Flexsteel Industries Inc 10-K for FY2026
Flexsteel Industries Inc (FLXS)
About this 10-K
Flexsteel Industries Inc filed this 10-K on August 19, 2026, covering the fiscal year ended June 30, 2026 (FY2026).
Headline figures
Fiscal year ended June 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $459.18M
- up 4.1% from $441.07M a year earlier
- Net income
- $33.13M
- up 64.4% from net income of $20.15M a year earlier
- Diluted EPS
- $6.07
- up 71.0% from $3.55 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM
For the fiscal year ended
or
For the transition period from to
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
Incorporated in State of |
|
(State or other Jurisdiction of |
(I.R.S. Identification No.) |
Incorporation or Organization) |
|
(Address of Principal Executive Offices) (Zip Code)
(
(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 |
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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.
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See 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
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
1
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
Common Stock - $1.00 Par Value |
|
Shares Outstanding as of August 19, 2026 |
The aggregate market value of the voting stock held by non-affiliates, computed by reference to the last sales price on December 31, 2025 (which was the last business day of the registrant’s most recently completed second quarter) was $
DOCUMENTS INCORPORATED BY REFERENCE
In Part III, portions of the registrant’s 2026 Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year end.
2
TABLE OF CONTENTS
|
|
Page |
PART I |
||
4 |
||
|
|
|
6 |
||
|
|
|
10 |
||
|
|
|
10 |
||
|
|
|
11 |
||
|
|
|
11 |
||
|
|
|
12 |
||
PART II |
||
12 |
||
|
|
|
12 |
||
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
13 |
|
|
|
|
17 |
||
|
|
|
19 |
||
|
|
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
40 |
|
|
|
|
40 |
||
|
|
|
40 |
||
|
|
|
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
41 |
|
PART III |
||
42 |
||
|
|
|
42 |
||
|
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS |
42 |
|
|
|
|
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE |
42 |
|
|
|
|
42 |
||
PART IV |
||
43 |
||
|
|
|
|
46 |
|
|
|
|
|
44 |
|
3
PART I
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 Annual Report on Form 10-K, 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 the Company’s 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, changes in foreign currency values, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, 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, disruptions or security breaches to business information systems, the impact of any future pandemic, and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of this 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.
Item 1. Business
General
Flexsteel Industries, Inc. and Subsidiaries (the “Company,” “Flexsteel,” or “Our”) is one of the largest residential furniture manufacturers, importers, and marketers in the U.S. Flexsteel addresses different consumer groups through our core brand, Flexsteel, and several category-specific sub-brands: Zecliner, Statements, Zen, Perfect Match, and Pulse, all of which have unique value propositions tailored to specific consumer needs. We offer a wide assortment of product solutions for different areas within the home including stationary and motion sofas, loveseats, chairs, and sectionals, as well as bedroom furniture, dining tables and chairs, occasional and entertainment tables, and kitchen storage. For more than 130 years, Flexsteel has strived to create strong consumer value with unmatched quality, comfort, and durability, backed by innovation and highlighted by its patented Blue Steel Spring technology, designed to deliver lasting comfort and support. Today, Flexsteel products are available nationwide through retail partners and online channels.
The Company operates in one reportable segment, furniture products. The Company’s furniture products business involves the distribution of manufactured and imported products consisting of a broad line of furniture for the residential market.
Manufacturing and Offshore Sourcing
During the fiscal year ended June 30, 2026, the Company operated manufacturing facilities located in Juarez, Mexico. This ongoing manufacturing operation is integral to the Company’s product offerings and distribution strategy by offering smaller and more frequent product runs of a wider product selection. The Company identifies and eliminates manufacturing inefficiencies and adjusts manufacturing schedules frequently to meet customer requirements. The Company has established relationships with key suppliers to ensure prompt delivery of quality component parts. The Company’s production includes the use of selected component parts sourced offshore to enhance value in the marketplace.
The Company integrates manufactured products with finished products acquired from offshore suppliers who can meet quality specifications and lead-time requirements. The Company will continue to pursue and refine this blended product offering and supply chain strategy, offering customers the requisite amount of choice of made-to-order manufactured goods, and ready-to-deliver imported products. This blended focus on products allows the Company to provide a wide range of price points, styles and product categories to satisfy customer requirements.
Competition
The furniture industry is highly competitive and includes a large number of U.S. and foreign manufacturers and distributors, none of which dominate the market. The Company competes in markets with a large number of relatively small manufacturers; however, certain competitors have substantially greater sales volumes than the Company. The Company’s products compete based on style, quality, comfort, functionality, price, delivery, service and durability. The Company believes its patented, guaranteed-for-life Blue Steel Spring,
4
manufacturing and sourcing capabilities, facility locations, commitment to customers, product quality, consumer insights, innovation, delivery, service, value and experienced production, sales, marketing and management teams, are some of its competitive advantages.
Seasonality
The Company’s overall business is not considered materially seasonal.
Foreign Operations
The Company has minimal export sales. On June 30, 2026, the Company had approximately 30 employees located in Asia to ensure Flexsteel’s quality standards are met and to coordinate the delivery of products acquired from overseas suppliers. The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico. The Company had approximately 900 employees located in Mexico on June 30, 2026. The four Mexico facilities total 1,061,000 square feet. As of June 30, 2026, the Company has not begun operations in the Mexicali facility and expects to sublease the facility until such time that demand necessitates the additional capacity. See “Risk Factors” in Item 1A and Note 2, Leases, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of the leased assets.
Customer Backlog
The approximate backlog of customer orders believed to be firm as of the end of the current fiscal year and the prior two fiscal years were as follows (in thousands):
June 30, 2026 |
|
|
June 30, 2025 |
|
|
June 30, 2024 |
|
|||
$ |
70,105 |
|
|
$ |
66,465 |
|
|
$ |
59,543 |
|
Raw Materials
The Company utilizes various types of wood, fabric, leather, filling material, high carbon spring steel, bar and wire stock, polyurethane foam and other raw materials in manufacturing furniture. The Company purchases these materials from numerous outside suppliers, both U.S. and foreign, and is not dependent upon any single source of supply. The costs of certain raw materials fluctuate, but all continue to be readily available within supplier lead-times; however, we could experience supply-chain disruptions at any time, which could impact the availability of materials.
Artificial Intelligence ("AI")
The Company is leveraging AI to strengthen the efficiency and effectiveness of its operational execution.
Industry Factors
The Company has exposure to actions by governments, including tariffs, see “Risk Factors” in Item 1A of this Annual Report on Form 10-K.
Government Regulations
The Company is subject to various local, state, and federal laws, regulations and agencies that affect businesses generally, see “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Our compliance with federal, state and local laws and regulations did not have a material effect upon our capital expenditures, earnings or competitive position during the fiscal year ended June 30, 2026.
Environmental Matters
All of Flexsteel’s stakeholders have a responsibility to protect our employees and our environment. The officers of Flexsteel and its subsidiaries will use our role as business and community leaders to set the tone at the top to guide our management teams in their efforts to improve the workplace and the environment we directly impact. Because we are committed to sustainable business practices, to our people, and to our communities, we will continue to grow and expand the scope of our dedications to the stewardship of our valued resources. The Company is subject to environmental laws and regulations with respect to product content and industrial waste. Further discussion is included in “Risk Factors” in Item 1A of this Annual Report on Form 10-K.
Trademarks and Patents
The Company relies on patents, trademarks, trade secrets, proprietary know-how and other intellectual property in connection with its products and brands, including improvement patents on its Blue Steel Spring, and registered trademarks. In addition, our furniture products are designed by the Company's own design staff and through the services of third-party designers. New models and designs
5
of furniture, as well as new fabrics, are introduced continuously. We evaluate each new model or design for patentability and file patent applications for the United States on inventions, designs and improvements that we deem valuable, but these patents do expire at various times.
Employees
The Company had approximately 1,200 employees on June 30, 2026, including 6 employees who are covered by collective bargaining agreements. Substantially all of the Company's employees are full-time. Management believes it has good relations with employees.
Available Information
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website (www.flexsteel.com) as soon as reasonably practicable after we electronically file the material with or furnish it to the U.S. Securities and Exchange Commission (SEC). Additionally, the SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information on our website or linked to our website is not incorporated by reference into this Annual Report.
Item 1A. Risk Factors
The Company is subject to a variety of risks. You should carefully consider the risk factors detailed below in conjunction with the other information contained in this Annual Report on Form 10-K. Should any of these risks materialize the Company’s business, financial condition, and future prospects could be negatively impacted. There may be additional factors that are presently unknown to the Company or that the Company currently believes to be immaterial that could affect its business.
Risks related to our industry:
Changes in U.S. trade policy, including the imposition of tariffs and other trade restrictions, could materially adversely affect our business, financial condition and results of operations.
We source certain finished products from foreign suppliers, primarily in Vietnam, and have significant manufacturing operations in Mexico. As a result, tariffs and other trade restrictions imposed by the United States can materially increase the cost of products we import into the United States. U.S. trade policy has changed significantly in recent years and remains subject to ongoing legal, political, and regulatory developments. Existing tariffs may be increased, extended, modified or replaced, scheduled tariff increases may take effect, and additional tariffs or trade restrictions may be imposed on products or countries that affect our business.
Increases in tariffs or other trade restrictions could increase our cost of goods sold, require price increases, disrupt our sourcing and manufacturing strategies, reduce our competitiveness, and adversely affect our relationships with suppliers and retail partners. Although we may seek to mitigate these impacts through pricing actions, supplier negotiations, sourcing adjustments or other measures, such efforts may not fully offset increased costs.
Tariffs and trade restrictions may also contribute to inflation, economic uncertainty, commodity price volatility and reduced consumer confidence. Because furniture purchases are generally discretionary such conditions may reduce consumer demand for our products.
Accordingly, changes in tariffs or other trade policies could materially adversely affect our net sales, profitability, cash flows and results of operations.
Claims relating to tariff refunds we have received could adversely affect our financial results.
Following the invalidation of certain tariffs previously imposed under the International Emergency Economic Powers Act, we became entitled to refunds of tariffs previously paid on certain imported products. As of June 30, 2026, we had received substantially all of our eligible refund claims.
Retail partners, suppliers, distributors or other parties may assert claims seeking reimbursement, credits or other payments relating to some or all of these tariff refunds. Any amounts we are required to pay, credit or otherwise settle in connection with such claims could reduce the benefit of the refunds received and adversely affect our financial condition, results of operations and cash flows.
6
Inflation and changes in foreign currency may impact our profitability.
Cost inflation, including significant increases in ocean container rates, tariffs, raw materials prices, labor rates, and domestic transportation costs, has 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. A negative shift in the value of the U.S. dollar against the peso could increase the cost of manufacturing. In addition, the Company has certain assets 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 peso 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 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.
The Company’s products are considered deferrable purchases for consumers during economic downturns. Prolonged negative economic conditions could impact the business.
Economic downturns and prolonged negative economic conditions could affect consumer spending habits by decreasing the overall demand for home furnishing products. These events could impact retailers resulting in an impact on the Company’s business. A recovery in the Company’s sales could lag significantly behind a general economic recovery due to the deferrable nature and relatively significant cost of purchasing home furnishing products.
Future success depends on the Company’s ability to manage its global supply chain.
The Company acquires raw materials, component parts, and certain finished products from external suppliers, both U.S. and foreign. Many of these suppliers are dependent upon other suppliers in countries other than where they are located. This global interdependence within the Company’s supply chain is subject to delays in delivery, availability, quality, and pricing. Changes in international trade policies including tariffs, access to ports and border crossings, or railways could disrupt the supply chain, increase cost and reduce competitiveness. The delivery of goods from these suppliers has been and may continue to be delayed by customs, labor issues, availability of third-party transportation and equipment, geopolitical pressures, changes in political, economic, and social conditions, weather, laws, and regulations. Unfavorable fluctuations in price, international trade policies, quality, delivery, and availability of these products could continue to adversely affect the Company’s ability to meet demands of customers and cause negative impacts to the Company’s cost structure, profitability, and its cash flow.
Enacted tariffs and potential future increases in tariffs on manufactured goods imported from various other countries could adversely affect our business. Inability to reduce acquisition costs or pass-through price increases may have an adverse impact on sales volume, earnings, and liquidity. Similarly, increases in pricing may have an adverse impact on the competitiveness of the Company’s products relative to other furniture manufacturers with less exposure to the tariff and could also lead to adverse impacts on volume, earnings, and liquidity.
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 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.
Finally, the Company relies on third parties to deliver customer orders. The capacity of these third parties or cost of this service could be impacted by labor disputes, cost inflation (particularly fuel), and availability of drivers which could increase cost and have negative impacts on our earnings.
Competition from U.S. and foreign finished product manufacturers may adversely affect the business, operating results or financial condition.
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
7
able to significantly differentiate its products (through function, value, technology integration, styling, finish, and other construction techniques) from those of its competitors.
Additionally, most of our sales are to distribution channels that rely on physical stores to merchandise and sell our products and an involuntary shut down of those or a significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.
These and other competitive pressures could cause us to lose market share, revenues, and customers, increase expenditures or reduce prices, any of which could have a material adverse effect on our results of operations or liquidity.
Future costs of complying with various laws and regulations may adversely impact future operating results.
The Company’s business is subject to various laws and regulations which could have a significant impact on operations and the cost to comply with such laws and regulations could adversely impact the Company’s financial position, results of operations and cash flows. In addition, inadvertently failing to comply with such laws and regulations could produce negative consequences which could adversely impact the Company’s operations.
Failure to anticipate or respond to changes in consumer or designer tastes and fashions in a timely manner could adversely affect the Company’s business and decrease sales and earnings.
Furniture is a styled product and is subject to rapidly changing consumer and end-user trends and tastes and is highly fashion oriented. If the Company is not able to acquire sufficient cover variety or if the Company is unable to predict or respond to changes in fashion trends, it may lose sales and have to sell excess inventory at reduced prices.
Use of social media to disseminate negative commentary may adversely impact the Company’s reputation and business.
There has been a substantial increase in the use of social media platforms, including blogs, social media websites, and other forms of internet-based communications, which allow individuals to access a broad audience of consumers and other interested people. Negative commentary regarding the Company or its products may be posted on social media platforms at any time and may have an adverse impact on its reputation, business, or relationships with third parties, including suppliers, customers, investors, and lenders. Consumers value readily available information and often act on such information without further investigation and without regard to its accuracy or context. The harm may be immediate without affording the Company an opportunity for redress or correction.
Public health events could have a materially adverse effect on our ability to operate, our ability to keep employees safe from a 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 deferrable 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-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 shutdown 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 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.
Risks related to our operations:
Business information systems could be impacted by disruptions and security breaches.
The Company employs information technology systems to support its global business. Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with operations, compromise information belonging to the Company and its customers or suppliers and expose the Company to liability which could adversely impact the Company’s business and reputation. In the ordinary course of business, the Company relies on information technology networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. Additionally, the Company collects and stores certain data, including proprietary business information, and may have access to confidential or personal information in certain areas of its businesses that is subject to privacy and security laws, regulations, and customer-imposed controls. While security breaches and other disruptions to the Company’s information technology networks and infrastructure could happen, none have occurred to date that has had a material impact on the Company. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to the Company’s reputation, which could adversely affect the Company’s business.
8
In addition, in response to shifts in employee workplace preferences, we have allowed certain of our employees the option of a hybrid work schedule where they may choose to work partially from home. Although we continue to implement strong physical and cyber security measures to ensure that our business operations remain functional and to ensure uninterrupted service to our customers, our systems and our operations remain vulnerable to cyber attacks and other disruptions because a material portion of our employees work remotely either full or part-time, and we cannot be certain that our mitigation efforts will be effective.
The use of AI technologies may present risks, including inaccurate or unreliable outputs, data privacy and cybersecurity concerns, and potential regulatory or legal requirements that may evolve over time
We are evaluating and may use artificial intelligence ("AI") technologies in targeted circumstances to support certain business functions, including administrative, customer service, marketing, and operational activities. We have implemented an AI governance framework including Company policies, investment approvals, risk assessments, and Board oversight. Although we seek to use AI responsibly and maintain appropriate oversight of any AI-enabled tools, these technologies are rapidly developing and may not always perform as intended. Any failure to effectively manage risks associated with AI, including risks related to third-party AI service providers, could result in operational inefficiencies, increased costs, legal or regulatory exposure, or reputational harm. In addition, if competitors adopt AI technologies more effectively than we do, they may gain operational or competitive advantages. Any of these factors could adversely affect our business, financial condition, or results of operations.
The implementation of a new business information system could disrupt the business.
The Company continues to modernize our ERP systems. The Company takes great care in the planning and execution of these updates, however, implementation issues related to the transition could arise and may result in the following:
The Company’s participation in a multi-employer pension plan may have exposure under the plan that could extend beyond what its obligations would be with respect to its employees.
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 13, Benefit and Retirement Plans, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.
Future results may be affected by various legal proceedings and compliance risk, including those involving product liability, environmental, or other matters.
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 14, Commitments and Contingencies, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.
We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.
At June 30, 2026, we had $36.0 million in property, plant and equipment and $35.7 million in right-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, 2025, the Company determined that the right of use asset related to our leased Mexicali, Mexico facility was not fully recoverable and recorded a
9
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 U.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, 2026, 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.
The Company’s success depends on its ability to recruit and retain key employees and highly skilled workers in a competitive labor market.
If the Company is not successful in recruiting and retaining key employees and highly skilled workers or experiences the unexpected loss of those employees, the operations may be negatively impacted.
Additionally, we are and will continue to be dependent upon our senior management team and other key personnel. Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations. Ongoing or future communicable diseases increase the risk that certain senior executive officers or a member of the board of directors could become ill, causing them to be incapacitated or otherwise unable to perform their duties for an extended absence. This could negatively impact the efficiency and effectiveness of processes and internal controls throughout the Company and our ability to service customers.
We may not be able to collect amounts owed to us.
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 is 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.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
The Company has a written Emergency Action Plan that includes the handling of material cybersecurity incidents and business continuity if there is a disruption in operations. The Company utilizes a
10
basis. Additionally, we maintain cyber insurance coverage, including protection to further mitigate potential financial losses from cybersecurity incidents.
