0000037472-21-000028.txt : 20211029 0000037472-21-000028.hdr.sgml : 20211029 20211029162050 ACCESSION NUMBER: 0000037472-21-000028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 61 CONFORMED PERIOD OF REPORT: 20210930 FILED AS OF DATE: 20211029 DATE AS OF CHANGE: 20211029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEXSTEEL INDUSTRIES INC CENTRAL INDEX KEY: 0000037472 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 420442319 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05151 FILM NUMBER: 211363490 BUSINESS ADDRESS: STREET 1: 385 BELL ST. CITY: DUBUQUE STATE: IA ZIP: 52001 BUSINESS PHONE: 3195567730 MAIL ADDRESS: STREET 1: P.O. BOX 877 CITY: DUBUQUE STATE: IA ZIP: 52004-0877 10-Q 1 flxs-20210930x10q.htm 10-Q flxs-20210930x10q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

______________________________________

FORM 10-Q

______________________________________

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2021

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 0-5151

______________________________________

FLEXSTEEL INDUSTRIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Incorporated in State of Minnesota

42-0442319

(State or other Jurisdiction of

(I.R.S. Identification No.)

Incorporation or Organization)

385 BELL STREET

DUBUQUE, IA 52001-0877

(Address of Principal Executive Offices) (Zip Code)

(563) 556-7730

(Registrant’s Telephone Number, Including Area Code)

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

FLXS

The Nasdaq Stock Market, LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one).

Large Accelerated Filer ¨ Accelerated Filer þ Non-Accelerated Filer ¨ Smaller Reporting Company þ Emerging Growth Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

Common Stock - $1.00 Par Value

Shares Outstanding as of October 28, 2021

6,765,770


FLEXSTEEL INDUSTRIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2021

Page

Part I – Financial Information

Item 1.

Financial Statements

3

Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and June 30, 2021

3

Consolidated Statements of Income for the three months ended September 30, 2021 and September 30, 2020 (Unaudited)

4

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended September 30, 2021 and September 30, 2020 (Unaudited)

5

Consolidated Statements of Cash Flows for the three months ended September 30, 2021 and September 30, 2020 (Unaudited)

6

Notes to Consolidated Financial Statements (Unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

16

Item 4.

Controls and Procedures

16

Part II – Other Information

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 6.

Exhibits

18

Signatures

19


PART I FINANCIAL INFORMATION

Item 1.Financial Statements

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands)

September 30,

June 30,

2021

2021

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

3,995

$

1,342

Trade receivables - less allowances: September 30, 2021, $3,360, June 30, 2021, $3,240

48,246

55,986

Inventories

193,700

161,125

Other

10,868

9,421

Assets held for sale

616

666

Total current assets

257,425

228,540

NONCURRENT ASSETS:

Property, plant and equipment, net

39,159

39,783

Operating lease right-of-use assets

25,915

27,057

Other assets

1,391

1,399

TOTAL ASSETS

$

323,890

$

296,779

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable - trade

$

44,948

$

67,773

Current portion of operating lease liabilities

5,664

5,833

Accrued liabilities:

Payroll and related items

6,357

7,662

Insurance

2,935

3,062

Restructuring costs

1,392

1,522

Advertising

5,001

5,196

Environmental remediation

3,570

3,570

Other

6,103

5,133

Total current liabilities

75,970

99,751

LONG-TERM LIABILITIES:

Operating lease liabilities, less current maturities

23,412

24,317

Line of Credit

53,053

3,500

Other liabilities

1,184

1,243

Total liabilities

153,619

128,811

SHAREHOLDERS' EQUITY:

Common stock - $1 par value; authorized 15,000 shares; 8,143 shares issued and
6,810 outstanding as of September 30, 2021; 8,133 shares issued and
6,848 outstanding as of June 30, 2021

8,143

8,133

Additional paid-in capital

34,917

34,015

Treasury stock, at cost; 1,333 shares and 1,284 shares as of September 30, 2021, and
June 30, 2021, respectively

(33,235)

(31,320)

Retained earnings

160,446

157,140

Total shareholders' equity

170,271

167,968

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

323,890

$

296,779

See accompanying Notes to Consolidated Financial Statements (Unaudited).

