FLEXSTEEL INDUSTRIES INCORPORATED
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1995
[PHOTO] (See description at bottom of following page.)
FOCUS ON INNOVATION
[LOGO]
Page - Cover
FINANCIAL HIGHLIGHTS
Year Ended June 30 1995 1994 1993
Net Sales....................................... $208,432,000 $195,388,000 $177,271,000
Income Before Taxes............................. 8,111,000 10,092,000 9,710,000
Net Income (1).................................. 5,211,000 6,787,000 6,185,000
Per Share of Common Stock
Earnings (1).................................... .73 .95 .87
Cash Dividends.................................. .48 .48 .48
Average Shares Outstanding...................... 7,178,000 7,140,000 7,090,000
At June 30
Working Capital................................. 46,272,000 47,787,000 49,707,000
Net Plant and Equipment......................... 24,376,000 18,829,000 17,208,000
Total Assets.................................... 96,271,000 95,088,000 87,861,000
Shareholders' Equity............................ 73,824,000 71,289,000 67,855,000
Long-Term Debt.................................. 70,000 105,000 140,000
(1) 1994 income and per share amounts reflect cumulative effect of accounting
change as of June 30, 1994 of $320,000 (net of income taxes) or $.04 per share
income.
FRONT COVER: Computers have become a valuable creative tool for designers. On
our cover we show an up-to-date room setting as a computer might render it in a
simulated wash drawing.
[photo] Left, a photograph of the same room setting. Featured are some of
Flexsteel's most beautiful current and popular styles: today's fashionable soft
look is created with high, waterfall pleats and gentle lines on arms and cushion
welting. The wing chair and the Charisma(R) accent chair, both perennial
classics, are upholstered in the new softer tones.
Page - Inside Front Cover
[top photo] See description below.
TO OUR SHAREHOLDERS
"An intense
focus on creativity is
essential. . ."
This year was a challenging and frustrating one for Flexsteel
Industries, Inc. Revenues had increased nicely until our fourth quarter, when a
sluggish retail environment and a noticeable decrease in consumer confidence
decelerated new orders.
For the full year ended June 30, 1995, revenues increased a moderate 6%
to $208,432,000 versus $195,388,000 generated in the previous year. While this
was a record sales year for your Company, it came at the expense of
profitability. Earnings were $5,211,000 or $.73 per share, clearly a major
disappointment when compared to earnings of $6,787,000 or $.95 per share the
previous year.
The Federal Reserves' harsh economic policy to quell inflation has
worked very well. Record-setting interest rate hikes over the past eighteen
months have impacted our cyclical industry much more so than it did other
industries. With the recent moderation of interest rates, it appears that our
economy is now in the early stages of what could be a prolonged period of
sluggish growth. Under that scenario, the market place will continue to be under
severe pricing pressure.
In the early summer, we were able to raise prices 2% to 3% and we
should start to feel the effect of these increases in our first half of fiscal
1996. However, the increases will help offset our increased raw materials cost;
in this sluggish retail climate, we cannot recover all cost increases.
When the sales deceleration began, we were well underway with heavy
investments in the development of new products and in needed modernization of
certain manufacturing facilities. Both of these efforts are aimed at making us
more competitive in the market place.
With much of this profit drain now behind us, we are fully convinced
that this sacrifice of short-term profitability will be the key to maintaining
profit margins while more effectively manufacturing and distributing the right
product to the market place.
RESIDENTIAL FURNITURE
The fiscal year began with residential furniture revenues up
approximately 24% in the first six months. Ultimately, rising interest rates
eroded consumer confidence; as housing starts and resales declined, so did
retail furniture sales. We doubled the size of our High Point Show room for the
April 1995 Market. While this unusual expense hampered profitability in the
final quarter, we felt it necessary to properly display our entire line of home
furnishings to the increasing numbers of both domestic and international
retailers who attend this market.
[bottom photo]
Top photo: Available only through a Flexsteel Gallery, exclusive fabrics create
beautiful traditional elegance in a sofa, love seat and chair from Flexsteel's
8512 Group.
Bottom photo: Jack B. Crahan, Chairman of the Board of Directors
(l.), and Bruce Lauritsen, President and Chief Executive Officer, with
recreational vehicle seating displaying Flexsteel's distinctive automotive
styling.
Page 1
We continue to expand our international presence. Sales representatives
have been added in Europe and the Pacific Rim countries. Exchange-rate
fluctuation impeded progress in Canada and Mexico, but the weaker dollar helped
in other countries. It is our belief that the international opportunities are
worth the expense and effort at this time.
RECREATIONAL VEHICLE SEATING
The sales pattern in recreational vehicle seating sales was not much
different from that of home furnishings. As interest rates cut heavily into
sales of motor homes and other recreational vehicles, competition only became
keener in this cyclical industry. The 25,000-square-foot addition to our Dubuque
product development and engineering center is completed; we have increased our
engineering staff as well as adding other technical personnel to shorten
development time and continue our growth in this field.
Like other markets, the world of recreational vehicles is changing
rapidly; we must change with it to develop new products and lower our costs if
we are to maintain our leadership position.
