Exhibit 99.1
Flexsteel Announces Fourth Quarter and
Fiscal 2006 Operating Results
DUBUQUE, Iowa--(BUSINESS WIRE)--Aug. 17, 2006--Flexsteel
Industries, Inc. (NASDAQ:FLXS) today reported sales and earnings for
its fourth quarter and fiscal year ended June 30, 2006.
The Company reported net sales for the quarter ended June 30, 2006
of $112.3 million compared to the prior year quarter of $105.8
million, an increase of 6.2%. Net income for the quarter ended June
30, 2006 and the prior year quarter was $1.5 million or $0.23 per
share.
Net sales for the fiscal year ended June 30, 2006 were $426.4
million compared to $410.0 million in the prior fiscal year, an
increase of 4.0%. Net income for the fiscal year ended June 30, 2006
was $4.7 million or $0.72 per share compared to $6.0 million or $0.92
per share for the fiscal year ended June 30, 2005, a decrease of
21.9%. The current year net income was adversely impacted by the
recording of stock-based compensation expense, as required by
Statement of Financial Accounting Standard No. 123 (Revised), of $0.4
million (after tax) or $0.06 per share. During the fiscal year ended
June 30, 2005, the Company recorded a pre-tax gain on the sale of
facilities of $0.8 million and a one-time favorable income tax
adjustment of $0.7 million.
For the quarter ended June 30, 2006, residential net sales were
$70.4 million, an increase of 4.0% from the prior year quarter net
sales of $67.7 million. For the fiscal year ended June 30, 2006,
residential net sales of $267.7 million were up 2.2% from net sales of
$261.9 million in the prior year. These increases in residential net
sales in the current quarter and the fiscal year ended June 30, 2006
are primarily due to introductions to newly developed markets,
selected sell price increases and improved demand for products in
existing markets.
Recreational vehicle net sales for the quarter ended June 30, 2006
were $20.1 million, up 9.6% from the prior year quarter net sales of
$18.4 million. For the fiscal year ended June 30, 2006, recreational
vehicle net sales decreased 6.9% to $73.4 million, compared to $78.8
million in the fiscal year ended June 30, 2005. While the quarter
ended June 30, 2006 showed an increase over the prior year quarter,
the fiscal year decline in recreational vehicle net sales reflects a
generally soft wholesale market environment for recreational vehicles.
Net sales of commercial products increased from $19.7 million to
$21.8 million and from $69.3 million to $85.3 million, for the quarter
and fiscal year ended June 30, 2006, respectively. This approximate
10.6% increase in commercial net sales for the quarter and 23.1% for
the fiscal year ended June 30, 2006 is primarily due to expanded
commercial office product offerings and improved industry performance
of hospitality products.
Gross margin for the quarter ended June 30, 2006 was 18.8%
compared to 19.3% in the prior year quarter. During the quarter ended
June 30, 2005, LIFO inventory quantities (steel and lumber) were
reduced; resulting in a favorable impact on gross margin of 0.6% when
compared to the quarter ended June 30, 2006. For the fiscal year ended
June 30, 2006, the gross margin was 19.1% compared to 18.7% for the
prior fiscal year. Gross margin improvement for the year is a result
of a greater percentage of shipments being commercial office,
hospitality and foreign sourced products whose margins were not as
significantly impacted by raw material increases.
Selling, general and administrative expenses were 16.4% and 17.0%
of net sales for the quarters ended June 30, 2006 and 2005,
respectively. The decrease in quarterly SG&A expenses is due primarily
to lower advertising and selling expenses when compared to the prior
year quarter. For the fiscal years ended June 30, 2006 and 2005,
selling, general and administrative expenses were 17.1% and 16.7% of
net sales, respectively. The year-to-date increase in SG&A expenses
reflects increased marketing related costs and the recording of
stock-based compensation.
The income tax rate was 39.6% and 39.3% for the quarter and fiscal
year ended June 30, 2006, respectively. During the fiscal year ended
June 30, 2005, an examination by the Internal Revenue Service of the
Company's federal income tax returns for the fiscal years ended June
30, 2003 and 2004 was completed. Due to the favorable results, the
Company reduced its estimate of accrued tax liabilities by $0.7
million. The decrease resulted in an income tax rate of 30.6% for the
fiscal year ending June 30, 2005.
All earnings per share amounts are on a diluted basis.
Working capital (current assets less current liabilities) at June
30, 2006 was $97.0 million compared to $85.4 million at June 30, 2005.
Net cash used in operating activities was $7.3 million in fiscal year
2006. Cash was used in operating activities to increase inventory for
the expansion of import programs, including commercial office product
offerings and to support an increase in accounts receivable due to the
higher sales volume. The Company does not expect significant future
increases in inventory related to our import programs. The available
credit facilities provided the additional cash required.
