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What changed in FLEXSTEEL INDUSTRIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FLEXSTEEL INDUSTRIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+99 added−102 removedSource: 10-K (2023-08-25) vs 10-K (2022-08-26)

Top changes in FLEXSTEEL INDUSTRIES INC's 2023 10-K

99 paragraphs added · 102 removed · 70 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe Company purchases these materials from numerous outside suppliers, both U.S. and foreign, and is not dependent upon any single source of supply.
Biggest changeThe 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.
Trademarks and Patents The Company owns the United States improvement patents to its Flexsteel guaranteed-for-life Blue Steel Spring – the all-riveted, high-carbon, steel-banded seating platform that gives upholstered and leather furniture the strength and comfort to last a lifetime, as well as patents on convertible beds. The Company has patents and owns certain trademarks in connection with its furniture.
Trademarks and Patents The Company owns the United States improvement patents to its Flexsteel guaranteed-for-life Blue Steel Spring – the all-riveted, high-carbon, steel-banded seating platform that gives upholstered and leather furniture the strength and comfort to last a lifetime, as well as patents on convertible beds. The Company owns other patents and owns certain trademarks in connection with its furniture.
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, 2022. Environmental Matters All of Flexsteel’s stakeholders have a responsibility to protect our employees and our environment.
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, 2023. Environmental Matters All of Flexsteel’s stakeholders have a responsibility to protect our employees and our environment.
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 4 Table of Contents resources. The Company is subject to environmental laws and regulations with respect to product content and industrial waste.
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.
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.
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 4 Table of Contents to improve the workplace and the environment we directly impact.
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, 2022 June 30, 2021 June 30, 2020 $ 62,800 $ 155,325 $ 46,900 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.
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, 2023 June 30, 2022 June 30, 2021 $ 49,729 $ 62,800 $ 155,325 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.
Furniture products are designed by the Company’s own design staff and through the services of third-party designers. New models and designs of furniture, as well as new fabrics, are introduced continuously. Employees The Company had approximately 1,800 employees on June 30, 2022, including 7 employees who are covered by collective bargaining agreements. Management believes it has good relations with employees.
Furniture products are designed by the Company’s own design staff and through the services of third-party designers. New models and designs of furniture, as well as new fabrics, are introduced continuously. Employees The Company had approximately 1,700 employees on June 30, 2023, including 6 employees who are covered by collective bargaining agreements. Management believes it has good relations with employees.
Set forth below is information for the past three fiscal years showing the Company’s net sales attributable to each of the areas of application: For the years ended June 30, (in thousands) 2022 2021 2020 Residential $ 543,447 $ 476,519 $ 331,879 Contract 835 2,406 35,047 $ 544,282 $ 478,925 $ 366,926 Manufacturing and Offshore Sourcing During the fiscal year ended June 30, 2022, the Company operated manufacturing facilities located in Dublin, Georgia, and Juarez, Mexico.
Set forth below is information for the past three fiscal years showing the Company’s net sales attributable to each of the areas of application: For the years ended June 30, (in thousands) 2023 2022 2021 Residential $ 393,692 $ 543,447 $ 476,519 Contract — 835 2,406 $ 393,692 $ 544,282 $ 478,925 Manufacturing and Offshore Sourcing During the fiscal year ended June 30, 2023, the Company operated manufacturing facilities located in Dublin, Georgia, and Juarez, Mexico.
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.
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.
Foreign Operations The Company has minimal export sales. On June 30, 2022, the Company had approximately 33 employees located in Asia to ensure Flexsteel’s quality standards are met and to coordinate the delivery of purchased products. The Company leases and operates three manufacturing facilities in Juarez, Mexico and had approximately 1,200 employees located in Mexico on June 30, 2022.
Foreign Operations The Company has minimal export sales. On June 30, 2023, the Company had approximately 34 employees located in Asia to ensure Flexsteel’s quality standards are met and to coordinate the delivery of products acquired from overseas suppliers.
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The three Juarez facilities totaled 553,000 square feet.
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The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico and had approximately 1,200 employees located in Mexico on June 30, 2023. The four Mexico facilities total 1,061,000 square feet.
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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 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.
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As of June 30, 2023, the Company has not begun operations in the Mexicali facility and had subleased approximately 105,000 square feet. The Company is in negotiations to sublease the remainder of the facility until such time that demand necessitates the additional capacity.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf 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.
Biggest changeThe 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.
It is unclear how our supply chain could be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we will be impacted, the severity of the impacts, and the probability of a recurrence of COVID-19 or similar regional or global pandemics.
It is unclear how our supply chain could be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we could be impacted, the severity of the impacts, and the probability of a recurrence of COVID-19 or similar regional or global pandemics.
The Company’s participation in multi-employer pension plans may have exposures under those plans 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.
The Company’s participation in a multi-employer pension plan may have exposures under those plans 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.
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.
These and other competitive pressures could cause us to lose market share, revenues, and customers, increase expenditure 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 continues to migrate business and financial processes from ERP systems to SAP.
