FORM 10-K
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended June 30, 2002
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
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FLEXSTEEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 42-0442319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 877, DUBUQUE, IOWA 52004-0877
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (563) 556-7730
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of Class)
-----------------------------------------------
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of August 9, 2002 which is within 60 days
prior to the date of filing:
Common Stock, Par Value $1.00 Per Share: $44,838,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 9, 2002:
CLASS SHARES OUTSTANDING
-------------------------------- --------------------------------
Common Stock, $ 1.00 Par Value 6,238,006 Shares
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDING JUNE 30, 2002 IN PARTS I, II, AND IV. IN PART III, PORTIONS OF THE
REGISTRANT'S 2002 PROXY STATEMENT, TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WITHIN 120 DAYS OF THE REGISTRANT'S FISCAL YEAR END.
Exhibit Index -- page 6
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The registrant was incorporated in 1929 and has been in the furniture
seating business ever since. For more detailed information see the registrant's
Annual Report for the Fiscal Year Ended June 30, 2002 which is incorporated
herein by reference.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The registrant's significant operating segment is the manufacture of
upholstered seating. The second segment is the operation of three retail
furniture stores. For more detailed financial information see the registrant's
Annual Report for the Fiscal Year Ended June 30, 2002 which is incorporated
herein by reference.
The registrant's upholstered seating business has three primary areas
of application -- residential seating, recreational vehicle seating and
commercial seating. Set forth below, in tabular form, is information for the
past three fiscal years showing the registrant's sales of upholstered seating
attributable to each of the areas of application described above:
SALES FOR UPHOLSTERED SEATING APPLICATIONS
2002 2001 2000
----------------- ----------------- -----------------
AMOUNT OF SALES AMOUNT OF SALES AMOUNT OF SALES
----------------- ----------------- -----------------
Residential Seating................ $193,200,000 $199,900,000 $185,100,000
Recreational Vehicle Seating ...... 67,900,000 66,400,000 94,500,000
Commercial Seating ................ 18,600,000 18,500,000 20,500,000
---------------- ----------------- -----------------
Upholstered Seating Total ......... $279,700,000 $284,800,000 $300,100,000
================ ================= =================
(c) NARRATIVE DESCRIPTION OF BUSINESS
(1) (i), (ii), (vii) The registrant's primary business is the design,
manufacture and sale of a broad line of quality upholstered furniture for
residential, commercial, and recreational vehicle seating use. The registrant's
classes of products include a variety of wood and upholstered furniture
including upholstered sofas, loveseats, chairs, reclining and rocker-reclining
chairs, swivel rockers, sofa beds and convertible bedding units, some of which
are for home, office, motorhome, travel trailer, vans, health care and hotels.
Featured as a basic component in most of the upholstered furniture is a unique
drop-in-seat spring. The registrant primarily distributes its products
throughout most of the United States through the registrant's sales force to
approximately 3,000 furniture dealers (including three Company owned stores),
department stores, recreational vehicle manufacturers and van converters, and
hospitality and healthcare facilities. The registrant's products are also sold
to several national chains, some of which sell on a private label basis.
(iii) Sources and availability of raw materials essential to
the business:
The registrant's furniture products utilize various species of
hardwood lumber obtained from Arkansas, Mississippi, Missouri and elsewhere. In
addition to hardwood lumber and engineered wood products, principal raw
materials utilized in the manufacturing process include bar and wire stock, high
carbon spring steel, fabrics, leather and polyurethane. While the registrant
purchases these materials from outside suppliers, it is not dependent upon any
single source of supply. The raw materials are all readily available.
2
(iv) Material patents and licenses:
The registrant owns the American and Canadian improvement
patents to its Flexsteel seat spring, as well as, patents on convertible beds
and various other recreational vehicle seating products. In addition, it holds
licenses to manufacture certain rocker-recliners. The registrant does not
consider its patents and licenses material to its business.
(v) The registrant's business is not considered seasonal.
(viii) The approximate dollar amounts of backlog of orders
believed to be firm as of the end of the current fiscal year and the prior two
fiscal years are as follows:
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2000
------------- ------------- -------------
$30,000,000* $25,700,000 $30,600,000
* All of this amount is expected to be filled in the fiscal year ending June 30,
2003.
(ix) Competitive conditions:
The furniture industry is highly competitive. There are
numerous furniture manufactures in the United States. Although the registrant is
one of the largest manufacturers of upholstered furniture in the United States,
according to the registrant's best information it manufactures and sells less
than 4% of the upholstered furniture sold in the United States. The registrant's
principal method of meeting competition is by emphasizing its product
performance and to use its sales force.
(x) Expenditures on research activities:
Most items in the upholstered seating line are designed by the
registrant's own design staff. New models and designs of furniture, as well as
new fabrics, are introduced continuously. The registrant estimates that
approximately 40% of its upholstered seating line are redesigned in whole or in
part each year. In the last three fiscal years, these redesign activities
involved the following expenditures:
FISCAL YEAR ENDING EXPENDITURES
------------------ ------------
June 30, 2002 $1,970,000
June 30, 2001 $2,090,000
June 30, 2000 $2,170,000
(xi) Approximately 2,300, 2,400, and 2,600 people were
employed by the registrant as of June 30, 2002, June 30, 2001, and June 30,
2000, respectively.
(d) FINANCIAL INFORMATION ABOUT DOMESTIC OPERATIONS
Financial information about operations is set forth in the registrant's
Annual Report for the Fiscal Year Ended June 30, 2002 which is incorporated
herein by reference. The registrant has no foreign operations and makes minimal
export sales.
3
ITEM 2. PROPERTIES
(a) THE REGISTRANT OWNS OR LEASES THE FOLLOWING MANUFACTURING PLANTS:
APPROXIMATE
LOCATION SIZE (SQUARE FEET) PRINCIPAL OPERATIONS
----------------------- -------------------- --------------------------------------------
Dubuque, Iowa 853,000 Upholstered Furniture- Recreational Vehicle
- Metal Working
Lancaster, Pennsylvania 216,000 Upholstered Furniture
Riverside, California 236,000 Upholstered Furniture - Recreational Vehicle
Harrison, Arkansas 123,000 Woodworking Plant
New Paris, Indiana 168,000 Recreational Vehicle - Metal Working
Dublin, Georgia 242,400 Upholstered Furniture
Starkville, Mississippi 349,000 Upholstered Furniture- Woodworking Plant
The registrant's operating plants are well suited for their
manufacturing purposes and have been updated and expanded from time to time as
conditions warrant. There is adequate production capacity to meet present market
demands.
The registrant leases one production facility in Harrison,
Arkansas of approximately 93,000 sq. feet for upholstered furniture.
The registrant leases showrooms for displaying its products in
the furniture marts in High Point, North Carolina and San Francisco, California.
The registrant leases one warehouse in Vancouver, Washington
of approximately 15,750 sq. feet for storing its products prior to distribution.
(b) OIL AND GAS OPERATIONS: NONE.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material legal proceedings pending. All pending
litigation is considered to be routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter ended June 30, 2002 no matter was submitted
to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant, their ages, positions (in
each case as of June 30, 2002), and the month and year they were first elected
or appointed an officer of the registrant, are as follows:
NAME (AGE) POSITION (DATE FIRST BECAME OFFICER)
- --------------------- ------------------------------------------------------------------------
K. B. Lauritsen (59) President / Chief Executive Officer (November 1979)
E. J. Monaghan (63) Executive Vice President / Chief Operating Officer (November 1979)
R. J. Klosterman (54) Vice President Finance / Chief Financial Officer & Secretary (June 1989)
J. R. Richardson (58) Senior Vice President of Marketing (November 1979)
T. D. Burkart (59) Senior Vice President of Vehicle Seating (February 1984)
P. M. Crahan (54) Vice President (June 1989)
J. T. Bertsch (47) Vice President (June 1989)
Each named executive officer has held the same office of an executive or
management position with the registrant for at least five years.
4
Cautionary Statement Relevant to Forward-Looking Information for the Purpose of
"Safe Harbor" Provisions and 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 long-term goals 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 cyclical nature of the furniture
industry, 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, competition, both foreign and domestic, credit exposure to our
customers, 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
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The NASDAQ -- National Market System is the principal market on which
the registrant's Common Stock is traded. The market prices for the stock and the
dividends paid per common share for each quarterly period during the past two
years is shown in the registrant's Annual Report for the Fiscal Year Ended June
30, 2002, and is incorporated herein by reference.
The Company estimates there were approximately 1,800, 1,800, and 2,600
holders of Common Stock of the registrant as of June 30, 2002, June 30, 2001,
and June 30, 2000, respectively.
ITEM 6. SELECTED FINANCIAL DATA
This information is contained on page 6 in the registrant's Annual
Report for the Fiscal Year Ended June 30, 2002, under the caption "Five Year
Review" and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis is contained on page 15 and page
16 in the registrant's Annual Report for the Fiscal Year Ended June 30, 2002 and
is incorporated herein by reference.
ITEM 7a. QUANTITATIVE INFORMATION ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company included in the
financial report section of the Annual Report for the Fiscal Year Ended June 30,
2002, are incorporated herein by reference:
PAGE(S)
-----------
Consolidated Balance Sheets, June 30, 2002, 2001............................................................. 7
Consolidated Statements of Income and Comprehensive Income -Years Ended June 30, 2002, 2001, 2000............ 8
Consolidated Statements of Changes in Shareholders' Equity - Years Ended June 30, 2002, 2001, 2000........... 9
Consolidated Statements of Cash Flows - Years Ended June 30, 2002, 2001, 2000................................ 10
Quarterly Financial Data -- Years Ended June 30, 2002, 2001.................................................. 14
Notes to Consolidated Financial Statements................................................................... 11 - 14
Independent Auditors' Report................................................................................. 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During fiscal 2002 there were no changes in or disagreements with
accountants on accounting procedures or accounting and financial disclosures.
5
PART III
ITEMS 10, 11, 12. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE
COMPENSATION AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information identifying directors of the registrant, executive
compensation and beneficial ownership of registrant stock and supplementary data
is contained in the registrant's fiscal 2002 definitive Proxy Statement to be
filed with the Securities and Exchange Commission and are incorporated herein by
reference. Executive officers are identified in Part I, item 4 above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is contained under the heading "Certain Relationships
and Related Transactions" in the registrant's fiscal 2002 definitive Proxy
Statement to be filed with the Securities and Exchange Commission and is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements of the registrant included in the Annual
Report for the Fiscal Year Ended June 30, 2002, are incorporated herein by
reference as set forth above in Item 8.
(2) Schedules
The following financial schedules for the years ended 2002, 2001 and
2000 are submitted herewith:
SCHEDULE VIII
RESERVES
FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------- ------------ ------------ ------------ ------------
DEDUCTIONS
BALANCE AT ADDITIONS FROM BALANCE
BEGINNING OF CHARGED TO RESERVES AT CLOSE
DESCRIPTION YEAR INCOME (NOTE) OF YEAR
- --------------------------- ------------ ------------ ------------ ------------
Allowance for
Doubtful Accounts:
2002 ...................... $ 1,950,000 $ 1,581,000 ($ 991,000) $ 2,540,000
============ ============ ============ ============
2001 ...................... $ 2,250,000 $ 4,178,000 ($ 4,478,000) $ 1,950,000
============ ============ ============ ============
2000 ...................... $ 2,503,000 $ 187,000 ($ 440,000) $ 2,250,000
============ ============ ============ ============
- --------------------
NOTE -- UNCOLLECTIBLE ACCOUNTS CHARGED AGAINST RESERVE, LESS RECOVERIES.
Other schedules are omitted because they are not required or are not
applicable or because the required information is included in the financial
statements incorporated by reference above.
(3) Exhibit No.
3.1 Restated Article of Incorporation by reference to Exhibits to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1988.
3.2 Bylaws of the Registrant incorporated by reference to Exhibits
to the Annual Report on Form 10-K for the fiscal year ended
June 30, 1994.
4.1 Instruments defining the rights of security holders, including
indentures. The issuer has not filed, but agrees to furnish
upon request to the Commission copies of the Mississippi
Industrial Development Revenue Bond Agreement issued regarding
the issuer's facilities in Starkville, MS.
