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: November 13, 1998
Office of the Chairman of the Board
Dear Stockholder:
You are cordially invited to attend the Annual Stockholders' Meeting on
Tuesday, December 15, 1998, 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 28, 1998
DATE OF MEETING: December 15, 1998
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 15, 1998
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 15, 1998, at 3:30 p.m. for the following purposes:
1. To elect two (2) Class III Directors to serve until the year 2001
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, 1999 (Proposal II).
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
October 28, 1998 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
November 13, 1998
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 15, 1998, 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 Edward J. Monaghan and Jeffrey T. Bertsch as Class III Directors
(Proposal I) and FOR ratification of the appointment of Deloitte & Touche LLP
(Proposal II). Jeffrey T. Bertsch has not previously been elected by the
shareholders.
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 November 13, 1998.
As of the close of business on October 28, 1998, the record date for
determining stockholders entitled to notice and to vote at the meeting, the
Company had 6,841,359 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 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
1
<PAGE>
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 III Directors expire at the time of the 1998 Annual
Meeting. The Board of Directors of the Company has nominated Edward J. Monaghan
and Jeffrey T. Bertsch for election as Class III Directors of the Company. Each
Director, if elected, will serve a three (3) year term expiring at the time of
the year 2001 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.
2
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS OR
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 2001
ANNUAL MEETING, CLASS III
Edward J. Monaghan (1) 59 1987 Chief Operating Officer and Executive Vice President, 1993 to
present, Flexsteel Industries, Inc.; Trustee, Clarke College.
Jeffrey T. Bertsch (1) 43 1997 Vice President Corporate Services, 1989 to present, Flexsteel
Industries, Inc.; Director, American Trust and Savings Bank,
Dubuque, Iowa.
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE 1999
ANNUAL MEETING, CLASS I
K. Bruce Lauritsen (1) 55 1987 Chief Executive Officer and President, 1993 to present, Flexsteel
Industries, Inc.; Director, Mercantile Bank of Dubuque; Regent,
Loras College.
Thomas E. Holloran (2)(3) 69 1971 Professor, Graduate School of Busines, University of St. Thomas,
St. Paul; Director, ADC Telecommunications, Inc.; Director, MTS
Systems Corporation; Director, Medtronic, Inc.; Director, National
City Bancorporation; Director, Bush Foundation.
L. Bruce Boylen (3)(4) 66 1993 Retired Vice President, Fleetwood Enterprises, Inc. (retired 1991)
(mfr. of recreational vehicles and manufactured homes).
John R. Easter (2)(3)(4) 69 1993 Retired Vice President, Sears-Roebuck Company (retired 1989);
Director, Mutual Trust Life Insurance Co.
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE 2000
ANNUAL MEETING, CLASS II
Art D. Richardson (2)(4) 81 1951 Retired Senior Vice President, Flexsteel Industries, Inc. (retired
1982).
James R. Richardson (1) 54 1990 Senior Vice President Marketing, 1994 to present. Vice President
Marketing, 1979 to 1994, Flexsteel Industries, Inc.
Patrick M. Crahan (1) 50 1997 Vice President Dubuque Upholstering Division, 1989 to present,
Flexsteel Industries, Inc.; Director, American Trust and Savings
Bank, Dubuque, Iowa.
</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
3
<PAGE>
CERTAIN INFORMATION CONCERNING BOARD
AND OUTSIDE DIRECTOR'S COMPENSATION
During the fiscal year ended June 30, 1998, 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 $8,800 per year. In addition, each is paid a fee of $2,200 for each
Board meeting each attends. The Chairman of the Board is paid a retainer of
$13,400 per year and a fee of $3,350 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 option grant for 2,000 shares.
The Company has entered into an unfunded deferred compensation agreement
with John R. Easter, whereby, director fees were invested by the Company.
Payments to Mr. Easter are deferred until his 70th birthday, except for special
circumstances.
The Company has entered into an agreement with Thomas E. Holloran pursuant
to which the Company will pay to him, or his beneficiaries, $20,000 after he
ceases to be a Director as additional compensation in recognition of Director
services rendered.
4
<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, 1998. The Committee members are Thomas E.
Holloran, John R. Easter, 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 one meeting during the fiscal
year ended June 30, 1998. The Committee members are J. B. Crahan, Jeffrey T.
Bertsch, Patrick M. Crahan, K. Bruce Lauritsen, Edward J. Monaghan and James R.
Richardson.
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 which are
available upon request to the Secretary of the Company. The Committee held two
meetings during the fiscal year ended June 30, 1998. The Committee members are
L. Bruce Boylen, John R. Easter and Thomas E. Holloran.
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 did not meet during the
fiscal year ended June 30, 1998. The Committee members are John R. Easter, L.
Bruce Boylen and Art D. Richardson.
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.
5
<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 6, 1998. 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>
J.T. Bertsch Vice President Corporate Services, Director 291,221 (3)(4) 4.3%
L.B. Boylen Director 7,000 0.1%
J.B. Crahan Chairman of the Board of Directors 395,785 (5) 5.8%
P.M. Crahan Vice President Dubuque Upholstering 106,913 (4)(5) 1.6%
Division, Director
J.R. Easter Director 7,000 0.1%
T.E. Holloran Director 12,680 0.2%
K.B. Lauritsen President, Chief Executive Officer, Director 100,797 (4) 1.5%
E.J. Monaghan Executive Vice President, Chief Operating 130,233 (4) 1.9%
Officer, Director
A.D. Richardson Director 294,906 (5) 4.3%
J.R. Richardson Senior Vice President Marketing, Director 200,584 (4)(5) 2.9%
T.D. Burkart Senior Vice President Vehicle Seating 55,291 (4) 0.8%
R.J. Klosterman Vice President Finance, Chief Financial Officer 54,957 (4) 0.8%
and Secretary
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (12) 1,657,367 24.3%
</TABLE>
- ---------------------
(1) Includes the following number of shares which may be acquired by exercise of
stock options: J.T. Bertsch -- 28,850; L.B. Boylen -- 7,000; J.B. Crahan --
4,000; P.M. Crahan -- 30,050; J.R. Easter -- 7,000; T.E. Holloran -- 8,000;
K.B. Lauritsen -- 55,885; E.J. Monoaghan -- 54,960; A.D. Richardson --
8,000; J.R. Richardson -- 53,510; T.D. Burkart -- 31,700; R.J. Klosterman --
33,050.
(2) Includes shares, if any, owned beneficially by their respective spouses.
(3) Does not include 197,710 shares held in irrevocable trusts for which trusts
American Trust & Savings Bank serves as sole trustee. Under the Terms of
Trust, Jeffrey T. Bertsch has a possible contingent interest. Jeffrey T.
Bertsch disclaims beneficial ownership in the shares held by each such
trust.
(4) Includes shares awarded pursuant to the Company's Long-Term Incentive Plan
over which shares the Grantee has voting rights. Investment rights are
restricted subject to continued service with the Company.
(5) P.M. Crahan is the son of J.B. Crahan. J.R. Richardson is the son of A.D.
Richardson.
6
<PAGE>
OWNERSHIP OF STOCK BY
CERTAIN BENEFICIAL OWNERS
AS OF AUGUST 6, 1998
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 395,785 5.8%
Common Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, Santa Monica, CA 90401 467,500 6.8%
Common First Pacific Advisors Incorporated,
11400 West Olympic Boulevard,
Los Angeles, CA 90064 410,200 6.0%
</TABLE>
- ---------------------
(1) To the best knowledge of the Company, no beneficial owner named above has
the right to acquire beneficial ownership in additional shares. Shares
beneficially owned by J.B. Crahan include his right to acquire 4,000 shares
by stock option exercise.
7
<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, 1998.
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>
K. Bruce Lauritsen 1998 290,400 143,848 8,725 54,202 27,459
President & 1997 261,600 105,586 9,750 45,841 26,553
Chief Executive Officer 1996 233,700 0 8,850 0 39,858
Edward J. Monaghan 1998 225,000 100,784 8,300 35,010 10,870
Executive Vice President & 1997 220,500 58,786 9,250 31,576 36,205
Chief Operating Officer 1996 211,500 0 8,850 0 48,070
James R. Richardson 1998 195,300 77,983 7,600 29,371 23,664
Senior Vice President of 1997 189,600 56,173 8,500 27,785 22,880
Marketing 1996 182,100 0 8,850 0 33,120
Ronald J. Klosterman 1998 160,200 70,425 7,200 24,853 33,573
Vice President of 1997 141,000 51,042 8,000 21,714 33,352
Finance & Secretary 1996 119,100 0 5,000 0 13,505
Thomas D. Burkart 1998 164,700 69,417 6,500 21,263 26,656
Senior Vice President 1997 161,100 52,594 6,000 20,853 25,376
Vehicle Seating 1996 152,300 0 5,000 0 29,692
</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) accruals made
in accordance with the Company's Senior Officer Deferred Compensation Plan
entitling each participant upon retirement or other limited circumstances to
$5,000 per month during their lives and (iv) gross-up amounts to cover
income taxes payable on prior common stock awards.
