SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998 Commission file number 0-5151
FLEXSTEEL INDUSTRIES, INC.
Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319
FLEXSTEEL INDUSTRIES, INC.
P. O. BOX 877
DUBUQUE, IOWA 52004-0877
Area code 319 Telephone 556-7730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]. No [ ].
Common Stock - $1.00 Par Value
Shares Outstanding as of September 30, 1998 6,841,851
---------
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FLEXSTEEL INDUSTRIES, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 6,470,156 $ 5,464,261
Investments ............................................. 10,280,299 9,877,784
Trade receivables - less allowance for doubtful accounts:
September 30, 1998, $2,420,000;
June 30, 1998, $2,198,000 ........................... 28,986,556 28,722,752
Inventories ............................................. 27,932,155 26,607,296
Deferred income taxes ................................... 2,785,000 2,785,000
Other ................................................... 821,291 632,730
Total current assets ......................... 77,275,457 74,089,823
------------ ------------
PROPERTY, PLANT, AND EQUIPMENT
at cost less accumulated depreciation:
September 30, 1998, $52,520,209;
June 30, 1998, $51,333,347 .............................. 22,959,965 23,095,589
OTHER ASSETS .................................................. 7,242,044 7,487,729
------------ ------------
TOTAL ................................ $107,477,466 $104,673,141
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ................................ $ 6,110,737 $ 5,792,708
Accrued liabilities:
Payroll and related items .......................... 4,785,635 5,448,032
Insurance .......................................... 6,138,361 5,834,895
Other accruals ..................................... 5,929,123 4,515,177
Industrial revenue bonds payable ........................ 1,950,000 1,950,000
------------ ------------
Total current liabilities .................... 24,913,856 23,540,812
DEFERRED COMPENSATION ......................................... 3,054,025 3,052,525
------------ ------------
Total liabilities .................................. 27,967,881 26,593,337
------------ ------------
SHAREHOLDERS' EQUITY:
CommonStock - $1 par value; authorized 15,000,000 shares;
issued September 30, 1998, 6,841,851 shares;
issued June 30, 1998, 6,794,730 shares ............ 6,841,851 6,794,730
Additional paid-in capital .............................. 490,963
Retained earnings ....................................... 71,424,163 70,450,282
Unrealized investment gain .............................. 752,608 834,792
------------ ------------
Total shareholders' equity ................... 79,509,585 78,079,804
------------ ------------
TOTAL ................................ $107,477,466 $104,673,141
============ ============
See accompanying Notes.
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</TABLE>
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
NET SALES ........................................................ $ 60,053,381 $ 55,159,124
COST OF GOODS SOLD ............................................... 46,903,067 43,867,490
------------ ------------
GROSS MARGIN ..................................................... 13,150,314 11,291,634
SELLING, GENERAL AND ADMINISTRATIVE .............................. 10,539,970 9,836,791
------------ ------------
OPERATING INCOME ................................................. 2,610,344 1,454,843
------------ ------------
OTHER:
Interest and other income ................................... 274,688 246,269
Interest and other expense .................................. 80,129 86,262
------------ ------------
Total .................................................. 194,559 160,007
------------ ------------
INCOME BEFORE INCOME TAXES ....................................... 2,804,903 1,614,850
PROVISION FOR INCOME TAXES ....................................... 1,010,000 585,000
------------ ------------
NET INCOME ....................................................... $ 1,794,903 $ 1,029,850
============ ============
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
BASIC ..................................................... 6,822,343 6,958,363
============ ============
DILUTED ................................................... 6,884,688 7,012,450
============ ============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC ..................................................... $ 0.26 $ 0.15
============ ============
DILUTED ................................................... $ 0.26 $ 0.15
============ ============
STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
September 30,
----------------------------
1998 1997
----------- ------------
NET INCOME ....................................................... $ 1,794,903 $ 1,029,850
------------ ------------
OTHER COMPREHENSIVE INCOME BEFORE TAX:
Unrealized (losses) gains on securities arising during period (126,437) 200,500
INCOME TAX BENEFIT (EXPENSE):
Income tax benefit (expense) related to securities gains (losses)
arising during period ........................................ 45,517 (70,175)
------------ ------------
OTHER COMPREHENSIVE INCOME, NET OF TAX ........................... (80,920) 130,325
------------ ------------
COMPREHENSIVE INCOME ............................................. $ 1,713,983 $ 1,160,175
============ ============
See accompanying Notes.
