10-Q 1 flxs-20240331.htm 10-Q 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 March 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 May 1, 2024

5,156,287

 

 


FLEXSTEEL INDUSTRIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED March 31, 2024

 

 

 

Page

Part I – Financial Information

Item 1.

Financial Statements

3

 

Consolidated Balance Sheets as of March 31, 2024, and June 30, 2023 (Unaudited)

3

 

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

4

 

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

5

 

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

7

 

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18

Item 4.

Controls and Procedures

18

Part II – Other Information

Item 1A.

Risk Factors

19

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 6.

Exhibits

19

Signatures

 

20

 

 

2


PART I FINANCIAL INFORMATION

Item 1. Financial Statements

 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands)

 

 

 

March 31,

 

 

June 30,

 

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,570

 

 

$

3,365

 

Trade receivables - less allowances: March 31, 2024, $2,451, June 30, 2023, $2,600

 

 

38,884

 

 

 

38,168

 

Inventories

 

 

96,589

 

 

 

122,076

 

Other

 

 

9,235

 

 

 

6,417

 

Assets held for sale

 

 

616

 

 

 

616

 

Total current assets

 

 

149,894

 

 

 

170,642

 

NONCURRENT ASSETS:

 

 

 

 

 

 

Property, plant and equipment, net

 

 

39,963

 

 

 

38,652

 

Operating lease right-of-use assets

 

 

63,398

 

 

 

68,294

 

Deferred income taxes

 

 

7,080

 

 

 

7,154

 

Other assets

 

 

13,431

 

 

 

5,808

 

TOTAL ASSETS

 

$

273,766

 

 

$

290,550

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Accounts payable - trade

 

$

21,655

 

 

$

24,745

 

Current portion of operating lease liabilities

 

 

7,615

 

 

 

7,179

 

Accrued liabilities:

 

 

 

 

 

 

Payroll and related items

 

 

9,306

 

 

 

9,955

 

Insurance

 

 

2,214

 

 

 

1,920

 

Restructuring costs

 

 

1,825

 

 

 

 

Sales and advertising related items

 

 

4,568

 

 

 

5,358

 

Other

 

 

6,554

 

 

 

5,948

 

Total current liabilities

 

 

53,737

 

 

 

55,105

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

Operating lease liabilities, less current maturities

 

 

59,892

 

 

 

64,974

 

Line of credit

 

 

14,184

 

 

 

28,273

 

Other liabilities

 

 

689

 

 

 

577

 

Total liabilities

 

 

128,502

 

 

 

148,929

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

 

Common stock - $1 par value; authorized 15,000 shares; 8,363 shares issued and
5,156 outstanding as of March 31, 2024; 8,292 shares issued and
5,174 outstanding as of June 30, 2023

 

 

8,363

 

 

 

8,292

 

Additional paid-in capital

 

 

38,656

 

 

 

36,605

 

Treasury stock, at cost; 3,207 shares, and 3,118 shares as of March 31, 2024, and
June 30, 2023, respectively

 

 

(71,732

)

 

 

(70,072

)

Retained earnings

 

 

169,977

 

 

 

166,796

 

Total shareholders' equity

 

 

145,264

 

 

 

141,621

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

273,766

 

 

$

290,550

 

 

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

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

 

$

107,219

 

 

$

99,052

 

 

$

301,930

 

 

$

287,873

 

Cost of goods sold

 

 

83,902

 

 

 

80,407

 

 

 

238,253

 

 

 

238,041

 

Gross profit

 

 

23,317

 

 

 

18,645

 

 

 

63,677

 

 

 

49,832

 

Selling, general and administrative expenses

 

 

17,708

 

 

 

16,529

 

 

 

51,566

 

 

 

45,967

 

Environmental remediation

 

 

 

 

 

 

 

 

 

 

 

(2,788

)

Restructuring expense

 

 

2,627

 

 

 

 

 

 

2,627

 

 

 

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

347

 

Operating income

 

 

2,982

 

 

 

2,116

 

 

 

9,484

 

 

 

6,306

 

Interest expense

 

 

336

 

 

 

260

 

 

 

1,395

 

 

 

897

 

Other (income)

 

 

(14

)

 

 

(12

)

 

 

(14

)

 

 

(11

)

Income before income taxes

 

 

2,660

 

 

 

1,868

 

 

 

8,103

 

 

 

5,420

 

Income tax provision

 

 

857

 

 

 

393

 

 

 

2,497

 

 

 

803

 

Net income and comprehensive income

 

$

1,803

 

 

$

1,475

 

 

$

5,606

 

 

$

4,617

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

5,154

 

 

 

5,179

 

 

 

5,175

 

 

 

5,249

 

Diluted

 

 

5,448

 

 

 

5,352

 

 

 

5,410

 

 

