SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the quarterly period ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-5151
Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319
FLEXSTEEL INDUSTRIES, INC.
P. O. BOX 877
DUBUQUE, IOWA 52004-0877
Area code 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 December 31, 2000 6,107,288
---------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30,
2000 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 2,461,375 $ 4,000,855
Investments ................................................... 5,010,907 5,730,888
Trade receivables - less allowance for doubtful accounts:
December 31, 2000, $1,870,000;
June 30, 2000, $2,250,000 ................................. 33,350,511 32,053,104
Inventories ................................................... 34,503,352 32,456,058
Deferred income taxes ......................................... 3,200,000 3,200,000
Other ......................................................... 1,727,895 543,711
------------ ------------
Total current assets ................... 80,254,040 77,984,616
PROPERTY, PLANT, AND EQUIPMENT
At cost less accumulated depreciation:
December 31, 2000, $58,475,512;
June 30, 2000, $56,914,987 .................................... 27,258,245 26,837,475
NOTES RECEIVABLE .................................................... 582,056 2,752,130
OTHER ASSETS ........................................................ 7,266,746 7,302,095
------------ ------------
TOTAL ........................... $115,361,087 $114,876,316
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ...................................... $ 7,681,096 $ 6,921,533
Accrued liabilities:
Payroll and related items ................................ 3,929,798 6,344,417
Insurance ................................................ 5,863,451 5,977,525
Other accruals ........................................... 6,004,074 5,364,921
Industrial revenue bonds payable .............................. 1,300,000 1,300,000
------------ ------------
Total current liabilities ............... 24,778,419 25,908,396
DEFERRED COMPENSATION ............................................... 4,002,152 3,772,152
------------ ------------
Total liabilities ........................................ 28,780,571 29,680,548
------------ ------------
SHAREHOLDERS' EQUITY:
Common Stock - $1 par value; authorized 15,000,000 shares;
issued December 31, 2000, 6,107,288 shares;
issued June 30, 2000, 6,170,789 shares .................. 6,107,288 6,170,789
Retained earnings ............................................. 79,629,290 78,268,436
Unrealized investment gain .................................... 843,938 756,543
------------ ------------
Total shareholders' equity .............. 86,580,516 85,195,768
------------ ------------
TOTAL ......................... $115,361,087 $114,876,316
============ ============
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
CONSOLIDATED STATEMENTS Three Months Ended Six Months Ended
OF INCOME December 31, December 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
NET SALES .................................... $ 70,202,314 $ 70,403,821 $ 136,845,399 $ 138,104,571
COST OF GOODS SOLD ........................... (53,727,609) (54,826,359) (105,857,441) (107,497,588)
------------- ------------- ------------- -------------
GROSS MARGIN ................................. 16,474,705 15,577,462 30,987,958 30,606,983
SELLING, GENERAL AND
ADMINISTRATIVE .............................. (13,908,702) (12,023,194) (25,705,998) (23,496,869)
GAIN ON SALE OF LAND ......................... 1,249,806 1,249,806
------------- ------------- ------------- -------------
OPERATING INCOME ............................. 2,566,003 4,804,074 5,281,960 8,359,920
------------- ------------- ------------- -------------
OTHER:
Interest and other income ............... 250,447 764,808 609,875 1,047,366
Interest and other expense .............. (93,286) (109,403) (186,295) (193,117)
------------- ------------- ------------- -------------
Total .............................. 157,161 655,405 423,580 854,249
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES ................... 2,723,164 5,459,479 5,705,540 9,214,169
PROVISION FOR INCOME TAXES ................... (1,000,000) (1,870,000) (2,100,000) (3,260,000)
------------- ------------- ------------- -------------
NET INCOME ................................... $ 1,723,164 $ 3,589,479 $ 3,605,540 $ 5,954,169
============= ============= ============= =============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC ................................. 6,119,763 6,480,183 6,162,545 6,510,574
============= ============= ============= =============
DILUTED ............................... 6,186,848 6,586,083 6,228,410 6,619,708
============= ============= ============= =============
EARNINGS PER SHARE OF COMMON
STOCK:
BASIC ................................ $ 0.28 $ 0.55 $ 0.59 $ 0.91
============= ============= ============= =============
DILUTED .............................. $ 0.28 $ 0.54 $ 0.58 $ 0.90