8
<PAGE>
RETIREMENT DEFERRED COMP
NAME YEAR PLAN 401k COMP TAXES
- ---------------------- ------ ----------- ------- ---------- ---------
K. Bruce Lauritsen 1998 9,256 1,419 16,784 0
1997 8,269 1,500 16,784 0
1996 8,324 1,500 16,784 13,250
Edward J. Monaghan 1998 9,270 1,600 0 0
1997 8,269 1,500 26,436 0
1996 8,284 1,500 26,436 11,850
James R. Richardson 1998 8,744 1,600 13,320 0
1997 8,060 1,500 13,320 0
1996 8,075 1,500 13,320 10,225
Ronald J. Klosterman 1998 8,739 1,600 23,234 0
1997 8,663 1,455 23,234 0
1996 7,724 1,331 0 4,450
Thomas D. Burkart 1998 8,292 1,600 16,764 0
1997 7,112 1,500 16,764 0
1996 7,878 1,500 16,764 3,550
STOCK OPTIONS/SAR*
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
OPTION TERM (1)
-------------------
EXERCISE
NAME SHARES PRICE ($/SH) EXPIRE DATE 5% 10%
- ---------------------- --------- -------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
K. Bruce Lauritsen 8,725 11.4375 11/07/2007 62,759 159,043
Edward J. Monaghan 8,300 11.4375 11/07/2007 59,702 151,296
James R. Richardson 7,600 11.4375 11/07/2007 54,667 138,536
Ronald J. Klosterman 7,200 11.4375 11/07/2007 51,789 131,245
Thomas D. Burkart 6,500 11.4375 11/07/2007 46,754 118,485
</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).
9
<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
FY-END 1998 AT FY-END 1998 (1)
------------------------ ---------------------
# OF SHARES
ACQUIRED ON $ VALUE # $
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
- -------------------------- ------------- ---------- ------------------------ ---------------------
<S> <C> <C> <C>
K. Bruce Lauritsen 0 55,885 149,898
Edward J. Monaghan 0 54,960 146,934
James R. Richardson 0 53,510 142,328
Ronald J. Klosterman 0 33,050 92,475
Thomas D. Burkart 0 31,700 85,106
</TABLE>
- ---------------------
(1) Based on the closing price as published in The Wall Street Journal for the
last business day of the fiscal year ($14.00). All options are exercisable
at time of grant.
10
<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>
K. Bruce Lauritsen 7,109
Edward J. Monaghan 4,592
James R. Richardson 3,852
Ronald J. Klosterman 3,260
Thomas D. Burkart 2,788
</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 6, 1998 are as follows: K. Bruce Lauritsen --
4,739 shares, $54,202; Edward J. Monaghan -- 3,061 shares, $35,010; James R.
Richardson -- 2,568 shares, $29,371; Ronald J. Klosterman -- 2,173 shares,
$24,853; Thomas D. Burkart -- 1,859 shares, $21,263. 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:
o Align the interests of executives with those of the Company and its
stockholders by providing a significant portion of compensation in Company
stock.
o Provide an incentive to executives by tying a meaningful portion of
compensation to the achievement of Company financial objectives.
11
<PAGE>
o 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
12
<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 1998 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 achievement of 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.
13
<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
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The current members of Flexsteel's Nominating and Compensation Committee
are L. Bruce Boylen, Chairman, John R. Easter and Thomas E. Holloran. 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: Bassett Furniture Ind., Bush
Industries 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 Inc., Ladd Furniture Inc.,
Leggett & Platt Inc., Meadowcraft Inc., O'Sullivan Ind. Hldgs Inc., Pulaski
Furniture Corp, Rowe Furniture Corp, and Stanley Furniture Inc. This data was
furnished by Media General Financial Services. The graph assumes reinvestment of
dividends.
14
<PAGE>
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON JUNE 30, 1993
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------ ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Flexsteel 100 92.19 71.67 85.89 89.44 110.62
Furniture Household 100 100.79 103.24 126.91 183.59 232.86
NASDAQ 100 109.66 128.61 161.89 195.02 256.52
</TABLE>
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.
15
<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, 1999.
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 recent past with the Company in any capacity
other than as independent auditors. Representatives of Deloitte & Touche LLP are
expected to be present during the annual meeting. They are expected to be
available to respond to appropriate questions and will have the opportunity to
make a statement if they wish.
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 1999 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, 1999.
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 1998.
16
<PAGE>
OTHER MATTERS
The percentage total number of the outstanding shares represented at each
of the last three years stockholders' meetings was as follows: 1995 -- 86.0%;
1996 -- 85.7%; 1997 -- 88.0%.
The financial statements of the Company contained in the Annual Report to
Shareholders for the year ended June 30, 1998, are incorporated herein by
reference. Specifically incorporated herein by reference from the 1998 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, 1998. REQUESTS SHOULD
BE DIRECTED TO THE SECRETARY OF THE COMPANY AT P.O. BOX 877, DUBUQUE, IA
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: November 13, 1998
Dubuque, Iowa
17
<PAGE>
[LOGO GRAPHIC OMITTED]
NOTICE OF 1998
ANNUAL MEETING
AND
PROXY STATEMENT
<PAGE>
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 15, 1998
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 15, 1998 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 two (2) Class III Directors (Term Expires at the
2001 Annual Meeting):
EDWARD J. MONAGHAN JEFFREY T. BERTSCH
(Class III) (Class III)
[ ] FOR all Nominees [ ] WITHHELD from all [ ] WITHHELD from the following
(Except as marked Nominees only: (Write name(s) below)
to 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 -------------------------- , 1998.
----------------------------------
(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>
[PHOTO]
FLEXSTEEL
INDUSTRIES
INCORPORATED
FASHIONING OUR FUTURE
ANNUAL
REPORT
FISCAL YEAR
ENDED JUNE 30,1998
[LOGO]
FLEXSTEEL (R)
AMERICA'S SEATING SPECIALIST
<PAGE>
FINANCIAL HIGHLIGHTS
[AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA]
Year Ended June 30, 1998 1997 1996
-------- -------- --------
Net Sales......................... $236,125 $219,427 $205,008
Income Before Taxes............... 11,527 9,473 7,052
Net Income........................ 7,602 6,048 4,502
Per Share of Common Stock
Average Shares Outstanding:
Basic........................... 6,959 7,024 7,172
Diluted......................... 7,035 7,072 7,188
Earnings:(1)
Basic........................... 1.09 0.86 0.63
Diluted......................... 1.08 0.86 0.63
Cash Dividends.................... 0.48 0.48 0.48
At June 30,:
Working Capital................... 50,549 44,357 47,376
Net Plant and Equipment........... 23,096 26,214 23,046
Total Assets...................... 104,673 99,173 95,874
Shareholders' Equity.............. 78,080 75,238 74,147
Long-Term Debt.................... 0 0 35
(1) The earnings per share amounts for 1997 and 1996 have been restated to
comply with Statement of Financial Accounting Standards No. 128, EARNINGS PER
SHARE.
- --------------------------------------------------------------------------------
NET SALES EARNINGS PER SHARE CASH DIVIDENDS PER SHARE
[BAR CHART] [BAR CHART] [BAR CHART]
BOOK VALUE PER SHARE RETURN ON COMMON EQUITY
[BAR CHART] [BAR CHART]
[LOGO]
FLEXSTEEL (R)
AMERICA'S SEATING SPECIALIST
[PHOTO]
FRONT COVER AND LEFT: THIS OUTSTANDING ROOM OF FLEXSTEEL FINE FURNITURE IS
FEATURED IN OUR FALL ADVERTISING. IT ENCAPSULATES FEATURES WIDELY POPULAR WITH
CONSUMERS IN ITS EXPANSIVE SCALING AND LOOK OF TOTAL COMFORT. IN ADDITION TO THE
HANDSOME SOFA, CHAIR, AND OTTOMAN, NOTE THE CHARISMA(R) CHAIR AND THE OCCASIONAL
TABLES, ALSO FROM FLEXSTEEL.