 

5,427

 

Earnings per share of common stock:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

 

$

0.28

 

 

$

1.08

 

 

$

0.88

 

Diluted

 

$

0.33

 

 

$

0.28

 

 

$

1.04

 

 

$

0.85

 

 

 

 

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)

 

 

 

Nine Months Ended March 31, 2024

 

 

 

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

 

Stock-based compensation

 

 

3

 

 

 

874

 

 

 

 

 

 

 

 

 

877

 

Stock options exercised

 

 

3

 

 

 

85

 

 

 

 

 

 

 

 

 

88

 

Treasury stock purchases

 

 

 

 

 

 

 

 

(233

)

 

 

 

 

 

(233

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(804

)

 

 

(804

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,803

 

 

 

1,803

 

Balance on March 31, 2024

 

$

8,363

 

 

$

38,656

 

 

$

(71,732

)

 

$

169,977

 

 

$

145,264

 

 

 

5


 

 

Nine Months Ended March 31, 2023

 

 

 

Total Par

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Value of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Paid-In

 

 

Treasury

 

 

Retained

 

 

 

 

 

 

($1 Par)

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Total

 

Balance on June 30, 2022

 

$

8,190

 

 

$

34,467

 

 

$

(66,372

)

 

$

155,275

 

 

$

131,560

 

Stock-based compensation

 

 

8

 

 

 

817

 

 

 

 

 

 

 

 

 

825

 

Vesting of restricted stock units and restricted shares

 

 

28

 

 

 

(378

)

 

 

 

 

 

 

 

 

(350

)

Treasury stock purchases

 

 

 

 

 

 

 

 

(403

)

 

 

 

 

 

(403

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(833

)

 

 

(833

)

Net income

 

 

 

 

 

 

 

 

 

 

 

289

 

 

 

289

 

Balance on September 30, 2022

 

$

8,226

 

 

$

34,906

 

 

$

(66,775

)

 

$

154,731

 

 

$

131,088

 

Stock-based compensation

 

 

10

 

 

 

835

 

 

 

 

 

 

 

 

 

845

 

Vesting of restricted stock units and restricted shares

 

 

3

 

 

 

(60

)

 

 

 

 

 

 

 

 

(57

)

Treasury stock purchases

 

 

 

 

 

 

 

 

(1,823

)

 

 

 

 

 

(1,823

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(819

)

 

 

(819

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,853

 

 

 

2,853

 

Balance on December 31, 2022

 

$

8,239

 

 

$

35,681

 

 

$

(68,598

)

 

$

156,765

 

 

$

132,087

 

Stock-based compensation

 

 

8

 

 

 

794

 

 

 

 

 

 

 

 

 

802

 

Vesting of restricted stock units and restricted shares

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

(12

)

Treasury stock purchases

 

 

 

 

 

 

 

 

(742

)

 

 

 

 

 

(742

)

Cash dividends declared

 

 

 

 

 

 

 

 

 

 

 

(807

)

 

 

(807

)

Net income

 

 

 

 

 

 

 

 

 

 

 

1,475

 

 

 

1,475

 

Balance on March 31, 2023

 

$

8,247

 

 

$

36,463

 

 

$

(69,340

)

 

$

157,433

 

 

$

132,803

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited).

 

6


FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

 

 

 

Nine Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

5,606

 

 

$

4,617

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation

 

 

2,940

 

 

 

3,483

 

Deferred income taxes

 

 

74

 

 

 

 

Stock-based compensation expense

 

 

2,722

 

 

 

2,472

 

Change in provision for losses on accounts receivable

 

 

(149

)

 

 

(149

)

Loss on disposal of assets

 

 

60

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade receivables

 

 

(567

)

 

 

4,748

 

Inventories

 

 

25,487

 

 

 

27,901

 

Other current assets

 

 

(2,818

)

 

 

(2,622

)

Other assets

 

 

(7,623

)

 

 

 

Accounts payable - trade

 

 

(3,039

)

 

 

(6,311

)

Accrued liabilities

 

 

1,561

 

 

 

(3,430

)

Other long-term liabilities

 

 

107

 

 

 

(247

)

Net cash provided by operating activities

 

 

24,361

 

 

 

30,462

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Capital expenditures

 

 

(4,361

)

 

 

(3,597

)

Net cash (used in) investing activities

 

 

(4,361

)

 

 

(3,597

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

Dividends paid

 

 

(2,446

)

 

 

(3,241

)

Treasury stock purchases

 

 

(1,660

)

 

 

(2,968

)

Proceeds from line of credit

 

 

270,421

 

 

 

254,482

 

Payments on line of credit

 

 

(284,510

)

 

 

(274,494

)

Proceeds from issuance of common stock

 

 

88

 

 

 

 

Shares withheld for tax payments on vested restricted shares

 

 

(688

)

 

 

(419

)

Net cash (used in) financing activities

 

 

(18,795

)

 

 

(26,640

)

Increase in cash and cash equivalents

 

 

1,205

 

 

 

225

 

Cash and cash equivalents at beginning of the period

 

 

3,365

 

 

 

2,184

 

Cash and cash equivalents at end of the period

 

$

4,570

 

 

$

2,409

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION

 

 

 

 

 

 

Interest paid

 

 

1,470

 

 

 

1,079

 

Cash paid for income taxes, net

 

 

3,273

 

 

 

2,911

 

Capital expenditures in accounts payable

 

 

260

 

 

 

140

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited).

 

7


FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE PERIOD ENDED March 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 nine months ended March 31, 2024, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2024. 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, 2023, appropriately represent, in all material respects, the current status of accounting policies.

2. INVENTORIES

A comparison of inventories is as follows:

 

 

March 31,

 

 

June 30,

 

(in thousands)

 

2024

 

 

2023

 

Raw materials

 

$

16,752

 

 

$

18,616

 

Work in process and finished parts

 

 

3,127

 

 

 

3,741

 

Finished goods

 

 

76,710

 

 

 

99,719

 

Total

 

$

96,589

 

 

$

122,076

 

 

3. ASSETS HELD FOR SALE

During fiscal year 2020, the Company committed to a plan to sell assets located at the Company’s Starkville, Mississippi location as part of a restructuring plan. As of March 31, 2024, the Company continues to actively market the assets in Starkville, Mississippi. A summary of the assets held for sale as of March 31, 2024, is included in the table below.

 

 

 

 

 

 

 

Accumulated

 

 

Net Book

 

Location

Asset Category

 

Cost

 

 

Depreciation

 

 

Value

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Starkville, Mississippi

Building & building improvements

 

$

4,615

 

 

$

(4,254

)

 

$

361

 

Land & land improvements

 

 

694

 

 

 

(439

)

 

 

255

 

Total assets held for sale

 

$

5,309

 

 

$

(4,693

)

 

$

616

 

 

 

4. LEASES

The Company accounts for its leases in accordance with ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). 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,

 

8


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 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.

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.

On August 20, 2021, Flexsteel entered into a lease agreement for the construction of a 507,830 square foot manufacturing facility in Mexicali, Mexico. The lease commencement date under ASC 842 guidance was July 1, 2022, the date the lessor made the building available for use by the Company for purposes of completing any leasehold improvements required by the Company prior to beginning operations. The 12-year lease ends on June 30, 2034, with options for two five-year extensions. Annual base rent under the lease is $3.2 million plus taxes, insurance and common area maintenance costs. As of March 31, 2024, the Company has not begun operations in the Mexicali facility. On May 3, 2023, the Company entered into a sublease with a third party for 105,000 square feet of the Mexicali facility with a term of 12 months. Annual rent net of broker's fees under the sublease is $1 million, plus a proportionate share of taxes, insurance, and common area maintenance. On October 2, 2023, the Company entered into a sublease with a third party for 339,413 square feet of the facility with an initial term of 12 months with four 6-month extensions. Annual rent net of broker's fees under the sublease is $2.2 million, plus a proportionate share of taxes, insurance, and common area maintenance.

At March 31, 2024, the Company determined that no impairment indicators exist with regard to the Mexicali lease given the current and expected sublease tenants and plans for future operations in the facility. At March 31, 2024, the right-of-use asset associated specifically with the Mexicali lease is $30.5 million and associated lease liability is $32.1 million. Sublease income net of broker's fees received from the sub-tenant is offset against operating lease expense in the Company’s Consolidated Statements of Income.

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

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

(in thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Operating lease expense

 

$

2,394

 

 

$

2,700

 

 

$

7,202

 

 

$

8,066

 

Variable lease expense

 

 

518

 

 

 

482

 

 

 

1,488

 

 

 

1,390

 

Total lease expense

 

$

2,912

 

 

$

3,182

 

 

$

8,690

 

 

$

9,456

 

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

 

 

 

Nine Months Ended

 

 

 

March 31, 2024

 

 

March 31, 2023

 

(in thousands)

 

 

 

 

 

 

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

 

 

 

 

 

 

Operating cash flows paid for operating leases

 

$

7,069

 

 

$

6,575

 

 

 

 

 

 

 

 

Cash received from subleasing of operating lease:

 

 

 

 

 

 

Operating cash flows received from subleasing of operating lease

 

$

1,975

 

 

$

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Operating leases

 

$

797

 

 

$

35,305

 

 

 

 

 

 

 

 

Weighted-average remaining lease term (in years):

 

 

 

 

 

 

Operating leases

 

 

8.4

 

 

 

9.4

 

 

 

 

 

 

 

 

Weighted-average discount rate:

 

 

 

 

 

 

Operating leases

 

 

3.1

%

 

 

2.9

%

 

 

9


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

 

 

 

March 31, 2024

 

Remaining payments in FY2024

 

$

2,432

 

FY2025

 

 

9,418

 

FY2026

 

 

9,208

 

FY2027

 

 

9,378

 

FY2028

 

 

9,144

 

Thereafter

 

 

37,040

 

Total future minimum lease payments

 

$

76,620

 

Less imputed interest

 

 

9,113

 

Lease liability

 

$

67,507

 

 

5. RESTRUCTURING

On February 5, 2024, the Company announced its plan to close its Dublin, Georgia manufacturing facility. The closure is expected to be complete by the end of fourth quarter fiscal year 2024.

As a result of the planned closure, the Company anticipated incurring pre-tax restructuring and related expenses between $3.0 million and $3.1 million. Total cumulative restructuring and related costs incurred as of March 31, 2024, was $2.6 million.

The following is a summary of restructuring costs:

 

 

Three Months Ended

 

 

Nine Months Ended

 

(in thousands)

 

March 31, 2024

 

 

March 31, 2023

 

 

March 31, 2024

 

 

March 31, 2023

 

One-time employee termination benefits

 

$

2,409

 

 

$

 

 

$

2,409

 

 

$

 

Other associated costs

 

 

218

 

 

 

 

 

 

218

 

 

 

 

Total restructuring and related expenses

 

$

2,627

 

 

$

 

 

$

2,627

 

 

$

 

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

2,627

 

 

$

 

 

$

2,627

 

 

$

 

One-time employee termination benefits include costs for employee separation benefits. Other associated costs primarily includes inventory and equipment transfer costs and other transition costs.

The rollforward of the accrued restructuring costs is as follows:

 

 

One-time

 

 

 

 

 

 

 

 

 

Employee

 

 

Other

 

 

 

 

 

 

Termination

 

 

Associated

 

 

 

 

(in thousands)

 

Benefits

 

 

Costs

 

 

Total

 

Accrual balance on June 30, 2023

 

$

 

 

$

 

 

$

 

Costs incurred

 

 

2,409

 

 

 

218

 

 

 

2,627

 

Expenses (paid)

 

 

(694

)

 

 

(108

)

 

 

(802

)

Accrual balance on March 31, 2024

 

$

1,715

 

 

$

110

 

 

$

1,825

 

 

6. 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 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 March 31, 2024, management believes the Company was in compliance with all covenants.

 

10


On April 18, 2022, the Company, as the borrower, entered into a first amendment to the September 8, 2021, 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 6.68%, on March 31, 2024.

As of March 31, 2024, there was $14.2 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding with the Lender as of March 31, 2024, totaled $1.1 million.

 

7. 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 March 31, 2024, and March 31, 2023, was 32.2% and 21.0%, respectively. The Company's effective tax rate for the nine months ended March 31, 2024 and 2023, was 30.8% and 14.8%, respectively. For the three and nine months ended March 31, 2024, the effective tax rate differs from the statutory tax rate of 21% due to nondeductible stock compensation, state taxes, the impacts associated with uncertain tax positions, and impact of foreign operations. For the three and nine months ended March 31, 2023, the effective tax rate differs from the statutory tax rate of 21% due to nondeductible stock compensation, state taxes, the impacts associated with uncertain tax positions, as well as impacts arising from the reversal of a valuation allowance associated with movements in certain deferred tax assets.

8. 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 nine months ended March 31, 2024 and 2023.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

March 31,

 

 

March 31,

 

(in thousands)

 

2024

 

 

 

2023

 

 

2024

 

 

2023

 

Total stock-based compensation expense

 

$

877

 

 

 

$

802

 

 

$

2,722

 

 

$

2,472

 

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.

 

11


(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 March 31, 2024, the number of unvested PSUs granted at the target performance level for the 2022-2024, 2023-2025, and 2024-2026 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 period ending June 30, 2024 participants may earn the award based on a cumulative three year performance goal. For PSUs awarded for the three year performance periods ending June 30, 2025 and 2026, participants may earn one-third of the award in each of the three years based on meeting performance goals for that year. The Committee selected Adjusted Earnings Before Interest and Tax based on a defined percentage growth as the performance metric for the performance periods ending June 30, 2024, 2025, and 2026.

 

 

 

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, 2023

 

 

79

 

 

$

24.56

 

 

 

211

 

 

$

19.19

 

 

 

290

 

 

$

20.65

 

Granted

 

 

66

 

 

 

18.91

 

 

 

99

 

 

 

18.91

 

 

 

165

 

 

 

18.91

 

Vested

 

 

 

 

 

 

 

 

(75

)

 

 

12.15