============= ============= ============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
NET INCOME ................................... $ 1,723,164 $ 3,589,479 $ 3,605,540 $ 5,954,169
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME
BEFORE TAX:
Unrealized gains (losses) on
securities arising during period ... 25,235 66,350 97,345 (299,150)
Reclassification adjustment for gains
(losses) included in net income .... 22,500 22,500 41,250 22,500
------------- ------------- ------------- -------------
Other comprehensive income (loss),
before tax ......................... 47,735 88,850 138,595 (276,650)
------------- ------------- ------------- -------------
INCOME TAX (EXPENSE) BENEFIT:
Income tax (expense) benefit related to
securities losses or gains arising
during period ........................... (9,275) (24,785) (35,937) 110,450
Income tax expense related to securities
reclassification adjustment ............. (8,325) (8,325) (15,263) (8,325)
------------- ------------- ------------- -------------
Income tax (expense) benefit related to
other comprehensive income .............. (17,600) (33,110) (51,200) 102,125
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE
INCOME (LOSS), NET OF TAX ............... 30,135 55,740 87,395 (174,525)
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME ......................... $ 1,753,299 $ 3,645,219 $ 3,692,935 $ 5,779,644
============= ============= ============= =============
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Six Months Ended
December 31,
----------------------------
2000 1999
------------ ------------
OPERATING ACTIVITIES:
Net Income .................................................... $ 3,605,540 $ 5,954,169
Adjustments to reconcile net income to net cash
provided by operating activities .......................... (328,751) (1,814,812)
------------ ------------
Net cash provided by operating activities ..................... 3,276,789 4,139,357
------------ ------------
INVESTING ACTIVITIES:
Loans to customers on notes receivable ................. (325,000)
Payments received from customers on notes receivable ... 108,303
Purchases of investments ............................... (435,994) (5,752)
Proceeds from sales of investments ..................... 1,381,242 1,101,360
Proceeds from sales of capital assets .................. 81,127 1,567,006
Capital expenditures ................................... (2,671,294) (3,952,018)
------------ ------------
Net cash used in investing activities ......................... (1,861,616) (1,289,404)
------------ ------------
FINANCING ACTIVITIES:
Payment of dividends ................................... (1,602,184) (1,687,884)
Proceeds from issuance of common stock ................. 34,940 83,611
Repurchase of common stock ............................. (1,387,409) (1,557,438)
------------ ------------
Net cash used in financing activities ......................... (2,954,653) (3,161,711)
------------ ------------
Increase (decrease) in cash and cash equivalents .............. (1,539,480) (311,758)
Cash and cash equivalents at beginning of year ................ 4,000,855 4,886,038
------------ ------------
Cash and cash equivalents at end of period .................... $ 2,461,375 $ 4,574,280
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest ................................................. $ 36,000 $ 31,000
Income taxes ............................................. $ 3,251,000 $ 4,076,000
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. These consolidated financial statements do not include certain information
and footnotes required by generally accepted accounting principles for
complete financial statements. However, in the opinion of management, all
adjustments considered necessary for a fair presentation have been
included and are of a normal recurring nature. Operating results for the
six month period ended December 31, 2000 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 2001.
2. The inventories are categorized as follows:
December 31, June 30,
2000 2000
------------ ------------
Raw materials ......................... $ 16,203,697 $ 16,711,084
Work in process and finished parts .... 9,369,641 9,125,346
Finished goods ........................ 8,930,014 6,619,628
------------ ------------
Total ............ $ 34,503,352 $ 32,456,058
============ ============
3. Earnings per Share - Basic earnings per share of common stock is based on
the weighted average number of common shares outstanding during each year.
Diluted earnings per share of common stock takes into effect the dilutive
effect of potential common shares outstanding. The Company's only
potential common shares outstanding are stock options, which resulted in a
dilutive effect of 67,085 shares and 105,900 shares in the quarters ended
and 65,865 shares and 109,134 shares in the six months ended December 31,
2000 and 1999 respectively. The Company calculates the dilutive effect of
outstanding options using the treasury stock method.
4. ACCOUNTING DEVELOPMENTS - The Company adopted Financial Accounting
Standards Board (FASB) Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES on July 1, 2000. There was no material
impact on the Company's financial position and results of operations.
5. RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the current period presentation. These reclassifications had no
impact on net income or shareholders' equity as previously reported.
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED STATEMENTS 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 second quarter and
six-month periods ended December 31, 2000 and 1999. Amounts presented are
percentages of the Company's net sales.
Second Quarter Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net Sales ............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold .................... (76.5%) (77.9%) (77.4%) (77.8%)
-------- -------- -------- --------
Gross margin .......................... 23.5% 22.1% 22.6% 22.2%
Selling, general & administrative
Expense .......................... (19.8%) (17.1%) (18.8%) (17.0%)
Gain on sale of land .................. 1.8% 0.9%
-------- -------- -------- --------
Operating income ...................... 3.7% 6.8% 3.8% 6.1%
Other income, net ..................... 0.2% 1.0% 0.3% 0.6%
-------- -------- -------- --------
Income before income taxes ............ 3.9% 7.8% 4.1% 6.7%
Income tax expense .................... (1.4%) (2.7%) (1.5%) (2.4%)
-------- -------- -------- --------
Net income ............................ 2.5% 5.1% 2.6% 4.3%
======== ======== ======== ========
RESULTS OF OPERATIONS FOR THE QUARTER - Net sales for the quarter ended December
31, 2000 decreased by $200,000 compared to the prior year quarter. Residential
seating sales volume increased $6,000,000 or 14%. Recreational vehicle seating
sales decreased $6,300,000 or 29%.
Gross margin increased $900,000 to $16,500,000 or 23.5% of sales in the current
year from $15,600,000 or 22.1% of sales reflecting changes in product mix.
Selling, general and administrative expenses as a percentage of sales were 19.8%
and 17.1% for the current year and prior year, respectively. Selling, general
and administrative expenses were negatively impacted by advertising, bad debts
and health insurance cost increases, and the start up of retail operations.
The quarter ended December 31, 1999 includes a net gain of $790,000, or $0.12
per share, on the sale of land and $405,000, or $0.06 per share, from the
proceeds of life insurance. Excluding the aforementioned items net income for
the quarter was $2,400,000 or $0.36 per diluted share.
Net income for the current fiscal quarter was $1,700,000 or $0.28 per diluted
share compared to $2,400,000 or $0.36 per diluted share in the prior year
quarter as discussed in the preceding paragraph, a net decrease of $700,000 or
$0.08 per share.
In October 2000, the Company opened its second Comfort Seating retail store in
the Chicago area and in December opened two of three Comfort Seating stores
planned for the Indianapolis market. Initial operating expenses associated with
opening the stores resulted in a loss of $400,000 during the December 2000
quarter. The Company does not anticipate opening additional retail locations.
The retail operations are experiencing operating losses as staffing is
completed, advertising is initiated and consumer traffic is established.
The Company believes that operating these retail stores will aid in assuring
product introductions meet consumer requirements, that advertising and marketing
materials are effective and to enhance sales by providing additional floor space
to display its wide product line to consumers.
RESULTS OF OPERATIONS FOR THE LAST SIX MONTHS - Net sales for the six-months
ended December 31, 2000 decreased by $1,300,000 or 1% compared to the prior year
six-month period. Residential seating sales volume increased $11,100,000 or 13%.
Recreational vehicle seating sales decreased $13,000,000 or 28%. Commercial
seating volume increased $400,000 or 4%.
Gross margin increased $400,000 to $31,000,000 or 22.6% of sales in the current
year from $30,600,000 or 22.2% of sales in the prior year reflecting changes in
product mix.
Selling, general and administrative expenses as a percentage of sales were 18.8%
and 17.0% for the current year and prior year, respectively. Selling, general
and administrative expenses were negatively impacted by advertising, bad debts
and health insurance cost increases, and the start up of retail operations.
