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 ~~March~~December 31, 2021

¨ 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 ~~April~~January 27, ~~2021~~2022	~~6,853,593~~6,487,755

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Table of Contents

FLEXSTEEL INDUSTRIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED ~~MARCH~~DECEMBER 31, 2021



		Page
Part I – Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of ~~March~~December 31, 2021 (Unaudited) and June 30, ~~2020 (Unaudited)~~2021	3
	Consolidated Statements of Income for the three and ~~nine~~six months ended ~~March~~December 31, 2021, and ~~March 31, 2020 (Unaudited)~~	4
	~~Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2021 and March~~December 31, 2020 (Unaudited)	4
	Consolidated Statements of Changes in Shareholders’ Equity for the ~~nine~~three and six months ended ~~March~~December 31, 2021, and ~~March~~December 31, 2020 (Unaudited)	5
	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~March~~December 31, 2021, and ~~March~~December 31, ~~2010~~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	17
Item 4.	Controls and Procedures	17
Part II – Other Information
Item 1A.	Risk Factors	18
Item ~~2A.~~2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 6.	Exhibits	18
Signatures		19

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Table of Contents

PART I FINANCIAL INFORMATION

Item 1.Financial Statements

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands)



	March 31,		June 30,		December 31,		June 30,
	2021		2020		2021		2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	16,971	$	48,197	$	4,087	$	1,342
Trade receivables - less allowances: March 31, 2021, $3,050; June 30, 2020, $1,770		44,231		32,217
Trade receivables - less allowances: December 31, 2021, $3,430, June 30, 2021, $3,240						50,001		55,986
Inventories		109,448		70,565		179,042		161,125
Other		10,182		18,535		8,399		9,421
Assets held for sale		666		12,329		616		666
Total current assets		181,498		181,843		242,145		228,540
NONCURRENT ASSETS:
Property, plant and equipment, net		40,309		43,312		38,495		39,783
Operating lease right-of-use assets		28,539		8,683		41,206		27,057
Deferred income taxes		—		2,111
Other assets		1,384		1,310		1,908		1,399
TOTAL ASSETS	$	251,730	$	237,259	$	323,754	$	296,779

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade	$	31,798	$	27,747	$	38,092	$	67,773
Current portion of operating lease liabilities		5,741		4,408		6,665		5,833
Accrued liabilities:
Payroll and related items		4,914		3,275		5,708		7,662
Insurance		2,987		3,787		2,961		3,062
Restructuring costs		1,392		1,961		2,671		1,522
Advertising		4,730		3,823		6,190		5,196
Environmental remediation		3,570		3,600		3,570		3,570
Other		5,331		4,861		5,173		5,133
Total current liabilities		60,463		53,462		71,030		99,751
LONG-TERM LIABILITIES:
Operating lease liabilities, less current maturities		26,202		7,607		37,241		24,317
Lines of credit						59,734		3,500
Other liabilities		1,539		685		685		1,243
Total liabilities		88,204		61,754		168,690		128,811

SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000 shares; 8,125 shares issued and 6,875 outstanding as of March 31, 2021; 8,008 shares issued and 7,876 outstanding as of June 30, 2020		8,125		8,008
Common stock - $1 par value; authorized 15,000 shares; 8,153 shares issued and ‎6,544 outstanding as of December 31, 2021; 8,133 shares issued and ‎6,848 outstanding as of June 30, 2021						8,153		8,133
Additional paid-in capital		33,100		31,748		36,001		34,015
Treasury stock, at cost; 1,249 shares and 132 shares as of March 31, 2021 and June 30, 2020, respectively		(30,048)		(1,563)
Treasury stock, at cost; 1,608 shares and 1,284 shares as of December 31, 2021, and ‎June 30, 2021, respectively						(40,978)		(31,320)
Retained earnings		152,349		137,312		151,888		157,140
Total shareholders' equity		163,526		175,505		155,064		167,968
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	251,730	$	237,259	$	323,754	$	296,779

See accompanying Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	March 31,				March 31,				December 31,				December 31,
	2021		2020		2021		2020		2021		2020		2021		2020
Net sales	$	118,408	$	98,821	$	342,753	$	302,118	$	141,668	$	119,106	$	279,356	$	224,345
Cost of goods sold		95,284		84,973		272,436		254,999		132,141		94,728		246,419		177,152
Gross margin		23,124		13,848		70,317		47,119		9,527		24,378		32,937		47,193
Selling, general and administrative		16,292		20,115		49,378		55,678
Selling, general and administrative expenses										17,541		18,911		36,326		33,086
Restructuring expense		480		2,377		2,724		13,448		622		863		774		2,244
Gain on disposal of assets due to restructuring		—		(302)		(5,881)		(19,269)
Operating income (loss)		6,352		(8,342)		24,096		(2,738)
(Gain) on disposal of assets due to restructuring										—		(5,229)		(1,400)		(5,881)
Operating (loss) income										(8,636)		9,833		(2,763)		17,744
Interest expense		—		(16)		—		(16)		223		—		426		—
Other income		59		135		270		328
Income (loss) before income taxes		6,411		(8,223)		24,366		(2,426)
Income tax provision (benefit)		1,533		(2,953)		7,159		(1,323)
Net income (loss)	$	4,878	$	(5,270)	$	17,207	$	(1,103)
Other (income)										(104)		(162)		(102)		(211)
(Loss) income before income taxes										(8,755)		9,995		(3,087)		17,955
Income tax (benefit) provision										(1,210)		1,545		105		5,626
Net (loss) income									$	(7,545)	$	8,450	$	(3,192)	$	12,329
Weighted average number of common shares outstanding:
Basic		6,998		7,965		7,316		7,955		6,682		7,246		6,758		7,475
Diluted		7,270		7,965		7,551		7,955		6,682		7,495		6,758		7,681
Earnings (loss) per share of common stock:
(Loss) earnings per share of common stock:
Basic	$	0.70	$	(0.66)	$	2.35	$	(0.14)	$	(1.13)	$	1.17	$	(0.47)	$	1.65
Diluted	$	0.67	$	(0.66)	$	2.28	$	(0.14)	$	(1.13)	$	1.13	$	(0.47)	$	1.61

~~See accompanying Notes to Consolidated Financial Statements (Unaudited).~~

~~CONSOLIDATED~~ ~~STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)~~

~~(Amounts in thousands)~~

Three Months Ended
Nine Months Ended
March 31,
March 31,
2021
2020
2021
2020
Net income (loss)
$
4,878
$
(5,270)
$
17,207
$
(1,103)
Other comprehensive loss:
Unrealized loss on securities
—
—
—
(18)
Reclassification of realized loss on securities to
other income
—
—
—
7
Unrealized losses in securities before taxes
—
—
—
(11)
Income tax benefit related to securities losses
—
—
—
3
Other comprehensive loss, net of tax
—
—
—
(8)
Comprehensive income (loss)
$
4,878
$
(5,270)
$
17,207
$
(1,111)

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands)



