What changed in this filing

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Item 1A. Risk Factors

2023-08-25 compared with 2022-08-26 · 45 added, 36 removed, 78 unchanged (51% of the section changed)

11 unchanged sentences

Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to the Company’s reputation, which could adversely affect the Company’s business.

In addition, in response to the COVID-19 pandemic and shifts in employee workplace preferences, we have allowed certain of our employees the option of a hybrid work schedule where they may choose to work partially from home.

In addition, in response to shifts in employee workplace preferences, we have allowed certain of our employees the option of a hybrid work schedule where they may choose to work partially from home.

Although we continue to implement strong physical and cybersecurity measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyberattacks and other disruptions because a material portion of our employees work remotely either full or part-time, and we cannot be certain that our mitigation efforts will be effective.

The implementation of a new business information system could disrupt the business.

The Company continues to migrate business and financial processes from ERP systems to SAP.

The Company continues to migrate business and financial processes from legacy ERP systems to SAP.

The Company takes great care in the planning and execution of these migrations, however, implementation issues related to the transition could arise and may result in the following:

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 Increased demands of management and associates to the detriment of other corporate initiatives.

The Company’s participation in multi-employer pension plans may have exposures under those plans that could extend beyond what its obligations would be with respect to its employees.

The Company’s participation in a multi-employer pension plan may have exposures under those plans that could extend beyond what its obligations would be with respect to its employees.

The Company participates in, and makes periodic contributions to, one multi-employer pension plan that covers union employees.

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See Note 13 Commitments and Contingencies of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information .

We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.

At June 30, 2023, we had $38.7 million in property, plant and equipment and $68.3 million in right of use assets associated with leased facilities.

These definite-lived assets are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable.

The outcome of impairment testing could result in the write-down of all or a portion of the value of these assets.

A write-down of our assets would, in turn, reduce our earnings and net worth.

In particular, if capacity requirements do not necessitate the utilization of our leased Mexicali, Mexico facility and we are unsuccessful at subleasing the facility in the future the carrying amount of the right of use asset associated with that lease may not be recoverable.

A write-down of all or a portion of the value of the Mexicali right of use asset could have a material impact on our earnings in the period of impairment.

At June 30, 2023 the Company does not believe any impairment indicators exist due to current and expected sublease tenants and plans for future operations but impairment assessment involves the use of considerable judgement and any change in future market or economic conditions could cause actual results to differ.

The Company’s success depends on its ability to recruit and retain key employees and highly skilled workers in a competitive labor market.

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Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations.

In addition, the ongoing impact of COVID-19, or risk of similar communicable disease in the future, increases the risk that certain senior executive officers or a member of the board of directors could become ill, causing them to be incapacitated or otherwise unable to perform their duties for an extended absence.

Furthermore, because of the nature of the disease, multiple people working in close proximity could also become ill simultaneously which could result in the same department having extended absences or a temporary shutdown of one or more of our manufacturing facilities or distribution centers.

Ongoing or future communicable diseases increase the risk that certain senior executive officers or a member of the board of directors could become ill,

causing them to be incapacitated or otherwise unable to perform their duties for an extended absence.

This could negatively impact the efficiency and effectiveness of processes and internal controls throughout the Company and our ability to service customers.

Terms of collective bargaining agreements and labor disruptions could adversely impact results of operations.

Terms of collective bargaining agreements that prevent the Company from competing effectively could adversely affect its financial condition, results of operations and cash flows.

The Company is committed to working with those groups to avert or resolve conflicts as they arise.

However, there can be no assurance that these efforts will be successful.

We may not be able to collect amounts owed to us.

We grant 30-day payment terms to most customers.

As a result of the COVID-19 pandemic, supply chain issues and inflationary cost pressures, some customers have requested extended payment terms or informed us they will not pay amounts within agreed upon terms.

We grant payment terms between 10 and 60 days to customers, often without requiring collateral.