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except per share data)

Three Months Ended

September 30,

2021

2020

Net sales

$

137,689

$

105,239

Cost of goods sold

114,279

82,424

Gross margin

23,410

22,815

Selling, general and administrative expenses

18,785

14,175

Restructuring expense

152

1,381

(Gain) on disposal of assets due to restructuring

(1,400)

(652)

Operating income

5,873

7,911

Interest expense

203

Other expense

2

49

Income before income taxes

5,668

7,960

Income tax provision

1,315

4,081

Net income

$

4,353

$

3,879

Weighted average number of common shares outstanding:

Basic

6,834

7,702

Diluted

7,090

7,908

Earnings per share of common stock:

Basic

$

0.64

$

0.50

Diluted

$

0.61

$

0.49

See accompanying Notes to Consolidated Financial Statements (Unaudited).


FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands)

Three Months Ended September 30, 2021

Total Par

Value of

Additional

Common

Paid-In

Treasury

Retained

Shares ($1 Par)

Capital

Stock

Earnings

Total

Balance at June 30, 2021

$

8,133

$

34,015

$

(31,320)

$

157,140

$

167,968

Stock-based compensation

3

1,159

1,162

Vesting of restricted stock units and restricted shares

7

(257)

(250)

Treasury stock purchases

(1,915)

(1,915)

Cash dividends declared

(1,047)

(1,047)

Net income

4,353

4,353

Balance at September 30, 2021

$

8,143

$

34,917

$

(33,235)

$

160,446

$

170,271

Three Months Ended September 30, 2020

Total Par

Value of

Additional

Common

Paid-In

Treasury

Retained

Shares ($1 Par)

Capital

Stock

Earnings

Total

Balance at June 30, 2020

$

8,008

$

31,748

$

(1,563)

$

137,312

$

175,505

Stock-based compensation

2

954

956

Vesting of restricted stock units and restricted shares

55

(387)

(332)

Treasury stock purchases

(9,000)

(9,000)

Cash dividends declared

(383)

(383)

Net income

3,879

3,879

Balance at September 30, 2020

$

8,065

$

32,315

$

(10,563)

$

140,808

$

170,625

See accompanying Notes to Consolidated Financial Statements (Unaudited).


FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

Three Months Ended

September 30,

2021

2020

OPERATING ACTIVITIES:

Net income

$

4,353

$

3,879

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

Depreciation

1,327

1,360

Deferred income taxes

2,111

Stock-based compensation expense

1,162

954

Change in provision for losses on accounts receivable

120

(25)

(Gain) on disposal of assets

(1,400)

(637)

Changes in operating assets and liabilities:

Trade receivables

7,620

(7,542)

Inventories

(32,574)

(5,173)

Other current assets

(1,449)

(2,293)

Other assets

8

13

Accounts payable - trade

(22,706)

1,054

Accrued liabilities

(726)

3,870

Other long-term liabilities

(50)

243

Net cash (used in) operating activities

(44,315)

(2,186)

INVESTING ACTIVITIES:

Purchases of investments

(8)

Proceeds from sales of investments

8

Proceeds from sale of capital assets

1,450

679

Capital expenditures

(821)

(360)

Net cash provided by investing activities

629

319

FINANCING ACTIVITIES:

Dividends paid

(1,050)

(454)

Treasury stock purchases

(1,915)

(9,000)

Proceeds from lines of credit

74,565

Payments on lines of credit

(25,013)

Shares withheld for tax payments on vested restricted shares

(248)

(329)

Net cash provided by (used in) financing activities

46,339

(9,783)

Increase (decrease) in cash and cash equivalents

2,653

(11,650)

Cash and cash equivalents at beginning of period

1,342

48,197

Cash and cash equivalents at end of period

$

3,995

$

36,547

SUPPLEMENTAL INFORMATION

Cash paid for amounts included in lease liabilities

$

1,074

$

1,035

Right-of-use assets exchanged for lease liabilities

$

$

2,741

Interest paid

$

157

$

Income taxes paid (refunded), net

$

741

$

(388)

Capital expenditures in accounts payable

$

(119)

$

See accompanying Notes to Consolidated Financial Statements (Unaudited).


FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE PERIOD ENDED SEPTEMBER 30, 2021

1.  BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries (the “Company” or “Flexsteel” or “Our”) is one of the largest manufacturers, importers and online marketers of furniture products in the United States. Product offerings include a wide variety of furniture such as sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs and bedroom furniture. 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.

COVID-19 - In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic by the World Health Organization. This pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, led to significant travel and transportation restrictions, including mandatory business closures and orders to shelter in place. The Company’s business operations and financial performance for fiscal year 2020 were impacted by COVID-19. During the year ended June 30, 2021, the Company saw improvement in our business conditions as retailers reopened and orders increased, however, we continued to see supply chain challenges faced by the furniture industry due to the limited availability of ocean containers and significant increases in ocean container rates, limited availability and inflationary pressures in key materials, and labor shortages both in Asia and the United States. These supply chain issues have continued during the three months ended September 30, 2021. The COVID-19 pandemic remains fluid and the extent of the impact to our business may be significant, however, we are unable to predict the extent or nature of these impacts at this time.

BASIS OF PRESENTATION – The Consolidated Financial Statements included herein have been prepared by Flexsteel, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished in the Consolidated Financial Statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such Consolidated Financial Statements. Operating results for the three months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2022. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Except to the extent updated or described below, the significant accounting policies set forth in Note 1 to the Consolidated Financial
Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2021, appropriately represent, in all material respects, the current status of accounting policies and are incorporated by reference.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS – In December 2019, the FASB issued ASU 2019-12 “Income Taxes Simplifying the Accounting for Income Taxes (Topic 740)” as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The amendments in this guidance were effective for fiscal years beginning after December 15, 2020, with early adoption permitted.  Effective July 1, 2021, the Company adopted Topic 740 and there was no impact to the Company’s financial statements.

 

2.  INVENTORIES

A comparison of inventories is as follows:

September 30,

June 30,

(in thousands)

2021

2021

Raw materials

$

26,460

$

22,500

Work in process and finished parts

7,267

6,234

Finished goods

159,973

132,391

Total

$

193,700

$

161,125

 

3. ASSETS HELD FOR SALE

During fiscal year 2020, the Company committed to a plan to sell assets located at the Company’s Harrison, Arkansas; Dubuque, Iowa; and Starkville, Mississippi locations as part of the Company’s restructuring plan, see Note 5 Restructuring. A summary of the assets held for sale as of September 30, 2021, is included in the table below.

Accumulated

Net Book

Location

Asset Category

Cost

Depreciation

Value

(in thousands)

Starkville, Mississippi

Building & building improvements

4,615

(4,254)

361

Land & land improvements

694

(439)

255

Total Starkville

5,309

(4,693)

616

Total assets held for sale

$

5,309

$

(4,693)

$

616

On September 10, 2021, the Company closed on the sale of the Harrison property resulting in net proceeds to the Company of $1.5 million after customary closing costs, prorations, and sales commissions and the Company recorded a pre-tax gain of $1.4 million which is reflected in the (gain) on disposal of assets due to restructuring in the Company’s Consolidated Statements of Income.

 

4.  LEASES

The Company accounts for its leases in accordance with ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 requires lessees to (i) recognize a right of use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities. The Company has made an accounting policy election to not recognize short-term leases on the Consolidated Balance Sheets and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs and the remaining balance of lease incentives received. Both the lease ROU asset and liability are reduced to zero at the end of the lease term.

The Company leases distribution centers and warehouses, manufacturing facilities, showrooms, and office space. At the lease inception date, the Company determines if an arrangement is, or contains a lease. Some of the Company’s leases include options to renew at similar terms. The Company assesses these options to determine if the Company is reasonably certain of exercising these options based on relevant economic and financial factors. Options that meet these criteria are included in the lease term at the lease commencement date.

On August 20, 2021, Flexsteel entered into a lease agreement for the construction of a 507,830 square foot manufacturing facility in Mexicali, Mexico. The lease commencement date under ASC842 guidance will be April 1, 2022, the date the lessor makes the building available for use by the Company for purposes of completing any leasehold improvements required by the Company prior to beginning operations. The 12-year lease term begins on June 1, 2022, and ends on May 31, 2034, with options for two five-year extensions. Annual base rent under the lease is $3.1 million plus taxes, insurance, and common area maintenance costs.

On September 28, 2021, Flexsteel entered into a Warehousing Agreement, a component of which meets the definition of a lease under ASC842. The lease component includes a 241,920 square foot facility in Greencastle, Pennsylvania, and all improvements and equipment necessary to operate the facility. The lease commencement date is October 1, 2021, the date the building became available for use by the Company. The 125-month lease term began on October 1, 2021, and ends on February 28, 2034, with an option for a 5-year extension. Annual base rent under the lease is $1.8 million plus taxes, insurance, utilities, and common area maintenance costs.

For purposes of measuring the Company’s ROU asset and lease liability, the discount rate utilized by the Company was based on the average interest rates effective for the Company’s line of credit. Some of the Company’s leases contain variable rent payments, including common area maintenance and utilities. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.

The components of the Company’s leases reflected on the Company’s Consolidated Statements of Income were as follows:

Three Months Ended

(in thousands)

September 30, 2021

September 30, 2020

Operating lease expense

$

1,389