SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999 Commission file number 0-5151
FLEXSTEEL INDUSTRIES, INC.
Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319
FLEXSTEEL INDUSTRIES, INC.
P. O. BOX 877
DUBUQUE, IOWA 52004-0877
Area code 319 Telephone 556-7730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_. No ___.
Common Stock - $1.00 Par Value
Shares Outstanding as of March 31, 1999 6,705,443
---------
FLEXSTEEL INDUSTRIES, INC.
BALANCE SHEETS (UNAUDITED)
March 31, June 30,
1999 1998
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 4,795,074 $ 5,464,261
Investments ................................................. 8,931,214 9,877,784
Trade receivables - less allowance for doubtful accounts:
March 31, 1999, $2,580,000;
June 30, 1998, $2,198,000 ............................... 33,544,594 28,722,752
Inventories ................................................. 27,339,112 26,607,296
Deferred income taxes ....................................... 2,785,000 2,785,000
Other ....................................................... 448,429 632,730
-------------- --------------
Total current assets ................. 77,843,423 74,089,823
PROPERTY, PLANT, AND EQUIPMENT
at cost less accumulated depreciation:
March 31, 1999, $52,549,174;
June 30, 1998, $51,333,347 .................................. 25,402,837 23,095,589
OTHER ASSETS ...................................................... 7,912,129 7,487,729
-------------- --------------
TOTAL ......................... $ 111,158,389 $ 104,673,141
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade .................................... $ 5,937,917 5,792,708
Accrued liabilities:
Payroll and related items .............................. 6,600,080 5,448,032
Insurance .............................................. 5,405,301 5,834,895
Other accruals ......................................... 7,053,583 4,515,177
Industrial revenue bonds payable ............................ 1,625,000 1,950,000
-------------- --------------
Total current liabilities ............. 26,621,881 23,540,812
DEFERRED COMPENSATION ............................................. 3,031,025 3,052,525
-------------- --------------
Total liabilities ...................................... 29,652,906 26,593,337
-------------- --------------
SHAREHOLDERS' EQUITY:
Common Stock - $1 par value; authorized 15,000,000 shares;
issued March 31, 1999, 6,705,443 shares;
issued June 30, 1998, 6,794,730 shares ................ 6,705,443 6,794,730
Retained earnings ........................................... 73,750,962 70,450,282
Unrealized investment gain .................................. 1,049,078 834,792
-------------- --------------
Total shareholders' equity ............ 81,505,483 78,079,804
-------------- --------------
TOTAL ....................... $ 111,158,389 $ 104,673,141
============== ==============
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
NET SALES ...................................... $ 68,614,563 $ 62,089,586 $ 191,243,073 $ 173,508,959
COST OF GOODS SOLD ............................. 52,871,455 48,316,681 148,209,748 136,497,076
------------- ------------- ------------- -------------
GROSS MARGIN ................................... 15,743,108 13,772,905 43,033,325 37,011,883
SELLING, GENERAL AND
ADMINISTRATIVE ................................. 11,546,542 10,676,560 32,976,703 30,577,483
------------- ------------- ------------- -------------
OPERATING INCOME ............................... 4,196,566 3,096,345 10,056,622 6,434,400
------------- ------------- ------------- -------------
OTHER:
Interest and other income ................. 319,922 294,107 896,428 1,634,516
Interest and other expense ................ 71,835 84,382 231,746 257,941
------------- ------------- ------------- -------------
Total ................................ 248,087 209,725 664,682 1,376,575
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES ..................... 4,444,653 3,306,070 10,721,304 7,810,975
PROVISION FOR INCOME TAXES ..................... 1,615,000 1,200,000 3,900,000 2,575,000
------------- ------------- ------------- -------------
NET INCOME ..................................... $ 2,829,653 $ 2,106,070 $ 6,821,304 $ 5,235,975
============= ============= ============= =============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC ................................... 6,775,826 6,958,932 6,813,228 6,957,823
============= ============= ============= =============
DILUTED ................................. 6,856,625 7,035,406 6,885,472 7,024,040
============= ============= ============= =============
EARNINGS PER SHARE OF COMMON
STOCK:
BASIC ................................... $ 0.42 $ 0.30 $ 1.00 $ 0.75
============= ============= ============= =============
DILUTED ................................. $ 0.41 $ 0.30 $ 0.99 $ 0.75
============= ============= ============= =============
STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ending Nine Months Ending
March 31, March 31,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
NET INCOME ..................................... $ 2,829,653 $ 2,106,070 6,821,304 5,235,975
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME
BEFORE TAX:
Unrealized gains on securities
arising during period ................ 49,800 361,097 286,919 779,597
Less: reclassification adjustment for
gains (losses) included in net
income ............................... 45,000 (35,026) 49,844 (130,026)
------------- ------------- ------------- -------------
Other comprehensive income,
before tax ........................... 94,800 326,071 336,763 649,571
------------- ------------- ------------- -------------
INCOME TAX BENEFIT (EXPENSE):
Income tax expense related to securities
gains arising during period ............... (17,928) (126,384) (103,291) (272,859)
Income tax benefit (expense) related to
securities reclassification
adjustment ................................ (16,200) 12,259 (17,944) 45,509
------------- ------------- ------------- -------------
Income tax expense related to
other comprehensive income ................ (34,128) (114,125) (121,235) (227,350)
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE
INCOME, NET OF TAX ........................ 60,672 211,946 215,528 422,221
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME ........................... $ 2,890,325 $ 2,318,016 7,036,832 5,658,196
============= ============= ============= =============
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
Nine Months Ended
March 31,
-------------------------------
1999 1998
------------- -------------
OPERATING ACTIVITIES:
Net Income ......................................... $ 6,821,304 $ 5,235,975
Adjustments to reconcile net income to net cash
provided by operating activities ............... 1,527,280 2,398,176
------------- -------------
Net cash provided by operating activities .......... 8,348,584 7,634,151
------------- -------------
INVESTING ACTIVITIES:
Purchases of investments ................... (3,618,759) (4,888,695)
Proceeds from sales of investments .......... 4,779,615 856,155
Proceeds from sales of capital assets ....... 61,128 178,137
Capital expenditures ........................ (6,294,669) (2,184,032)
------------- -------------
Net cash used in investing activities .............. (5,072,685) (6,038,435)
------------- -------------
FINANCING ACTIVITIES:
Repayment of long-term debt ................. (325,000) (35,000)
Payment of dividends ........................ (2,459,832) (2,503,818)
Proceeds from issuance of common stock ...... 565,602 470,577
Repurchase of common stock .................. (1,725,856) (38,250)
------------- -------------
Net cash used in financing activities .............. (3,945,086) (2,106,491)
------------- -------------
Decrease in cash and cash equivalents .............. (669,187) (591,775)
Cash and cash equivalents at beginning of year ..... 5,464,261 4,445,327
------------- -------------
Cash and cash equivalents at end of period ......... $ 4,795,074 $ 3,934,552
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest ...................................... $ 59,000 $ 70,000
Income taxes .................................. $ 4,110,000 $ 3,185,000
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying financial statements, which are unaudited, have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, which is consistent with that followed in
the financial statements for the year ended June 30, 1998. The statements
include all adjustments (comprised of only normal recurring adjustments)
which are, in the opinion of management, necessary to a fair statement of
the financial position and results of operations and cash flows, prepared
on a summary basis, as of such dates and for the stated dates then ended.
The results of operations for the nine month period ended March 31, 1999
are not necessarily indicative of the results which may be expected for
the year ending June 30, 1999.
2. The inventories are categorized as follows:
March 31, June 30,
1999 1998
------------- -------------
Raw materials .............................................. $ 13,465,485 $ 13,538,911
Work in process and finished parts ......................... 6,957,320 7,227,558
Finished goods ............................................. 6,916,307 5,840,827
------------- -------------
Total ................................. $ 27,339,112 $ 26,607,296
============= =============
3. In 1997, the Financial Accounting Standards board issued Statement No.
128, EARNINGS PER SHARE (SFAS 128). SFAS 128 replaced the calculation of
primary and fully dilated earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of stock options. All earnings per
share amounts for all periods have been presented and, where appropriate,
restated to conform to the SFAS 128 requirements.
Three Months Ending Nine Months Ending
March 31, March 31,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Basic Earnings Per Share:
Income available to common
shareholders .................... $ 2,829,653 $ 2,106,070 $ 6,821,304 $ 5,235,975
Weighted average shares
outstanding ..................... 6,775,826 6,958,932 6,813,228 6,957,823
------------- ------------- ------------- -------------
Earnings Per Share - Basic ........... $ 0.42 $ 0.30 $ 1.00 $ 0.75
============= ============= ============= =============
Diluted Earnings Per Share:
Income available to common
shareholders .................... $ 2,829,653 $ 2,106,070 $ 6,821,304 $ 5,235,975
------------- ------------- ------------- -------------
Weighted average shares
outstanding ..................... 6,775,826 6,958,932 6,813,228 6,957,823
Dilutive shares issuable in
connection with stock option
plans ........................... 513,445 425,295 478,628 397,037
Less shares purchasable with
proceeds ........................ (432,646) (348,821) (406,384) (330,820)
------------- ------------- ------------- -------------
Total Shares ......................... 6,856,625 7,035,406 6,885,472 7,024,040
============= ============= ============= =============
Earnings Per Share - Diluted ......... $ 0.41 $ 0.30 $ 0.99 $ 0.75
============= ============= ============= =============
4. RECLASSIFICATIONS - certain prior year amounts have been reclassified to
conform to the 1999 presentation. These reclassifications had no impact on
net income or shareholders' equity as previously reported.
FLEXSTEEL INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE STATEMENT OF INCOME
Results of Operations:
The following table has been prepared as an aid in understanding the Company's
results of operations on a comparative basis for the third quarters and nine
month ended March 31, 1999 and 1998. Amounts presented are percentages of the
Company's net sales.
Third Quarter Ended Nine Month Ending
March 31, March 31,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net Sales .............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ..................... 77.1% 77.8% 77.5% 78.7%
---------- ---------- ---------- ----------
Gross margin ........................... 22.9% 22.2% 22.5% 21.3%
Selling, general & administrative
expense ........................... 16.8% 17.2% 17.2% 17.6%
---------- ---------- ---------- ----------
Operating income ....................... 6.1% 5.0% 5.3% 3.7%
Other income, net ...................... 0.4% 0.3% 0.3% 0.8%
---------- ---------- ---------- ----------
Income before income taxes ............. 6.5% 5.3% 5.6% 4.5%
Income tax expense ..................... 2.4% 1.9% 2.0% 1.5%
========== ========== ========== ==========
Net income ............................. 4.1% 3.4% 3.6% 3.0%
========== ========== ========== ==========
RESULTS OF OPERATIONS FOR THE QUARTER - Net sales for the quarter ended March
31, 1999 increased by $6,525,000 or 10.5% compared to the prior year quarter.
Residential sales volume increased $3,627,000 or 9.8%. Recreational vehicle
seating sales increased $3,540,000 or 18.2%. Commercial seating volume decreased
$642,000 or 11.4%.
Gross margin increased $1,970,203 to $15,743,108 or 22.9% of net sales, in the
current year, from $13,772,905 or 22.2% in the prior year. The gross margin
percentage increase was due primarily to improved utilization of available
production capacity.
Selling, general and administrative expenses as a percentage of net sales were
16.8% and 17.2% for the current year and prior year, respectively. The cost
percentage decrease was due to absorption of fixed costs.
The above factors resulted in current quarter net income of $2,829,653 or $0.41
per share (diluted) compared to $2,106,070 or $0.30 per share (diluted) in the
prior year, a net increase of $723,583 or $0.11 per share.
RESULTS OF OPERATIONS FOR THE LAST NINE MONTHS - Net sales for the nine-months
ended March 31, 1999 increased by $17,734,000 or 10.2% compared to the prior
year nine-month period. Residential sales volume increased $9,960,000 or 9.7%.
Recreational vehicle seating sales increased $6,978,000 or 12.7%. Commercial
seating volume increased $796,000 or 5.0%.
Gross margin increased $6,021,442 to $43,033,325 or 22.5% of net sales, in the
current year, from $37,011,883 or 21.3% in the prior year. The gross margin
percentage increase was due primarily to improved utilization of available
production capacity.
Selling, general and administrative expenses as a percentage of net sales were
17.2% and 17.6% for the current year and prior year, respectively. The cost
percentage decrease was due to absorption of fixed costs.
The nine months ended March 31, 1998 included non-taxable other income of
$720,000, or $0.10 per share, from life insurance proceeds which resulted in
higher net other income, as well as, a lower effective tax rate.
The above factors resulted in current fiscal year net income of $6,821,304 or
$0.99 per share (diluted) compared to $5,235,975 or $0.75 per share (diluted) in
the prior year, a net increase of $1,585,329 or $0.24 per share. Excluding the
life insurance proceeds reported in the prior year, net earnings for the
nine-months ended March 31, 1999, improved $0.34 per share (diluted) or 52% over
the prior year nine-month period.