	Nine Months Ended March 31, 2021										Six Months Ended December 31, 2021
	Total Par										Total Par
	Value of		Additional								Value of		Additional
	Common		Paid-In		Treasury		Retained				Common		Paid-In		Treasury		Retained
	Shares ($1 Par)		Capital		Stock		Earnings		Total		Shares ($1 Par)		Capital		Stock		Earnings		Total
Balance at June 30, 2020	$	8,008	$	31,748	$	(1,563)	$	137,312	$	175,505
Balance at June 30, 2021											$	8,133	$	34,015	$	(31,320)	$	157,140	$	167,968
Stock-based compensation		2		954		—		—		956		3		1,159		—		—		1,162
Vesting of restricted stock units and restricted shares		55		(387)						(332)		7		(257)		—		—		(250)
Treasury stock purchases		—		—		(9,000)		—		(9,000)		—		—		(1,915)		—		(1,915)
Cash dividends declared		—		—		—		(383)		(383)		—		—		—		(1,047)		(1,047)
Net income		—		—		—		3,879		3,879		—		—		—		4,353		4,353
Balance at September 30, 2020	$	8,065	$	32,315	$	(10,563)	$	140,808	$	170,625
Balance at September 30, 2021											$	8,143	$	34,917	$	(33,235)	$	160,446	$	170,271
Stock-based compensation		10		1,017		—		—		1,027		4		1,016		—		—		1,020
Vesting of restricted stock units and restricted shares												(2)		(42)						(44)
Stock options exercised		7		41		—		—		48		8		110		—		—		118
Treasury stock purchases		—		—		(11,013)		—		(11,013)		—		—		(7,743)		—		(7,743)
Cash dividends declared		—		—		—		(730)		(730)		—		—		—		(1,013)		(1,013)
Net income		—		—		—		8,450		8,450
Balance at December 31, 2020	$	8,082	$	33,373	$	(21,576)	$	148,528	$	168,407
Stock-based compensation		3		772		—		—		775
Vesting of restricted stock units and restricted shares		40		(1,045)		—		—		(1,005)
Treasury stock purchases		—		—		(8,472)		—		(8,472)
Cash dividends declared		—		—		—		(1,057)		(1,057)
Net income		—		—		—		4,878		4,878
Balance at March 31, 2021	$	8,125	$	33,100	$	(30,048)	$	152,349	$	163,526
Net (loss)												—		—		—		(7,545)		(7,545)
Balance at December 31, 2021											$	8,153	$	36,001	$	(40,978)	$	151,888	$	155,064


	Nine Months Ended March 31, 2020										Six Months Ended December 31, 2020
	Total Par						Accumulated				Total Par
	Value of		Additional				Other				Value of		Additional
	Common		Paid-In		Retained		Comprehensive				Common		Paid-In		Treasury		Retained
	Shares ($1 Par)		Capital		Earnings		(Loss) Income		Total		Shares ($1 Par)		Capital		Stock		Earnings		Total
Balance at June 30, 2019	$	7,903	$	27,512	$	170,004	$	8	$	205,427
Adoption of ASU 2016-02		—		—		(42)		—		(42)
Unrealized gain on available for sale investments, net of tax		—		—		—		(8)		(8)
Balance at June 30, 2020											$	8,008	$	31,748	$	(1,563)	$	137,312	$	175,505
Stock-based compensation		39		1,310		—		—		1,349		2		954		—		—		956
Vesting of restricted stock units and restricted shares												55		(387)		—		—		(332)
Treasury stock purchases												—		—		(9,000)		—		(9,000)
Cash dividends declared		—		—		(1,754)		—		(1,754)		—		—		—		(383)		(383)
Net income		—		—		9,551		—		9,551		—		—		—		3,879		3,879
Balance at September 30, 2019	$	7,942	$	28,822	$	177,759	$	—	$	214,523
Balance at September 30, 2020											$	8,065	$	32,315	$	(10,563)	$	140,808	$	170,625
Stock-based compensation		6		1,891		—		—		1,897		10		1,017		—		—		1,027
Stock options exercised		2		19		—		—		21		7		41		—		—		48
Treasury stock purchases												—		—		(11,013)		—		(11,013)
Cash dividends declared		—		—		(1,816)		—		(1,816)		—		—		—		(730)		(730)
Net income		—		—		(5,384)		—		(5,384)		—		—		—		8,450		8,450
Balance at December 31, 2019	$	7,950	$	30,732	$	170,559	$	—	$	209,241
Stock-based compensation		7		538		—		—		545
Vesting of restricted stock units and ‎ restricted shares		44		(512)		—		—		(468)
Cash dividends declared		—		—		(1,781)		—		(1,781)
Net loss		—		—		(5,270)		—		(5,270)
Balance at March 31, 2020	$	8,001	$	30,758	$	163,508	$	—	$	202,267
Balance at December 31, 2020											$	8,082	$	33,373	$	(21,576)	$	148,528	$	168,407

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)



	Nine Months Ended				Six Months Ended
	March 31,				December 31,
	2021		2020		2021		2020
OPERATING ACTIVITIES:
Net income (loss)	$	17,207	$	(1,103)
Net (loss) income					$	(3,192)	$	12,329
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		3,938		6,665		2,662		2,687
Deferred income taxes		2,111		7,471		—		2,110
Stock-based compensation expense		2,758		3,880		2,182		1,983
Change in provision for losses on accounts receivable		1,280		4,250		190		1,335
Change in reserve for VAT receivable		(237)		(1,431)
Gain on disposition of capital assets		(5,858)		(19,269)
(Gain) on disposal of assets						(1,887)		(5,858)
Changes in operating assets and liabilities:
Trade receivables		(13,294)		(386)		5,795		(15,435)
Inventories		(38,883)		18,563		(17,917)		(21,459)
Other current assets		8,589		(1,992)		1,021		6,038
Other assets		(74)		176		(508)		11
Accounts payable - trade		4,065		4,498		(29,521)		125
Accrued liabilities		2,140		(7,051)		720		4,954
Other long-term liabilities		857		(383)		(543)		246
Net cash (used in) provided by operating activities		(15,401)		13,888
Net cash (used in) operating activities						(40,998)		(10,934)
INVESTING ACTIVITIES:
Purchases of investments		(24)		(1,667)		—		(16)
Proceeds from sales of investments		23		1,673		—		16
Proceeds from sale of capital assets		18,527		20,452
Proceeds from the sale of capital assets						1,937		18,527
Capital expenditures		(1,957)		(3,256)		(1,535)		(663)
Net cash provided by investing activities		16,569		17,202		402		17,864
FINANCING ACTIVITIES:
Dividends paid		(2,620)		(5,260)		(3,060)		(1,535)
Treasury stock purchases		(28,485)		—		(9,658)		(20,013)
Proceeds from line of credits		—		15,000
Proceeds from lines of credit						81,247		—
Payments on lines of credit						(25,013)		—
Proceeds from issuance of common stock		40		21		118		40
Shares withheld for tax payments on vested restricted shares		(1,329)		(558)		(293)		(323)
Net cash (used in) financing activities		(32,394)		9,203
(Decrease) increase in cash and cash equivalents		(31,226)		40,293
Cash and cash equivalents at beginning of period		48,197		22,247
Cash and cash equivalents at end of period	$	16,971	$	62,540
Net cash provided by (used in) financing activities						43,341		(21,831)
Increase (decrease) in cash and cash equivalents						2,745		(14,901)
Cash and cash equivalents at beginning of the period						1,342		48,197
Cash and cash equivalents at end of the period					$	4,087	$	33,296

SUPPLEMENTAL INFORMATION
Cash paid for amounts included in lease liabilities					$	3,059	$	2,547
Right-of-use assets exchanged for lease liabilities					$	16,814	$	2,741
Interest paid					$	351	$	—
Income taxes (refunded), net	$	(7,038)	$	(4,623)	$	(1,719)	$	(5,783)
Capital expenditures in accounts payable	$	14	$	467	$	(160)	$	31

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE PERIOD ENDED ~~MARCH~~DECEMBER 31, 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 ~~network.~~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 the fiscal year 2020 were impacted by COVID-19. During the ~~three and nine months~~year ended ~~March 31,~~June 30, 2021, the Company ~~has seen~~saw improvement in our business conditions as retailers ~~have~~ reopened and orders ~~have~~ increased, however, we ~~continue~~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 and six months ended December 31, 2021. The COVID-19 pandemic remains fluid and the extent of the impact toon 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~~Consolidated Financial Statements included herein have been prepared by Flexsteel, ~~Industries, Inc. and Subsidiaries (the “Company” or “Flexsteel”),~~ without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished in the ~~consolidated financial statements~~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.~~Consolidated Financial Statements. Operating results for the three and ~~nine~~six months ended ~~March~~December 31, 2021, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, ~~2021.~~2022. Certain information and footnote disclosures normally included in the ~~consolidated financial statements~~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~~Consolidated Financial
‎Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2020,~~2021, appropriately represent, in all material respects, the current status of accounting policies and are incorporated by reference.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS – In ~~June 2016,~~ December 2019,the ~~Financial Accounting Standards Board (“FASB“)~~FASB issued ~~Accounting Standards Update (“ASU”) 2016-13~~ASU 2019-12 “~~Financial Instruments - Credit Losses (“Topic 326”)~~Income Taxes Simplifying the Accounting for Income Taxes (Topic 740)” ~~and also issued subsequent~~as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the ~~initial guidance under ASU 2018-19, ASU 2019-04~~approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and ~~ASU 2019-05 (collectively Topic 326). Topic 326 requires~~ the ~~measurement and~~ recognition of ~~expected credit losses~~deferred tax liabilities for ~~financial assets held at amortized cost. This replaces~~outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the ~~existing incurred loss model with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates.~~accounting for income taxes. The amendments in this guidance ~~are~~were effective for fiscal years beginning after December 15, ~~2019,~~2020, with early adoption ~~permitted for certain amendments. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings.~~ permitted. Effective July 1, ~~2020,~~2021, the Company adopted Topic ~~326~~740 and there was no impact toon the Company’s financial statements.

