FORM 10-K
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _________________
Commission file number 0-5151
-----------------------------------------------
FLEXSTEEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 42-0442319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 877, DUBUQUE, IOWA 52004-0877
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 556-7730
-----------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
NASDAQ
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of Class)
-----------------------------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of August 5, 1999 which is within 60 days
prior to the date of filing:
Common Stock, Par Value $1.00 Per Share: $54,062,071
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 5, 1999:
CLASS SHARES OUTSTANDING
------------------------------ --------------------
Common Stock, $ 1.00 Par Value Shares 6,538,241
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDING JUNE 30, 1999 IN PARTS I, II, AND IV.
IN PART III, PORTIONS OF THE REGISTRANT'S 1999 PROXY STATEMENT, TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS OF THE
REGISTRANT'S FISCAL YEAR END.
Exhibit Index -- page 6
<PAGE>
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The registrant was incorporated in 1929 and has been in the furniture
seating business ever since. For more detailed information see the registrant's
1999 Annual Report to Shareholders which is incorporated herein by reference.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The registrant's operations consist of one industry segment --
upholstered seating. For more detailed financial information see the
registrant's 1999 Annual Report to Shareholders which is incorporated herein by
reference.
The registrant's upholstered seating business has three primary areas of
application -- residential seating, recreational vehicle seating and commercial
seating. Set forth below, in tabular form, is information for the past three
fiscal years showing the registrant's sales of upholstered seating attributable
to each of the areas of application described above:
SALES FOR UPHOLSTERED SEATING APPLICATIONS
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- ----------------
AMOUNT OF AMOUNT OF AMOUNT OF
SALES SALES SALES
----------------- ---------------- ----------------
<S> <C> <C> <C>
Residential Seating............ $151,600,000 $139,200,000 $133,600,000
Recreational Vehicle Seating .. 86,700,000 73,900,000 64,600,000
Commercial Seating ............ 22,200,000 23,000,000 21,200,000
----------------- ---------------- ----------------
Upholstered Seating Total ..... $260,500,000 $236,100,000 $219,400,000
================= ================ ================
</TABLE>
(c) NARRATIVE DESCRIPTION OF BUSINESS
(1) (i), (ii), (vii) The registrant is engaged in one segment of
business, namely, the design, manufacture and sale of a broad line of quality
upholstered furniture for residential, commercial, and recreational vehicle
seating use. The registrant's classes of products include a variety of wood and
upholstered furniture including upholstered sofas, loveseats, chairs, reclining
and rocker-reclining chairs, swivel rockers, sofa beds and convertible bedding
units, some of which are for the home, office, motorhome, travel trailer, vans,
health care and hotels. Featured as a basic component in most of the upholstered
furniture is a unique drop-in-seat spring. The registrant primarily distributes
its products throughout most of the United States through the registrant's sales
force to approximately 3,000 furniture dealers, department stores, recreational
vehicle manufacturers and van converters, and hospitality and healthcare
facilities. The registrant's products are also sold to several national chains,
some of which sell on a private label basis.
(iii) Sources and availability of raw materials essential to the
business:
The registrant's furniture products utilize various species of
hardwood lumber obtained from Arkansas, Mississippi, Missouri and elsewhere. In
addition to hardwood lumber and engineered wood products, principal raw
materials utilized in the manufacturing process include bar and wire stock, high
carbon spring steel, fabrics, leather and polyurethane. While the registrant
purchases these materials from outside suppliers, it is not dependent upon any
single source of supply. The raw materials are all readily available.
2
<PAGE>
(iv) Material patents and licenses:
The registrant owns the American and Canadian improvement
patents to its Flexsteel seat spring, as well as, patents on convertible beds
and various other recreational vehicle seating products. In addition, it holds
licenses to manufacture certain rocker-recliners. The registrant does not
consider its patents and licenses material to its business.
(v) The registrant's business is not considered seasonal.
