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 December 31, 2021September 30, 2022
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 52001-0877
(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 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 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 |
|
FLEXSTEEL INDUSTRIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2021SEPTEMBER 30, 2022
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Part I – Financial Information | ||
Item 1. | 3 | |
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Part II – Other Information | ||
Item 1A. |
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Item 2. |
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Item 6. |
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PART I FINANCIAL INFORMATION
Item 1.Financial Statements
FLEXSTEEL INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands)
December 31, | June 30, | September 30, | June 30, | |||||||||
2021 | 2021 | 2022 | 2022 | |||||||||
ASSETS | ||||||||||||
CURRENT ASSETS: | ||||||||||||
Cash and cash equivalents | $ | 4,087 | $ | 1,342 | $ | 3,971 | $ | 2,184 | ||||
Trade receivables - less allowances: December 31, 2021, $3,430, June 30, 2021, $3,240 | 50,001 | 55,986 | ||||||||||
Trade receivables - less allowances: September 30, 2022, $2,970, June 30, 2022, $2,980 | 33,886 | 41,106 | ||||||||||
Inventories | 179,042 | 161,125 | 121,390 | 141,212 | ||||||||
Other | 8,399 | 9,421 | 13,119 | 4,950 | ||||||||
Assets held for sale | 616 | 666 | 616 | 616 | ||||||||
Total current assets | 242,145 | 228,540 | 172,982 | 190,068 | ||||||||
NONCURRENT ASSETS: | ||||||||||||
Property, plant and equipment, net | 38,495 | 39,783 | 38,958 | 38,543 | ||||||||
Operating lease right-of-use assets | 41,206 | 27,057 | 70,872 | 38,189 | ||||||||
Other assets | 1,908 | 1,399 | 1,941 | 1,941 | ||||||||
TOTAL ASSETS | $ | 323,754 | $ | 296,779 | $ | 284,753 | $ | 268,741 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
CURRENT LIABILITIES: | ||||||||||||
Accounts payable - trade | $ | 38,092 | $ | 67,773 | $ | 21,035 | $ | 32,147 | ||||
Current portion of operating lease liabilities | 6,665 | 5,833 | 7,993 | 6,361 | ||||||||
Accrued liabilities: | ||||||||||||
Payroll and related items | 5,708 | 7,662 | 4,978 | 6,385 | ||||||||
Insurance | 2,961 | 3,062 | 2,183 | 2,158 | ||||||||
Restructuring costs | 2,671 | 1,522 | — | 1,290 | ||||||||
Advertising | 6,190 | 5,196 | 3,780 | 4,052 | ||||||||
Environmental remediation | 3,570 | 3,570 | 9,800 | 3,570 | ||||||||
Other | 5,173 | 5,133 | 7,119 | 8,664 | ||||||||
Total current liabilities | 71,030 | 99,751 | 56,888 | 64,627 | ||||||||
LONG-TERM LIABILITIES: | ||||||||||||
Operating lease liabilities, less current maturities | 37,241 | 24,317 | 66,218 | 33,992 | ||||||||
Lines of credit | 59,734 | 3,500 | 30,030 | 37,739 | ||||||||
Other liabilities | 685 | 1,243 | 529 | 823 | ||||||||
Total liabilities | 168,690 | 128,811 | 153,665 | 137,181 | ||||||||
SHAREHOLDERS' EQUITY: | ||||||||||||
Common stock - $1 par value; authorized 15,000 shares; 8,153 shares issued and | 8,153 | 8,133 | ||||||||||
Common stock - $1 par value; authorized 15,000 shares; 8,226 shares issued and 5,313 outstanding as of September 30, 2022; 8,190 shares issued and 5,300 outstanding as of June 30, 2022 | 8,226 | 8,190 | ||||||||||
Additional paid-in capital | 36,001 | 34,015 | 34,906 | 34,467 | ||||||||
Treasury stock, at cost; 1,608 shares and 1,284 shares as of December 31, 2021, and | (40,978) | (31,320) | ||||||||||
Treasury stock, at cost; 2,913 shares, and 2,890 shares as of September 30, 2022, and June 30, 2022, respectively | (66,775) | (66,372) | ||||||||||
Retained earnings | 151,888 | 157,140 | 154,731 | 155,275 | ||||||||
Total shareholders' equity | 155,064 | 167,968 | 131,088 | 131,560 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 323,754 | $ | 296,779 | $ | 284,753 | $ | 268,741 | ||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||
December 31, | December 31, | September 30, | ||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||
Net sales | $ | 141,668 | $ | 119,106 | $ | 279,356 | $ | 224,345 | $ | 95,684 | $ | 137,689 | ||||||
Cost of goods sold | 132,141 | 94,728 | 246,419 | 177,152 | 80,335 | 114,279 | ||||||||||||
Gross margin | 9,527 | 24,378 | 32,937 | 47,193 | 15,349 | 23,410 | ||||||||||||
Selling, general and administrative expenses | 17,541 | 18,911 | 36,326 | 33,086 | 14,574 | 18,785 | ||||||||||||
Restructuring expense | 622 | 863 | 774 | 2,244 | — | 152 | ||||||||||||
(Gain) on disposal of assets due to restructuring | — | (5,229) | (1,400) | (5,881) | ||||||||||||||
Operating (loss) income | (8,636) | 9,833 | (2,763) | 17,744 | ||||||||||||||
Other expense | 347 | — | ||||||||||||||||
Gain on disposal of assets due to restructuring | — | (1,400) | ||||||||||||||||
Operating income | 428 | 5,873 | ||||||||||||||||
Interest expense | 223 | — | 426 | — | 321 | 203 | ||||||||||||
Other (income) | (104) | (162) | (102) | (211) | ||||||||||||||
(Loss) income before income taxes | (8,755) | 9,995 | (3,087) | 17,955 | ||||||||||||||
Other expense | 2 | 2 | ||||||||||||||||
Income before income taxes | 105 | 5,668 | ||||||||||||||||
Income tax (benefit) provision | (1,210) | 1,545 | 105 | 5,626 | (184) | 1,315 | ||||||||||||
Net (loss) income | $ | (7,545) | $ | 8,450 | $ | (3,192) | $ | 12,329 | ||||||||||
Net income and comprehensive income | $ | 289 | $ | 4,353 | ||||||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||||
Basic | 6,682 | 7,246 | 6,758 | 7,475 | 5,311 | 6,834 | ||||||||||||
Diluted | 6,682 | 7,495 | 6,758 | 7,681 | 5,467 | 7,090 | ||||||||||||
(Loss) earnings per share of common stock: | ||||||||||||||||||
Earnings per share of common stock: | ||||||||||||||||||
Basic | $ | (1.13) | $ | 1.17 | $ | (0.47) | $ | 1.65 | $ | 0.05 | $ | 0.64 | ||||||
Diluted | $ | (1.13) | $ | 1.13 | $ | (0.47) | $ | 1.61 | $ | 0.05 | $ | 0.61 | ||||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(Amounts in thousands)
Six Months Ended December 31, 2021 | Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
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, 2021 | $ | 8,133 | $ | 34,015 | $ | (31,320) | $ | 157,140 | $ | 167,968 | ||||||||||||||||||||
Balance on June 30, 2022 | $ | 8,190 | $ | 34,467 | $ | (66,372) | $ | 155,275 | $ | 131,560 | ||||||||||||||||||||
