UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
______________________________________
FORM 10-Q
______________________________________
þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 20202021
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 State of Minnesota | 42-0442319 |
(State or other Jurisdiction of | (I.R.S. Identification No.) |
Incorporation or Organization) |
385 BELL STREET
DUBUQUE, IA 52001-0877
(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 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 þ 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 þ 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 þ Non-Accelerated Filer ¨ Smaller Reporting Company þ 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 þ
Common Stock - $1.00 Par Value | |
Shares Outstanding as of October |
|
FLEXSTEEL INDUSTRIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 20202021
Page | |||
Part I – Financial Information | |||
Item 1. | 3 | ||
3 | |||
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4 | |||
5 | |||
6 | |||
7 | |||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | |
Item 3. | 16 | ||
Item 4. | 16 | ||
Part II – Other Information | |||
Item 1A. |
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Item |
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Item 6. | 18 | ||
19 | |||
PART I FINANCIAL INFORMATION
Item 1.Financial Statements
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands)
September 30, | June 30, | September 30, | June 30, | |||||||||
2020 | 2020 | 2021 | 2021 | |||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 36,547 | $ | 48,197 | $ | 3,995 | $ | 1,342 | ||||
Trade receivables - less allowances: September 30, 2020, $1,745; June 30, 2020, $1,770 | 39,784 | 32,217 | ||||||||||
Trade receivables - less allowances: September 30, 2021, $3,360, June 30, 2021, $3,240 | 48,246 | 55,986 | ||||||||||
Inventories | 75,738 | 70,565 | 193,700 | 161,125 | ||||||||
Other | 20,827 | 18,535 | 10,868 | 9,421 | ||||||||
Assets held for sale | 13,100 | 12,329 | 616 | 666 | ||||||||
Total current assets | 185,996 | 181,843 | 257,425 | 228,540 | ||||||||
NONCURRENT ASSETS: | ||||||||||||
Property, plant and equipment, net | 41,498 | 43,312 | 39,159 | 39,783 | ||||||||
Operating lease right-of-use assets | 10,418 | 8,683 | 25,915 | 27,057 | ||||||||
Deferred income taxes | — | 2,111 | ||||||||||
Other assets | 1,297 | 1,310 | 1,391 | 1,399 | ||||||||
TOTAL ASSETS | $ | 239,209 | $ | 237,259 | $ | 323,890 | $ | 296,779 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Accounts payable - trade | $ | 28,802 | $ | 27,747 | $ | 44,948 | $ | 67,773 | ||||
Current portion of operating lease liabilities | 4,182 | 4,408 | 5,664 | 5,833 | ||||||||
Accrued liabilities: | ||||||||||||
Payroll and related items | 5,460 | 3,275 | 6,357 | 7,662 | ||||||||
Insurance | 3,168 | 3,787 | 2,935 | 3,062 | ||||||||
Restructuring costs | 1,527 | 1,961 | 1,392 | 1,522 | ||||||||
Advertising | 4,791 | 3,823 | 5,001 | 5,196 | ||||||||
Environmental remediation | 3,600 | 3,600 | 3,570 | 3,570 | ||||||||
Other | 6,642 | 4,861 | 6,103 | 5,133 | ||||||||
Total current liabilities | 58,172 | 53,462 | 75,970 | 99,751 | ||||||||
LONG-TERM LIABILITIES: | ||||||||||||
Operating lease liabilities, less current maturities | 9,485 | 7,607 | 23,412 | 24,317 | ||||||||
Line of Credit | 53,053 | 3,500 | ||||||||||
Other liabilities | 927 | 685 | 1,184 | 1,243 | ||||||||
Total liabilities | 68,584 | 61,754 | 153,619 | 128,811 | ||||||||
SHAREHOLDERS' EQUITY: | ||||||||||||
Common stock - $1 par value; authorized 15,000 shares; 8,065 shares issued and | 8,065 | 8,008 | ||||||||||
Common stock - $1 par value; authorized 15,000 shares; 8,143 shares issued and | 8,143 | 8,133 | ||||||||||
Additional paid-in capital | 32,315 | 31,748 | 34,917 | 34,015 | ||||||||
Treasury stock, at cost; 628 shares and 132 shares as of September 30, 2020 and | (10,563) | (1,563) | ||||||||||
Treasury stock, at cost; 1,333 shares and 1,284 shares as of September 30, 2021, and | (33,235) | (31,320) | ||||||||||
Retained earnings | 140,808 | 137,312 | 160,446 | 157,140 | ||||||||
Total shareholders' equity | 170,625 | 175,505 | 170,271 | 167,968 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 239,209 | $ | 237,259 | $ | 323,890 | $ | 296,779 | ||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended | Three Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||
Net sales | $ | 105,239 | $ | 100,348 | $ | 137,689 | $ | 105,239 | ||||
Cost of goods sold | 82,424 | 83,127 | 114,279 | 82,424 | ||||||||
Gross margin | 22,815 | 17,221 | 23,410 | 22,815 | ||||||||
Selling, general and administrative | 14,175 | 17,475 | ||||||||||
Selling, general and administrative expenses | 18,785 | 14,175 | ||||||||||
Restructuring expense | 1,381 | 6,004 | 152 | 1,381 | ||||||||
Gain on disposal of assets due to restructuring | (652) | (18,941) | ||||||||||
(Gain) on disposal of assets due to restructuring | (1,400) | (652) | ||||||||||
Operating income | 7,911 | 12,683 | 5,873 | 7,911 | ||||||||
Other income | 49 | 86 | ||||||||||
Interest expense | 203 | — | ||||||||||
Other expense | 2 | 49 | ||||||||||
Income before income taxes | 7,960 | 12,769 | 5,668 | 7,960 | ||||||||
Income tax provision | 4,081 | 3,218 | 1,315 | 4,081 | ||||||||
Net income | $ | 3,879 | $ | 9,551 | $ | 4,353 | $ | 3,879 | ||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | 7,702 | 7,928 | 6,834 | 7,702 | ||||||||
Diluted | 7,908 | 8,190 | 7,090 | 7,908 | ||||||||
Earnings per share of common stock: | ||||||||||||
Basic | $ | 0.50 | $ | 1.20 | $ | 0.64 | $ | 0.50 | ||||
Diluted | $ | 0.49 | $ | 1.17 | $ | 0.61 | $ | 0.49 | ||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands)
Three Months Ended | ||||||
September 30, | ||||||
2020 | 2019 | |||||
Net income | $ | 3,879 | $ | 9,551 | ||
Other comprehensive loss: | ||||||
Unrealized loss on securities | — | (13) | ||||
Reclassification of realized loss on securities to other income | — | 2 | ||||
Unrealized losses in securities before taxes | — | (11) | ||||
Income tax benefit related to securities losses | — | 3 | ||||
Net unrealized losses on securities | — | (8) | ||||
Other comprehensive loss, net of tax | — | (8) | ||||
Comprehensive income | $ | 3,879 | $ | 9,543 | ||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(Amounts in thousands)
Three Months Ended September 30, 2020 | Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
Total Par | Total Par | |||||||||||||||||||||||||||||
Value of | Additional | Value of | Additional | |||||||||||||||||||||||||||
Common | Paid-In | Treasury | Retained | Common | Paid-In | Treasury | Retained | |||||||||||||||||||||||
Shares ($1 Par) | Capital | Stock | Earnings | Total | Shares ($1 Par) | Capital | Stock | Earnings | Total | |||||||||||||||||||||
Balance at June 30, 2020 | $ | 8,008 | $ | 31,748 | $ | (1,563) | $ | 137,312 | $ | 175,505 | ||||||||||||||||||||
Balance at June 30, 2021 | $ | 8,133 | $ | 34,015 | $ | (31,320) | $ | 157,140 | $ | 167,968 | ||||||||||||||||||||
Stock-based compensation | 2 | 954 | — | — | 956 | 3 | 1,159 | — | — | 1,162 | ||||||||||||||||||||
Vesting of restricted stock units and restricted shares | 55 | (387) | (332) | 7 | (257) | — | — | (250) | ||||||||||||||||||||||
Treasury stock purchases | — | — | (9,000) | — | (9,000) | — | — | (1,915) | — | (1,915) | ||||||||||||||||||||
Cash dividends declared | — | — | — | (383) | (383) | — | — | — | (1,047) | (1,047) | ||||||||||||||||||||
Net income | — | — | — | 3,879 | 3,879 | — | — | — | 4,353 | 4,353 | ||||||||||||||||||||
Balance at September 30, 2020 | $ | 8,065 | $ | 32,315 | $ | (10,563) | $ | 140,808 | $ | 170,625 | ||||||||||||||||||||
Balance at September 30, 2021 | $ | 8,143 | $ | 34,917 | $ | (33,235) | $ | 160,446 | $ | 170,271 | ||||||||||||||||||||
Three Months Ended September 30, 2019 | |||||||||||||||
Total Par | Accumulated | ||||||||||||||
Value of | Additional | Other | |||||||||||||
Common | Paid-In | Retained | Comprehensive | ||||||||||||
Shares ($1 Par) | Capital | Earnings | (Loss) Income | Total | |||||||||||
Balance at June 30, 2019 | $ | 7,903 | $ | 27,512 | $ | 170,004 | $ | 8 | $ | 205,427 | |||||
Adoption of ASU 2016-02 | — | — | (42) | — | (42) | ||||||||||
Unrealized gain on available for sale investments, | — | — | — | (8) | (8) | ||||||||||
Stock-based compensation | 39 | 1,310 | — | — | 1,349 | ||||||||||
Cash dividends declared | — | — | (1,754) | — | (1,754) | ||||||||||
Net income | — | — | 9,551 | — | 9,551 | ||||||||||
Balance at September 30, 2019 | $ | 7,942 | $ | 28,822 | $ | 177,759 | $ | — | $ | 214,523 | |||||
Three Months Ended September 30, 2020 | |||||||||||||||
Total Par | |||||||||||||||
Value of | Additional | ||||||||||||||
Common | Paid-In | Treasury | Retained | ||||||||||||
Shares ($1 Par) | Capital | Stock | Earnings | Total | |||||||||||
Balance at June 30, 2020 | $ | 8,008 | $ | 31,748 | $ | (1,563) | $ | 137,312 | $ | 175,505 | |||||
Stock-based compensation | 2 | 954 | — | — | 956 | ||||||||||
Vesting of restricted stock units and restricted shares | 55 | (387) | — | — | (332) | ||||||||||
Treasury stock purchases | — | — | (9,000) | — | (9,000) | ||||||||||
Cash dividends declared | — | — | — | (383) | (383) | ||||||||||
Net income | — | — | — | 3,879 | 3,879 | ||||||||||
Balance at September 30, 2020 | $ | 8,065 | $ | 32,315 | $ | (10,563) | $ | 140,808 | $ | 170,625 | |||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Three Months Ended | Three Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||
OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 3,879 | $ | 9,551 | $ | 4,353 | $ | 3,879 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
Depreciation | 1,360 | 2,484 | 1,327 | 1,360 | ||||||||
Deferred income taxes | 2,111 | (13) | — | 2,111 | ||||||||
Stock-based compensation expense | 954 | 1,416 | 1,162 | 954 | ||||||||
Change in provision for losses on accounts receivable | (25) | (238) | 120 | (25) | ||||||||
Gain on disposition of capital assets | (637) | (18,941) | ||||||||||
(Gain) on disposal of assets | (1,400) | (637) | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade receivables | (7,542) | 2,070 | 7,620 | (7,542) | ||||||||
Inventories | (5,173) | 91 | (32,574) | (5,173) | ||||||||
Other current assets | (2,293) | 7,468 | (1,449) | (2,293) | ||||||||
Other assets | 13 | 176 | 8 | 13 | ||||||||
Accounts payable - trade | 1,054 | (3,809) | (22,706) | 1,054 | ||||||||
Accrued liabilities | 3,870 | (3,173) | (726) | 3,870 | ||||||||
Other long-term liabilities | 243 | (401) | (50) | 243 | ||||||||
Net cash used in operating activities | (2,186) | (3,319) | ||||||||||
Net cash (used in) operating activities | (44,315) | (2,186) | ||||||||||
INVESTING ACTIVITIES: | ||||||||||||
Purchases of investments | (8) | (646) | — | (8) | ||||||||
Proceeds from sales of investments | 8 | 646 | — | 8 | ||||||||
Proceeds from sale of capital assets | 679 | 19,625 | 1,450 | 679 | ||||||||
Capital expenditures | (360) | (512) | (821) | (360) | ||||||||
Net cash provided by investing activities | 319 | 19,113 | 629 | 319 | ||||||||
FINANCING ACTIVITIES: | ||||||||||||
Dividends paid | (454) | (1,738) | (1,050) | (454) | ||||||||
Treasury stock purchases | (9,000) | — | (1,915) | (9,000) | ||||||||
Proceeds from lines of credit | 74,565 | — | ||||||||||
Payments on lines of credit | (25,013) | — | ||||||||||
Shares withheld for tax payments on vested restricted shares | (329) | (67) | (248) | (329) | ||||||||
Net cash used in financing activities | (9,783) | (1,805) | ||||||||||
(Decrease) Increase in cash and cash equivalents | (11,650) | 13,989 | ||||||||||
Net cash provided by (used in) financing activities | 46,339 | (9,783) | ||||||||||
Increase (decrease) in cash and cash equivalents | 2,653 | (11,650) | ||||||||||
Cash and cash equivalents at beginning of period | 48,197 | 22,247 | 1,342 | 48,197 | ||||||||
Cash and cash equivalents at end of period | $ | 36,547 | $ | 36,236 | $ | 3,995 | $ | 36,547 | ||||
SUPPLEMENTAL INFORMATION | ||||||||||||
Cash paid for amounts included in lease liabilities | $ | 1,074 | $ | 1,035 | ||||||||
Right-of-use assets exchanged for lease liabilities | $ | — | $ | 2,741 | ||||||||
Interest paid | $ | 157 | $ | — | ||||||||
Income taxes paid (refunded), net | $ | (388) | $ | (4,746) | $ | 741 | $ | (388) | ||||
Capital expenditures in accounts payable | $ | — | $ | 142 | $ | (119) | $ | — | ||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED SEPTEMBER 30, 20202021
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 online marketers of furniture products in the United States. Product offerings include a wide variety of upholstered furniture such as sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs and bedroom 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 dealer network.sales force.