The Company continues to migrate business and financial processes from legacy ERP systems to SAP.
Unfavorable fluctuations in 7 Table of Contents 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.
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.
In addition, in response to the COVID-19 pandemic and 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.
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.
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.
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.
Risks related to our industry: The COVID-19 pandemic could continue to have a materially adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.
Risks related to our industry: The impact of COVID-19 or similar pandemics could have a materially adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.
As a result of the COVID-19 pandemic, supply chain issues and inflationary cost pressures, some customers have requested extended payment terms or informed us they will not pay amounts within agreed upon terms. Some of our customers have experienced, and may in the future experience, cash flow and credit-related issues.
Due to ongoing global supply chain issues and inflationary cost pressures, some customers have requested extended payment terms or informed us they will not pay amounts within agreed upon terms. Some of our customers have experienced, and may in the future experience, cash flow and credit-related issues.
Additionally, most of our sales are to distribution channels that rely on physical stores to merchandise and sell our products and a significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.
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 stores due to COVID-19 or similar pandemic or a significant shift in consumer preference toward purchasing products online could have a materially adverse impact on our sales and operating margin.
Cost inflation including significant increases in ocean container rates, raw materials prices, labor rates, and domestic transportation costs have and could continue to impact profitability. Continued imbalances between supply and demand for these resources may continue to exert upward pressure on costs.
Cost inflation including significant increases in ocean container rates, raw materials prices, labor rates, and domestic transportation costs have and could continue to impact profitability. Continued 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.
The delivery of goods from these suppliers has been and may continue to be delayed by customs, labor issues, geo-political pressures, disruptions associated with the COVID-19 pandemic, changes in political, economic, and social conditions, weather, laws and regulations.
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, geo-political pressures, changes in political, economic, and social conditions, weather, laws, and regulations.
In addition, the ongoing impact of COVID-19, or risk of similar communicable disease in the future, increases 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.
Ongoing or future communicable diseases increase the risk that certain senior executive officers or a member of the board of directors could become ill, 6 Table of Contents causing them to be incapacitated or otherwise unable to perform their duties for an extended absence.
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 could disrupt the supply chain, increase cost and reduce competitiveness.
Many of these suppliers are dependent upon other suppliers in countries other than where they are located. This global interdependence 7 Table of Contents within the Company’s supply chain is subject to delays in delivery, availability, quality, and pricing.
The COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition.
A resurgence of the COVID-19 pandemic or other public health emergency in the future could have a material adverse effect on our ability to operate, our ability to keep employees safe from the pandemic, our results of operations, and financial condition. Continuing inflation and changes in foreign currency may impact our profitability.
Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations.
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.
If the Company is not able to acquire sufficient fabric 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. Item 1B. Unresolved Staff Comments None. 8 Table of Contents
If the Company is not able to acquire sufficient fabric 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.
Public health organizations have recommended, and many governments have implemented, measures from time-to-time during the pandemic to slow and limit the transmission of the virus, including certain business shutdowns and shelter in place and social distancing requirements.
During the initial height of the COVID-19 pandemic, purchases of home furnishings were heavily impacted as they are largely deferable 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.
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. 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.
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.
See Note 13 Commitments and Contingencies of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information . The Company’s success depends on its ability to recruit and retain key employees and highly skilled workers in a competitive labor market.
See Note 13 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.
Enacted tariffs and potential future increases in tariffs on manufactured goods imported from China or other countries could adversely affect our business. The tariff on certain manufactured furniture products imported from China on or after June 1, 2019, is currently 25%.
Enacted tariffs and potential future increases in tariffs on manufactured goods imported from China or 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.
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Furthermore, because of the nature of the disease, multiple people working in close proximity could also become ill simultaneously which could result in the same department having extended absences or a temporary shutdown of one or more of our manufacturing facilities or distribution centers.
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At June 30, 2023, we had $38.7 million in property, plant and equipment and $68.3 million in right of use assets associated with leased facilities. These definite-lived assets are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable.
Removed
This could negatively impact the efficiency and effectiveness of processes and internal controls throughout the Company and our ability to service customers. Terms of collective bargaining agreements and labor disruptions could adversely impact results of operations. Terms of collective bargaining agreements that prevent the Company from competing effectively could adversely affect its financial condition, results of operations and cash flows.
Added
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.
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The Company is committed to working with those groups to avert or resolve conflicts as they arise. However, there can be no assurance that these efforts will be successful. 6 Table of Contents We may not be able to collect amounts owed to us. We grant 30-day payment terms to most customers.
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In particular, if capacity requirements do not necessitate the utilization of our leased Mexicali, Mexico facility and we are unsuccessful at subleasing the facility in the future the carrying amount of the right of use asset associated with that lease may not be recoverable.
Removed
If the negative economic effects of COVID-19 were to persist or a similar pandemic or another major, unexpected event with negative economic effects were to occur, we may not be able to collect amounts owed to us or such payment may only occur after significant delay.
Added
A write-down of all or a portion of the value of the Mexicali right of use asset could have a material impact on our earnings in the period of impairment.
Removed
On March 11, 2020, the World Health Organization declared the current coronavirus (“COVID-19”) outbreak to be a global pandemic, and the virus continues to spread in areas where we operate and sell our products.
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At June 30, 2023 the Company does not believe any impairment indicators exist due to current and expected sublease tenants and plans for future operations but impairment assessment involves the use of considerable judgement and any change in future market or economic conditions could cause actual results to differ.
Removed
Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, potential near-term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments. Continuing inflation may impact our profitability.
Added
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 grant payment terms between 10 and 60 days to customers, often without requiring collateral.
Removed
Given ongoing uncertainty in relations, including trade negotiations between the United States and China, it is unclear as to whether the U.S. administration will take further tariff action or perhaps grant relief to actions already put in place. Inability to reduce acquisition costs or pass-through price increases may have an adverse impact on sales volume, earnings, and liquidity.
Added
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, the majority of our manufactured products are produced in Mexico.
Removed
In early 2020, the COVID-19 outbreak in China resulted in the temporary shutdown or reduced capacity of our vendors’ factories. Consequently, we experienced some out-of-stocks, but in some cases, we were able to provide substitutions out of inventory on hand, in-transit, and from our domestic warehouses, but not enough to entirely mitigate the lost sales.
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The wages of our employees and certain other employee benefit and indirect costs are made in Pesos. The Company does not employ any foreign currency hedges against this exposure. A negative shift in the value of the U.S. dollar against the Peso could increase the cost of manufacturing.
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Many of our vendors’ factories are back online, however, the COVID-19 outbreak caused travel restrictions due to government regulations. The travel restrictions have caused labor shortages for our Vietnam suppliers due to limited access to workers from other surrounding countries. Consequently, we may experience shortages of certain products.
Added
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.
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Our ability to transport products from foreign countries is also dependent on the availability and cost of ocean containers, both of which were materially and adversely impacted by COVID-19.
Added
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.
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The COVID-19 pandemic has accelerated and may continue to increase the shift to online furniture purchases by changing customer shopping patterns and behaviors, including decreased consumer willingness to visit physical retail locations.
Added
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 persions.
Added
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 lendors.
Added
Consumers 8 Table of Contents 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. Item 1B. Unresolved Staff Comments None.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company leases the following facilities as of June 30, 2022: Approximate Location Size (square feet) Principal Operations Greencastle, Pennsylvania 242,000 Distribution Sierra Ridge, California 211,000 Distribution Juarez, Mexico 225,000 Manufacturing Juarez, Mexico 197,000 Manufacturing Juarez, Mexico 131,000 Manufacturing High Point, North Carolina 56,000 Showroom El Paso, Texas 38,000 Warehouse Dubuque, Iowa 3,000 Office Shenzhen, China 2,000 Office Bangkok, Thailand 1,500 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.
Biggest changeThe Company leases the following facilities as of June 30, 2023: Approximate Location Size (square feet) Principal Operations Mexicali, Mexico 508,000 Manufacturing Greencastle, Pennsylvania 242,000 Distribution Juarez, Mexico 225,000 Manufacturing Juarez, Mexico 197,000 Manufacturing Juarez, Mexico 131,000 Manufacturing High Point, North Carolina 58,000 Showroom El Paso, Texas 38,000 Warehouse Las Vegas, NV 6,000 Showroom Shenzhen, China 2,000 Office Bangkok, Thailand 1,500 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 2. Properties The Company owns the following facilities as of June 30, 2022: Approximate Location Size (square feet) Principal Operations Huntingburg, Indiana 611,000 Distribution Edgerton, Kansas 500,000 Distribution Starkville, Mississippi (1) 349,000 Manufacturing (Held for Sale) Dublin, Georgia 315,000 Manufacturing Dubuque, Iowa 40,000 Corporate Office (1) Facility is classified as held for sale as of June 30, 2022.
Item 2. Properties The Company owns the following facilities as of June 30, 2023: Approximate Location Size (square feet) Principal Operations Huntingburg, Indiana 611,000 Distribution Edgerton, Kansas 500,000 Distribution Starkville, Mississippi (1) 349,000 Manufacturing (Held for Sale) Dublin, Georgia 315,000 Manufacturing Dubuque, Iowa 40,000 Corporate Office (1) Facility is classified as held for sale as of June 30, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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. 10 Table of Contents Purchases of Equity Securities On January 20, 2022, the Board of Directors approved a repurchase program authorizing the Company to purchase up to an additional $30 million of the Company’s common stock through January 19, 2025.
Biggest changePurchases of Equity Securities On January 20, 2022, the Board of Directors approved a repurchase program authorizing the Company to purchase up to an additional $30 million of the Company’s common stock through January 19, 2025. All purchases were made in the open market.
All purchases were made in the open market. The following table summarizes the activity of the common stock repurchases made during the three months ended June 30, 2022.
