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 September 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQURIED]
For the transition period from ______ to ______
Commission file number 0-5151
Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319
FLEXSTEEL INDUSTRIES, INC.
P. O. BOX 877
DUBUQUE, IOWA 52004-0877
Area code 563 Telephone 556-7730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_. No ___.
Common Stock - $1.00 Par Value
Shares Outstanding as of September 30, 2001 6,070,159
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FLEXSTEEL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
2001 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 7,474,410 $ 10,048,562
Investments .................................................... 6,133,443 2,536,469
Trade receivables - less allowance for doubtful accounts:
September 30, 2001, $2,345,000;
June 30, 2001, $1,950,000 .................................. 30,005,090 28,363,058
Inventories .................................................... 31,135,303 31,379,836
Deferred income taxes .......................................... 2,700,000 2,700,000
Other .......................................................... 1,046,126 1,546,710
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Total current assets ................................................. 78,494,372 76,574,635
PROPERTY, PLANT, AND EQUIPMENT
at cost less accumulated depreciation:
September 30, 2001, $61,824,627
June 30, 2001, $60,604,549 ..................................... 23,207,754 24,553,962
NOTES RECEIVABLE ..................................................... 399,257 415,762
DEFFERRED INCOME TAXES ............................................... 300,000 300,000
OTHER ASSETS ......................................................... 8,077,465 8,450,110
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TOTAL ................................................................ $110,478,848 $110,294,469
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ....................................... $ 5,019,595 $ 5,277,607
Accrued liabilities:
Payroll and related items .................................. 4,048,711 3,803,071
Insurance .................................................. 6,145,586 5,863,451
Other accruals ............................................. 5,564,246 5,253,930
Industrial revenue bonds payable ............................... 975,000 975,000
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Total current liabilities ............................................ 21,753,138 21,173,059
DEFERRED COMPENSATION ................................................ 4,179,186 4,059,186
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Total liabilities .................................................... 25,932,324 25,232,245
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SHAREHOLDERS EQUITY:
Cumulative preferred stock- $50 par value:
authorized 60,000 shares: outstanding - none
Undesignated (subordinated) stock - $1 par value:
authorized 700,000 shares: outstanding - none
Common Stock - $1 par value; authorized 15,000,000 shares;
outstanding September 30, 2001, 6,070,159 shares;
outstanding June 30, 2001, 6,034,210 shares ................. 6,070,159 6,034,210
Additional paid-in capital ....................................... 363,108
Retained earnings ................................................ 77,679,468 78,272,996
Accumulated other comprehensive income ........................... 433,789 755,018
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Total shareholders' equity ........................................... 84,546,524 85,062,224
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TOTAL ................................................................ $110,478,848 $110,294,469
============ ============
See accompanying Notes to Consolidated Financial Statements.
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FLEXSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
September 30,
-----------------------------
2001 2000
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NET SALES ............................................................. $ 63,207,570 $ 70,032,843
COST OF GOODS SOLD .................................................... (50,447,109) (55,519,590)
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GROSS MARGIN .......................................................... 12,760,461 14,513,253
SELLING, GENERAL AND ADMINISTRATIVE ................................... (12,644,168) (11,797,296)
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OPERATING INCOME ...................................................... 116,293 2,715,957
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OTHER:
Interest and other income ........................................ 258,622 359,428
Interest expense ................................................. (68,022) (93,009)
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Total .................................................... 190,600 266,419
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INCOME BEFORE INCOME TAXES ............................................ 306,893 2,982,376
PROVISION FOR INCOME TAXES ............................................ (110,000) (1,100,000)
------------ ------------
NET INCOME ............................................................ $ 196,893 $ 1,882,376
============ ============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC .......................................................... 6,058,693 6,206,161
============ ============
DILUTED ........................................................ 6,112,397 6,270,806
============ ============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC ......................................................... $ 0.03 $ 0.30
============ ============
DILUTED ....................................................... $ 0.03 $ 0.30
============ ============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended
September 30,
-----------------------------
2001 2000
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NET INCOME ............................................................ $ 196,893 $ 1,882,376
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OTHER COMPREHENSIVE INCOME (LOSS) BEFORE TAX:
Unrealized gains (losses) on securities arising during period .... (516,857) 72,110
Less: reclassification adjustment for gains (losses) included
in net income ................................................ 16,500 18,750
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Other comprehensive income (loss), before tax ......................... (500,357) 90,860
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INCOME TAX BENEFIT (EXPENSE):
Income tax benefit (expense) related to securities gains (losses)
arising during period ............................................ 185,035 (26,662)
Income tax benefit (expense) related to securities reclassification
adjustment ....................................................... (5,907) (6,938)
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Income tax benefit (expense) related to other comprehensive income
(loss) ........................................................... 179,128 (33,600)
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OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX ......................... (321,229) 57,260
------------ ------------
COMPREHENSIVE INCOME (LOSS) ........................................... $ (124,336) $ 1,939,636
============ ============
See accompanying Notes to Consolidated Financial Statements.
