10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

______________________________________

FORM 10-Q

______________________________________

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2024

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

 

Commission file number 0-5151

______________________________________

FLEXSTEEL INDUSTRIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Incorporated in the State of Minnesota

42-0442319

(State or other Jurisdiction of

(I.R.S. Identification No.)

Incorporation or Organization)

 

385 BELL STREET

DUBUQUE, IA 52001-7004

(Address of Principal Executive Offices) (Zip Code)

 

(563) 556-7730

(Registrant’s Telephone Number, Including Area Code)

______________________________________

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

FLXS

The Nasdaq Stock Market, LLC

 

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 a 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 and post such files). Yes No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 (check one).

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

 

Common Stock - $1.00 Par Value

 

Shares Outstanding as of February 5, 2025

5,269,367

 

 


 

FLEXSTEEL INDUSTRIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED December 31, 2024

 

 

 

Page

Part I – Financial Information

Item 1.

Financial Statements

3

 

Consolidated Balance Sheets as of December 31, 2024, and June 30, 2024 (Unaudited)

3

 

Consolidated Statements of Income and Comprehensive Income for three and six months ended December 31, 2024, and December 31, 2023 (Unaudited)

4

 

Consolidated Statements of Changes in Shareholders’ Equity for the three and six months ended December 31, 2024, and December 31, 2023 (Unaudited)

5

 

Consolidated Statements of Cash Flows for the six months ended December 31, 2024, and December 31, 2023 (Unaudited)

6

 

Notes to Consolidated Financial Statements (Unaudited)

7

Item 2.

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

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 4.

Controls and Procedures

16

Part II – Other Information

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 5.

Other Information

18

Item 6.

Exhibits

18

Signatures

 

19

 

 

2


 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands)

 

 

 

December 31,

 

 

June 30,

 

 

 

2024

 

 

2024

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,789

 

 

$

4,761

 

Trade receivables - less allowances: December 31, 2024, $2,436, June 30, 2024, $2,440

 

 

36,310

 

 

 

44,238

 

Inventories

 

 

91,042

 

 

 

96,577

 

Other

 

 

9,910

 

 

 

8,098

 

Assets held for sale

 

 

 

 

 

1,707

 

Total current assets

 

 

149,051

 

 

 

155,381

 

NONCURRENT ASSETS:

 

 

 

 

 

 

Property, plant and equipment, net

 

 

36,414

 

 

 

36,709

 

Operating lease right-of-use assets

 

 

61,587

 

 

 

61,439

 

Deferred income taxes

 

 

8,606

 

 

 

8,607

 

Other assets

 

 

15,889

 

 

 

12,326

 

TOTAL ASSETS

 

$

271,547

 

 

$

274,462

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable - trade

 

$

20,712

 

 

$

25,830

 

Current portion of operating lease liabilities

 

 

8,035

 

 

 

7,517

 

Accrued liabilities:

 

 

 

 

 

 

Payroll and related items

 

 

7,482

 

 

 

12,059

 

Insurance

 

 

1,953

 

 

 

1,900

 

Sales and advertising related items

 

 

6,650

 

 

 

6,073

 

Other

 

 

6,036

 

 

 

7,027

 

Total current liabilities

 

 

50,868

 

 

 

60,406

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

Operating lease liabilities, less current maturities

 

 

57,774

 

 

 

58,076

 

Line of credit

 

 

 

 

 

4,822

 

Other liabilities

 

 

985

 

 

 

791

 

Total liabilities

 

 

109,627

 

 

 

124,095

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

 

Common stock - $1 par value; authorized 15,000 shares; 8,477 shares issued and
5,270 outstanding as of December 31, 2024; 8,407 shares issued and
5,200 outstanding as of June 30, 2024

 

 

8,477

 

 

 

8,407

 

Additional paid-in capital

 

 

39,694

 

 

 

39,573

 

Treasury stock, at cost; 3,207 shares as of December 31, 2024, and
June 30, 2024

 

 

(71,731

)

 

 

(71,731

)

Retained earnings

 

 

185,480

 

 

 

174,118

 

Total shareholders' equity

 

 

161,920

 

 

 

150,367

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

271,547

 

 

$

274,462

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited).

 

3


 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

 

$

108,483

 

 

$

100,108

 

 

$

212,490

 

 

$

194,711

 

Cost of goods sold

 

 

85,678

 

 

 

78,158

 

 

 

167,318

 

 

 

154,351

 

Gross profit

 

 

22,805

 

 

 

21,950

 

 

 

45,172

 

 

 

40,360

 

Selling, general and administrative expenses

 

 

16,142

 

 

 

17,366

 

 

 

32,462

 

 

 

33,858

 

(Gain) on disposal of assets held for sale

 

 

(4,991

)

 

 

 

 

 

(4,991

)

 

 

 

Operating income

 

 

11,654

 

 

 

4,584

 

 

 

17,701

 

 

 

6,502

 

Interest expense

 

 

19

 

 

 

489

 

 

 

70

 

 

 

1,059

 

Interest (income)

 

 

(31

)

 

 

 

 

 

(31

)

 

 

 

Income before income taxes

 

