SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
FLEXSTEEL INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
Date: October 29, 1997
Office of the Chairman of the Board
Dear Stockholder:
You are cordially invited to attend the Annual Stockholders' Meeting on
Tuesday, December 9, 1997, at 3:30 p.m. We sincerely want you to come, and we
welcome this opportunity to meet with those of you who find it convenient to
attend.
Time will be provided for stockholder questions regarding the affairs of
the Company and for discussion of the business to be considered at the meeting
as explained in the notice and proxy statement which follow. Directors and other
Company executives expect to be available to talk individually with stockholders
after the meeting. No admission tickets or other credentials are currently
required for attendance at the meeting.
The formal notice of the meeting and proxy statement follow. I hope that
after reading them you will sign and mail the proxy card, whether you plan to
attend in person or not, to assure that your shares will be represented.
Sincerely,
/s/ J. B. Crahan
J. B. Crahan
Chairman of the Board
----------------------------------------------------------
RECORD DATE: October 20, 1997
DATE OF MEETING: December 9, 1997
TIME: 3:30 p.m.
PLACE: The Marquette
710 Marquette Avenue, Third Floor
Minneapolis, Minnesota 55402
----------------------------------------------------------
IMPORTANT
WHETHER YOU OWN ONE SHARE OR MANY, EACH STOCKHOLDER IS URGED TO VOTE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 9, 1997
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Flexsteel Industries, Inc. will be
held at The Marquette, 710 Marquette Avenue, Third Floor, Minneapolis, MN
55402, on Tuesday, December 9, 1997, at 3:30 p.m. for the following purposes:
1. To elect two (2) Class II Directors to serve until the year 2000
Annual Meeting and until their successors have been elected and
qualified or until their earlier resignation, removal or termination
(Proposal I).
2. To ratify or reject the appointment by the Board of Directors of
Deloitte & Touche LLP as independent auditors for the fiscal year
ending June 30, 1998 (Proposal II).
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
October 20, 1997 has been fixed as the record date for the determination of
Common stockholders entitled to notice of and to vote at the meeting, and only
holders of record at the close of business on that date will be entitled to vote
at the meeting or any adjournment thereof.
Whether or not you plan to attend the meeting, please mark, date and sign
the accompanying proxy and return it promptly in the enclosed envelope which
requires no additional postage if mailed in the United States. If you attend the
meeting, you may vote your shares in person even though you have previously
signed and returned your proxy. Voting by ballot at the meeting cancels any
proxy previously returned.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R. J. KLOSTERMAN
R. J. KLOSTERMAN
SECRETARY
October 29, 1997
PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY
<PAGE>
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Flexsteel Industries, Inc. (the "Company") to be used at the Annual Meeting of
Stockholders to be held on December 9, 1997, and any adjournments thereof, and
may be revoked by the stockholder at any time before it is exercised by a
written notice or a later dated proxy delivered to the Secretary of the Company.
Execution of the proxy will in no way affect a stockholder's right to attend the
meeting and vote in person. The proxy will be revoked if the stockholder is
present at the meeting and votes by ballot in person. Properly executed proxies
received prior to the voting at the meeting will be voted at the meeting or any
adjournments thereof. If a stockholder specifies how the proxy is to be voted on
any business to come before the meeting, it will be voted in accordance with
such specification. If no specification is made, it will be voted FOR the
election of Art D. Richardson and James R. Richardson as Class II Directors
(Proposal I) and FOR ratification of the appointment of Deloitte & Touche LLP
(Proposal II). Each of the above named nominees has previously been elected by
the shareholders. James G. Peterson will complete his term as a Class II
Director at the 1997 Annual Meeting of Shareholders and has informed the Board
he does not intend to stand for re-election.
The mailing address of the corporate office and principal executive office
of the Company is P.O. Box 877, Dubuque, Iowa 52004-0877. The approximate date
on which this proxy statement and accompanying proxy card are first being mailed
to stockholders is October 29, 1997.
As of the close of business on October 20, 1997, the record date for
determining stockholders entitled to notice and to vote at the meeting, the
Company had 6,958,174 outstanding shares of Common Stock, par value $1.00 per
share. Each share is entitled to one vote and cumulative voting is not
permitted. No Preferred Stock is outstanding.
Stockholder votes will be counted by Inspectors of Election who will be
present at the stockholder meeting. The affirmative vote of a majority of the
shares of stock represented at the meeting shall be the act of the stockholders
for the election of directors. Abstentions and broker non-votes shall not be
counted as votes for or against the proposal being voted on.
EXPENSE OF SOLICITATION
The cost of the solicitation of proxies on behalf of the Board of Directors
will be paid by the Company. Solicitation of proxies will be principally by
mail. In addition, the officers or employees of the Company and others may
solicit proxies, either personally, by telephone, by
<PAGE>
special letter, or by other forms of communication. The Company will also make
arrangements with banks, brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their principals and will
reimburse them for reasonable expenses in so doing. Officers and employees of
the Company will not receive additional compensation in connection with the
solicitation of proxies.
PROPOSAL I -- ELECTION OF DIRECTORS
The Board currently consists of ten persons divided into three classes. At
each Annual Meeting the terms of one class of Directors expire and persons are
elected to that class for terms of three years or until their respective
successors are duly qualified and elected or until their earlier resignation,
removal or termination.
The terms of the Class II Directors expire at the time of the 1997 Annual
Meeting. The Board of Directors of the Company has nominated Art D. Richardson
and James R. Richardson for re-election as Class II Directors of the Company.
Each Director, if elected, will serve a three (3) year term expiring at the time
of the year 2000 Annual Meeting and until their respective successors have been
elected and qualified or until their earlier resignation, removal or
termination. It is the intention of the proxies named herein to vote FOR these
nominees unless otherwise directed in the proxy.
All nominees named above have consented to serve as Directors if elected.
In the event that any of the nominees should fail to stand for election, the
persons named as proxy in the enclosed form of proxy intend to vote for
substitute nominees. The proxies cannot be voted for a greater number of persons
than the number of nominees named herein.
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS OR
NOMINEE'S NAME AGE SINCE EMPLOYMENT DURING THE LAST FIVE YEARS
- -------------------------- --- -------- -----------------------------------------------------------
<S> <C> <C> <C>
NOMINEES FOR ELECTION FOR A TERM OF THREE YEARS EXPIRING AT THE 2000
ANNUAL MEETING, CLASS II
Art D. Richardson (2)(4) 80 1951 Retired Senior Vice President, Flexsteel Industries, Inc.
(retired 1982).
James R. Richardson (1) 53 1990 Senior Vice President Marketing, 1994 to present.
Vice President Marketing, 1979 to 1994, Flexsteel
Industries, Inc.
DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING, CLASS I
K. Bruce Lauritsen (1) 54 1987 Chief Executive Officer and President, 1993 to present,
President and Chief Operating Officer, 1990 to 1993,
Flexsteel Industries, Inc.; Director, Mercantile Bank of
Dubuque; Regent, Loras College.
Thomas E. Holloran (2)(3) 68 1971 Professor, Graduate School of Business, University of St.
Thomas, St. Paul; Director, ADC Telecommunications, Inc.;
Director, MTS Systems Corporation (mfr. testing systems);
Director, Medtronic, Inc.; Director, National City
Bancorporation; Director, Bush Foundation.
L. Bruce Boylen (3)(4) 65 1993 Retired Vice President, Fleetwood Enterprises, Inc. (retired
1991) (mfr. of recreational vehicles and manufactured
homes).
John R. Easter (2)(3)(4) 68 1993 Retired Vice President, Sears-Roebuck Company (retired
1989); Director, Mutual Trust Life Insurance Co.
DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING, CLASS III
J.B. Crahan (1) 73 1949 Chairman of the Board and retired Chief Executive Officer,
Flexsteel Industries, Inc. (retired 1993); Trustee, U.I.U.
Pension Trust Fund.
Edward J. Monaghan (1) 58 1987 Chief Operating Officer and Executive Vice President,
1993 to present, Executive Vice President, 1988 to 1993,
Flexsteel Industries, Inc.; Trustee, Clarke College.
*Frank H. Bertsch
</TABLE>
- ---------------------------
(1) Member of Executive Committee
(2) Member of Audit and Ethics Committee
(3) Member of Nominating and Compensation Committee
(4) Member of Marketing Committee
* Class III Director Frank H. Bertsch died October 4, 1997 and his seat on
the Board is now vacant.
<PAGE>
CERTAIN INFORMATION CONCERNING BOARD
AND OUTSIDE DIRECTOR'S COMPENSATION
During the fiscal year ended June 30, 1997, four meetings of the Board of
Directors were held. No Director attended less than 75% of the meetings.
Each Director who is not an employee of the Company is paid a retainer at
the rate of $8,000 per year. In addition, each is paid a fee of $2,000 for each
Board meeting each attends. The Chairman of the Board is paid a retainer of
$12,380 per year and a fee of $3,095 for each Board meeting attended. For
attending a committee meeting each is paid a fee of $900. The Chairman of each
Committee is paid $1,000 for each meeting attended. The Company pays no
additional remuneration to employees of the Company who are Directors.
Each duly elected Director who is not an employee of the Company receives
on the first business day after each annual meeting a non-discretionary,
non-qualified stock option grant for 1,000 shares valued at fair market value on
date of grant, exercisable for 10 years. Each person who becomes for the first
time a non-employee member of the Board, including by reason of election,
appointment or lapse of three (3) years since employment by the Company, will
receive an immediate one-time grant for 2,000 shares.
The Company has entered into an unfunded deferred compensation agreement
with John R. Easter, whereby, director fees are invested by the Company in
mutual funds. Payments to Mr. Easter are deferred until his 70th birthday,
except for special circumstances.
The Company has entered into an agreement with James G. Peterson and Thomas
E. Holloran pursuant to which the Company will pay to each, or his
beneficiaries, $20,000 after the person ceases to be a Director as additional
compensation in recognition of Director services rendered.
<PAGE>
COMMITTEES OF THE BOARD
The Board of Directors has established four standing committees; the names
of the committees and the principal duties are as follows:
AUDIT AND ETHICS COMMITTEE:
Confers with the independent auditors on various matters, including the
scope and results of the audit; authorizes special reviews or audits; reviews
internal auditing procedures and the adequacy of internal controls; and reviews
policies and practices respecting compliance with laws, conflicts of interest
and ethical standards of the Company. The Committee held two meetings during the
fiscal year ended June 30, 1997. The Committee members are Thomas E. Holloran,
John R. Easter, James G. Peterson, and Art D. Richardson.
EXECUTIVE COMMITTEE:
Exercises all powers and authority of the Board between Board meetings,
except those powers specifically reserved to the Board by law, the Articles or
by the Bylaws of the Company. The Committee held two meetings during the fiscal
year ended June 30, 1997. The Committee members are J. B. Crahan, K. Bruce
Lauritsen, Edward J. Monaghan, James R. Richardson and Frank H. Bertsch (now
deceased).
NOMINATING AND COMPENSATION COMMITTEE:
Makes recommendations regarding Board compensation, reviews performance and
compensation of various executive officers, determines stock option grants, and
advises regarding employee benefit plans. Makes recommendations regarding Board
of Director nominees and reviews timely proposed nominees received from any
source including nominees by stockholders. Nominations by stockholders must be
received by the Secretary at least 18 days before the annual meeting and set
forth nominee information as required by the Restated Articles. The Committee
held three meetings during the fiscal year ended June 30, 1997. The Committee
members are L. Bruce Boylen, John R. Easter, Thomas E. Holloran and James G.
Peterson.
MARKETING COMMITTEE:
Reviews marketing plans with respect to the Company's position in the
various market places. Makes recommendations regarding marketing direction to
enhance revenues and profit margins. The Committee held one meeting during the
fiscal year ended June 30, 1997. The Committee members are John R. Easter, L.
Bruce Boylen, James G. Peterson, Art D. Richardson and Frank H. Bertsch (now
deceased).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITS NOMINEES. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES.
<PAGE>
OWNERSHIP OF STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the shares of Flexsteel's Common Stock
beneficially owned by the Directors, the Chief Executive Officer, the other four
most highly compensated executive officers and by all directors and executive
officers as a group as of August 8, 1997. Unless otherwise indicated, to the
best knowledge of the Company all persons named in the table have sole voting
and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT OF TOTAL SHARES
NAME TITLE OWNED (1)(2) OUTSTANDING
- ---- ---------------------------------------------- ------------------- -----------------------
<S> <C> <C> <C>
F.H. Bertsch Director 77,164 (3) 1.1%
L.B. Boylen Director 6,000 0.1%
J.B. Crahan Chairman of the Board of Directors 401,985 5.8%
J.R. Easter Director 6,000 0.1%
T.E. Holloran Director 11,680 0.2%
K.B. Lauritsen President, Chief Executive Officer, Director 84,658 1.2%
E.J. Monaghan Executive Vice President, 118,141 1.7%
Chief Operating Officer, Director
J.G. Peterson Director 12,000 0.2%
A.D. Richardson Director 293,906 4.2%
J.R. Richardson Senior Vice President Marketing, Director 189,132 2.7%
T.D. Burkart Senior Vice President Vehicle Seating 46,003 0.7%
R.J. Klosterman Vice President Finance, Chief 44,497 0.6%
Financial Officer and Secretary
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (14) 1,655,009 23.8%
</TABLE>
- -------------------------
(1) Includes 275,080 shares, which directors and executive officers as a group
have the right to acquire pursuant to stock options within 60 days. Mr.
F.H. Bertsch had no stock options.
(2) Includes shares owned beneficially by their respective spouses.
(3) Director F.H. Bertsch died October 4, 1997. Does not include 365,944 shares
held in irrevocable trusts for the benefit of F.H. Bertsch's children and
grandchildren for which trusts American Trust & Savings Bank serves as
trustee. Also, does not include 140,511 shares held in the trust
established by the Will of Eleanor E. Bertsch for the children of F.H.
Bertsch and his sister. Under the Terms of Trust, F.H. Bertsch had a
possible contingent interest. The American Trust & Savings Bank is the sole
trustee. F.H. Bertsch disclaimed beneficial ownership in the shares held by
each such trust. F.H. Bertsch and J.B. Crahan were first cousins. J.R.
Richardson is the son of A.D. Richardson. Executive officers P.M. Crahan
and J.T. Bertsch are the sons of J.B. Crahan and F.H. Bertsch,
respectively.
<PAGE>
OWNERSHIP OF STOCK BY
CERTAIN BENEFICIAL OWNERS
AS OF AUGUST 8, 1997
To the best knowledge of the Company, no person owns beneficially 5% or
more of the outstanding common stock of the Company except as is set forth
below.
<TABLE>
<CAPTION>
AMOUNT PERCENT
BENEFICIALLY OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS
-------------- ------------------------------------------ ------------ -------
<S> <C> <C> <C>
Common J.B. Crahan, P.O. 877, Dubuque, IA 52004 401,985 5.8%
Common Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, Santa Monica, CA 90401 446,500 6.4%
Common First Pacific Advisors Incorporated,
11400 West Olympic Boulevard, Los Angeles,
CA 90064 410,200 5.9%
</TABLE>
- ------------------------
(1) To the best knowledge of the Company, no beneficial owner named above has
the right to acquire beneficial ownership in additional shares.
<PAGE>
The following table discloses compensation received by the Company's Chief
Executive Officer and the four remaining most highly paid executive officers for
the three (3) fiscal years ending June 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ------------------------------------------------------------------------ ------------------------- -----------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
SALARY BONUS COMP AWARDS OPTIONS PAYOUTS COMP
NAME & PRINCIPAL POSITION YEAR $ $ $ $ # $ $(1)
- ----------------------------- ---- ------- ------- ------ ---------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
K. Bruce Lauritsen 1997 261,600 105,586 9,750 45,841 26,553
President & 1996 233,700 0 8,850 0 39,858
Chief Executive Officer 1995 216,600 42,143 9,520 19,305 26,406
Edward J. Monaghan 1997 220,500 58,786 9,250 31,576 36,205
Executive Vice President & 1996 211,500 0 8,850 0 48,070
Chief Operating Officer 1995 201,000 35,978 9,520 17,685 36,229
James R. Richardson 1997 189,600 56,173 8,500 27,785 22,880
Senior Vice President of 1996 182,100 0 8,850 0 33,120
Marketing 1995 173,700 31,089 9,520 15,278 22,974
Ronald J. Klosterman 1997 141,000 51,042 8,000 21,714 33,498
Vice President of 1996 119,100 0 5,000 0 13,637
Finance & Secretary 1995 103,500 18,526 5,000 9,105 7,919
Thomas D. Burkart 1997 161,100 52,594 6,000 20,853 25,376
Senior Vice President 1996 152,300 0 5,000 0 29,692
Vehicle Seating 1995 145,800 17,566 5,000 5,617 26,055
</TABLE>
- ------------------------
(1) All Other Compensation -- Includes for the fiscal years and the named
executive officers indicated below: (i) retirement plan contributions, (ii)
Company matching contributions to the Section 401k plan, (iii) premiums
paid on term life insurance with a face value greater than $50,000, (iv)
accruals made in accordance with the Company's Senior Officer Deferred
Compensation Plan entitling each participant upon retirement or other
limited circumstances to $5,000 per month during their lives and (v)
gross-up amounts to cover income taxes payable on prior year common stock
awards taxable in the current year.
<PAGE>
<TABLE>
<CAPTION>
RETIREMENT INSURANCE DEFERRED COMP
NAME YEAR PLAN 401k PREMIUM COMP TAXES
- ---------------------- ---- ---------- ----- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
K. Bruce Lauritsen 1997 8,269 1,500 0 16,784 0
1996 8,324 1,500 0 16,784 13,250
1995 8,293 1,329 0 16,784 0
Edward J. Monaghan 1997 8,269 1,500 0 26,436 0
1996 8,284 1,500 0 26,436 11,850
1995 8,293 1,500 0 26,436 0
James R. Richardson 1997 8,060 1,500 0 13,320 0
1996 8,075 1,500 0 13,320 10,225
1995 8,091 1,500 63 13,320 0
Ronald J. Klosterman 1997 8,663 1,455 146 23,234 0
1996 7,724 1,331 132 0 4,450
1995 6,607 1,189 123 0 0
Thomas D. Burkart 1997 7,112 1,500 0 16,764 0
1996 7,878 1,500 0 16,764 3,550
1995 7,791 1,500 0 16,764 0
</TABLE>
STOCK OPTIONS/SAR*
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
FOR
OPTION TERM (1)
-------------------
EXERCISE
NAME SHARES PRICE ($/Sh) EXPIRE DATE 5% 10%
- -------------------- ------ ------------ ----------- ------ -------
<S> <C> <C> <C> <C> <C>
K. Bruce Lauritsen 9,750 10.25 7/30/2006 62,850 159,275
Edward J. Monaghan 9,250 10.25 7/30/2006 59,627 151,107
James R. Richardson 8,500 10.25 7/30/2006 54,792 138,855
Ronald J. Klosterman 8,000 10.25 7/30/2006 51,569 130,687
Thomas D. Burkart 6,000 10.25 7/30/2006 38,677 98,105
</TABLE>
- -----------------------
(1) The amounts set forth in these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercise are dependent on the future
performance of the Company's common stock.
* The Company does not have a stock appreciation rights plan (SAR).
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
YEAR END 1997 AT FY-END 1997 (1)
---------------------- --------------------
# OF SHARES
ACQUIRED ON $ VALUE # $
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
-------------------- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
K. Bruce Lauritsen 0 47,160 42,850
Edward J. Monaghan 0 46,660 42,100
James R. Richardson 0 45,910 40,975
Ronald J. Klosterman 0 25,850 25,313
Thomas D. Burkart 0 25,200 23,000
</TABLE>
- ------------------------
(1) Based on the closing price as published in The Wall Street Journal for the
last business day of the fiscal year ($11.75). All options are exercisable
at time of grant.
<PAGE>
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR
OTHER PERIOD ESTIMATED FUTURE
NUMBER OF UNTIL PAYOUTS UNDER
SHARES, UNITS MATURATION OR NON-STOCK PRICE BASED
NAME OR OTHER RIGHTS PAYOUT (1) PLANS (2)
--------------------- --------------- -------------- ---------------------
<S> <C> <C> <C>
K. Bruce Lauritsen 5,852
Edward J. Monaghan 4,031
James R. Richardson 3,547
Ronald J. Klosterman 2,772
Thomas D. Burkart 2,662
</TABLE>
- -----------------------
Shares of the Company's common stock are available for award annually to key
employees based on the average of the returns on beginning equity for the last
three years.
