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 PCAOB ID 34 20 Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting 23 Consolidated Balance Sheets at June 30, 2025 and 2024 24 Consolidated Statements of Income and Comprehensive Income for the Years Ended June 30, 2025, 2024, and 2023 25 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2025, 2024, and 2023 26 Consolidated Statements of Cash Flows for the Years Ended June 30, 2025, 2024, and 2023 27 Notes to Consolidated Financial Statements 28 - 41 Schedule II Valuation and Qualifying Accounts 44 19 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, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended June 30, 2025, and 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, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2025, 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, 2025, 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 August 22, 2025 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 Matters The critical audit matters communicated below are matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Inventories — Refer to Notes 1 and 3 to the financial statements Critical Audit Matter Description The Company has inventories of $89.1 million as of June 30, 2025. 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. 20 Table of Contents How the Critical Audit Matter Was Addressed in the Audit 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. • 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 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. • We performed retrospective reviews of actual products sold in the current year against prior year inventory markdowns to net realizable value. Mexicali Right-of-Use Asset Impairment — Refer to Notes 1 and 2 to the financial statements Critical Audit Matter Description 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. Events that result in an impairment review may include a significant decrease in the operating performance of the long-lived asset, or the decision to close a manufacturing facility, or distribution center. If it is determined estimated fair value, less cost to sell, is less than the carrying value, the asset is written down to its fair value. In the third quarter of fiscal year 2025, indicators arose that the right-of-use asset assigned to the Company’s manufacturing facility in Mexicali, Mexico may not be fully recoverable. As a result of management’s analysis, management concluded that the right-of-use asset related to this lease is not fully recoverable and recorded a $14.1 million impairment in fiscal year 2025. We identified the Mexicali Right-of-Use Asset Impairment as a critical audit matter because the impairment assessment involves significant judgment due to the estimation of future cash flows and fair values. Key assumptions, sublease rental income per square foot and discount rate, are influenced by economic conditions and are inherently subjective. Because of the materiality of the impairment and the complexity of the assumptions, auditing management’s estimates of estimated fair value required subjective auditor judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the sublease rental income per square foot and selection of discount rate, among others: • We tested the effectiveness of controls over management’s valuation, including those over the sublease rental income per square foot and selection of discount rate. • We inquired of management regarding the viability of subleasing the manufacturing facility and appropriate sublease rental income per square foot. • We evaluated the reasonableness of management’s plan to sublease the Mexicali, Mexico manufacturing facility through: o Inspection of internal communications between management and the Board of Directors o Inspection of historical subleasing agreements between the Company and tenants. • We evaluated the methods and inputs used by management to determine the fair value of the lease right-of-use asset, as well as evaluated management's analysis to assess the sensitivity of sublease rental income per square foot and discount rate. 21 Table of Contents • With the assistance of fair value specialists, we evaluated the reasonableness of the sublease rental income per square foot by: o Testing the source information underlying the determination of sublease rental income per square foot and testing the mathematical accuracy of the information o Comparing sublease rental income per square foot to market data o Developing ranges of independent estimates and comparing those to the sublease rental income per square foot selected by management. • With the assistance of fair value specialists, we evaluated the reasonableness of the discount rate by: o Testing the source information underlying the determination of the discount rate and testing the mathematical accuracy of the information o Comparing the discount rate to market data o Developing ranges of independent estimates and comparing those to the discount rate selected by management o Evaluating the application of the discount rate on the anticipated future cash flows and recalculating the net present value. /s/ Deloitte & Touche LLP Minneapolis, MN August 22, 2025 We have served as the Company’s auditor since 1965. 