COVID-19 - In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization. This pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, led to significant travel and transportation restrictions, including mandatory business closures and orders to shelter in place. The Company’s business operations and financial performance for the fiscal year 2020 were impacted by COVID-19. During the three monthsyear ended SeptemberJune 30, 2020, we have seen2021, the Company saw improvement in our business conditions as retailers have reopened and orders have increased, however, we continuecontinued to see supply chain challenges faced by the furniture industry due to labor shortages specifically in Asia,the limited availability of ocean containers and significant increases in ocean container rates, limited availability and inflationary pressures in key materials. materials, and labor shortages both in Asia and the United States. These supply chain issues have continued during the three months ended September 30, 2021. The COVID-19 pandemic remains fluid and the extent of the impact to our business may be significant, however, we are unable to predict the extent or nature of these impacts at this time.
BASIS OF PRESENTATION – The consolidated financial statementsConsolidated Financial Statements included herein have been prepared by Flexsteel, Industries, Inc. and Subsidiaries (the “Company” or “Flexsteel”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished in the consolidated financial statementsConsolidated 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.Consolidated Financial Statements. Operating results for the three months ended September 30, 20202021, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021.2022. Certain information and footnote disclosures normally included in the consolidated financial statementsConsolidated 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 set forth in Note 1 to the consolidated financial statementsConsolidated Financial
Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2020,2021, appropriately represent, in all material respects, the current status of accounting policies and are incorporated by reference.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS – In June 2016, December 2019,the FASB issued ASU 2016-132019-12 “Financial Instruments - Credit Losses (“Topic 326”)Income Taxes Simplifying the Accounting for Income Taxes (Topic 740)” and also issued subsequentas part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the initial guidance under ASU 2018-19, ASU 2019-04approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit lossesdeferred tax liabilities for financial assets held at amortized cost. This replacesoutside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates.accounting for income taxes. The amendments in this guidance arewere effective for fiscal years beginning after December 15, 2019,2020, with early adoption permitted for certain amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. permitted. Effective July 1, 2020,2021, the Company adopted Topic 326740 and there was no impact to the Company’s financial statements.
2. INVENTORIES
A comparison of inventories is as follows:
September 30, | June 30, | |||||
(in thousands) | 2021 | 2021 | ||||
Raw materials | $ | 26,460 | $ | 22,500 | ||
Work in process and finished parts | 7,267 | 6,234 | ||||
Finished goods | 159,973 | 132,391 | ||||
Total | $ | 193,700 | $ | 161,125 | ||
3. ASSETS HELD FOR SALE
During fiscal year 2020, the Company committed to a plan to sell assets located at the Company’s Harrison, Arkansas; Dubuque, Iowa; and Starkville, Mississippi locations as part of the Company’s restructuring plan, see Note 5 Restructuring. A summary of the assets held for sale as of September 30, 2021, 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 Starkville | 5,309 | (4,693) | 616 | |||||||
Total assets held for sale | $ | 5,309 | $ | (4,693) | $ | 616 | ||||
On September 10, 2021, the Company closed on the sale of the Harrison property resulting in net proceeds to the Company of $1.5 million after customary closing costs, prorations, and sales commissions and the Company recorded a pre-tax gain of $1.4 million which is reflected in the (gain) on disposal of assets due to restructuring in the Company’s Consolidated Statements of Income.
4. LEASES
The Company accounts for its leases in accordance with Accounting Standards Update (“ASU”)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,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 has made an accounting policy election to not recognize short-term leases on the consolidated balance sheetsConsolidated 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 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.
TableOn August 20, 2021, Flexsteel entered into a lease agreement for the construction of Contentsa 507,830 square foot manufacturing facility in Mexicali, Mexico. The lease commencement date under ASC842 guidance will be April 1, 2022, the date the lessor makes 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 term begins on June 1, 2022, and ends on May 31, 2034, with options for two five-year extensions. Annual base rent under the lease is $3.1 million plus taxes, insurance, and common area maintenance costs.
On September 28, 2021, Flexsteel entered into a Warehousing Agreement, a component of which meets the definition of a lease under ASC842. The lease component includes a 241,920 square foot facility in Greencastle, Pennsylvania, and all improvements and equipment necessary to operate the facility. The lease commencement date is October 1, 2021, the date the building became available for use by the Company. The 125-month lease term began on October 1, 2021, and ends on February 28, 2034, with an option for a 5-year extension. Annual base rent under the lease is $1.8 million plus taxes, insurance, utilities, and common area maintenance costs.
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 as well as publicly available data for instruments with similar terms.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 reflected on the Company’s consolidated statementsConsolidated Statements of incomeIncome were as follows:
Three Months Ended | Three Months Ended | ||||||||||||
(in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2021 | September 30, 2020 | |||||||||
Operating lease expense | $ | 1,074 | $ | 1,173 | $ | 1,389 | $ | 1,074 | |||||
Variable lease expense | 69 | 65 | 75 | 69 | |||||||||
Total lease expense | $ | 1,143 | $ | 1,238 | $ | 1,464 | $ | 1,143 | |||||
Other information related to leases and future minimum lease payments under non-cancellable operating leases were as follows:
Three Months Ended | Three Months Ended | |||||||||||
September 30, 2020 | September 30, 2019 | September 30, 2021 | September 30, 2020 | |||||||||
(in thousands) | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
Operating cash flows from operating leases | $ | 1,035 | $ | 646 | $ | 1,074 | $ | 1,035 | ||||
Right-of-use assets obtained in exchange for lease liabilities: | ||||||||||||
Operating leases | $ | 2,741 | $ | — | $ | — | $ | 2,741 | ||||
Weighted-average remaining lease term (in years): | ||||||||||||
Operating leases | 1.6 | 1.9 | 3.8 | 1.6 | ||||||||
Weighted-average discount rate: | ||||||||||||
Operating leases | 3.3% | 3.5% | 2.9% | 3.3% | ||||||||
Future minimum lease payments under non-cancellable operating leases arewere as follows as of September 30, 2020:follows:
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Three Months Ended | ||||||
September 30, 2021 | September 30, 2020 | |||||
(in thousands) | ||||||
Within one year | $ | 6,591 | $ | 4,601 | ||
After one year and within two years | 5,517 | 4,327 | ||||
After two years and within three years | 4,563 | 3,159 | ||||
After three years and within four years | 2,620 | 2,189 | ||||
After four years and within five years | 2,469 | 200 | ||||
After five years | 11,273 | — | ||||
Total future minimum lease payments | $ | 33,033 | $ | 14,476 | ||
Less – Discount | 3,957 | 809 | ||||
Lease liability | $ | 29,076 | $ | 13,667 | ||
3. INVENTORIES
A comparison of inventories is as follows:
September 30, | June 30, | |||||
(in thousands) | 2020 | 2020 | ||||
Raw materials | $ | 11,684 | $ | 11,119 | ||
Work in process and finished parts | 3,798 | 3,925 | ||||
Finished goods | 60,256 | 55,521 | ||||
Total | $ | 75,738 | $ | 70,565 | ||
4.5. RESTRUCTURING
On May 15, 2019, the Company announced its plans to exit the Commercial Office and custom-designed Hospitality product lines. The changes were initial outcomes driven from customer and product line profitability and footprint utilization analyses in the fourth quarter of fiscal 2019.
