FLEXSTEEL INDUSTRIES INC 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm 19 Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting 21 Consolidated Balance Sheets at June 30, 2021 and 20 20 22 Consolidated Statements of Income for the Years Ended June 30, 2021, 2020 and 2019 23 Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2021, 2020 and 20 19 23 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2021, 2020 and 2019 24 Consolidated Statements of Cash Flows for the Years Ended June 30, 2021, 2020 and 2019 25 Notes to Consolidated Financial Statements 26 - 39 Schedule II Valuation and Qualifying Accounts 42 ‎ 18 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Flexsteel Industries, Inc . Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Flexsteel Industries, Inc. and Subsidiaries (the "Company") as of June 30, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2021, the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 8, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Inventories— Refer to Notes 1 and 3 to the financial statements Critical Audit Matter Description The Company has inventories of $161.1 million as of June 30, 2021. The Company records inventories at the lower of cost or net realizable value utilizing the first-in, first-out (“FIFO”) method. The Company’s inventory valuation reflects markdowns for the excess of the cost over the amount expected to be realized. Markdowns establish a new cost basis for the Company’s inventories. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis. Given the quantitative and qualitative materiality of the balance, coupled with the judgments and subjectivity involved to estimate the markdowns to the net realizable value of inventories, auditing management’s estimates of net realizable value required subjective auditor judgment . How the Critical Audit Matter Was Addressed in the Audit 19 Table of Contents Our audit procedures related to estimated net realizable value of manufactured inventories included the following, among others:  We tested the design and operating effectiveness of internal controls over the inventory valuation process, including controls over the inputs that are used in management’s inventory markdown for the excess of the cost over the amount expected to be realized.  We tested management's process to determine the inventory markdowns and net realizable value of inventory through inquiries of management, and evaluation of accounting policies and process documentation.  We tested the accuracy and completeness of the Company’s measurement of inventory markdowns using a sampling approach. We evaluated the appropriateness of methodologies and assumptions used by management to estimate markdown reserves including inventory quantities on-hand, historical sales activity, and other assumptions used by management.  We evaluated management’s measurement of the inventory markdowns and net realizable value by testing the mathematical accuracy of the Company’s calculation.  We performed retrospective reviews of actual products sold in the current year against prior year inventory markdowns to net realizable value. /s/ Deloitte & Touche LLP Minneapolis, MN September 8, 2021 We have served as the Company's auditor since 1965. ‎ 20 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Flexsteel Industries, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Flexsteel Industries, Inc. and subsidiaries (the “Company”) as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended June 30, 2021, of the Company and our report dated September 8, 2021 expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Minneapolis, MN September 8, 2021 ‎ 21 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Amounts in thousands) June 30, 2021 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,342 $ 48,197 Trade receivables - less allowances: 2021, $ 3,240 ; 2020, $ 1,770 55,986 32,217 Inventories 161,125 70,565 Other 9,421 18,535 Assets held for sale 666 12,329 Total current assets 228,540 181,843 NONCURRENT ASSETS: Property, plant and equipment, net 39,783 43,312 Operating lease right-of-use assets 27,057 8,683 Deferred income taxes — 2,111 Other assets 1,399 1,310 TOTAL $ 296,779 $ 237,259 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 67,773 $ 27,747 Current portion of operating lease liabilities 5,833 4,408 Accrued liabilities: Payroll and related items 7,662 3,275 Insurance 3,062 3,787 Restructuring costs 1,522 1,961 Advertising 5,196 3,823 Environmental remediation 3,570 3,600 Other 5,133 4,861 Total current liabilities 99,751 53,462 LONG-TERM LIABILITIES: Operating lease liabilities, less current maturities 24,317 7,607 Line of Credit 3,500 — Other liabilities 1,243 685 Total liabilities 128,811 61,754 COMMITMENTS AND CONTINGENCIES (Note 13) SHAREHOLDERS' EQUITY: Common stock - $ 1 par value; authorized 15,000 shares; 8,133 shares issued and 6,848 shares outstanding as of June 30, 2021 and 8,008 shares issued and 7,876 outstanding as of June 30, 2020 8,133 8,008 Additional paid-in capital 34,015 31,748 Treasury stock, at cost; 1,284 shares and 132 shares as of June 30, 2021 and 2020, respectively ( 31,320 ) ( 1,563 ) Retained earnings 157,140 137,312 Total shareholders' equity 167,968 175,505 TOTAL $ 296,779 $ 237,259 See accompanying Notes to Consolidated Financial Statements. ‎ 22 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Amounts in thousands, except per share data) For the years ended June 30, 2021 2020 2019 Net sales $ 478,925 $ 366,926 $ 443,588 Cost of goods sold 382,195 313,873 373,648 Gross margin 96,730 53,053 69,940 Selling, general and administrative 67,977 72,442 81,298 Restructuring expense 3,422 34,222 10,048 ERP impairment — — 21,273 (Gain) on disposal of assets ( 5,881 ) ( 19,216 ) — Litigation settlement costs 12 — 475 Operating income (loss) 31,200 ( 34,395 ) ( 43,154 ) Other income (expense): Other income 277 720 546 Interest (expense) ( 10 ) ( 82 ) — Total other income 267 638 546 Income (loss) before income taxes 31,467 ( 33,757 ) ( 42,608 ) Income tax provision (benefit) 8,419 ( 6,913 ) ( 10,003 ) Net income (loss) $ 23,048 $ ( 26,844 ) $ ( 32,605 ) Weighted average number of common shares outstanding: Basic 7,200 7,956 7,889 Diluted 7,468 7,956 7,889 Earnings (loss) per share of common stock Basic $ 3.20 $ ( 3.37 ) $ ( 4.13 ) Diluted $ 3.09 $ ( 3.37 ) $ ( 4.13 ) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) For the years ended June 30, 2021 2020 2019 Net income (loss) $ 23,048 $ ( 26,844 ) $ ( 32,605 ) Other comprehensive income (loss): Unrealized (losses) gains on securities — ( 18 ) 368 Reclassification of realized gains (losses) on securities to other income — 7 ( 321 ) Unrealized (losses) gains on securities before taxes — ( 11 ) 47 Income tax benefit (expense) related to securities gains (losses) — 3 ( 13 ) Net unrealized (losses) gains on securities — ( 8 ) 34 Minimum pension liability — — 2,727 Income tax expense related to minimum pension liability — — ( 709 ) Net minimum pension asset — — 2,018 Other comprehensive income (loss), net of tax — ( 8 ) 2,052 Comprehensive income (loss) $ 23,048 $ ( 26,852 ) $ ( 30,553 ) See accompanying Notes to Consolidated Financial Statements. ‎ 23 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders’ Equity (Amounts in thousands) G Total Par Accumulated Value of Additional Other Common Paid-In Treasury Retained Comprehensive Shares ($ 1 Par) Capital Stock Earnings (Loss) Income Total Balance at June 30, 2018 $ 7,868 $ 26,321 $ — $ 209,553 $ ( 2,044 ) $ 241,698 Issuance of common stock: Stock options exercised, net 5 76 — — — 81 Unrealized gain on available for sale investments, net of tax — — — — 34 34 Long-term incentive compensation 7 ( 315 ) — — — ( 308 ) Stock-based compensation 23 1,430 — — — 1,453 Minimum pension liability adjustment, net of tax — — — — 2,018 2,018 Cash dividends declared — — — ( 6,944 ) — ( 6,944 ) Net loss — ( 32,605 ) — ( 32,605 ) Balance at June 30, 2019 $ 7,903 $ 27,512 $ — $ 170,004 $ 8 $ 205,427 Issuance of common stock: Stock options exercised, net 2 19 — — — 21 Unrealized gain on available for sale investments, net of tax — — — — ( 8 ) ( 8 ) Long-term incentive compensation — 447 — — — 447 Stock-based compensation 103 3,770 — — — 3,873 Treasury stock purchases — — ( 1,563 ) — — ( 1,563 ) Cash dividends declared — — — ( 5,782 ) — ( 5,782 ) Net loss — — — ( 26,844 ) — ( 26,844 ) ASU 2016-02 adoption — — — ( 66 ) — ( 66 ) Balance at June 30, 2020 $ 8,008 $ 31,748 $ ( 1,563 ) $ 137,312 $ — $ 175,505 Issuance of common stock: Stock options exercised, net 13 ( 30 ) — — — ( 17 ) Long-term incentive compensation — 2,321 — — — 2,321 Stock-based compensation 112 ( 24 ) — — — 88 Treasury stock purchases — — ( 29,757 ) — — ( 29,757 ) Cash dividends declared — — — ( 3,220 ) — ( 3,220 ) Net Income — — — 23,048 — 23,048 Balance at June 30, 2021 $ 8,133 $ 34,015 $ ( 31,320 ) $ 157,140 $ — $ 167,968 Cash dividends declared per common share were $ 0.45 , $ 0.71 , and $ 0.88 for the fiscal years ended June 30, 2021, 2020 and 2019, respectively. See accompanying Notes to Consolidated Financial Statements . ‎ 24 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in thousands) For the years ended June 30, 2021 2020 2019 OPERATING ACTIVITIES: Net income (loss) $ 23,048 $ ( 26,844 ) $ ( 32,605 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,210 8,370 7,440 Deferred income taxes 2,111 5,453 ( 6,121 ) Stock-based compensation expense 3,738 4,877 1,355 Changes in provision for losses on accounts receivable 1,470 1,520 ( 40 ) Change in reserve for VAT receivable ( 237 ) ( 1,998 ) 2,612 Dubuque and Starkville property, plant and equipment impairment — 17,482 — Right-of-use asset impairment — 2,878 — ERP impairment — — 21,273 (Gain) on disposition of capital assets ( 5,948 ) ( 19,033 ) ( 71 ) Defined benefit plan termination — — 2,455 Changes in operating assets and liabilities: Trade receivables ( 25,239 ) 4,419 3,136 Inventories ( 90,560 ) 23,093 2,545 Other current assets 9,351 ( 5,040 ) ( 3,540 ) Other assets ( 90 ) 208 ( 2,589 ) Accounts payable - trade 39,893 9,334 5,128 Accrued liabilities 3,957 ( 6,018 ) 5,535 Other long-term liabilities 604 ( 414 ) 201 Net cash (used in) provided by operating activities ( 32,692 ) 18,287 6,714 INVESTING ACTIVITIES: Purchases of investments ( 47 ) ( 1,689 ) ( 13,042 ) Proceeds from sale of investments 46 1,695 28,970 Proceeds from sale of capital assets 18,643 20,467 248 Capital expenditures ( 2,580 ) ( 3,688 ) ( 21,346 ) Net cash provided by (used in) investing activities 16,062 16,785 ( 5,170 ) FINANCING ACTIVITIES: Dividends paid ( 2,622 ) ( 7,022 ) ( 6,918 ) Treasury stock purchases ( 29,757 ) ( 1,563 ) — Proceeds from lines of credit 8,500 15,000 — Payments on lines of credit ( 5,000 ) ( 15,000 ) — Proceeds from issuance of common stock 94 21 81 Shares withheld for tax payments on vested shares and options exercised ( 1,440 ) ( 558 ) ( 210 ) Net cash (used in) financing activities ( 30,225 ) ( 9,122 ) ( 7,047 ) (Decrease) increase in cash and cash equivalents ( 46,855 ) 25,950 ( 5,503 ) Cash and cash equivalents at beginning of year 48,197 22,247 27,750 Cash and cash equivalents at end of year $ 1,342 $ 48,197 $ 22,247 SUPPLEMENTAL INFORMATION Cash paid for amounts included in lease liabilities $ 4,511 $ 4,060 $ — Right-of-use assets exchanged for lease liabilities $ 22,770 $ 3,573 $ — Interest paid $ 10 $ 82 $ — Income taxes (refunded) paid $ ( 5,556 ) $ ( 4,304 ) $ 1,190 Capital expenditures in accounts payable $ 133 $ 75 $ 142 See accompanying Notes to Consolidated Financial Statements. 25 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries (the “Company”) is one of the largest manufacturers, importers and online marketers of residential furniture and 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 and bedroom furniture. A featured component in most of the 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. 