Liquidity and Capital Resources:
Working capital at March 31, 1999 is $51,222,000 which includes cash, cash
equivalents and investments of $13,726,000. Working capital increased by
$673,000 from the June 30, 1998 amount. Net cash provided by operating
activities was $8,349,000 during the first nine months of fiscal year 1999
versus $7,634,000 in the first nine months of fiscal year 1998.
Capital expenditures were $6,295,000 and $2,184,000 during the first nine months
of fiscal 1999 and 1998, respectively. The current year expenditures were
incurred primarily for manufacturing and delivery equipment and the expansion of
our Dublin, Georgia facility. During the next three months approximately
$2,700,000 will be spent on manufacturing equipment and facility additions
including completion of the expansion project in Georgia. The funds for
projected capital expenditures are expected to be provided by cash generated
from operations and available cash.
On November 4, 1998 the Company approved a plan to repurchase up to 700,000
shares, or slightly more than 10% of the Company's outstanding common stock. The
Company will make purchases, from time to time, in the open market as the
Company deems appropriate. Under this authorization, 138,850 shares of common
stock have been repurchased to date.
Year 2000 Issue - The Company has been modifying its computer information
systems relating to the year 2000 and beyond. The Company has also reviewed its
computer-dependent manufacturing activities and changes are being made. The
Company expects its year 2000 conversion projects to be completed by June 30,
1999. The conversion costs are not expected to be material to the financial
statements, and will be accomplished using existing employees. The Company is
communicating with major suppliers to emphasize our expectation that operations
must continue without interruption after January 1, 2000. However, there can be
no assurances that systems of other companies, on which the Company's systems
rely, will be converted in a timely manner or that any failure to convert by
another company would not have an adverse effect on the Company's system.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Company and its representatives may from time to time make written or oral
forward-looking statements with respect to goals and expectations of the
Company, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders.
Statements, including those in this report, which are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risk and uncertainty. Some of the
factors that could affect results are the effectiveness of new product
introductions, the product mix of our sales, the cost of raw materials, the
amount of sales generated and the profit margins thereon or volatility in the
major markets, competition and general conditions.
The Company specifically declines to undertake any obligation to publicly revise
any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The registrant filed on March 23, 1999, a report on Form 8-K which reported that
Lynn J. Davis was appointed to the registrant's Board of Directors.
Power of Attorney of Marvin M. Stern attached as Exhibit A hereto.
FLEXSTEEL INDUSTRIES, INC.
Date: May 7, 1999 By: /S/ R.J. Klosterman
----------- -------------------
R.J. Klosterman
Financial Vice President &
Principal Financial Officer
EXHIBIT A
Date: 03/07/99
--------------------------------
Securities and Exchange Commission
Filing Desk/Stop 1-4
450 Fifth Street Northwest
Washington, DC 20549
National Association of Security Dealers, Inc.
NASDAQ Division
1735 K Street Northwest
Washington, DC 20006
RE: Flexsteel Industries, Inc.
SEC File No. 0-5151
Power of Attorney to file Forms 4 and 5
POWER OF ATTORNEY
I, Marvin M. Stern, do hereby apoint effective immediately R.J. Klosterman, in
his capacity as Vice President of Finance of Flexsteel Industries, Inc.,
attorney in fact for me and in my name and on my behalf to do and execute all or
any of the following acts, deeds and things, as fully as I might or could do if
personally present or otherwise, namely:
To execute for me all or any Forms 4 or Forms 5 which forms are and may be
described from time to time in the Securities Exchange Act of 1934 involving
ownership in stock of Flexsteel Industries, Inc.
This power of attorney shall continue until notice is given by myself of
revocation. This power of attorney grants rights but does not impose any duty on
the power holder including any duty of inquiry. This power of attorney is
durable.
Very truly yours,
Date: 03/07/99 /S/ Marvin M. Stern
----------------------------- ----------------------------------
/S/ Eileen Stern
---------------------------------
Witness
/S/ Peter Meltzer
---------------------------------
Witness
5
3-MOS
JUN-30-1999
MAR-31-1999
4,795,074
8,931,214
36,124,594
2,580,000
27,339,112
77,843,423
77,952,011
52,549,174
111,158,389
26,621,881
0
0
0
6,705,443
74,800,040
111,158,389
68,614,563
68,934,485
52,871,455
64,417,997
11,546,542
0
71,835
4,444,653
1,615,000
2,829,653
0
0
0
2,829,653
0.42
0.41