The following table summarizes the activity of the common stock repurchases made during the three months ended June 30, 2023.
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Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Share Investment Performance The following graph shows changes over the past five-year period in the value of $100 invested in: (1) Flexsteel’s common stock (FLXS); (2) The NASDAQ Global Market; (3) an industry peer group of the following: American Woodmark Corp, Bassett Furniture Ind., Culp Inc., Dixie Group Inc., Ethan Allen Interiors Inc., HNI Corp., Hooker Furniture Corp., Johnson Outdoors Inc., Kimball International, La-Z-Boy Inc., Lifetime Brands Inc., Lovesac Co., Patrick Industries Inc., Sleep Number Corp., and Trex Company, Inc. 2017 2018 2019 2020 2021 2022 Flexsteel 100.00 75.30 33.45 26.02 83.20 37.08 NASDAQ 100.00 130.41 138.26 158.92 248.38 120.22 Peer Group 100.00 109.11 109.47 144.94 252.95 146.16 The Company’s common stock is traded on the NASDAQ Global Select Market under the trading symbol FLXS.
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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 estimates there were approximately 3,000 beneficial holders of common stock of the Company as of June 30, 2023.
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The Company estimates there were approximately 250 holders of common stock of the Company as of June 30, 2022.
Added
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.
Removed
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, 2022, to April 30, 2022 118,217 $ 20.05 2,620,781 $ 12,947,944 May 1, 2022, to May 31, 2022 138,103 20.44 2,758,884 10,118,616 June 1, 2022, to June 30, 2022 131,569 19.92 2,890,453 7,490,620 As of June 30, 2022 2,892,404 $ 22.96 2,890,453 $ 7,490,620
Added
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, 2023, to April 30, 2023 17,894 $ 18.71 1,374,056 $ 4,162,934 May 1, 2023, to May 31, 2023 13,237 17.46 1,387,293 3,944,992 June 1, 2023, to June 30, 2023 8,753 18.86 1,396,046 3,779,477 As of June 30, 2023 39,884 $ 18.33 1,396,046 $ 3,779,477

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFor the year ended June 30, 2021, net cash used in financing activities was $30.2 million, primarily due to $29.8 million for treasury stock purchases, dividends paid of $2.6 million and $1.3 million for tax payments on employee vested restricted shares.
Biggest changeFor the year ended June 30, 2022, net cash used in investing activities was $1.9 million, primarily due to capital expenditures of $3.8 million partially offset by proceeds of $1.9 million from the sale of our Harrison, Arkansas, facility, and the finalization of the sale of our transportation fleet equipment. 12 Table of Contents Net cash (used in) financing activities For the year ended June 30, 2023, net cash used in financing activities was $17.4 million, primarily due to proceeds from lines of credit of $363.8 million, offset by payments on lines of credit of $373.3 million, $3.7 million for treasury stock purchases, dividends paid of $3.2 million, and $1.0 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.
Net cash provided by operating assets and liabilities was $2.0 million and was primarily due to a decrease in accounts payable of $35.8 million due to a decrease in inventory, a decrease in inventory of $19.9 million due to fewer purchases intended to reduce inventory, a decrease in accounts receivable of $15.1 million primarily due to the timing of sales and collections, a decrease in other current assets of $4.0 million and a decrease in other liabilities of $1.2 million.
Net cash provided by operating assets and liabilities was $2.0 million and was primarily due to a decrease in accounts payable of $35.8 million due to a decrease in inventory of $19.9 million due to fewer purchases intended to reduce inventory, a decrease in accounts receivable of $15.1 million primarily due to the timing of sales and collections, a decrease in other current assets of $4.0 million and a decrease in other liabilities of $1.2 million.
These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense.
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.
See Note 5, Restructuring , 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, 2022, we completed the sale of our remaining Harrison, Arkansas facility, resulting in total net proceeds of $1.45 million, and a total gain of $1.4 million.
See Note 5, Restructuring , 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, 2022, we completed the sale of our remaining Harrison, Arkansas facility, resulting in total net proceeds of $1.4 million, and a total gain of $1.4 million.
Net cash (used in) financing activities For the year ended June 30, 2022, net cash used in financing activities was $5.2 million, primarily due to proceeds from lines of credit of $265.1 million, offset by payments on lines of credit of $230.9 million, $35.0 million for treasury stock purchases, dividends paid of 13 Table of Contents $3.9 million, and $0.5 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.
For the year ended June 30, 2022, net cash used in financing activities was $5.2 million, primarily due to proceeds from lines of credit of $265.1 million, offset by payments on lines of credit of $230.9 million, $35.0 million for treasury stock purchases, dividends paid of $3.9 million, and $0.5 million for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.
For assets held for sale, 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 the estimated fair value less cost to sell. We recorded no impairments in the fiscal years 2022 and 2021.
For assets held for sale, 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 the estimated fair value less cost to sell. We recorded no impairments in the fiscal years 2023 and 2022.
Letters of credit outstanding at the Lender as of June 30, 2022, totaled $1.1 million See Note 9 Credit Arrangements of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
Letters of credit outstanding at the Lender as of June 30, 2023, totaled $1.1 million See Note 9 Credit Arrangements of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
Allowance for Credit Losses – we establish an allowance for credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value. Our accounts receivable allowances consist of an allowance for doubtful accounts which is established through a review of open accounts, historical collection, and historical write-off amounts.
Allowance for Credit Losses – We establish an allowance for credit losses to reduce trade accounts receivable to an amount that reasonably approximates their net realizable value. Our accounts receivable allowance consists of an allowance for expected credit losses which is established through a review of open accounts, historical collection, and historical write-off amounts.
Gross margin as a percent of net sales for the year ended June 30, 2022, was 13.4%, compared to 20.2% for the prior year period, a decrease of 680 basis points (“bps”).
Gross margin as a percent of net sales for the year ended June 30, 2022, was 13.4%, compared to 20.2% for the prior year period, a decrease of 680-bps.
Selling, general, and administrative (“SG&A”) expenses decreased by $1.2 million in the year ended June 30, 2022, compared to the prior fiscal year. As a percentage of net sales, SG&A was 12.3% in the fiscal year 2022 compared to 14.2% of net sales in the prior fiscal year .
SG&A expenses decreased by $1.2 million in the year ended June 30, 2022, compared to the prior fiscal year. As a percentage of net sales, SG&A was 12.3% in the fiscal year 2022 compared to 14.2% of net sales in the prior fiscal year.
Net income was $23.0 million, or $3.09 per diluted share for the year ended June 30, 2021, compared to a net loss of $26.8 million, or $3.37 per diluted share in the prior year. Liquidity and Capital Resources Working capital (current assets less current liabilities) on June 30, 2022, was $125.4 million compared to $128.8 million on June 30, 2021.
Net income was $1.9 million, or $0.28 per diluted share for the year ended June 30, 2022, compared to net income of $23.0 million, or $3.09 per diluted share in the prior year. Liquidity and Capital Resources Working capital (current assets less current liabilities) on June 30, 2023, was $115.5 million compared to $125.4 million on June 30, 2022.
The $3.4 million decrease in working capital was due to an increase in cash of $0.8 million, a decrease in accounts payable of $35.6 million, a decrease of $14.9 million in trade receivables, a decrease in inventory of $19.9 million, a decrease of other current assets of $4.5 million and an increase in other liabilities of $0.5 million.
The $9.9 million decrease in working capital was due to a decrease in inventory of $19.1 million and a decrease of $2.9 million in trade receivables offset by a decrease in accounts payable of $7.4 million, a decrease in other liabilities of $2.1 million, an increase of other current assets of $1.5 million, and an increase in cash of $1.2 million.
For the years ended June 30, 2022 2021 2020 Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 86.6 79.8 85.5 Gross margin 13.4 20.2 14.5 Selling, general and administrative 12.3 14.2 19.7 Restructuring expense 0.1 0.7 9.3 (Gain) on disposal of assets (0.3) (1.2) (5.2) Operating income (loss) 1.2 6.5 (9.4) Other income 0.0 0.1 0.2 Interest (expense) (0.2) (0.0) (0.0) Income (loss) before income taxes 1.1 6.6 (9.2) Income tax provision (benefit) 0.7 1.8 (1.9) Net income (loss) 0.3 % 4.8 % (7.3) % 11 Table of Contents Fiscal 2022 Compared to Fiscal 2021 Net sales were $544.3 million for the year ended June 30, 2022, compared to net sales of $478.9 million in the prior year, an increase of $65.4 million or 13.6%.
For the years ended June 30, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of goods sold 82.0 86.6 79.8 Gross margin 18.0 13.4 20.2 Selling, general and administrative 16.0 12.3 14.2 Restructuring expense — 0.1 0.7 Environmental remediation (0.7) — — (Gain) on disposal of assets — (0.3) (1.2) Other expense 0.1 — — Litigation settlement costs — — 0.0 Operating income 2.7 1.2 6.5 Other income 0.0 0.0 0.1 Interest (expense) (0.3) (0.2) (0.0) Income before income taxes 2.3 1.1 6.6 Income tax (benefit) expense (1.4) 0.7 1.8 Net income 3.8 % 0.3 % 4.8 % 10 Table of Contents Fiscal 2023 Compared to Fiscal 2022 Net sales were $393.7 million for the year ended June 30, 2023, compared to net sales of $544.3 million in the prior year, a decrease of ($150.6) million or (27.7%).
A summary of operating, investing, and financing cash flow is shown in the following table: For the years ended June 30, (in thousands) 2022 2021 Net cash provided by (used in) operating activities $ 7,993 $ (32,692) Net cash (used in) provided by investing activities (1,916) 16,062 Net cash (used in) financing activities (5,235) (30,225) Increase (decrease) in cash and cash equivalents $ 842 $ (46,855) Net cash provided by ( used in) operating activities For the year ended June 30, 2022, cash provided by operating activities was $8.0 million, which primarily consisted of net income of $1.9 million, adjusted for non-cash items including depreciation of $5.2 million, gain from the sale of capital assets of $1.8 million, stock-based compensation of $1.0 million and allowance reserve recoveries of $0.3 million.