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 has seen improvement in our business conditions as retailers have reopened and orders have increased, however, we continue 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 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. PRINCIPLES OF CONSOLIDATION – the consolidated financial statements include the accounts of Flexsteel Industries, Inc. and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The Company’s consolidated financial statements and results of operations are based on consolidated financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America. USE OF ESTIMATES – the preparation of consolidated financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Ultimate results could differ from those estimates. FAIR VALUE – the Company’s cash and cash equivalents, investments, accounts receivable, other current assets, accounts payable and certain accrued liabilities are carried at amounts which reasonably approximate their fair value due to their short-term nature. GAAP on fair value measurement for certain financial assets and liabilities require that each asset and liability carried at fair value be classified into one of the following categories: Level 1: Quoted market prices in active markets for identical assets and liabilities; Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data; or Level 3: Unobservable inputs that are not corroborated by market data. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period. ACCOUNTS RECEIVABLE ALLOWANCES – the Company establishes accounts receivable allowances to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value. The Company’s accounts receivable allowances consist of an allowance for doubtful accounts which is established through review of open accounts, historical collection, and historical write-off amounts. The amount ultimately realized from trade accounts receivable may differ from the amount estimated in the consolidated financial statements. INVENTORIES – are stated at the lower of cost or net realizable value utilizing the first - in - first - out (“FIFO”) method. PROPERTY, PLANT AND EQUIPMENT – is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. VALUATION OF LONG–LIVED ASSETS – the Company periodically reviews the carrying value of long-lived assets and estimated depreciable or amortizable lives for continued appropriateness. This review is based upon projections of anticipated future cash flows and is performed whenever events or changes in circumstances indicate that asset carrying values may not be recoverable or that the estimated depreciable or amortizable lives may have changed. For assets held for sale, if the net book value of the asset is greater than its estimated fair value less cost to sell, an impairment is recorded for the excess of net book value over estimated fair value less cost to sell. ASSETS HELD FOR SALE – Assets held for sale represent land, buildings, machinery and equipment for locations that have met the criteria of “held for sale” accounting, as specified by Accounting Standards Codification (“ASC”) 360, “Property, Plant, and 26 Table of Contents Equipment.” Once an asset is classified as held for sale, the Company ceases deprecating the asset. The assets held for sale are being marketed for sale and it is the Company’s intention to complete the sale of the assets within the upcoming year. RESTRUCTURING COSTS - The Company groups exit or disposal cost obligations into three categories: Involuntary employee termination benefits, costs to terminate contracts, and other associated costs. Involuntary employee termination benefits must be a one-time benefit, and this element of restructuring cost is recognized as incurred upon communication of the plan to the identified employees. Costs to terminate contracts are recognized upon termination agreement with the provider. Other associated restructuring costs are expensed as incurred. Any inventory impairment costs as a result of restructuring activities are accounted for as cost of goods sold. LEASES – The Company accounts for its leases in accordance with Accounting Standards Update (“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. See Note 2, Leases , for the Company’s lease disclosures. WARRANTY – the Company estimates the amount of warranty claims on sold product that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. REVENUE RECOGNITION – Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate revenue primarily by manufacturing and delivering furniture products to independent furniture retailers in the United States. Each unit of furniture is a separate performance obligation. We satisfy our performance obligations when control of our product is passed to our customer, which is the point in time that our customers are able to direct the use of and obtain substantially all of the remaining economic benefit of the goods or services. Net sales consist of product sales and shipping and handling charges, net of adjustments for returns and allowances. Shipping and handling costs are included in cost of goods sold. The Company’s revenues result from the sale of goods and reflect the consideration to which the Company expects to be entitled. Revenue is reduced by appropriate allowances, estimated returns, price concessions, or similar adjustments as applicable. The Company records revenue based on a five-step model in accordance with ASC 2014-09, Revenue from Contracts with Customers ( Topic 606 ). For its customer contracts, typically purchase orders, the Company identifies the performance obligations (goods), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when the performance obligation is transferred to the customer. A good is transferred when the customer obtains control of that good and risk of loss transfers at a point in time. Provisions for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated based upon historical data and discount percentages, set with each customer. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent there is a distinct good or service and evidence of the fair value of the advertising, in which case the expense is classified as selling, general and administrative expense (SG&A). The Company has a limited lifetime warranty on all products. The Company does not offer the option to purchase warranties. The Company accounts for warranties under ASC 460, Guarantees , and not as variable consideration related to revenue. Occasionally, the Company receives deposits from customers before it has transferred control of the product to customers, resulting in contract liabilities. These contract liabilities are reported within “Accounts payable - trade” in the consolidated balance sheets. As of June 30, 2021, the Company had $ 0.16 million of customer deposits. As of June 30, 2020, the Company had $ 0.2 million of customer deposits. Upon adoption of ASC 606, the Company elected the following practical expedients and policy elections:  The Company did not adjust contract prices for the effects of a significant financing component, as it expects the period when the goods or services are transferred to the customer and when the customer pays for those goods and services to be less than a year.  Costs for shipping and handling activities that occur before the customer obtains control of the product are accounted for as fulfillment activities. Accordingly, these expenses are recorded at the same time the Company recognizes revenue.  Incremental costs of obtaining a contract, specifically commissions, are recorded as an SG&A expense when incurred.  All taxes imposed on and concurrent with revenue-producing transactions and collected by the Company from a customer, including sales, use, excise, and franchise taxes are excluded from the measurement of the transaction price. 27 Table of Contents The following table disaggregates the Company’s net sales by product category: For the years ended June 30, (in thousands) 2021 2020 2019 Residential $ 476,519 $ 331,879 $ 374,473 Contract 2,406 35,047 69,115 $ 478,925 $ 366,926 $ 443,588 ADVERTISING COSTS – are charged to selling, general and administrative expense in the periods incurred. The Company conducts no direct-response advertising programs and there are no assets related to advertising recorded on the consolidated balance sheets. Advertising expenditures, primarily shared customer advertising in which an identifiable benefit is received and national trade-advertising programs, were approximately $ 3.9 million, $ 3.4 million, and $ 4.3 million in fiscal years 2021, 2020 and 2019, respectively. CREDIT LOSSES – In June 2016, the Financial Accounting Standards Board (“FASB“) issued ASU 2016-13 “Financial Instruments - Credit Losses (“Topic 326”)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. Effective July 1, 2020, the Company adopted Topic 326 and there was no impact to the Company’s financial statements. DESIGN, RESEARCH AND DEVELOPMENT COSTS – are charged to selling, general and administrative expense in the periods incurred. Expenditures for design, research and development costs were approximately $ 1.9 million, $ 4.0 million, and $ 4.4 million in fiscal years 2021, 2020 and 2019, respectively. INSURANCE – the Company is self-insured for health care and most workers’ compensation up to predetermined amounts above which third party insurance applies. The Company purchases specific stop-loss insurance for individual health care claims in excess of $ 175,000 per plan year. For workers’ compensation the Company retains the first $ 250,000 per claim and purchases excess coverage up to the statutory limits for amounts in excess of the retention limit. Losses are accrued based upon the Company’s estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on Company experience. The Company records these insurance accruals within “Accrued liabilities – insurance” on the consolidated balance sheets. INCOME TAXES – the Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes in its financial statements the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. EARNINGS PER SHARE (EPS) – basic EPS of common stock is based on the weighted-average number of common shares outstanding during each fiscal year. Diluted EPS of common stock includes the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options, shares associated with the long-term management incentive compensation plan and non-vested restricted shares. The Company calculates the dilutive effect of outstanding options using the treasury stock method; all options are anti-dilutive when there is a loss. Anti-dilutive shares are not included in the computation of diluted EPS when their exercise price was greater than the average closing market price of the common shares. The Company calculates the dilutive effect of shares related to the long-term management incentive compensation plan and non-vested shares based on the number of shares, if any, that would be issuable if the end of the fiscal year were the end of the contingency period. In computing EPS, net income as reported for each respective period is divided by the fully diluted weighted average number of shares outstanding: ‎ 28 Table of Contents June 30, (in thousands) 2021 2020 2019 Basic shares 7,200 7,956 7,889 Potential common shares: Stock options 151 — - Long-term incentive plan 117 — - 268 — - Diluted shares 7,468 7,956 7,889 Anti-dilutive shares 671 634 112 STOCK–BASED COMPENSATION – the Company recognizes compensation expense related to the cost of employee services received in exchange for Company equity interests based on the award’s fair value at the date of grant. The Company recognizes long-term incentive compensation plan expenses during the three-year performance periods; stock awards are issued following the end of the performance periods and are subject to verification of results and Compensation Committee of the Board of Directors approval. See Note 11, Stock-Based Compensation . SEGMENT REPORTING – the Company operates in one reportable segment, furniture products. The Company’s operations involve the distribution of manufactured and imported furniture for residential and contract markets. The Company’s furniture products