Financial Data and Key Metrics Changes - For Q1 2026, net sales were $110.4 million, representing a 6.2% increase from $104 million in the prior year quarter, marking the eighth consecutive quarter of sales growth [20][4] - Operating margin improved to 8.1%, up 230 basis points from 5.8% in the prior year quarter, indicating consistent profit improvement [5][20] - GAAP operating income was $9.0 million, exceeding the top end of the guidance range of 6.0% to 7.3% of sales [20][21] Business Line Data and Key Metrics Changes - Sales growth was primarily driven by source soft seating products, while lower unit volume was noted in made-to-order soft seating products and Home Styles branded ready-to-assemble category [20] - The current quarter included approximately $2.4 million in pricing from tariff surcharges, indicating the impact of external cost pressures on sales [20] Market Data and Key Metrics Changes - Weekly consumer traffic and sales were described as volatile, with significant fluctuations observed around the Labor Day holiday [26][27] - The company noted that consumer sentiment remains fragile due to concerns about inflation and slowing employment growth, which could impact demand [6][7] Company Strategy and Development Direction - The company is focused on growth strategies that include investments in consumer research, new product development, and marketing to drive future sales increases [5][12] - A multipronged response plan is being pursued to mitigate the impact of new tariffs, including increased pricing and cost reduction initiatives [11][12] - The introduction of 26 new product groups and 226 unique SKUs is expected to drive growth, with a long-term goal of 30% to 40% of sales coming from new products [13][32] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about long-term industry growth despite near-term challenges from tariffs and macroeconomic conditions [12][24] - The company is well-positioned to navigate the challenging environment with a solid balance sheet and healthy profitability [11][24] Other Important Information - The new Section 232 tariffs on imported timber and upholstered furniture are expected to have a significant impact on the company's business and the broader U.S. furniture industry [9][10] - The company ended the quarter with a cash balance of $38.6 million and no bank debt, indicating strong financial health [22] Q&A Session Summary Question: Can you provide more details on the uneven demand during the quarter? - Management noted that weekly store traffic and sales were volatile, with weak performance leading up to Labor Day followed by a strong week around the holiday, but demand dropped again afterward [26][27] Question: What is the level of the tariff surcharges and their impact on sales and gross margins? - The company implemented an 8.5% surcharge for the previous 20% tariff, which increased to 15% in anticipation of the new 30% tariff [30] Question: What percentage of sales does the company aim to derive from new products? - The long-term goal is for 30% to 40% of sales to come from new products, with over 50% of Q1 sales derived from new products launched within the last three years [32] Question: What are the dynamics regarding USMCA compliance and recent tariffs? - The new Section 232 tariffs do not exempt USMCA compliant products, which changes the previous dynamics of tariff exemptions [38] Question: How do the company's price increases compare to competitors? - Competitors are reportedly implementing price increases of 21% to 25%, while the company is increasing its surcharges to 15% [39]

Financial Data and Key Metrics Changes - For Q1 2026, net sales were $110.4 million, reflecting a 6.2% increase compared to $104 million in the prior year quarter, marking the eighth consecutive quarter of sales growth [23][24] - Operating margin improved to 8.1%, up from 5.8% in the prior year quarter, representing the tenth consecutive quarter of year-over-year adjusted operating margin improvement [6][24] - The current quarter included approximately $2.4 million in pricing from tariff surcharges [23] Business Line Data and Key Metrics Changes - Sales growth was primarily driven by Source soft seating products, while lower unit volume was noted in made-to-order soft seating products and HomeStyles branded ready-to-assemble category [23] - Sales order backlog at the end of the period was $66.7 million, relatively flat compared to the prior quarter [23] Market Data and Key Metrics Changes - Industry demand remains lackluster due to challenging macroeconomic conditions, with consumer traffic and sales being uneven during the recent quarter [5][8] - The new Section 232 tariffs on imported timber and upholstered furniture are expected to have a significant impact on Flexsteel's business and