(1) Shares awarded are subject to restriction, with 33.3% of the stock received
by the employee on the award date and 33.3% each year for the next two
years. Restricted Stock Awards -- The aggregate stock holdings (number of
shares and value) as of August 8, 1997 are as follows: K. Bruce Lauritsen
-- 3,901 shares, $45,841; Edward J. Monaghan -- 2,687 shares, $31,576;
James R. Richardson -- 2,365 shares, $27,785; Ronald J. Klosterman -- 1,848
shares, $21,714; Thomas D. Burkart 1,775 shares, $20,853. Dividends are
paid to the employee on restricted shares.
(2) Not applicable to Plan.
NOMINATING AND COMPENSATION COMMITTEE REPORT CONCERNING
FLEXSTEEL'S EXECUTIVE COMPENSATION POLICY*
The Nominating and Compensation Committee of the Board of Directors is
responsible for the establishing of the Company's policy for compensating
executives. The Committee is comprised of non-employee directors.
COMPENSATION PHILOSOPHY -- The fundamental objective of Flexsteel's
executive compensation program is to support the achievement of the Company's
business objectives and, thereby, the creation of stockholder value. As such,
the Company's philosophy is that executive compensation policy and practice
should be designed to achieve the following objectives:
* Align the interests of executives with those of the Company and its
stockholders by providing a significant portion of compensation in
Company stock.
* Provide an incentive to executives by tying a meaningful portion of
compensation to the achievement of Company financial objectives.
<PAGE>
* Enable the Company to attract and retain key executives whose skills
and capabilities are needed for the continued growth and success of
Flexsteel by offering competitive total compensation opportunities and
providing attractive career opportunities.
In compensating senior management for its performance, two key measures are
considered: return on equity and stock price. At the executive level, overall
Company performance is emphasized in an effort to encourage teamwork and
cooperation.
While a significant portion of compensation fluctuates with annual results,
the total program is structured to emphasize longer-term performance and
sustained growth in stockholder value.
COMPETITIVE POSITIONING -- The Committee regularly reviews executive
compensation levels to ensure that the Company will be able to attract and
retain the caliber of executives needed to run the Company and that pay for
executives is reasonable and appropriate relative to market practice. In making
these evaluations, the Committee annually reviews the result of surveys of
executive salary and annual bonus levels among durable goods manufacturers of
comparable size. The Committee periodically completes an in-depth analysis of
salary, annual bonus, and long-term incentive opportunities among specific
competitors assisted by an independent compensation consulting firm. All of the
surveyed companies are included in the Household Furniture Index used as the
peer group for purposes of the performance graph. While the pay of an individual
executive may vary, the Company's Policy is to target aggregate compensation for
executives at average competitive levels, provided commensurate performance.
COMPONENTS OF EXECUTIVE COMPENSATION -- The principal components of
Flexsteel's executive compensation program include base salaries, annual cash
bonuses, and longer-term incentives using Company stock.
BASE SALARY -- An individual executive's base salary is based upon the
executive's level of responsibility within the Company, as well as competitive
rates of pay. The Committee reviews each executive officer's salary annually and
makes adjustments, as appropriate, in light of any change in the executive's
responsibility, changes in competitive salary levels, and the Company's
performance.
ANNUAL INCENTIVE -- The purpose of the Company's annual incentive program
is to provide a direct monetary incentive to executives in the form of annual
cash bonus tied to the achievement of performance objectives. For executive
officers, the Committee annually sets a targeted return on equity for the coming
year, from which minimum and maximum levels are determined. Corresponding
incentive award levels, expressed as a percentage of salary, also
<PAGE>
are set based primarily on an individual's responsibility level. If minimum
performance levels are not met, no bonus award is made. After the completion of
the year, the Committee ratifies cash bonuses as awarded based principally on
the extent to which targeted return on equity has been achieved.
LONG-TERM INCENTIVES -- Longer-term incentive compensation involves the use
of stock under two types of awards: Long-term incentive awards and stock
options. Both types of awards are intended to focus executives' attention on the
achievement of the Company's longer term performance objectives, to align the
executive officers' interests with those of stockholders and to facilitate
executives' accumulations of sustained holding of Company stock. The level of
award opportunities, as combined under both plans, are intended to be consistent
with typical levels of comparable companies and reflect an individual's level of
responsibility and performance.
Long-term incentive awards are paid under the stockholder approved
Management Incentive Plan. Awards give executives the opportunity to earn shares
of Company stock to the extent that the three-year average return on equity
objectives are achieved. As with annual incentives, various levels of
performance goals and corresponding compensation amounts are established, with
no awards earned if a minimum level is not achieved. Two-thirds of any earned
shares are subject to forfeiture provisions tied to the executive's continued
service with the Company. This provision is intended to enhance the Company's
ability to retain key executives and provide a longer-term performance focus.
Stock options, as awarded under stockholder approved plans, give executives
the opportunity to purchase Flexsteel common stock for a term not to exceed ten
years and at a price of no less than the fair market value of Company stock on
the date of grant. Executives benefit from stock options only to the extent
stock price appreciates after the grant of the option.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER -- The total compensation for
Flexsteel's CEO in fiscal year 1997 was established in accordance with the
policies discussed above. Mr. Lauritsen's base salary increase reflects market
movements in executive salaries. His annual incentive bonus and long-term
incentive award were based on the Company's exceeding the minimum established
target levels for return on equity. Mr. Lauritsen's stock option award was
consistent with prior awards and those to other senior executives.
The Company's current levels of compensation are less than the $l,000,000
level of non-deductibility with respect to Section 162(m) of the Internal
Revenue Code.
<PAGE>
This report has been prepared by members of the Nominating and Compensation
Committee of the Board of Directors. Members of this Committee are:
L. Bruce Boylen John R. Easter
Thomas E. Holloran James G. Peterson
*NOTE: This report is not incorporated by reference in any prior or future
Securities Exchange Act filings, directly or by reference to the incorporation
of proxy statements of the Company, unless such filing specifically incorporates
this report.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The current members of Flexsteel's Nominating and Compensation Committee
are L. Bruce Boylen, John R. Easter, Thomas E. Holloran and James G. Peterson.
No executive officer of Flexsteel served as a director of another entity that
had an executive officer serving on Flexsteel's compensation committee. No
executive officer of Flexsteel served as a member of the compensation committee
of another entity which had an executive officer who served as a director of
Flexsteel.
SHARE INVESTMENT PERFORMANCE
The following graph is based upon the SIC Code #251 Household Furniture
Index as a peer group. It shows changes over the past five-year period in the
value of $100 invested in: (1) Flexsteel's Common Stock; (2) the NASDAQ Market
Index; and (3) an industry group of the following: Ameriwood Industries Int.,
Bassett Furniture Ind., Bush Ind. Inc. CL A, Chromcraft Revington Inc., DMI
Furniture, Inc., Ethan Allen Interiors, Flexsteel Industries, Inc., Furniture
Brands Intl., Industrie Natuzzi S.P.A., Krause's Furniture, Inc., La-Z-Boy Co.,
Ladd Furniture Inc., Leggett & Platt Inc., Masco Corp., O'Sullivan Ind. Hldgs
Inc., Pulaski Furniture Corp, River Oaks Furniture Inc., Rowe Furniture Corp,
and Stanley Furniture Inc. This data was furnished by Media General Financial
Services. The graph assumes reinvestment of dividends.
<PAGE>
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON JUNE 30, 1992
[PLOT POINTS GRAPH]
1992 1993 1994 1995 1996 1997
---- ------ ------ ------ ------ ------
Flexsteel 100 130.10 119.93 93.25 111.75 116.36
Furniture Household 100 128.83 129.85 133.01 163.51 236.53
NASDAQ 100 122.76 134.61 157.88 198.73 239.40
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Information with respect to directorships held by certain directors of the
Company in local financial institutions is set forth in the table under
"Proposal I -- Election of Directors," in the column captioned "Principal
Occupation and Other Directorships or Employment during the Last Five Years."
The Company maintains normal banking relations with the banks named in the
table. It is expected that the Company's relationship with these banks will
continue in the future.
<PAGE>
PROPOSAL II
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has
appointed Deloitte & Touche LLP as independent certified public accountants to
examine the financial statements of the Company for the fiscal year ending June
30, 1998.
The Company has been informed by Deloitte & Touche LLP that neither it nor
its members nor its associates has any direct, nor any material indirect
financial interest in the Company. Management is not aware of any material
connection by such firm in the past with the Company in any capacity other than
as independent auditors. It is not expected that a representative of Deloitte &
Touche LLP will be present at the meeting.
Audit services performed by Deloitte & Touche LLP during the fiscal year
include examinations of the financial statements of the Company, services
related to filings with the Securities and Exchange Commission and consultation
on matters related to accounting, taxation and financial reporting. Professional
services were reviewed by the Audit and Ethics Committee and the possible effect
on the auditor's independence was considered.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF DELOITTE & TOUCHE LLP. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR
PROXIES.
PROPOSALS BY STOCKHOLDERS
Stockholders wishing to have a proposal considered for inclusion in the
Company's proxy statement for the 1998 annual meeting must submit the proposal
in writing and direct it to the Secretary of the Company at the address shown
herein. It must be received by the Company no later than June 30, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) requires the Company's directors and executive officers to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership of the Company's Common Stock, and the Company is required
to identify any of those persons who fail to file such reports on a timely
basis. To the best of the Company's knowledge, there were no late filings by
directors and executive officers during fiscal year 1997.
<PAGE>
OTHER MATTERS
The percentage total number of the outstanding shares represented at each
of the last three years stockholders' meetings was as follows: 1994 -- 89.0%;
1995 -- 86.0%; 1996 -- 85.7%.
The financial statements of the Company contained in the Annual Report to
Shareholders for the year ended June 30, 1997, are incorporated herein by
reference. Specifically incorporated herein by reference from the 1997 Annual
Report to Shareholders, is the Independent Auditors' Report, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Selected Quarterly Financial Data.
UPON WRITTEN REQUEST THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997. REQUESTS SHOULD
BE DIRECTED TO THE SECRETARY OF THE COMPANY AT P.O. BOX 877, DUBUQUE, IOWA
52004-0877.
The Board of Directors does not know of any other matter which may come
before the meeting. However, should any other matter properly come before the
meeting, the persons named in the Proxy will vote in accordance with their
judgment upon such matters unless a contrary direction is indicated by the
Stockholder by his lining or crossing out the authority on the Proxy.
Stockholders are urged to vote, date, sign and return the Proxy form in the
enclosed envelope to which no postage need be affixed if mailed in the United
States. Prompt response is helpful and your cooperation will be appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R. J. KLOSTERMAN
R. J. KLOSTERMAN
Secretary
Dated: October 29, 1997
Dubuque, Iowa
<PAGE>
[LOGO] FLEXSTEEL
FLEXSTEEL
INDUSTRIES, INC.
NOTICE OF 1997
ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE>
THE FLEXSTEEL INDUSTRIES, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE
P.O. BOX 877 BOARD OF DIRECTORS FOR THE ANNUAL MEETING
DUBUQUE, IOWA 52004-0877 OF STOCKHOLDERS TO BE HELD DECEMBER 9, 1997
The undersigned, a stockholder of Flexsteel Industries, Inc., hereby
appoints K. Bruce Lauritsen and R. J. Klosterman and each of them, as proxies,
with full power of substitution, to vote on behalf of the undersigned the same
number of shares which the undersigned is then entitled to vote at the Annual
Meeting of the Stockholders of Flexsteel Industries, Inc., to be held on
Tuesday, December 9, 1997 at 3:30 P.M. at The Marquette, 710 Marquette Avenue,
Minneapolis, MN 55402, and at any adjournments thereof as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
Proposal No. 1 -- Election of 2 Class II Directors (Term Expires at the 2000
Annual Meeting):
ART D. RICHARDSON JAMES R. RICHARDSON
(Class II) (Class II)
[ ] FOR all Nominees [ ] WITHHELD from all [ ] WITHHELD from the following
(Except as marked to Nominees only: (Write name(s) below)
the contrary)
---------------------------
---------------------------
- --------------------------------------------------------------------------------
Proposal No. 2 -- Appointment of Deloitte & Touche LLP as Independent Auditors
for the ensuing fiscal year: [ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
In their discretion to vote upon such other business as may properly come before
the meeting, or any adjournments thereof UNLESS THE STOCKHOLDER LINES OR CROSSES
OUT THIS AUTHORITY.
- --------------------------------------------------------------------------------
(IMPORTANT: continued, and to be signed and dated, on the reverse side)
<PAGE>
(CONTINUED FROM OTHER SIDE)
The Undersigned hereby revokes any proxy or proxies to vote such shares
heretofore given.
PLEASE VOTE, DATE, SIGN, AND RETURN IN THE ENCLOSED ENVELOPE.
Dated ___________________________, 1997.
________________________________________
(Signature)
________________________________________
Signature of stockholder shall
correspond exactly with the name
appearing hereon.
If a joint account, each owner must
sign. When signing as attorney,
executor, administrator, trustee,
guardian or corporate official, give
your full title as such.
This proxy when properly executed will be voted in the manner directed hereon by
the above signed stockholder. If no direction is given, this proxy will be voted
FOR Proposals 1 and 2, and the grant of authority to vote upon such other
business as may properly come before the meeting or any adjournments thereof
will not be crossed out.
<PAGE>
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
FLEXSTEEL INDUSTRIES INCORPORATED
ENHANCING EXCELLENCE
[PHOTO]
[LOGO]
FLEXSTEEL(R)
AMERICA'S SEATING SPECIALIST
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales....................................... $219,427,000 $205,008,000 $208,432,000
Income Before Taxes............................. 9,473,000 7,052,000 8,111,000
Net Income...................................... 6,048,000 4,502,000 5,211,000
Per Share of Common Stock
Earnings ....................................... .86 .63 .73
Cash Dividends.................................. .48 .48 .48
Average Shares Outstanding...................... 7,024,000 7,172,000 7,178,000
At June 30
Working Capital................................. 44,357,000 47,376,000 46,272,000
Net Plant and Equipment......................... 26,214,000 23,046,000 24,376,000
Total Assets.................................... 99,173,000 95,874,000 96,271,000
Shareholders' Equity............................ 75,238,000 74,147,000 73,824,000
Long-Term Debt.................................. 0 35,000 70,000
</TABLE>
- --------------------------------------------------------------------------------
[BAR CHARTS]
NET SALES
(MILLIONS OF DOLLARS)
EARNINGS PER SHARE
(DOLLARS)
CASH DIVIDENDS PER SHARE
(DOLLARS)
BOOK VALUE PER SHARE
(DOLLARS)
RETURN ON COMMON EQUITY
(PERCENT)
[LOGO]
FLEXSTEEL(R)
AMERICA'S SEATING SPECIALIST
- --------------------------------------------------------------------------------
[PHOTO]
FRONT COVER: "Lifestyle" collections such as this grouping, presenting pieces
that are beautifully compatible, capture the consumer's imagination. Louis XVI
influences and handsome carving distinguish the Charisma(R) chair and ottoman.
The sofa is from our "Casual Collections" group, with relaxed styling in the
popular "slip-cover" look and waterfall pleats.
<PAGE>
ENHANCING EXCELLENCE: FLEXSTEEL'S UNIQUE CHALLENGE
TO OUR SHAREHOLDERS
[LOGO]
We are pleased to announce that fiscal 1997 showed marked improvements for
Flexsteel Industries, Inc. We achieved record revenues and improved our earnings
despite a persistently competitive marketplace.
Consolidated sales for the fiscal year ending June 30, 1997, totaled
$219,427,000, an all-time high and an increase of 7% over revenues of
$205,008,000 the previous fiscal year. Our net earnings for the year were
$6,048,000, or $.86 per share, compared to earnings of $4,502,000 or $.63 per
share a year earlier.
This is progress in a retail environment which, for our industry, remains
challenging; we remain, however, committed to goals which will further improve
our results. We continue developing and implementing changes which will improve
shareholder value.
RESIDENTIAL SEATING
Residential furniture sales began the fiscal year with modest gains in the
extremely competitive domestic market. International sales, although a small
percentage of our sales, were up significantly, even though the strength of the
dollar, plus prevailing economic conditions in Canada and Mexico, were not
especially favorable for sales of exported furniture.
The major furniture market, both domestically and internationally, is held in
High Point, North Carolina, and this spring your company introduced some of its
most exciting new styles. These introductions were very well received in spite
of reduced attendance resulting from slower retail furniture sales. Our enlarged
showroom allowed us to display our new Collections more completely, in
coordinated displays that emphasized today's less structured, softer, and more
comfortable home fashions.
Flexsteel's emphasis on growth continues with the new Comfort Seating Stores
which will give us a dynamic presence in major metropolitan markets where we
have been less visible in the past. At the same time, we are updating our
dealers' in-store Flexsteel Galleries; both are, like our collections, cohesive
and dynamic. Special packages of signage, photography and other dealer aids are
put together by Flexsteel designers for maximum effectiveness and consumer
appeal.
[PHOTO]
JACK B. CRAHAN, CHAIRMAN OF THE BOARD (L) AND K. BRUCE LAURITSEN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER. THE SOFA IS TYPICAL OF THOSE IN OUR "LIFESTYLES"
COLLECTIONS.
We expect furniture supply to exceed demand over the next few months, with
resultant continuing pressure on prices and profit margins. The economy is
booming, yet the furniture market is more complex, competitive, and intense than
ever.
[PHOTO]
INTERESTING FABRICS COMBINE IN THIS "COLLAGE" SOFA, A POPULAR CHOICE. SHOWN WITH
A POET'S CHAIR AND OTTOMAN SCALED FOR MAXIMUM COMFORT.
1
<PAGE>
RECREATIONAL VEHICLE SEATING
The year began with a decline in sales of converted vans as more consumers
turned to sports utility vehicles. As consumer confidence grew, our sales
improved nicely in the second half of our fiscal year. Revenues in this division
are at record levels as we continue to increase our market share.
In March we announced the acquisition of the assets of Dygert Seating, Inc.
including their RV seating production facility in Elkhart, Indiana. Dygert
Seating, who had previously purchased another RV seating maker, Goshen Cushion,
reported sales of over $30 million in 1996. We have long been a leading supplier
to high-end motor homes and van conversions, and the addition of Dygert's lines
gives us broader market coverage as well as greater production capacity in the
van, sport vehicle, and light truck markets.
COMMERCIAL SEATING
We previously reported to you that we were consolidating production of our
exposed wood chairs and contract seating line at our recently expanded and
updated plant in Starkville, Mississippi. This transition has been completed,
and in the third quarter we sold the facility in Sweetwater, Tennessee. With
sales up 15% over the past year, even that facility has been hard-pressed to
keep up with demand, and we have had to temporarily produce some orders in our
other plants, resulting in a decrease in profit margins because of higher labor
and overhead costs.
We are confident of excellent future prospects in both the health care and
hospitality fields, and we are totally committed to increasing capacity at
Starkville. We have an excellent relationship with Stryker Medical who
represents us in the health care field, and sales remain buoyant.
VISIT OUR WEB SITE
We encourage you to visit our web site (http://flexsteel.com) installed last
October and featuring products from all divisions of Flexsteel. There is a news
section including the latest financial releases plus cross links to both NASDAQ
Online and QUOTE.COM which allows you to access the latest Flexsteel stock
prices. We continue to improve this major online site; our latest addition is
implementing the Flexsteel "Smart Shopper" e-mail data base marketing program to
potential Flexsteel customers.
JAMES G. PETERSON TO RETIRE
Mr. James G. Peterson, who has been a valuable member of Flexsteel's Board of
Directors since we went public in 1969, has announced that he will retire from
our Board effective at the December 1997 Annual Stockholders' meeting. He earned
our respect and admiration for his strong and creative contributions, and we
will miss his wisdom and counsel.
OUTLOOK
Looking to the future, it appears we can expect a reasonable period of growth.
Interest rates and inflation are low, and consumer confidence is high. In this
market, one thing becomes abundantly clear - it is no longer "business as
usual." Consumers insist on choice, and the manufacturer who has not cut costs
and made significant operational changes, including applications of advanced
information and material technologies, will simply not survive.
As challenging as that may sound, your company will continue to take advantage
of the many opportunities for future growth. Every aspect of our business is
under scrutiny to help us increase earnings and improve shareholder's value. We
are continuing our stock repurchase program and are committed to future dividend
reviews. Our current dividend is one of the highest among our peer companies and
we have paid uninterrupted dividends since 1938.
We look forward to reporting our progress to you next year.
