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 31, ~~2019~~2020

☐¨ Transition Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the transition period from to

Commission file number0-5151

______________________________________

FLEXSTEEL INDUSTRIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Incorporated in State of Minnesota	42-0442319
(State or other Jurisdiction of ~~Incorporation or Organization)~~	(I.R.S. Identification No.)
Incorporation or Organization)

385 BELL STREET

DUBUQUE, ~~IOWA~~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 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 ¨

~~Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐ 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 ~~23, 2019~~29, 2020	~~7,894,178~~ 8,000,663

‎

Table of Contents

FLEXSTEEL INDUSTRIES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED March 31, 2020


		Page
Part I – Financial Information
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of March 31, 2020 and June 30, 2019 (Unaudited)	3
	Consolidated Statements of Income (Loss) for the three and nine months ended March 31, 2020 and March 31, 2019 (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended March 31, 2020 and March 31, 2019 (Unaudited)	4
	Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended March 31, 2020 (Unaudited)	5
	Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended March 31, 2019 (Unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended March 31, 2020 and March 31, 2019 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	20
Part II – Other Information
Item 1A.	Risk Factors	21
Item 6.	Exhibits	21
Signatures		22

‎

Table of Contents

PART I FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements~~

Item 1.Financial Statements

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share and per share data)



							March 31,		June 30,
	March 31, 2019			June 30, 2018			2020		2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	28,587		$	27,750		$	62,540	$	22,247
Investments		—			15,951
Trade receivables – less allowances:
March 31, 2019, $157; June 30, 2018, $1,100		40,128			41,253
Trade receivables - less allowances: March 31, 2020, $4,500; June 30, 2019, $250								34,292		38,157
Inventories		95,928			96,204			75,096		93,659
Other		15,230			8,476			14,924		11,904
Assets held for sale								129		—
Total current assets		179,873			189,634			186,981		165,967
NON-CURRENT ASSETS:
NONCURRENT ASSETS:
Property, plant and equipment, net		83,001			90,725			74,653		79,238
Operating lease right-of-use assets								12,793		—
Deferred income taxes		1,205			1,455			93		7,564
Other assets		1,336			2,479			1,318		1,518
TOTAL	$	265,415		$	284,293
LIABILITIES AND SHAREHOLDERS’ EQUITY
TOTAL ASSETS							$	275,838	$	254,287
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable – trade	$	16,480		$	17,228
Accounts payable - trade							$	23,046	$	18,414
Lines of credit								15,000		—
Current portion of operating lease liabilities								4,686		—
Accrued liabilities:
Payroll and related items		4,536			5,459			3,842		4,428
Insurance		4,616			4,439			4,103		4,554
Restructuring costs								982		6,203
Advertising		3,251			4,192			2,724		3,497
Environmental remediation		3,600			3,600			3,600		3,600
Other		5,274			6,011			6,423		7,068
Total current liabilities		37,757			40,929			64,406		47,764
LONG-TERM LIABILITIES:
Operating lease liabilities, less current maturities								8,473		—
Other liabilities		1,032			1,666			692		1,096
Total liabilities		38,789			42,595			73,571		48,860
SHAREHOLDERS’ EQUITY:
Common stock – $1 par value; authorized 15,000,000 shares; outstanding March 31, 2019, 7,894,178 shares; outstanding June 30, 2018, 7,868,298 shares		7,894			7,868

SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000,000 shares; ‎ outstanding March 31, 2020, 8,000,663 shares; ‎ outstanding June 30, 2019, 7,902,708 shares								8,001		7,903
Additional paid-in capital		27,080			26,321			30,758		27,512
Retained earnings		191,657			209,553			163,508		170,004
Accumulated other comprehensive loss		(5	)		(2,044	)
Total shareholders’ equity		226,626			241,698
TOTAL	$	265,415		$	284,293
Accumulated other comprehensive income								—		8
Total shareholders' equity								202,267		205,427
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY							$	275,838	$	254,287

See accompanying Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

(Amounts in thousands, except per share data)

Three Months Ended
March 31, Nine Months Ended
March 31,
2019 2018 2019 2018
Net sales $ 111,542 $ 126,861 $ 343,381 $ 376,087
Cost of goods sold (90,214 ) (99,229 ) (278,786 ) (294,913 )
Gross margin 21,328 27,632 64,595 81,174
Selling, general and administrative (22,915 ) (19,681 ) (62,484 ) (57,596 )
Environmental remediation — (3,600 ) — (3,600 )
ERP impairment (18,668 ) — (18,668 ) —
Gain on sale of facility — — — 1,835
Operating income (loss) (20,255 ) 4,351 (16,557 ) 21,813
Other income 158 158 397 457
Income before income taxes (20,097 ) 4,509 (16,160 ) 22,270
Income tax provision 4,545 (1,430 ) 3,470 (6,790 )
Net income (loss) $ (15,552 ) $ 3,079 $ (12,690 ) $ 15,480

Weighted average number of common shares outstanding:
Basic 7,892 7,853 7,884 7,844
Diluted 7,892 7,930 7,884 7,929

Earnings per share of common stock:
Basic $ (1.97 ) $ 0.39 $ (1.61 ) $ 1.97
Diluted $ (1.97 ) $ 0.39 $ (1.61 ) $ 1.95

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Amounts in thousands)~~


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Net sales	$	98,821	$	111,542	$	302,118	$	343,381
Cost of goods sold		84,973		90,214		254,999		278,786
Gross margin		13,848		21,328		47,119		64,595
Selling, general and administrative		20,115		22,915		55,678		62,484
Restructuring expense		2,377		—		13,448		—
ERP impairment		—		18,668		—		18,668
Gain on disposal of assets		302		—		19,269		—
Operating loss		(8,342)		(20,255)		(2,738)		(16,557)
Interest expense		16		—		16		—
Other income		135		158		328		397
Loss before income taxes		(8,223)		(20,097)		(2,426)		(16,160)
Income tax benefit		2,953		4,545		1,323		3,470
Net loss	$	(5,270)	$	(15,552)	$	(1,103)	$	(12,690)
Weighted average number of common shares outstanding:
Basic		7,965		7,892		7,955		7,884
Diluted		7,965		7,892		7,955		7,884
Loss per share of common stock:
Basic	$	(0.66)	$	(1.97)	$	(0.14)	$	(1.61)
Diluted	$	(0.66)	$	(1.97)	$	(0.14)	$	(1.61)

Three Months Ended
March 31, Nine Months Ended
March 31,
2019 2018 2019 2018
Net income (loss) $ (15,552 ) $ 3,079 $ (12,690 ) $ 15,480
Other comprehensive income (loss):
Unrealized gain (loss) on securities 157 (62 ) 240 (146 )
Reclassification of realized gain (loss) on securities to other income (107 ) 38 (211 ) 113
Unrealized gains (losses) in securities before taxes 50 (24 ) 29 (33 )
Income tax benefit related to securities gains (losses) (13 ) 6 (8 ) 11
Net unrealized gains (losses) on securities 37 (18 ) 21 (22 )
Reclassification of realized gains (losses) on terminated pension 2,727 — 2,727 —
Income tax (expense) benefit related to terminated pension (709 ) — (709 ) —
Net realized gain on terminated pension 2,018 — 2,018 —
Other comprehensive income (loss), net of tax 2,055 (18 ) 2,039 (22 )
Comprehensive income (loss) $ (13,497 ) $ 3,061 $ (10,651 ) $ 15,458

See accompanying Notes to Consolidated Financial Statements (Unaudited).

~~FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES~~

CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)~~COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

Total Par
Value of
Common
Shares ($1 Par)

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income
Total

Balance at June 30, 2018 $ 7,868 $ 26,321 $ 209,553 $ (2,044 ) $ 241,698
Issuance of common stock:
Stock options exercised, net 5 76 — — 81
Unrealized gain on available for sale investments, net of tax — — — 21 21
Long-term incentive compensation 7 (315 ) — — (308 )
Stock-based compensation 14 998 — — 1,012
Net realized gain on terminated pension, net of tax — — — 2,018 2,018
Cash dividends declared — — (5,206 ) — (5,206 )
Net loss — — (12,690 ) — (12,690 )
Balance at March 31, 2019 $ 7,894 27,080 191,657 (5 ) 226,626

Total Par
Value of
Common
Shares ($1 Par)

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income
Total

Balance at June 30, 2017 $ 7,822 $ 26,186 $ 198,465 $ (1,713 ) $ 230,760
Issuance of common stock:
Stock options exercised, net 5 71 — — 76
Unrealized loss on available for sale investments, net of tax — — — (23 ) (23 )
Long-term incentive compensation 20 (298 ) — — (278 )
Stock-based compensation 8 628 — — 636
Cash dividends declared — — (5,181 ) — (5,181 )
Net income — — 15,480 — 15,480
Balance at March 31, 2018 $ 7,855 26,587 208,764 (1,736 ) 241,470



	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Net loss	$	(5,270)	$	(15,552)	$	(1,103)	$	(12,690)
Other comprehensive income (loss):
Unrealized gain (loss) on securities		—		157		(18)		240
Reclassification of realized gain (loss) on securities to other income		—		(107)		7		(211)
Unrealized gains (losses) in securities before taxes		—		50		(11)		29
Income tax (expense) benefit related to securities gains (losses)		—		(13)		3		(8)
Net unrealized gains (losses) on securities		—		37		(8)		21
Reclassification of realized gains on terminated pension		—		2,727		—		2,727
Income tax (expense) benefit related to terminated pension		—		(709)		—		(709)
Net realized gain on terminated pension		—		2,018		—		2,018
Other comprehensive income (loss), net of tax		—		2,055		(8)		2,039
Comprehensive loss	$	(5,270)	$	(13,497)	$	(1,111)	$	(10,651)