Governance
The Emergency Action Plan defines the handling of cyber related incidents with support of the cross-functional steering team to assess the potential materiality of cybersecurity events and to report on the detection, analysis, and containment from such events.
Item 2. Properties
The Company owns the following facilities as of June 30, 2026:
|
|
Approximate |
|
|
|
|
Location |
|
Size (square feet) |
|
|
Principal Operations |
|
Edgerton, Kansas |
|
|
500,000 |
|
|
Distribution |
Huntingburg, Indiana |
|
|
337,000 |
|
|
Distribution |
Dubuque, Iowa |
|
|
40,000 |
|
|
Corporate Office |
The Company leases the following facilities as of June 30, 2026:
|
|
Approximate |
|
|
|
|
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 |
|
|
60,000 |
|
|
Showroom |
El Paso, Texas |
|
|
38,000 |
|
|
Warehouse |
High Point, North Carolina |
|
|
15,000 |
|
|
Design and Engineering Center |
Las Vegas, NV |
|
|
10,000 |
|
|
Showroom |
Shenzhen, China |
|
|
2,000 |
|
|
Office |
Bangkok, Thailand |
|
|
1,000 |
|
|
Office |
Binh Duong, Vietnam |
|
|
1,000 |
|
|
Office |
See Note 2, Leases, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of the leased assets.
Item 3. Legal Proceedings
See Note 14, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for discussion of legal proceedings.
11
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock is traded on the NASDAQ Global Select Market under the trading symbol FLXS.
Holders of Record
The Company had 187 registered holders of common stock and estimates there were approximately 3,000 beneficial holders of common stock of the Company as of June 30, 2026. The payment of future cash dividends is within the discretion of the Company’s Board of Directors and will depend, among other factors, on its earnings, capital requirements and operating and financial condition.
Purchases of Equity Securities
On December 11, 2024, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to $30 million of the Company’s common stock.
The following table details shares repurchased by the Company during the three months ended June 30, 2026.
|
|
Total Number |
|
|
Average |
|
|
Total Number |
|
|
Approximate Dollar Value |
|
||||
|
|
of Shares |
|
|
Price Paid |
|
|
of Shares Purchased |
|
|
of Shares that May Yet |
|
||||
Period |
|
Purchased |
|
|
per Share |
|
|
as Part of Plan |
|
|
Be Purchased |
|
||||
April 1, 2026, to April 30, 2026 |
|
|
1,279,870 |
|
1 |
$ |
47.00 |
|
1 |
|
31,026 |
|
|
$ |
28,868,691 |
|
May 1, 2026, to May 31, 2026 |
|
|
— |
|
|
|
— |
|
|
|
31,026 |
|
|
|
28,868,691 |
|
June 1, 2026, to June 30, 2026 |
|
|
4,259 |
|
|
|
66.72 |
|
|
|
35,285 |
|
|
|
28,584,297 |
|
As of June 30, 2026 |
|
|
1,284,129 |
|
|
$ |
66.72 |
|
|
|
35,285 |
|
|
$ |
28,584,297 |
|
1 On April 26, 2026, the Company entered into a stock repurchase agreement for the purchase by the Company of 1,279,870 shares of the Company’s common stock in a privately-negotiated transaction at a purchase price of $47.00 per share and for a total purchase price of approximately $60.2 million.
Item 6. [Reserved]
12
Item 7. 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 Annual Report on Form 10-K.
Results of Operations
The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the fiscal years ended June 30, 2026, 2025, and 2024. Amounts presented are percentages of the Company’s net sales.
|
|
For the years ended June 30, |
|||||||||||||
|
|
2026 |
|
2025 |
|
2024 |
|||||||||
Net sales |
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
|
|
100.0 |
|
% |
Cost of goods sold |
|
|
75.3 |
|
|
|
|
77.8 |
|
|
|
|
78.9 |
|
|
Gross margin |
|
|
24.7 |
|
|
|
|
22.2 |
|
|
|
|
21.1 |
|
|
Selling, general and administrative expenses |
|
|
15.4 |
|
|
|
|
15.1 |
|
|
|
|
17.1 |
|
|
Restructuring expense |
|
|
— |
|
|
|
|
— |
|
|
|
|
0.7 |
|
|
Right-of-use asset impairment |
|
|
— |
|
|
|
|
3.2 |
|
|
|
|
— |
|
|
(Gain) on sale of real estate |
|
|
— |
|
|
|
|
(0.2 |
) |
|
|
|
— |
|
|
(Gain) on disposal of assets held for sale |
|
|
— |
|
|
|
|
(2.0 |
) |
|
|
|
(0.8 |
) |
|
Operating income |
|
|
9.3 |
|
|
|
|
6.0 |
|
|
|
|
4.1 |
|
|
Interest income |
|
|
0.3 |
|
|
|
|
0.1 |
|
|
|
|
0.0 |
|
|
Interest (expense) |
|
|
— |
|
|
|
|
— |
|
|
|
|
(0.4 |
) |
|
Income before income taxes |
|
|
9.5 |
|
|
|
|
6.1 |
|
|
|
|
3.8 |
|
|
Income tax provision |
|
|
2.3 |
|
|
|
|
1.5 |
|
|
|
|
1.2 |
|
|
Net income and comprehensive income |
|
|
7.2 |
|
% |
|
|
4.6 |
|
% |
|
|
2.6 |
|
% |
Fiscal 2026 Compared to Fiscal 2025
Net sales were $459.2 million for the year ended June 30, 2026, compared to net sales of $441.1 million in the prior year, an increase of $18.1 million or 4.1%. The increase in sales was primarily driven by $28.0 million of growth in soft seating products, partially offset by a $9.0 million decline in homestyles branded ready-to-assemble product sales and $0.9 million decline in Flexsteel branded casegoods.
Gross margin for the year ended June 30, 2026, was 24.7%, compared to 22.2% for the prior fiscal year, an increase of 250 basis points (“bps”). The 250-bps increase was primarily driven by a 200-bps benefit from the International Emergency Economic Powers Act ("IEEPA") Tariff Refunds received and to a lesser extent favorable mix driven by product and customer portfolio optimization initiatives.
Selling, general, and administrative (“SG&A”) expenses increased by $4.2 million in the year ended June 30, 2026, compared to the prior fiscal year. As a percentage of net sales, SG&A expense was 15.4% in fiscal year 2026 compared to 15.1% of net sales in the prior fiscal year. The increase of 30-bps is primarily due to a 70-bps benefit from fixed cost leverage on higher sales volume offset by 70-bps increase in investments in consumer insights, new products and marketing to execute our growth strategy and a 30-bps increase from higher incentive compensation expense.
Income tax expense was $10.7 million, or an effective rate of 24.4%, for the year ended June 30, 2026, compared to income tax expense of $6.8 million in the prior year, or an effective tax rate of 25.3%. The current year effective tax rate was primarily impacted by lower non-deductible compensation, effect of state and foreign taxes, partially offset by stock-based compensation and a research and development credit benefit. The prior year tax rate was primarily impacted by the effect of state and foreign taxes, offset by a research and development credit benefit. The Company adjusted its provision for income tax and measurement of deferred tax assets in accordance with the One Big Beautiful Act ("OBBBA"). See Note 10, Income Taxes, of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.
Net income was $33.1 million, or $6.07 per diluted share for the year ended June 30, 2026, compared to net income of $20.2 million, or $3.55 per diluted share in the prior year.
On July 31, 2025, the President of the United States issued an executive order intended to clarify certain matters related to previously issued executive orders on tariffs. This executive order included, among other things, an increase in the country specific tariff from 10%
13
to 20% on goods imported from Vietnam. Accordingly, both our seating and case goods products sourced from Vietnam were subject to tariffs under IEEPA during this period. In addition, beginning in October 2025, substantially all of the seating products we source from Vietnam and manufacture in Mexico became subject to a 25% tariff under Section 232 of the Trade Expansion Act of 1962 pursuant to the Presidential Proclamation Adjusting Imports of Timber, Lumber, and their Derivative Products into the United States. For these seating products, the Section 232 tariff superseded the previously applicable IEEPA tariffs. Our case goods products sourced from Vietnam continued to be subject to the applicable IEEPA tariffs until February 2026, when the U.S. Supreme Court held that the tariffs imposed under IEEPA exceeded the authority granted under that statute. Following the Supreme Court's decision, a temporary 10% global import surcharge was imposed under Section 122 of the Trade Act of 1974 and became applicable to our case goods products sourced from Vietnam. On July 24, 2026, the U.S. implemented a new tariff framework under Section 301 of the Trade Act of 1974. The new framework imposes tariffs of either 10% or 12.5% on imports from certain trading partners, including Vietnam. This Section 301 tariff applies to bedroom, dining and occasional casegood products we source from Vietnam. The majority of our seating products sourced from Vietnam and manufactured in Mexico remain subject to the 25% Section 232 tariffs which, under the existing proclamation, is scheduled to increase to 30% effective January 1, 2027, unless modified prior to that date, and are generally not subject to the additional Section 301 tariffs. In addition, as a result of the U.S. Supreme Court's February 2026 decision regarding the IEEPA tariff program, the U.S. Court of International Trade ordered the U.S. government to process refunds of tariffs collected under the IEEPA tariff program. These refunds relate only to tariffs imposed under the IEEPA authority and do not affect the Section 232 tariffs that continue to apply to the majority of the Company's upholstered seating products.
Fiscal 2025 Compared to Fiscal 2024
Net sales were $441.1 million for the year ended June 30, 2025, compared to net sales of $412.8 million in the prior year, an increase of $28.3 million or 6.9%. The increase in sales was primarily driven by unit volume in our soft seating products, offset by a decline in our homestyles ready-to-assemble product line.
Gross margin for the year ended June 30, 2025, was 22.2%, compared to 21.1% for the prior fiscal year, an increase of 110 basis points (“bps”). The 110-bps increase was primarily driven by fixed cost leverage on higher sales, supply chain cost savings, and product portfolio management.
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 year ended June 30, 2025.
In July 2022, Flexsteel commenced a 12-year lease for a manufacturing facility in Mexicali, Mexico to support strong demand growth which was elevated due to pandemic-driven buying at that time. Subsequently, U.S. furniture demand reverted to pre-pandemic norms, and the Company’s plan for the facility pivoted to subleasing the space short-term while maintaining the option to utilize it longer term to support growth. While the Company secured multiple short-term sublease tenants at the beginning of the lease term, substantial changes in U.S. trade policy in early 2025 created significant uncertainty in US-Mexico trade relations, slowed foreign direct investment in Mexico, and greatly diminished tenant interest in subleasing the Mexicali facility. As a result, management concluded that the right of use asset related to this lease was not fully recoverable and recorded a pre-tax non-cash asset impairment charge of $14.1 million during the quarter ended March 31, 2025. See Note 2, Leases, of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.
During the year ended June 30, 2025, the Company completed the sale of its Dublin, Georgia facility which had been previously recorded as held for sale. The Company recorded a pre-tax gain of $5.0 million related to the sale. See Note 6, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.
During the year ended June 30, 2025, the Company completed the sale of 2 separate ancillary buildings, formerly part of its Huntingburg, Indiana distribution center complex. The Company received proceeds of $0.8 million and recorded a pre-tax gain of $0.7 million related to the first sale. The Company received proceeds of $4.0 million and recorded a pre-tax gain of $3.7 million related to the second sale. The Company has adequate distribution capacity to support our growth as we continue to optimize our distribution and logistics network. See Note 6, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.
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.
14
Net income was $20.2 million, or $3.55 per diluted share for the year ended June 30, 2025, compared to net income of $5.5 million, or $1.91 per diluted share in the prior year.
Liquidity and Capital Resources
Working capital (current assets less current liabilities) on June 30, 2026, was $82.7 million compared to $110.4 million on June 30, 2025. The $27.7 million decrease in working capital is primarily due to an increase in trade receivables of $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 in cash of $23.3 million, an increase in accounts payable of $10.6 million, an increase in sales and advertising of $2.2 million, an increase in payroll and related items of $2.2 million and an increase in operating lease of $0.6 million. Capital expenditures were $3.9 million for the fiscal year ended June 30, 2026.
A summary of operating, investing, and financing cash flow is shown in the following table:
|
|
For the years ended June 30, |
|
|||||
(in thousands) |
|
2026 |
|
|
2025 |
|
||
Net cash provided by operating activities |
|
$ |
51,517 |
|
|
$ |
36,979 |
|
Net cash (used in) provided by investing activities |
|
|
(3,920 |
) |
|
|
9,432 |
|
Net cash (used in) financing activities |
|
|
(70,925 |
) |
|
|
(11,166 |
) |
(Decrease) increase in cash and cash equivalents |
|
$ |
(23,328 |
) |
|
$ |
35,245 |
|
Net cash provided by operating activities
For the year ended June 30, 2026, cash provided by operating activities was $51.5 million, which primarily consisted of net income of $33.1 million, adjusted for non-cash items including stock-based compensation of $4.6 million, deferred income taxes of $4.5 million, depreciation of $3.8 million and provision for credit losses of $0.2 million. Net cash provided by operating assets and liabilities was $5.3 million and was primarily due to an increase in accounts payable of $10.9 million due to timing of inventory purchases, a decrease in other assets of $3.5 million primarily driven by collections of VAT receivables, partially offset by an increase in trade receivables of $7.6 million due to timing of shipments and an increase in inventories of $1.5 million.
For the year ended June 30, 2025, cash provided by operating activities was $37.0 million, which primarily consisted of net income of $20.2 million, adjusted for non-cash items including an impairment of our Mexicali facility right-of-use asset of $14.1 million, stock-based compensation expense of $3.9 million, and depreciation expense of $3.7 million, offset by gain on disposition of property, plant and equipment of $9.5 million, $3.8 million in deferred income tax benefit, and accounts receivable allowance benefit of $0.2 million. Net cash provided by operating assets and liabilities was $8.7 million and was primarily due to a decrease in trade receivables of $9.3 million and a decrease in inventory of $7.4 million due to inventory optimization initiatives, offset by an increase in other assets of $7.6 million primarily related to our receivable for recoverable VAT paid in Mexico.
Net cash (used in) provided by investing activities
For the year ended June 30, 2026, net cash used in investing activities was $3.9 million, due to capital expenditures.
For the year ended June 30, 2025, net cash provided by investing activities was $9.4 million, primarily due to proceeds of $11.6 million from the sales of property, plant and equipment, and corporate owned life insurance proceeds of $1.2 million, offset by capital expenditures of $3.3 million.
Net cash (used in) financing activities
For the year ended June 30, 2026, net cash used in financing activities was $70.9 million, primarily due to common stock repurchases of $63.7 million, dividends paid of $4.4 million and $2.8 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.
For the year ended June 30, 2025, net cash used in financing activities was $11.2 million, primarily due to proceeds from lines of credit of $202.3 million, offset by payments on lines of credit of $207.3 million, dividends paid of $3.6 million, and $2.8 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.
Financing Arrangements
15
Line of Credit
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 Credit 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 Company, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.
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 4.98% on June 30, 2026.
On June 3, 2025, the Company, 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 included dollar figures derived from the maximum revolver amount. The Company initiated the amendment to better align with current and projected borrowing availability under the Credit Agreement.
As of June 30, 2026, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding at the Lender as of June 30, 2026, totaled $0.9 million.
Subsequent to fiscal year end, on August 18, 2026 the Company, as the borrower, entered into a new $30.0 million secured revolving credit facility that replaces the Credit Agreement. The new facility reduces the Company's maximum borrowing capacity from $55.0 million to $30.0 million but extends availability with a new maturity date of August 18, 2029 and is expected to better align with current needs and adequately support the Company’s anticipated future requirements for working capital and general corporate purposes.
See Note 9, Credit Arrangements, of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
Contractual Obligations
The following table summarizes our contractual obligations on June 30, 2026, and the effect these obligations are expected to have on our liquidity and cash flow in the future (in thousands):
|
|
|
|
|
|
|
|
2-3 |
|
|
4-5 |
|
|
More than |
|
|||||
|
|
Total |
|
|
1 Year |
|
|
Years |
|
|
Years |
|
|
5 Years |
|
|||||
Operating lease obligations |
|
$ |
58,342 |
|
|
$ |
10,255 |
|
|
$ |
18,974 |
|
|
$ |
15,798 |
|
|
$ |
13,315 |
|
Warehouse management obligation |
|
|
1,735 |
|
|
|
1,388 |
|
|
|
347 |
|
|
|
— |
|
|
|
— |
|
Outlook
Our focus for fiscal year 2027 will be to continue to operate with agility, maintain disciplined cost control, protect our financial position, and invest in the capabilities that we believe will drive long-term growth and shareholder value creation.
Critical Accounting Policies
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
16
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. The allowance 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.
Inventories – We value inventory at the lower of cost or net realizable value. Cost of manufactured inventory includes materials, labor and overhead. In addition, finished goods inventory includes capitalized freight, import duties, and warehousing costs. Our inventory valuation reflects markdowns for the excess of the cost over the amount expected to be realized and considers obsolete and excess inventory. Markdowns establish a new cost basis for the Company’s inventory. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis.
Valuation of Long-Lived Assets – We periodically review the carrying value of long-lived assets and estimated depreciable or amortizable lives for continued appropriateness. This review is based upon projections of anticipated future cash flows and is performed whenever events or changes in circumstances indicate that asset carrying values may not be recoverable or that the estimated depreciable or amortizable lives may have changed. For long-lived assets, including right-of-use lease assets, if the net book value of the asset is greater than its estimated fair value less cost to sell, an impairment is recorded for the excess of net book value over estimated fair value less cost to sell. We recorded $14.1 million of impairments in the fiscal year 2025 related to our Mexicali facility lease right-of-use asset. See Note 2, Leases, for the Company’s lease disclosures. No impairments were recorded in fiscal years 2026 and 2024.
Income Taxes - In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years, and our forecast of future taxable income. In estimating future taxable income, we develop assumptions including the amount of future pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.
At June 30, 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 10, Income Taxes, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.
Item 7A. 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, as well as 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, taxes or tariffs on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Any of these factors could interrupt supply, increase costs, decrease demand, and decrease earnings.
