FLXS 10-K & 10-Q changes, risk factors and insider trading

Changes in globalU.S. trade policypolicy, including the imposition of tariffs and theother impacttrade onrestrictions, tariffscould maymaterially haveadversely a material adverse effect onaffect our businessbusiness, financial condition and results of operations.

Cost inflationinflation, including significant increases in ocean container rates, tariffs, raw materials prices, labor rates, and domestic transportation costscosts, havehas and could continue to impact profitability. Imbalances between supply and demand for these resources may continue to exert upward pressure on costs.

The Company purchases raw materials, component parts, and certain finished goods from foreign external suppliers. Prices for these purchases are primarily negotiated in U.S. dollars on a purchase order basis. A negative shift in the U.S. dollar relative to the local currency of our supplier could result in price increases and negatively impact our cost structure. In addition, our manufactured products are produced in Mexico. The wages of our employees and certain other employee benefit and indirect costs are made in Pesos.pesos. A negative shift in the value of the U.S. dollar against the Pesopeso could increase the cost of manufacturing. In addition, the Company has certain assetassets and liabilities related to our manufacturing operations which are denominated in pesos, primarily our VAT receivable for recoverable VAT paid in Mexico. A negative shift in the value of the Pesopeso against the U.S. dollar could result in the value of our receivable decreasing which may impact our earnings.

Our ability to recover these cost increases through price increases may continue to lag the cost increases, resulting in downward pressure on margins. In addition, price increases to offset rising costs could negatively impact demand for our products.

Additionally, a disruption in supply from foreign countries could adversely affect our ability to timely fill customer orders for those products and decrease our sales, earnings, and liquidity. The main foreign countries we source finished goods from are Vietnam, China, Thailand,Vietnam and Mexico. Additionally, China and Italy are key sources of raw materials and components used in the manufacturing of finished goods. If we were unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain could adversely affect our sales, earnings, financial condition, and liquidity.

The furniture industry is very competitive and fragmented. The Company competes with U.S. and foreign manufacturers and distributors. As a result, the Company may not be able to maintain or raise the prices of its products in response to competitive pressures or increasing costs. Also, due to the large number of competitors and their wide range of product offerings, the Company may not be able to significantly differentiate its products (through function, value, technology integration, styling, finish, and other construction techniques) from those of its competitors.

These and other competitive pressures could cause us to lose market share, revenues, and customers, increase expenditureexpenditures or reduce prices, any of which could have a material adverse effect on our results of operations or liquidity.

Public health events could have a materially adverse effect on our ability to operate, our ability to keep employees safe from thea pandemic, our results of operations, and financial condition.

During the initial height of the COVID-19 pandemic, purchases of home furnishings were heavily impacted as they are largely deferabledeferrable and heavily influenced by consumer sentiment. Public health organizations recommended, and many governments implemented, measures from time-to-time to slow and limit the transmission of the virus, including certain business shutdowns and shelter in placeshelter-in-place and social distancing requirements. Such preventive measures, or others we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut downshutdown of certain locations, decreased employee availability, potential border closures, and disruptions to the businesses of our selling channel partners, and others.

Our suppliers and customers may also face these and other challenges, which have led and could to lead to a future disruption in our supply chain, raw material inflation or the inability to get the raw materials necessary to produce our products, increased shipping and transportation costs, as well as decreased consumer spending and decreased demand for our products.

The Company continues to migratemodernize business and financial processes from legacyour ERP systems to SAP.systems. The Company takes great care in the planning and execution of these migrations,updates, however, implementation issues related to the transition could arise and may result in the following:

Inability to fulfill federal, state and local tax filing requirements in a timely and accurate mattermanner; and Increased demands of management and associates to the detriment of other corporate initiatives.

The Company participates in, and makes periodic contributions to, one multi-employer pension plan that covers union employees. Multi-employer pension plans are managed by trustee boards comprised of participating employer and labor union representatives, and the employers participating in a multi-employer pension plan are jointly responsible for maintaining the plan’s funding requirements. Based on the most recent information available to the Company, the present value of actuarially accrued liabilities of the multi-employer pension plan substantially exceeds the value of the assets held in trust to pay benefits. As a result of the Company’s participation, it could experience greater volatility in the overall pension funding obligations. The Company’s obligations may be impacted by the funded status of the plans, the plans’ investment performance, changes in the participant demographics, financial stability of contributing employers and changes in actuarial assumptions. See Note 1313, Benefit and Retirement PlansPlans, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.

The Company faces the risk of exposure to product liability claims in the event the use of any of its products results in personal injury or property damage. In the event any of the Company’s products prove to be defective, it may be required to recall or redesign such products. The Company is also subject to various laws and regulations relating to environmental protection and the discharge of materials into the environment. The Company could incur substantial costs, including legal expenses, as a result of the noncompliance with, or liability for cleanup or other costs or damages under, environmental laws. Given the inherent uncertainty of litigation, these various legal proceedings and compliance matters could have a material impact on the business, operating results, and financial condition. See Note 1414, Commitments and ContingenciesContingencies, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.

At June 30, 2025,2026, we had $36.2$36.0 million in property, plant and equipment and $41.5$35.7 million in right of useright-of-use assets associated with leased facilities. These long-lived assets are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. The outcome of impairment testing could result in the write-down of all or a portion of the value of these assets. A write-down of our assets would, in turn, reduce our earnings and net worth. During the quarter ended March 31, 20252025, the Company determined that the right of use asset related to our leased Mexicali, Mexico facility was not fully recoverable and recorded a pre-tax non-cash asset impairment charge of $14.1 million due to substantial changes in U.S. trade policy in early 2025 that created significant uncertainty in US-MexicoU.S.-Mexico trade relations, slowed foreign direct investment in Mexico, and greatly diminished tenant interest in subleasing the Mexicali facility. If capacity requirements do not necessitate the utilization of our leased Mexicali facility and we are unsuccessful at subleasing the facility in the future, the remaining carrying amount of the right of use asset associated with that lease may not be recoverable. A write-down of all or a portion of the remaining value of the Mexicali right of use asset could have a material impact on our earnings in the period of impairment. At June 30, 20252026, the Company does not believe any further impairment indicators exist, but impairment assessment involves the use of considerable judgement and any change in future market or economic conditions could cause actual results to differ from estimates.

We generally grant payment terms between 10 and 60 days to customers, often without requiring collateral. Some of our customers have experienced, and may in the future experience, cash flow and credit-related issues. In the event of negative economic events such as economic recession or significant decline in consumer demand, supply chain disruptions, weather events or natural disasters, public health events or other unforeseen issues with negative economic impact to our customers, which have occurred in the past, we may not be able to collect amounts owed to us. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and judgment, especially in the current environment. Should customers experience liquidity issues beyond what we anticipate, if payment is not received on a timely basis, or if a customer declares bankruptcy or closes stores, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition, and liquidity. In addition, we have receivables for recoverable value added tax paid under such regimes in foreign jurisdictions, primarily Mexico. The collection of these amounts areis subject to approval by foreign governmental agencies who evaluate the claims. Any actions taken by those agencies to delay, limit or deny the amounts submitted or retroactive changes in legislation surrounding these regimes may impact our ability to recover these amounts.

Selling, general, and administrative (“SG&A”) expenses decreased by $3.7 million in the year ended June 30, 2025, compared to the prior fiscal year. As a percentage of net sales, SG&A expense was 15.1% in fiscal year 2025 compared to 17.1% of net sales in the prior fiscal year. The decrease of 200-bps is primarily due to fixed cost leverage on higher sales volume and structural cost savings partially offset by investments in growth initiatives. The prior year SG&A expense also included a $1.5 million expense due to CEO transition costs associated with the revaluation of previously awarded equity awards which did not recur in the currentyear year.ended June 30, 2025.

Income tax expense was $6.8 million, or an effective rate of 25.3%, for the year ended June 30, 2025, compared to income tax expense of $5.0 million in the prior year, or an effective tax rate of 32.3%. The current year effective tax rate was primarily impacted by the effect of state and foreign taxes, offset by a research &and development credit benefit. The prior year tax rate was impacted by the effect of state taxes, nondeductible stock compensation, and foreign taxes, offset by a research &and development credit benefit. See Note 10, Income Taxes, of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.

Working capital (current assets less current liabilities) on June 30, 2025,2026, was $110.4$82.7 million compared to $95.0$110.4 million on June 30, 2024.2025. The $15.4$27.7 million increasedecrease in working capital is primarily due to an increase in cashtrade receivables of $35.2$7.4 million, an increase in inventories of $1.5 million, an increase in other current assets of $0.4 million, a decrease in other current liabilities of $1.4 million, and a decrease of insurance costs of $0.5 million partially offset by a decrease ofin $9.0 millioncash of trade$23.3 receivables,million, aan decreaseincrease in accounts payable of $7.4$10.6 million in inventory,million, an increase in sales &and advertising of $2.2 million, an increase in payroll and related accrualsitems of $2.0$2.2 million and aan decreaseincrease in operating lease of $1.7$0.6 million in assets held for sale.million. Capital expenditures were $3.3$3.9 million for the fiscal year ended June 30, 2025.2026.

Net cash provided by (used in) provided by investing activities

For the year ended June 30, 2024,2026, net cash used in investing activities was $0.6$3.9 million, primarily due to capital expenditures of $4.8 million partially offset by proceeds of $4.2 million from the sale of capital assetsexpenditures.

On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders party thereto. The Credit Agreement has a five-year term and provides for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00. In addition, the LoanCredit Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities.

On April 18, 2022, the CompanyCompany, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender,Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term "‘Payment Conditions"Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.

On June 3, 2025, the CompanyCompany, at the borrower, entered into a third amendment to its Credit Agreement ("Third Amendment to the Credit Agreement") with Wells Fargo Bank, NA. The amendment reduced the maximum revolving line of credit amount to $55 million and modified certain definitions in the Credit Agreement which includeincluded dollar figures derived from the maximum revolver amount. The reductionCompany ininitiated the maximum revolving line of credit amount was initiated by the Companyamendment to better align with current and projected borrowing availability under the terms of the Credit Agreement.

See Note 99, Credit ArrangementsArrangements, of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

The discussion and analysis of our consolidated financial statements and results of operations are based on our consolidated financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America. Preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported results. We use estimates based on the best information available in recording transactions and balances resulting from business operations. Estimates are used for such items as the collectability of trade accounts receivable and inventory valuation. Ultimate results may differ from these estimates under different assumptions or conditions.

Allowance for Credit Losses – We establish an allowance for expected credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value. Our accounts receivableThe allowance consists of an allowance for expected credit losses which is established through a review of open accounts, historical collection, and historical write-off amounts. The amount ultimately realized from trade accounts receivable may differ from the amount estimated in the consolidated financial statements.

At June 30, 2025,2026, the Company determined that based on the weight of available evidence, we will be able to recover our deferred tax assets. The realization of our deferred tax assets is primarily dependent on future taxable income in the appropriate jurisdiction. Any reduction in future taxable income, including but not limited to any future restructuring activities may require that we establish a valuation allowance against our deferred tax assets. Establishing a valuation allowance or an increase in the valuation allowance could result in additional income tax expense in such a period and could have a significant impact on our future earnings. Refer to Note 1010, Income TaxesTaxes, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.

The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three and sixnine months ended DecemberMarch 31, 20252026 and 2024.2025. The amounts presented are percentages of the Company’s net sales.

Results of Operations for the Quarter Ended DecemberMarch 31, 20252026 vs. 20242025 Net sales were $118.2$115.1 million for the quarter ended DecemberMarch 31, 2025,2026, compared to net sales of $108.5$114.0 million in the prior year quarter, an increase of 9.0%.1.0%. The increase was driven by higher unit volume of sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volumevolume, particularly in our made-to-ordermade-to-order, soft seating productsready-to-assemble and homestylescase brandedgoods ready-to-assemble products.categories.

Sales order backlog, inclusive of estimated tariff surcharges, was $82.4$79.5 million as of the quarter ended DecemberMarch 31, 2025,2026, an increase of 6.5%1.5% compared to $77.3$78.3 million in the prior year quarter.

Gross margin as a percent of net sales for the quarter ended DecemberMarch 31, 2025,2026, was 22.7%,22.6%, compared to 21.0%22.2% for the prior year quarter, an increase of 17040 basis points (“bps”). The 170-bps40-bps increase was primarily driven by favorable sales composition of higher margin products, partially offset by the dilutive impact of tariffs.products.

Selling, general and administrative (“SG&A”) expenses increased $1.7$0.7 million to $17.8 million in the quarter ended DecemberMarch 31, 2025,2026, as compared to $16.1$17.1 million in the prior year quarter. As a percentage of net sales, SG&A was 15.1%15.5% in the quarter ended DecemberMarch 31, 20252026 compared to 14.9%15.0% of net sales in the prior year quarter. The 20-bps50-bps increase was mainly due to investments in growthconsumer initiatives.insights, innovation, demand generation, and customer experience.

Income tax expense was $2.7$2.1 million, or an effective rate of 28.9%24.9% for the quarter ended DecemberMarch 31, 2025,2026, compared to income tax expensebenefit of $2.6($1.2) million, or an effective rate of 22.4%24.5% for the quarter ended DecemberMarch 31, 2024.2025. For the quarter ended DecemberMarch 31, 2025,2026, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes, the impact of foreign operations, state taxes and non-deductible compensation offset by credits for research and development and the impact associated with uncertain tax positions.development.

Net income was $6.6$6.4 million, or $1.18$1.14 per diluted share for the quarter ended DecemberMarch 31, 2025,2026, compared to net incomeloss of $9.1($3.7) million, or $1.62$(0.71) per diluted share in the prior year quarter. During the three-month periodquarter ended DecemberMarch 31, 2024,2025, the Company recorded a gainright-of-use asset impairment on the salemanufacturing offacility itsin Dublin,Mexicali, Georgia facility.Mexico.

Results of Operations for the sixnine months ended DecemberMarch 31, 20252026 and 20242025 Net sales were $228.7$343.8 million for the sixnine months ended DecemberMarch 31, 2025,2026, compared to net sales of $212.5$326.5 million in the prior-year six-monthnine-month period, an increase of 7.6%.5.3%. The increase in sales of $16.2$17.3 million was driven by higher unit volume of sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volume in our made-to-order soft seating products and homestyles branded ready-to-assemble products.

Gross margin as a percent of net sales for the sixnine months ended DecemberMarch 31, 2025,2026, was 23.1%,22.9%, compared to 21.3%21.6% for the prior-year six-monthnine-month period, an increase of 180130 bps. The 180-bps130-bps increase was primarily driven by favorable sales composition of higher margin products, partially offset by the dilutive impact of tariffs.

Selling, general and administrative expenses increased $2.3$3.1 million in the sixnine months ended DecemberMarch 31, 2025,2026, compared to the prior-year six-monthnine-month period. SG&A as a percentage of sales was 15.2%15.3% in the sixnine months ended DecemberMarch 31, 2025,2026, compared to the prior-year six-monthnine-month period of 15.3%.15.2%. The 10-bps decreaseincrease was primarilymainly due to fixed cost leverage on higher sales, offset by investments in growth initiatives for the six months ended December 31, 2025.initiatives.

Income tax expense was $4.8$6.9 million, or an effective rate of 25.4%,25.2%, during the sixnine months ended DecemberMarch 31, 2025,2026, compared to income tax expense of $4.5$3.3 million in the prior-year six-monthnine-month period, or an effective tax rate of 25.3%.25.6%. The effective tax rate for the sixnine months ended DecemberMarch 31, 2025,2026, was primarily impacted by state taxes, the impact of foreign operations and nondeductible compensation, offset by credits for research and development.

Working capital (current assets less current liabilities) on DecemberMarch 31, 2025,2026, was $126.0$142.2 million compared to $110.4 million on June 30, 2025. The $15.6$31.8 million increase in working capital was primarily due to an increase in cash of $17.3 million, other current assets of $6.9$13.2 million, an increase in trade receivables of $6.6 million, an increase in inventories of $6.0$6.2 million, and a decrease in accounts payable of $1.7 million, a decrease in other current liabilities of $2.9$1.6 million, a decrease in other current liabilities of $0.8 million partially offset by a decrease in cashinventories of $3.2$8.6 million, an increase in accounts payable of $3.3 million,million and an increase in operating lease of $0.3 million.$0.4. Refer to discussion of working capital changes below, under Net cash provided by operating activities. Capital expenditures were $3.1$3.5 million during the sixnine months ended DecemberMarch 31, 2025.2026.

For the sixnine months ended DecemberMarch 31, 2025,2026, net cash provided by operating activities was $5.1$27.2 million, primarily due to net income of $14 million, an increase in accounts payable of $3.6$20.4 million, a decrease in other assetsinventories of $3.4$8.6 million,million and adjustments for non-cash items including stock-based compensation of $3.4 million, deferred income taxes $3.4 million, stock-based compensation of $2.3$3.3 million, depreciation of $1.7$2.8 million, provision for credit losses of $0.1$0.3 millionmillion, partially offset by an increase in other current assets of $6.9 million, an increase in trade receivables of $6.7 million, an increase in inventories of $6.0$6.5 million, a decrease in accrued liabilities of $3.7 million andmillion, a decrease in accounts payable of $1.3 million and an increase in other long-termcurrent liabilitiesassets of $0.1 million.

For the sixnine months ended DecemberMarch 31, 2024,2025, net cash provided by operating activities was $9.1$21.4 million, primarily due to an increase in net income of $13.2$9.5 million, adjustments for non-cash items including a right-of-use asset impairment of $14.1 million, a pre-tax gain on sale of assets of $5$5.8 million, deferred income tax of $3.5 million, stock-based compensation of $2.1$3.0 million, and depreciation of $1.9$2.8 million, as well as changes in operating assets and liabilities including, a decrease in inventory of $9.4 million, and a decrease in inventorytrade receivables of $5.5$5.8 millionmillion, offset by an increase in tradeother receivablesassets of $7.9$5.6 million, ana increasedecrease in accounts payable of $3.7 million, a decrease in accrued liabilities of $4.9$3.5 million, aan decreaseincrease in other current assets of $3.6 million, an increase in accounts payable of $5.4 million$1.3 and a decrease ofin other assets andlong-term liabilities of $0.2 million.

For the sixnine months ended DecemberMarch 31, 2025,2026, net cash used in investing activities was $3.1$3.5 million due to capital expenditures.

For the sixnine months ended DecemberMarch 31, 2024,2025, net cash provided by investing activities was $6.5$6.0 million due to proceeds from the salesales of theproperty, Dublin,plant Georgiaand facilityequipment of $6.7$7.5 million, and corporate owned life insurance proceeds of $1.1$1.2 million, offset by capital expenditures of $1.3$2.7 million.

For the sixnine months ended DecemberMarch 31, 2025,2026, net cash used in financing activities was $5.3$6.4 million, primarily due to dividends paid of $2.2$3.3 million, shares withheld for tax payments on vested shares and options exercised of $1.9$2.0 million and treasury stock purchases of $1.1 million.

For the sixnine months ended DecemberMarch 31, 2024,2025, net cash used in financing activities was $8.6$9.5 million, due to payments on the line of credit of $207.1$207.3 millionmillion, partiallydividends offset by proceeds from the linepaid of credit of $202$2.7 million, and shares withheld for tax payments on vested shares and options exercised of $2.1 million, dividendspartially paidoffset by proceeds from the line of $1.8credit million,of $202.3 million and proceeds from issuance of common stock of $0.1 million.

On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders thereto. The Credit Agreement has a five-year term and provided for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. As of DecemberMarch 31, 2025,2026, management believes the Company was in compliance with all covenants.

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement (“Second Amendment to the Credit Agreement”) with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate (“SOFR”). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 5.13%,4.99%, on DecemberMarch 31, 2025.2026.

As of DecemberMarch 31, 2025,2026, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding with the Lender as of DecemberMarch 31, 2025,2026, totaled $0.9 million.

As of DecemberMarch 31, 2025,2026, 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, 2025.