(viii) The approximate dollar amounts of backlog of orders
believed to be firm as of the end of the last fiscal year and the preceding 2
fiscal years are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997
------------------------- ------------------------ -----------------------
<S> <C> <C>
$28,100,000 * $26,100,000 $22,700,000
</TABLE>
*All of this amount is expected to be filled in fiscal year ending June 30,
2000.
(ix) Competitive conditions:
The furniture industry is highly competitive. There are numerous
furniture manufactures in the United States. Although the registrant is one of
the largest manufacturers of upholstered furniture in the United States,
according to the registrant's best information it manufactures and sells less
than 4% of the upholstered furniture sold in the United States. The registrant's
principle method of meeting competition is by emphasizing its product
performance and to use its sales force.
(x) Expenditures on Research Activities:
Most items in the upholstered seating line are designed by the
registrant's own design staff. New models and designs of furniture, as well as
new fabrics, are introduced continuously. The registrant estimates that
approximately 40% of its upholstered seating line is redesigned in whole or in
part each year. In the last three fiscal years, these redesign activities
involved the following expenditures:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING EXPENDITURES
------------------------------------- ---------------------------------------
<S> <C>
June 30, 1999 $1,930,000
June 30, 1998 $1,640,000
June 30, 1997 $1,540,000
</TABLE>
(xi) Approximately 2,400 people were employed by the registrant
as of June 30, 1999; additionally 2,300 people were employed as of June 30,1998
and 2,400 people as of June 30, 1997.
(d) FINANCIAL INFORMATION ABOUT DOMESTIC OPERATIONS
Financial information about domestic operations is set forth in the
registrant's 1999 Annual Report to Shareholders which is incorporated herein by
reference. The registrant has no foreign operations and makes minimal export
sales.
3
<PAGE>
ITEM 2. PROPERTIES
(a) THE REGISTRANT OWNS THE FOLLOWING MANUFACTURING PLANTS:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SIZE (SQUARE FEET) PRINCIPAL OPERATIONS
--------------------------------------- ----------------------- ------------------------------------------------
<S> <C>
Dubuque, Iowa 845,000 Upholstered Furniture- Recreational Vehicle
- Metal Working
Lancaster, Pennsylvania 216,000 Upholstered Furniture - Recreational Vehicle
Riverside, California 206,000 Upholstered Furniture - Recreational Vehicle
Harrison, Arkansas 123,000 Woodworking Plant
New Paris, Indiana 168,000 Recreational Vehicle - Metal Working
Dublin, Georgia 242,400 Upholstered Furniture - Recreational Vehicle
Starkville, Mississippi 349,000 Upholstered Furniture- Woodworking Plant
Elkhart, Indiana 99,500 Recreational Vehicle - Metal Working
</TABLE>
The registrant's operating plants are well suited for their
manufacturing purposes and have been updated and expanded from time to time as
conditions warrant. There is adequate production capacity to meet present market
demands.
The registrant leases showrooms for displaying its products in
the furniture marts in High Point, North Carolina and San Francisco, California.
The registrant leases one warehouse in Vancouver, Washington of
approximately 15,750 sq. feet for storing its products prior to distribution.
(b) OIL AND GAS OPERATIONS: NONE.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material legal proceedings pending other than
ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter no matter was submitted to a vote of security
holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the registrant, their ages, positions (in each
case as of June 30, 1999), and the month and year they were first elected or
appointed an officer of the registrant, are as follows:
<TABLE>
<CAPTION>
NAME (AGE) POSITION (DATE FIRST BECAME OFFICER)
- ------------------------------------------- ------------------------------------------------------------------------------------
<S> <C>
K. B. Lauritsen (56) President / Chief Executive Officer (November 1979)
E. J. Monaghan (60) Executive Vice President / Chief Operating Officer (November 1979)
R. J. Klosterman (51) Vice President Finance / Chief Financial Officer & Secretary (June 1989)
J. R. Richardson (55) Senior Vice President of Marketing (November 1979)
T. D. Burkart (56) Senior Vice President of Vehicle Seating (February 1984)
P. M. Crahan (51) Vice President (June 1989)
J. T. Bertsch (44) Vice President (June 1989)
</TABLE>
Each named executive officer has held the same office of an executive or
management position with the registrant for at least five years.
4
<PAGE>
Cautionary Statement Relevant to Forward-Looking Information for the Purpose of
"Safe Harbor" Provisions and 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The NASDAQ -- National Market System, is the principal market on which
the registrant's Common Stock is being traded. The market prices for the stock
and the dividends paid per common share, for each quarterly period during the
past two years is shown in the registrant's Annual Report to Shareholders for
the Year Ended June 30, 1999, and is incorporated herein by reference.
There were approximately 2,800 holders of Common Stock of the registrant
as of June 30, 1999; as well as 2,300 and 1,920 holders of Common Stock of the
registrant as of June 30, 1998, and June 30, 1997, respectively.
ITEM 6. SELECTED FINANCIAL DATA
This information is contained on page 6 in the registrant's Annual
Report to Shareholders for the Year Ended June 30, 1999, under the caption "Five
Year Review" and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis is contained on page 15 and page 16
in the registrant's Annual Report to Shareholders for the Year Ended June 30,
1999 and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE INFORMATION ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company included in the
financial report section of the Annual Report to Shareholders for the Year Ended
June 30, 1999, are incorporated herein by reference:
<TABLE>
<CAPTION>
PAGE(S)
-------------
<S> <C>
Balance Sheets, June 30, 1999, 1998.............................................................. 8
Statements of Income and Comprehensive Income --Years Ended June 30, 1999, 1998, 1997............ 9
Statements of Changes in Shareholders' Equity -- Years ended June 30, 1999, 1998, 1997........... 10
Statements of Cash Flows -- Years Ended June 30, 1999, 1998, 1997................................ 11
Quarterly Financial Data -- Years Ended June 30, 1999, 1998...................................... 14
Notes to Financial Statements.................................................................... 12-14
Independent Auditors' Report..................................................................... 7
</TABLE>
5
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During fiscal 1999 there were no changes in or disagreements with accountants on
accounting procedures or accounting and financial disclosures.
PART III
ITEMS 10, 11, 12. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information identifying directors of the registrant, executive
compensation and beneficial ownership of registrant stock and supplementary data
is contained in the registrant's 1999 definitive Proxy Statement to be filed
with the Securities and Exchange Commission and is incorporated herein by
reference. Executive officers are identified in Part I, item 4 above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is contained under the heading "Certain Relationships
and Related Transactions" in the registrant's 1999 definitive Proxy Statement to
be filed with the Securities and Exchange Commission and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements of the registrant included in the Annual
Report to Shareholders for the Year Ended June 30, 1999, are incorporated herein
by reference as set forth above in ITEM 8.
(2) Schedules
The following financial schedules for the years ended 1999, 1998 and
1997 are submitted herewith:
PAGE
------------------
SCHEDULE VIII -- Reserves 9
Other schedules are omitted because they are not required or are not
applicable or because the required information is included in the financial
statements incorporated by reference above.
(3) Exhibit No.
3.1 Restated Article of Incorporation by reference to
Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30,
1988.
3.2 Bylaws of the Registrant incorporated by
reference to Exhibits to the Annual Report on
Form 10-K for the fiscal year ended June 30,
1994.
4 Instruments defining the rights of security
holders, including indentures. The issuer has not
filed, but agrees to furnish upon request to the
Commission copies of the Mississippi Industrial
Development Revenue Bond Agreement issued
regarding the issuer's facilities in Starkville,
MS.
10.1 1989 Stock Option Plan, as amended, incorporated
by reference from the 1992 Flexsteel definitive
proxy statement.*
10.2 1995 Stock Option Plan incorporated by reference
from the 1995 Flexsteel definitive proxy
statement.*
10.3 Management Incentive Plan incorporated by
reference from the 1980 Flexsteel definitive
proxy statement - commission file #0-5151.*
13 Annual Report to Shareholders for the Year Ended
June 30, 1999.
