What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-08-25 compared with 2022-08-26 · 114 added, 135 removed, 572 unchanged (30% of the section changed)

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Consolidated Statements of Income for the Years Ended June 30, 2023, 2022 and 202 1

Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2022, 2021 and 20 20

Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2023, 2022 and 202 1

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

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

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to estimated net realizable value of manufactured inventories included the following, among others:

Our audit procedures related to estimated net realizable value of 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.

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 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 the appropriateness of methodologies and assumptions used by management to estimate inventory markdowns 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.

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Operating lease right-of-use assets

Deferred income taxes

LIABILITIES AND SHAREHOLDERS'

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authorized 15,000 shares;

8,190 shares issued and 5,300 shares outstanding as of June 30, 2022, and 8,133 shares issued and 6,848 shares outstanding as of June 30, 2021

8,292 shares issued and 5,174 sh ares outstanding as of June 30, 2023, and 8,190 shares issued and 5,300 shares outstanding as of June 30, 2022

Additional paid-in capital

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AND SUBSIDIARIES

Consolidated Statements of Income

Consolidated Statements of Income AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

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Restructuring expense

Environmental remediation

(Gain) on disposal of assets

Other expense

Litigation settlement costs

Operating income (loss)

Operating income

Other income (expense):

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Total other (expense) income

Income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

Income before income taxes

Income tax (benefit) expense

Weighted average number of common shares outstanding:

Earnings (loss) per share of common stock

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

For the years ended June 30,

Net income (loss)

Other comprehensive income (loss):

Unrealized (losses) gains on securities

Reclassification of realized gains (losses) on securities to other income

Unrealized (losses) gains on securities before taxes

Income tax benefit (expense) related to securities gains (losses)

Net unrealized (losses) gains on securities

Comprehensive income (loss)

See accompanying Notes to Consolidated Financial Statements.

Earnings per share of common stock

FLEXSTEEL INDUSTRIES, INC.

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(Amounts in thousands)

Comprehensive

Shares ($ 1 Par)

(Loss) Income

Balance at June 30, 2020

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Stock options exercised, net

Unrealized gain on available for sale investments, net of tax

Long-term incentive compensation

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Cash dividends declared

ASU 2016-02 adoption

Balance at June 30, 2021

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Issuance of common stock:

Stock options exercised, net

Long-term incentive compensation

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OPERATING ACTIVITIES:

Net income (loss)

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

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Deferred income taxes

Stock-based compensation expense

Changes in provision for (recoveries) losses on accounts receivable

Changes in (recoveries) provision for losses on accounts receivable

Change in reserve for VAT receivable

Dubuque and Starkville property, plant and equipment impairment

Right-of-use asset impairment

(Gain) on disposition of capital assets

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SUPPLEMENTAL INFORMATION

Cash paid for amounts included in lease liabilities

Right-of-use assets exchanged for lease liabilities

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, and bedroom furniture.

DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc., and Subsidiaries (the “Company” or “Flexsteel” or “Our”) is one of the largest manufacturers, importers, and marketers of furniture products in the United States.

Product offerings include a wide variety of furniture such as sofas, loveseats, chairs, reclining rocking chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, kitchen storage, bedroom furniture, and outdoor furniture.

A featured component in most of the upholstered furniture is a unique steel drop-in seat spring from which the name “Flexsteel” is derived.

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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.

INVENTORIES – Inventories are stated at the lower of cost or net realizable value utilizing the first - in - first - out (“FIFO”) method.

Our inventory valuation reflects markdowns for the excess of the cost over the amount expected to be realized and considers obsolete and excess inventory.

Markdowns establish a new cost basis for the Company’s inventory.

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.

PROPERTY, PLANT AND EQUIPMENT – 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.

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2016-02, Leases (Topic 842) (“ASC 842”).

the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities.

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.

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Advertising expenditures, primarily shared customer advertising in which an identifiable benefit is received and national trade-advertising programs, were approximately $ 5.1 million, $ 5.8 million, and $ 3.9 million in fiscal years 2023, 2022, and 2021, 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 expenses in the periods incurred.

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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 the Compensation Committee of the Board of Directors approval.

stock awards are issued following the end of the

performance periods and are subject to verification of results and the Compensation Committee of the Board of Directors approval.

See Note 11, Stock-Based Compensation .

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The lease commencement date under ASC 842 guidance was on July 1, 2022, the date the lessor made the building available for use by the Company for purposes of completing any leasehold improvements required by the Company prior to beginning operations.

The 12 -year lease term began on August 1, 2022, and ends on June 30, 2034, with options for two five -year extensions .

The 12 -year lease ends on June 30, 2034, with options for two five-year extensions .

Annual base rent under the lease is $ 3.2 million plus taxes, insurance, and common area maintenance costs.