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FLEXSTEEL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months Ended
September 30,
-----------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES:
Net Income .................................................. $ 196,893 $ 1,882,376
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ........................................... 1,394,928 1,455,118
Gain on disposition of capital assets .................. (15,530) (64,693)
Trade receivables ...................................... (1,661,612) (1,675,188)
Inventories ............................................ 244,533 41,227
Other current assets ................................... 500,585 (406,924)
Other assets ........................................... (15,076) (15,076)
Accounts payable - trade ............................... (258,012) (955,824)
Accrued liabilities .................................... 1,212,547 (468,827)
Deferred compensation .................................. 120,000 105,000
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Net cash provided by (used in) operating activities ......... 1,719,256 (102,811)
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INVESTING ACTIVITIES:
Purchases of investments ................................... (4,139,734) (241,084)
Proceeds from sales of investments .......................... 609,253 1,234,990
Payments received from customers on notes ................... 36,084 32,844
Loans to customers on notes receivable ...................... (325,000)
Proceeds from sales of capital assets ....................... 19,100 71,833
Capital expenditures ........................................ (52,290) (2,321,075)
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Net cash used in investing activities ....................... (3,527,587) (1,547,492)
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FINANCING ACTIVITIES:
Payment of dividends ........................................ (784,447) (803,273)
Proceeds from issuance of common stock ...................... 18,626 17,407
Repurchase of common stock .................................. (156,875)
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Net cash used in financing activities ....................... (765,821) (942,741)
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Decrease in cash and cash equivalents ....................... (2,574,152) (2,593,044)
Cash and cash equivalents at beginning of year .............. 10,048,562 4,000,855
------------ ------------
Cash and cash equivalents at end of period .................. $ 7,474,410 $ 1,407,811
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest ............................................... $ 9,000 $ 18,000
Income taxes ........................................... $ 19,000 $ 900,000
See accompanying Notes to Consolidated Financial Statements.
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FLEXSTEEL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. These financial statements do not include certain information and
footnotes required by accounting principles generally accepted in the
United States of America 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 three-month period ended September 30, 2001 are
not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2002.
SEGEMENT AND RELATED INFORMATION- Under the "management approach"
methodology prescribed by Statement of Financial Accounting Standards
(SFAS) No.131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, the Company operates in two segments. The significant segment
is the manufacture of seating products. The second segment is the operation
of five retail furniture stores. The retail segment had $2.8 million and
$2.4 million of assets at September 30, 2001 and June 30, 2001,
respectively. For the quarter ended September 30, 2001 the retail segment
had net sales of $1.5 million and a net loss of $0.4 million. For the
quarter ended September 30, 2000 the retail segment had net sales of $0.3
million and a net loss of $0.1 million.
2. Inventories are categorized as follows:
September 30, June 30,
2001 2001
------------ ------------
Raw materials ............................ $ 13,633,518 $ 16,343,218
Work in process and finished parts ....... 8,496,922 8,651,210
Finished goods ........................... 9,004,863 6,385,408
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Total ............... $ 31,135,303 $ 31,379,836
============ ============
3. Earnings Per Share - Basic earnings per share of common stock is based on
the weighted average number of common shares outstanding during each year.
Diluted earnings per share of common stock takes into effect the dilutive
effect of potential common shares outstanding. The Company's only potential
common shares outstanding are stock options, which resulted in a dilutive
effect of 53,704 shares and 64,645 shares in quarters ended September 30,
2001 and 2000 respectively. The Company calculates the dilutive effect of
outstanding options using the treasury stock method.
4. ACCOUNTING DEVELOPMENTS -The Company adopted Staff Accounting Bulletin
(SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on January 1,
2001. The adoption had no impact on the Company's financial position or
results of operations.
In September 2000, the Emerging Issues Task Force (EITF) issued No. 00-10,
ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS. EITF No. 00-10 states
that all amounts billed to a customer in a sale transaction, related to
shipping and handling fees, represent revenues earned for the goods
provided and these amounts should be classified as revenue. The company
adopted EITF No. 00-10 on April 1, 2001. Prior period net sales and costs
of goods sold have been adjusted for this change, which had no effect on
previously reported net income.
In July 2001, the Financial Accounting Standards Board issued SFAS No.141,
BUSINESS COMBINATIONS, and SFAS No.142, GOODWILL AND OTHER INTANGIBLE
ASSETS. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations after June 30, 2001. SFAS No. 142
establishes new standards for accounting for goodwill and intangible assets
and was adopted by the Company on July 1, 2001. The adoption of SFAS No.
141 and 142 had no impact on the Company's financial position or results of
operations.
5. RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the current period presentation. These reclassifications had no
impact on net income or shareholders' equity as previously reported.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
Three months ended September 30, 2001 compared to three months ended September
30, 2000.
GENERAL:
The following analysis of the results of operations and financial condition of
Flexsteel Industries, Inc. (the Company) should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
document.
The following table has been prepared as an aid in understanding the Company's
results of operations on a comparative basis for the first quarters ended
September 30, 2001 and 2000. Amounts presented are percentages of the Company's
net sales.
First Quarter Ended
September 30,
-------------------
2001 2000
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Net Sales .......................................... 100.0% 100.0%
Cost of Goods Sold ................................. (79.8) (79.3)
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Gross Margin ....................................... 20.2 20.7
Selling, General and Administrative Expense ........ (20.0) (16.8)
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Operating Income ................................... 0.2 3.9
Other Income, Net .................................. 0.3 0.4
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Income Before Income Taxes ......................... 0.5 4.3
Income Tax Expense ................................. (0.2) (1.6)
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Net Income ......................................... 0.3% 2.7%
====== ======
RESULTS OF OPERATIONS FOR THE QUARTER- Net sales for the quarter ended September
30, 2001 decreased by $6.8 million or 10% compared to the prior year quarter.
Residential sales volume decreased $5.1 million or 11%. Recreational vehicle
seating sales decreased $1.3 million or 7%. Commercial seating volume decreased
$0.4 million or 9%. The decline in net sales reflects the current slow down in
the economy and a lack of consumer confidence in the economy.
Gross margin decreased $1.7 million to $12.8 million or 20.2% of net sales in
the current year, from $14.5 million or 20.7% in the prior year. The decline in
gross margin reflects the lower sales and production volume for all products,
which resulted in reduced absorption of fixed costs.
Selling, general and administrative expenses as a percentage of net sales were
20.0% and 16.8% for the current quarter and prior year quarter, respectively.
The cost percentage increase was due to the fixed portion of SG&A costs in
relation to the lower sales volume, as well as additional costs associated with
retail operations.
The above factors resulted in current fiscal year net income of $0.2 million or
$0.03 per diluted share compared to $1.9 million or $0.30 per diluted share in
the prior year, a decrease of $1.5 million or $0.27 per diluted share.
Liquidity and Capital Resources:
Working capital at September 30, 2001 is $56.7 million, which includes cash,
cash equivalents and investments of $13.6 million. Working capital increased by
$1.3 million from the June 30, 2001 amount.
Cash and cash equivalents and investments increased by $1.0 million during the
quarter ended September 20, 2001. Net cash provided by operating activities was
$1.7 million during the first three months of fiscal year 2002 versus net cash
used in operating activities of $0.1 million in the first quarter of fiscal year
2001. The decrease in cash and cash equivalents resulted from increases in
investments and accounts receivable offset by increases in accrued liabilities.
Capital expenditures were less than $0.1million during the first three months of
fiscal year 2002 and $2.3 million in 2001. The current year expenditures were
incurred primarily for manufacturing equipment and delivery equipment. During
the next nine months it is anticipated that less than $1.0 million will be spent
on manufacturing and delivery equipment. The funds for projected capital
expenditures are expected to be provided by cash generated from operations and
available cash.
Item 3. Quantitative and Qualitative Information About Market Risk
Not applicable
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Company and its representatives may from time to time make written or oral
forward-looking statements with respect to goals and expectations of the
Company, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to shareholders.
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, credit risk from
customers 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 6. Exhibits and Reports on Form 8-K
The registrant did not file a report on Form 8-K during the quarter for which
this report is filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned officer thereunto duly authorized.
FLEXSTEEL INDUSTRIES, INC.
Date: October 19, 2001 By: /S/ R. J. Klosterman
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R.J. Klosterman
Financial Vice President &
Principal Financial Officer