 

11,666

 

 

 

4,095

 

 

 

17,662

 

 

 

5,443

 

Income tax provision

 

 

2,612

 

 

 

1,044

 

 

 

4,468

 

 

 

1,640

 

Net income and comprehensive income

 

$

9,054

 

 

$

3,051

 

 

$

13,194

 

 

$

3,803

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

5,247

 

 

 

5,184

 

 

 

5,225

 

 

 

5,183

 

Diluted

 

 

5,582

 

 

 

5,324

 

 

 

5,554

 

 

 

5,360

 

Earnings per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.73

 

 

$

0.59

 

 

$

2.53

 

 

$

0.73

 

Diluted

 

$

1.62

 

 

$

0.57

 

 

$

2.38

 

 

$

0.71

 

 

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited).

 

4


 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands)

 

 

 

Six Months Ended December 31, 2024

 

 

 

Total Par

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Paid-In

 

 

Treasury

 

 

Retained

 

 

 

 

 

 

($1 Par)

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Total

 

Balance on June 30, 2024

 

$

8,407

 

 

$

39,573

 

 

$

(71,731

)

 

$

174,118

 

 

$

150,367

 

Stock-based compensation

 

 

3

 

 

 

1,135

 

 

 

 

 

 

 

 

 

1,138

 

Stock options exercised, net

 

 

4

 

 

 

(36

)

 

 

 

 

 

 

 

 

(32

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(910

)

 

 

(910

)

Net income

 

 

 

 

 

 

 

 

 

 

 

4,140

 

 

 

4,140

 

Balance on September 30, 2024

 

$

8,414

 

 

$

40,672

 

 

$

(71,731

)

 

$

177,348

 

 

$

154,703

 

Stock-based compensation

 

 

2

 

 

 

961

 

 

 

 

 

 

 

 

 

963

 

Vesting of restricted stock units and restricted shares

 

 

1

 

 

 

(14

)

 

 

 

 

 

 

 

 

(13

)

Stock options exercised, net

 

 

60

 

 

 

(1,925

)

 

 

 

 

 

 

 

 

(1,865

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(922

)

 

 

(922

)

Net income

 

 

 

 

 

 

 

 

 

 

 

9,054

 

 

 

9,054

 

Balance on December 31, 2024

 

$

8,477

 

 

$

39,694

 

 

$

(71,731

)

 

$

185,480

 

 

$

161,920

 

 

 

 

Six Months Ended December 31, 2023

 

 

 

Total Par

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Paid-In

 

 

Treasury

 

 

Retained

 

 

 

 

 

 

($1 Par)

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Total

 

Balance on June 30, 2023

 

$

8,292

 

 

$

36,605

 

 

$

(70,072

)

 

$

166,796

 

 

$

141,621

 

Stock-based compensation

 

 

8

 

 

 

903

 

 

 

 

 

 

 

 

 

911

 

Vesting of restricted stock units and restricted shares

 

 

44

 

 

 

(691

)

 

 

 

 

 

 

 

 

(647

)

Treasury stock purchases

 

 

 

 

 

 

 

 

(455

)

 

 

 

 

 

(455

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(815

)

 

 

(815

)

Net income

 

 

 

 

 

 

 

 

 

 

 

752

 

 

 

752

 

Balance on September 30, 2023

 

$

8,344

 

 

$

36,817

 

 

$

(70,527

)

 

$

166,733

 

 

$

141,367

 

Stock-based compensation

 

 

9

 

 

 

925

 

 

 

 

 

 

 

 

 

934

 

Vesting of restricted stock units and restricted shares

 

 

4

 

 

 

(45

)

 

 

 

 

 

 

 

 

(41

)

Treasury stock purchases

 

 

 

 

 

 

 

 

(972

)

 

 

 

 

 

(972

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(806

)

 

 

(806

)

Net income

 

 

 

 

 

 

 

 

 

 

 

3,051

 

 

 

3,051

 

Balance on December 31, 2023

 

$

8,357

 

 

$

37,697

 

 

$

(71,499

)

 

$

168,978

 

 

$

143,533

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited).

 

5


 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

 

 

 

Six Months Ended

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

13,194

 

 

$

3,803

 

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

 

 

 

 

 

 

Depreciation

 

 

1,853

 

 

 

1,899

 

Deferred income taxes

 

 

1

 

 

 

84

 

Stock-based compensation expense

 

 

2,101

 

 

 

1,845

 

Change in provision for losses on accounts receivable

 

 

4

 

 

 

(140

)

(Gain)/loss on disposition of property, plant and equipment

 

 

(4,987

)

 

 

34

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade receivables

 

 

7,924

 

 

 

6,907

 

Inventories

 

 

5,535

 

 

 

16,838

 

Other current assets

 

 

(2,869

)

 

 

(2,128

)

Other assets

 

 

(3,563

)

 

 

(5,297

)

Accounts payable - trade

 

 

(5,353

)

 

 

(4,991

)

Accrued liabilities

 

 

(4,940

)

 

 

(1,751

)

Other long-term liabilities

 

 

191

 

 

 

63

 

Net cash provided by operating activities

 