See accompanying Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands)

Nine Months Ended
March 31,
2019 2018
OPERATING ACTIVITIES:
Net income (loss) $ (12,690 ) $ 15,480
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 5,694 5,398
Deferred income taxes 242 (124 )
Stock-based compensation expense 914 909
Change in provision for losses on accounts receivable (110 ) (110 )
ERP impairment 18,668 —
Loss (gain) on disposition of capital assets 133 (1,794 )
Defined benefit plan termination 2,455 —
Changes in operating assets and liabilities:
Trade receivables 1,235 (2,820 )
Inventories 275 (6,799 )
Other current assets (6,876 ) (547 )
Other assets 219 14
Accounts payable – trade 3,044 (420 )
Accrued liabilities (785 ) 4,915
Other long-term liabilities 117 187
Net cash provided by operating activities 12,535 14,289

INVESTING ACTIVITIES:
Purchases of investments (12,981 ) (30,196 )
Proceeds from sales of investments 28,909 30,129
Proceeds from sale of capital assets 42 6,152
Capital expenditures (20,603 ) (20,149 )
Net cash used in investing activities (4,633 ) (14,064 )
FINANCING ACTIVITIES:
Dividends paid (6,935 ) (5,018 )
Proceeds from issuance of common stock 81 77
Shares issued to employees, net of shares withheld (211 ) (552 )
Net cash used in financing activities (7,065 ) (5,493 )

Increase (decrease) in cash and cash equivalents 837 (5,268 )
Cash and cash equivalents at beginning of period 27,750 28,874
Cash and cash equivalents at end of period $ 28,587 $ 23,606

~~SUPPLEMENTAL INFORMATION~~



	Nine Months Ended March 31, 2020
	Total Par						Accumulated
	Value of		Additional				Other
	Common		Paid-In		Retained		Comprehensive
	Shares ($1 Par)		Capital		Earnings		(Loss) Income		Total
Balance at June 30, 2019	$	7,903	$	27,512	$	170,004	$	8	$	205,427
Adoption of ASU 2016-02		—		—		(42)		—		(42)
Unrealized loss on available for sale investments, ‎ net of tax		—		—		—		(8)		(8)
Long-term incentive compensation		—		109		—		—		109
Stock-based compensation		39		1,201		—		—		1,240
Cash dividends declared		—		—		(1,754)		—		(1,754)
Net income		—		—		9,551		—		9,551
Balance at September 30, 2019	$	7,942	$	28,822	$	177,759	$	—	$	214,523
Stock options exercised		2		19		—		—		21
Long-term incentive compensation		—		104		—		—		104
Stock-based compensation		6		1,787		—		—		1,793
Cash dividends declared		—		—		(1,816)		—		(1,816)
Net loss		—		—		(5,384)		—		(5,384)
Balance at December 30, 2019	$	7,950	$	30,732	$	170,559	$	—	$	209,241
Long-term incentive compensation		—		89		—		—		89
Stock-based compensation		7		449		—		—		456
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

~~(Amounts in thousands)~~

Nine Months Ended
March 31,
2019 2018
Income taxes paid, net $ 1,390 $ 5,190
Capital expenditures in accounts payable 293 2,770

See accompanying Notes to Consolidated Financial Statements (Unaudited).

‎

Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands)


	Nine Months Ended March 31, 2019

	Total Par						Accumulated
	Value of		Additional				Other
	Common		Paid-In		Retained		Comprehensive
	Shares ($1 Par)		Capital		Earnings		(Loss) Income		Total
Balance at June 30, 2018	$	7,868	$	26,321	$	209,553	$	(2,044)	$	241,698
Stock options exercised		3		41		—		—		44
Unrealized gain on available for sale investments, ‎ net of tax		—		—		—		17		17
Long-term incentive compensation		7		(115)		—		—		(108)
Stock-based compensation		6		440		—		—		446
Cash dividends declared		—		—		(1,734)		—		(1,734)
Net income		—		—		1,296		—		1,296
Balance at September 30, 2018	$	7,884	$	26,687	$	209,115	$	(2,027)	$	241,659
Stock options exercised		1		7		—		—		8
Unrealized loss on available for sale investments, ‎ net of tax		—		—		—		(32)		(32)
Stock-based compensation		4		318		—		—		322
Cash dividends declared		—		—		(1,736)		—		(1,736)
Net income		—		—		1,566		—		1,566
Balance at December 31, 2018	$	7,889	$	27,012	$	208,945	$	(2,059)	$	241,787
Stock options exercised		1		28		—		—		29
Unrealized loss on available for sale investments, ‎ net of tax		—		—		—		37		37
Long-term incentive compensation		—		(200)		—		—		(200)
Stock-based compensation		4		240		—		—		244
Net realized gain on terminated pension, ‎ net of tax		—		—		—		2,018		2,018
Cash dividends declared		—		—		(1,736)		—		(1,736)
Net loss		—		—		(15,552)		—		(15,552)
Balance at March 31, 2019	$	7,894	$	27,080	$	191,657	$	(4)	$	226,627

See accompanying Notes to Consolidated Financial Statements (Unaudited).

Table of Contents

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)



	Nine Months Ended
	March 31,
	2020		2019
OPERATING ACTIVITIES:
Net loss	$	(1,103)	$	(12,690)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		6,665		5,694
Deferred income taxes		7,471		242
Stock-based compensation expense		3,880		914
Change in provision for losses on accounts receivable		4,250		(110)
Change in reserve for VAT receivable		(1,431)		—
ERP impairment		—		18,668
(Gain) loss on disposition of capital assets		(19,269)		133
Defined benefit plan termination		—		2,455
Changes in operating assets and liabilities:
Trade receivables		(386)		1,235
Inventories		18,563		275
Other current assets		(1,992)		(6,876)
Other assets		176		219
Accounts payable - trade		4,498		3,044
Accrued liabilities		(7,051)		(785)
Other long-term liabilities		(383)		117
Net cash provided by operating activities		13,888		12,535
INVESTING ACTIVITIES:
Purchases of investments		(1,667)		(12,981)
Proceeds from sales of investments		1,673		28,909
Proceeds from sale of capital assets		20,452		42
Capital expenditures		(3,256)		(20,603)
Net cash provided by (used in) investing activities		17,202		(4,633)
FINANCING ACTIVITIES:
Dividends paid		(5,260)		(6,935)
Proceeds from line of credits		15,000		—
Proceeds from issuance of common stock		21		81
Shares withheld for tax payments on vested restricted shares		(558)		(211)
Net cash provided by (used in) financing activities		9,203		(7,065)
Increase in cash and cash equivalents		40,293		837
Cash and cash equivalents at beginning of period		22,247		27,750
Cash and cash equivalents at end of period	$	62,540	$	28,587

SUPPLEMENTAL INFORMATION
Income taxes (refunded) paid, net	$	(4,623)	$	1,390
Capital expenditures in accounts payable	$	467	$	293

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 31, 2019

BASIS OF PRESENTATION – The 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 includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such consolidated financial statements. Operating results for the three and nine months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. 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 set forth in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2018, appropriately represent, in all material respects, the current status of accounting policies and are incorporated by reference.

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

BASIS OF PRESENTATION – The 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 includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such consolidated financial statements. Operating results for the three and nine months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020. 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 set forth in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, appropriately represent, in all material respects, the current status of accounting policies and are incorporated by reference.

Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Additionally, in March 2020, the World Health Organization declared the novel coronavirus 2019 (“COVID-19”) a global pandemic. The broader implication of COVID-19 on our results of operations and overall financial performance remains uncertain. We have experienced constrained supply and reduced customer demand that has materially adversely impacted our business, financial condition, results of operations and overall financial performance.

DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries ~~(the “Company”)~~was incorporated in 1929 ~~celebrated its 125th anniversary of the Company’s founding in 1893 last year. Flexsteel Industries, Inc.~~and is one of the oldest and largest manufacturers, importers and marketers of residential and contract upholstered and wooden furniture products in the United States. Over the generations the Company has built a committed retail and consumer following based on its patented, guaranteed-for-life Blue Steel Spring^TM – the all-riveted, high-carbon, steel-banded seating platform that gives upholstered and leather furniture the strength and comfort to last a lifetime. With offerings for use in home, ~~hotel,~~ healthcare, and recreational ~~vehicle, marine and office,~~seating, the Company distributes its furniture throughout the United States and Canada through the Company’s sales force and various independent representatives.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS ~~- In May 2014,~~– On July 1, 2019, the ~~Financial~~Company adopted Accounting Standards ~~Board~~Update (“~~FASB”~~ASU”) ~~issued Accounting Standards Codification~~No. 2016-02, Leases (Topic 842) (“~~ASC”~~ASC 842”) ~~2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~~~, which provides~~and the related amendments. ASC 842 requires lessees to (i) recognize a ~~framework for the recognition~~right of ~~revenue, with the objective~~use asset and a lease liability that ~~recognized revenues properly reflect amounts an entity~~ is entitled to receive in exchange for goods and services. The guidance is effective for annual reporting periods beginning after December 15, 2017, the Company’s fiscal year 2019. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognizedmeasured at the ~~date~~present value of ~~initial application (modified retrospective method).~~ 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 adopted ASC 842 utilizing the ~~modified retrospective~~optional transition method, on July 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements as revenue is recognized when product ownership and risk of loss is transferred to the customer, collectability is probable and the Company has no remaining performance obligations. Thus, the timing of revenue recognition is not impacted by the new standard.