are sold primarily throughout the United States and Canada by the Company’s internal sales force and various independent representatives. The Company makes minimal export sales. No single customer accounted for more than 10% of net sales. TREASURY STOCK – treasury stock purchases are stated at cost and presented as a reduction of equity on the consolidated balance sheets. On June 1, 2020, the Company’s Board of Directors authorized a $ 6 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. On October 22, 2020, the Company’s Board of Directors authorized another $ 30 million share repurchase program through October 29, 2023. As of October 31, 2020, the $ 6 million and $ 8 million repurchase programs were completed. As of June 30, 2021, the Company has purchased a total of 1,283,785 shares at a cost of $ 31.3 million under the three programs and has $ 12.6 million remaining in the $ 30 million share repurchase program. Unadopted 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 are effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not expect adoption of the new guidance to have a significant impact on its financial statements. 2. 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. 29 Table of Contents 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: (in thousands) June 30, 2021 June 30, 2020 Operating lease expense $ 4,790 $ 5,023 Variable lease expense 301 273 Total lease expense $ 5,091 $ 5,296 Other information related to leases and future minimum lease payments under non-cancellable operating leases as were as follows: Fiscal year June 30, 2021 June 30, 2020 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 4,511 4,060 Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ 22,770 3,573 Weighted-average remaining lease term (in years): Operating leases 4.5 1.8 Weighted-average discount rate: Operating leases 3.2 % 3.5 % Fiscal year June 30, 2021 June 30, 2020 (in thousands) Within one year $ 6,790 4,804 After one year and within two years 5,858 3,263 After two years and within three years 4,551 2,141 After three years and within four years 2,807 2,189 After four years and within five years 2,457 398 After five years 11,894 — Total future minimum lease payments $ 34,357 12,795 Less – Discount 4,207 780 Lease liability $ 30,150 12,015 3. INVENTORIES A comparison of inventories is as follows: June 30, (in thousands) 2021 2020 Raw materials $ 22,500 $ 11,119 Work in process and finished parts 6,234 3,925 Finished goods 132,391 55,521 Total $ 161,125 $ 70,565 30 Table of Contents 4. PROPERTY, PLANT AND EQUIPMENT Estimated June 30, (in thousands) Life (Years) 2021 2020 Land $ 3,457 $ 3,498 Buildings and improvements 5 - 39 49,166 51,237 Machinery and equipment 3 - 7 17,038 16,781 Delivery equipment 3 - 5 3,203 15,701 Furniture and fixtures 3 - 7 3,628 3,676 Computer software and hardware 3 - 10 12,058 9,633 Construction in progress 377 1,478 Total 88,927 102,004 Less accumulated depreciation ( 49,144 ) ( 58,692 ) Net $ 39,783 $ 43,312 The Company recognized impairment charges of $ 0 , $ 17.5 million, and $ 21.3 million in fiscal 2021, 2020 and 2019, respectively. The $ 17.5 million impairment charge in fiscal 2020 primarily resulted from the previously announced exit of the Company’s Vehicle Seating and remaining Hospitality product lines, which resulted in the closure of the Company’s Dubuque, Iowa and Starkville, Mississippi manufacturing facilities, and is recorded in restructuring expense on the Company’s consolidated statements of income. The Company recorded these assets as held for sale as of June 30, 2020, see Note 6 Assets held for Sale for more information. The $ 21.3 million impairment charge in fiscal 2019 was primarily due to reassessment of the Company’s future deployment related to its SAP implementation and is reflected in the ERP impairment of the Company’s consolidated statements of income. 5. RESTRUCTURING On May 15, 2019, the Company announced its plans to exit the Commercial Office and custom-designed Hospitality product lines which represent approximately 7 % of its revenue, and subsequently closed its Riverside, California manufacturing facility. On September 26, 2019, the Company closed on the sale of the Riverside property resulting in net proceeds to the Company of $ 19.6 million after customary closing costs, prorations, and sales commissions and the Company recorded a pre-tax gain of $ 18.9 million and is reflected in the Gain (loss) on disposal assets of the Company’s consolidated statements of income. These 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-year period, which includes previously announced restructuring activities on May 15, 2019. The transformation program includes 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 it will exit the Vehicle Seating and the remainder of the Hospitality product lines, and subsequently closed its Dubuque, Iowa and Starkville, Mississippi manufacturing facilities. The Company has completed substantially all 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 planned to incur pre-tax restructuring and related expenses of approximately $ 56 to $ 58 million over this two-year timeframe and listed several properties for sale. Total cumulative restructuring and related costs incurred as of June 30, 2021, was $ 58.7 million. 31 Table of Contents The following is a summary of restructuring costs: For the years ended June 30, (in thousands) 2021 2020 2019 Inventory impairment $ 45 $ 3,241 $ 7,653 One-time employee termination benefits 433 2,455 3,775 Contract (recoveries) termination costs — ( 58 ) 249 Fixed asset impairments — 17,482 — Other associated costs 2,989 14,343 6,024 Total restructuring and related expenses $ 3,467 $ 37,463 $ 17,701 Reported as: Cost of goods sold $ 45 $ 3,241 $ 7,653 Operating expenses $ 3,422 $ 34,222 $ 10,048 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-going facilities and transition costs. The roll forward of the accrued restructuring costs is as follows, for the years ended June 30, 2021, 2020, and 2019: One-time Employee Contract Other Inventory Termination Termination Fixed Asset Associated (in thousands) Impairment Benefits Costs Impairments Costs Total Accrual balance at June 30, 2019 $ — $ 1,731 $ 249 $ — $ 4,223 $ 6,203 Costs incurred 3,241 2,455 ( 58 ) 17,482 14,343 37,463 Expenses paid — ( 2,573 ) ( 81 ) — ( 15,409 ) ( 18,063 ) Non-cash ( 3,241 ) — — ( 17,482 ) ( 2,919 ) ( 23,642 ) Accrual balance at June 30, 2020 $ — $ 1,613 $ 110 $ — $ 238 $ 1,961 Costs incurred 45 433 — — 2,989 3,467 Expenses paid ( 45 ) ( 414 ) ( 110 ) — ( 3,207 ) ( 3,776 ) Non-cash — ( 130 ) — — — ( 130 ) Accrual balance at June 30, 2021 $ — $ 1,502 $ — $ — $ 20 $ 1,522 6. 