SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the quarterly period ended December 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-5151
Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319
FLEXSTEEL INDUSTRIES, INC.
P. O. BOX 877
DUBUQUE, IOWA 52004-0877
Area code 563 Telephone 556-7730
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_. No ___.
Common Stock - $1.00 Par Value
Shares Outstanding as of December 31, 2001 6,072,020
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30,
2001 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 15,895,678 $ 10,048,562
Investments ............................................. 3,248,062 2,536,469
Trade receivables - less allowance for doubtful accounts:
December 31, 2001, $2,500,000
June 30, 2001, $1,950,000 ........................... 24,243,474 28,363,058
Inventories ............................................. 30,337,241 31,379,836
Deferred income taxes ................................... 2,700,000 2,700,000
Other ................................................... 1,537,487 1,546,710
------------ ------------
Total current assets ............. 77,961,942 76,574,635
PROPERTY, PLANT, AND EQUIPMENT
At cost less accumulated depreciation:
December 31, 2001, $62,864,290; June 30,
2001, $60,604,549 ....................................... 21,773,102 24,553,962
NOTES RECEIVABLE .............................................. 377,915 415,762
DEFFERRED INCOME TAXES ........................................ 300,000 300,000
OTHER ASSETS .................................................. 8,725,664 8,450,110
------------ ------------
TOTAL ..................... $109,138,623 $110,294,469
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ................................ $ 2,919,139 $ 5,277,607
Accrued liabilities:
Payroll and related items .......................... 3,802,088 3,803,071
Insurance .......................................... 5,705,105 5,863,451
Other accruals ..................................... 6,557,235 5,253,930
Industrial revenue bonds payable ........................ 975,000 975,000
------------ ------------
Total current liabilities ......... 19,958,567 21,173,059
DEFERRED COMPENSATION ......................................... 4,490,902 4,059,186
------------ ------------
Total liabilities .................................. 24,449,469 25,232,245
------------ ------------
SHAREHOLDERS' EQUITY:
CommonStock - $1 par value; authorized 15,000,000 shares;
issued December 31, 2001, 6,072,020 shares;
issued June 30, 2001, 6,034,210 shares ........... 6,072,020 6,034,210
Additional paid-in capital .............................. 379,206
Retained earnings ....................................... 77,602,164 78,272,996
Accumulated other comprehensive income .................. 635,764 755,018
------------ ------------
Total shareholders' equity ........ 84,689,154 85,062,224
------------ ------------
TOTAL ................... $109,138,623 $110,294,469
============ ============
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
CONSOLIDATED STATEMENTS Three Months Ended Six Months Ended
OF INCOME December 31, December 31,
--------------------------------- ---------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
NET SALES ............................... $ 65,826,772 $ 73,917,362 $ 129,034,342 $ 143,950,204
COST OF GOODS SOLD ...................... (52,599,938) (57,442,657) (103,047,047) (112,962,246)
------------- ------------- ------------- -------------
GROSS MARGIN ............................ 13,226,834 16,474,705 25,987,295 30,987,958
SELLING, GENERAL AND ADMINISTRATIVE ..... (12,250,806) (13,908,702) (24,894,974) (25,705,998)
------------- ------------- ------------- -------------
OPERATING INCOME ........................ 976,028 2,566,003 1,092,321 5,281,960
------------- ------------- ------------- -------------
OTHER:
Interest and other income .......... 224,833 250,447 483,455 609,875
Interest expense ................... (60,103) (93,286) (128,125) (186,295)
------------- ------------- ------------- -------------
Total ......................... 164,730 157,161 355,330 423,580
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES .............. 1,140,758 2,723,164 1,447,651 5,705,540
PROVISION FOR INCOME TAXES .............. (430,000) (1,000,000) (540,000) (2,100,000)
------------- ------------- ------------- -------------
NET INCOME .............................. $ 710,758 $ 1,723,164 $ 907,651 $ 3,605,540
============= ============= ============= =============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC ............................ 6,072,020 6,119,763 6,065,357 6,162,545
============= ============= ============= =============
DILUTED .......................... 6,120,703 6,186,848 6,116,550 6,228,410
============= ============= ============= =============
EARNINGS PER SHARE OF COMMON
STOCK:
BASIC ........................... $ 0.12 $ 0.28 $ 0.15 $ 0.59
============= ============= ============= =============
DILUTED ......................... $ 0.12 $ 0.28 $ 0.15 $ 0.58
============= ============= ============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS Three Months Ended Six Months Ended
OF INCOME December 31, December 31,
--------------------------------- ---------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
NET INCOME .............................. $ 710,758 $ 1,723,164 $ 907,651 $ 3,605,540
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME
(LOSS), BEFORE TAX:
Unrealized gains (losses) on
securities arising during period .. 353,265 25,235 (163,592) 97,345
Less: reclassification adjustment
for (gains) losses included in
net income ........................ (32,669) 22,500 (16,169) 41,250
------------- ------------- ------------- -------------
Other comprehensive income (loss),
before tax .................... 320,596 47,735 (179,761) 138,595
------------- ------------- ------------- -------------
INCOME TAX (EXPENSE) BENEFIT:
Income tax (expense) benefit related to
securities losses or gains arising
during period .......................... (130,709) (9,275) 54,326 (35,937)
Income tax expense (benefit) related to
securities reclassification adjustment . 12,088 (8,325) 6,181 (15,263)
------------- ------------- ------------- -------------
Income tax (expense) benefit related
to other comprehensive income .......... (118,621) (17,600) 60,507 (51,200)
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX .......... 201,975 30,135 (119,254) 87,395
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME .................... $ 912,733 $ 1,753,299 $ 788,397 $ 3,692,935
============= ============= ============= =============
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Six Months Ended
December 31,
-----------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES:
Net Income ................................................ $ 907,651 $ 3,605,540
Adjustments to reconcile net income to net cash
provided by operating activities ......................
Depreciation .......................................... 2,795,586 2,965,166
Facility closing costs ................................ 890,000
Gain on disposition of capital assets ................. (23,537) (45,769)
Trade receivables ..................................... 4,078,434 (439,637)
Inventories ........................................... 765,595 (1,318,294)
Other current assets .................................. 9,223 (1,184,184)
Other assets .......................................... (15,076) (52,522)
Accounts payable - trade .............................. (2,358,468) 759,564
Accrued liabilities ................................... 1,092,491 (1,243,075)
Deferred compensation ................................. 431,716 230,000
------------ ------------
Net cash provided by operating activities ................. 8,573,615 3,276,789
------------ ------------
INVESTING ACTIVITIES:
Loans to customers on notes receivable ............. (325,000)
Payments received from customers on notes receivable 78,997 108,303
Purchases of investments .......................... (5,805,518) (435,994)
Proceeds from sales of investments ................. 4,714,194 1,381,242
Proceeds from sales of capital assets .............. 27,650 81,127
Capital expenditures ............................... (204,839) (2,671,294)
------------ ------------
Net cash used in investing activities ..................... (1,189,516) (1,861,616)
------------ ------------
FINANCING ACTIVITIES:
Payments of dividends .............................. (1,573,568) (1,602,184)
Proceeds from issuance of common stock ............. 36,585 34,940
Repurchase of common stock ......................... (1,387,409)
------------ ------------
Net cash used in financing activities ..................... (1,536,983) (2,954,653)
------------ ------------
Increase (decrease) in cash and cash equivalents .......... 5,847,116 (1,539,480)
Cash and cash equivalents at beginning of period .......... 10,048,562 4,000,855
------------ ------------
Cash and cash equivalents at end of period ................ $ 15,895,678 $ 2,461,375
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest ............................................. $ 15,000 $ 36,000
Income taxes ......................................... $ 189,000 $ 3,251,000
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying condensed financial statements are unaudited and include
all adjustments, consisting of only normal recurring accruals, that
management considers necessary to fairly present the results for such
periods. These financial statements should be read in conjunction with the
financial statements and notes contained in the Company's Annual Report on
Form 10-K for the year ended June 30, 2001. Results for interim periods are
not necessarily indicative of results for the full year.
SEGEMENT AND RELATED INFORMATION- Under the "management approach"
methodology prescribed by Statement of Financial Accounting Standards
(SFAS) No.131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, the Company operates in two segments. The significant segment
is the manufacture of seating products. The second segment is the operation
of five retail furniture stores. The retail segment had $2.1 million and
$2.4 million of assets at December 31, 2001 and June 30, 2001,
respectively. For the quarter ended December 31, 2001 the retail segment
had net sales of $1.8 million and a net loss of $0.6 million. For the
quarter ended December 31, 2000 the retail segment had net sales of $1.1
million and a net loss of $0.6 million. For the six months ended December
31, 2001 the retail segment had net sales of $3.3 million and a net loss of
$1.2 million. For the six months ended December 31, 2000 the retail segment
had net sales of $1.4 million and a net loss of $0.7 million.
2. The inventories are categorized as follows:
December 31, June 30,
2001 2001
------------ ------------
Raw materials........................ $ 14,450,746 $ 16,343,218
Work in process and finished parts... 8,406,393 8,651,210
Finished goods....................... 7,480,102 6,385,408
------------ ------------
Total........... $ 30,337,241 $ 31,379,836
============ ============
3. Earnings per Share - Basic earnings per share of common stock is based on
the weighted average number of common shares outstanding during each year.
Diluted earnings per share of common stock takes into effect the dilutive
effect of potential common shares outstanding. The Company's only potential
common shares outstanding are stock options, which resulted in a dilutive
effect of 48,683 shares and 67,085 shares in the quarters ended and 51,193
shares and 65,865 shares in the six months ended December 31, 2001 and
2000, respectively. The Company calculates the dilutive effect of
outstanding options using the treasury stock method.
4. ACCOUNTING DEVELOPMENTS -The Company adopted Staff Accounting Bulletin
(SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on January 1,
2001. The adoption had no impact on the Company's financial position or
results of operations.
In September 2000, the Emerging Issues Task Force (EITF) issued No. 00-10,
ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS. EITF No. 00-10 states
that all amounts billed to a customer in a sale transaction, related to
shipping and handling fees, represent revenues earned for the goods
provided and these amounts should be classified as revenue. The Company
adopted EITF No. 00-10 on April 1, 2001. Prior period net sales and costs
of goods sold have been adjusted for this change, which had no effect on
previously reported net income.
In July 2001, the Financial Accounting Standards Board issued SFAS No.141,
BUSINESS COMBINATIONS, and SFAS No.142, GOODWILL AND OTHER INTANGIBLE
ASSETS. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations after June 30, 2001. SFAS No. 142
establishes new standards for accounting for goodwill and intangible assets
and was adopted by the Company on July 1, 2001. The adoption of SFAS No.
141 and 142 had no impact on the Company's financial position or results of
operations.
In June 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. This statement applies to legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development, and/or the normal operation of a long-lived
asset, except for certain obligations of leases. The statement requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is incurred. SFAS No. 143 is effective
for the Company in fiscal 2003. The Company is currently assessing, but has
not yet determined, what impact, if any, this statement will have on its
financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED Assets, which replaces SFAS No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF. This statement clarifies guidance in accounting for the
disposal of long-lived assets. SFAS No. 144 is effective for the Company in
fiscal year 2003. The Company is currently assessing, but has not yet
determined, what impact, if any, this statement will have on its financial
position or results of operations.
5. RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the current period presentation. These reclassifications had no
impact on net income or shareholders' equity as previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 second quarter and
six-month periods ended December 31, 2001 and 2000. Amounts presented are
percentages of the Company's net sales.
Second Quarter Ended Six Months Ended
December 31, December 31,
----------------- -----------------
2001 2000 2001 2000
------ ------ ------ ------
Net Sales ....................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold .............. (79.9%) (77.7%) (79.9%) (78.5%)
----- ----- ----- -----
Gross margin .................... 20.1% 22.3% 20.1% 21.5%
Selling, general & administrative
Expense .................... (18.6%) (18.8%) (19.3%) (17.9%)
----- ----- ----- -----
Operating income ................ 1.5% 3.5% 0.8% 3.6%
Other income, net ............... 0.2% 0.2% 0.3% 0.3%
----- ----- ----- -----
Income before income taxes ...... 1.7% 3.7% 1.1% 3.9%
Income tax expense .............. (0.6%) (1.4%) (0.4%) (1.4%)
----- ----- ----- -----
Net income ...................... 1.1% 2.3% 0.7% 2.5%
===== ===== ===== =====
RESULTS OF OPERATIONS FOR THE QUARTER - Net sales for the quarter ended December
31, 2001 decreased by $8.1 million compared to the prior year quarter.
Residential seating sales volume decreased $6.0 million or 11.2%. Recreational
vehicle seating sales decreased $2.0 million or 12.4%. Commercial seating sales
decreased $0.1 million or 3.2%.
Gross margin decreased $3.2 million to $13.2 million or 20.1% of sales in the
current quarter from $16.4 million or 22.3% of sales in the prior year quarter
reflecting a charge to cost of sales of $0.9 million for facility closing costs.
The facility closing costs consist of $0.4 million related to employee
separations and facility exit costs, and $0.5 million for inventory and fixed
asset write-downs.
On November 15, 2001 the Company announced the closing of its Elkhart, Indiana
recreational vehicle seating facility and incurred a second quarter charge of
$0.9 million, or $0.09 per share after taxes. The Company estimates that closing
the facility will improve quarterly earnings by $0.01 to $0.02 per share
beginning in its third fiscal quarter.
Selling, general and administrative expenses as a percentage of sales were 18.6%
and 18.8% for the current quarter and prior year quarter, respectively. Selling,
general and administrative expenses were negatively impacted by lower absorption
of fixed costs, offset by recoveries of previously written off accounts
receivable of $0.5 million, or $0.05 per share after taxes.
The above factors resulted in net income for the current fiscal quarter of $0.7
million or $0.12 per diluted share compared to $1.7 million or $0.28 per diluted
share in the prior year quarter, a net decrease of $1.0 million or $0.16 per
share.
RESULTS OF OPERATIONS FOR THE LAST SIX MONTHS - Net sales for the six-months
ended December 31, 2001 decreased by $14.9 million or 10.4% compared to the
prior year six-month period. Residential seating sales volume decreased $11.0
million or 11.0%. Recreational vehicle seating sales decreased $3.2 million or
9.6%. Commercial seating sales decreased $0.7 million or 7.1%.
Gross margin decreased $5.0 million to $26.0 million or 20.1% of sales in the
current year from $31.0 million or 21.5% of sales in the prior year reflecting a
previously mentioned charge for facility closing and increased health insurance
costs of $0.7 million.
Selling, general and administrative expenses as a percentage of sales were 19.3%
and 17.9% for the current year and prior year, respectively. Selling, general
and administrative expenses were negatively impacted by lower absorption of
fixed costs offset by recoveries of previously written off accounts receivable
of $0.5 million, or $0.05 per share after taxes.
The above factors resulted in current fiscal year to date net income of $0.9
million or $0.15 per diluted share compared to $3.6 million or $0.58 per diluted
share in the prior year, a net decrease of $2.7 million or $0.43 per share from
the prior year six-month period.
Liquidity and Capital Resources:
- --------------------------------
Working capital at December 31, 2001 was $58.0 million, which includes cash,
cash equivalents and investments of $19.1 million. Working capital increased by
$2.6 million from the June 30, 2001 amount. Net cash provided by operating
activities was $8.6 million during the first six months of fiscal year 2002
versus $3.3 million in the first six months of fiscal year 2001.
Capital expenditures were $0.2 million during the first six months of fiscal
year 2002 and $2.7 million in first six months of fiscal 2001. The current year
expenditures were incurred primarily for manufacturing equipment. The Company
expects that capital expenditures will be $1.0 million in the next six months,
primarily for manufacturing equipment. The funds for projected capital
expenditures are expected to be provided by cash generated from operations and
available cash.
Item 3. Quantitative and Qualitative Information About Market Risk.
Not applicable
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 goals and expectations of the
Company, including statements contained in the Company's filings with the
Securities and Exchange Commission, news releases, and in its report to the
stockholders.
Statements, including those in this report, 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 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, the effectiveness of new product introductions, the product mix of our
sales, the cost of raw materials, the amount of sales generated and the profit
margins thereon, competition, both foreign and domestic, credit exposure to our
customers, and general economic conditions.
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.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders on December 10, 2001, Proposals 1 and 2
set forth in the Board of Directors' definitive Proxy Statement dated November
8, 2001 were approved and adopted by the stockholders. Proposals 1 and 2
respectively, received votes as follows:
Proposal 1 (Election of Directors): Edward J. Monaghan: For 5,648,777, Withheld
69,500, Abstentions and Broker Non-votes 0. Jeffery T. Bertsch: For 5,649,089,
Withheld 69,188, Abstentions and Broker Non-votes 0. Lynn J. Davis: For
5,649,089, Withheld 69,188, Abstentions and Broker Non-votes 0. The names of
each Director whose term of office as a Director continued after the meeting are
as follows: K. Bruce Lauritsen, Edward J. Monaghan, Jeffrey T. Bertsch, L. Bruce
Boylen, Lynn J. Davis, Thomas E. Holloran, Jim R. Richardson, Patrick M. Crahan,
and Marvin M. Stern.
Proposal 2 (Appointment of Deloitte & Touche LLP as Independent Auditors): For:
5,703,815, Against: 11,973, and Abstain: 2,489.
Item 6. Exhibits and Reports on Form 8-K
The registrant filed a report on Form 8-K on December 14, 2001 announcing the
appointment of Robert E. Deignan, Attorney at Law, to the Board of Directors.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on by its behalf by the
undersigned officer there unto duly authorized.
FLEXSTEEL INDUSTRIES, INC.
Date: February 8, 2002 By: /s/ R. J. Klosterman
---------------- ---------------------------
R.J. Klosterman
Financial Vice President &
Principal Financial Officer