~~The Company’s revenues result from the sale of goods and reflect the consideration to~~ which ~~the Company expects~~allows guidance to be ~~entitled. The Company records revenue based on a five-step model in accordance with Accounting Standards Codification (“ASC”) 2014-09,~~~~Revenue from Contracts with Customers~~(~~Topic 606~~). For its customer contracts, typically purchase orders, the Company identifies the performance obligations (goods), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when the performance obligation is transferred to the customer. A good is transferred when the customer obtains control of that good and risk of loss transfers at a point in time.

Provisions for customer volume rebates, product returns, discounts and allowances are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated based upon agreed percentages. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent there is a distinct good or service and evidence of the fair value of the advertising, in which case the expense is classified as selling, general and administrative expense (SG&A).

~~The Company has a limited lifetime warranty on all products. The Company does not offer the option to purchase warranties. The Company accounts for warranties under ASC 460,~~~~Guarantees~~~~, and not as variable consideration related to revenue.~~

Occasionally the Company receives deposits from customers before it has transferred control of the product to customers, resulting in contract liabilities. These contract liabilities are reported within “Accounts payable - trade” in the consolidated balance sheets. As of June 30, 2018, the Company had $2.2 million of customer deposits. As of March 31, 2019, the Company had $1.9 million of customer deposits.

~~Upon adoption of ASC 606, the Company elected the following practical expedients and policy elections:~~

●

Costs for shipping and handling activities that occur before the customer obtains control of the product are accounted for as fulfillment activities. Accordingly, these expenses are recorded at the same time the Company recognizes revenue.

●

~~Incremental costs of obtaining a contract, specifically commissions, are recorded as an SG&A expense when incurred.~~

●

All taxes imposed on and concurrent with revenue-producing transactions and collected by the Company from a customer, including sales, use, excise, and franchise taxes are excluded from the measurement of the transaction price.

~~These accounting treatments are consistent with the Company’s policies prior to adoption of ASC 606. Therefore, there will be no impact to the consolidated financial statements.~~

Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on financial position, results from operations and cash flows or related disclosures. As such, prior period financial statements were not adjusted.

~~The following table disaggregates the Company’s net sales by product category for the quarter ended March 31, (in millions):~~

2019 2018
Residential $ 93.8 $ 105.3
Contract 17.7 21.6
Total $ 111.5 $ 126.9

~~The following table disaggregates the Company’s net sales by product category for the nine months ended March 31, (in millions):~~

2019 2018
Residential $ 289.3 $ 317.9
Contract 54.1 58.2
Total $ 343.4 $ 376.1

~~ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED – In February 2016, the FASB issued ASU 2016-02,~~~~Leases~~, which will require lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases and will expand disclosure requirements. The new guidance was issued to increase transparency and comparability among companies. In July 2018, the FASB approved an amendment to the new guidance that allows companies the option of using the effective date of the new standard as the initial application (at the beginning of the period in which it is adopted, rather thaninitially applied at the ~~beginning of the earliest comparative period) and to recognize the effects of applying the new ASU as~~adoption date with a ~~cumulative effect~~cumulative-effect adjustment to the opening balance ~~sheet or~~of retained earnings. ~~Based on~~The Company elected the ~~effective dates,~~package of practical expedients, which allows the Company ~~expects~~ to ~~adopt~~forgo reassessing prior conclusions on lease definition, classification and initial direct costs related to existing leases as of the ~~new guidance in the first quarter of fiscal 2020 using the new transition~~adoption date. The Company has made an accounting policy election to not ~~restate comparative periods. The~~recognize short-term leases on the consolidated balance sheets and all non-lease components, such as common area maintenance, were excluded.

2. LEASES

Effective July 1, 2019, the Company adopted ASC 842, which resulted in a recognition of right-of-use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities reflect the obligation to make lease payments arising from the lease. 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 ~~still evaluating~~measured as the ~~impact~~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 ~~its consolidated financial statements and footnote disclosures. The Company expects to complete its analysis by~~zero at the end of the ~~fourth quarter~~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 ~~fiscal 2019.~~our 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. The Company does not record leases with a term of 12 months or less on the Company’s consolidated balance sheets.

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 2 $10.0 million lines of credit. Some of the Company’s leases contain variable rent

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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 reflected on the Company’s consolidated statements of income were as follows:



	Three Months Ended		Nine Months Ended
	March 31,		March 31,
(in thousands)	2020		2020
Operating lease expense	$	1,366	$	3,707
Variable lease expense		69		198
Total lease expense	$	1,435	$	3,905

Other information related to leases and future minimum lease payments under non-cancellable operating leases as of March 31, 2020 were as follows:

	2.	~~INVENTORIES~~

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

Right-of-use assets obtained in exchange for lease liabilities:
Operating leases		$	3,573

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

Weighted-average discount rate:
Operating leases			3.5%

Fiscal year
(in thousands)
Within one year		$	5,113
After one year and within two years			3,299
After two years and within three years			2,301
After three years and within four years			2,099
After four years and within five years			1,260
After five years			—
Total future minimum lease payments		$	14,072
Less – Discount			913
Lease liability		$	13,159

Future minimum lease payments under non-cancellable operating leases based on accounting standards applicable as of June 30, 2019 were as follows:



Fiscal year
(in thousands)
2020	$	4,617
2021		3,990
2022		2,229
2023		1,283
2024		1,330
Thereafter		—
Total future minimum lease payments	$	13,449

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3. INVENTORIES

A comparison of inventories is as follows:

(in thousands)
March 31,
2019
June 30,
2018
Raw materials $ 13,040 $ 13,335
Work in process and finished parts 7,112 7,195
Finished goods 75,776 75,674
Total $ 95,928 $ 96,204

~~PROPERTY, PLANT AND EQUIPMENT~~

~~In its third quarter results for fiscal~~



	March 31,		June 30,
(in thousands)	2020		2019
Raw materials	$	11,827	$	14,182
Work in process and finished parts		7,161		6,408
Finished goods		56,108		73,069
Total	$	75,096	$	93,659

4. RESTRUCTURING

On May 15, 2019, the Company ~~reported an $18.7 million impairment charge for~~announced its plans to exit the ~~SAP ERP system work completed to date. Since~~Commercial Office and custom-designed Hospitality product lines which represented approximately 7% of its revenue, and subsequently permanently closed its Riverside, California manufacturing facility. On September 26, 2019, the ~~beginning~~Company closed on the sale of the ~~ERP system project~~Riverside property resulting in ~~late calendar year 2016,~~net proceeds to the Company ~~had accumulated $27~~of $19.6 million ~~of capitalized expense associated with the development, configuration~~after customary closing costs, prorations, and ~~preparation for implementation of the ERP system across the entire Company network~~sales commissions and ~~subsequent planned retirement of two legacy business information systems. On April 1, 2018,~~ the Company ~~implemented the ERP system on approximately 20%~~recorded a pre-tax gain of ~~its business by sales value. After significant disruption during this~~$18.9 million. These actions were initial ~~phase, analysis of root cause~~outcomes driven from customer and ~~corrective action activities, the Company stopped further implementation across the network~~product line profitability and ~~focused on stabilization of the new ERP system environment. Concurrently, the Company~~footprint utilization analyses completed ~~a thorough evaluation of the work completed to date, its usefulness~~ in the ~~context of future deployments and the potential for revised project scope. The analysis, which was completed during the third~~fourth quarter of fiscal 2019.

On June 18, 2019, ~~resulted~~the Company announced it completed the analysis and planning process and set forth the comprehensive transformation program to be executed over the next two years, which included the previously announced restructuring activities on May 15, 2019. The transformation program includes activities such as business simplification, process improvement, exiting of non-core businesses, facility closures, and reductions in ~~management’s determination~~work force over the next two years. The activities are designed to increase organizational effectiveness, gain manufacturing efficiencies and provide cost savings that ~~there was an impairment~~can be invested in growing the business.

As a result of ~~$18.7~~these planned actions, the Company expects to incur pre-tax restructuring and related expenses of approximately $48.0 to $53.0 million over this two year timeframe of which $36.0 to $40.0 million will be cash and $12.0 to $13.0 million non-cash. In addition, the ~~ERP system assets due~~Company plans to ~~incomplete or abandoned software components and capitalized amounts which are not recoverable. After~~list several properties for sale when the ~~impairment determination, there remains a capitalized asset related~~footprint optimization is completed. When sold, the Company expects to ~~the ERP system of $7.2~~generate $45.0 to $55.0 million in ~~net book value. This amount includes capabilities designed~~proceeds (including the $19.6 million Riverside, California manufacturing facility discussed above) dependent upon market conditions at time of sale. Total cumulative restructuring and ~~configured~~related costs incurred as of March 31, 2020 were $31.4 million.

The following is a summary of restructuring costs for the ERP system either currently in use or developed for future implementation. Should the Company determine it does not intend to proceed with further roll out of the ERP system beyond the current implementation, $6.1 million in net book value of the remaining capitalized asset would be subject to potential impairment.

~~FAIR VALUE MEASUREMENTS~~

~~The Company’s cash~~three and cash equivalents, investments, trade receivables, other current assets, accounts payable – trade and certain accrued liabilities are carried at amounts which reasonably approximate their fair value due to their short-term nature. GAAP on fair value measurement for certain financial assets and liabilities require that each asset and liability carried at fair value be classified into one of the following categories: Level 1: Quoted market prices in active markets for identical assets and liabilities; Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data; or Level 3: Unobservable inputs that are not corroborated by market data. The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.

~~During the~~ nine months ended March 31, ~~2019,~~2020.