/s/ Jack B. Crahan
JACK B. CRAHAN
CHAIRMAN OF THE BOARD OF DIRECTORS
/s/ K. Bruce Lauritsen
K. BRUCE LAURITSEN
PRESIDENT & CHIEF EXECUTIVE OFFICER
[PHOTO]
[PHOTO]
COMFORT ON THE ROAD: FLEXSTEEL SEATING GRACES THE INTERIOR OF A FLEETWOOD
PROWLER, TOP. LUXURIOUS RELAXING IN THE SHERATON BOSTON'S CIGAR LOUNGE, DESIGNED
BY JOANNE SPENCER, RIGHT.
2
<PAGE>
ENHANCING EXCELLENCE: ELEGANCE AND PRACTICALITY
[LOGO]
FURNITURE REFLECTS FASHION. BUYERS ARE CHOOSING A LESS-STRUCTURED LIFESTYLE
IN EVERYTHING FROM ENTERTAINING TO CLOTHING, CHOICES RICHLY REFLECTED IN THE
HOME ENVIRONMENTS THEY CREATE FOR THEMSELVES.
Flexsteel designers of home fashions have responded with furniture that
reflects these lifestyle choices.
These were beautifully portrayed in our Lifestyle Collections which were
introduced at our April High Point Market and very well received.
A softer look permeated these collections with such details as relaxed pleats,
soft, plush and downy cushions, and gentler tailoring. The result, in many
styles, is closer to a slip-cover look but is more disciplined for more enduring
good looks. It also allows us to retain the sense of elegance that reflects
quality, even in casual styles, and appeals to today's consumer.
The collections concept also fits neatly into our upscaled Flexsteel Gallery
presentations and the new, highly-integrated Comfort Seating showrooms. It
contributes to more sales, for the customer with a vision of a personal look may
find it not in a single piece but in several that combine to create that look.
Leather is still popular for its prestige, natural good looks, strength, and
practicality. Flexsteel designers, adept at the selection and application of
leather, have developed today's softer look, using hides chosen for their
excellent hand.
High-leg recliners and Press back chair-and-ottoman combinations answer a
growing demand for comfort with a sense of elegance. Our new Press back chairs,
which allow the user to recline by leaning against the chair back, have been
well received.
In our commercial seating markets of extended-stay hotels and retirement
living, we see similar trends. In those new or remodeled hotels and motels
offering suites, Flexsteel seating - especially recliners - are appearing more
often. Fine, durable, specially designed Flexsteel seating is also at home in
senior living facilities where the thrust has been to make surroundings less
institutional and as residential and pleasant as possible. Even our health-care
furniture, created to meet special problems such as incontinence, reflects our
designers dedication to handsome furniture.
Our RV seating designers meet today's relaxed attitude with sleek automotive
styling, while in motor homes and travel trailers they continue to create
seating for distinctive interiors that must also emphasize comfort and safety.
From their homes to their vacations, our customers find their lifestyles
reflected in Flexsteel's fine furniture and seating, all designed to be a joy to
live with.
[PHOTO]
[PHOTO]
RELAXED AND CASUAL ELEGANCE, TYPICAL OF TODAY'S FASHIONS, IS CAPTURED IN A
STUNNING CONVERSATIONAL GROUP IN LEATHER, TOP. THE MIXED-MEDIA TABLE, RECENTLY
ADDED TO THE FLEXSTEEL LINE, COORDINATES BEAUTIFULLY. HIGH-LEG RECLINERS, LIKE
THE SPOON-LEG RECLINER AT RIGHT, ARE POPULAR.
3
<PAGE>
ENHANCING EXCELLENCE: ENLISTING TECHNOLOGY
[LOGO]
FINE FURNITURE BY INSPIRED DESIGNERS STILL NEEDS THE HANDS-ON EXPERTISE OF
FLEXSTEEL'S SKILLED ARTISANS TO COME TO BEAUTIFUL LIFE. TODAY'S TECHNOLOGY
EXTENDS THE REACH OF THE DESIGNER AND ASSISTS THE HANDS OF THE CRAFTSMAN.
The rapid development of information technology means we can reach more
potential customers and give them more up-to-date information. We continue to
develop our own applications for faster, more accurate communication with our
dealers. We use it to schedule delivery of components to our associates creating
finished pieces of beautiful furniture. Communication is also faster and more
convenient for our associates and our suppliers. We can schedule shipping and
production for efficient, just-in-time deliveries. All these techniques shorten
turn-around time from order to delivery.
Flexsteel's home page on the Internet received over 50,000 hits last month.
With our Flexsteel "Smart Shopper" data base program, our potential customers
can learn, via e-mail, of special promotions at the nearest Flexsteel dealer.
The home page emphasizes our quality story through handsome photography and
cut-aways of construction details. The customer may even, through Broder
bound's 3D Home Interiors software, see how selected items of Flexsteel
furniture will appear in a room she is designing.
Our totally integrated Comfort Seating Showrooms provide us, the dealer, and
the shopper the maximum advantages of the latest technology. Customers view
Flexsteel styles on our Sneak Preview video catalog and can even see the effect
of fabric choice on frame choice. With the instantaneous communication provided
by EDI (Electronic Data Interchange), the dealer can check availability of that
fabric, place an order, and obtain a delivery date while the customer is in the
store.
Advancements in materials technology allow us to offer softer cushions in home
seating and molded foam in recreational vehicle seats. In both cases,
consistency and user comfort are increased and production is simplified. We've
also applied technology to frames: by using laminated hardwoods, we've made our
frames stronger and more durable while using natural resources more efficiently.
Exciting technology applications are all through Flexsteel: gallery designers
use CAD (Computer-Aided Design), while our plants are equipped with CNC routers
and computer controlled cutters; our RV seating designers are developing
intelligent seat systems with power throughout. They have already developed an
integral seat belt for bucket seats in motor homes, and a patent is pending on
an adjustable arm rest that remains parallel with the floor when the seat
reclines.
High tech helps us maintain quality and simplify tasks, but in the end it is
still the human touch that ensures that Flexsteel furniture is always a
beautiful pleasure to own.
[PHOTO]
[PHOTO]
FROM THE CASUAL CLASSIC COLLECTION: A PILLOW BACK SOFA WITH APPLE-SHAPED FEET;
THE EVER-POPULAR WING CHAIR UPDATED; AND FLEXSTEEL OCCASIONAL TABLES, ABOVE.
OUR NEWLY-DEVELOPED, INTEGRATED SEAT BELT ADDS COMFORT AND SAFETY TO A HANDSOME
MOTOR HOME BUCKET SEAT, RIGHT.
4
<PAGE>
ENHANCING EXCELLENCE: EXPANDING MARKETS
OUR INDEPENDENT DEALERS HAVE HISTORICALLY BEEN THE SOURCE OF FLEXSTEEL'S
STRENGTH. IN CITIES ACROSS THE NATION, THEY ARE OUR LINK TO THE HOME FURNISHINGS
MARKET WHERE CONSUMER LOYALTY IS BUILT.
Though many of the smaller retailers that dominated the market a few decades
ago have disappeared, the surviving dealers are larger and stronger than ever.
To continue in their strong market positions, it is essential to such dealers to
have a dependable relationship with an equally strong manufacturer. Flexsteel,
with its extensive dealer programs, offers its dealers a breadth of line and
many support functions that are not available from the smaller manufacturers.
In dealers' in-store Flexsteel Galleries and in the new free-standing Comfort
Seating Showrooms, our designers help with the showroom design from vignettes to
color choices to patterns of traffic flow. Dealer support includes national
advertising, numerous print and electronic advertising aids, plus tie-ins to our
Web site on the Internet. Our dealers opened nine new Flexsteel in-store
galleries during fiscal 1997, and eight more are scheduled to open by year-end.
Three Comfort Seating Showrooms are already open and five more are in various
stages of planning. These Comfort Seating Showrooms are giving us a strong new
presence in such major metropolitan markets as Chicago and Milwaukee.
We recently expanded our regional sales manager staff. We now have four
managers instead of three, allowing each manager to better focus on our sales
associates and their customers.
Major multiple stores, such as J. C. Penney and Sears, provide another
important outlet for our upholstered furniture. We are quite proud that we
received, for the second consecutive year, the Sears Quality Award, resulting
from a rigorous evaluation of market performance and quality of our product and
service.
The necessity of quick responsiveness to a sometimes unpredictable market is
nowhere more visible than in the market for recreational seating. After a love
affair lasting almost twenty years with converted vans, many consumers have
switched their loyalties to sports utility vehicles and light trucks.
Flexsteel's seating sales in this market, however, remain strong with our
addition of expanded lines for pickups and other utility vehicles. Recently,
through our purchase of Dygert Seating, we've expanded our presence into more
price brackets of the market. With our already-strong presence in motor homes
and other high-end vehicles, we are now the largest supplier of seating for
recreational vehicles.
We have also found a promising market in the marine industry. Flexsteel
designs are now in all 17 models produced by Carver Boats. (See photo on back
cover.)
Throughout our more than a century of history, Flexsteel's maintenance of
excellent relations with our customers has been an essential component to our
continuing success in the marketplace.
[PHOTO]
[PHOTO]
UPHOLSTERED CHAIRS WITH CARVED-WOOD ARMS AND LEGS, LIKE THIS CHARISMA(R) CHAIR,
RIGHT ABOVE, CONTINUE IN DEMAND. A TOP SELLER IN THE VAN CONVERSION MARKET IS
THE DYGERT-DESIGNED GROUP, RIGHT, WITH SMART AUTOMOTIVE DETAILING ON SEATS AND
BACK.
