What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2026-08-19 compared with 2025-08-22 · 60 added, 65 removed, 101 unchanged (55% of the section changed)

11 unchanged sentences

(Gain) on disposal of assets held for sale

Environmental remediation

Other expense

Operating income

2 unchanged sentences

Income before income taxes

Income tax provision (benefit)

Income tax provision

Net income and comprehensive income

1 unchanged sentence

Net sales were $459.2 million for the year ended June 30, 2026, compared to net sales of $441.1 million in the prior year, an increase of $18.1 million or 4.1%.

The increase in sales was primarily driven by $28.0 million of growth in soft seating products, partially offset by a $9.0 million decline in homestyles branded ready-to-assemble product sales and $0.9 million decline in Flexsteel branded casegoods.

Gross margin for the year ended June 30, 2026, was 24.7%, compared to 22.2% for the prior fiscal year, an increase of 250 basis points (“bps”).

The 250-bps increase was primarily driven by a 200-bps benefit from the International Emergency Economic Powers Act ("IEEPA") Tariff Refunds received and to a lesser extent favorable mix driven by product and customer portfolio optimization initiatives.

Selling, general, and administrative (“SG&A”) expenses increased by $4.2 million in the year ended June 30, 2026, compared to the prior fiscal year.

As a percentage of net sales, SG&A expense was 15.4% in fiscal year 2026 compared to 15.1% of net sales in the prior fiscal year.

The increase of 30-bps is primarily due to a 70-bps benefit from fixed cost leverage on higher sales volume offset by 70-bps increase in investments in consumer insights, new products and marketing to execute our growth strategy and a 30-bps increase from higher incentive compensation expense.

Income tax expense was $10.7 million, or an effective rate of 24.4%, for the year ended June 30, 2026, compared to income tax expense of $6.8 million in the prior year, or an effective tax rate of 25.3%.

The current year effective tax rate was primarily impacted by lower non-deductible compensation, effect of state and foreign taxes, partially offset by stock-based compensation and a research and development credit benefit.

The prior year tax rate was primarily impacted by the effect of state and foreign taxes, offset by a research and development credit benefit.

The Company adjusted its provision for income tax and measurement of deferred tax assets in accordance with the One Big Beautiful Act ("OBBBA").

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

Net income was $33.1 million, or $6.07 per diluted share for the year ended June 30, 2026, compared to net income of $20.2 million, or $3.55 per diluted share in the prior year.

On July 31, 2025, the President of the United States issued an executive order intended to clarify certain matters related to previously issued executive orders on tariffs.

This executive order included, among other things, an increase in the country specific tariff from 10%

to 20% on goods imported from Vietnam.

Accordingly, both our seating and case goods products sourced from Vietnam were subject to tariffs under IEEPA during this period.

In addition, beginning in October 2025, substantially all of the seating products we source from Vietnam and manufacture in Mexico became subject to a 25% tariff under Section 232 of the Trade Expansion Act of 1962 pursuant to the Presidential Proclamation Adjusting Imports of Timber, Lumber, and their Derivative Products into the United States.

For these seating products, the Section 232 tariff superseded the previously applicable IEEPA tariffs.

Our case goods products sourced from Vietnam continued to be subject to the applicable IEEPA tariffs until February 2026, when the U.S.

Supreme Court held that the tariffs imposed under IEEPA exceeded the authority granted under that statute.

Following the Supreme Court's decision, a temporary 10% global import surcharge was imposed under Section 122 of the Trade Act of 1974 and became applicable to our case goods products sourced from Vietnam.

On July 24, 2026, the U.S.

implemented a new tariff framework under Section 301 of the Trade Act of 1974.

The new framework imposes tariffs of either 10% or 12.5% on imports from certain trading partners, including Vietnam.

This Section 301 tariff applies to bedroom, dining and occasional casegood products we source from Vietnam.

The majority of our seating products sourced from Vietnam and manufactured in Mexico remain subject to the 25% Section 232 tariffs which, under the existing proclamation, is scheduled to increase to 30% effective January 1, 2027, unless modified prior to that date, and are generally not subject to the additional Section 301 tariffs.

In addition, as a result of the U.S.

Supreme Court's February 2026 decision regarding the IEEPA tariff program, the U.S.

Court of International Trade ordered the U.S.

government to process refunds of tariffs collected under the IEEPA tariff program.

These refunds relate only to tariffs imposed under the IEEPA authority and do not affect the Section 232 tariffs that continue to apply to the majority of the Company's upholstered seating products.

Fiscal 2025 Compared to Fiscal 2024

Net sales were $441.1 million for the year ended June 30, 2025, compared to net sales of $412.8 million in the prior year, an increase of $28.3 million or 6.9%.

The increase in sales was primarily driven by unit volume in our soft seating products, offset by a decline in our homestyles ready-to-assemble product line.

4 unchanged sentences

The decrease of 200-bps is primarily due to fixed cost leverage on higher sales volume and structural cost savings partially offset by investments in growth initiatives.

The prior year SG&A expense also included a $1.5 million expense due to CEO transition costs associated with the revaluation of previously awarded equity awards which did not recur in the current year.

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.

14 unchanged sentences

Income tax expense was $6.8 million, or an effective rate of 25.3%, for the year ended June 30, 2025, compared to income tax expense of $5.0 million in the prior year, or an effective tax rate of 32.3%.

The current year effective tax rate was primarily impacted by the effect of state and foreign taxes, offset by a research & development credit benefit.

The prior year tax rate was impacted by the effect of state taxes, nondeductible stock compensation, and foreign taxes, offset by a research & development credit benefit.

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

Net income was $20.2 million, or $3.55 per diluted share for the year ended June 30, 2025, compared to net income of $5.5 million, or $1.91 per diluted share in the prior year.

On July 31, 2025, the President of the United States issued an executive order intended to clarify certain matters related to previously issued executive orders on tariffs.

This executive order included, among other things, a country specific tariff of 20% on goods imported from Vietnam.

The current situation is dynamic, and it is unknown if the United States and its trade partners will reach an agreement to further pause or adjust the current tariffs.

Depending on our ability to mitigate these tariffs, they could have a material impact on our future net sales, cost of goods sold, profit and cash flow.

The ultimate effect will be dependent on the magnitude and duration of the tariffs and the countries implicated as well as our ability to successfully mitigate the potential impact.

The Company is assessing options to mitigate any potential impact, which includes supply chain adjustments, negotiating concessions with current suppliers, and pricing actions.

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.

These 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 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 future financial position and results of operations.

Fiscal 2024 Compared to Fiscal 2023

Net sales were $412.8 million for the year ended June 30, 2024, compared to net sales of $393.7 million in the prior year, an increase of $19.1 million or 4.8%.

Sales of products sold through retailers increased by $22.9 million or 6.7% primarily driven by growth with strategic customers and new product introductions.

Sales of products sold through e-commerce channels decreased by ($3.8) million, or (7.5%) due to a decrease in consumer demand.

Gross margin as a percent of net sales for the year ended June 30, 2024, was 21.1%, compared to 18.0% for the prior fiscal year, an increase of 310-bps.

The 310-bps increase was primarily driven by an increase of 240-bps primarily related to cost savings initiatives for materials, labor, and logistics, product portfolio management and disciplined promotional pricing and a 70-bps improvement on volume leverage of fixed cost structure.

SG&A expenses increased by $7.6 million in the year ended June 30, 2024, compared to the prior fiscal year.

As a percentage of net sales, SG&A expense was 17.1% in fiscal year 2024 compared to 16.0% of net sales in the prior fiscal year.

The increase of 110-bps is primarily due to an increase of 40-bps due to CEO transition costs associated with the revaluation of previously awarded equity awards, an increase of 40-bps due to higher incentive compensation, and an increase of 30-bps driven by investments in growth initiatives partially offset by cost leverage on higher sales volume.

There was $3.0 million in restructuring expenses recorded in the year ended June 30, 2024, associated with the previously announced closure of the Dublin, Georgia manufacturing facility.

The $3.0 million primarily consists of $2.6 million in one-time employee termination benefits and other associated costs.

All charges related to the restructuring activities were completed in fiscal year 2024.

There were no restructuring expenses incurred in the prior fiscal year.

See Note 5, Restructuring , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.

During the year ended June 30, 2024, the Company completed the sale of the Starkville, Mississippi location which had been previously recorded as held for sale.

The Company recorded a gain of $3.3 million related to the sale in the fiscal year.

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.

Income tax expense was $5.0 million, or an effective rate of 32.3%, for the year ended June 30, 2024, compared to income tax benefit of ($5.6) million in the prior year, or an effective tax rate of (60.3%).

The effective tax rate was impacted by the effect of state taxes, nondeductible stock compensation and foreign taxes, offset by a research & development credit benefit.

The prior year tax rate was negative due to the reversal of a full valuation allowance on deferred tax assets.

The current year effective tax rate was primarily impacted by the effect of state and foreign taxes, offset by a research and development credit benefit.

The prior year tax rate was impacted by the effect of state taxes, nondeductible stock compensation, and foreign taxes, offset by a research and development credit benefit.

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

2 unchanged sentences

Working capital (current assets less current liabilities) on June 30, 2026, was $82.7 million compared to $110.4 million on June 30, 2025.

The $15.4 million increase in working capital is primarily due to an increase in cash of $35.2 million offset by a decrease of $9.0 million of trade receivables, a decrease of $7.4 million in inventory, an increase in sales & advertising related accruals of $2.0 million and a decrease of $1.7 million in assets held for sale.

The $27.7 million decrease in working capital is primarily due to an increase in trade receivables of $7.4 million, an increase in inventories of $1.5 million, an increase in other current assets of $0.4 million, a decrease in other current liabilities of $1.4 million, and a decrease of insurance costs of $0.5 million partially offset by a decrease in cash of $23.3 million, an increase in accounts payable of $10.6 million, an increase in sales and advertising of $2.2 million, an increase in payroll and related items of $2.2 million and an increase in operating lease of $0.6 million.

Capital expenditures were $3.9 million for the fiscal year ended June 30, 2026.

3 unchanged sentences

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Net cash (used in) financing activities

Increase in cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Net cash provided by operating activities

For the year ended June 30, 2026, cash provided by operating activities was $51.5 million, which primarily consisted of net income of $33.1 million, adjusted for non-cash items including stock-based compensation of $4.6 million, deferred income taxes of $4.5 million, depreciation of $3.8 million and provision for credit losses of $0.2 million.

Net cash provided by operating assets and liabilities was $5.3 million and was primarily due to an increase in accounts payable of $10.9 million due to timing of inventory purchases, a decrease in other assets of $3.5 million primarily driven by collections of VAT receivables, partially offset by an increase in trade receivables of $7.6 million due to timing of shipments and an increase in inventories of $1.5 million.

For the year ended June 30, 2025, cash provided by operating activities was $37.0 million, which primarily consisted of net income of $20.2 million, adjusted for non-cash items including an impairment of our Mexicali facility right-of-use asset of $14.1 million, stock-based compensation expense of $3.9 million, and depreciation expense of $3.7 million, offset by gain on disposition of property, plant and equipment of $9.5 million, $3.8 million in deferred income tax benefit, and accounts receivable allowance benefit of $0.2 million.

Net cash provided by operating assets and liabilities was $8.7 million and was primarily due to a decrease in trade receivables of $9.3 million and a decrease in inventory of $7.4 million due to inventory optimization initiatives, offset by an increase in other assets of $7.6 million primarily related to our receivable for recoverable VAT paid in Mexico.

For the year ended June 30, 2024, cash provided by operating activities was $31.9 million, which primarily consisted of net income of $10.5 million, adjusted for non-cash items including depreciation of $4.0 million and stock-based compensation of $4.6 million, offset by $1.5 million in deferred income taxes, accounts receivable allowance recoveries of $0.2 million, and gain from the sale of capital assets of $2.8 million.

Net cash provided by operating assets and liabilities was $17.2 million and was primarily due to a decrease in inventory of $25.5 million due to inventory optimization initiatives, an increase in accounts payable of $1.4 million due to timing of inventory purchases, and an increase in other liabilities of $4.4 million offset by an increase in other assets of $8.2 million and an increase in accounts receivable of $5.9 million due to higher net sales.

Net cash provided by (used in) investing activities

For the year ended June 30, 2025, net cash provided by investing activities was $9.4 million, primarily due to proceeds of $11.6 million from the sales of property, plant and equipment, and corporate owned life insurance proceeds of $1.2 million, offset by capital expenditures of $3.3 million partially.

For the year ended June 30, 2024, net cash used in investing activities was $0.6 million, primarily due to capital expenditures of $4.8 million partially offset by proceeds of $4.2 million from the sale of capital assets

Net cash (used in) provided by investing activities

For the year ended June 30, 2026, net cash used in investing activities was $3.9 million, due to capital expenditures.

Net cash (used in) financing activities

For the year ended June 30, 2026, net cash used in financing activities was $70.9 million, primarily due to common stock repurchases of $63.7 million, dividends paid of $4.4 million and $2.8 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

For the year ended June 30, 2025, net cash used in financing activities was $11.2 million, primarily due to proceeds from lines of credit of $202.3 million, offset by payments on lines of credit of $207.3 million, dividends paid of $3.6 million, and $2.8 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

For the year ended June 30, 2024, net cash used in financing activities was $29.9 million, primarily due to proceeds from lines of credit of $367.8 million, offset by payments on lines of credit of $391.3 million, dividends paid of $3.2 million, $1.7 million for treasury stock purchases, and $1.5 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

Financing Arrangements

Line of Credit

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.

3 unchanged sentences

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 entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender, and the lenders thereto.

In addition, the Credit 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 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.

2 unchanged sentences

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 4.98% on June 30, 2026.

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.

On June 3, 2025, the Company, at the borrower, 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 included dollar figures derived from the maximum revolver amount.

The Company initiated the amendment to better align with current and projected borrowing availability under the Credit Agreement.

As of June 30, 2026, 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, 2026, totaled $0.9 million.

Subsequent to fiscal year end, on August 18, 2026 the Company, as the borrower, entered into a new $30.0 million secured revolving credit facility that replaces the Credit Agreement.

The new facility reduces the Company's maximum borrowing capacity from $55.0 million to $30.0 million but extends availability with a new maturity date of August 18, 2029 and is expected to better align with current needs and adequately support the Company’s anticipated future requirements for working capital and general corporate purposes.

See Note 9, Credit Arrangements, of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

3 unchanged sentences

Warehouse management obligation

Our focus for fiscal 2026 will be to remain financially agile with strong liquidity, continue building our foundation for profitable long-term growth in both retail and e-commerce sales channels, build global supply chain resiliency, continue focusing on operational excellence, strengthen digital capabilities, re-imagine the customer experience, and build strong culture and talent.

Our focus for fiscal year 2027 will be to continue to operate with agility, maintain disciplined cost control, protect our financial position, and invest in the capabilities that we believe will drive long-term growth and shareholder value creation.

Critical Accounting Policies

The discussion and analysis of our 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.

The discussion and analysis of our consolidated financial statements and results of operations are based on our consolidated financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America.

Preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported results.

We use estimates based on the best information available in recording transactions and balances resulting from business operations.

Estimates are used for such items as the collectability of trade accounts receivable and inventory valuation.

Estimates are used

for such items as the collectability of trade accounts receivable and inventory valuation.

Ultimate results may differ from these estimates under different assumptions or conditions.

Allowance for Credit Losses – We establish an allowance for credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value.

Our accounts receivable allowance consists of an allowance for expected credit losses which is established through a review of open accounts, historical collection, and historical write-off amounts.

Allowance for Credit Losses – We establish an allowance for expected credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value.

The allowance is established through a 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.

11 unchanged sentences

No impairments were recorded in fiscal years 2026 and 2024.

Restructuring Costs – The Company groups exit or disposal cost obligations into three categories:

Involuntary employee termination benefits, costs to terminate contracts, and other associated costs.

Involuntary employee termination benefits must be a one-time benefit, and this element of restructuring cost is recognized as incurred upon communication of the plan to the identified employees.

Costs to terminate contracts are recognized upon the effectiveness of the 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 costs of goods sold.

Income Taxes - In determining taxable income for financial statement purposes, we must make certain estimates and judgments.

9 unchanged sentences

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 7. Management’s Discussion and Analysis