As of June 30, 2023, the Company has not begun operations in the Mexicali facility.

On May 3 rd , 2023 the Company entered into a sublease with a third party for 105,000 square feet of the Mexicali with a term of 12 months.

Annual rent under the sublease is $ 1 million, plus a proportionate share of taxes, insurance and common areas maintenance.

The Company also expects to sublease substantially all of the remaining portions of the facility until the capacity is required.

At June 30, 2023 the Company determined that no impairment indicators exist with regard to the Mexicali lease given the current and expected sublease tenants and plans for future operations in the facility.

At June 30, 2023 the right of use asset associated specifically with the Mexicali lease is $ 32.4 million and associated lease liability is $ 33.7 million.

Sublease income received from the sub-tenant is offset against operating lease expense in the Company’s consolidated statements of income.

The components of the Company’s leases reflected on the Company’s consolidated statements of income were as follows:

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June 30, 2023

June 30, 2021

(in thousands)

Within one year

After one year and within two years

After two years and within three years

After three years and within four years

After four years and within five years

After five years

Payments in FY2024

Total future minimum lease payments

Less – Discount

Less imputed interest

Lease liability

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Less accumulated depreciation

The Company recognized no impairment charges for fiscal years 2022 and 2021, and $ 17.5 million for fiscal year 2020.

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, see Note 5 Restructuring for more information.

The Company recognized no impairment charges for fiscal years 2023, 2022, and 2021.

RESTRUCTURING

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These changes were initial outcomes driven by customer and product line profitability and footprint utilization analyses in the fourth quarter of fiscal 2019.

On June 18, 2019, the Company announced that it completed the analysis and the 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 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 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.

On June 18, 2019, the Company announced that it completed the analysis and the planning process and set forth the comprehensive transformation program to be executed over a two-year period, which included 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 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 that 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 remaining properties listed for sale as part of the footprint optimization are included in Note 6, Assets Held for Sale .

The Company substantially completed 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, which are substantially complete for the fiscal year ended June 30, 2022, the Company planned to incur pre-tax restructuring and related expenses of approximately $ 60 million over this two-year timeframe.

The Company completed 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, which were complete as of the fiscal year ended June 30, 2022, the Company had planned to incur pre-tax restructuring and related expenses of approximately $ 60 million over this two-year timeframe.

Total cumulative restructuring and related costs incurred as of June 30, 2022, were $ 59.4 million.

There were no costs related to the restructuring activities in the fiscal year ended June 30, 2023.

The following is a summary of restructuring costs:

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One-time employee termination benefits

Contract (recoveries) termination costs

Fixed asset impairments

Other associated costs

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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, ongoing facilities, and transition costs.

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 3, 2021, agreed to resolve the matter for $ 1.3 million.

The matter was dismissed with prejudice on September 1, 2022.

The Company paid $ 1.3 million in the year ended June 30, 2023 .

During the quarter ended September 30, 2022, the Company paid all remaining costs associated with the restructuring program.

The roll forward of the accrued restructuring costs is as follows, for the years ended June 30, 2023, 2022, and 2021:

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Accrual balance at June 30, 2022

Costs incurred

Expenses paid

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Cash value of life insurance

VAT receivable

ACCRUED LIABILITIES – OTHER

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Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $ 5 million which, upon issuance, would be deemed advances under the revolving line of credit.

The Company’s $ 1.2 million letters of credit previously issued by the Lender are being treated as outstanding under the Credit 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.

Proceeds of borrowings were used to refinance all indebtedness owed to Dubuque Bank and Trust and for working capital purposes.

The Company’s obligations under the Credit Agreement are secured by substantially all 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 3.04 % on June 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 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.

On April 18, 2022, the Company, as the borrower, entered a first amendment to the September 8, 2021, Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender, and the lenders party thereto.

The first 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.

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25 % or 1.50 % per annum.

On May 24, 2023, the Company entered into a second amendment to the Credit Agreement (“Second Amendment to the Credit Agreement”) with the lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate (“SOFR”).

Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36 % to 1.61 % or an effective interest rate of 6.42 % on June 30, 2023 .

As of June 30, 2023, there was $ 28.3 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding at the Lender as of June 30, 2023, totaled $ 1.1 million.

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 million 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 %.

These refunds have been received.

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, 2022, 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 $ 9.8 million.

As of June 30, 2023, it was determined the Company has reached a more-likely- than-not position that the Company will realize the entirety of its deferred tax assets.

Therefore, the Company has reversed the valuation allowance against the federal and state deferred tax assets recorded as of June 30, 2022 of $ 9.8 million.

Income tax expense was calculated based upon the following components of income (loss) before income taxes for the years ended June 30:

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Outside the United States

Income (loss) before income taxes

Income before income taxes

The income tax benefit (provision) is as follows for the years ended June 30:

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Deferred adjustments

Expired state credits

Remeasurement of deferred tax assets and valuation

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State rate change

Tax rate change on net operating loss carryback

‎ related to CARES Act

Effective tax rate

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Lease liabilities

On June 30, 2022, certain state tax attribute carryforwards of $ 2.4 million were available, with $ 0.3 million of credits expiring between 2022 and 2029, $ 1.6 million of credits with an indefinite carryforward period, and $ 0.5 million of state NOLs carryforward.

Some of the state NOLs carry forward will have an indefinite carryforward and some will expire in varying amounts between 2025 and 2040 .

As of June 30, 2022, 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, 2022, it was determined the Company has not reached a more likely than not position that the Company will realize all of its U.S.

On June 30, 2023, certain state tax attribute carryforwards of $ 0.7 million were available, with $ 0.3 million of credits expiring beginning in fiscal years 2024 through 2029, and $ 0.4 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, 2023, it was determined that the Company has reached a more likely than not position that the Company will realize the entirety of its state attribute carryforwards and its U.S.

federal deferred tax assets.

Therefore, the Company has recorded a valuation allowance against its U.S federal deferred tax assets for $ 9.8 million.

Therefore, the Company has reversed the valuation allowance against the state attribute carryforward and the entirety of the deferred tax asset balance.

The Company is subject to U.S.

federal income tax as well as income tax of multiple state and foreign jurisdictions.

Generally, tax years 2018 through 2022 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which the Company is subject.

Generally, fiscal years 2019 through 2023 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which the Company is subject.

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.

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 the fair value as of grant date and recognize the cost over the requisite service period.

Restricted shares and restricted stock units (“RSUs”) generally vest over 1 to 3 years.

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Total stock-based compensation expense was $ 3.2 million, $ 1.0 million and $ 3.7 million for fiscal years 2023, 2022 and 2021, respectively.

The Company has two stock-based compensation plans available for granting awards to employees and directors.

(1) Long-Term Incentive Compensation Plan (“LTICP”)

On December 14, 2022, the Company’s shareholders approved the Flexsteel Industries, Inc.

2022 Equity Incentive Plan (“2022 Plan”).

The 2022 Plan replaces the Long-Term Incentive Compensation Plan (“LTIP”) and the 2013 Omnibus Stock Plan (collectively, the “Prior Plans”) and no further awards will be made under either of the Prior Plans, but these Prior Plans will continue to govern awards previously granted under them.

(1) 2022 Equity Incentive Plan

The 2022 Plan is a long-term incentive plan pursuant to which awards may be granted to certain employees, independent contractors and directors of the Company, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other stock-based awards.

Awards for 10,925 shares were granted under the 2022 Plan in the year ended June 30, 2023 with a fair value per share of $ 19.95 .

These shares remain unvested and have no forfeitures as of June 30, 2023.

These shares are included in the Restricted Shares and RSUs table below.

(2) 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, and 2024, participants may earn one -third of the award in each of the three years based on meeting performance goals for that year.

T he Committee selected Adjusted Earnings Before Interest and Tax with a defined percentage growth in fiscal years 2022, 2023, and 2024 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 .

For awards under the LTIP for the three year performance periods ending June 30, 2023, 2024, and 2025, participants may earn one-third of the award in each of

the three years based on meeting performance goals for that year.

T he Committee selected Adjusted Earnings Before Interest and Tax based on a defined percentage growth as the performance metric for the performance periods ending June 30, 2023, 2024, and 2025.

In conjunction with each grant of PSUs, the Committee granted RSUs under the 2013 Omnibus Stock Plan that vest at the end of three years .

The table below sets forth, as of June 30, 2023, the number of unvested PSUs granted at the target performance level for the 2021-2023, 2022-2024, and 2023-2025 performance periods under the LTIP and the number of unvested RSUs granted in conjunction with the PSUs:

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(3) 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.

The 2013 Omnibus Stock Plan and 2009 Stock Option Plan were 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 further stock units will be granted under the 2013 Omnibus Stock Plan and the 2009 stock option plan.

Restricted Shares and RSUs

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Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $ 0.8 million as of June 30, 2023, which is expected to be recognized over a weighted average period of 1.2 years.

The weighted average grant date fair value of stock options granted during fiscal years 2022, 2021, and 2020 were none, $ 6.77 , and $ 1.77 , respectively.

The weighted average grant date fair value of stock options granted during fiscal years 2023, 2022, and 2021 were none , none , and $ 6.77 , respectively.

The weighted average assumptions used to estimate these fair values were as follows:

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43.09 - 47.45

Total unrecognized stock-based compensation expense related to options was $ 0.06 million as of June 30, 2022, which is expected to be recognized over a period of 0.7 years.

