FLEXSTEEL INDUSTRIES INC

FOR THE PERIOD ENDED September 30, 2026

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries (the “Company”, “Flexsteel”, or “Our”) is one of the largest residential furniture manufacturers, importers, and marketers in the U.S. Flexsteel addresses different consumer groups through our core brand, Flexsteel, and several category-specific sub-brands: Zecliner®, Flexsteel Statements TM, Zen, Perfect Match, and Flexsteel Pulse TM, all of which have unique value propositions tailored to specific consumer needs. We offer a wide assortment of product solutions for different areas within the home including stationary and motion sofas, loveseats, chairs, and sectionals, as well as bedroom furniture, dining tables and chairs, occasional and entertainment tables, and kitchen storage. For more than 130 years, Flexsteel has strived to create strong consumer value with unmatched quality, comfort, and durability, backed by innovation and highlighted by its patented Blue Steel Spring technology, designed to deliver lasting comfort and support. Today, Flexsteel products are available nationwide through retail partners and online channels.

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 thethree months ended September 30, 2026, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2027. 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, 2026, appropriately represent, in all material respects, the current status of accounting policies.

RECLASSIFICATIONS - Certain prior year amounts in the consolidated statements of cash flows have been reclassified to conform to the current year presentation. These reclassifications had no effect on the net operating cash flows.

2. INVENTORIES

A comparison of inventories is as follows:

3. LEASES

The Company accounts for its leases in accordance with ASU 842, Leases. 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 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, the remaining balance of lease incentives received, and any impairment. Both the lease ROU asset and lease 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.

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

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

Future minimum lease payments under non-cancelable operating leases were as follows:

4. CREDIT ARRANGEMENTS

On August 18, 2026, the Company, as borrower, entered into a Credit Agreement (the “New Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), providing for a secured revolving credit facility in an aggregate principal amount of up to $30.0 million (the “Credit Facility”). Proceeds of borrowings under the Credit Facility are used for working capital and other general corporate purposes. The Credit Facility has athree-year term. The Company may prepay outstanding borrowings under the Credit Facility, in whole or in part, at any time without premium or penalty, subject to the terms of the New Credit Agreement. The New Credit Agreement contains customary affirmative and negative covenants, including covenants that, among other things, limit or restrict the Company’s ability to incur indebtedness, grant liens, make investments, loans and advances, provide guarantees, pay dividends, repurchase stock, engage in mergers, consolidations and other fundamental changes, and enter into certain transactions. The obligations of the Company under the Credit Facility are secured pursuant to a Security Agreement (the “Security Agreement”) entered into with the Lender, pursuant to which the Company granted the Lender a security interest in substantially all of the Company’s personal property assets, whether now owned or hereafter acquired, including accounts receivable, deposit accounts, inventory, equipment, general intangibles, software, licenses, payment rights and related proceeds thereof, but excluding the Company’s real property. In addition, the New Credit Agreement requires the Company to maintain (i) an Asset Coverage Ratio of not less than 2.00 to 1.00, measured as of the last day of each fiscal quarter, and (ii) EBITDA of not less than $15.0 million, measured on a rolling four-quarter basis as of the end of each fiscal quarter. As of September 30, 2026, management believes the Company was in compliance with all covenants.

Amounts outstanding under the Credit Facility bear interest at a rate per annum equal to Daily Simple SOFR plus a margin of 1.25%, or an effective interest rate of 5.15%, on September 30, 2026. Interest is payable monthly in arrears on the first business day of each month. In connection with the New Credit Agreement, the Company is required to pay a commitment fee equal to 0.30% per annum on the average daily unused portion of the Credit Facility and letter of credit fees at a rate equal to the then-effective applicable margin for advances under the New Credit Agreement multiplied by the aggregate amount of letters of credit outstanding. The New Credit Agreement contains customary events of default, including, among others, the failure to pay principal, interest or other amounts when due, breaches of covenants, certain bankruptcy or insolvency events, material judgment defaults and certain change of control events. Upon the occurrence and continuation of an event of default, the Lender may terminate its commitments under the Credit Facility and declare all outstanding obligations immediately due and payable.

As of September 30, 2026, there wereno outs tanding borrowings under the New Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding with the Lender as of September 30, 2026, totaled $0.9 million.

5. INCOME TAXES

The provision for income taxes for the interim periods is based on an estimate of the Company's effective tax rate adjusted to reflect the impact of discrete items. Management judgement is required in projecting ordinary income to estimate the Company's annual effective tax rate. The Company’s effective tax rate for the three months ended September 30, 2026 and 2025, was 21.8% and 21.9%, respectively. For the three months ended September 30, 2026 and 2025, the effective tax rate differs from the statutory tax rate of 21% due to state taxes, section 162(m) limitation, stock compensation, and the research and development credit.

6. STOCK-BASED COMPENSATION

The Company accounts for its stock-based compensation plans in accordance with ASC 718, Stock Compensation, which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period. Restricted shares and restricted stock units (“RSUs”) generally vest over 1 to 3 years. Stock options are granted at an exercise price equal to the fair value of the Company’s common stock price at the grant date and are exercisable for up to 10 years from the date of grant. Stock-based compensation is included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. Forfeitures are recognized as incurred.

The following table is a summary of total stock-based compensation expenses for the three months ended September 30, 2026 and 2025.

The Company’s shareholders approved the Flexsteel Industries, Inc. 2022 Equity Incentive Plan (“2022 Plan”) on December 14, 2022 and approved amendments to the 2022 Plan on December 10, 2025.

