FLEXSTEEL INDUSTRIES INC

Current report

During the quarter ended March 31, 2024, we incurred $2.6 million of restructuring expenses primarily for employee termination and facility closure costs as part of the previously announced closure of our Dublin, Georgia manufacturing facility. See Note 5, Restructuring, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.

Current report

Results of Operations for theninem onthse nded March 31, 2024 and 2023

Current report

Net sales were $301.9 million for the nine months ended March 31, 2024, compared to net sales of $287.9 million in the prior-year nine-month period, an increase of 4.9%. The increase in sales of $14.0 million was driven by a $16.1 million increase related to home furnishing products sold through retailers offset by a decrease of ($2.1) million for home furnishing products sold through e-commerce channels.

Current report

Gross margin as a percent of net sales for the nine months ended March 31, 2024, was 21.1%, compared to 17.3% for the prior-year nine-month period, an increase of 380 bps. The 380-bps increase was primarily driven by the same factors discussed above for the quarter ended March 31, 2024.

Current report

Selling, general and administrative expenses increased $5.6 million in the nine months ended March 31, 2024, compared to the prior-year nine-month period. SG&A as a percentage of sales was 17.1% in the nine months ended March 31, 2024, compared to the prior-year nine-month period of 16.0%. The 110-bps increase was primarily due to investments in growth initiatives and higher incentive compensation for the nine months ended March 31, 2024.

Current report

During the nine months ended March 31, 2024, we incurred $2.6 million of restructuring expenses primarily for employee termination and facility closure costs as part of the previously announced closure of our Dublin, Georgia manufacturing facility. See Note 5, Restructuring, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.

Current report

During the nine months ended March 31, 2023, the Company recorded income of $2.8 million related to the settlement of an environmental remediation liability. See Note 10, Commitments and Contingencies, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.

Current report

Net income was $5.6 million, or $1.04 per diluted share for the nine months ended March 31, 2024, compared to net income of $4.6 million, or $0.85 per diluted share in the prior-year nine-month period.

Current report

Liquidity and Capital Resources

Current report

Working capital (current assets less current liabilities) on March 31, 2024, was $96.2 million compared to $115.5 million on June 30, 2023. The $19.4 million decrease in working capital was primarily due to a decrease in inventory of $25.5 million, an increase in other current liabilities of $1.3 million, and an increase of operating lease liabilities of $0.4 million partially offset by a decrease in accounts payable of $3.1 million, an increase in other current assets of $2.8 million, an increase in cash of $1.2 million, and an increase in net trade receivables of $0.7 million. Refer to discussion of working capital changes below, under Net cash provided by operating activities. Capital expenditures were $4.4 million during the nine months ended March 31, 2024.

Current report

A summary of operating, investing, and financing cash flow is shown in the following table:

Current report

Net cash provided by operating activities

Current report

For the nine months ended March 31, 2024, net cash provided by operating activities was $24.4 million, primarily due to a decrease in inventory of $25.5 million, net income of $5.6 million, an increase in accrued liabilities of $1.6 million, an increase in other long-term liabilities of $0.1 million, and adjustments for non-cash items including depreciation of $2.9 million, stock-based compensation of $2.7 million, and deferred income taxes of $0.1 million partially offset by an increase in other assets of $7.6 million, a decrease in accounts payable of $3.0 million, an increase in other current assets of $2.8 million, an increase in trade receivables of $0.6 million and an increase in trade receivable provision of $0.1 million.

Current report

For the nine months ended March 31, 2023, net cash provided by operating activities was $30.5 million, which primarily consisted of net income of $4.6 million, adjusted for non-cash items including depreciation of $3.5 million, stock-based compensation of $2.5 million, and a decrease in provisions for losses of $0.1 million. Net cash provided by operating assets and liabilities was $20.0 million and was primarily due to a decrease in inventories of $27.9 million, and a decrease in trade receivables of $4.7 million, partially offset by a decrease in accrued liabilities of $3.4 million, a decrease in payables of $6.3 million, a decrease in other current assets of $2.6 million, and a decrease in other long-term liabilities of $0.2 million.

Current report

Net cash (used in) investing activities

Current report

For the nine months ended March 31, 2024, net cash used in investing activities was $4.4 million due to capital expenditures.

Current report

For the nine months ended March 31, 2023, net cash used in investing activities was $3.6 million due to capital expenditures.

Current report

Net cash (used in) financing activities

Current report

For the nine months ended March 31, 2024, net cash used in financing activities was $18.8 million, due to payments on the line of credit of $284.5 million partially offset by proceeds from the line of credit of $270.4 million, dividends paid of $2.4 million, $1.7 million paid for purchases of company stock, and $0.7 million paid for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock partially offset by proceeds from issuance of common stock of $0.1 million.

Current report

For the nine months ended March 31, 2023, net cash used in financing activities was $26.6 million, primarily due to payments on lines of credit of $274.5 million, partially offset by proceeds from lines of credit of $254.5 million. In addition to the line of credit activity, net cash used in financing activities was also due to dividends paid of $3.2 million, $3.0 million for purchases of company stock, and $0.4 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

Current report

Line of Credit

Current report

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 party 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 March 31, 2024, management believes the Company was in compliance with all covenants.

Current report

On April 18, 2022, the Company, as the borrower, entered into a first amendment to the September 8, 2021, Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.

Current report

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 6.68%, on March 31, 2024.

Current report

As of March 31, 2024, there was $14.2 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.

Current report

Letters of credit outstanding with the Lender as of March 31, 2024, totaled $1.1 million.

Current report

Contractual Obligations

Current report

As of March 31, 2024, there have been no material changes to our contractual obligations presented in our Annual Report on Form 10-K for the year ended June 30, 2023.

Current report — wording carried from elsewhere

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Current report — wording carried from elsewhere

Income tax expense was $2.5 million, or an effective rate of 30.8%, during the nine months ended March 31, 2024, compared to income tax expense of $0.8 million in the prior-year nine-month period, or an effective tax rate of 14.8%. The effective tax rate for the nine months ended March 31, 2023, was primarily impacted by nondeductible stock compensation, state taxes, the impacts associated with uncertain tax positions, and the impact of foreign operations.