A summary of operating, investing, and financing cash flow is shown in the following table: For the years ended June 30, (in thousands) 2023 2022 Net cash provided by operating activities $ 22,989 $ 7,993 Net cash (used in) investing activities (4,450) (1,916) Net cash (used in) financing activities (17,358) (5,235) Increase in cash and cash equivalents $ 1,181 $ 842 Net cash provided by operating activities For the year ended June 30, 2023, cash provided by operating activities was $23.0 million, which primarily consisted of net income of $14.8 million, adjusted for non-cash items including depreciation of $4.6 million and stock-based compensation of $3.2 million, offset by $7.2 million in deferred income taxes, accounts receivable allowance recoveries of $0.4 million, and gain from the sale of capital assets of $0.3 million.
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.
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 Dubuque Bank and Trust and for working capital purposes.
Fiscal 2021 Compared to Fiscal 2020 Net sales were $478.9 million for the year ended June 30, 2021, compared to net sales of $366.9 million in the prior year, an increase of 30.5%.
Fiscal 2022 Compared to Fiscal 2021 Net sales were $544.3 million for the year ended June 30, 2022, compared to net sales of $478.9 million in the prior year, an increase of $65.4 million or 13.6%.
Both product lines combined represented less than 1% of the Company’s total net sales for the fiscal year ended 2022. 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, 2022, 2021 and 2020.
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, 2023, 2022 and 2021. Amounts presented are percentages of the Company’s net sales.
For the year ended June 30, 2021, cash used in operating activities was $32.7 million, which primarily consisted of net income of $23.0 million, adjusted for non-cash items including depreciation of $5.2 million, gain from the sale of capital assets of $5.9 million, change in deferred income taxes of $2.1 million, stock-based compensation of $3.7 million and bad debt expense of $1.6 million.
For the year ended June 30, 2022, cash provided by operating activities was $8.0 million, which primarily consisted of net income of $1.9 million, adjusted for non-cash items including depreciation of $5.2 million, gain from the sale of capital assets of $1.8 million, stock-based compensation of $1.0 million and allowance reserve recoveries of $0.3 million.
Capital expenditures were $3.9 million for the fiscal year ended June 30, 2022.
Capital expenditures were $4.8 million for the fiscal year ended June 30, 2023.
Gross margin as a percent of net sales for the year ended June 30, 2021, was 20.2%, compared to 14.5% for the prior year, an increase of 570 basis points (“bps”).
Gross margin as a percent of net sales for the year ended June 30, 2023, was 18.0%, compared to 13.4% for the prior year period, an increase of 460 basis points (“bps”).
Net cash (used in) provided by investing activities For the year ended June 30, 2022, net cash used in investing activities was $1.9 million, primarily due to capital expenditures of $3.8 million partially offset by proceeds of $1.9 million from the sale of our Harrison, Arkansas, facility, and the finalization of the sale of our transportation fleet equipment.
Net cash (used in) investing activities For the year ended June 30, 2023, net cash used in investing activities was $4.5 million, primarily due to capital expenditures of $4.8 million partially offset by proceeds of $0.3 million from the sale of capital assets.
Restructuring expenses were $0.7 million during the year ended June 30, 2022, primarily for ongoing costs associated with our facilities listed as held for sale, professional fees, and former employee expenses as part of our previously announced comprehensive restructuring plan.
The decrease of 190-bps is primarily due to a decrease of 170-bps due to leverage on year-over-year sales growth and a decrease of 100-bps due to lower incentive compensation and offset by an increase of 80-bps due to growth investments. 11 Table of Contents Restructuring expenses were $0.7 million during the year ended June 30, 2022, primarily for ongoing costs associated with our facilities listed as held for sale, professional fees, and former employee expenses as part of our previously announced comprehensive restructuring plan.
The realization of our remaining 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 record an additional valuation allowance against our deferred tax assets.
Any reduction in future taxable income including but not limited to any future restructuring activities may require that we re-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.
Our focus for fiscal 2023 will be to remain financially agile with strong liquidity, continue building our foundation for profitable long-term growth in both retail and e-commerce sales channels, build global supply chain resiliency, expand sourcing, manufacturing, and distribution capacity to support future growth, strengthen digital capabilities, reimagine the customer experience, and build strong culture and talent. 14 Table of Contents During fiscal 2023, the Company anticipates spending $4.0 million to $4.5 million on capital expenditures.
Contractual Obligations The following table summarizes our contractual obligations on June 30, 2023, 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 $ 82,746 $ 9,391 $ 18,233 $ 18,082 $ 37,040 Warehouse management obligation 4,915 1,512 3,025 378 — 13 Table of Contents Outlook Our focus for fiscal 2024 will be to remain financially agile with strong liquidity, continue building our foundation for profitable long-term growth in both retail and e-commerce sales channels, build global supply chain resiliency, expand sourcing, manufacturing, and distribution capacity to support future growth, strengthen digital capabilities, reimagine the customer experience, and build strong culture and talent.
Income tax expense was $8.4 million, or an effective rate of 26.8%, during the year ended June 30, 2021, compared to an income tax benefit of $6.9 million in the prior year, or an effective tax rate of 20.5%.
Income tax benefit was ($5.6) million, or an effective rate of (60.3%), for the year ended June 30, 2023, compared to income tax expense of $4.1 million in the prior year, or an effective tax rate of 68.6%. The effective tax rate was primarily impacted by the release of our valuation allowance on deferred tax assets.
When LIBOR becomes unavailable, the replacement rate will be determined pursuant to the terms of the Credit Agreement. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00.
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.
Net income was $1.9 million, or $0.28 per diluted share for the year ended June 30, 2022, compared to net income of $23.0 million, or $3.09 per diluted share in the prior year.
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 $14.8 million, or $2.74 per diluted share for the year ended June 30, 2023, compared to net income of $1.9 million, or $0.28 per diluted share in the prior year.
The first amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defines default or event of default and the calculation of the Fixed Charge Coverage Ratio. As of June 30, 2022, there was $37.7 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.
The first amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defines 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.
Restructuring expenses were $3.5 million during the year ended June 30, 2021, primarily for ongoing utilities and maintenance costs for our facilities listed as held for sale, professional fees, and employee termination costs as part of our previously announced comprehensive restructuring plan.
The prior fiscal year expenses were primarily for ongoing costs associated with our facilities listed as held for sale, professional fees, and former employee expenses as part of our previously announced comprehensive restructuring plan. See Note 5, Restructuring , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.
As a percentage of net sales, SG&A was 14.2% in the year ended June 30, 2021, compared to the prior year of 19.7%.
Selling, general, and administrative (“SG&A”) expenses decreased by $3.9 million in the year ended June 30, 2023, compared to the prior fiscal year. As a percentage of net sales, SG&A expense was 16.0% in the fiscal year 2023 compared to 12.3% of net sales in the prior fiscal year .
See Note 5, Restructuring , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information. 12 Table of Contents During the year ended June 30, 2021, we completed the sale of our Dubuque, Iowa, Lancaster, Pennsylvania, and one of our Harrison, Arkansas facilities, resulting in total net proceeds of $18.6 million, and a total gain of $5.9 million.
During the year ended June 30, 2023, the Company recorded income of $2.8 million as a result of insurance proceeds received related to the settlement of the environmental remediation liability. See Note 13 Commitments and Contingencies , of the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K for more information.
The increase in sales of $112.0 million was primarily driven by $138.8 million, or an increase of 51.1%, related to home furnishing products sold through retailers, and $5.9 million, or an increase of 9.7%, for home furnishing products sold through e-commerce.
Sales of products sold through retailers declined by ($142.5) million or (29.3%) primarily driven by consumer demand returning to pre-pandemic levels and competitive pressure to lower prices. Sales of products sold through e-commerce channels decreased by ($8.1) million, or (13.8%) due to a decrease in consumer demand.
Removed
Business Update On April 28, 2020, we announced the exit of our Vehicle Seating, and the remainder of the Hospitality product lines, and subsequently closed our Dubuque, Iowa and Starkville, Mississippi manufacturing facilities. We completed substantially all the restructuring activities related to the exit of our Vehicle Seating and the remainder of the Hospitality product lines during fiscal 2021.
Added
The 460-bps increase was primarily driven by a 680-bps increase related to lower ancillary charges caused by domestic supply chain disruptions and higher per diem charges in the prior year, an increase of 40-bps primarily related to cost savings initiatives for materials, labor, and transportation, a decrease of 150-bps due to pricing promotions and inventory write-downs, and a decrease of 110-bps related to capacity growth investments in manufacturing and distribution.
Removed
Amounts presented are percentages of the Company’s net sales.
Added
The increase of 370-bps is primarily due to an increase of 350-bps due to deleverage on year-over-year sales decline and an increase of 20-bps due to higher incentive compensation and investment in growth initiatives. There were no restructuring expenses in the year ended June 30, 2023, as all restructuring activities were completed in the prior fiscal year.
Removed
The decrease of 190-bps is primarily due to a decrease of 170-bps due to leverage on year-over-year sales growth and a decrease of 100-bps due to lower incentive compensation and offset by an increase of 80-bps due to growth investments.
Added
The $7.2 million change in deferred income taxes primarily relates to the release of our valuation allowance on deferred tax assets.
Removed
Net sales growth in our home furnishing products was virtually in all product categories due to increased demand, partially offset by a decline of $32.7 million primarily due to the exit from our Vehicle Seating and Hospitality product lines during the fourth quarter of fiscal 2020.