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 is included in the table below as of June 30, 2021. Accumulated Net Book Location Asset Category Cost Depreciation Value (in thousands) Harrison, Arkansas Building & building improvements $ 1,000 $ ( 1,000 ) $ — Land & land improvements 86 ( 36 ) 50 Machinery & equipment 1,330 ( 1,330 ) — Starkville, Mississippi Building & building improvements 4,615 ( 4,254 ) 361 Land & land improvements 694 ( 439 ) 255 $ 7,725 $ ( 7,059 ) $ 666 32 Table of Contents 7. OTHER NONCURRENT ASSETS June 30, (in thousands) 2021 2020 Cash value of life insurance $ 1,042 $ 1,033 Other 357 277 Total $ 1,399 $ 1,310 8. ACCRUED LIABILITIES – OTHER June 30, (in thousands) 2021 2020 Dividends $ 1,165 $ 567 Warranty 805 1,029 Other 3,163 3,265 Total $ 5,133 $ 4,861 9. CREDIT ARRANGEMENTS The Company had an unsecured credit agreement with Wells Fargo Bank N.A. (“Wells”) that provided short-term capital financing up to $ 10.0 million with interest of LIBOR plus 1 %. The credit agreement expired on June 30, 2020 and there was no balance outstanding as June 30, 2020. Letters of credit outstanding at Wells as of June 30, 2020, totaled $ 1.2 million, of which $ 1.3 million of the Company’s cash held at Wells was pledged as collateral. On August 28, 2020, the Company entered into a secured $ 25.0 million credi t facility with Dubuque Bank & Trust Company, with a two-year term and interest of 1.50 % plus LIBOR, subject to a floor of 3.0 %, which floor was in effect on June 30, 2021. If LIBOR is redefined or becomes unavailable, the Bank has sole discretion to substitute another index and adjust the rate spread, however it cannot materially change the total interest cost without the Company’s advance written consent. The credit facility expires on August 28, 2022 . The credit facility is secured by essentially all the Company’s assets, excluding real property and requires the Company maintain compliance with certain financial and non-financial covenants. The balance of borrowings at June 30, 2021 was $ 3.5 million. Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”) as of June 30, 2021, totaled $ 1.1 million, of which $ 1.2 million of the Company’s cash held at Wells is pledged as collateral. 10. INCOME TAXES On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 global pandemic. Certain provisions of the CARES Act impacted the fiscal year 2020. The CARES Act permits net operating losses (“NOLs”) incurred in tax years 2018, 2019, and 2020, (the Company’s fiscal years 2019, 2020 and 2021) to offset 100% of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company evaluated the impact of the CARES Act during the year ended June 30, 2020, and recorded an income tax receivable of $ 4.5 million for the benefit of carrying back the fiscal year 2020 NOL and an income tax receivable of $ 8.2 M for the benefit of carryback the fiscal year 2019 NOL. As the Company is carrying the losses back to years beginning before January 1, 2018, the receivables were recorded at the previous 35 % federal tax rate rather than the current statutory rate of 21 %. The Company recognizes deferred tax assets to the extent that they believe the assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. As of June 30, 2021, it was determined the Company has not reached a more likely than not position that the Company will realize all its deferred tax assets. Therefore, the Company has recorded a valuation allowance against the federal and state deferred tax assets of $ 7.3 million. 33 Table of Contents Income tax expense was calculated based upon the following components of income (loss) before income taxes for the years ended June 30: (in thousands) 2021 2020 2019 United States $ 33,353 $ ( 32,395 ) $ ( 42,457 ) Outside the United States ( 1,886 ) ( 1,362 ) ( 151 ) Income (loss) before income taxes $ 31,467 $ ( 33,757 ) $ ( 42,608 ) The income tax benefit (provision) is as follows for the years ended June 30: (in thousands) 2021 2020 2019 Federal - current $ ( 5,480 ) $ 12,668 $ 3,933 State and other - current ( 828 ) ( 302 ) ( 71 ) Deferred ( 2,111 ) ( 5,453 ) 6,141 Total $ ( 8,419 ) $ 6,913 $ 10,003 Reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows for the years ended June 30: 2021 2020 2019 Federal statutory tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal effect 4.0 3.3 4.1 Foreign rate differential 2.8 — — Remeasurement of deferred tax assets and valuation allowance ( 3.7 ) ( 20.0 ) 0.1 Beginning of year true ups 4.0 — — Stock FMV over Award ( 1.4 ) — — Tax rate change on net operating loss carryback related to CARES Act — 17.2 — Other 0.1 ( 1.0 ) ( 1.7 ) Effective tax rate 26.8 % 20.5 % 23.5 % The components of the gross liabilities related to unrecognized tax benefits and the related deferred tax assets are as follows: June 30, (in thousands) 2021 2020 Gross unrecognized tax benefits $ 640 $ 380 Accrued interest and penalties 195 160 Gross liabilities related to unrecognized tax benefits $ 835 $ 540 Deferred tax assets 155 90 Valuation allowance ( 155 ) ( 90 ) Net deferred tax assets $ — $ — A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: (in thousands) 2021 2020 2019 Balance at July 1 $ 380 $ 380 $ 500 Additions based on tax positions related to the current year 260 — — Reductions for tax positions of prior years — — ( 120 ) Balance at June 30 $ 640 $ 380 $ 380 The Company records interest expense and penalties related to income taxes as income tax expense in the consolidated statements of income. The Company does not expect that there will be any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months. The amount of unrecognized tax benefits as of June 30, 2021, and 2020 that if recognized, would affect the effective tax rate was $ 0.6 million and $ 0.5 million respectively. 