FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
Date: October 30, 1996
Office of the Chairman of the Board
Dear Stockholder:
You are cordially invited to attend the Annual Stockholders' Meeting on
Tuesday, December 10, 1996, at 3:30 p.m. We sincerely want you to come, and
we welcome this opportunity to meet with those of you who find it convenient
to attend.
Time will be provided for stockholder questions regarding the affairs of the
Company and for discussion of the business to be considered at the meeting as
explained in the notice and proxy statement which follow. Directors and other
Company executives expect to be available to talk individually with
stockholders after the meeting. No admission tickets or other credentials are
currently required for attendance at the meeting.
The formal notice of the meeting and proxy statement follow. I hope that
after reading them you will sign and mail the proxy card, whether you plan to
attend in person or not, to assure that your shares will be represented.
Sincerely,
/s/ J.B. Crahan
J.B. Crahan
Chairman of the Board
RECORD DATE: October 21, 1996
DATE OF MEETING: December 10, 1996
TIME: 3:30 p.m.
PLACE: The Minneapolis Hilton and Towers
1001 Marquette Avenue, Third Floor
Minneapolis, Minnesota 55403
IMPORTANT
WHETHER YOU OWN ONE SHARE OR MANY, EACH STOCKHOLDER IS URGED TO VOTE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 10, 1996
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Flexsteel Industries, Inc. will be held
at The Minneapolis Hilton and Towers, 1001 Marquette Avenue, Third Floor,
Minneapolis, MN 55403, on Tuesday, December 10, 1996, at 3:30 p.m. for the
following purposes:
1. To elect four (4) Class I Directors to serve until the 1999 Annual
Meeting and until their successors have been elected and qualified or
until their earlier resignation, removal or termination (Proposal I).
2. To ratify or reject the appointment by the Board of Directors of
Deloitte & Touche LLP as independent auditors for the fiscal year
ending June 30, 1997 (Proposal II).
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
October 21, 1996 has been fixed as the record date for the determination of
Common stockholders entitled to notice of and to vote at the meeting, and only
holders of record at the close of business on that date will be entitled to vote
at the meeting or any adjournment thereof.
Whether or not you plan to attend the meeting, please mark, date and sign the
accompanying proxy and return it promptly in the enclosed envelope which
requires no additional postage if mailed in the United States. If you attend the
meeting, you may vote your shares in person even though you have previously
signed and returned your proxy. Voting by ballot at the meeting cancels any
proxy previously returned.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. Klosterman
R.J. KLOSTERMAN
SECRETARY
October 30, 1996
PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Flexsteel Industries, Inc. (the "Company") to be used at the Annual Meeting
of Stockholders to be held on December 10, 1996, and any adjournments
thereof, and may be revoked by the stockholder at any time before it is
exercised by a written notice or a later dated proxy delivered to the
Secretary of the Company. Execution of the proxy will in no way affect a
stockholder's right to attend the meeting and vote in person. The proxy will
be revoked if the stockholder is present at the meeting and votes by ballot
in person. Properly executed proxies received prior to the voting at the
meeting will be voted at the meeting or any adjournments thereof. If a
stockholder specifies how the proxy is to be voted on any business to come
before the meeting, it will be voted in accordance with such specification.
If no specification is made, it will be voted FOR the election of K. Bruce
Lauritsen, Thomas E. Holloran, L. Bruce Boylen, and John R. Easter as Class I
Directors (Proposal I) and FOR ratification of the appointment of Deloitte &
Touche LLP (Proposal II). Each of the above named nominees has previously
been elected by the shareholders.
The mailing address of the corporate office and principal executive office of
the Company is P.O. Box 877, Dubuque, Iowa 52004-0877. The approximate date
on which this proxy statement and accompanying proxy card are first being
mailed to stockholders is October 30, 1996.
As of the close of business on October 21, 1996, the record date for
determining stockholders entitled to notice and to vote at the meeting, the
Company had outstanding 7,019,507 shares of Common Stock, par value $1.00 per
share. Each share is entitled to one vote and cumulative voting is not
permitted. No Preferred Stock is outstanding.
Stockholder votes will be counted by Inspectors of Election who will be
present at the stockholder meeting. The affirmative vote of a majority of the
shares of stock represented at the meeting shall be the act of the
stockholders for the election of directors. Abstentions and broker non-votes
shall not be counted as votes for or against the proposal being voted on.
EXPENSE OF SOLICITATION
The cost of the solicitation of proxies on behalf of the Board of Directors
will be paid by the Company. Solicitation of proxies will be principally by
mail. In addition, the officers or employees of the Company and others may
solicit proxies, either personally, by telephone, by special letter, or by
other forms of communication. The Company will also make arrangements with
banks, brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals and will reimburse them
for reasonable expenses in so doing. Officers and employees of the Company
will not receive additional compensation in connection with the solicitation
of proxies.
PROPOSAL I -- ELECTION OF DIRECTORS
The Board currently consists of ten persons divided into three classes. At
each Annual Meeting the terms of one class of Directors expire and persons
are elected to that class for terms of three years or until their respective
successors are duly qualified and elected or until their earlier resignation,
removal or termination.
The terms of the Class I Directors expire at the time of the 1996 Annual
Meeting. The Board of Directors of the Company has nominated K. Bruce
Lauritsen, Thomas E. Holloran, L. Bruce Boylen, and John R. Easter for
re-election as Class I Directors of the Company. Each Director, if elected,
will serve a three (3) year term expiring at the time of the 1999 Annual
Meeting and until their respective successors have been elected and qualified
or until their earlier resignation, removal or termination. It is the
intention of the proxies named herein to vote FOR these nominees unless
otherwise directed in the proxy.
All nominees named above have consented to serve as Directors if elected. In
the event that any of the nominees should fail to stand for election, the
persons named as proxy in the enclosed form of proxy intend to vote for
substitute nominees. The proxies cannot be voted for a greater number of
persons than the number of nominees named herein.
DIRECTOR PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS OR
NOMINEE'S NAME AGE SINCE EMPLOYMENT DURING THE LAST FIVE YEARS
NOMINEES FOR ELECTION FOR A TERM OF THREE YEARS EXPIRING 1999
ANNUAL MEETING, CLASS I
K. Bruce Lauritsen (1) 53 1987 Chief Executive Officer and President, 1993 to present,
President and Chief Operating Officer, 1990 to 1993,
Flexsteel Industries, Inc.; Director, Mercantile Bank of
Dubuque; Regent, Loras College.
Thomas E. Holloran (2)(3) 67 1971 Professor, Graduate School of Business, University of St.
Thomas, St. Paul; Director, ADC Telecommunications, Inc.;
Director, MTS Systems Corporation (mfr. testing systems);
Director, Medtronic, Inc.; Director, National City
Bancorporation; Director, Bush Foundation.
L. Bruce Boylen (3)(4) 64 1993 Retired Vice President, Fleetwood Enterprises, Inc. (retired
1991) (mfr. of recreational vehicles and manufactured
homes).
John R. Easter (2)(3)(4) 67 1993 Retired Vice President, Sears-Roebuck Company (retired
1989); Director, Mutual Trust Life Insurance Co.
DIRECTORS WHOSE TERMS EXPIRE 1998 ANNUAL MEETING, CLASS III
Frank H. Bertsch (1)(4) 70 1948 Retired Chairman of the Executive Committee, Flexsteel
Industries, Inc. (retired 1995); Director, American Trust
& Savings Bank, Dubuque, Iowa; Trustee, University of
Dubuque.
J.B. Crahan (1) 72 1949 Chairman of the Board and retired Chief Executive Officer,
Flexsteel Industries, Inc. (retired 1993); Trustee, U.I.U.
Pension Trust Fund.
Edward J. Monaghan (1) 57 1987 Chief Operating Officer and Executive Vice President, 1993
to present, Executive Vice President, 1988 to 1993,
Flexsteel Industries, Inc; Trustee, Clarke College.
DIRECTORS WHOSE TERMS EXPIRE 1997 ANNUAL MEETING, CLASS II
Art D. Richardson (2)(4) 79 1951 Retired Senior Vice President, Flexsteel Industries, Inc.
(retired 1982).
James G. Peterson (2)(3)(4) 76 1970 Retired self-employed Financial and Business Consultant and
Investment Advisor, James G. Peterson Associates.