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

The components of accrued restructuring costs are as follows:



	Accrued								Accrued
	Restructuring								Restructuring
	June 30,								March 31,
(in thousands)	2019		Cost Incurred		Expenses Paid		Non-Cash		2020
Inventory impairment	$	—	$	276	$	—	$	(276)	$	—
One-time employee termination benefits		1,731		725		(2,294)		—		162
Contract termination costs		249		—		(82)		—		167
Other associated costs		4,223		12,723		(14,007)		(2,286)		653
Total	$	6,203	$	13,724	$	(16,383)	$	(2,562)	$	982

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5. CREDIT ARRANGEMENTS

In March 2020, as a precautionary measure to maximize our liquidity in response to financial market conditions arising from the COVID-19 global pandemic, the Company purchased available-for-sale securities, U.S. Treasury bills and U.S. Agencies, which were recorded at fair market value. These securities were classified as “Investments” in the consolidated balance sheets. Unrealized gainsdrew down a total of $15.0 million on our credit facilities. The proceeds will be available to be used for working capital, general corporate or ~~losses were recorded in “Accumulated~~ other ~~comprehensive loss” in the consolidated balance sheets. As~~purposes. A description of March 31, 2019, the Company had no investments recorded. As of June 30, 2018, the fair market value and book value of the investments were $16.0 million. These assets were classified as Level 1 in accordance with fair value measurements described above.each credit facility is discussed below.

~~CREDIT ARRANGEMENTS~~

The Company maintains an unsecured credit agreement with Wells Fargo Bank N.A. that provides short-term working capital financing up to $10.0 million with interest of LIBOR plus 1% ~~(4.49%~~(1.95% at March 31, ~~2019)~~2020), including up to $4.0 million of letters of credit. ~~Letters~~The outstanding balance on this line of credit was $7.5 million and the letters of credit outstanding ~~at March 31, 2019,~~ totaled $1.3 ~~million. Other than the outstanding letters of credit, the Company did not utilize borrowing availability under the credit facility, leaving borrowing availability of $8.7~~ million as of March 31, ~~2019.~~2020. The borrowing availability under this credit agreement was $1.2 million as of March 31, 2020. The credit agreement expires June 30, ~~2019. At~~2020. As of March 31, ~~2019,~~2020, the Company was not in compliance with ~~all of the~~its financial ~~covenants~~covenant contained in the credit ~~agreement.~~

agreement related to the interest coverage ratio. On April 28, 2020, the Company obtained a waiver from the bank for not complying with the interest coverage ratio as of March 31, 2020.

The Company maintains an additional unsecured $10.0 million line of credit with MidwestOne Bank, with interest at prime minus 2% ~~(3.50%~~, subject to a floor of 3.75% (3.75% at March 31, ~~2019)~~2020). ~~No amount was~~The outstanding balance on ~~the~~this line of credit atwas $7.5 million as of March 31, ~~2019. This line~~2020. The borrowing availability under this credit agreement was $2.5 million as of March 31, 2020. The credit ~~matures December 31, 2019.~~agreement expires June 30, 2020.

~~INCOME TAXES~~

~~On December 22, 2017,~~6. INCOME TAXES

The provision for income taxes for the ~~Tax Cuts and Jobs Act (“Tax Reform”) was enacted, which, among numerous provisions reduced~~interim periods is based on an estimate of the ~~federal statutory corporate~~Company’s annual effective tax rate ~~from 35%~~adjusted to ~~21%. Based on~~reflect the ~~provisions~~impact of discrete items. Management judgment is required in projecting ordinary income to estimate the ~~Tax Reform, the Company remeasured its deferred~~Company’s annual effective tax ~~assets and liabilities and adjusted its estimated annual federal income~~rate. The Company’s effective tax rate ~~to incorporate the lower corporate tax rate into the tax provision.~~

~~During~~for the quarters ended March 31, 2020 and 2019 were 35.9% and ~~2018, the effective tax rates were~~ 22.6%, respectively and ~~31.7%, respectively.~~

~~During~~for the nine months ended March 31, 2020 and 2019 were 54.5% and 21.5%, respectively. The difference between the 2019 and 2020 rates relate to recording the current year benefit at a 35% federal tax rate rather than the current statutory rate of 21% due to the carryback benefit discussed below. In addition, the Company recorded a full valuation allowance against the federal and state deferred tax assets of $3.9 million.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 global pandemic. Certain provisions of the CARES Act impacted the three and nine months ended March 2020 and will impact the current fiscal year 2020. The CARES Act permits net operating losses (“NOLs”) incurred in tax years 2018, 2019, and 2020, (the Company’s fiscal years 2019, 2020 and 2021) to offset 100% of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company evaluated the impact of the CARES Act during the quarter ended March 31, 2020 and recorded an income tax receivable of $8.2 million for the benefit of carrying back the fiscal year 2019 NOL and an income tax receivable of $0.8M for the benefit of carryback the fiscal year 2020 NOL. As the Company is carrying the losses back to years beginning before January 1, 2018, the ~~effective~~receivables were recorded at the previous 35% federal tax ~~rates~~rate rather than the current statutory rate of 21%.

The Company recognizes deferred tax assets to the extent that they believe the assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. As of March 31, 2020, it was determined the Company has not reached a more likely than not position the Company will realize the deferred tax assets. Therefore, the Company has recorded a valuation allowance against the federal and state deferred tax assets of $3.9 million.

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7. 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. 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 restructuring expense were ~~21.5%~~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 for the three and ~~30.5%, respectively.~~nine months ended March 31, 2020 and March 31, 2019.

~~STOCK-BASED COMPENSATION~~



	Three Months Ended				Nine Months Ended
	March 31,				March 31,
(in thousands)	2020		2019		2020		2019
Total stock-based compensation expense	$	544	$	46	$	3,621	$	914

The Company has ~~two~~2 stock-based compensation ~~methods~~plans available ~~when determining employee compensation:~~for granting awards to employees and directors.

~~(1)~~

~~Long-Term Incentive Compensation Plan~~

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

The ~~long-term incentive compensation plan~~LTICP provides for ~~shares of common stock~~RSUs to be awarded to officers and key employees based on performance targets set by the Compensation Committee of the Board of Directors (the “Committee”). The ~~Company’s shareholders previously approved 700,000 shares to be issued under the plan. As of March 31, 2019, 102,183 shares have been issued. The Committee~~Company selected fully-diluted earnings per share and total shareholder return as the performance goal for the ~~three-year~~three year performance periods ~~July 1, 2016 – June 30, 2019 (2017-2019),~~from July 1, 2017 – June 30, 2020 ~~(2018-2020)~~(“2018-2020”) and July 1, 2018 – June 30, 2021 ~~(2019-2021)~~(“2019-2021”). The Committee also selected total shareholder return as a performance goal for the executive officers for the three-year performance periods 2017-2019, 2018-2020 and 2019-2021. Stock awards will be issued to participants as soon as practicable following the endAs of the performance periods subject to verification of results and Committee approval. The compensation cost related to the number of shares to be granted under each performance period is fixed on the grant date, which is the dateJune 30, 2019, both the performance period ~~begins.~~

~~During~~2018-2020 and 2019-2021 are no longer attainable. For the ~~quarter~~July 1, 2019 – June 30, 2022 (“2020-2022”) three year performance period, the Committee selected Adjusted Earnings Before Interest and Tax with a defined percentage growth in fiscal year 2021 and 2022. Since the 2018-2020 and 2019-2021 performance periods are no longer attainable, only RSU’s granted for the 2020-2022 performance period are included in the table below for the Company’s unvested LTICP RSUs during the nine months ended March 31, ~~2019,~~2020:


	Time Based Vest			Performance Based Vest			Total
		Weighted average			Weighted average			Weighted average
		fair value			fair value			fair value
(shares in thousands)	Shares	per share		Shares	per share		Shares	per share
Unvested as June 30, 2019	—	$	—	—	$	—	—	$	—
Granted	44		16.90	66		16.75	110		16.81
Forfeited	(5)		16.90	(7)		16.87	(12)		16.88
Unvested as of March 31, 2020	39	$	16.90	59	$	16.74	98	$	16.80

Total unrecognized stock-based compensation related to the ~~Company reduced the provision due to underperformance in the amount~~unvested LTICP RSUs was $0.9 million as of ~~$0.2 million. During the quarter and nine months ended~~ March 31, ~~2018, the Company recorded $0.2 million in plan expense. If the target performance goals for 2017-2019, 2018-2020 and 2019-2021 plans would~~2020, which is expected to be ~~achieved, the total amount of compensation cost~~ recognized over ~~the requisite performance periods would be $0.8 million, $0.5 million and $0.3 million, respectively.~~a period of 2.3 years.

~~(2)~~

~~Stock Plans~~

(2) 2013 Omnibus Stock Plan, 2006 and 2009 Stock Option Plans

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. ~~The Company’s shareholders previously approved 700,000 shares to be issued under the plan.~~

~~Under the Omnibus Stock Plan, options are granted at an exercise price equal to the fair market value of the underlying common~~NaN additional stock at the date of grant and exercisable for up to 10 years. It is the Company’s policy to issue new shares upon exercise of stock options. The Company accepts shares of the Company’s common stock as payment for the exercise price of options. Shares received as payment are retired upon receipt. During the quarter ended March 31, 2019, the Company issued options for 34,087 common shares and recorded expense of $0.1 million related to the stock option grants. The Company did not issue options or record expense for the quarter ended March 31, 2018.

During the nine months ended March 31, 2019 and 2018, the Company issued options for 100,392 and 21,439 common shares and recorded expense of $0.5 million and $0.2 million related to stock option grants, respectively.

Under the Omnibus Stock Plan, the Company issued 3,976 and 2,176 shares to non-executive directors as compensation and recorded expense of $0.1 million during the quarters ended March 31, 2019 and 2018, respectively. The Company issued 10,241 and 5,740 shares to non-executive directors as compensation and recorded expense of $0.3 million during the nine months ended March 31, 2019 and 2018, respectively.