10.1 1989 Stock Option Plan, as amended, incorporated by reference
from the 1992 Flexsteel definitive proxy statement.*
10.2 1995 Stock Option Plan incorporated by reference from the 1995
Flexsteel definitive proxy statement.*
10.3 Management Incentive Plan incorporated by reference from the
1980 Flexsteel definitive proxy statement - commission file
#0-5151.*
10.4 1999 Stock Option Plan incorporated by reference from the 1999
Flexsteel definitive proxy statement.*
10.5 Flexsteel Industries, Inc. Voluntary Deferred Compensation
Plan incorporated by reference to Exhibits to the Annual
Report on Form 10-K for the fiscal year ended June 30, 2001.
6
10.6 Flexsteel Industries, Inc. Restoration Retirement Plan
incorporated by reference to Exhibits to the Annual Report on
Form 10-K for the fiscal year ended June 30, 2001.
10.7 Flexsteel Industries, Inc. Senior Officer Supplemental
Retirement Plan incorporated by reference to Exhibits to the
Annual Report on Form 10-K for the fiscal year ended June 30,
2001.
13 Annual Report for the Fiscal Year Ended June 30, 2002.
22 2002 definitive Proxy Statement incorporated by reference is
to be filed with the Securities Exchange Commission on or
before December 1, 2002. However, the Nominating and
Compensation Committee Report and Audit Committee Report are
not incorporated herein as soliciting material or filed
material.
23.1 Independent Auditors' Report.
23.2 Independent Auditors' Consent.
99.1 Certification by Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification by Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
99.3 Form 11-K for the Fiscal Year Ended June 30, 2002.
*Management contracts and arrangements required to be
filed pursuant to Item 14 (c) of this report.
(b) REPORTS ON FORM 8-K
On June 18, 2002, the Company filed a report on Form 8-K announcing
the appointment of Eric S. Rangen to the Board of Directors.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 25, 2002 FLEXSTEEL INDUSTRIES, INC.
----------------------
By: /S/ K. BRUCE LAURITSEN
----------------------------
K. BRUCE LAURITSEN
PRESIDENT, CHIEF EXECUTIVE OFFICER
and
PRINCIPAL EXECUTIVE OFFICER
By: /S/ R. J. KLOSTERMAN
----------------------------
RONALD J. KLOSTERMAN
VICE PRESIDENT OF FINANCE
and
PRINCIPAL FINANCIAL OFFICER
7
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: September 25, 2002 /S/ K. BRUCE LAURITSEN
--------------------------- ---------------------------
K. Bruce Lauritsen
DIRECTOR
Date: September 25, 2002 /S/ EDWARD J. MONAGHAN
--------------------------- ---------------------------
Edward J. Monaghan
DIRECTOR
Date: September 25, 2002 /S/ JAMES R. RICHARDSON
--------------------------- ---------------------------
James R. Richardson
DIRECTOR
Date: September 25, 2002 /S/ JEFFREY T. BERTSCH
--------------------------- ---------------------------
Jeffrey T. Bertsch
DIRECTOR
Date: September 25, 2002 /S/ L. BRUCE BOYLEN
--------------------------- ---------------------------
L. Bruce Boylen
DIRECTOR
Date: September 25, 2002 /S/ PATRICK M. CRAHAN
--------------------------- ---------------------------
Patrick M. Crahan
DIRECTOR
Date: September 25, 2002 /S/ LYNN J. DAVIS
--------------------------- ---------------------------
Lynn J. Davis
DIRECTOR
Date: September 25, 2002 /S/ THOMAS E. HOLLORAN
--------------------------- ---------------------------
Thomas E. Holloran
DIRECTOR
Date: September 25, 2002 /S/ MARVIN M. STERN
--------------------------- ---------------------------
Marvin M. Stern
DIRECTOR
Date: September 25, 2002 /S/ ROBERT E. DEIGNAN
--------------------------- ---------------------------
Robert E. Deignan
DIRECTOR
Date: September 25, 2002 /S/ ERIC S. RANGEN
--------------------------- ---------------------------
Eric S. Rangen
DIRECTOR
8
EXHIBIT 99.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, K. Bruce Lauritsen, Chief Executive Officer of Flexsteel Industries, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Flexsteel
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
auditcommittee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: September 25, 2002
--------------------
By: /S/ K. BRUCE LAURITSEN
--------------------------
K. Bruce Lauritsen
Chief Executive Officer
EXHIBIT 99.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald J. Klosterman, Chief Financial Officer of Flexsteel Industries, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Flexsteel
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
auditcommittee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: September 25, 2002
--------------------
By: /S/ R. J. KLOSTERMAN
-------------------------
Ronald J. Klosterman
Chief Financial Officer
EXHIBIT 13
FLEXSTEEL(R)
A SMART DYNAMIC
[PHOTO]
Flexsteel Industries, Inc.
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 2002
FINANCIAL HIGHLIGHTS [Amounts in thousands except per share data]
- --------------------------------------------------------------------------------
[BAR CHART] [BAR CHART]
net sales book value per share
MILLIONS OF DOLLARS DOLLARS
1993 185,813 1993 9.57
1994 204,804 1994 9.98
1995 218,476 1995 10.28
1996 214,887 1996 10.45
1997 230,501 1997 10.86
1998 247,740 1998 11.49
1999 272,130 1999 12.50
2000 300,066 2000 13.81
2001 284,773 2001 14.10
2002 279,671 2002 14.15
[BAR CHART] [BAR CHART]
earnings per share return on common equity
DOLLARS PERCENT
1993 0.87 1993 9.1%
1994 0.94 1994 9.5%
1995 0.72 1995 7.1%
1996 0.63 1996 6.1%
1997 0.86 1997 8.0%
1998 1.08 1998 9.7%
1999 1.51 1999 12.7%
2000 1.82 2000 14.0%
2001 0.74 2001 5.4%
2002 0.92 2002 6.5%
YEAR ENDED JUNE 30, 2002 2001 2000
- ---------------------------------------------------------------------
Net Sales $ 279,671 $ 284,773 $ 300,066
Operating Income 8,269 6,466 17,679
Income Before Income Taxes 9,160 7,274 18,658
Net Income 5,660 4,594 11,928
PER SHARE OF COMMON STOCK:
Average Shares Outstanding:
Basic 6,095 6,108 6,458
Diluted 6,159 6,174 6,562
Earnings:
Basic $ 0.93 $ 0.75 $ 1.85
Diluted 0.92 0.74 1.82
Cash Dividends 0.52 0.52 0.52
AT JUNE 30, 2002 2001 2000
- ---------------------------------------------------------------------
Working Capital $ 62,228 $ 55,402 $ 52,016
Net Plant and Equipment 20,558 24,554 26,837
Total Assets 118,750 110,294 114,876
Shareholders' Equity 87,717 85,062 85,196
[PHOTO] THE EBULLIENT EMMY-AWARD WINNER CHRISTOPHER LOWELL IS HOST TO THE
MOST-WATCHED DAYTIME HOME DECORATING SHOW. HE HAS JOINED WITH
FLEXSTEEL TO CREATE THE HIGHLY SUCCESSFUL CHRISTOPHER LOWELL HOME
COLLECTION OF FURNITURE.
[PHOTO] FLEXSTEEL SEATING GRACES MORE AND MORE LOBBIES AND OTHER PUBLIC AREAS.
OUR COMMERCIAL SEATING DESIGNERS ARE SPECIALISTS WHO WORK CLOSELY WITH
INTERIOR DESIGN AND ARCHITECTURAL FIRMS. THESE CLIENTS DEPEND ON
FLEXSTEEL NOT ONLY FOR HANDSOME QUALITY BUT ALSO FOR A KEEN
UNDERSTANDING OF THEIR COMMERCIAL SEATING NEEDS.
ECHOES OF THE EMPIRE AGE: TYPICAL OF THE ACCENT PIECES IN THE
CHRISTOPHER LOWELL HOME COLLECTION, THIS TABLE IS STRIKING FOR ITS
X-SHAPED BASE AND ITS BUFFED SILVER HARDWARE. THIS IS JUST ONE OF FOUR
TIMELESS GROUPS OF OCCASIONAL FURNITURE.
FLEXSTEEL
TO OUR SHAREHOLDERS,
CUSTOMERS AND ASSOCIATES
IT IS IMPOSSIBLE FOR US TO BEGIN A REVIEW OF THE LAST YEAR WITHOUT RECALLING THE
TRAGEDY EXPERIENCED BY OUR GREAT COUNTRY ON SEPTEMBER 11TH, 2001. ALL OF US
REMEMBER THOSE WHO LOST THEIR LIVES ON THAT SORROWFUL DAY. OUR PRAYERS REMAIN
WITH EACH OF THEM AND ALL OF THOSE WHO SUFFERED LOSS ON THAT DAY.
[PHOTO] [PHOTO]
K. BRUCE LAURITSEN L. BRUCE BOYLEN
PRESIDENT & CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
Our fiscal year had begun on July 1, 2001, with cautious optimism. We were
seeing signs of a slow, steady recovery - signs that the consumer, becoming more
comfortable with the economy, was ready to make those purchases of durable items
that had been postponed. Residential furniture sales were inching up, and we
were seeing increased sales of our products for recreational vehicles.
But then September 11th happened, and positive movement stopped until late
October. By November, we were experiencing better incoming business, a trend
which continued to the end of the fiscal year.
Although total sales decreased slightly - $279,671,402 compared to $284,772,510
in the previous fiscal year, a decrease of 2% - earnings increased
substantially. Net income was $5,659,544 or $0.92 per share, an increase of 23%
over earnings in the same period last year of $4,594,005, or $0.74 per share.
EFFECTS OF THE RECESSION
By the time the economy was officially labeled in recession in December 2001,
the recreational vehicle industry had already been suffering for several months.
During that calendar year, sales of van conversions had dropped a huge 47%, and
we were forced to close our Elkhart plant, and "right-size" our production of
seating for recreational vehicles in three other plants.
The steep declines in the hospitality industry following September 11th forced
the postponement of remodeling and new construction projects that normally would
be served by our Commercial Seating Division.
We also experienced a temporary dip in the sale of home furnishings.
Throughout Flexsteel, managers put slower times to good use, developing new
cost-cutting methods and revisiting areas of possible decrease in waste or
increase in efficiency.
NEVERTHELESS, A YEAR OF DYNAMIC GROWTH
Despite the crushing effects of September 11th, despite the official recession,
we emerged with some excellent results for the year:
* We launched our Christopher Lowell Home Collection which has created
extraordinary dealer interest, publicity, traffic and sales
* We increased penetration of the recreational vehicle seating market
* The Flexsteel name is increasingly recognized in the hospitality and health
markets
* We experienced outstanding growth in Flexsteel Comfort Galleries
* We enjoyed record traffic at our Spring 2002 Furniture Market
THE CHRISTOPHER LOWELL HOME COLLECTION(TM)
One of the most exciting events of the year was our launch last October of the
Christopher Lowell Home Collection of upholstered furniture designed by the
popular TV home decorator Christopher Lowell. Despite the down market of last
fall, the first showing drew overflow crowds. Appearances by Lowell at dealers
showcasing his collection also drew huge crowds. We followed that highly
successful introduction in our Spring Market with case goods selected to
coordinate with the collection.
One hundred sixty dealers have signed up to display the Collection on their
floors, and ninety-seven installations are already in place.
Christopher Lowell draws an average of eleven million viewers a week to his
program on the Discovery channel. His exuberant television persona is ideally
suited to Flexsteel's dynamic vision. In the upcoming season, his show will use
settings that include furniture from the Christopher Lowell Home Collection,
creating even more exposure for us. We expect this program to draw enormous
interest, and are developing exciting cross-marketing projects for the near
future.
THE FLEXSTEEL COMFORT GALLERIES
Flexsteel Comfort Galleries demonstrate Flexsteel's emphasis on doing well those
things the company knows best - providing our dealers with a superior product
and the means to please, serve, and keep their customers. The Flexsteel Comfort
Gallery offers consumers the ultimate in choice, while reducing dealers'
warehousing and inventory expense. Dealers participating in these programs are
showing excellent growth and profitability.
There are now 385 Flexsteel Comfort Galleries in operation and 35 on the drawing
boards. Our Retail Development team has been extremely busy setting up the new
Christopher Lowell Home Collections, new galleries, the designing of attractive
new store fixtures, creating monthly merchandising events and advertising
packages, and upgrading a number of older galleries to the very successful
Comfort Gallery format.
We have expanded our Retail Development team and provided them with new computer
hardware and software to cope with the demand. This team has also developed a
new four-color quarterly newsletter to keep our dealers informed of new
developments.
August is typically a slow furniture sales month for our dealers; to help them
boost sales in that month we've introduced, through GE Capital, a group rate
that allows zero interest until 2005 on qualifying Flexsteel sales. Since many
dealers cannot even obtain a 30-month financing package, this is a powerful
selling tool for them.
FLEXSTEEL | 1
IN A YEAR THAT CONFRONTED US ALL WITH STARK REALITIES, FLEXSTEEL'S CENTURY-OLD
MANAGEMENT TRADITION ONCE AGAIN PROVED ITSELF. COMBINING SMART DESIGN WITH AN
UNCHANGING EMPHASIS ON QUALITY, FLEXSTEEL'S DYNAMIC AND INNOVATIVE MARKETING
STRATEGIES LET US INCREASE OUR MARKET STRENGTH IN SEVERAL KEY AREAS.
[PHOTO] A GRACIOUS AND STUNNING SETTING: THE DINING ROOM OF THE
RECENTLY-RESTORED MOUNTAIN VIEW GRAND HOTEL IN THE WHITE MOUNTAINS OF
NEW HAMPSHIRE. CHAIRS WERE FURNISHED THROUGH OUR COMMERCIAL SEATING
DIVISION.
[PHOTO] WHEN SMARTLY STYLED, RECLINERS ARE AS APPROPRIATE IN LIVING ROOMS AS IN
FAMILY ROOMS. THIS GENEROUSLY-SCALED RECLINER HAS TRADITIONAL
CLUB-CHAIR CHARM, A TUFTED ROLLED BACK, TURNED WOOD LEGS, AND GENEROUS
COMFORT.
[PHOTO] THE INTRICACY OF THIS HAND-CARVED IMPORTED FRAME LENDS ELEGANCE TO THIS
CHAIR FROM OUR POPULAR CHARISMA CHAIR(R) LINE. AN UNUSUAL TOUCH IS THE
WARM PECAN FINISH, ACCENTED BY THE DARK HANG-UP FINISH IN THE CARVING
RECESSES.
[PHOTO] THE CONVERSATION SOFA IS A FAVORITE FOR ITS COMFORTABLE INTIMACY. THIS
GROUP INCLUDES A "WRAP-AROUND" SOFA TABLE AND MATCHING OTTOMANS WHICH
NEST UNDER THE TABLE FOR ADDITIONAL CASUAL SEATING.
[PHOTO] THIS HIGH-STYLE CONTEMPORARY GROUP FROM OUR COMMERCIAL SEATING DIVISION
TURNED HEADS AT THE HOSPITALITY DESIGN SHOW IN LAS VEGAS, NEVADA.
FLEXSTEEL | 2
Leather continues to be enormously popular with all our retailers. Our broad
range of leather patterns, colors and styles offers us a strong competitive
advantage over the limited-selection, low-cost imports which are beginning to
appear in our markets. We expect to retain Flexsteel's advantage by continuing
our traditional quality with extremely good service.
COMMERCIAL SEATING: THE HOSPITALITY & HEALTH MARKETS
This is a developing market for Flexsteel, but a natural for our expertise in
seating. We supply sofas, chairs, tables, recliners, and sleepers, many of them
specifically designed for the spaces they will occupy, to hotels and assisted
living centers. Our expertise is becoming known in the industry, and we
anticipate greatly increasing our market share.
Increasing demand has resulted in our expanding
production capacity at Starkville, where we have also added an entire new
production line for upholstered furniture.
THE RECREATIONAL VEHICLE MARKET LOOKS UP
Disenchantment with air travel became pronounced after September 11th; the
subsequent new security regulations caused many people to turn to motor homes
for leisure travel. Ownership of recreational vehicles is up (9.7% since 1997),
and sales have been vigorous since the first of this year. The demographics look
very good in this market, since the fastest-growing segment of RV owners is in
the 35-to-54 age bracket. One analyst reported in Kiplinger's* predicted that
"the RV business is going to become what Harley-Davidson was in the 90s." While
we do not expect that kind of growth (27-fold), we expect our sales to RV
manufacturers to show double-digit increases each year during the coming decade.
Our ability to offer a complete line of products at all price points is one of
the factors that has allowed us to increase our share of the market even when
this market was softening. We also offer handsome styling and features direct to
each RV manufacturer that no other vendor can offer. One of our newest products
is a motor home seat, for driver or passenger, with seat belts fully integrated
into the seat backs. We are also developing new multi-function bed units with
all-in-one recline and sleep functions.
With price-point coverage and attractive features, we have even been able to
increase our market penetration in the highly-competitive market of travel
trailers.
OPPORTUNITIES IN THE MARINE MARKET
A fast-growing segment for us is the marine market, where we primarily provide
below-deck free-standing furniture for motor yachts. The level of customization
required is high and so are development costs; however, this is a market of
considerable promise, with our sales up about 30% this fiscal year. We continue
to explore opportunities to develop above-deck seating for this market.
TECHNOLOGY IN A DYNAMIC WORLD
We have long used computerized cutters to assist in the layout and cutting of
upholstery fabrics. They are essential for a better matching of patterns; they
greatly speed up the process and reduce fabric waste. Now, computerized
efficiency can be applied even to the odd and unpredictable sizes and shapes of
leather hides - we are installing a Taurus cutter for the leathers used in
vehicle seating.
Similarly, CNC routers are used for precise control in cutting and shaping wood
products; the addition of another computer-controlled router in the Dublin plant
will not only cut waste but allow cutting of frames to schedule. Many of the
commercial seating units produced at the Starkville plant are upholstered in the
customer's own material. A new single-ply computerized cutter brings new
efficiency to that process, allowing faster loading of patterns and saving time
in both cutting and sewing.
On-line access allows information to fly from dealer to salespeople to factory
and back again. We now routinely receive as many as 7000 orders per month
electronically. Dealers have instant access to fabric availability, product
pricing, and order status through our Cyber Resource Center, updated daily. They
can also instantly download advertising aids and digitally-scanned photographs
of our products to be used in print or TV advertising.
Product specifications are now available on shop floor computers, complete with
digital photos detailing methods and procedures, all updated daily.
A consumer can now go to Flexsteel.com and design the sofa of her dreams. The
video catalog on our Web site allows her to select the frame and fabric of her
choice, and see how the finished product will look. The Web site now routinely
receives 67,000 visitors monthly.
CLOSE TIES WITH DEALERS
In the Fifties, Flexsteel developed its unique philosophy of locating our
factories in strategic geographic areas. A competitive advantage at the time, it
allowed us to offer faster delivery to our dealers, mint- fresh and direct from
the factory. Direct factory delivery remains a powerful selling tool, popular
with our dealers, and in fiscal year ending 2003 we are adding 30 new tractors
to our delivery fleet.
Today's instant communications have so reduced the handling time of orders that
now it is practical to centralize many of our selling operations at the same
time providing our dealers with real-time information undreamed of in the
Fifties.
A DYNAMIC PHILOSOPHY: FOCUS ON THE CUSTOMER
Flexsteel's long relationship with its retail dealers has equipped us uniquely
to understand and provide for our dealer's special needs. Similarly, we entered
the recreational vehicle seating business with not only knowledge of seating but
also the expertise born of metal working for the famous Flexsteel seat spring.
These capabilities allowed us to become the top seller in that field and to
advance the state of that art.
We are now acquiring a similar reputation in the commercial seating business. In
all areas of our business, we find that our ability to reduce turn-around time,
meet schedules dependably, and deliver a quality product earns us customers'
loyalty.
The ultimate consumer of all our products is the retail customer. Today's
consumer is better educated, more fashion-savvy, and more quality-conscious.
Flexsteel continues to offer her lasting satisfaction with our lifetime
warranties and handsome designs that bear her lifestyle in mind.
FLEXSTEEL | 3
WITH HANDSOME DESIGNS FOR EVERY SEATING MARKET SEGMENT, A STRENGTHENED MARKETING
PROGRAM, A SOLID FINANCIAL FOOTING, CONTINUED INNOVATIVE MANUFACTURING
TECHNIQUES, AND AN INVALUABLE REPUTATION FOR QUALITY, FLEXSTEEL HAS ALL THE
ELEMENTS IN PLACE FOR A DYNAMIC FUTURE.
[PHOTO] AUTOMOTIVE STYLING AND SUPERIOR ENGINEERING MARK FLEXSTEEL'S
RECREATIONAL VEHICLE SEATING, AS IN THIS MONARCH MOTOR HOME BY MONACO
COACH. OPTIONAL FEATURES MIGHT INCLUDE SIX-POSITION POWER, SWIVEL AND
TILT PEDESTALS, SEAT HEATERS AND OUR PATENTED ERGOFLEX(R) ADJUSTABLE
ARM MECHANISM. HEAVY-GAUGE TUBULAR STEEL AND PRECISE ENGINEERING INSURE
THAT FLEXSTEEL VEHICLE SEATING MEETS OR EXCEEDS FEDERAL MOTOR VEHICLE
SAFETY STANDARDS.
[PHOTO] FIFTH-WHEEL TRAVEL TRAILERS GROW EVER MORE POPULAR AND LUXURIOUS.
KOUNTRY AIRE FROM NEWMAR OFFERS SMART, SPACE-SAVING DESIGN AND GENEROUS
SEATING AND SLEEPING COMFORT BY FLEXSTEEL. THE TWO LEATHER RECLINING
EURO-STYLE ARM CHAIRS HAVE MATCHING OTTOMANS; THE TAILORED SOFA OPENS
AT NIGHT INTO A FULL-SIZE BED. OUR DESIGNERS WORK CLOSELY WITH THE
MANUFACTURERS TO MEET MARKET DEMANDS FOR FASHION, FEATURES, COLOR
PALETTES, AND AMPLE COMFORT.
[PHOTO] NEVER-BEFORE-POSSIBLE SOFA-SLEEPER COMFORT: THE SECRET IS THE MAJESTIC
AIR SLEEP SYSTEM. AN INNOVATIVE OVERLAY OF AIR CUSHIONING OVER THE
SUPPORTIVE COIL INNERSPRING MATTRESS PROVIDES UNPARALLELED PERSONAL
COMFORT. MATCHED WITH A SECTIONAL FROM OUR MURANO COLLECTION, IT
PROVIDES SMART DAYTIME LOOKS WITH ROLLED SERPENTINE ARMS ACCENTED WITH
BRASS NAIL TRIM AND ATTRACTIVE TURNED LEGS.
[PHOTO] TRADITIONAL IS STILL SMART, TODAY WITH A RELAXED TAILORED LOOK.
LUXURIOUS COMFORT IS EVIDENT IN AN EXTRA-DEEP SOFA WITH TWO LAYERS OF
LOOSE BACK PILLOWS. BEAUTIFULLY COMPLEMENTED WITH A HAND-CARVED, ACCENT
CHARISMA CHAIR(R).
[PHOTO] PETITE SCALING, POP-UP HEADREST, AND FULL RECLINING COMFORT ARE MADE
POSSIBLE BY OUR NEWEST RECLINER INTRODUCTION. ALSO OFFERED WITH A
TAILORED SKIRT FOR A TRADITIONAL LOOK.
FLEXSTEEL | 4
FLEXSTEEL AS A CORPORATE CITIZEN
Flexsteel has always been committed to its obligations as a corporate citizen,
and nowhere is this better expressed than by our own associates at every plant,
who are deeply involved in community efforts. Following the September 11th
disaster, our associates raised nearly $14,000 for the American Red Cross, a
contribution matched by the company. Another popular effort is the annual Relay
for Life(R) sponsored by the American Cancer Society(R). This year, associates
in the Dubuque plant raised more than $10,000 through the relay, bake sales, and
innovative fundraising devices such as plant-wide cookouts.
Mindful of our obligations of corporate stewardship, we have for a number of
years optimized our uses of wood. With state-of-the-art cross-grain laminated
hardwoods, we can actually make stronger frames using fewer trees than with the
simple kiln-dried hardwoods used in the past. Of course, the frames are still
lifetime-warranted. We use environmentally-friendly polyurethane foam in our
upholstery, applied in such ways they enhance both the beauty and comfort of our
chairs and sofas, and can still be warranted for life.