Stock-based compensation | 3 | 1,159 | — | — | 1,162 | 8 | 817 | — | — | 825 | ||||||||||||||||||||
Vesting of restricted stock units and restricted shares | 7 | (257) | — | — | (250) | 28 | (378) | — | — | (350) | ||||||||||||||||||||
Treasury stock purchases | — | — | (1,915) | — | (1,915) | — | — | (403) | — | (403) | ||||||||||||||||||||
Cash dividends declared | — | — | — | (1,047) | (1,047) | — | — | — | (833) | (833) | ||||||||||||||||||||
Net income | — | — | — | 4,353 | 4,353 | — | — | — | 289 | 289 | ||||||||||||||||||||
Balance at September 30, 2021 | $ | 8,143 | $ | 34,917 | $ | (33,235) | $ | 160,446 | $ | 170,271 | ||||||||||||||||||||
Stock-based compensation | 4 | 1,016 | — | — | 1,020 | |||||||||||||||||||||||||
Vesting of restricted stock units and restricted shares | (2) | (42) | (44) | |||||||||||||||||||||||||||
Stock options exercised | 8 | 110 | — | — | 118 | |||||||||||||||||||||||||
Treasury stock purchases | — | — | (7,743) | — | (7,743) | |||||||||||||||||||||||||
Cash dividends declared | — | — | — | (1,013) | (1,013) | |||||||||||||||||||||||||
Net (loss) | — | — | — | (7,545) | (7,545) | |||||||||||||||||||||||||
Balance at December 31, 2021 | $ | 8,153 | $ | 36,001 | $ | (40,978) | $ | 151,888 | $ | 155,064 | ||||||||||||||||||||
Balance on September 30, 2022 | $ | 8,226 | $ | 34,906 | $ | (66,775) | $ | 154,731 | $ | 131,088 | ||||||||||||||||||||
Six Months Ended December 31, 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 on 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 | ||||||||||||||||||||
Stock-based compensation | 10 | 1,017 | — | — | 1,027 | |||||||||||||||||||||||||
Stock options exercised | 7 | 41 | — | — | 48 | |||||||||||||||||||||||||
Treasury stock purchases | — | — | (11,013) | — | (11,013) | |||||||||||||||||||||||||
Cash dividends declared | — | — | — | (730) | (730) | |||||||||||||||||||||||||
Net income | — | — | — | 8,450 | 8,450 | |||||||||||||||||||||||||
Balance at December 31, 2020 | $ | 8,082 | $ | 33,373 | $ | (21,576) | $ | 148,528 | $ | 168,407 | ||||||||||||||||||||
Balance on September 30, 2021 | $ | 8,143 | $ | 34,917 | $ | (33,235) | $ | 160,446 | $ | 170,271 | ||||||||||||||||||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Six Months Ended | Three Months Ended | |||||||||||
December 31, | September 30, | |||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||
OPERATING ACTIVITIES: | ||||||||||||
Net (loss) income | $ | (3,192) | $ | 12,329 | ||||||||
Net income | $ | 289 | $ | 4,353 | ||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
Depreciation | 2,662 | 2,687 | 1,128 | 1,327 | ||||||||
Deferred income taxes | — | 2,110 | ||||||||||
Stock-based compensation expense | 2,182 | 1,983 | 825 | 1,162 | ||||||||
Change in provision for losses on accounts receivable | 190 | 1,335 | (10) | 120 | ||||||||
(Gain) on disposal of assets | (1,887) | (5,858) | — | (1,400) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade receivables | 5,795 | (15,435) | 7,230 | 7,620 | ||||||||
Inventories | (17,917) | (21,459) | 19,823 | (32,574) | ||||||||
Other current assets | 1,021 | 6,038 | (8,169) | (1,449) | ||||||||
Other assets | (508) | 11 | — | 8 | ||||||||
Accounts payable - trade | (29,521) | 125 | (10,777) | (22,706) | ||||||||
Accrued liabilities | 720 | 4,954 | 2,949 | (726) | ||||||||
Other long-term liabilities | (543) | 246 | (294) | (50) | ||||||||
Net cash (used in) operating activities | (40,998) | (10,934) | ||||||||||
Net cash provided by (used in) operating activities | 12,994 | (44,315) | ||||||||||
INVESTING ACTIVITIES: | ||||||||||||
Purchases of investments | — | (16) | ||||||||||
Proceeds from sales of investments | — | 16 | ||||||||||
Proceeds from the sale of capital assets | 1,937 | 18,527 | — | 1,450 | ||||||||
Capital expenditures | (1,535) | (663) | (1,878) | (821) | ||||||||
Net cash provided by investing activities | 402 | 17,864 | ||||||||||
Net cash (used in) provided by investing activities | (1,878) | 629 | ||||||||||
FINANCING ACTIVITIES: | ||||||||||||
Dividends paid | (3,060) | (1,535) | (867) | (1,050) | ||||||||
Treasury stock purchases | (9,658) | (20,013) | (403) | (1,915) | ||||||||
Proceeds from lines of credit | 81,247 | — | 88,058 | 74,565 | ||||||||
Payments on lines of credit | (25,013) | — | (95,768) | (25,013) | ||||||||
Proceeds from issuance of common stock | 118 | 40 | ||||||||||
Shares withheld for tax payments on vested restricted shares | (293) | (323) | (349) | (248) | ||||||||
Net cash provided by (used in) financing activities | 43,341 | (21,831) | ||||||||||
Increase (decrease) in cash and cash equivalents | 2,745 | (14,901) | ||||||||||
Net cash (used in) provided by financing activities | (9,329) | 46,339 | ||||||||||
Increase in cash and cash equivalents | 1,787 | 2,653 | ||||||||||
Cash and cash equivalents at beginning of the period | 1,342 | 48,197 | 2,184 | 1,342 | ||||||||
Cash and cash equivalents at end of the period | $ | 4,087 | $ | 33,296 | $ | 3,971 | $ | 3,995 | ||||
SUPPLEMENTAL INFORMATION | ||||||||||||
Cash paid for amounts included in lease liabilities | $ | 3,059 | $ | 2,547 | $ | 953 | $ | 1,074 | ||||
Right-of-use assets exchanged for lease liabilities | $ | 16,814 | $ | 2,741 | $ | 34,811 | $ | — | ||||
Interest paid | $ | 351 | $ | — | $ | 306 | $ | 157 | ||||
Income taxes (refunded), net | $ | (1,719) | $ | (5,783) | ||||||||
Income taxes, net | $ | 1,786 | $ | 741 | ||||||||
Capital expenditures in accounts payable | $ | (160) | $ | 31 | $ | 57 | $ | (119) | ||||
See accompanying Notes to Consolidated Financial Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED DECEMBER 31, 2021SEPTEMBER 30, 2022