On June 18, 2019, the Company announced it completed the analysis and planning process and set forth the
comprehensive transformation program to be executed over a two yeartwo-year period, which includesincluded the previously announced restructuring activities on May 15, 2019. The transformation program includesincluded activities such as business simplification, process improvement, exiting of non-core businesses, facility closures, and reductions in work force. The Company has substantially completed the portion of the restructuring activities related to the exit of the Commercial Office and custom-designed Hospitality product lines.
On April 28, 2020, the Company announced the exit of the Vehicle Seating and the remainder of the Hospitality product lines, and subsequently closed its Dubuque, Iowa and Starkville, Mississippi manufacturing facilities. The remaining properties listed for sale as part of the footprint optimization are included in Note 3, Assets Held for Sale. The Company expects to completesubstantially completed the restructuring activities related to the exit of the Vehicle Seating and the remainder of the Hospitality product lines during fiscal 2021.
As a result of these planned actions, the Company expects to incuranticipated incurring pre-tax restructuring and related expenses of approximately $56.0$56 to $58.0$58 million over this two year timeframe of which $25.0 to $26.0 million will be cash and $31.0 to $32.0 million non-cash. In addition, the Company has listed several properties for sale as part of the footprint optimization.two-year timeframe. Total cumulative restructuring and related costs incurred as of September 30, 2020 were $56.62021, was $58.8 million.
The following is a summary of restructuring costs:
Three Months Ended | Three Months Ended | ||||||||||||
(in thousands) | September 30, 2020 | September 30, 2019 | September 30, 2021 | September 30, 2020 | |||||||||
Inventory impairment | $ | — | $ | 179 | |||||||||
One-time employee termination benefits | 179 | 346 | — | 179 | |||||||||
Other associated costs | 1,202 | 5,658 | 152 | 1,202 | |||||||||
Total restructuring and related expenses | $ | 1,381 | $ | 6,183 | $ | 152 | $ | 1,381 | |||||
Reported as: | |||||||||||||
Cost of goods sold | $ | — | $ | 179 | |||||||||
Operating expenses | $ | 1,381 | $ | 6,004 | $ | 152 | $ | 1,381 | |||||
Other associated costs include legal and professional fees, stock-based compensation expense for retention restricted stock units in connection with the Company’s restructuring plan, on-goingand ongoing facilities and transition costs.
The rollforward of the accrued restructuring costs is as follows:
One-time | One-time | |||||||||||||||||||||
Employee | Contract | Other | Employee | Other | ||||||||||||||||||
Termination | Termination | Associated | Termination | Associated | ||||||||||||||||||
(in thousands) | Benefits | Costs | Costs | Total | Benefits | Costs | Total | |||||||||||||||
Accrual balance at June 30, 2020 | $ | 1,613 | $ | 110 | $ | 238 | $ | 1,961 | ||||||||||||||
Accrual balance at June 30, 2021 | $ | 1,502 | $ | 20 | $ | 1,522 | ||||||||||||||||
Costs incurred | 179 | — | 1,202 | 1,381 | — | 152 | 152 | |||||||||||||||
Expenses paid | (411) | (110) | (1,076) | (1,597) | (130) | (152) | (282) | |||||||||||||||
Non-cash | — | — | (218) | (218) | ||||||||||||||||||
Accrual balance at September 30, 2020 | $ | 1,381 | $ | — | $ | 146 | $ | 1,527 | ||||||||||||||
Accrual balance at September 30, 2021 | $ | 1,372 | $ | 20 | $ | 1,392 | ||||||||||||||||
5. ASSETS HELD FOR SALE
During the first quarter of the fiscal year 2021, the Company committed to a plan to sell assets located at its Lancaster, Pennsylvania location. In the prior fiscal year 2020, the Company committed to a plan to sell assets located at the Company’s Harrison, Arkansas, Dubuque, Iowa, and Starkville, Mississippi locations. The commitment to sell these assets are part of the Company’s restructuring plan, see Note 4 Restructuring. A summary of the assets held for sale is included in the table below as of September 30, 2020.
Accumulated | Net Book | |||||||||
Location | Asset Category | Cost | Depreciation | Value | ||||||
(in thousands) | ||||||||||
Dubuque, Iowa | Building & building improvements | $ | 24,524 | $ | (16,295) | $ | 8,229 | |||
Land & land improvements | 1,497 | (6) | 1,491 | |||||||
Machinery & equipment | 8,018 | (6,377) | 1,641 | |||||||
Total Dubuque | 34,039 | (22,678) | 11,361 | |||||||
Lancaster, Pennsylvania | Building & building improvements | 2,857 | (2,053) | 804 | ||||||
Land & land improvements | 41 | — | 41 | |||||||
Total Lancaster | 2,898 | (2,053) | 845 | |||||||
Starkville, Mississippi | Building & building improvements | 4,615 | (4,254) | 361 | ||||||
Land & land improvements | 694 | (439) | 255 | |||||||
Machinery & equipment | 5,411 | (5,183) | 228 | |||||||
Total Starkville | 10,720 | (9,876) | 844 | |||||||
Harrison, Arkansas | Building & building improvements | 1,000 | (1,000) | — | ||||||
Land & land improvements | 86 | (36) | 50 | |||||||
Machinery & equipment | 1,330 | (1,330) | — | |||||||
Total Harrison | 2,416 | (2,366) | 50 | |||||||
Total assets held for sale | $ | 50,073 | $ | (36,973) | $ | 13,100 | ||||
6. CREDIT ARRANGEMENTS
On August 28, 2020, the Company entered into a new two yeartwo-year secured $25.0 million revolving line of credit with Dubuque Bank and Trust Company, with interest of 1.50% plus LIBOR, subject to a floor of 3.00%. The revolving line of credit iswas secured by essentially all the Company’s assets, excluding real property and requiresrequired the Company maintain compliance with certain financial and non-financial covenants. There was 0 balance on this line of credit on September 30, 2021, and the line of credit was cancelled.
On September 8, 2021, the Company, as 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 matures on August 28, 2022. There was 0 outstandingin an aggregate amount up to $5,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. The Company’s $1.2 million of letters of credit previously issued by the Lender are being treated as outstanding under the Credit Agreement. Proceeds of borrowings were used to refinance all indebtedness owed to Dubuque Bank & Trust and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Credit Agreement bear interest at LIBOR plus 1.25% or 1.50% per annum, or an effective interest rate of 1.58025% on September 30, 2021. If LIBOR becomes unavailable, the replacement rate will be determined pursuant to the terms of the Credit Agreement. The Credit Agreement contains customary representations, warranties and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00:1.00. 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 September 30, 2020.2021, there was $53.1 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”) as of September 30, 2020,2021, totaled $1.2 million, of which $1.3 million of the Company’s cash held at Wells is pledged as collateral.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 quarters ended September 30, 20202021, and 2019 were 51.3% and 25.2%, respectively. The increase in the Company’s effective tax rate compared to the prior year quarter was primarily due to the Company’s prior expectation during the quarter ended JuneSeptember 30, 2020, that it would generate a net operating loss for tax purposes during the fiscal year ended June 30, 2021,were 23.2% and the net operating loss would be carried back up to 5 preceding taxable years at prior years’ statutory rates as provided by the Coronavirus Aid, Relief, and Economic Security Act. The Company now expects to generate a net operating profit for tax purposes during the fiscal year ended June 30, 2021, so certain deferred tax assets were remeasured to the current statutory rate of 21% while other deferred tax assets are no longer expected to be realizable and, as a result, the Company recorded an additional tax expense of $2.1 million during the quarter. The effective tax rate for the remaining nine months of the fiscal year ending June 30, 2021 is expected to be 25% to 26%.51.3%, respectively.
