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, 2003
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
-----------------------------------------------
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
-----------------------------------------------
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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
YES [X] No [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of August 4, 2003, which is within 60 days
prior to the date of filing:
Common Stock, Par Value $1.00 Per Share: $55,400,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 4, 2003:
CLASS SHARES OUTSTANDING
------------------------------ ------------------
Common Stock, $ 1.00 Par Value 6,296,081 Shares
DOCUMENTS INCORPORATED BY REFERENCE
IN PART III, PORTIONS OF THE REGISTRANT'S 2003 PROXY STATEMENT TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS OF THE
REGISTRANT'S FISCAL YEAR END.
PART I
ITEM 1. BUSINESS
The registrant was incorporated in 1929 and has been in the furniture
seating business ever since. 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, convertible bedding units and occasional
tables, some of which are for home, office, motor home, travel trailer, yacht,
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 2,800 furniture dealers (including two Company owned
stores), department stores, recreational vehicle manufacturers, 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. The registrant's
business is not considered seasonal. The registrant has no foreign operations
and makes minimal export sales. Financial information about operations is
included herein.
The registrant's significant operating segment is the manufacture of
upholstered seating. The second segment is the operation of two retail furniture
stores.
The registrant's upholstered seating business has three primary areas
of application -- residential seating, recreational vehicle seating and
commercial seating. Set forth below is information for the past three fiscal
years showing the registrant's net sales attributable to each of the areas of
application described above:
FOR THE YEARS ENDED JUNE 30,
------------------------------------------
2003 2002 2001
------------ ------------ ------------
Residential Seating ........ $194,000,000 $193,200,000 $199,900,000
Recreational Vehicle Seating 75,600,000 67,900,000 66,400,000
Commercial Seating ......... 22,400,000 18,600,000 18,500,000
------------ ------------ ------------
$292,000,000 $279,700,000 $284,800,000
============ ============ ============
The approximate backlog of customer orders believed to be firm as of
the end of the current fiscal year and the prior two fiscal years were as
follows:
JUNE 30, 2003 JUNE 30, 2002 JUNE 30, 2001
------------------- ------------------- -------------------
$29,100,000 * $30,000,000 $25,700,000
* All of this amount is expected to be filled in the fiscal year ending
June 30, 2004.
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.
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.
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 2% 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.
1
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 is redesigned in whole or in
part each year. In the last three fiscal years, these redesign activities
involved the following expenditures:
FISCAL YEAR ENDED EXPENDITURES
----------------------- ------------------
June 30, 2003 $2,660,000
June 30, 2002 $1,970,000
June 30, 2001 $2,090,000
The registrant had approximately 2,300, 2,300, and 2,400 employees as
of June 30, 2003, 2002, and 2001, respectively, including approximately 900
employees that are covered by collective bargaining agreements. Management
believes it has good relations with employees.
ITEM 2. PROPERTIES
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
Dublin, Georgia 243,600 Upholstered Furniture
Harrison, Arkansas 123,000 Woodworking Plant
Starkville, Mississippi 349,000 Upholstered Furniture - Woodworking Plant
New Paris, Indiana 168,000 Recreational Vehicle - Metal Working
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. The Dublin, Georgia facility is currently being expanded by
approximately 56,200 square feet and the addition will be completed in the fall
of 2003. There is adequate production capacity at the remaining locations to
meet present market demands.
The registrant leases one production facility in Harrison, Arkansas of
approximately 93,000 square feet for manufacturing 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 square feet for storing its products prior to distribution.
The registrant owns and leases two commercial buildings in Elkhart,
Indiana to unrelated entities.
The registrant's wholly-owned subsidiary, Desert Dreams, Inc., owns and
leases a commercial building in Phoenix, Arizona to an unrelated entity.
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.
2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 2003 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, 2003), 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 (60) President / Chief Executive Officer (November 1979)
E. J. Monaghan (64) Executive Vice President / Chief Operating Officer (November 1979)
R. J. Klosterman (55) Vice President Finance / Chief Financial Officer & Secretary (June 1989)
J. R. Richardson (59) Senior Vice President of Marketing (November 1979)
T. D. Burkart (60) Senior Vice President of Vehicle Seating (February 1984)
P. M. Crahan (55) Vice President (June 1989)
J. T. Bertsch (48) 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The NASDAQ National Market System is the principal market on which the
registrant's Common Stock is traded.
Sale Price of Common Stock * Cash Dividends
------------------------------------ Per Share
Fiscal 2003 Fiscal 2002 ---------------
---------------- ---------------- Fiscal Fiscal
High Low High Low 2003 2002
------ ------- ------ ------- ------ ------
First Quarter $15.48 $12.87 $12.45 $10.69 $0.13 $0.13
Second Quarter 16.78 13.12 11.84 9.25 0.13 0.13
Third Quarter 17.08 12.00 15.00 11.38 0.13 0.13
Fourth Quarter 16.98 12.80 17.84 14.00 0.13 0.13
* Reflects the market price as quoted by the National Association
of Securities Dealers, Inc.
The Company estimates there were approximately 2,100, 1,800, and 1,800
holders of Common Stock of the registrant as of June 30, 2003, 2002, and 2001,
respectively.
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (SEC), and other SEC filings are available on
the Company's web site at www.flexsteel.com without charge. Copies of SEC
filings, and the Guidelines for Business Conduct, can also be obtained, without
charge, by writing to Office of the Secretary, Flexsteel Industries, Inc., P. O.
Box 877, Dubuque, IA 52004-0877.