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</TABLE>
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
Three Months Ended
September 30,
-----------------------------
1998 1997
----------- -----------
OPERATING ACTIVITIES:
Net Income ..................................... $ 1,794,903 $ 1,029,850
Adjustments to reconcile net income to net cash
provided by operating activities ........... 1,138,066 1,249,433
----------- -----------
Net cash provided by operating activities ...... 2,932,969 2,279,283
----------- -----------
INVESTING ACTIVITIES:
Purchases of investments ............... (1,951,478) (340,186)
Proceeds from sales of investments ...... 1,466,778 346,805
Proceeds from sales of capital assets ... 12,228 22,700
Capital expenditures .................... (1,175,003) 1,510,429)
----------- -----------
Net cash used in investing activities .......... (1,647,475) 1,481,110)
----------- -----------
FINANCING ACTIVITIES:
Payment of dividends .................... (817,683) (832,257)
Proceeds from issuance of common stock .. 538,084 364,873
----------- -----------
Net cash used in financing activities .......... (279,599) (467,384)
----------- -----------
Increase in cash and cash equivalents .......... 1,005,895 330,789
Cash and cash equivalents at beginning of year . 5,464,261 4,445,327
----------- -----------
Cash and cash equivalents at end of period ..... $ 6,470,156 $ 4,776,116
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest .................................. $ 19,000 $ 24,000
Income taxes .............................. $ 181,000 $ 344,000
See accompanying Notes.
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FLEXSTEEL INDUSTRIES, INC.
NOTES (UNAUDITED)
1. The accompanying financial statements, which are unaudited, have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, which is consistent with that followed in
the financial statements for the year ended June 30, 1998. The
statements include all adjustments (comprising only normal recurring
accruals) which are, in the opinion of management, necessary to a fair
statement of the financial position and results of operations and cash
flows, prepared on a summary basis, as of such dates and for the stated
dates then ended. The results of operations for the three month period
ended September 30, 1998 are not necessarily indicative of the results
which may be expected for the year ending June 30, 1999.
2. The inventories are categorized as follows:
September 30, June 30,
1998 1998
----------- ------------
Raw materials ............................. $13,233,409 $13,538,911
Work in process and finished parts ........ 7,825,643 7,227,558
Finished goods ............................ 6,873,103 5,840,827
----------- -----------
Total.................................... $27,932,155 $26,607,296
=========== ===========
3. In 1997, the Financial Accounting Standards board issued Statement No.
128, EARNINGS PER SHARE (SFAS 128). SFAS 128 replaced the calculation of
primary and fully dilated earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options. All earnings
per share amounts for all periods have been presented and, where
appropriate, restated to conform to the SFAS 128 requirements.
Three Months Ended
September 30,
-------------------------
1998 1997
---------- -----------
Basic Earnings Per Share:
Income available to common shareowners .... $ 1,794,903 $ 1,029,850
Weighted average shares outstanding ....... 6,822,343 6,958,363
----------- -----------
Earnings Per Share - Basic ................ 0.26 0.15
=========== ===========
Diluted Earnings Per Share:
Income available to common shareowners .... $ 1,794,903 $ 1,029,850
----------- -----------
Weighted average shares outstanding ....... 6,822,343 6,958,363
Dilutive shares issuable in connection with
stock option plans .................... 417,995 334,520
Less shares purchasable with proceeds ..... (355,650) (280,433)
----------- -----------
Total Shares .............................. 6,884,688 7,012,450
----------- -----------
Earnings Per Share - Diluted .............. $ 0.26 $ 0.15
=========== ===========
4. RECLASSIFICATIONS - certain prior year amounts have been reclassified to
conform to the 1998 presentation. These reclassifications had no impact
on net income or shareholders' equity as previously reported.
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED STATEMENT OF EARNINGS
Results of Operations:
Three months ended September 30, 1998 compared to three months ended September
30, 1997.
The following table has been prepared as an aid in understanding the
Company's results of operations on a comparative basis for the first quarters
ended September 30, 1998 and 1997. Amounts presented are percentages of the
Company's net sales.
First Quarters Ended
September 30,
---------------------
1998 1997
------ --------
Net Sales...................................... 100.0% 100.0%
Cost of Goods Sold............................. 78.1 79.5
------ ------
Gross Margin................................... 21.9 20.5
Selling, General and Administrative Expense.... 17.6 17.8
------ ------
Operating Income............................... 4.3 2.7
Other Income, Net.............................. 0.4 0.3
------ ------
Income Before Income Taxes..................... 4.7 3.0
Income Tax Expense............................. 1.7 1.1
------ ------
Net Income..................................... 3.0% 1.9%
====== ======
Net sales for the quarter ended September 30, 1998 increased by $4,894,000 or 9%
compared to the prior year quarter. Residential sales volume increased
$3,583,000 or 11%. Recreational vehicle seating sales increased $1,247,000 or
7%. Commercial seating volume increased $64,000 or 1%.