FLEXSTEEL AND THE WORLD
We are indeed living in a global economy which has opened many possibilities for
Flexsteel that were not here a mere five years ago. China supplies us with wood
products, notably entertainment centers, occasional tables and accent-chair
frames, that blend beautifully with our upholstered products. We buy leather
from such diverse places as China, South America, Italy, Mexico, Slovenia, and
Germany.
However, our principal products will continue to be made in our USA-based
Flexsteel factories. Today's customer demands the selection of styles and
coverings combined with speedy delivery that Flexsteel offers, a combination of
selling points not possible with the mass production and delays of importing.
MORE THAN A CENTURY OF CONSERVATIVE FISCAL RESPONSIBILITY
Since the company's founding in 1893, and through 33 years of public ownership,
Flexsteel has maintained a philosophy embracing consistent and conservative
fiscal responsibility. The result is that the company today enjoys excellent
liquidity, has virtually no debt, finances major capital expenditures through
its own cash flow, AND HAS PAID CASH DIVIDENDS FOR 242 CONSECUTIVE QUARTERS.
We follow the standards issued by the Securities and Exchange Commission and the
Financial Accounting Standards Board, as you will see in notes to our financial
statements. The tone is set by our top executives, and in our case the tone
emphasizes conservative and consistent application of accounting rules with
equal emphasis on corporate integrity in our daily business dealings and in our
financial statements.
Our strong financial position not only serves us well in difficulttimes, but is
a source of reassurance to our customers and vendors alike.
NEW DIRECTORS ON OUR BOARD
We are extremely fortunate to have obtained the services of two new directors
with outstanding experience. Last December, Robert E. Deignan, a long-time
partner of the Chicago-based international legal firm of Baker & McKenzie joined
the board, bringing with him a wide experience in health industries, real estate
and corporate law.
Then, in June, Eric Rangen, Vice President and Chief Financial Officer of
Alliant Techsystems, Inc., was named to the Board. His background includes 18
years with Deloitte & Touche LLP and an extensive knowledge of the accounting
needs of today's marketplace.
TOWARD A DYNAMIC FUTURE
We see excellent prospects for Flexsteel's future. The home building market
continues to be solid, and interest rates promise to remain moderate throughout
the year, so we have every reason to anticipate another excellent year for your
company. We will continue to fine-tune our strategic marketing plan and our
manufacturing capabilities, allowing us to be competitive and market-driven.
Among things we'll be doing:
* Launching a new product line for commercial seating and expanding production
capacity
* Improving the supply line from domestic and off-shore suppliers
* Cross-marketing the Christopher Lowell Home Collection(TM)
* Marrying more case goods to our upholstered designs
* Increasing our reach to the 100 top retail dealers
* Continuing to identify key builders in the motor yacht business
* Bringing the Flexsteel name to new commercial seating customers
As we accomplish these things, we will increase shareholder value. It will be
made possible by the many talents and abilities of our associates, and we extend
to them our thanks for making this an excellent year, despite its trials, for us
all.
/s/ K. Bruce Lauritsen
K. BRUCE LAURITSEN
PRESIDENT AND CHEIF EXECUTIVE OFFICER
/s/ L. Bruce Boylen
L. BRUCE BOYLEN
CHAIRMAN OF THE BOARD
FLEXSTEEL | 5
FIVE YEAR REVIEW
[ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA]
FISCAL YEAR ENDED JUNE 30, 2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
SUMMARY OF OPERATIONS
Net sales ............................... $279,671 $284,773 $300,066 $272,130 $247,740
Cost of goods sold ...................... 218,151 224,352 235,824 212,576 196,960
Operating income ........................ 8,269 6,466 17,679 15,398 9,868
Interest and other income ............... 1,052 1,063 1,439 1,134 2,015
Interest expense ........................ 161 254 461 315 356
Income before income taxes .............. 9,160 7,274 18,658 16,217 11,527
Provision for income taxes .............. 3,500 2,680 6,730 5,900 3,925
Net income(1)(2)(3) ..................... 5,660 4,594 11,928 10,317 7,602
Earnings per common share:(1)(2)(3)
Basic ................................. 0.93 0.75 1.85 1.52 1.09
Diluted ............................... 0.92 0.74 1.82 1.51 1.08
Cash dividends per common share ......... 0.52 0.52 0.52 0.48 0.48
STATISTICAL SUMMARY
Average common shares outstanding:
Basic ................................. 6,095 6,108 6,458 6,775 6,959
Diluted ............................... 6,159 6,174 6,562 6,850 7,035
Book value per common share ............. 14.15 14.10 13.81 12.50 11.49
Total assets ............................ 118,750 110,294 114,876 112,684 104,673
Property, plant and equipment, net ...... 20,558 24,554 26,837 25,912 23,096
Capital expenditures .................... 1,100 2,817 6,718 8,398 2,392
Working capital ......................... 62,228 55,402 52,016 50,210 50,549
Long-term debt .......................... 0 0 0 0 0
Shareholders' equity .................... 87,717 85,062 85,196 81,166 78,080
SELECTED RATIOS
Net income as percent of sales .......... 2.0% 1.6% 4.0% 3.8% 3.1%
Current ratio ........................... 3.3 to 1 3.6 to 1 3.0 to 1 2.8 to 1 3.1 to 1
Return on ending common equity .......... 6.5% 5.4% 14.0% 12.7% 9.7%
Return on beginning common equity ....... 6.7% 5.4% 14.7% 13.2% 10.1%
Average number of employees ............. 2,260 2,410 2,570 2,400 2,330
(1) For the fiscal year ended June 30, 2002, net income and per share amounts
were reduced by $1,290,000 or $0.21 per share related to restructuring
costs.
(2) For the fiscal year ended June 30, 2000, net income and per share amounts
reflect a gain on the sale of land of approximately $790,000 or $0.12 per
share and a non-taxable gain from life insurance proceeds of approximately
$405,000 or $0.06 per share.
(3) For the fiscal year ended June 30, 1998, net income and per share amounts
reflect a non-taxable gain from life insurance proceeds of approximately
$720,000 or $0.10 per share.
6 | FLEXSTEEL
CONSOLIDATED BALANCE SHEETS
JUNE 30,
----------------------------
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 5,375,683 $ 10,048,562
Investments ..................................................................... 15,876,088 2,536,469
Trade receivables - less allowance for doubtful accounts:
2002, $2,540,000; 2001, $1,950,000 ............................................ 31,361,285 28,363,058
Inventories ..................................................................... 30,322,288 31,379,836
Deferred income taxes ........................................................... 4,500,000 2,700,000
Other ........................................................................... 1,316,136 1,546,710
------------ ------------
Total current assets ............................................................... 88,751,480 76,574,635
PROPERTY, PLANT AND EQUIPMENT, net ................................................. 20,558,338 24,553,962
DEFERRED INCOME TAXES .............................................................. 700,000 300,000
OTHER ASSETS ....................................................................... 8,739,940 8,865,872
------------ ------------
TOTAL ........................................................................... $118,749,758 $110,294,469
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ........................................................... $ 4,876,260 $ 5,277,607
Accrued liabilities:
Payroll and related items ....................................................... 5,454,501 3,819,384
Insurance ....................................................................... 7,066,148 7,968,876
Restructuring ................................................................... 1,700,609
Other ........................................................................... 6,775,889 3,132,192
Industrial revenue bonds payable ................................................... 650,000 975,000
------------ ------------
Total current liabilities .......................................................... 26,523,407 21,173,059
DEFERRED COMPENSATION .............................................................. 4,509,782 4,059,186
------------ ------------
Total liabilities .................................................................. 31,033,189 25,232,245
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 14)
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 2002, 6,198,551 shares; 2001, 6,034,210 shares ................... 6,198,551 6,034,210
Additional paid-in capital ......................................................... 492,223
Retained earnings .................................................................. 80,756,107 78,272,996
Accumulated other comprehensive income ............................................. 269,688 755,018
------------ ------------
Total shareholders' equity ......................................................... 87,716,569 85,062,224
------------ ------------
TOTAL ........................................................................... $118,749,758 $110,294,469
============ ============
See accompanying Notes to Consolidated Financial Statements.
FLEXSTEEL | 7
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
2002 2001 2000
------------- ------------- -------------
NET SALES ......................................... $ 279,671,402 $ 284,772,510 $ 300,065,940
COST OF GOODS SOLD ................................ (218,150,740) (224,352,469) (235,824,182)
------------- ------------- -------------
GROSS MARGIN ...................................... 61,520,662 60,420,041 64,241,758
SELLING, GENERAL AND ADMINISTRATIVE ............... (53,251,978) (53,954,454) (47,812,467)
GAIN ON SALE OF LAND .............................. 1,249,806
------------- ------------- -------------
OPERATING INCOME .................................. 8,268,684 6,465,587 17,679,097
------------- ------------- -------------
OTHER:
Interest and other income ...................... 1,052,158 1,062,629 1,439,293
Interest expense ............................... (161,298) (254,211) (460,796)
------------- ------------- -------------
Total ............................................. 890,860 808,418 978,497
------------- ------------- -------------
INCOME BEFORE INCOME TAXES ........................ 9,159,544 7,274,005 18,657,594
PROVISION FOR INCOME TAXES ........................ (3,500,000) (2,680,000) (6,730,000)
------------- ------------- -------------
NET INCOME ........................................ $ 5,659,544 $ 4,594,005 $ 11,927,594
============= ============= =============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC .......................................... 6,095,184 6,107,785 6,457,960
============= ============= =============
DILUTED ........................................ 6,158,522 6,174,320 6,561,968
============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC .......................................... $ 0.93 $ 0.75 $ 1.85
============= ============= =============
DILUTED ........................................ $ 0.92 $ 0.74 $ 1.82
============= ============= =============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
2002 2001 2000
------------- ------------- -------------
NET INCOME ........................................ $ 5,659,544 $ 4,594,005 $ 11,927,594
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Unrealized gains (losses) on securities
arising during period ........................ (766,947) (21,374) (389,788)
Reclassification adjustment for losses
included in net income ....................... 8,687 18,961 74,138
------------- ------------- -------------
Other comprehensive income (loss), before tax ..... (758,260) (2,413) (315,650)
------------- ------------- -------------
INCOME TAX BENEFIT (EXPENSE):
Income tax benefit related to securities losses
arising during period ....................... 275,800 7,866 143,986
Income tax expense related to securities
reclassification adjustment ................. (2,870) (6,978) (27,431)
------------- ------------- -------------
Income tax expense (benefit) related to other
comprehensive income ........................ 272,930 888 116,555
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX ...................................... (485,330) (1,525) (199,095)
------------- ------------- -------------
COMPREHENSIVE INCOME .............................. $ 5,174,214 $ 4,592,480 11,728,499
============= ============= =============
See accompanying Notes to Consolidated Financial Statements.