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 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, kitchen storage, bedroom furniture and bedroomoutdoor 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 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 year ended June 30, 2021, the Company saw improvement in our business conditions as retailers reopened and orders increased, however, we continued to see supply chain challenges faced by the furniture industry due to the limited availability of ocean containers and significant increases in ocean container rates, limited availability and inflationary pressures in key materials, and labor shortages both in Asia and the United States. These supply chain issues have continued during the three and six months ended December 31, 2021. The COVID-19 pandemic remains fluid and the extent of the impact on 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 unaudited Consolidated Financial Statements included herein have been prepared by Flexsteel, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnishedcontained in the Consolidated Financial Statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such Consolidated Financial Statements. Operating results for the three and six months ended December 31, 2021,September 30, 2022, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022.2023. 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, 2021,2022, appropriately represent, in all material respects, the current status of accounting policies and are incorporated by reference.policies.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS – In December 2019,the FASB issued ASU 2019-12“Income Taxes Simplifying the Accounting for Income Taxes (Topic 740)” as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in this guidance were effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Effective July 1, 2021, the Company adopted Topic 740 and there was no impact on the Company’s financial statements.
2. INVENTORIES
A comparison of inventories is as follows:
December 31, | June 30, | September 30, | June 30, | |||||||||
(in thousands) | 2021 | 2021 | 2022 | 2022 | ||||||||
Raw materials | $ | 25,920 | $ | 22,500 | $ | 15,204 | $ | 16,405 | ||||
Work in process and finished parts | 5,333 | 6,234 | 4,753 | 5,534 | ||||||||
Finished goods | 147,789 | 132,391 | 101,433 | 119,273 | ||||||||
Total | $ | 179,042 | $ | 161,125 | $ | 121,390 | $ | 141,212 | ||||
3. ASSETS HELD FOR SALE
During the fiscal year 2020, the Company committed to a plan to sell assets located at the Company’s Starkville, Mississippi location as part of the Company’s restructuring plan, see Note 5 Restructuring. As of September 30, 2022, the Company continues to actively market the assets in Starkville, Mississippi. A summary of the assets held for sale as of December 31, 2021,September 30, 2022, is included in the table below.
Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||||
Location | Asset Category | Cost | Depreciation | Value | Asset Category | Cost | Depreciation | Value | ||||||||||||
(in thousands) | ||||||||||||||||||||
Starkville, Mississippi | Building & building improvements | 4,615 | (4,254) | 361 | Building & building improvements | 4,615 | (4,254) | 361 | ||||||||||||
Land & land improvements | 694 | (439) | 255 | Land & land improvements | 694 | (439) | 255 | |||||||||||||
Total Starkville | 5,309 | (4,693) | 616 | Total assets held for sale | $ | 5,309 | $ | (4,693) | $ | 616 | ||||||||||
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 has made an accounting policy election to not recognize short-term leases on the Consolidated Balance Sheets and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct
costs, and the remaining balance of lease incentives received. Both the lease ROU asset and 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.
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 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. The 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 ASC 842. 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. The 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. 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 Statements of Income were as follows:
Three Months Ended | Six Months Ended | Three Months Ended | |||||||||||||||||
December 31, | December 31, | September 30, | |||||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||
Operating lease expense | $ | 1,821 | $ | 991 | $ | 3,210 | $ | 2,065 | $ | 2,666 | $ | 1,389 | |||||||
Variable lease expense | 467 | 74 | 542 | 143 | 418 | 75 | |||||||||||||
Total lease expense | $ | 2,288 | $ | 1,065 | $ | 3,752 | $ | 2,208 | $ | 3,084 | $ | 1,464 | |||||||
Other information related to leases and future minimum lease payments under non-cancellable operating leases were as follows:
Six Months Ended | Three Months Ended | |||||||||||
December 31, 2021 | December 31, 2020 | September 30, 2022 | September 30, 2021 | |||||||||
(in thousands) | ||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
Operating cash flows from operating leases | $ | 3,059 | $ | 2,547 | $ | 953 | $ | 1,074 | ||||
Right-of-use assets obtained in exchange for lease liabilities: | ||||||||||||
Operating leases | $ | 16,814 | $ | 2,741 | $ | 34,811 | $ | — | ||||
Weighted-average remaining lease term (in years): | ||||||||||||
Operating leases | 4.7 | 1.9 | 5.3 | 3.8 | ||||||||
Weighted-average discount rate: | ||||||||||||
Operating leases | 2.5% | 3.3% | 3.2% | 2.9% | ||||||||
Future minimum lease payments under non-cancellable operating leases were as follows:
Six Months Ended | Three Months Ended | |||||||||||
December 31, 2021 | December 31, 2020 | September 30, 2022 | September 30, 2021 | |||||||||
(in thousands) | ||||||||||||
Within one year | $ | 7,819 | $ | 4,491 | $ | 10,106 | $ | 6,591 | ||||
After one year and within two years | 6,872 | 4,048 | 9,495 | 5,517 | ||||||||
After two years and within three years | 5,590 | 2,844 | 7,650 | 4,563 | ||||||||
After three years and within four years | 4,167 | 1,491 | 7,613 | 2,620 | ||||||||
After four years and within five years | 4,242 | 1 | 7,769 | 2,469 | ||||||||
After five years | 20,227 | — | 42,971 | 11,273 | ||||||||
Total future minimum lease payments | $ | 48,917 | $ | 12,875 | $ | 85,604 | $ | 33,033 | ||||
Less – Discount | 5,011 | 720 | 11,393 | 3,957 | ||||||||
Lease liability | $ | 43,906 | $ | 12,155 | $ | 74,211 | $ | 29,076 | ||||
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 fromby 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-year period, which included the previously announced restructuring activities on May 15, 2019. The transformation program included activities such as business simplification, process improvement, exiting of non-core businesses, facility closures, and reductions in the workforce. 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 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 substantially completed the restructuring activities related to the exit of Vehicle Seating and the remainder of the Hospitality product lines during fiscal 2021.