the broader furniture industry [9][10] Company Strategy and Development Direction - The company is focused on growth strategies that include consumer research, new product development, and innovation [5][12] - Flexsteel is introducing 26 new product groups and 226 unique SKUs, with a long-term goal of achieving 30% to 40% of sales from new products launched within the last three years [15][40] - The company is pursuing a multipronged response plan to mitigate tariff impacts, including increasing tariff surcharges and evaluating structural cost reduction opportunities [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term industry growth despite near-term challenges from tariffs and macroeconomic conditions [14][26] - The company is well-positioned to navigate the challenging environment with a solid balance sheet and healthy profitability [12][26] Other Important Information - The company ended the quarter with a cash balance of $38.6 million and no bank debt, indicating effective working capital management [25] - Management has paused on providing forward-looking guidance due to uncertainty regarding the impact of tariffs and consumer demand [26] Q&A Session Summary Question: Can you provide more details on the uneven demand during the quarter? - Management noted that weekly store traffic and sales were volatile, with weak performance leading up to Labor Day followed by a strong week after, then a drop again [31][34] Question: What is the level of the tariff surcharges? - The company implemented an 8.5% surcharge for the previous 20% tariff, which increased to 15% in anticipation of the new 30% tariff [36][38] Question: What percentage of sales do you aim to derive from new products? - The long-term goal is for 30% to 40% of sales to come from new products, with over 50% of sales in the first quarter derived from new products [40] Question: Can you clarify the dynamics regarding USMCA compliance and tariffs? - The new Section 232 tariffs do not exempt USMCA compliant products, which changes the previous dynamics [51] Question: How do you view the competitive pricing landscape? - Competitors are passing through tariff increases, with some going as high as 21-25%, while Flexsteel is implementing a 15% surcharge [53]

Core Insights - Flexsteel Industries (FLXS) reported quarterly earnings of $1.31 per share, exceeding the Zacks Consensus Estimate of $0.78 per share, and showing an increase from $0.74 per share a year ago, resulting in an earnings surprise of +67.95% [1] - The company achieved revenues of $110.44 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 4.80% and up from $104.01 million year-over-year [2] - Flexsteel has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The future performance of Flexsteel's stock will largely depend on management's commentary during the earnings call and the sustainability of the recent earnings surprise [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.56 on revenues of $107.4 million, while the estimate for the current fiscal year is $3.00 on revenues of $445.13 million [7] Industry Context - The furniture industry, to which Flexsteel belongs, is currently ranked in the bottom 19% of over 250 Zacks industries, indicating a challenging environment [8] - La-Z-Boy (LZB), another company in the same industry, is expected to report a year-over-year earnings decline of -26.8% in its upcoming report [9]

Core Insights - Flexsteel Industries, Inc. reported a net sales increase of 6.2% for the first quarter of fiscal 2026, reaching $110.4 million compared to $104.0 million in the same quarter of the previous year [1][1][1] - The company's GAAP operating income for the quarter was $9.0 million, representing 8.1% of net sales [1][1][1] Financial Performance - Net sales for the first quarter were $110.4 million, up from $104.0 million year-over-year, indicating a positive growth trend [1][1][1] - GAAP operating income stood at $9.0 million, which is a significant figure reflecting the company's operational efficiency [1][1][1]

Financial Performance - Net sales for the first quarter were $110.4 million, an increase of 6.2% compared to $104.0 million in the prior year quarter[4] - GAAP operating income was $9.0 million, representing 8.1% of net sales, compared to $6.0 million or 5.8% of net sales in the prior year quarter[4] - GAAP net income per diluted share increased to $1.31, up from $0.74 in the prior year quarter[4] - Gross margin improved to 23.5%, a 200 basis point increase from 21.5% in the prior year quarter, driven by sales leverage and favorable foreign currency translation[7] - Selling, general and administrative (SG&A) expenses decreased to 15.4% of net sales from 15.7% in the prior year quarter[8] - The company reported a strong operating margin improvement for the tenth consecutive quarter, with a 230 basis point increase year-over-year[3] Cash and Capital Management - The company ended the quarter with a cash balance of $38.6 million and working capital of $116.9 million[10] - Capital expenditures for the quarter were $1.4 million[10] Market Outlook - The company anticipates a 25% tariff on imported upholstered furniture, effective September 29, 2025, which may disrupt consumer demand and industry margins[5] - The company remains optimistic about long-term industry growth despite facing near-term risks and headwinds[3]