8 | FLEXSTEEL
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL ACCUMULATED OTHER
---------------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES PAR VALUE CAPITAL EARNINGS INCOME TOTAL
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 ........ 6,491,840 $ 6,491,840 $ 73,718,238 $ 955,638 $ 81,165,716
Purchase of common stock ...... (385,445) (385,445) $ (651,621) (4,055,342) (5,092,408)
Issuance of common stock ...... 64,394 64,394 651,621 716,015
Investment valuation adjustment (199,095) (199,095)
Cash dividends ................ (3,322,054) (3,322,054)
Net income .................... 11,927,594 11,927,594
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 ........ 6,170,789 6,170,789 78,268,436 756,543 85,195,768
Purchase of common stock ...... (200,038) (200,038) (678,171) (1,418,202) (2,296,411)
Issuance of common stock ...... 63,459 63,459 678,171 741,630
Investment valuation adjustment (1,525) (1,525)
Cash dividends ................ (3,171,243) (3,171,243)
Net income .................... 4,594,005 4,594,005
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2001 ........ 6,034,210 6,034,210 78,272,996 755,018 85,062,224
Issuance of common stock ...... 164,341 164,341 492,223 656,564
Investment valuation adjustment (485,330) (485,330)
Cash dividends ................ (3,176,433) (3,176,433)
Net income .................... 5,659,544 5,659,544
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 2002 ........ 6,198,551 $ 6,198,551 $ 492,223 $ 80,756,107 $ 269,688 $ 87,716,569
============ ============ ============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
FLEXSTEEL | 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------
2002 2001 2000
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income ............................................ $ 5,659,544 $ 4,594,005 $ 11,927,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 4,976,637 5,726,298 5,492,556
(Gain) loss on disposition of capital assets ....... (44,459) (35,542) (1,278,671)
Changes in operating assets and liabilities:
Trade receivables .................................. (3,469,976) 5,637,605 (830,818)
Inventories ........................................ 421,484 1,805,222 (2,952,849)
Other current assets ............................... 230,574 (1,003,000) (82,305)
Other assets ....................................... (393,788) (362,326) 630,602
Accounts payable - trade ........................... (401,347) (1,643,926) (155,196)
Accrued liabilities ................................ 6,860,759 (2,106,659) (1,488,716)
Deferred compensation .............................. 450,596 287,034 711,482
Deferred income taxes .............................. (2,200,000) 200,000 500,000
------------ ------------ ------------
Net cash provided by operating activities ............. 12,090,024 13,098,711 12,473,679
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of investments ........................... (19,880,090) (2,014,525) (1,635,138)
Proceeds from sales of investments ................. 6,275,994 4,425,506 4,843,652
Payments received from customers on notes receivable 965,851 211,974 50,000
Loans to customers on notes receivable ............. (1,325,000) (2,875,000)
Proceeds from sale of capital assets ............... 179,219 178,997 1,579,166
Capital expenditures ............................... (1,099,914) (2,817,180) (6,718,094)
------------ ------------ ------------
Net cash used in investing activities ................. (13,558,940) (1,340,228) (4,755,414)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayment of borrowings ............................ (325,000) (325,000) (325,000)
Dividends paid ..................................... (3,155,096) (3,190,069) (3,306,838)
Proceeds from issuance of common stock ............. 276,133 100,704 120,799
Repurchase of common stock ......................... (2,296,411) (5,092,409)
------------ ------------ ------------
Net cash used in financing activities .............. (3,203,963) (5,710,776) (8,603,448)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ... (4,672,879) 6,047,707 (885,183)
Cash and cash equivalents at beginning of year ..... 10,048,562 4,000,855 4,886,038
------------ ------------ ------------
Cash and cash equivalents at end of year .............. $ 5,375,683 $ 10,048,562 $ 4,000,855
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ........................................... $ 24,000 $ 61,000 $ 64,000
Income taxes ....................................... $ 2,990,000 $ 4,442,000 $ 7,050,000
See accompanying Notes to Consolidated Financial Statements.
10 | FLEXSTEEL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Flexsteel Industries, Inc. (the Company)
manufactures a broad line of upholstered furniture for residential,
recreational vehicle and commercial seating use. Products include sofas,
love seats, chairs, reclining and rocker-reclining chairs, swivel rockers,
sofa beds, and convertible bedding units. The Company has two wholly owned
subsidiaries: (1) Desert Dreams, Inc. owns and leases a commercial building
to an unrelated entity, and (2) Four Seasons, Inc. operates three retail
furniture stores. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES - the preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that
affect the amounts reported in the consolidated 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.
Notes receivable and the industrial revenue bonds payable are carried at
amounts, which reasonably approximate their fair value due to their variable
interest rates. Fair values of investments in debt and equity securities are
disclosed in Note 2.
CASH EQUIVALENTS - the Company considers highly liquid investments with
original maturities of three months or less 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 over the estimated useful lives of the assets. For
internal use software, the Company's policy is to capitalize external direct
costs of materials and services, directly-related internal payroll and
payroll-related costs, and interest costs.
REVENUE RECOGNITION - is upon delivery of product. Net sales consist of
product sales and related delivery charge revenue, net of adjustments for
returns and allowances.
RESEARCH AND DEVELOPMENT COSTS - are charged to expense in the periods
incurred. Expenditures for research and development costs were approximately
$1,970,000, $2,090,000 and $2,170,000 in fiscal 2002, 2001 and 2000,
respectively.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - the Company has no
free-standing or embedded derivatives. All contracts that contain provisions
meeting the definition of a derivative also meet the requirements of, and
have been designated as, normal purchases or sales. The Company's policy is
to not use free-standing derivatives and to not enter into contracts with
terms that cannot be designated as normal purchases or sales.
INSURANCE - the Company is self-insured for health care and most workers'
compensation up to predetermined amounts above which third party insurance
applies. The Company is contingently liable to insurance carriers under its
comprehensive general, product, and vehicle liability policies, as well as
some workers' compensation, and has provided letters of credit in the amount
of $2,507,000. Losses are accrued based upon the Company's estimates of the
aggregate liability for claims incurred using certain actuarial assumptions
followed in the insurance industry and based on Company experience.
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 - 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 includes 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
63,338 shares, 66,535 shares and 104,008 shares in fiscal 2002, 2001 and
2000, respectively. The Company calculates the dilutive effect of
outstanding options using the treasury stock method.
ACCOUNTING DEVELOPMENTS - In June 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, BUSINESS COMBINATIONS, and SFAS No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 eliminated the
pooling-of-interests method of accounting for business combinations after
June 30, 2001. SFAS No. 142 established new standards for accounting for
goodwill and intangible assets and was adopted by the Company on July 1,
2001. Because the Company has no goodwill or other intangible assets, there
was no impact to the Company's financial position or results of operations
due to the adoption of SFAS No. 142.
In June 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. SFAS No. 143 applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/ or the normal operation
of a long-lived asset, except for certain obligations of lessees. The
Company adopted SFAS No. 143 on July 1, 2001. The adoption of SFAS No. 143
did not have any impact on the Company's financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT
OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and supersedes SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, along with certain other
reporting standards. SFAS No. 144 was effective for the Company on July 1,
2002. The adoption of SFAS No. 144 did not have a material impact on the
Company's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS
NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL
CORRECTIONS. SFAS No. 145 was effective for the Company on July 1, 2002. The
adoption of the technical corrections contained in SFAS No. 145 did not have
a material impact on the Company's financial position or results of
operations.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL ACTIVITIES. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER
COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A
RESTRUCTURING). SFAS No. 146 requires that a liability for
FLEXSTEEL | 11
a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF 94-3, a liability for an exit cost was
recognized at the date of an entity's commitment to an exit plan. SFAS No.
146 will be effective for exit or disposal activities that are initiated by
the Company after December 31, 2002.
RECLASSIFICATIONS - certain prior years' amounts have been reclassified to
conform to the fiscal 2002 presentation. These reclassifications had no
impact on net income or shareholders' equity as previously reported.
2. INVESTMENTS
Debt and equity securities are included in Investments and in Other Assets
(designated for deferred compensation plans), at fair value based on quoted
market prices, and are classified as available for sale. A summary of the
carrying values and fair values of the Company's investments is as follows:
JUNE 30, 2002
---------------------------------------------------------
GROSS UNREALIZED
COST --------------------------- RECORDED
BASIS GAINS LOSSES BASIS
------------ ------------ ------------ ------------
Debt securities $ 16,349,332 $ 79,349 $ (38,021) $ 16,390,660
Equity securities 3,119,345 451,569 (56,507) 3,514,407
------------ ------------ ------------ ------------
$ 19,468,677 $ 530,918 $ (94,528) $ 19,905,067
============ ============ ============ ============
JUNE 30, 2001
---------------------------------------------------------
GROSS UNREALIZED
COST --------------------------- RECORDED
BASIS GAINS LOSSES BASIS
------------ ------------ ------------ ------------
Debt securities $ 3,076,663 $ 29,523 $ (3,776) $ 3,102,410
Equity securities 2,781,872 1,184,382 (15,468) 3,950,786
------------ ------------ ------------ ------------
$ 5,858,535 $ 1,213,905 $ (19,244) $ 7,053,196
============ ============ ============ ============
JUNE 30, 2002 JUNE 30, 2001
--------------------------- ---------------------------
INVESTMENTS OTHER ASSETS INVESTMENTS OTHER ASSETS
------------ ------------ ------------ ------------
Debt securities $ 14,634,657 $ 1,756,003 $ 1,275,810 $ 1,826,600
Equity securities 1,241,431 2,272,976 1,260,659 2,690,127
------------ ------------ ------------ ------------
$ 15,876,088 $ 4,028,979 $ 2,536,469 $ 4,516,727
============ ============ ============ ============
As of June 30, 2002, the maturities of debt securities are $8,388,345 within
one year, $7,586,519 in one to five years and $415,796 over five years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately
$1,452,000 and $1,963,000 higher at June 30, 2002 and 2001, respectively, if
they had been valued on the FIFO method. A comparison of inventories is as
follows:
JUNE 30,
-----------------------------
2002 2001
------------ ------------
Raw materials........................ $ 15,623,962 $ 16,343,218
Work in process and finished parts... 8,092,398 8,651,210
Finished goods....................... 6,605,928 6,385,408
------------ ------------
Total............................. $ 30,322,288 $ 31,379,836
============ ============
4. PROPERTY, PLANT AND EQUIPMENT
JUNE 30,
ESTIMATED -----------------------------
LIFE (YEARS) 2002 2001
----------- ------------ ------------
Land......................... $ 2,212,790 $ 2,212,790
Buildings and improvements... 3-39 30,037,022 30,007,095
Machinery and equipment...... 3-10 31,399,729 31,320,833
Delivery equipment........... 3-7 15,150,048 15,930,432
Furniture and fixtures....... 3-5 5,433,082 5,687,361
------------ ------------
Total................ 84,232,671 85,158,511
Less accumulated depreciation (63,674,333) (60,604,549)
------------ ------------
Net.......................... $ 20,558,338 $ 24,553,962
============ ============
5. OTHER ASSETS
JUNE 30,
-----------------------------
2002 2001
------------ ------------
Cash value of life insurance........ $ 4,321,137 $ 3,933,383
Investments designated for deferred
compensation plans................ 4,028,979 4,516,727
Notes receivable.................... 389,824 415,762
------------ ------------
Total............................ $ 8,739,940 $ 8,865,872
============ ============
6. OTHER ACCRUED LIABILITIES
JUNE 30,
-----------------------------
2002 2001
------------ ------------
Dividends................................. $ 805,785 $ 784,447
Income taxes.............................. 1,956,149 (707,554)
Advertising............................... 1,968,149 1,789,785
Warranty.................................. 500,000 500,000
Other .................................. 1,545,806 765,514
------------ ------------
Total............................. $ 6,775,889 $ 3,132,192
============ ============
7. BORROWINGS
The Company is obligated for $650,000 of Industrial Revenue Bonds at June
30, 2002, which were issued for the financing of property, plant and
equipment. The obligations are variable rate demand bonds with a weighted
average rate for the years ended June 30, 2002, 2001 and 2000 of 2.1%, 4.5%
and 4.1% respectively, and are due in annual installments of $325,000
through fiscal 2004, if not paid earlier upon demand of the holder. The
Company has issued a letter of credit to guarantee the payment of these
bonds in the event of the default. No amounts were outstanding on this
letter at June 30, 2002 or 2001.
8. INCOME TAXES
The total income tax provision for the years ended June 30, 2002, 2001 and
2000 was 38.2%, 36.8% and 36.1%, respectively, of income before income
taxes. In fiscal 2000, the effective rate was reduced by 0.7% for nontaxable
life insurance proceeds of $405,000.
The provision for income taxes is as follows:
2002 2001 2000
----------- ----------- -----------
Federal - current.............. $ 5,180,000 $ 2,550,000 $ 5,520,000
State - current................ 520,000 330,000 710,000
Deferred....................... (2,200,000) (200,000) 500,000
----------- ----------- -----------
Total.................. $ 3,500,000 $ 2,680,000 $ 6,730,000
=========== =========== ===========
The primary components of deferred tax assets and (liabilities) are as
follows:
JUNE 30, 2002 JUNE 30, 2001
------------------------- -------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
----------- ----------- ----------- -----------
Asset allowances $ 940,000 $ 720,000
Other accruals 3,560,000 1,980,000
and allowances
Deferred compensation $ 1,800,000 $ 1,500,000
Property, plant (1,100,000) (1,200,000)
and equipment
----------- ----------- ----------- -----------
Total $ 4,500,000 $ 700,000 $ 2,700,000 $ 300,000
=========== =========== =========== ===========
9. CREDIT ARRANGEMENTS
The Company has lines of credit of $3,000,000 with banks, which renew
annually in October and December, for short-term borrowings at the prime
rate in effect at the date of the loan. On $1,000,000 of such lines 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 outstanding as of June 30, 2002 or 2001.