These actions are now complete, with one property remaining as held for sale as discussed in Note 3, Assets Held for Sale. The Company has incurred $59.4 million of expenses related to this restructuring program over the two-year timeframe as of June 30, 2022 and does not anticipate any further charges.
The following is a summary of restructuring costs:
Three Months Ended | |||||||
(in thousands) | September 30, 2022 | September 30, 2021 | |||||
Other associated costs | $ | — | $ | 152 | |||
Total restructuring and related expenses | $ | — | $ | 152 | |||
Reported as: | |||||||
Operating expenses | $ | — | $ | 152 | |||
Other associated costs include legal and professional fees as well as facilities and transition costs. During the quarter ended September 30, 2022, the Company paid all remaining expenses related to the restructuring program.
The roll-forward of the accrued restructuring costs is as follows:
One-time | ||||||||||
Employee | Other | |||||||||
Termination | Associated | |||||||||
(in thousands) | Benefits | Costs | Total | |||||||
Accrual balance on June 30, 2022 | $ | 1,275 | $ | 15 | $ | 1,290 | ||||
(Income) costs incurred | — | — | — | |||||||
Expenses reimbursed (paid) | (1,275) | (15) | (1,290) | |||||||
Accrual balance on September 30, 2022 | $ | — | $ | — | $ | — | ||||
As a result of these planned actions, which will be complete in the fiscal year ending June 30, 2022, the Company anticipates incurring pre-tax restructuring and related expenses of approximately $60 million over this two-year timeframe. Total cumulative restructuring and related costs incurred as of December 31, 2021, were $59.4 million.
The following is a summary of restructuring costs:
Three Months Ended | Six Months Ended | |||||||||||
(in thousands) | December 31, 2021 | December 31, 2020 | December 31, 2021 | December 31, 2020 | ||||||||
Inventory impairment | $ | — | $ | 45 | $ | — | $ | 45 | ||||
One-time employee termination benefits | — | — | — | 179 | ||||||||
Other associated costs | 622 | 863 | 774 | 2,065 | ||||||||
Total restructuring and related expenses | $ | 622 | $ | 908 | $ | 774 | $ | 2,289 | ||||
Reported as: | ||||||||||||
Cost of goods sold | $ | — | $ | 45 | $ | — | $ | 45 | ||||
Operating expenses | $ | 622 | $ | 863 | $ | 774 | $ | 2,244 | ||||
Other associated costs include legal and professional fees, stock-based compensation expenses for retention restricted stock units in connection with the Company’s restructuring plan, and ongoing facilities and transition costs.
The roll-forward of the accrued restructuring costs is as follows:
One-time | |||||||||||||||
Employee | Contract | Other | |||||||||||||
Inventory | Termination | Termination | Associated | ||||||||||||
(in thousands) | Impairment | Benefits | Costs | Costs | Total | ||||||||||
Accrual balance at June 30, 2021 | $ | — | $ | 1,502 | $ | — | $ | 20 | $ | 1,522 | |||||
Costs incurred | — | — | — | 774 | 774 | ||||||||||
Expenses (paid) reimbursed | — | (130) | — | 505 | 375 | ||||||||||
Accrual balance at December 31, 2021 | $ | — | $ | 1,372 | $ | — | $ | 1,299 | $ | 2,671 | |||||
6. CREDIT ARRANGEMENTS
On August 28, 2020, the Company entered into a two-year secured $25.0 million revolving line of credit with Dubuque Bank and Trust Company, with an interest rate of 1.50% plus LIBOR, subject to a floor of 3.00%. The revolving line of credit was secured by essentially all the Company’s assets, excluding real property, and required the Company to maintain compliance with certain financial and non-financial covenants. This line of credit was subsequently canceled in the first quarter of the fiscal year 2022.
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-yearfive-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 $5,000,000$5 million which, upon issuance, would be deemed advances under the revolving line of credit. The Company’s $1.2$1.1 million letters of credit previously issued by the Lender are being treated as outstanding under the Credit Agreement.Agreement and reduce the amount of available borrowings under the revolving line of credit. 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 1.35%4.4% on December 31, 2021.September 30, 2022. When 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. 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.
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 defines “default” or “event of default” and the calculation of the Fixed Charge Coverage Ratio.
As of December 31, 2021,September 30, 2022, there was $59.7$30.0 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”)the Lender as of December 31, 2021,September 30, 2022, totaled $1.2$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 quarters ended December 31,September 30, 2022, and September 30, 2021, and December 31, 2020, were
13.8% and 15.5%, respectively, and for the six months ended December 31, 2021, and December 31, 2020, were (3.4%was (175.5%) and 31.3%23.2%, respectively. The effective tax rate for the quarter ended December 31, 2020, effective rate of 15.5%September 30, 2022 was dueprimarily impacted by adjustments related to a discreteuncertain tax benefit arising from the reversal of valuation allowances resulting from the gain on the sale of capital assets. The quarter ended December 31, 2021, and six months ended December 31, 2021, effective rates of 13.8% and (3.4%) were due to the tax benefit on the year-to-date loss not being recorded due to the Company’s valuation allowance position.positions.
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 upon vesting. Stock-based compensation is included in selling, general and administrative and restructuring expenses on the Consolidated Statements of Income and Comprehensive Income. The stock-based compensation expense included in the restructuring expense was 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 expenses for the three and six months ended December 31, 2021.September 30, 2022.
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||
December 31, | December 31, | September 30, | ||||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Total stock-based compensation expense | $ | 1,020 | $ | 1,029 | $ | 2,182 | $ | 1,983 | $ | 825 | $ | 1,162 | ||||||
The Company has 2two stock-based compensation plans available for granting awards to employees and directors.
(1) Long-Term Incentive Compensation Plan (“LTIP”)
The LTIP provides for performance stock units (“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”). For awards under the LTIP for the
three years ending June 30, 2022, 2023, 2024, and 2024,2025, participants may earn one-thirdone-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 withbased on a defined percentage growth in fiscal years 2022, 2023, 2024, and 20242025 as the performance metric. In conjunction with each grant of PSUs, the Committee grants RSUs under the 2013 Omnibus Stock Plan that vest at the end of three years.
