SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the quarterly period ended December 31, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-5151 Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319 FLEXSTEEL INDUSTRIES, INC. P. O. BOX 877 DUBUQUE, IOWA 52004-0877 Area code 563 Telephone 556-7730 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes _X_. No ___. Common Stock - $1.00 Par Value Shares Outstanding as of December 31, 2001 6,072,020
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> December 31, June 30, 2001 2001 ------------ ------------ ASSETS <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents ............................... $ 15,895,678 $ 10,048,562 Investments ............................................. 3,248,062 2,536,469 Trade receivables - less allowance for doubtful accounts: December 31, 2001, $2,500,000 June 30, 2001, $1,950,000 ........................... 24,243,474 28,363,058 Inventories ............................................. 30,337,241 31,379,836 Deferred income taxes ................................... 2,700,000 2,700,000 Other ................................................... 1,537,487 1,546,710 ------------ ------------ Total current assets ............. 77,961,942 76,574,635 PROPERTY, PLANT, AND EQUIPMENT At cost less accumulated depreciation: December 31, 2001, $62,864,290; June 30, 2001, $60,604,549 ....................................... 21,773,102 24,553,962 NOTES RECEIVABLE .............................................. 377,915 415,762 DEFFERRED INCOME TAXES ........................................ 300,000 300,000 OTHER ASSETS .................................................. 8,725,664 8,450,110 ------------ ------------ TOTAL ..................... $109,138,623 $110,294,469 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable - trade ................................ $ 2,919,139 $ 5,277,607 Accrued liabilities: Payroll and related items .......................... 3,802,088 3,803,071 Insurance .......................................... 5,705,105 5,863,451 Other accruals ..................................... 6,557,235 5,253,930 Industrial revenue bonds payable ........................ 975,000 975,000 ------------ ------------ Total current liabilities ......... 19,958,567 21,173,059 DEFERRED COMPENSATION ......................................... 4,490,902 4,059,186 ------------ ------------ Total liabilities .................................. 24,449,469 25,232,245 ------------ ------------ SHAREHOLDERS' EQUITY: CommonStock - $1 par value; authorized 15,000,000 shares; issued December 31, 2001, 6,072,020 shares; issued June 30, 2001, 6,034,210 shares ........... 6,072,020 6,034,210 Additional paid-in capital .............................. 379,206 Retained earnings ....................................... 77,602,164 78,272,996 Accumulated other comprehensive income .................. 635,764 755,018 ------------ ------------ Total shareholders' equity ........ 84,689,154 85,062,224 ------------ ------------ TOTAL ................... $109,138,623 $110,294,469 ============ ============ </TABLE> See notes to consolidated financial statements. - --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) <TABLE> <CAPTION> CONSOLIDATED STATEMENTS Three Months Ended Six Months Ended OF INCOME December 31, December 31, --------------------------------- --------------------------------- 2001 2000 2001 2000 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> NET SALES ............................... $ 65,826,772 $ 73,917,362 $ 129,034,342 $ 143,950,204 COST OF GOODS SOLD ...................... (52,599,938) (57,442,657) (103,047,047) (112,962,246) ------------- ------------- ------------- ------------- GROSS MARGIN ............................ 13,226,834 16,474,705 25,987,295 30,987,958 SELLING, GENERAL AND ADMINISTRATIVE ..... (12,250,806) (13,908,702) (24,894,974) (25,705,998) ------------- ------------- ------------- ------------- OPERATING INCOME ........................ 976,028 2,566,003 1,092,321 5,281,960 ------------- ------------- ------------- ------------- OTHER: Interest and other income .......... 224,833 250,447 483,455 609,875 Interest expense ................... (60,103) (93,286) (128,125) (186,295) ------------- ------------- ------------- ------------- Total ......................... 164,730 157,161 355,330 423,580 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES .............. 1,140,758 2,723,164 1,447,651 5,705,540 PROVISION FOR INCOME TAXES .............. (430,000) (1,000,000) (540,000) (2,100,000) ------------- ------------- ------------- ------------- NET INCOME .............................. $ 710,758 $ 1,723,164 $ 907,651 $ 3,605,540 ============= ============= ============= ============= AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC ............................ 6,072,020 6,119,763 6,065,357 6,162,545 ============= ============= ============= ============= DILUTED .......................... 6,120,703 6,186,848 6,116,550 6,228,410 ============= ============= ============= ============= EARNINGS PER SHARE OF COMMON STOCK: BASIC ........................... $ 0.12 $ 0.28 $ 0.15 $ 0.59 ============= ============= ============= ============= DILUTED ......................... $ 0.12 $ 0.28 $ 0.15 $ 0.58 ============= ============= ============= ============= </TABLE> CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME <TABLE> <CAPTION> CONSOLIDATED STATEMENTS Three Months Ended Six Months Ended OF INCOME December 31, December 31, --------------------------------- --------------------------------- 2001 2000 2001 2000 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> NET INCOME .............................. $ 710,758 $ 1,723,164 $ 907,651 $ 3,605,540 ------------- ------------- ------------- ------------- OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX: Unrealized gains (losses) on securities arising during period .. 353,265 25,235 (163,592) 97,345 Less: reclassification adjustment for (gains) losses included in net income ........................ (32,669) 22,500 (16,169) 41,250 ------------- ------------- ------------- ------------- Other comprehensive income (loss), before tax .................... 320,596 47,735 (179,761) 138,595 ------------- ------------- ------------- ------------- INCOME TAX (EXPENSE) BENEFIT: Income tax (expense) benefit related to securities losses or gains arising during period .......................... (130,709) (9,275) 54,326 (35,937) Income tax expense (benefit) related to securities reclassification adjustment . 12,088 (8,325) 6,181 (15,263) ------------- ------------- ------------- ------------- Income tax (expense) benefit related to other comprehensive income .......... (118,621) (17,600) 60,507 (51,200) ------------- ------------- ------------- ------------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX .......... 201,975 30,135 (119,254) 87,395 ------------- ------------- ------------- ------------- COMPREHENSIVE INCOME .................... $ 912,733 $ 1,753,299 $ 788,397 $ 3,692,935 ============= ============= ============= ============= </TABLE> See notes to consolidated financial statements. - --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) <TABLE> <CAPTION> Six Months Ended December 31, ----------------------------- 2001 2000 ------------ ------------ OPERATING ACTIVITIES: <S> <C> <C> Net Income ................................................ $ 907,651 $ 3,605,540 Adjustments to reconcile net income to net cash provided by operating activities ...................... Depreciation .......................................... 2,795,586 2,965,166 Facility closing costs ................................ 890,000 Gain on disposition of capital assets ................. (23,537) (45,769) Trade receivables ..................................... 4,078,434 (439,637) Inventories ........................................... 765,595 (1,318,294) Other current assets .................................. 9,223 (1,184,184) Other assets .......................................... (15,076) (52,522) Accounts payable - trade .............................. (2,358,468) 759,564 Accrued liabilities ................................... 1,092,491 (1,243,075) Deferred compensation ................................. 431,716 230,000 ------------ ------------ Net cash provided by operating activities ................. 8,573,615 3,276,789 ------------ ------------ INVESTING ACTIVITIES: Loans to customers on notes receivable ............. (325,000) Payments received from customers on notes receivable 78,997 108,303 Purchases of investments .......................... (5,805,518) (435,994) Proceeds from sales of investments ................. 4,714,194 1,381,242 Proceeds from sales of capital assets .............. 27,650 81,127 Capital expenditures ............................... (204,839) (2,671,294) ------------ ------------ Net cash used in investing activities ..................... (1,189,516) (1,861,616) ------------ ------------ FINANCING ACTIVITIES: Payments of dividends .............................. (1,573,568) (1,602,184) Proceeds from issuance of common stock ............. 36,585 34,940 Repurchase of common stock ......................... (1,387,409) ------------ ------------ Net cash used in financing activities ..................... (1,536,983) (2,954,653) ------------ ------------ Increase (decrease) in cash and cash equivalents .......... 5,847,116 (1,539,480) Cash and cash equivalents at beginning of period .......... 10,048,562 4,000,855 ------------ ------------ Cash and cash equivalents at end of period ................ $ 15,895,678 $ 2,461,375 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for Interest ............................................. $ 15,000 $ 36,000 Income taxes ......................................... $ 189,000 $ 3,251,000 </TABLE> See notes to consolidated financial statements. - --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying condensed financial statements are unaudited and include all adjustments, consisting of only normal recurring accruals, that management considers necessary to fairly present the results for such periods. These financial statements should be read in conjunction with the financial statements and notes contained in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. Results for interim periods are not necessarily indicative of results for the full year. SEGEMENT AND RELATED INFORMATION- Under the "management approach" methodology prescribed by Statement of Financial Accounting Standards (SFAS) No.131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, the Company operates in two segments. The significant segment is the manufacture of seating products. The second segment is the operation of five retail furniture stores. The retail segment had $2.1 million and $2.4 million of assets at December 31, 2001 and June 30, 2001, respectively. For the quarter ended December 31, 2001 the retail segment had net sales of $1.8 million and a net loss of $0.6 million. For the quarter ended December 31, 2000 the retail segment had net sales of $1.1 million and a net loss of $0.6 million. For the six months ended December 31, 2001 the retail segment had net sales of $3.3 million and a net loss of $1.2 million. For the six months ended December 31, 2000 the retail segment had net sales of $1.4 million and a net loss of $0.7 million. 2. The inventories are categorized as follows: December 31, June 30, 2001 2001 ------------ ------------ Raw materials........................ $ 14,450,746 $ 16,343,218 Work in process and finished parts... 8,406,393 8,651,210 Finished goods....................... 7,480,102 6,385,408 ------------ ------------ Total........... $ 30,337,241 $ 31,379,836 ============ ============ 3. Earnings per Share - Basic earnings per share of common stock is based on the weighted average number of common shares outstanding during each year. Diluted earnings per share of common stock takes into effect the dilutive effect of potential common shares outstanding. The Company's only potential common shares outstanding are stock options, which resulted in a dilutive effect of 48,683 shares and 67,085 shares in the quarters ended and 51,193 shares and 65,865 shares in the six months ended December 31, 2001 and 2000, respectively. The Company calculates the dilutive effect of outstanding options using the treasury stock method. 4. ACCOUNTING DEVELOPMENTS -The Company adopted Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on January 1, 2001. The adoption had no impact on the Company's financial position or results of operations. In September 2000, the Emerging Issues Task Force (EITF) issued No. 00-10, ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS. EITF No. 00-10 states that all amounts billed to a customer in a sale transaction, related to shipping and handling fees, represent revenues earned for the goods provided and these amounts should be classified as revenue. The Company adopted EITF No. 00-10 on April 1, 2001. Prior period net sales and costs of goods sold have been adjusted for this change, which had no effect on previously reported net income. In July 2001, the Financial Accounting Standards Board issued SFAS No.141, BUSINESS COMBINATIONS, and SFAS No.142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations after June 30, 2001. SFAS No. 142 establishes new standards for accounting for goodwill and intangible assets and was adopted by the Company on July 1, 2001. The adoption of SFAS No. 141 and 142 had no impact on the Company's financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or the normal operation of a long-lived asset, except for certain obligations of leases. The statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. SFAS No. 143 is effective for the Company in fiscal 2003. The Company is currently assessing, but has not yet determined, what impact, if any, this statement will have on its financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED Assets, which replaces SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement clarifies guidance in accounting for the disposal of long-lived assets. SFAS No. 144 is effective for the Company in fiscal year 2003. The Company is currently assessing, but has not yet determined, what impact, if any, this statement will have on its financial position or results of operations. 5. RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net income or shareholders' equity as previously reported. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations: The following table has been prepared as an aid in understanding the Company's results of operations on a comparative basis for the second quarter and six-month periods ended December 31, 2001 and 2000. Amounts presented are percentages of the Company's net sales. Second Quarter Ended Six Months Ended December 31, December 31, ----------------- ----------------- 2001 2000 2001 2000 ------ ------ ------ ------ Net Sales ....................... 100.0% 100.0% 100.0% 100.0% Cost of goods sold .............. (79.9%) (77.7%) (79.9%) (78.5%) ----- ----- ----- ----- Gross margin .................... 20.1% 22.3% 20.1% 21.5% Selling, general & administrative Expense .................... (18.6%) (18.8%) (19.3%) (17.9%) ----- ----- ----- ----- Operating income ................ 1.5% 3.5% 0.8% 3.6% Other income, net ............... 0.2% 0.2% 0.3% 0.3% ----- ----- ----- ----- Income before income taxes ...... 1.7% 3.7% 1.1% 3.9% Income tax expense .............. (0.6%) (1.4%) (0.4%) (1.4%) ----- ----- ----- ----- Net income ...................... 1.1% 2.3% 0.7% 2.5% ===== ===== ===== ===== RESULTS OF OPERATIONS FOR THE QUARTER - Net sales for the quarter ended December 31, 2001 decreased by $8.1 million compared to the prior year quarter. Residential seating sales volume decreased $6.0 million or 11.2%. Recreational vehicle seating sales decreased $2.0 million or 12.4%. Commercial seating sales decreased $0.1 million or 3.2%. Gross margin decreased $3.2 million to $13.2 million or 20.1% of sales in the current quarter from $16.4 million or 22.3% of sales in the prior year quarter reflecting a charge to cost of sales of $0.9 million for facility closing costs. The facility closing costs consist of $0.4 million related to employee separations and facility exit costs, and $0.5 million for inventory and fixed asset write-downs.
On November 15, 2001 the Company announced the closing of its Elkhart, Indiana recreational vehicle seating facility and incurred a second quarter charge of $0.9 million, or $0.09 per share after taxes. The Company estimates that closing the facility will improve quarterly earnings by $0.01 to $0.02 per share beginning in its third fiscal quarter. Selling, general and administrative expenses as a percentage of sales were 18.6% and 18.8% for the current quarter and prior year quarter, respectively. Selling, general and administrative expenses were negatively impacted by lower absorption of fixed costs, offset by recoveries of previously written off accounts receivable of $0.5 million, or $0.05 per share after taxes. The above factors resulted in net income for the current fiscal quarter of $0.7 million or $0.12 per diluted share compared to $1.7 million or $0.28 per diluted share in the prior year quarter, a net decrease of $1.0 million or $0.16 per share. RESULTS OF OPERATIONS FOR THE LAST SIX MONTHS - Net sales for the six-months ended December 31, 2001 decreased by $14.9 million or 10.4% compared to the prior year six-month period. Residential seating sales volume decreased $11.0 million or 11.0%. Recreational vehicle seating sales decreased $3.2 million or 9.6%. Commercial seating sales decreased $0.7 million or 7.1%. Gross margin decreased $5.0 million to $26.0 million or 20.1% of sales in the current year from $31.0 million or 21.5% of sales in the prior year reflecting a previously mentioned charge for facility closing and increased health insurance costs of $0.7 million. Selling, general and administrative expenses as a percentage of sales were 19.3% and 17.9% for the current year and prior year, respectively. Selling, general and administrative expenses were negatively impacted by lower absorption of fixed costs offset by recoveries of previously written off accounts receivable of $0.5 million, or $0.05 per share after taxes. The above factors resulted in current fiscal year to date net income of $0.9 million or $0.15 per diluted share compared to $3.6 million or $0.58 per diluted share in the prior year, a net decrease of $2.7 million or $0.43 per share from the prior year six-month period. Liquidity and Capital Resources: - -------------------------------- Working capital at December 31, 2001 was $58.0 million, which includes cash, cash equivalents and investments of $19.1 million. Working capital increased by $2.6 million from the June 30, 2001 amount. Net cash provided by operating activities was $8.6 million during the first six months of fiscal year 2002 versus $3.3 million in the first six months of fiscal year 2001. Capital expenditures were $0.2 million during the first six months of fiscal year 2002 and $2.7 million in first six months of fiscal 2001. The current year expenditures were incurred primarily for manufacturing equipment. The Company expects that capital expenditures will be $1.0 million in the next six months, primarily for manufacturing equipment. The funds for projected capital expenditures are expected to be provided by cash generated from operations and available cash. Item 3. Quantitative and Qualitative Information About Market Risk. Not applicable
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company and its representatives may from time to time make written or oral forward-looking statements with respect to goals and expectations of the Company, including statements contained in the Company's filings with the Securities and Exchange Commission, news releases, and in its report to the stockholders. Statements, including those in this report, which are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, the effectiveness of new product introductions, the product mix of our sales, the cost of raw materials, the amount of sales generated and the profit margins thereon, competition, both foreign and domestic, credit exposure to our customers, and general economic conditions. The Company specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of stockholders on December 10, 2001, Proposals 1 and 2 set forth in the Board of Directors' definitive Proxy Statement dated November 8, 2001 were approved and adopted by the stockholders. Proposals 1 and 2 respectively, received votes as follows: Proposal 1 (Election of Directors): Edward J. Monaghan: For 5,648,777, Withheld 69,500, Abstentions and Broker Non-votes 0. Jeffery T. Bertsch: For 5,649,089, Withheld 69,188, Abstentions and Broker Non-votes 0. Lynn J. Davis: For 5,649,089, Withheld 69,188, Abstentions and Broker Non-votes 0. The names of each Director whose term of office as a Director continued after the meeting are as follows: K. Bruce Lauritsen, Edward J. Monaghan, Jeffrey T. Bertsch, L. Bruce Boylen, Lynn J. Davis, Thomas E. Holloran, Jim R. Richardson, Patrick M. Crahan, and Marvin M. Stern. Proposal 2 (Appointment of Deloitte & Touche LLP as Independent Auditors): For: 5,703,815, Against: 11,973, and Abstain: 2,489. Item 6. Exhibits and Reports on Form 8-K The registrant filed a report on Form 8-K on December 14, 2001 announcing the appointment of Robert E. Deignan, Attorney at Law, to the Board of Directors. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on by its behalf by the undersigned officer there unto duly authorized. FLEXSTEEL INDUSTRIES, INC. Date: February 8, 2002 By: /s/ R. J. Klosterman ---------------- --------------------------- R.J. Klosterman Financial Vice President & Principal Financial Officer