<PAGE>
FASHIONING OUR FUTURE: A WORK IN PROGRESS
- -----------------------------------------
TO OUR SHAREHOLDERS
[PHOTO]
JACK B. CRAHAN
CHAIRMAN OF THE BOARD
[PHOTO]
K. BRUCE LAURITSEN
PRESIDENT & CHIEF EXECUTIVE OFFICER
Even a more-than-century-old company is always a work in progress. Well into
our own second century, Flexsteel has this year taken fresh strides, readying
the company for an exciting new century, in an economy increasingly
technological and global.
Sales for the fiscal year ended June 30, 1998, were $236,125,000, an
all-time high and an increase of 8% over revenues of $219,427,000 in the
previous fiscal year. Net earnings were $7,602,000 or $1.09 per share (basic),
an increase of 26% over earnings of $6,048,000 or $.86 per share (basic),
recorded a year earlier.
While this solid achievement in a fiercely competitive marketplace is
gratifying, we must continue to improve our return on investment. We also
continue to scrutinize our overall operations in an effort to eliminate
unprofitable products and as well as operations that do not contribute to
increased shareholder value.
RESIDENTIAL FURNITURE
Sales in the residential furniture segment of our business rose 4%, mostly
due to increased market penetration among independent dealers. Increased housing
starts, increased sales of existing homes, a very high employment rate, and low
inflation are all major contributors to improved sales of home furnishing, but
we can expect pricing pressures to persist as manufacturers compete aggressively
for shrinking display area.
Flexsteel's two programs for dealers - the Gallery Program and Comfort
Seating Showrooms - continue their sustained growth, thanks to the success of
recent introductions at the High Point and San Francisco markets. Noteworthy
have been our Casual Classic introductions which typify the direction of growth
in this market - toward fashionable and extremely comfortable styles. Our Casual
Classic Collection meets these criteria, with the personality and
distinctiveness to lift the spirits of any room.
Our Timeless Traditional styles, a Flexsteel hallmark of classic beauty,
also put a high priority on comfort. Leather continues in popularity, also with
emphasis on comfort as well as style.
Our distinctive furniture deserves accessories that are equally smart and
appealing, and we provide our dealer network with tables and other accent pieces
which pair perfectly with our own fine upholstered furniture.
For the still-growing market in motion and reclining furniture, we are
adding 90,000 square feet of production space to our manufacturing facility in
Dublin, Georgia.
International sales continue to improve, even though a strong dollar and the
Asian economic crisis have not been favorable to furniture exports. Our current
emphasis is on Canadian, European, and the Mideast markets where better
opportunities now exist.
Flexsteel is dedicated to increasing the number of Comfort Seating Stores
in metropolitan markets. To that end, we have retained the services of
specialists in real estate and in retailing. These experts will help our dealers
in finding the right locations, and in building or remodeling and layout of
these new retailing stores.
ADVERTISING
We continue to increase our national advertising, this year running fourteen
four-color ads in seven consumer publications. These reach our target audience,
estimated to be over fifty-one million, of women 25-54 with household incomes of
$40,000 to $75,000.
Our dealer support is one of the best in the industry. For the many dealers
now using desk-top publishing programs, we provide CD-ROM disks with product and
lifestyle photos and suggested dealer ads.
{PHOTO]
LEATHER FURNITURE BY FLEXSTEEL IS CHOSEN FOR COMFORT AND STYLE, HERE ACCENTED
WITH LARGE NAILHEAD TRIM AND TURNED BUN FEET.
1
<PAGE>
[PHOTO]
OUR NEWEST BUCKET SEAT WITH ELECTRIC CONTROLS, THE PATENTED ERGOFLEX ARMS,
RECLINING BACK, AND INTEGRATED SEAT BELT. FINGERTIP CONTROLS ALLOWS ADJUSTING
ERGOFLEX ARMS INDEPENDENTLY OF CHAIR'S RECLINING BACK.
Trends in television advertising for furniture emphasize upscale looks, for
which we provide our dealers with customizable video footage displaying our
products with models.
We reach millions of potential customers through our Web site; it is
continually updated to reflect the "lifestyles" look of our furniture, to
showcase new products, and to highlight new exclusive promotions or events at
Flexsteel Galleries and Comfort Seating Showrooms.
The number of hits has grown dramatically; responding via e-mail we can
reach millions of home owners directly and tell them of special promotions at
our dealers. Our Web site also carries our message to potential buyers of
contract seating or RVs that traditional Flexsteel comfort and style are also
available in those markets.
RECREATIONAL VEHICLE SEATING
Revenues in this division are at record levels, as we once again increased
our market share in seating for motor homes and travel trailers. Sales for van
conversion seating have been sluggish as the market for converted units continue
to decline. Dygert Seating, acquired in fiscal 1997, has struggled under this
restraint, and we closed our leased Watkinsville, Georgia, facility. Although
volume at Dygert Seating is off substantially, we are confident in our
management team's ability to open new markets, such as seats for wheel chairs
and motorized scooters used in the medical field, making this acquisition
financially rewarding.
We expect the van conversion business to eventually rebound, and accordingly
have developed a new, safer integrated seat and restraint system for the van
conversion market.
We continue to develop new products for the recreational marine industry and
we expect much higher revenues as we improve our market penetration. We are
fortunate to have Flexsteel's years of leadership and reputation for quality
products for the recreational automotive market.
COMMERCIAL SEATING
Sales for contract furniture continue to do extremely well; we remain
confident of our prospects in the hospitality and health care fields. We have
been limited by lack of production capacity in this labor-intensive industry. In
Starkville, Mississippi, where our principal contract facility is located, the
unemployment rate is less than 3%, and a shortage of workers has hampered our
output. While we continue to supplement our production at other manufacturing
facilities, this avenue is limited by certain design features. We do remain
confident of our ability to work out manufacturing problems, and we continue to
focus on solutions that support our growth in this field.
FRANK BERTSCH
Flexsteel this year was saddened by the passing of Frank Bertsch, grandson
of one of our founders. For many years he enriched us with his remarkable
ability to turn problems into opportunities and to keep us focused on the long
term, serving as President, Chief Executive Officer, and Chairman of the Board
of Directors. We will miss his abundant contributions, advice, and counsel.
OUTLOOK
It is our goal to remain focused on providing superior values in product and
service to your corporation's three business platforms: home furnishings,
recreational vehicle products, and contract furniture.
Given the healthy business conditions, with the highest employment rate in
many years, low inflation and strong consumer confidence, we expect to continue
to improve sales and earnings in this next fiscal year. Our financial condition
remains strong at year-end. Working capital exceeded $50,549,000, which included
cash, cash equivalents and short-term investments of $15,342,000. With no
long-term debt and shareholders' equity of $78,080,000, we have the resources to
implement our strategic plan and fund continued growth and possible
acquisitions.
During 1998, to enhance shareholders' value, we continued to repurchase
shares of common stock and completed the previously authorized buyback of
500,000 shares. We will continue this program from time to time as we feel the
stock is undervalued.
Our dividend rate, which we have paid without interruption since 1938, is
one of the highest in our industry, and we are committed to future dividend
reviews.
We appreciate the support of our shareholders, our associates, our
customers, and our suppliers, and we are working hard to achieve the value you
expect from your investment.
/s/ Jack B. Crahan
JACK B. CRAHAN
CHAIRMAN OF THE BOARD OF DIRECTORS
/s/ K. Bruce Lauritsen
K. BRUCE LAURITSEN
PRESIDENT & CHIEF EXECUTIVE OFFICER
2
<PAGE>
FASHIONING OUR FUTURE: CREATIVITY IN DESIGN
- -------------------------------------------
Leading the Flexsteel success story across all our product lines is a design
concept reflecting today's market demands and permeating everything we do. This
concept, appropriately called "Lifestyles Design," emerged dramatically in our
residential seating, and is also reflected in hospitality and health care
seating, in motor homes, and in other recreational vehicles, including travel
trailers, light trucks, and yachts.
The lifestyle of today's smart, fashion-savvy and value-conscious consumer
emphasizes comfortable elegance. Responding to this trend, our designers are
using softer seating, relaxed styling and more drapeable fabrics to create a
winning fashionable line. This Flexsteel look fits especially well in the life
style of today's younger buyers, but is in no sense limited to them - this is
handsome seating with broad-based appeal.
And there is more Flexsteel in the cities. Our metropolitan presence is
growing through multi-store dealers and Comfort Seating Showrooms specializing
in Flexsteel. Our designers also create smart cosmopolitan looks for city
living.
Our new Roma Divani leather lines were designed in Italy, and feature the
utmost in seating comfort, paired with exciting and upscale design. The broad
appeal of what is definitely European styling has heightened interest in
Flexsteel's fine leather furniture and led to this spring's introduction of
three additional groups at our High Point Market.