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.years upon vesting. Stock-based compensation is included in selling, general and administrative, and restructuring expenses on the Consolidated Statements of Income. The stock-based compensation expense included in restructuring expense were for retention RSUs in connection with the Company’s restructuring plan. Forfeitures are recognized as incurred.
The following table is a summary of total stock-based compensation expense for the three months ended September 30, 2020.2021.
Three Months Ended | Three Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) | 2020 | 2019 | 2021 | 2020 | ||||||||
Total stock-based compensation expense | $ | 954 | $ | 1,180 | $ | 1,162 | $ | 954 | ||||
The Company has 2 stock-based compensation plans available for granting awards to employees and directors.
(1) Long-Term Incentive Compensation Plan (“LTICP”LTIP”)
The LTICPLTIP provides for RSUsperformance stock units (“PSUs”) to be awarded to officers and key employees based on performance targetsgoals set by the Compensation Committee of the Board of Directors (the “Committee”). The Company selected fully-diluted earnings per share and total shareholder return asFor awards under the performance goalLTIP for the three year performancethree-year period from July 1, 2018 – June 30, 2021 (“2019-2021”). As of June 30, 2019, the performance period 2019-2021 is no longer attainable. For the July 1, 2019 –ending June 30, 2022, (“2020-2022”)2023, and 2024, participants may earn one-third of the July 1, 2020 – June 30, 2023 (“2021-2023”)award in each of the three yearyears based on meeting performance periods, thegoals for that year. The Committee selected Adjusted Earnings Before Interest and Tax with a defined percentage growth in fiscal year 2021years 2022, 2023, and 20222024 as the performance goal. Sincemetric. In conjunction with each grant of PSUs, the 2019-2021Committee grants RSUs under the 2013 Omnibus Stock Plan that vest at the end of three years.
The table below sets forth, as of September 30, 2021, the number of unvested PSUs granted at the target performance period is no longer attainable, only RSUs grantedlevel for the 2020-2022, 2021-2023 and 2021-20232022-2024 performance periods are includedunder the LTIP and the number of unvested RSUs granted in conjunction with the table below for the Company’s unvested LTICP RSUs during the three months ended September 30, 2020:PSUs:
Time Based Vest | Performance Based Vest | Total | Time Based Vest (RSUs) | Performance Based Vest (PSUs) | Total | |||||||||||||||||||||||||
Weighted average | Weighted average | Weighted average | Weighted Average | Weighted Average | Weighted Average | |||||||||||||||||||||||||
fair value | fair value | fair value | Fair Value | Fair Value | Fair Value | |||||||||||||||||||||||||
(shares in thousands) | Shares | per share | Shares | per share | Shares | per share | Shares | Per Share | Shares | Per Share | Shares | Per Share | ||||||||||||||||||
Unvested as June 30, 2020 | 44 | $ | 16.90 | 44 | $ | 16.76 | 88 | $ | 16.83 | |||||||||||||||||||||
Unvested as June 30, 2021 | 107 | $ | 13.89 | 142 | $ | 13.36 | 249 | $ | 13.59 | |||||||||||||||||||||
Granted | 64 | 12.01 | 99 | 12.01 | 163 | 12.01 | 27 | 42.50 | 40 | 42.50 | 67 | 42.50 | ||||||||||||||||||
Unvested as of September 30, 2020 | 108 | $ | 13.98 | 143 | $ | 13.47 | 251 | $ | 13.69 | |||||||||||||||||||||
Forfeited | — | — | — | — | — | — | ||||||||||||||||||||||||
Unvested as of September 30, 2021 | 134 | $ | 19.63 | 182 | $ | 19.80 | 316 | $ | 19.73 | |||||||||||||||||||||
Total unrecognized stock-based compensation related to the unvested LTICPPSUs at the target performance level and the related unvested RSUs at performance target was $2.6$3.85 million as of September 30, 2020,2021, which is expected to be recognized over a weighted average period of 2.41.7 years.
(2) 2013 Omnibus Stock Plan
The 2013 Omnibus Stock Plan is for key employees, officers and directors and provides for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and performance units.
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) during the three months ended September 30, 20202021 is as follows:
Weighted average | Weighted Average | |||||||||
Shares | fair value | Shares | Fair Value | |||||||
(in thousands) | per share | (in thousands) | Per Share | |||||||
Unvested as June 30, 2020 | 189 | $ | 15.24 | |||||||
Unvested as of June 20, 2021 | 56 | $ | 26.81 | |||||||
Granted | 2 | 12.15 | 3 | 42.50 | ||||||
Vested | (86) | 16.92 | (15) | 27.46 | ||||||
Forfeited | (1) | 15.65 | (1) | 19.77 | ||||||
Unvested as of September 30, 2020 | 104 | $ | 17.00 | |||||||
Unvested as of September 30, 2021 | 43 | $ | 27.82 | |||||||
Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.5$0.7 million as of September 30, 2020,2021, which is expected to be recognized over a weighted average period of 0.71.5 years.
Options
A summary of the activity of the Company’s stock option plans as of September 30, 2020,2021, is presented below:
Weighted | |||||
Shares | Average | ||||
(in thousands) | Exercise Price | ||||
Outstanding at June 30, 2020 | 223 | $ | 23.70 | ||
Granted | 37 | 12.77 | |||
Outstanding at September 30, 2020 | 260 | $ | 22.15 | ||
Weighted | |||||
Shares | Average | ||||
(in thousands) | Exercise Price | ||||
Outstanding at June 30, 2021 | 232 | $ | 21.91 | ||
Granted | — | — | |||
Exercised | — | — | |||
Cancelled | (7) | 45.18 | |||
Outstanding at September 30, 2021 | 225 | $ | 21.22 | ||
The following table summarizes information for options outstanding at September 20, 2020:30, 2021:
Options | Weighted Average | Options | Weighted Average | |||||||||||||
Range of | Range of | Outstanding | Remaining | Exercise | Range of | Outstanding | Remaining | Exercise | ||||||||
Prices | Prices | (in thousands) | Life (Years) | Price | Prices | (in thousands) | Life (Years) | Price | ||||||||
$ | 8.55 - 15.14 | 108 | 8.6 | $ | 12.62 | 9.97 - 15.14 | 104 | 7.8 | $ | 12.72 | ||||||
17.23 - 19.77 | 21 | 1.5 | 18.86 | 18.30 - 19.72 | 15 | 4.8 | 19.11 | |||||||||
20.50 - 27.57 | 68 | 5.6 | 23.81 | 21.96 - 27.57 | 58 | 5.6 | 24.21 | |||||||||
31.06 - 32.80 | 37 | 5.6 | 32.20 | 31.06 - 32.80 | 32 | 4.7 | 32.30 | |||||||||
43.09 - 47.45 | 26 | 6.0 | 45.36 | 43.09 - 47.45 | 16 | 5.0 | 45.42 | |||||||||
$ | 8.55 - 47.45 | 260 | 6.5 | $ | 22.15 | 9.97 - 47.45 | 225 | 6.4 | $ | 21.22 | ||||||
Total unrecognized stock-based compensation expense related to options was $0.04$0.12 million as of September 30, 2020,2021, which is expected to be recognized over a weighted average period of 1.5 years.
