | ( | ) | ( | ) | ( | ) | ||||||||||||||
Amounts reclassified to net income | ||||||||||||||||||||
Tax effect | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Other comprehensive income (loss) attributable to La-Z-Boy Incorporated | ( | ) | ( | ) | ( | ) | ||||||||||||||
Balance at July 27, 2019 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||
(1) | Income tax effects of the Tax Cuts and Jobs Act are reclassified from AOCI to retained earnings due to adoption of ASU 2018-02. |
We reclassified the unrealized gain/(loss) on marketable securities from accumulated other comprehensive loss to net income through other income (expense), net, reclassified the change in fair value of cash flow hedges to net income through cost of sales, and reclassified the net pension amortization to net income through other income (expense), net.
The components of non-controlling interest were as follows:
Quarter Ended | ||||||||
(Unaudited, amounts in thousands) | 7/25/20 | 7/27/19 | ||||||
Balance as of the beginning of the period | $ | $ | ||||||
Net income | ( | ) | ( | ) | ||||
Other comprehensive income | ||||||||
Dividends distributed to joint venture minority partners | ( | ) | ||||||
Balance as of the end of the period | $ | $ | ||||||
Note 10: Revenue Recognition
Our revenue is primarily derived from product sales. We report product sales net of discounts and recognize them when control (rights and obligations associated with the product) passes to the customer. For sales to furniture retailers or distributors, control typically transfers when we ship the product. In cases where we sell directly to the end consumer, control of the product is generally transferred upon delivery.
For shipping and handling activities, we have elected to apply the accounting policy election permitted in ASC 606-10-25-18B, which allows an entity to account for shipping and handling activities as fulfillment activities (rather than as a promised good or service) when the activities are performed even if those activities are performed after the control of the good has been transferred. We expense shipping and handling costs at the time we recognize revenue in accordance with this election.
For sales tax, we elected to apply the accounting policy election permitted in ASC 606-10-32-2A, which allows an entity to exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes). This allows us to present revenue net of these certain types of taxes.
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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.
The following table presents our revenue disaggregated by product category and by segment or unit:
Quarter Ended July 25, 2020 | ||||||||||||||||
(Unaudited, amounts in thousands) | Wholesale | Retail | Corporate and Other | Total | ||||||||||||
Motion Upholstery Furniture | $ | $ | $ | $ | ||||||||||||
Stationary Upholstery Furniture | ||||||||||||||||
Bedroom Furniture | ||||||||||||||||
Dining Room Furniture | ||||||||||||||||
Occasional Furniture | ||||||||||||||||
Other (1) | ( | ) | ||||||||||||||
Total | $ | $ | $ | $ | ||||||||||||
Eliminations | ( | ) | ||||||||||||||
Consolidated Net Sales | $ | |||||||||||||||
Quarter Ended July 27, 2019 | ||||||||||||||||
(Unaudited, amounts in thousands) | Wholesale | Retail | Corporate and Other | Total | ||||||||||||
Motion Upholstery Furniture | $ | $ | $ | $ | ||||||||||||
Stationary Upholstery Furniture | ||||||||||||||||
Bedroom Furniture | ||||||||||||||||
Dining Room Furniture | ||||||||||||||||
Occasional Furniture | ||||||||||||||||
Other (1) | ( | ) | ||||||||||||||
Total | $ | |||||||||||||||