34 Table of Contents The primary components of deferred tax assets and (liabilities) are as follows: June 30, (in thousands) 2021 2020 Accounts receivable $ 825 $ 484 Inventory 769 112 Self-insurance 35 118 Payroll and related 817 968 Accrued liabilities 1,403 3,066 Property, plant and equipment ( 76 ) 1,445 Investment tax credit 2,158 2,164 Valuation allowance ( 7,312 ) ( 8,481 ) Net operating loss carryover 388 1,085 Lease assets ( 7,870 ) ( 2,498 ) Lease liabilities 8,708 3,456 Other 155 192 Total $ — $ 2,111 At June 30, 2021, certain state tax attribute carryforwards of $ 2.5 million were available, with $ 0.6 million of credits expiring between 2021 and 2029, $ 1.6 million of credits with an indefinite carryforward period, and $ 4 million of state NOLs carryforward. Some of the state NOLs carryforward will have an indefinite carryforward and some will expire in varying amounts between 2025 and 2040. As of June 30, 2021, it was determined the Company has not reached a more likely than not position the Company will realize any portion of the state attribute carryforwards. Therefore, the Company has recorded a valuation allowance against the state attribute carryforward. As of June 30, 2021, it was determined the Company has not reached a more likely than not position that the Company will realize all of its U.S. federal deferred tax assets. Therefore, the Company has a recorded a valuation allowance against its U.S federal deferred tax assets for $ 7.3 million. The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally, tax years 2017-2020 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which the Company is subject. 11. 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. 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. Total stock-based compensation expense was $ 3.7 million, $ 4.6 million and $ 1.4 million for fiscal years 2021, 2020 and 2019, respectively. The Company has two stock-based compensation plans available for granting awards to employees and directors. (1) Long-Term Incentive Compensation Plan (“LTICP”) 35 Table of Contents The LTICP provides for RSUs to be awarded to officers and key employees based on performance targets set by the Compensation Committee of the Board of Directors (the “Committee”). The Company selected fully-diluted earnings per share and total shareholder return as the performance goal for the three-year performance period July 1, 2018 – June 30, 2021 (“2019-2021”). As of June 30, 2019, the performance period 2019-2021 was no longer attainable. For the July 1, 2019 – June 30, 2022 (“2020-2022”) and the July 1, 2020 – June 30, 2023 (“2021-2023”) three-year performance periods, the Committee selected Adjusted Earnings Before Interest and Tax with a defined percentage growth in fiscal year 2021 and 2022 as the performance goal. Since the 2019-2021 performance period is no longer attainable, only RSU’s granted for the 2020-2022 and 2021-2023 performance periods are included in the table below for the Company’s unvested LTICP RSUs during the year ended June 30, 2021: Time Based Vest Performance Based Vest Total Weighted average Weighted average Weighted average fair value fair value fair value (shares in thousands) Shares per share Shares per share Shares per share Unvested as of June 30, 2019 — $ — — $ — — $ — Granted 49 16.90 74 16.77 123 16.82 Forfeited ( 5 ) 16.90 ( 30 ) 16.79 ( 35 ) 16.80 Unvested as of June 30, 2020 44 $ 16.90 44 $ 16.76 88 $ 16.83 Granted 69 12.01 107 12.01 176 12.01 Forfeited ( 6 ) 14.04 ( 9 ) 14.03 ( 15 ) 14.03 Unvested as of June 30, 2021 107 $ 13.89 142 $ 13.36 249 $ 13.59 Total unrecognized stock-based compensation related to the unvested LTICP RSUs was $ 1.6 million as of June 30, 2021, which is expected to be recognized over a period of 1.6 years. (2) 2013 Omnibus Stock Plan and 2009 Stock Option 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. No additional stock options can be granted under the 2009 stock option plan. Restricted shares and RSUs A summary of the activity in the Company’s unvested restricted shares and unvested RSUs as June 30, 2021, is presented below: Weighted average Shares fair value (in thousands) per share Unvested as of June 30, 2019 55 28.55 Granted 249 14.83 Vested ( 83 ) 19.05 Forfeited ( 32 ) 22.64 Unvested as of June 30, 2020 189 $ 15.24 Granted 28 32.10 Vested ( 158 ) 16.22 Forfeited ( 3 ) 18.10 Unvested as of June 20, 2021 56 $ 20.01 Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs was $ 0.7 million as of June 30, 2021, which is expected to be recognized over a weighted average period of 1.5 years. 36 Table of Contents Options The weighted average grant date fair value of stock options granted during fiscal years 2021, 2020, and 2019 were $ 6.77 , $ 1.77 , and $ 5.85 , respectively. The weighted average assumptions used to estimate these fair values were as follows: For the years ended June 30, 2021 2020 2019 Dividend yield 3.4 % 7.3 % 3.5 % Expected volatility 43.2 % 34.0 % 32.7 % Risk-free interest rate 0.6 % 0.9 % 2.7 % Expected life (in years) 5 5 5 The expected volatility and expected life are determined based on historical data. The interest rate is based on U.S. Treasury risk-free rate in affect at the date of grant for the periods corresponding with the expected term of options. A summary of the activity of the Company’s stock option plans during the years ended June 30, 2021, 2020 and 2019, is presented below: Weighted Shares Average (in thousands) Exercise Price Outstanding at June 30, 2019 225 $ 28.37 Granted 60 12.56 Exercised ( 2 ) 8.55 Cancelled ( 60 ) 30.74 Outstanding at June 30, 2020 223 $ 23.70 Granted 43 17.93 Exercised ( 27 ) 21.96 Cancelled ( 7 ) 26.14 Outstanding at June 30, 2021 232 $ 21.91 The following table summarizes information for options outstanding at June 30, 2021: Options Weighted Average Range of Outstanding Remaining Exercise Prices (in thousands) Life (Years) Price $ 9.97 - 15.14 104 8.1 $ 12.72 19.72 - 18.30 15 5.1 19.11 21.96 - 27.57 58 5.8 24.21 31.06 - 32.80 32 4.9 32.30 43.09 - 47.45 23 5.2 45.35 $ 9.97 - 47.45 232 6.6 $ 21.91 Total unrecognized stock-based compensation expense related to options was $ 0.02 million as of June 30, 2021, which is expected to be recognized over a period of 0.7 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 stock plans. Total unrecognized stock-based compensation expense related to options awarded outside a plan was $ 0.05 million as of June 30, 2021, which is expected to be recognized over a period of 1.4 years. 12. BENEFIT AND RETIREMENT PLANS Defined Contribution and Retirement Plans The Company sponsors a defined contribution retirement plan, which covers substantially all employees. The Company’s total matching contribution expense was $ 1.0 million, $ 2.3 million, and $ 2.6 million in fiscal years 2021, 2020 and, 2019, respectively. 37 Table of Contents Multi-employer Pension Plans The Company contributes to one multi-employer defined benefit pension plan under the terms of collective-bargaining agreements that cover its union-represented employees. The Company’s participation in the current and previous defined benefit pension plans for the annual period ended June 30, 2021, is outlined in the following table. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2021 and 2020 is for the plan’s year-end at December 31, 2020 and 2019, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded. Pension Protection Expiration Date Number of Act Zone Status Company Contributions of Collective Company EIN/Pension June 30, Rehabilitation (in thousands) Surcharge Bargaining Employees Pension Fund Plan Number 2021 2020 Plan Status 2021 2020 2019 Imposed Agreement in Plan Central States SE and ‎ SW Areas Pension Fund 366044243 Red Red Implemented $ 150 $ 157 $ 154 No 3/31/2022 8 Steelworkers Pension Trust 236648508 Green Green No — 279 412 No Not applicable — Central Pension Fund 366052390 Green Green No — 3 7 No Not applicable — $ 150 $ 439 $ 573 With the closure of the Company’s Dubuque, Iowa and Starkville, Mississippi manufacturing facilities, the collective bargaining agreements for the Steelworkers Pension Trust and Central Pension Fund was terminated as of June 30, 2020. As of June 30, 2021, the Company has withdrawn from the Steelworkers Pension Trust and has recorded a withdrawal liability of $ 1.4 million for the years ending June 30, 2021, and June 30, 2020, as restructuring and related expenses, see Note 5 Restructuring . The estimated cumulative cost to exit the Company’s Central States SE and SW Areas Pension Fund multi-employer plan was approximately $ 20.0 million on June 30, 2021. No liability has been recorded as of June 30, 2021, as the Company intends to continue to contribute to this plan. 13. COMMITMENTS 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 a $ 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 agreement with the EPA the statute of limitations for potential claims by the EPA was extended through September 30, 2021.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 nor contribute to the contamination, the Company continues to reflect this liability in the consolidated balance sheets for the fiscal year ended June 30, 2021, 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. 38 Table of Contents 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 served to resolve the claims of the two Plaintiffs, as well as the approximately 270 remaining members of the class unless an individual class member asked to be excluded. The material terms of the settlement were captured in a Long-Form Settlement Agreement. The court granted final approval of the parties’ settlement in February 2021. The Company paid the final settlement amount of $ 0.5 million, in February 2021 and no accrued amounts remain in the consolidated balance sheets as of June 30, 2021. 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. 14. QUARTERLY FINANCIAL INFORMATION – UNAUDITED (in thousands, except per share amounts) For the Quarter Ended September 30 December 31 March 31 June 30 Fiscal 2021: Net sales $ 105,239 $ 119,106 $ 118,408 $ 136,172 Gross margin 22,815 24,378 23,124 26,413 Operating income 7,911 9,833 6,352 7,104 Net income 3,879 8,450 4,878 5,841 Earnings per share: Basic $ 0.50 $ 1.17 $ 0.70 $ 0.85 Diluted $ 0.49 $ 1.13 $ 0.67 $ 0.81 For the Quarter Ended September 30 December 31 March 31 June 30 Fiscal 2020: Net sales $ 100,348 $ 102,949 $ 98,821 $ 64,808 Gross margin 17,221 16,050 13,848 5,934 Operating income (loss) 12,683 ( 7,079 ) ( 8,342 ) ( 31,657 ) Net income (loss) 9,551 ( 5,384 ) ( 5,270 ) ( 25,741 ) Earnings (loss) per share: Basic $ 1.20 $ ( 0.68 ) $ ( 0.66 ) $ ( 3.23 ) Diluted $ 1.17 $ ( 0.68 ) $ ( 0.66 ) $ ( 3.23 ) 15. SUBSEQUENT EVENTS 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 a $ 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 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 will be treated as outstanding under the Credit Agreement. Proceeds of borrowings shall be used to refinance all indebtedness owing 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 1.25 % or 1.50 % per annum plus LIBOR. 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. 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 ASC842 guidance will be April 1, 2022, the date the lessor makes the 39 Table of Contents 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 July 27, 2021, the Company entered into a Purchase and Sale Agreement for the sale of its Harrison, Arkansas facility (see note 6 Assets held for sale). Completion of the sale is dependent upon Buyer financing and completion of a Phase 1 environmental study. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.