 

9,091

 

 

 

17,166

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from sales of investments

 

 

1,155

 

 

 

 

Proceeds from sales of property, plant and equipment

 

 

6,704

 

 

 

 

Capital expenditures

 

 

(1,334

)

 

 

(3,058

)

Net cash provided by (used in) investing activities

 

 

6,525

 

 

 

(3,058

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

Dividends paid

 

 

(1,760

)

 

 

(1,671

)

Treasury stock purchases

 

 

 

 

 

(1,427

)

Proceeds from line of credit

 

 

202,344

 

 

 

180,524

 

Payments on line of credit

 

 

(207,262

)

 

 

(190,899

)

Proceeds from issuance of common stock

 

 

141

 

 

 

 

Shares withheld for tax payments on vested shares and options exercised

 

 

(2,051

)

 

 

(688

)

Net cash (used in) financing activities

 

 

(8,588

)

 

 

(14,161

)

Increase (decrease) in cash and cash equivalents

 

 

7,028

 

 

 

(53

)

Cash and cash equivalents at beginning of the period

 

 

4,761

 

 

 

3,365

 

Cash and cash equivalents at end of the period

 

$

11,789

 

 

$

3,312

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION

 

 

 

 

 

 

Interest paid

 

 

106

 

 

 

1,104

 

Interest received

 

 

31

 

 

 

 

Cash paid for income taxes, net

 

 

6,053

 

 

 

1,724

 

Capital expenditures in accounts payable

 

 

258

 

 

 

382

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited).

 

6


 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE PERIOD ENDED December 31, 2024

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries (the “Company” or “Flexsteel” or “Our”) is one of the largest manufacturers, importers, and marketers of furniture products in the United States. Product offerings include a wide variety of furniture such as sofas, loveseats, chairs, reclining rocking chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, kitchen storage, bedroom furniture, and outdoor furniture. A featured component in most of the upholstered furniture is a unique steel drop-in seat spring from which the name “Flexsteel” is derived. The Company distributes its products throughout the United States through its e-commerce channel and direct sales force.

BASIS OF PRESENTATION – The unaudited Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information contained in the Consolidated Financial Statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such Consolidated Financial Statements. Operating results for the three and six months ended December 31, 2024, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2025. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Except to the extent updated or described below, the significant accounting policies in Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024, appropriately represent, in all material respects, the current status of accounting policies.

2. INVENTORIES

A comparison of inventories is as follows:

 

 

December 31,

 

 

June 30,

 

(in thousands)

 

2024

 

 

2024

 

Raw materials

 

$

12,584

 

 

$

14,030

 

Work in process and finished parts

 

 

2,840

 

 

 

2,654

 

Finished goods

 

 

75,618

 

 

 

79,893

 

Total

 

$

91,042

 

 

$

96,577

 

 

3. ASSETS HELD FOR SALE

The Company completed the sale of its Dublin, Georgia facility as part of a restructuring plan in the quarter ended December 31, 2024. The company received proceeds of $6.7 million and recorded a pre-tax gain of $5.0 million related to the sale.

 

4. LEASES

The Company accounts for its leases in accordance with ASC 842, Leases. ASC 842 requires lessees to (i) recognize a right-of-use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease-related cash payments within operating and financing activities. The Company made an accounting policy election to not recognize short-term leases on the Consolidated Balance Sheets and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs, and the remaining balance of lease incentives received. Both the lease ROU asset and lease liability are reduced to zero at the end of the lease term.

The Company leases distribution centers and warehouses, manufacturing facilities, showrooms, and office space. At the lease inception date, the Company determines if an arrangement is, or contains a lease. Some of the Company’s leases include options to renew at similar terms. The Company assesses these options to determine if the Company is reasonably certain of exercising these options based on relevant economic and financial factors. Options that meet these criteria are included in the lease term at the lease commencement date.

 

7


 

For purposes of measuring the Company’s ROU asset and lease liability, the discount rate utilized by the Company was based on the average interest rates effective for the Company’s line of credit. Some of the Company’s leases contain variable rent payments, including common area maintenance and utilities. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.

The components of the Company’s leases excluding the impact of sublease income reflected on the Company’s Consolidated Statements of Income were as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

(in thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Operating lease expense

 

$

2,509

 

 

$

2,384

 

 

$

4,987

 

 

$

4,808

 

Variable lease expense

 

 

393

 

 

 

524

 

 

 

912

 

 

 

970

 

Total lease expense

 

$

2,902

 

 

$

2,908

 

 

$

5,899

 

 

$

5,778

 

Other information related to leases and future minimum lease payments under non-cancelable operating leases were as follows:

 

 

 

Six Months Ended

 

 

 

December 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Operating cash flows paid for operating leases

 

$

4,918

 

 

$

4,663

 

 

 

 

 

 

 

 

Cash received from subleasing of operating lease:

 

 

 

 

 

 

Operating cash flows received from subleasing of operating lease

 

$

594

 

 

$

1,119

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease liabilities:

 

 

 

 

 

 

Operating leases

 

$

4,119

 

 

$

797

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (in years):

 

 

 

 

 

 

Operating leases

 

 

7.6

 

 

 

8.6

 

 

 

 

 

 

 

 

Weighted-average discount rate:

 

 

 

 

 

 

Operating leases

 

 

3.3

%

 

 

3.1

%

Future minimum lease payments under non-cancelable operating leases were as follows:

 

 

 

December 31, 2024

 

Remaining payments in FY2025

 

$

4,999

 

FY2026

 

 

10,145

 

FY2027

 

 

10,315

 

FY2028

 

 

10,081

 

FY2029

 

 

9,001

 

Thereafter

 

 

29,601

 

Total future minimum lease payments

 

$

74,142

 

Less imputed interest

 

 

8,333

 

Lease liability

 

$

65,809

 

 

5. CREDIT ARRANGEMENTS

On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders party thereto. The Credit Agreement has a five-year term and provides for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not

 

8


 

less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. As of December 31, 2024, management believes the Company was in compliance with all covenants.

On April 18, 2022, the Company, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 5.82%, on December 31, 2024.

As of December 31, 2024, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding with the Lender as of December 31, 2024, totaled $0.9 million.

 

6. INCOME TAXES

The provision for income taxes for the interim periods is based on an estimate of the Company’s annual effective tax rate adjusted to reflect the impact of discrete items. Management judgment is required in projecting ordinary income to estimate the Company’s annual effective tax rate. The Company’s effective tax rate for the three months ended December 31, 2024, and December 31, 2023, was 22.4% and 25.5%, respectively. The Company's effective tax rate for the six months ended December 31, 2024 and 2023, was 25.3% and 30.1%, respectively. For the three and six months ended December 31, 2024, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes and the impact of foreign operations. For the three and six months ended December 31, 2023, the effective tax rate differs from the statutory tax rate of 21% due to nondeductible stock compensation, state taxes, and the impact of foreign operations.

7. STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation plans in accordance with ASC 718, Stock Compensation, which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period. Restricted shares and restricted stock units (“RSUs”) generally vest over 1 to 3 years. Stock options are granted at an exercise price equal to the fair value of the Company’s common stock price at the grant date and are exercisable for up to 10 years from the date of grant. Stock-based compensation is included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. Forfeitures are recognized as incurred.

The following table is a summary of total stock-based compensation expenses for the three and six months ended December 31, 2024 and 2023.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

(in thousands)

 

2024

 

 

 

2023

 

 

2024

 

 

2023

 

Total stock-based compensation expense

 

$

963

 

 

 

$

934

 

 

$

2,101

 

 

$

1,845

 

On December 14, 2022, the Company’s shareholders approved the Flexsteel Industries, Inc. 2022 Equity Incentive Plan (“2022 Plan”).

The 2022 Plan replaced the Long-Term Incentive Compensation Plan (“LTIP”) and the 2013 Omnibus Stock Plan (collectively, the “Prior Plans”). No further awards will be made under either of the Prior Plans, but these Prior Plans will continue to govern awards previously granted under them.

(1)
2022 Equity Incentive Plan

The 2022 Plan is a long-term incentive plan pursuant to which awards may be granted to certain employees, independent contractors and directors of the Company, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other stock-based awards. For periods beginning on or after July 1, 2023, restricted stock units ("RSUs") and performance stock units ("PSUs") granted to officers and key employees as part of long-term compensation programs are issued from the 2022 Plan. RSUs and PSUs awarded from the 2022 Plan are included in the Long-Term Incentive Compensation or Restricted Share and RSUs tables below.

 

9


 

(2)
Long-Term Incentive Compensation Plan

The LTIP provided for PSUs to be awarded to officers and key employees based on performance goals set by the Compensation Committee of the Board of Directors (the “Committee”). In conjunction with each grant of PSUs, the Committee granted RSUs under the 2013 Omnibus Stock Plan that vested at the end of three years. No further awards will be issued under this plan.

(3)
2013 Omnibus Stock Plan

The 2013 Omnibus Stock Plan was for key employees, officers and directors and provided for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and performance units. No further awards will be issued under this plan.

Long-Term Incentive Compensation

The table below sets forth, as of December 31, 2024, the number of unvested PSUs granted at the target performance level for the 2023-2025, 2024-2026, and 2025-2027 performance periods under the 2022 Plan and LTIP (as applicable) and the number of unvested RSUs granted in conjunction with the PSUs. For PSUs awarded for the three year performance periods ending June 30, 2025, 2026 and 2027, achievement is based on meeting performance goals set for each year within the three year period. The Committee selected Adjusted Operating Income as the performance metric for the performance periods ending June 30, 2025, 2026, and 2027.

 

 

 

Time-Based Vest (RSUs)

 

 

Performance-Based Vest (PSUs)

 

 

Total

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Weighted Average

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Fair Value

 

 

 

 

 

Fair Value

 

 

 

 

 

Fair Value

 

(shares in thousands)

 

Shares

 

 

Per Share

 

 

Shares

 

 

Per Share

 

 

Shares

 

 

Per Share

 

Unvested as of June 30, 2024

 

 

97

 

 

$

17.92

 

 

 

182

 

 

$

22.07

 

 

 

279

 

 

$

20.65

 

Granted

 

 

31

 

 

 

31.66

 

 

 

46

 

 

 

31.66

 

 

 

77

 

 

 

31.66

 

Vested

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

(37

)

 

 

39.07

 

 

 

(37

)

 

 

39.07

 

Unvested as of December 31, 2024

 

 

128

 

 

$

21.25

 

 

 

191

 

 

$

21.09

 

 

 

319

 

 

$

21.17

 

Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs was $3.2 million as of December 31, 2024, which is expected to be recognized over a weighted-average period of 1.4 years.

Restricted Shares and RSUs

A summary of the activity in the Company’s unvested restricted shares and unvested RSUs (not granted in conjunction with PSUs) as of December 31, 2024, is as follows:

 

 

 

 

 

 

Weighted Average

 

 

 

Shares

 

 

Fair Value

 

 

 

(in thousands)

 

 

Per Share

 

Unvested as of June 30, 2024

 

 

16

 

 

$

21.96

 

Granted

 

 

4

 

 

 

31.66

 

Vested

 

 

(1

)

 

 

20.08

 

Forfeited

 

 

 

 

 

20.33

 

Unvested as of December 31, 2024

 

 

19

 

 

$

24.10

 

Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.3 million as of December 31, 2024, which is expected to be recognized over a weighted-average period of 1.5 years.

 

10


 

Options

A summary of the activity of the Company’s stock option plans as of December 31, 2024, is presented below:

 

 

 

 

 

 

Weighted

 

 

 

Shares

 

 

Average

 

 

 

(in thousands)

 

 

Exercise Price

 

Outstanding at June 30, 2024

 

 

180

 

 

$

20.01

 

Exercised

 

 

(101

)

 

 

19.26

 

Cancelled

 

 

(12

)

 

 

34.51

 

Outstanding at December 31, 2024

 

 

67

 

 

$

18.54

 

The following table summarizes information for options outstanding at December 31, 2024:

 

 

 

 

Options

 

 

Weighted Average

 

Range of

 

Outstanding

 

 

Remaining

 

 

Exercise

 

Prices

 

(in thousands)

 

 

Life (Years)

 

 

Price

 

$

9.97 - 15.14

 

 

43

 

 

 

5.3

 

 

$

10.62

 

18.30 - 19.72

 

 

6

 

 

 

6.4

 

 

 

18.30

 

21.96 - 27.57

 

 

3

 

 

 

4.0

 

 

 

24.49

 

31.06 - 32.80

 

 

6

 

 

 

3.7

 

 

 

32.40

 

43.09 - 47.45

 

 

9

 

 

 

1.7

 

 

 

45.29

 

$

9.97 - 47.45

 

 

67

 

 

 

4.8

 

 

$

18.54

 

There is no unrecognized stock-based compensation expense related to these options as of December 31, 2024.

Stock-based compensation granted outside a plan

During the quarter ended June 30, 2020, the Company awarded its former Chief Financial Officer/Chief Operating Officer (current Chief Executive Officer) 79,000 options outside of any Company stock plans. All 79,000 options remain outstanding as of December 31, 2024, with an exercise price of $9.97 and a remaining life of 5.3 years. There is no remaining unrecognized stock-based compensation expense related to these options.

8. EARNINGS PER SHARE

Basic earnings per share (EPS) of common stock are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share of common stock include the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options, shares associated with the long-term incentive compensation plans, and non-vested restricted stock units. The Company calculates the dilutive effect of outstanding options and restricted stock units using the treasury stock method. Anti-dilutive options are not included in the computation of diluted EPS when their exercise price is greater than the average closing market price of the common shares.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

(in thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Basic shares

 

 

5,247

 

 

 

5,184

 

 

 

5,225

 

 

 

5,183

 

Potential common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

111

 

 

 

66

 

 

 

105

 

 

 

74

 

Non-vested restricted stock units and restricted shares

 

 

224

 

 

 

74

 

 

 

224

 

 

 

103

 

Diluted shares

 

 

5,582

 

 

 

5,324

 

 

 

5,554

 

 

 

5,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive shares

 

 

 

 

 

136

 

 

 

 

 

 

136

 

Cash dividends declared per common share were $0.17 for the three and six months ended December 31, 2024, and were $0.15 for the three and six months ended December 31, 2023, respectively.

 

11


 

9. COMMITMENTS AND CONTINGENCIES

Other Proceedings – From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company does not consider any of such other proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material effect on its consolidated operating results, financial condition, or cash flows.

10. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023 09 “Improvements to Income Tax Disclosures.” The amendments in this ASU are intended to increase transparency through improvements to income tax disclosures primarily related to the income tax rate reconciliation and income taxes paid information. This ASU will become effective for us for the annual period beginning in fiscal year 2026, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on our related disclosures, but do not expect this guidance will have a material impact on our financial position and results of operations.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires business entities to enhance disclosures about significant segment expenses. The ASU also requires that a public entity with a single reportable segment, like the Company, provide all of the disclosures required as part of ASU 2023-07 and all existing disclosures required by Topic 280. The ASU will become effective for us for the annual period beginning in fiscal year 2025 and for interim periods beginning with our 2026 fiscal year, on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the effect that the new guidance will have on our related disclosures, but do not expect this guidance will have a material impact on our financial position and results of operations.