12 | FLEXSTEEL
STOCK OPTIONS
The Company has stock option plans for key employees and directors that provide
for the granting of incentive and nonqualified stock options. Under the plans,
options are granted at an exercise price equal to the fair market value of the
underlying common stock at the date of grant, and may be exercisable for up to
10 years. All options are exercisable when granted. At June 30, 2002, 249,450
shares were available for future grants. The Company applies Accounting
Principles Board (APB) Opinion No. 25 and related interpretations in accounting
for its stock option plans, as permitted under FASB Statement No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). Accordingly, no
compensation cost has been recognized for its stock option plans. Had the
compensation cost for the Company's incentive stock option plans been determined
based on the fair value at the grant dates for awards under those plans
consistent with the fair-value methodology of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
2002 2001 2000
------------ ------------ ------------
Net income: As reported.... $ 5,659,544 $ 4,594,005 $ 11,927,594
Pro forma...... 5,497,544 4,431,005 11,736,594
Earnings per share:
Basic As reported.... $ 0.93 $ 0.75 $ 1.85
Pro forma...... 0.90 0.73 1.82
Diluted As reported.... 0.92 0.74 1.82
Pro forma...... 0.89 0.72 1.79
The fair value of each option grant is estimated on the date of grant using the
Black-Sholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 2002, 2001 and 2000 respectively: dividend
yield of 5.0%, 4.8% and 3.9%; expected volatility of 24.8%, 24.6% and 26.3%;
risk-free interest rates of 6.5%, 6.5% and 7.1%; and an expected life of 10
years on all options.
A summary of the status of the Company's stock option plans as of June 30, 2002,
2001 and 2000 and the changes during the years then ended is presented below:
SHARES PRICE RANGE
--------- --------------
Outstanding at June 30, 1999...... 559,267 $10.25 - 15.75
Granted......................... 112,000 13.25 - 13.59
Exercised....................... (42,872) 10.25 - 11.44
Canceled........................ (2,650) 10.25 - 11.44
---------
Outstanding at June 30, 2000...... 625,745 10.25 - 15.75
Granted......................... 135,150 10.56 - 10.75
Exercised (8,000) 10.25 - 10.50
---------
Outstanding at June 30, 2001...... 752,895 10.25 - 15.75
Granted......................... 145,950 10.30 - 10.75
Exercised....................... (333,370) 10.25 - 13.25
Canceled........................ (75,110) 10.75 - 14.88
---------
Outstanding at June 30, 2002...... 490,365 10.25 - 15.75
=========
Significant option groups outstanding at June 30, 2002 and related
weighted-average exercise price and remaining life information follows:
WEIGHTED - AVERAGE
----------------------
OPTIONS EXERCISE REMAINING
GRANT DATE OUTSTANDING PRICE LIFE (YEARS)
- ------------------------------- ----------- -------- -----------
July 28, 1994.................. 9,800 $ 10.50 2.1
August 16, 1995................ 34,400 11.25 3.1
July 30, 1996.................. 14,050 10.25 4.1
November 7, 1997............... 51,325 11.44 5.3
November 2, 1998............... 44,100 10.50 6.3
November 2, 1999............... 93,000 13.25 7.3
November 14, 2000.............. 101,950 10.75 8.3
November 2, 2001............... 96,240 10.30 9.3
All other...................... 45,500 12.59 5.3
-------
Total.................. 490,365 11.37 7.0
=======
11. PENSION AND RETIREMENT PLANS
The Company sponsors various defined contribution pension and retirement plans
which cover substantially all employees, other than employees covered by
multi-employer 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 $1,691,000 in fiscal 2002, $1,683,000 in fiscal 2001 and
$1,572,000 in fiscal 2000 including $367,000 in fiscal 2002, $380,000 in fiscal
2001 and $363,000 in fiscal 2000 for the Company's matching contribution to
retirement savings plans. The Company's cost for pension plans is determined as
2% - 6% 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 multi-employer defined benefit pension plans
administered by others under collective bargaining agreements were $1,252,000 in
fiscal 2002, $1,355,000 in fiscal 2001 and $1,449,000 in fiscal 2000.
The Company has unfunded post-retirement benefit and deferred compensation plans
with certain officers. During the year ended June 30, 2000, the Company recorded
a one-time cost adjustment of $474,161 due to a change from a fixed benefit
obligation to a defined contribution obligation. The plans require various
annual contributions for the participants based upon compensation levels and
age. All participants are fully vested. For the years ended 2002, 2001 and 2000,
excluding the aforementioned one time cost, the benefit obligation was increased
by interest expense of $139,399, $228,084 and $343,536, service costs of
$582,197, $362,950 and $256,785, and decreased by payments of $271,000, $304,000
and $363,000, respectively. At June 30, 2002 the benefit obligation was
$4,509,782.
12. MANAGEMENT INCENTIVE PLAN
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 37,641, 34,397 and 53,427 shares were awarded,
and the amounts charged to income were $500,000, $380,000 and $646,000 in fiscal
2002, 2001 and 2000, respectively. At June 30, 2002, 142,640 shares were
available for future grants. Under the Company's Voluntary Deferred Compensation
plan, certain employees may defer the common stock awards until retirement. At
June 30, 2002, 17,684 shares with an award value of $195,585 have been deferred.
13. RESTRUCTURING
During the quarter ended December 31, 2001, the Company recorded a $890,000
charge to cost of goods sold for estimated facility closing costs related to the
Elkhart, Indiana manufacturing facility. The charge principally represents
employee separation costs and facility closing costs with no future benefit to
the Company. The decision to close the facility was driven by the weakening
demand for vehicle seating products especially for van conversions, which was
the primary product of the Elkhart plant. A total of 84 employees representing
all of Elkhart's employees were affected by the closure, including 32 employees
who had been laid off previously. At June 30, 2002, the remaining accrued costs
relate primarily to employee separation costs that are expected to be paid
within the next fiscal year.
During the quarter ended June 30, 2002, the Company recorded a total charge of
$1,200,000 for estimated retail store closing costs. Of the total charge,
$300,000 was recorded as cost of goods sold and $900,000 was charged to selling,
general and administrative expenses. The decision to close the retail store was
driven by the continued struggling operations of the store. There are expected
to be a minimal number of employees
FLEXSTEEL | 13
affected and insignificant amounts of employee separation costs associated
with this retail store closing. The charge principally represents store
closing costs with no future benefit to the Company. The retail
restructuring is expected to be completed within the next fiscal year.
The following table summarizes the activity related to the restructuring
charges during the year ended June 30, 2002:
EMPLOYEE FACILITY
SEPARATION CLOSING
COSTS COSTS TOTAL
----------- ----------- -----------
Restructuring charge for the year
ended June 30, 2002........... $ 750,000 $ 1,340,000 $ 2,090,000
Utilization for the year
ended June 30, 2002........... (318,207) (71,184) (389,391)
----------- ----------- -----------
Accrued restructuring costs
at June 30, 2002.............. $ 431,793 $ 1,268,816 $ 1,700,609
=========== =========== ===========
14. COMMITMENTS AND CONTINGENCIES
Facility Leases - The Company leases certain facilities under various
operating leases. These leases require the Company to pay operating costs,
including property taxes, insurance, and maintenance. Total lease expense
related to the various operating leases was approximately $1,560,000,
$1,410,000 and $730,000 in fiscal 2002, 2001 and 2000, respectively.
Expected future minimum commitments under operating leases and lease
guarantees as of June 30, 2002, were as follows:
YEAR ENDED JUNE 30,
2003 $ 1,168,000
2004 1,184,000
2005 623,000
2006 459,000
2007 473,000
Thereafter 1,222,000
-----------
$ 5,129,000
===========
Guarantee - the Company has guaranteed the future lease payments of a third
party for a six-year period ending August 2008. The annual minimum lease
payments are approximately $220,000, and the remaining minimum payments are
approximately $1,370,000 at June 30, 2002. The Company has not been required
to make any payments under the guarantee.
15. SEGMENTS
The Company operates in two reportable operating segments: (1) Seating
Products and (2) Retail Stores. The Seating Products segment involves the
manufacturing of a broad line of upholstered furniture for residential,
recreational vehicle, and commercial seating markets. The Company's products
are sold primarily throughout the United States by the Company's internal
sales force and various independent representatives. The Retail Stores
segment involves the operation of three retail furniture stores that offer
the Company's residential seating products for sale directly to consumers.
No single customer accounted for more than 10% of sales in either of the
Company's two segments.
The accounting policies of the operating segments are the same as those
described in Note 1. Segment operating income is based on profit or loss
from operations before interest income and expense, other income and income
taxes.
Segment information for the year ended June 30, 2002 is as follows:
SEATING RETAIL
PRODUCTS STORES TOTAL
------------- ------------- -------------
Net sales................ $ 272,497,903 $ 7,173,499 $ 279,671,402
Operating income (loss).. 11,323,944 (3,055,260) 8,268,684
Depreciation............. 4,800,651 175,986 4,976,637
Capital expenditures..... 1,001,654 98,260 1,099,914
Assets .................. 116,950,411 1,799,347 118,749,758
Segment information for the year ended June 30, 2001 is as follows:
SEATING RETAIL
PRODUCTS STORES TOTAL
------------- ------------- -------------
Net sales................ $ 280,337,237 $ 4,435,273 $ 284,772,510
Operating income (loss).. 8,821,939 (2,356,352) 6,465,587
Depreciation............. 5,620,332 105,966 5,726,298
Capital expenditures..... 2,185,736 631,444 2,817,180
Assets .................. 107,927,164 2,367,305 110,294,469
The fiscal 2000 amounts for the Retail Stores segment were not significant.
16. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION
(UNAUDITED - in thousands of dollars, except per share amounts)
QUARTERS
--------------------------------------------
FISCAL 2002 1ST 2ND 3RD 4TH
-------- -------- -------- --------
Net sales ............. $ 63,208 $ 65,826 $ 73,742 $ 76,895
Gross margin........... 12,760 13,227 16,530 19,004
Net income............. 197 711 2,015 2,737
Earnings per share:
Basic............ 0.03 0.12 0.33 0.44
Diluted.......... 0.03 0.12 0.33 0.44
Dividends per share.... 0.13 0.13 0.13 0.13
* Market price:
High............. 12.45 11.84 15.00 17.84
Low.............. 10.69 9.25 11.38 14.00
QUARTERS
--------------------------------------------
FISCAL 2001 1ST 2ND 3RD 4TH
-------- -------- -------- --------
Net sales.............. $ 70,033 $ 73,917 $ 71,973 $ 68,850
Gross margin........... 14,513 16,475 14,645 14,787
Net income............. 1,882 1,723 814 175
Earnings per share:
Basic............ 0.30 0.28 0.13 0.03
Diluted.......... 0.30 0.28 0.13 0.03
Dividends per share.... 0.13 0.13 0.13 0.13
* Market price:
High............. 13.00 12.31 13.13 12.18
Low.............. 12.00 10.50 10.75 10.50
* Reflects the market price as quoted by the National Association of
Securities Dealers, Inc.
14 | FLEXSTEEL
REPORTS OF AUDITORS' AND MANAGEMENT
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF FLEXSTEEL INDUSTRIES, INC.:
We have audited the accompanying consolidated balance sheets of Flexsteel
Industries, Inc. (the Company) as of June 30, 2002 and 2001, and the related
consolidated statements of income, comprehensive income, changes in share-
holders' equity and cash flows for each of the three years in the period ended
June 30, 2002. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of June 30, 2002 and 2001, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 2002 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
MINNEAPOLIS, MINNESOTA
AUGUST 9, 2002
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 consolidated financial statements covered
by the report of Deloitte & Touche LLP, our independent auditors. The statements
were prepared in conformity with accounting principles generally accepted in the
United States of America and include amounts based on estimates and judgments of
management.
The Company maintains a system of internal 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 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 that are engaged to audit the consolidated
financial statements of the Company and to express an opinion thereon. 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
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.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the Company's consolidated financial statements
and results of operations are based on consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States. Preparation of these consolidated financial statements requires
the use of estimates and judgments that affect the reported results. Actual
results may differ from these estimates under different assumptions or
conditions.
USE OF ESTIMATES - the Company uses estimates based on the best information
available in recording transactions and balances resulting from business
operations. Estimates are used for such items as collectability of trade
accounts receivable, inventory valuation, depreciable lives, self-insurance
programs, warranties and income taxes.