COMMERCIAL SEATING
The $3,500,000 addition to our Starkville, Mississippi, manufacturing
facilities is finally completed. A new state-of-the-art wood finishing system,
coupled with modernization of woodworking and upholstering facilities, will
provide us with the capabilities of better service to our customers and more
efficient production. We remain confident of our prospects in the hospitality
and health care field in the years ahead.
OUTLOOK
While we made sweeping changes for the future during this past year, we
didn't forget to run the business. Your Company had its best year ever in total
sales volume. Under prevailing highly competitive market conditions, this was
outstanding. However, the reason for change is that we are not satisfied with
our profitability and know we can do better. The lowering of interest rates by
the Federal Reserve Bank, for the first time in 17 months, and the 15-month low
in fixed rates for mortgages, will act to improve business conditions in our
industry. With our improved efficiencies, we can expect enhanced profitability.
We remain committed to maximizing shareholder value, and we will do
everything we can to make fiscal 1996 a successful year in every respect.
/s/ Jack B. Crahan
JACK B. CRAHAN
Chairman of the Board of Directors
/s/ K. Bruce Lauritsen
K. BRUCE LAURITSEN
President &
Chief Executive Officer
[photo]
Recliners are lovelier than ever with traditional
styling and true reclining comfort.
[photo]
Designs for health care must meet the
special requirements of that industry. This love seat
combines practicality with residential graciousness.
[photo]
Light scaling and firmer seating are characteristic of
the"Pacifica Collection."
Page 2
FOCUS ON CREATIVITY
[top photo] See description below.
"DESIGN IS
A CREATIVE
RESPONSE TO
CHANGING LIFESTYLES"
From the 1890's Victorian parlor to the 1990's family room, Flexsteel
designs have responded to the changing tastes and needs of the American
consumer. Our lives are far more complex than a century ago, as high-tech
surrounds us at work and at home. As a counterpoint, we make our homes more
welcoming and more relaxed.
Softness has become the most defining feature of home furnishings.
Flexsteel designers create visual comfort: generous scaling with bigger arms and
deeper backs conveys comfort at a glance. Fabrics are more important than ever
- -- a "soft hand" complements relaxed lines. Colors are soft and tranquil, with a
mellowed vividness and brightness. Paled tones, approaching white, are preferred
in many areas.
Our designers have created even softer seating with new, thicker,
softer luxury cushioning.
Flexsteel innovations have made us a significant player in today's
fastest-growing upholstery market -- motion furniture. Whether it's called the
great room or the gathering room, the room where the family relaxes now takes
more of the family budget, and motion is the furniture of choice.
Here Flexsteel competes beautifully, offering updated styles and
unmatched quality. The Flexsteel patented seat spring is key to both comfort and
quality. Many modular styles feature unusual built-in convenience features. Most
of our recliners are shipped with our exclusive lumbar support, and all feature
one-piece arm frame construction, with our famous seat spring framed in metal.
The other big story in home furnishings is the still-growing demand for
leather. A responsive design team, implementing the newer relaxed designs, and
integral Flexsteel quality have been responsible for steady and pronounced
growth in leather sales.
In recreational vehicle seating, Flexsteel designers are already
planning for the year 2000, anticipating the needs of a rapid evolution of
automotive technology. In seating for the hospitality industry, demand is for
the residential look of softened comfort. Seating for the health care industry
must do the same, with the added requirements of safety, provisions for moisture
resistance, and ease of use.
In a century-plus of specializing in seating, Flexsteel designs have
evolved from a stately formality to today's dynamic choices of softened
traditional and casual elegance -- always underwritten by famous Flexsteel
quality.
[bottom photo]
Top photo: Appropriate for today's busy lifestyles is this dual-purpose queen
sofa sleeper. Camelback styling, distinctive bun feet and a companion chair
complete the upscale look.
Bottom Photo: Leather's distinction is enhanced with appealing designer colors,
generous proportions, waterfall pleats, and unusual leather pillows.
Page 3
FOCUS ON CREATIVITY
[top photo] See description below.
"MARKETING
MUST COPE
WITH
CHANGING
REALITIES"
Changing lifestyles, corporate and personal, are changing our markets.
There are fewer furniture stores and, with less retail space, retailers must
make more effective use of their floor space.
The Flexsteel Gallery lets the retailer offer virtually limitless
choices in style, trim, and fabric in minimum floor space.
Flexsteel's 161 galleries give us excellent retail exposure in our
major markets. This year, our ongoing gallery support included the introduction
of a collection of 300 exciting fabrics which are exclusive to our Galleries.
Support of our dealers continues to be an important part of our market
plan. National advertising in magazines and television produces inquiries for
our dealers. Our sponsorship of a car in today's biggest spectator sport,
stock-car racing, has created name recognition, plus excitement for dealers who
have displayed the car.
Flexsteel marketing has continued to emphasize both the national chains
and major regional multi-store retailers, and we are increasingly represented in
these important markets.
Our presence in the international market is growing. We expect the
implementation of NAFTA to energize sales to Mexican and Canadian markets. We
have developed a handsome Pacifica Collection specifically for the Far East
market. While the "American look" is much in demand there, buyers prefer firmer
seating and smaller proportions than their American counterparts.
Rapid technological change is affecting marketing at every level. Our
automated SIS (Sales Inquiry System) gives dealers instant information on fabric
promotions and availability, style options, price, and order status. Video
cataloging is becoming more powerful; at least 150 of our dealers are using
Flexsteel's "Sneak Preview" to show customers their sofas or chairs, made up in
the fabrics of their choice. Both dealers and customers enjoy this new way of
shopping.
To sell recreational vehicle seating, we must stay abreast of an
explosive growth in automotive manufacturing technology. In this, as in the
hospitality and health care contract markets, both the total market and
Flexsteel's share continue to grow. Our contract backlog continues high, but our
recent $3.5 million expansion at Stark ville, Mississ ippi, is helping us to be
more competitive. With more pro cess control, we can ship a better product more
rapidly.
Foremost priority is given at Flexsteel to the needs of present and
potential customers; they are our life blood and our future.
[bottom photo]
Top photo: Perfect for today's casual life styles, this Shaker-influenced room
group features oak accents and matching occasional tables.
Bottom photo: Residents at Seven Oaks health-care facility enjoy this striking
dining room with handsome chairs by Flexsteel. Photo Courtesy Bob Harr, Hedrick
Blessing Studios.
Page 4
FOCUS ON CREATIVITY
[top photo] See description below.
"OUR PEOPLE
INNOVATE THROUGH
UNDERSTANDING
OF CUSTOMER'S
NEEDS"
Our people, alert to changing markets, watch and listen. We see people
seeking more relaxed surroundings for their homes. We hear their requests for
greater comfort and sustained quality combined with environmentally-sound
practices.
To answer these, the people of Flexsteel bring their innovative skills.
Our engineers and designers, for example, have combined talents to produce a
superior sofa sleeper. With our suppliers, we have developed a new premium
mattress and an improved mechanism for more sleeping comfort. Having developed a
better bed, we turned our attention to making it sit as comfortably as a
conventional sofa. The result is an exquisite new group of Masquerader(R) sofa
sleepers with matching love seats and companion chairs.
Another innovation resulting from the creative use of our people's
knowledge and talents is a revolutionary recliner that can be assembled by the
purchaser without tools. The recliner is shipped in two smaller cartons, greatly
reducing shipping and handling costs.
Production methods and materials are also scrutinized. Innovative
associates contributed to a major rearrangement of our Dubuque facility which,
when completed, will substantially reduce material handling there. The ongoing
quest for quality now involves all our in-plant sales associates with production
staff to check such matters as the comfort of foam cushioning and tailoring.
Ecological concerns are addressed. Use of laminates as well as
kiln-dried hardwood has not only improved our product but made our use of wood
more efficient. We have a better product and use fewer trees.
In recreational vehicle seating, we are working to improve the response
time, critical in products subject to the automotive scheduling cycle. Many
manufacturers now expect a 28-day schedule from approved design to production.
In an increasingly technological society and an intensely competitive
retail environment, it is still Flexsteel's people who sense and meet the needs
of the people who are our customers.
At Flexsteel, the personal touch has survived.
[bottom photo]
Top photo: This Charisma accent chair reflects current home fashion trends with
the freshness of a washed white finish on the carved frame, embellished with a
charming floral print.
Bottom photo: Stunning seating groups with an accent on comfort are created by
combining the versatile units of this modular group.
Page 5
FLEXSTEEL INDUSTRIES, INC.
FIVE YEAR REVIEW
(All amounts in thousands except for Per Share data)
1995 1994 1993 1992 1991
SUMMARY OF OPERATIONS
Net Sales..................................... $208,432 $195,388 $177,271 $157,916 $145,566
Cost of Sales................................. 164,231 151,066 136,110 122,294 112,784
Interest Expense.............................. 372 270 252 277 282
Interest and Other Income..................... 973 990 1,460 2,076 1,982
Income Before Taxes........................... 8,111 10,092 9,710 2,640 2,364
Income Taxes.................................. 2,900 3,625 3,525 950 1,150
Net Income (1)................................ 5,211 6,787 6,185 1,690 1,214
Earnings per Common Share (1)................. .73 .95 .87 .24 .17
Cash Dividends per Common Share............... .48 .48 .48 .48 .48
STATISTICAL SUMMARY
Average Common Shares Outstanding............. 7,178 7,140 7,090 7,048 7,067
Book Value per Common Share................... 10.28 9.98 9.57 9.17 9.34
Total Assets.................................. 96,271 95,088 87,861 81,843 81,484
Net Plant and Equipment....................... 24,376 18,829 17,208 17,228 18,795
Capital Additions............................. 9,682 5,074 3,273 1,966 1,804
Working Capital............................... 46,272 47,787 49,707 46,863 47,114
Long-Term Debt................................ 70 105 140 345 652
Shareholders' Equity.......................... 73,824 71,289 67,855 64,640 66,036
SELECTED RATIOS
Earnings as Percent of Sales.................. 2.5% 3.5% 3.5% 1.1% 1.3%
Current Ratio................................. 3.4 3.3 3.9 4.3 4.9
Return on Total Capital....................... 7.1% 9.5% 9.1% 2.6% 2.9%
Return on Beginning Common Equity............. 7.3% 10.0% 9.6% 2.6% 2.8%
Average Number of Employees................... 2,375 2,240 2,120 2,040 2,005
(1) 1994 and 1991 income and per share amounts reflect cumulative effect of
accounting changes as of June 30, 1994, of $320,000 (net of income taxes) or
$.04 per share income and July 1, 1990, of $715,000 (net of income taxes) or
$.10 per share charge, respectively.
FLEXSTEEL INDUSTRIES, INC. QUARTERLY COMMON STOCK DATA
FISCAL YEAR 1994-95
PER SHARE
MARKET PRICE*
EARNINGS DIVIDEND HIGH LOW
First Quarter .22 .12 13 1/4 9 1/2
Second Quarter .21 .12 13 3/4 10
Third Quarter .25 .12 13 1/4 10 1/2
Fourth Quarter .05 .12 12 10 1/4
FISCAL YEAR 1993-94
PER SHARE
MARKET PRICE*
EARNINGS DIVIDEND HIGH LOW
First Quarter .22 .12 16 3/4 14 1/2
Second Quarter .20 .12 17 1/2 15
Third Quarter .25 .12 18 1/2 15 3/4
Fourth Quarter .28 .12 16 1/4 13
Flexsteel has paid cash dividends on its common stock for 214 consecutive
quarters. The Company expects to continue regular dividend payments. As of June
24, 1995, there were 1,716 holders of Flexsteel's outstanding common stock.
* Reflects the Market prices as quoted by the National Association of Securities
Dealers, Inc.
Page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITIONS
Working Capital - Flexsteel's working capital at June 30, 1995 is $46,272,000
which includes cash, cash equivalents, and temporary investments of $14,037,000.
Working capital decreased by $1,515,000 from June 30, 1994. The Company has
lines of credit of $5,700,000 with banks for short-term borrowings, which have
not been utilized since 1979. The Company has outstanding borrowings of
$2,925,000 in the form of variable rate demand industrial development revenue
bonds.
Capital Expenditures - Capital expenditures were $9,682,000 in fiscal 1995.
These expenditures were for plant expansions, manufacturing, and delivery
equipment. Projected capital spending in fiscal 1996 is approximately $2,500,000
for manufacturing and delivery equipment. The funds required for these
expenditures will be provided from available cash.
Dividends - Dividends were $.48 per share both years. The Board of Directors
determine dividend levels based on the Company's ability to pay its obligations,
capital expenditure requirements, and other related factors.
Economic Conditions - The Company anticipates that demand for its seating
products will improve gradually, from current levels, throughout the remainder
of the year as consumer confidence rebounds, aided by moderation in interest
rates. The Company's previously implemented price increases, in conjunction with
investments in computerized manufacturing equipment, plant layout improvements
and associate training, will help offset cost increases for materials and assist
in maintaining margins in the highly price-competitive marketplace.
Profitability improvements should result from improved manufacturing
efficiencies and continued efforts to control fixed costs while maintaining
sales volume and margins.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Sales for 1995 increased by $13,044,000 or 6.7% compared to 1994. Home
Furnishings sales volume increased $8,359,000 or 6.8%, Contract Furniture
increased $2,507,000 or 18.2%, and Recreational Vehicle products increased
$2,178,000 or 3.7%. Cost of goods increased $13,164,000 for the year as compared
to 1994. Approximately $3,000,000 of this increase relates to lower margins,
increased material costs, and inefficiencies due to decreased volume in the
fourth quarter of the year, with the remainder due to overall increased volume
for the year. Selling, general and administrative expenses were 17.6% in fiscal
1995 compared to 17.9% in 1994. The Company continues to control fixed costs
while increasing volume. Interest expense increased by $102,000 due to financing
the Starkville, Mississippi, expansion. In fiscal 1994 the Company made an
accounting principle change in adopting Statement of Financial Accounting
Standards (SFAS) No. 115 which resulted in net cumulative income of $320,000 or
$.04 per share. The above factors resulted in fiscal year 1995 net earnings of
$5,211,000 or $ .73 per share compared to $6,787,000 or $ .95 per share in
fiscal 1994, a net decrease of $1,576,000 or $.22 per share.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO FISCAL 1993
Sales for 1994 increased by $18,117,000 or 10.2% compared to 1993.
Recreational Vehicle product sales volume increased $9,008,000 or 18.2%, Home
Furnishings increased $8,739,000 or 7.6%, and Contract Furniture increased
$370,000 or 2.8%. Due to the higher volume, cost of sales increased by
$13,957,000 compared to the prior year. In addition, cost of sales increased
approximately $1,000,000 due to the erosion of margins in the price-competitive
marketplace and lower production efficiencies associated with training new
associates necessary to meet sales volume requirements. Selling, general and
administrative expenses were 17.9% of sales in fiscal 1994 compared to 18.4% in
1993. The improvement reflects the Company's successful efforts to control fixed
costs while increasing volume. Interest income decreased by $471,000 due to
lower levels of investment and decreased rate of return. The Company elected to
adopt the provisions of Statement of Financial Accounting Standards (SFAS) No.
115 during fiscal 1994, with respect to the Company's accounting for certain
investments in debt and equity securities. This change in accounting principle
resulted in net cumulative income of $320,000, or $.04 per share. Also in fiscal
1994, the Company adopted SFAS No. 112, "Employers Accounting for Postemployment
Benefits." The adoption of this standard did not have a material effect on the
Company's financial position or results of operations.
FISCAL 1993 COMPARED TO FISCAL 1992
Sales for 1993 increased by $19,355,000 or 12.3% compared to 1992.
Double-digit sales growth was realized in all product categories: Home
Furnishings sales volume increased $13,264,000 or 13.1%, Recreational Vehicle
products increased $4,660,000 or 10.4%, and Contract Furniture increased
$1,431,000 or 12.0%. Cost of sales increased by $13,816,000 compared to the
prior year reflecting the higher sales volume. Volume related increases were
offset by reduced fixed costs resulting from prior year's production
consolidation. Selling, general and administrative expenses were 18.4% of sales
in fiscal 1993 compared to 20.3% in 1992. The improvement reflects the Company's
efforts to control fixed costs and the administrative cost reductions associated
with the prior year's consolidation. Operating income increased to $8,501,000
from $841,000 reflecting the aforementioned volume increases and cost control
efforts. Fiscal 1992 operating income was also reduced by the restructuring
charge of $2,675,000. Interest income decreased by $615,000 due to lower
interest rates during 1993. The result of the above factors is increased net
income of $4,495,000 or $.63 per share.
Page 7
FLEXSTEEL INDSUTRIES, INC.
BALANCE SHEETS
JUNE 30,
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 5,768,537 $ 3,385,573
Temporary investments - at fair value based
on quoted market price ................................. 8,268,615 9,718,350
Trade receivables - less allowance for doubtful
accounts: 1995, $2,160,211; 1994, $1,960,231 ........... 22,905,047 25,615,426
Inventories .............................................. 25,921,674 26,585,397
Deferred income taxes .................................... 2,000,000 2,340,000
Other .................................................... 844,557 913,301
Total current assets ................................. 65,708,430 68,558,047
PROPERTY, PLANT AND EQUIPMENT, net ......................... 24,376,052 18,829,053
OTHER ASSETS ............................................... 6,186,144 7,701,079
TOTAL .......................................... $96,270,626 $ 95,088,179
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ................................. $ 4,756,991 $ 4,871,630
Accrued liabilities:
Payroll and related items ............................. 3,656,678 4,322,063
Insurance .............................................. 5,368,145 4,683,962
Other accruals ......................................... 2,694,902 3,607,989
Industrial revenue bonds payable ......................... 2,960,000 3,285,000
Total current liabilities .......................... 19,436,716 20,770,644
LONG-TERM DEBT ............................................. 70,000 105,000
DEFERRED COMPENSATION ...................................... 2,940,329 2,923,729
Total liabilities .................................... 22,447,045 23,799,373
SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000,000 shares;
issued 1995, 7,193,124 shares; 1994, 7,155,012 shares . 7,193,124 7,155,012
Additional paid-in capital ............................... 1,386,754 1,015,940
Retained earnings ........................................ 65,199,703 63,437,854
Unrealized investment gain (loss) ........................ 44,000 (320,000)
Total shareholders' equity ................... 73,823,581 71,288,806
TOTAL ........................... $96,270,626 $ 95,088,179
See accompanying Notes to Financial Statements.
Page 8
FLEXSTEEL INDSUTRIES, INC.
STATEMENTS OF INCOME & RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 30,
1995 1994 1993
NET SALES ................................ $ 208,432,198 $ 195,388,106 $ 177,270,751
OPERATING EXPENSES:
Cost of goods sold ..................... 164,230,883 151,066,404 136,109,870
Selling, general and administrative .... 36,692,054 34,949,047 32,659,675
Total .......................... 200,922,937 186,015,451 168,769,545
OPERATING INCOME ......................... 7,509,261 9,372,655 8,501,206
OTHER:
Interest and other income .............. 973,371 989,554 1,460,371
Interest expense ....................... (371,729) (270,046) (251,663)
Total .......................... 601,642 719,508 1,208,708
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 8,110,903 10,092,163 9,709,914
PROVISION FOR INCOME TAXES ............... 2,900,000 3,625,000 3,525,000
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE ................ 5,210,903 6,467,163 6,184,914
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ................... 320,000
NET INCOME ............................... 5,210,903 6,787,163 6,184,914
RETAINED EARNINGS - BEGINNING OF YEAR .... 63,437,854 60,080,908 57,303,266
TOTAL .................................... 68,648,757 66,868,071 63,488,180
CASH DIVIDENDS ON COMMON STOCK
(per share: $.48) ..................... (3,449,054) (3,430,217) (3,407,272)
RETAINED EARNINGS - END OF YEAR .......... $ 65,199,703 $ 63,437,854 $ 60,080,908
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ............................ 7,178,285 7,140,144 7,090,041
EARNINGS PER SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ .73 $ .91 $ .87
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE ................... .04
EARNINGS PER SHARE OF COMMON STOCK ....... $ .73 $ .95 $ .87
See accompanying Notes to Financial Statements.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF FLEXSTEEL INDUSTRIES, INC.:
We have audited the accompanying balance sheets of Flexsteel Industries,
Inc. as of June 30, 1995 and 1994, and the related statements of income and
retained earnings and cash flows for each of the three years in the period ended
June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Flexsteel Industries, Inc.
as of June 30, 1995 and 1994, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for certain investments in debt and equity securities
during the year ended June 30, 1994.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 11, 1995
Page 9
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
1995 1994 1993
OPERATING ACTIVITIES:
Net income ................................................................ $ 5,210,903 $ 6,787,163 $ 6,184,914
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effect of accounting change ................................. (320,000)
Depreciation ........................................................... 4,135,053 3,452,962 3,292,710
Trade receivables ...................................................... 2,710,379 (3,422,717) (2,620,742)
Inventories ............................................................ 663,723 (4,873,616) 620,054
Other current assets ................................................... 68,744 59,779 (74,050)
Other assets ........................................................... (519,313) (1,721,325) (246,816)
Accounts payable - trade ............................................... (114,639) 658,967 167,679
Accrued liabilities .................................................... (894,289) (138,855) 3,049,931
Deferred compensation .................................................. 16,600 58,732 60,493
Deferred income taxes .................................................. 340,000 (250,000) (415,000)
Net cash provided by
operating activities ................................................... 11,617,161 291,090 10,019,173
INVESTING ACTIVITIES:
Construction funds held in escrow ...................................... 2,034,248 (2,034,248)
Purchases of temporary investments ..................................... (2,751,519) (2,878,805) (7,447,705)
Proceeds from sales of temporary investments ........................... 4,565,254 8,508,968 5,136,530
Additions to property, plant and equipment ............................. (9,682,052) (5,074,138) (3,272,816)
Net cash (used in)
investing activities ................................................... (5,834,069) (1,478,223) (5,583,991)
FINANCING ACTIVITIES:
Proceeds from (repayment of)
revenue bonds issued ................................................. (325,000) 3,250,000
Repayment of long-term debt ............................................ (35,000) (35,000) (475,417)
Payment of dividends ................................................... (3,449,054) (3,430,217) (3,407,272)
Proceeds from issuance of stock ........................................ 408,926 396,523 437,801
Net cash provided by
(used in) financing activities ......................................... (3,400,128) 181,306 (3,444,888)
Increase (decrease) in cash and cash equivalents .......................... 2,382,964 (1,005,827) 990,294
Cash and cash equivalents at beginning of year ............................ 3,385,573 4,391,400 3,401,106
Cash and cash equivalents at end of year .................................. $ 5,768,537 $ 3,385,573 $ 4,391,400
See accompanying Notes to Financial Statements.
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 financial statements covered by
the report of Deloitte & Touche LLP, our independent auditors. The statements
were prepared in conformity with generally accepted accounting principles and
include amounts based on estimates and judgments of management.
The Company maintains a system of internal accounting 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 accounting 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. The independent auditors are engaged to audit the
financial statements of the Company and to express an opinion thereon. The
independent auditors' report is expressed on page 9. The Audit & Ethics
Committee meets periodically with the independent auditors to review financial
reports, accounting and auditing practices and controls.
/s/ K. Bruce Lauritsen
K. Bruce Lauritsen
President Chief Executive Officer
/s/ Ronald J. Klosterman
Ronald J. Klosterman
Vice President, Finance
Chief Financial Officer
Secretary
Page 10
FLEXSTEEL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
INDUSTRY INFORMATION - the Company manufactures and sells upholstered furniture
and other seating products.
STATEMENT OF CASH FLOWS - the Company considers highly liquid investments with
original maturities of less than three months 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.
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 - are based on the weighted average number of common shares
outstanding during each year. The exercise of employee stock options would have
no material effect on earnings per share.
ACCOUNTING CHANGE - effective June 30, 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This new standard which
requires certain investments to be recorded at their market value resulted in a
decrease of $320,000 in shareholders' equity. This decrease represents the gross
unrealized loss on investments which has been recorded net of tax as a separate
component of shareholders' equity. This change in accounting principle resulted
in a cumulative effect adjustment as of June 30, 1994 of $320,000 (tax effected
amount) or $ .04 per share.
RECLASSIFICATIONS - certain prior years' amounts have been reclassified to
conform to the 1995 presentation.
2. INVESTMENTS
The amortized cost and estimated market values of investments in debt and equity
securities are as follows:
June 30, 1995 June 30, 1994
Debt Equity Debt Equity
Securities Securities Securities Securities
Amortized Cost $ 8,324,825 $ 2,168,475 $ 10,270,409 $ 2,044,502
Unrealized gains
(losses) (94,086) 157,453 (404,235) (90,522)
Est. Market Value $ 8,230,739 $ 2,325,928 $ 9,866,174 $ 1,953,980
Debt and equity securities are included in Temporary Investments and Other
Assets and are considered as available for sale. As of June 30, 1995, the
maturities of debt securities are $1,069,667 within one year, $6,913,537 one to
five years, and $247,535 six to ten years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately $2,671,000
and $2,387,000 higher at June 30, 1995 and 1994, respectively, if they had been
valued on the FIFO method. A comparison of inventories is as follows:
June 30,
1995 1994
Raw materials .................... $14,186,359 $16,369,701
Work in process and finished parts 7,546,079 6,621,585
Finished goods ................... 4,189,236 3,594,111
Total ......................... $25,921,674 $26,585,397
4. PROPERTY, PLANT AND EQUIPMENT
Estimated June 30,
Life (Years) 1995 1994
Land................ $ 1,609,572 $ 1,609,572
Buildings and
improvements..... 3 - 50 23,099,131 20,052,762
Machinery and
equipment........ 3 - 15 24,434,273 22,229,898
Delivery equipment.. 2 - 9 12,430,880 11,239,624
Furniture and fixtures 3 - 15 4,426,168 3,902,180
Total............ $66,000,024 $59,034,036
Less accumulated
depreciation..... 41,623,972 40,204,983
Net.............. $24,376,052 $18,829,053
5. BORROWINGS
The Company is obligated for $2,925,000 for Industrial Revenue Bonds at June 30,
1995 which were issued for the financing of property, plant and equipment. The
obligations are variable rate demand bonds with a weighted average rate for
years ended June 30, 1995 and 1994 of 3.00% and 4.05%, respectively, and are due
in annual installments of $325,000 through 2004, if not paid earlier upon demand
of the holder. The Company has a letter of credit to guarantee the payment of
these bonds in the event of default. No amounts were outstanding on this letter
at June 30, 1995. In addition, the Company is obligated for General Obligation
Development Bonds bearing interest at 5.0% and due in annual installments of
$35,000 through 1998. Interest paid during 1995, 1994, and 1993 was $135,000,
$38,000, and $40,000, respectively.
6. INCOME TAXES
The total income tax provision for 1995, 1994, and 1993 was 35.8%, 35.9%, and
36.3%, respectively, of income before income taxes and cumulative effect of
change in accounting principle.
Page 11
Provision - comprised of the following:
1995 1994 1993
Federal - current.. $2,230,000 $3,395,000 $3,497,000
State - current.... 330,000 480,000 443,000
Deferred........... 340,000 (250,000) (415,000)
Total........... $2,900,000 $3,625,000 $3,525,000
Net deferred taxes included in the balance sheet - comprised of the following
temporary differences:
For the Years ended June 30,
1995 Total 1994 Total
Asset (Liability) Asset (Liability)
Asset allowances............... $ 808,317 $ 921,521
Deferred compensation.......... 1,087,921 1,081,779
Other accruals and allowances.. 1,542,073 1,641,303
Excess of tax over book depreciation (1,438,311) (1,304,603)
Total....................... $2,000,000 $2,340,000
Income taxes paid during 1995, 1994, and 1993 were $3,555,000, $5,081,000, and
$2,618,000, respectively.
7. CREDIT ARRANGEMENTS
The Company has lines of credit of $5,700,000 with banks for short-term
borrowings at the prime rate in effect at the date of the loan. On $1,000,000 of
such line, 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 during 1995 or 1994. Additionally, the Company has a
$1,280,000 letter of credit related to worker's compensation and casualty
insurance. No amounts were outstanding on this letter as of June 30, 1995.
8. SHAREHOLDERS' EQUITY
The Company has authorized 60,000 shares of cumulative, $50 par value preferred
stock and 700,000 shares of undesignated, $1 par value (subordinated) stock,
none of which is outstanding. The Company issued 38,112, 31,981, and 55,305 net
shares under stock option and other employee plans during the years ended June
30, 1995,1994, and 1993, respectively. The difference between the purchase or
issue prices and the par value of the shares is credited or charged to paid-in
capital.
9. STOCK OPTIONS
The Company has stock option plans for key employees that provide for the grant
ing of incentive and nonqualified stock options. Under the plans, options are
granted at fair market value and may be exercisable for up to 10 years. At June
30, 1995, 88,970 shares of common stock were available for future grants.
Changes in options outstanding are as follows:
June 30, 1992 Shares Price/Range
Outstanding............ 250,980 $ 9.50 -$11.50
Granted................ 11,000 12.375
Exercised ......... (98,890) 9.50 - 11.50
Cancelled.............. (4,400) 9.50 - 12.375
June 30, 1993
Outstanding............ 158,690 10.50 - 12.375
Granted................ 100,930 14.875 - 15.75
Exercised.............. (19,100) 10.50 - 11.00
June 30, 1994
Outstanding............ 240,520 10.50 - 15.75
Granted................ 94,360 10.50 - 11.125
Exercised.............. (17,000) 11.00
Cancelled.............. (41,210) 10.50 - 14.875
June 30, 1995
Outstanding............ 276,670 $10.50 -$14.875
10. PENSION AND RETIREMENT PLANS
The Company sponsors various defined contribution pension and retirement plans
which cover substantially all employees, other than employees covered by
multiemployer 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 $1,295,000 in 1995, $1,226,000 in 1994, and
$1,044,000 in 1993 including $274,000 in 1995, $251,000 in 1994, and $220,000 in
1993 for the Company's matching contribution to retirement savings plans. The
Company's cost for pension plans is determined as 2% - 4% of each covered
employees 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
multiemployer defined benefit pension plans administered by others under
collective bargaining agreements were $1,203,000 in 1995, $1,150,000 in 1994,
and $1,030,000 in 1993.
11. MANAGEMENT INCENTIVE PLANS
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 13,300, 16,189, and 8,090 shares were awarded,
and the amounts charged to income in 1995, 1994, and 1993 were $149,625,
$169,985, and, $125,395, respectively. At June 30, 1995, 379,697 shares were
available for future grants.
12. SUPPLEMENTARY QUARTERLY
FINANCIAL INFORMATION
(UNAUDITED - in thousands of dollars, except per share amounts)
Quarters
1st 2nd 3rd 4th
1995:
Net Sales...... $50,812 $52,351 $56,783 $48,486
Gross Profit... 11,475 11,465 12,078 9,183
Net Income .... 1,597 1,496 1,768 350
Earnings Per Share .22 .21 .25 .05
Quarters
1st 2nd 3rd 4th(a)
1994:
Net Sales...... $44,360 $46,583 $52,638 $51,807
Gross Profit... 10,529 10,074 11,970 11,749
Net Income..... 1,561 1,409 1,787 2,030
Earnings Per Share .22 .20 .25 .28
(a) Reflects cumulative effect of accounting change as of June 30, 1994 of
$320,000 (net of income taxes) or $.04 per share income.
Page 12
PLANT LOCATIONS
*Flexsteel Industries, Inc.
DUBUQUE, IOWA 52001
(319) 556-7730
P. M. Crahan, General Manager
Flexsteel Industries, Inc.
DUBLIN, GEORGIA 31040
(912) 272-6911
R. C. Adams, 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
(219) 831-4050
G. H. Siemer, General Manager
Wood Products Division
HARRISON, ARKANSAS 72601
(501) 743-1101
M. J. Feldman, General Manager
Metal Division
DUBUQUE, IOWA 52001
(319) 556-7730
J. E. Gilbertson, General Manager
Charisma Chairs
SWEETWATER, TENNESSEE 37874
(423) 337-6694
A. F. McCosh, Plant Manager
Commercial Seating Division
STARKVILLE, MISSISSIPPI 39760
(601) 323-5481
S. P. Salmon, General Manager
Vancouver Distribution Center
VANCOUVER, WASHINGTON 98668
(206) 696-9955
R. Heying, Supervisor
* Executive Offices
PERMANENT SHOWROOMS
Dubuque, Iowa
High Point, North Carolina
Lancaster, Pennsylvania
San Francisco, California
DIRECTORS AND OFFICERS
Frank H. Bertsch
Chairman of Executive Committee
Director
Jack B. Crahan
Chairman of the Board of Directors
K. Bruce Lauritsen
President
Chief Executive Officer
Director
Edward J. Monaghan
Executive Vice President
Chief Operating Officer
Director
James R. Richardson
Senior Vice President, Marketing
Director
L. Bruce Boylen
Retired Vice President
Fleetwood Enterprises, Inc.
Director
John R. Easter
Retired Vice President
Sears, Roebuck & Company
Director
Thomas E. Holloran
Professor, Graduate School of
Business, University of St. Thomas
St. Paul, Minnesota
Director
James G. Peterson
Consultant
James G. Peterson Associates
Business Consultant
and Investment Advisor
Director
Art D. Richardson
Retired Senior Vice President
Flexsteel Industries, Inc.
Director
Jeffrey T. Bertsch
Vice President
Carolyn T. B. Bleile
Vice President
Thomas D. Burkart
Senior Vice President, Vehicle Seating
Kevin F. Crahan
Vice President
Patrick M. Crahan
Vice President
Keith R. Feuerhaken
Vice President
James E. Gilbertson
Vice President
James M. Higgins
Vice President
Ronald J. Klosterman
Vice President, Finance
Chief Financial Officer
Secretary
Michael A. Santillo
Vice President
EXECUTIVE COMMITTEE
Frank H. Bertsch, Chairman
Jack B. Crahan
K. Bruce Lauritsen
Edward J. Monaghan
James R. Richardson
AUDIT & ETHICS
COMMITTEE
Thomas E. Holloran, Chairman
John R. Easter
James G. Peterson
Art D. Richardson
NOMINATING &
COMPENSATION
COMMITTEE
L. Bruce Boylen, Chairman
John R. Easter
Thomas E. Holloran
James G. Peterson
MARKETING COMMITTEE
John R. Easter, Chairman
Frank H. Bertsch
L. Bruce Boylen
James G. Peterson
Art D. Richardson
TRANSFER AGENT AND
REGISTRAR
Norwest Capital Resources
P. 0. Box 738
South St. Paul,
Minnesota 55075-0738
GENERAL COUNSEL
Peter F. Walstad
Minneapolis, Minnesota
O'Connor and Thomas, P.C.
Dubuque, Iowa
NATIONAL OVER
THE COUNTER
NASDAQ SYMBOL - FLXS
ANNUAL MEETING
Tuesday,
December 5, 1995, 3:30 p.m.
Minneapolis Hilton & Towers
1001 Marquette Avenue,
3rd floor
Minneapolis, Minnesota 55403
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 handicap 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.
[LOGO]
(C) 1995 FLEXSTEEL INDUSTRIES, INC.
Page - Inside Back Cover
[photo]
With recreational vehicle seating designed to meet or surpass the exacting
standards mandated by safety and comfort considerations, Flexsteel is now
recognized as a major supplier of seating for all types of recreational vehicles
and motor homes. A key selling point of Fleetwood's most popular motor home, The
Bounder, is a beautiful interior made inviting and comfortable with the finest
appointments. Among these is top-quality Flexsteel seating in living, dining,
and sleeping areas.
BULK RATE
U.S. Postage
PAID
Permit #10
Dubuque,IA
FLEXSTEEL(R) INDUSTRIES INCORPORATED
P.O. BOX 877 o DUBUQUE, IA 52004-0877
Page - Back Cover