James R. Richardson (1) 52 1990 Senior Vice President Marketing, 1994 to present. Vice
President Marketing, 1979 to 1994, Flexsteel Industries, Inc.
(1) Member of Executive Committee
(2) Member of Audit and Ethics Committee
(3) Member of Nominating and Compensation Committee
(4) Member of Marketing Committee
CERTAIN INFORMATION CONCERNING BOARD
AND OUTSIDE DIRECTOR'S COMPENSATION
During the fiscal year ended June 30, 1996, four meetings of the Board of
Directors were held. No Director attended less than 75% of the meetings.
Each Director who is not an employee of the Company is paid a retainer at the
rate of $8,000 per year. In addition, each is paid a fee of $2,000 for each
Board meeting each attends. The Chairman of the Board is paid a retainer of
$12,380 per year and a fee of $3,095 for each Board meeting attended. For
attending a committee meeting each is paid a fee of $900. The Chairman of
each Committee is paid $1,000 for each meeting attended. The Company pays no
additional remuneration to employees of the Company who are Directors.
Each duly elected Director who is not an employee of the Company receives on
the first business day after each annual meeting a non-discretionary,
non-qualified stock option grant for 1,000 shares valued at fair market value
on date of grant, exercisable for 10 years. Each person who becomes for the
first time a non-employee member of the Board, including by reason of
election, appointment or lapse of three (3) years since employment by the
Company, will receive an immediate one-time grant for 2,000 shares.
The Company has entered into an unfunded deferred compensation agreement with
John R. Easter, whereby, director fees are invested by the Company in mutual
funds. Payments to Mr. Easter are deferred until his 70th birthday, except
for special circumstances.
The Company has entered into an agreement with James G. Peterson and Thomas
E. Holloran pursuant to which the Company will pay to each, or his
beneficiaries, $20,000 after the person ceases to be a Director as additional
compensation in recognition of Director services rendered.
COMMITTEES OF THE BOARD
The Board of Directors has established four standing committees; the names of
the committees and the principal duties are as follows:
AUDIT AND ETHICS COMMITTEE:
Confers with the independent auditors on various matters, including the scope
and results of the audit; authorizes special reviews or audits; reviews
internal auditing procedures and the adequacy of internal controls; and
reviews policies and practices respecting compliance with laws, conflicts of
interest and ethical standards of the Company. The Committee held two
meetings during the fiscal year ended June 30, 1996. The Committee members
are Thomas E. Holloran, John R. Easter, James G. Peterson, and Art D.
Richardson.
EXECUTIVE COMMITTEE:
Exercises all powers and authority of the Board between Board meetings,
except those powers specifically reserved to the Board by law, the Charter or
by the Bylaws of the Company. The committee held three meetings during the
fiscal year ended June 30, 1996. The Committee members are Frank H. Bertsch,
J. B. Crahan, K. Bruce Lauritsen, Edward J. Monaghan, and James R.
Richardson.
NOMINATING AND COMPENSATION COMMITTEE:
Makes recommendations regarding Board compensation, reviews performance and
compensation of various executive officers, determines stock option grants,
and advises regarding employee benefit plans. Makes recommendations regarding
Board of Director nominees and reviews timely proposed nominees received from
any source including nominees by stockholders. Nominations by stockholders
must be received by the Secretary at least 18 days before the annual meeting
and set forth nominee information as required by the Restated Articles. The
Committee held three meetings during the fiscal year ended June 30, 1996. The
Committee members are L. Bruce Boylen, John R. Easter, Thomas E. Holloran,
and James G. Peterson.
MARKETING COMMITTEE:
Reviews marketing plans with respect to the Company's position in the various
market places. Makes recommendations regarding marketing direction to enhance
revenues and profit margins. The Committee held two meetings during the
fiscal year ended June 30, 1996. The Committee members are John R. Easter,
Frank H. Bertsch, L. Bruce Boylen, James G. Peterson and Art D. Richardson.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITS NOMINEES. PROXIES SOLICITED
BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES.
OWNERSHIP OF STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the shares of Flexsteel's Common Stock
beneficially owned by the Directors, the Chief Executive Officer, the other
four most highly compensated executive officers and by all directors and
executive officers as a group. Unless otherwise indicated, to the best
knowledge of the Company all persons named in the table have sole voting and
investment power with respect to the shares shown.
SHARES BENEFICIALLY PERCENT OF TOTAL SHARES
OWNED AS OF OUTSTANDING AS OF
NAME TITLE AUGUST 7, 1996 (1)(2) AUGUST 7, 1996
F.H. Bertsch Director 79,522 (3) 1.1%
L.B. Boylen Director 5,000 0.1%
J.B. Crahan Chairman of the Board of Directors 413,185 5.8%
J.R. Easter Director 5,000 0.1%
T.E. Holloran Director 10,680 0.2%
K.B. Lauritsen President, Chief Executive Officer, Director 100,149 1.4%
E.J. Monaghan Executive Vice President, 104,860 1.5%
Chief Operating Officer, Director
J.G. Peterson Director 11,000 0.2%
A.D. Richardson Director 292,906 4.0%
J.R. Richardson Senior Vice President Marketing, Director 177,085 2.5%
P.M. Crahan Vice President 85,649 1.2%
R.J. Klosterman Vice President Finance, Chief 33,725 0.5%
Financial Officer and Secretary
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (13) 1,578,057 22.2%
(1) Includes 194,580 shares, which directors and executive officers as a group
have the right to acquire pursuant to stock options within 60 days. Mr.
F.H. Bertsch and Mr. J.B. Crahan have no stock options.
(2) Includes shares owned beneficially by their respective spouses.
(3) Does not include 363,606 shares held in irrevocable trusts for the benefit
of F.H. Bertsch's children and grandchildren for which trusts American
Trust & Savings Bank serves as trustee. Also, does not include 140,511
shares held in the trust established by the Will of Eleanor E. Bertsch for
the children of F.H. Bertsch and his sister. Under the Terms of Trust, F.H.
Bertsch has a possible contingent interest. The American Trust & Savings
Bank is the sole trustee. F.H. Bertsch disclaims beneficial ownership in
the shares held by each such trust. F.H. Bertsch and J.B. Crahan are first
cousins. J.R. Richardson is the son of A.D. Richardson. P.M. Crahan is the
son of J.B. Crahan.
OWNERSHIP OF STOCK BY
CERTAIN BENEFICIAL OWNERS
AS OF AUGUST 7, 1996
To the best knowledge of the Company, no person owns beneficially 5% or more
of the outstanding common stock of the Company except as is set forth below.
AMOUNT PERCENT
BENEFICIALLY OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS
Common J.B. Crahan, P.O. 877, Dubuque, IA 52004 413,185 5.8%
Common Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, Santa Monica, CA 90401 424,400 6.0%
Common First Pacific Advisors Incorporated, 11400 West
Olympic Boulevard, Los Angeles, CA 90064 410,200 5.8%
(1) To the best knowledge of the Company, no beneficial owner named above has
the right to acquire beneficial ownership in additional shares.
The following table discloses compensation received by the Company's Chief
Executive Officer and the four remaining most highly paid executive officers
for the three (3) fiscal years ending June 30, 1996.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
SALARY BONUS COMP AWARDS OPTIONS PAYOUTS COMP
NAME & PRINCIPAL POSITION YEAR $ $ $ $ # $ $(1)
K. Bruce Lauritsen 1996 233,700 0 8,850 0 39,858
President & 1995 216,600 42,143 9,520 19,305 26,406
Chief Executive Officer 1994 186,600 46,168 9,520 21,427 31,295
Edward J. Monaghan 1996 211,500 0 8,850 0 48,070
Executive Vice President & 1995 201,000 35,978 9,520 17,685 36,229
Chief Operating Officer 1994 180,000 40,503 9,520 18,725 40,715
James R. Richardson 1996 182,100 0 8,850 0 33,120
Senior Vice President of 1995 173,700 31,089 9,520 15,278 22,974
Marketing 1994 155,400 34,966 9,520 16,163 25,646
Ronald J. Klosterman 1996 119,100 0 5,000 0 13,637
Vice President of 1995 103,500 18,526 5,000 9,105 7,919
Finance & Secretary 1994 92,700 17,501 4,200 4,410 6,878
Patrick M. Crahan 1996 122,340 0 5,000 0 11,520
Vice President 1995 115,140 16,415 5,000 2,813 9,064
1994 106,350 22,580 5,000 3,444 6,687
(1) All Other Compensation -- Includes for the fiscal years and the named
executive officers indicated below: (i) retirement plan contributions, (ii)
Company matching contributions to the Section 401k plan, (iii) premiums
paid on term life insurance with a face value greater than $50,000, (iv)
accruals made in accordance with the Company's Senior Officer Deferred
Compensation Plan. K. Bruce Lauritsen, Edward J. Monaghan and James R.
Richardson are participants of the Senior Officer Deferred Compensation
Plan, entitling each thereunder upon retirement or other limited
circumstances to $5,000 per month during their lives and (v) gross-up
amounts to cover income taxes payable on prior year common stock awards
taxable in the current year.
RETIREMENT INSURANCE DEFERRED COMP
NAME YEAR PLAN 401K PREMIUM COMP TAXES
K. Bruce Lauritsen 1996 8,324 1,500 0 16,784 13,250
1995 8,293 1,329 0 16,784 0
1994 12,430 2,081 253 16,784 0
Edward J. Monaghan 1996 8,284 1,500 0 26,436 11,850
1995 8,293 1,500 0 26,436 0
1994 12,268 2,011 132 26,436 0
James R. Richardson 1996 8,075 1,500 0 13,320 10,225
1995 8,091 1,500 63 13,320 0
1994 10,591 1,735 84 13,320 0
Ronald J. Klosterman 1996 7,724 1,331 132 0 4,450
1995 6,607 1,189 123 0 0
1994 5,711 1,027 140 0 0
Patrick M. Crahan 1996 7,965 1,373 132 0 2,050
1995 7,584 1,360 120 0 0
1994 5,599 988 100 0 0
STOCK OPTIONS/SAR*
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
OPTION TERM (1)
EXERCISE
NAME SHARES PRICE ($/SH) EXPIRE DATE 5% 10%
K. Bruce Lauritsen 8,850 $11.25 8/16/05 $62,614 $158,677
Edward J. Monaghan 8,850 $11.25 8/16/05 $62,614 $158,677
James R. Richardson 8,850 $11.25 8/16/05 $62,614 $158,677
Ronald J. Klosterman 5,000 $11.25 8/16/05 $35,375 $ 89,648
Patrick M. Crahan 5,000 $11.25 8/16/05 $35,375 $ 89,648
(1) The amounts set forth in these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercise are dependent on the future
performance of the Company's common stock.
* The Company does not have a stock appreciation rights plan (SAR).
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
YEAR END AT FY-END 1996 (1)
# OF SHARES
ACQUIRED ON $VALUE # $
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
K. Bruce Lauritsen 0 37,410 $23,465
Edward J. Monaghan 0 37,410 $23,465
James R. Richardson 0 37,410 $23,465
Ronald J. Klosterman 0 17,850 $10,813
Patrick M. Crahan 0 18,650 $10,813
(1) Based on the closing price as published in The Wall Street Journal for the
last business day of the fiscal year ($11.75). All options are exercisable
at time of grant.
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
OTHER PERIOD ESTIMATED FUTURE
NUMBER OF UNTIL PAYOUTS UNDER
SHARES, UNITS MATURATION OR NON-STOCK PRICE BASED
NAME OR OTHER RIGHTS PAYOUT (1) PLANS (2)
K. Bruce Lauritsen 0
Edward J. Monaghan 0
James R. Richardson 0
Ronald J. Klosterman 0
Patrick M. Crahan 0
Shares of the Company's common stock are available for award annually to key
employees based on the average of the returns on beginning equity for the
last three years.
(1) Shares awarded are subject to restriction, with 33.3% of the stock received
by the employee on the award date and 33.3% each year for the next two
years. Restricted Stock Awards -- The aggregate stock holdings (number of
shares and value) as of August 7, 1996 are as follows: K. Bruce Lauritsen
-- 858 shares, $9,438; Edward J. Monaghan -- 786 shares, $8,646; James R.
Richardson -- 679 shares, $7,469; Ronald J. Klosterman -- 404 shares,
$4,444; Patrick M. Crahan -- 119 shares, $1,309. Dividends are paid to the
employee on restricted shares.
(2) Not applicable to Plan.
NOMINATING AND COMPENSATION COMMITTEE REPORT CONCERNING
FLEXSTEEL'S EXECUTIVE COMPENSATION POLICY*
The Nominating and Compensation Committee of the Board of Directors is
responsible for the establishing of the Company's policy for compensating
executives. The Committee is comprised of non-employee directors.
COMPENSATION PHILOSOPHY -- The fundamental objective of Flexsteel's executive
compensation program is to support the achievement of the Company's business
objectives and, thereby, the creation of stockholder value. As such, the
Company's philosophy is that executive compensation policy and practice
should be designed to achieve the following objectives:
* Align the interests of executives with those of the Company and its
stockholders by providing a significant portion of compensation in
Company stock.
* Provide an incentive to executives by tying a meaningful portion of
compensation to the achievement of Company financial objectives.
* Enable the Company to attract and retain key executives whose skills
and capabilities are needed for the continued growth and success of
Flexsteel by offering competitive total compensation opportunities and
providing attractive career opportunities.
In compensating senior management for its performance, two key measures are
considered: return on equity and stock price. At the executive level, overall
Company performance is emphasized in an effort to encourage teamwork and
cooperation.
While a significant portion of compensation fluctuates with annual results,
the total program is structured to emphasize longer-term performance and
sustained growth in stockholder value.
COMPETITIVE POSITIONING -- The Committee regularly reviews executive
compensation levels to ensure that the Company will be able to attract and
retain the caliber of executives needed to run the Company and that pay for
executives is reasonable and appropriate relative to market practice. In
making these evaluations, the Committee annually reviews the result of
surveys of executive salary and annual bonus levels among durable goods
manufacturers of comparable size. The Committee periodically completes an
in-depth analysis of salary, annual bonus, and long-term incentive
opportunities among specific competitors assisted by an independent
compensation consulting firm. All of the surveyed companies are included in
the Household Furniture Index used as the peer group for purposes of the
performance graph. While the pay of an individual executive may vary, the
Company's Policy is to target aggregate compensation for executives at
average competitive levels, provided commensurate performance.
COMPONENTS OF EXECUTIVE COMPENSATION -- The principal components of
Flexsteel's executive compensation program include base salaries, annual cash
bonuses, and longer-term incentives using Company stock.
BASE SALARY -- An individual executive's base salary is based upon the
executive's level of responsibility within the Company, as well as
competitive rates of pay. The Committee reviews each executive officer's
salary annually and makes adjustments, as appropriate, in light of any change
in the executive's responsibility, changes in competitive salary levels, and
the Company's performance.
ANNUAL INCENTIVE -- The purpose of the Company's annual incentive program is
to provide a direct monetary incentive to executives in the form of annual
cash bonus tied to the achievement of performance objectives. For executive
officers, the Committee annually sets a targeted return on equity for the
coming year, from which minimum and maximum levels are determined.
Corresponding incentive award levels, expressed as a percentage of salary,
also are set based primarily on an individual's responsibility level. If
minimum performance levels are not met, no bonus award is made. After the
completion of the year, the Committee ratifies cash bonuses as awarded based
principally on the extent to which targeted return on equity has been
achieved.
LONG-TERM INCENTIVES --Longer-term incentive compensation involves the use of
stock under two types of awards: Long-term incentive awards and stock
options. Both types of awards are intended to focus executives' attention on
the achievement of the Company's longer term performance objectives, to align
the executive officers' interests with those of stockholders and to
facilitate executives' accumulations of sustained holding of Company stock.
The level of award opportunities, as combined under both plans, are intended
to be consistent with typical levels of comparable companies and reflect an
individual's level of responsibility and performance.
Long-term incentive awards are paid under the stockholder approved Management
Incentive Plan. Awards give executives the opportunity to earn shares of
Company stock to the extent that the three-year average return on equity
objectives are achieved. As with annual incentives, various levels of
performance goals and corresponding compensation amounts are established,
with no awards earned if a minimum level is not achieved. Two-thirds of any
earned shares are subject to forfeiture provisions tied to the executive's
continued service with the Company. This provision is intended to enhance the
Company's ability to retain key executives and provide a longer-term
performance focus.
Stock options, as awarded under stockholder approved plans, give executives
the opportunity to purchase Flexsteel common stock for a term not to exceed
ten years and at a price of no less than the fair market value of Company
stock on the date of grant. Executives benefit from stock options only to the
extent stock price appreciates after the grant of the option.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER -- The total compensation for
Flexsteel's CEO in fiscal year 1996 was established in accordance with the
policies discussed above. As reported in the Summary Compensation Table, Mr.
Lauritsen's base salary increased by 8% and reflected market movements in
executive salaries. Mr. Lauritsen did not receive any annual incentive bonus
or long-term incentive award for the fiscal year as the Company's return on
equity was below the minimum established target levels. Mr. Lauritsen's stock
option award was consistent with prior awards and those to other senior
executives.
The Company's current levels of compensation are less than the $l,000,000
level of non-deductibility with respect to Section 162(m) of the Internal
Revenue Code.
This report has been prepared by members of the Nominating and Compensation
Committee of the Board of Directors. Members of this Committee are:
L. Bruce Boylen John R. Easter
Thomas E. Holloran James G. Peterson
*NOTE: This report is not incorporated by reference in any prior or future
Securities Exchange Act filings, directly or by reference to the
incorporation of proxy statements of the Company, unless such filing
specifically incorporates this report.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The current members of Flexsteel's Nominating and Compensation Committee are
L. Bruce Boylen, John R. Easter, Thomas E. Holloran and James G. Peterson. No
executive officer of Flexsteel served as a director of another entity that
had an executive officer serving on Flexsteel's compensation committee. No
executive officer of Flexsteel served as a member of the compensation
committee of another entity which had an executive officer who served as a
director of Flexsteel.
SHARE INVESTMENT PERFORMANCE
The following graph is based upon the SIC Code #251 Household Furniture Index
as a peer group. It shows changes over the past five-year period in the value
of $100 invested in: (1) Flexsteel's Common Stock; (2) the NASDAQ Market
Index; and (3) an industry group of the following: Ameriwood Industries Int.
CP., Bassett Furniture Ind., Bush Ind. Inc. CL A, Chromcraft Revington Inc.,
DMI Furniture, Inc., Ethan Allen Interiors, Flexsteel Ind. Inc., Furniture
Brands Intl., Industrie Natuzzi S.P.A., Krause's Furniture, Inc., La-Z-Boy
Chair Co., Ladd Furniture Inc., Leggett & Platt Inc., Masco CP, O'Sullivan
Ind. Hldgs Inc., Pulaski Furniture CP, River Oaks Furniture Inc., Rowe
Furniture CP, Stanley Furniture Inc., and Sunstates Corp. This data was
furnished by Media General Financial Services. The graph assumes reinvestment
of dividends.
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON JUNE 30, 1991
[GRAPH]
1991 1992 1993 1994 1995 1996
Flexsteel 100 127.45 165.81 152.86 118.84 142.42
Furniture Household 100 118.62 152.82 154.02 157.77 193.95
NASDAQ 100 107.75 132.27 145.04 170.11 214.14
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Information with respect to directorships held by certain directors of the
Company in local financial institutions is set forth in the table under
"Proposal I -- Election of Directors," in the column captioned "Principal
Occupation and Other Directorships or Employment during the Last Five Years."
The Company maintains normal banking relations with the banks named in the
table. It is expected that the Company's relationship with these banks will
continue in the future.
PROPOSAL II
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has
appointed Deloitte & Touche LLP as independent certified public accountants
to examine the financial statements of the Company for the fiscal year ending
June 30, 1997. Deloitte & Touche LLP has performed this function for the
Company since 1965.
The Company has been informed by Deloitte & Touche LLP that neither it nor
its members nor its associates has any direct, nor any material indirect
financial interest in the Company. Management is not aware of any material
connection by such firm in the past with the Company in any capacity other
than as independent auditors. It is not expected that a representative of
Deloitte & Touche LLP will be present at the meeting.
Audit services performed by Deloitte & Touche LLP during the fiscal year
include examinations of the financial statements of the Company, services
related to filings with the Securities and Exchange Commission and
consultation on matters related to accounting, taxation and financial
reporting. Professional services were reviewed by the Audit and Ethics
Committee and the possible effect on the auditor's independence was
considered.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF DELOITTE & TOUCHE LLP. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR
PROXIES.
PROPOSALS BY STOCKHOLDERS
Stockholders wishing to have a proposal considered for inclusion in the
Company's proxy statement for the 1997 annual meeting must submit the
proposal in writing and direct it to the Secretary of the Company at the
address shown herein. It must be received by the Company no later than June
30, 1997.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) requires the Company's directors and executive officers to file
with the Securities and Exchange Commission reports of ownership and changes
in ownership of the Company's Common Stock, and the Company is required to
identify any of those persons who fail to file such reports on a timely
basis. To the best of the Company's knowledge, there were no late filing by
directors and executive officers during fiscal year 1996.
OTHER MATTERS
The percentage total number of the outstanding shares represented at each of
the last three years stockholders' meetings was as follows: 1993 -- 91.0%;
1994 -- 89.0%; 1995 -- 86.0%.
The financial statements of the Company contained in the Annual Report to
Shareholders for the year ended June 30, 1996, are incorporated herein by
reference. Specifically incorporated herein by reference from the 1996 Annual
Report to Shareholders, is the Independent Auditors' Report, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Selected Quarterly Financial Data.
UPON WRITTEN REQUEST THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1996. REQUESTS SHOULD
BE DIRECTED TO THE SECRETARY OF THE COMPANY AT P.O. BOX 877, DUBUQUE, IOWA
52004-0877.
The Board of Directors does not know of any other matter which may come
before the meeting. However, should any other matter properly come before the
meeting, the persons named in the Proxy will vote in accordance with their
judgment upon such matters unless a contrary direction is indicated by the
Stockholder by his lining or crossing out the authority on the Proxy.
Stockholders are urged to vote, date, sign and return the Proxy form in the
enclosed envelope to which no postage need be affixed if mailed in the United
States. Prompt response is helpful and your cooperation will be appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. Klosterman
R.J. KLOSTERMAN
Secretary
Dated: October 30, 1996
Dubuque, Iowa
[LOGO]
FLEXSTEEL
INDUSTRIES, INC.
NOTICE OF 1996
ANNUAL MEETING
AND
PROXY STATEMENT
FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD DECEMBER 10, 1996
The undersigned, a stockholder of Flexsteel Industries, Inc., hereby appoints
E. J. Monaghan and R. J. Klosterman and each of them, as proxies, with full
power of substitution, to vote on behalf of the undersigned the same number
of shares which the undersigned is then entitled to vote at the Annual
Meeting of the Stockholders of Flexsteel Industries, Inc., to be held on
Tuesday at 3:30 P.M. on December 10, 1996 at The Minneapolis Hilton and
Towers, Minneapolis, MN 55403, and at any adjournments thereof as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
Proposal No. 1 -- Election of 4 Class I Directors (Term Expires 1999 Annual
Meeting):
K.B. LAURITSON
(Class I)
THOMAS E. HOLLORAN
(Class I)
L. BRUCE BOYLEN
(Class I)
JOHN R. EASTER
Class I)
[ ] FOR all Nominees
(Except as marked to
the contrary)
[ ] WITHHELD from all
Nominees
[ ] WITHHELD from the following only: (Write name(s) below)
__________________________________________________________
__________________________________________________________
- --------------------------------------------------------------------------------
Proposal No. 2 -- Appointment of Deloitte & Touche LLP as Independent
Auditors for the ensuing fiscal year
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
In their discretion to vote upon such other business as may properly come
before the meeting, or any adjournments thereof UNLESS THE STOCKHOLDER LINES
OR CROSSES OUT THIS AUTHORITY.
(IMPORTANT: continued, and to be signed and dated, on the reverse side)
(CONTINUED FROM OTHER SIDE)
The Undersigned hereby revokes any proxy or proxies to vote such shares
heretofore given.
PLEASE VOTE, DATE, SIGN, AND RETURN IN THE ENCLOSED ENVELOPE.
Dated , _______________________1996.
___________________________________
(Signature)
___________________________________
Signature of stockholder shall
correspond exactly with the name
appearing hereon.
If a joint account, each owner must
sign. When signing as attorney,
executor, administrator, trustee,
guardian or corporate official, give
your full title as such.
This proxy when properly executed will be voted in the manner directed hereon
by the above signed stockholder. If no direction is given, this proxy will be
voted FOR Proposals 1 and 2, and the grant of authority to vote upon such
other business as may properly come before the meeting or any adjournments
thereof will not be crossed out.
================================================================================
F L E X S T E E L I N D U S T R I E S I N C O R P O R A T E D
ANNUAL REPORT
Fiscal Year Ended June 30, 1996
MOMENTUM
for the 21st Century
-COVER-
FINANCIAL HIGHLIGHTS
Year Ended June 30 1996 1995 1994
Net Sales....................................... $205,008,000 $208,432,000 $195,388,000
Income Before Taxes............................. 7,052,000 8,111,000 10,092,000
Net Income (1).................................. 4,502,000 5,211,000 6,787,000
Per Share of Common Stock
Earnings (1).................................... .63 .73 .95
Cash Dividends.................................. .48 .48 .48
Average Shares Outstanding...................... 7,172,000 7,178,000 7,140,000
At June 30
Working Capital................................. 47,376,000 46,272,000 47,787,000
Net Plant and Equipment......................... 23,046,000 24,376,000 18,829,000
Total Assets.................................... 95,874,000 96,271,000 95,088,000
Shareholders' Equity............................ 74,147,000 73,824,000 71,289,000
Long-Term Debt.................................. 35,000 70,000 105,000
(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.
FLEXSTEEL(R)
INDUSTRIES INCORPORATED
[PHOTO]
Front Cover: Exemplifying the best of home fashion is this blending of Old World
elegance into today's life styles. Classic details include the turned Victorian
legs and a sculpted, attached pillow-back, while the collage of mixed fabrics
and nailhead trim are very today. Pairing this Centennial Royale sofa with the
leather, tufted-back lounge chair and its matching ottoman creates a room
setting which dramatizes comfort.
-INSIDE FRONT COVER-
To Our Shareholders
The home furnishings industry remains challenging. The sluggish retail
environment that decelerated sales in the final quarters of our previous fiscal
year carried over into our fiscal year just completed; coupled with the negative
activity that permeated this past winter's retail sales and recreational vehicle
sales, it adversely affected our revenues for the year.
For the full year ending June 30, 1996, revenues were $205,008,000 versus
$208,432,000 generated the previous year. Earnings were $4,502,000 or $.63 per
share, compared to earnings of $5,211,000 or $.73 per share a year earlier.
While this is clearly disappointing, we are extremely encouraged with the
dramatic earnings recovery in our final quarter: earnings were $1,925,000 or
$.27 per share, versus earnings of $350,000 or $.05 per share in the comparable
quarter in 1995, or an earnings increase of 450%.
RESIDENTIAL SEATING
The current housing recovery is helping our industry. Retail business, after
showing impressive gains in the spring, leveled off at a higher plateau. This
sales increase has given us the opportunity to take advantage of improved
productivity resulting from capital expenditures initiated in the previous
fiscal year.
We continue to gain momentum with the fresh concepts in marketing being
introduced in our recently-unveiled Comfort Seating Program. This program
provides the dealer a state-of-the-art product display, focussing on the
breadth of our entire home furnishings line, in a dedicated space of 6,500
square feet. The Comfort Seating Showroom is a complete concept which can be
introduced into an existing store or introduced separately in a free-standing
store.
Comfort Seating has created a lot of enthusiasm among our dealers, and we
expect significant sales increases as the program expands.
We enjoy excellent acceptance with major retailers; in fact, our position has
never been stronger. We will continue our aggressive pursuit of a greater share
of this major market.
Our Gallery Program continues to be a vital part of our business; we work
closely with our 170-plus independent retail dealers who have dedicated display
areas in their stores exclusively to Flexsteel. We will also open Gallery
Boutiques this fall in 30 Sears Homelife stores.
Finally, we continue to push our presence in the international marketplace.
Unfortunately, the strength of the dollar in certain Pacific Rim countries has
increased the cost of American-made furniture some 30% in the past year.
Nevertheless, we continue to show moderate sales increases, and we feel that
international opportunities are worth the expense of continuing to pursue them.
[PHOTO]
Jack B. Crahan, Chairman of the Board (1) and K. Bruce Lauritsen, President and
CEO. Mixed fabrics on this classic Flexsteel sofa are typical of popular
eclecticism.
WE
CONTINUE
TO BUILD
FLEXSTEEL
MOMENTUM
FOR AN
EXCITING
NEW
CENTURY.
[PHOTOS]
Top: The new Comfort Seating Showroom greets shoppers with a welcoming ambience.
The design makes use of insights from focus groups and proven retailing
techniques to put the customer at ease. It invites return visits.
Bottom: This Van Pak, a handsome group of recreational vehicle seating, features
exclusive adjustable arms.
PAGE 1
RECREATIONAL VEHICLE SEATING
A soft market in van conversions and recreational vehicle sales during the
first half of this fiscal year contributed to a reduction in sales and profits
in those industries. However, with a resurgence in sales this spring, our
production of seating for RVs is now running at a much higher level.
We continue to bolster our leadership in this field with innovative product
design and engineering, critical elements in our success. We are introducing
more exciting, new products; at the same time we are reducing the lead time and
costs in their development.
Among manufacturing improvements is the consolidation of our metal working
and our fabric cutting and sewing operations in our Dubuque, Iowa, plant for a
more efficient, cell-type manufacturing operation. All of these will combine to
help us continue to increase our market share, and will enhance next year's
earnings.
COMMERCIAL SEATING
Production formerly at our Sweetwater, Tennessee, facility has now been
consolidated at our Starkville, Mississippi, plant. Production of commercial
seating at this expanded and modernized plant is now fully operational, with the
problems of re-arrangement and integration of the Charisma(R) product line
behind us. This consolidation will allow us to enjoy the benefits of economies
of scale and improved service. It should also allow us to improve the product
lines, customer satisfaction and, ultimately, earnings.
You will recall that we took a one-time charge of $300,000 or $.04 per share
in our first quarter to close out the manufacturing facility in Tennessee. The
building is now vacated, though not yet sold.
During the past fiscal year we announced a plan to repurchase a half-million
shares of Flexsteel stock. We believe the tender is an appropriate use of excess
cash while enhancing the value of our stock by improving earnings per share.
OUTLOOK
We expect another year of intense competition, with customers continuing to
focus on value, quality, service and price. We believe that our newest changes
this past year will help us meet these customer needs better than ever.
We remain buoyed by our unusually strong balance sheet, a national network of
excellent dealers, and modern facilities strategically located for optimum
customer service. If the economic environment remains relatively stable, we
believe the positive steps we have taken will continue to improve our market
share, customer satisfaction, and shareholder value.
We are grateful for the continued support of all of our retailers, suppliers,
associates and stockholders.
/s/ Jack B. Crahan
JACK B. CRAHAN
Chairman of the Board of Directors
/s/ K. Bruce Lauritsen
K. BRUCE LAURITSEN
President & Chief Executive Officer
[PHOTOS]
TOP: Charmingly-shaped "swan's-neck" arms add a graceful note to this
Charisma(R) rocker. The shaped wood is beautifully finished, arms and back
upholstered.
CENTER: Fresh styling, in fabric and proportion, and a new emphasis on comfort,
characterize furniture for today's life styles. In addition to the recliner and
reclining sofa shown, this group includes a love seat and a sectional.
BOTTOM: Extended-stay hotels and rental condos are a rapidly-growing market for
dual-purpose seating. Handsomely-styled pieces such as this sofa sleeper are
contributing to Flexsteel's growing share of the commercial seating market.
PAGE 2
Fresh momentum is animating Flexsteel's marketing.
In home furnishings, we have continued to study the evolving life styles of
today's more sophisticated consumer. Our strongest market niche today is in a
younger, more metropolitan audience; their taste is eclectic, their lifestyle is
more casual, their styling preferences typically transitional.
Focus groups have helped us evaluate not only that market's needs but also
the impact of the retail environment. From these studies has emerged one of the
most exciting developments in Flexsteel's history.
COMFORT SEATING SHOWROOMS are a new generation of consumer-friendly stores.
Whether free-standing or in existing stores, independently-owned Comfort Seating
Showrooms use fresh display concepts to create a memorable shopping environment,
conducive to the revisits that are part of the furniture purchase decision.