Due to ongoing global supply chain issues and inflationary cost pressures, some customers have requested extended payment terms or informed us they will not pay amounts within agreed upon terms.

Some of our customers have experienced, and may in the future experience, cash flow and credit-related issues.

If the negative economic effects of COVID-19 were to persist or a similar pandemic or another major, unexpected event with negative economic effects were to occur, we may not be able to collect amounts owed to us or such payment may only occur after significant delay.

While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable.

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Risks related to our industry:

The COVID-19 pandemic could continue to have a materially adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.

On March 11, 2020, the World Health Organization declared the current coronavirus (“COVID-19”) outbreak to be a global pandemic, and the virus continues to spread in areas where we operate and sell our products.

The COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.

Public health organizations have recommended, and many governments have implemented, measures from time-to-time during the pandemic to slow and limit the transmission of the virus, including certain business shutdowns and shelter in place and social distancing requirements.

The impact of COVID-19 or similar pandemics could have a materially adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.

During the initial height of the COVID-19 pandemic, purchases of home furnishings were heavily impacted as they are largely deferable and heavily influenced by consumer sentiment.

Public health organizations recommended, and many governments implemented, measures from time-to-time to slow and limit the transmission of the virus, including certain business shutdowns and shelter in place and social distancing requirements.

Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, potential border closures, and disruptions to the businesses of our selling channel partners, and others.

Our suppliers and customers also face these and other challenges, which have and could continue to lead to a disruption in our supply chain, raw material inflation or the inability to get the raw materials necessary to produce our products, increased shipping, and transportation costs, as well as decreased consumer spending and decreased demand for our products.

Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, potential near-term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.

Continuing inflation may impact our profitability.

A resurgence of the COVID-19 pandemic or other public health emergency in the future could have a material adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.

Continuing inflation and changes in foreign currency may impact our profitability.

Cost inflation including significant increases in ocean container rates, raw materials prices, labor rates, and domestic transportation costs have and could continue to impact profitability.

Continued imbalances between supply and demand for these resources may continue to exert upward pressure on costs.

The Company purchases raw materials, component parts, and certain finished goods from foreign external suppliers.

Prices for these purchases are primarily negotiated in U.S.

dollars on a purchase order basis.

A negative shift in the U.S.

dollar relative to the local currency of our supplier could result in price increases and negatively impact our cost structure.

In addition, the majority of our manufactured products are produced in Mexico.

The wages of our employees and certain other employee benefit and indirect costs are made in Pesos.

The Company does not employ any foreign currency hedges against this exposure.

A negative shift in the value of the U.S.

dollar against the Peso could increase the cost of manufacturing.

Our ability to recover these cost increases through price increases may continue to lag the cost increases, resulting in downward pressure on margins.

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Many of these suppliers are dependent upon other suppliers in countries other than where they are located.

This global interdependence within the Company’s supply chain is subject to delays in delivery, availability, quality, and pricing.

Changes in international trade policies including tariffs could disrupt the supply chain, increase cost and reduce competitiveness.

The delivery of goods from these suppliers has been and may continue to be delayed by customs, labor issues, geo-political pressures, disruptions associated with the COVID-19 pandemic, changes in political, economic, and social conditions, weather, laws and regulations.

Unfavorable fluctuations in

price, international trade policies, quality, delivery, and availability of these products could continue to adversely affect the Company’s ability to meet demands of customers and cause negative impacts to the Company’s cost structure, profitability and its cash flow.

This global interdependence

within the Company’s supply chain is subject to delays in delivery, availability, quality, and pricing.

Changes in international trade policies including tariffs, access to ports and border crossings, or railways could disrupt the supply chain, increase cost and reduce competitiveness.

The delivery of goods from these suppliers has been and may continue to be delayed by customs, labor issues, availability of third-party transportation and equipment, geo-political pressures, changes in political, economic, and social conditions, weather, laws, and regulations.