2. INVENTORIES

A comparison of inventories is as follows:



	December 31,		June 30,
(in thousands)	2021		2021
Raw materials	$	25,920	$	22,500
Work in process and finished parts		5,333		6,234
Finished goods		147,789		132,391
Total	$	179,042	$	161,125

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3. ASSETS HELD FOR SALE

During the fiscal year 2020, the Company committed to a plan to sell assets located at the Company’s Mississippi location as part of the Company’s restructuring plan, see Note 5 Restructuring. A summary of the assets held for sale as of December 31, 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

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~~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,~~Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify ~~lease related~~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~~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.

~~Table~~On August 20, 2021, Flexsteel entered into a lease agreement for the construction of ~~Contents~~a 507,830 square foot manufacturing facility in Mexicali, Mexico. The lease commencement date under ASC 842 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. The 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 ASC 842. 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. The 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 as well as publicly available data for instruments with similar terms.~~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.

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



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	March 31,				March 31,				December 31,				December 31,
(in thousands)	2021		2020		2021		2020		2021		2020		2021		2020
Operating lease expense	$	1,491	$	1,366	$	3,556	$	3,707	$	1,821	$	991	$	3,210	$	2,065
Variable lease expense		78		69		221		198		467		74		542		143
Total lease expense	$	1,569	$	1,435	$	3,777	$	3,905	$	2,288	$	1,065	$	3,752	$	2,208

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



	Nine Months Ended				Six Months Ended
	March 31, 2021		March 31, 2020		December 31, 2021		December 31, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,621	$	2,943	$	3,059	$	2,547

Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	22,850	$	3,573	$	16,814	$	2,741

Weighted-average remaining lease term (in years):
Operating leases		3.2		2.1		4.7		1.9

Weighted-average discount rate:
Operating leases		3.3%		3.5%		2.5%		3.3%

Future minimum lease payments under non-cancellable operating leases ~~are~~were as ~~follows as of March 31, 2021:~~follows:


~~(in thousands)~~
~~Within one year~~	$	~~6,919~~
~~After one year and within two years~~		~~5,868~~
~~After two years and within three years~~		~~4,854~~
~~After three years and within four years~~		~~3,691~~
~~After four years and within five years~~		~~2,445~~
~~After five years~~		~~12,516~~
~~Total future minimum lease payments~~	$	~~36,293~~
~~Less – Discount~~		~~4,350~~
~~Lease liability~~	$	~~31,943~~


	Six Months Ended
	December 31, 2021		December 31, 2020
(in thousands)
Within one year	$	7,819	$	4,491
After one year and within two years		6,872		4,048
After two years and within three years		5,590		2,844
After three years and within four years		4,167		1,491
After four years and within five years		4,242		1
After five years		20,227		—
Total future minimum lease payments	$	48,917	$	12,875
Less – Discount		5,011		720
Lease liability	$	43,906	$	12,155

~~3. INVENTORIES~~

~~A comparison of inventories is as follows:~~

March 31,
June 30,
(in thousands)
2021
2020
Raw materials
$
19,010
$
11,119
Work in process and finished parts
3,934
3,925
Finished goods
86,504
55,521
Total
$
109,448
$
70,565

4.5. RESTRUCTURING

On May 15, 2019, the Company announced its plans to exit the Commercial Office and custom-designed Hospitality product lines. The changes were initial outcomes driven from customer and product line profitability and footprint utilization analyses in the fourth quarter of fiscal 2019.

On June 18, 2019, the Company announced it completed the analysis and planning process and set forth the

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comprehensive transformation program to be executed over a ~~two year~~two-year period, which ~~includes~~included the previously announced restructuring activities on May 15, 2019. The transformation program ~~includes~~included activities such as business simplification, process improvement, exiting of non-core businesses, facility closures, and reductions in ~~work force.~~the workforce. The Company has substantially completed the portion of the restructuring activities related to the exit of the Commercial Office and custom-designed Hospitality product lines.

On April 28, 2020, the Company announced the exit of ~~the~~ Vehicle Seating and the remainder of the Hospitality product lines, and subsequently closed its Dubuque, Iowa and Starkville, Mississippi manufacturing facilities. The remaining properties listed for sale as part of the footprint optimization are included in Note 3, Assets Held for Sale. The Company ~~expects to complete~~substantially completed the restructuring activities related to the exit of ~~the~~ Vehicle Seating and the remainder of the Hospitality product lines during fiscal 2021.

As a result of these planned actions, the Company expects to incur pre-tax restructuring and related expenses of approximately $59.0 million over this two year timeframe of which approximately $27.0 million will be cash and $32.0 million non-cash. The remaining properties listed for sale as part of the footprint optimization are included in Note 5, Assets Held for Sale. Total cumulative restructuring and related costs incurred as of March 31, 2021 were $58.0 million.

~~The following is a summary of restructuring costs:~~

Three Months Ended
Nine Months Ended
(in thousands)
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
Inventory impairment
$
—
$
70
$
45
$
276
One-time employee termination benefits
—
256
179
725
Other associated costs
480
2,121
2,545
12,723
Total restructuring and related expenses
$
480
$
2,447
$
2,769
$
13,724
Reported as:
Cost of goods sold
$
—
$
70
$
45
$
276
Operating expenses
$
480
$
2,377
$
2,724
$
13,448

Other associated costs include legal and professional fees, stock-based compensation expense for retention restricted stock units in connection with the Company’s restructuring plan, on-going facilities and transition costs.

~~The rollforward of the accrued restructuring costs is as follows:~~

One-time
Employee
Contract
Other
Inventory
Termination
Termination
Associated
(in thousands)
Impairment
Benefits
Costs
Costs
Total
Accrual balance at June 30, 2020
$
—
$
1,613
$
110
$
238
$
1,961
Costs incurred
45
179
—
2,545
2,769
Expenses paid
—
(420)
(110)
(2,327)
(2,857)
Non-cash
(45)
—
—
(436)
(481)
Accrual balance at March 31, 2021
$
—
$
1,372
$
—
$
20
$
1,392

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~~5. ASSETS HELD FOR SALE~~

As a result of these planned actions, which will be complete in the fiscal year ending June 30, 2022, the Company anticipates incurring pre-tax restructuring and related expenses of approximately $60 million over this two-year timeframe. Total cumulative restructuring and related costs incurred as of December 31, 2021, were $59.4 million.

~~In the fiscal year 2020, the Company committed to~~The following is a ~~plan to sell assets located at the Company’s Starkville, Mississippi~~summary of restructuring costs:



	Three Months Ended				Six Months Ended
(in thousands)	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Inventory impairment	$	—	$	45	$	—	$	45
One-time employee termination benefits		—		—		—		179
Other associated costs		622		863		774		2,065
Total restructuring and related expenses	$	622	$	908	$	774	$	2,289
Reported as:
Cost of goods sold	$	—	$	45	$	—	$	45
Operating expenses	$	622	$	863	$	774	$	2,244

Other associated costs include legal and ~~Harrison, Arkansas, locations. The commitment to sell these assets are part of~~professional fees, stock-based compensation expenses for retention restricted stock units in connection with the Company’s restructuring plan, ~~see Note 4~~ ~~Restructuring. A summary of the assets held for sale is included in the table below as of March 31, 2021.~~and ongoing facilities and transition costs.