22 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, 2025, 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, 2025, 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 as of and for the year ended June 30, 2025, of the Company and our report dated August 22, 2025, 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 August 22, 2025 23 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Amounts in thousands) June 30, 2025 2024 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 40,006 $ 4,761 Trade receivables - less allowances: 2025, $ 1,790 ; 2024, $ 2,440 35,229 44,238 Inventories 89,135 96,577 Other 8,002 8,098 Assets held for sale — 1,707 Total current assets 172,372 155,381 NONCURRENT ASSETS: Property, plant and equipment, net 36,212 36,709 Operating lease right-of-use assets 41,545 61,439 Deferred income taxes 12,444 8,607 Other assets 19,913 12,326 TOTAL $ 282,486 $ 274,462 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade $ 25,617 $ 25,830 Current portion of operating lease liabilities 7,809 7,517 Accrued liabilities: Payroll and related items 11,260 12,059 Insurance 1,950 1,900 Sales and advertising related items 8,061 6,073 Other 7,317 7,027 Total current liabilities 62,014 60,406 LONG-TERM LIABILITIES: Operating lease liabilities, less current maturities 51,561 58,076 Line of credit — 4,822 Other liabilities 1,049 791 Total liabilities 114,624 124,095 COMMITMENTS AND CONTINGENCIES (Note 14) SHAREHOLDERS' EQUITY: Common stock - $ 1 par value; authorized 15,000 shares; 8,514 shares issued and 5,307 shares outstanding as of June 30, 2025, and 8,407 shares issued and 5,200 shares outstanding as of June 30, 2024 8,514 8,407 Additional paid-in capital 40,644 39,573 Treasury stock, at cost; 3,207 shares as of June 30, 2025 and 2024, respectively ( 71,731 ) ( 71,731 ) Retained earnings 190,435 174,118 Accumulated other comprehensive income — — Total shareholders' equity 167,862 150,367 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 282,486 $ 274,462 See accompanying Notes to Consolidated Financial Statements. 24 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Income AND COMPREHENSIVE INCOME (Amounts in thousands, except per share data) For the years ended June 30, 2025 2024 2023 Net sales $ 441,073 $ 412,752 $ 393,692 Cost of goods sold 343,129 325,508 322,745 Gross profit 97,944 87,244 70,947 Selling, general and administrative expenses 66,696 70,444 62,846 Restructuring expense — 2,982 — Right-of-use asset impairment 14,079 — — (Gain) on sale of real estate ( 753 ) — — (Gain) on disposal of assets held for sale ( 8,693 ) ( 3,262 ) — Environmental remediation — — ( 2,788 ) Other expense — — 347 Operating income 26,615 17,080 10,542 Other income (expense): Interest income 421 20 18 Interest (expense) ( 70 ) ( 1,550 ) ( 1,341 ) Total other income (expense) 351 ( 1,530 ) ( 1,323 ) Income before income taxes 26,966 15,550 9,219 Income tax provision (benefit) 6,812 5,022 ( 5,559 ) Net income and comprehensive income $ 20,154 $ 10,528 $ 14,778 Weighted average number of common shares outstanding: Basic 5,249 5,170 5,225 Diluted 5,678 5,519 5,385 Earnings per share of common stock Basic $ 3.84 $ 2.04 $ 2.83 Diluted $ 3.55 $ 1.91 $ 2.74 25 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders’ Equity (Amounts in thousands) Total Par Value of Common Treasury Retained Shares ($ 1 Par) Capital Stock Earnings Total Balance at June 30, 2022 $ 8,190 $ 34,467 $ ( 66,372 ) $ 155,275 $ 131,560 Issuance of common stock: Stock-based compensation 34 3,157 — — 3,191 Vesting of restricted stock units and restricted shares 68 ( 1,019 ) ( 951 ) Treasury stock purchases — — ( 3,700 ) — ( 3,700 ) Cash dividends declared — — — ( 3,257 ) ( 3,257 ) Net income — — — 14,778 14,778 Balance at June 30, 2023 $ 8,292 $ 36,605 $ ( 70,072 ) $ 166,796 $ 141,621 Issuance of common stock: Stock-based compensation 24 4,622 — — 4,646 Vesting of restricted stock units and restricted shares 88 ( 1,739 ) — — ( 1,651 ) Stock options exercised, net 3 85 — — 88 Treasury stock purchases — — ( 1,659 ) — ( 1,659 ) Cash dividends declared — — — ( 3,206 ) ( 3,206 ) Net income — — — 10,528 10,528 Balance at June 30, 2024 $ 8,407 $ 39,573 $ ( 71,731 ) $ 174,118 $ 150,367 Issuance of common stock: Stock-based compensation 14 3,855 — — 3,869 Vesting of restricted stock units and restricted shares 29 ( 823 ) — — ( 794 ) Stock options exercised, net 64 ( 1,961 ) — — ( 1,897 ) Cash dividends declared — — — ( 3,837 ) ( 3,837 ) Net income — — — 20,154 20,154 Balance at June 30, 2025 8,514 40,644 ( 71,731 ) 190,435 167,862 Cash dividends declared per common share were $ 0.71 , $ 0.60 , and $ 0.60 for the fiscal years ended June 30, 2025, 2024, and 2023, respectively. See accompanying Notes to Consolidated Financial Statements . 26 Table of Contents FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in thousands) For the years ended June 30, 2025 2024 2023 OPERATING ACTIVITIES: Net income $ 20,154 $ 10,528 $ 14,778 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 3,654 3,997 4,572 Deferred income taxes ( 3,837 ) ( 1,454 ) ( 7,154 ) Stock-based compensation expense 3,869 4,647 3,191 Change in provision for losses on accounts receivable ( 244 ) ( 160 ) ( 380 ) Right-of-use asset impairment 14,079 — — (Gain) on disposition of property, plant and equipment ( 9,446 ) ( 2,839 ) ( 313 ) Changes in operating assets and liabilities: Trade receivables 9,253 ( 5,910 ) 3,318 Inventories 7,441 25,499 19,136 Other current assets ( 962 ) ( 1,681 ) ( 1,467 ) Other assets ( 7,586 ) ( 6,518 ) ( 3,865 ) Accounts payable - trade ( 579 ) 1,373 ( 7,320 ) Accrued liabilities 830 4,177 ( 1,270 ) Other long-term liabilities 353 224 ( 237 ) Net cash provided by operating activities 36,979 31,883 22,989 INVESTING ACTIVITIES: Proceeds from sale of investments 1,155 — — Proceeds from sales of property, plant and equipment 11,535 4,179 340 Capital expenditures ( 3,258 ) ( 4,772 ) ( 4,790 ) Net cash provided by (used in) investing activities 9,432 ( 593 ) ( 4,450 ) FINANCING ACTIVITIES: Dividends paid ( 3,556 ) ( 3,219 ) ( 3,241 ) Treasury stock purchases — ( 1,659 ) ( 3,700 ) Proceeds from lines of credit 202,344 367,818 363,805 Payments on lines of credit ( 207,262 ) ( 391,270 ) ( 373,271 ) Proceeds from issuance of common stock 141 88 — Shares withheld for tax payments on vested shares and options exercised ( 2,833 ) ( 1,652 ) ( 951 ) Net cash (used in) financing activities ( 11,166 ) ( 29,894 ) ( 17,358 ) Increase in cash and cash equivalents 35,245 1,396 1,181 Cash and cash equivalents at beginning of year 4,761 3,365 2,184 Cash and cash equivalents at end of year $ 40,006 $ 4,761 $ 3,365 SUPPLEMENTAL INFORMATION Interest paid 107 1,694 1,069 Interest received 421 — — Cash paid for income taxes, net 9,397 4,296 4,104 Capital expenditures in accounts payable 390 23 311 See accompanying Notes to Consolidated Financial Statements. 27 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” 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. The Company distributes its products throughout the United States through its e-commerce channel and dealer sales force. 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. ALLOWANCE FOR CREDIT LOSSES – The Company establishes an allowance for credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value. The Company’s allowance for credit losses 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 – Inventories are stated at the lower of cost or net realizable value utilizing the first‑in - first‑out (“FIFO”) method. Cost of manufactured inventory includes materials, labor and overhead. In addition, finished goods inventory includes capitalized freight, import duties, and warehousing costs. 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. 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 long-lived assets, including right-of-use lease assets, 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 Equipment.” Once an asset is classified as held for sale, the Company ceases depreciating 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. 28 Table of Contents 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 ASC 842, Leases. 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 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 outbound shipping and handling charges for customer deliveries, 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 606, Revenue from Contracts with Customers . 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 considerations 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, 2025 , the Company had $ 0.25 million of customer deposits. As of June 30, 2024 , the Company had $ 0.14 million of customer deposits. The Company follows the following practical expedients and policy elections: • The Company does 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 outbound shipping and handling activities that occur after the product is received in the Company’s distribution centers, but 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. Inbound shipping and handling activities incurred to transport product to the Company’s distribution centers is expensed when the product is received by the Company, unless there are revenue surcharges to recover such costs, in which case 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. 29 Table of Contents ADVERTISING COSTS – are charged to selling, general and administrative expenses 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 $ 3.4 million, $ 5.9 million, and $ 5.1 million in fiscal years 2025, 2024, and 2023, respectively . DESIGN, RESEARCH, AND DEVELOPMENT COSTS – are charged to selling, general and administrative expenses in the periods incurred. Expenditures for design, research, an d development costs were approxima tely $ 2.1 million, $ 2.1 million, and $ 2.1 million in fiscal years 2025, 2024, and 2023, respective ly. 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 ta x 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. 