ALLOWANCE FOR DOUBTFUL ACCOUNTS - the Company establishes an allowance for
doubtful accounts through review of open accounts, and historical collection and
allowances amounts. The allowance for doubtful accounts is intended to reduce
trade accounts receivable to the amount that reasonably approximates their fair
value due to their short-term nature. The amount ultimately realized from trade
accounts receivable may differ from the amount estimated in the financial
statements based on collection experience and actual returns and allowances.
INVENTORIES - the Company values inventory 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.
Changes in the market conditions could require a write down of inventory.
SELF-INSURANCE PROGRAMS - the Company is self-insured for health care and most
workers' compensation up to predetermined amounts above which third party
insurance applies. The Company is contingently liable to insurance carriers
under its comprehensive general, product, and vehicle liability policies, as
well as some workers' compensation. Losses are accrued based upon the Company's
estimates of the aggregate liability of claims incurred using certain actuarial
assumptions followed in the insurance industry and based on Company experience.
The actual claims experience could differ from the estimates made by the
Company.
WARRANTY EXPENSE - the Company estimates the amount of warranty claims on sold
product that may be incurred based on current and historical data. The actual
warranty expense could differ from the estimates made by the Company based on
product performance.
REVENUE RECOGNITION - is upon delivery of product. Net sales consist of product
sales and related delivery charge revenue, net of adjustments for returns and
allowances. The actual amounts for returns and allowances could differ from the
estimated amounts.
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 years ended June 30, 2002,
2001 and 2000. Amounts presented are percentages of the Company's net sales.
FLEXSTEEL | 15
FOR THE YEARS ENDED JUNE 30,
-----------------------------
2002 2001 2000
----- ----- -----
Net sales ......................... 100.0% 100.0% 100.0%
Cost of goods sold ................ (78.0) (78.8) (78.6)
----- ----- -----
Gross margin ...................... 22.0 21.2 21.4
Selling, general and administrative (19.0) (18.9) (15.9)
Gain on sale of land .............. -- -- 0.4
----- ----- -----
Operating income .................. 3.0 2.3 5.9
Other income, net ................. 0.3 0.3 0.3
----- ----- -----
Income before income taxes ........ 3.3 2.6 6.2
Provision for income taxes ........ (1.3) (1.0) (2.2)
----- ----- -----
Net income ........................ 2.0% 1.6% 4.0%
===== ===== =====
FISCAL 2002 COMPARED TO FISCAL 2001
Net sales for fiscal 2002 decreased by $5.1 million or 1.8% compared to fiscal
2001. Residential seating sales volume decreased $6.6 million or 3.3%. Vehicle
seating sales increased $1.5 million or 2.2%. Commercial seating sales volume
remained approximately the same as the prior year.
During the quarter ended December 31, 2001, the Company recorded a charge to
cost of goods sold of $0.9 million for estimated facility closing costs. During
the quarter ended June 30, 2002, the Company recorded a charge of $1.2 million
for retail operation closing costs. Of the total of $1.2 million charge, $0.3
million was recorded as cost of goods sold and $0.9 million was charged to
selling, general and administrative expenses. As of June 30, 2002, the Company
has paid $0.4 million of the restructuring costs.
Gross margin increased $1.1 million to $61.5 million, or 22.0% of net sales, in
fiscal 2002, from $60.4 million, or 21.2% in fiscal 2001. The increase in gross
margin was due to changes in product mix, improved utilization of production
capacity and lower depreciation expense offset by increased health insurance and
facility closing costs.
Selling, general and administrative expenses as a percentage of sales were 19.0%
and 18.9% for fiscal 2002 and 2001, respectively. Selling, general and
administrative expenses in the current year include lower bad debts expense
partially offset by the aforementioned facility closing costs.
Net other income was $0.9 million and $0.8 million in fiscal 2002 and 2001,
respectively. The increase in net other income was primarily due to lower
interest expense.
The effective tax rate in fiscal 2002 was 38.2% compared to
36.8% in fiscal 2001. The higher effective income tax rate in fiscal 2002 is
attributable to increased state income taxes.
The above factors resulted in fiscal 2002 net income of $5.7 million, or $0.92
per diluted share, compared to $4.6 million, or $0.74 per diluted share, in
fiscal 2001, a net increase of $1.1 million or $0.18 per diluted share.
FISCAL 2001 COMPARED TO FISCAL 2000
Net sales for fiscal 2001 decreased by $15.3 million or 5.1% compared to fiscal
2000. Residential seating sales volume increased $14.8 million or 8.0%. Vehicle
seating sales decreased $28.1 million or 29.7%. Commercial seating sales volume
decreased $2.0 million or 9.8%.
Gross margin decreased $3.8 million to $60.4 million, or 21.2% of sales, in
fiscal 2001, from $64.2 million, or 21.4% in fiscal 2000. Gross margin decreased
due to the decrease in net sales and changes in product mix.
Selling, general and administrative expenses as a percentage of sales were 18.9%
and 15.9% for fiscal 2001 and 2000, respectively. The amount of selling, general
and administrative costs increased due to higher bad debts, advertising, and
health insurance, and costs associated with the beginning of retail operations.
During the second quarter of fiscal 2000, the Company sold land adjacent to its
Lancaster, Pennsylvania, production facility at a gain of approximately $1.2
million.
Net other income was $0.8 million in fiscal 2001 and $1.0 million in fiscal
2000. During the second quarter of 2000, the Company realized a non-taxable gain
on the proceeds of life insurance of $0.4 million.
The effective tax rate in fiscal 2001 was 36.8% compared to 36.1% in fiscal
2000. The lower effective income tax rate in fiscal 2000 is attributable to the
non-taxable gain on the proceeds of life insurance.
The above factors resulted in fiscal 2001 net income of $4.6 million, or $0.74
per diluted share, compared to $11.9 million, or $1.82 per diluted share, in
fiscal 2000, a net decrease of $7.3 million or $1.08 per diluted share.
Excluding the fiscal 2000 gain on the sale of land of $0.8 million and life
insurance proceeds of $0.4 million, net income for fiscal 2001 declined $0.90
per diluted share or $6.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 2002, is $62.2 million, which includes cash, cash
equivalents and investments of $21.3 million. Working capital increased by $6.8
million from June 30, 2001.
Net cash provided by operating activities was $12.1 million, $13.1 million and
$12.5 million in fiscal 2002, 2001 and 2000, respectively. Fluctuations in net
cash provided by operating activities are primarily the result of changes in net
income and changes in trade receivables, inventories and accrued liabilities.
Capital expenditures were $1.1 million, $2.8 million and $6.7 million in fiscal
2002, 2001 and 2000, respectively. The current year expenditures were incurred
primarily for manufacturing equipment. Projected capital spending for fiscal
2003 is $5.0 million and will be for manufacturing and delivery equipment. The
funds for projected capital expenditures are expected to be provided from cash
generated from operations and available cash.
Financing activities utilized net cash of $3.2 million, $5.7 million and $8.6
million in fiscal 2002, 2001 and 2000, respectively. Under then existing Board
authority, the Company repurchased 200,038 and 385,445 shares of its outstanding
common stock during fiscal 2001 and 2000, respectively. No shares were
repurchased during fiscal 2002.
FINANCING ARRANGEMENTS
The Company has lines of credit of $3.0 million with banks, which renew annually
in October and December, for short-term borrowings at the prime rate in effect
at the date of the loan. On $1,000,000 of such lines 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 outstanding as of
June 30, 2002 or 2001. The Company has outstanding borrowings of $650,000 in the
form of variable rate demand industrial development revenue bonds. During fiscal
2002, the weighted-average interest rate on the industrial development revenue
bonds was 2.1%.
FORWARD-LOOKING STATEMENTS
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 long-term goals 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 here-in. Investors are
cautioned that all forward-looking statements involve risk and uncertainty. Some
of the factors that could affect results are the cyclical nature of the
furniture industry, 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, competition, both foreign and domestic, credit
exposure to our customers, 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.
16 | FLEXSTEEL
PLANT LOCATIONS
* Flexsteel Industries, Inc.
Dubuque, Iowa 52001
(563) 556-7730
P.M. Crahan, General Manager
Flexsteel Industries, Inc.
Dublin, Georgia 31040
(478) 272-6911
M.C. Dixon, 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
(574) 831-4050
J.E. Gilbertson, General Manager
Flexsteel Industries, Inc.
Harrison, Arkansas 72601
(870) 743-1101
M.J. Feldman, General Manager
Metal Division
Dubuque, Iowa 52001
(563) 556-7730
J.E. Gilbertson, General Manager
Commercial Seating Division
Starkville, Mississippi 39760
(662) 323-5481
S.P. Salmon, General Manager
Vancouver Distribution Center
Vancouver, Washington 98668
(206) 696-9955
T.D. Burkart, General Manager
DIRECTORS & OFFICERS
L. BRUCE BOYLEN
Chairman of the Board of Directors
Retired Vice President
Fleetwood Enterprises, Inc.
K. BRUCE LAURITSEN
President
Chief Executive Officer
Director
JEFFREY T. BERTSCH
Vice President
Director
PATRICK M. CRAHAN
Vice President
Director
LYNN J. DAVIS
Director
Retired President
ADC Telecommunications, Inc.
ROBERT E. DEIGNAN
Director
Attorney at Law
Baker & McKenzie
THOMAS E. HOLLORAN
Director
Professor Emeritus,
Graduate School of Business,
University of St. Thomas
St. Paul, Minnesota
EDWARD J. MONAGHAN
Executive Vice President
Chief Operating Officer
Director
ERIC S. RANGEN
Director
Vice President
Chief Financial Officer
Alliant Techsystems, Inc.
JAMES R. RICHARDSON
Senior Vice President, Marketing
Director
MARVIN M. STERN
Director
Retired Vice President
Sears, Roebuck & Company
CAROLYN T. B. BLEILE
Vice President
THOMAS D. BURKART
Senior Vice President, Vehicle Seating
KEVIN F. CRAHAN
Vice President
KEITH R. FEUERHAKEN
Vice President
JAMES E. GILBERTSON
Vice President
TIMOTHY E. HALL
Treasurer - Assistant Secretary
JAMES M. HIGGINS
Vice President, Commercial Seating
RONALD J. KLOSTERMAN
Vice President, Finance
Chief Financial Officer
Secretary
MICHAEL A. SANTILLO
Vice President
AUDIT COMMITTEE
Thomas E. Holloran, Chairman
Lynn J. Davis
Robert E. Deignan
COMPENSATION & NOMINATING
COMMITTEE
L. Bruce Boylen, Chairman
Thomas E. Holloran
Marvin M. Stern
MARKETING & PLANNING COMMITTEE
Marvin M. Stern, Chairman
Jeffrey T. Bertsch
Patrick M. Crahan
Lynn J. Davis
Edward J. Monaghan
James R. Richardson
TRANSFER AGENT & REGISTRAR
Wells Fargo Shareowner Services
P.O. Box 64854
South St. Paul,
Minnesota 55164-0854
GENERAL COUNSEL
Irving C. MacDonald
Minneapolis, Minnesota
O'Connor and Thomas, P.C.
Dubuque, Iowa
NATIONAL OVER-THE-COUNTER
NASDAQ SYMBOL
FLXS
ANNUAL MEETING
December 9, 2002, 2:00 p.m.
Hilton Minneapolis
1001 Marquette Avenue
Minneapolis, Minnesota 55403
PERMANENT SHOWROOMS
Dubuque, Iowa
High Point, North Carolina
San Francisco, California
INTERNET
http://flexsteel.com
* Executive Offices
(C) 2002 FLEXSTEEL INDUSTRIES, INC.
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 disability 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
YOU CAN TAKE ALL THE COMFORTS OF HOME, INCLUDING FLEXSTEEL, WITH YOU IN THIS
FLEETWOOD 2003 PACE ARROW MOTOR HOME. IN PLANNING THESE LUXURIOUS TRAVELING
HOMES, MANUFACTURERS TURN TO FLEXSTEEL DESIGNERS AND ENGINEERS FOR SUPERIOR
SEATING AND SLEEPING. THE STYLISH CORNER CHAISE LOUNGE AND THE RECLINER ARE
COORDINATED WITH THE HANDSOME FLEETWOOD INTERIOR. BOTH ARE BY FLEXSTEEL,
UPHOLSTERED IN FINE TOP-GRAIN LEATHER.
THERE'S A REGULAR BED INSIDE THIS STRIKING CHAISE/SOFA. FLEXSTEEL'S OWN
MECHANISM MAKES IT EASY TO OPEN FOR A TRULY RESTFUL NIGHT'S SLEEP. LINENS CAN BE
STORED IN THE OPTIONAL STORAGE DRAWER BELOW THE BED.
[PHOTO]
BULK RATE
[LOGO] FLEXSTEEL(R) U.S. Postage
AMERICA'S SEATING SPECIALIST PAID
- ---------------------------------------- Permit # 10
P.O. Box 877 o Dubuque IA 52004-0877 Dubuque, IA
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT
Flexsteel Industries, Inc.:
We have audited the consolidated financial statements of Flexsteel
Industries, Inc. (the Company) as of June 30, 2002 and 2001 and for each of the
three years in the period ended June 30, 2002, and have issued our report
thereon dated August 9, 2002; such financial statements and report are included
in the Company's Annual Report for the Fiscal Year Ended June 30, 2002 and are
incorporated herein by reference. Our audits also included the financial
statement schedule of Flexsteel Industries, Inc., listed in Item 14. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 9, 2002
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Flexsteel Industries, Inc.:
We consent to the incorporation by reference in Registration Statement No.
33-1836 on Form S-8 as amended by Post-Effective Amendment No. 1 for the
Flexsteel Salaried Employees' Savings Plan 401(k) and in Registration Statement
No. 2-86782 on Form S-8 as amended by Post-Effective Amendment No. 3 for the
Flexsteel 1983 Stock Option Plan and in Registration Statement No. 33-26267 on
Form S-8 for the Flexsteel 1989 Stock Option Plan and in Registration Statement
No. 333-1413 on Form S-8 for the Flexsteel 1995 Stock Option Plan and in
Registration Statement No. 333-45768 on Form S-8 for the Flexsteel 1999 Stock
Option Plan of our report dated August 9, 2002 appearing in and incorporated by
reference in the Annual Report on Form 10-K of Flexsteel Industries, Inc. for
the year ended June 30, 2002.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 24, 2002
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission file number 0-5151
A) Full title of the plan:
SALARIED EMPLOYEES' SAVINGS PLAN 401(k)
B) Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
FLEXSTEEL INDUSTRIES, INC., P.O. BOX 877, DUBUQUE, IA 52004-0877
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
Salaried Employees' Savings Plan 401(k)
----------------------------------------------
(Name of Plan)
Date: September 25, 2002 /s/ R. J. KLOSTERMAN
----------------------------------------------
R.J. Klosterman
VICE PRESIDENT OF FINANCE AND
PRINCIPAL FINANCIAL OFFICER
INDEPENDENT AUDITORS' REPORT
Flexsteel Industries, Inc.
Salaried Employees' Savings Plan 401(k)
Dubuque, Iowa
We have audited the accompanying statements of net assets available for benefits
of the Flexsteel Industries, Inc. Salaried Employees' Savings Plan 401(k) (the
Plan) as of June 30, 2002 and 2001 and the related statements of changes in net
assets available for benefits for each of the three years in the period ended
June 30, 2002. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of June 30, 2002
and 2001 and the changes in net assets available for benefits for each of the
three years in the period ended June 30, 2002 in conformity with accounting
principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes as of June 30, 2002 is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. Such supplemental schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects when considered in relation
to the basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 13, 2002
2
Flexsteel Industries, Inc.
Salaried Employees' Savings Plan 401(k)
Statements of Net Assets Available for Benefits
June 30, 2002 and 2001
2002 2001
------------ ------------
Assets
Cash $ 18,876 $ 26,565
Investments:
Flexsteel Industries, Inc. common stock 2,173,520 1,630,885
Other investments 17,703,716 17,549,504
------------ ------------
19,877,236 19,180,389
Employer contributions receivable 16,090 14,276
Employee contributions receivable 109,301 100,872
------------ ------------
Net assets available for benefits $ 20,021,503 $ 19,322,102
============ ============
See Notes to Financial Statements.
Flexsteel Industries, Inc.
Salaried Employees' Savings Plan 401(k)
Statements of Changes in Net Assets Available For Benefits
Years Ended June 30, 2002, 2001, and 2000
2002 2001 2000
------------ ------------ ------------
Additions:
Employee contributions $ 1,438,730 $ 1,501,871 $ 1,344,575
Employer contributions 218,546 223,361 207,693
Receipt from demutualization (Note 5) 709,100
Investment income 334,701 331,962 299,006
Net depreciation in fair value of assets (1,419,645) (2,065,535) (314,823)
------------ ------------ ------------
Total net additions 1,281,432 (8,341) 1,536,451
Distributions (582,031) (464,911) (491,160)
------------ ------------ ------------
Net increase (decrease) 699,401 (473,252) 1,045,291
Net assets available for benefits
at beginning of year 19,322,102 19,795,354 18,750,063
------------ ------------ ------------
Net assets available for benefits
at end of year $ 20,021,503 $ 19,322,102 $ 19,795,354
============ ============ ============
See Notes to Financial Statements.
3
FLEXSTEEL INDUSTRIES, INC.
SALARIED EMPLOYEES' SAVINGS PLAN 401(k)
NOTES TO FINANCIAL STATEMENTS
1) PLAN DESCRIPTION
The Flexsteel Industries, Inc. Salaried Employees' Savings Plan 401(k) (the
"Plan") was established in 1985 by Flexsteel Industries, Inc. (the "Company").
The Plan is available to certain salaried, sales and office employees that have
one year of eligible service and have reached the age of twenty-one.
Participation is voluntary.
The Plan allows eligible employees to elect to have from 1% to 14% (sales
personnel are subject to a 4% maximum) of their basic pre-tax pay contributed to
the Plan. Employee contributions are subject to a maximum of $11,000 in calendar
year 2002 by law. The Company contributes an amount equal to 25% of the first 4%
of pay the employee contributes. Participant and Company basic contributions are
100% vested. The Company, at its option, may also contribute additional amounts
to be allocated amongst all participants based on the participants' pay; such
additional discretionary contributions vest over 7 years (20% after 3 years, 40%
after 4 years, 60% after 5 years, 80% after 6 years, and 100% after 7 years).
Plan participants direct their contributions to any of the twelve
investment accounts available:
1) FLEXSTEEL INDUSTRIES, INC. COMMON STOCK, which consists of the
Company's common stock.
2) GUARANTEED INTEREST ACCOUNT, which is an insurance company
account that provides a guaranteed interest rate for a five-year
period.
3) MONEY MARKET ACCOUNT, which is an insurance company account
primarily invested in commercial paper with maturities of one
year or less.
4) PRIVATE MARKET BOND AND MORTGAGE ACCOUNT, which is an insurance
company account that provides for competitive yield debt
securities.
5) BOND EMPHASIS BALANCED ACCOUNT, which invests primarily in other
separate accounts made up of stocks, bonds, convertibles, and
cash. It usually maintains at least 50% of assets in fixed-income
securities.
6) LARGE CAP STOCK INDEX FUND, which is a pooled investment account
invested in the common stock of those firms included in the
Standard & Poor's 500 Stock Index.
7) LARGE COMPANY GROWTH ACCOUNT, which primarily invests in larger
companies that management believes have an above-average
potential for growth of capital, earnings and dividends.
8) LARGE COMPANY BLEND ACCOUNT, which consists of common stock and
other equity securities, and also may include short-term money
market instruments, cash or cash equivalents.
9) MID CAP STOCK INDEX FUND, which is a pooled investment account
invested in the common stock of those firms included in the
Standard & Poor's 400 Mid Cap Stock Index.
10) SMALL COMPANY BLEND STOCK FUND, which invests in stocks of
smaller seasoned companies.
11) SMALL COMPANY GROWTH STOCK FUND, which invests in stocks of
smaller developing companies.
12) INTERNATIONAL STOCK ACCOUNT, which invests in stocks of companies
in Western Europe and Asia.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit, and overall market volatility. Due to the level of risk
associated with certain investment securities, it is reasonably possible that
changes in the value of investment securities could occur and such changes could
materially affect the value of investments.
Assets of the Plan are held by a "Custodian," the Principal Life Insurance
Company, except for the Flexsteel Industries, Inc. Common Stock Fund that is
held by the American Trust & Savings Bank of Dubuque, Iowa (the "Trustee"). The
Plan is administered by a committee appointed by the Board of Directors of the
Company. All administrative expenses are paid by the Company. Distributions are
paid upon retirement, termination of employment, death, disability, or in
hardship cases. Non-vested contributions are used to reduce Company
discretionary contributions upon termination of employment. There were no
discretionary contributions in fiscal 2002, 2001 or 2000. At June 30, 2002 and
2001, there were no non-vested contributions. Upon termination of the Plan,
participant accounts become fully vested and non-forfeitable.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2) SIGNIFICANT ACCOUNTING POLICIES
The Plan uses the accrual basis of accounting. Investments in common stock
are recorded at market value based on market quotations. Other investments are
stated at market value as determined by the Trustee and Custodian based on the
market value of the funds and the participation in each fund. The cost of
investments sold is determined by the average cost method.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Certain reclassifications have been made to the fiscal 2001 and 2000
financial statements to conform to the fiscal 2002 presentation. Such
reclassifications had no effect on the net assets available for benefits at June
30, 2001 and 2000.
3) INCOME TAXES
The Plan has received a determination from the Internal Revenue Service
that the Plan is exempt from Federal income taxes. Participants are not taxed
currently on their contributions or on Company contributions to the Plan.
Distributions to participants generally are subject to Federal and State income
tax at the time of distribution; certain distributions may receive more
favorable tax treatment.
4) INVESTMENTS
Investments that represent 5% or more of the Plan's net assets were as
follows:
June 30, 2002 June 30, 2001
------------- -------------
Flexsteel Industries, Inc. common stock
(144,998 and 136,134 shares, respectively) $ 2,173,520 $ 1,630,885
Guaranteed Interest Account 4,773,514 4,324,412
Private Market Bond and Mortgage Account 1,886,284 1,384,135
Large Cap Stock Index Fund 1,508,459 1,742,834
Large Company Blend Account 3,841,326 4,612,396
Small Company Blend Stock Fund 1,823,904 1,491,528
International Stock Account 1,097,168 1,074,698
The net appreciation (depreciation) in the fair value of investments was as
follows for the years ended June 30:
2002 2001 2000
----------- ----------- -----------
Flexsteel Industries, Inc. common stock $ 559,971 $ (31,754) $ (145,845)
Other investments (1,979,616) (2,033,781) (168,978)
----------- ----------- -----------
$(1,419,645) $(2,065,535) $ (314,823)
=========== =========== ===========
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5) DEMUTUALIZATION
Principal Life Insurance Company, the Plan's Custodian, elected to
demutualize and become a public company. As a result, the Plan received cash in
the amount of $709,100 in December 2001. The cash received was allocated to each
participant account based on their respective balance and their investment
fund(s) election.
SUPPLEMENTAL SCHEDULE
FLEXSTEEL INDUSTRIES, INC. SALARIED EMPLOYEES' SAVINGS PLAN 401(k)
SCHEDULE H, PART IV, LINE 4I - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
JUNE 30, 2002
Current
Value
-------------
Flexsteel Industries, Inc. common stock (1) $ 2,173,520
Principal Life Insurance Company (2):
Guaranteed Interest Account 4,773,514
Pooled Separate Accounts:
Money Market Account 717,077
Private Market Bond and Mortgage Account 1,886,284
Bond Emphasis Balanced Account 230,845
Large Cap Stock Index Fund 1,508,459
Large Company Growth Account 678,201
Large Company Blend Account 3,841,326
Mid Cap Stock Index Fund 677,896
Small Company Blend Stock Fund 1,823,904
Small Company Growth Stock Fund 469,042
International Stock Account 1,097,168
-------------
$ 19,877,236
=============
(1) Flexsteel Industries, Inc., the Plan Sponsor, is known to be a
party-in-interest.
(2) Principal Life Insurance Company, the Plan Custodian, is known to be a
party-in-interest.
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INDEPENDENT AUDITORS' CONSENT
Flexsteel Industries, Inc.
We consent to the incorporation by reference in Registration Statement No.
33-1836 on Form S-8 as amended by Post-Effective Amendment No. 1 for the
Flexsteel Salaried Employees' Savings Plan 401(k) of our report dated September
13, 2002 appearing in this Annual Report on Form 11-K for the year ended June
30, 2002.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 24, 2002
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