The Company does no t have any unrecognized stock-based compensation expense related to options.

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.

Total unrecognized stock-based compensation expense related to options awarded outside a plan was $ 0.02 million as of June 30, 2022, which is expected to be recognized over a period of 0.8 years.

All 79,000 options remain outstanding as of June 30, 2023, with an exercise price of $ 9.97 and a remaining life of 6.8 years.

There is no remaining unrecognized stock-based compensation expense related to these options.

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 March 31, 2023, with an exercise price of $ 21.96 and a remaining life of 5.5 years.

There is no remaining unrecognized stock-based compensation expense related to these options.

BENEFIT AND RETIREMENT PLANS

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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 previously defined benefit pension plans for the annual period ended June 30, 2022, is outlined in the following table.

The Company’s participation in the current and previous defined benefit pension plans for the annual period ended June 30, 2023, is outlined in the following table.

Unless otherwise noted, the most recent Pension Protection Act zone status available in 2023 and 2022 is for the plan’s year-end on December 31, 2022, and 2021, respectively.

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Not applicable

Central Pension Fund

Not applicable

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, 2022, the Company has withdrawn from the Steelworkers Pension Trust and paid the previously recorded withdrawal liability of $ 1.2 million and recorded an expense reduction of $ 0.2 million for the year ended June 30, 2022, see Note 5 Restructuring .

With the closure of the Company’s Dubuque, Iowa manufacturing facility, the collective bargaining agreement for the Steelworkers Pension Trust was terminated as of June 30, 2020.

As of June 30, 2022, the Company had withdrawn from the Steelworkers Pension Trust and paid the previously recorded withdrawal liability of $ 1.2 million and recorded an expense reduction of $ 0.2 million for the year ended June 30, 2022, see Note 5 Restructuring .

COMMITMENTS AND CONTINGENCIES

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The Order was issued under Section 106(a) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C.

The Order directs the Company to perform remedial design and remedial action for the Lane Street Site.

The Order directed 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.

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, was the estimated cost of remedial work.

The Company believed that financial assurance was not required because it met 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).

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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.

In April 2021, the Company offered to settle the claim with the EPA for $ 8.5 million.

On August 3, 2021, the EPA rejected the offer and then demanded that the Company perform remediation and pay the vast majority of the EPA’s past costs.

On September 1, 2021, the Company extended two settlement options to the EPA.

The first option is an $ 9.8 million cash out and the second option is estimated to be approximately $ 10.1 million and includes performance of the remedy and full site release.

On October 31, 2021, the EPA expressed that the Company’s inclusion of a full site release in our settlement terms was unacceptable because of their need to include standard reopeners.

Through an agreement with the EPA, the statute of limitations for potential claims by the EPA was extended through September 30, 2022.

Note, 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 as of June 30, 2022, in accordance with FASB issued Asset Retirement and Environmental Obligations (ASC 410-30) .

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.

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.

Flexsteel secured outside counsel for the defense of the claims.

With outside counsel’s guidance, a motion to dismiss the ERISA claims against Flexsteel and J.K.

Dittmer and D.P.

Schmidt was filed with the court on May 3, 2021 and denied by the court on August 5, 2021.

The parties participated in a lengthy mediation and on December 3, 2021, agreed to resolve the matter for $ 1.3 million.

The Company expects full resolution of this matter after October 2022, and has a net liability on June 30, 2022, of $ 1.3 million, see Note 5 Restructuring.

Despite the Company’s position that it did not cause or contribute to the contamination, the Company reached 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

The consent decree required Flexsteel to pay $ 9.8 million in resolution of the matter.

Flexsteel also reached agreements with its insurance carriers for partial reimbursement of the settlement.

During the quarter ended December 31, 2022, the Company made full payment in accordance with the settlement agreement and as a result of insurance proceeds received, the Company recorded income of $ 2.8 million for the quarter ended December 31, 2022, which is included in environmental remediation on the Consolidated Statements of Income and Comprehensive Income.

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.

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For the Quarter Ended

December 31 (a)

Operating income

Earnings per share:

(a) During the quarter ended December 31, 2022, the Company recorded income of $ 2.8 million as a result of insurance proceeds received related to the settlement of the environmental remediation liability.

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

(b) During the quarter June 30, 2023, it was determined the Company has reached a more-likely- than-not position that the Company will realize the entirety of its deferred tax assets.

Therefore, the Company has reversed the valuation allowance against the federal and state deferred tax assets recorded as of June 30, 2022 of $ 9.8 million.

See Note 10 Income Taxes, included in this Annual Report on Form 10-K for more information.

For the Quarter Ended

Operating income (loss)

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Earnings (loss) per share:

For the Quarter Ended

Operating income

Earnings per share:

SUBSEQUENT EVENTS

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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 8. Financial Statements and Supplementary Data