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 interim period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. 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: June 30, (in thousands) 2025 2024 2023 Basic shares 5,249 5,170 5,225 Potential common shares: Stock options 100 117 62 Long-term incentive plan 329 232 98 Diluted shares 5,678 5,519 5,385 Anti-dilutive shares 6 37 161 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 the Compensation Committee of the Board of Directors approval. See Note 11, Stock-Based Compensation . SEGMENT REPORTING – The Company operates as one operating segment and one reportable segment, furniture products. The Company’s operations involve the distribution of manufactured and imported furniture for the residential market. The Company’s furniture products are sold primarily throughout the United States by the Company’s internal sales force and various independent representatives. The Company has minimal export sales, primarily to Canada or Mexico. No single customer accounted for more than 10% of net sales. See Note 12, Segment Information . 30 Table of Contents TREASURY STOCK – Treasury stock purchases ar e stated at cost and presented as a reduction of equity on the consolidated balance sheets. As of June 30, 2025 , the Company has purchased a total of 3,207,158 shares at a cost of $ 71.7 million under approved share repurchase programs and has $ 30 million remaining in the share repurchase program approved in December 2024. RECENT ACCOUNTING STANDARDS PENDING ADOPTION – In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the disclosure impacts of this ASU on its consolidated financial statements In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023 09 “Improvements to Income Tax Disclosures.” The amendments in this ASU are intended to increase transparency through improvements to income tax disclosures primarily related to the income tax rate reconciliation and income taxes paid information. This ASU will become effective for us for the annual period beginning in fiscal year 2026, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on our related disclosures, but do not expect this guidance will have a material impact on our financial position and results of operations. RECENTLY ADOPTED ACCOUNTING STANDARDS – In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires business entities to enhance segment disclosures about significant segment expenses and disclose the position and title of the chief operating decision maker. The ASU also requires that a public entity with a single reportable segment, like the Company, provide all of the disclosures required as part of ASU 2023-07 and all existing disclosures required by Topic 280. The ASU was adopted July 1, 2024, and has been applied retrospectively to all prior periods presented. The adoption did not have an impact on the Company’s consolidated balance sheets or results of operations. See Note 12, Segment Information . 2. LEASES The Company accounts for its leases in accordance with ASU 842, Leases. 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 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, the remaining balance of lease incentives received, and any impairment. Both the lease ROU asset and lease 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. 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. In July 2022, Flexsteel commenced a 12-year lease for a manufacturing facility in Mexicali, Mexico to support strong demand growth which was elevated due to pandemic-driven buying at that time. Subsequently, U.S. furniture demand reverted to pre-pandemic norms, and the Company’s plan for the facility pivoted to subleasing the space short-term while maintaining the option to utilize it longer term to support growth. While the Company secured multiple short-term sublease tenants at the beginning of the lease term, substantial changes in U.S. trade policy in early 2025 created significant uncertainty in US-Mexico trade relations, slowed foreign direct investment in Mexico, and greatly diminished tenant interest in subleasing the Mexicali facility. As a result, management concluded that the right of use asset related to this lease was not fully recoverable and recorded a pre-tax, non-cash asset impairment charge of $ 14.1 million during the quarter ended March 31, 2025. The fair value of the right of use asset on March 31, 2025, was estimated under the income approach using a discounted cash flow technique, including assumptions for future sublease rental income and an appropriate discount rate. This technique involves estimates and uncertainties and actual results could differ. The impairment charge is included within 31 Table of Contents operating income in the Consolidated Statements of Income and Comprehensive Income under right-of-use asset impairment. The remaining carrying value of the ROU asset related to the Mexicali lease was $ 13.5 million at June 30, 2025. The components of the Company’s leases reflected on the Company’s consolidated statements of income were as follows: (in thousands) June 30, 2025 June 30, 2024 Operating lease expense $ 8,643 $ 9,772 Variable lease expense 1,661 1,853 Total lease expense $ 10,304 $ 11,625 Other information related to leases and future minimum lease payments under non-cancellable operating leases were as follows: Fiscal year June 30, 2025 June 30, 2024 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 9,698 $ 9,502 Cash received from subleasing of operating lease: Operating cash flows received from subleasing of operating lease $ 594 $ 2,744 Right-of-use assets obtained in exchange for lease liabilities: Operating leases $ 4,119 $ 797 Weighted-average remaining lease term (in years): Operating leases 7.2 8.2 Weighted-average discount rate: Operating leases 4.0 % 3.1 % Fiscal year June 30, 2025 (in thousands) Payments in FY2026 $ 10,003 FY2027 10,166 FY2028 9,896 FY2029 8,817 FY2030 8,694 Thereafter 20,400 Total future minimum lease payments $ 67,976 Less imputed interest 8,606 Lease liability $ 59,370 3. INVENTORIES A comparison of inventories is as follows: June 30, (in thousands) 2025 2024 Raw materials $ 11,114 $ 14,030 Work in process and finished parts $ 2,632 2,654 Finished goods $ 75,389 79,893 Total $ 89,135 $ 96,577 32 Table of Contents 4. PROPERTY, PLANT AND EQUIPMENT A comparison of property, plant and equipment is as follows: Estimated June 30, (in thousands) Life (Years) 2025 2024 Land $ 3,175 $ 3,226 Buildings and improvements 5 - 39 38,455 41,968 Machinery and equipment 3 - 7 20,281 20,864 Delivery equipment 3 - 5 2,241 2,570 Furniture and fixtures 3 - 7 3,248 3,226 Computer software and hardware 3 - 7 10,118 10,033 Construction in progress 3,301 1,439 Total 80,819 83,326 Less accumulated depreciation ( 44,607 ) ( 46,617 ) Net $ 36,212 $ 36,709 The Company recognized no impairment charges for fiscal years 2025, 2024, and 2023 . 5. RESTRUCTURING Manufacturing Network Optimization On February 5, 2024, the Company announced its plan to close its Dublin, Georgia manufacturing facility. The closure was completed in the fourth quarter of fiscal year 2024. As a result of the closure the Company incurred cumulative restructuring expense and related costs of $ 3.0 million as of June 30, 2024. See Note 6, Assets Held For Sale for more information. The following is a summary of restructuring costs: For the years ended June 30, (in thousands) 2025 2024 2023 One-time employee termination benefits — 2,558 — Fixed asset impairments — 74 — Other associated costs — 350 — Total restructuring and related expenses $ — $ 2,982 $ — Reported as: Operating expenses $ — $ 2,982 $ — One-time employee termination benefits include costs for employee separation benefits. During the year ended June 30, 2024, the Company recorded one-time employee termination benefits, fixed asset impairment charges and other associated costs related to the Dublin closure. Other associated costs include legal and professional fees, inventory and equipment transfer costs, and other transition costs. All expenses related to the manufacturing network optimization restructuring plan were incurred and paid during the year ended June 30, 2024. The roll forward of the accrued restructuring costs is as follows, for the years ended June 30, 2025, 2024, and 2023: One-time Employee Fixed Asset Other Termination Impairment Associated (in thousands) Benefits Costs Costs Total Accrual balance at June 30, 2023 $ — $ — $ — $ — Costs incurred 2,558 74 350 2,982 Expenses paid ( 2,558 ) ( 74 ) ( 350 ) ( 2,982 ) Accrual balance at June 30, 2024 $ — $ — $ — $ — Costs incurred — — — — Expenses paid — — — — Accrual balance at June 30, 2025 $ — $ — $ — $ — 33 Table of Contents 6. ASSETS HELD FOR SALE During fiscal year 2024, the Company committed to a restructuring plan to sell the Company's Dublin, Georgia location. As of December 31, 2024, the Company completed the sale and received proceeds of $ 6.7 million and recorded a pre-tax gain of $ 5.0 million. During the quarter ended March 31, 2025, the Company completed the sale of an ancillary building which was formerly part of the Company's Huntingburg, Indiana distribution center complex. The Company received proceeds of $ 0.8 million and recorded a pre-tax gain of $ 0.7 million related to the sale. During fiscal year 2025, the Company committed to a plan to sell a second ancillary building at the Huntingburg, Indiana distribution center complex. This property was recorded as held for sale at the quarter ended March 31, 2025, and the Company completed the sale during the quarter ended June 30, 2025. The Company received proceeds of $ 4.0 million and recorded a pre-tax gain of $ 3.7 million related to the sale. There are no assets held for sale as of June 30, 2025 . 7. OTHER NONCURRENT ASSETS June 30, (in thousands) 2025 2024 VAT receivable 19,041 11,447 Other 872 879 Total $ 19,913 $ 12,326 8. ACCRUED LIABILITIES – OTHER June 30, (in thousands) 2025 2024 Dividends $ 1,255 $ 973 Warranty 915 1,017 Income taxes 1,345 362 Other 3,802 4,675 Total $ 7,317 $ 7,027 9. CREDIT ARRANGEMENTS On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders thereto. The Credit Agreement has a five-year term and provides for up to an $ 85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $ 5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. 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. As of June 30, 2025, management believes the Company was in compliance with all covenants. On April 18, 2022, the Company entered into a first amendment to the 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 defined 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”). 34 Table of Contents 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 5.76 % on June 30, 2025. On June 3, 2025, the Company entered into a third amendment to its Credit Agreement ("Third Amendment to the Credit Agreement") with Wells Fargo Bank, NA. The amendment reduced the maximum revolving line of credit amount to $ 55 million and modified certain definitions in the Credit Agreement which include dollar figures derived from the maximum revolver amount. The reduction in the maximum revolving line of credit amount was initiated by the Company to better align with current and projected borrowing availability under the terms of the Credit Agreement. As of June 30, 2025 , there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit. Letters of credit outstanding at the Lender as of June 30, 2025, totaled $ 0.9 m illion. 10. INCOME TAXES 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, 2023, it was determined the Company had reached a more-likely-than-not position that the Company will realize the entirety of its deferred tax assets. Therefore, the Company reversed the previously recorded 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 before income taxes for the years ended June 30: (in thousands) 2025 2024 2023 United States $ 24,028 $ 15,348 $ 6,680 Outside the United States 2,938 202 2,539 Income before income taxes $ 26,966 $ 15,550 $ 9,219 The income tax (provision) benefit is as follows for the years ended June 30: (in thousands) 2025 2024 2023 Federal - current $ ( 7,847 ) $ ( 4,708 ) $ ( 799 ) State and other - current ( 2,802 ) ( 1,768 ) ( 796 ) Deferred 3,837 1,454 7,154 Total $ ( 6,812 ) $ ( 5,022 ) $ 5,559 Reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows for the years ended June 30: 2025 2024 2023 Federal statutory tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal effect 3.5 4.7 5.2 Foreign rate differential 0.9 2.1 2.8 Uncertain tax positions 0.6 1.1 ( 2.1 ) Stock based compensation ( 4.1 ) ( 1.1 ) ( 0.5 ) Section 162(m) 4.0 4.2 2.5 Foreign adjustments ( 0.2 ) 1.7 ( 0.1 ) Expired state credits — 0.6 17 Research & development credit ( 2.0 ) ( 4.8 ) — Remeasurement of deferred tax assets and valuation allowance ( 0.1 ) 0.3 ( 106.7 ) State rate change and other state items 1.0 2.1 ( 0.5 ) Other 0.6 0.4 1.0 Effective tax rate 25.2 % 32.3 % ( 60.3 ) % 35 Table of Contents The components of the gross liabilities related to unrecognized tax benefits and the related deferred tax assets are as follows: June 30, (in thousands) 2025 2024 Gross unrecognized tax benefits $ 777 $ 607 Accrued interest and penalties 210 172 Gross liabilities related to unrecognized tax benefits $ 987 $ 779 Deferred tax assets 186 84 Valuation allowance — — Net deferred tax assets $ 186 $ 84 A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: (in thousands) 2025 2024 2023 Balance at July 1 $ 607 $ 424 $ 604 Reductions for tax positions of the prior year — — — Additions based on tax positions related to the current year 314 183 10 Lapse of statute of limitations ( 154 ) — ( 190 ) Addition for tax positions of the prior year 9 — — Balance at June 30 $ 777 $ 607 $ 424 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, 2025, and 2024 that if recognized, would affect the effective tax rate was $ 0.6 million and $ 0.4 million respectively. The primary components of deferred tax assets and (liabilities) are as follows: June 30, (in thousands) 2025 2024 Accounts receivable $ 432 $ 602 Inventory 2,257 1,995 Self-insurance 31 22 Payroll and related 1,402 1,001 Accrued liabilities 524 668 Property, plant, and equipment 473 1,100 Investment tax credit 134 185 Valuation allowance ( 31 ) ( 52 ) Net operating loss carryover 5 7 Lease assets ( 10,042 ) ( 15,160 ) Lease liabilities 14,351 16,185 Research & development expenditure 2,722 1,909 Other 186 145 Total $ 12,444 $ 8,607 On June 30, 2025, certain state tax attribute carryforwards of $ 0.2 million were available, with $ 0.2 million of credits expiring beginning in fiscal years 2026 through 2028, and $ 0.1 million of state NOLs carryforward. Some of the state NOL carryforwards will have an indefinite carryforward and some will expire in varying amounts between 2035 and 2041 . 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. The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally, fiscal years 2021 through 2025 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which the Company is subject. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes a number of provisions which impact the United States tax code. The regulations impacting the tax code have multiple effective dates ranging from fiscal years beginning January 1, 2025, to fiscal years beginning January 1, 2027. The Company has not adjusted its provision for income tax or measurement of deferred tax assets as of June 30, 2025, based on the changes that may be triggered by the OBBBA due 36 Table of Contents to the law being signed on July 4, 2025. The Company is currently assessing the impact of the OBBBA but does not expect it to have a material impact on our financial position and results of operations. 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 from the date of grant. Stock-based compensation is included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. Forfeitures are recognized as incurred. Total stock-based compensation expense was $ 3.9 mil lion, $ 4.6 million and $ 3.2 million for fiscal years 2025, 2024, and 2023, respectively. 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. For periods beginning on or after July 1, 2023, restricted stock units ("RSUs") and performance stock units ("PSUs") granted to officers and key employees as part of long-term compensation programs are issued from the 2022 Plan. RSUs and PSUs awarded from the 2022 Plan are included in the Long-Term Incentive Compensation or Restricted Share and RSUs tables below. (2) Long-Term Incentive Compensation Plan (“LTIP”) The LTIP provides for 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”). In conjunction with each grant of PSUs, the Committee granted RSUs under the 2013 Omnibus Stock Plan that vested at the end of three years. No further awards will be issued under this plan. (3) 2013 Omnibus Stock Plan The 2013 Omnibus Stock Plan was 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 this plan . Long-Term Incentive Compensation The table below sets forth, as of June 30, 2025, the number of unvested PSUs granted at the target performance level for the 2023-2025, 2024-2026, and 2025-2027 performance periods under the 2022 Plan and LTIP (as applicable) and the number of unvested RSUs granted in conjunction with the PSU s. For PSUs awarded for the three year performance periods ending June 2025, 2026 and 2027, achievement is based on meeting performance goals set for each year within the three year period. The Committee selected Adjusted Operating Income as the performance metric for the performance periods ending June 2025, 2026, and 2027: 37 Table of Contents 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, 2023 79 $ 24.56 211 $ 19.19 290 $ 20.65 Granted 66 18.91 99 18.91 165 18.91 Vested ( 21 ) 42.31 ( 75 ) 12.15 ( 96 ) 18.76 Forfeited ( 27 ) 20.80 ( 53 ) 18.76 ( 80 ) 19.45 Unvested as of June 30, 2024 97 $ 17.92 182 $ 22.07 279 $ 20.65 Granted 31 31.66 46 31.66 77 31.66 Vested — — — — — — Forfeited — — ( 37 ) 39.07 ( 37 ) 39.07 Unvested as of June 30, 2025 128 $ 21.25 191 $ 21.09 319 $ 21.17 Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs wa s $ 2.2 million as of June 30, 2025, which is expected to be recognized over a perio d of 0.9 years. Restricted Shares and RSUs A summary of the activity in the Company’s unvested restricted shares and unvested RSUs, not granted in conjunction with PSUs, as of June 30, 2025, is presented below: Weighted average Shares fair value (in thousands) per share Unvested as of June 30, 2023 74 $ 21.67 Granted 4 21.14 Vested ( 58 ) 21.71 Forfeited ( 4 ) 19.40 Unvested as of June 30, 2024 16 $ 21.96 Granted 4 31.66 Vested ( 3 ) 21.53 Forfeited — 20.33 Unvested as of June 30, 2025 17 $ 24.32 Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) wa s $ 0.2 million as of June 30, 2025, which is expected to be recognized over a weighted average period of 1.1 ye ars. Options No stock options were granted during fiscal years 2025, 2024, and 2023. A summary of the activity of the Company’s stock option plans during the years ended June 30, 2025, 2024, and 2023, is presented below: Weighted Shares Average (in thousands) Exercise Price Outstanding at June 30, 2023 202 $ 20.98 Granted — — Exercised ( 3 ) 32.13 Cancelled ( 19 ) 27.40 Outstanding at June 30, 2024 180 $ 20.01 Granted — — Exercised ( 102 ) 19.49 Cancelled ( 12 ) 35.36 Outstanding at June 30, 2025 66 $ 18.02 38 Table of Contents The following table summarizes information for options outstanding at June 30, 2025: Options Weighted Average Range of Outstanding Remaining Exercise Prices (in thousands) Life (Years) Price $ 9.97 - 15.14 43 4.8 $ 10.62 18.30 - 19.72 6 5.9 18.30 21.96 - 27.57 3 3.5 24.49 31.06 - 32.80 6 3.2 32.40 43.09 - 47.45 8 1.3 44.39 $ 9.97 - 47.45 66 4.3 $ 18.02 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 former Chief Financial Officer/Chief Operating Officer (current Chief Executive Officer) 79,000 options outside of any Company stock plans. All 79,000 options remain outstanding as of June 30, 2025 , with an exercise price of $ 9.97 and a remaining life of 4.8 ye ars. There is no remaining unrecognized stock-based compensation expense related to these options. 