Inviting, bright and open, Comfort Seating Showrooms are also laid out for
selling effectiveness. The distinctive interiors were created with the help of
Grid II International, a specialist in the creation of effective retail
environments. These showrooms are expected to increase sales per-square-foot
even above that of the excellent performance of Flexsteel Galleries.
Comprehensive advertising and other dealer merchandising aids are available
to all dealers. Upscale retail advertising, targeted to emotive issues of core
audiences, is available to Comfort Seating Showrooms and Flexsteel Gallery
dealers, who also have access to an exclusive selection of high-fashion designer
fabrics. Our new line of accent tables also helps the dealer increase the
dollar amount of his sales.
ANOTHER MARKETING INNOVATION is the ready-to-assemble recliner, ideal for
specialty direct-mail marketing. Shipped by UPS in two cartons, assembled in
seconds, these recliners can be customized with school or corporate logos.
THE COMMERCIAL SEATING MARKET continues to evolve. In the hospitality
industries, a significant development is the rapid emergence of the
extended-stay hotel, now being introduced by the major hotel chains. Their
seating needs vary from those of traditional hotels, using, for example, more
sofa sleepers and recliners and even office-type chairs for executives who work
with computers in their rooms. Flexsteel's growing share of the market includes
significant placements in Summerfield Suites and the Wyndham Garden Hotels.
Other growing markets are found in campus-type senior living facilities and
the health-care markets, including both long-term and acute-care markets. All
these markets require specialized seating such as that developed by Flexsteel.
THE RECREATIONAL VEHICLE SEATING market continues to expand even though
there has been considerable consolidation of the customer base. Flexsteel has
long had momentum in this market, and continues to stay ahead of the curve in
testing, and in meeting or exceeding increasingly stringent safety standards.
FUTURE SALES GROWTH will come through all these markets both at home and
abroad, where customers in Europe, Canada, Japan, and the Pacific Rim are now
discovering Flexsteel. We, in turn, are discovering the preferences of these
international buyers, and now ship to countries in five continents.
[PHOTO]
Special signage and subtle decor greet visitors to the Comfort Seating Showroom
and direct them toward the entire collection of vignettes.
MOMENTUM IN MARKETING
COMFORT
SEATING
DISPLAYS
FLEXSTEEL AT ITS
RELEVANT BEST,
OUR RESPONSE
TO TODAY'S
ECLECTIC
CONSUMER.
[PHOTOS]
TOP: Ready-to-assemble recliners with college emblems, sold directly by Groves
Marketing.
BOTTOM: Our new accent tables blend beautiful fossil stone with graceful
wrought iron.
PAGE 3
Market research has confirmed that today's consumer is sophisticated and expects
quality. She knows that Flexsteel meets her quality standards. Many who choose
Flexsteel motion pieces, for example, do so for upgraded styles and fabrics, and
are willing to pay a bit more for our quality and comfort.
Keeping our vital momentum goes beyond research. Change accelerates; recent
years have seen more change in markets and technologies than did our founders in
their lifetimes.
NEW VERTICAL STRUCTURES at Flexsteel are replacing some traditional
management concepts. Each of our three core seating markets - residential,
commercial, automotive - has its own division and leadership, with
responsibilities embracing every aspect from design to production to sales.
IN RESIDENTIAL FURNISHINGS, we define the most profitable price point and
design to meet the consumer's key requirements - comfort and fashion.
Home fashion leaders today are leather and motion furniture. Leather has long
been one of our strengths, and we offer a range of today's most popular styles,
among them soft Euro looks. The expansion of our Dubuque facility added two
dedicated cutting and sewing rooms; all leather cutting is now done in one
facility, reducing our materials handling costs.
In motion furniture, our "studio" styling, sculptured and roomy, is very
successful. For greater cost effectiveness, we've concentrated production of
motion furniture for markets east of the Rockies in our Dublin, Georgia,
facility, now operating two shifts.
MARKET NICHES are similarly defined in commercial and recreational vehicle
seating, and our product development follows Flexsteel's proven strengths. We
continue to increase our shares of both these markets.
But in all these markets, fast response is a key to success. Close looks at
our methods, use of technology, and scheduling techniques have resulted in
numerous improvements.
BUYERS OF RECREATIONAL VEHICLES today expect upscale automotive design. We've
been a leader for many years in the design and manufacture of seating for vans,
motor homes and travel trailers. Customers here, too, demand more comfort
features, such as adjustable arms, lumbar supports, and power adjustments.
The most luxurious motor homes today even feature Flexsteel recliners.
Vacation motor homes with "push-out" sides provide more sleeping space, and thus
use more of our sofa sleepers.
EXTENDED-STAY HOTELS have their own seating requirements: especially popular
are Flexsteel's high-leg recliners which dress up a suite while still providing
recliner comfort. The popularity of these suites has also increased the demand
for sofa sleepers.
RAPIDLY-GROWING HEALTH-CARE industries continue to demand furnishings that
are utilitarian in function and wear, but with the fashion and comfort of fine
residential furniture.
TECHNOLOGY HELPS US make vertical structures more efficient than was possible
in the past, by defining shared horizontal layers within our three core
businesses. Virtually instant communications from factory to factory, and
between factory and customers, helps standardize certain parts and/or processes,
maximize plant efficiency, and make purchasing more cost-effective.
[PHOTO]
Leather's popularity continues: consumers choose it for comfort and durability.
Flexsteel's leather furniture is known for its skillful tailoring and beautiful
palette of fashion colors.
FOCUSSING ON MOMENTUM
WE DEFINE
MARKETS
AND APPLY
TECHNOLOGY
TO FOCUS
EFFECTIVELY
ON THEIR
KEY NEEDS.
[PHOTOS]
TOP: The popular recreation
room for Madison House residents features club and wing chairs from our
commercial seating division. Interior design by Annemarie Kretschmann.
BOTTOM: Innovative Flexsteel designers created this sleeper chair, a space saver
for recreational vehicles, and popular in international markets.
PAGE 4
Our associates play key roles in Flexsteel's enviable reputation for quality
and performance. They design, market, sew, upholster, inspect and deliver to
meet the consumer's high expectations.
Nowhere has this been better demonstrated than by awards recently given to
Flexsteel, awards which were accepted on behalf of all Flexsteel associates.
THE SEARS' CHAIRMAN'S AWARD was awarded to Flexsteel as Quality Source of the
Year. More than 10,000 vendors serve Sears, and quality is constantly monitored.
This Sears' award was given for their "Partners in Progress" program in which
Flexsteel scored a perfect five for quality. This "perfect five" was achieved by
Flexsteel people who measured up to, or exceeded, the program's demanding
criteria in every aspect of business, from product quality to shipping to
marketing support to leadership to innovation to ethics in business.
The Top Supplier of the Year award was given by Starcraft Automotive to
Flexsteel for "continuous support, consistent good quality, and delivery along
with a total commitment to research and development". It is an excellent tribute
to the accomplishments of our recreational vehicle seating teams.
TECHNOLOGY IS A BOON to our craftsman's skills and frees us to concentrate on
quality. Computerized fabric cutting makes the best use of fabric and
standardizes pattern matching for maximum beauty of our upholstery.
Computer-controlled routers help in frame construction. Computerized ordering
and shipping reduces paperwork and errors. A new corporate E-mail system has
speeded up exchange of vital information between factories.
New wood technology allows us to make stronger frames, such as one-piece arms
that completely eliminate failure-prone joints. Not only are the frames better,
but we are making better use of our precious forest resources.
We continue to find new ways to standardize certain production operations,
while still offering the range of custom options that makes Flexsteel so
attractive to our key customers. This allows us to make better use of factory
space as well as to reduce inventory expenses.
It is these people of Flexsteel who will continue the momentum that has
sustained us through one hundred and three years. There are over 2200 associates
leading Flexsteel through its 103rd year, with the combined experience of
centuries. Many of them are following in the footsteps of other family members,
so that now many of our people represent a third-generation helping to continue
Flexsteel's leadership into the 21st century.
[PHOTO]
More than 10,000 vendors were evaluated for Sears "Partners in Progress" Chair
man's Award, received by Flexsteel this year.
SUSTAINING MOMENTUM
FLEXSTEEL'S
SECRET IS ITS
PEOPLE, USING
THE BEST SKILLS,
ARTS AND
TECHNOLOGIES
TO CREATE
THE FINEST IN
FURNITURE.
[PHOTOS]
TOP: Applying an informal fabric gives a new dimension to this ever-popular
classic silhouette
BOTTOM: From Flexsteel's premium Centennial Royale line, this group features the
overscale, extra-soft cushions and eclectic fabric selections popular in today's
informal lifestyles.
PAGE 5
FLEXSTEEL INDUSTRIES, INC.
FIVE YEAR REVIEW
(All amounts in thousands except for Per Share data)
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net Sales..................................... $205,008 $208,432 $195,388 $177,271 $157,916
Cost of Sales................................. 161,451 164,231 151,066 136,110 122,294
Interest and Other Expense.................... 358 372 270 252 277
Interest and Other Income..................... 1,048 973 990 1,460 2,076
Income Before Taxes........................... 7,052 8,111 10,092 9,710 2,640
Income Taxes.................................. 2,550 2,900 3,625 3,525 950
Net Income (1)................................ 4,502 5,211 6,787 6,185 1,690
Earnings per Common Share (1)................. .63 .73 .95 .87 .24
Cash Dividends per Common Share............... .48 .48 .48 .48 .48
STATISTICAL SUMMARY
Average Common Shares Outstanding............. 7,172 7,178 7,140 7,090 7,048
Book Value per Common Share................... 10.45 10.28 9.98 9.57 9.17
Total Assets.................................. 95,874 96,271 95,088 87,861 81,843
Net Plant and Equipment....................... 23,046 24,376 18,829 17,208 17,228
Capital Additions............................. 3,290 9,682 5,074 3,273 1,966
Working Capital............................... 47,376 46,272 47,787 49,707 46,863
Long-Term Debt................................ 35 70 105 140 345
Shareholders' Equity.......................... 74,147 73,824 71,289 67,855 64,640
SELECTED RATIOS
Earnings as Percent of Sales.................. 2.2% 2.5% 3.5% 3.5% 1.1%
Current Ratio................................. 3.5 3.4 3.3 3.9 4.3
Return on Total Capital....................... 6.1% 7.1% 9.5% 9.1% 2.6%
Return on Beginning Common Equity............. 6.1% 7.3% 10.0% 9.6% 2.6%
Average Number of Employees................... 2,230 2,375 2,240 2,120 2,040
(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.
FLEXSTEEL INDUSTRIES, INC. QUARTERLY COMMON STOCK DATA
FISCAL YEAR 1995-96
PER SHARE MARKET PRICE*
EARNINGS DIVIDEND HIGH LOW
First Quarter .06 .12 12 5/8 10 1/4
Second Quarter .10 .12 12 10 1/4
Third Quarter .20 .12 10 3/4 8 5/8
Fourth Quarter .27 .12 11 3/4 9 1/2
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
Flexsteel has paid cash dividends on its common stock for 218 consecutive
quarters. The Company expects to continue regular dividend payments. As of June
18, 1996, there were 1,646 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, 1996 is $47,376,000
which includes cash, cash equivalents, and temporary investments of $12,808,000.
Working capital increased by $1,104,000 from June 30, 1995. 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
$2,600,000 in the form of variable rate demand industrial development revenue
bonds.
Capital Expenditures - Capital expenditures were $3,290,000 in fiscal 1996.
These expenditures were for manufacturing facility improvements, manufacturing,
and delivery equipment. Projected capital spending in fiscal 1997 is
approximately $4,500,000 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 remain steady throughout fiscal 1997, assuming no significant
changes in interest rates or consumer spending. Management will concentrate on
simplification of the product lines to improve quality, service, and delivery
times. Operating profit improvements should result from product line refinements
and improved productivity resulting from capital improvements undertaken in the
prior fiscal year.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Sales for 1996 decreased by $3,424,000 or 1.6% compared to 1995. Home
Furnishings sales volume decreased $2,848,000 or 2.2%, Recreational Vehicle
products decreased $2,519,000 or 4.2%, while Commercial Seating increased
$1,943,000 or 12.0%. Cost of goods sold decreased by $2,780,000 for the year as
compared to 1995 due to the volume decrease. Selling, general and administrative
expenses were 18.1% in fiscal 1996 compared to 17.6% in fiscal 1995. This
increase reflects approximately $400,000 of additional costs associated with
enhancements to our Comfort Seating Gallery Program and an increase of
approximately $675,000 in bad debt provision. The above factors resulted in
fiscal year 1996 net earnings of $4,502,000 or $.63 per share compared to
$5,211,000 or $.73 per share in fiscal 1995, a net decrease of $709,000 or $.10
per share.
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.
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.
PAGE 7
FLEXSTEEL INDUSTRIES, INC.
BALANCE SHEETS
JUNE 30,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,867,742 $ 5,768,537
Temporary investments - at fair value based
on quoted market price 8,940,603 8,268,615
Trade receivables - less allowance for doubtful
accounts: 1996, $2,153,000; 1995, $2,160,000 24,464,171 22,905,047
Inventories 26,082,857 25,921,674
Deferred income taxes 2,010,000 2,000,000
Other 732,054 844,557
Total current assets 66,097,427 65,708,430
PROPERTY, PLANT AND EQUIPMENT, net 23,046,224 24,376,052
OTHER ASSETS 6,730,513 6,186,144
TOTAL $95,874,164 $96,270,626
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 3,574,232 $ 4,756,991
Accrued liabilities:
Payroll and related items 3,433,562 3,656,678
Insurance 5,347,758 5,368,145
Other accruals 3,731,364 2,694,902
Industrial revenue bonds payable 2,635,000 2,960,000
Total current liabilities 18,721,916 19,436,716
LONG-TERM DEBT 35,000 70,000
DEFERRED COMPENSATION 2,969,847 2,940,329
Total liabilities 21,726,763 22,447,045
SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000,000 shares;
issued 1996, 7,095,044 shares; 1995, 7,193,124 shares 7,095,044 7,193,124
Additional paid-in capital 556,632 1,386,754
Retained earnings 66,266,325 65,199,703
Unrealized investment gain 229,400 44,000
Total shareholders' equity 74,147,401 73,823,581
TOTAL $95,874,164 $96,270,626
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 8
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF INCOME & RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 30,
1996 1995 1994
NET SALES $ 205,008,245 $ 208,432,198 $ 195,388,106
OPERATING EXPENSES:
Cost of goods sold 161,450,649 164,230,883 151,066,404
Selling, general and administrative 37,195,178 36,692,054 34,949,047
Total 198,645,827 200,922,937 186,015,451
OPERATING INCOME 6,362,418 7,509,261 9,372,655
OTHER:
Interest and other income 1,048,074 973,371 989,554
Interest expense (358,322) (371,729) (270,046)
Total 689,752 601,642 719,508
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 7,052,170 8,110,903 10,092,163
PROVISION FOR INCOME TAXES 2,550,000 2,900,000 3,625,000
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 4,502,170 5,210,903 6,467,163
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 320,000
NET INCOME 4,502,170 5,210,903 6,787,163
RETAINED EARNINGS - BEGINNING OF YEAR 65,199,703 63,437,854 60,080,908
TOTAL 69,701,873 68,648,757 66,868,071
CASH DIVIDENDS ON COMMON STOCK
($.48 per share) (3,435,548) (3,449,054) (3,430,217)
RETAINED EARNINGS - END OF YEAR $ 66,266,325 $ 65,199,703 $ 63,437,854
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 7,172,299 7,178,285 7,140,144
EARNINGS PER SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ .63 $ .73 $ .91
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ .04
EARNINGS PER SHARE OF COMMON STOCK $ .63 $ .73 $ .95
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, 1996 and 1995, and the related statements of income and
retained earnings and cash flows for each of the three years in the period ended
June 30, 1996. 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, 1996 and 1995, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 1996 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 9, 1996
PAGE 9
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
1996 1995 1994
OPERATING ACTIVITIES:
Net income $ 4,502,170 $ 5,210,903 $ 6,787,163
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effect of accounting change (320,000)
Depreciation 4,619,511 4,135,053 3,452,962
Trade receivables (1,559,124) 2,710,379 (3,422,717)
Inventories (161,183) 663,723 (4,873,616)
Other current assets 112,503 68,744 59,779
Other assets (544,369) (519,313) (1,721,325)
Accounts payable - trade (1,182,759) (114,639) 658,967
Accrued liabilities 792,959 (894,289) (138,855)
Deferred compensation 29,518 16,600 58,732
Deferred income taxes (10,000) 340,000 (250,000)
Net cash provided by
operating activities 6,599,226 11,617,161 291,090
INVESTING ACTIVITIES:
Construction funds held in escrow 2,034,248 (2,034,248)
Purchases of temporary investments (4,178,560) (2,751,519) (2,878,805)
Proceeds from sales of temporary investments 3,691,972 4,565,254 8,508,968
Additions to property, plant and equipment (3,289,683) (9,682,052) (5,074,138)
Net cash used in investing activities (3,776,271) (5,834,069) (1,478,223)
FINANCING ACTIVITIES:
Proceeds from (payment of) borrowings (360,000) (360,000) 3,215,000
Payment of dividends (3,435,548) (3,449,054) (3,430,217)
Proceeds from issuance of common stock 383,237 408,926 396,523
Repurchase of common stock (132,453 shares) (1,311,439)
Net cash provided by
(used in) financing activities (4,723,750) (3,400,128) 181,306
Increase (decrease) in cash and cash equivalents (1,900,795) 2,382,964 (1,005,827)
Cash and cash equivalents at beginning of year 5,768,537 3,385,573 4,391,400
Cash and cash equivalents at end of year $ 3,867,742 $ 5,768,537 $ 3,385,573
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 123,000 $ 135,000 $ 38,000
Income taxes $ 1,927,000 $ 3,555,000 $ 5,081,000
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.
K. BRUCE LAURITSEN RONALD J. KLOSTERMAN
President Vice President, Finance
Chief Executive Officer Chief Financial Officer
Secretary
PAGE 10
FLEXSTEEL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Flexsteel Industries, Inc. (the Company),
manufactures and sells upholstered furniture and other seating products.
USE OF ESTIMATES - the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the 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. Fair
values of investments in debt and equity securities are disclosed in Note 2.
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 CHANGES - 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
standard which requires certain investments to be recorded at their market
value resulted in a decrease of $320,000 in shareholders' equity. This change
in accounting principle resulted in a cumulative effect adjustment as of June
30, 1994 of $320,000 (tax affected amount) or $ .04 per share.
Effective July 1, 1995 the Company adopted SFAS No. 107, "Disclosure about
Fair Value of Financial Instruments" and SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The adoption of these statements did not have a material effect on results of
operation or financial position.
Stock compensation plans provide for the granting of incentive and
nonqualified stock options to key employees. Under the plans, options are
granted at fair market value, and may be exercisable for up to 10 years. The
Financial Accounting Standards Board has issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which is required for fiscal years beginning after
December 15, 1995. The Company has not yet determined if it will elect to
change to the fair value method, nor has it determined the effect the new
standard will have on net income and earnings per share should it elect to
make such a change. Adoption of the new standard will have no effect on the
Company's cash flows.
RECLASSIFICATIONS - certain prior years' amounts have been reclassified to
conform to the 1996 presentation.
2. INVESTMENTS
Debt and equity securities are included in Temporary Investments and in Other
Assets and are considered as available for sale. The amortized cost and
estimated market values of investments in debt and equity securities are as
follows:
June 30, 1996 June 30, 1995
Debt Equity Debt Equity
Securities Securities Securities Securities
Amortized Cost $8,987,896 $2,296,905 $8,324,825 $2,168,475
Unrealized gains
(losses) (144,740) 499,199 (94,086) 157,453
Est. Market Value $8,843,156 $2,796,104 $8,230,739 $2,325,928
As of June 30, 1996, the maturities of debt securities are $2,012,816 within
one year, $6,570,455 one to five years, and $259,885 six to ten years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately
$2,024,000 and $2,671,000 higher at June 30, 1996 and 1995, respectively, if
they had been valued on the FIFO method. A comparison of inventories is as
follows:
June 30,
1996 1995
Raw materials $12,936,114 $14,186,359
Work in process and finished parts 7,594,621 7,546,079
Finished goods 5,552,122 4,189,236
Total $26,082,857 $25,921,674
4. PROPERTY, PLANT AND EQUIPMENT
Estimated June 30,
Life (Years) 1996 1995
Land $ 1,609,572 $ 1,609,572
Buildings and
improvements 3 - 50 23,710,516 23,099,131
Machinery and
equipment 3 - 15 24,455,532 24,434,273
Delivery equipment 2 - 9 13,041,661 12,430,880
Furniture and fixtures 3 - 15 4,440,375 4,426,168
Total $ 67,257,656 $66,000,024
Less accumulated
depreciation 44,211,432 41,623,972
Net $ 23,046,224 $24,376,052
5. BORROWINGS
The Company is obligated for $2,600,000 for Industrial Revenue Bonds at June
30, 1996 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, 1996, 1995, and 1994 of 4.13%, 4.05%,
and 3.00% 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.
PAGE 11
No amounts were outstanding on this letter at June 30, 1996. 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.
6. INCOME TAXES
The total income tax provision for the years ended June 30, 1996, 1995, and
1994 was 36.2%, 35.8%, and 35.9%, respectively, of income before income taxes
and cumulative effect of change in accounting principle.
PROVISION - COMPRISED OF THE FOLLOWING:
1996 1995 1994
Federal - current $2,240,000 $2,230,000 $3,395,000
State - current 320,000 330,000 480,000
Deferred (10,000) 340,000 (250,000)
Total $2,550,000 $2,900,000 $3,625,000
DEFERRED INCOME TAXES - COMPRISED OF THE FOLLOWING:
June 30, 1996 June 30, 1995
Asset (Liability) Asset (Liability)
Asset allowances $ 793,000 $ 808,000
Deferred compensation 1,099,000 1,088,000
Other accruals and allowances 1,542,000 1,542,000
Excess of tax over book depreciation (1,424,000) (1,438,000)
Total $2,010,000 $ 2,000,000
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 1996 or 1995. Additionally, the Company
has issued a $1,300,000 letter of credit related to worker's compensation and
casualty insurance. No amounts were outstanding on this letter as of June 30,
1996 or 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
34,373, 38,112, and 31,981 net shares under stock option and other employee
plans during the years ended June 30, 1996,1995, and 1994, 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
At June 30, 1996, 416,140 shares of common stock were available for future
grants. Changes in options outstanding are as follows:
June 30, 1993 Shares Price/Range
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 Shares Price/Range
Outstanding 276,670 $10.50 - 15.75
Granted 91,950 11.25
Cancelled (26,140) 10.50 - 14.875
June 30, 1996
Outstanding 342,480 $10.50 - $15.75
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 $1,326,000 in 1996, $1,295,000 in 1995, and
$1,226,000 in 1994 including $287,000 in 1996, $274,000 in 1995, and $251,000
in 1994 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
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 multiemployer defined benefit pension plans administered by
others under collective bargaining agreements were $1,135,000 in 1996,
$1,203,000 in 1995, and $1,150,000 in 1994.
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 13,687, and 16,189 shares were
awarded, and the amounts charged to income were $150,000 and $170,000 in 1995
and 1994 respectively. No shares were awarded in 1996. At June 30, 1996,
379,310 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
1996:
Net Sales $49,227 $48,177 $53,213 $54,391
Gross Profit 9,857 9,687 11,689 12,325
Net Income 428 716 1,433 1,925
Earnings Per Share .06 .10 .20 .27
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
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
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
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, Commercial Seating
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
Irving C. MacDonald
Minneapolis, Minnesota
O'Connor and Thomas, P.C.
Dubuque, Iowa
NATIONAL OVER
THE COUNTER
NASDAQ Symbol - FLXS
ANNUAL MEETING
Tuesday,
December 10, 1996, 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.
Visit us on the Internet
http://www.flexsteel.com
FLEXSTEEL(R)
INDUSTRIES INCORPORATED
(C) 1996 FLEXSTEEL INDUSTRIES, INC.
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[PHOTO]
Comfort and good looks are as important to recreational vehicle sales as they
are to home furnishings. For years, Fleetwood has found Flexsteel seating to be
a positive sales feature for their motor homes. For luxurious comfort on the
road, the interior of this Pace Arrow motor home by Fleetwood features a
Flexsteel Magic Bed(R) and a Flexsteel recliner. Flexsteel bucket seats complete
the seating package.
FLEXSTEEL(R) INDUSTRIES INCORPORATED
P.O. BOX 877 * DUBUQUE, IA 52001-0877
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