Added
Net cash provided by operating assets and liabilities was $8.3 million and was primarily due to a decrease in inventory of $19.1 million due to fewer purchases intended to reduce inventory, a decrease in accounts receivable of $3.3 million due to lower net sales, offset by a decrease in accounts payable of $7.3 million due to lower inventory purchases, a decrease in other assets of $5.3 million, and a decrease in other liabilities of $1.5 million.
Removed
The 570-bps increase was primarily driven by structural cost reductions, operational efficiencies, and fixed cost leverage due to higher sales volume as compared to the prior year and lower inventory reserve due to demand. Selling, general and administrative expenses decreased by $4.5 million in the year ended June 30, 2021, compared to the prior year.
Added
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”).
Removed
The decline in SG&A expenses was primarily due to a $3.5 million reduction in bad debt expenses from the prior year driven by a customer bankruptcy. Higher sales commission expense resulting from increased sales was largely offset by other spending reductions and lower depreciation.
Added
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 6.42% on June 30, 2023 . As of June 30, 2023, there was $28.3 million outstanding under the Credit Agreement, exclusive of fees and letters of credit.
Removed
The 550-bps decline compared to the prior year was primarily due to cost leverage gained from higher sales, reductions in non-essential spending due to COVID-19, lower depreciation expense due to assets sold or being held for sale, and lower bad debt expense as discussed above during the year ended June 30, 2021.
Added
At June 30, 2023 the Company determined that based on the weight of available evidence, we will be able to recover our deferred tax assets and reversed our deferred tax valuation allowance. The realization of our remaining deferred tax assets is primarily dependent on future taxable income in the appropriate jurisdiction.
Removed
Net cash used in operating assets and liabilities was $62.7 million.
Added
Refer to Note 10 Income Taxes of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information . 14 Table of Contents
Removed
The cash used in operating assets and liabilities of $62.7 million, was primarily due to an increase in trade receivables of $25.2 million due to higher sales, an increase in inventory of $90.6 million due to inventory build for the beginning of fiscal 2022, partially offset by $9.4 million decline in other current assets primarily due to receipt of an income tax net refund of $5.6 million and increases in accounts payable of $40.0 million and accrued liabilities of $4.0 million.
Removed
For the year ended June 30, 2021, net cash provided by investing activities was $16.1 million, primarily due to proceeds of $18.6 million for the sale of our Dubuque, IA, and Lancaster, PA, facilities and one of our Harrison, Arkansas facilities, partially offset by capital expenditures of $2.6 million.
Removed
The Company’s $1.2 million letters of credit previously issued by the Lender are being treated as outstanding under the Credit Agreement and reduce the amount of available borrowings under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to Dubuque Bank & Trust and for working capital purposes.
Removed
The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. Subject to certain conditions, borrowings under the Credit Agreement bear interest at LIBOR plus 1.25% or 1.50% per annum, or an effective interest rate of 3.04% on June 30, 2022.
Removed
Contractual Obligations The following table summarizes our contractual obligations on June 30, 2022, 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 $ 44,944 $ 7,458 $ 10,772 $ 8,483 $ 18,231 Warehouse management obligation 6,428 1,512 3,025 1,891 — Outlook The COVID-19 pandemic, cost inflation, and supply-chain disruptions presented unprecedented challenges during fiscal 2022.
Removed
The Company plans to spend approximately $3.5 million for manufacturing productivity improvements and approximately $0.5 million for manufacturing software maintenance and general maintenance. The Company believes it has access to adequate working capital to meet these requirements.
Removed
We maintain valuation allowances with respect to our deferred tax assets unless it is more likely than not that all or a portion of such deferred tax assets will be realized. Our income tax expense recorded in the future may be reduced to the extent of decreases in our valuation allowances.
Removed
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. Recently Issued Accounting Pronouncements See Item 8. Note 1 Significant Accounting Policies of the Notes to the Company’s consolidated financial statements. 15 Table of Contents

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+2 added−0 removed4 unchanged
Biggest changeForeign Currency Risk – During fiscal years 2022, 2021, and 2020, the Company did not have sales but had purchases and other expenses denominated in foreign currencies. The market risk associated with currency exchange rates and prices is not considered significant. Interest Rate Risk – The Company’s primary market risk exposure regarding financial instruments is changes in interest rates.
Biggest changeForeign Currency Risk – During fiscal years 2023, 2022, and 2021, the Company did not have sales but had purchases and other expenses denominated in foreign currencies, primarily the Mexican Peso.
On June 30, 2022, the Company had $37.7 million outstanding on its line of credit. ‎ 16 Table of Contents
On June 30, 2023, the Company had $28.3 million outstanding on its line of credit. ‎ 15 Table of Contents
Added
The wages of our employees and certain other employee benefit 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 exposure.
Added
A negative shift in the value of the U.S. dollar against the Peso could increase the cost of our manufactured product. See “Risk Factors” in Item 1A in this Annual Report on Form 10-K for further discussion . Interest Rate Risk – The Company’s primary market risk exposure regarding financial instruments is changes in interest rates.

Other FLXS 10-K year-over-year comparisons