The six-months ended December 31, 1999 includes a net gain of $790,000, or $0.12
per share, on the sale of land and $405,000, or $0.06 per share, from the
proceeds of life insurance. Excluding these items, net income was $4,800,000 or
$0.72 per diluted share.
The current fiscal year net income of $3,600,000 or $0.58 per diluted share
compared to $4,800,000 or $0.72 per diluted share in the prior year, a net
decrease of $1,200,000 or $0.14 per share from the prior six-month period.
In addition to the retail operations discussed above, the Company continues to
be impacted by the erosion of consumer confidence and the slowdown in the
economy. The Company anticipates sales comparisons to be below the March and
June, 2000 quarterly levels primarily due to the softness in the recreational
vehicle business and a flattening of residential seating sales. If this occurs,
as a result of the lower revenue levels and the adverse effect on production
capacities and efficiencies, earnings are expected to be negatively impacted
during the balance of the Company's fiscal year ending June 30, 2001. The
Company anticipates an improvement in economic conditions and consumer spending
during the last half of calendar 2001. The Company intends to continue to adjust
production levels to meet order demand, reduce fixed costs and maximize
efficiencies at these lower levels in its efforts to minimize the negative
impact on earnings during the balance of the fiscal year.
Liquidity and Capital Resources:
- -------------------------------
Working capital at December 31, 2000 is $55,500,000, which includes cash, cash
equivalents and investments of $7,500,000. Working capital increased by
$3,400,000 from the June 30, 2000 amount. Net cash provided by operating
activities was $3,300,000 during the first six months of fiscal year 2001 versus
$4,100,000 in the first six months of fiscal year 2000. In addition, the Company
received $800,000 in inventory and other assets from the net settlement of a
note receivable.
Capital expenditures were $3,400,000 during the first six months of fiscal 2001
and $4,000,000 in fiscal 2000. The current year capital expenditures include
$750,000 of equipment and leasehold improvements acquired through settlement of
a note receivable. The current year expenditures were incurred primarily for
manufacturing and delivery equipment. During the next six months approximately
$1,000,000 will be spent on manufacturing equipment and delivery equipment. The
funds for projected capital expenditures are expected to be provided by cash
generated from operations and available cash.
The Company has repurchased shares of its common stock under plans approved by
the Company's Board of Directors. During the six-month period ended December 31,
2000 the Company repurchased 119,925 shares of its common stock. At December 31,
2000, under existing authorizations, the Company may repurchase 85,453 shares.
The Company will make the purchases, from time to time, in the open market, as
the Company deems appropriate.
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 economic conditions.
The Company specifically declines to undertake any obligation to publicly revise
any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders on December 11, 2000, Proposals 1 and 2
set forth in the Board of Directors' definitive Proxy Statement dated October
27, 2000, were approved and adopted by the stockholders. Proposals 1 and 2
respectively, received votes as follows:
Proposal 1 (Election of Directors): James R. Richardson: For 5,508,115, Withheld
28,445, Abstentions and Broker Non-votes 648,830. Patrick M. Crahan: For
5,508,215, Withheld 28,345, Abstentions and Broker Non-votes 648,830. Marvin M.
Stern: For 5,508,140, Withheld 28,420, Abstentions and Broker Non-votes 648,830.
The names of each Director whose term of office as a Director continued after
the meeting are as follows: John R. Easter, K. Bruce Lauritsen, Edward J.
Monaghan, Jeffrey T. Bertsch, L. Bruce Boylen, Lynn J. Davis and Thomas E.
Holloran.
Proposal 2 (Appointment of Deloitte & Touche LLP as Independent Auditors): For:
5,506,720, Against: 26,144, and Abstain: 3,696.
Item 6. Exhibits and Reports on Form 8-K
The registrant filed a report on Form 8-K on December 22, 2000 announcing the
retirement of the Chairman and the election of his successor.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on by its behalf by the
undersigned officer there unto duly authorized.
FLEXSTEEL INDUSTRIES, INC.
Date: February 13, 2001 By: /s/ R. J. Klosterman
----------------- -----------------------------------
R.J. Klosterman
Financial Vice President &
Principal Financial Officer