Gross margin increased $1,858,680 to $13,150,314 or 21.9% of sales, in the
current year, from $11,291,634 or 20.5% in the prior year. The gross margin
increase was due primarily to improved utilization of available production
capacity.
Selling, general and administrative expenses as a percentage of sales were 17.6%
and 17.8% for the current year and prior year, respectively. The cost percentage
decrease was due to improved absorption of fixed costs.
The above factors resulted in current fiscal year earnings of $1,794,903 or $.26
per share (basic) compared to $1,029,850 or $.15 per share (basic) in the prior
year, a net increase of $765,053 or $.11 per share.
Liquidity and Capital Resources:
Working capital at September 30, 1998 is $52,362,000 which includes cash, cash
equivalents and investments of $16,750,000. Working capital increased by
$1,813,000 from the June 30, 1998 amount.
Net cash provided by operating activities was $2,933,000 during the first three
months of fiscal year 1999 versus $2,279,000 in first three months of fiscal
year 1998. The increase in net cash provided by operating activities was
primarily the result of the increase in net income.
<PAGE>
Capital expenditures were $1,175,000 during the first three months of fiscal
1999 compared to $1,510,000 in the first quarter of fiscal 1998. The current
year expenditures were incurred primarily for manufacturing equipment and the
expansion of our Dublin, Georgia facility. During the next nine months
approximately $6,300,000 will be spent on manufacturing equipment, delivery
equipment, and the expansion project in Georgia. The funds for projected capital
expenditures are expected to be provided by cash generated from operations and
available cash.
On November 4, 1998 the Company announced a plan to repurchase up to 700,000
shares, or slightly more than 10% of the Company's outstanding common stock. The
Company will make the purchases, from time to time, in the open market as the
Company deems appropriate.
Year 2000 Issue - The Company has been modifying its computer information
systems to ensure the proper processing of transactions relating to the year
2000 and beyond. The Company has also reviewed its computer-dependent
manufacturing activities and necessary hardware and software changes are being
made. The Company expects its year 2000 conversion projects to be completed by
June 30, 1999. The conversion costs are not expected to be material to the
financial statements and will be accomplished using existing employees. The
Company is communicating with major suppliers to emphasize that operations must
continue without interruption through January 1, 2000. However, there can be no
assurances that systems of other companies, on which the Company's systems rely,
will be converted in a timely manner or that any failure to convert by another
company would not have an adverse effect on the Company's system.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Company and its representatives may from time to time make written or oral
forward-looking statements with respect to goals and expectations of the
Company, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders.
Statements, including those in this report, which are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risk and uncertainty. Some of the
factors that could affect results are the effectiveness of new product
introductions, the product mix of our sales, the cost of raw materials, the
amount of sales generated and the profit margins thereon or volatility in the
major markets, competition and general economic conditions.
The Company specifically declines to undertake any obligation to publicly revise
any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The registrant did not file a report on Form 8-K during the quarter for which
this report is filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned officer thereunto duly authorized.
FLEXSTEEL INDUSTRIES, INC.
Date: November 5, 1998 By: /S/ R. J. KLOSTERMAN
---------------- --------------------
R.J. Klosterman
Financial Vice President &
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1999
<CASH> 6,470,156
<SECURITIES> 10,280,299
<RECEIVABLES> 31,406,996
<ALLOWANCES> 2,420,440
<INVENTORY> 27,932,155
<CURRENT-ASSETS> 77,275,457
<PP&E> 75,480,174
<DEPRECIATION> 52,520,209
<TOTAL-ASSETS> 107,477,466
<CURRENT-LIABILITIES> 24,913,856
<BONDS> 0
6,841,851
0
<COMMON> 0
<OTHER-SE> 72,667,734
<TOTAL-LIABILITY-AND-EQUITY> 107,477,466
<SALES> 60,053,381
<TOTAL-REVENUES> 60,328,069
<CGS> 46,903,067
<TOTAL-COSTS> 57,523,166
<OTHER-EXPENSES> 10,539,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,129
<INCOME-PRETAX> 2,804,903
<INCOME-TAX> 1,010,000
<INCOME-CONTINUING> 1,794,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,794,903
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