Another exciting line has emerged from our designers' use of the wood
processing capabilities of our Starkville, Mississippi, plant. They have created
an outstanding wood-framed sofa that is complemented with coordinating chairs
and occasional tables. This line, too, has sparked so much consumer interest
that we are planning more such groups including coordinated case goods.
Design is equally a key for success in the commercial, or contract, seating
market where furniture is specified by interior designers, and our Commercial
Seating division in Starkville has introduced new and contemporary designs in
chairs, sofas, and ottomans. The hospitality market is also installing recliners
in hotels and motels, where Flexsteel is more often the recliner of choice, not
only for our residential styling but also for our dependable performance.
For the Lifestyles look also in demand in motor homes, Flexsteel's Metal
Division produces recliners and dual inclining sofas with residential styling.
Our name has long been a selling feature in converted vans, and our RV designers
are providing interior packages with such features as cushions and trim. The
traveling public can now take Flexsteel wherever they go: sofas in trailers
and motor homes, or comfortable Flexsteel seating in their light trucks and in
their yachts.
Upholstered Flexsteel furniture, is lasting beauty; today it is more popular
for its fashion than ever, an outstanding success story built on, and made
possible by, a sterling reputation for quality that is over a century old, and
growing.
[PHOTOS]
TOP PHOTO: EURO DESIGN, AMERICAN COMFORT: THIS LEATHER SOFA WITH RAM'S HORN ARMS
IS A TOP SELLER.
ABOVE: THE LATEST LOOK IN RECLINERS IS UPSCALE, WITH THE LOOK OF A LOUNGE OR
CLUB CHAIR.
[PHOTO]
AT THE DUBUQUE GOLF AND COUNTRY CLUB DINING ROOM, GUESTS SIT COMFORTABLY IN OUR
HANDSOME C5338 CHAIRS.
3
<PAGE>
FASHIONING OUR FUTURE: CREATIVITY IN MARKETING
- ----------------------------------------------
An aggressive marketing program has been the impetus for Flexsteel's
continued growth in all its market lines. In addition to traditional marketing
techniques, an expanded cross-awareness program has opened new marketing
opportunities.
For example, a residential customer may learn through the Internet that he
can find Flexsteel seating in a converted van; an interior designer who has
Flexsteel at home has added confidence if she specifies Flexsteel in a
commercial application.
Especially through Comfort Seating Showrooms, we have expanded marketing
efforts in metropolitan markets. Popular with customers, they feature open
layouts, easy traffic patterns and a very wide selection. Because he can offer a
broader product range, complemented with accessories and our imported tables,
the Comfort Seating retailer is rewarded with bigger ticket sales and improved
sales per square foot. There are now seven successful Comfort Seating Stores in
operation, with sales exceeding projections. Another six will be open by the
first of January. Our goal is to open one hundred stores within five years.
Flexsteel Galleries also continue their growth: this year we added fourteen
more of these instore Galleries, meanwhile updating existing Flexsteel Galleries
in one hundred and seventy-five stores. At the same time, Flexsteel continues
its strong support of our long-standing customer base, the independent retailer.
We expect to increase market share in motion furniture, the fastest-growing
segment of the industry. The value-conscious consumer is receptive to
Flexsteel's quality story, and we are introducing new upscale, "living-room"
styling to satisfy that market.
Imaginative approaches to marketing have opened new markets such as resort
hotels and the marine business. The greatest market for upscale motor homes is
in the generation now entering their fifties, and in the United States every
seven minutes someone reaches that age. New seating applications supplied by
Flexsteel include those for yachts, signature motor homes and light trucks, and
fold-down beds for the hospitality industry.
The greatest opportunities in the health care industry are in retirement and
assisted-living homes, where Flexsteel style and quality are especially welcome.
The United States government continues as a customer -- a typical recent
contract calls for Flexsteel to supply the upholstered furniture in the
temporary lodging facilities of nineteen Air Force bases.
Our presence on the Internet gives us valuable exposure: growing
exponentially, the Internet is predicted to reach 36 million homes by 2000, and
nearly half of its users are women. We have also expanded our presence in
consumer magazines with fourteen full-color ads to appear this year, directing
readers to our Web site and an 800 number.
A Comfort Seating Showroom dealer has remarked that his store's success was
tied to its "impressive brand name presence." In the end, one of our greatest
marketing tools is recognition of the Flexsteel name and every thing it stands
for.
[PHOTOS]
TOP PHOTO: UPSCALE MOTION FURNITURE APPEALS TO CONSUMERS, LIKE THIS HANDSOME
SECTIONAL WITH "CHAIR-AND-A-HALF" RECLINERS AT EACH END.
ABOVE: FLARED ARMS AND A SHAPED BACK DISTINGUISH THIS CHAIR DESIGNED FOR THE
NEEDS OF THE CONTRACT MARKET.
[PHOTOS]
CRUISERS YACHTS' 5000 SEDAN SPORT SLEEPS 8 AND EMPHASIZES LUXURY WITH INCLINER
SOFA, SWIVELCHAIRS AND CAPTAIN'S SEATS BY FLEXSTEEL.
Photo courtesy of Cruisers Yachts
4
<PAGE>
FASHIONING OUR FUTURE: CREATIVITY IN TECHNOLOGY
- -----------------------------------------------
Inventive applications by our designers and engineers take advantage of the
expanding uses of technology.
Many of Flexsteel's contract and recreational vehicle clients require us to
turn around ever-more quickly on prototypes. Our new computerized pattern-making
system which incorporates a digital camera saves significant development time.
Faster completion of prototypes means cost savings, and the system greatly
simplifies the transition to production, with the digital camera helping us
produce complete documentation quickly, including bills of material and
specification books.
The Metal Division, maker of the famous Flexsteel spring, continues its
innovations with continued creative use of the synergy between our metal
expertise and our residential furniture skills. It makes metal components for
the recliners which our Contract Division sells to the health-care industry,
while our residential furniture skills are applied to such things as inclining
sofas for motor homes and travel trailers.
New products in the Metal Division include a fold-down bed for resort hotels
and, for RVs, restraint packages and dual inclining sofas with drop-down trays.
Our patented Ergo-Flex arm for motor home seats allows the independent control
of the arm's position, whether the seat is reclining or upright. We also have
under development, for high-end motor homes, integrated belt-in-seat packages,
a power footrest for passengers, and recliners with home-like residential
styling.
Flexsteel seating is also in the marine industry. We are developing new port
and starboard side lounges, power beds, and helm seats for yachts and large
power boats.
At many large dealers, Comfort Seating Stores, and most galleries, the
customer can get a Sneak Preview(TM) of her choice of fabric and frame on our
video cataloging system. We utilize more bar coding for inventory control, and
now are able to use CAD instead of paper to design plant additions, such as the
90,000 square-foot addition to the Dublin plant.
Technology helps us make the most of precious resources: when we use
hardwood laminates in frames, we not only make stronger frames, we use much
fewer trees. Yield is further increased by using CNC routers which also are more
cost-effective and give us just-in-time practicality in frame parts inventories.
Planned new CNC cutters will further automate pattern cutting.
Because historically Flexsteel has done most of its own programming, we have
kept our software up to date, anticipated our computers' responses to the year
2000, and we do not expect any problems resulting from the date change.
Flexsteel applies technology to sustain our creativity, to offer the finest
warranties in the industry, and to uphold a tradition of the finest
craftsmanship which we have been building for more than a century.
[PHOTO]
PHOTO COURTESY A&J VAN INTERIORS, VALDERS, WI
[PHOTO]
TOP PHOTO: A LUXURIOUS VAN INTERIOR WITH FLEXSTEEL BUCKET SEATS AND SLEEPER.
ABOVE: A SMARTLY-STYLED SWIVEL GLIDER WITH LAWSON ARMS AND TEE SEAT CUSHION.
[PHOTO]
A DISTINCTIVE INTERIOR STARS THE SOPHISTICATION OF OUR ROMA DIVANI LEATHER
COLLECTION WITH DRAMATIC SCROLLED ARMS. OUR UNUSUAL GLASS-TOPPED COCKTAIL TABLE
COMPLETES THE SCENE.
5
<PAGE>
[LOGO] FLEXSTEEL INDUSTRIES, INC.