Capital expenditures were $3.4 million and $3.3 million during
fiscal 2006 and 2005, respectively. Depreciation and amortization
expense was $5.5 million and $5.8 million during fiscal 2006 and 2005,
respectively. The Company expects that capital expenditures will be
approximately $4.0 million in fiscal year 2007.
Outlook
Flexsteel Industries, Inc. and the other U.S. furniture
manufacturers continue to be impacted by increases in interest rates
and geopolitical issues leading to increased energy costs and consumer
uncertainty. At the same time, the U.S. furniture industry continues
to evolve and globalize at a staggering rate. U.S. manufacturers are
faced with increases in the cost of raw materials, labor and overhead
costs, including fuel, accompanied by an increased flow of competing
product from all over the world generally produced with lower
manufacturing costs all of which added to product pricing pressures.
Additionally, the distribution channels are changing and increasingly
include non-traditional customers such as mass merchandisers,
wholesale clubs and specialty retail chains in addition to e-commerce
opportunities.
For the fiscal year ended June 30, 2006, residential net sales
were weaker than anticipated and we expect that this softness will
continue through the first half of fiscal year 2007 due to the
uncertainties described above. Net sales of vehicle seating products
have fallen off due to a weak wholesale market environment. While
vehicle seating product net sales during the fourth quarter of fiscal
2006 showed an increase over the prior year quarter, a sustained
improvement in demand has not yet been confirmed. Additionally, the
volatility and high cost of fuel may temper the favorable longer-term
demographics that exist in the recreational vehicle industry. Our
commercial marketing channels provide an opportunity to expand
distribution and increase net sales for fiscal 2007. Commercial office
furniture net sales are expected to benefit from a continued general
increase in demand for these products and we have expanded our product
offerings to capitalize on this market area. Hospitality occupancy
rates continue strong which has led to an increase in construction and
renovation activity. These activities have increased the demand for
the hospitality products we offer.
The increased cost of raw materials, component parts and fuel
created continued pressures on margins through all of fiscal year 2006
and we expect these pressures to continue into fiscal year 2007.
During fiscal year 2006, we were able to maintain our margins through
cost controls, the implementation of a fuel surcharge on product
delivery and selected product sale price increases. We expect that
fuel costs will continue to rise and to negatively impact the cost of
bringing raw materials, component parts and sourced finished products
into our facilities as well as the cost of delivering products to our
customers. We anticipate that petroleum prices will remain volatile
and at record or near record levels for the foreseeable future. The
result will be continuing cost increases and we believe a factor in
keeping consumers on the sideline for furniture purchases, negatively
affecting demand for residential and vehicle seating products.
Flexsteel continues to take actions to address the above concerns
including: new product introductions, refining existing product
offerings, adjusting selling and delivery prices, adjusting production
levels and implementing cost control measures for inventory and
capital expenditures. These actions occur regularly regardless of
operating performance, but will continue to receive additional
attention under current business conditions. Management believes that
Flexsteel is also in a unique position to take advantage of the rapid
change that is affecting most of the markets we serve. We have had a
successful introduction of our complete new line of Wrangler Home (R)
Collection. We continue to develop products for the marine industry to
augment our vehicle seating products. We believe that our commercial
office product lineup is strong and expanded to continue to take full
advantage as demand for this product increases. Our hospitality team
is poised to deliver the needed products as this market expansion
continues.
We continue to believe that our strategy of providing furniture
from a wide selection of domestically manufactured and imported
products is sound business practice. This blended strategy gives
Flexsteel the opportunity to successfully participate in all the
important avenues of furniture distribution in the United States.
Analysts Conference Call
The Company will host a conference call for analysts on Friday,
August 18, 2006, at 10:30 a.m. Central Time. To access the call,
please dial 1-888-275-4480 and provide the operator with ID # 9559102.
A replay will be available for two weeks beginning approximately two
hours after the conclusion of the call by dialing 1-800-642-1687 and
entering ID # 9559102.
Forward-Looking Statements
Statements, including those in this release, 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 and
distribution channels, the product mix of sales, pricing pressures,
the cost of raw materials and fuel, foreign currency valuations,
actions by governments including taxes and tariffs, the amount of
sales generated and the profit margins thereon, competition (both
foreign and domestic), changes in interest rates, credit exposure with
customers and general economic conditions. Any forward-looking
statement speaks only as of the date of this press release. 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.
About Flexsteel
Flexsteel Industries, Inc. is headquartered in Dubuque, Iowa, and
was incorporated in 1929. Flexsteel is a designer, manufacturer,
importer and marketer of quality upholstered and wood furniture for
residential, recreational vehicle, office, hospitality and healthcare
markets. All products are distributed nationally.
For more information, visit our web site at
http://www.flexsteel.com.
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, June 30,
2006 2005
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $1,985,768 $1,706,584
Investments............................ 817,618 1,508,751
Trade receivables, net................. 51,179,791 48,355,070
Inventories............................ 84,769,972 69,945,400
Other.................................. 6,634,121 6,281,869
------------- -------------
Total current assets...................... 145,387,270 127,797,674
NONCURRENT ASSETS:
Property, plant, and equipment, net 24,158,041 26,140,914
Other assets........................... 13,780,393 12,719,090
------------- -------------
TOTAL..................................... $183,325,704 $166,657,678
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade................. $15,768,435 $16,259,905
Notes payable and current maturities of
long-term debt.......................... 9,466,643 5,000,000
Accrued liabilities...................... 23,164,927 21,149,428
------------- -------------
Total current liabilities................. 48,400,005 42,409,333
LONG-TERM LIABILITIES:
Long-term debt........................... 21,846,386 12,800,000
Other long-term liabilities.............. 5,576,988 6,650,625
------------- -------------
Total liabilities......................... 75,823,379 61,859,958
SHAREHOLDERS' EQUITY...................... 107,502,325 104,797,720
------------- -------------
TOTAL..................................... $183,325,704 $166,657,678
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FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Fiscal Year Ended
June 30, June 30,
--------------------------- ---------------------------
2006 2005 2006 2005
------------- ------------- ------------- -------------
NET SALES..... $112,325,883 $105,768,368 $426,407,585 $410,022,809
COST OF GOODS
SOLD......... (91,198,852) (85,343,905) (345,068,305) (333,170,329)
------------- ------------- ------------- -------------
GROSS MARGIN.. 21,127,031 20,424,463 81,339,280 76,852,480
SELLING,
GENERAL AND
ADMINISTRATIVE (18,457,644) (17,958,185) (72,778,576) (68,595,788)
GAIN ON SALE
OF FACILITIES --- --- --- 809,022
------------- ------------- ------------- -------------
OPERATING
INCOME....... 2,669,387 2,466,278 8,560,704 9,065,714
------------- ------------- ------------- -------------
OTHER INCOME
(EXPENSE):
Interest
and other
income.... 220,728 191,623 774,783 627,996
Interest
expense... (438,370) (198,313) (1,557,304) (989,754)
------------- ------------- ------------- -------------
Total.. (217,642) (6,690) (782,521) (361,758)
------------- ------------- ------------- -------------
INCOME BEFORE
INCOME TAXES. 2,451,745 2,459,588 7,778,183 8,703,956
BENEFIT FROM
(PROVISION
FOR) INCOME
TAXES........ (970,000) (920,000) (3,060,000) (2,660,000)
------------- ------------- ------------- -------------
NET INCOME.... $1,481,745 $1,539,588 $4,718,183 $6,043,956
============= ============= ============= =============
AVERAGE NUMBER
OF COMMON
SHARES
OUTSTANDING:
Basic... 6,563,750 6,540,636 6,558,440 6,531,293
============= ============= ============= =============
Diluted. 6,579,647 6,595,170 6,577,278 6,600,905
============= ============= ============= =============
EARNINGS PER
SHARE OF
COMMON STOCK:
Basic... $0.23 $0.24 $0.72 $0.93
============== ============ ============= =============
Diluted. $0.23 $0.23 $0.72 $0.92
============== ============ ============= =============
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Fiscal Year Ended
June 30,
-------------------------
2006 2005
------------ ------------
OPERATING ACTIVITIES:
Net income.................................. $4,718,183 $6,043,956
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 5,485,884 5,785,354
Gain on disposition of capital assets.... (55,504) (879,462)
Stock-based compensation expense......... 427,000 ---
Changes in operating assets and
liabilities............................. (17,830,434) 1,773,774
------------ ------------
Net cash (used in) provided by operating
activities................................. (7,254,871) 12,723,622
------------ ------------
INVESTING ACTIVITIES:
Net sales (purchases) of investments..... 655,252 (275,331)
Proceeds from sale of capital assets..... 89,787 2,121,083
Capital expenditures..................... (3,410,914) (3,346,984)
------------ ------------
Net cash used in investing activities....... (2,665,875) (1,501,232)
------------ ------------
FINANCING ACTIVITIES:
Net proceeds (payment) of borrowings.... 13,513,030 (8,805,426)
Dividends paid.......................... (3,408,994) (3,393,842)
Proceeds from issuance of common stock.. 95,894 206,941
------------ ------------
Net cash provided by (used in) financing
activities................................. 10,199,930 (11,992,327)
------------ ------------
Increase (decrease) in cash and cash
equivalents................................ 279,184 (769,937)
Cash and cash equivalents at beginning of
period..................................... 1,706,584 2,476,521
------------ ------------
Cash and cash equivalents at end of period.. $1,985,768 $1,706,584
============ ============
CONTACT: Flexsteel Industries, Inc., Dubuque
Timothy E. Hall, Chief Financial Officer, 563-585-8392