3
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR REVIEW
(Amounts in thousands, except per share data)
FOR THE YEARS ENDED JUNE 30,
----------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
SUMMARY OF OPERATIONS
Net sales ................................. $291,977 $279,671 $284,773 $300,066 $272,130
Cost of goods sold ........................ 226,438 218,151 224,352 235,824 212,576
Operating income .......................... 13,284 8,129 6,238 17,336 15,151
Interest and other income ................. 1,084 1,052 1,063 1,439 1,134
Interest expense .......................... 127 22 26 117 68
Income before income taxes ................ 14,241 9,160 7,274 18,658 16,217
Provision for income taxes ................ 5,950 3,500 2,680 6,730 5,900
Net income (1) (2) (3) .................... 8,291 5,660 4,594 11,928 10,317
Earnings per common share: (1) (2) (3)
Basic .................................. 1.33 0.93 0.75 1.85 1.52
Diluted ................................ 1.30 0.92 0.74 1.82 1.51
Cash dividends per common share ........... $ 0.52 $ 0.52 $ 0.52 $ 0.52 $ 0.48
STATISTICAL SUMMARY
Average common shares outstanding:
Basic .................................. 6,255 6,095 6,108 6,458 6,775
Diluted ................................ 6,367 6,159 6,174 6,562 6,850
Book value per common share ............... $ 14.89 $ 14.15 $ 14.10 $ 13.81 $ 12.50
Total assets .............................. 120,700 119,159 110,294 114,876 112,684
Property, plant and equipment, net ........ 20,378 20,558 24,554 26,837 25,912
Capital expenditures ...................... 5,100 1,100 2,817 6,718 8,398
Working capital ........................... 67,666 62,228 55,402 52,016 50,210
Shareholders' equity ...................... $ 93,753 $ 87,717 $ 85,062 $ 85,196 $ 81,166
SELECTED RATIOS
Net income as percent of sales ............ 2.8% 2.0% 1.6% 4.0% 3.8%
Current ratio ............................. 4.0.to.1 3.3 to 1 3.6 to 1 3.0 to 1 2.8 to 1
Return on ending shareholders' equity ..... 8.8% 6.5% 5.4% 14.0% 12.7%
Return on beginning shareholders' equity .. 9.5% 6.7% 5.4% 14.7% 13.2%
Average number of employees ............... 2,320 2,260 2,410 2,570 2,400
(1) For the fiscal year ended June 30, 2003, net income and per share
amounts reflect a net gain (after tax) on the sale of land of
approximately $200,000 or $0.04 per share.
(2) 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.
(3) 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.
4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 of America. 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, restructuring costs, 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.
Restructuring - the Company established an accrual for restructuring liabilities
in fiscal 2002 for estimated employee separation costs and facility closing
costs related to the closure of (1) the Elkhart, Indiana manufacturing facility
and (2) a retail store. The accrual includes estimated employee severance,
inventory write-offs, and lease commitments with no future benefit to the
Company. Utilization of the accrual may differ from the initial restructuring
charge as amounts are paid and become known to the Company.
Warranty - 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.
ACCOUNTING DEVELOPMENTS
In November 2002, the FASB issued FASB Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS (FIN 45). FIN 45 clarifies the requirements
for a guarantor's accounting for and disclosure of certain guarantees issued and
outstanding. The initial recognition and initial measurement provisions of FIN
45 are applicable to guarantees issued or modified after December 31, 2002. The
Company adopted the provisions of FIN 45 in fiscal 2003.
5
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, 2003, 2002 and 2001. Amounts presented are percentages of the Company's net
sales.
FOR THE YEARS ENDED JUNE 30,
------------------------------
2003 2002 2001
------ ------ ------
Net sales ......................... 100.0% 100.0% 100.0%
Cost of goods sold ................ (77.6) (78.0) (78.8)
----- ----- -----
Gross margin ...................... 22.4 22.0 21.2
Selling, general and administrative (18.0) (19.1) (18.9)
Gain on sale of land .............. 0.1
----- ----- -----
Operating income .................. 4.5 2.9 2.3
Other income, net ................. 0.3 0.4 0.3
----- ----- -----
Income before income taxes ........ 4.8 3.3 2.6
Provision for income taxes ........ (2.0) (1.3) (1.0)
----- ----- -----
Net income ........................ 2.8% 2.0% 1.6%
===== ===== =====
FISCAL 2003 COMPARED TO FISCAL 2002
Net sales for fiscal 2003 increased by $12.3 million or 4.4% compared to fiscal
2002. Residential seating sales volume increased $0.8 million or 0.4%. Vehicle
seating sales increased $7.7 million or 11.3%. Commercial seating sales volume
increased $3.8 million or 20.4%.
Gross margin increased $4.0 million to $65.5 million, or 22.4% of net sales, in
fiscal 2003, from $61.5 million, or 22.0% of net sales in fiscal 2002. The
fiscal 2002 gross margin was reduced by a charge of $1.2 million for estimated
facility closing costs.
Selling, general and administrative expenses as a percentage of sales were 18.0%
and 19.1% for fiscal 2003 and 2002, respectively. The lower percentage in fiscal
2003 primarily represents reductions in provision for doubtful accounts and
estimated retail facility closing costs.
During fiscal 2003, the Company sold land adjacent to the Lancaster,
Pennsylvania factory at a net gain (after tax) of $0.2 million or $0.04 per
share.
The effective tax rate in fiscal 2003 was 41.8% compared to 38.2% in fiscal
2002. The higher effective income tax rate in fiscal 2003 is attributable to the
Company's settlement of federal income tax audits for its latest three fiscal
years and amended state income tax returns.
The above factors resulted in fiscal 2003 net income of $8.3 million, or $1.30
per diluted share, compared to $5.7 million, or $0.92 per diluted share, in
fiscal 2002, a net increase of $2.6 million or $0.38 per diluted share.
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 estimated 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.
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 fiscal 2002 include lower bad debts expense partially
offset by the aforementioned facility closing costs.
6
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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 2003, was $67.7 million, which includes cash, cash
equivalents and investments of $22.3 million. Working capital increased by $5.4
million from June 30, 2002.
Net cash provided by operating activities was $9.2 million, $12.1 million and
$13.1 million in fiscal 2003, 2002, and 2001, respectively. Fluctuations in net
cash provided by operating activities were primarily the result of changes in
net income, trade receivables, inventories and accounts payable.
Capital expenditures were $5.1 million, $1.1 million and $2.8 million in fiscal
2003, 2002, and 2001, respectively. Fiscal 2003 expenditures were incurred
primarily for delivery and manufacturing equipment. Projected capital spending
for fiscal 2004 is $5.5 million and will be used for the expansion of the
Dublin, Georgia facility, manufacturing and delivery equipment. The funds for
projected capital expenditures are expected to be provided from cash generated
from operations and available cash, cash equivalents, and investments.
Financing activities utilized net cash of $4.3 million, $3.2 million, and $5.7
million in fiscal 2003, 2002, and 2001, respectively. The payment of dividends
was the primary financing activity utilizing cash. Under then existing Board of
Directors authority, the Company repurchased 200,038 shares of its outstanding
common stock during fiscal 2001. No shares were repurchased during fiscal 2003
and 2002.
The Company's contractual obligations as of June 30, 2003 are as follows:
FOR THE YEARS ENDING JUNE 30,
--------------------------------------------------------------
2004 2005 2006 2007 2008 THEREAFTER TOTAL
---------- -------- -------- -------- -------- ---------- ----------
Operating leases and
lease guarantees...... $1,151,000 $455,000 $325,000 $332,000 $339,000 $500,000 $3,102,000
Management of the Company believes that a combination of cash expected to be
generated from operations and borrowing capacity available under its lines of
credit will be adequate to meet the anticipated liquidity and capital resource
requirements of its business through at least June 30, 2004.
On August 13, 2003, the Company announced that it had signed a definitive
purchase agreement to acquire DMI Furniture, Inc. (NASDAQ Small Cap: DMIF) at a
price of $3.30 per share, payable in cash. The total value of the transaction is
approximately $44 million, including the assumption of the outstanding debt of
DMI Furniture, Inc., which is approximately $27 million. The transaction is
expected to be completed in September 2003.
DMI Furniture, Inc. is a Louisville, Kentucky-based vertically integrated
manufacturer, importer, and marketer of residential and commercial office
furniture with four manufacturing plants and warehouses in Indiana and
manufacturing sources in Asia and South America. DMI Furniture Inc.'s divisions
are WYNWOOD, Homestyles and DMI Commercial Office Furniture.
FINANCING ARRANGEMENTS
During fiscal 2003, the Company repaid $650,000 of Industrial Revenue Bonds that
were issued for the financing of property, plant and equipment. 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 $1.0 million 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 bank borrowings outstanding as of June 30, 2003
or 2002.
In connection with the definitive purchase agreement for the acquisition of DMI
Furniture, Inc. described above, the Company has obtained a $35 million
commitment for a line of credit from a bank. The commitment expires March 31,
2004.
7
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GENERAL - Market risk represents the risk of changes in value of a
financial instrument, derivative or non-derivative, caused by fluctuations in
interest rates, foreign exchange rates and equity prices. As discussed below,
management of the Company does not believe that changes in these factors could
cause material fluctuations in the Company's results of operations or cash
flows.
FOREIGN CURRENCY RISK - During fiscal 2003, 2002 and 2001 the Company
did not have sales denominated in foreign currencies nor did it have any
subsidiaries located in foreign countries. As such, the Company is not exposed
to market risk associated with currency exchange rates and prices.
INTEREST RATE RISK - As of June 30, 2003, the Company had no
outstanding long-term debt. Accordingly, changes in interest rates do not
significantly affect the Company's cash flows or the fair value of any of its
financial instruments.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
"SAFE HARBOR" PROVISIONS AND PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The registrant and its representatives may from time to time make
written or oral forward-looking statements with respect to long-term goals or
anticipated results of the registrant, including statements contained in the
registrant'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
sales, the cost of raw materials, the amount of sales generated and the profit
margins thereon, competition, both foreign and domestic, credit exposure with
customers, and general economic conditions.
The registrant 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.
8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE(S)
-------
Independent Auditors' Report............................................. 10
Report of Management..................................................... 10
Consolidated Balance Sheets at June 30, 2003 and 2002.................... 11
Consolidated Statements of Income for the Years Ended
June 30, 2003, 2002, and 2001......................................... 12
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended June 30, 2003, 2002, and 2001..................... 13
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2003, 2002, and 2001......................................... 14
Notes to Consolidated Financial Statements............................... 15-22
9
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Flexsteel Industries, Inc.
Dubuque, Iowa
We have audited the accompanying consolidated balance sheets of
Flexsteel Industries, Inc. (the Company) as of June 30, 2003 and 2002, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended June 30, 2003. 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, 2003 and 2002, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 2003 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 13, 2003
REPORT OF MANAGEMENT
To the Shareholders of Flexsteel Industries, Inc.
Dubuque, Iowa
Management is responsible for the integrity and objectivity of the
financial and operating information contained in this Annual Report, including
the consolidated financial statements covered by the report of 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 accounting systems and related internal controls
to provide reasonable assurance that assets are safeguarded and transactions are
properly recorded. Our code of conduct states that our affairs are to be
conducted under the highest ethical standards.
The independent auditors provide an independent review of the financial
statements and the fairness of the information presented therein. The Audit and
Ethics Committee of the Board of Directors, composed solely of outside
directors, meets regularly with us and our independent auditors to review audit
activities, internal controls, and other accounting, reporting, and financial
matters. The independent auditors have unrestricted access to the Audit and
Ethics Committee.
K. BRUCE LAURITSEN RONALD J. KLOSTERMAN
PRESIDENT VICE PRESIDENT, FINANCE
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
SECRETARY
10
FLEXSTEEL INDUSTRIES, INC.
- --------------------------
CONSOLIDATED BALANCE SHEETS
JUNE 30,
-----------------------------
ASSETS 2003 2002
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 12,811,385 $ 5,375,683
Investments ................................................................ 9,531,913 15,876,088
Trade receivables - less allowance for doubtful
accounts: 2003, $2,110,000; 2002, $2,540,000 ............................. 29,612,278 31,361,285
Inventories ................................................................ 32,473,287 30,322,288
Deferred income taxes ...................................................... 4,070,000 4,500,000
Other ...................................................................... 1,323,426 1,725,654
------------ ------------
Total current assets ......................................................... 89,822,289 89,160,998
PROPERTY, PLANT AND EQUIPMENT, net ........................................... 20,377,797 20,558,338
DEFERRED INCOME TAXES ........................................................ 1,560,000 700,000
OTHER ASSETS ................................................................. 8,940,196 8,739,940
------------ ------------
TOTAL ........................................................... $120,700,282 $119,159,276
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ................................................... $ 2,747,226 $ 4,593,196
Accrued liabilities:
Payroll and related items ................................................ 7,565,256 6,480,072
Insurance ................................................................ 6,373,626 6,766,421
Restructuring ............................................................ 710,784 1,700,609
Other .................................................................... 4,759,838 6,742,627
Industrial revenue bonds payable ........................................... 650,000
------------ ------------
Total current liabilities .................................................... 22,156,730 26,932,925
DEFERRED COMPENSATION ........................................................ 4,790,225 4,509,782
------------ ------------
Total liabilities ..................................................... 26,946,955 31,442,707
------------ ------------
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 2003, 6,294,639 shares; 2002, 6,198,551 shares .............. 6,294,639 6,198,551
Additional paid-in capital ................................................. 1,353,639 492,223
Retained earnings .......................................................... 85,787,823 80,756,107
Accumulated other comprehensive income ..................................... 317,226 269,688
------------ ------------
Total shareholders' equity ........................................... 93,753,327 87,716,569
------------ ------------
TOTAL ........................................................... $120,700,282 $119,159,276
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
11
FLEXSTEEL INDUSTRIES, INC.
- --------------------------
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------
2003 2002 2001
------------- ------------- -------------
NET SALES .................................. $ 291,977,165 $ 279,671,402 $ 284,772,510
COST OF GOODS SOLD ......................... (226,437,717) (218,150,740) (224,352,469)
------------- ------------- -------------
GROSS MARGIN ............................... 65,539,448 61,520,662 60,420,041
SELLING, GENERAL AND ADMINISTRATIVE ........ (52,658,237) (53,391,377) (54,182,538)
GAIN ON SALE OF LAND ....................... 403,065
------------- ------------- -------------
OPERATING INCOME ........................... 13,284,276 8,129,285 6,237,503
------------- ------------- -------------
OTHER:
Interest and other income ................ 1,083,854 1,052,158 1,062,629
Interest expense ......................... (126,853) (21,899) (26,127)
------------- ------------- -------------
Total ........................... 957,001 1,030,259 1,036,502
------------- ------------- -------------
INCOME BEFORE INCOME TAXES ................. 14,241,277 9,159,544 7,274,005
PROVISION FOR INCOME TAXES ................. (5,950,000) (3,500,000) (2,680,000)
------------- ------------- -------------
NET INCOME ................................. $ 8,291,277 $ 5,659,544 $ 4,594,005
============= ============= =============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC ................................. 6,255,113 6,095,184 6,107,785
============= ============= =============
DILUTED ............................... 6,367,241 6,158,522 6,174,320
============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC ................................. $ 1.33 $ 0.93 $ 0.75
============= ============= =============
DILUTED ............................... $ 1.30 $ 0.92 $ 0.74
============= ============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12
FLEXSTEEL INDUSTRIES, INC.
- --------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated |
Common Stock Additional Other |
------------------------ Paid-In Retained Comprehensive | Comprehensive
Shares Par Value Capital Earnings Income Total | Income
--------- ----------- ----------- ----------- ------------- ------------ | -------------
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, net of tax... (1,525) (1,525) | $ (1,525)
Cash dividends............... (3,171,243) (3,171,243) |
Net income................... 4,594,005 4,594,005 | 4,594,005
| -----------
Comprehensive income......... | $ 4,592,480
--------- ----------- ----------- ----------- --------- ------------ | ===========
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, net of tax..... (485,330) (485,330) | $ (485,330)
Cash dividends............... (3,176,433) (3,176,433) |
Net income................... 5,659,544 5,659,544 | 5,659,544
| -----------
Comprehensive income......... | $ 5,174,214
--------- ----------- ----------- ----------- --------- ------------ | ===========
Balance at June 30, 2002....... 6,198,551 6,198,551 492,223 80,756,107 269,688 87,716,569 |
Issuance of common stock..... 96,088 96,088 861,416 957,504 |
Investment valuation |
adjustment, net of tax.... 47,538 47,538 | $ 47,538
Cash dividends............... (3,259,561) (3,259,561) |
Net income................... 8,291,277 8,291,277 | 8,291,277
| -----------
Comprehensive income......... | $ 8,338,815
--------- ----------- ----------- ----------- --------- ------------ | ===========
Balance at June 30, 2003....... 6,294,639 $ 6,294,639 $ 1,353,639 $85,787,823 $ 317,226 $ 93,753,327 |
========= =========== =========== =========== ========= ============ |
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
13
FLEXSTEEL INDUSTRIES, INC.
- --------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
------------------------------------------------
2003 2002 2001
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income ............................................. $ 8,291,277 $ 5,659,544 $ 4,594,005
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ......................................... 4,767,612 4,976,637 5,726,298
Gain on disposition of capital assets ................ (424,580) (44,459) (35,542)
Changes in operating assets and liabilities:
Trade receivables .................................. 1,428,745 (3,469,976) 5,637,605
Inventories ........................................ (2,150,999) 421,484 1,805,222
Other current assets ............................... 402,228 (178,943) (1,003,000)
Other assets ....................................... (417,953) (393,788) (362,326)
Accounts payable - trade ........................... (1,845,970) (684,411) (1,643,926)
Accrued liabilities ................................ (674,421) 7,553,340 (2,106,659)
Deferred compensation .............................. 280,443 450,596 287,034
Deferred income taxes .............................. (430,000) (2,200,000) 200,000
------------ ------------ ------------
Net cash provided by operating activities .............. 9,226,382 12,090,024 13,098,711
------------ ------------ ------------
INVESTING ACTIVITIES:
Purchases of investments ............................. (21,150,304) (19,880,090) (2,014,525)
Proceeds from sales of investments ................... 27,369,890 6,275,994 4,425,506
Payments received from customers on notes receivable.. 710,086 965,851 211,974
Loans to customers on notes receivable ............... (1,325,000)
Proceeds from sale of capital assets ................. 635,271 179,219 178,997
Capital expenditures ................................. (5,099,791) (1,099,914) (2,817,180)
------------ ------------ ------------
Net cash provided by (used in) investing activities .... 2,465,152 (13,558,940) (1,340,228)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayment of borrowings .............................. (650,000) (325,000) (325,000)
Dividends paid ....................................... (4,065,345) (3,155,096) (3,190,069)
Proceeds from issuance of common stock ............... 459,513 276,133 100,704
Repurchase of common stock ........................... (2,296,411)
------------ ------------ ------------
Net cash used in financing activities .................. (4,255,832) (3,203,963) (5,710,776)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ....... 7,435,702 (4,672,879) 6,047,707
Cash and cash equivalents at beginning of year ......... 5,375,683 10,048,562 4,000,855
------------ ------------ ------------
Cash and cash equivalents at end of year ............... $ 12,811,385 $ 5,375,683 $ 10,048,562
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ............................................. $ 129,000 $ 24,000 $ 61,000
Income taxes ......................................... 7,270,000 3,004,000 4,442,000
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
FLEXSTEEL INDUSTRIES, INC.
- --------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Flexsteel Industries, Inc. (the Company)
manufactures a broad line of quality 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 two 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 are carried at amounts, which reasonably approximate
their fair value due to their short-term nature. Fair values of
investments in debt and equity securities are disclosed in Note 2.
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 $2,660,000, $1,970,000, and $2,090,000 in fiscal 2003,
2002, and 2001, 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 $4,557,000. 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 112,128 shares, 63,338 shares, and 66,535
shares in fiscal 2003, 2002 and 2001, respectively. The Company
calculates the dilutive effect of outstanding options using the
treasury stock method. Options to purchase 163,050 shares, 14,000
shares and 210,360 shares of common stock were outstanding in fiscal
2003, 2002 and 2001, respectively, but were not included in the
computation of diluted earnings per share as their exercise prices were
greater than the average market price of the common shares.
15
STOCK-BASED COMPENSATION - the Financial Accounting Standards Board
(FASB) has issued Statement of Financial Accounting Standards (SFAS)
No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND
DISCLOSURE, which amends SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirement of SFAS No. 123 to require more prominent and
more frequent disclosures in financial statements of the effects of
stock-based compensation.
The Company has elected to continue to apply Accounting Principles
Board (APB) Opinion No. 25 and related interpretations in accounting
for its stock option plans, as permitted under SFAS No. 123 and SFAS
No. 148. 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 and SFAS No. 148, the Company's
net income and earnings per share would have been reduced to the
following pro forma amounts for the years ended June 30:
2003 2002 2001
---------- ---------- ----------
Net income as reported ............. $8,291,277 $5,659,544 $4,594,005
Less stock-based employee
compensation expense determined
under fair value method for
all awards, net of tax........... (291,000) (162,000) (163,000)
---------- ---------- ----------
Pro forma net income ............. $8,000,277 $5,497,544 $4,431,005
========== ========== ==========
Earnings per share:
Basic - as reported ........... $ 1.33 $ 0.93 $ 0.75
- pro forma ............. 1.28 0.90 0.73
Diluted - as reported ......... $ 1.30 $ 0.92 $ 0.74
- pro forma ........... 1.26 0.89 0.72
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 2003, 2002, and
2001, respectively: dividend yield of 3.3%, 5.0% and 4.8%; expected
volatility of 25.4%, 24.8% and 24.6%; risk-free interest rates of 4.1%,
6.5% and 6.5%; and an expected life of 10 years on all options.
ACCOUNTING DEVELOPMENTS - in November 2002, the FASB issued FASB
Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE
REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF
INDEBTEDNESS OF OTHERS (FIN 45). FIN 45 clarifies the requirements for a
guarantor's accounting for and disclosure of certain guarantees issued
and outstanding. The initial recognition and initial measurement
provisions of FIN 45 are applicable to guarantees issued or modified
after December 31, 2002. The Company adopted the provisions of FIN 45 in
fiscal 2003.
RECLASSIFICATIONS - certain prior years' amounts have been reclassified
to conform to the fiscal 2003 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, 2003
--------------------------------------------------
Gross Unrealized
Cost -------------------- Recorded
Basis Gains Losses Basis
----------- -------- --------- -----------
Debt securities $ 9,327,860 $134,919 $(42,076) $ 9,420,703
Equity securities 3,854,112 452,172 4,306,284
----------- -------- -------- -----------
$13,181,972 $587,091 $(42,076) $13,726,987
=========== ======== ======== ===========
16
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, 2003 June 30, 2002
------------------------- -------------------------
Investments Other Assets Investments Other Assets
----------- ------------ ----------- ------------
Debt securities $ 7,816,336 $1,604,367 $14,634,657 $1,756,003
Equity securities 1,715,577 2,590,707 1,241,431 2,272,976
----------- ----------- ----------- ----------
$ 9,531,913 $4,195,074 $15,876,088 $4,028,979
=========== =========== =========== ==========
As of June 30, 2003, the maturities of debt securities are $8,835,742
within one year, $136,012 in one to five years, and $448,949 over five
years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately
$1,756,000 and $1,452,000 higher at June 30, 2003 and 2002,
respectively, if they had been valued on the FIFO method. A comparison
of inventories is as follows:
June 30,
----------------------------
2003 2002
------------ -----------
Raw materials....................... $15,991,880 $15,623,962
Work in process and finished parts.. 8,865,537 8,092,398
Finished goods...................... 7,615,870 6,605,928
----------- -----------
Total.......................... $32,473,287 $30,322,288
=========== ===========
4. PROPERTY, PLANT AND EQUIPMENT
June 30,
Estimated --------------------------
Life (Years) 2003 2002
------------ ----------- ------------
Land........................ $ 2,053,659 $ 2,212,790
Buildings and improvements.. 3-39 30,690,717 30,037,022
Machinery and equipment..... 3-10 31,896,173 31,399,729
Delivery equipment.......... 3-7 16,448,471 15,150,048
Furniture and fixtures...... 3-5 5,201,537 5,433,082
------------ -------------
Total.................. 86,290,557 84,232,671
Less accumulated
depreciation.............. (65,912,760) (63,674,333)
------------ ------------
Net.................... $ 20,377,797 $ 20,558,338
============ ============
5. OTHER ASSETS
June 30,
------------------------
2003 2002
---------- ----------
Cash value of life insurance.......... $4,745,122 $4,321,137
Investments designated for deferred
compensation plans.................. 4,195,074 4,028,979
Notes receivable...................... 389,824
---------- ----------
Total............................ $8,940,196 $8,739,940
========== ==========
17
6. OTHER ACCRUED LIABILITIES
June 30,
-------------------------
2003 2002
---------- ----------
Dividends................................. $ $ 808,139
Income Taxes.............................. 1,130,056 1,956,148
Advertising............................... 2,020,112 1,968,149
Warranty.................................. 535,000 500,000
Other..................................... 1,074,670 1,510,191
---------- ----------
Total................................ $4,759,838 $6,742,627
========== ==========
7. BORROWINGS AND CREDIT ARRANGEMENTS
During fiscal 2003, the Company repaid $650,000 of Industrial Revenue
Bonds that were issued for the financing of property, plant and
equipment. 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 bank borrowings outstanding as of June 30, 2003
or 2002.
Two officers of the Company are directors at one of the banks where the
Company maintains a line of credit and where its routine daily banking
transactions are processed. The Company receives no special services
nor pricing on the services performed by the bank due to the
directorships of the two officers.
8. INCOME TAXES
The provision for income taxes is as follows for the years ended June
30:
2003 2002 2001
---------- ----------- ----------
Federal - current........... $5,390,000 $ 5,180,000 $2,550,000
State - current............. 960,000 520,000 330,000
Deferred.................... (400,000) (2,200,000) (200,000)
---------- ----------- ----------
Total.................. $5,950,000 $ 3,500,000 $2,680,000
========== =========== ==========
The total income tax provision for the years ended June 30, 2003, 2002
and 2001 was 41.8%, 38.2% and 36.8%, respectively, of income before
income taxes. The higher effective income tax rate in fiscal 2003 is
attributable to the Company's settlement of federal income tax audits
for its latest three fiscal years and amended state income tax returns.
The effect of such settlement is included in "Other" in the table
below. A reconciliation between the U.S. Federal statutory tax rate and
the effective tax rate is as follows for the years ended June 30:
2003 2002 2001
------ ------ ------
Federal statutory tax rate.......... 35.0% 35.0% 35.0%
State taxes, net of federal effect.. 4.4 3.7 3.0
Other............................... 2.4 (0.5) (1.2)
----- ----- ----
Effective tax rate............. 41.8% 38.2% 36.8%
===== ===== ====
The primary components of deferred tax assets and (liabilities) are as
follows:
June 30, 2003 June 30, 2002
-------------------------- ------------------------
Current Long-term Current Long-term
---------- ---------- ---------- ----------
Asset allowances................ $ 590,000 $ 940,000
Other accruals and allowances... 3,480,000 3,560,000
Deferred compensation........... $1,980,000 $ 1,800,000
Property, plant and equipment... (420,000) (1,100,000)
---------- ---------- ---------- -----------
Total...................... $4,070,000 $1,560,000 $4,500,000 $ 700,000
========== ========== ========== ===========
18
9. 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, 2003, 593,400 shares were available for
future grants.
A summary of the status of the Company's stock option plans as of June
30, 2003, 2002 and 2001 and the changes during the years then ended is
presented below:
Shares Price Range
--------- --------------
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........................ 147,950 10.30 - 16.52
Exercised...................... (333,370) 10.25 - 13.25
Canceled....................... (75,110) 10.75 - 14.88
--------
Outstanding at June 30, 2002..... 492,365 10.25 - 16.52
Granted........................ 154,050 15.92
Exercised...................... (88,570) 10.25 - 13.25
--------
Outstanding at June 30, 2003..... 557,845 $10.25 - 16.52
========
The following table summarizes information for options outstanding and
exercisable at June 30, 2003:
Weighted - Average
--------------------------
Range of Options Remaining Exercise
Prices Outstanding Life (Years) Price
-------------- ----------- --------------------------
$10.25 - 10.75 224,020 7.1 $10.52
11.13 - 11.45 65,475 3.3 11.35
12.66 - 12.75 14,000 5.0 12.73
13.25 - 13.60 91,300 6.3 13.27
15.75 - 15.93 161,050 9.1 15.92
16.52 2,000 8.9 16.52
-------
10.25 - 16.52 557,845 7.0 12.70
=======
10. ACCRUED WARRANTY COSTS
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. The following table presents the changes
in the Company's product warranty liability for the years ended June
30:
2003 2002 2001
----------- ----------- -----------
Accrued warranty costs at June 30............... $ 500,000 $ 500,000 $ 500,000
Payments made for warranty and related costs.... (3,226,299) (3,194,430) (3,258,493)
Accrual for product warranty and related costs.. 3,261,299 3,194,430 3,258,493
----------- ----------- -----------
Accrued warranty costs at June 30............... $ 535,000 $ 500,000 $ 500,000
=========== =========== ===========
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
$1,790,000, $1,691,000, and $1,683,000 in fiscal 2003, 2002, 2001,
respectively. The amounts include $377,000, $367,000, and $380,000 in
fiscal 2003, 2002, and 2001, respectively, for the Company's matching
contribution to retirement savings plans. The Company's cost for
pension plans is generally determined as 2% - 6% of each covered
employee's wages. The Company's matching contribution for the
retirement savings plans is generally 25% - 50% of employee
contributions (up to 4% of employee earnings). In addition to the
above, amounts charged to pension expense and contributed to
multi-employer defined benefit pension plans
19
administered by others under collective bargaining agreements were
$1,332,000, $1,252,000, and $1,355,000 in fiscal 2003, 2002, and 2001,
respectively.
The Company has unfunded post-retirement benefit and deferred
compensation plans with certain officers. The plans require various
annual contributions for the participants based upon compensation
levels and age. All participants are fully vested. For fiscal 2003,
2002 and 2001, the benefit obligation was increased by interest expense
of $118,869, $139,399 and $228,084, service costs of $434,575, $582,197
and $362,950, and decreased by payments of $273,000, $271,000 and
$304,000, respectively. At June 30, 2003, the benefit obligation was
$4,790,225.
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 one-third of the stock received by the employee on the
award date and the remaining shares issued after one and two years.
Under the plan 20,398, 37,641 and 34,397 shares were awarded, and the
amounts charged to income were $335,548, $500,000 and $380,000 in
fiscal 2003, 2002 and 2001, respectively. At June 30, 2003, 122,242
shares were available for future grants. Under the Company's voluntary
deferred compensation plan, certain employees may defer common stock
awards until retirement. In fiscal 2003 and 2002, the Company awarded
19,410 and 17,684 shares with an award value of $256,794 and $195,585,
respectively, based on quoted market prices at the applicable award
dates. At June 30, 2003 and 2002, 37,094 and 17,684 shares with an
award value of $452,379 and $195,585, respectively, had been deferred.
No shares have been redeemed under the deferred compensation plan.
13. RESTRUCTURING
During the quarter ended December 31, 2001, the Company recorded an
$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, 2003, there are
no remaining accrued costs related to this facility closing.
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 were a minimal number of
employees 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.
During fiscal 2003, the Company paid $1,035,032 related to the retail
facility closing. The Company expects to pay the remaining
restructuring accrual during the next fiscal year.
The following table summarizes the activity related to the
restructuring charges during fiscal 2003 and 2002:
Employee Facility
Separation Closing
Costs Costs Total
----------- ----------- -----------
Accrued restructuring costs at June 30, 2001.. $ -- $ -- $ --
Restructuring expense ...................... 750,000 1,340,000 2,090,000
Payments ................................... (318,207) (71,184) (389,391)
----------- ----------- -----------
Accrued restructuring costs at June 30, 2002.. 431,793 1,268,816 1,700,609
Restructuring (income) expense ............. (431,793) 477,000 45,207
Payments ................................... -- (1,035,032) (1,035,032)
----------- ----------- -----------
Accrued restructuring costs at June 30, 2003.. $ -- $ 710,784 $ 710,784
=========== =========== ===========
20
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
$1,180,000, $1,530,000 and $1,410,000 in fiscal 2003, 2002 and 2001,
respectively.
Expected future minimum commitments under operating leases and lease
guarantees as of June 30, 2003, were as follows:
Year Ended June 30:
2004 $1,151,000
2005 455,000
2006 325,000
2007 332,000
2008 339,000
Thereafter 500,000
----------
$3,102,000
==========
GUARANTEE - the Company has guaranteed the future lease payments of a
third party for a six-year period ending August 2007. The annual
minimum lease payments are approximately $220,000, and the remaining
minimum payments are approximately $933,000 at June 30, 2003. 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
two 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, 2003 is as follows:
Seating Retail
Products Stores Total
-------------- ----------- ------------
Net sales.......................... $286,766,425 $ 5,210,740 $291,977,165
Operating income (loss)............ 14,493,120 (1,208,844) 13,284,276
Depreciation....................... 4,653,584 114,028 4,767,612
Capital expenditures............... 5,099,791 -- 5,099,791
Assets............................. 119,420,546 1,279,736 120,700,282
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............................. 117,359,929 1,799,347 119,159,276
21
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
16. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION - UNAUDITED
(in thousands of dollars, except per share amounts)
FOR THE QUARTER ENDED
--------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
Fiscal 2003:
Net sales ............ $ 70,019 $73,580 $73,461 $74,916
Gross margin.......... 15,293 17,365 15,453 17,428
Net income............ 2,031 2,216 1,421 2,623
Earnings per share:
Basic............ 0.33 0.35 0.23 0.42
Diluted.......... 0.32 0.35 0.22 0.41
FOR THE QUARTER ENDED
-------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
Fiscal 2002:
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
17. SUBSEQUENT EVENT
On August 13, 2003, the Company announced that it had signed a
definitive purchase agreement to acquire DMI Furniture, Inc. (NASDAQ
Small Cap: DMIF) at a price of $3.30 per share, payable in cash. The
total value of the transaction is approximately $44 million, including
the assumption of the outstanding debt of DMI Furniture, Inc., which is
approximately $27 million. The transaction is expected to be completed
in September 2003.
DMI Furniture, Inc. is a Louisville, Kentucky-based vertically
integrated manufacturer, importer, and marketer of residential and
commercial office furniture with four manufacturing plants and
warehouses in Indiana and manufacturing sources in Asia and South
America. DMI Furniture, Inc.'s divisions are WYNWOOD, Homestyles and
DMI Commercial Office Furniture.
In connection with the definitive purchase agreement for the
acquisition of DMI Furniture, Inc., the Company has obtained a $35
million commitment for a line of credit from a bank. The commitment
expires March 31, 2004.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During fiscal 2003, there were no changes in or disagreements with
accountants on accounting procedures or accounting and financial disclosures.
22
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures - Based on their
evaluation as of the date of this Annual Report on Form 10-K, the Company's
chief executive officer and chief financial officer have concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934, as amended) were effective
as of the date of such evaluation to ensure that information we are required to
disclose in reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
Changes in internal controls - There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, nor were there any
significant deficiencies or material weaknesses in the Company's internal
controls. As a result, no corrective actions were required or undertaken.
PART III
ITEMS 10, 11, 12. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION AND SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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 2003 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 2003 definitive Proxy
Statement to be filed with the Securities and Exchange Commission and is
incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Deloitte & Touche LLP was the Company's independent auditor in fiscal 2003. In
addition to performing the audit of the Company's consolidated financial
statements, Deloitte & Touche LLP provided various audit-related and tax
services during fiscal 2003.
The Audit and Ethics Committee pre-approves both the type of services to be
provided by Deloitte & Touche LLP and the estimated fees related to these
services. The Audit and Ethics Committee reviewed professional services and the
possible effect on Deloitte & Touche LLP's independence was considered. The
Audit and Ethics Committee has considered and found the provision of services
for non-audit services compatible with maintaining Deloitte & Touche LLP's
independence.
The aggregate fees billed for each of the past two fiscal years ended June 30
for each of the following categories of services are set forth below:
2003 2002
-------- --------
Audit Fees (1)........... $146,800 $136,800
Audit Related Fees (2)... 53,000 21,900
Tax Services (3)......... 53,000 37,300
All Other Fees (4)....... -- --
-------- --------
Total.................... $252,800 $196,000
======== ========
(1) Audit Fees - Professional fees and expenses for the audit of the
consolidated financial statements of the Company, review of financial
statements included in Forms 10-K and 10-Q and services provided in
connection with statutory and regulatory filings.
(2) Audit Related Fees - Professional fees and expenses for employee
benefit plan audits and reviews and related matters.
(3) Tax Services - Professional fees and expenses for tax compliance,
including the preparation of tax returns, tax advice and tax planning.
(4) All Other Fees - No other professional services were provided during
fiscal 2003 and 2002.
23
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements of the registrant are set forth above in
Item 8.
(2) Schedules
The following financial schedules for the years ended June 30, 2003,
2002 and 2001 are submitted herewith:
SCHEDULE II
RESERVES
FOR THE YEARS ENDED JUNE 30, 2003, 2002 AND 2001
DEDUCTIONS
BALANCE AT ADDITIONS FROM
BEGINNING OF CHARGED TO RESERVES BALANCE AT
DESCRIPTION YEAR INCOME (NOTE) END OF YEAR
----------------------- ------------ ---------- ------------ -----------
Allowance for
Doubtful Accounts:
2003..................... $2,540,000 $ 460,000 ($ 890,000) $2,110,000
========== =========== ============ ==========
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
========== =========== ============ ==========
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.
(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.
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.*
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.*
24
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.*
10.8 2002 Stock Option Plan incorporated by reference from the 2002
Flexsteel definitive proxy statement.*
22 2003 definitive Proxy Statement incorporated by reference is
to be filed with the Securities Exchange Commission on or
before December 1, 2003. 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.
31.1 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.
31.2 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.
32 Certification by Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
* Management contracts, compensatory plans and arrangements
required to be filed as an exhibit to this report.
(b) Reports on Form 8-K
On April 15, 2003, the Company filed a report on Form 8-K announcing
Third Quarter and Year-to-Date Operating Results.
On August 8, 2003, the Company filed a report on Form 8-K announcing
Fourth Quarter and Year-to-Date Operating Results.
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: August 29, 2003 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
25
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: August 29, 2003 /S/ K. BRUCE LAURITSEN
------------------- -----------------------------------------
K. Bruce Lauritsen
DIRECTOR
Date: August 29, 2003 /S/ EDWARD J. MONAGHAN
------------------- -----------------------------------------
Edward J. Monaghan
DIRECTOR
Date: August 29, 2003 /S/ JAMES R. RICHARDSON
------------------- -----------------------------------------
James R. Richardson
DIRECTOR
Date: August 29, 2003 /S/ JEFFREY T. BERTSCH
------------------- -----------------------------------------
Jeffrey T. Bertsch
DIRECTOR
Date: August 29, 2003 /S/ L. BRUCE BOYLEN
------------------- -----------------------------------------
L. Bruce Boylen
DIRECTOR
Date: August 29, 2003 /S/ PATRICK M. CRAHAN
------------------- -----------------------------------------
Patrick M. Crahan
DIRECTOR
Date: August 29, 2003 /S/ LYNN J. DAVIS
------------------- -----------------------------------------
Lynn J. Davis
DIRECTOR
Date: August 29, 2003 /S/ THOMAS E. HOLLORAN
------------------- -----------------------------------------
Thomas E. Holloran
DIRECTOR
Date: August 29, 2003 /S/ MARVIN M. STERN
------------------- -----------------------------------------
Marvin M. Stern
DIRECTOR
Date: August 29, 2003 /S/ ROBERT E. DEIGNAN
------------------- -----------------------------------------
Robert E. Deignan
DIRECTOR
Date: August 29, 2003 /S/ ERIC S. RANGEN
------------------- -----------------------------------------
Eric S. Rangen
DIRECTOR
26
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Flexsteel Industries, Inc.
Dubuque, Iowa
We have audited the consolidated financial statements of Flexsteel Industries,
Inc. (the Company) as of June 30, 2003 and 2002, and for each of the three years
in the period ended June 30, 2003, and have issued our report thereon dated
August 13, 2003; such report is included elsewhere in this Form 10-K. Our audits
also included the financial statement schedule of the Company listed in Item 15.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 13, 2003
27
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-1836, 33-26267, 333-1413, 333-45768, and 333-105951 on Form S-8 of our report
dated August 13, 2003 appearing in this Annual Report on Form 10-K of Flexsteel
Industries, Inc. for the year ended June 30, 2003.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 29, 2003
28
EXHIBIT 31.1
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-15(e) and 15d-15(e) 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 and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
c) disclosed in this report any changes in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter that materially affected, or is
likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses
in the design or operation of internal controls over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: August 29, 2003
-----------------------
By: /S/ K. BRUCE LAURITSEN
-----------------------------------
K. Bruce Lauritsen
Chief Executive Officer
29
EXHIBIT 31.2
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-15(e) 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 and presented in
this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the
end of the period covered by this report based on
such evaluation; and
c) disclosed in this report any changes in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter that materially affected, or is
likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses
in the design or operation of internal controls over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: August 29, 2003
-----------------------
By: /S/ R. J. KLOSTERMAN
-----------------------------------
Ronald J. Klosterman
Chief Financial Officer
30
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Flexsteel Industries, Inc. (the
Issuer) on Form 10-K for the fiscal year ended June 30, 2003 as filed with the
Securities and Exchange Commission (the Report), we, K. Bruce Lauritsen, Chief
Executive Officer, and Ronald J. Klosterman, Chief Financial Officer, of the
Issuer, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, and;
(2) The information contained in the Report fairly presents, in
all material respects, the consolidated financial condition
and results of operations of the Issuer.
Date: August 29, 2003
-----------------------
By: /S/ K. BRUCE LAURITSEN
-----------------------------------
K. Bruce Lauritsen
Chief Executive Officer
By: /S/ R. J. KLOSTERMAN
-----------------------------------
Ronald J. Klosterman
Chief Financial Officer
31