The roll-forward of the accrued restructuring costs is as follows:

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
Harrison, Arkansas
Building & building improvements
1,000
(1,000)
—
Land & land improvements
86
(36)
50
Machinery & equipment
1,330
(1,330)
—
Total Harrison
2,416
(2,366)
50
Total assets held for sale
$
7,725
$
(7,059)
$
666



			One-time
			Employee		Contract		Other
	Inventory		Termination		Termination		Associated
(in thousands)	Impairment		Benefits		Costs		Costs		Total
Accrual balance at June 30, 2021	$	—	$	1,502	$	—	$	20	$	1,522
Costs incurred		—		—		—		774		774
Expenses (paid) reimbursed		—		(130)		—		505		375
Accrual balance at December 31, 2021	$	—	$	1,372	$	—	$	1,299	$	2,671

6. CREDIT ARRANGEMENTS

On August 28, 2020, the Company entered into a ~~new two year~~two-year secured $25.0 million revolving line of credit with Dubuque Bank and Trust Company, with an interest rate of 1.50% plus LIBOR, subject to a floor of 3.00%. The revolving line of credit iswas secured by essentially all the Company’s assets, excluding real property, and ~~requires~~required the Company to maintain compliance with certain financial and non-financial covenants. This line of credit was subsequently canceled in the first quarter of the fiscal year 2022.

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 ~~matures on August 28, 2022. There was 0 outstanding~~in an aggregate amount up to $5,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. The Company’s $1.2 million letters of credit previously issued by the Lender are being treated as outstanding under the Credit Agreement. Proceeds of ~~March~~borrowings were used to refinance all indebtedness owed to Dubuque Bank & Trust and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Credit Agreement bear interest at LIBOR plus 1.25% or 1.50% per annum, or an effective interest rate of 1.35% on December 31, 2021. When LIBOR becomes unavailable, the replacement rate will be determined pursuant to the terms of the Credit Agreement. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00:1.00. 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 December 31, 2021, there was $59.7 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”) as of ~~March~~December 31, 2021, totaled ~~$1.1 million, of which~~ $1.2 ~~million of the Company’s cash held at Wells is pledged as collateral.~~million.

7. INCOME TAXES

The provision for income taxes for the interim periods is based on an estimate of the Company’s annual effective tax rate adjusted to reflect the impact of discrete items. Management judgment is required in projecting ordinary income to estimate the Company’s annual effective tax rate. The Company’s effective tax rate for the quarters ended ~~March~~December 31, 2021, and ~~March~~December 31, 2020, were ~~23.9%~~

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13.8% and ~~35.9%~~15.5%, respectively, and for the ~~nine~~six months ended ~~March~~December 31, 2021, and ~~March~~December 31, 2020, were ~~29.4%~~(3.4%) and ~~54.5%~~31.3%, respectively. The quarter ended December 31, 2020, effective rate of 15.5% was due to a discrete tax benefit arising from the reversal of valuation allowances resulting from the gain on the sale of capital assets. The quarter ended December 31, 2021, and six months ended December 31, 2021, effective rates of 13.8% and (3.4%) were due to the tax benefit on the year-to-date loss not being recorded due to the Company’s valuation allowance position.

8. 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.~~years upon vesting. Stock-based compensation is included in selling, general and administrative, and restructuring expenses on the Consolidated Statements of Income. The stock-based compensation expense included in the restructuring expense ~~were~~was for retention RSUs in connection with the Company’s restructuring plan. Forfeitures are recognized as incurred.

The following table is a summary of total stock-based compensation ~~expense~~expenses for the three and ~~nine~~six months ended ~~March~~December 31, 2021.



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	March 31,				March 31,				December 31,				December 31,
(in thousands)	2021		2020		2021		2020		2021		2020		2021		2020
Total stock-based compensation expense	$	775	$	544	$	2,758	$	3,621	$	1,020	$	1,029	$	2,182	$	1,983

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The Company has 2 stock-based compensation plans available for granting awards to employees and directors.

(1) Long-Term Incentive Compensation Plan (“~~LTICP”~~LTIP”)

The ~~LTICP~~LTIP provides for ~~RSUs~~performance stock units (“PSUs”) to be awarded to officers and key employees based on performance ~~targets~~goals set by the Compensation Committee of the Board of Directors (the “Committee”). ~~The Company selected fully-diluted earnings per share and total shareholder return as~~For awards under the ~~performance goal~~LTIP for the three ~~year performance period from July 1, 2018 – June 30, 2021 (“2019-2021”). As of June 30, 2019, the performance period 2019-2021 is no longer attainable. For the July 1, 2019 –~~years ending June 30, 2022, ~~(“2020-2022”)~~2023, and 2024, participants may earn one-third of the ~~July 1, 2020 – June 30, 2023 (“2021-2023”)~~award in each of the three ~~year~~years based on meeting performance ~~periods, the~~goals for that year. The Committee selected Adjusted Earnings Before Interest and Tax with a defined percentage growth in fiscal ~~year 2021~~years 2022, 2023, and ~~2022~~2024 as the performance ~~goal. Since~~metric. In conjunction with each grant of PSUs, the ~~2019-2021~~Committee grants RSUs under the 2013 Omnibus Stock Plan that vest at the end of three years.

The table below sets forth, as of December 31, 2021, the number of unvested PSUs granted at the target performance ~~period is no longer attainable, only RSUs granted~~level for the 2020-2022, 2021-2023, and ~~2021-2023~~2022-2024 performance periods ~~are included~~under the LTIP and the number of unvested RSUs granted in conjunction with the ~~table below for the Company’s unvested LTICP RSUs during the nine months ended March 31, 2021:~~PSUs:


	Time Based Vest			Performance Based Vest			Total			Time-Based Vest (RSUs)			Performance-Based Vest (PSUs)			Total
		Weighted average			Weighted average			Weighted average			Weighted Average			Weighted Average			Weighted Average
		fair value			fair value			fair value			Fair Value			Fair Value			Fair Value
(shares in thousands)	Shares	per share		Shares	per share		Shares	per share		Shares	Per Share		Shares	Per Share		Shares	Per Share
Unvested as June 30, 2020	44	$	16.90	44	$	16.76	88	$	16.83
Unvested as June 30, 2021										107	$	13.89	142	$	13.36	249	$	13.59
Granted	68		12.01	105		12.01	173		12.01	27		42.50	40		42.50	67		42.50
Forfeited	(6)		14.04	(9)		14.03	(15)		14.04	(3)		39.49	(4)		39.49	(7)		39.49
Unvested as of March 31, 2021	106	$	13.92	140	$	13.41	246	$	13.63
Unvested as of December 31, 2021										131	$	19.25	178	$	19.39	309	$	19.33

Total unrecognized stock-based compensation related to the unvested ~~LTICP~~PSUs at the target performance level and the related unvested RSUs ~~at performance target~~ was ~~$1.9~~$3.05 million as of ~~March~~December 31, 2021, which is expected to be recognized over a weighted-average period of ~~1.9~~1.4 years.

(2) 2013 Omnibus Stock Plan

The 2013 Omnibus Stock Plan is for key employees, officers and directors and provides for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and performance units.

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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) during the ~~nine~~six months ended ~~March~~December 31, 2021, is as follows:



		Weighted average			Weighted Average
	Shares	fair value		Shares	Fair Value
	(in thousands)	per share		(in thousands)	Per Share
Unvested as June 30, 2020	189	$	15.24
Unvested as of June 20, 2021				56	$	26.81
Granted	21		27.51	3		42.50
Vested	(158)		16.22	(18)		28.22
Forfeited	(1)		15.65	(3)		19.98
Unvested as of March 31, 2021	51	$	23.81
Unvested as of December 31, 2021				38	$	27.81

Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $0.6 million as of ~~March~~December 31, 2021, which is expected to be recognized over a ~~weighted average~~weighted-average period of ~~1.7~~1.3 years.

