FLEXSTEEL INDUSTRIES INC

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.

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:

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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.

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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.

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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.

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We evaluated management’s measurement of the inventory markdowns and net realizable value by testing the mathematical accuracy of the Company’s calculation.

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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:

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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.

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We inquired of management regarding the viability of subleasing the manufacturing facility and appropriate sublease rental income per square foot.

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We evaluated the reasonableness of management’s plan to sublease the Mexicali, Mexico manufacturing facility through:

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Inspection of internal communications between management and the Board of Directors

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Inspection of historical subleasing agreements between the Company and tenants.

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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.

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With the assistance of fair value specialists, we evaluated the reasonableness of the sublease rental income per square foot by:

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Testing the source information underlying the determination of sublease rental income per square foot and testing the mathematical accuracy of the information

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Comparing sublease rental income per square foot to market data

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Developing ranges of independent estimates and comparing those to the sublease rental income per square foot selected by management.

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With the assistance of fair value specialists, we evaluated the reasonableness of the discount rate by:

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Testing the source information underlying the determination of the discount rate and testing the mathematical accuracy of the information

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Comparing the discount rate to market data

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Developing ranges of independent estimates and comparing those to the discount rate selected by management

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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.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM