EXHIBIT 13
FLEXSTEEL(R)
A SMART DYNAMIC
[PHOTO]
Flexsteel Industries, Inc.
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 2002
FINANCIAL HIGHLIGHTS [Amounts in thousands except per share data]
- --------------------------------------------------------------------------------
[BAR CHART] [BAR CHART]
net sales book value per share
MILLIONS OF DOLLARS DOLLARS
1993 185,813 1993 9.57
1994 204,804 1994 9.98
1995 218,476 1995 10.28
1996 214,887 1996 10.45
1997 230,501 1997 10.86
1998 247,740 1998 11.49
1999 272,130 1999 12.50
2000 300,066 2000 13.81
2001 284,773 2001 14.10
2002 279,671 2002 14.15
[BAR CHART] [BAR CHART]
earnings per share return on common equity
DOLLARS PERCENT
1993 0.87 1993 9.1%
1994 0.94 1994 9.5%
1995 0.72 1995 7.1%
1996 0.63 1996 6.1%
1997 0.86 1997 8.0%
1998 1.08 1998 9.7%
1999 1.51 1999 12.7%
2000 1.82 2000 14.0%
2001 0.74 2001 5.4%
2002 0.92 2002 6.5%
YEAR ENDED JUNE 30, 2002 2001 2000
- ---------------------------------------------------------------------
Net Sales $ 279,671 $ 284,773 $ 300,066
Operating Income 8,269 6,466 17,679
Income Before Income Taxes 9,160 7,274 18,658
Net Income 5,660 4,594 11,928
PER SHARE OF COMMON STOCK:
Average Shares Outstanding:
Basic 6,095 6,108 6,458
Diluted 6,159 6,174 6,562
Earnings:
Basic $ 0.93 $ 0.75 $ 1.85
Diluted 0.92 0.74 1.82
Cash Dividends 0.52 0.52 0.52
AT JUNE 30, 2002 2001 2000
- ---------------------------------------------------------------------
Working Capital $ 62,228 $ 55,402 $ 52,016
Net Plant and Equipment 20,558 24,554 26,837
Total Assets 118,750 110,294 114,876
Shareholders' Equity 87,717 85,062 85,196
[PHOTO] THE EBULLIENT EMMY-AWARD WINNER CHRISTOPHER LOWELL IS HOST TO THE
MOST-WATCHED DAYTIME HOME DECORATING SHOW. HE HAS JOINED WITH
FLEXSTEEL TO CREATE THE HIGHLY SUCCESSFUL CHRISTOPHER LOWELL HOME
COLLECTION OF FURNITURE.
[PHOTO] FLEXSTEEL SEATING GRACES MORE AND MORE LOBBIES AND OTHER PUBLIC AREAS.
OUR COMMERCIAL SEATING DESIGNERS ARE SPECIALISTS WHO WORK CLOSELY WITH
INTERIOR DESIGN AND ARCHITECTURAL FIRMS. THESE CLIENTS DEPEND ON
FLEXSTEEL NOT ONLY FOR HANDSOME QUALITY BUT ALSO FOR A KEEN
UNDERSTANDING OF THEIR COMMERCIAL SEATING NEEDS.
ECHOES OF THE EMPIRE AGE: TYPICAL OF THE ACCENT PIECES IN THE
CHRISTOPHER LOWELL HOME COLLECTION, THIS TABLE IS STRIKING FOR ITS
X-SHAPED BASE AND ITS BUFFED SILVER HARDWARE. THIS IS JUST ONE OF FOUR
TIMELESS GROUPS OF OCCASIONAL FURNITURE.
FLEXSTEEL
TO OUR SHAREHOLDERS,
CUSTOMERS AND ASSOCIATES
IT IS IMPOSSIBLE FOR US TO BEGIN A REVIEW OF THE LAST YEAR WITHOUT RECALLING THE
TRAGEDY EXPERIENCED BY OUR GREAT COUNTRY ON SEPTEMBER 11TH, 2001. ALL OF US
REMEMBER THOSE WHO LOST THEIR LIVES ON THAT SORROWFUL DAY. OUR PRAYERS REMAIN
WITH EACH OF THEM AND ALL OF THOSE WHO SUFFERED LOSS ON THAT DAY.
[PHOTO] [PHOTO]
K. BRUCE LAURITSEN L. BRUCE BOYLEN
PRESIDENT & CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
Our fiscal year had begun on July 1, 2001, with cautious optimism. We were
seeing signs of a slow, steady recovery - signs that the consumer, becoming more
comfortable with the economy, was ready to make those purchases of durable items
that had been postponed. Residential furniture sales were inching up, and we
were seeing increased sales of our products for recreational vehicles.
But then September 11th happened, and positive movement stopped until late
October. By November, we were experiencing better incoming business, a trend
which continued to the end of the fiscal year.
Although total sales decreased slightly - $279,671,402 compared to $284,772,510
in the previous fiscal year, a decrease of 2% - earnings increased
substantially. Net income was $5,659,544 or $0.92 per share, an increase of 23%
over earnings in the same period last year of $4,594,005, or $0.74 per share.
EFFECTS OF THE RECESSION
By the time the economy was officially labeled in recession in December 2001,
the recreational vehicle industry had already been suffering for several months.
During that calendar year, sales of van conversions had dropped a huge 47%, and
we were forced to close our Elkhart plant, and "right-size" our production of
seating for recreational vehicles in three other plants.
The steep declines in the hospitality industry following September 11th forced
the postponement of remodeling and new construction projects that normally would
be served by our Commercial Seating Division.
We also experienced a temporary dip in the sale of home furnishings.
Throughout Flexsteel, managers put slower times to good use, developing new
cost-cutting methods and revisiting areas of possible decrease in waste or
increase in efficiency.
NEVERTHELESS, A YEAR OF DYNAMIC GROWTH
Despite the crushing effects of September 11th, despite the official recession,
we emerged with some excellent results for the year:
* We launched our Christopher Lowell Home Collection which has created
extraordinary dealer interest, publicity, traffic and sales
* We increased penetration of the recreational vehicle seating market
* The Flexsteel name is increasingly recognized in the hospitality and health
markets
* We experienced outstanding growth in Flexsteel Comfort Galleries
* We enjoyed record traffic at our Spring 2002 Furniture Market
THE CHRISTOPHER LOWELL HOME COLLECTION(TM)
One of the most exciting events of the year was our launch last October of the
Christopher Lowell Home Collection of upholstered furniture designed by the
popular TV home decorator Christopher Lowell. Despite the down market of last
fall, the first showing drew overflow crowds. Appearances by Lowell at dealers
showcasing his collection also drew huge crowds. We followed that highly
successful introduction in our Spring Market with case goods selected to
coordinate with the collection.
One hundred sixty dealers have signed up to display the Collection on their
floors, and ninety-seven installations are already in place.
Christopher Lowell draws an average of eleven million viewers a week to his
program on the Discovery channel. His exuberant television persona is ideally
suited to Flexsteel's dynamic vision. In the upcoming season, his show will use
settings that include furniture from the Christopher Lowell Home Collection,
creating even more exposure for us. We expect this program to draw enormous
interest, and are developing exciting cross-marketing projects for the near
future.
THE FLEXSTEEL COMFORT GALLERIES
Flexsteel Comfort Galleries demonstrate Flexsteel's emphasis on doing well those
things the company knows best - providing our dealers with a superior product
and the means to please, serve, and keep their customers. The Flexsteel Comfort
Gallery offers consumers the ultimate in choice, while reducing dealers'
warehousing and inventory expense. Dealers participating in these programs are
showing excellent growth and profitability.
There are now 385 Flexsteel Comfort Galleries in operation and 35 on the drawing
boards. Our Retail Development team has been extremely busy setting up the new
Christopher Lowell Home Collections, new galleries, the designing of attractive
new store fixtures, creating monthly merchandising events and advertising
packages, and upgrading a number of older galleries to the very successful
Comfort Gallery format.
We have expanded our Retail Development team and provided them with new computer
hardware and software to cope with the demand. This team has also developed a
new four-color quarterly newsletter to keep our dealers informed of new
developments.
August is typically a slow furniture sales month for our dealers; to help them
boost sales in that month we've introduced, through GE Capital, a group rate
that allows zero interest until 2005 on qualifying Flexsteel sales. Since many
dealers cannot even obtain a 30-month financing package, this is a powerful
selling tool for them.
FLEXSTEEL | 1
IN A YEAR THAT CONFRONTED US ALL WITH STARK REALITIES, FLEXSTEEL'S CENTURY-OLD
MANAGEMENT TRADITION ONCE AGAIN PROVED ITSELF. COMBINING SMART DESIGN WITH AN
UNCHANGING EMPHASIS ON QUALITY, FLEXSTEEL'S DYNAMIC AND INNOVATIVE MARKETING
STRATEGIES LET US INCREASE OUR MARKET STRENGTH IN SEVERAL KEY AREAS.
[PHOTO] A GRACIOUS AND STUNNING SETTING: THE DINING ROOM OF THE
RECENTLY-RESTORED MOUNTAIN VIEW GRAND HOTEL IN THE WHITE MOUNTAINS OF
NEW HAMPSHIRE. CHAIRS WERE FURNISHED THROUGH OUR COMMERCIAL SEATING
DIVISION.
[PHOTO] WHEN SMARTLY STYLED, RECLINERS ARE AS APPROPRIATE IN LIVING ROOMS AS IN
FAMILY ROOMS. THIS GENEROUSLY-SCALED RECLINER HAS TRADITIONAL
CLUB-CHAIR CHARM, A TUFTED ROLLED BACK, TURNED WOOD LEGS, AND GENEROUS
COMFORT.
[PHOTO] THE INTRICACY OF THIS HAND-CARVED IMPORTED FRAME LENDS ELEGANCE TO THIS
CHAIR FROM OUR POPULAR CHARISMA CHAIR(R) LINE. AN UNUSUAL TOUCH IS THE
WARM PECAN FINISH, ACCENTED BY THE DARK HANG-UP FINISH IN THE CARVING
RECESSES.
[PHOTO] THE CONVERSATION SOFA IS A FAVORITE FOR ITS COMFORTABLE INTIMACY. THIS
GROUP INCLUDES A "WRAP-AROUND" SOFA TABLE AND MATCHING OTTOMANS WHICH
NEST UNDER THE TABLE FOR ADDITIONAL CASUAL SEATING.
[PHOTO] THIS HIGH-STYLE CONTEMPORARY GROUP FROM OUR COMMERCIAL SEATING DIVISION
TURNED HEADS AT THE HOSPITALITY DESIGN SHOW IN LAS VEGAS, NEVADA.
FLEXSTEEL | 2
Leather continues to be enormously popular with all our retailers. Our broad
range of leather patterns, colors and styles offers us a strong competitive
advantage over the limited-selection, low-cost imports which are beginning to
appear in our markets. We expect to retain Flexsteel's advantage by continuing
our traditional quality with extremely good service.
COMMERCIAL SEATING: THE HOSPITALITY & HEALTH MARKETS
This is a developing market for Flexsteel, but a natural for our expertise in
seating. We supply sofas, chairs, tables, recliners, and sleepers, many of them
specifically designed for the spaces they will occupy, to hotels and assisted
living centers. Our expertise is becoming known in the industry, and we
anticipate greatly increasing our market share.
Increasing demand has resulted in our expanding
production capacity at Starkville, where we have also added an entire new
production line for upholstered furniture.
THE RECREATIONAL VEHICLE MARKET LOOKS UP
Disenchantment with air travel became pronounced after September 11th; the
subsequent new security regulations caused many people to turn to motor homes
for leisure travel. Ownership of recreational vehicles is up (9.7% since 1997),
and sales have been vigorous since the first of this year. The demographics look
very good in this market, since the fastest-growing segment of RV owners is in
the 35-to-54 age bracket. One analyst reported in Kiplinger's* predicted that
"the RV business is going to become what Harley-Davidson was in the 90s." While
we do not expect that kind of growth (27-fold), we expect our sales to RV
manufacturers to show double-digit increases each year during the coming decade.
Our ability to offer a complete line of products at all price points is one of
the factors that has allowed us to increase our share of the market even when
this market was softening. We also offer handsome styling and features direct to
each RV manufacturer that no other vendor can offer. One of our newest products
is a motor home seat, for driver or passenger, with seat belts fully integrated
into the seat backs. We are also developing new multi-function bed units with
all-in-one recline and sleep functions.
With price-point coverage and attractive features, we have even been able to
increase our market penetration in the highly-competitive market of travel
trailers.
OPPORTUNITIES IN THE MARINE MARKET
A fast-growing segment for us is the marine market, where we primarily provide
below-deck free-standing furniture for motor yachts. The level of customization
required is high and so are development costs; however, this is a market of
considerable promise, with our sales up about 30% this fiscal year. We continue
to explore opportunities to develop above-deck seating for this market.
TECHNOLOGY IN A DYNAMIC WORLD
We have long used computerized cutters to assist in the layout and cutting of
upholstery fabrics. They are essential for a better matching of patterns; they
greatly speed up the process and reduce fabric waste. Now, computerized
efficiency can be applied even to the odd and unpredictable sizes and shapes of
leather hides - we are installing a Taurus cutter for the leathers used in
vehicle seating.
Similarly, CNC routers are used for precise control in cutting and shaping wood
products; the addition of another computer-controlled router in the Dublin plant
will not only cut waste but allow cutting of frames to schedule. Many of the
commercial seating units produced at the Starkville plant are upholstered in the
customer's own material. A new single-ply computerized cutter brings new
efficiency to that process, allowing faster loading of patterns and saving time
in both cutting and sewing.
On-line access allows information to fly from dealer to salespeople to factory
and back again. We now routinely receive as many as 7000 orders per month
electronically. Dealers have instant access to fabric availability, product
pricing, and order status through our Cyber Resource Center, updated daily. They
can also instantly download advertising aids and digitally-scanned photographs
of our products to be used in print or TV advertising.
Product specifications are now available on shop floor computers, complete with
digital photos detailing methods and procedures, all updated daily.
A consumer can now go to Flexsteel.com and design the sofa of her dreams. The
video catalog on our Web site allows her to select the frame and fabric of her
choice, and see how the finished product will look. The Web site now routinely
receives 67,000 visitors monthly.
CLOSE TIES WITH DEALERS
In the Fifties, Flexsteel developed its unique philosophy of locating our
factories in strategic geographic areas. A competitive advantage at the time, it
allowed us to offer faster delivery to our dealers, mint- fresh and direct from
the factory. Direct factory delivery remains a powerful selling tool, popular
with our dealers, and in fiscal year ending 2003 we are adding 30 new tractors
to our delivery fleet.
Today's instant communications have so reduced the handling time of orders that
now it is practical to centralize many of our selling operations at the same
time providing our dealers with real-time information undreamed of in the
Fifties.
A DYNAMIC PHILOSOPHY: FOCUS ON THE CUSTOMER
Flexsteel's long relationship with its retail dealers has equipped us uniquely
to understand and provide for our dealer's special needs. Similarly, we entered
the recreational vehicle seating business with not only knowledge of seating but
also the expertise born of metal working for the famous Flexsteel seat spring.
These capabilities allowed us to become the top seller in that field and to
advance the state of that art.
We are now acquiring a similar reputation in the commercial seating business. In
all areas of our business, we find that our ability to reduce turn-around time,
meet schedules dependably, and deliver a quality product earns us customers'
loyalty.
The ultimate consumer of all our products is the retail customer. Today's
consumer is better educated, more fashion-savvy, and more quality-conscious.
Flexsteel continues to offer her lasting satisfaction with our lifetime
warranties and handsome designs that bear her lifestyle in mind.
FLEXSTEEL | 3
WITH HANDSOME DESIGNS FOR EVERY SEATING MARKET SEGMENT, A STRENGTHENED MARKETING
PROGRAM, A SOLID FINANCIAL FOOTING, CONTINUED INNOVATIVE MANUFACTURING
TECHNIQUES, AND AN INVALUABLE REPUTATION FOR QUALITY, FLEXSTEEL HAS ALL THE
ELEMENTS IN PLACE FOR A DYNAMIC FUTURE.
[PHOTO] AUTOMOTIVE STYLING AND SUPERIOR ENGINEERING MARK FLEXSTEEL'S
RECREATIONAL VEHICLE SEATING, AS IN THIS MONARCH MOTOR HOME BY MONACO
COACH. OPTIONAL FEATURES MIGHT INCLUDE SIX-POSITION POWER, SWIVEL AND
TILT PEDESTALS, SEAT HEATERS AND OUR PATENTED ERGOFLEX(R) ADJUSTABLE
ARM MECHANISM. HEAVY-GAUGE TUBULAR STEEL AND PRECISE ENGINEERING INSURE
THAT FLEXSTEEL VEHICLE SEATING MEETS OR EXCEEDS FEDERAL MOTOR VEHICLE
SAFETY STANDARDS.
[PHOTO] FIFTH-WHEEL TRAVEL TRAILERS GROW EVER MORE POPULAR AND LUXURIOUS.
KOUNTRY AIRE FROM NEWMAR OFFERS SMART, SPACE-SAVING DESIGN AND GENEROUS
SEATING AND SLEEPING COMFORT BY FLEXSTEEL. THE TWO LEATHER RECLINING
EURO-STYLE ARM CHAIRS HAVE MATCHING OTTOMANS; THE TAILORED SOFA OPENS
AT NIGHT INTO A FULL-SIZE BED. OUR DESIGNERS WORK CLOSELY WITH THE
MANUFACTURERS TO MEET MARKET DEMANDS FOR FASHION, FEATURES, COLOR
PALETTES, AND AMPLE COMFORT.
[PHOTO] NEVER-BEFORE-POSSIBLE SOFA-SLEEPER COMFORT: THE SECRET IS THE MAJESTIC
AIR SLEEP SYSTEM. AN INNOVATIVE OVERLAY OF AIR CUSHIONING OVER THE
SUPPORTIVE COIL INNERSPRING MATTRESS PROVIDES UNPARALLELED PERSONAL
COMFORT. MATCHED WITH A SECTIONAL FROM OUR MURANO COLLECTION, IT
PROVIDES SMART DAYTIME LOOKS WITH ROLLED SERPENTINE ARMS ACCENTED WITH
BRASS NAIL TRIM AND ATTRACTIVE TURNED LEGS.
[PHOTO] TRADITIONAL IS STILL SMART, TODAY WITH A RELAXED TAILORED LOOK.
LUXURIOUS COMFORT IS EVIDENT IN AN EXTRA-DEEP SOFA WITH TWO LAYERS OF
LOOSE BACK PILLOWS. BEAUTIFULLY COMPLEMENTED WITH A HAND-CARVED, ACCENT
CHARISMA CHAIR(R).
[PHOTO] PETITE SCALING, POP-UP HEADREST, AND FULL RECLINING COMFORT ARE MADE
POSSIBLE BY OUR NEWEST RECLINER INTRODUCTION. ALSO OFFERED WITH A
TAILORED SKIRT FOR A TRADITIONAL LOOK.
FLEXSTEEL | 4
FLEXSTEEL AS A CORPORATE CITIZEN
Flexsteel has always been committed to its obligations as a corporate citizen,
and nowhere is this better expressed than by our own associates at every plant,
who are deeply involved in community efforts. Following the September 11th
disaster, our associates raised nearly $14,000 for the American Red Cross, a
contribution matched by the company. Another popular effort is the annual Relay
for Life(R) sponsored by the American Cancer Society(R). This year, associates
in the Dubuque plant raised more than $10,000 through the relay, bake sales, and
innovative fundraising devices such as plant-wide cookouts.
Mindful of our obligations of corporate stewardship, we have for a number of
years optimized our uses of wood. With state-of-the-art cross-grain laminated
hardwoods, we can actually make stronger frames using fewer trees than with the
simple kiln-dried hardwoods used in the past. Of course, the frames are still
lifetime-warranted. We use environmentally-friendly polyurethane foam in our
upholstery, applied in such ways they enhance both the beauty and comfort of our
chairs and sofas, and can still be warranted for life.
FLEXSTEEL AND THE WORLD
We are indeed living in a global economy which has opened many possibilities for
Flexsteel that were not here a mere five years ago. China supplies us with wood
products, notably entertainment centers, occasional tables and accent-chair
frames, that blend beautifully with our upholstered products. We buy leather
from such diverse places as China, South America, Italy, Mexico, Slovenia, and
Germany.
However, our principal products will continue to be made in our USA-based
Flexsteel factories. Today's customer demands the selection of styles and
coverings combined with speedy delivery that Flexsteel offers, a combination of
selling points not possible with the mass production and delays of importing.
MORE THAN A CENTURY OF CONSERVATIVE FISCAL RESPONSIBILITY
Since the company's founding in 1893, and through 33 years of public ownership,
Flexsteel has maintained a philosophy embracing consistent and conservative
fiscal responsibility. The result is that the company today enjoys excellent
liquidity, has virtually no debt, finances major capital expenditures through
its own cash flow, AND HAS PAID CASH DIVIDENDS FOR 242 CONSECUTIVE QUARTERS.
We follow the standards issued by the Securities and Exchange Commission and the
Financial Accounting Standards Board, as you will see in notes to our financial
statements. The tone is set by our top executives, and in our case the tone
emphasizes conservative and consistent application of accounting rules with
equal emphasis on corporate integrity in our daily business dealings and in our
financial statements.
Our strong financial position not only serves us well in difficulttimes, but is
a source of reassurance to our customers and vendors alike.
NEW DIRECTORS ON OUR BOARD
We are extremely fortunate to have obtained the services of two new directors
with outstanding experience. Last December, Robert E. Deignan, a long-time
partner of the Chicago-based international legal firm of Baker & McKenzie joined
the board, bringing with him a wide experience in health industries, real estate
and corporate law.
Then, in June, Eric Rangen, Vice President and Chief Financial Officer of
Alliant Techsystems, Inc., was named to the Board. His background includes 18
years with Deloitte & Touche LLP and an extensive knowledge of the accounting
needs of today's marketplace.
TOWARD A DYNAMIC FUTURE
We see excellent prospects for Flexsteel's future. The home building market
continues to be solid, and interest rates promise to remain moderate throughout
the year, so we have every reason to anticipate another excellent year for your
company. We will continue to fine-tune our strategic marketing plan and our
manufacturing capabilities, allowing us to be competitive and market-driven.
Among things we'll be doing:
* Launching a new product line for commercial seating and expanding production
capacity
* Improving the supply line from domestic and off-shore suppliers
* Cross-marketing the Christopher Lowell Home Collection(TM)
* Marrying more case goods to our upholstered designs
* Increasing our reach to the 100 top retail dealers
* Continuing to identify key builders in the motor yacht business
* Bringing the Flexsteel name to new commercial seating customers
As we accomplish these things, we will increase shareholder value. It will be
made possible by the many talents and abilities of our associates, and we extend
to them our thanks for making this an excellent year, despite its trials, for us
all.
/s/ K. Bruce Lauritsen
K. BRUCE LAURITSEN
PRESIDENT AND CHEIF EXECUTIVE OFFICER
/s/ L. Bruce Boylen
L. BRUCE BOYLEN
CHAIRMAN OF THE BOARD
FLEXSTEEL | 5
FIVE YEAR REVIEW
[ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA]
FISCAL YEAR ENDED JUNE 30, 2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
SUMMARY OF OPERATIONS
Net sales ............................... $279,671 $284,773 $300,066 $272,130 $247,740
Cost of goods sold ...................... 218,151 224,352 235,824 212,576 196,960
Operating income ........................ 8,269 6,466 17,679 15,398 9,868
Interest and other income ............... 1,052 1,063 1,439 1,134 2,015
Interest expense ........................ 161 254 461 315 356
Income before income taxes .............. 9,160 7,274 18,658 16,217 11,527
Provision for income taxes .............. 3,500 2,680 6,730 5,900 3,925
Net income(1)(2)(3) ..................... 5,660 4,594 11,928 10,317 7,602
Earnings per common share:(1)(2)(3)
Basic ................................. 0.93 0.75 1.85 1.52 1.09
Diluted ............................... 0.92 0.74 1.82 1.51 1.08
Cash dividends per common share ......... 0.52 0.52 0.52 0.48 0.48
STATISTICAL SUMMARY
Average common shares outstanding:
Basic ................................. 6,095 6,108 6,458 6,775 6,959
Diluted ............................... 6,159 6,174 6,562 6,850 7,035
Book value per common share ............. 14.15 14.10 13.81 12.50 11.49
Total assets ............................ 118,750 110,294 114,876 112,684 104,673
Property, plant and equipment, net ...... 20,558 24,554 26,837 25,912 23,096
Capital expenditures .................... 1,100 2,817 6,718 8,398 2,392
Working capital ......................... 62,228 55,402 52,016 50,210 50,549
Long-term debt .......................... 0 0 0 0 0
Shareholders' equity .................... 87,717 85,062 85,196 81,166 78,080
SELECTED RATIOS
Net income as percent of sales .......... 2.0% 1.6% 4.0% 3.8% 3.1%
Current ratio ........................... 3.3 to 1 3.6 to 1 3.0 to 1 2.8 to 1 3.1 to 1
Return on ending common equity .......... 6.5% 5.4% 14.0% 12.7% 9.7%
Return on beginning common equity ....... 6.7% 5.4% 14.7% 13.2% 10.1%
Average number of employees ............. 2,260 2,410 2,570 2,400 2,330
(1) For the fiscal year ended June 30, 2002, net income and per share amounts
were reduced by $1,290,000 or $0.21 per share related to restructuring
costs.
(2) For the fiscal year ended June 30, 2000, net income and per share amounts
reflect a gain on the sale of land of approximately $790,000 or $0.12 per
share and a non-taxable gain from life insurance proceeds of approximately
$405,000 or $0.06 per share.
(3) For the fiscal year ended June 30, 1998, net income and per share amounts
reflect a non-taxable gain from life insurance proceeds of approximately
$720,000 or $0.10 per share.
6 | FLEXSTEEL
CONSOLIDATED BALANCE SHEETS
JUNE 30,
----------------------------
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 5,375,683 $ 10,048,562
Investments ..................................................................... 15,876,088 2,536,469
Trade receivables - less allowance for doubtful accounts:
2002, $2,540,000; 2001, $1,950,000 ............................................ 31,361,285 28,363,058
Inventories ..................................................................... 30,322,288 31,379,836
Deferred income taxes ........................................................... 4,500,000 2,700,000
Other ........................................................................... 1,316,136 1,546,710
------------ ------------
Total current assets ............................................................... 88,751,480 76,574,635
PROPERTY, PLANT AND EQUIPMENT, net ................................................. 20,558,338 24,553,962
DEFERRED INCOME TAXES .............................................................. 700,000 300,000
OTHER ASSETS ....................................................................... 8,739,940 8,865,872
------------ ------------
TOTAL ........................................................................... $118,749,758 $110,294,469
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ........................................................... $ 4,876,260 $ 5,277,607
Accrued liabilities:
Payroll and related items ....................................................... 5,454,501 3,819,384
Insurance ....................................................................... 7,066,148 7,968,876
Restructuring ................................................................... 1,700,609
Other ........................................................................... 6,775,889 3,132,192
Industrial revenue bonds payable ................................................... 650,000 975,000
------------ ------------
Total current liabilities .......................................................... 26,523,407 21,173,059
DEFERRED COMPENSATION .............................................................. 4,509,782 4,059,186
------------ ------------
Total liabilities .................................................................. 31,033,189 25,232,245
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY:
Cumulative preferred stock - $50 par value; authorized 60,000 shares;
outstanding - none
Undesignated (subordinated) stock - $1 par value; authorized 700,000 shares;
outstanding - none
Common stock - $1 par value; authorized 15,000,000 shares;
outstanding 2002, 6,198,551 shares; 2001, 6,034,210 shares ................... 6,198,551 6,034,210
Additional paid-in capital ......................................................... 492,223
Retained earnings .................................................................. 80,756,107 78,272,996
Accumulated other comprehensive income ............................................. 269,688 755,018
------------ ------------
Total shareholders' equity ......................................................... 87,716,569 85,062,224
------------ ------------
TOTAL ........................................................................... $118,749,758 $110,294,469
============ ============
See accompanying Notes to Consolidated Financial Statements.
FLEXSTEEL | 7
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
2002 2001 2000
------------- ------------- -------------
NET SALES ......................................... $ 279,671,402 $ 284,772,510 $ 300,065,940
COST OF GOODS SOLD ................................ (218,150,740) (224,352,469) (235,824,182)
------------- ------------- -------------
GROSS MARGIN ...................................... 61,520,662 60,420,041 64,241,758
SELLING, GENERAL AND ADMINISTRATIVE ............... (53,251,978) (53,954,454) (47,812,467)
GAIN ON SALE OF LAND .............................. 1,249,806
------------- ------------- -------------
OPERATING INCOME .................................. 8,268,684 6,465,587 17,679,097
------------- ------------- -------------
OTHER:
Interest and other income ...................... 1,052,158 1,062,629 1,439,293
Interest expense ............................... (161,298) (254,211) (460,796)
------------- ------------- -------------
Total ............................................. 890,860 808,418 978,497
------------- ------------- -------------
INCOME BEFORE INCOME TAXES ........................ 9,159,544 7,274,005 18,657,594
PROVISION FOR INCOME TAXES ........................ (3,500,000) (2,680,000) (6,730,000)
------------- ------------- -------------
NET INCOME ........................................ $ 5,659,544 $ 4,594,005 $ 11,927,594
============= ============= =============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC .......................................... 6,095,184 6,107,785 6,457,960
============= ============= =============
DILUTED ........................................ 6,158,522 6,174,320 6,561,968
============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC .......................................... $ 0.93 $ 0.75 $ 1.85
============= ============= =============
DILUTED ........................................ $ 0.92 $ 0.74 $ 1.82
============= ============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
2002 2001 2000
------------- ------------- -------------
NET INCOME ........................................ $ 5,659,544 $ 4,594,005 $ 11,927,594
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Unrealized gains (losses) on securities
arising during period ........................ (766,947) (21,374) (389,788)
Reclassification adjustment for losses
included in net income ....................... 8,687 18,961 74,138
------------- ------------- -------------
Other comprehensive income (loss), before tax ..... (758,260) (2,413) (315,650)
------------- ------------- -------------
INCOME TAX BENEFIT (EXPENSE):
Income tax benefit related to securities losses
arising during period ....................... 275,800 7,866 143,986
Income tax expense related to securities
reclassification adjustment ................. (2,870) (6,978) (27,431)
------------- ------------- -------------
Income tax expense (benefit) related to other
comprehensive income ........................ 272,930 888 116,555
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX ...................................... (485,330) (1,525) (199,095)
------------- ------------- -------------
COMPREHENSIVE INCOME .............................. $ 5,174,214 $ 4,592,480 11,728,499
============= ============= =============
See accompanying Notes to Consolidated Financial Statements.
8 | FLEXSTEEL
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL ACCUMULATED OTHER
---------------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES PAR VALUE CAPITAL EARNINGS INCOME TOTAL
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 ........ 6,491,840 $ 6,491,840 $ 73,718,238 $ 955,638 $ 81,165,716
Purchase of common stock ...... (385,445) (385,445) $ (651,621) (4,055,342) (5,092,408)
Issuance of common stock ...... 64,394 64,394 651,621 716,015
Investment valuation adjustment (199,095) (199,095)
Cash dividends ................ (3,322,054) (3,322,054)
Net income .................... 11,927,594 11,927,594
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 ........ 6,170,789 6,170,789 78,268,436 756,543 85,195,768
Purchase of common stock ...... (200,038) (200,038) (678,171) (1,418,202) (2,296,411)
Issuance of common stock ...... 63,459 63,459 678,171 741,630
Investment valuation adjustment (1,525) (1,525)
Cash dividends ................ (3,171,243) (3,171,243)
Net income .................... 4,594,005 4,594,005
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2001 ........ 6,034,210 6,034,210 78,272,996 755,018 85,062,224
Issuance of common stock ...... 164,341 164,341 492,223 656,564
Investment valuation adjustment (485,330) (485,330)
Cash dividends ................ (3,176,433) (3,176,433)
Net income .................... 5,659,544 5,659,544
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2002 ........ 6,198,551 $ 6,198,551 $ 492,223 $ 80,756,107 $ 269,688 $ 87,716,569
============ ============ ============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
FLEXSTEEL | 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------
2002 2001 2000
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income ............................................ $ 5,659,544 $ 4,594,005 $ 11,927,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 4,976,637 5,726,298 5,492,556
(Gain) loss on disposition of capital assets ....... (44,459) (35,542) (1,278,671)
Changes in operating assets and liabilities:
Trade receivables .................................. (3,469,976) 5,637,605 (830,818)
Inventories ........................................ 421,484 1,805,222 (2,952,849)
Other current assets ............................... 230,574 (1,003,000) (82,305)
Other assets ....................................... (393,788) (362,326) 630,602
Accounts payable - trade ........................... (401,347) (1,643,926) (155,196)
Accrued liabilities ................................ 6,860,759 (2,106,659) (1,488,716)
Deferred compensation .............................. 450,596 287,034 711,482
Deferred income taxes .............................. (2,200,000) 200,000 500,000
------------ ------------ ------------
Net cash provided by operating activities ............. 12,090,024 13,098,711 12,473,679
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of investments ........................... (19,880,090) (2,014,525) (1,635,138)
Proceeds from sales of investments ................. 6,275,994 4,425,506 4,843,652
Payments received from customers on notes receivable 965,851 211,974 50,000
Loans to customers on notes receivable ............. (1,325,000) (2,875,000)
Proceeds from sale of capital assets ............... 179,219 178,997 1,579,166
Capital expenditures ............................... (1,099,914) (2,817,180) (6,718,094)
------------ ------------ ------------
Net cash used in investing activities ................. (13,558,940) (1,340,228) (4,755,414)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayment of borrowings ............................ (325,000) (325,000) (325,000)
Dividends paid ..................................... (3,155,096) (3,190,069) (3,306,838)
Proceeds from issuance of common stock ............. 276,133 100,704 120,799
Repurchase of common stock ......................... (2,296,411) (5,092,409)
------------ ------------ ------------
Net cash used in financing activities .............. (3,203,963) (5,710,776) (8,603,448)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ... (4,672,879) 6,047,707 (885,183)
Cash and cash equivalents at beginning of year ..... 10,048,562 4,000,855 4,886,038
------------ ------------ ------------
Cash and cash equivalents at end of year .............. $ 5,375,683 $ 10,048,562 $ 4,000,855
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ........................................... $ 24,000 $ 61,000 $ 64,000
Income taxes ....................................... $ 2,990,000 $ 4,442,000 $ 7,050,000
See accompanying Notes to Consolidated Financial Statements.
10 | FLEXSTEEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Flexsteel Industries, Inc. (the Company)
manufactures a broad line of upholstered furniture for residential,
recreational vehicle and commercial seating use. Products include sofas,
love seats, chairs, reclining and rocker-reclining chairs, swivel rockers,
sofa beds, and convertible bedding units. The Company has two wholly owned
subsidiaries: (1) Desert Dreams, Inc. owns and leases a commercial building
to an unrelated entity, and (2) Four Seasons, Inc. operates three retail
furniture stores. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES - the preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE - the Company's cash, accounts receivable, accounts payable,
accrued liabilities and other liabilities are carried at amounts which
reasonably approximate their fair value due to their short-term nature.
Notes receivable and the industrial revenue bonds payable are carried at
amounts, which reasonably approximate their fair value due to their variable
interest rates. Fair values of investments in debt and equity securities are
disclosed in Note 2.
CASH EQUIVALENTS - the Company considers highly liquid investments with
original maturities of three months or less as the equivalent of cash.
INVENTORIES - are stated at the lower of cost or market. Raw steel, lumber
and wood frame parts are valued on the last-in, first-out (LIFO) method.
Other inventories are valued on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. For
internal use software, the Company's policy is to capitalize external direct
costs of materials and services, directly-related internal payroll and
payroll-related costs, and interest costs.
REVENUE RECOGNITION - is upon delivery of product. Net sales consist of
product sales and related delivery charge revenue, net of adjustments for
returns and allowances.
RESEARCH AND DEVELOPMENT COSTS - are charged to expense in the periods
incurred. Expenditures for research and development costs were approximately
$1,970,000, $2,090,000 and $2,170,000 in fiscal 2002, 2001 and 2000,
respectively.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - the Company has no
free-standing or embedded derivatives. All contracts that contain provisions
meeting the definition of a derivative also meet the requirements of, and
have been designated as, normal purchases or sales. The Company's policy is
to not use free-standing derivatives and to not enter into contracts with
terms that cannot be designated as normal purchases or sales.
INSURANCE - the Company is self-insured for health care and most workers'
compensation up to predetermined amounts above which third party insurance
applies. The Company is contingently liable to insurance carriers under its
comprehensive general, product, and vehicle liability policies, as well as
some workers' compensation, and has provided letters of credit in the amount
of $2,507,000. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred using certain actuarial assumptions
followed in the insurance industry and based on Company experience.
INCOME TAXES - deferred income taxes result from temporary differences
between the tax basis of an asset or liability and its reported amount in
the financial statements.
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 includes 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
63,338 shares, 66,535 shares and 104,008 shares in fiscal 2002, 2001 and
2000, respectively. The Company calculates the dilutive effect of
outstanding options using the treasury stock method.
ACCOUNTING DEVELOPMENTS - In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, BUSINESS COMBINATIONS, and SFAS No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 eliminated the
pooling-of-interests method of accounting for business combinations after
June 30, 2001. SFAS No. 142 established new standards for accounting for
goodwill and intangible assets and was adopted by the Company on July 1,
2001. Because the Company has no goodwill or other intangible assets, there
was no impact to the Company's financial position or results of operations
due to the adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 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 lessees. The
Company adopted SFAS No. 143 on July 1, 2001. The adoption of SFAS No. 143
did not have any impact on the Company's 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. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and supersedes SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, along with certain other
reporting standards. SFAS No. 144 was effective for the Company on July 1,
2002. The adoption of SFAS No. 144 did not have a material impact on the
Company's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS
NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. SFAS No. 145 was effective for the Company on July 1, 2002. The
adoption of the technical corrections contained in SFAS No. 145 did not have
a material impact on the Company's financial position or results of
operations.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER
COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A
RESTRUCTURING). SFAS No. 146 requires that a liability for
FLEXSTEEL | 11
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF 94-3, a liability for an exit cost was
recognized at the date of an entity's commitment to an exit plan. SFAS No.
146 will be effective for exit or disposal activities that are initiated by
the Company after December 31, 2002.
RECLASSIFICATIONS - certain prior years' amounts have been reclassified to
conform to the fiscal 2002 presentation. These reclassifications had no
impact on net income or shareholders' equity as previously reported.
2. INVESTMENTS
Debt and equity securities are included in Investments and in Other Assets
(designated for deferred compensation plans), at fair value based on quoted
market prices, and are classified as available for sale. A summary of the
carrying values and fair values of the Company's investments is as follows:
JUNE 30, 2002
---------------------------------------------------------
GROSS UNREALIZED
COST --------------------------- RECORDED
BASIS GAINS LOSSES BASIS
------------ ------------ ------------ ------------
Debt securities $ 16,349,332 $ 79,349 $ (38,021) $ 16,390,660
Equity securities 3,119,345 451,569 (56,507) 3,514,407
------------ ------------ ------------ ------------
$ 19,468,677 $ 530,918 $ (94,528) $ 19,905,067
============ ============ ============ ============
JUNE 30, 2001
---------------------------------------------------------
GROSS UNREALIZED
COST --------------------------- RECORDED
BASIS GAINS LOSSES BASIS
------------ ------------ ------------ ------------
Debt securities $ 3,076,663 $ 29,523 $ (3,776) $ 3,102,410
Equity securities 2,781,872 1,184,382 (15,468) 3,950,786
------------ ------------ ------------ ------------
$ 5,858,535 $ 1,213,905 $ (19,244) $ 7,053,196
============ ============ ============ ============
JUNE 30, 2002 JUNE 30, 2001
--------------------------- ---------------------------
INVESTMENTS OTHER ASSETS INVESTMENTS OTHER ASSETS
------------ ------------ ------------ ------------
Debt securities $ 14,634,657 $ 1,756,003 $ 1,275,810 $ 1,826,600
Equity securities 1,241,431 2,272,976 1,260,659 2,690,127
------------ ------------ ------------ ------------
$ 15,876,088 $ 4,028,979 $ 2,536,469 $ 4,516,727
============ ============ ============ ============
As of June 30, 2002, the maturities of debt securities are $8,388,345 within
one year, $7,586,519 in one to five years and $415,796 over five years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately
$1,452,000 and $1,963,000 higher at June 30, 2002 and 2001, respectively, if
they had been valued on the FIFO method. A comparison of inventories is as
follows:
JUNE 30,
-----------------------------
2002 2001
------------ ------------
Raw materials........................ $ 15,623,962 $ 16,343,218
Work in process and finished parts... 8,092,398 8,651,210
Finished goods....................... 6,605,928 6,385,408
------------ ------------
Total............................. $ 30,322,288 $ 31,379,836
============ ============
4. PROPERTY, PLANT AND EQUIPMENT
JUNE 30,
ESTIMATED -----------------------------
LIFE (YEARS) 2002 2001
----------- ------------ ------------
Land......................... $ 2,212,790 $ 2,212,790
Buildings and improvements... 3-39 30,037,022 30,007,095
Machinery and equipment...... 3-10 31,399,729 31,320,833
Delivery equipment........... 3-7 15,150,048 15,930,432
Furniture and fixtures....... 3-5 5,433,082 5,687,361
------------ ------------
Total................ 84,232,671 85,158,511
Less accumulated depreciation (63,674,333) (60,604,549)
------------ ------------
Net.......................... $ 20,558,338 $ 24,553,962
============ ============
5. OTHER ASSETS
JUNE 30,
-----------------------------
2002 2001
------------ ------------
Cash value of life insurance........ $ 4,321,137 $ 3,933,383
Investments designated for deferred
compensation plans................ 4,028,979 4,516,727
Notes receivable.................... 389,824 415,762
------------ ------------
Total............................ $ 8,739,940 $ 8,865,872
============ ============
6. OTHER ACCRUED LIABILITIES
JUNE 30,
-----------------------------
2002 2001
------------ ------------
Dividends................................. $ 805,785 $ 784,447
Income taxes.............................. 1,956,149 (707,554)
Advertising............................... 1,968,149 1,789,785
Warranty.................................. 500,000 500,000
Other .................................. 1,545,806 765,514
------------ ------------
Total............................. $ 6,775,889 $ 3,132,192
============ ============
7. BORROWINGS
The Company is obligated for $650,000 of Industrial Revenue Bonds at June
30, 2002, which were issued for the financing of property, plant and
equipment. The obligations are variable rate demand bonds with a weighted
average rate for the years ended June 30, 2002, 2001 and 2000 of 2.1%, 4.5%
and 4.1% respectively, and are due in annual installments of $325,000
through fiscal 2004, if not paid earlier upon demand of the holder. The
Company has issued a letter of credit to guarantee the payment of these
bonds in the event of the default. No amounts were outstanding on this
letter at June 30, 2002 or 2001.
8. INCOME TAXES
The total income tax provision for the years ended June 30, 2002, 2001 and
2000 was 38.2%, 36.8% and 36.1%, respectively, of income before income
taxes. In fiscal 2000, the effective rate was reduced by 0.7% for nontaxable
life insurance proceeds of $405,000.
The provision for income taxes is as follows:
2002 2001 2000
----------- ----------- -----------
Federal - current.............. $ 5,180,000 $ 2,550,000 $ 5,520,000
State - current................ 520,000 330,000 710,000
Deferred....................... (2,200,000) (200,000) 500,000
----------- ----------- -----------
Total.................. $ 3,500,000 $ 2,680,000 $ 6,730,000
=========== =========== ===========
The primary components of deferred tax assets and (liabilities) are as
follows:
JUNE 30, 2002 JUNE 30, 2001
------------------------- -------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
----------- ----------- ----------- -----------
Asset allowances $ 940,000 $ 720,000
Other accruals 3,560,000 1,980,000
and allowances
Deferred compensation $ 1,800,000 $ 1,500,000
Property, plant (1,100,000) (1,200,000)
and equipment
----------- ----------- ----------- -----------
Total $ 4,500,000 $ 700,000 $ 2,700,000 $ 300,000
=========== =========== =========== ===========
9. CREDIT ARRANGEMENTS
The Company has lines of credit of $3,000,000 with banks, which renew
annually in October and December, for short-term borrowings at the prime
rate in effect at the date of the loan. On $1,000,000 of such lines the
Company is required to maintain compensating bank balances equal to 5% of
the line of credit plus 5% of any amounts borrowed. There were no short-term
bank borrowings outstanding as of June 30, 2002 or 2001.
12 | FLEXSTEEL
STOCK OPTIONS
The Company has stock option plans for key employees and directors that provide
for the granting of incentive and nonqualified stock options. Under the plans,
options are granted at an exercise price equal to the fair market value of the
underlying common stock at the date of grant, and may be exercisable for up to
10 years. All options are exercisable when granted. At June 30, 2002, 249,450
shares were available for future grants. The Company applies Accounting
Principles Board (APB) Opinion No. 25 and related interpretations in accounting
for its stock option plans, as permitted under FASB Statement No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). Accordingly, no
compensation cost has been recognized for its stock option plans. Had the
compensation cost for the Company's incentive stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the fair-value methodology of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
2002 2001 2000
------------ ------------ ------------
Net income: As reported.... $ 5,659,544 $ 4,594,005 $ 11,927,594
Pro forma...... 5,497,544 4,431,005 11,736,594
Earnings per share:
Basic As reported.... $ 0.93 $ 0.75 $ 1.85
Pro forma...... 0.90 0.73 1.82
Diluted As reported.... 0.92 0.74 1.82
Pro forma...... 0.89 0.72 1.79
The fair value of each option grant is estimated on the date of grant using the
Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2002, 2001 and 2000 respectively: dividend
yield of 5.0%, 4.8% and 3.9%; expected volatility of 24.8%, 24.6% and 26.3%;
risk-free interest rates of 6.5%, 6.5% and 7.1%; and an expected life of 10
years on all options.
A summary of the status of the Company's stock option plans as of June 30, 2002,
2001 and 2000 and the changes during the years then ended is presented below:
SHARES PRICE RANGE
--------- --------------
Outstanding at June 30, 1999...... 559,267 $10.25 - 15.75
Granted......................... 112,000 13.25 - 13.59
Exercised....................... (42,872) 10.25 - 11.44
Canceled........................ (2,650) 10.25 - 11.44
---------
Outstanding at June 30, 2000...... 625,745 10.25 - 15.75
Granted......................... 135,150 10.56 - 10.75
Exercised (8,000) 10.25 - 10.50
---------
Outstanding at June 30, 2001...... 752,895 10.25 - 15.75
Granted......................... 145,950 10.30 - 10.75
Exercised....................... (333,370) 10.25 - 13.25
Canceled........................ (75,110) 10.75 - 14.88
---------
Outstanding at June 30, 2002...... 490,365 10.25 - 15.75
=========
Significant option groups outstanding at June 30, 2002 and related
weighted-average exercise price and remaining life information follows:
WEIGHTED - AVERAGE
----------------------
OPTIONS EXERCISE REMAINING
GRANT DATE OUTSTANDING PRICE LIFE (YEARS)
- ------------------------------- ----------- -------- -----------
July 28, 1994.................. 9,800 $ 10.50 2.1
August 16, 1995................ 34,400 11.25 3.1
July 30, 1996.................. 14,050 10.25 4.1
November 7, 1997............... 51,325 11.44 5.3
November 2, 1998............... 44,100 10.50 6.3
November 2, 1999............... 93,000 13.25 7.3
November 14, 2000.............. 101,950 10.75 8.3
November 2, 2001............... 96,240 10.30 9.3
All other...................... 45,500 12.59 5.3
-------
Total.................. 490,365 11.37 7.0
=======
11. PENSION AND RETIREMENT PLANS
The Company sponsors various defined contribution pension and retirement plans
which cover substantially all employees, other than employees covered by
multi-employer pension plans under collective bargaining agreements. It is the
Company's policy to fund all pension costs accrued. Total pension and retirement
plan expense was $1,691,000 in fiscal 2002, $1,683,000 in fiscal 2001 and
$1,572,000 in fiscal 2000 including $367,000 in fiscal 2002, $380,000 in fiscal
2001 and $363,000 in fiscal 2000 for the Company's matching contribution to
retirement savings plans. The Company's cost for pension plans is determined as
2% - 6% of each covered employee's wages. The Company's matching contribution
for the retirement savings plans is 25% - 50% of employee contributions (up to
4% of their earnings). In addition to the above, amounts charged to pension
expense and contributed to multi-employer defined benefit pension plans
administered by others under collective bargaining agreements were $1,252,000 in
fiscal 2002, $1,355,000 in fiscal 2001 and $1,449,000 in fiscal 2000.
The Company has unfunded post-retirement benefit and deferred compensation plans
with certain officers. During the year ended June 30, 2000, the Company recorded
a one-time cost adjustment of $474,161 due to a change from a fixed benefit
obligation to a defined contribution obligation. The plans require various
annual contributions for the participants based upon compensation levels and
age. All participants are fully vested. For the years ended 2002, 2001 and 2000,
excluding the aforementioned one time cost, the benefit obligation was increased
by interest expense of $139,399, $228,084 and $343,536, service costs of
$582,197, $362,950 and $256,785, and decreased by payments of $271,000, $304,000
and $363,000, respectively. At June 30, 2002 the benefit obligation was
$4,509,782.
12. MANAGEMENT INCENTIVE PLAN
The Company has an incentive plan that provides for shares of common stock to be
awarded to key employees based on a targeted rate of earnings to common equity
as established by the Board of Directors. Shares awarded to employees are
subject to the restriction of continued employment, with 33 1/3% of the stock
received by the employee on the award date and the remaining shares issued after
one and two years. Under the plan 37,641, 34,397 and 53,427 shares were awarded,
and the amounts charged to income were $500,000, $380,000 and $646,000 in fiscal
2002, 2001 and 2000, respectively. At June 30, 2002, 142,640 shares were
available for future grants. Under the Company's Voluntary Deferred Compensation
plan, certain employees may defer the common stock awards until retirement. At
June 30, 2002, 17,684 shares with an award value of $195,585 have been deferred.
13. RESTRUCTURING
During the quarter ended December 31, 2001, the Company recorded a $890,000
charge to cost of goods sold for estimated facility closing costs related to the
Elkhart, Indiana manufacturing facility. The charge principally represents
employee separation costs and facility closing costs with no future benefit to
the Company. The decision to close the facility was driven by the weakening
demand for vehicle seating products especially for van conversions, which was
the primary product of the Elkhart plant. A total of 84 employees representing
all of Elkhart's employees were affected by the closure, including 32 employees
who had been laid off previously. At June 30, 2002, the remaining accrued costs
relate primarily to employee separation costs that are expected to be paid
within the next fiscal year.
During the quarter ended June 30, 2002, the Company recorded a total charge of
$1,200,000 for estimated retail store closing costs. Of the total charge,
$300,000 was recorded as cost of goods sold and $900,000 was charged to selling,
general and administrative expenses. The decision to close the retail store was
driven by the continued struggling operations of the store. There are expected
to be a minimal number of employees
FLEXSTEEL | 13
affected and insignificant amounts of employee separation costs associated
with this retail store closing. The charge principally represents store
closing costs with no future benefit to the Company. The retail
restructuring is expected to be completed within the next fiscal year.
The following table summarizes the activity related to the restructuring
charges during the year ended June 30, 2002:
EMPLOYEE FACILITY
SEPARATION CLOSING
COSTS COSTS TOTAL
----------- ----------- -----------
Restructuring charge for the year
ended June 30, 2002........... $ 750,000 $ 1,340,000 $ 2,090,000
Utilization for the year
ended June 30, 2002........... (318,207) (71,184) (389,391)
----------- ----------- -----------
Accrued restructuring costs
at June 30, 2002.............. $ 431,793 $ 1,268,816 $ 1,700,609
=========== =========== ===========
14. COMMITMENTS AND CONTINGENCIES
Facility Leases - The Company leases certain facilities under various
operating leases. These leases require the Company to pay operating costs,
including property taxes, insurance, and maintenance. Total lease expense
related to the various operating leases was approximately $1,560,000,
$1,410,000 and $730,000 in fiscal 2002, 2001 and 2000, respectively.
Expected future minimum commitments under operating leases and lease
guarantees as of June 30, 2002, were as follows:
YEAR ENDED JUNE 30,
2003 $ 1,168,000
2004 1,184,000
2005 623,000
2006 459,000
2007 473,000
Thereafter 1,222,000
-----------
$ 5,129,000
===========
Guarantee - the Company has guaranteed the future lease payments of a third
party for a six-year period ending August 2008. The annual minimum lease
payments are approximately $220,000, and the remaining minimum payments are
approximately $1,370,000 at June 30, 2002. The Company has not been required
to make any payments under the guarantee.
15. SEGMENTS
The Company operates in two reportable operating segments: (1) Seating
Products and (2) Retail Stores. The Seating Products segment involves the
manufacturing of a broad line of upholstered furniture for residential,
recreational vehicle, and commercial seating markets. The Company's products
are sold primarily throughout the United States by the Company's internal
sales force and various independent representatives. The Retail Stores
segment involves the operation of three retail furniture stores that offer
the Company's residential seating products for sale directly to consumers.
No single customer accounted for more than 10% of sales in either of the
Company's two segments.
The accounting policies of the operating segments are the same as those
described in Note 1. Segment operating income is based on profit or loss
from operations before interest income and expense, other income and income
taxes.
Segment information for the year ended June 30, 2002 is as follows:
SEATING RETAIL
PRODUCTS STORES TOTAL
------------- ------------- -------------
Net sales................ $ 272,497,903 $ 7,173,499 $ 279,671,402
Operating income (loss).. 11,323,944 (3,055,260) 8,268,684
Depreciation............. 4,800,651 175,986 4,976,637
Capital expenditures..... 1,001,654 98,260 1,099,914
Assets .................. 116,950,411 1,799,347 118,749,758
Segment information for the year ended June 30, 2001 is as follows:
SEATING RETAIL
PRODUCTS STORES TOTAL
------------- ------------- -------------
Net sales................ $ 280,337,237 $ 4,435,273 $ 284,772,510
Operating income (loss).. 8,821,939 (2,356,352) 6,465,587
Depreciation............. 5,620,332 105,966 5,726,298
Capital expenditures..... 2,185,736 631,444 2,817,180
Assets .................. 107,927,164 2,367,305 110,294,469
The fiscal 2000 amounts for the Retail Stores segment were not significant.
16. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION
(UNAUDITED - in thousands of dollars, except per share amounts)
QUARTERS
--------------------------------------------
FISCAL 2002 1ST 2ND 3RD 4TH
-------- -------- -------- --------
Net sales ............. $ 63,208 $ 65,826 $ 73,742 $ 76,895
Gross margin........... 12,760 13,227 16,530 19,004
Net income............. 197 711 2,015 2,737
Earnings per share:
Basic............ 0.03 0.12 0.33 0.44
Diluted.......... 0.03 0.12 0.33 0.44
Dividends per share.... 0.13 0.13 0.13 0.13
* Market price:
High............. 12.45 11.84 15.00 17.84
Low.............. 10.69 9.25 11.38 14.00
QUARTERS
--------------------------------------------
FISCAL 2001 1ST 2ND 3RD 4TH
-------- -------- -------- --------
Net sales.............. $ 70,033 $ 73,917 $ 71,973 $ 68,850
Gross margin........... 14,513 16,475 14,645 14,787
Net income............. 1,882 1,723 814 175
Earnings per share:
Basic............ 0.30 0.28 0.13 0.03
Diluted.......... 0.30 0.28 0.13 0.03
Dividends per share.... 0.13 0.13 0.13 0.13
* Market price:
High............. 13.00 12.31 13.13 12.18
Low.............. 12.00 10.50 10.75 10.50
* Reflects the market price as quoted by the National Association of
Securities Dealers, Inc.
14 | FLEXSTEEL
REPORTS OF AUDITORS' AND MANAGEMENT
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF FLEXSTEEL INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheets of Flexsteel
Industries, Inc. (the Company) as of June 30, 2002 and 2001, and the related
consolidated statements of income, comprehensive income, changes in share-
holders' equity and cash flows for each of the three years in the period ended
June 30, 2002. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of June 30, 2002 and 2001, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 2002 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
MINNEAPOLIS, MINNESOTA
AUGUST 9, 2002
REPORT OF MANAGEMENT
TO THE SHAREHOLDERS OF FLEXSTEEL INDUSTRIES, INC.:
Management is responsible for the financial and operating information contained
in this Annual Report, including the consolidated financial statements covered
by the report of Deloitte & Touche LLP, our independent auditors. The statements
were prepared in conformity with accounting principles generally accepted in the
United States of America and include amounts based on estimates and judgments of
management.
The Company maintains a system of internal controls to provide reasonable
assurance that the books and records reflect the authorized transactions of the
Company. There are limits inherent in all systems of internal control because
their cost should not exceed the benefits derived. The Company believes its
system of internal controls and internal audit functions balance the
cost/benefit relationship.
The Audit & Ethics Committee of the Board of Directors, composed solely of
outside directors, annually recommends to the Board of Directors the appointment
of the independent auditors that are engaged to audit the consolidated
financial statements of the Company and to express an opinion thereon. The Audit
& Ethics Committee meets periodically with the independent auditors to review
financial reports, accounting and auditing practices and controls.
K. BRUCE LAURITSEN RONALD J. KLOSTERMAN
PRESIDENT VICE PRESIDENT, FINANCE
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
SECRETARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
GENERAL
The following analysis of the results of operations and
financial condition of Flexsteel Industries, Inc. (the Company) should be read
in conjunction with the consolidated financial statements and related notes
included elsewhere in this document.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company's consolidated financial statements
and results of operations are based on consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States. Preparation of these consolidated financial statements requires
the use of estimates and judgments that affect the reported results. Actual
results may differ from these estimates under different assumptions or
conditions.
USE OF ESTIMATES - the Company uses estimates based on the best information
available in recording transactions and balances resulting from business
operations. Estimates are used for such items as collectability of trade
accounts receivable, inventory valuation, depreciable lives, self-insurance
programs, warranties and income taxes.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - the Company establishes an allowance for
doubtful accounts through review of open accounts, and historical collection and
allowances amounts. The allowance for doubtful accounts is intended to reduce
trade accounts receivable to the amount that reasonably approximates their fair
value due to their short-term nature. The amount ultimately realized from trade
accounts receivable may differ from the amount estimated in the financial
statements based on collection experience and actual returns and allowances.
INVENTORIES - the Company values inventory at the lower of cost or market. Raw
steel, lumber and wood frame parts are valued on the last-in, first-out (LIFO)
method. Other inventories are valued on the first-in, first-out (FIFO) method.
Changes in the market conditions could require a write down of inventory.
SELF-INSURANCE PROGRAMS - the Company is self-insured for health care and most
workers' compensation up to predetermined amounts above which third party
insurance applies. The Company is contingently liable to insurance carriers
under its comprehensive general, product, and vehicle liability policies, as
well as some workers' compensation. Losses are accrued based upon the Company's
estimates of the aggregate liability of claims incurred using certain actuarial
assumptions followed in the insurance industry and based on Company experience.
The actual claims experience could differ from the estimates made by the
Company.
WARRANTY EXPENSE - the Company estimates the amount of warranty claims on sold
product that may be incurred based on current and historical data. The actual
warranty expense could differ from the estimates made by the Company based on
product performance.
REVENUE RECOGNITION - is upon delivery of product. Net sales consist of product
sales and related delivery charge revenue, net of adjustments for returns and
allowances. The actual amounts for returns and allowances could differ from the
estimated amounts.
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 years ended June 30, 2002,
2001 and 2000. Amounts presented are percentages of the Company's net sales.
FLEXSTEEL | 15
FOR THE YEARS ENDED JUNE 30,
-----------------------------
2002 2001 2000
----- ----- -----
Net sales ......................... 100.0% 100.0% 100.0%
Cost of goods sold ................ (78.0) (78.8) (78.6)
----- ----- -----
Gross margin ...................... 22.0 21.2 21.4
Selling, general and administrative (19.0) (18.9) (15.9)
Gain on sale of land .............. -- -- 0.4
----- ----- -----
Operating income .................. 3.0 2.3 5.9
Other income, net ................. 0.3 0.3 0.3
----- ----- -----
Income before income taxes ........ 3.3 2.6 6.2
Provision for income taxes ........ (1.3) (1.0) (2.2)
----- ----- -----
Net income ........................ 2.0% 1.6% 4.0%
===== ===== =====
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales for fiscal 2002 decreased by $5.1 million or 1.8% compared to fiscal
2001. Residential seating sales volume decreased $6.6 million or 3.3%. Vehicle
seating sales increased $1.5 million or 2.2%. Commercial seating sales volume
remained approximately the same as the prior year.
During the quarter ended December 31, 2001, the Company recorded a charge to
cost of goods sold of $0.9 million for estimated facility closing costs. During
the quarter ended June 30, 2002, the Company recorded a charge of $1.2 million
for retail operation closing costs. Of the total of $1.2 million charge, $0.3
million was recorded as cost of goods sold and $0.9 million was charged to
selling, general and administrative expenses. As of June 30, 2002, the Company
has paid $0.4 million of the restructuring costs.
Gross margin increased $1.1 million to $61.5 million, or 22.0% of net sales, in
fiscal 2002, from $60.4 million, or 21.2% in fiscal 2001. The increase in gross
margin was due to changes in product mix, improved utilization of production
capacity and lower depreciation expense offset by increased health insurance and
facility closing costs.
Selling, general and administrative expenses as a percentage of sales were 19.0%
and 18.9% for fiscal 2002 and 2001, respectively. Selling, general and
administrative expenses in the current year include lower bad debts expense
partially offset by the aforementioned facility closing costs.
Net other income was $0.9 million and $0.8 million in fiscal 2002 and 2001,
respectively. The increase in net other income was primarily due to lower
interest expense.
The effective tax rate in fiscal 2002 was 38.2% compared to
36.8% in fiscal 2001. The higher effective income tax rate in fiscal 2002 is
attributable to increased state income taxes.
The above factors resulted in fiscal 2002 net income of $5.7 million, or $0.92
per diluted share, compared to $4.6 million, or $0.74 per diluted share, in
fiscal 2001, a net increase of $1.1 million or $0.18 per diluted share.
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales for fiscal 2001 decreased by $15.3 million or 5.1% compared to fiscal
2000. Residential seating sales volume increased $14.8 million or 8.0%. Vehicle
seating sales decreased $28.1 million or 29.7%. Commercial seating sales volume
decreased $2.0 million or 9.8%.
Gross margin decreased $3.8 million to $60.4 million, or 21.2% of sales, in
fiscal 2001, from $64.2 million, or 21.4% in fiscal 2000. Gross margin decreased
due to the decrease in net sales and changes in product mix.
Selling, general and administrative expenses as a percentage of sales were 18.9%
and 15.9% for fiscal 2001 and 2000, respectively. The amount of selling, general
and administrative costs increased due to higher bad debts, advertising, and
health insurance, and costs associated with the beginning of retail operations.
During the second quarter of fiscal 2000, the Company sold land adjacent to its
Lancaster, Pennsylvania, production facility at a gain of approximately $1.2
million.
Net other income was $0.8 million in fiscal 2001 and $1.0 million in fiscal
2000. During the second quarter of 2000, the Company realized a non-taxable gain
on the proceeds of life insurance of $0.4 million.
The effective tax rate in fiscal 2001 was 36.8% compared to 36.1% in fiscal
2000. The lower effective income tax rate in fiscal 2000 is attributable to the
non-taxable gain on the proceeds of life insurance.
The above factors resulted in fiscal 2001 net income of $4.6 million, or $0.74
per diluted share, compared to $11.9 million, or $1.82 per diluted share, in
fiscal 2000, a net decrease of $7.3 million or $1.08 per diluted share.
Excluding the fiscal 2000 gain on the sale of land of $0.8 million and life
insurance proceeds of $0.4 million, net income for fiscal 2001 declined $0.90
per diluted share or $6.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 2002, is $62.2 million, which includes cash, cash
equivalents and investments of $21.3 million. Working capital increased by $6.8
million from June 30, 2001.
Net cash provided by operating activities was $12.1 million, $13.1 million and
$12.5 million in fiscal 2002, 2001 and 2000, respectively. Fluctuations in net
cash provided by operating activities are primarily the result of changes in net
income and changes in trade receivables, inventories and accrued liabilities.
Capital expenditures were $1.1 million, $2.8 million and $6.7 million in fiscal
2002, 2001 and 2000, respectively. The current year expenditures were incurred
primarily for manufacturing equipment. Projected capital spending for fiscal
2003 is $5.0 million and will be for manufacturing and delivery equipment. The
funds for projected capital expenditures are expected to be provided from cash
generated from operations and available cash.
Financing activities utilized net cash of $3.2 million, $5.7 million and $8.6
million in fiscal 2002, 2001 and 2000, respectively. Under then existing Board
authority, the Company repurchased 200,038 and 385,445 shares of its outstanding
common stock during fiscal 2001 and 2000, respectively. No shares were
repurchased during fiscal 2002.
FINANCING ARRANGEMENTS
The Company has lines of credit of $3.0 million with banks, which renew annually
in October and December, for short-term borrowings at the prime rate in effect
at the date of the loan. On $1,000,000 of such lines the Company is required to
maintain compensating bank balances equal to 5% of the line of credit plus 5% of
any amounts borrowed. There were no short-term bank borrowings outstanding as of
June 30, 2002 or 2001. The Company has outstanding borrowings of $650,000 in the
form of variable rate demand industrial development revenue bonds. During fiscal
2002, the weighted-average interest rate on the industrial development revenue
bonds was 2.1%.
FORWARD-LOOKING STATEMENTS
Cautionary Statement Relevant to Forward-Looking Information for the Purpose of
"Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995
- - The Company and its representatives may from time to time make written or oral
forward-looking statements with respect to long-term goals of the Company,
including statements contained in the Company's filings with the Securities and
Exchange Commission and in its reports to stockholders.
Statements, including those in this 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 here-in. 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.
16 | FLEXSTEEL
PLANT LOCATIONS
* Flexsteel Industries, Inc.
Dubuque, Iowa 52001
(563) 556-7730
P.M. Crahan, General Manager
Flexsteel Industries, Inc.
Dublin, Georgia 31040
(478) 272-6911
M.C. Dixon, General Manager
Flexsteel Industries, Inc.
Lancaster, Pennsylvania 17604
(717) 392-4161
T.P. Fecteau, General Manager
Flexsteel Industries, Inc.
Riverside, California 92504
(909) 354-2440
T.D. Burkart, General Manager
Flexsteel Industries, Inc.
New Paris, Indiana 46553
(574) 831-4050
J.E. Gilbertson, General Manager
Flexsteel Industries, Inc.
Harrison, Arkansas 72601
(870) 743-1101
M.J. Feldman, General Manager
Metal Division
Dubuque, Iowa 52001
(563) 556-7730
J.E. Gilbertson, General Manager
Commercial Seating Division
Starkville, Mississippi 39760
(662) 323-5481
S.P. Salmon, General Manager
Vancouver Distribution Center
Vancouver, Washington 98668
(206) 696-9955
T.D. Burkart, General Manager
DIRECTORS & OFFICERS
L. BRUCE BOYLEN
Chairman of the Board of Directors
Retired Vice President
Fleetwood Enterprises, Inc.
K. BRUCE LAURITSEN
President
Chief Executive Officer
Director
JEFFREY T. BERTSCH
Vice President
Director
PATRICK M. CRAHAN
Vice President
Director
LYNN J. DAVIS
Director
Retired President
ADC Telecommunications, Inc.
ROBERT E. DEIGNAN
Director
Attorney at Law
Baker & McKenzie
THOMAS E. HOLLORAN
Director
Professor Emeritus,
Graduate School of Business,
University of St. Thomas
St. Paul, Minnesota
EDWARD J. MONAGHAN
Executive Vice President
Chief Operating Officer
Director
ERIC S. RANGEN
Director
Vice President
Chief Financial Officer
Alliant Techsystems, Inc.
JAMES R. RICHARDSON
Senior Vice President, Marketing
Director
MARVIN M. STERN
Director
Retired Vice President
Sears, Roebuck & Company
CAROLYN T. B. BLEILE
Vice President
THOMAS D. BURKART
Senior Vice President, Vehicle Seating
KEVIN F. CRAHAN
Vice President
KEITH R. FEUERHAKEN
Vice President
JAMES E. GILBERTSON
Vice President
TIMOTHY E. HALL
Treasurer - Assistant Secretary
JAMES M. HIGGINS
Vice President, Commercial Seating
RONALD J. KLOSTERMAN
Vice President, Finance
Chief Financial Officer
Secretary
MICHAEL A. SANTILLO
Vice President
AUDIT COMMITTEE
Thomas E. Holloran, Chairman
Lynn J. Davis
Robert E. Deignan
COMPENSATION & NOMINATING
COMMITTEE
L. Bruce Boylen, Chairman
Thomas E. Holloran
Marvin M. Stern
MARKETING & PLANNING COMMITTEE
Marvin M. Stern, Chairman
Jeffrey T. Bertsch
Patrick M. Crahan
Lynn J. Davis
Edward J. Monaghan
James R. Richardson
TRANSFER AGENT & REGISTRAR
Wells Fargo Shareowner Services
P.O. Box 64854
South St. Paul,
Minnesota 55164-0854
GENERAL COUNSEL
Irving C. MacDonald
Minneapolis, Minnesota
O'Connor and Thomas, P.C.
Dubuque, Iowa
NATIONAL OVER-THE-COUNTER
NASDAQ SYMBOL
FLXS
ANNUAL MEETING
December 9, 2002, 2:00 p.m.
Hilton Minneapolis
1001 Marquette Avenue
Minneapolis, Minnesota 55403
PERMANENT SHOWROOMS
Dubuque, Iowa
High Point, North Carolina
San Francisco, California
INTERNET
http://flexsteel.com
* Executive Offices
(C) 2002 FLEXSTEEL INDUSTRIES, INC.
AFFIRMATIVE ACTION POLICY
It is the policy of Flexsteel Industries, Inc. that all employees and potential
employees shall be judged on the basis of qualifications and ability, without
regard to age, sex, race, creed, color or national origin in all personnel
actions. No employee or applicant for employment shall receive discriminatory
treatment because of physical or mental disability in regard to any position for
which the employee or applicant for employment is qualified. Employment
opportunities, and job advancement opportunities will be provided for qualified
disabled veterans and veterans of the Vietnam era. This policy is consistent
with the Company's plan for "Affirmative Action" in implementing the intent and
provisions of the various laws relating to employment and non-discrimination.
ANNUAL REPORT ON FORM 10-K AVAILABLE
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, can be obtained without charge by writing to:
Office of the Secretary
Flexsteel Industries, Inc.
P.O. Box 877
Dubuque, Iowa 52004-0877
YOU CAN TAKE ALL THE COMFORTS OF HOME, INCLUDING FLEXSTEEL, WITH YOU IN THIS
FLEETWOOD 2003 PACE ARROW MOTOR HOME. IN PLANNING THESE LUXURIOUS TRAVELING
HOMES, MANUFACTURERS TURN TO FLEXSTEEL DESIGNERS AND ENGINEERS FOR SUPERIOR
SEATING AND SLEEPING. THE STYLISH CORNER CHAISE LOUNGE AND THE RECLINER ARE
COORDINATED WITH THE HANDSOME FLEETWOOD INTERIOR. BOTH ARE BY FLEXSTEEL,
UPHOLSTERED IN FINE TOP-GRAIN LEATHER.
THERE'S A REGULAR BED INSIDE THIS STRIKING CHAISE/SOFA. FLEXSTEEL'S OWN
MECHANISM MAKES IT EASY TO OPEN FOR A TRULY RESTFUL NIGHT'S SLEEP. LINENS CAN BE
STORED IN THE OPTIONAL STORAGE DRAWER BELOW THE BED.
[PHOTO]
BULK RATE
[LOGO] FLEXSTEEL(R) U.S. Postage
AMERICA'S SEATING SPECIALIST PAID
- ---------------------------------------- Permit # 10
P.O. Box 877 o Dubuque IA 52004-0877 Dubuque, IA