Stock-based compensation granted outside a plan
During the quarter ended December 31, 2018, the Company awarded its Chief Executive Officer 55,000 options outside of any Company stock plans. During the quarter ended June 30, 2020, the Company awarded its Chief Financial Officer/Chief Operating Officer 79,000 options outside of any Company’sCompany stock plans. Total unrecognized stock-based compensation expense related to options awarded outside a plan was $0.1$0.04 million as of September 30, 2020,2021, which is expected to be recognized over a period of 2.21.5 years.
9. 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 Plan and non-vested restricted stock units and restricted shares. The Company calculates the dilutive effect of outstanding options, restricted stock
units and restricted shares 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 | Three Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) | 2020 | 2019 | 2021 | 2020 | ||||||||
Basic shares | 7,702 | 7,928 | 6,834 | 7,702 | ||||||||
Potential common shares: | ||||||||||||
Stock options | 72 | 4 | 163 | 72 | ||||||||
Non-vested restricted stock units and restricted shares | 134 | 258 | 93 | 134 | ||||||||
206 | 262 | 256 | 206 | |||||||||
Diluted shares | 7,908 | 8,190 | 7,090 | 7,908 | ||||||||
Anti-dilutive shares | 200 | 254 | 16 | 200 | ||||||||
Cash dividends declared per common share were $0.05$0.15 and $0.22$0.15 for the three months ended September 30, 20202021, and 2019,September 30, 2020, respectively.
10. LITIGATION
Environmental Matters – In March 2016, the Company received a General Notice Letter for the Lane Street Groundwater Superfund Site (the “Lane Street Site”) located in Elkhart, Indiana from the U.S. Environmental Protection Agency (EPA). In April 2016, the EPA issued their proposed clean-up plan for groundwater pollution and request for public comment. The Company responded to the request for public comment in May 2016. The EPA issued a Record of Decision selecting a remedy in August 2016 and estimated total costs to remediate of $3.6 million. In July 2017, the EPA issued a Special Notice Letter to the Company demanding that the Company perform the remedy selected and pay for the remediation cost and past response costs of $5.5 million. On October 12, 2017, the Company, after consultation with its insurance carriers, offered an amount, fully reimbursable by insurance coverage, to the EPA to resolve this matter. On November 6, 2017, the settlement offer extended on October 12, 2017, was rejected.
In April 2018, the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action (the “Order”) against the Company. The Order was issued under Section 106(a) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §9606(a). The Order directs the Company to perform remedial design and remedial action for the Lane Street Site. The Order was to be effective May 29, 2018. To ensure completion of the remediation work, the EPA required the Company to secure financial assurance in the initial amount aof $3.6 million, which as noted above, is the estimated cost of remedial work. The Company believes that financial assurance is not required because it meets the relevant financial test criteria as provided in the Order. In May 2018, the EPA agreed to suspend enforcement of the Order so that the Company could conduct environmental testing upgradient to its former manufacturing location pursuant to an Administrative Order on Consent (AOC). On April 24, 2019, the Company signed an AOC with the EPA to conduct the upgradient investigation. The Company negotiated site access to the upgradient property over a period of months in 2019, followed by completion of sampling activities on that property on September 28-29, 2019. Following multiple exchanges from November 2019 through early 2020, the Company submitted a final and supplemental report to the EPA regarding the results of the upgradient investigation on June 17, 2020. On July 13, 2020,Through agreement with the Company further entered in to a Second Amended Tolling Agreement that tollsEPA the statute of limitations for potential claims by the EPA was extended through February 24,November 30, 2021. The Company reflected a $3.6 million liability in the consolidated balance sheetsConsolidated Balance Sheets for the fiscal year ended June 30, 2018. Despite the Company’s position that it did not cause nor contribute to the contamination, the Company continues to reflect this liability in the consolidated balance sheetsConsolidated Balance Sheets as of September 30, 20202021, in accordance with FASB issued Asset Retirement and Environmental Obligations (ASC 410-30). The Company continues to evaluate the Order, its legal options and insurance coverages to assert its defense and recovery of current and future expenses related to this matter.
Employment Matters – The lawsuit entitled Juan Hernandez, et al. v. Flexsteel Industries, Inc. (“Hernandez I”), was filed on February 21, 2019 in the Superior Court for the County of Riverside by former employees Juan Hernandez and Richard Diaz (together, “Plaintiffs”). On April 29, 2019, Plaintiffs filed a second similarly titled lawsuit in the Superior Court for the County of Riverside (“Hernandez II”). Hernandez II is brought by the same attorneys as Hernandez I and features a single cause of action for civil penalties under the Private Attorneys General Act (“PAGA”). The Company agreed to resolve both Hernandez I and Hernandez II in principle and on a class-wide basis for $0.5 million. That settlement will serve to resolve the claims of the 2 Plaintiffs, as well as the approximately 270 remaining members of the class unless an individual class member asks to be excluded. At present, the material terms of the settlement are captured in a Long-Form Settlement Agreement. The Company anticipates that obtaining final approval of the parties’ settlement from the court will take at least three months and potentially longer, such that any settlement payments will be made during the fiscal year ended June 30, 2021. The settlement amount of $0.5 million, has been accrued in other current liabilities during the fiscal year ended June 30, 2019 and continues to reflect this liability in the consolidated balance sheets as of September 30, 2020.
Other Proceedings – From time to time,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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL:GENERAL
The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements and related notes included elsewhere in this quarterly report on Form 10-Q.
Statement Regarding the Impact of the COVID-19 Pandemic
The World Health Organization (“WHO”) on March 11, 2020, declared novel coronavirus 2019 (“COVID-19”) a global pandemic. In response to this declaration, the Company has taken the following actions to maneuver the current economic landscape;
Employees that can perform work outside of the workplace are working from home,
Suspension of the Company’s 401K match effective June 1, 2020 through the end of the calendar year,
Temporary 50% reduction of cash compensation for the Company’s Board of Directors through October 1, 2020,
Temporary 25% reduction of salary compensation for the Company’s Chief Executive Officer and Chief Financial Officer / Chief Operating Officer through October 1, 2020,
Elimination of all non-essential expenses and capital expenditures; and
Negotiated with vendors to extend payment terms.
During the three monthsquarter ended September 30, 2020,2021, we have seensaw improvement in our business conditions, as retailers have reopened and orders have increased, however, we continuecontinued to see supply chain challenges faced by the furniture industry due to labor shortages specifically in Asia, limited availability of ocean containers and significant increases in ocean container rates, limited availability and inflationary pressures in key materials. materials, and labor shortages both in Asia and the United States. TThehe COVID-19 pandemic remains fluid because of the evolution of COVID-19 variants, and the extent of the ongoing impact to our business may be significant, however, we are unable to predict the extent or nature of these impacts at this time.
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 20202021 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 months ended September 30, 20202021 and 2019.2020. Amounts presented are percentages of the Company’s net sales.