Foreign Currency Risk – During fiscal years 2026, 2025, and 2024, the Company did not have sales but had purchases and other expenses denominated in foreign currencies, primarily the Mexican peso. The wages of our employees and certain other employee benefits and indirect costs related to our operations in Mexico are made in pesos and subject to foreign currency fluctuation with the U.S. dollar. The Company does not employ any foreign currency hedges against this operating expense exposure. A negative shift in the value of the U.S. dollar against the peso could increase the cost of our manufactured product. In addition, the Company has certain asset 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 peso against the U.S. dollar could result in the value of our receivable decreasing which may impact our earnings. During the third quarter of fiscal year 2025, we utilized a derivative instrument to reduce our exposure to foreign currency risk from changes in the peso’s exchange rate for this exposure. This instrument expired on March 31, 2025, without being utilized and the Company does not currently hedge foreign currency risk. See “Risk Factors” in Item 1A in this Annual Report on Form 10-K for further discussion.
17
Interest Rate Risk – The Company’s primary market risk exposure regarding financial instruments is changes in interest rates. On June 30, 2026, the Company had no outstanding balance on its line of credit.
18
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Flexsteel Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Flexsteel Industries, Inc. and subsidiaries (the "Company") as of June 30, 2026 and June 30, 2025, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended June 30, 2026, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2026 and June 30, 2025, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2026, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2026, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 19, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Inventories — Refer to Notes 1 and 3 to the financial statements
Critical Audit Matter Description
The Company has inventories of $90.6 million as of June 30, 2026. The Company records inventories at the lower of cost or net realizable value utilizing the first-in, first-out (“FIFO”) method. The Company’s inventory valuation reflects markdowns for the excess of the cost over the amount expected to be realized. Markdowns establish a new cost basis for the Company’s inventories. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis.
Given the quantitative and qualitative materiality of the balance, coupled with the judgments and subjectivity involved to estimate the markdowns to the net realizable value of inventories, auditing management's estimates of net realizable value required subjective auditor judgment.
20
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to estimated net realizable value of inventories included the following, among others:
/s/
August 19, 2026
We have served as the Company’s auditor since 1965.
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Flexsteel Industries, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Flexsteel Industries, Inc. and subsidiaries (the "Company") as of June 30, 2026, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2026, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2026, of the Company and our report dated August 19, 2026, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Minneapolis, MN
August 19, 2026
22
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands)
|
|
June 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
ASSETS |
|
|
|
|
|
|
||
CURRENT ASSETS: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Trade receivables - less allowances: June 30, 2026, $ |
|
|
|
|
|
|
||
Inventories |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
NONCURRENT ASSETS: |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
TOTAL |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
||
CURRENT LIABILITIES: |
|
|
|
|
|
|
||
Accounts payable - trade |
|
$ |
|
|
$ |
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
|
||
Accrued liabilities: |
|
|
|
|
|
|
||
Payroll and related items |
|
|
|
|
|
|
||
Insurance |
|
|
|
|
|
|
||
Sales and advertising related items |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
||
Operating lease liabilities, less current maturities |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
(Note 14) |
|
|
|
|
|
|
||
SHAREHOLDERS' EQUITY: |
|
|
|
|
|
|
||
Common stock - $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Treasury stock, at cost; |
|
|
( |
) |
|
|
( |
) |
Retained earnings |
|
|
|
|
|
|
||
Total shareholders' equity |
|
|
|
|
|
|
||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
|
$ |
|
|
$ |
|
||
See accompanying Notes to Consolidated Financial Statements.
23
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income AND COMPREHENSIVE INCOME
(Amounts in thousands, except per share data)
|
|
For the years ended June 30, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cost of goods sold |
|
|
|
|
|
|
|
|
|
|||
Gross profit |
|
|
|
|
|
|
|
|
|
|||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|||
Restructuring expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
Right-of-use asset impairment |
|
|
— |
|
|
|
|
|
|
— |
|
|
(Gain) on sale of real estate |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
(Gain) on disposal of assets held for sale |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Operating income |
|
|
|
|
|
|
|
|
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
|
|
|
|
|
|
|
|||
Interest (expense) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|||
Income tax provision |
|
|
|
|
|
|
|
|
|
|||
Net income and comprehensive income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
|
|
|
|
|
|
|
|
|||
Diluted |
|
|
|
|
|
|
|
|
|
|||
Earnings per share of common stock |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|||
24
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(Amounts in thousands)
|
|
Total Par |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Common |
|
|
|
|
|
Treasury |
|
|
Retained |
|
|
|
|
|||||
|
|
Shares ($ |
|
|
Capital |
|
|
Stock |
|
|
Earnings |
|
|
Total |
|
|||||
Balance at June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Vesting of restricted stock units |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock options exercised, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Treasury stock purchases |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Cash dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at June 30, 2024 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Vesting of restricted stock units |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock options exercised, net |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Cash dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at June 30, 2025 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Vesting of restricted stock units |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock options exercised, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Treasury stock purchases |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Cash dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at June 30, 2026 |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Cash dividends declared per common share were $
See accompanying Notes to Consolidated Financial Statements.
25
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
For the years ended June 30, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|||
Depreciation |
|
|
|
|
|
|
|
|
|
|||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|||
Provision for credit losses |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Right-of-use asset impairment |
|
|
— |
|
|
|
|
|
|
— |
|
|
Loss (gain) on disposition of property, plant and equipment |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|||
Trade receivables |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Inventories |
|
|
( |
) |
|
|
|
|
|
|
||
Other current and non-current assets |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Accounts payable - trade |
|
|
|
|
|
( |
) |
|
|
|
||
Accrued liabilities |
|
|
( |
) |
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
|
|
|
|||
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|||
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|||
Proceeds from sale of investments |
|
|
— |
|
|
|
|
|
|
— |
|
|
Proceeds from sales of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|||
Dividends paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Treasury stock purchases |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Proceeds from lines of credit |
|
|
|
|
|
|
|
|
|
|||
Payments on lines of credit |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
|
|
|
|||
Shares withheld for tax payments on vested shares and options exercised |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
(Decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents at end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
|
|
|
|||
Interest paid |
|
|
|
|
|
|
|
|
|
|||
Interest received |
|
|
|
|
|
|
|
|
— |
|
||
Cash paid for income taxes, net |
|
|
|
|
|
|
|
|
|
|||
Capital expenditures in accounts payable |
|
|
|
|
|
|
|
|
|
|||
See accompanying Notes to Consolidated Financial Statements.
26
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries (the “Company,” “Flexsteel,” or “Our”) is one of the largest residential furniture manufacturers, importers, and marketers in the U.S. Flexsteel addresses different consumer groups through our core brand, Flexsteel, and several category-specific sub-brands: Zecliner, Statements, Zen, Perfect Match, and Pulse, all of which have unique value propositions tailored to specific consumer needs. We offer a wide assortment of product solutions for different areas within the home including stationary and motion sofas, loveseats, chairs, and sectionals, as well as bedroom furniture, dining tables and chairs, occasional and entertainment tables, and kitchen storage. For more than 130 years, Flexsteel has strived to create strong consumer value with unmatched quality, comfort, and durability, backed by innovation and highlighted by its patented Blue Steel Spring technology, designed to deliver lasting comfort and support. Today, Flexsteel products are available nationwide through retail partners and online channels.
PRINCIPLES OF CONSOLIDATION – The consolidated financial statements include the accounts of Flexsteel Industries, Inc. and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The Company’s consolidated financial statements and results of operations are based on consolidated financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America.
USE OF ESTIMATES – The preparation of consolidated financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Ultimate results could differ from those estimates.
FAIR VALUE – The Company’s cash and cash equivalents, investments, accounts receivable, other current assets, accounts payable and certain accrued liabilities are carried at amounts that approximate their fair value due to their short-term nature. Under GAAP, financial assets and liabilities measured at fair value are classified into one of three levels based on the inputs used in the valuation:: 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.
ALLOWANCE FOR CREDIT LOSSES – The Company establishes an allowance for credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value. The Company’s allowance for credit losses is established through 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.
INVENTORIES – Inventories are stated at the lower of cost or net realizable value utilizing the first‑in - first‑out (“FIFO”) method. Cost of manufactured inventory includes materials, freight, import duties and tariffs, labor and overhead. In addition, sourced finished goods inventory includes the purchase price of the product and capitalized freight, import duties and tariffs, and warehousing costs. Our inventory valuation reflects markdowns for the excess of the cost over the amount expected to be realized and considers obsolete and excess inventory. Markdowns establish a new cost basis for the Company’s inventory. Subsequent changes in facts or circumstances do not result in the reversal of previously recorded markdowns or an increase in that newly established cost basis.
PROPERTY, PLANT AND EQUIPMENT – Property, plant and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets.
VALUATION OF LONG–LIVED ASSETS – The Company periodically reviews the carrying value of long-lived assets and estimated depreciable or amortizable lives for continued appropriateness. This review is based upon projections of anticipated future cash flows and is performed whenever events or changes in circumstances indicate that asset carrying values may not be recoverable or that the estimated depreciable or amortizable lives may have changed. For long-lived assets, including right-of-use lease assets, if the net book value of the asset is greater than its estimated fair value less cost to sell, an impairment is recorded for the excess of net book value over estimated fair value less cost to sell.
ASSETS HELD FOR SALE – Assets held for sale represent land, buildings, machinery and equipment for locations that have met the criteria of “held for sale” accounting, as specified by Accounting Standards Codification (“ASC”) 360, “Property, Plant, and Equipment.” Once an asset is classified as held for sale, the Company ceases depreciating the asset. The assets held for sale are being marketed for sale and it is the Company’s intention to complete the sale of the assets within the upcoming year.
27
LEASES – The Company accounts for its leases in accordance with ASC 842, Leases. ASC 842 requires lessees to (i) recognize a right-of-use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments, on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease-related cash payments within operating and financing activities. The Company made an accounting policy election to not recognize short-term leases on the Consolidated Balance Sheets and all non-lease components, such as common area maintenance, were excluded. See Note 2, Leases, for the Company’s lease disclosures.
WARRANTY – The Company estimates the amount of warranty claims on sold product that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance.
REVENUE RECOGNITION – Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We generate revenue primarily by manufacturing and delivering furniture products to independent furniture retailers in the United States. Each unit of furniture is a separate performance obligation. We satisfy our performance obligations when control of our product is passed to our customer, which is the point in time that our customers are able to direct the use of and obtain substantially all of the remaining economic benefit of the goods or services. Net sales consist of product sales and outbound shipping and handling charges for customer deliveries, net of adjustments for returns and allowances. Shipping and handling costs are included in cost of goods sold.
The Company’s revenues result from the sale of goods and reflect the consideration to which the Company expects to be entitled. Revenue is reduced by appropriate allowances, estimated returns, price concessions, or similar adjustments as applicable. The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers. 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 considerations and are recorded as a reduction of revenue in the same period the related sales are recorded. Such provisions are calculated based upon historical data and discount percentages, set with each customer. 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. The Company had $
The Company follows the following practical expedients and policy elections:
ADVERTISING COSTS – are charged to selling, general and administrative expenses in the periods incurred. The Company conducts no direct-response advertising programs and there are no assets related to advertising recorded on the consolidated balance sheets. Advertising expenditures, primarily shared customer advertising in which an identifiable benefit is received and national trade-advertising programs, were approximately $
28
DESIGN, RESEARCH, AND DEVELOPMENT COSTS – are charged to selling, general and administrative expenses in the periods incurred. Expenditures for design, research, and development costs were approximately $
INSURANCE – The Company is self-insured for health care and most workers’ compensation up to predetermined amounts above which third-party insurance applies. The Company purchases specific stop-loss insurance for individual health care claims in excess of $
INCOME TAXES – The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes in its financial statements the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
EARNINGS PER SHARE (EPS) – Basic EPS of common stock is based on the weighted-average number of common shares outstanding during each fiscal year. Diluted EPS of common stock includes 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 and non-vested restricted shares. The Company calculates the dilutive effect of outstanding options using the treasury stock method; all options are anti-dilutive when there is a loss. Anti-dilutive shares are not included in the computation of diluted EPS when their exercise price was 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 year were the end of the contingency period.
|
|
June 30, |
|
|||||||||
(in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Basic shares |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Potential common shares: |
|
|
|
|
|
|
|
|
|
|||
Stock options |
|
|
|
|
|
|
|
|
|
|||
Long-term incentive plan |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Diluted shares |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Anti-dilutive shares |
|
|
|
|
|
|
|
|
|
|||
STOCK–BASED COMPENSATION – The Company recognizes compensation expense related to the cost of employee services received in exchange for Company equity interests based on the award’s fair value at the date of grant. The Company recognizes long-term incentive compensation plan expenses during the three-year performance periods; stock awards are issued following the end of the performance periods and are subject to verification of results and the Compensation Committee of the Board of Directors approval. See Note 11, Stock-Based Compensation.
SEGMENT REPORTING – The Company operates as
TREASURY STOCK – Treasury stock purchases are stated at cost and presented as a reduction of equity on the consolidated balance sheets. As of June 30, 2026, the Company has purchased a total of
RECENT ACCOUNTING STANDARDS PENDING ADOPTION – In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disclosure in the notes to the financial statements of specified information about certain costs and
29
expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the disclosure impacts of this ASU on its consolidated financial statements.
RECENTLY ADOPTED ACCOUNTING STANDARDS – In December 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Improvements to Income Tax Disclosures. The amendments in this ASU are intended to increase transparency through enhanced income tax disclosures, primarily related to the rate reconciliation and income taxes paid. The Company adopted this guidance effective as of the end of fiscal 2026. The adoption affected the Company's income tax disclosures but did not have an impact on its financial position, results of operations, or cash flows. See Note 10, Income Taxes, for additional information.
2. LEASES
The Company accounts for its leases in accordance with ASU 842, Leases. ASC 842 requires lessees to (i) recognize a right-of-use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease-related cash payments within operating and financing activities. The Company made an accounting policy election to not recognize short-term leases on the Consolidated Balance Sheets and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs, the remaining balance of lease incentives received, and any impairment. Both the lease ROU asset and lease liability are reduced to zero at the end of the lease term.
The Company leases distribution centers and warehouses, manufacturing facilities, showrooms, and office space. At the lease inception date, the Company determines if an arrangement is, or contains, a lease. Some of the Company’s leases include options to renew at similar terms. The Company assesses these options to determine if the Company is reasonably certain of exercising these options based on relevant economic and financial factors. Options that meet these criteria are included in the lease term at the lease commencement date.
For purposes of measuring the Company’s ROU asset and lease liability, the discount rate utilized by the Company was based on the average interest rates effective for the Company’s line of credit. Some of the Company’s leases contain variable rent payments, including common area maintenance and utilities. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.
In July 2022, Flexsteel commenced a
For the year ended June 30, 2026, the Company evaluated the triggering events described in ASC 360-10-35-21 and considered current operating, market, legal and economic conditions. Based on this evaluation, management concluded that no new events or changes in circumstances occurred during the year that would indicate the carrying amount of the Mexicali ROU asset may not be recoverable. Accordingly, management determined that an additional recoverability test under ASC 360 was not required. The remaining carrying value of the Mexicali ROU asset, after reflecting normal current-year lease accounting activity, lease was $
The components of the Company’s leases reflected on the Company’s consolidated statements of income were as follows:
(in thousands) |
|
June 30, 2026 |
|
|
June 30, 2025 |
|
||
Operating lease expense |
|
$ |
|
|
$ |
|
||
Variable lease expense |
|
|
|
|
|
|
||
Total lease expense |
|
$ |
|
|
$ |
|
||
30
Other information related to leases and future minimum lease payments under non-cancellable operating leases were as follows:
Fiscal year |
|
June 30, 2026 |
|
|
June 30, 2025 |
|
||
(in thousands) |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Cash received from subleasing of operating lease: |
|
|
|
|
|
|
||
Operating cash flows received from subleasing of operating lease |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
||
Operating leases |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted-average remaining lease term (in years): |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted-average discount rate: |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
|
|
|
|
|
|
|
||
Fiscal year |
|
|
|
|
June 30, 2026 |
|
||
(in thousands) |
|
|
|
|
|
|
||
Payments in FY2027 |
|
|
|
|
$ |
|
||
FY2028 |
|
|
|
|
|
|
||
FY2029 |
|
|
|
|
|
|
||
FY2030 |
|
|
|
|
|
|
||
FY2031 |
|
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
|
||
Total future minimum lease payments |
|
|
|
|
$ |
|
||
Less imputed interest |
|
|
|
|
|
|
||
Lease liability |
|
|
|
|
$ |
|
||
3. INVENTORIES
A comparison of inventories is as follows:
|
|
June 30, |
|
|||||
(in thousands) |
|
2026 |
|
|
2025 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process and finished parts |
|
$ |
|
|
|
|
||
Finished goods |
|
$ |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
31
4. PROPERTY, PLANT AND EQUIPMENT
A comparison of property, plant and equipment is as follows:
|
|
Estimated |
|
June 30, |
|
|||||
(in thousands) |
|
Life (Years) |
|
2026 |
|
|
2025 |
|
||
Land |
|
|
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
|
|||
Machinery and equipment |
|
|
|
|
|
|
|
|||
Delivery equipment |
|
|
|
|
|
|
|
|||
Furniture and fixtures |
|
|
|
|
|
|
|
|||
Computer software and hardware |
|
|
|
|
|
|
|
|||
Construction in progress |
|
|
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
Net |
|
|
|
$ |
|
|
$ |
|
||
The Company recognized impairment charges of $
5. RESTRUCTURING
Manufacturing Network Optimization
On February 5, 2024, the Company announced its plan to close its Dublin, Georgia manufacturing facility. The closure was completed in the fourth quarter of fiscal year 2024. As a result of the closure the Company incurred cumulative restructuring expense and related costs of $
The following is a summary of restructuring costs:
|
|
For the years ended June 30, |
|
|||||||||
(in thousands) |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
One-time employee termination benefits |
|
|
— |
|
|
|
— |
|
|
|
|
|
Fixed asset impairments |
|
|
— |
|
|
|
— |
|
|
|
|
|
Other associated costs |
|
|
— |
|
|
|
— |
|
|
|
|
|
Total restructuring and related expenses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
Reported as: |
|
|
|
|
|
|
|
|
|
|||
Operating expenses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
One-time employee termination benefits include costs for employee separation benefits.
During the year ended June 30, 2024, the Company recorded one-time employee termination benefits, fixed asset impairment charges and other associated costs related to the Dublin closure. Other associated costs include legal and professional fees, inventory and equipment transfer costs, and other transition costs.
All expenses related to the manufacturing network optimization restructuring plan were incurred and paid during the year ended June 30, 2024.
6. ASSETS HELD FOR SALE
During fiscal year 2024, the Company committed to a restructuring plan to sell the Company's Dublin, Georgia location. As of December 31, 2024, the Company completed the sale and received proceeds of $
During the quarter ended March 31, 2025, the Company completed the sale of an ancillary building which was formerly part of the Company's Huntingburg, Indiana distribution center complex. The Company received proceeds of $
During fiscal year 2025, the Company committed to a plan to sell a second ancillary building at the Huntingburg, Indiana distribution center complex. This property was recorded as held for sale at the quarter ended March 31, 2025, and the Company completed the sale during the quarter ended June 30, 2025. The Company received proceeds of $
32
There are
7. OTHER NONCURRENT ASSETS
|
|
|
|
|
|
|
||
|
|
June 30, |
|
|||||
(in thousands) |
|
2026 |
|
|
2025 |
|
||
VAT receivable |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
8. ACCRUED LIABILITIES – OTHER
|
|
June 30, |
|
|||||
(in thousands) |
|
2026 |
|
|
2025 |
|
||
Dividends |
|
$ |
|
|
$ |
|
||
Warranty |
|
|
|
|
|
|
||
Income taxes |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
9. CREDIT ARRANGEMENTS
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
On April 18, 2022, the Company, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.
Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus
On June 3, 2025, the Company 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 $
As of June 30, 2026, there were
Letters of credit outstanding at the Lender as of June 30, 2026, totaled $
10. INCOME TAXES
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.
33
The One Big Beautiful Bill Act (“OBBBA”), enacted into law on July 4, 2025, introduced significant changes to the U.S. federal income tax laws. The OBBBA made permanent certain expiring provisions of the Tax Cuts and Job Act of 2017 (TCJA) and modified other provisions of the TCJA, as well as the Inflation Reduction Act of 2022 (the “IRA”). These changes included the permanent extension of 100% “bonus” depreciation for certain property, the permanent restoration of the tax-basis EBITDA-based limitation on the deductibility of business interest expense subject to certain modifications to the computation of tax-basis EBITDA, and the immediate expensing of qualified domestic research and development expenses. The OBBBA contained various effective dates with certain provisions becoming effective in 2025 and others in 2026 and beyond. The Company has reflected the impact of the OBBBA on current and deferred income taxes in its Consolidated Balance Sheets and Consolidated Statements of Income and Comprehensive Income.
Income tax expense was calculated based upon the following components of income (loss) before income taxes for the years ended June 30:
(in thousands) |
|
2026 |
|
|
|
2025 |
|
|
|
2024 |
|
|||
United States |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|||
Income before income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||
The income tax provision is as follows for the years ended June 30:
(in thousands) |
|
2026 |
|
|
|
2025 |
|
|
|
2024 |
|
|||
Current |
|
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||
State |
|
|
|
|
|
|
|
|
|
|
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
State |
|
|
|
|
|
|
( |
) |
|
|
|
|
||
Foreign |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||
Reconciliation between the U.S. federal statutory tax rate and the effective tax rate in accordance with the guidance in ASU 2023-09 is as follows for the years ended June 30, 2026:
|
|
June 30, 2026 |
|
|
||||||
(in thousands) |
|
Amount |
|
|
|
Rate |
|
|
||
Federal statutory tax rate |
|
$ |
|
|
|
|
|
% |
||
State and local income taxes, net of federal income tax effect* |
|
|
|
|
|
|
|
|
||
Foreign tax effects |
|
|
|
|
|
|
|
|
||
Effect of cross border tax laws |
|
|
|
|
|
|
|
|
||
Tax credits |
|
|
( |
) |
|
|
|
( |
) |
|
Nontaxable or nondeductible items: |
|
|
|
|
|
|
|
|
||
Executive compensation limitation |
|
|
|
|
|
|
|
|
||
Stock compensation |
|
|
( |
) |
|
|
|
( |
) |
|
Other |
|
|
|
|
|
|
|
|
||
Changes in uncertain tax positions |
|
|
|
|
|
|
|
|
||
Other adjustments |
|
|
( |
) |
|
|
|
( |
) |
|
Total |
|
$ |
|
|
|
|
|
% |
||
*State taxes in Indiana, Pennsylvania, California and Illinois made up the majority of the tax effect in this category.
34
Reconciliation between the U.S. federal statutory tax rate and the effective tax rate in accordance with the guidance prior to the adoption of ASU 2023-09 for the years ended June 30:
|
|
2025 |
|
2024 |
||||||
Federal statutory tax rate |
|
|
|
% |
|
|
|
% |
||
State taxes, net of federal effect |
|
|
|
|
|
|
|
|
||
Foreign rate differential |
|
|
|
|
|
|
|
|
||
Uncertain tax positions |
|
|
|
|
|
|
|
|
||
Stock based compensation |
|
|
( |
) |
|
|
|
( |
) |
|
Executive compensation limitation |
|
|
|
|
|
|
|
|
||
Foreign adjustments |
|
|
( |
) |
|
|
|
|
|
|
Expired state credits |
|
|
- |
|
|
|
|
|
|
|
Research and development credit |
|
|
( |
) |
|
|
|
( |
) |
|
Remeasurement of deferred tax assets and valuation |
|
|
( |
) |
|
|
|
|
|
|
State rate change and other state items |
|
|
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
|
|
||
Effective tax rate |
|
|
|
% |
|
|
|
% |
||
A reconciliation of income taxes paid (net of refunds received) by jurisdiction is as follows:
(in thousands) |
|
2026 |
|
|
U.S. federal |
|
$ |
|
|
U.S. state and local: |
|
|
|
|
Kansas |
|
|
|
|
Other |
|
|
|
|
Total U.S. state and local |
|
|
|
|
Foreign: |
|
|
|
|
Mexico |
|
|
|
|
Other |
|
|
— |
|
Total foreign |
|
|
|
|
Total income taxes paid (net of refunds received) |
|
$ |
|
|
The components of the gross liabilities related to unrecognized tax benefits and the related deferred tax assets are as follows:
|
|
June 30, |
|
|||||
(in thousands) |
|
2026 |
|
|
2025 |
|
||
Gross unrecognized tax benefits |
|
$ |
|
|
$ |
|
||
Accrued interest and penalties |
|
|
|
|
|
|
||
Gross liabilities related to unrecognized tax benefits |
|
$ |
|
|
$ |
|
||
Deferred tax assets |
|
|
|
|
|
|
||
Valuation allowance |
|
|
— |
|
|
|
— |
|
Net deferred tax assets |
|
$ |
|
|
$ |
|
||
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands) |
|
2026 |
|
|
|
2025 |
|
|
|
2024 |
|
|||
Balance at July 1 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||
Reductions for tax positions of the prior year |
|
|
( |
) |
|
|
|
— |
|
|
|
|
— |
|
Additions based on tax positions related to the current year |
|
|
|
|
|
|
|
|
|
|
|
|||
Lapse of statute of limitations |
|
|
— |
|
|
|
|
( |
) |
|
|
|
— |
|
Addition for tax positions of the prior year |
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
Balance at June 30 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|||
The Company records interest expense and penalties related to income taxes as income tax expense in the Consolidated Statements of Income and Comprehensive Income. The Company does not expect that there will be any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next twelve months. The amount of
35
unrecognized tax benefits as of June 30, 2026, and 2025 that if recognized, would affect the effective tax rate was $
The primary components of deferred tax assets and (liabilities) are as follows:
|
|
June 30, |
|
|||||
(in thousands) |
|
2026 |
|
|
2025 |
|
||
Accounts receivable |
|
$ |
|
|
$ |
|
||
Inventory |
|
|
|
|
|
|
||
Self-insurance |
|
|
|
|
|
|
||
Payroll and related |
|
|
|
|
|
|
||
Accrued liabilities |
|
|
|
|
|
|
||
Property, plant, and equipment |
|
|
( |
) |
|
|
|
|
Investment tax credit |
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Net operating loss carryover |
|
|
|
|
|
|
||
Lease assets |
|
|
( |
) |
|
|
( |
) |
Lease liabilities |
|
|
|
|
|
|
||
Research and development expenditure |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
On June 30, 2026, certain state tax attribute carryforwards of $
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally, fiscal years 2022 through 2026 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which the Company is subject.
11. 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
Total stock-based compensation expense was $
The Company’s shareholders approved the Flexsteel Industries, Inc. 2022 Equity Incentive Plan (“2022 Plan”) on December 14, 2022 and approved amendments to the 2022 Plan on December 10, 2025.
The 2022 Plan replaced the Long-Term Incentive Compensation Plan (“LTIP”) and the 2013 Omnibus Stock Plan (collectively, the “Prior Plans”). No further awards will be made under either of the Prior Plans, but these Prior Plans will continue to govern awards previously granted under them.
The 2022 Plan is a long-term incentive plan pursuant to which awards may be granted to certain employees, independent contractors and directors of the Company, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other stock-based awards. For periods beginning on or after July 1, 2023, restricted stock units ("RSUs") and performance stock units ("PSUs") granted to officers and key employees as part of long-term compensation programs are issued from the 2022 Plan. RSUs and PSUs awarded from the 2022 Plan are included in the Long-Term Incentive Compensation or Restricted Share and RSUs tables below.
36
The LTIP provides for PSUs to be awarded to officers and key employees based on performance goals set by the Compensation Committee of the Board of Directors (the “Committee”). In conjunction with each grant of PSUs, the Committee granted RSUs under the 2013 Omnibus Stock Plan that vested at the end of
The 2013 Omnibus Stock Plan was 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.
Long-Term Incentive Compensation
The table below sets forth, as of June 30, 2026, the number of unvested PSUs granted at the target performance level for the 2024-2026, 2025-2027, and 2026-2028 performance periods under the 2022 Plan and the number of unvested RSUs granted in conjunction with the PSUs.
|
|
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 of June 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Unvested as of June 30, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Unvested as of June 30, 2026 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||||
Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs was $
Restricted Shares and RSUs
A summary of the activity in the Company’s unvested restricted shares and unvested RSUs, not granted in conjunction with PSUs, as of June 30, 2026, is presented below:
|
|
|
|
|
Weighted average |
|
||
|
|
Shares |
|
|
fair value |
|
||
|
|
(in thousands) |
|
|
per share |
|
||
Unvested as of June 30, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
— |
|
|
|
|
|
Unvested as of June 30, 2025 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Unvested as of June 30, 2026 |
|
|
|
|
$ |
|
||
Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) was $
37
Options
At June 30, 2026, the Company had
Stock-based compensation granted outside a plan
During the quarter ended June 30, 2020, the Company awarded its former Chief Financial Officer/Chief Operating Officer (current Chief Executive Officer)
12. SEGMENT INFORMATION
As disclosed in Note 1, Summary of Significant Accounting Policies, the Company operates as a operating segment and reportable segment reflecting the integrated nature of its operations across various products, manufacturing platforms and sales channels across the entire United States.
The Company's chief operating decision maker (“CODM”) is its , who has final authority over the allocation of resources, assessment of performance, and key operating decisions.
The Company has minimal export sales, primarily to Canada or Mexico. The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico. Long-lived assets, including property, plant and equipment and right-of-use assets related to leases, located in the United States and Mexico totaled $
13. BENEFIT AND RETIREMENT PLANS
Defined Contribution and Retirement Plans
The Company sponsors a defined contribution retirement plan, which covers substantially all employees. The Company’s total matching contribution expense was $
Multi-employer Pension Plans
The Company contributes to
The Company’s participation in the current and previous defined benefit pension plans for the fiscal year ended June 30, 2026, is outlined in the following table. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2026 and 2025 is for the plan’s year-end on December 31, 2025, and 2024, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than
|
|
|
|
Pension Protection |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration Date |
|
Number of |
|
||||||
|
|
|
|
Act Zone Status |
|
|
|
Company Contributions |
|
|
|
|
of Collective |
|
Company |
|
||||||||||||
|
|
EIN/Pension |
|
June 30, |
|
Rehabilitation |
|
(in thousands) |
|
|
Surcharge |
|
Bargaining |
|
Employees |
|
||||||||||||
Pension Fund |
|
Plan Number |
|
2026 |
|
2025 |
|
Plan Status |
|
2026 |
|
|
2025 |
|
|
2024 |
|
|
Imposed |
|
Agreement |
|
in Plan |
|
||||
Central States SE and |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
||||
38
14. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company does not consider any of such other proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material effect on its consolidated operating results, financial condition, or cash flows.
15. SUBSEQUENT EVENTS
Subsequent to fiscal year end, on August 18, 2026 the Company, as the borrower, entered into a new $
16. RELATED PARTY TRANSACTIONS
On April 26, 2026, the Company entered a privately negotiated transaction to repurchase shares of its common stock from a member of the Company's Board of Directors and certain members of the director's immediate family. The aggregate purchase price was $
39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures – Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, the Company’s chief executive officer and chief financial officer have concluded that 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 June 30, 2026.
Management’s Annual Report on Internal Control Over Financial Reporting – Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company performed an evaluation under the supervision and with the participation of its management, including the CEO and CFO, to assess the effectiveness of the design and operation of its disclosure controls and procedures under the Exchange Act as of June 30, 2026. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on those criteria, management concluded that the internal control over financial reporting is effective as of June 30, 2026.
The effectiveness of the Company’s internal control over financial reporting as of June 30, 2026, has been audited by Deloitte & Touche LLP, the Company’s independent registered public accounting firm, as stated in their report in Part II, Item 8 of this Form 10-K.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2026, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Rule 10b5-1 Trading Plans
During the quarter ended June 30, 2026, no director or officer of the Company
Benefit Plan Amendments
Effective August 19, 2025, the Company amended its “Cash Incentive Plan,” “Cash Incentive Notification of Award,” and “Severance Plan for Management Employees” to align plan terms with current peer and market practices and improve administrative consistency. Revisions include the removal of outdated tax code references and the alignment of key definitions such as “retirement,” “change in control,” “termination for cause”, “disability”, and “good reason” across benefit plans. Amendments to the “Severance Plan for Management Employees” also include an increase to the change of control protection period to 24 months after termination and an increase to the chief executive officer severance benefits to twice the severance benefits of other eligible employees. The amended “Cash Incentive Plan,” “Cash Incentive Notification of Award,” and “Severance Plan for Management Employees” have been attached to this Form 10-K as Exhibits 10.1, 10.2 and 10.11, respectively.
New Line of Credit Agreement
On August 18, 2026, the Company, as borrower, entered into a Credit Agreement (the “New Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), providing for a secured revolving credit facility in an aggregate principal amount of up to $30.0 million (the “Credit Facility”). The New Credit Agreement replaces the Credit Agreement.
The Company intends to use borrowings under the Credit Facility for working capital and other general corporate purposes.
The Credit Facility matures on August 18, 2029. The Company may prepay outstanding borrowings under the Credit Facility, in whole or in part, at any time without premium or penalty, subject to the terms of the New Credit Agreement.
Amounts outstanding under the Credit Facility bear interest at a rate per annum equal to Daily Simple SOFR plus a margin of 1.25%. Interest is payable monthly in arrears on the first business day of each month. In connection with the New Credit Agreement, the Company paid the Lender a commitment fee of $125,000. The Company is also required to pay a commitment fee equal to 0.30% per
40
annum on the average daily unused portion of the Credit Facility and letter of credit fees at a rate equal to the then-effective applicable margin for advances under the New Credit Agreement multiplied by the aggregate amount of letters of credit outstanding.
The obligations of the Company under the Credit Facility are secured pursuant to a Security Agreement (the “Security Agreement”) entered into with the Lender, pursuant to which the Company granted the Lender a security interest in substantially all of the Company’s personal property assets, whether now owned or hereafter acquired, including accounts receivable, deposit accounts, inventory, equipment, general intangibles, software, licenses, payment rights and related proceeds thereof, but excluding the Company’s real property.
The New Credit Agreement contains customary affirmative and negative covenants, including covenants that, among other things, limit or restrict the Company’s ability to incur indebtedness, grant liens, make investments, loans and advances, provide guarantees, pay dividends, engage in mergers, consolidations and other fundamental changes, and enter into certain transactions. In addition, the New Credit Agreement requires the Company to maintain (i) an Asset Coverage Ratio of not less than 2.00 to 1.00, measured as of the last day of each fiscal quarter, and (ii) EBITDA of not less than $15.0 million, measured on a rolling four-quarter basis as of the end of each fiscal quarter.
The New Credit Agreement contains customary events of default, including, among others, the failure to pay principal, interest or other amounts when due, breaches of covenants, certain bankruptcy or insolvency events, material judgment defaults and certain change of control events. Upon the occurrence and continuation of an event of default, the Lender may terminate its commitments under the Credit Facility and declare all outstanding obligations immediately due and payable.
The foregoing description of the New Credit Agreement, the Security Agreement, the Revolving Line of Credit Note and the other loan documents does not purport to be complete and is qualified in its entirety by reference to the full text of such agreements, copies of which are filed as Exhibits 10.14 through 10.16 to this Annual Report on Form 10-K and incorporated herein by reference.
See Note 9 Credit Arrangements of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
41
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
In accordance with General Instruction G(3) to Form 10-K, the Company intends to file with the SEC the information required by this item not later than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 11. Executive Compensation
In accordance with General Instruction G(3) to Form 10-K, the Company intends to file with the SEC the information required by this item not later than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
In accordance with General Instruction G(3) to Form 10-K, the Company intends to file with the SEC the information required by this item not later than 120 days after the end of the fiscal year covered by this Form 10-K.
In accordance with General Instruction G(3) to Form 10-K, the Company intends to file with the SEC the information required by this item not later than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 14. Principal Accountant Fees and Services
In accordance with General Instruction G(3) to Form 10-K, the Company intends to file with the SEC the information required by this item not later than 120 days after the end of the fiscal year covered by this Form 10-K.
42
PART IV
Item 15. Exhibits, Financial Statements and Schedules
Financial Statements and Financial Statement Schedules
See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K. Schedule II is included in Part II, Item 8, and all other financial statement schedules have been omitted because they are not required or are not applicable or because the information required in those schedules either is not material or is included in the consolidated financial statements or the accompanying notes.
Exhibits
The exhibits listed in the accompanying index to exhibits are filed or incorporated as part of this Annual Report on Form 10-K.
The following financial statement schedule for the years ended June 30, 2026, 2025, and 2024 is submitted herewith:
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 2026, 2025, and 2024
(in thousands) |
|
Balance at |
|
|
(Additions) |
|
|
Deductions from |
|
|
Balance at End |
|
||||
Description |
|
Year |
|
|
Income |
|
|
Reserves |
|
|
of Year |
|
||||
Accounts Receivable Allowances: |
|
|||||||||||||||
2026 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
2025 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
2024 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||
43
Exhibit Index
Exhibit No. |
|
Amended Cash Incentive Compensation Plan, dated August 19, 2025.* |
|
Form of Notification of Award for the Cash Incentive Compensation Plan.* |
|
44
|
|
* |
Management contracts, compensatory plans and arrangements required to be filed as an exhibit to this report. |
† |
Filed herewith |
101.INS |
XBRL Instance Document** |
101.SCH |
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104.Cover Page |
Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
** |
In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed.” |
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: |
August 19, 2026 |
By: |
/s/ Derek P. Schmidt |
|
|
|
Derek P. Schmidt |
|
|
|
Chief Executive Officer and Director |
|
|
|
(Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: |
August 19, 2026 |
|
/s/ Derek P. Schmidt |
|
|
|
Derek P. Schmidt |
|
|
|
Chief Executive Officer and Director (Principal Executive Officer) |
|
|
|
|
Date: |
August 19, 2026 |
|
/s/ Michael J. Ressler |
|
|
|
Michael J. Ressler |
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
Date: |
August 19, 2026 |
|
/s/ Jeanne McGovern |
|
|
|
Jeanne McGovern |
|
|
|
Chair of the Board of Directors |
|
|
|
|
Date: |
August 19, 2026 |
|
/s/ William S. Creekmuir |
|
|
|
William S. Creekmuir |
|
|
|
Director |
|
|
|
|
Date: |
August 19, 2026 |
|
/s/ Kathryn P. Dickson |
|
|
|
Kathryn P. Dickson |
|
|
|
Director |
|
|
|
|
Date: |
August 19, 2026 |
|
/s/ M. Scott Culbreth |
|
|
|
M. Scott Culbreth |
|
|
|
Director |
|
|
|
|
Date: |
August 19, 2026 |
|
/s/ Terence P. Calloway |
|
|
|
Terence P. Calloway |
|
|
|
Director |
46
Exhibit 10.14
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") dated August 18, 2026, is by and between FLEXSTEEL INDUSTRIES, INC., a Minnesota corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
Borrower has requested that Bank extend or continue credit to Borrower as described below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
CREDIT TERMS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time to time up to and including August 18, 2029, not to exceed at any time the aggregate principal amount of Thirty Million Dollars ($30,000,000.00) ("Line of Credit"), the proceeds of which shall be used to finance Borrower's working capital requirements, Permitted Acquisitions (as defined in Section 5.5), and general business purposes. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note dated August 18, 2026, as modified from time to time ("Line of Credit Note").
(b) Borrowing and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit together with all amounts reserved thereunder shall not at any time exceed the maximum principal amount available of the Line of Credit, as set forth herein.
(c) Standby Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue or cause a branch, subsidiary, or Affiliate (as hereinafter defined) to issue standby letters of credit on behalf of Borrower ("Subfeature Standby Letters of Credit"); provided however, that the aggregate undrawn amount of all outstanding Subfeature Standby Letters of Credit shall not at any time exceed Five Million Dollars ($5,000,000.00).
-1-
Bank shall have no obligation to issue a Subfeature Standby Letter of Credit if (i) any order, judgment, or decree of any governmental authority or arbitrator shall, by its terms, purport to enjoin or restrain Bank from issuing such Subfeature Standby Letter of Credit, or any law applicable to Bank or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over Bank shall prohibit or request that Bank refrain from issuing letters of credit generally or such Subfeature Standby Letter of Credit in particular, or (ii) such Subfeature Standby Letter of Credit would violate one or more policies of Bank applicable to letters of credit generally, or (iii) if amounts demanded to be paid under any Subfeature Standby Letter of Credit will or may not be in United States Dollars.
The form and substance of each Subfeature Standby Letter of Credit shall be subject to approval by Bank, in its sole discretion. The undrawn amount of all outstanding Subfeature Standby Letters of Credit shall be reserved under the Line of Credit and shall not be available for borrowings thereunder.
Each Subfeature Standby Letter of Credit shall be issued for a term not to exceed three hundred sixty-five (365) days, as designated by Borrower; provided however, that no Subfeature Standby Letter of Credit shall be issued with, nor shall Bank be required to extend or (if applicable) allow automatic extension of any Subfeature Standby Letter of Credit, so that it will have, an expiration date more than three hundred sixty-five (365) days beyond the maturity date of the Line of Credit. The undrawn amount of all Subfeature Letters of Credit Shall be reserved under the Line of Credit and shall not be available for borrowings thereunder.
Each Subfeature Standby Letter of Credit shall be subject to the additional terms and conditions of Bank's standard standby letter of credit agreement or other reimbursement agreement, however titled, and all applications and related documents required by Bank in connection with the issuance thereof. Each drawing paid under a Subfeature Standby Letter of Credit shall be due and payable in accordance with the letter of credit agreement or other reimbursement agreement, however titled. Unless arrangements satisfactory to Bank are made to reimburse Bank for such drawing or amount, Borrower shall be deemed to have requested an advance under the Line of Credit which shall be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such advances; provided however, that if advances under the Line of Credit are not then available, for any reason, Borrower shall immediately pay Bank the full amount then due, together with interest thereon from the date such drawing is paid to the date such amount is fully repaid by Borrower, at the rate of interest applicable to advances under the Line of Credit. Cancellation or expiration of the Line of Credit shall not terminate Borrower’s obligations under any standby letter of credit agreement or other reimbursement agreement, however titled.
-2-
For purposes of this Agreement and the other Loan Documents (as hereinafter defined):
“Affiliate” means, with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of each credit subject hereto shall bear interest at the rate of interest set forth in each promissory note or other instrument or document executed in connection therewith.
(b) Computation and Payment. Interest shall be computed on the basis set forth in each promissory note or other instrument or document required hereby. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required hereby.
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable commitment fee for the Line of Credit equal to $125,000.00, which fee shall be due and payable in full on the date of this Agreement.
(d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to thirty hundredths percent (0.30%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears on the first day of each January, April, July and October, commencing on October 1, 2026.
(e) Subfeature Standby Letter of Credit Fees and Commissions. Borrower shall pay to Bank;
(i) In arrears fees or commissions with respect to each Subfeature Standby Letter of Credit in an amount equal to the daily amount available to be drawn under such Subfeature Standby Letter of Credit times the applicable margin then in effect with respect to advances under the Line of Credit (computed on a per annum basis, based on a 360-day year, actual days elapsed), with such fees or commissions determined by Bank in arrears on a quarterly basis and payable on the first day of each fiscal quarter or, if applicable, by such alter date as may be specified in a billing for such amount sent by Bank to Borrower; and
-3-
(ii) fees or commissions for each drawing under any such Subfeature Standby Letter of Credit and for the occurrence of any transfer, assignment, amendment, cancellation or other activity with respect to such Subfeature Standby Letter of Credit (including without limitation fees for document examination, discrepancies, reinstatement, document delivery, special handling and other trade services), determined in accordance with Bank’s standard fees and charges then in effect for such activity, and correspondent bank fees and fees of any adviser, confirming institution or entity or other nominated person, with such fees and commissions payable at the time of such activity or, if applicable, by such later date as may be specified in a billing for such amount sent by Bank to Borrower.
SECTION 1.3. COLLECTION OF PAYMENTS. Except to the extent expressly specified otherwise in any Loan Document other than this Agreement, Borrower authorizes Bank to collect all amounts due to Bank from Borrower under this Agreement or any other Loan Document (whether for principal, interest or fees, or as reimbursement of drafts paid or other payments made by Bank under any credit subject to this Agreement) by debiting any Non-Consumer Deposit Account (as defined below) maintained by Borrower with Bank for the full amount thereof. Should there be insufficient funds in Borrower's Non-Consumer Deposit Accounts with Bank to pay all such sums when due, or if any such payment is collected but is subsequently reversed or rendered ineffective, or Bank is required to turn over, restore, or otherwise return any such paid amount to Borrower, a trustee-in-bankruptcy, or anyone else, due to a bankruptcy or for any other reason, the full amount of such deficiency, or the full amount reversed, rendered ineffective, turned over, restored or otherwise returned, as applicable, shall be immediately due and payable by Borrower. The determination of whether any such payment must be turned over, restored or otherwise returned shall be made by Bank in its sole discretion; provided however, that if Bank chooses (but in no event shall Bank be obligated) to contest any such matter at the request of Borrower, Borrower agrees to indemnify and hold Bank harmless from and against all costs and expenses, including reasonable attorneys' fees, expended or incurred by Bank in connection therewith, including without limitation, in any litigation with respect thereto. For purposes hereof, (i) a “Consumer Deposit Account” is a deposit account held in the name of a natural person and established primarily for personal, family or household purposes, and (ii) a “Non-Consumer Deposit Account” is any deposit account other than Consumer Deposit Account.
The foregoing authorization shall remain in full force and effect until written revocation from Borrower has been received by Bank at its address for notices set forth in Section 7.2. hereof. In order to commence application of said cancellation with respect to a payment due date or payoff of a loan, Bank must be notified of said cancellation at least three (3) business days prior to such payment due date or payoff.
-4-
SECTION 1.4. COLLATERAL.
As security for all indebtedness and other obligations of Borrower to Bank, other than indebtedness that is excluded from such secured obligations by the terms of the security agreement(s) required hereunder, Borrower shall grant to Bank security interests of first priority in Borrower's accounts receivable and other rights to payment, general intangibles, inventory and equipment.
All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, deeds or mortgages, and other documents as Bank shall reasonably require, all in form and substance satisfactory to Bank. Borrower shall pay to Bank immediately upon demand the full amount of all charges, costs and expenses (to include fees paid to third parties and all allocated costs of Bank personnel), expended or incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, on the date hereof, on the date of Borrower’s execution hereof, and on the date of each subsequent request for any extension of credit hereunder (including, without limitation, the issuance of any product under any subfeature contained herein, to the extent applicable), which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement.
SECTION 2.1. LEGAL STATUS. (a) Borrower is a corporation, duly organized and existing and in good standing under the laws of Minnesota, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a Material Adverse Effect; and (b) no member of the Borrowing Group (as defined below) is a Sanctioned Target (as defined below) of economic or financial sanctions, sectoral sanctions, secondary sanctions, trade embargoes or restrictions and anti-terrorism laws imposed, administered or enforced from time to time by the United States of America, the United Nations Security Council, the European Union, the United Kingdom, any other governmental authority with jurisdiction over Borrower or any member of the Borrowing Group (collectively, “Sanctions”). As used herein, “Borrowing Group” means: (i) Borrower, (ii) any direct or indirect parent of Borrower, (iii) any Affiliate or subsidiary of Borrower, and (iv) any officer, director or agent acting on behalf of any of the parties referred to in items (i) through and including (iii) with
-5-
respect to the obligations hereunder, this Agreement or any of the other Loan Documents. “Sanctioned Target” means any target of Sanctions, including (i) persons on any list of targets identified or designated pursuant to any Sanctions, (ii) persons, countries, or territories that are the target of any territorial or country-based Sanctions program, (iii) persons that are a target of Sanctions due to their ownership or control by any Sanctioned Target(s), or (iv) persons otherwise a target of Sanctions, including vessels and aircraft, that are designated under any Sanctions program.
As used herein, “Material Adverse Effect” and “Material Adverse Change” means (a) a material adverse effect on the operations, business, assets, properties, prospects, liabilities (actual or contingent) or condition (financial or otherwise) of the Borrower, (b) a material impairment of the ability of the Borrower to perform its obligations under the Loan Documents to which it is a party, (c) a material impairment of the rights and remedies of the Bank under any Loan Document or (d) an impairment of the legality, validity, binding effect or enforceability against the Borrower of any Loan Document to which it is a party.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the organizational and governing documents of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened in writing, actions, claims, investigations, suits or proceedings involving the Borrower by or before any governmental authority, arbitrator, court or administrative agency in which the amount in controversy is greater than $500,000.00, individually or in the aggregate, other than those disclosed by Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT AND OTHER INFORMATION. The annual financial statement of Borrower dated June 30, 2025, and all interim financial statements delivered to Bank since said date, true copies of which have been delivered by Borrower to Bank prior to the date hereof, (a) are complete and correct in all material respects and present fairly the financial condition of Borrower, (b) disclose all liabilities of Borrower that
-6-
are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance with generally accepted accounting principles consistently applied. Since the dates of such financial statements, no condition exists or event has occurred that constitutes a Material Adverse Effect, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except for Permitted Liens (as hereinafter defined). All information provided from time to time by Borrower to Bank for the purpose of enabling Bank to fulfill its regulatory and compliance requirements, standards and processes was complete and correct in all material respects at the time such information was provided and, except as specifically identified to Bank in a subsequent writing, remains complete and correct in all material respects today.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other lease, commitment, contract, instrument or obligation to the extent such obligation individually or in the aggregate is in excess of $1,000,000.
-7-
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.
SECTION 2.12. SANCTIONS, ANTI-MONEY LAUNDERING AND ANTI-CORRUPTION LAWS.
(a) each member of the Borrowing Group has instituted, maintains and complies with policies, procedures and controls reasonably designed to assure compliance with Anti-Money Laundering Laws and Anti-Corruption Laws (each as defined below), and Sanctions; and (b) to the best of Borrower’s knowledge, after due care and inquiry, no member of the Borrowing Group is under investigation for an alleged violation of any Sanctions, Anti-Money Laundering Laws or Anti-Corruption Laws by a governmental authority that enforces such laws. As used herein: “Anti-Corruption Laws” means: (i) the U.S. Foreign Corrupt Practices Act of 1977, as amended; (ii) the U.K. Bribery Act 2010, as amended; and (iii) any other anti-bribery or anti-corruption laws, regulations or ordinances in any jurisdiction in which the Borrower or any member of the Borrowing Group is located or doing business. “Anti-Money Laundering Laws” means applicable laws or regulations in any jurisdiction in which the Borrower or any member of the Borrowing Group is located or doing business that relates to money laundering, any predicate crime to money laundering, or any financial record keeping and reporting requirements related thereto.
-8-
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS TO THE EFFECTIVENESS OF THIS AGREEMENT. The effective date of this Agreement shall be (a) the date that each of the following conditions set forth in this Section 3.1. have been satisfied or waived, as determined by Bank, or (b) such alternative date to which Bank and Borrower may mutually agree, in each case as evidenced by Bank’s system of record. Notwithstanding the occurrence of the effective date of this Agreement, Bank shall not be obligated to extend credit under this Agreement or any other Loan Document until all conditions to each extension of credit set forth in Section 3.2. have been fulfilled to Bank's satisfaction.
(a) Approval of Bank Counsel. All legal matters incidental to the effectiveness of this Agreement shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed by all parties:
(c) Satisfaction of Regulatory and Compliance Requirements. In addition to any requirements set forth above, and notwithstanding Borrower’s execution or delivery of this Agreement or any other Loan Document, all regulatory and compliance requirements, standards and processes shall be completed to the satisfaction of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on
-9-
each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which may be required in connection with such extension of credit, including, but not limited to, an executed wire request form if requested by Bank.
(c) Payment of Fees. Bank shall have received payment in full of any fee required by any of the Loan Documents to be paid at the time such credit extension is made.
(d) Financial Condition. No event has occurred or condition has occurred that constitutes a Material Adverse Change.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. If at any time any change in generally accepted accounting principles would affect the computation of any covenant (including the computation of any financial covenant) and/or pricing grid set forth in this Agreement or any other Loan Document, Borrower and Bank shall negotiate in good faith to amend such covenant and/or pricing grid to preserve the original intent in light of such change; provided, that, until so amended, (i) such covenant and/or pricing grid shall continue to be computed in accordance with the application of generally accepted accounting principles prior to such change and (ii) Borrower shall provide to Bank a written reconciliation in form and substance reasonably satisfactory to Bank, between calculations of such covenant and/or pricing
-10-
grid made before and after giving effect to such change in generally accepted accounting principles.
SECTION 4.3. FINANCIAL STATEMENTS AND OTHER INFORMATION. Provide to Bank all of the following, in form and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal year, a copy of Borrower’s Annual Report on Form 10-K for such fiscal year, as filed with the Securities and Exchange Commission, including the audited balance sheet, income statement, statement of cash flows, and related notes and schedules of Borrower and its consolidated subsidiaries as of and for such fiscal year; and
(b) not later than 60 days after the end of each fiscal quarter (other than the fourth fiscal quarter of each fiscal year), a copy of Borrower's Quarterly Report on Form 10-Q for such fiscal quarter, as filed with the Securities and Exchange Commission, including the balance sheet, income statement, statement of cash flows, and related notes of Borrower and its consolidated subsidiaries as of and for such fiscal quarter; and
(c) contemporaneously with the delivery of each Annual Report on Form 10-K and each Quarterly Report on Form 10-Q required to be delivered hereunder, a certificate of the president or chief financial officer, a general partner or a member of Borrower, as applicable, certifying that the financial statements contained in such Form 10-K or Form 10-Q, as applicable, fairly present the financial condition of Borrower and that there exists no Event of Default nor any condition, act or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default; and
(d) from time to time such other financial and business information as Bank may reasonably request; and
(e) from time to time such other information as Bank may request for the purpose of enabling Bank to fulfill its regulatory and compliance requirements, standards and processes.
SECTION 4.4. COMPLIANCE.
(a) Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence; comply with the requirements of all laws, rules, regulations and orders of any jurisdiction in which the Borrower is located or doing business, or otherwise is applicable to Borrower; and
(b) comply with, and cause each member of the Borrowing Group to comply with, all Sanctions, Anti-Money Laundering Laws, and Anti-Corruption Laws.
-11-
SECTION 4.5. INSURANCE. (a) Maintain and keep in force, for each business in which Borrower is engaged, insurance of the types and in amounts customarily carried in similar lines of business, including but not limited to fire, extended coverage, commercial general liability (it being agreed that, as of the date of this Agreement, Borrower’s existing insurance coverages, providers, and limits, as set forth in the certificates of insurance delivered to Bank on or about the date hereof, shall be deemed to be acceptable to Bank) and, if required by governmental regulation or mutually agreed by Bank and Borrower (each acting reasonably), hurricane, windstorm, seismic property damage, workers' compensation, marine cargo insurance, and specific hazards affecting any real property, including terrorism, with insurers and in amounts mutually satisfactory to Bank and Borrower (each acting reasonably) and where reasonable and required by Bank, with replacement cost, mortgagee loss payable and lender loss payable endorsements in favor of Bank, and (b) deliver to Bank prior to the date hereof, and from time to time at Bank's request, schedules setting forth all insurance then in effect, together with a lender’s loss payee endorsement for all such insurance naming Bank as a lender loss payee.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened in writing against Borrower to the extent such litigation is reasonably expected to have a Material Adverse Effect.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein):
(a) Asset Coverage Ratio not less than 2.00 to 1.00, at each fiscal quarter end, with “Asset Coverage Ratio” defined as the ratio of (a) gross accounts receivable plus gross inventory net of (i) foreign raw materials, (ii) foreign finished goods, (iii) in-transit inventory, and (iv) work-in-process inventory, to (b) principal outstandings on the Line of Credit.
-12-
(b) EBITDA not less than $15,000,000.00 as of each fiscal quarter end, determined on a rolling 4-quarter basis, with “EBITDA” defined as (a) consolidated net income (or loss), minus (b) the sum of (i) interest income and (ii) unusual or non-recurring gains, plus (c) the sum of (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) non-cash stock-based compensation and (v) non-cash unusual or non-recurring losses; provided the aggregate amount added back pursuant to this clause (v) shall not exceed $3,000,000.00 during any of the four consecutive fiscal quarters.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) business days after the occurrence of each such event or matter and in no event more than one (1) business day after the occurrence of each such event or matter described below with respect to Sanctions, Anti-Money Laundering Laws, and Anti-Corruption Laws) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower, including, any merger, conversion, division or domestication; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property; or (e) any breach of any covenant contained herein related to Sanctions, Anti-Money Laundering Laws, and Anti-Corruption Laws or the Borrower’s inability to make the representations and warranties contained herein related to Sanctions, Anti-Money Laundering Laws, and Anti-Corruption Laws on any date, or the failure of any representations and warranties contained herein related to Sanctions, Anti-Money Laundering Laws, and Anti-Corruption Laws to be true and correct in all respects on or as of any date.
SECTION 4.11. DEPOSIT ACCOUNTS; TREASURY MANAGEMENT RELATIONSHIPS. At all times maintain Borrower’s primary deposit account and primary treasury management relationships with Bank or any banking Affiliate of Bank and to keep such account(s) in good standing. As used herein, “primary deposit account” means the deposit account into which substantially all of the receipts from the operations of Borrower are deposited and from which substantially all of its disbursements for its operations are made. As used herein, “treasury management relationships” means relationships established for the provision of cash management and payment and settlement services (e.g., check clearing, check guaranty, ACH, wire transfer and debit card services). For the avoidance of doubt, nothing in this Section 4.11 prohibits or restricts Borrower from depositing or maintaining portions of its cash and cash equivalents at other banks or financial institutions.
-13-
SECTION 4.12. COLLATERAL AUDITS AND INVENTORY APPRAISALS. Permit Bank to audit all Borrower’s collateral required hereunder or appraise Borrower’s inventory, with such audits or appraisals to be performed by collateral examiners or appraisers acceptable to Bank and in scope and content satisfactory to Bank, and with all Bank’s costs and expenses of each audit or appraisal to be reimbursed in full by Borrower. Bank shall not be required to share the results of the audit(s) with Borrower or any third party.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower will not without Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. SOURCES OF REPAYMENT AND COLLATERAL.
(a) Use, or permit any member of the Borrowing Group to use, any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof, or directly or indirectly use any such proceeds to fund, finance or facilitate any activities, business or transactions: (i) that are prohibited by Sanctions; (ii) that would be prohibited by Sanctions if conducted by Bank or any of Bank’s Affiliates; or (iii) that would be prohibited by any Anti-Money Laundering Laws or Anti-Corruption Laws.
(b) Fund any repayment of the obligations hereunder or under any other Loan Document with proceeds, or provide any property as collateral for any such obligations, or permit any third party to provide any property as collateral for any such obligations, that is directly or indirectly derived from any transaction or activity that is prohibited by any Sanctions, Anti-Money Laundering Laws or Anti-Corruption Laws, or that could otherwise cause Bank or any of Bank’s Affiliates to be in violation of any Sanctions, Anti-Money Laundering Laws or Anti-Corruption Laws.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except:
(a) the liabilities of Borrower to Bank;
(b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof;
-14-
(c) trade accounts payable arising in the ordinary course of business;
(d) purchase money indebtedness (including capitalized leases) for the acquisition of equipment not to exceed $2,000,000.00 at any time outstanding; and
(e) any other unsecured debt not to exceed $3,000,000.00 at any time outstanding.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. (a) Merge into or consolidate with any other entity; (b) make any substantial change in the nature of Borrower's business as conducted as of the date hereof; (c) acquire all or substantially all of the assets of any other entity, except for a Permitted Acquisition (as defined below); (d) sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business, nor (e) accomplish any of the above by virtue of a division or similar transaction; provided, that the foregoing shall not restrict Borrower’s ability to sell, lease, transfer or otherwise dispose of any real property, building and fixtures of Borrower without Bank’s consent so long as no Default or Event of Default has occurred and is continuing or would result therefrom and Borrower provides prompt notice of such sale, transfer, lease or other disposition.
For purposes hereof, “Permitted Acquisition” means any acquisition by Borrower of all or substantially all of the operating assets of any person or entity so long as all of the following conditions are satisfied: (i) the acquisition is consummated in compliance with applicable law, (ii) and no such Event of Default or potential Event of Default results after giving effect to the acquisition; provided, however, if the aggregate consideration (valuing any non-cash consideration as its fair market value, and including without limitation the amount of liabilities assumed or acquired), exceeds $15,000,000.00, Borrower must notify Bank no later than thirty (30) days prior to the proposed closing date of such acquisition and Borrower shall have delivered to Bank a pro forma certificate of compliance pursuant to Section 4.3(c) demonstrating covenant compliance under this Agreement.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank, and except additional guaranties in amounts not to exceed an aggregate of $1,000,000.00 outstanding at any time.
-15-
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, including any of the foregoing accomplished by a division or similar transaction, except:
(a) any of the foregoing existing as of, and disclosed to Bank prior to, the date hereof; and
(b) other aggregate loans, advances or investments so long as (i) no Default or Event of Default has occurred and is continuing or would result therefrom, (ii) Borrower is in compliance with the financial covenants set forth herein on a pro forma basis after giving effect to such capital contribution, loan or cash advance, and (iii) the aggregate amount of such capital contributions, loans and cash advances shall not exceed $2,500,000 in the aggregate at any one time.
For avoidance of doubt, nothing contained in this Section 5.5 shall prohibit the Borrower from entering into any transaction with, or to make any payment or transfer to, any Affiliate of the Borrower to the extent such transaction, payment or transfer is permitted pursuant to Section 5.8 below.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or distribution either in cash, stock or any other property on Borrower's stock now or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding; provided however, that Borrower may do any of the foregoing so long as the following conditions are met: (i) at the time of any such cash dividend, distribution or repurchase of stock and on a pro forma basis after giving effect to such cash dividend, distribution or repurchase of stock, there shall exist no Event of Default or fact or circumstance which, with the passage of time or the giving of notice, would result in an Event of Default and (ii) if the aggregate amount of such cash dividends, distributions or repurchases of stock shall exceed $15,000,000.00 on a trailing 12-month basis, prior to such transaction that causes the aggregate amount to exceed $15,000,000.00, Borrower shall have delivered to Bank a pro forma certificate of compliance pursuant to Section 4.3(c) demonstrating covenant compliance under this Agreement after giving effect to such cash dividend, distribution or repurchase of stock Borrower shall provide to Bank, upon request, any further documentation required by Bank to substantiate the appropriateness of amounts paid or to be paid.
-16-
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower’s assets (other than real property, fixtures, and buildings) now owned or hereafter acquired, except (each of the following be referred to as “Permitted Liens”):
(a) any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank in writing prior to, the date hereof;
(b) purchase money liens to the extent they secure purchase money debt permitted under this Agreement;
(c) liens imposed by law for taxes, assessments, or governmental charges, or levies not yet due or which are being contested in good faith by appropriate proceedings by Borrower;
(d) statutory liens of landlords, carriers, warehousemen, mechanics, materialmen and similar liens imposed by law for amounts not yet due or which are being contested in good faith by appropriate proceedings by Borrower;
(e) pledges and deposits made in the ordinary course of business for compliance with workers’ compensation, unemployment insurance, social security, and similar laws and regulations; and
(f) deposits to secure the performance of bids, surety and appeal bonds, trade contracts, leases, statutory obligations and the like.
Section 5.8. TRANSACTIONS With Affiliates. Enter into any transaction with, or make any payment or transfer to, any of its Affiliates except in the ordinary course of business and pursuant to the reasonable requirements of Borrower or such Affiliate’s business and upon fair and reasonable terms no less favorable to the Borrower than the Borrower could obtain in a comparable arms-length transaction.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents.
-17-
(b) Any financial statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with: (1) any collateral value requirement set forth herein or in any other Loan Document; (2) any negative covenant set forth in Article V hereof; (3) any affirmative covenant set forth in Article IV hereof requiring the delivery of financial statements and other information to Bank; or (4) any obligation, agreement or other provision contained herein or in any other Loan Document related to Sanctions, Anti-Money Laundering Laws, or Anti-Corruption Laws.
(d) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those defaults specifically described as constituting an “Event of Default” under any other subsection of this Section 6.1.), and with respect to such default(s) that by their nature can be cured (excluding any defaults specifically described as constituting an “Event of Default” under any other subsection of this Section 6.1., none of which shall be subject to a cure period), such default shall continue for a period of twenty (20) days from its occurrence.
(e) Any default in the payment or performance of any obligation individually or in the aggregate in excess of $1,000,000, or any defined event of default under the terms of any contract, instrument or document (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity in excess of $1,000,000, including Bank.
(f) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.
-18-
(g) The filing of a notice of judgment lien against Borrower; or the recording of any abstract or transcript of judgment against Borrower in any county or recording district in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; or the entry of a judgment against Borrower; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower.
(h) Any Change of Control shall occur. For purposes hereof,
“Change of Control” means (i) any person or two or more persons acting in concert, shall have acquired beneficial ownership, directly or indirectly, of stock and other equity interests of Borrower (or other securities convertible into such stock and equity interests) representing 30% or more of the combined voting power of all stock and other equity interests of Borrower entitled (without regard to the occurrence of any contingency) to vote for the election of members of the board of directors (or equivalent governing body) of Borrower, (ii) any person or two or more persons acting in concert, shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of Borrower or control over the stock and other equity interests of such person entitled to vote for members of the board of directors (or equivalent governing body) of Borrower on a fully-diluted basis (and taking into account all such stock or other equity interests that such person or group has the right to acquire pursuant to any option right) representing 30% or more of the combined voting power of such stock and other equity interests, or (c) during any period of 24 consecutive months commencing on or after the date of this Agreement, the occurrence of a change in the Borrower such that a majority of the members of such board of directors (or equivalent governing body) are not Continuing Directors.
“Continuing Directors” means the directors (or equivalent governing body) of Borrower on the date of this Agreement and each other director (or equivalent) of Borrower, if, in each case, such other person’s nomination for election to the board of directors (or equivalent governing body) of Borrower is approved by at least 51% of the then Continuing Directors.
(i) The dissolution, division, or liquidation of Borrower; or Borrower or any of its directors, stockholders or members, shall take action seeking to effect the dissolution, division, or liquidation of Borrower.
-19-
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all principal, unpaid interest outstanding and other indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice (except as expressly provided in any mortgage or deed of trust pursuant to which Borrower has provided Bank a lien on any real property collateral) become immediately due and payable without presentment, demand, protest or any notices of any kind, including without limitation, notice of nonperformance, notice of protest, notice of dishonor, notice of intention to accelerate or notice of acceleration, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.
SECTION 6.3. BANK PLACED INSURANCE. Pursuant to this Agreement and the other Loan Documents, Bank shall receive satisfactory evidence of the insurance coverage required under this Agreement and the other Loan Documents. Failure of Bank to require such evidence in no way excuses the insurance requirement or waives Bank’s rights arising from the failure to maintain such insurance or provide satisfactory evidence thereof. Unless Borrower provides Bank with satisfactory evidence of the insurance coverage as required by this Agreement and the other Loan Documents, Bank may purchase insurance at Borrower's expense (which expense shall be reimbursed by Borrower immediately upon invoice or demand) to protect Bank's interest. Such insurance purchased by Bank is to protect Bank’s interests and may not protect Borrower’s or any other party’s interests or claims. the insurance PURCHASED BY BANK may not provide any public liability or property damage indemnification and may not meet the requirements of any financial responsibility laws.
Borrower hereby authorizes Bank to automatically debit any account designated by Borrower for the payment of premiums, fees, and other charges associated with any insurance coverage obtained by Bank pursuant to this Agreement. Such debits may occur without prior notice to the Borrower. Borrower acknowledges and agrees that this authorization is irrevocable while any amounts remain outstanding under this Agreement and the other Loan Documents and shall survive the termination of this Agreement and the other Loan Documents until all amounts due in connection with such insurance have been paid in full. Borrower further agrees that Bank shall not be liable for any overdraft fees or other charges incurred as a result of such debits.
-20-
Bank’s rights under this Section are in addition to any other rights provided to Bank under this Agreement and the other Loan Documents, which rights shall be cumulative. Bank’s purchase of insurance pursuant to this Section shall not constitute an election of remedies and Bank reserves the right to exercise all available remedies under this Agreement and the other Loan Documents.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:
BORROWER: |
FLEXSTEEL INDUSTRIES, INC. |
|
385 Bell Street |
|
Dubuque, Iowa 52001 |
|
|
BANK: |
WELLS FARGO BANK, NATIONAL ASSOCIATION |
|
MAC: F0005-031 |
|
801 Walnut Street, Floor 03 |
|
Des Moines, Iowa 50309 |
or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including, to the extent permitted by applicable law, reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel to the extent permissible), expended or incurred by Bank in connection with (a) the negotiation and
-21-
preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, whether or not suit is brought, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity. Whenever in this Agreement and the other Loan Documents Borrower is obligated to pay for the attorneys' fees of Bank, or the phrase "reasonable attorneys' fees" or a similar phrase is used, it shall be Borrower's obligation to pay the attorneys' fees actually incurred or allocated, at standard hourly rates, without regard to any statutory interpretation, which shall not apply, Borrower hereby waiving the application of any such statute. Notwithstanding anything in this Agreement to the contrary, reasonable attorneys' fees shall not exceed the amount permitted by law.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interests or rights hereunder without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, any guarantor hereunder or the business of such guarantor, if any, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. To the full extent permitted by law, this Agreement and the other Loan Documents constitute the entire agreement between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each party hereto.
-22-
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of Minnesota (such State, Commonwealth or District is referred to herein as the “State”), but giving effect to federal laws applicable to national banks, without reference to the conflicts of law or choice of law principles thereof.
SECTION 7.11. BUSINESS PURPOSE. Borrower represents and warrants that each credit subject hereto is made for (a) a business, commercial, investment, agricultural or other similar purpose, (b) the purpose of acquiring or carrying on a business, professional or commercial activity, or (c) the purpose of acquiring any real or personal property as an investment and not primarily for a personal, family or household use.
SECTION 7.12. RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the occurrence of an Event of Default, (a) Borrower hereby authorizes Bank, at any time and from time to time, without notice, which is hereby expressly waived by Borrower, and whether or not Bank shall have declared any credit subject hereto to be due and payable in accordance with the terms hereof, to set off against, and to appropriate and apply to the payment of, Borrower's obligations and liabilities under the Loan Documents (whether matured or unmatured, fixed or contingent, liquidated or unliquidated), any and all amounts owing by Bank to Borrower (whether payable in U.S. dollars or any other currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust and escrow accounts), time or demand and however evidenced), and (b) pending any such action, to the extent necessary, to hold such amounts as collateral to secure such obligations and liabilities and to return as unpaid for insufficient funds any and all checks and other items drawn against any deposits so held as Bank, in its sole
-23-
discretion, may elect. Bank may exercise this remedy regardless of the adequacy of any collateral for the obligations of Borrower to Bank and whether or not the Bank is otherwise fully secured. Borrower hereby grants to Bank a security interest in all deposits and accounts maintained with Bank to secure the payment of all obligations and liabilities of Borrower to Bank under the Loan Documents.
SECTION 7.13. ARBITRATION.
(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents, and their negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit. In the event of a court ordered arbitration, the party requesting arbitration shall be responsible for timely filing the demand for arbitration and paying the appropriate filing fee within 30 days of the abatement order or the time specified by the court. Failure to timely file the demand for arbitration as ordered by the court will result in that party’s right to demand arbitration being automatically terminated.
(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in the State of Minnesota (referred to herein as the “State”) selected by the American Arbitration Association (“AAA”) unless Bank and Borrower mutually agree otherwise; (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.
-24-
(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State or a neutral retired judge of the state or federal judiciary of the State, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of the State and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the corresponding rules of civil practice and procedure applicable in the State or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.
(e) Discovery. In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.
-25-
(f) Class Proceedings and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity.
(g) Payment of Arbitration Costs and Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.
(h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.
(i) Small Claims Court. Notwithstanding anything herein to the contrary, each party retains the right to pursue in Small Claims Court any dispute within that court’s jurisdiction. Further, this arbitration provision shall apply only to disputes in which either party seeks to recover an amount of money (excluding attorneys’ fees and costs) that exceeds the jurisdictional limit of the Small Claims Court.
[Remainder Left Intentionally Blank]
-26-
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Agreement to be executed as of the effective date set forth above.
|
|
|
WELLS FARGO BANK, |
|
FLEXSTEEL INDUSTRIES, INC. |
|
NATIONAL ASSOCIATION |
||
By: |
/s/ Michael J. Ressler |
|
By: |
/s/ Jeff Glas |
|
MICHAEL J. RESSLER, |
|
|
JEFF GLAS, |
|
CHIEF FINANCIAL OFFICER |
|
|
EXECUTIVE DIRECTOR |
-27-
Exhibit 10.15
SECURITY AGREEMENT: BUSINESS ASSETS
1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned FLEXSTEEL INDUSTRIES, INC., or any of them ("Debtor"), hereby grants and transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security interest in all of the property of Debtor described as follows:
All rights to payment, accounts, deposit accounts, chattel paper (whether electronic or tangible), instruments, promissory notes, documents, licenses, general intangibles, payment intangibles, software, letter of credit rights and health-care insurance receivables now existing or at any time hereafter arising and whether they arise from the sale, lease or other disposition of inventory or from performance of contracts for service, manufacture, construction, repair or otherwise or from any other source whatsoever, including without limitation all security, guaranties, warranties, indemnity agreements, insurance policies, supporting obligations and other agreements pertaining to the same or the property described therein; and
All inventory, goods held for sale or lease or to be furnished under contracts for service, goods so leased or furnished, and all software embedded therein and component parts thereof, and all raw materials, work in process and materials used or consumed in Debtor's business now or at any time hereafter acquired by Debtor wherever located, whether in the possession of Debtor or any warehouseman, bailee or any other person or in process of delivery and whether located at Debtor's places of business or elsewhere, and all warehouse receipts, bills of lading and other documents evidencing any of the foregoing and all goods covered thereby, including without limitation all security, guaranties, warranties, indemnity agreements, insurance policies, supporting obligations and other agreements pertaining to the same or the property described therein, and all renewals thereof; and
All tools, machinery, furnishings, furniture and other equipment, and all replacements, accessions and additions thereto and embedded software included therein, whether now owned or hereafter acquired by Debtor, wherever located, whether in the possession of Debtor or any other person, including without limitation all security, guaranties, warranties, indemnity agreements, insurance policies, supporting obligations and other agreements pertaining to the same or the property described therein
(collectively called “Collateral”), together with all proceeds thereof, including whatever is acquired when any of the Collateral or proceeds thereof are sold, leased, licensed, exchanged or otherwise disposed of, whether such disposition is voluntary or involuntary and whatever is collected on or distributed on account thereof, including without limitation, (i) all rights to payment however evidenced, (ii) all goods returned by or repossessed from Debtor’s customers,
-1-
(iii) rights arising out of Collateral, (iv) claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the Collateral, (v) insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the Collateral, (vi) returned insurance premiums, and (vii) all rights to payment with respect to any claim or cause of action affecting or relating to any of the foregoing (hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and performance of: (a) all present and future Indebtedness of Debtor to Bank, specifically including, without limitation, any Reimbursement Obligations (as defined below); provided however that the obligations secured hereby shall not include any Indebtedness of Debtor to Bank (i) to the extent that the terms of the agreement(s) giving rise to such Indebtedness expressly state that such Indebtedness is unsecured or not secured by this Agreement, or otherwise expressly disclaim the security interest created hereby as security for such Indebtedness (excluding, for the avoidance of doubt, Reimbursement Obligations), or (ii) that is secured by any real property; and (b) all obligations of Debtor and rights of Bank under this Agreement. For the avoidance of doubt, and notwithstanding anything herein or in any other agreement between Debtor and Bank to the contrary, the statement herein that Reimbursement Obligations are specifically included in the Indebtedness secured hereby, shall be sufficient to satisfy a requirement in any Reimbursement Agreement executed by Debtor and delivered to Bank stating that for such letter of credit or acceptance or similar product obligations to be secured, they must be specifically described.
As used in this Agreement:
(A) The word "Indebtedness" is used in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Debtor, or any of them, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, including under any swap, derivative, foreign exchange, hedge, deposit, treasury management or other similar transaction or arrangement, and whether Debtor may be liable individually or jointly with others, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable.
(B) “Credit Agreement” means that certain Credit Agreement dated as of the date hereof between Debtor and Bank, as the same may be amended, modified, supplemented or restated from time to time.
(C) “Permitted Liens” has the meaning ascribed to it in the Credit Agreement.
-2-
(D) “Reimbursement Obligations” means, any Indebtedness arising directly or indirectly in connection with any trade finance products and services, including but not limited to the following: letters of credit, banker’s acceptances, open account processing, trade acceptances, discounting, documentary collections or similar or related products or transactions, including, for the avoidance of doubt, any such obligations arising under any related Reimbursement Agreement.
(E) “Reimbursement Agreement” means a credit agreement, letter of credit agreement, acceptance agreement, open account processing agreement or similar document or agreement governing the reimbursement terms and obligations related to letters of credit, banker’s acceptances, open account processing, trade acceptances, discounting, documentary collections or similar or related products or transactions.
3. TERMINATION. This Agreement will terminate upon the performance of all obligations of Debtor to Bank secured hereby, including without limitation, the payment of all Indebtedness of Debtor to Bank secured hereby, and the termination of all commitments of Bank to extend credit to Debtor that would constitute Indebtedness to Bank secured hereby, existing at the time Bank receives written notice from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any money received by Bank in respect of the Collateral may be deposited, at Bank's option, into a non-interest bearing account over which Debtor shall have no control, and the same shall, for all purposes, be deemed Collateral hereunder. Bank shall not be required to apply such money to the Indebtedness or other obligations secured hereby or to remit such money to Debtor or to any other party until the full payment of all Indebtedness of Debtor to Bank secured hereby, and the termination of all commitments to Bank to extend credit to Debtor.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that: (a) Debtor's legal name is exactly as set forth on the first page of this Agreement, and all of Debtor's organizational documents or agreements delivered to Bank are complete and accurate in every respect; (b) Debtor is the owner and has possession or control of the Collateral and Proceeds; (c) Debtor has the exclusive right to grant a security interest in the Collateral and Proceeds; (d) all Collateral and Proceeds are genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses and conditions precedent of any kind or character, except the lien created hereby or other Permitted Liens; (e) all statements contained herein and, where applicable, in the Collateral are true and complete in all material respects; (f) no financing statement covering any of the Collateral or Proceeds, and naming any secured party other than Bank, is on file in any public office except for financing statements filed in connection with any Permitted Lien; and (g) where Collateral consists of rights to payment, all persons appearing to
-3-
be obligated on the Collateral and Proceeds have authority and capacity to contract and are bound as they appear to be, all property subject to chattel paper has been properly registered and filed in compliance with law and to perfect the interest of Debtor in such property, and all such Collateral and Proceeds comply with all applicable laws concerning form, content and manner of preparation and execution, including where applicable Federal Reserve Regulation Z and any State consumer credit laws.
6. COVENANTS OF DEBTOR.
(a) Debtor agrees in general: (i) to pay Indebtedness secured hereby when due; (ii) to indemnify Bank against all losses, claims, demands, liabilities and expenses of every kind caused by property subject hereto; (iii) to permit Bank to exercise its powers; (iv) to execute and deliver such documents as Bank deems necessary to create, perfect and continue the security interests contemplated hereby; (v) not to change its name, and as applicable, its chief executive office, its principal residence or the jurisdiction in which it is organized and/or registered without giving Bank prior written notice thereof; (vi) not to change the places where Debtor keeps any Collateral or Debtor's records concerning the Collateral and Proceeds without giving Bank prior written notice of the address to which Debtor is moving same; (vii) not to sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Debtor's assets except in the ordinary course of its business or otherwise permitted pursuant to Section 5.3 of the Credit Agreement; and (viii) to cooperate with Bank in perfecting all security interests granted herein and in obtaining such agreements from third parties as Bank deems necessary, proper or convenient in connection with the preservation, perfection or enforcement of any of its rights hereunder.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing: (i) that Bank is authorized to file financing statements in the name of Debtor to perfect Bank's security interest in Collateral and Proceeds; (ii) where applicable, to operate the Collateral in accordance with all applicable statutes, rules and regulations relating to the use and control thereof, and not to use any Collateral for any unlawful purpose or in any way that would void any insurance required to be carried in connection therewith; (iii) not to remove the Collateral from Debtor's premises except in the ordinary course of Debtor's business; (iv) to pay when due all license fees, registration fees and other charges in connection with any Collateral; (v) not to permit any lien on the Collateral or Proceeds, including without limitation, liens arising from repairs to or storage of the Collateral, except Permitted Liens; (vi) not to sell, hypothecate or dispose of (including, by illustration, merger, conversion or division), nor permit the transfer by operation of law of, any of the Collateral or Proceeds or any interest therein, except sales of inventory to buyers in the ordinary course of Debtor’s business; (vii) to permit Bank to inspect the Collateral at any time; provided, that Debtor shall use commercially reasonable efforts to obtain consent for any Collateral location maintained with an unaffiliated third party; (viii) to
-4-
keep, in accordance with generally accepted accounting principles, complete and accurate records regarding all Collateral and Proceeds, and to permit Bank to inspect the same and make copies thereof at any reasonable time; (ix) if requested by Bank, to receive and use reasonable diligence to collect Collateral consisting of accounts and other rights to payment and Proceeds, in trust and as the property of Bank, and to immediately endorse as appropriate and deliver such Collateral and Proceeds to Bank daily in the exact form in which they are received together with a collection report in form satisfactory to Bank; (x) not to commingle Collateral or Proceeds, or collections thereunder, with other property; (xi) to give only normal allowances and credits and to advise Bank thereof immediately in writing if they affect any rights to payment or Proceeds in any material respect; (xii) from time to time, when requested by Bank, to prepare and deliver a schedule of all Collateral and Proceeds subject to this Agreement and to assign in writing and deliver to Bank all accounts, contracts, leases and other chattel paper, instruments, documents and other evidences thereof; (xiii) in the event Bank elects to receive payments of rights to payment or Proceeds hereunder, to pay all expenses incurred by Bank in connection therewith, including expenses of accounting, correspondence, collection efforts, reporting to account or contract debtors, filing, recording, record keeping and expenses incidental thereto; and (xiv) to provide any service and do any other acts which may be necessary to maintain, preserve and protect all Collateral and, as appropriate and applicable, to keep all Collateral in good and saleable condition, to deal with the Collateral in accordance with the standards and practices adhered to generally by users and manufacturers of like property, and to keep all Collateral and Proceeds free and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to perform any of the following powers, which are coupled with an interest, are irrevocable until termination of this Agreement and may be exercised from time to time by Bank's officers and employees, or any of them, whether or not Debtor is in default: (a) to perform any obligation of Debtor hereunder in Debtor's name or otherwise; (b) to give notice to account debtors or others of Bank's rights in the Collateral and Proceeds, to enforce or forebear from enforcing the same and make extension and modification agreements with respect thereto; (c) to release persons liable on Collateral or Proceeds and to give receipts and acquittances and compromise disputes in connection therewith; (d) to release or substitute security securing obligations owing to Debtor; (e) to resort in any order to security securing obligations owing to Debtor; (f) to prepare, execute, file, record or deliver notes, assignments, schedules, designation statements, financing statements, continuation statements, termination statements, statements of assignment, applications for registration or like papers to perfect, preserve or release Bank's interest in the Collateral and Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take cash, instruments for the payment of money and other property to which Bank is entitled; (i) to verify facts concerning the Collateral and Proceeds by inquiry of obligors thereon, or otherwise, in its own
-5-
name or a fictitious name; (j) to endorse, collect, deliver and receive payment under instruments for the payment of money constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver and receive payment under insurance claims, and to collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and to apply such amounts received by Bank, at Bank's sole option, toward repayment of the Indebtedness secured hereby or, where appropriate, replacement of the Collateral; (l) to exercise all rights, powers and remedies which Debtor would have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting the Collateral; (n) to make withdrawals from and to close deposit accounts or other accounts with any financial institution, wherever located, into which Proceeds may have been deposited, and to apply funds so withdrawn to payment of the Indebtedness secured hereby; (o) to preserve or release the interest evidenced by chattel paper to which Bank is entitled hereunder and to endorse and deliver any evidence of title incidental thereto; and (p) to do all acts and things and execute all documents in the name of Debtor or otherwise, deemed by Bank as necessary, proper and convenient in connection with the preservation, perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes, charges, liens and assessments against the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. Any such payments made by Bank shall be obligations of Debtor to Bank, due and payable immediately upon demand, and at Bank’s option and subject to any restrictions under applicable law pertaining to usury, together with interest at a rate determined in accordance with the provisions of this Agreement, and shall be secured by the Collateral and Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) any default in the payment or performance of any obligation, or any defined event of default, under (i) any contract or instrument evidencing any Indebtedness, or (ii) any other agreement between Debtor and Bank, including without limitation any loan agreement, relating to or executed in connection with any Indebtedness; (b) any representation or warranty made by Debtor herein shall prove to be incorrect, false or misleading in any material respect when made; (c) Debtor shall fail to observe or perform any obligation or agreement contained herein; or (d) any impairment of the rights of Bank in any Collateral or Proceeds, or any attachment or like levy on any property of Debtor.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the right to declare immediately due and payable all or any Indebtedness secured hereby and to terminate
-6-
any commitments to make loans or otherwise extend credit to Debtor. Bank shall have all other rights, powers, privileges and remedies granted to a secured party upon default under the Uniform Commercial Code or the Business and Commerce Code of the jurisdiction identified in Section 18 below, or otherwise provided by law, including without limitation, the right (a) to contact all persons obligated to Debtor on any Collateral or Proceeds and to instruct such persons to deliver all Collateral and/or Proceeds directly to Bank, and (b) to sell, lease, license or otherwise dispose of any or all Collateral. In addition to any other remedies set forth in this Agreement, Debtor authorizes Bank to engage in “electronic self-help” as defined in and in accordance with applicable law. All rights, powers, privileges and remedies of Bank shall be cumulative. No delay, failure or discontinuance of Bank in exercising any right, power, privilege or remedy hereunder shall affect or operate as a waiver of such right, power, privilege or remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power, privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank of any default hereunder, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in writing. It is agreed that public or private sales or other dispositions, for cash or on credit, to a wholesaler or retailer or investor, or user of property of the types subject to this Agreement, or public auctions, are all commercially reasonable since differences in the prices generally realized in the different kinds of dispositions are ordinarily offset by the differences in the costs and credit risks of such dispositions. While an Event of Default exists: (a) Debtor will deliver to Bank from time to time, as requested by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not dispose of any Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all Collateral and Proceeds, and books and records pertaining thereto, to Bank at a reasonably convenient place designated by Bank; (d) Bank may, at any time, liquidate any time deposits pledged to Bank hereunder and apply the Proceeds thereof to payment of the Indebtedness secured hereby, whether or not said time deposits have matured and notwithstanding the fact that such liquidation may give rise to penalties for early withdrawal of funds; and (e) Bank may, without notice to Debtor, enter onto Debtor's premises and take possession of the Collateral. With respect to any sale or other disposition by Bank of any Collateral subject to this Agreement, Debtor hereby expressly grants to Bank the right to sell such Collateral using any or all of Debtor's trademarks, trade names, trade name rights and/or proprietary labels or marks. Debtor further agrees that Bank shall have no obligation to process or prepare any Collateral for sale or other disposition.
11. DISPOSITION OF COLLATERAL AND PROCEEDS; TRANSFER OF INDEBTEDNESS. In disposing of Collateral hereunder, Bank may disclaim all warranties of title, possession, quiet enjoyment and the like. Any proceeds of any disposition of any Collateral or Proceeds, or any
-7-
part thereof, may be applied by Bank to the payment of expenses incurred by Bank in connection with the foregoing, including reasonable attorneys' fees, and the balance of such proceeds may be applied by Bank toward the payment of the Indebtedness secured hereby in such order of application as Bank may from time to time elect. Upon the transfer of all or any part of the Indebtedness secured hereby, Bank may transfer all or any part of the Collateral or Proceeds and shall be fully discharged thereafter from all liability and responsibility with respect to any of the foregoing so transferred, and the transferee shall be vested with all rights and powers of Bank hereunder with respect to any of the foregoing so transferred; but with respect to any Collateral or Proceeds not so transferred, Bank shall retain all rights, powers, privileges and remedies herein given.
12. STATUTE OF LIMITATIONS. Until all Indebtedness secured hereby shall have been paid in full and all commitments by Bank to extend credit to Debtor that would constitute Indebtedness secured hereby have been terminated, the power of sale or other disposition and all other rights, powers, privileges and remedies granted to Bank hereunder shall, to the extent permitted by law, continue to exist and may be exercised by Bank at any time and from time to time irrespective of the fact that the Indebtedness secured hereby or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor may have ceased, unless such liability shall have ceased due to the payment in full of all Indebtedness secured hereunder.
13. MISCELLANEOUS. Debtor hereby waives any right to require Bank to (i) proceed against Debtor or any other person, (ii) marshal assets or proceed against or exhaust any security from Debtor or any other person, (iii) perform any obligation of Debtor with respect to any Collateral or Proceeds, and (iv) make any presentment or demand, or give any notices of any kind, including without limitation, any notice of nonpayment or nonperformance, protest, notice of protest, notice of dishonor, notice of intention to accelerate or notice of acceleration hereunder or in connection with any Collateral or Proceeds. Debtor further waives any right to direct the application of payments or security for any Indebtedness of Debtor or indebtedness of customers of Debtor.
14. NOTICES. All notices, requests and demands required under this Agreement must be in writing, addressed to Bank at the address specified in any other loan documents entered into between Debtor and Bank and to Debtor at the address of its chief executive office (or principal residence, if applicable) specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.
-8-
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including, to the extent permitted by applicable law, reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel to the extent permissible), expended or incurred by Bank in connection with (a) the perfection and preservation of the Collateral or Bank's interest therein, and (b) the realization, enforcement and exercise of any right, power, privilege or remedy conferred by this Agreement, whether or not suit is brought or foreclosure is commenced, and where suit is brought, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Debtor or in any way affecting any of the Collateral or Bank's ability to exercise any of its rights or remedies with respect thereto. Subject to any restrictions under applicable law pertaining to usury, all of the foregoing shall be paid by Debtor with interest from the date of demand until paid in full at a rate per annum equal to the greater of ten percent (10%) or Bank’s Prime Rate in effect from time to time. Notwithstanding anything in this Agreement to the contrary, reasonable attorneys’ fees shall not exceed the amount permitted by law.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties, and may be amended or modified only in writing signed by Bank and Debtor.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of Minnesota, but giving effect to federal laws applicable to national banks.
19. INSURANCE PROVISIONS. Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees otherwise in writing, to insure the Collateral in accordance with Section 4.5 of the Credit Agreement.
Debtor warrants that Debtor is an organization registered under the laws of Minnesota.
Debtor warrants that its chief executive office (or principal residence, if applicable) is located at the following address: 385 Bell Street, Dubuque, Iowa 52001.
-9-
Debtor warrants that the Collateral is located or domiciled at the locations set forth on Exhibit A attached hereto (as such Exhibit may be updated from time to time in writing) other than Collateral (i) which in the ordinary course of business is in transfit from Collateral location to another Collateral location, (ii) in transit to an account debtor or (iii) inventory or other raw materials that are located at a third party processor, including third party processors located in a foreign jurisidiction.
IN WITNESS WHEREOF, this Agreement has been duly executed by Debtor, intending to be legally bound hereby, as of August 18, 2026.
FLEXSTEEL INDUSTRIES, INC. |
|
|
|
By: |
_/s/ Michael J. Ressler________ |
|
|
|
MICHAEL J. RESSLER, |
|
|
|
CHIEF FINANCIAL OFFICER |
|
|
-10-
Exhibit A
Collateral Locations
Location |
Owned/Leased |
Type |
385 Bell Street, Dubuque, IA 52001 |
Owned |
Corporate Office |
703 & 903 N Chestnut St., Huntingburg, IN 47542 |
Owned |
Distribution Center |
31608 W 191st St., Edgerton, KS 66021 |
Owned |
Distribution Center |
129 Commerce Ave., Greencastle, PA 17225 |
Leased |
Distribution Center |
11540 Pellicano, Suite E, El Paso, TX 79915 |
Leased |
Warehouse |
|
|
|
Manuel Talamas Camandari 8610, Colonia Lote Bravo, Ciudad Juarez, Chihuahua, C.P. 32695 |
Leased |
Manufacturing |
Boulevard Manuel Talamas Camandari 9020 Int A, Colonia Los Arcos, Ciudad Juarez, Chihuahua, C.P. 32695 |
Leased |
Manufacturing |
Boulevard Independencia 1568, Colonia Zaragoza, Ciudad Juarez, Chihuahua, C.P. 32590 |
Leased |
Manufacturing |
Blvd. Lazaro Cardenas 3101, Parque, Inustrial Cambridge Mexicali, Baja California, Mexico |
Leased |
Not Operational |
|
|
|
International Home Furnishings Center, Suite C601, 210 E. Commerce Ave., High Point, NC 27260 |
Leased |
Showroom |
International Home Furnishings Center, Suite C601, 210 E. Commerce Ave., High Point, NC 27260 |
Leased |
Design Center |
329 Habersham Road, Ste 101, High Point, NC 27260 |
Leased |
Model Shop |
World Market Center Las Vegas, Building A, Space A554, 495 S. Grand Centeral Parkway, Las Vegas, NV 89106 |
Leased |
Showroom |
-11-
Exhibit 10.16
REVOLVING LINE OF CREDIT NOTE
$30,000,000.00 |
|
Des Moines, Iowa |
|
|
August 18, 2026 |
FOR VALUE RECEIVED, the undersigned FLEXSTEEL INDUSTRIES, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at MAC: F0005-031, 801 Walnut Street, Floor 03, Des Moines, Iowa 50309 or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Thirty Million Dollars ($30,000,000.00), or so much thereof as may be advanced and be outstanding pursuant to the terms of the Credit Agreement, as defined herein, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after each, and any other term defined in this Note shall have the meaning set forth at the place defined:
(a) “Benchmark Floor” means a rate of interest equal to zero percent (0%).
(b) “Daily Simple SOFR” means, with respect to any day (a “SOFR Rate Day”), a rate per annum equal to SOFR for the day (such day, the “SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is published by the SOFR Administrator on the SOFR Administrator’s Website; provided, however, that if Daily Simple SOFR determined as provided above would be less than the Benchmark Floor, then Daily Simple SOFR shall be deemed to be the Benchmark Floor. If by 5:00 p.m. (New York City time) on the second (2nd) U.S. Government Securities Business Day immediately following any SOFR Determination Day, SOFR in respect of such SOFR Determination Day has not been published on the SOFR Administrator’s Website and a Benchmark Replacement Date with respect to Daily Simple SOFR has not occurred, then SOFR for such SOFR Determination Day will be SOFR as published in respect of the first preceding U.S. Government Securities Business Day for which SOFR was published on the SOFR Administrator’s Website; provided that any SOFR determined pursuant to this sentence shall be utilized for purposes of calculation of Daily Simple SOFR for no more than three (3) consecutive SOFR Rate Days.
(c) “Federal Reserve Business Day” means any day that is not a Saturday, Sunday or other day on which the Federal Reserve Bank of New York is closed.
-1-
(d) "Prime Rate" means at any time the rate of interest most recently announced within Bank at its principal office as its prime rate, with the understanding that the Prime Rate is one of Bank's base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Bank may designate; provided, however, that if Prime Rate determined as provided above would be less than zero percent (0%), then Prime Rate shall be deemed to be zero percent (0%).
(e) “SOFR” means a rate per annum equal to the secured overnight financing rate as administered by the SOFR Administrator.
(f) “SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
(g) “SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
(h) “U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association, or any successor thereto, recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a fluctuating rate per annum determined by Bank to be one and twenty-five hundredths percent (1.25%) above Daily Simple SOFR in effect from time to time. Bank is hereby authorized to note the date, principal amount and interest rate applicable to this Note and any payments made thereon on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. The Bank shall be permitted to estimate the amount of accrued interest that is payable at any time hereunder on the applicable invoice provided by Bank to Borrower in respect thereof, in which case Borrower shall pay such estimated amount and Bank shall to the extent necessary, include on the next invoice an adjustment to correct any difference between the amount on the applicable invoice and the amount of interest that actually accrued pursuant to the terms of this Note.
(b) Taxes and Regulatory Costs. Borrower shall pay to Bank immediately upon demand, in addition to any other amounts due or to become due hereunder, any and all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to SOFR or Daily Simple SOFR, and (ii) costs, expenses and liabilities arising from or in connection with reserve percentages prescribed by the Board of Governors of the Federal Reserve System
-2-
(or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Board of Governors of the Federal Reserve System, as amended), assessment rates imposed by the Federal Deposit Insurance Corporation, or similar requirements or costs imposed by any domestic or foreign governmental authority or resulting from compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority and related in any manner to SOFR or Daily Simple SOFR. In determining which of the foregoing are attributable to any SOFR or Daily Simple SOFR option available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower.
(c) Default Interest. Bank shall have the option in its sole and absolute discretion to have the outstanding principal balance of this Note bear interest at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note (i) from and after the maturity date of this Note; (ii) from and after the date prior to the maturity date of this Note when all principal owing hereunder becomes due and payable by acceleration or otherwise; and/or (iii) upon the occurrence and during the continuance of any Event of Default.
(d) Inability to Determine Interest Rates; Illegality. Subject to the Benchmark Replacement Provisions below, if Bank determines (any determination of which shall be conclusive and binding on Borrower) that either (i) Daily Simple SOFR cannot be determined pursuant to the definition thereof other than as a result of a Benchmark Transition Event (an “Inability Determination”) or (ii) any law has made it unlawful, or that any governmental authority has asserted that it is unlawful, for Bank to make or maintain an advance based on SOFR or Daily Simple SOFR, or to determine or charge interest rates based upon SOFR or Daily Simple SOFR (an “Illegality Determination”), then Bank will so notify Borrower. The outstanding principal balance of this Note shall bear interest (computed on the basis of a 360-day year, actual days elapsed) at a fluctuating rate per annum determined by Bank to be equal to the Prime Rate in effect from time to time, from the date of an Inability Determination or an Illegality Determination until Bank revokes such Inability Determination or notifies Borrower that the circumstances giving rise to such Illegality Determination no longer exist, as applicable. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. Notwithstanding any of the foregoing to the contrary, if a Benchmark Replacement is subsequently determined in accordance with applicable Benchmark Replacement Provisions, that Benchmark Replacement, plus any applicable margin, will become effective on the Benchmark Replacement Date and will then supersede the Prime Rate and margin determined in accordance with this provision.
-3-
BENCHMARK REPLACEMENT PROVISIONS:
Notwithstanding anything to the contrary contained in this Note or in any related loan document (for the purposes of these Benchmark Replacement Provisions, a swap agreement by and between Borrower and Bank or any of its affiliates is not a loan document):
(a) Benchmark Replacement. If a Benchmark Transition Event occurs, the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes under this Note or under any related loan document. Any Benchmark Replacement will become effective on the applicable Benchmark Replacement Date without any further action or consent of Borrower.
(b) Benchmark Replacement Conforming Changes. Bank will have the right to make Benchmark Replacement Conforming Changes from time to time and any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of Borrower.
(c) Notices; Standards for Decisions and Determinations. Bank will promptly notify Borrower of (i) the implementation of any Benchmark Replacement and (ii) the effectiveness of any Benchmark Replacement Conforming Changes. Any determination, decision or election that may be made by Bank pursuant to these Benchmark Replacement Provisions, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and will be made in its sole discretion and without Borrower consent.
(d) Certain Defined Terms. As used in this Note, each of the following capitalized terms has the meaning given to such term below:
(i) “Benchmark” means, initially, Daily Simple SOFR; provided, however, that if a Benchmark Transition Event has occurred with respect to Daily Simple SOFR or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has become effective pursuant to the provisions of this Note.
(ii) “Benchmark Administrator” means, initially, the SOFR Administrator, or any successor administrator of the then-current Benchmark or any insolvency or resolution official with authority over such administrator.
(iii) “Benchmark Replacement” means the sum of: (A) the alternate rate of interest that has been selected by Bank as the replacement for the then-current Benchmark; and (B) the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by Bank, in each case, giving due consideration to (x) any selection or recommendation by the Relevant Governmental Body at such time for a replacement rate, the mechanism for determining such a rate, the methodology or conventions applicable to such rate, or the spread adjustment, or method for calculating or
-4-
determining such spread adjustment, for such rate, or (y) any evolving or then-prevailing market convention for determining a rate of interest as a replacement to the then-current Benchmark, the methodology or conventions applicable to such rate, or the spread adjustment, or method for calculating or determining such spread adjustment, for such alternate rate for U.S. dollar-denominated syndicated or bilateral credit facilities at such time; provided, however, that if the Benchmark Replacement as determined as provided above would be less than the Benchmark Floor, then Benchmark Replacement shall be deemed to be the Benchmark Floor, subject to any other applicable floor rate provision.
(iv) “Benchmark Replacement Conforming Changes” means any technical, administrative or operational changes (including, without limitation, changes to the definition of “U.S. Government Securities Business Day,” the timing and frequency of determining rates and making payments of interest, prepayment provisions and other technical, administrative or operational matters) that Bank decides may be appropriate to reflect the adoption and implementation of a Benchmark Replacement and to permit the administration thereof by Bank.
(v) “Benchmark Replacement Date” means the date specified by Bank in a notice to Borrower following a Benchmark Transition Event.
(vi) “Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark: a public statement or publication of information by or on behalf of the Benchmark Administrator or a regulatory supervisor for the Benchmark Administrator announcing that (A) the Benchmark Administrator has ceased or will cease to provide the Benchmark permanently or indefinitely or (B) the Benchmark is no longer, or as of a specified future date will no longer be, representative of underlying markets.
(vii) “Relevant Governmental Body” means the Board of Governors of the Federal Reserve System and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System and/or the Federal Reserve Bank of New York or any successor thereto.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment of Principal. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on August 18, 2029.
(b) Payment of Interest. Interest accrued on this Note shall be payable on the first day of each month, commencing September 1, 2026, and on the maturity date set forth above.
-5-
(c) Advances. Advances hereunder, to the total amount of the principal sum stated above, may be made by the holder at the oral or written request of (i) MICHAEL J. RESSLER, DEREK SCHMIDT or MARK MILLER, any one acting alone (subject to any of Bank’s applicable authentication policies or procedures, which may require that a particular individual—including another specific individual listed above—provide verification of the identity of the requestor), who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any deposit account of Borrower, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by Borrower.
(d) Application of Payments. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof.
PAYMENTS:
If any payment of principal or interest to be made pursuant to this Note other than a prepayment or a payment due on the maturity date of this Note, shall fall due on a day that is not a Federal Reserve Business Day, payment shall be made on the next succeeding Federal Reserve Business Day, except that, if such next succeeding Federal Reserve Business Day would fall in the next calendar month, such payment shall be made on the immediately preceding Federal Reserve Business Day. Any extension or contraction of time shall be reflected in computing interest or fees, as the case may be.
PREPAYMENT:
Borrower may prepay principal on this Note at any time, in any amount and without penalty. If principal under this Note is payable in more than one installment, then any prepayments of principal shall be applied to the most remote principal installment or installments then unpaid.
SWAP AGREEMENT:
Borrower understands and acknowledges that (i) any Swap Agreement constitutes an independent agreement between Borrower and Bank and will be unaffected by any repayment, prepayment, acceleration, reduction, increase or change in the terms of this Note, except as otherwise expressly provided in the Swap Agreement, (ii) nothing in this Note shall be construed as a modification of a Swap Agreement or create an obligation to amend a Swap Agreement, (iii) Borrower may incur losses or reductions in benefits related to differences between the economic terms and characteristics of this Note and those of a related Swap Agreement (including, without limitation, differences with respect to maturity dates, payment dates and methods for determining interest rates and differences between borrowings hereunder and the notional amount of a Swap Agreement), and Bank is under no obligation to ensure that there are no differences or that
-6-
differences will not arise hereafter, including, without limitation, differences between usage hereunder and the notional amount of a Swap Agreement, and (iv) Bank has no obligation to modify, renew or extend the maturity date of this Note to match the maturity date of a Swap Agreement. For the purposes of this provision, “Swap Agreement” means any existing or future swap agreement by and between Borrower and Bank or any of its affiliates.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated August 18, 2026, as amended from time to time (the "Credit Agreement"). Any default in the payment or performance of any obligation under this Note, or any defined event of default under the Credit Agreement, shall constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note whether or not suit is brought, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity.
(b) Collateral Exclusion. No lien or security interest created by or arising under any deed of trust, mortgage, security deed, or similar real estate collateral agreement (“Lien Document”) shall secure the Note Obligations unless such Lien Document specifically describes the promissory note(s), instrument(s) or agreement(s) evidencing Note Obligations as a part of the indebtedness secured thereby. This exclusion shall apply notwithstanding (i) the fact that such Lien Document may appear to secure the Note Obligations by virtue of a cross-collateralization provision or other provisions expanding the scope of the secured obligations, and (ii) whether such Lien Document was entered into prior to, concurrently with, or after the date hereof. As used herein, “Note Obligations” means any obligations under this Note, as amended, extended, renewed, refinanced, supplemented or otherwise modified from time to time, or under any other evidence of indebtedness that has been modified, renewed or extended in whole or in part by this
-7-
Note, as amended, extended, renewed, refinanced, supplemented or otherwise modified from time to time.
(c) Governing Law. This Note shall be governed by and construed in accordance with the laws of Minnesota, but giving effect to federal laws applicable to national banks, without reference to the conflicts of law or choice of law principles thereof.
(d) Effective Date. The effective date of this Note shall be the date that Bank has accepted this Note and all conditions to the effectiveness of the Credit Agreement have been fulfilled to Bank’s satisfaction. Notwithstanding the occurrence of the effective date of this Note, Bank shall not be obligated to extend credit under this Note until all conditions to each extension of credit set forth in the Credit Agreement have been fulfilled to Bank's satisfaction.
(e) Usury Exemption. The extension of credit evidenced by this Note, and the rate of interest applicable hereto, shall be governed by Section 334.01, Subdivision 2 of the Minnesota Statutes.
[Remainder Left Intentionally Blank]
IN WITNESS WHEREOF, the undersigned has executed this Note to be effective as of the effective date set forth herein.
FLEXSTEEL INDUSTRIES, INC. |
|
|
|
|
|
By: |
/s/ Michael J. Ressler |
|
MICHAEL J. RESSLER, |
|
CHIEF FINANCIAL OFFICER |
-8-
EXHIBIT 21.1
Subsidiaries of Flexsteel Industries, Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-193041, 333-249820, 333-269433, and 333-293198 on Form S-8 of our reports dated August 19, 2026, relating to the financial statements of Flexsteel Industries, Inc. and the effectiveness of Flexsteel Industries, Inc’s internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended June 30, 2026.
/s/ Deloitte & Touche LLP
Minneapolis, MN
August 19, 2026
EXHIBIT 31.1
CERTIFICATION
I, Derek P. Schmidt, certify that:
Date: August 19, 2026
/s/ Derek P. Schmidt |
Derek P. Schmidt |
President & Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Michael J. Ressler, certify that:
Date: August 19, 2026
/s/ Michael J. Ressler |
Michael J. Ressler |
Chief Financial Officer |
EXHIBIT 32
CERTIFICATION BY
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Flexsteel Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended June 30, 2026, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Derek P. Schmidt, President & Chief Executive Officer, and Michael J. Ressler, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
Date: August 19, 2026
|
|
/s/ Derek P. Schmidt |
Derek P. Schmidt President & Chief Executive Officer |
|
|
/s/ Michael J. Ressler |
Michael J. Ressler Chief Financial Officer |