‎

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Options

A summary of the activity of the Company’s stock option plans as of ~~March~~December 31, 2021, is presented below:

Weighted
Shares
Average
(in thousands)
Exercise Price
Outstanding at June 30, 2020
223
$
23.70
Granted
37
12.77
Exercised
(13)
18.90
Cancelled
(5)
12.89
Outstanding at March 31, 2021
242
$
22.51



		Weighted
	Shares	Average
	(in thousands)	Exercise Price
Outstanding at June 30, 2021	232	$	21.91
Granted	—		—
Exercised	(8)		15.75
Canceled	(9)		36.58
Outstanding at December 31, 2021	215	$	21.50

The following table summarizes information for options outstanding at ~~March~~December 31, 2021:



		Options	Weighted Average				Options	Weighted Average
Range of	Range of	Outstanding	Remaining	Exercise		Range of	Outstanding	Remaining	Exercise
Prices	Prices	(in thousands)	Life (Years)	Price		Prices	(in thousands)	Life (Years)	Price
$	9.97 - 15.14	104	8.3	$	12.72	9.97 - 15.14	97	8.2	$	12.64
	19.72 - 19.77	9	1.7		19.72	18.30 - 19.72	12	5.3		18.99
	20.50 - 27.57	66	5.3		23.93	21.96 - 27.57	58	5.3		24.21
	31.06 - 32.80	37	5.1		32.20	31.06 - 32.80	32	4.4		32.30
	43.09 - 47.45	26	5.5		45.36	43.09 - 47.45	16	4.8		45.42
$	8.55 - 47.45	242	6.5	$	22.51	9.97 - 47.45	215	6.4	$	21.50

~~Total~~The total unrecognized stock-based compensation expense related to options was ~~$0.03~~$0.10 million as of ~~March~~December 31, 2021, which is expected to be recognized over a weighted-average period of ~~0.9~~1.2 years.

Stock-based compensation granted outside a plan

~~During the quarter ended December 31, 2018, the Company awarded its Chief Executive Officer 55,000 options outside of any Company stock plans.~~ During the quarter ended June 30, 2020, the Company awarded its Chief Financial Officer/Chief Operating Officer 79,000 options outside of any Company stock plans. ~~Total~~The total unrecognized stock-based compensation expense related to options awarded outside a plan was ~~$0.07~~$0.04 million as of ~~March~~December 31, 2021, which is expected to be recognized over ~~a period of 1.7~~1.3 years.

9. 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 Plan, and non-vested restricted stock units and restricted shares. The Company calculates the dilutive effect of outstanding options, restricted stock units, and restricted shares using the treasury stock method. Anti-dilutive options are not included in the computation of diluted EPS

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when their exercise price is greater than the average closing market price of the common shares. In computing EPS for the three and six months ended December 31, 2021, there are no dilutive shares as the company reported a net loss.



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	March 31,				March 31,				December 31,				December 31,
(in thousands)	2021		2020		2021		2020		2021		2020		2021		2020
Basic shares		6,998		7,965		7,316		7,955		6,682		7,246		6,758		7,475
Potential common shares:
Stock options		165		—		130		—		—		147		—		110
Non-vested restricted stock units and restricted shares		107		—		105		—		—		102		—		96
		272		—		235		—		—		249		—		206
Diluted shares		7,270		7,965		7,551		7,955		6,682		7,495		6,758		7,681

Anti-dilutive shares		26		—		63		—		—		63		—		91

Cash dividends declared per common share were $0.15 and $0.30 for the three and ~~nine~~six months ended ~~March~~December 31, 2021, respectively, and ~~$0.22~~were $0.10 and ~~$0.66~~$0.15 for the three and ~~nine~~six months ended ~~March~~December 31, 2020, respectively.

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10. LITIGATION

Environmental Matters – In March 2016, the Company received a General Notice Letter for the Lane Street Groundwater Superfund Site (the “Lane Street Site”) located in Elkhart, Indiana from the U.S. Environmental Protection Agency (EPA). In April 2016, the EPA issued their proposed clean-up plan for groundwater pollution and request for public comment. The Company responded to the request for public comment in May 2016. The EPA issued a Record of Decision selecting a remedy in August 2016 and estimated total costs to remediate of $3.6 million. In July 2017, the EPA issued a Special Notice Letter to the Company demanding that the Company perform the remedy selected and pay for the remediation cost and past response costs of $5.5 million. On October 12, 2017, the Company, after consultation with its insurance carriers, offered an amount, fully reimbursable by insurance coverage, to the EPA to resolve this matter. On November 6, 2017, the settlement offer extended on October 12, 2017, was rejected.

In April 2018, the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action (the “Order”) against the Company. The Order was issued under Section 106(a) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. §9606(a). The Order directs the Company to perform remedial design and remedial action for the Lane Street Site. The Order was to be effective May 29, 2018. To ensure completion of the remediation work, the EPA required the Company to secure financial assurance in the initial amount of $3.6 million, which as noted above, is the estimated cost of remedial work. The Company believes that financial assurance is not required because it meets the relevant financial test criteria as provided in the Order. In May 2018, the EPA agreed to suspend enforcement of the Order so that the Company could conduct environmental testing upgradient to its former manufacturing location pursuant to an Administrative Order on Consent (AOC). On April 24, 2019, the Company signed an AOC with the EPA to conduct the upgradient investigation. The Company negotiated site access to the upgradient property over a period of months in 2019, followed by completion of sampling activities on that property on September 28-29, 2019. Following multiple exchanges from November 2019 through early 2020, the Company submitted a final and supplemental report to the EPA regarding the results of the upgradient investigation on June 17, 2020. Through an agreement with the EPA, the statute of limitations for potential claims by the EPA was extended through ~~August 24, 2021.~~February 28, 2022. The Company reflected a $3.6 million liability in the ~~consolidated balance sheets~~Consolidated Balance Sheets for the fiscal year ended June 30, 2018. Despite the Company’s position that it did not cause nor contribute to the contamination, the Company continues to reflect this liability in the ~~consolidated balance sheets~~Consolidated Balance Sheets as of ~~March~~December 31, 2021, in accordance with FASB issued Asset Retirement and Environmental Obligations (ASC 410-30). The Company continues to evaluate the Order, its legal options, and insurance coverages to assert its defense and recovery of current and future expenses related to this matter.

~~Employment Matters~~ – ~~The lawsuit entitled~~ ~~Juan Hernandez, et al. v. Flexsteel Industries, Inc. (“Hernandez I~~”), was filed on February 21, 2019 in the Superior Court for the County of Riverside by former employees Juan Hernandez and Richard Diaz (together, “Plaintiffs”). On April 29, 2019, Plaintiffs filed a second similarly titled lawsuit in the Superior Court for the County of Riverside (“~~Hernandez II”).~~ ~~Hernandez II~~ ~~was brought by the same attorneys as~~ ~~Hernandez I~~ ~~and featured a single cause of action for civil penalties under the Private Attorneys General Act (“PAGA”). The Company agreed to resolve both~~ ~~Hernandez I~~ ~~and~~ ~~Hernandez II~~ in principle and on a class-wide basis for $0.5 million. That settlement served to resolve the claims of the 2 Plaintiffs, as well as the approximately 270 remaining members of the class unless an individual class member asked to be excluded. The material terms of the settlement were captured in a Long-Form Settlement Agreement. The court granted final approval of the parties’ settlement in February 2021. The Company paid the final settlement amount of $0.5 million in February 2021 and 0 accrued amounts remained in the consolidated balance sheets as of March 31, 2021.

Other Proceedings – 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.

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

GENERAL

The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the ~~consolidated financial statements~~Consolidated Financial Statements and related notes included elsewhere in this quarterly report on Form 10-Q.