Three Months Ended | Three Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of goods sold | 78.3 | 82.8 | 83.0 | 78.3 | ||||||||
Gross margin | 21.7 | 17.2 | 17.0 | 21.7 | ||||||||
Selling, general and administrative | 13.5 | 17.4 | ||||||||||
Selling, general and administrative expenses | 13.6 | 13.5 | ||||||||||
Restructuring expense | 1.3 | 6.0 | 0.1 | 1.3 | ||||||||
Gain on disposal of assets due to restructuring | (0.6) | (18.9) | ||||||||||
(Gain) on disposal of assets due to restructuring | (1.0) | (0.6) | ||||||||||
Operating income | 7.5 | 12.7 | 4.3 | 7.5 | ||||||||
Other income | 0.0 | 0.1 | ||||||||||
Interest expense | 0.1 | — | ||||||||||
Other expense | 0.0 | 0.0 | ||||||||||
Income before income taxes | 7.6 | 12.8 | 4.2 | 7.6 | ||||||||
Income tax provision | 3.9 | 3.2 | 1.0 | 3.9 | ||||||||
Net income | 3.7 | % | 9.6 | % | 3.2 | % | 3.7 | % | ||||
Results of Operations for the Quarter Ended September 30, 20202021 vs. 20192020
Net sales were $105.2$137.7 million for the quarter ended September 30, 20202021, compared to net sales of $100.3$105.2 million in the prior year quarter, an increase of 4.9%30.8%. The increase in sales of $4.9$32.5 million was primarily driven by $11.4an increase of $35.7 million related to home furnishing products sold through retailers and $4.6offset by a decrease of $3.2 million for home furnishing products sold through e-commerce channels or a decrease of 19.7% compared to the prior year quarter.
Retail home furnishings backlog was $133 million for the quarter ended September 30, 2021, an increase of 56.5% as compared to $85 million home furnishings backlog in the prior year quarter.
Gross margin as a percent of net sales for the quarter ended September 30, 2021, was 17.0%, compared to 21.7% for the prior year quarter, a decrease of 470 basis points (“bps”). The 470-bps decrease was primarily due to a 740-basis point decrease related to on-going supply chain issues including higher costs related to material, labor, and ocean and domestic freight, and partially offset by an increase of 270-basis points primarily related to volume, mix, and price realizations.
Selling, general and administrative (“SG&A”) expenses increased $4.6 million or 32.5% to $18.8 million in the first quarter ended September 30, 2021, as compared to $14.2 million in the first quarter of fiscal 2021. As a percentage of net sales, SG&A was 13.6% in the first quarter of fiscal 2022 compared to 13.5% of net sales in the prior year quarter. The increase in SG&A is due primarily to higher
demand,sales and phasing out the COVID-19 expense reduction initiatives that were in place in the first quarter of the prior year. This action resulted in an increase in salaries, wages, and related costs of $1.6 million and an increase in sales, marketing, and investments in growth initiatives of $3.7 million in the first quarter of fiscal year 2022. These increases were partially offset by a declinedecrease of $11.1 million primarily due to the exit from our Vehicle Seating and Hospitality product lines during the fourth quarter of fiscal 2020.
Gross margin as a percent of net sales for the quarter ended September 30, 2020 was 21.7%, compared to 17.2% for the prior year quarter, an increase of 450 basis points (“bps”). The 450-bps increase was primarily due to structural cost reductions, operational efficiencies and fixed cost leverage due to higher sales volume as compared to the prior year quarter.
Selling, general and administrative (“SG&A”) expenses decreased $3.3$0.7 million in the quarter ended September 30, 2020 compared to the prior year quarter. As a percentage of net sales, SG&A was 13.5% in the quarter ended September 30, 2020 compared to the prior year quarter of 17.4%. The decrease in SG&A was primarily due to a reduction in salaries and wages due to cost saving measures taken during the fourth quarter of fiscal 2020 and continued through the three months ended September 30, 2020 in response to COVID-19 pandemic, coupled with decreased selling and travel expenses.volume efficiencies.
During the quarter ended September 30, 2020,2021, we incurred $1.4$0.15 million of restructuring expenses primarily for facility closures, professional fees,ongoing utilities and employee terminationmaintenance costs for our facilities listed as part of our previously announced comprehensive transformation program.held for sale. See Note 4,5, Restructuring, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.
In August 2020, we completed the sale of one of our facilities in Harrison, Arkansas, resulting in net proceeds of $0.7 million and a gain of $0.7 million.
Income tax expense was $1.3 million, or an effective rate of 23.2%, and $4.1 million, or an effective rate of 51.3%, and $3.2 million, or an effective rate of 25.2% during the quarter ended September 30, 20202021, and September 30, 2019,2020, respectively. The increase in the Company’s effective tax rate compared to the prior year quarter was primarily due to the Company’s prior expectation during the quarter ended June 30, 2020 that it would generate a net operating loss for tax purposes during the fiscal year ended June 30, 2021, and the net operating loss would be carried back up to five preceding taxable years at prior years’ statutory rates as provided by the Coronavirus Aid, Relief, and Economic Security Act. The Company now expects to generate a net operating profit for tax purposes during the fiscal year ended June 30, 2021, so certain deferred tax assets were remeasured to the current statutory rate of 21% while other deferred tax assets are no longer expected to be realizable and, as a result, the Company recorded an additional tax expense of $2.1 million during the quarter. The effective tax rate for the remaining nine months of the fiscal year ending June 30, 2021 is expected to be 25% to 26%.
Net income was $3.9$4.35 million, or $0.49$0.61 per diluted share for the quarter ended September 30, 2020,2021, compared to net income of $9.6$3.9 million, or $1.17$0.49 per diluted share in the prior year quarter.
Liquidity and Capital Resources
Working capital (current assets less current liabilities) aton September 30, 20202021, was $127.8$181.5 million compared to $128.4$128.7 million at June 30, 2019.2021. The $0.6$52.8 million decreaseincrease in working capital was due to an increase in cash of $2.7 million, an increase in inventory of $32.6 million, an increase in other current assets of $1.4 million, a decrease in cash of $11.7 million primarily due $9.0 million share repurchases during the quarter and an increase in trade accounts payable of $1.1$22.8 million, and a decrease in other current liabilities of $1.0 million, partially offset by $5.2a decrease of $7.7 million increase in inventory due to inventory build and a $7.6 million increase in trade receivables. Capital expenditures were $0.8 million and are estimated to be in the range of $3.0 million$11.5 to $4.0$13.5 million for the fiscal year ending June 30, 2021.2022.
A summary of operating, investing and financing cash flow is shown in the following table:
Three Months Ended | ||||||
September 30, | ||||||
(in thousands) | 2020 | 2019 | ||||
Net cash used in operating activities | $ | (2,186) | $ | (3,319) | ||
Net cash provided by investing activities | 319 | 19,113 | ||||
Net cash used in financing activities | (9,783) | (1,805) | ||||
(Decrease) Increase in cash and cash equivalents | $ | (11,650) | $ | 13,989 | ||
Three Months Ended | ||||||
September 30, | ||||||
(in thousands) | 2021 | 2020 | ||||
Net cash (used in) operating activities | $ | (44,315) | $ | (2,186) | ||
Net cash provided by investing activities | 629 | 319 | ||||
Net cash provided by (used in) financing activities | 46,339 | (9,783) | ||||
Increase (decrease) in cash and cash equivalents | $ | 2,653 | $ | (11,650) | ||
Net cash (used in) operating activities
For the three months ended September 30, 2021, net cash used in operating activities was $44.3 million, which primarily consisted of net income of $4.4 million, adjusted for non-cash items including depreciation of $1.3 million, gain from the sale of capital assets of $1.4 million, and stock-based compensation of $1.2 million. Net cash used in operating assets and liabilities was $49.8 million. The cash used in operating assets and liabilities of $49.8 million was primarily due to an increase in inventory of $32.6 million due to continued inventory build, an increase in other current assets of $1.4 million, a decrease in accounts payable of $22.8 million and a decrease in accrued liabilities of $0.7 million, partially offset by a decrease in trade receivables of $7.7 million.
For the quarter ended September 30, 2020, net cash used in operating activities was $2.2 million, which primarily consisted of net income of $3.9 million, adjusted for non-cash depreciation of $1.4 million, gain from the sale of capital assets of $0.6 million, change in deferred income taxes of $2.1 million, and non-cash stock basedstock-based compensation of $1.0 million. Net cash used in operating assets and liabilities was $9.8 million. The cash used in operating assets and liabilities of $9.8 million was primarily due to an increase in trade receivables of $7.5 million, an increase in inventory of $5.2 million, and an increase in other current assets of $2.3 million, partially offset by an increase in accrued liabilities of $3.9 million and accounts payable of $1.1 million.
For the quarter ended September 30, 2019, net cash used in operating activities was $3.3 million, which primarily consisted of net income of $9.6 million, non-cash depreciation of $2.5 million and a gain from the sale of capital assets of $18.9 million, coupled with net cash provided in operating assets and liabilities of $2.4 million. The cash provided in operating assets and liabilities of $2.4 million, was primarily due to a decline in trade receivables of $2.1 million and other current assets of $7.5 million, and a decline in accounts payable and accrued liabilities of $3.8 million and $3.2 million, respectively. The decline in other current assets was primarily driven by a tax refund of $4.6 million.
Net cash provided by investing activities
For the three months ended September 30, 2021, net cash provided by investing activities was $0.63 million, primarily due to proceeds of $1.45 million for the sale of our Harrison, Arkansas, facility, partially offset by capital expenditures of $0.8 million.
For the quarter ended September 30, 2020, net cash provided by investing activities was $0.3 million, primarily due to proceeds of $0.7 million for the sale of one of our Harrison, Arkansas, facilities, partially offset by capital expenditures of $0.4 million.
Net cash used in(used in) provided by financing activities
For the three months ended September 30, 2021, net cash provided by financing activities was $46.3 million, primarily due to proceeds from lines of credit of $74.6 million, offset by payments on lines of credit of $25.0 million, $1.9 million for treasury stock purchases, dividends paid of $1.1 million, and $0.2 million for tax payments on employee vested restricted shares.
For the quarter ended September 30, 2020, net cash used in financing activities was $9.8 million, primarily due to $9.0 million for treasury stock purchases and dividends paid of $0.5 million.
For the quarter ended September 30, 2019, net cash used in financing activities was $1.8 million primarily due to dividends paid of $1.7 million.
Line of Credit
On August 28, 2020, weSeptember 8, 2021, the Company, as borrower, entered into a new two-year secured $25.0credit 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 with Dubuque Bank and Trust Company, with interestcredit. Subject to certain conditions, the Credit Agreement also provides for the issuance of 1.50% plus LIBOR, subject to a floor of 3.00%. The revolving lineletters of credit is secured by essentially all of the Company’s assets, excluding real property and requires the Companyin an aggregate amount up to maintain compliance with certain financial and non-financial covenants. The revolving line of credit matures on August 28, 2022. There was no outstanding amount$5,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. The Company’s $1.2 million of letters of credit previously issued by Lender are being treated as outstanding under the Credit Agreement. Proceeds of borrowings were used to refinance all indebtedness owed to Dubuque Bank & Trust and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Credit Agreement bear interest at LIBOR plus 1.25% or 1.50% per annum, or an effective interest rate of 1.58025% on September 30, 2021. If LIBOR becomes unavailable, the replacement rate will be determined pursuant to the terms of the Credit Agreement. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00:1.00. 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 September 30, 2020.2021, there was $53.1 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”) as of September 30, 2020,2021, totaled $1.2 million, of which $1.3 million of the Company’s cash held at Wells is pledged as collateral.million.
Contractual Obligations
As of September 30, 2020,2021, 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, 2020.2021.
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, 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, tariffs and taxes on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Any of these factors could interrupt supply, decrease sales, increase costs and decrease earnings.
Foreign Currency Risk – During the quarters ended September 30, 20202021 and 2019,2020, the Company did not have sales, but has purchases and other expenses denominated in foreign currencies. The market risk associated with currency exchange rates and prices is not considered significant.
Interest Rate Risk – The Company’s primary market risk exposure with regard to financial instruments is changes in interest rates. AtOn September 30, 2020,2021, the Company did not have any debt outstanding.had $53.1 million outstanding 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 September 30, 2020.2021.
(b) Changes in internal control over financial reporting. During the quarter ended September 30, 2020,2021, 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 the Purpose of “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 with respect to long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities and Exchange Commission and in 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 our results to differ materially from those anticipated by some of the statements made 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, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, inflation, 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, timing to implement restructuring, the impact of the COVID-19 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, 2020.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 1,October 22, 2020, the Company’s Board of Directors authorized a $6$30 million share repurchase program through June 9, 2021. On August 20, 2020, the Company’s Board of Directors authorized an additional $8 million share repurchase program to begin on September 4, 2020 through September 3, 2021.October 29, 2023. The following table summarizessummarized the activity of the common stock repurchases under bothmade during the $6 million and $8 million program as ofthree months ended September 30, 2020. As of September 30, 2020,2021. All purchases were made in the $6 million repurchase program was completed.open market.
Total Number | Average | Total Number | Approximate Dollar Value | |||||||
of Shares | Price Paid | of Shares Purchased | of Shares that May Yet | |||||||
Period | Purchased | per Share | as Part of Plans | Be Purchased | ||||||
As of June 30, 2020 | 132,197 | $ | 11.83 | 132,197 | $ | 4,429,960 | ||||
July 1, 2020 to July 31, 2020 | 155,808 | 14.46 | 155,808 | 2,168,981 | ||||||
August 1, 2020 to August 31, 2020 | 116,562 | 17.24 | 116,562 | 153,690 | ||||||
September 1, 2020 to September 30, 2020 | 223,905 | 21.16 | 223,905 | 3,405,667 | ||||||
As of September 30, 2020 | 628,472 | $ | 16.81 | 628,472 | $ | 3,405,667 | ||||
Total Number | Average | Total Number | Approximate Dollar Value | |||||||
of Shares | Price Paid | of Shares Purchased | of Shares that May Yet | |||||||
Period | Purchased | per Share | as Part of Plan | Be Purchased | ||||||
July 1, 2021, to July 31, 2021 | 13,997 | $ | 35.89 | 536,994 | $ | 12,112,336 | ||||
August 1, 2021, to August 31, 2021 | 17,781 | 35.51 | 554,775 | 11,479,990 | ||||||
September 1, 2021, to September 30, 2021 | 17,434 | 34.68 | 572,209 | 10,874,445 | ||||||
Three months ended September 30, 2021 | 49,212 | $ | 35.33 | 572,209 | $ | 10,874,445 | ||||
Item 6. Exhibits
Exhibit No. | |
101.INS | XBRL Instance Document** |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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.” |
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. |
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Date: | October | By: | /S/ Derek P. Schmidt | |
Derek P. Schmidt | ||||
Chief Financial Officer and Chief Operating Officer | ||||
(Principal Financial & Accounting Officer) | ||||