The table below sets forth, as of December 31, 2021,September 30, 2022, the number of unvested PSUs granted at the target performance level for the 2020-2022, 2021-2023, 2022-2024 and 2022-20242023-2025 performance periods under the LTIP and the number of unvested RSUs granted in conjunction with the PSUs:
Time-Based Vest (RSUs) | Performance-Based Vest (PSUs) | 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, 2021 | 107 | $ | 13.89 | 142 | $ | 13.36 | 249 | $ | 13.59 | |||||||||||||||||||||
Unvested as of June 30, 2022 | 86 | $ | 19.53 | 174 | $ | 18.87 | 260 | $ | 19.09 | |||||||||||||||||||||
Granted | 27 | 42.50 | 40 | 42.50 | 67 | 42.50 | 63 | 19.27 | 91 | 19.27 | 154 | 19.27 | ||||||||||||||||||
Vested | — | — | (44) | 17.23 | (44) | 17.23 | ||||||||||||||||||||||||
Forfeited | (3) | 39.49 | (4) | 39.49 | (7) | 39.49 | (1) | 26.19 | (1) | 26.19 | (2) | 26.19 | ||||||||||||||||||
Unvested as of December 31, 2021 | 131 | $ | 19.25 | 178 | $ | 19.39 | 309 | $ | 19.33 | |||||||||||||||||||||
Unvested as of September 30, 2022 | 148 | $ | 19.40 | 220 | $ | 19.27 | 368 | $ | 19.32 | |||||||||||||||||||||
Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs was $3.05$3.7 million as of December 31, 2021,September 30, 2022, which is expected to be recognized over a weighted-average period of 1.41.7 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 sixthree months ended December 31, 2021,September 30, 2022, is as follows:
Weighted Average | Weighted Average | |||||||||
Shares | Fair Value | Shares | Fair Value | |||||||
(in thousands) | Per Share | (in thousands) | Per Share | |||||||
Unvested as of June 20, 2021 | 56 | $ | 26.81 | |||||||
Unvested as of June 20, 2022 | 35 | $ | 26.72 | |||||||
Granted | 3 | 42.50 | 55 | 19.17 | ||||||
Vested | (18) | 28.22 | (7) | 27.21 | ||||||
Forfeited | (3) | 19.98 | (1) | 19.77 | ||||||
Unvested as of December 31, 2021 | 38 | $ | 27.81 | |||||||
Unvested as of September 30, 2022 | 82 | $ | 21.72 | |||||||
Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.6$1.2 million as of December 31, 2021,September 30, 2022, which is expected to be recognized over a weighted-average period of 1.31.4 years.
Options
A summary of the activity of the Company’s stock option plans as of December 31, 2021,September 30, 2022, is presented below:
Weighted | Weighted | |||||||||
Shares | Average | Shares | Average | |||||||
(in thousands) | Exercise Price | (in thousands) | Exercise Price | |||||||
Outstanding at June 30, 2021 | 232 | $ | 21.91 | |||||||
Outstanding at June 30, 2022 | 215 | $ | 21.50 | |||||||
Granted | — | — | — | — | ||||||
Exercised | (8) | 15.75 | — | — | ||||||
Canceled | (9) | 36.58 | (1) | 37.49 | ||||||
Outstanding at December 31, 2021 | 215 | $ | 21.50 | |||||||
Outstanding at September 30, 2022 | 214 | $ | 21.43 | |||||||
The following table summarizes information for options outstanding at December 31, 2021:September 30, 2022:
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 | ||||||||
$ | 9.97 - 15.14 | 97 | 8.2 | $ | 12.64 | 9.97 - 15.14 | 97 | 7.4 | $ | 12.64 | ||||||
18.30 - 19.72 | 12 | 5.3 | 18.99 | 18.30 - 19.72 | 12 | 4.6 | 18.99 | |||||||||
21.96 - 27.57 | 58 | 5.3 | 24.21 | 21.96 - 27.57 | 57 | 4.6 | 24.19 | |||||||||
31.06 - 32.80 | 32 | 4.4 | 32.30 | 31.06 - 32.80 | 32 | 3.1 | 32.30 | |||||||||
43.09 - 47.45 | 16 | 4.8 | 45.42 | 43.09 - 47.45 | 16 | 4.1 | 45.44 | |||||||||
$ | 9.97 - 47.45 | 215 | 6.4 | $ | 21.50 | 9.97 - 47.45 | 214 | 5.6 | $ | 21.43 | ||||||
The total unrecognized stock-based compensation expense related to options was $0.10$0.05 million as of December 31, 2021,September 30, 2022, which is expected to be recognized over a weighted-average period of 1.20.5 years.
Stock-based compensation granted outside a plan
During the quarter ended June 30, 2020, the Company awarded its Chief Financial Officer/Chief Operating Officer 79,000 options outside of any Company stock plans. All 79,000 options remain outstanding as of September 30, 2022, with an exercise price of $9.97 and a remaining life of 7.5 years. The total unrecognized stock-based compensation expense related to options awarded outside a plan was $0.04$0.01 million as of December 31, 2021,September 30, 2022, which is expected to be recognized over 1.3a weighted-average period of 0.5 years.
During the quarter ended December 31, 2018, the Company awarded its Chief Executive Officer 55,000 options outside of any Company stock plans. All 55,000 options remain outstanding as of September 30, 2022, with an exercise price of $21.96 and a remaining life of 6.2 years. There is no remaining unrecognized stock-based compensation expense related to these options.
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. In computing EPS for the three and six months ended December 31, 2021, there are no dilutive shares as the company reported a net loss.
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||
December 31, | December 31, | September 30, | ||||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Basic shares | 6,682 | 7,246 | 6,758 | 7,475 | 5,311 | 6,834 | ||||||||||||
Potential common shares: | ||||||||||||||||||
Stock options | — | 147 | — | 110 | 58 | 163 | ||||||||||||
Non-vested restricted stock units and restricted shares | — | 102 | — | 96 | 98 | 93 | ||||||||||||
— | 249 | — | 206 | 156 | 256 | |||||||||||||
Diluted shares | 6,682 | 7,495 | 6,758 | 7,681 | 5,467 | 7,090 | ||||||||||||
Anti-dilutive shares | — | 63 | — | 91 | 173 | 16 | ||||||||||||
Cash dividends declared per common share were $0.15 and $0.30 for the three and six months ended December 31, 2021, respectively, and were $0.10 and $0.15 for the three and six months ended December 31, 2020,September 30, 2022, and September 30, 2021, respectively.
10. LITIGATIONCOMMITMENTS AND CONTINGENCIES
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 of $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. Through an agreement with the EPA, the statute of limitations for potential claims by the EPA was extended through February 28, 2022. The Company reflected a $3.6 million liability in the Consolidated Balance Sheets for the fiscal year ended June 30, 2018.