During the three months ended March 31, 2019, the Company recorded compensation expense of ($0.1) million due to the cancellation of previously issued restricted units to executive officers whom are no longer with the Company. During the nine months ended March 31, 2019, the Company recorded $0.2 million compensation expense for grants of an aggregate 18,789 restricted stock units under the plan to two executive officers as per their notification of award letters dated July 1, 2018. In addition, the Company awarded 30,000 restricted stock units and 3,186 restricted stock shares to its Chief Executive Officer per notification of award letters dated December 28, 2018. The Company recorded $0.04 million compensation expense related to these grants to the Chief Executive Officer for the quarter and nine months ended March 31, 2019. The Company granted 4,169 restricted units as inducement grants to non-executive officers during the third quarter at a nominal expense. During the three and nine months ended March 31, 2018, the Company recorded $0.1 million and $0.2 million compensation expense for grants of an aggregate 6,280 restricted stock units under the plan to two executive officers as per their notification of award letters dated July 1, 2017.

~~At March 31, 2019, 384,794 shares were available for future grants under the plan.~~

~~2006 and 2009 Stock Option Plans~~

The 2006 and 2009 Stock Option Plans are for key employees, officers and directors and provide for granting incentive and nonqualified stock options. Under the plans, options were granted at an exercise price equal to the fair market value of the underlying common stock at the date of grant and exercisable for up to 10 years. All options were exercisable when granted. No additional options can be granted under the 2006 and 2009 ~~Stock Option Plans.~~stock option plans.

~~(3)~~

~~Outside a Plan~~

Restricted shares and RSUs

A summary of the activity in the Company’s unvested restricted shares and unvested RSUs during the nine months ended March 31, 2020 is as follows:

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		Weighted average
	Shares	fair value
	(in thousands)	per share
Unvested as June 30, 2019	55	$	28.55
Granted	221		16.48
Vested	(83)		19.05
Forfeited	(30)		23.22
Unvested as of March 31, 2020	163	$	18.05

Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs was $1.2 million as of March 31, 2020, which is expected to be recognized over a weighted average period of 1.2 years.

Options

A summary of the activity of the Company’s stock option plans as of March 31, 2020, is presented below:



		Weighted
	Shares	Average
	(in thousands)	Exercise Price
Outstanding at June 30, 2019	225	$	28.37
Granted	30		15.14
Exercised	(2)		8.55
Cancelled	(21)		33.75
Outstanding at March 31, 2020	232	$	26.50

The following table summarizes information for options outstanding at March 31, 2020:



		Options	Weighted Average
Range of		Outstanding	Remaining	Exercise
Prices		(in thousands)	Life (Years)	Price
$	8.55 - 15.14	41	7.7	$	14.45
	17.23 - 19.77	22	2.5		18.88
	20.50 - 27.57	92	7.3		24.13
	31.06 - 32.80	46	7.0		32.28
	43.09 - 47.45	31	7.0		45.32
$	8.55 - 47.45	232	6.8	$	26.36

Total unrecognized stock-based compensation expense related to options was $0.05 million as of December 31, 2020, which is expected to be recognized over a period of 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 ~~plan. The Company recorded $0.1 million~~plans. Total unrecognized stock-based compensation expense related to ~~this grant during the quarter and nine months ended March 31, 2019.~~

~~(4)~~

~~Summary~~

~~A summary of the status of the Company’s stock option plans~~options awarded outside a plan was $0.1 million as of March 31, ~~2019, June 30, 2018 and 2017 and the changes during the periods then ended~~2020, which is ~~presented below:~~expected to be recognized over a period of 1.3 years.

Options
(in thousands)
Weighted
Average
Exercise Price

Aggregate
Intrinsic Value
(in thousands)

Outstanding at June 30, 2017 187 $ 27.21 $ 5,039
Granted 21 45.21
Exercised (21 ) 18.89
Canceled (21 ) 26.77
Outstanding at June 30, 2018 166 30.65 1,841
Granted 100 26.89
Exercised (5 ) 15.50
Canceled (11 ) 37.14
Outstanding at March 31, 2019 250 $ 29.18 $ 329

~~The following table summarizes information for options outstanding at March 31, 2019:~~

Weighted Average

Range of Prices Options Outstanding
(in thousands) Remaining
Life (years) Exercise
Price
$ 8.55 – 13.90 14 2.0 $ 11.91
17.23 – 19.77 25 3.0 18.82
20.50 – 27.57 100 7.8 24.27
31.06 – 32.80 62 7.7 32.29
43.09 – 47.45 49 7.5 45.37
$ 8.55 – 47.45 250 6.9 $ 29.18

~~EARNINGS PER SHARE~~

8. 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 ~~includes~~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 management incentive compensation plan~~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 ~~shares~~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. The Company calculates the dilutive effect of shares related to the long-term management incentive compensation plan and non-vested shares based on the number of shares, if any, that would be issuable if the end of the fiscal period were the end of the contingency period.

In computing EPS for the ~~quarter~~quarters ended March 31, 2020 and 2019, and for the nine months ended March 31, 2020 and 2019, there are no0 dilutive shares as the ~~company~~Company reported a net ~~loss. For the quarter and nine months ended March 31, 2018, net income as reported for each respective period is divided by the fully diluted weighted-average number~~losses.

Table of ~~shares outstanding:~~Contents

Three Months Ended
March 31, Nine Months Ended
March 31,
(in thousands) 2019 2018 2019 2018
Basic shares 7,892 7,853 7,884 7,844
Potential common shares:
Stock options — 57 — 67
Long-term incentive plan — 15 — 15
Non-vested shares and units — 5 — 3
— 77 — 85
Diluted shares 7,892 7,930 7,884 7,929
Anti-dilutive shares — 61 — 22


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
(in thousands)	2020		2019		2020		2019
Basic shares		7,965		7,892		7,955		7,884
Diluted shares		7,965		7,892		7,955		7,884

Cash dividends declared per common share were $0.22 and $0.66 for the ~~quarters~~three months and nine months ended March 31, 2020, respectively, and $0.22 and $0.66 for the three and six months ended March 31, 2019, ~~and 2018.~~respectively.

~~LITIGATION~~

9. 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 ofa $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 July 5, 2018, the EPA proposed a draft AOC, to which the Company provided revisions. During the latter part of 2018, Flexsteel submitted to the EPA its proposed work plan for the upgradient testing to be conducted pursuant to the draft AOC. The EPA provided comments on that documentation on December 4, 2018. On January 23, 2019, Flexsteel submitted responses to the EPA’s comments and revised work plan documents. On April 24, 2019, the Company signed ~~the finalized~~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. On November 22, 2019, the Company submitted a Data Summary Report with the data from those activities to the EPA. The EPA provided comments on the Data Summary Report on January 14, 2020, the Company then submitted a draft Final Report on February 19, 2020, to which the EPA provided comments on April, 9, 2020. Meanwhile, on January 2, 2020, the Company entered into a First Amended Tolling Agreement with the EPA which extends the statute of limitations potential claims by EPA through August 24, 2020. The Company reflected a $3.6 million liability in the consolidated financial results 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 financials for the quarter ~~and nine months~~ ended March 31, ~~2019~~2020 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 is brought by the same attorneys as Hernandez I and features a single cause of action for civil penalties under the Private Attorneys General Act (“PAGA”). Flexsteel agreed to resolve both Hernandez I and Hernandez II in principle and on a class-wide basis for $0.5 million. That settlement will serve to resolve the claims of the 2 Plaintiffs, as well as the approximately 270 remaining members of the class unless an individual class member asks to be excluded. At present, the material terms of the settlement are captured in a Memorandum of Agreement. Flexsteel anticipates that obtaining final approval of the parties’ settlement from the court will take at least six months and potentially longer, such that any settlement payments will not be made until the fiscal year ended June 30, 2021. The settlement amount of $0.5 million, has been accrued in other current liabilities during the fiscal year ended June 30, 2019 and continues to reflect this liability in the consolidated financials for the quarter ended March 31, 2020.

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.

~~10.~~

~~SUBSEQUENT EVENTS~~

As14

Table of ~~May 2,~~Contents

10. ASSETS HELD FOR SALE

During the second quarter of fiscal 2019, ~~there were no subsequent events, other~~the Company committed to a plan to sell assets located at the Company’s Harrison, Arkansas, Huntingburg, Indiana, and Dubuque, Iowa locations as part of the Company’s restructuring plan, see Note 4 Restructuring. The Company’s airplane located in Dubuque, Iowa, was sold in February 2020 for cash proceeds of $0.8 million and a gain of $0.3 million. A summary of the assets held for sale is included in the table below as of March 31, 2020.



				Accumulated		Net Book
Location	Asset Category	Cost		Depreciation		Value
(in thousands)
Harrison, Arkansas	Building & building improvements	$	1,382	$	(1,354)	$	28
	Land & land improvements		92		(42)		50
	Machinery & equipment		1,391		(1,391)		—
Huntingburg, Indiana	Building		855		(855)		—
	Land		51		—		51
		$	3,771	$	(3,642)	$	129

11. SUBSEQUENT EVENTS

On April 28, 2020, consistent with the Company’s previously announced comprehensive restructuring plan, see Note 4, Restructuring, the Company approved a plan to exit its Recreational Vehicle and the remainder of its Hospitality businesses. Both of these businesses represented less than 9.0% of the ~~item mentioned in Note 9.~~Company’s total net sales for the nine-months ended March 31, 2020 and 12.0% for the fiscal year ended 2019.