5
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
FIVE YEAR REVIEW
<TABLE>
<CAPTION>
(All amounts in thousands except for Per Share data)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net Sales..................................... $219,427 $205,008 $208,432 $195,388 $177,271
Cost of Sales................................. 173,088 161,451 164,231 151,066 136,110
Interest and Other Expense.................... 345 358 372 270 252
Interest and Other Income..................... 1,833 1,048 973 990 1,460
Income Before Taxes........................... 9,473 7,052 8,111 10,092 9,710
Income Taxes.................................. 3,425 2,550 2,900 3,625 3,525
Net Income (1)................................ 6,048 4,502 5,211 6,787 6,185
Earnings per Common Share (1)................. .86 .63 .73 .95 .87
Cash Dividends per Common Share............... .48 .48 .48 .48 .48
STATISTICAL SUMMARY
Average Common Shares Outstanding............. 7,024 7,172 7,178 7,140 7,090
Book Value per Common Share................... 10.86 10.45 10.28 9.98 9.57
Total Assets.................................. 99,173 95,874 96,271 95,088 87,861
Net Plant and Equipment....................... 26,214 23,046 24,376 18,829 17,208
Capital Additions............................. 5,273 3,298 9,948 5,074 3,273
Working Capital............................... 44,357 47,376 46,272 47,787 49,707
Long-Term Debt................................ 0 35 70 105 140
Shareholders' Equity.......................... 75,238 74,147 73,824 71,289 67,855
SELECTED RATIOS
Earnings as Percent of Sales.................. 2.8% 2.2% 2.5% 3.5% 3.5%
Current Ratio................................. 3.1 3.5 3.4 3.3 3.9%
Return on Total Capital....................... 8.0% 6.1% 7.1% 9.5% 9.1%
Return on Beginning Common Equity............. 8.2% 6.1% 7.3% 10.0% 9.6%
Average Number of Employees................... 2,320 2,230 2,375 2,240 2,120
</TABLE>
(1) 1994 income and per share amounts reflect cumulative effect of accounting
change as of June 30, 1994, of $320,000 (net of income taxes) or $.04 per share
income.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF FLEXSTEEL INDUSTRIES, INC.:
We have audited the accompanying balance sheets of Flexsteel Industries,
Inc. as of June 30, 1997 and 1996, and the related statements of income and
changes in shareholders' equity and cash flows for each of the three years in
the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Flexsteel Industries, Inc.
as of June 30, 1997 and 1996, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
MINNEAPOLIS, MINNESOTA
AUGUST 8, 1997
6
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 4,445,327 $ 3,867,742
Investments ........................................................ 5,041,154 8,940,603
Trade receivables - less allowance for doubtful
accounts: 1997, $2,799,000; 1996, $2,153,000....................... 25,348,941 24,464,171
Inventories.......................................................... 26,985,554 26,082,857
Deferred income taxes................................................ 2,620,000 2,010,000
Other................................................................ 806,117 732,054
----------- -----------
Total current assets............................................. 65,247,093 66,097,427
PROPERTY, PLANT AND EQUIPMENT, net..................................... 26,214,405 23,046,224
OTHER ASSETS........................................................... 7,711,179 6,730,513
----------- -----------
TOTAL...................................................... $99,172,677 $95,874,164
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade............................................. $ 3,845,362 $ 3,574,232
Accrued liabilities:
Payroll and related items.......................................... 4,440,219 3,433,562
Insurance.......................................................... 6,057,093 5,347,758
Other accruals..................................................... 4,237,556 3,731,364
Industrial revenue bonds payable..................................... 2,310,000 2,635,000
----------- -----------
Total current liabilities...................................... 20,890,230 18,721,916
LONG-TERM DEBT......................................................... 35,000
DEFERRED COMPENSATION ................................................. 3,044,418 2,969,847
----------- -----------
Total liabilities................................................ 23,934,648 21,726,763
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000,000 shares;
issued 1997, 6,927,310 shares; 1996, 7,095,044 shares ............. 6,927,310 7,095,044
Additional paid-in capital........................................... 556,632
Retained earnings.................................................... 67,750,719 66,266,325
Unrealized investment gain........................................... 560,000 229,400
----------- -----------
Total shareholders' equity............................... 75,238,029 74,147,401
----------- -----------
TOTAL....................................... $99,172,677 $95,874,164
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ----------------------------------------------------------------------------
REPORT OF MANAGEMENT
To the Shareholders of Flexsteel Industries, Inc.:
Management is responsible for the financial and operating information
contained in this Annual Report, including the financial statements covered by
the report of Deloitte & Touche LLP, our independent auditors. The statements
were prepared in conformity with generally accepted accounting principles and
include amounts based on estimates and judgments of management.
The Company maintains a system of internal controls to provide reasonable
assurance that the books and records reflect the authorized transactions of the
Company. There are limits inherent in all systems of internal control because
their cost should not exceed the benefits derived. The Company believes its
system of internal controls and internal audit functions balance the cost/
benefit relationship.
The Audit & Ethics Committee of the Board of Directors, composed solely of
outside directors, annually recommends to the Board of Directors the appointment
of the independent auditors that are engaged to audit the financial statements
of the Company and to express an opinion thereon. The independent auditors'
opinion is expressed on page 6. The Audit & Ethics Committee meets periodically
with the independent auditors to review financial reports, accounting and
auditing practices and controls.
K. BRUCE LAURITSEN RONALD J. KLOSTERMAN
PRESIDENT VICE PRESIDENT, FINANCE
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
SECRETARY
7
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF INCOME AND
CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................................ $219,426,736 $205,008,245 $208,432,198
------------ ------------ ------------
OPERATING EXPENSES:
Cost of goods sold................................. 173,088,406 161,450,649 164,230,883
Selling, general and administrative................ 38,352,665 37,195,178 36,692,054
------------ ------------ ------------
Total...................................... 211,441,071 198,645,827 200,922,937
------------ ------------ ------------
OPERATING INCOME..................................... 7,985,665 6,362,418 7,509,261
------------ ------------ ------------
OTHER:
Interest and other income.......................... 1,832,917 1,048,074 973,371
Interest and other expense......................... (345,148) (358,322) (371,729)
------------ ------------ ------------
Total...................................... 1,487,769 689,752 601,642
------------ ------------ ------------
INCOME BEFORE INCOME TAXES........................... 9,473,434 7,052,170 8,110,903
PROVISION FOR INCOME TAXES........................... 3,425,000 2,550,000 2,900,000
------------ ------------ ------------
NET INCOME........................................... $ 6,048,434 $ 4,502,170 $ 5,210,903
============ ============ ============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ....................................... 7,024,021 7,172,299 7,178,285
============ ============ ============
EARNINGS PER SHARE OF COMMON STOCK................... $ .86 $ .63 $ .73
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL UNREALIZED
------------ PAID-IN RETAINED INVESTMENT
SHARES PAR VALUE CAPITAL EARNINGS GAIN (LOSS) TOTAL
--------- ---------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 7,155,012 $7,155,012 $1,015,940 $63,437,854 $(320,000) $71,288,806
Issuance of Company Stock 38,112 38,112 370,814 408,926
Investment Valuation
Adjustment 364,000 364,000
Cash Dividends (3,449,054) (3,449,054)
Net Income 5,210,903 5,210,903
--------- ---------- ---------- ----------- --------- -----------
Balance at June 30, 1995 7,193,124 7,193,124 1,386,754 65,199,703 44,000 73,823,581
Purchase of Company Stock (132,453) (132,453) (1,178,986) (1,311,439)
Issuance of Company Stock 34,373 34,373 348,864 383,237
Investment Valuation
Adjustment 185,400 185,400
Cash Dividends (3,435,548) (3,435,548)
Net Income 4,502,170 4,502,170
--------- ---------- ---------- ----------- --------- -----------
Balance at June 30, 1996 7,095,044 7,095,044 556,632 66,266,325 229,400 74,147,401
Purchase of Company Stock (186,345) (186,345) (722,573) (1,212,626) (2,121,544)
Issuance of Company Stock 18,611 18,611 165,941 184,552
Investment Valuation
Adjustment 330,600 330,600
Cash Dividends (3,351,414) (3,351,414)
Net Income 6,048,434 6,048,434
--------- ---------- ---------- ----------- --------- -----------
Balance at June 30, 1997 6,927,310 $6,927,310 $ 0 $67,750,719 $ 560,000 $75,238,029
========= ========== ========== =========== ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................... $ 6,048,434 $ 4,502,170 $ 5,210,903
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ................................ 5,129,246 4,619,511 4,135,053
(Gain) loss on disposition of capital assets (646,050) (83,878) 49,004
Trade receivables ........................... 688,561 (1,559,124) 2,710,379
Inventories ................................. 637,112 (161,183) 663,723
Other current assets ........................ 256,487 112,503 68,744
Other assets ................................ (980,666) (544,369) (519,313)
Accounts payable - trade .................... 271,130 (1,182,759) (114,639)
Accrued liabilities ......................... 2,244,775 809,535 (895,856)
Deferred compensation ....................... 74,571 29,518 16,600
Deferred income taxes ....................... (610,000) (10,000) 340,000
------------ ----------- ------------
Net cash provided by
operating activities ........................ 13,113,600 6,531,924 11,664,598
------------ ----------- ------------
INVESTING ACTIVITIES:
Construction funds held in escrow ........... 2,034,248
Payment for purchase of business assets ..... (6,933,951)
Purchases of investments .................... (1,517,439) (4,178,560) (2,751,519)
Proceeds from sales of investments .......... 5,747,488 3,691,972 4,565,254
Proceeds from sales of capital assets ....... 1,112,201 91,818 216,451
Capital Expenditures ........................ (5,273,317) (3,297,623) (9,947,507)
------------ ----------- ------------
Net cash used in investing activities .......... (6,865,018) (3,692,393) (5,883,073)
------------ ----------- ------------
FINANCING ACTIVITIES:
Repayment of borrowings ..................... (360,000) (360,000) (360,000)
Payment of dividends ........................ (3,374,005) (3,452,124) (3,447,487)
Proceeds from issuance of common stock ...... 184,552 383,237 408,926
Repurchase of common stock .................. (2,121,544) (1,311,439)
------------ ----------- ------------
Net cash used in financing activities .......... (5,670,997) (4,740,326) (3,398,561)
------------ ----------- ------------
Increase (decrease) in cash and cash equivalents 577,585 (1,900,795) 2,382,964
Cash and cash equivalents at beginning of year . 3,867,742 5,768,537 3,385,573
------------ ----------- ------------
Cash and cash equivalents at end of year ....... $ 4,445,327 $ 3,867,742 $ 5,768,537
============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest .................................. $ 103,000 $ 123,000 $ 135,000
Income taxes .............................. $ 3,640,000 $ 1,927,000 $ 3,555,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Flexsteel Industries, Inc. (the Company)
manufactures and sells upholstered furniture and other seating products.
USE OF ESTIMATES - the preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
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. 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 less than three months as the equivalent of cash.
REVENUE RECOGNITION - is upon delivery of product.
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.
INSURANCE - The Company is self-insured for health care and most worker's
compensation up to predetermined amounts above which third party insurance
applies. The Company is contingently liable to insurance carriers under the
comprehensive general, product, and vehicle liability policies, as well as,
some worker's compensation, and has provided a letter of credit in the amount
of $1,623,000. 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 - are based on the weighted average number of common
shares outstanding during each year. The exercise of employee stock options
would have no material effect on earnings per share.
ACQUISITION - on March 18, 1997 the Company announced the acquisition of
certain assets of Dygert Seating, Inc. and the related production facilities
in Elkhart, Indiana for $6,933,951. The purchase included accounts receivable
of approximately $1,573,000, inventory of approximately $1,540,000, and fixed
and other current assets of approximately $3,821,000.
RECLASSIFICATIONS - certain prior years' amounts have been reclassified to
conform to the 1997 presentation.
2. INVESTMENTS
Debt and equity securities are included in Investments and in Other Assets,
at fair value based on quoted market prices, and are considered as available
for sale. The amortized cost and estimated market values of investments are
as follows:
June 30, 1997 June 30, 1996
------------- -------------
Debt Equity Debt Equity
Securities Securities Securities Securities
---------- ---------- ---------- ----------
Amortized Cost $ 5,505,167 $ 2,315,994 $ 8,987,896 $ 2,296,905
Unrealized gains
(losses) (27,689) 904,344 (144,740) 499,199
----------- ----------- ----------- -----------
Est. Market Value $ 5,477,478 $ 3,220,338 $ 8,843,156 $ 2,796,104
=========== =========== =========== ===========
As of June 30, 1997, the maturities of debt securities are $1,984,560 within
one year, $3,174,743 in one to five years, and $318,175 over six years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately
$2,001,000 and $2,024,000 higher at June 30, 1997 and 1996, respectively, if
they had been valued on the FIFO method. A comparison of inventories is as
follows:
June 30,
--------
1997 1996
------------ ------------
Raw materials.............. $ 13,529,232 $ 12,936,114
Work in process and finished parts 7,689,051 7,594,621
Finished goods............. 5,767,271 5,552,122
------------ ------------
Total................... $ 26,985,554 $ 26,082,857
============ ============
4. PROPERTY, PLANT AND EQUIPMENT
June 30,
Estimated --------
Life (Years) 1997 1996
------------ ----------- -----------
Land................ $ 1,642,422 $ 1,609,572
Buildings and
improvements..... 3 - 50 24,485,437 23,710,516
Machinery and
equipment........ 3 - 15 28,024,677 24,455,532
Delivery equipment.. 2 - 9 13,818,489 13,041,661
Furniture and fixtures 3 - 15 5,205,537 4,440,375
----------- -----------
Total............ 73,176,562 67,257,656
Less accumulated
depreciation..... 46,962,157 44,211,432
----------- -----------
Net.............. $26,214,405 $23,046,224
=========== ===========
5. BORROWINGS
The Company is obligated for $2,275,000 for Industrial Revenue Bonds at June
30, 1997 which were issued for the financing of property, plant and
equipment. The obligations are variable rate demand bonds with a weighted
average rate for years ended June 30, 1997, 1996, and 1995 of 3.94%, 4.13%,
and 4.05%, respectively, and are due in annual installments of $325,000
through 2004, if not paid earlier upon demand of the holder. The Company has
issued a letter of credit to guarantee the payment of these bonds in the
event of default. No amounts were outstanding on this letter at June 30,
1997. In addition, the Company is obligated for General Obligation
Development Bonds of $35,000 bearing interest at 5.0% payable in 1998.
10
<PAGE>
6. INCOME TAXES
The total income tax provision for the years ended June 30, 1997, 1996, and
1995 was 36.2%, 36.2% and 35.8%, respectively, of income before income taxes.
PROVISION - COMPRISED OF THE FOLLOWING:
1997 1996 1995
---------- ---------- ----------
Federal - current.. $3,528,000 $2,240,000 $2,230,000
State - current.... 507,000 320,000 330,000
Deferred........... (610,000) (10,000) 340,000
---------- ---------- ----------
Total........... $3,425,000 $2,550,000 $2,900,000
========== ========== ==========
DEFERRED INCOME TAXES - COMPRISED OF THE FOLLOWING:
June 30, 1997 June 30, 1996
Asset (Liability) Asset (Liability)
----------------- -----------------
Asset allowances............... $ 1,025,000 $ 793,000
Deferred compensation.......... 1,126,000 1,099,000
Other accruals and allowances.. 1,756,000 1,542,000
Excess of tax over book depreciation (1,287,000) (1,424,000)
----------- -----------
Total....................... $ 2,620,000 $ 2,010,000
=========== ===========
7. CREDIT ARRANGEMENTS
The Company has lines of credit of $5,700,000 with banks for short-term
borrowings at the prime rate in effect at the date of the loan. On $1,000,000
of such line, the Company is required to maintain compensating bank balances
equal to 5% of the line of credit plus 5% of any amounts borrowed. There were
no short-term bank borrowings during 1997 or 1996.
8. SHAREHOLDERS' EQUITY
The Company has authorized 60,000 shares of cumulative, $50 par value
preferred stock and 700,000 shares of undesignated, $1 par value
(subordinated) stock, none of which is outstanding.
9. STOCK OPTIONS
At June 30, 1997, 319,140 shares were available for future grants. The
options granted under the stock option plans expire 10 years from the date of
grant. Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require,
companies to record compensation for stock-based employee compensation plans
at fair value. The Company has chosen to continue to account for stock-based
employee compensation plans using the intrinsic value method prescribed by
the Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employee," and related interpretations. The effect of applying the
fair value method of SFAS No. 123 to the Company's option plans would result
in net income and net income per share that are not materially different from
the amounts reported in the Company's financial statements.
Changes in options outstanding are as follows:
Shares Price Range
------ -----------
June 30, 1994 Outstanding 240,520 $10.50 - 15.75
Granted................ 94,360 10.50 - 11.125
Exercised.............. (17,000) 11.00
Cancelled.............. (41,210) 10.50 - 14.875
-------
June 30, 1995 Outstanding 276,670 10.50 - 15.75
Granted................ 91,950 11.25
Cancelled.............. (26,140) 10.50 - 14.875
-------
June 30, 1996 Outstanding 342,480 10.50 - 15.75
Granted................ 103,400 10.25 - 12.75
Exercised.............. (6,800) 10.25 - 10.50
Cancelled.............. (6,900) 10.50 - 14.875
June 30, 1997 Outstanding 432,180 $10.25 - 15.75
=======
10. PENSION AND RETIREMENT PLANS
The Company sponsors various defined contribution pension and retirement
plans which cover substantially all employees, other than employees covered
by multiemployer 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 $1,352,000 in 1997, $1,326,000 in 1996, and
$1,295,000 in 1995, including $300,000 in 1997, $287,000 in 1996, and
$274,000 in 1995, for the Company's matching contribution to retirement
savings plans. The Company's cost for pension plans is determined as 2% - 4%
of each covered employee's wages. The Company's matching contribution for the
retirement savings plans is 25% - 50% of employee contributions (up to 4% of
their earnings). In addition to the above, amounts charged to pension expense
and contributed to multiemployer defined benefit pension plans administered
by others under collective bargaining agreements were $1,102,000 in 1997,
$1,135,000 in 1996, and $1,203,000 in 1995.
11. MANAGEMENT INCENTIVE PLANS
The Company has an incentive plan that provides for shares of common stock to
be awarded to key employees based on a targeted rate of earnings to common
equity as established by the Board of Directors. Shares awarded to employees
are subject to the restriction of continued employment with 33 1/3% of the
stock received by the employee on the award date and the remaining shares
issued after one and two years. Under the plan 31,053 and 13,687 shares were
awarded, and the amounts charged to income were $365,000, and $150,000 in
1997 and 1995 respectively. No shares were awarded in 1996. At June 30, 1997,
348,257 shares were available for future grants.
12. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
(UNAUDITED - in thousands of dollars, except per share amounts)
Quarters
--------------------------------------------
1st 2nd 3rd 4th
--- --- --- ---
1997:
Net Sales............. $52,019 $50,552 $56,803 $60,053
Gross Profit.......... 11,374 10,775 11,802 12,387
Net Income............ 1,462 1,203 1,686(1) 1,697
Earnings Per Share.... .21 .17 .24(1) .24
Dividends Per Share... .12 .12 .12 .12
* Market Price
High................ 12 13 3/4 13 5/8 12 1/2
Low................. 10 1/4 11 1/2 10 3/4 10 1/2
(1) Includes a gain on the sale of the Sweetwater, Tennessee facility of
approximately $350,000.
Quarters
--------------------------------------------
1st 2nd 3rd 4th
--- --- --- ---
1996:
Net Sales............. $49,227 $48,177 $53,213 $54,391
Gross Profit.......... 9,857 9,687 11,689 12,325
Net Income ........... 428 716 1,433 1,925
Earnings Per Share.... .06 .10 .20 .27
Dividends Per Share... .12 .12 .12 .12
* Market Price
High................ 12 5/8 12 10 3/4 11 3/4
Low................. 10 1/4 10 1/4 8 1/4 9 1/2
* Reflects the market prices as quoted by the National Association of
Securities Dealers, Inc.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITIONS
Working Capital - Flexsteel's working capital at June 30, 1997 is $44,357,000
which includes cash, cash equivalents, and investments of $9,486,000. Working
capital decreased by $3,019,000 from June 30, 1996. The decrease in working
capital was primarily due to the purchase of certain assets of Dygert Seating,
Inc., and the repurchase of Company common stock. The Company has lines of
credit of $5,700,000 with banks for short-term borrowings, which have not been
utilized since 1979. The Company has outstanding borrowings of $2,275,000 in the
form of variable rate demand industrial development revenue bonds.
Capital Expenditures - Capital expenditures were $8,703,000 in fiscal 1997
including approximately $3,430,000 pertaining to the Dygert asset acquisition.
Expenditures for manufacturing and delivery equipment were approximately
$5,273,000. Projected capital spending in fiscal 1998 is approximately
$3,000,000 for manufacturing and delivery equipment. The funds required for
these expenditures will be provided from available cash.
Dividends - Dividends were $.48 per share both years. The Board of Directors
determines dividend levels based on the Company's ability to pay its
obligations, capital expenditure requirements, and other related factors. The
Company has paid dividends on its common stock for 222 consecutive quarters. The
company expects to continue regular dividend payments. As of June 30, 1997 there
were approximately 1,920 shareholders of Flexsteel's outstanding common stock.
Pending Accounting Changes - The Financial Accounting Standards Board (FASB)
has issued SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of
Information about Capital Structure" which are effective for fiscal years ending
after December 15, 1997. The FASB has also issued SFAS No. 130 "Reporting Com
pre hensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which are effective for fiscal years
beginning after December 15, 1997. The Company expects that adoption of these
statements will not have a material effect on the Company's results of
operations or financial position when they are adopted.