12. SEGMENT INFORMATION As disclosed in Note 1 – Summary of Significant Accounting Policies, the Company operates as a single operating segment and reportable segment reflecting the integrated nature of its operations across various products, manufacturing platforms and sales channels across the entire United States. The Company's chief operating decision maker (“CODM”) is its President and Chief Executive Officer , who has final authority over the allocation of resources, assessment of performance, and key operating decisions. The CODM manages the business on a consolidated basis and measures segment performance using operating income and net income, which the Company believes provide the best analysis of business performance. The CODM analyzes the performance of operating income and net income to provide insight into all aspects of the segment’s operations and overall success for a given period. In addition, the CODM reviews significant segment expenses focused on cost of sales, selling and general administrative expenses, and restructuring charges, net. These costs used to measure segment profitability are the same costs already reported in the accompanying Consolidated Statements of Income and Comprehensive Income. Similarly, segment assets are reported in the accompanying Consolidated Balance Sheets. The Company has minimal export sales, primarily to Canada or Mexico. The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico. Long-lived assets, including property, plant & equipment and right-of-use assets related to leases, located in the United States and Mexico totaled $ 42.4 million and $ 35.4 million, respectively, at June 30, 2025 and $ 46.6 million and $ 51.5 million, respectively, at June 30, 2024, respectively. 13. 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 w as $ 1.6 mi llion, $ 1.8 million, and $ 1.6 million in fiscal years 2025, 2024, and 2023, respectively. 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 fiscal year ended June 30, 2025, is outlined in the following table. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2025 and 2024 is for the plan’s year-end on December 31, 2024, and 2023, respectively. The zone status is based on information that the Company received 39 Table of Contents 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 2025 2024 Plan Status 2025 2024 2023 Imposed Agreement in Plan Central States SE and SW Areas Pension Fund 366044243 Red Red Implemented $ 113 $ 109 $ 115 No 3/31/2025 7 $ 113 $ 109 $ 115 14. COMMITMENTS AND CONTINGENCIES 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. 15. QUARTERLY FINANCIAL INFORMATION – UNAUDITED (in thousands, except per share amounts) For the Quarter Ended September 30 December 31 (a) March 31 (b) June 30 (c) Fiscal 2025: Net sales $ 104,007 $ 108,483 $ 113,972 $ 114,611 Gross profit 22,367 22,805 25,336 27,436 Operating income 6,047 11,654 ( 5,060 ) 13,974 Net income 4,140 9,054 ( 3,742 ) 10,702 Earnings per share: Basic $ 0.80 $ 1.73 $ ( 0.71 ) $ 2.03 Diluted $ 0.74 $ 1.62 $ ( 0.71 ) $ 1.89 (a) During the quarter ended December 31, 2024, the Company completed the sale of its Dublin, GA manufacturing facility. See Note 6, Assets Held for Sale of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for mor information. (b) During the quarter ended March 31, 2025, the Company determined that the carrying amount of the right of use asset associated with its 12-year lease for a manufacturing facility in Mexicali, Mexico was no longer fully recoverable and recorded a pre-tax non-cash asset impairment charge of $ 14.1 . See Note 2, Leases, of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information . In addition, during the quarter, the Company completed the sale of an ancillary building, formerly part of its Huntingburg, IN distribution center complex. The Company recorded a pre-tax gain of $ 0.7 million related to the sale. (c) During the quarter June 30, 2025, the Company completed the sale of a second ancillary building, formerly part of its Huntingburg, IN distribution center complex. The Company recorded a pre-tax gain of $ 3.7 million related to the sale . For the Quarter Ended September 30 December 31 (a) March 31 June 30 (b) Fiscal 2024: Net sales $ 94,603 $ 100,108 $ 107,219 $ 110,822 Gross profit 18,410 21,950 23,317 23,567 Operating income 1,918 4,584 2,982 7,596 Net income 752 3,051 1,803 4,922 Earnings per share: Basic $ 0.15 $ 0.59 $ 0.35 $ 0.95 Diluted $ 0.14 $ 0.57 $ 0.33 $ 0.89 (a) During the quarter ended March 31, 2024, the Company recorded expense of $ 2.6 million as a result of the restructuring activity associated with the closure of the Dublin, Georgia facility. See Note 5 Restructuring , 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, 2024, the Company recorded income of $ 3.3 million associated with the sale of the Starkville, Mississippi facility. See Note 6, Assets Held for Sale , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information. T he Company recorded expense of $ 0.4 million as a result of the restructuring activity associated with the closure of the Dublin, Georgia facility. See Note 5 Restructuring , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information. 40 Table of Contents 16. SUBSEQUENT EVENTS There are no subsequent events as of August 22, 2025. 41 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.