Statement Regarding the Impact of the COVID-19 Pandemic

The World Health Organization (“WHO”) on March 11, 2020, declared novel coronavirus 2019 (“COVID-19”) a global pandemic. ~~In response to this declaration, the Company has taken the following actions to maneuver the current economic landscape;~~

~~Employees that can perform work outside of the workplace are working from home,~~

~~Suspension of the Company’s 401K match effective June 1, 2020 through the end of the 2020 calendar year,~~

~~Temporary 50% reduction of cash compensation for the Company’s Board of Directors through October 1, 2020,~~

~~Temporary 25% reduction of salary compensation for the Company’s Chief Executive Officer and Chief Financial Officer / Chief Operating Officer through October 1, 2020,~~

~~Elimination of all non-essential expenses and capital expenditures; and~~

~~Negotiated with vendors to extend payment terms.~~

During the three and ~~nine~~six months ended ~~March~~December 31, 2021, we ~~have seen~~saw improvement in our business conditions, ~~as retailers have reopened and orders have increased,~~ however, we ~~continue~~continued to see supply chain challenges faced by the furniture industry due to 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. T~~The~~he COVID-19 pandemic remains fluid because of the evolution of COVID-19 variants, and the extent of the ongoing impact toon our business may be significant, however, we are unable to predict the extent or nature of these impacts at this time.

CRITICAL ACCOUNTING POLICIES:

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our ~~2020~~2021 annual report on Form 10-K.

Overview

The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three and ~~nine~~six months ended ~~March~~December 31, 2021, and 2020. ~~Amounts~~The amounts presented are percentages of the Company’s net sales.

Three Months Ended
Nine Months Ended
March 31,
March 31,
2021
2020
2021
2020
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of goods sold
80.5
86.0
79.5
84.4
Gross margin
19.5
14.0
20.5
15.6
Selling, general and administrative
13.8
20.4
14.4
18.4
Restructuring expense
0.4
2.4
0.8
4.5
Gain on disposal of assets due to restructuring
—
(0.3)
(1.7)
(6.4)
Operating income (loss)
5.4
(8.4)
7.0
(0.9)
Interest expense
—
0.0
—
0.0
Other income
0.0
0.1
0.1
0.1
Income (loss) before income taxes
5.4
(8.3)
7.1
(0.8)
Income tax provision (benefit)
1.3
(3.0)
2.1
(0.4)
Net income (loss)
4.1
%
(5.3)
%
5.0
%
(0.4)
%



	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2021		2020		2021		2020
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	93.3		79.5		88.2		79.0
Gross margin	6.7		20.5		11.8		21.0
Selling, general and administrative expenses	12.4		15.9		13.0		14.7
Restructuring expense	0.4		0.7		0.3		1.0
(Gain) on disposal of assets due to restructuring	—		(4.4)		(0.5)		(2.6)
Operating (loss) income	(6.1)		8.3		(1.0)		7.9
Interest expense	0.2		—		0.2		—
Other (income)	(0.1)		(0.1)		(0.0)		(0.1)
(Loss) income before income taxes	(6.2)		8.4		(1.2)		8.0
Income tax (benefit) provision	(0.9)		1.3		0.0		2.5
Net (loss) income	(5.3)	%	7.1	%	(1.2)	%	5.5	%

Results of Operations for the Quarter Ended ~~March~~December 31, 2021, vs. 2020

Net sales were ~~$118.4~~$141.7 million for the quarter ended ~~March~~December 31, 2021, compared to net sales of ~~$98.8~~$119.1 million in the prior ~~year~~year’s quarter, an increase of ~~19.8%~~18.9%. The increase in sales of ~~$19.6~~$22.6 million was primarily driven by ~~$26.5~~an increase of $22.5 million related to home furnishing products sold through retailers ~~and $2.8 million for~~as compared to the prior-year quarter. Sales growth of home furnishing products sold through e-commerce channels was flat as compared to the prior-year quarter.

Retail home furnishings backlog was $121 million for the quarter ended December 31, 2021, an increase of 20.4% as compared to the $101 million home furnishings backlog in the prior-year quarter.

Gross margin as a percent of net sales for the quarter ended December 31, 2021, was 6.7%, compared to 20.5% for the prior-year quarter, a decrease of 1,380 basis points (“bps”). The 1,380-bps decrease was primarily due to a 1,120 basis points decrease related to higher ancillary charges caused by domestic supply chain disruptions and higher per diem charges, a decrease of 140 basis points related to capacity growth investments in a third, additional manufacturing plant in Mexico and a new distribution facility in Greencastle, PA., and a decrease of 120 basis points primarily related to cost inflation for materials, labor, and transportation, partially offset by ~~a decline of $9.7 million primarily due to the exit from our Vehicle Seating and Hospitality product lines during the fourth quarter of fiscal~~price realization.

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2020. Net sales growth in our home furnishing products were virtually in all product categories due to demand and record backlog from the end of our second quarter of fiscal year 2021 and continuing throughout the third quarter of fiscal year 2021.

Gross margin as a percent of net sales for the quarter ended March 31, 2021 was 19.5%, compared to 14.0% for the prior year quarter, an increase of 550 basis points (“bps”). The 550-bps increase was primarily due to structural cost reductions, operational efficiencies, fixed cost leverage due to higher sales volume as compared to the prior year quarter and lower inventory reserve due to demand.

Selling, general, and administrative (“SG&A”) expenses decreased ~~$3.8~~$1.4 million to $17.5 million in the quarter ended ~~March~~December 31, 2021, as compared to ~~the prior year quarter. The decline in SG&A expenses was primarily due a $4.1~~$18.9 million ~~bad debt expense~~ in the ~~prior year driven by a customer bankruptcy.~~ same quarter of fiscal 2021. As a percentage of net sales, SG&A was ~~13.8%~~12.4% in the second quarter ~~ended March 31, 2021~~of fiscal 2022 compared to ~~the prior year quarter~~15.9% of ~~20.4%. The 660 bps decline compared to the prior year quarter was driven largely by a 350 bps decline due to higher bad debt expenses~~net sales in the ~~prior year quarter, with the remaining decline~~prior-year quarter. The decrease of 350 basis points is primarily due to ~~cost~~a decrease of 90 basis points in lower incentive compensation expenses, a decrease of 100 basis points of bad debt expense due to a customer bankruptcy in the prior-year quarter, and a decrease of 160 basis points due to volume leverage ~~gained from higher sales.~~partially offset by growth investments.

During the quarter ended ~~March~~December 31, 2021, we incurred ~~$0.5~~$0.62 million of restructuring expenses primarily for ~~on-going~~ongoing utilities and maintenance costs for our facilities listed as held for ~~sale.~~sale and former employee expenses. See Note 4,5, Restructuring, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.

Income tax ~~expense~~(benefit) was ($1.2) million, or an effective rate of 13.8%, and $1.5 million, or an effective rate of ~~23.9%, and income tax benefit of $3.0 million, or an effective rate of 35.9%~~15.5% during the quarter ended ~~March~~December 31, 2021, and ~~March~~December 31, 2020, respectively.

Net ~~income~~loss was ~~$4.8~~($7.5) million, or ~~$0.67~~($1.13) per diluted share for the quarter ended ~~March~~December 31, 2021, compared to net ~~loss~~income of ~~$5.3~~$8.5 million, or ~~($0.66)~~$1.13 per diluted share in the ~~prior year~~prior-year quarter.

Results of Operations for the ~~Nine~~Six Months Ended ~~March~~December 31, 2021, vs. 2020

Net sales were ~~$342.8~~$279.4 million for the ~~nine~~six months ended ~~March~~December 31, 2021, compared to net sales of ~~$302.1~~$224.4 million in the ~~prior year nine-month~~prior-year six-month period, an increase of ~~13.5%~~24.5%. The increase in sales of ~~$40.6~~$55.0 million was primarily driven by ~~$60.2~~$58.0 million related to home furnishing products sold through retailers and ~~$9.2~~partially offset by a decrease of $3.0 million for home furnishing products sold through e-commerce channels due to the same factors discussed above for the third quarter, partially offset by a decline of $28.8 million primarily due to the exit from our Vehicle Seating and Hospitality product lines during the fourth quarter of fiscal 2020.channels.

Gross margin as a percent of net sales for the ~~nine~~six months ended ~~March~~December 31, 2021, was ~~20.5%~~11.8%, compared to ~~15.6%~~21.0% for the ~~prior year nine-month~~prior-year six-month period, ~~an increase~~a decrease of ~~490~~920 bps. The ~~490~~920 bps increase was primarily driven by the same factors discussed above for the quarter ended ~~March~~December 31, 2021.