 

12


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this quarterly report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES:

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2024 annual report on Form 10-K.

Overview

The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three and six months ended December 31, 2024 and 2023. The amounts presented are percentages of the Company’s net sales.

 

 

 

Three Months Ended

 

Six Months Ended

 

 

December 31,

 

December 31,

 

 

2024

 

2023

 

2024

 

2023

Net sales

 

 

100.0

 

%

 

 

100.0

 

%

 

 

100.0

 

%

 

 

100.0

 

%

Cost of goods sold

 

 

79.0

 

 

 

 

78.1

 

 

 

 

78.7

 

 

 

 

79.3

 

 

Gross margin

 

 

21.0

 

 

 

 

21.9

 

 

 

 

21.3

 

 

 

 

20.7

 

 

Selling, general and administrative expenses

 

 

14.9

 

 

 

 

17.3

 

 

 

 

15.3

 

 

 

 

17.4

 

 

(Gain) on disposal of assets held for sale

 

 

(4.6

)

 

 

 

 

 

 

 

(2.3

)

 

 

 

 

 

Operating income

 

 

10.7

 

 

 

 

4.6

 

 

 

 

8.3

 

 

 

 

3.3

 

 

Interest expense

 

 

 

 

 

 

0.5

 

 

 

 

 

 

 

 

0.5

 

 

Interest (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

10.7

 

 

 

 

4.1

 

 

 

 

8.3

 

 

 

 

2.8

 

 

Income tax provision

 

 

2.4

 

 

 

 

1.0

 

 

 

 

2.1

 

 

 

 

0.8

 

 

Net income and comprehensive income

 

 

8.3

 

%

 

 

3.0

 

%

 

 

6.2

 

%

 

 

2.0

 

%

 

Results of Operations for the Quarter Ended December 31, 2024 vs. 2023

Net sales were $108.5 million for the quarter ended December 31, 2024, compared to net sales of $100.1 million in the prior year quarter, an increase of 8.4%. The increase was driven by higher sales in home furnishings products sold through retail stores of $9.2 million, or 10.3%, led by unit volume increases, freight surcharges, and product mix. Sales of products sold through e-commerce channels decreased by ($0.8) million, or (7.1%), compared to the second quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Home furnishings backlog was $77 million as of the quarter ended December 31, 2024, an increase of 40.0% compared to $55 million in the prior year quarter.

Gross margin as a percent of net sales for the quarter ended December 31, 2024, was 21.0%, compared to 21.9% for the prior year quarter, a decrease of 90 basis points (“bps”). The 90-bps decrease was primarily due to ocean freight charge increases partially offset by cost savings initiatives.

Selling, general and administrative (“SG&A”) expenses decreased ($1.3) million to $16.1 million in the second quarter ended December 31, 2024, as compared to $17.4 million in the prior year quarter. As a percentage of net sales, SG&A was 14.9% in the quarter ended December 31, 2024 compared to 17.3% of net sales in the prior year quarter. The 240-bps decrease was due to leverage on higher sales and structural cost savings, partially offset by investments in growth initiatives for the quarter ended December 31, 2024.

During the quarter ended December 31, 2024, the Company completed the sale of its Dublin, Georgia facility which had been previously recorded as held for sale. The Company recorded a pre-tax gain of $5.0 million related to the sale. See Note 3, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information

Income tax expense was $2.6 million, or an effective rate of 22.4% for the quarter ended December 31, 2024, compared to an income tax expense of $1.0 million, or an effective rate of 25.5% during the quarter ended December 31, 2023. For the quarter ended

 

13


 

December 31, 2024, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes and the impact of foreign operations.

Net income was $9.1 million, or $1.62 per diluted share for the quarter ended December 31, 2024, compared to net income of $3.1 million, or $0.57 per diluted share in the prior year quarter.

On February 1, 2025, the President of the United States issued executive order “Imposing Duties To Address The Situation At Our Southern Border” which imposed a 25% tariff on all products of Mexico beginning February 4, 2025. Further executive order issued February 3, 2025, paused the implementation of these tariffs until March 4, 2025. The current situation is dynamic, and it is unknown if the two countries will reach an agreement to further pause or eliminate the pending tariffs. Given the Company’s sizable manufacturing operations in Mexico, should these tariffs be enacted they could have a material impact on our future cost of goods sold, profit and cash flow. The ultimate impact will be dependent on the magnitude and duration of the tariffs and the Company is assessing options to mitigate any potential impact.

Results of Operations for the six months ended December 31, 2024 and 2023

Net sales were $212.5 million for the six months ended December 31, 2024, compared to net sales of $194.7 million in the prior-year six-month period, an increase of 9.1%. The increase in sales of $17.8 million was driven by a $20.2 million increase related to home furnishing products sold through retailers offset by a decrease of ($2.4) million for home furnishing products sold through e-commerce channels.

Gross margin as a percent of net sales for the six months ended December 31, 2024, was 21.3%, compared to 20.7% for the prior-year six-month period, an increase of 60 bps. The 60-bps increase was primarily driven by sales volume leverage and structural cost reduction savings versus the prior year ended December 31, 2023.

Selling, general and administrative expenses decreased ($1.4) million in the six months ended December 31, 2024, compared to the prior-year six-month period. SG&A as a percentage of sales was 15.3% in the six months ended December 31, 2024, compared to the prior-year six-month period of 17.4%. The 210-bps decrease was primarily due to sales volume leverage partially offset by investments in growth initiatives for the six months ended December 31, 2024.

During the six-month period ended December 31, 2024, the Company completed the sale of its Dublin, Georgia facility which had been previously recorded as held for sale. The Company recorded a pre-tax gain of $5.0 million related to the sale. See Note 3, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information

Income tax expense was $4.5 million, or an effective rate of 25.3%, during the six months ended December 31, 2024, compared to income tax expense of $1.6 million in the prior-year six-month period, or an effective tax rate of 30.1%. The effective tax rate for the six months ended December 31, 2024, was primarily impacted by state taxes and the impact of foreign operations.

Net income was $13.2 million, or $2.38 per diluted share for the six months ended December 31, 2024, compared to net income of $3.8 million, or $0.71 per diluted share in the prior-year six-month period.

On February 1, 2025, the President of the United States issued executive order “Imposing Duties To Address The Situation At Our Southern Border” which imposed a 25% tariff on all products of Mexico beginning February 4, 2025. Further executive order issued February 3, 2025, paused the implementation of these tariffs until March 4, 2025. The current situation is dynamic, and it is unknown if the two countries will reach an agreement to further pause or eliminate the pending tariffs. Given the Company’s sizable manufacturing operations in Mexico, should these tariffs be enacted they could have a material impact on our future cost of goods sold, profit and cash flow. The ultimate impact will be dependent on the magnitude and duration of the tariffs and the Company is assessing options to mitigate any potential impact.

Liquidity and Capital Resources

Working capital (current assets less current liabilities) on December 31, 2024, was $98.2 million compared to $95.0 million on June 30, 2024. The $3.2 million increase in working capital was primarily due to a decrease in accounts payable of $5.1 million, a decrease in payroll and related liabilities of $4.6 million, and an increase in other current liabilities of $0.6 million offset by an increase in other current assets of $7.2 million, an increase in cash of $7 million, and a decrease in net trade receivables of $7.9 million, a decrease in inventories of $5.5 million and a decrease in assets held for sale of $1.7 million. Refer to discussion of working capital changes below, under Net cash provided by operating activities. Capital expenditures were $1.3 million during the six months ended December 31, 2024.

 

14


 

A summary of operating, investing, and financing cash flow is shown in the following table:

 

 

 

Six Months Ended

 

 

 

December 31,

 

(in thousands)

 

2024

 

 

2023

 

Net cash provided by operating activities

 

$

9,091

 

 

$

17,166

 

Net cash provided by (used in) investing activities

 

 

6,525

 

 

 

(3,058

)

Net cash (used in) financing activities

 

 

(8,588

)

 

 

(14,161

)

Increase (decrease) in cash and cash equivalents

 

$

7,028

 

 

$

(53

)

Net cash provided by operating activities

For the six months ended December 31, 2024, net cash provided by operating activities was $9.1 million, primarily due to an increase in net income of $13.2 million, adjustments for non-cash items including a pre-tax gain on sale of assets of $5 million, stock-based compensation of $2.1 million, depreciation of $1.9 million, and a decrease in inventory of $5.5 million offset by an increase in trade receivables of $7.9 million, an increase in accrued liabilities of $4.9 million, a decrease in other current assets of $3.6 million, an increase in accounts payable of $5.4 million and a decrease of other assets and liabilities of $0.2 million.

For the six months ended December 31, 2023, net cash provided by operating activities was $17.2 million, primarily due to a decrease in inventory of $16.8 million, a decrease in trade receivables of $6.9 million, net income of $3.8 million, and adjustments for non-cash items including depreciation of $1.9 million, stock-based compensation of $1.8 million, and deferred income taxes of $0.1 million partially offset by an increase in other assets of $5.3 million, a decrease in accounts payable of $5.0 million, an increase in other current assets of $2.1 million, and a decrease in accrued liabilities of $1.7 million.

Net cash provided by (used in) investing activities

For the six months ended December 31, 2024, net cash provided by investing activities was $6.5 million due to proceeds from the sale of Dublin of $6.7 million, and corporate owned life insurance proceeds of $1.1 million, offset by capital expenditures of $1.3 million.

For the six months ended December 31, 2023, net cash used in investing activities was $3.1 million due to capital expenditures.

Net cash (used in) financing activities

For the six months ended December 31, 2024, net cash used in financing activities was $8.6 million, due to payments on the line of credit of $207.1 million partially offset by proceeds from the line of credit of $202 million, shares withheld for tax payments on vested shares and options exercised of $2.1 million, dividends paid of $1.8 million, and proceeds from issuance of common stock of $0.1 million.