Core Insights - The ongoing earnings season presents opportunities for investors, particularly in stocks with strong cash levels, as cash is essential for a company's resilience and financial health [1][3][4] Group 1: Importance of Cash Flow - Companies can be profitable yet face cash flow issues, leading to potential bankruptcy if profits are not managed properly [3] - Positive cash flow indicates an increase in liquid assets, enabling companies to meet obligations, reinvest, and return wealth to shareholders [5] - Increasing cash flow is crucial for future growth, reflecting management's efficiency and reducing reliance on external financing [6] Group 2: Screening Criteria for Stocks - Stocks were screened for those with cash flow in the latest quarter at least equal to the 5-year average, indicating a positive trend [7] - Additional criteria included Zacks Rank 1, average broker rating of 1, current price above $5, and a VGM Score of B or better [8] Group 3: Selected Stocks - Sumitomo Corporation (SSUMY) has a VGM Score of B, with a 4.1% increase in fiscal 2026 earnings estimate [9][10] - Mission Produce, Inc. (AVO) has a VGM Score of B, with a 13.6% upward revision in fiscal 2025 earnings estimate [10] - Flexsteel Industries, Inc. (FLXS) holds a VGM Score of A, with a 5.5% increase in fiscal 2026 earnings estimate [11] - FreightCar America, Inc. (RAIL) has a VGM Score of A, with a 14.9% increase in current-year earnings estimate [12]

Flexsteel Industries Conference Summary Company Overview - Flexsteel Industries is one of the top 10 furniture manufacturers in the US, founded in the late 1800s, employing approximately 1,400 team members [4] - The company has a hybrid supply chain with 50% of sales from North American manufacturing and 50% from globally sourced products [4] - For the fiscal year ending June 2025, Flexsteel reported sales of approximately $441 million, achieving a 6.9% growth despite industry challenges post-COVID [4] Growth Strategies - Flexsteel has experienced seven consecutive quarters of year-over-year sales growth, with guidance for 1% to 6% growth in Q1 FY 2026 [5] - The company focuses on three dimensions for growth: product offerings, consumer segments, and sales distribution channels [5] - Key product areas include primary living spaces, with over 80% of projected FY 2026 sales coming from these categories [5] Product and Brand Strategy - Flexsteel's product expansion includes areas like bedroom, dining, storage, outdoor, and health and wellness [6] - The company markets through three primary brands: Flexsteel (premium), Charisma (affordable stylish furniture), and Homestyles (value-oriented ready-to-assemble furniture) [7] - Sub-brands include Zeekliner (health and wellness recliner), Statements (bedroom and dining solutions), and Flex (modular furniture) [7] Distribution and Customer Base - A significant portion of sales comes from independent furniture retailers, with over 1,400 partnerships [9] - Flexsteel is expanding its presence in big box retail and e-commerce channels, including partnerships with Amazon, Wayfair, Costco, and TJX [10] - The company is also exploring direct-to-consumer sales, although this remains a small portion of total sales [11] Operational Efficiency - Flexsteel's supply chain is a competitive advantage, with manufacturing primarily in Mexico and a robust distribution network across the US [11] - The company has a diverse global supply chain with operations in Asia, ensuring quality and agility [12] Innovation and Differentiation - Flexsteel differentiates itself through superior value, quality, and comfort, supported by innovations like the patented Bluesteel Spring [12] - Recent innovations include a modular flex line with quick assembly features and a ZCLINER sleep solution recliner designed for comfort [13][14] Financial Outlook - The investment thesis includes a long-term positive industry outlook, promising growth prospects, operating margin expansion, strong cash flow generation, and disciplined capital allocation [15][16] - Despite near-term challenges, the company expects long-term growth driven by demographic shifts and housing demand [16][17] - Flexsteel aims to expand market share and penetrate new markets while investing in consumer research and brand awareness [18] Performance Metrics - Flexsteel has achieved 3.4% growth in the most recent quarter, with a forecast of 1% to 6% growth for the upcoming quarter [20] - The adjusted operating margin increased by over 60% to 7.1% of sales in FY 2025, with expectations for continued margin improvement [20][21] - The company maintains low capital requirements, with annual CapEx around 1% of sales, and has returned approximately $95 million to shareholders over the past six years [22] Conclusion - Flexsteel is positioned for growth with a strong leadership team, innovative product offerings, and a commitment to operational efficiency and market expansion [23]

Core Viewpoint - Flexsteel Industries, Inc. will participate in the Lytham Partners Fall 2025 Investor Conference, indicating its commitment to engaging with investors and enhancing market visibility [1] Company Participation - The company will host a webcast presentation and one-on-one meetings with investors during the conference, scheduled for September 30, 2025 [1]

Core Viewpoint - Flexsteel Industries (FLXS) is experiencing solid improvement in earnings estimates, which may lead to continued short-term price momentum for the stock [1][2]. Earnings Estimate Revisions - The rising trend in estimate revisions reflects growing analyst optimism regarding the earnings prospects of Flexsteel, which is expected to positively impact its stock price [2]. - For the current quarter, Flexsteel is projected to earn $0.78 per share, representing a +5.4% change from the previous year, with a 20% increase in the Zacks Consensus Estimate over the last 30 days [7]. - For the full year, the earnings estimate is $3.85 per share, indicating a -7.7% change from the prior year, but the consensus estimate has increased by 5.48% recently [8][9]. Zacks Rank and Performance - Flexsteel has achieved a Zacks Rank 2 (Buy), indicating promising estimate revisions that suggest potential for outperformance compared to the S&P 500 [10]. - Historically, Zacks 1 (Strong Buy) and 2 (Buy) ranked stocks have significantly outperformed the S&P 500, with Zacks 1 stocks averaging a +25% annual return since 2008 [3][10]. Recent Stock Performance - Flexsteel's stock has risen by 36.2% over the past four weeks due to strong estimate revisions, suggesting further upside potential [11].

PART I [ITEM 1. BUSINESS](index=6&type=section&id=Item%201.%20Business) Flexsteel Industries, Inc. is a leading US residential furniture manufacturer, importer, and marketer, using a blended manufacturing and offshore sourcing strategy - Flexsteel Industries, Inc. is one of the largest manufacturers, importers, and marketers of residential furniture products in the United States, operating in a single reportable segment[14](index=14&type=chunk)[15](index=15&type=chunk) - The company employs a blended strategy of manufacturing in Juarez, Mexico, and sourcing finished products and component parts from offshore suppliers to offer a wide range of price points, styles, and product categories[16](index=16&type=chunk)[17](index=17&type=chunk) Customer Order Backlog (in thousands) | | June 30, 2025 | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Backlog | $66,465 | $59,543 | $49,729 | - Flexsteel had approximately **1,400 employees** on June 30, 2025, with about **1,000 in Mexico** and **30 in Asia** managing quality and coordinating deliveries[21](index=21&type=chunk)[29](index=29&type=chunk) [ITEM 1A. RISK FACTORS](index=10&type=section&id=Item%201A.%20Risk%20Factors) Flexsteel faces risks from global trade policy, tariffs, inflation, economic downturns, supply chain disruptions, and operational challenges - Changes in global trade policy, including new tariffs (e.g., **20% on goods from Vietnam** effective July 31, 2025), could materially impact net sales, cost of goods sold, profit, and cash flow[32](index=32&type=chunk) - Inflation in ocean container rates, raw materials, labor, and domestic transportation costs, along with negative shifts in foreign currency values, may continue to impact profitability and increase manufacturing costs[33](index=33&type=chunk)[34](index=34&type=chunk) - The company recorded a pre-tax non-cash asset impairment charge of **$14.1 million** in Q3 FY2025 for its Mexicali facility's right-of-use asset due to trade uncertainty and diminished subleasing interest[55](index=55&type=chunk) - Future success depends on managing its global supply chain, vulnerable to delays, availability issues, and cost increases due to international trade policies, geopolitical pressures, and transportation challenges[37](index=37&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=18&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - There are no unresolved staff comments[61](index=61&type=chunk) [ITEM 1C. CYBERSECURITY](index=18&type=section&id=Item%201C.%20Cybersecurity) Flexsteel's cybersecurity program aligns with NIST, overseen by the Board, with no material incidents reported to date - The company's cybersecurity risk management program aligns with NIST framework and includes a cross-functional steering team, 24/7 third-party monitoring, regular penetration testing, and quarterly employee training[62](index=62&type=chunk)[63](index=63&type=chunk) - The Board of Directors oversees the cybersecurity risk management program, receiving quarterly status reports from the Chief Information Officer (CIO), who reports directly to the CEO[65](index=65&type=chunk) - As of the report date, no cybersecurity incidents have materially affected or are reasonably likely to materially affect the company's business, results of operations, or financial condition[64](index=64&type=chunk) [ITEM 2. PROPERTIES](index=19&type=section&id=Item%202.%20Properties) Flexsteel owns and leases various facilities for distribution, manufacturing, corporate offices, showrooms, and design centers across the US, Mexico, and Asia Owned Facilities as of June 30, 2025 | Location | Size (square feet) | Principal Operations | | :--- | :--- | :--- | | Edgerton, Kansas | 500,000 | Distribution | | Huntingburg, Indiana | 337,000 | Distribution | | Dubuque, Iowa | 40,000 | Corporate Office | Leased Facilities as of June 30, 2025 | Location | Size (square feet) | Principal Operations | | :--- | :--- | :--- | | Mexicali, Mexico | 508,000 | Manufacturing | | Greencastle, Pennsylvania | 206,000 | Distribution | | Juarez, Mexico | 225,000 | Manufacturing | | Juarez, Mexico | 197,000 | Manufacturing | | Juarez, Mexico | 131,000 | Manufacturing | | High Point, North Carolina | 54,000 | Showroom | | El Paso, Texas | 38,000 | Warehouse | | High Point, North Carolina | 11,000 | Design & Engineering Center | | Las Vegas, NV | 10,000 | Showroom | | Shenzhen, China | 2,000 | Office | | Bangkok, Thailand | 1,500 | Office | | Binh Duong, Vietnam | 1,000 | Office | [ITEM 3. LEGAL PROCEEDINGS](index=19&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, none of which are considered material to its business or financial condition - The company is subject to various legal proceedings but does not consider any currently pending matters to be material[68](index=68&type=chunk)[242](index=242&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=19&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has no mine safety disclosures to report - There are no mine safety disclosures[69](index=69&type=chunk) PART II [ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=19&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Flexsteel's common stock trades on NASDAQ under FLXS, with a $30 million share repurchase program approved but not yet utilized - Flexsteel's common stock is traded on the NASDAQ Global Select Market under the symbol **FLXS**[70](index=70&type=chunk) - As of August 22, 2025, there were **5,275,963 shares** of common stock outstanding[7](index=7&type=chunk) - The Board of Directors approved a **$30 million share repurchase program** on December 11, 2024, with the full amount remaining available as of June 30, 2025[72](index=72&type=chunk)[74](index=74&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=22&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Flexsteel's financial performance, liquidity, capital resources, and critical accounting policies for fiscal years 2025, 2024, and 2023 [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Flexsteel saw increased net sales and improved gross margin in FY2025, despite an asset impairment, leading to higher net income Key Financial Highlights (as % of Net Sales) | | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Net sales | 100.0 % | 100.0 % | 100.0 % | | Cost of goods sold | 77.8 | 78.9 | 82.0 | | Gross margin | 22.2 | 21.1 | 18.0 | | Selling, general and administrative expenses | 15.1 | 17.1 | 16.0 | | Operating income | 6.0 | 4.1 | 2.7 | | Net income and comprehensive income | 4.6 % | 2.6 % | 3.8 % | Net Sales and Net Income (in thousands, except EPS) | Metric | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net sales | $441,073 | $412,752 | $393,692 | | Net income | $20,154 | $10,528 | $14,778 | | Diluted EPS | $3.55 | $1.91 | $2.74 | - Gross margin increased by **110 basis points** in FY2025 to **22.2%** (from 21.1% in FY2024), driven by fixed cost leverage, supply chain savings, and product portfolio management[83](index=83&type=chunk) - A pre-tax non-cash asset impairment charge of **$14.1 million** was recorded in FY2025 for the Mexicali, Mexico facility's right-of-use asset due to changes in U.S. trade policy and reduced subleasing interest[85](index=85&type=chunk) - The company recorded pre-tax gains of **$5.0 million** from the sale of its Dublin, Georgia facility and **$4.4 million** from the sale of two ancillary buildings in Huntingburg, Indiana during FY2025[86](index=86&type=chunk)[87](index=87&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Flexsteel's working capital increased to $110.4 million in FY2025, supported by improved operating cash flow and asset sales, with no outstanding line of credit borrowings Cash Flow Summary (in thousands) | (in thousands) | FY2025 | FY2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,979 | $31,883 | | Net cash provided by (used in) investing activities | $9,432 | ($593) | | Net cash (used in) financing activities | ($11,166) | ($29,894) | | Increase in cash and cash equivalents | $35,245 | $1,396 | | Cash and cash equivalents at end of year | $40,006 | $4,761 | - Working capital increased by **$15.4 million** to **$110.4 million** on June 30, 2025, primarily due to a **$35.2 million increase in cash**, offset by decreases in trade receivables and inventory[101](index=101&type=chunk) - The revolving line of credit was reduced from **$85 million to $55 million** on June 3, 2025, with no outstanding borrowings as of June 30, 2025[113](index=113&type=chunk)[114](index=114&type=chunk) Contractual Obligations as of June 30, 2025 (in thousands) | Obligation | Total | 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $67,976 | $10,003 | $20,062 | $17,511 | $20,400 | | Warehouse management obligation | $1,735 | $1,388 | $347 | — | — | [Outlook](index=29&type=section&id=Outlook) For fiscal year 2026, Flexsteel plans to focus on financial agility, profitable growth, supply chain resiliency, operational excellence, and customer experience - Fiscal 2026 focus areas include maintaining financial agility, building foundations for profitable long-term growth in retail and e-commerce, enhancing global supply chain resiliency, operational excellence, strengthening digital capabilities, re-imagining customer experience, and building strong culture and talent[117](index=117&type=chunk) [Critical Accounting Policies](index=29&type=section&id=Critical%20Accounting%20Policies) Flexsteel's critical accounting policies involve significant estimates for credit losses, inventory valuation, long-lived assets (including a $14.1 million impairment), and income taxes - Key accounting policies involve estimates for credit losses, inventory valuation (lower of cost or net realizable value using FIFO), and long-lived asset valuation, including a **$14.1 million impairment** for the Mexicali facility's right-of-use asset in FY2025[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) - The company's income tax accounting involves significant judgment in determining deferred tax assets and liabilities, with recoverability dependent on future taxable income[124](index=124&type=chunk)[125](index=125&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=31&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Flexsteel's primary market risk is foreign currency fluctuations, particularly the Mexican Peso, with minimal interest rate risk due to no outstanding debt - Primary market risk exposure is foreign currency risk, mainly from the Mexican Peso, impacting manufacturing wages and VAT receivables, where a negative shift in USD against the Peso could increase costs and decrease receivable value[127](index=127&type=chunk) - The company does not currently employ foreign currency hedges, although it utilized a derivative instrument in Q3 FY2025 to reduce Peso exchange rate exposure, which expired without being utilized[127](index=127&type=chunk) - Interest rate risk is minimal as the company had no outstanding balance on its line of credit as of June 30, 2025[128](index=128&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=32&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Flexsteel's audited consolidated financial statements and an unqualified opinion from Deloitte & Touche LLP on financial statements and internal controls - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the period ended June 30, 2025, and on the effectiveness of internal control over financial reporting[133](index=133&type=chunk)[134](index=134&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Critical audit matters included the estimation of net realizable value for inventories (**$89.1 million** as of June 30, 2025) and the Mexicali Right-of-Use Asset Impairment (**$14.1 million** in FY2025), both involving significant judgment and subjectivity[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $40,006 | $4,761 | | Total current assets | $172,372 | $155,381 | | Total assets | $282,486 | $274,462 | | Total current liabilities | $62,014 | $60,406 | | Total liabilities | $114,624 | $124,095 | | Total shareholders' equity | $167,862 | $150,367 | Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net sales | $441,073 | $412,752 | $393,692 | | Gross profit | $97,944 | $87,244 | $70,947 | | Operating income | $26,615 | $17,080 | $10,542 | | Net income | $20,154 | $10,528 | $14,778 | | Diluted EPS | $3.55 | $1.91 | $2.74 | Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $36,979 | $31,883 | $22,989 | | Net cash provided by (used in) investing activities | $9,432 | ($593) | ($4,450) | | Net cash (used in) financing activities | ($11,166) | ($29,894) | ($17,358) | | Increase in cash and cash equivalents | $35,245 | $1,396 | $1,181 | | Cash and cash equivalents at end of year | $40,006 | $4,761 | $3,365 | [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=42&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[248](index=248&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=42&type=section&id=Item%209A.%20Controls%20and%20Procedures) Flexsteel's disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with no material changes reported - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[249](index=249&type=chunk) - Management assessed and concluded that internal control over financial reporting was effective as of June 30, 2025, with an unqualified opinion from Deloitte & Touche LLP[250](index=250&type=chunk)[251](index=251&type=chunk) - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[252](index=252&type=chunk) [ITEM 9B. OTHER INFORMATION](index=42&type=section&id=Item%209B.%20Other%20Information) No Rule 10b5-1 trading arrangements were adopted or terminated, and the company amended its Cash Incentive and Severance Plans - No director or officer adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[253](index=253&type=chunk) - Effective August 19, 2025, the company amended its Cash Incentive Plan, Cash Incentive Notification of Award, and Severance Plan for Management Employees to align with market practices and improve administrative consistency[254](index=254&type=chunk) - Amendments to the Severance Plan for Management Employees include an increase to the change of control protection period to **24 months** and an increase to the CEO's severance benefits to **twice that of other eligible employees**[254](index=254&type=chunk) [ITEM 9C. DISCLOSURE REGARDING FOREIGN JURSIDICTIONS THAT PREVENT INSPECTIONS](index=42&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jursidictions%20That%20Prevent%20Inspections) The company has no disclosures regarding foreign jurisdictions that prevent inspections - There are no disclosures regarding foreign jurisdictions that prevent inspections[255](index=255&type=chunk) PART III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE](index=43&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within **120 days** of the fiscal year-end[256](index=256&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=43&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within **120 days** of the fiscal year-end[257](index=257&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=43&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and related stockholder matters will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within **120 days** of the fiscal year-end[258](index=258&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE](index=43&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Party%20Transactions%20and%20Director%20Independence) Information on related party transactions and director independence will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within **120 days** of the fiscal year-end[259](index=259&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=43&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within **120 days** of the fiscal year-end[260](index=260&type=chunk) PART IV [ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, AND SCHEDULES](index=44&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statements%2C%20and%20Schedules) This section lists exhibits, financial statements, and schedules, including accounts receivable allowances, and provides required report signatures - This section includes the Index to Consolidated Financial Statements and a schedule for Valuation and Qualifying Accounts[262](index=262&type=chunk)[263](index=263&type=chunk) Accounts Receivable Allowances (in thousands) | Year | Balance at Beginning of Year | Reductions to Income | Deductions from Reserves | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | 2025 | $2,440 | ($244) | ($406) | $1,790 | | 2024 | $2,600 | ($144) | ($16) | $2,440 | | 2023 | $2,980 | ($230) | ($150) | $2,600 | - The report is signed by Derek P. Schmidt (CEO and Director) and Michael J. Ressler (CFO), along with other directors, on August 22, 2025[268](index=268&type=chunk)[269](index=269&type=chunk)