~~Item 2.~~

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

~~GENERAL:~~

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 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;

Temporary 25% reduction to the base salaries of the Company’s officers,

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

All manufacturing within the United States and Mexico has been temporarily suspended, pending weekly reviews of the external environment and demand,

The Company’s distribution center in Lancaster, Pennsylvania has been permanently closed, with demand being supported by from other distribution centers,

Temporary lay-off of employees aligned with business requirements and shut-downs,

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

Temporary base salary reduction of 20% for non-executive employees with salaries above $150 thousand,

Temporary 50% reduction of cash compensation for the Company’s Board of Directors

Elimination of all non-essential expenses and capital expenditures,

Negotiation with vendors to extend payment terms,

The Company has borrowed $15 million under its revolving credit facilities.

We expect the COVID-19 pandemic to have a continued adverse effect on our business, financial condition and results of operations, however, we are unable to predict the extent or nature of these impacts at this time.

Business update

On April 28, 2020, consistent with the Company’s previously announced comprehensive restructuring plan, see Note 4, Restructuring, the Company approved a plan to exit its Recreational Vehicle and remainder of its Hospitality businesses. Both of these businesses represented less than 9.0% of the Company’s total net sales for the nine-months ended March 31, 2020 and 12.0% for the fiscal year ended 2019.

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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~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations", included in our ~~2018~~2019 annual report on Form 10-K, with the exception of adopting the ~~new revenue recognition~~lease standard ~~(ASC 606)~~ in the first quarter of fiscal ~~2019,~~2020, as described in Note 1 of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.

~~Overview~~

Overview

The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the ~~quarter~~three and nine months ended March 31, ~~2019~~2020 and ~~2018.~~2019. Amounts presented are percentages of the Company’s net sales.

Three Months Ended
March 31, Nine Months Ended
March 31,
2019 2018 2019 2018
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold (80.9 ) (78.2 ) (81.2 ) (78.4 )
Gross margin 19.1 21.8 18.8 21.6
Selling, general and administrative (20.5 ) (15.5 ) (18.2 ) (15.3 )
Environmental remediation — (2.9 ) — (1.0 )
ERP impairment (16.8 ) — (5.4 ) —
Gain on sale of facility — — — 0.5
Operating income (18.2 ) 3.4 (4.8 ) 5.8
Other (expense) income, net 0.1 0.1 0.1 0.1
Income before income taxes (18.1 ) 3.5 (4.7 ) 5.9
Income tax provision 4.2 (1.1 ) 1.0 (1.8 )
Net income (13.9 %) 2.4 % (3.7 %) 4.1 %



	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	86.0		80.9		84.4		81.2
Gross margin	14.0		19.1		15.6		18.8
Selling, general and administrative	20.4		20.5		18.4		18.2
Restructuring expense	2.4		—		4.5		—
ERP impairment	—		16.8		—		5.4
Gain on sale of facility	0.3		—		6.4		—
Operating loss	(8.4)		(18.2)		(0.9)		(4.8)
Interest expense	0.0		—		0.0		—
Other income	0.1		0.1		0.1		0.1
Loss before income taxes	(8.3)		(18.1)		(0.8)		(4.7)
Income tax benefit	3.0		4.2		0.4		1.0
Net loss	(5.3)	%	(13.9)	%	(0.4)	%	(3.7)	%

Results of Operations for the Quarter Ended March 31, ~~2019~~2020 vs. ~~2018~~2019

The following table compares net sales for the quarter ended ~~March 31, (in millions):~~March:

2019 2018 $ Change % Change
Residential $ 93.8 $ 105.3 $ (11.5 ) -10.9 %
Contract 17.7 21.6 (3.9 ) -18.1 %
Total $ 111.5 $ 126.9 $ (15.4 ) -12.1 %



	Three Months Ended
	March 31,
(in millions)	2020		2019		$ Change		% Change
Residential	$	88,511	$	93,867	$	(5,356)	(5.7)	%
Contract		10,310		17,675		(7,365)	(41.7)
Total	$	98,821	$	111,542	$	(12,721)	(11.4)	%

Net sales were ~~$111.5~~$98.8 million for the quarter ended March 31, ~~2019~~2020 compared to ~~record~~ net sales of ~~$126.9~~$111.5 million in the prior year quarter, a decrease of ~~12.1%~~11.4%. Residential net sales declined ~~10.9%~~5.7% when compared to the prior year quarter. The decline in residential net sales was primarily due to volume decreases on furniture imported from China as a result of the 25% tariff and price increases taken to the market, and to a lesser extent supply chain disruption on products sourced from Asia due to the COVID-19 pandemic. This decline was partially offset by increased sales of our ready to assemble furniture sold primarily through e-commerce, which grew 37.1% during the quarter ended March 31, 2020 compared to the prior year quarter, primarily driven by ~~softer demand for home furnishings and ready-to-assemble ecommerce products.~~increased demand. Contract net sales were down ~~18.1%,~~$7.4 million, of which $5.5 million was primarily driven by our decision to exit the commercial office and custom-designed hospitality product lines, coupled with a decline in ~~hospitality product sales partially offset by continued strength in~~our healthcare and vehicle ~~seating product sales.~~products from lower demand.

Gross margin as a percent of net sales for the ~~fiscal third~~ quarter ended March 31, 2020 was ~~19.1%~~14.0%, compared to ~~21.8%~~19.1% for the prior year ~~quarter. Operationally,~~quarter, a decline of 510 basis points (“bps”). As part of our customer and product profitability initiative, we executed a SKU rationalization process on our residential products sold through the brick and mortar channel which resulted in an inventory valuation adjustment accounting for approximately 240 bps of margin contraction. The remaining margin compression was due to product mix of approximately 130 bps, increased costs aimed at improving lead times and customer experience of approximately 130 bps, foreign currency exchange impact of approximately 110 bps, offset by favorable labor and material costs ~~worsened slightly relative~~of approximately 120 bps.

Selling, general and administrative (“SG&A”) expenses decreased $2.8 million in the quarter ended March 31, 2020 compared to the prior year ~~quarter~~quarter. The decrease in SG&A expenses was primarily ~~due to one-time inefficiencies associated with the relocation of the facility in Dubuque. Other major network facilities saw~~driven by a ~~slight improvement in labor productivity versus the~~ prior year quarter adding 30 basis points to the margin. Consistent with ASC 606, the classification of certain rebates as a reduction of sales adversely impacted the gross margin by approximately 80 basis points versus the prior year quarter.

~~Selling, general and administrative (SG&A) expenses were 20.5% of net sales in the third quarter, compared to 15.5% of net sales in the third quarter of fiscal 2018. The~~period one-time $2.5 million non-cash expense due to the termination and settlement of a defined benefit plan coupled with current year restructuring savings and decreased volume,

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partially offset by an increase of $4.1 million in bad debts primarily due to a customer filing for bankruptcy and one-time expenses of $0.5 million associated with the prior wholly owned subsidiary, DMI Furniture, Inc., unfavorably impacted SG&A by 220 basis points versus the prior year quarter. The remaining increase in expenses compared to the third quarter of 2018 was predominantly related to on-going ERP support costs which we expect to continue until further direction on implementation is determined. Secondarily, costs increased to support several key marketing programs to enhance the customer experience, data analytics and content management. The increases in expenses were partially offset by reductions in incentive compensation. Consistent with ASC 606, the classification of certain rebates as a reduction in sales which were classified as selling, general and administrative expense in the prior year quarter resulted in a favorable comparison in the current quarter.

~~In its third quarter results, the Company reported an $18.7 million impairment charge for the ERP system work completed to date. Since the beginning~~transition of the ~~ERP system project in late calendar year 2016,~~CFO position.

During the ~~Company had accumulated $27~~quarter ended March 31, 2020, we incurred $2.4 million of ~~capitalized expense associated with the development, configuration~~restructuring expenses primarily for facility closures, professional fees and ~~preparation for implementation~~employee termination costs as part of our previously announced comprehensive transformation program. See Note 4, Restructuring, of the ~~ERP system across the entire Company network and subsequent planned retirement of two legacy business information systems. On April 1, 2018, the Company implemented the ERP system~~Notes to Consolidated Financial Statements, included in this Quarterly Report on approximately 20% of its business by sales value. After significant disruption during this initial phase, analysis of root cause and corrective action activities, the Company stopped further implementation across the network and focused on stabilization of the new ERP system environment. Concurrently, the Company completed a thorough evaluation of the work completed to date, its usefulness in the context of future deployments and the potentialForm 10-Q for revised project scope. The analysis, which was completed during the third quarter of fiscal 2019, resulted in management’s determination that there was an impairment of $18.7 million of the ERP system assets due to incomplete or abandoned software components and capitalized amounts which are not recoverable. After the impairment determination, there remains a capitalized asset related to the ERP system of $7.2 million in net book value. This amount includes capabilities designed and configured for the ERP system either currently in use or developed for future implementation. Should the Company determine it does not intend to proceed with further roll out of the ERP system beyond the current implementation, $6.1 million in net book value of the remaining capitalized asset would be subject to potential impairment.more information.

~~The Company reported a~~Income tax benefit ~~of $4.5~~was $3.0 million, or an effective rate of ~~22.6%~~35.9%, during the ~~third~~ quarter ended March 31, 2020 compared to income tax ~~expense~~benefit of ~~$1.4~~$4.5 million in the prior year quarter, or an effective tax rate of ~~31.7%~~22.6%. The difference between the 2019 and 2020 rates relate to recording the current year benefit at a 35% federal tax rate rather than the current statutory rate of 21% due to the carryback benefit discussed below. In addition, we recorded a full valuation allowance against the federal and state deferred tax assets of $3.9 million.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 global pandemic. Certain provisions of the CARES Act impacted the three and nine months ended March 2020 and will impact the current fiscal year 2020. The ~~Company reported~~CARES Act, permits net operating losses (“NOLs”) incurred in tax years 2018, 2019, and 2020, the Company’s fiscal years 2019, 2020 and 2021 to offset 100% of taxable income and be carried back to each of the five preceding taxable years to generate a ~~net~~refund of previously paid income taxes. We evaluated the impact of the CARES Act during the quarter ended March 31, 2020 and recorded an income tax receivable of $8.2 million for the benefit of carrying back the fiscal year 2019 NOL and an income tax receivable of $0.8M for the benefit of carryback the fiscal year 2020 NOL. As we are carrying the losses back to years beginning before January 1, 2018, the receivables were recorded at the previous 35% federal tax rate rather than the current statutory rate of 21%.