Selling, general and administrative expenses ~~decreased $6.3~~increased $3.2 million in the ~~nine~~six months ended ~~March~~December 31, 2021, compared to the ~~prior year nine-month~~prior-year six-month period. As a percentage of net sales, SG&A was ~~14.4%~~13.0% in the ~~nine~~six months ended ~~March~~December 31, 2021, compared to the ~~prior year nine-month~~prior-year six-month period of ~~18.4%~~14.7%. The ~~400~~170 bps ~~decline compared to the prior year nine-month period~~decrease was primarily due to ~~cost leverage gained from higher sales, reductions~~the same factors discussed above for the quarter ended December 31, 2021, and partially offset by phasing out the COVID-19 expense reduction initiatives in ~~non-essential spending due to COVID-19, lower depreciation~~the prior-year quarter. The six-month period ended December 31, 2020, included a $1.3 million bad debt expense due to ~~assets being held for sale and lower bad debt expense as discussed above during the quarter ended March 31, 2021.~~a customer bankruptcy.

Restructuring expenses were ~~$2.7~~$0.77 million during the ~~nine~~six months ended ~~March~~December 31, 2021, primarily for ~~on-going~~former employee expenses and for ongoing utilities and maintenance costs for our facilities listed as held for ~~sale, professional fees, and employee termination costs as part of our previously announced transformation program.~~sale. See Note 4,5, Restructuring, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.

During the ~~nine~~six months ended ~~March~~December 31, 2021, we completed the sale of one of our Harrison, Arkansas facilities, resulting in total net proceeds of $1.45 million, and a total gain of $1.4 million.

During the six months ended December 31, 2020, we completed the sale of our Dubuque, Iowa, Lancaster, Pennsylvania, and one of our Harrison, Arkansas facilities, resulting in total net proceeds of $16.4 million, and a total gain of $5.9 million.

Income tax expense was ~~$7.2~~$0.1 million, or an effective rate of ~~29.4%~~(3.4%), during the ~~nine~~six months ended ~~March~~December 31, 2021, compared to income tax ~~benefit~~expense of ~~$1.3~~$5.6 million in the ~~prior year nine-month~~prior-year six-month period, or an effective tax rate of ~~54.5%~~31.3%.

Net ~~income~~loss was ~~$17.2~~($3.2) million, or ~~$2.28~~($0.47) per diluted share for the ~~nine~~six months ended ~~March~~December 31, 2021, compared to net ~~loss~~income of ~~$1.1~~$12.3 million, or ~~$0.14~~$1.61 per diluted share in the ~~prior year nine-month~~prior-year six-month period.

Liquidity and Capital Resources

Working capital (current assets less current liabilities) ~~at March~~on December 31, 2021 was ~~$121.0~~$171.1 million compared to ~~$128.4~~$128.7 million aton June 30, ~~2020.~~2021. The ~~$7.3~~$42.4 million ~~decrease~~increase in working capital was due to an increase in cash of $2.7 million, an increase in inventory of $17.9 million, a decrease in ~~cash~~accounts payable of ~~$31.2~~$29.7 million, ~~decline~~an increase in other current liabilities of $1.8 million, a decrease in other current assets of ~~$8.3 million primarily due to a tax refund, a decline of $11.7 million in assets held for sale due to sale of facilities during the fiscal year, and an increase in accounts payable of $4.1~~$0.1 million, partially offset by a ~~$12.0~~decrease of $6.0 million ~~increase~~ in trade ~~receivables, $38.9~~receivables. Capital expenditures were $1.54 million ~~increase~~and are estimated to be in the range of $10.5 to $12.5 million for the fiscal year ending June 30, 2022.

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in inventory. The decline in cash of $31.2 million was primarily due to $28.5 million share repurchases, cash used in operating activities of $15.4 million, partially offset by $18.5 million proceeds from the sale of the Company’s Dubuque, IA, Lancaster, PA and Harrison, AR, facilities. Capital expenditures are estimated to be in the range of $2.5 million to $3.0 million for the fiscal year ending June 30, 2021.

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

Nine Months Ended
March 31,
(in thousands)
2021
2020
Net cash (used in) provided by operating activities
$
(15,401)
$
13,888
Net cash provided by investing activities
16,569
17,202
Net cash (used in) financing activities
(32,394)
9,203
(Decrease) increase in cash and cash equivalents
$
(31,226)
$
40,293


	Six Months Ended
	December 31,
(in thousands)	2021		2020
Net cash (used in) operating activities	$	(40,998)	$	(10,934)
Net cash provided by investing activities		402		17,864
Net cash provided by (used in) financing activities		43,341		(21,831)
Increase (decrease) in cash and cash equivalents	$	2,745	$	(14,901)

Net cash (used in) ~~provided by~~ operating activities

For the ~~nine~~six months ended ~~March~~December 31, 2021, net cash used in operating activities was ~~$15.4~~$41.0 million, which primarily consisted of net loss of ($3.2) million, adjusted for non-cash items including depreciation of $2.7 million, gain from the sale of capital assets of $1.9 million, stock-based compensation of $2.2 million, and provisions for losses of $0.2 million. Net cash used in operating assets and liabilities was $41.0 million and was primarily due to an increase in inventory of $17.9 million due to continued inventory build, a decrease in accounts payable of $29.5 million, an increase in other current assets of $0.5 million, an increase in other liabilities of $0.1 million, and partially offset by a decrease in trade receivables of $5.8 million.

For the six months ended December 31, 2020, net cash used in operating activities was $10.9 million, which primarily consisted of net income of ~~$17.2~~$12.4 million, adjusted for non-cash items including, depreciation of ~~$3.9~~$2.7 million, gain from the sale of capital assets of $5.9 million, change in deferred income taxes of $2.1 million, stock-based compensation of ~~$2.8~~$2.0, million and bad debt expense of $1.3 million. Net cash used in operating assets and liabilities was ~~$36.6 million. The cash used in operating assets~~$25.5 million and ~~liabilities of $36.6 million,~~ was primarily due to an increase in trade receivables of ~~$13.3~~$15.4 million due to higher sales, an increase in inventory of ~~$38.9~~$21.4 million due to inventory build for the third and fourth quarter, ~~and beginning of fiscal 2022,~~ partially offset by an increase in accrued liabilities of $5.0 million and a decline in other current assets of $6.0 million, primarily due to ~~receipt of~~an income tax ~~refund of $10.4 million, an increase in accounts payable of $4.1 million and accrued liabilities of $1.2 million.~~

For the nine months ended March 31, 2020, net cash provided by operating activities was $13.9 million, which primarily consisted of net loss of $1.1 million, adjusted for non-cash depreciation of $6.7 million, gain from the sale of capital assets of $19.3 million, change in deferred income taxes of $7.5 million, non-cash stock based compensation of $3.9 million and bad debt expense of $4.3 million. Net cash provided in operating assets and liabilities was $13.4 million. The cash provided in operating assets and liabilities of $13.4 million, was primarily due to a decline in inventory of $18.6 million, coupled with an increase in accounts payable of $4.5 million, partially by a reduction in accrued liabilities of $7.1 million and an increase in other current asset of $2.0 million.refund.

Net cash provided by investing activities

For the ~~nine~~six months ended ~~March~~December 31, 2021, net cash provided by investing activities was ~~$16.6~~$0.40 million, primarily due to proceeds of $1.94 million for the sale of our Harrison, AR, facility and the sale of our transportation fleet equipment, partially offset by capital expenditures of $1.54 million.

For the six months ended December 31, 2020, net cash provided by investing activities was $17.9 million, primarily due to proceeds of $18.5 million for the sale of our Dubuque, IA and Lancaster, PA, facilities and one of our Harrison, ~~Arkansas~~AR facilities, partially offset by capital expenditures of ~~$2.0 million.~~

For the nine months ended March 31, 2020, net cash provided by investing activities was $17.2 million, due to proceeds of $20.5 million from the sale of our Riverside, California facility and other capital assets, partially offset by capital expenditures of $3.3$0.7 million.