The 2022 Plan replaced the Long-Term Incentive Compensation Plan (“LTIP”) and the 2013 Omnibus Stock Plan (collectively, the “Prior Plans”). No further awards will be made under either of the Prior Plans, but these Prior Plans will continue to govern awards previously granted under them.

(1)

2022 Equity Incentive Plan

The 2022 Plan is a long-term incentive plan pursuant to which awards may be granted to certain employees, independent contractors and directors of the Company, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other stock-based awards. For periods beginning on or after July 1, 2023, restricted stock units ("RSUs") and performance stock units ("PSUs") granted to officers and key employees as part of long-term compensation programs are issued from the 2022 Plan. RSUs and PSUs awarded from the 2022 Plan are included in the Long-Term Incentive Compensation or Restricted Share and RSUs tables below.

(2)

Long-Term Incentive Compensation Plan

The LTIP provided for PSUs to be awarded to officers and key employees based on performance goals set by the Compensation Committee of the Board of Directors (the “Committee”). In conjunction with each grant of PSUs, the Committee granted RSUs under the 2013 Omnibus Stock Plan that vested at the end ofthree years. No further awards will be issued under this plan.

(3)

2013 Omnibus Stock Plan

The 2013 Omnibus Stock Plan was for key employees, officers and directors and provided for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and performance units. No further awards will be issued under this plan.

Long-Term Incentive Compensation

The table below sets forth, as of September 30, 2026, the number of unvested PSUs granted at the target performance level for the 2025-2027, 2026-2028, and 2027-2029 performance periods under the 2022 Plan and the number of unvested RSUs granted in conjunction with the PSUs. For PSUs awarded for the three year performance periods ending June 30, 2027, 2028 and 2029, achievement is based on meeting performance goals set for each year within the three year period. The Committee selected Adjusted Operating Income as the performance metric for the performance periods ending June 30, 2027, 2028, and 2029.

Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUswas $4.4 millionas of September 30, 2026, which is expected to be recognized over a weighted-average period of 1.6 years.

Restricted Shares and RSUs

A summary of the activity in the Company’s unvested restricted shares and unvested RSUs (not granted in conjunction with PSUs) as of September 30, 2026, is as follows:

Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.2 million as of September 30, 2026, which is expected to be recognized over a weighted-average period of 1.4 years.

Options

At September 30, 2026, the Company had 50,485 options outstanding under equity incentive plans with a weighted average exercise price of $12.04 and weighted average remaining life of 3.7 years. No options were granted during the period ended September 30, 2026 and there is no remaining unrecognized stock-based compensation expense related to outstanding options as of September 30, 2026.

Stock-based compensation granted outside a plan

During the quarter ended June 30, 2020, the Company awarded its former Chief Financial Officer/Chief Operating Officer (current Chief Executive Officer)79,000 options outside of any Company stock plans. All 79,000 options remain outstanding as of September 30, 2026, with an exercise price of$9.97 and a remaining life of 3.5 years. There isno remaining unrecognized stock-based compensation expense related to these options.

7. EARNINGS PER SHARE

Basic earnings per share (EPS) of common stock are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share of common stock include the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options, shares associated with the long-term incentive compensation plans, and non-vested restricted stock units. The Company calculates the dilutive effect of outstanding options and restricted stock units using the treasury stock method. Anti-dilutive options are not included in the computation of diluted EPS when their exercise price is greater than the average closing market price of the common shares.

Cash dividends declared per common share were $0.25 for the three months ended September 30, 2026, and were $0.20 for the three months ended September 30, 2025, respectively.

8. SEGMENT INFORMATION

The Company operates asone operating segment andone reportable segment reflecting the integrated nature of its operations across various products, manufacturing platforms and sales channels across the entire United States.

The Company's chief operating decision maker (“CODM”) is its President and Chief Executive Officer, who has final authority over the allocation of resources, assessment of performance, and key operating decisions.

The CODM manages the business on a consolidated basis and measures segment performance using operating income and net income, which the Company believes provide the best analysis of business performance. The CODM analyzes the performance of operating income and net income to provide insight into all aspects of the segment’s operations and overall success for a given period. In addition, the CODM reviews significant segment expenses focused on cost of sales, selling and general administrative expenses, and restructuring charges, net. These costs used to measure segment profitability are the same costs already reported in the accompanying Consolidated Statements of Income and Comprehensive Income. Similarly, segment assets are reported in the accompanying Consolidated Balance Sheets.

The Company has minimal export sales, primarily to Canada or Mexico. The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico. Long-lived assets, including property, plant & equipment and right-of-use assets related to leases, located in the United States and Mexico totaled $39.2 million and $30.5 million, respectively, at September 30, 2026 and $40.3 million and $31.4 million, respectively, at June 30, 2026.

The following table disaggregates the Company's net sales by product brand in which the total net sales presented are the same amounts reported for the Company's single reportable segment for thethree months ended September 30, 2026 and 2025.

9. COMMITMENTS AND CONTINGENCIES

From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company does not consider any of such other proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material effect on its consolidated operating results, financial condition, or cash flows.

10. RECENT ACCOUNTING PRONOUNCEMENTS

PENDING ADOPTION - In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the disclosure impacts of this ASU on its consolidated financial statements.

RECENTLY ADOPTED - In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient for estimating expected credit losses on current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The practical expedient permits entities to assume that current conditions as of the balance sheet date will remain unchanged for the remaining life of these assets when estimating expected credit losses. This guidance is effective for the Company for its fiscal year and interim periods beginning July 2026. Due to the nature of the Company's trade receivable balance, the adoption of this ASU did not have a material impact on the Company's consolidated financial statements.