Despite the Company’s position that it did not cause noror contribute to the contamination, the Company continuesreached a settlement with the EPA and the State of Indiana, which was filed as a consent decree in the U.S. District Court for the Northern District of Indiana on October 24, 2022. The consent decree requires Flexsteel to reflect thispay $9.8 million in resolution of the matter, upon the conclusion of a public comment period and final court approval. Accordingly, the Company has reflected a $9.8 million liability in the Consolidated Balance Sheets on September 30, 2022. This represents an increase to the liability of $6.2 million for the three months ended September 30, 2022. Flexsteel has also reached agreements with its insurance carriers for partial reimbursement of the settlement. As a result, for the three months ended September 30, 2022, the Company has also recorded a receivable of $6.2 million which is included in Other current assets in the Consolidated Balance Sheets on September 30, 2022.
Employment Matters - On March 22, 2021, the Company received notice of a class action lawsuit filed against Flexsteel Industries, Inc., and J.K. Dittmer and D.P. Schmidt as individuals, by a number of employees who had worked at the Dubuque Operations and Starkville plants prior to the closure of the locations due to the impact of COVID-19 on the business at that period of time. The allegations with the claim include failure to pay employee benefits as required by an ERISA-governed severance plan, failure of J.K. Dittmer and D.P. Schmidt to act with respect to the ERISA-governed severance plan, and failure to provide 60-days’ notice or the equivalent amount of pay to the employees required by the WARN Act when the Company closed the Dubuque and Starkville locations. The parties participated in a lengthy mediation and on December 31,3, 2021, in accordanceagreed to resolve the matter for $1.3 million. The matter was dismissed with FASB issued Asset Retirement and Environmental Obligations (ASC 410-30).prejudice on September 1, 2022. The Company continues to evaluatepaid $1.3 million during the Order, its legal options, and insurance coverages to assert its defense and recovery of current and future expenses related to this matter.three months ended September 30, 2022, see Note 5 Restructuring.
Other Proceedings – From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company does not consider any of such other proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material effect on its consolidated operating results, financial condition, or cash flows.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this quarterly report on Form 10-Q.
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. During the three and six months ended December 31, 2021, we saw improvement in our business conditions, however, we continued to see supply chain challenges faced by the furniture industry due to limited availability of ocean containers and significant increases in ocean container rates, limited availability and inflationary pressures in key materials, and labor shortages both in Asia and the United States. The COVID-19 pandemic remains fluid because of the evolution of COVID-19 variants, and the extent of the ongoing impact on 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 20212022 annual report on Form 10-K.
Overview
The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three and six months ended December 31, 2021,September 30, 2022, and 2020.2021. The amounts presented are percentages of the Company’s net sales.
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||
December 31, | December 31, | September 30, | ||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | |||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of goods sold | 93.3 | 79.5 | 88.2 | 79.0 | 84.0 | 83.0 | ||||||||||||
Gross margin | 6.7 | 20.5 | 11.8 | 21.0 | 16.0 | 17.0 | ||||||||||||
Selling, general and administrative expenses | 12.4 | 15.9 | 13.0 | 14.7 | 15.2 | 13.6 | ||||||||||||
Restructuring expense | 0.4 | 0.7 | 0.3 | 1.0 | — | 0.1 | ||||||||||||
(Gain) on disposal of assets due to restructuring | — | (4.4) | (0.5) | (2.6) | ||||||||||||||
Operating (loss) income | (6.1) | 8.3 | (1.0) | 7.9 | ||||||||||||||
Other expense | 0.4 | — | ||||||||||||||||
Gain on disposal of assets due to restructuring | — | (1.0) | ||||||||||||||||
Operating income | 0.4 | 4.3 | ||||||||||||||||
Interest expense | 0.2 | — | 0.2 | — | 0.3 | 0.1 | ||||||||||||
Other (income) | (0.1) | (0.1) | (0.0) | (0.1) | ||||||||||||||
(Loss) income before income taxes | (6.2) | 8.4 | (1.2) | 8.0 | ||||||||||||||
Other expense | 0.0 | 0.0 | ||||||||||||||||
Income before income taxes | 0.1 | 4.2 | ||||||||||||||||
Income tax (benefit) provision | (0.9) | 1.3 | 0.0 | 2.5 | (0.2) | 1.0 | ||||||||||||
Net (loss) income | (5.3) | % | 7.1 | % | (1.2) | % | 5.5 | % | ||||||||||
Net income and comprehensive income | 0.3 | % | 3.2 | % | ||||||||||||||
Results of Operations for the Quarter Ended December 31,September 30, 2022 vs. 2021 vs. 2020
Net sales were $141.7$95.7 million for the quarter ended December 31, 2021,September 30, 2022, compared to net sales of $119.1$137.7 million in the prior year’syear quarter, an increasea decrease of 18.9%30.5%. The increasedecrease in sales of $22.6$42.0 million was primarily driven by an increasea decrease of $22.5$38.7 million related to home furnishing products sold through retailers as compared to the prior-year quarter. Sales growthand a decrease of $3.3 million for home furnishing products sold through e-commerce channels, was flat as compared to the prior-yearprior year quarter.
Retail home furnishings backlog was $121$56 million for the quarter ended December 31, 2021, an increaseSeptember 30, 2022, a decrease of 20.4%57.8% as compared to the $101$133 million home furnishings backlog in the prior-yearprior year quarter mainly due to focus of the organization to reduce backlog down to 3-5 week lead times and softness of consumer demand in the quarter.
Gross margin as a percent of net sales for the quarter ended December 31, 2021,September 30, 2022, was 6.7%16.0%, compared to 20.5%17.0% for the prior-yearprior year quarter, a decrease of 1,380100 basis points (“bps”). The 1,380-bps100-bps decrease was primarily due to a 1,120 basis points decrease related to higher ancillary charges caused by domestic supply chain disruptionsvolume impact on fixed manufacturing costs, and higher per diem charges, a decrease of 140 basis points related to capacity growth investments in a third, additional manufacturing plant in Mexico and a new distribution facility in Greencastle, PA., and a decrease of 120 basis points primarily related to costdelivery costs mainly driven by fuel price inflation for materials, labor, and transportation, partially offset by price realization.reduction of ancillary charges taken in the prior year quarter.
Selling, general and administrative (“SG&A”) expenses decreased $1.4$4.2 million or 22.4% to $17.5$14.6 million in the first quarter ended December 31, 2021,September 30, 2022, as compared to $18.9$18.8 million in the samefirst quarter of fiscal 2021. 2022. As a percentage of net sales, SG&A was 12.4%15.2% in the secondfirst quarter of fiscal 20222023 compared to 15.9%13.6% of net sales in the prior-yearprior year quarter. The decrease in SG&A is due primarily to reduction of 350 basis points is primarily due tosalaries, wages, and related costs of $0.9 million, a decrease in sales volume related expense of 90 basis points in lower incentive compensation expenses, a decrease of 100 basis points of bad debt expense due to a customer bankruptcy in the prior-year quarter,$1.2 million and a decrease in all other expenses of 160 basis points due to volume leverage partially offset by growth investments.$2.1 million in the first quarter of fiscal year 2023.
During the quarter ended December 31, 2021, we incurred $0.62 million ofSeptember 30, 2022, no additional restructuring expenses primarily for ongoing utilities and maintenance costs for our facilities listed as held for sale and former employee expenses. See Note 5, Restructuring, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.
Income tax (benefit) was ($1.2) million, or an effective rate of 13.8%, and $1.5 million, or an effective rate of 15.5% during the quarter ended December 31, 2021, and December 31, 2020, respectively.
Net loss was ($7.5) million, or ($1.13) per diluted share for the quarter ended December 31, 2021, compared to net income of $8.5 million, or $1.13 per diluted share in the prior-year quarter.
Results of Operations for the Six Months Ended December 31, 2021, vs. 2020
Net sales were $279.4 million for the six months ended December 31, 2021, compared to net sales of $224.4 million in the prior-year six-month period, an increase of 24.5%. The increase in sales of $55.0 million was primarily driven by $58.0 million related to home furnishing products sold through retailers and partially offset by a decrease of $3.0 million for home furnishing products sold through e-commerce channels.
Gross margin as a percent of net sales for the six months ended December 31, 2021, was 11.8%, compared to 21.0% for the prior-year six-month period, a decrease of 920 bps. The 920 bps increase was primarily driven by the same factors discussed above for the quarter ended December 31, 2021.
Selling, general and administrative expenses increased $3.2 million in the six months ended December 31, 2021, compared to the prior-year six-month period. As a percentage of net sales, SG&A was 13.0% in the six months ended December 31, 2021, compared to the prior-year six-month period of 14.7%. The 170 bps decrease was primarily due to the same factors discussed above for the quarter ended December 31, 2021, and partially offset by phasing out the COVID-19 expense reduction initiatives in the prior-year quarter. The six-month period ended December 31, 2020, included a $1.3 million bad debt expense due to a customer bankruptcy.
Restructuring expenses were $0.77 million during the six months ended December 31, 2021, primarily for former employee expenses and for ongoing utilities and maintenance costsrealized for our facilities listed as held for sale. See Note 5, Restructuring, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.
During the six months ended December 31, 2021, we completed the sale of one of our Harrison, Arkansas facilities, resulting in total net proceeds of $1.45 million, and a total gain of $1.4 million.
During the six months ended December 31, 2020, we completed the sale of our Dubuque, Iowa, Lancaster, Pennsylvania, and one of our Harrison, Arkansas facilities, resulting in total net proceeds of $16.4 million, and a total gain of $5.9 million.
Income tax expense was $0.1a benefit of $0.2 million, or an effective rate of (3.4%(175.5%), during the six months ended December 31, 2021, compared to income tax expense of $5.6and $1.3 million, in the prior-year six-month period, or an effective rate of 23.2% during the quarter ended September 30, 2022, and September 30, 2021, respectively. The effective tax rate of 31.3%.for the quarter ended September 30, 2022 was primarily impacted by adjustments related to uncertain tax positions.
Net lossincome was ($3.2)$0.3 million, or ($0.47)$0.05 per diluted share for the six monthsquarter ended December 31,September 30, 2021, compared to net income of $12.3$4.4 million, or $1.61$0.61 per diluted share in the prior-year six-month period.
prior year.
Liquidity and Capital Resources
Working capital (current assets less current liabilities) on December 31, 2021September 30, 2022, was $171.1$116.1 million compared to $128.7$125.4 million on June 30, 2021.2022. The $42.4$9.3 million increasedecrease in working capital was primarily due to a decrease in inventory of $19.8 million, a decrease in trade receivables of $7.2 million, and an increase in cashthe environmental remediation liability of $2.7$6.2 million, an increase in inventory of $17.9 million,partially offset by a decrease in accounts payable of $29.7$11.1 million, an increase in other current liabilitiesassets of $8.2 million, an increase in cash of $1.8 million, a decrease in other current assets of $0.1 million, partially offset by a decrease of $6.0 million in trade receivables. Capital expenditures were $1.54 million and are estimated to be in the range of $10.5 to $12.5 million for the fiscal year ending June 30, 2022.
decrease in other current liabilities of $1.5 million, and a decrease in the restructuring liability of $1.3 million. Capital expenditures were $1.9 million during the quarter ended September 30, 2022.
A summary of operating, investing, and financing cash flow is shown in the following table:
Six Months Ended | ||||||
December 31, | ||||||
(in thousands) | 2021 | 2020 | ||||
Net cash (used in) operating activities | $ | (40,998) | $ | (10,934) | ||
Net cash provided by investing activities | 402 | 17,864 | ||||
Net cash provided by (used in) financing activities | 43,341 | (21,831) | ||||
Increase (decrease) in cash and cash equivalents | $ | 2,745 | $ | (14,901) | ||
Three Months Ended | ||||||
September 30, | ||||||
(in thousands) | 2022 | 2021 | ||||
Net cash provided by (used in) operating activities | $ | 12,994 | $ | (44,315) | ||
Net cash (used in) provided by investing activities | (1,878) | 629 | ||||
Net cash (used in) provided by financing activities | (9,329) | 46,339 | ||||
Increase in cash and cash equivalents | $ | 1,787 | $ | 2,653 | ||
Net cash provided by (used in) operating activities
For the sixthree months ended December 31,September 30, 2022, net cash provided by operating activities was $13.0 million, which primarily consisted of net income of $0.3 million, adjusted for non-cash items including depreciation of $1.1 million, and stock-based compensation of $0.8 million. Net cash provided by operating assets and liabilities was $10.8 million and was primarily due to a decrease in inventories of $19.8 million, and a decrease in trade receivables of $7.2 million, and an increase in accrued liabilities of $3.0 million, partially offset by a decrease in payables of $10.8 million, an increase in other current assets of $8.2 million, and a decrease in other long-term liabilities of $0.3 million.