For the six months ended December 31, 2023, net cash used in financing activities was $14.2 million, due to payments on the line of credit of $190.9 million partially offset by proceeds from the line of credit of $180.5 million, dividends paid of $1.7 million, $1.4 million paid for purchases of company stock, and $0.7 million paid for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

Line of Credit

On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders party thereto. The Credit Agreement has a five-year term and provides for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. As of December 31, 2024, management believes the Company was in compliance with all covenants.

On April 18, 2022, the Company, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.

 

15


 

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 5.82%, on December 31, 2024.

As of December 31, 2024, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding with the Lender as of December 31, 2024, totaled $0.9 million.

Contractual Obligations

As of December 31, 2024, there have been no material changes to our contractual obligations presented in our Annual Report on Form 10-K for the year ended June 30, 2024.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General – Market risk represents the risk of changes in the value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. As discussed below, management of the Company does not believe that changes in these factors could cause material fluctuations in the Company’s results of operations or cash flows. The ability to import furniture products can be adversely affected by political issues in the countries where suppliers are located, as well as disruptions associated with shipping distances and negotiations with port employees. Other risks related to furniture product importation include government imposition of regulations and/or quotas; duties, taxes or tariffs on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Any of these factors could interrupt supply, increase costs, and decrease earnings.

Foreign Currency Risk – During the quarters ended December 31, 2024 and 2023, the Company did not have sales but did have purchases and other expenses denominated in foreign currencies, primarily the Mexican Peso. The wages of our employees and certain other employee benefits and indirect costs related to our operations in Mexico are made in Pesos and subject to foreign currency fluctuation with the U.S. dollar. The Company does not employ any foreign currency hedges against this exposure. A negative shift in the value of the U.S. dollar against the Peso could increase the cost of our manufactured product. In addition, the Company has certain asset and liabilities related to our manufacturing operations which are denominated in pesos, primarily our VAT receivable for recoverable VAT paid in Mexico. A negative shift in the value of the Peso against the U.S. dollar could result in the value of our receivable decreasing which may impact our earnings. Beginning in the third quarter of fiscal year 2025, we began using a derivative instrument to reduce our exposure to foreign currency risk from changes in the peso’s exchange rate for this exposure.

See “Risk [MD1] Factors” in Item 1A in the most recent Annual Report on Form 10-K for further discussion.

Interest Rate Risk – The Company’s primary market risk exposure regarding financial instruments is changes in interest rates. On December 31, 2024, the Company had no outstanding borrowings on its line of credit, exclusive of fees and letters of credit.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of December 31, 2024.

(b) Changes in internal control over financial reporting. During the quarter ended December 31, 2024, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Cautionary Statement Relevant to Forward-Looking Information for “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

The Company and its representatives may from time to time make written or oral forward-looking statements concerning long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities and Exchange Commission and its reports to stockholders.

Statements, including those in this Quarterly Report on Form 10-Q, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause the Company’s results to differ materially from those anticipated by some of the statements made

 

16


 

herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, restructurings, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, changes in foreign currency values, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, the amount of sales generated and the profit margins thereon, competition (both U.S. and foreign), credit exposure with customers, participation in multi-employer pension plans, disruptions or security breaches to business information systems, the impact of any future pandemic, and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of our most recent Annual Report on Form 10-K.

The Company specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

PART II OTHER INFORMATION

Item 1A. Risk Factors

There has been no material change in the risk factors set forth under Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 20, 2022, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to $30 million of the Company’s common stock through January 19, 2025.

On December 11, 2024, the Board of Directors approved an additional share repurchase program authorizing the Company to purchase up to $30 million of the Company’s common stock.

The following table summarizes the activity of the common stock repurchases made during the three months ended December 31, 2024.

 

 

 

Total Number

 

 

Average

 

 

Total Number
of Shares

 

 

Approximate Dollar
Value of Shares

 

 

 

of Shares

 

 

Price Paid

 

 

Purchased

 

 

that May Yet

 

Period

 

Purchased

 

 

per Share

 

 

as Part of Plans

 

 

Be Purchased

 

October 1, 2024, to October 31, 2024

 

 

 

 

$

 

 

 

1,485,274

 

 

$

2,115,634

 

November 1, 2024, to November 30, 2024

 

 

 

 

 

 

 

 

1,485,274

 

 

 

2,115,634

 

December 1, 2024, to December 31, 2024

 

 

 

 

 

 

 

 

1,485,274

 

 

 

32,115,634

 

Three months ended December 31, 2024

 

 

 

 

$

 

 

 

1,485,274

 

 

$

32,115,634

 

 

 

17


 

 

Item 5. Other Information

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2024, no director or officer of the Company adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

 

Exhibit No.

 

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS

XBRL Instance Document**

101.SCH

Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

104.Cover Page

Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

Filed herewith

**

In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

 

 

18


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

 

FLEXSTEEL INDUSTRIES, INC.

 

 

 

 

 

 

 

 

Date:

February 5, 2025

By:

/s/ Michael J. Ressler

 

 

 

 

Michael J. Ressler

 

 

 

 

Chief Financial Officer

 

 

 

 

(Principal Financial & Accounting Officer)

 

 

 

 

19