Unfavorable fluctuations in price, international trade policies, quality, delivery, and availability of these products could continue to adversely affect the Company’s ability to meet demands of customers and cause negative impacts to the Company’s cost structure, profitability, and its cash flow.

Enacted tariffs and potential future increases in tariffs on manufactured goods imported from China or other countries could adversely affect our business.

The tariff on certain manufactured furniture products imported from China on or after June 1, 2019, is currently 25%.

Given ongoing uncertainty in relations, including trade negotiations between the United States and China, it is unclear as to whether the U.S.

administration will take further tariff action or perhaps grant relief to actions already put in place.

Inability to reduce acquisition costs or pass-through price increases may have an adverse impact on sales volume, earnings, and liquidity.

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The main foreign countries we source from are Vietnam, China, Thailand, and Mexico.

In early 2020, the COVID-19 outbreak in China resulted in the temporary shutdown or reduced capacity of our vendors’ factories.

Consequently, we experienced some out-of-stocks, but in some cases, we were able to provide substitutions out of inventory on hand, in-transit, and from our domestic warehouses, but not enough to entirely mitigate the lost sales.

Many of our vendors’ factories are back online, however, the COVID-19 outbreak caused travel restrictions due to government regulations.

The travel restrictions have caused labor shortages for our Vietnam suppliers due to limited access to workers from other surrounding countries.

Consequently, we may experience shortages of certain products.

Our ability to transport products from foreign countries is also dependent on the availability and cost of ocean containers, both of which were materially and adversely impacted by COVID-19.

It is unclear how our supply chain could be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we will be impacted, the severity of the impacts, and the probability of a recurrence of COVID-19 or similar regional or global pandemics.

It is unclear how our supply chain could be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we could be impacted, the severity of the impacts, and the probability of a recurrence of COVID-19 or similar regional or global pandemics.

If we were unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain could adversely affect our sales, earnings, financial condition, and liquidity.

Finally, the Company relies on third parties to deliver customer orders.

The capacity of these third parties or cost of this service could be impacted by labor disputes, cost inflation (particularly fuel), and availability of drivers which could increase cost and have negative impacts on our earnings.

Competition from U.S.

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Also, due to the large number of competitors and their wide range of product offerings, the Company may not be able to significantly differentiate its products (through styling, finish, and other construction techniques) from those of its competitors.

Additionally, most of our sales are to distribution channels that rely on physical stores to merchandise and sell our products and a significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.

The COVID-19 pandemic has accelerated and may continue to increase the shift to online furniture purchases by changing customer shopping patterns and behaviors, including decreased consumer willingness to visit physical retail locations.

These and other competitive pressures could cause us to lose market share, revenues, and customers, increase expenditures or reduce prices, any of which could have a material adverse effect on our results of operations or liquidity.

Additionally, most of our sales are to distribution channels that rely on physical stores to merchandise and sell our products and an involuntary shut down of those stores due to COVID-19 or similar pandemic or a significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.

These and other competitive pressures could cause us to lose market share, revenues, and customers, increase expenditure or reduce prices, any of which could have a material adverse effect on our results of operations or liquidity.

Future costs of complying with various laws and regulations may adversely impact future operating results.

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If the Company is not able to acquire sufficient fabric variety or if the Company is unable to predict or respond to changes in fashion trends, it may lose sales and have to sell excess inventory at reduced prices.

Use of social media to disseminate negative commentary may adversely impact the Company’s reputation and business.

There has been a substantial increase in the use of social media platforms, including blogs, social media websites, and other forms of internet-based communications, which allow individuals to access a broad audience of consumers and other interested persions.

Negative commentary regarding the Company or its products may be posted on social media platforms at any time and may have an adverse impact on its reputation, business, or relationships with third parties, including suppliers, customers, investors, and lendors.

value readily available information and often act on such information without further investigation and without regard to its accuracy or context.

The harm may be immediate without affording the Company an opportunity for redress or correction.

Unresolved Staff Comments

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors