0000037472-22-000060.txt : 20221031 0000037472-22-000060.hdr.sgml : 20221031 20221031162714 ACCESSION NUMBER: 0000037472-22-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 60 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221031 DATE AS OF CHANGE: 20221031 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: 221346357 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-20220930x10q.htm 10-Q flxs-20220930x10q
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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, 2022

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 the 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 a 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 31, 2022

5,273,390


FLEXSTEEL INDUSTRIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2022

Page

Part I – Financial Information

Item 1.

Financial Statements

3

Consolidated Balance Sheets as of September 30, 2022, and June 30, 2022 (Unaudited)

3

Consolidated Statements of Income and Comprehensive Income for the three months ended September 30, 2022, and September 30, 2021 (Unaudited)

4

Consolidated Statements of Changes in Shareholders’ Equity for the three months ended September 30, 2022, and September 30, 2021 (Unaudited)

5

Consolidated Statements of Cash Flows for the three months ended September 30, 2022, and September 30, 2021 (Unaudited)

6

Notes to Consolidated Financial Statements (Unaudited)

7

Item 2.

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

13

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

17

Signatures

18


PART I FINANCIAL INFORMATION

Item 1.Financial Statements

FLEXSTEEL INDUSTRIES, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands)

September 30,

June 30,

2022

2022

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

3,971

$

2,184

Trade receivables - less allowances: September 30, 2022, $2,970, June 30, 2022, $2,980

33,886

41,106

Inventories

121,390

141,212

Other

13,119

4,950

Assets held for sale

616

616

Total current assets

172,982

190,068

NONCURRENT ASSETS:

Property, plant and equipment, net

38,958

38,543

Operating lease right-of-use assets

70,872

38,189

Other assets

1,941

1,941

TOTAL ASSETS

$

284,753

$

268,741

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable - trade

$

21,035

$

32,147

Current portion of operating lease liabilities

7,993

6,361

Accrued liabilities:

Payroll and related items

4,978

6,385

Insurance

2,183

2,158

Restructuring costs

1,290

Advertising

3,780

4,052

Environmental remediation

9,800

3,570

Other

7,119

8,664

Total current liabilities

56,888

64,627

LONG-TERM LIABILITIES:

Operating lease liabilities, less current maturities

66,218

33,992

Lines of credit

30,030

37,739

Other liabilities

529

823

Total liabilities

153,665

137,181

SHAREHOLDERS' EQUITY:

Common stock - $1 par value; authorized 15,000 shares; 8,226 shares issued and

5,313 outstanding as of September 30, 2022; 8,190 shares issued and

5,300 outstanding as of June 30, 2022

8,226

8,190

Additional paid-in capital

34,906

34,467

Treasury stock, at cost; 2,913 shares, and 2,890 shares as of September 30, 2022, and

June 30, 2022, respectively

(66,775)

(66,372)

Retained earnings

154,731

155,275

Total shareholders' equity

131,088

131,560

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

284,753

$

268,741

See accompanying Notes to Consolidated Financial Statements (Unaudited).

FLEXSTEEL INDUSTRIES, INC., AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands, except per share data)

Three Months Ended

September 30,

2022

2021

Net sales

$

95,684

$

137,689

Cost of goods sold

80,335

114,279

Gross margin

15,349

23,410

Selling, general and administrative expenses

14,574

18,785

Restructuring expense

152

Other expense

347

Gain on disposal of assets due to restructuring

(1,400)

Operating income

428

5,873

Interest expense

321

203

Other expense

2

2

Income before income taxes

105

5,668

Income tax (benefit) provision

(184)

1,315

Net income and comprehensive income

$

289

$

4,353

Weighted average number of common shares outstanding:

Basic

5,311

6,834

Diluted

5,467

7,090

Earnings per share of common stock:

Basic

$

0.05

$

0.64

Diluted

$

0.05

$

0.61

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, 2022

Total Par

Value of

Additional

Common

Paid-In

Treasury

Retained

Shares ($1 Par)

Capital

Stock

Earnings

Total

Balance on June 30, 2022

$

8,190

$

34,467

$

(66,372)

$

155,275

$

131,560

Stock-based compensation

8

817

825

Vesting of restricted stock units and restricted shares

28

(378)

(350)

Treasury stock purchases

(403)

(403)

Cash dividends declared

(833)

(833)

Net income

289

289

Balance on September 30, 2022

$

8,226

$

34,906

$

(66,775)

$

154,731

$

131,088

Three Months Ended September 30, 2021

Total Par

Value of

Additional

Common

Paid-In

Treasury

Retained

Shares ($1 Par)

Capital

Stock

Earnings

Total

Balance on 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 on September 30, 2021

$

8,143

$

34,917

$

(33,235)

$

160,446

$

170,271

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,

2022

2021

OPERATING ACTIVITIES:

Net income

$

289

$

4,353

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

Depreciation

1,128

1,327

Stock-based compensation expense

825

1,162

Change in provision for losses on accounts receivable

(10)

120

(Gain) on disposal of assets

(1,400)

Changes in operating assets and liabilities:

Trade receivables

7,230

7,620

Inventories

19,823

(32,574)

Other current assets

(8,169)

(1,449)

Other assets

8

Accounts payable - trade

(10,777)

(22,706)

Accrued liabilities

2,949

(726)

Other long-term liabilities

(294)

(50)

Net cash provided by (used in) operating activities

12,994

(44,315)

INVESTING ACTIVITIES:

Proceeds from the sale of capital assets

1,450

Capital expenditures

(1,878)

(821)

Net cash (used in) provided by investing activities

(1,878)

629

FINANCING ACTIVITIES:

Dividends paid

(867)

(1,050)

Treasury stock purchases

(403)

(1,915)

Proceeds from lines of credit

88,058

74,565

Payments on lines of credit

(95,768)

(25,013)

Shares withheld for tax payments on vested restricted shares

(349)

(248)

Net cash (used in) provided by financing activities

(9,329)

46,339

Increase in cash and cash equivalents

1,787

2,653

Cash and cash equivalents at beginning of the period

2,184

1,342

Cash and cash equivalents at end of the period

$

3,971

$

3,995

SUPPLEMENTAL INFORMATION

Cash paid for amounts included in lease liabilities

$

953

$

1,074

Right-of-use assets exchanged for lease liabilities

$

34,811

$

Interest paid

$

306

$

157

Income taxes, net

$

1,786

$

741

Capital expenditures in accounts payable

$

57

$

(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, 2022

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 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, 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.

BASIS OF PRESENTATION – The unaudited Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information contained 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, 2022, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2023. 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 in Note 1 to the Consolidated Financial
Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, appropriately represent, in all material respects, the current status of accounting policies.

 

2.  INVENTORIES

A comparison of inventories is as follows:

September 30,

June 30,

(in thousands)

2022

2022

Raw materials

$

15,204

$

16,405

Work in process and finished parts

4,753

5,534

Finished goods

101,433

119,273

Total

$

121,390

$

141,212

 

3. ASSETS HELD FOR SALE

During the fiscal year 2020, the Company committed to a plan to sell assets located at the Company’s Starkville, Mississippi location as part of the Company’s restructuring plan, see Note 5 Restructuring. As of September 30, 2022, the Company continues to actively market the assets in Starkville, Mississippi. A summary of the assets held for sale as of September 30, 2022, 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 assets held for sale

$

5,309

$

(4,693)

$

616

 

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.

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.

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 ASC 842 guidance was on July 1, 2022, the date the lessor made the building available for use by the Company for purposes of completing any leasehold improvements required by the Company prior to beginning operations. The 12-year lease term began on August 1, 2022, and ends on June 30, 2034, with options for two five-year extensions. Annual base rent under the lease is $3.2 million plus taxes, insurance and common area maintenance costs.

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

Three Months Ended

September 30,

(in thousands)

2022

2021

Operating lease expense

$

2,666

$

1,389

Variable lease expense

418

75

Total lease expense

$

3,084

$

1,464

Other information related to leases and future minimum lease payments under non-cancellable operating leases were as follows:

Three Months Ended

September 30, 2022

September 30, 2021

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities: