SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED] For the quarterly period
ended December 31, 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
Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319
FLEXSTEEL INDUSTRIES, INC.
P. O. BOX 877
DUBUQUE, IOWA 52004-0877
Area code 563 Telephone 556-7730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Common Stock - $1.00 Par Value
Shares Outstanding as of December 31, 2003 6,481,800
--------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30,
2003 2003
------------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 2,278,423 $ 12,811,385
Investments....................................................... 1,261,089 9,531,913
Trade receivables - less allowance for doubtful accounts:
December 31, 2003, $3,650,000;
June 30, 2003, $2,110,000..................................... 46,193,855 29,612,278
Inventories....................................................... 60,971,572 32,473,287
Deferred income taxes............................................. 6,320,000 4,070,000
Other............................................................. 2,009,964 1,323,426
------------------- -------------------
Total current assets........................................... 119,034,903 89,822,289
PROPERTY, PLANT, AND EQUIPMENT
At cost less accumulated depreciation:
December 31, 2003, $67,675,607
June 30, 2003, $65,912,760........................................ 30,313,830 20,377,797
DEFERRED INCOME TAXES................................................. 1,170,000 1,560,000
OTHER ASSETS.......................................................... 9,776,266 8,940,196
------------------- -------------------
TOTAL.................................................. $ 160,294,999 $ 120,700,282
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade.............................................. $ 12,422,918 $ 2,747,226
Current portion of long-term debt..................................... 1,000,008
Accrued liabilities:
Payroll and related items......................................... 10,219,482 7,565,256
Insurance......................................................... 4,544,886 6,373,626
Restructuring..................................................... 710,680 710,784
Other............................................................. 7,222,876 4,759,838
------------------- -------------------
Total current liabilities...................................... 36,120,850 22,156,730
------------------- -------------------
LONG-TERM LIABILITIES:
Long-term debt, less current portion.............................. 19,870,345
Accrued pension costs............................................. 844,653
Deferred compensation............................................. 4,992,785 4,790,225
Other long-term liabilities....................................... 374,726
------------------- -------------------
Total long-term liabilities.................................... 26,082,509 4,790,225
------------------- -------------------
Total liabilities......................................... 62,203,359 26,946,955
------------------- -------------------
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 December 31, 2003, 6,481,800 shares;
outstanding June 30, 2003, 6,294,639 shares................... 6,481,800 6,294,639
Additional paid-in capital........................................ 2,022,682 1,353,639
Retained earnings................................................. 88,990,685 85,787,823
Accumulated other comprehensive income ........................... 596,473 317,226
------------------- -------------------
Total shareholders' equity................................... 98,091,640 93,753,327
------------------- -------------------
TOTAL.................................................. $ 160,294,999 $ 120,700,282
=================== ===================
See accompanying Notes to Consolidated Financial Statements (Unaudited).
- --------------------------------------------------------------------------------------------------------------------------------
1
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------- ----------------------------------------
2003 2002 2003 2002
--------------- --------------- ----------------- ----------------
NET SALES.............................. $ 109,102,095 $ 73,580,061 $ 185,959,134 $ 143,599,437
COST OF GOODS SOLD..................... (85,896,001) (56,214,774) (145,902,843) (110,941,589)
--------------- --------------- ----------------- ----------------
GROSS MARGIN........................... 23,206,094 17,365,287 40,056,291 32,657,848
SELLING, GENERAL AND
ADMINISTRATIVE....................... (18,370,257) (14,007,513) (32,328,336) (26,684,830)
GAIN ON SALE OF LAND................... 403,065
--------------- --------------- ----------------- ----------------
OPERATING INCOME....................... 4,835,837 3,357,774 7,727,955 6,376,083
--------------- --------------- ----------------- ----------------
OTHER:
Interest and other income......... 301,389 291,729 523,505 607,068
Interest expense.................. (125,826) (3,260) (170,145) (6,048)
--------------- --------------- ---------------- ----------------
Total........................ 175,563 288,469 353,360 601,020
--------------- --------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES............. 5,011,400 3,646,243 8,081,315 6,977,103
PROVISION FOR INCOME TAXES............. (1,995,000) (1,430,000) (3,200,000) (2,730,000)
--------------- --------------- ---------------- ----------------
NET INCOME............................. $ 3,016,400 $ 2,216,243 $ 4,881,315 $ 4,247,103
=============== =============== ================ ================
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC........................... 6,448,814 6,247,512 6,392,624 6,230,212
=============== =============== ================ ================
DILUTED......................... 6,520,575 6,358,711 6,475,882 6,340,860
=============== =============== ================= ================
EARNINGS PER SHARE OF COMMON
STOCK:
BASIC........................... $ 0.47 $ 0.35 $ 0.76 $ 0.68
=============== =============== ================= ================
DILUTED......................... $ 0.46 $ 0.35 $ 0.75 $ 0.67
=============== =============== ================= ================
See accompanying Notes to Consolidated Financial Statements (Unaudited).
- --------------------------------------------------------------------------------------------------------------------------------
2
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Six Months Ended
December 31,
------------------------------------------------
2003 2002
------------------- -------------------
OPERATING ACTIVITIES:
Net income............................................................. $ 4,881,315 $ 4,247,103
Adjustments to reconcile net income to net cash
provided by operating activities...................................
Depreciation and amortization...................................... 2,714,097 2,422,486
Restructuring charge reversal...................................... (56,793)
Loss (gain) on disposition of capital assets....................... 214,425 (402,520)
Changes in operating assets and liabilities, net of acquisition:
Trade receivables.............................................. (4,192,516) 3,779,036
Inventories.................................................... (1,353,309) (1,604,913)
Other current assets........................................... 1,592,015 (1,742,080)
Other assets................................................... (37,002) (15,077)
Accounts payable - trade....................................... 8,175,152 (939,657)
Accrued liabilities............................................ (3,588,944) 663,154
Deferred compensation.......................................... 202,560
Deferred income taxes.......................................... 29,000 151,471
------------------- -------------------
Net cash provided by operating activities.............................. 8,636,793 6,502,210
------------------- -------------------
INVESTING ACTIVITIES:
Purchases of investments........................................... (2,911,848) (9,771,812)
Proceeds from sales of investments................................. 11,239,470 18,467,271
Payments received from customers on notes receivable............... 172,350 302,743
Proceeds from sales of capital assets.............................. 73,478 612,121
Capital expenditures, net of acquisition .......................... (3,168,662) (3,442,222)
Acquisition of DMI Furniture, Inc., net of cash acquired........... (19,322,174)
------------------- -------------------
Net cash provided by (used in) investing activities.................... (13,917,386) 6,168,101
------------------- -------------------
FINANCING ACTIVITIES:
Payments on bank borrowings........................................ (8,360,829)
Proceeds from bank borrowings...................................... 3,684,571
Dividends paid..................................................... (835,817) (1,616,726)
Other long-term liabilities........................................ (257,792)
Proceeds from issuance of common stock 517,498 312,469
------------------- -------------------
Net cash used in financing activities.................................. (5,252,369) (1,304,257)
------------------- -------------------
Increase (decrease) in cash and cash equivalents....................... (10,532,962) 11,366,054
Cash and cash equivalents at beginning of period....................... 12,811,385 5,375,683
------------------- -------------------
Cash and cash equivalents at end of period............................. $ 2,278,423 $ 16,741,737
=================== ===================
See accompanying Notes to Consolidated Financial Statements (Unaudited).
- --------------------------------------------------------------------------------------------------------------------------------
3
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The consolidated financial statements included herein have been prepared by
Flexsteel Industries, Inc. (the Company or Flexsteel), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The information furnished in the consolidated financial
statements includes normal recurring adjustments and reflects all
adjustments, which are, in the opinion of management, necessary for a fair
presentation of such consolidated financial statements. Operating results
for the six-month period ended December 31, 2003, are not necessarily
indicative of the results that may be expected for the fiscal year ending
June 30, 2004. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements for the year ended June 30, 2003, and the
notes thereto, included in Flexsteel's Annual Report on Form 10-K as filed
with the SEC and the consolidated financial statements of DMI Furniture,
Inc. for the year ended August 30, 2003, and the notes thereto, included in
the Company's Amendment No. 2 to Current Report on Form 8-K/A filed with
the SEC on November 13, 2003.
DESCRIPTION OF BUSINESS - The Company is one of the oldest and largest
manufacturers and marketers of residential, recreational vehicle,
hospitality and healthcare upholstered and wooden furniture products in the
country. The Company's furniture products include a broad line of quality
upholstered and wooden furniture for residential, recreational vehicle and
commercial use. Furniture products include sofas, love seats, chairs,
reclining and rocker-reclining chairs, swivel rockers, sofa beds,
convertible bedding units, bedroom, dining room, occasional tables, and
home and commercial office furniture. The Company has three wholly owned
subsidiaries: (1) Desert Dreams, Inc. owns and leases a commercial building
to an unrelated entity, and (2) Four Seasons, Inc. operated retail
furniture stores until their closure in November 2003. (3) DMI Furniture,
Inc. (DMI), acquired effective September 18, 2003, 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. DMI's
divisions are WYNWOOD, Homestyles and DMI Commercial Office Furniture. All
significant intercompany accounts and transactions have been eliminated.
RECLASSIFICATIONS - Certain prior period amounts have been reclassified to
conform to the fiscal 2004 presentation. These reclassifications had no
impact on net income or shareholders' equity as previously reported.
2. ACQUISITION - On September 18, 2003, the Company effectively acquired 100%
of the outstanding common stock of DMI Furniture, Inc. for $3.30 per share
in cash. The results of DMI's operations have been included in the
consolidated financial statements of the Company since that date. As a
result of the acquisition, DMI's distribution, product lines, and global
sourcing infrastructure are expected to enhance the Company's focus on
expanding its product offerings. The financial strength of the Company is
also expected to provide the resources for continued DMI growth and result
in accretion to the earnings of the Company.
The aggregate purchase price was $54.9 million. The purchase price
consisted of $16.7 million in cash paid to the shareholders of DMI, $2.8
million in acquisition costs paid by the Company, and the assumption of all
DMI liabilities totaling $35.4 million, including $25.5 million of
long-term debt.
4
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition (in thousands):
September 18,
2003
-------------
Current assets ............................. $ 44,599
Property, plant, and equipment ............. 9,710
Intangible asset - customer relationships... 596
Other assets ............................... 40
--------
Total assets acquired ................... 54,945
--------
Current liabilities ........................ (8,912)
Long-term debt ............................. (24,508)
Other liabilities .......................... (2,029)
--------
Total liabilities assumed ............... (35,449)
--------
Net assets acquired ..................... $ 19,496
========
The customer relationships intangible asset will be amortized on an
accelerated basis over an expected useful life of five years. None of the
amortization of the customer relationships intangible asset is expected to
be deductible for income tax purposes.
The unaudited pro forma financial information below assumes that DMI had
been acquired at July 1, 2002 and includes the effect of amortization of the
customer relationships intangible asset, additional depreciation expense,
reduction in interest income, and the related income tax effects. This pro
forma financial information is presented for informational purposes only and
is not necessarily indicative of the results of future operations that would
have been achieved had the acquisition taken place at the beginning of
fiscal 2003. Pro forma information follows (in thousands, except per share
amounts):
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales ......................... $ 109,102 $ 99,574 $ 206,951 $ 197,824
Net income ........................ 3,016 2,458 5,257 4,880
Earnings per share of common stock:
Basic .......................... 0.47 0.39 0.82 0.78
Diluted ........................ 0.46 0.39 0.81 0.77
3. 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. A
comparison of inventories is as follows (in thousands):
December 31, June 30,
2003 2003
------------ -------
Raw materials .................... $21,093 $15,992
Work in process and finished parts 9,091 8,865
Finished goods ................... 30,788 7,616
------- -------
Total .............. $60,972 $32,473
======= =======
5
4. 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 six months
ended December 31, 2003 (in thousands):
Accrued warranty costs at June 30, 2003................ $ 535
Payments made for warranty costs....................... (1,540)
Estimated liability assumed in DMI acquisition......... 675
Accrual for product warranty........................... 1,529
-------
Accrued warranty costs at December 31, 2003............ $ 1,199
=======
5. DERIVATIVE & HEDGING ACTIVITIES - In connection with the DMI acquisition,
the Company assumed DMI's interest rate swaps utilized to hedge against
adverse changes in interest rates relative to its variable rate debt. The
notional principal amounts of the outstanding interest rate swaps totaled
$16.2 million with a weighted average fixed rate of 4.0% at December 31,
2003. The interest rate swaps are not utilized to take speculative
positions. The Board of Directors established the Company's policies with
regards to activities involving derivative instruments. Management, along
with the Board of Directors, periodically reviews those policies, along with
the actual derivative related results. The Company recorded the fair market
value of its interest rate swaps as cash flow hedges on its balance sheet
and has marked them to fair value through other comprehensive income. The
fair values of the swaps were a liability of $0.4 million as of December 31,
2003 and are reflected as other long-term liabilities on the accompanying
balance sheet.
6. RESTRUCTURING - The Company established an accrual for restructuring
liabilities in fiscal 2002 for estimated facility closing costs related to
the closure of retail stores. The accrual is for and lease commitments with
no future benefit to the Company and are expected to be paid by June 30,
2004. Utilization of the accrual may differ from the initial restructuring
charge as amounts are paid and become known to the Company.
The following table summarizes the activity related to the restructuring
charges during the six months ended December 31, 2003 (in thousands):
Facility
Closing
Costs
-----------
Accrued restructuring costs at June 30, 2003 ................ $711
Recovery (utilization) for the period ended
December 31, 2003..........................................
----
Accrued restructuring costs at December 31, 2003 ............ $711
====
7. LONG-TERM DEBT - At December 31, 2003, consisted of the following (in
thousands):
Economic development revenue bonds; payable
May 2004; weekly adjustable coupon rate; secured by letter
of credit ................................................ $ 2,020
$7.0 million reducing revolving loan with monthly principal
installments of $83,334; through March 1,
2006; interest rate at prime +0% or
LIBOR+1%; unsecured ...................................... 3,096
$19.0 million revolving note; expires March 1,
2006; interest rate at prime +0% or
LIBOR+1%; unsecured ...................................... 15,754
-------
Total ....................................................... 20,870
Less portion due within one year ............................ 1,000
-------
Long-term debt, less current portion ........................ $19,870
=======
In November 2003, the Company amended its existing credit facility to
restructure its revolving loan and note to the amounts and interest rates
shown in the table above. The debt agreements contain restrictive covenants
that require the Company, among other things, to maintain an interest
coverage ratio, leverage ratio, consolidated net worth ratio, and
limitations on capital expenditures and disposals, all as defined in the
bank financing agreement. At December 31, 2003, the Company was in
compliance with all of these debt covenants.
6
In connection with the definitive purchase agreement for the acquisition of
DMI, the Company obtained a $35 million commitment for a line of credit from
a bank. The commitment expires March 31, 2004. As of December 31, 2003,
there were no outstanding borrowings under the line of credit.
8. PENSION PLANS - In connection with the DMI acquisition, the Company assumed
DMI's defined benefit pension plan and defined contribution retirement
plans. The defined benefit pension plan covers substantially all hourly
employees of DMI. Retirement benefits are based on years of credited service
multiplied by a dollar amount negotiated under collective bargaining
agreements. The Company's policy is to fund normal costs and amortization of
prior service costs at a level that is equal to or greater than the minimum
required under the Employee Retirement Income Security Act of 1974 (ERISA).
As of December 31, 2003, the accrued benefit liability related to the
defined benefit pension plan recognized on the Company's consolidated
balance sheet was $0.8 million.
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 December 31, 2003, 439,150 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 Statement of Financial Accounting Standards (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, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income, as reported ..... $ 3,016,400 $ 2,216,243 $ 4,881,315 $ 4,247,103
Deduct: Total stock-based
employee compensation expense
determined under fair value
method for all awards, net of
related tax effects ......... (427,000) (286,000) (427,000) (286,000)
------------- ------------- ------------- -------------
Pro forma net income ........ $ 2,589,400 $ 1,930,243 $ 4,454,315 $ 3,961,103
============= ============= ============= =============
Earnings per share:
Basic - as reported .... $ 0.47 $ 0.35 $ 0.76 $ 0.68
Basic - pro forma ...... 0.40 0.31 0.70 0.64
Diluted - as reported .. 0.46 0.35 0.75 0.67
Diluted - pro forma .... 0.40 0.30 0.69 0.62
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 2004 and 2003, respectively; dividend
yield of 2.7% and 3.3%; expected volatility of 25.9% and 24.8%; risk-free
interest rates of 4.3% and 4.1%; and an expected life of 10 years on all
options. The Company does not anticipate that additional options will be
granted during fiscal 2004.
10. EARNINGS PER SHARE - Basic earnings per share of common stock is based on
the weighted average number of common shares outstanding during each year.
Diluted earnings per share of common stock takes into effect the dilutive
effect of potential common shares outstanding. The Company's only potential
common shares outstanding are stock options, which resulted in a dilutive
effect of 71,761 shares and 111,199 shares in the quarters ended and 83,258
and 110,648 shares in the six months ended December 31, 2003 and 2002,
respectively. The Company calculates the dilutive effect of outstanding
options using the treasury stock method. Options to purchase 18,222 and
163,050 shares of common stock were outstanding during the three and six
months ended December 31, 2003 and 2002, 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.
7
11. COMPREHENSIVE INCOME - In accordance with the provisions of SFAS No. 130,
the Company has elected to report comprehensive income in its Consolidated
Statement of Changes in Shareholders' Equity. For the six months ended
December 31, 2003 and 2002, other comprehensive income was $279 thousand
and $48 thousand, respectively.
12. SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH INVESTING ACTIVITIES - In September 2003, the Company purchased
all of the common stock of DMI for $19.5 million (including acquisition
costs of $2.8 million). In conjunction with the acquisition, liabilities
were assumed as follows (in thousands):
Fair value of assets acquired.......................... $ 54,945
Cash paid for common stock............................. 19,496
------------
Liabilities assumed.................................... $ 35,449
============
SUPPLEMENTAL INFORMATION - Cash paid during the period for (in thousands):
Six Months Ended
December 31,
-----------------------------
2003 2002
----------- -----------
Interest.................. $ 434 $ 6
Income taxes.............. $ 3,113 $ 4,151
13. SEGMENTS - The Company operates in two reportable operating segments: (1)
Furniture Products (formerly known as Seating Products) and (2) Retail
Stores. The Furniture Products segment involves the distribution of
manufactured and imported products consisting of a broad line of
upholstered and wooden furniture for residential, recreational vehicle, and
commercial 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 involved the
operation of retail furniture stores that offered the Company's residential
products for sale directly to consumers. In November 2003, the retail
stores were closed. No single customer accounted for more than 10% of sales
in either of the Company's two segments.
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 three-month periods ended December 31 was as
follows (in thousands):
December 31, 2003 December 31, 2002
-------------------------------------- -------------------------------------
Furniture Retail Furniture Retail
Products Stores Total Products Stores Total
--------- -------- -------- -------- -------- ---------
Net sales ............... $ 108,130 $ 972 $ 109,102 $ 71,858 $ 1,722 $ 73,580
Operating income (loss) . 5,095 (259) 4,836 3,896 (538) 3,358
Depreciation ............ 1,465 1 1,466 1,235 29 1,264
Capital expenditures .... 1,836 1,836 1,466 1,466
Segment information for the six-month periods ended December 31 was as
follows (in thousands):
December 31, 2003 December 31, 2002
-------------------------------------- -------------------------------------
Furniture Retail Furniture Retail
Products Stores Total Products Stores Total
--------- -------- -------- -------- -------- ---------
Net sales................. $ 183,737 $ 2,222 $ 185,959 $ 140,594 $ 3,005 $ 143,599
Operating income (loss)... 8,061 (333) 7,728 7,179 (803) 6,376
Depreciation.............. 2,627 27 2,654 2,362 60 2,422
Capital expenditures...... 3,169 3,169 3,442 3,442
Assets.................... 160,295 160,295 119,839 1,383 121,222
8
14. ACCOUNTING DEVELOPMENTS - In December 2003, the Financial Accounting
Standards Board (FASB) issued a revised Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46R). FIN 46R addresses
consolidation by business enterprises of variable interest entities and
significantly changes the consolidation application of consolidation
policies to variable interest entities and, thus improves comparability
between enterprises engaged in similar activities when those activities are
conducted through variable interest entities. The Company does not hold any
variable interest entities.
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies certain derivative instruments embedded in other contracts, and
for hedging activities under SFAS No. 133. SFAS No. 149 was effective for
certain contracts entered into or modified by the Company after June 30,
2003. The Company adopted SFAS No. 149 effective July 1, 2003 with no
material impact on its results of operations or financial position.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No.
150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity.
SFAS No. 150 was effective immediately for all financial instruments entered
into or modified after May 31, 2003. For all other instruments, SFAS No. 150
was effective at the beginning of the first quarter of fiscal 2004. The
adoption of SFAS No. 150 had no material impact on the Company's results of
operations or financial position.
Item 2. 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 of long-lived
assets, self-insurance programs, restructuring costs, pension benefits,
warranty, and revenue recognition.
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.
VALUATION OF LONG-LIVED ASSETS - the Company periodically reviews the carrying
value of long-lived assets and estimated depreciable or amortizable lives for
continued appropriateness. This review is based upon projections of anticipated
future cash flows and is performed whenever events or changes in circumstances
indicate that asset carrying values may not be recoverable or that the estimated
depreciable or amortizable lives may have changed. These evaluations could
result in a change in estimated useful lives in future periods.
9
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 facility closing costs related to the closure of a retail
store. The accrual includes 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.
PENSION BENEFITS - the amounts recognized in the financial statements related to
pension benefits under DMI's defined benefit pension plan are determined based
on actuarial assumptions. A significant assumption used in determining DMI's net
pension cost is the expected long-term rate of return on plan assets. Another
significant estimate that affects DMI's pension cost is the discount rate used
in the annual actuarial valuation of pension benefits. The discount rate
represents the interest rate that is used to determine the present value of
future cash flows required to settle the pension obligations. To the extent the
assumed discount rate decreases, DMI would have to record additional expense.
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 to our customer. Our ordering
process creates persuasive evidence of the sale arrangement and the sales amount
is determined. The delivery of the goods to our customer confirms our reasonable
assurance of collectibiltiy. 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. Shipping and handling costs are included in cost of goods sold.
The following table has been prepared as an aid in understanding the Company's
results of operations on a comparative basis for the three months and six months
ended December 31, 2003 and 2002. Amounts presented are percentages of the
Company's net sales.
Second Quarter Ended Six Months Ended
December 31, December 31,
------------------ -----------------
2003 2002 2003 2002
------ ----- ----- -----
Net sales ......................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ................ (78.7) (76.5) (78.5) (77.3)
------ ----- ----- -----
Gross margin ...................... 21.3 23.5 21.5 22.7
Selling, general and administrative (16.9) (19.0) (17.4) (18.6)
Gain on sale of land .............. 0.3
------ ----- ----- -----
Operating income .................. 4.4 4.5 4.1 4.4
Other income, net ................. 0.2 0.4 0.2 0.5
------ ----- ----- -----
Income before income taxes ........ 4.6 4.9 4.3 4.9
Income tax expense ................ (1.8) (1.9) (1.7) (1.9)
------ ----- ----- -----
Net income ........................ 2.8% 3.0% 2.6% 3.0%
====== ===== ===== =====
Overview
The quarter ended December 31, 2003 was the first full quarter of combined
operations following the acquisition of DMI. The results were as anticipated.
Historically, the pricing structure for DMI products has resulted in a lower
gross margin than we have earned on Flexsteel products. However, DMI has
incurred lower selling, general and administrative expenses as a percent of net
sales than Flexsteel. We expect that these relationships will continue. We will
continue to focus our attention on integrating the operations, utilizing the
capabilities available and to take advantage of all new opportunities.
During November 2003, we restructured the existing credit agreement, assumed in
the acquisition of DMI, lowering the interest rate based on our strong financial
position.
10
During November 2003, Four Seasons, Inc. closed the two remaining retail
furniture stores. Final payments for lease obligations that are included in
facility closing costs will be settled during the next six months. We expect no
future expenses related to retail operations.
The Company continues to implement a "blended" strategy, offering customers
fully manufactured, imported for final production and ready to deliver imported
products. The Company believes that it best serves customers by offering
products from each of these categories to assist customers in reaching specific
consumers, price points and style. This blended focus on product categories will
allow the Company to provide a wide range of options to satisfy customer
requirements.
A petition filed by The American Furniture Manufactures Committee of Legal Trade
in October 2003 seeks antidumping tariffs on wooden bedroom furniture
manufactured in the People's Republic of China. The U. S. Department of Commerce
is investigating. The tariff amount, if any, may vary by manufacturer;
accordingly the effect on our future operations is not clear.
Results of Operations for the Quarter Ended December 31, 2003 vs. 2002
- ----------------------------------------------------------------------
Net sales for the quarter ended December 31, 2003 increased by $35.5 million or
48.3% compared to the prior year quarter. Residential sales volume increased
$25.3 million (including $24.8 million from DMI) or 50.2%. Recreational vehicle
sales increased $2.2 million or 12.4%. Commercial sales volume increased $8.0
million (including $7.3 million from DMI) or 150.2%. The increase in net sales
reflects improved industry performance for vehicle and commercial furniture
products in addition to DMI net sales.
During the quarter ended December 31, 2002, the Company recorded a credit to
cost of goods sold of $0.4 million due to a reduction in estimated facility
closing costs.
Excluding the facility closing cost reversal described in the preceding
paragraph, gross margin increased $6.2 million to $23.2 million or 21.3% of net
sales in the current quarter, from $17.0 million or 23.0% in the prior year
quarter. The lower percentage gross margin in the current period is primarily
due to a lower gross margin on $32.1 million net sales of DMI furniture
products. There were no other significant changes in the gross margin
percentage.
Selling, general and administrative expenses as a percentage of net sales were
16.9% and 19.0% for the current quarter and prior year quarter, respectively.
The selling, general and administrative expense percentage decrease is due
primarily to the lower costs associated with DMI operations. There were no other
significant changes in the selling, general and administrative expense
percentage.
The above factors resulted in current fiscal quarter net income of $3.0 million
or $0.46 per share compared to the prior year quarter of $2.2 million or $0.35
per share, an increase of $0.8 million or $0.11 per share.
All earnings per share amounts are on a diluted basis.
Results of Operations for the Six Months Ended December 31, 2003 vs. 2002
- -------------------------------------------------------------------------
Net sales for the six months ended December 31, 2003 increased by $42.4 million
or 29.5% compared to the prior year six-month period. Residential sales volume
increased $28.7 million (including $26.5 million from DMI) or 29.8%.
Recreational vehicle sales increased $2.9 million or 7.6%. Commercial sales
increased $10.8 million (including $8.7 million from DMI) or 112.7%. The
increase in net sales reflects improved industry performance for recreational
vehicle and commercial products in addition to DMI net sales.
Excluding the facility closing cost reversal described for the quarter above,
gross margin increased $7.8 million to $40.1 million or 21.5% of sales in the
current period from $32.3 million or 24.3% of sales in the prior year period.
The lower gross margin percentage in the current period reflects the lower gross
margin on $35.2 million net sales of DMI furniture products.
Selling, general and administrative expenses as a percentage of sales were 17.4%
and 18.6% for the current year and prior year, respectively. The cost percentage
decrease was primarily due to the addition of lower cost DMI operations.
During the first quarter of 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.
11
The above factors resulted in current fiscal year to date net income of $4.9
million or $0.75 per share compared to $4.3 million or $0.67 per share in the
prior year period, an increase of $0.6 million or $0.08 per share from the prior
year six-month period.
All earnings per share amounts are on a diluted basis.
Liquidity and Capital Resources
- -------------------------------
Working capital at December 31, 2003 was $82.9 million, which includes cash,
cash equivalents and investments of $3.5 million. Working capital increased by
$15.2 million from the June 30, 2003 amount. Working capital has decreased by
$2.5 million from September 30, 2003 to December 31, 2003, primarily due to the
reduction of long-term debt.
Cash, cash equivalents and investments decreased by $18.8 million during the
six-month period ended December 31, 2003. Net cash provided by operating
activities was $8.6 million versus $6.5 million in the prior six-month period.
Cash, cash equivalents and investments have decreased from June 30, 2003 due to
the purchase of DMI that required $19.3 million and the reduction of long-term
debt of $4.7 million.
Capital expenditures, excluding the acquisition of DMI, were $3.2 million and
$3.4 million during the first six months of fiscal 2004 and 2003, respectively.
The current fiscal year expenditures were incurred primarily for manufacturing
machinery and equipment and the expansion of the Dublin, GA facility. During the
next six months, it is anticipated that approximately $3.3 million will be spent
on manufacturing and delivery equipment. The funds for projected capital
expenditures are expected to be provided by cash generated from operations and
available lines of credit.
The Company has adequate cash, cash equivalents, short-term investment and
credit arrangements to meet its operating and capital requirements. In the
opinion of management, the Company's liquidity and credit resources provide it
with the ability to react to opportunities as they arise, the ability to pay
quarterly dividends to its shareholders, and ensures that productive capital
assets that enhance safety and improve operations are purchased as needed.
Item 3. Quantitative and Qualitative Information 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. The
ability to import furniture products can be adversely affected by political
issues in the countries where suppliers are located and disruptions associated
with shipping distances. Other risks related to furniture product importation
include government imposition of regulations and/or quotas; duties and taxes on
imports; and significant fluctuation in the value of the U. S. dollar against
foreign currencies. Any of these factors could interrupt supply, increase costs
and decrease earnings.
FOREIGN CURRENCY RISK - During the six-month periods ended December 31, 2003 and
2002, the Company did not have sales, purchases, or other expenses denominated
in foreign currencies, nor did it have any subsidiary located in foreign
countries. As such, the Company is not exposed to market risk associated with
currency exchange rates and prices.
INTEREST RATE RISK - The Company's primary market risk exposure with regard to
financial instruments is changes in interest rates. At December 31, 2003, a
hypothetical 100 basis point increase in short-term interest rates would
decrease annual pre-tax earnings by approximately $50,000, assuming no change in
the volume or composition of debt at December 31, 2003. The Company has
effectively fixed the interest rates on approximately $16.2 million of its
long-term debt through the use of interest rate swaps, and the above estimated
earnings reduction takes these swaps into account. As of December 31, 2003, the
fair value of these swaps is a liability of approximately $0.4 million and is
included in other liabilities.
TARIFFS - The Company has exposure to actions by governments, including tariffs.
A petition filed by The American Furniture Manufactures Committee of Legal Trade
in October 2003 seeks antidumping tariffs on wooden bedroom furniture
manufactured in the People's Republic of China. The amount of the tariffs, if
any, is unknown and subject of ongoing investigation. The amount of product that
may be subjected to tariffs is less than 10% of total net sales of the Company.
12
Item 4. Controls and Procedures
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their evaluation
as of the filing date of this Quarterly Report on Form 10-Q, 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.
(b) 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.
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 or anticipated
results of the Company, including statements contained in the Company's filings
with the Securities and Exchange Commission and in its reports to stockholders.
Statements, including those in this report, which are not historical or current
facts, are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risk and uncertainty. Some of the
factors that could affect results are the cyclical nature of the furniture
industry, the effectiveness of new product introductions, the product mix of
sales, the cost of raw materials, currency fluctuation, actions by governments
including taxes and tariffs, the amount of sales generated and the profit
margins thereon, competition, both foreign and domestic, changes in interest
rates, credit exposure with customers, the ability to successfully integrate DMI
into the Company's operations, and general economic conditions.
The Company specifically declines to undertake any obligation to publicly revise
any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
PART II OTHER INFORMATION
Item 5. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders on December 8, 2003, Proposals 1and 2 set
forth in the Board of Directors' definitive Proxy Statement dated October 24,
2003 were approved and adopted by the stockholders as follows:
Proposal 1 (Election of Directors): James R. Richardson: For 5,355,537, Withheld
2,936, Abstentions and Broker Non-votes 36,128. Patrick M. Crahan: For
5,355,523, Withheld 2,950, Abstentions and Broker Non-votes 36,128. Robert E.
Deignan: For 5,333,255, Withheld 25,218, Abstentions and Broker Non-votes
36,128. The names of each Director whose term of office as a Director continued
after the meeting are as follows: K. Bruce Lauritsen, Edward J. Monaghan,
Jeffrey T. Bertsch, L. Bruce Boylen, Lynn J. Davis, Thomas E. Holloran, James R.
Richardson, Patrick M. Crahan, Robert E. Deignan and Eric S. Rangen.
Proposal 2 (Appointment of Deloitte & Touche LLP as Independent Auditors): For:
5,326,435, Against: 37,602, and Abstain: 30,564.
13
Item 6. Exhibits and Reports on Form 8-K
The registrant filed the following reports on Form 8-K during the quarter ended
December 31, 2003:
o Press Release dated October 2, 2003 - Flexsteel Completed a Short Form
Merger of Churchill Acquisition Corp. With and Into DMI
o Press Release dated October 2, 2003 - Flexsteel Corrects Typographical
Errors in Item 2 of Original Press Release dated October 2, 2003
o Press Release dated October 22, 2003 - Flexsteel Provides First
Quarter Information
o Press Release dated November 13, 2003 - Flexsteel Amends Press Release
dated October 2, 2003 to Include Financial Statements of Business
Acquired (DMI), and Pro forma Combined Condensed Consolidated
Financial Statements of Flexsteel Industries, Inc.
o Press Release dated November 14, 2003 - Flexsteel Announces First
Quarter Operating Results
o Press Release dated December 11, 2003 - Mary C. Bottie Joins Flexsteel
Board
o Press Release dated December 17, 2003 - Monaghan Steps Down; Flexsteel
Promotes Four Officers
Exhibits:
- ---------
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.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned officer thereunto duly authorized.
FLEXSTEEL INDUSTRIES, INC.
Date: February 6, 2004 By: /s/ R. J. Klosterman
---------------- ----------------------------------
R. J. Klosterman
Financial Vice
President & Principal
Financial Officer
14
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 quarterly report on Form 10-Q of Flexsteel
Industries, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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(c) and 15d-14(c)) for the
registrant and we 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
c) disclosed in this quarterly 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: February 6, 2004
----------------
By: /s/ K. Bruce Lauritsen
---------------------------------
K. Bruce Lauritsen
Chief Executive Officer
15
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 quarterly report on Form 10-Q of Flexsteel
Industries, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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(c) and 15d-14(c)) for the
registrant and we 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
c) disclosed in this quarterly 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: February 6, 2004
-------------------------
By: /s/ R. J. Klosterman
---------------------------------
Ronald J. Klosterman
Chief Financial Officer
16
EXHIBIT 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
In connection with the quarterly report of Flexsteel Industries, Inc. (the
Issuer) on Form 10-Q for the quarter ended December 31, 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: February 6, 2004
--------------------------
By: /s/ K. Bruce Lauritsen
------------------------------
K. Bruce Lauritsen
Chief Executive Officer
By: /s/ R. J. Klosterman
------------------------------
Ronald J. Klosterman
Chief Financial Officer
17