We recognized deferred tax assets to the extent that they believe the assets are more likely than not to be realized. In making such a determination, we considered all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. For the period ended March 31, 2020, it was determined that we have not reached a more likely than not position that we will realize the deferred tax assets. Therefore, we have recorded a valuation allowance against the federal and state deferred tax assets of $3.9 million during the quarter ended March 31, 2020.

Net loss ~~of $15.6~~was $5.3 million, or ~~($1.97)~~$0.66 per diluted share for the quarter ended March 31, ~~2019,~~2020, compared to a net ~~income~~loss of ~~$3.1~~$15.6 million, or ~~$0.39~~$1.97 per diluted share in the prior year quarter.

~~All earnings per share amounts are on a diluted basis.~~

Results of Operations for the Nine Months Ended March 31, ~~2019~~2020 vs. ~~2018~~2019

The following table compares net sales for the nine months ended ~~March 31, (in millions):~~March:

2019 2018 $ Change % Change
Residential $ 289.3 $ 317.9 $ (28.6 ) -9.0 %
Contract 54.1 58.2 (4.1 ) -7.0 %
Total $ 343.4 $ 376.1 $ (32.7 ) -8.7 %



	Nine Months Ended
	March 31,
(in thousands)	2020		2019		$ Change		% Change
Residential	$	271,197	$	289,324	$	(18,127)	(6.3)	%
Contract		30,921		54,057		(23,136)	(42.8)
Total	$	302,118	$	343,381	$	(41,263)	(12.0)	%

Net sales were ~~$343.4~~$302.1 million for the nine months ended March 31, ~~2019,~~2020 compared to ~~$376.1~~net sales of $343.4 million in the prior year nine- month period, a decrease of 12.0%. Residential net sales declined 6.3% when compared to the prior year nine-month period. The decline in residential net sales are primarily attributable to the same factors discussed above for the quarter ended March 31, 2020 versus March 31, 2019. Our ready-to-assemble furniture sold primarily through e-commerce, grew 19.1% during the nine months ended March 31, 2020 compared to the prior year period, primarily driven by increased demand. Contract net sales were down $23.1 million, of which $17.1 million was primarily driven by our decision to exit the commercial office and custom-designed hospitality product lines, coupled with a decline in our healthcare and vehicle seating products due to demand.

Gross margin as a percent of net sales for the nine months ended March 31, 2020 was 15.6%, compared to 18.8% for the prior year nine-month period, a decline of 320 bps. The 320-bps decline was primarily driven by a decline of 170 bps due to lower volume and product mix. Aggressive product pricing across our e-commerce and brick and mortar channels during the holiday shopping season contracted margins approximately 30 bps in the current nine-month period. Additionally, as part of our customer and product profitability initiative, we executed a SKU rationalization process which resulted in an inventory valuation adjustment representing 120 bps of margin contraction in the nine-month period. Increased costs to serve customers to improve lead times and customer experience, favorable material and labor costs, and a benefit related to our success in collecting foreign VAT also contributed to margin performance in the nine-month period.

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Selling, general and administrative expenses were $55.7 million in the nine months ended March 31, 2020 compared to $62.5 million to the prior year nine-month period. The decline of $6.8 million was primarily driven by current year restructuring savings and lower expenses on reduced volume of approximately $7.2 million coupled with one-time CEO transition expense of $2.1 million and defined benefit plan termination and settlement expenses of $2.5 million recorded in the prior year. Current year SG&A includes an increase of $4.3 million in bad debts primarily due to a customer filing for bankruptcy and one-time pre-tax net expenses of $0.5 million associated with the transition of the CFO position.

During the nine months ended March 31, 2020, we incurred $13.4 million of restructuring expenses primarily for facility closures, professional fees and employee termination costs as part of our previously announced comprehensive transformation program. See Note 4 Restructuring of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information.

During the nine months ended March 31, 2020, we completed the sale of our Riverside, California property for a sale price of $20.5 million generating net proceeds of $19.6 million after customary closing costs, prorations and commissions. This resulted in a recognized, pre-tax gain on sale of asset in the amount of $18.9 million.

Income tax benefit was $1.3 million, or an effective rate of 54.5%, during the nine months ended March 31, 2020 compared to income tax benefit of $3.5 million in the prior year nine-month period, ~~a decrease~~or an effective tax rate of ~~8.7% from~~21.5%. The change in rate was due to the ~~prior year period. Lower residential net sales~~same factors discussed above for the current nine-month period were driven by softer demand for home furnishings products in addition to share loss in ready-to-assemble furniture sold primarily through the ecommerce channel. Lower contract net sales include stronger demand for vehicle seating products eclipsed by lower hospitality product sales against strong comparatives. Commercial Office products declined due to an intentional reduction of unprofitable customers and products.

~~For the nine~~three months ended March 31, ~~2019, gross margin as a percent~~2020.

Net loss of net sales was 18.8% compared to 21.6% for the prior year period. The current nine-month period decrease in gross margin as a percentage of net sales was primarily driven by increased labor costs including lower productivity levels, higher raw material costs, one-time manufacturing plant relocation expenses partially offset by sell price increases and tariff mitigation activities. Consistent with ASC 606, the classification of certain rebates as a reduction of sales adversely impacted the gross margin by approximately 80 basis points versus the prior nine-month period.

Selling, general and administrative (SG&A) expenses were 18.2% of net sales in the current fiscal year, compared to 15.3% of net sales in the prior year period. The increase in SG&A expenses is primarily driven by increases in on-going ERP maintenance and support costs and increases in marketing associated with Flexsteel’s digital marketing strategy. Additionally, one-time costs included a $2.5 million pre-tax pension termination cost and a $2.0 million pre-tax cost associated with the transition of the CEO position in the first and second quarters of fiscal 2019. Offsetting these higher costs were reduced incentive compensation, the favorable comparative driven by the classification of certain rebates as a reduction in sales as previously discussed and reductions in variable costs associated with lower sales volume.

~~During the prior fiscal year nine-month period, the Company completed a $6.5 million sale of a facility and recognized a pre-tax gain of $1.8 million. On an after-tax basis, the gain represents $1.3~~$1.1 million, or ~~$0.16~~$0.14 per ~~share.~~

~~The effective tax rate for the nine months ended March 31, 2019 was 21.5% compared to 30.5% in the prior year period.~~

~~The above factors resulted in a net loss of $12.7 million or $(1.61) per~~diluted share for the nine months ended March 31, ~~2019,~~2020, compared to net ~~income~~loss of ~~$15.5~~$12.7 million, or ~~$1.95~~$1.61 per diluted share ~~for~~in the prior year nine-month period.

~~All earnings per share amounts are on a diluted basis.~~

Liquidity and Capital Resources

Due to uncertainties as a result of COVID-19, we have implemented measures to enhance our liquidity position and improve working capital. We drew down a total of $15.0 million on our credit facilities during the quarter ended March 31, 2020. The proceeds will be available to be used for working capital, general corporate or other purposes. We have delayed non-essential capital spend and expenses. For a majority of our suppliers, we have negotiated extending payment terms.

Working capital (current assets less current liabilities) at March 31, 2019 was ~~$142.1~~$122.6 million compared to ~~$148.7~~$118.2 million at June 30, ~~2018. Primary changes~~2019. The $4.0 million increase in working capital ~~included increases~~was due to an increase in cash of ~~$6.8~~$25.3 million primarily due to proceeds from the sale of the Riverside, California facility of $20.5 million, and a decrease in restructuring liability of $5.2 million, partially offset by $18.6 million in inventory reduction as a result of inventory management and SKU rationalization activities, a $3.9 million decline in trade receivables and an increase in accounts payable of $4.6 million. Capital expenditures are estimated be in the range of $3.6 million to $4.1 million for the fiscal year ending June 30, 2020.

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


	Nine Months Ended
	March 31,
(in thousands)	2020		2019
Net cash provided by operating activities	$	13,888	$	12,535
Net cash provided by (used in) investing activities		17,202		(4,633)
Net cash provided by (used in) financing activities		9,203		(7,065)
Increase in cash and cash equivalents	$	40,293	$	837

Net cash provided by operating activities

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 ~~assets, and decreases in investments~~asset of ~~$16.0 million, and increases in cash and cash equivalents of $0.8~~$2.0 million.

For the nine months ended March 31, 2019, net cash provided by operating activities was $12.5 million, which primarily consisted of net loss of $12.7 million, adjusted for non-cash depreciation of $5.7 million, non-cash ERP impairment of $18.7 million, non-cash defined benefit plan termination of $2.5 million and non-cash stock based compensation of $0.9 million. Net cash use in operating assets and liabilities was $2.8 million.

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Net cash provided by (used in) investing activities

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 million.

For the nine months ended March 31, 2019, net cash used in investing activities was $4.6 million. Capital expenditures were $20.6 million, ~~including $13.3~~partially offset by net proceeds from sales of investments of $15.9 million.

Net cash provided by (used in) financing activities

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

For the ~~Company’s new manufacturing facility.~~nine months ended March 31, 2019, net cash used in financing activities was $7.1 million, primarily due to dividends paid of $6.9 million.

~~The Company maintains a~~Lines of Credit

We maintain an unsecured credit agreement ~~which provides unsecured~~with Wells Fargo Bank N.A. for short-term working capital financing up to $10.0 million with interest of LIBOR plus 1% ~~(4.49%~~(1.95% at March 31, 2019), including up to $4.0 million of letters of credit. ~~Letters~~The outstanding balance on this line was $7.5 million and the letters of credit outstanding ~~at March 31, 2019~~ totaled $1.3 million ~~leaving borrowing availability~~as of ~~$8.7 million.~~March 31, 2020. The credit agreement expires June 30, ~~2019.~~2020. As of March 31, 2020, we were not in compliance with the financial covenant contained in the credit agreement related to the interest coverage ratio. On April 28, 2020, we obtained a waiver from the bank for not complying with the interest coverage ratio as of March 31, 2020.

~~The Company maintains~~We also maintain an additional unsecured $10.0 million line of credit with MidwestOne Bank, with interest at prime minus 2% ~~(3.50%~~, subject to a floor of 3.75% (3.75% at March 31, 2019). ~~No amount was~~The outstanding balance on ~~the~~this line of credit atwas $7.5 million as of March 31, ~~2019. This line~~2020. The credit agreement expires June 30, 2020.

We plan to negotiate with both banks to extend the maturity of ~~credit matures December 31, 2019.~~our lines of credit.

Net cash provided by operating activities of $12.5 million for the nine months ended March 31, 2019 versus $14.3 million for the nine months ended March 31, 2018. The lower operating cash generation in the current year was primarily driven by lower profitability.

Net cash used in investing activities was $4.6 million for the nine months ended March 31, 2019 compared to net cash used in investing activities of $14.1 million for the nine months ended March 31, 2018. Capital expenditures were $20.6 million and $20.1 million during the nine months ended March 31, 2019 and 2018, respectively. Net proceeds from sales of investments were $15.9 million during the nine months ended March 31, 2019.

Net cash used in financing activities was $7.1 million for the nine months ended March 31, 2019 primarily due to dividends paid of $6.9 million. Net cash used in financing activities was $5.5 million for the nine months ended March 31, 2018 primarily due to dividends paid of $5.0 million. During the nine months ended March 31, 2019, dividend payments increased to $6.9 million from $5.0 million during the prior year period due to timing of dividend payment dates with two falling within the third quarter of 2019. This is expected to normalize on a year to date basis in the fourth quarter.

Capital expenditures are estimated to be $0.4 million for the remainder of fiscal 2019. Management believes that the Company has adequate cash and cash equivalents, investments, cash flows from operations and credit arrangements to meet its operating and capital requirements for fiscal year 2019. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, to pay quarterly dividends to its shareholders, and to purchase productive capital assets that enhance safety and improve operations.

Contractual Obligations

As of March 31, ~~2019,~~2020, 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, ~~2018.~~2019.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

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, 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 31, 2019 and 2018, the Company did not have sales, but has 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 financial instruments is changes in interest rates. At March 31, ~~2019,~~2020, the Company ~~did not have any debt~~had $15.0 million outstanding ~~other than the portion~~on its lines of ~~the $10.0 million~~credit. See Note 5 “Credit Arrangements,” of Notes to Consolidated Financial Statements for disclosure on our interest rate related to borrowings under our credit ~~facility associated with outstanding letters of credit.~~agreements.

~~Item 4.~~

~~Controls and Procedures~~

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 31, 2019.

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(b)Changes in internal control over financial reporting.During the quarter ended March 31, ~~2019,~~2020, 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 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 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~~

~~Other than the item mentioned below, there~~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, ~~2018.~~2019, except as discussed below.

~~Effective September 24, 2018,~~The COVID-19 pandemic has caused disruption to our business and may have a continued material adverse impact on our financial conditions and results of operations.

The COVID-19 pandemic has adversely affected and is expected to continue to adversely affect our operations, supply chains, manufacturing and distribution systems. We have experienced and expect to continue to experience unpredictable reductions in the ~~current U.S. administration imposed a 10% tariff on goods imported into the United States from China, including all furniture and furniture components manufactured~~demand for our products primarily due to our customers’ closing their stores. We have temporarily closed our manufacturing facilities in ~~China, with the potential for the tariffs to increase to 25%. As trade negotiations between~~ the United States and ~~China continue, it is unclear as~~Mexico and many of our Corporate employees are working remotely. We expect the COVID-19 pandemic to ~~whether~~have a continuing adverse effect on our business, financial condition and results of operations, however, we are unable to predict the extent or ~~not the U.S. administration will take further tariff action. In fiscal 2018, approximately 44%~~nature of ~~the Company’s sales were imported from China. Inability to reduce acquisition costs or pass through price increases may have an adverse impact on sales volume, earnings and liquidity.~~these future impacts at this time.

The Company recognized an $18.7 million impairment charge for the net book value of the ERP system solution designed and partially implemented to date. This impairment leaves an asset of $7.2 million. Should the Company determine it does not want to proceed with further implementation of the ERP system across the remainder of the network, an additional $6.1 million would be subject to potential impairment.

Item 6. Exhibits

	~~Item 6.~~
Exhibit No.	~~Exhibits~~

10.1	First Amendment to the Flexsteel Industries, Inc. Severance Plan for Management Employees, dated April 15, 2020*
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

~~31.2~~

~~Certification~~

	32	Certification ~~by President and~~of Chief Financial Officer ~~Pursuant~~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 Officer pursuant to 18 U.S.C. Section 1350, as ~~Adopted Pursuant~~adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS

~~101.INS~~

XBRL Instance ~~Document~~Document**

101.SCH

~~101.SCH~~

XBRL Taxonomy Extension Schema Document

101.CAL

~~101.CAL~~

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

~~101.LAB~~

XBRL Taxonomy Extension Labels Linkbase Document

101.DEF

~~101.DEF~~

XBRL Taxonomy Extension Definition Linkbase Document

101.PRE	~~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.”

~~SIGNATURES~~
‎

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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:~~	~~May 2, 2019~~			~~By:~~	~~/S/ Marcus D. Hamilton~~
Date:	May 1, 2020	By:	/S/ Derek P. Schmidt		~~Marcus D. Hamilton~~
			Derek P. Schmidt
			Chief Financial Officer and Chief Operating Officer
					(Principal Financial & Accounting Officer)

	Three Months Ended March 31,						Nine Months Ended March 31,
	2019			2018			2019			2018
Net sales	$	111,542		$	126,861		$	343,381		$	376,087
Cost of goods sold		(90,214	)		(99,229	)		(278,786	)		(294,913	)
Gross margin		21,328			27,632			64,595			81,174
Selling, general and administrative		(22,915	)		(19,681	)		(62,484	)		(57,596	)
Environmental remediation		—			(3,600	)		—			(3,600	)
ERP impairment		(18,668	)		—			(18,668	)		—
Gain on sale of facility		—			—			—			1,835
Operating income (loss)		(20,255	)		4,351			(16,557	)		21,813
Other income		158			158			397			457
Income before income taxes		(20,097	)		4,509			(16,160	)		22,270
Income tax provision		4,545			(1,430	)		3,470			(6,790	)
Net income (loss)	$	(15,552	)	$	3,079		$	(12,690	)	$	15,480

Weighted average number of common shares outstanding:
Basic		7,892			7,853			7,884			7,844
Diluted		7,892			7,930			7,884			7,929

Earnings per share of common stock:
Basic	$	(1.97	)	$	0.39		$	(1.61	)	$	1.97
Diluted	$	(1.97	)	$	0.39		$	(1.61	)	$	1.95

	Total Par Value of Common Shares ($1 Par)			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total

Balance at June 30, 2018	$	7,868	$	26,321		$	209,553		$	(2,044	)	$	241,698
Issuance of common stock:
Stock options exercised, net		5		76			—			—			81
Unrealized gain on available for sale investments, net of tax		—		—			—			21			21
Long-term incentive compensation		7		(315	)		—			—			(308	)
Stock-based compensation		14		998			—			—			1,012
Net realized gain on terminated pension, net of tax		—		—			—			2,018			2,018
Cash dividends declared		—		—			(5,206	)		—			(5,206	)
Net loss		—		—			(12,690	)		—			(12,690	)
Balance at March 31, 2019	$	7,894		27,080			191,657			(5	)		226,626

	Total Par Value of Common Shares ($1 Par)		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Total

Balance at June 30, 2017	$	7,822	$	26,186		$	198,465		$	(1,713	)	$	230,760
Issuance of common stock:
Stock options exercised, net		5		71			—			—			76
Unrealized loss on available for sale investments, net of tax		—		—			—			(23	)		(23	)
Long-term incentive compensation		20		(298	)		—			—			(278	)
Stock-based compensation		8		628			—			—			636
Cash dividends declared		—		—			(5,181	)		—			(5,181	)
Net income		—		—			15,480			—			15,480
Balance at March 31, 2018	$	7,855		26,587			208,764			(1,736	)		241,470

	Options (in thousands)			Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at June 30, 2017		187		$	27.21	$	5,039
Granted		21			45.21
Exercised		(21	)		18.89
Canceled		(21	)		26.77
Outstanding at June 30, 2018		166			30.65		1,841
Granted		100			26.89
Exercised		(5	)		15.50
Canceled		(11	)		37.14
Outstanding at March 31, 2019		250		$	29.18	$	329

				Weighted Average

Range of Prices		Options Outstanding (in thousands)		Remaining Life (years)		Exercise Price
$	8.55 – 13.90		14		2.0	$	11.91
	17.23 – 19.77		25		3.0		18.82
	20.50 – 27.57		100		7.8		24.27
	31.06 – 32.80		62		7.7		32.29
	43.09 – 47.45		49		7.5		45.37
$	8.55 – 47.45		250		6.9	$	29.18