--------------------------
FIVE YEAR REVIEW
[ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA]
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(2)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net Sales ................................ $236,125 $219,427 $205,008 $208,432 $195,388
Cost of Goods Sold ....................... 185,345 173,088 161,451 164,231 151,066
Interest and Other Expense ............... 356 345 358 372 270
Interest and Other Income ................ 2,015 1,931 1,132 924 1,063
Income Before Taxes ...................... 11,527 9,473 7,052 8,111 10,092
Income Taxes ............................. 3,925 3,425 2,550 2,900 3,625
Net Income (1) (3) (4) ................... 7,602 6,048 4,502 5,211 6,787
Earnings per Common Share: (1) (3) (4) (5)
Basic ................................. 1.09 0.86 0.63 0.73 0.95
Diluted ............................... 1.08 0.86 0.63 0.72 0.94
Cash Dividends per Common Share .......... 0.48 0.48 0.48 0.48 0.48
STATISTICAL SUMMARY
Average Common Shares Outstanding:
Basic ................................. 6,959 7,024 7,172 7,178 7,140
Diluted ............................... 7,035 7,072 7,188 7,205 7,201
Book Value per Common Share .............. 11.49 10.86 10.45 10.26 9.96
Total Assets ............................. 104,673 99,173 95,874 96,271 95,088
Property, Plant and Equipment, net ....... 23,096 26,214 23,046 24,376 18,829
Capital Expenditures ..................... 2,392 5,273 3,298 9,948 5,074
Working Capital .......................... 50,549 44,357 47,376 46,272 47,787
Long-Term Debt ........................... 0 0 35 70 105
Shareholders' Equity ..................... 78,080 75,238 74,147 73,824 71,289
SELECTED RATIOS
Earnings as Percent of Sales ............. 3.2% 2.8% 2.2% 2.5% 3.5%
Current Ratio ............................ 3.1 to 1 3.1 to 1 3.5 to 1 3.4 to 1 3.3 to 1
Return on Ending Common Equity ........... 9.7% 8.0% 6.1% 7.1% 9.5%
Return on Beginning Common Equity ........ 10.1% 8.2% 6.1% 7.3% 10.0%
Average Number of Employees .............. 2,330 2,320 2,230 2,375 2,240
</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.
(2) On March 18, 1997, the Company acquired certain assets of Dygert Seating,
Inc., and the related production facilities in Elkhart, Indiana, for $6,934,000.
(3) 1997 income and per share amounts reflect a gain on the sale of the
Sweetwater, Tennessee facility of approximately $350,000 (net of income taxes)
or $.05 per share.
(4) 1998 income and per share amounts reflect a non-taxable gain from life
insurance proceeds of approximately $720,000 or $.10 per share.
(5) The earnings per share amounts for 1997, 1996, 1995 and 1994 have been
restated to comply with Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE.
6
<PAGE>
[LOGO] FLEXSTEEL INDUSTRIES, INC.
--------------------------
REPORTS OF AUDITORS' AND MANAGEMENT
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF FLEXSTEEL INDUSTRIES, INC.:
We have audited the accompanying balance sheets of Flexsteel Industries,
Inc. (the Company) as of June 30, 1998 and 1997, and the related statements of
income, comprehensive income, changes in shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1998. 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, 1998 and 1997, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
MINNEAPOLIS, MINNESOTA
AUGUST 6, 1998
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 Audit & Ethics Committee
meets periodically with the independent auditors to review financial reports,
accounting and auditing practices and controls.
K. BRUCE LAURITSEN
PRESIDENT
CHIEF EXECUTIVE OFFICER
RONALD J. KLOSTERMAN
VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER
SECRETARY
7
<PAGE>
[LOGO] FLEXSTEEL INDUSTRIES, INC.
--------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 5,464,261 $ 4,445,327
Investments .............................................. 9,877,784 5,041,154
Trade receivables - less allowance for doubtful
accounts: 1998, $2,198,000; 1997, $2,799,000 ........... 28,722,752 25,348,941
Inventories .............................................. 26,607,296 26,985,554
Deferred income taxes .................................... 2,785,000 2,620,000
Other .................................................... 632,730 806,117
------------ ------------
Total current assets ................................. 74,089,823 65,247,093
PROPERTY, PLANT AND EQUIPMENT, net ......................... 23,095,589 26,214,405
OTHER ASSETS ............................................... 7,487,729 7,711,179
------------ ------------
TOTAL .......................................... $104,673,141 $ 99,172,677
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ................................. $ 5,792,708 $ 3,845,362
Accrued liabilities:
Payroll and related items .............................. 5,448,032 4,440,219
Insurance .............................................. 5,834,895 6,057,093
Other accruals ......................................... 4,515,177 4,237,556
Industrial revenue bonds payable ......................... 1,950,000 2,310,000
------------ ------------
Total current liabilities .......................... 23,540,812 20,890,230
DEFERRED COMPENSATION ...................................... 3,052,525 3,044,418
------------ ------------
Total liabilities .................................... 26,593,337 23,934,648
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000,000 shares;
issued 1998, 6,794,730 shares; 1997, 6,927,310 shares .. 6,794,730 6,927,310
Retained earnings ........................................ 70,450,282 67,750,719
Unrealized investment gain ............................... 834,792 560,000
------------ ------------
Total shareholders' equity ................... 78,079,804 75,238,029
------------ ------------
TOTAL ........................... $104,673,141 $ 99,172,677
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
[LOGO] FLEXSTEEL INDUSTRIES, INC.
--------------------------
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES ............................................. $ 236,125,280 $ 219,426,736 $ 205,008,245
COST OF GOODS SOLD .................................... 185,345,398 173,088,406 161,450,649
------------- ------------- -------------
GROSS MARGIN .......................................... 50,779,882 46,338,330 43,557,596
SELLING, GENERAL AND ADMINISTRATIVE ................... 40,911,581 38,450,275 37,279,056
------------- ------------- -------------
OPERATING INCOME ...................................... 9,868,301 7,888,055 6,278,540
------------- ------------- -------------
OTHER:
Interest and other income ........................... 2,014,982 1,930,527 1,131,952
Interest and other expense .......................... (356,066) (345,148) (358,322)
------------- ------------- -------------
Total ............................................. 1,658,916 1,585,379 773,630
------------- ------------- -------------
INCOME BEFORE INCOME TAXES ............................ 11,527,217 9,473,434 7,052,170
PROVISION FOR INCOME TAXES ............................ 3,925,000 3,425,000 2,550,000
------------- ------------- -------------
NET INCOME ............................................ $ 7,602,217 $ 6,048,434 $ 4,502,170
============= ============= =============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
BASIC ............................................. 6,959,310 7,024,021 7,172,299
============= ============= =============
DILUTED ........................................... 7,035,158 7,071,895 7,188,075
============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC ............................................. $ 1.09 $ 0.86 $ 0.63
============= ============= =============
DILUTED ........................................... $ 1.08 $ 0.86 $ 0.63
============= ============= =============
<CAPTION>
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED JUNE 30,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
NET INCOME ............................................ $ 7,602,217 $ 6,048,434 $ 4,502,170
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME BEFORE TAX:
Unrealized gains on securities arising during period 736,051 643,123 339,906
Less: reclassification adjustment for gains included
in net income ...................................... (313,294) (121,123) (53,906)
------------- ------------- -------------
Other comprehensive income, before tax ................ 422,757 522,000 286,000
------------- ------------- -------------
INCOME TAX (EXPENSE) BENEFIT:
Income tax expense related to securities gains
arising during period ............................... (257,618) (235,811) (119,561)
Income tax benefit related to securities
reclassification adjustment ......................... 109,653 44,411 18,961
------------- ------------- -------------
Income tax expense related to other
comprehensive income ................................ (147,965) (191,400) (100,600)
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME, NET OF TAX ................ 274,792 330,600 185,400
------------- ------------- -------------
COMPREHENSIVE INCOME .................................. $ 7,877,009 $ 6,379,034 $ 4,687,570
============= ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
[LOGO] FLEXSTEEL INDUSTRIES, INC.
--------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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, 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
Purchase of
Company Stock ....... (176,489) (176,489) (470,508) (1,581,978) (2,228,975)
Issuance of
Company Stock ....... 43,909 43,909 470,508 514,417
Investment Valuation
Adjustment .......... 274,792 274,792
Cash Dividends ......... (3,320,676) (3,320,676)
Net Income ............. 7,602,217 7,602,217
--------- ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 6,794,730 $ 6,794,730 $ 0 $ 70,450,282 $ 834,792 $ 78,079,804
========= ============ ============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
[LOGO] FLEXSTEEL INDUSTRIES, INC.
--------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................... $ 7,602,217 $ 6,048,434 $ 4,502,170
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ................................ 5,400,025 5,129,246 4,619,511
(Gain) Loss on disposition of capital assets 7,106 (646,050) (83,878)
Trade receivables ........................... (3,373,811) 688,561 (1,559,124)
Inventories ................................. 378,258 637,112 (161,183)
Other current assets ........................ 173,387 256,487 112,503
Other assets ................................ 223,450 (980,666) (544,369)
Accounts payable - trade .................... 1,947,346 271,130 (1,182,759)
Accrued liabilities ......................... 1,082,712 2,244,775 809,535
Deferred compensation ....................... 8,107 74,571 29,518
Deferred income taxes ....................... (165,000) (610,000) (10,000)
------------ ------------ ------------
Net cash provided by
operating activities ........................ 13,283,797 13,113,600 6,531,924
------------ ------------ ------------
INVESTING ACTIVITIES:
Payment for purchase of business assets ..... (6,933,951)
Purchases of investments .................... (7,231,401) (1,517,439) (4,178,560)
Proceeds from sales of investments .......... 2,669,563 5,747,488 3,691,972
Proceeds from sales of capital assets ....... 104,050 1,112,201 91,818
Capital expenditures ........................ (2,392,365) (5,273,317) (3,297,623)
------------ ------------ ------------
Net cash used in investing activities .......... (6,850,153) (6,865,018) (3,692,393)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayment of borrowings ..................... (360,000) (360,000) (360,000)
Payment of dividends ($0.48 per share) ...... (3,340,152) (3,374,005) (3,452,124)
Proceeds from issuance of common stock ...... 514,417 184,552 383,237
Repurchase of common stock .................. (2,228,975) (2,121,544) (1,311,439)
------------ ------------ ------------
Net cash used in financing activities .......... (5,414,710) (5,670,997) (4,740,326)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 1,018,934 577,585 (1,900,795)
Cash and cash equivalents at beginning of year . 4,445,327 3,867,742 5,768,537
------------ ------------ ------------
Cash and cash equivalents at end of year ....... $ 5,464,261 $ 4,445,327 $ 3,867,742
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for
Interest .................................. $ 90,000 $ 103,000 $ 123,000
Income taxes .............................. $ 4,405,000 $ 3,640,000 $ 1,927,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
[LOGO] FLEXSTEEL INDUSTRIES, INC.
--------------------------
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Flexsteel Industries, Inc. (the Company)
manufactures a broad line of quality upholstered furniture for residential,
recreational vehicle and commercial seating use. Products include sofas,
love seats, chairs, reclining and rocker-reclining chairs, swivel rockers,
sofa beds, and convertible bedding units. The Company's products are sold
primarily throughout the United States and Canada, by the Company's internal
sales force and various independent representatives.
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.
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.
REVENUE RECOGNITION - is upon delivery of product.
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 its
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 $1,491,000. 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.
COMPREHENSIVE INCOME - in June 1997, the Financial Accounting Standards
Board issued Statement No. 130, REPORTING COMPREHENSIVE INCOME (SFAS 130).
SFAS 130 requires the disclosure of comprehensive income and its components
in the general-purpose financial statements. During 1998, the Company
adopted this standard, which is reflected in the accompanying Statements of
Comprehensive Income.
SEGMENT AND RELATED INFORMATION - in June 1997, the Financial Accounting
Standards Board issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS 131). SFAS 131 redefines how
operating segments are determined and requires disclosures of certain
financial and descriptive information about a company's operating segments.
During 1998, the Company adopted this standard. Under the "management
approach" methodology prescribed by SFAS 131, the Company operates in one
segment, seating products.
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 1998 presentation. These reclassifications had no impact on
net income or shareholders' equity as previously reported.
2. INVESTMENTS
Debt and equity securities are included in Investments and in Other Assets,
at fair value based on quoted market prices, and are classified as available
for sale. The amortized cost and estimated market values of investments are
as follows:
June 30, 1998 June 30, 1997
--------------------------- -------------------------
Debt Equity Debt Equity
Securities Securities Securities Securities
--------------------------- -------------------------
Amortized Cost $ 10,780,529 $ 2,202,952 $ 5,505,167 $ 2,315,994
Unrealized gains
(losses) 44,668 1,277,629 (27,689) 904,344
------------ ----------- ----------- -----------
Est. Market Value $ 10,825,197 $ 3,480,581 $ 5,477,478 $ 3,220,338
============ =========== =========== ===========
As of June 30, 1998, the maturities of debt securities are $5,040,045 within
one year, $4,134,757 in one to five years, and $1,650,395 over five years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately
$2,331,000 and $2,001,000 higher at June 30, 1998 and 1997, respectively, if
they had been valued on the FIFO method. A comparison of inventories is as
follows:
June 30,
----------------------------
1998 1997
------------ ------------
Raw materials ....................... $ 13,538,911 $ 13,529,232
Work in process and finished parts .. 7,227,558 7,689,051
Finished goods ...................... 5,840,827 5,767,271
------------ ------------
Total ............................ $ 26,607,296 $ 26,985,554
============ ============
12
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
June 30,
Estimated ---------------------------
Life (Years) 1998 1997
----------- ------------ ------------
Land .......................... $ 1,642,422 $ 1,642,422
Buildings and
improvements ............... 3 - 39 24,929,545 24,485,437
Machinery and
equipment .................. 3 - 10 28,655,104 28,024,677
Delivery equipment ............ 2 - 9 13,894,648 13,818,489
Furniture and fixtures ........ 3 - 5 5,307,217 5,205,537
------------ ------------
Total ...................... 74,428,936 73,176,562
Less accumulated
depreciation ............... 51,333,347 46,962,157
------------ ------------
Net ........................ $ 23,095,589 $ 26,214,405
============ ============
5. BORROWINGS
The Company is obligated for $1,950,000 for Industrial Revenue Bonds at June
30, 1998 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, 1998, 1997 and 1996 of 4.06%, 3.94%
and 4.13%, 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,
1998.
6. INCOME TAXES
The total income tax provision for the years ended June 30, 1998, 1997, and
1996 was 34.0%, 36.2% and 36.2% respectively, of income before income taxes.
In 1998 the effective rate was reduced by 2.2% for nontaxable life insurance
proceeds of $720,000.
PROVISION - COMPRISED OF THE FOLLOWING:
1998 1997 1996
---------- ---------- ----------
Federal - current ....... $3,580,000 $3,528,000 $2,240,000
State - current ......... 510,000 507,000 320,000
Deferred ................ (165,000) (610,000) (10,000)
---------- ---------- ----------
Total ................ $3,925,000 $3,425,000 $2,550,000
========== ========== ==========
DEFERRED INCOME TAXES - COMPRISED OF THE FOLLOWING:
June 30, 1998 June 30, 1997
Asset (Liability) Asset (Liability)
----------------- -----------------
Asset allowances ...................... $ 805,000 $ 1,025,000
Deferred compensation ................. 1,130,000 1,126,000
Other accruals and allowances ......... 1,940,000 1,756,000
Excess of tax over book depreciation .. (1,090,000) (1,287,000)
----------- -----------
Total .............................. $ 2,785,000 $ 2,620,000
=========== ===========
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 1998 or 1997.
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. EARNINGS PER SHARE
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 diluted 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.
1998 1997 1996
---------- ---------- ----------
Basic Earnings Per Share:
Income available to common
shareowners $7,602,217 $6,048,434 $4,502,170
Weighted average shares
outstanding 6,959,310 7,024,021 7,172,299
---------- ---------- ----------
Earnings Per Share - Basic $ 1.09 $ 0.86 $ 0.63
========== ========== ==========
Diluted Earnings Per Share:
Income available to common
shareowners $7,602,217 $6,048,434 $4,502,170
---------- ---------- ----------
Weighted average shares
outstanding 6,959,310 7,024,021 7,172,299
Dilutive shares issuable in con-
nection with stock option plans 418,145 339,820 245,920
Less shares purchasable with proceeds (342,297) (291,946) 230,144)
---------- ---------- ----------
Total Shares 7,035,158 7,071,895 7,188,075
---------- ---------- ----------
Earnings Per Share - Diluted $ 1.08 $ 0.86 $ 0.63
========== ========== ==========
Options to purchase 82,360 shares of common stock at a range of $14.875 to
$15.75 were outstanding during 1998 but were not included in the computation
of the diluted earnings per share because the options' exercise price was
greater than the average market price of the common shares.
10. STOCK OPTIONS
The Company has stock option plans for key employees and directors that
provide for the granting of incentive and nonqualified stock options. Under
the plans, options are granted at an exercise price equal to the fair market
value of the underlying common stock at the date of grant, and may be
exercisable for up to 10 years. All options are exercisable when granted. At
June 30, 1998, 241,065 shares were available for future grants. The Company
applies APB Opinion 25 and related interpretations in accounting for its
stock option plans, as permitted under Financial Accounting Standards Board
Statement No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123).
Accordingly, no compensation cost has been recognized for its stock option
plans. Had the compensation cost for the Company's incentive stock option
plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the methodology of SFAS 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated on next page:
13
<PAGE>
1998 1997 1996
----------- ----------- -----------
Net Income As reported $ 7,602,217 $ 6,048,434 $ 4,502,170
Pro forma 7,462,506 5,907,480 4,365,091
Earnings per share:
Basic As reported 1.09 0.86 0.63
Pro forma 1.07 0.84 0.61
Diluted As reported 1.08 0.86 0.63
Pro forma 1.06 0.84 0.61
The fair value of each option grant is estimated on the date of grant using
the Black-Sholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend
yield of 4.2%, 4.6% and 4.4%; expected volatility of 26.3%, 27.3% and 28.2%;
interest rates of 6.8%, 6.9% and 6.8%; and an expected life of 10 years on
all options.
A summary of the status of the Company's stock option plans as of June 30,
1998, 1997 and 1996 and the changes during the years ending on those dates
is presented below:
Shares Price Range
------- ---------------
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 ..................... (6,400) 10.50 - 14.875
-------
June 30, 1997 Outstanding ..... 432,680 10.25 - 15.75
Granted ....................... 88,775 11.44 - 12.66
Exercised ..................... (10,250) 10.25 - 12.75
Cancelled ..................... (10,700) 10.25 - 15.75
-------
June 30, 1998 Outstanding ..... 500,505 $10.25 - 15.75
=======
Significant option groups outstanding at June 30, 1998 and related
weighted-average exercise price and remaining life information follows:
Weighted-Average
----------------------
Grant Options Exercise Remaining
Date Outstanding Price Life (Years)
----------------- ----------- -------- ------------
December 12, 1991 61,210 10.500 1.4
July 6, 1993 74,360 14.875 2.9
July 28, 1994 75,560 10.500 6.0
August 16, 1995 81,950 11.250 7.1
July 30, 1996 90,050 10.250 8.1
November 7, 1997 83,375 11.438 9.3
All other 34,000 13.008 6.8
-------
Total 500,505
=======
11. PENSION AND RETIREMENT PLANS
The Company sponsors various defined contribution pension and retirement
plans which cover substantially all employees, other than employees covered
by 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 $1,373,000 in 1998, $1,352,000 in 1997 and
$1,326,000 in 1996 including $311,000 in 1998, $300,000 in 1997 and $287,000
in 1996 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
multi-employer defined benefit pension plans administered by others under
collective bargaining agreements were $1,184,000 in 1998, $1,102,000 in 1997
and $1,135,000 in 1996.
12. MANAGEMENT INCENTIVE PLAN
The Company has an incentive plan that provides for shares of common stock
to be awarded to key employees based on a targeted rate of earnings to
common equity as established by the Board of Directors. Shares awarded to
employees are subject to the restriction of continued employment with
33 1/3% of the stock received by the employee on the award date and the
remaining shares issued after one and two years. Under the plan 35,459 and
31,053 shares were awarded, and the amounts charged to income were $406,000
and $365,000 in 1998 and 1997 respectively. No shares were awarded in 1996.
At June 30, 1998, 312,798 shares were available for future grants.
13. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
(UNAUDITED - in thousands of dollars, except per share amounts)
Quarters
--------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
1998:
Net Sales ............ $55,159 $56,260 $62,090 $62,616
Gross Profit ......... 11,292 11,947 13,773 13,768
Net Income ........... 1,030 2,100(1) 2,106 2,366
Earnings Per Share:
Basic ............... 0.15 0.30 0.30 0.34
Diluted ............. 0.15 0.30 0.30 0.33
Dividends Per Share .. 0.12 0.12 0.12 0.12
* Market Price
High ................ 12 7/8 14 1/8 14 5/8 15
Low ................. 11 5/8 11 1/4 12 12
(1) Includes a non-taxable gain from life insurance proceeds of approximately
$720,000.
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:
Basic ............... 0.21 0.17 0.24 0.24
Diluted ............. 0.21 0.17 0.24 0.24
Dividends Per Share 0.12 0.12 0.12 0.12
* 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.
* Reflects the market price as quoted by the National Association of Securities
Dealers, Inc.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
The following analysis of the results of operations and financial condition
of Flexsteel Industries, Inc. (the Company) should be read in conjunction with
the financial statements and related notes included elsewhere in this document.
RESULTS OF OPERATIONS
The following table has been prepared as an aid in understanding the
Company's results of operations on a comparative basis for the years ended June
30, 1998, 1997 and 1996. Amounts presented are percentages of the Company's net
sales.
For the Years Ended June 30,
----------------------------
1998 1997 1996
----- ----- -----
Net Sales 100.0% 100.0% 100.0%
Cost of goods sold 78.5 78.9 78.8
----- ----- -----
Gross margin 21.5 21.1 21.2
Selling, general &
administrative expense 17.3 17.5 18.2
----- ----- -----
Operating income 4.2 3.6 3.0
Other income, net .7 .7 .4
----- ----- -----
Income before income taxes 4.9 4.3 3.4
Income tax expense 1.7 1.5 1.2
----- ----- -----
Net income 3.2% 2.8% 2.2%
===== ===== =====
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for 1998 increased by $16,699,000 or 8% compared to 1997.
Residential sales volume increased $5,647,000 or 4%. Recreational vehicle
seating sales increased $9,293,000 or 14%. Approximately $7,026,000 of this
increase relates to the acquisition of certain assets of Dygert Seating, Inc. in
March 1997. Commercial volume increased $1,759,000 or 8%.
Gross margin increased $4,442,000 to $50,780,000 or 21.5% of sales, in 1998,
from $46,338,000 or 21.1% in 1997. The gross margin increase was due to improved
utilization of available production capacity and changes in product mix.
Selling, general and administrative expenses as a percentage of sales were
17.3% and 17.5% for 1998 and 1997, respectively. The cost percentage decrease
was due to management's control of fixed costs.
Net other income was $1,659,000 in 1998 and $1,585,000 for 1997. Each year
contains amounts which are non-recurring in nature. During the second quarter of
1998 the Company realized a non-taxable gain on the proceeds of life insurance
of $720,000. In fiscal year 1997, the Company sold its production facility in
Sweetwater, Tennessee which resulted in a gain of $550,000 before income taxes.
The effective tax rate in 1998 was 34.0% compared to 36.2% in 1997. The
lower effective income tax rate is attributable to the non-taxable gain on the
proceeds of life insurance.
The above factors resulted in 1998 fiscal year earnings of $7,602,000 or
$1.09 per share (basic) compared to $6,048,000 or $0.86 per share (basic) in
fiscal 1997, a net increase of $1,554,000 or $0.23 per share.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for 1997 increased by $14,418,000 or 7% compared to 1996.
Residential sales volume increased $4,960,000 or 4%. Recreational vehicle
seating sales increased $6,481,000 or 11%. Approximately $6,200,000 of this
increase related to the acquisition of Dygert Seating, Inc. Commercial volume
increased by $2,977,000 or 16%.
Cost of goods sold for fiscal 1997 increased by $11,638,000 as compared to
1996 due to the volume increase. Gross margin was 21.1% and 21.2% in 1997 and
1996, respectively.
Selling, general and administrative expenses increased by $1,171,000 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 18.2% 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 increased volume.
Interest and other income increased by $799,000 during 1997, primarily due
to a gain of approximately $550,000 on the sale of the Sweetwater, Tennessee
facility.
The above factors resulted in 1997 fiscal year earnings of $6,048,000 or
$0.86 per share (basic) compared to $4,502,000 or $0.63 per share (basic) in
fiscal 1996, a net increase of $l,546,000 or $0.23 per share.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1998 is $50,549,000 which includes cash, cash
equivalents and investments of $15,342,000. Working capital increased by
$6,192,000 from the June 30, 1997 amount.
Net cash provided by operating activities was $13,284,000, $13,114,000 and
$6,532,000 in 1998, 1997 and 1996, respectively. Fluctuations in net cash
provided by operating activities are primarily the result of changes in net
income and changes in working capital accounts.
Capital expenditures were $2,392,000, $5,273,000 and $3,298,000 for 1998,
1997 and 1996, respectively. These expenditures were for manufacturing and
delivery equipment. In addition, during fiscal 1997, $6,934,000 was used to
purchase assets of Dygert Seating, Inc. Projected capital spending for fiscal
1999 is $7,500,000, with approximately $2,000,000 for expansion of our Dublin,
Georgia facility. The remainder of the projected capital expenditures will be
manufacturing and delivery equipment. The funds for projected capital
expenditures are expected to be provided by cash generated from operations and
available cash.
Financing activities utilized net cash of $5,415,000, $5,671,000 and
$4,740,000 in 1998, 1997 and 1996, respectively. During 1996, the Company's
Board of Directors approved the repurchase of up to 500,000 shares of the
Company's common stock. Under that authority the Company repurchased 176,489,
186,345 and 132,453 shares of its outstanding common stock during 1998, 1997 and
1996, respectively. The Board of Directors may consider the purchase of
additional shares of the Company's common stock from time to time based on
market valuation of the stock. It is anticipated that such a buy back would be
funded by cash generated by operations and available cash. Dividend payments
were $0.48 per share in each year.
15
<PAGE>
The Board of Directors determines dividend levels based on the Company's ability
to pay its obligation, capital expenditure requirements and other related
factors. The Company has paid dividends on its common stock for 226 consecutive
quarters and expects to continue regular dividend payments. As of June 30, 1998
there were approximately 2,300 shareholders of the Company's outstanding common
stock.
FINANCING ARRANGEMENTS
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 $1,950,000 in the form of variable rate demand industrial
development revenue bonds. During fiscal 1998, the weighted average interest
rate on the industrial development revenue bonds was 4.06%.
OTHER
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.
ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS
AND OTHER POSTRETIREMENT BENEFITS, which requires additional reporting
disclosures related to employer pension plans. The provisions of this statement
will be effective for the Company beginning July 1, 1998, and are not expected
to have a material effect on its results of operations or financial position.
FORWARD-LOOKING STATEMENTS
Cautionary Statement Relevant to Forward-Looking Information for the Purpose
of "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of
1995 - The Company and its representatives may from time to time make written or
oral forward-looking statements with respect to long-term goals of the Company,
including statements contained in the Company's filings with the Securities and
Exchange Commission and in its reports to stockholders.
Statements, including those in this report, which are not historical or
current facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities, Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made 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.
- --------------------------------------------------------------------------------
[PHOTO]
OUTSTANDING SOFA DESIGN FEATURES "SLEIGH-BED" ARMS; A SCROLLED-LEG COFFEE TABLE,
ALSO FROM FLEXSTEEL, IS A BEAUTIFUL COMPANION PIECE.
16
<PAGE>
<TABLE>
<S> <C> <C>
PLANT LOCATIONS DIRECTORS AND OFFICERS NOMINATING & COMPENSATION COMMITTEE
*Flexsteel Industries, Inc. Jack B. Crahan L. Bruce Boylen, Chairman
DUBUQUE, IOWA 52001 CHAIRMAN OF THE BOARD OF DIRECTORS John R. Easter
(319) 556-7730 K. Bruce Lauritsen Thomas E. Holloran
P. M. Crahan, General Manager PRESIDENT
CHIEF EXECUTIVE OFFICER MARKETING COMMITTEE
Flexsteel Industries, Inc. DIRECTOR John R. Easter, Chairman
DUBLIN, GEORGIA 31040 Edward J. Monaghan L. Bruce Boylen
(912) 272-6911 EXECUTIVE VICE PRESIDENT Art D. Richardson
M. C. Dixon, General Manager CHIEF OPERATING OFFICER
DIRECTOR TRANSFER AGENT AND REGISTRAR
Flexsteel Industries, Inc. James R. Richardson Norwest Capital Resources
LANCASTER, PENNSYLVANIA 17604 SENIOR VICE PRESIDENT, MARKETING P. O. Box 738
(717) 392-4161 DIRECTOR South St. Paul,
T. P. Fecteau, General Manager Jeffrey T. Bertsch Minnesota 55075-0738
VICE PRESIDENT
Flexsteel Industries, Inc. DIRECTOR GENERAL COUNSEL
RIVERSIDE, CALIFORNIA 92504 L. Bruce Boylen Irving C. MacDonald
(909) 354-2440 RETIRED VICE PRESIDENT Minneapolis, Minnesota
T. D. Burkart, General Manager FLEETWOOD ENTERPRISES, INC. O'Connor and Thomas, P.C.
DIRECTOR Dubuque, Iowa
Flexsteel Industries, Inc. Patrick M. Crahan
NEW PARIS, INDIANA 46553 VICE PRESIDENT NATIONAL OVER THE COUNTER
(219) 831-4050 DIRECTOR NASDAQ Symbol - FLXS
G. H. Siemer, General Manager John R. Easter
RETIRED VICE PRESIDENT ANNUAL MEETING
Wood Products Division SEARS, ROEBUCK & COMPANY Tuesday,
HARRISON, ARKANSAS 72601 DIRECTOR December 15, 1998, 3:30 p.m.
(501) 743-1101 Thomas E. Holloran The Marquette
M. J. Feldman, General Manager PROFESSOR, GRADUATE SCHOOL OF 710 Marquette Avenue, 3rd floor
BUSINESS, UNIVERSITY OF ST. THOMAS Minneapolis, Minnesota 55402
Metal Division ST. PAUL, MINNESOTA
DUBUQUE, IOWA 52001 DIRECTOR AFFIRMATIVE ACTION POLICY
(319) 556-7730 Art D. Richardson It is the policy of Flexsteel
J. E. Gilbertson, General Manager RETIRED SENIOR VICE PRESIDENT Industries, Inc. that all employees
FLEXSTEEL INDUSTRIES, INC. and potential employees shall be
Commercial Seating Division DIRECTOR judged on the basis of
STARKVILLE, MISSISSIPPI 39760 Carolyn T. B. Bleile qualifications and ability, without
(601) 323-5481 VICE PRESIDENT regard to age, sex, race, creed,
S. P. Salmon, General Manager Thomas D. Burkart color or national origin in all
SENIOR VICE PRESIDENT, VEHICLE SEATING personnel actions. No employee or
Dygert Seating Division Kevin F. Crahan applicant for employment shall
ELKHART, INDIANA 46515 VICE PRESIDENT receive discriminatory treatment
(219) 262-4675 Keith R. Feuerhaken because of physical or mental
D. L. Dygert, General Manager VICE PRESIDENT disability in regard to any position
James E. Gilbertson for which the employee or applicant
Vancouver Distribution Center VICE PRESIDENT for employment is qualified.
VANCOUVER, WASHINGTON 98668 James M. Higgins Employment opportunities and job
(206) 696-9955 VICE PRESIDENT, COMMERCIAL SEATING advancement opportunities will be
R. Heying, Supervisor Ronald J. Klosterman provided for qualified disabled
VICE PRESIDENT, FINANCE veterans and veterans of the Vietnam
* EXECUTIVE OFFICES CHIEF FINANCIAL OFFICER era. This policy is consistent with
SECRETARY the Company's plan for 'Affirmative
Michael A. Santillo Action' in implementing the intent
PERMANENT SHOWROOMS VICE PRESIDENT and provisions of the various laws
Dubuque, Iowa relating to employment and
High Point, North Carolina EXECUTIVE COMMITTEE non-discrimination.
San Francisco, California Jack B. Crahan, Chairman
Jeffrey T. Bertsch ANNUAL REPORT ON FORM 10-K AVAILABLE
Patrick M. Crahan A copy of the Company's annual
- ------------------------- K. Bruce Lauritsen report on Form 10-K, as filed with
VISIT US ON THE INTERNET Edward J. Monaghan the Securities and Exchange
http://flexsteel.com James R. Richardson Commission, can be obtained without
- ------------------------- charge by writing to: Office of the
AUDIT & ETHICS COMMITTEE Secretary, Flexsteel Industries,
Thomas E. Holloran, Chairman Inc., P. O. Box 877, Dubuque, Iowa
John R. Easter 52004-0877.
Art D. Richardson
[LOGO] FLEXSTEEL(R)
AMERICA'S SEATING SPECIALISTS (C)1998 FLEXSTEEL INDUSTRIES, INC.
</TABLE>
<PAGE>
[PHOTO]
Photos courtesy of Holiday Rambler
Motor homes are more luxurious than ever, with more homelike amenities. This is
beautifully exemplified by the 1999 Endeavor(R) Diesel motor home by Holiday
Rambler(R) The maker says the Endeavor(R) offers more of the performance, beauty
and luxury buyers seeking when they step up to a Diesel motor coach.
[PHOTO]
Buyers have a wide choice of floor plans, interior color schemes, appliances,
and furnishings. Not the least of these are the choices in Flexsteel seating.
Standard are handsome leather-faced captain's chairs. Other furnishings include
sleepers and swivel or reclining chairs, many also with leather facings.
- --------------------------------------------------------------------------------
[LOGO] FLEXSTEEL(R)
AMERICA'S SEATING SPECIALISTS
- ------------------------------------
P.O. BOX 877 * DUBUQUE IA 52004-0877