Net cash (used in) provided by financing activities

For the ~~nine~~six months ended ~~March~~December 31, 2021, net cash ~~used in~~provided by financing activities was ~~$32.4~~$43.3 million, primarily due to ~~$28.5~~proceeds from lines of credit of $81.3 million, offset by payments on lines of credit of $25.0 million, $9.7 million for treasury stock purchases, dividends paid of ~~$2.6~~$3.1 million, and ~~$1.3~~$0.2 million for tax payments on employee vested restricted ~~shares.~~shares netted with proceeds from the issuance of common stock.

For the ~~nine~~six months ended ~~March~~December 31, 2020, net cash ~~provided by~~used in financing activities was ~~$9.2~~$21.8 million, primarily due to ~~$15.0~~$20.0 million ~~of borrowings on our lines of credit, partially offset by~~for treasury stock purchases and dividends paid of ~~$5.3 million and $0.6 million for tax payments on employee vested restricted shares.~~$1.5 million.

Line of Credit

On ~~August 28, 2020, we~~September 8, 2021, the Company, as the borrower, entered into a ~~new two-year secured $25.0~~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 with Dubuque Bank and Trust Company, with interest~~credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of ~~1.50% plus LIBOR, subject to a floor of 3.00%. The revolving line~~letters of credit ~~is secured by essentially all of the Company’s assets, excluding real property and requires the Company~~in an aggregate amount up to ~~maintain compliance with certain financial and non-financial covenants. The revolving line of credit matures on August 28, 2022. There was no outstanding amount~~$5,000,000 which, upon issuance, would be deemed advances under the revolving line of credit. The Company’s $1.2 million letters of credit previously issued by the Lender are being treated as outstanding under the Credit Agreement. Proceeds of ~~March~~borrowings were used to refinance all indebtedness owed to Dubuque Bank & Trust and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all of its assets, excluding real property. Subject to certain conditions, borrowings under the Credit Agreement bear interest at LIBOR plus 1.25% or 1.50% per annum, or an effective interest rate of 1.35% on December 31, 2021.

~~Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”) as of March 31, 2021, totaled $1.1 million, of which $1.2 million~~ If LIBOR becomes unavailable, the replacement rate will be determined pursuant to the terms of the ~~Company’s cash held at Wells is pledged as collateral.~~Credit Agreement. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00:1.00. In addition, the Loan Agreement places restrictions on

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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 December 31, 2021, there was $59.7 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding at Wells Fargo Bank N.A. (“Wells”) as of December 31, 2021, totaled $1.2 million.

Contractual Obligations

As of ~~March~~December 31, 2021, 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, ~~2020.~~2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

General – Market risk represents the risk of changes in the value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates, and equity prices. As discussed below, the management of the Company does not believe that changes in these factors could cause material fluctuations in the Company’s results of operations or cash flows. The ability to import furniture products can be adversely affected by political issues in the countries where suppliers are located, disruptions associated with shipping distances, and negotiations with port employees. Other risks related to furniture product importation include government imposition of regulations and/or quotas; duties, tariffs, and taxes on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Any of these factors could interrupt supply, decrease sales, increase costs and decrease earnings.

Foreign Currency Risk – During the quarters ended ~~March~~December 31, 2021, and 2020, the Company did not have sales, but ~~has~~had purchases and other expenses denominated in foreign currencies. The market risk associated with currency exchange rates and prices is not considered significant.

Interest Rate Risk – The Company’s primary market risk exposure ~~with regard to~~regarding financial instruments is changes in interest rates. ~~At March~~On December 31, 2021, the Company ~~did not have any debt outstanding.~~had $59.7 million outstanding on its line of credit, exclusive of fees and letters of credit.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of ~~March~~December 31, 2021.

(b) Changes in internal control over financial reporting. During the quarter ended December 31, ~~2020,~~2021, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Cautionary Statement Relevant to Forward-Looking Information for ~~the Purpose of~~ “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

The Company and its representatives may from time to time make written or oral forward-looking statements ~~with respect to~~concerning long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities and Exchange Commission and in its reports to stockholders.

Statements, including those in this Quarterly Report on Form 10-Q, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. ~~There are certain~~Certain important factors ~~that~~ could cause our results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, inflation, the amount of sales generated and the profit margins thereon, competition (both U.S. and foreign), credit exposure with customers, participation in multi-employer pension plans, timing to implement restructuring, the impact of the COVID-19 pandemic and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of our most recent Annual Report on Form 10-K.

The Company specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
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PART II OTHER INFORMATION

Item 1A. Risk Factors

There has been no material change in the risk factors set forth under Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, ~~2020.~~2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On June 1, 2020, the Company’s Board of Directors authorized a $6 million share repurchase program through June 9, 2021. On August 20, 2020, the Company’s Board of Directors authorized an additional $8 million share repurchase program to begin on September 4, 2020 through September 3, 2021. On October 22, 2020, the Company’s Board of Directors authorized ~~another~~a $30 million share repurchase program (“October 2020 Plan”) through October 29, 2023. AsOn January 20, 2022, the Board of ~~December 31, 2020,~~Directors approved a new repurchase program authorizing the $6Company to purchase up to an additional $30 million ~~and $8 million repurchase programs were completed.~~ of the Company’s common stock through January 19, 2025.

The following table ~~summarized~~summarizes the activity of the common stock repurchases made under ~~all~~the October 2020 Plan during the three ~~programs as of March~~months ended December 31, 2021.


	Total Number	Average		Total Number	Approximate Dollar Value
	of Shares	Price Paid		of Shares Purchased	of Shares that May Yet
Period	Purchased	per Share		as Part of Plan	Be Purchased
October 1, 2021, to October 31, 2021	66,326	$	30.40	638,535	$	8,858,135
November 1, 2021, to November 30, 2021	124,944		28.58	763,479		5,287,672
December 1, 2021, to December 31, 2021	85,611		27.77	847,557		2,941,456
Three months ended December 31, 2021 (1)	276,881	$	28.76	847,557	$	2,941,456

(1)Includes 1,533 shares surrendered for payment of withholding taxes in connection with the vesting of restricted stock. All other purchases were made in the open market.

Total Number
Average
Total Number
Approximate Dollar Value
of Shares
Price Paid
of Shares Purchased
of Shares that May Yet
Period
Purchased
per Share
as Part of Plans
Be Purchased
As of June 30, 2020
132,197
$
11.83
132,197
$
4,429,960
July 1, 2020 to July 31, 2020
155,808
14.46
155,808
2,168,981
August 1, 2020 to August 31, 2020
116,562
17.24
116,562
153,690
September 1, 2020 to September 30, 2020
223,905
21.16
223,905
3,405,667
As of September 30, 2020
628,472
16.81
628,472
3,405,667
October 1, 2020 to October 31, 2020
132,326
25.69
132,326
30,000,000
November 1, 2020 to November 30, 2020
132,831
29.55
132,831
26,067,622
December 1, 2020 to December 31, 2020
101,689
32.69
101,689
22,738,200
As of December 31, 2020
995,318
$
21.31
995,318
$
22,738,200
January 1, 2021 to January 31, 2021
84,012
35.15
84,012
19,780,863
February 1, 2021 to February 28, 2021
94,104
34.24
94,104
16,553,899
March 1, 2021 to March 31, 2021
75,536
35.23
75,536
13,888,648
As of March 31, 2021
1,248,970
$
24.06
1,248,970
$
13,888,648

Item 6. Exhibits


Exhibit No.
3.1	Amended and Restated Bylaws, Dated December 8, 2021 (incorporated by reference to the Form 8-K filed with the Securities and Exchange Commission on December 8, 2021).
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.*
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS	XBRL Instance Document**
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104.Cover Page	Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*	Filed herewith
**	In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		FLEXSTEEL INDUSTRIES, INC.


Date:	~~April 30, 2021~~January 28, 2022	By:	/S/ Derek P. Schmidt
			Derek P. Schmidt
			Chief Financial Officer and Chief Operating Officer
			(Principal Financial & Accounting Officer)