For the three months ended September 30, 2021, net cash used in operating activities was $41.0$44.3 million, which primarily consisted of net lossincome of ($3.2)$4.4 million, adjusted for non-cash items including depreciation of $2.7$1.3 million, gain from the sale of capital assets of $1.9$1.4 million, and stock-based compensation of $2.2 million, and provisions for losses of $0.2$1.2 million. Net cash used in operating assets and liabilities was $41.0$49.8 million. The cash used in operating assets and liabilities of $49.8 million and was primarily due to an increase in inventory of $17.9$32.6 million due to continued inventory build, a decrease in accounts payable of $29.5 million, an increase in other current assets of $0.5$1.4 million, an increasea decrease in otheraccounts payable of $22.8 million and a decrease in accrued liabilities of $0.1$0.7 million, and partially offset by a decrease in trade receivables of $5.8$7.7 million.
For the six months ended December 31, 2020, net cash used in operating activities was $10.9 million, which primarily consisted of net income of $12.4 million, adjusted for non-cash items including, depreciation of $2.7 million, gain from the sale of capital assets of $5.9 million, change in deferred income taxes of $2.1 million, stock-based compensation of $2.0, million and bad debt expense of $1.3 million. Net cash used in operating assets and liabilities was $25.5 million and was primarily due to an increase in trade receivables of $15.4 million due to higher sales, an increase in inventory of $21.4 million due to inventory build for the third and fourth quarter, partially offset by an increase in accrued liabilities of $5.0 million and a decline in other current assets of $6.0 million, primarily due to an income tax refund.
Net cash (used in) provided by investing activities
For the sixthree months ended December 31,September 30, 2022, net cash used by investing activities was $1.9 million, due to capital expenditures of $1.9 million.
For the three months ended September 30, 2021, net cash provided by investing activities was $0.40$0.6 million, primarily due to proceeds of $1.94$1.45 million for the sale of our Harrison, AR,Arkansas, facility, and the sale of our transportation fleet equipment, partially offset by capital expenditures of $1.54 million.
For the six months ended December 31, 2020, net cash provided by investing activities was $17.9 million, primarily due to proceeds of $18.5 million for the sale of our Dubuque, IA and Lancaster, PA, facilities and one of our Harrison, AR facilities, partially offset by capital expenditures of $0.7$0.8 million.
Net cash (used in) provided by financing activities
For the sixthree months ended December 31, 2021,September 30, 2022, net cash providedused by financing activities was $43.3$9.3 million, primarily due to proceeds from lines of credit of $81.3$88.1 million, offset by payments on lines of credit of $25.0$95.8 million, $9.7$0.4 million for treasury stock purchases, dividends paid of $3.1$0.9 million, and $0.2$0.3 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.
For the sixthree months ended December 31, 2020,September 30, 2021, net cash used inprovided by financing activities was $21.8$46.3 million, primarily due to $20.0proceeds 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, and dividends paid of $1.5 million.$1.1 million, and $0.2 million for tax payments on employee vested restricted shares.
Line of Credit
On August 28, 2020, the Company entered a two-year secured $25.0 million revolving line of credit with Dubuque Bank and Trust Company, with an interest rate of 1.50% plus LIBOR, subject to a floor of 3.00%. The revolving line of credit was secured by essentially all the Company’s assets, excluding real property, and required the Company to maintain compliance with certain financial and non-financial covenants. This line of credit was subsequently canceled in the first quarter of the fiscal year 2022.
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 $5,000,000$5 million which, upon issuance, would be deemed advances under the revolving line of credit. The Company’s $1.2$1.1 million letters of credit previously issued by the Lender are being treated as outstanding under the Credit Agreement.Agreement
and reduce the amount of available borrowings under the revolving line of credit. 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 1.35%4.4% on December 31, 2021. IfSeptember 30, 2022. When 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 1.00:1.00.1.00 to1.00. 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.
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 defines “default” or “event of default” and the calculation of the Fixed Charge Coverage Ratio.
As of December 31, 2021,September 30, 2022, there was $59.7$30.0 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”)the Lender as of December 31, 2021,September 30, 2022, totaled $1.2$1.1 million.
Contractual Obligations
As of December 31, 2021,September 30, 2022, 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, 2021.2022.
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, the 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 December 31,September 30, 2022, and 2021, and 2020, the Company did not have sales, but had 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 regarding financial instruments is changes in interest rates. On December 31, 2021,September 30, 2022, the Company had $59.7$30.0 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 December 31, 2021.September 30, 2022.
(b) Changes in internal control over financial reporting. During the quarter ended December 31, 2021,September 30, 2022, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Cautionary Statement Relevant to Forward-Looking Information for “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
The Company and its representatives may from time to time make written or oral forward-looking statements concerning long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities and Exchange Commission and its reports to stockholders.
Statements, including those in this Quarterly Report on Form 10-Q, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain important
factors 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, 2021.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 22, 2020, the Company’s Board of Directors authorized a $30 million share repurchase program (“October 2020 Plan”) through October 29, 2023. On January 20, 2022, the Board of Directors approved a newshare repurchase program authorizing the Company to purchase up to an additional $30 million of the Company’s common stock through January 19, 2025. All purchases were made in the open market.
The following table summarizes the activity of the common stock repurchases made under the October 2020 Plan during the three months ended December 31, 2021.September 30, 2022.
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 | ||||||
October 1, 2021, to October 31, 2021 | 66,326 | $ | 30.40 | 638,535 | $ | 8,858,135 | ||||
November 1, 2021, to November 30, 2021 | 124,944 | 28.58 | 763,479 | 5,287,672 | ||||||
December 1, 2021, to December 31, 2021 | 85,611 | 27.77 | 847,557 | 2,941,456 | ||||||
Three months ended December 31, 2021 (1) | 276,881 | $ | 28.76 | 847,557 | $ | 2,941,456 | ||||
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 | ||||||
July 1, 2022, to July 31, 2022 | — | $ | — | — | $ | 7,490,620 | ||||
August 1, 2022, to August 31, 2022 | — | — | — | 7,490,620 | ||||||
September 1, 2022, to September 30, 2022 | 22,636 | 15.56 | 22,636 | 7,137,278 | ||||||
Three months ended September 30, 2022 (1) | 22,636 | $ | 15.56 | 22,636 | $ | 7,137,278 | ||||
(1)Includes 1,533Excludes 3,268 shares surrendered for payment of withholding taxespurchased with cash in connectionSeptember 2022, with the vesting of restricted stock. All other purchases were made in the open market.trade settlements after September 30, 2022.
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: |
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Chief Financial | ||||
(Principal Financial & Accounting Officer) | ||||