Economic Conditions - With interest rates and inflation at relatively low
levels and consumer confidence remaining high, demand for the Company's seating
products should remain steady throughout fiscal 1998. The Company is positioned
to capitalize on the consumer confidence which currently exists through product
design efforts to better target specific residential furniture consumers,
increased capacity and market penetration in the recreational vehicle market
place, and maximization of growth opportunities in the hospitality and health
care fields. These factors, in conjunction with continued efforts to identify
and implement cost savings, improve manufacturing process efficiencies, and
increase utilization of production facilities, should result in operating profit
improvements.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Sales for 1997 increased by $14,418,000 or 7.0% compared to 1996. Home
Furnishings sales volume increased $4,960,000 or 3.9%. Recreational Vehicle
products increased $6,481,000 or 11.2%. Approximately $6,200,000 of this
increase relates to the acquisition of Dygert Seating Inc. Commercial Seating
volume increased $2,977,000 or 16.4%. Cost of goods sold increased by
$11,638,000 for the year as compared to 1996 due to the volume increase.
Selling, general and administrative expenses increased by $1,157,000 due
primarily to the Dygert acquisition and volume related increases in variable
expenses. Selling, general, and administrative expenses, as a percentage of
sales, decreased from 18.1% in fiscal 1996 to 17.5% in fiscal 1997. This
percentage decrease reflects the Company's ability to control fixed costs in
relation to the volume increase. Interest and other income increased by
$785,000, primarily due to a gain of approximately $550,000 on the sale of the
Sweetwater, Tennessee facility. The above factors resulted in fiscal year 1997
earnings of $6,048,000 or $.86 per share compared to $4,502,000 or $.63 per
share in fiscal 1996, a net increase of $1,546,000 or $.23 per share.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales for 1996 decreased by $3,424,000 or 1.6% compared to 1995. Home
Furnishings sales volume decreased $2,848,000 or 2.2%, Recreational Vehicle
products decreased $2,519,000 or 4.2%, while Commercial Seating increased
$1,943,000 or 12.0%. Cost of goods sold decreased by $2,780,000 for the year as
compared to 1995 due to the volume decrease. Selling, general and administrative
expenses were 18.1% in fiscal 1996 compared to 17.6% in fiscal 1995. This
increase reflects approximately $400,000 of additional costs associated with
enhancements to our Comfort Seating Gallery Program and an increase of
approximately $675,000 in bad debt provision. The above factors resulted in
fiscal year 1996 net earnings of $4,502,000 or $.63 per share compared to
$5,211,000 or $.73 per share in fiscal 1995, a net decrease of $709,000 or $.10
per share.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales for 1995 increased by $13,044,000 or 6.7% compared to 1994. Home
Furnishings sales volume increased $8,359,000 or 6.8%, Contract Furniture
increased $2,507,000 or 18.2%, and Recreational Vehicle products increased
$2,178,000 or 3.7%. Cost of goods increased $13,164,000 for the year as compared
to 1994. Approximately $3,000,000 of this increase relates to lower margins,
increased material costs, and inefficiencies due to decreased volume in the
fourth quarter of the year, with the remainder due to overall increased volume
for the year. Selling, general and administrative expenses were 17.6% in fiscal
1995 compared to 17.9% in 1994. The Company continues to control fixed costs
while increasing volume. Interest expense increased by $102,000 due to financing
the Starkville, Mississippi, expansion. In fiscal 1994 the Company made an
accounting principle change in adopting Statement of Financial Accounting
Standards (SFAS) No. 115 which resulted in net cumulative income of $320,000 or
$.04 per share. The above factors resulted in fiscal year 1995 net earnings of
$5,211,000 or $ .73 per share compared to $6,787,000 or $ .95 per share in
fiscal 1994, a net decrease of $1,576,000 or $.22 per share.
12
<PAGE>
PLANT LOCATIONS
* Flexsteel Industries, Inc.
DUBUQUE, IOWA 52001
(319) 556-7730
P.M. Crahan, General Manager
Flexsteel Industries, Inc.
DUBLIN, GEORGIA 31040
(912) 272-6911
M. C. Dixon, General Manager
Flexsteel Industries, Inc.
LANCASTER, PENNSYLVANIA 17604
(717) 392-4161
T.P. Fecteau, General Manager
Flexsteel Industries, Inc.
RIVERSIDE, CALIFORNIA 92504
(909) 354-2440
T.D. Burkart, General Manager
Flexsteel Industries, Inc.
NEW PARIS, INDIANA 46553
(219) 831-4050
G.H. Siemer, General Manager
Wood Products Division
HARRISON, ARKANSAS 72601
(501) 743-1101
M.J. Feldman, General Manager
Metal Division
DUBUQUE, IOWA 52001
(319) 556-7730
J.E. Gilbertson, General Manager
Commercial Seating Division
STARKVILLE, MISSISSIPPI 39760
(601) 323-5481
S.P. Salmon, General Manager
DYGERT SEATING DIVISION
Elkhart, Indiana 46515
(219) 262-4675
D.L. Dygert, General Manager
DYGERT SEATING DIVISION
Watkinsville, Georgia 30677
(706) 769-8731
J.B. Wilkes, Plant Manager
Vancouver Distribution Center
VANCOUVER, WASHINGTON 98668
(206) 696-9955
R. Heying, Supervisor
* EXECUTIVE OFFICES
PERMANENT SHOWROOMS
Dubuque, Iowa
High Point, North Carolina
San Francisco, California
DIRECTORS AND OFFICERS
Frank H. Bertsch
CHAIRMAN OF EXECUTIVE COMMITTEE
DIRECTOR
Jack B. Crahan
CHAIRMAN OF THE BOARD OF DIRECTORS
K. Bruce Lauritsen
PRESIDENT
CHIEF EXECUTIVE OFFICER
DIRECTOR
Edward J. Monaghan
EXECUTIVE VICE PRESIDENT
CHIEF OPERATING OFFICER
DIRECTOR
James R. Richardson
SENIOR VICE PRESIDENT, MARKETING
DIRECTOR
L. Bruce Boylen
RETIRED VICE PRESIDENT
FLEETWOOD ENTERPRISES, INC.
DIRECTOR
John R. Easter
RETIRED VICE PRESIDENT
SEARS, ROEBUCK & COMPANY
DIRECTOR
Thomas E. Holloran
PROFESSOR, GRADUATE SCHOOL OF
BUSINESS, UNIVERSITY OF ST. THOMAS
ST. PAUL, MINNESOTA
DIRECTOR
James G. Peterson
CONSULTANT
JAMES G. PETERSON ASSOCIATES
BUSINESS CONSULTANT
AND INVESTMENT ADVISOR
DIRECTOR
Art D. Richardson
RETIRED SENIOR VICE PRESIDENT
FLEXSTEEL INDUSTRIES, INC.
DIRECTOR
Jeffrey T. Bertsch
VICE PRESIDENT
Carolyn T. B. Bleile
VICE PRESIDENT
Thomas D. Burkart
SENIOR VICE PRESIDENT, VEHICLE SEATING
Kevin F. Crahan
VICE PRESIDENT
Patrick M. Crahan
VICE PRESIDENT
Keith R. Feuerhaken
VICE PRESIDENT
James E. Gilbertson
VICE PRESIDENT
James M. Higgins
VICE PRESIDENT, COMMERCIAL SEATING
Ronald J. Klosterman
VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER
SECRETARY
Michael A. Santillo
VICE PRESIDENT
EXECUTIVE COMMITTEE
Frank H. Bertsch, Chairman
Jack B. Crahan
K. Bruce Lauritsen
Edward J. Monaghan
James R. Richardson
AUDIT & ETHICS
COMMITTEE
Thomas E. Holloran, Chairman
John R. Easter
James G. Peterson
Art D. Richardson
NOMINATING &
COMPENSATION
COMMITTEE
L. Bruce Boylen, Chairman
John R. Easter
Thomas E. Holloran
James G. Peterson
MARKETING COMMITTEE
John R. Easter, Chairman
Frank H. Bertsch
L. Bruce Boylen
James G. Peterson
Art D. Richardson
TRANSFER AGENT AND
REGISTRAR
Norwest Capital Resources
P.0. Box 738
South St. Paul,
Minnesota 55075-0738
GENERAL COUNSEL
Irving C. MacDonald
Minneapolis, Minnesota
O'Connor and Thomas, P.C.
Dubuque, Iowa
NATIONAL OVER
THE COUNTER
NASDAQ Symbol - FLXS
ANNUAL MEETING
Tuesday,
December 9, 1997, 3:30 p.m.
The Marquette
710 Marquette Avenue, 3rd floor
Minneapolis, Minnesota 55402
AFFIRMATIVE ACTION POLICY
It is the policy of Flexsteel Industries, Inc. that all employees and potential
employees shall be judged on the basis of qualifications and ability, without
regard to age, sex, race, creed, color or national origin in all personnel
actions. No employee or applicant for employment shall receive discriminatory
treatment because of physical or mental handicap in regard to any position for
which the employee or applicant for employment is qualified. Employment
opportunities and job advancement opportunities will be provided for qualified
disabled veterans and veterans of the Vietnam era. This policy is consistent
with the Company's plan for 'Affirmative Action' in implementing the intent and
provisions of the various laws relating to employment and non-discrimination.
ANNUAL REPORT ON FORM 10-K AVAILABLE
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, can be obtained without charge by writing to: Office of
the Secretary, Flexsteel Industries, Inc., P. O. Box 877, Dubuque, Iowa
52004-0877.
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VISIT US ON THE INTERNET
http://flexsteel.com
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[LOGO] FLEXSTEEL(R)
AMERICA'S SEATING SPECIALIST
(C) 1997 FLEXSTEEL INDUSTRIES, INC.
<PAGE>
[PHOTO]
Luxury afloat: a handsome leather reclining sofa, as well as the dining table
and chairs, in the spacious salon of this Carver Yacht are by Flexsteel. The
free-standing furniture in all seventeen Carver models is by Flexsteel.
[PHOTO]
"There's a world of difference," says Carver Boats of their luxurious and
spacious motor yachts and cruisers. Carver has a long history of dedication to
quality, and Flexsteel furniture is ideal for their interiors.
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[LOGO] FLEXSTEEL(R)
AMERICA'S SEATING SPECIALIST
P.O. BOX 877 * DUBUQUE IA 52004-0877