22 1999 definitive Proxy Statement incorporated by
reference is to be filed with the Securities
Exchange Commission on or before December 1,
1999.
23.1 Independent Auditor's Report.
23.2 Consent of Independent Auditors.
27.1 Financial Data Schedule for the fiscal year ended
June 30, 1999.
99 1999 Form 11-K for Salaried Employee's Savings
Plan 401(k).
*Management contracts and arrangements required
to be filed pursuant to Item 14 ( c ) of this
report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the
fiscal year ended June 30, 1999.
6
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 2, 1999 FLEXSTEEL INDUSTRIES, INC.
---------------------------
By: /S/ K. B. LAURITSEN
-------------------------------------
K. B. LAURITSEN
PRESIDENT, CHIEF EXECUTIVE OFFICER
and
PRINCIPAL EXECUTIVE OFFICER
By: /S/ R. J. KLOSTERMAN
-------------------------------------
R. J. KLOSTERMAN
VICE PRESIDENT OF FINANCE
and
PRINCIPAL FINANCIAL OFFICER
7
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Date: September 2, 1999 /S/ JOHN R. EASTER
---------------------------------------------------- ----------------------------------------------------------------------
John R. Easter
DIRECTOR
Date: September 2, 1999 /S/ K. BRUCE LAURITSEN
---------------------------------------------------- ----------------------------------------------------------------------
K. Bruce Lauritsen
DIRECTOR
Date: September 2, 1999 /S/ EDWARD J. MONAGHAN
---------------------------------------------------- ----------------------------------------------------------------------
Edward J. Monaghan
DIRECTOR
Date: September 2, 1999 /S/ JAMES R. RICHARDSON
---------------------------------------------------- ----------------------------------------------------------------------
James R. Richardson
DIRECTOR
Date: September 2, 1999 /S/ JEFFREY T. BERTSCH
---------------------------------------------------- ----------------------------------------------------------------------
Jeffrey T. Bertsch
DIRECTOR
Date: September 2, 1999 /S/ L. BRUCE BOYLEN
---------------------------------------------------- ----------------------------------------------------------------------
L. Bruce Boylen
DIRECTOR
Date: September 2, 1999 /S/ PATRICK M. CRAHAN
---------------------------------------------------- ----------------------------------------------------------------------
Patrick M. Crahan
DIRECTOR
Date: September 2, 1999 /S/ LYNN J. DAVIS
---------------------------------------------------- ----------------------------------------------------------------------
Lynn J. Davis
DIRECTOR
Date: September 2, 1999 /S/ THOMAS E. HOLLORAN
---------------------------------------------------- ----------------------------------------------------------------------
Thomas E. Holloran
DIRECTOR
Date: September 2, 1999 /S/ MARVIN M. STERN
---------------------------------------------------- ----------------------------------------------------------------------
Marvin M. Stern
DIRECTOR
</TABLE>
8
<PAGE>
SCHEDULE VIII
FLEXSTEEL INDUSTRIES, INC.
RESERVES
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------- -------------------- ------------- ------------------- ----------------------
DEDUCTIONS
BALANCE AT ADDITIONS FROM BALANCE AT
BEGINNING CHARGED TO RESERVES CLOSE OF YEAR
DESCRIPTION OF YEAR INCOME (NOTE)
- --------------------------------------- -------------------- ------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1999................................... $ 2,198,000 $ 544,000 $ 239,000 $ 2,503,000
==================== ============= =================== ======================
1998................................... $ 2,799,000 $ 943,000 $ 1,544,000 $ 2,198,000
==================== ============= =================== ======================
1997................................... $ 2,153,000 $ 831,000 $ 185,000 $ 2,799,000
==================== ============= =================== ======================
</TABLE>
- --------------------
NOTE -- UNCOLLECTIBLE ACCOUNTS CHARGED AGAINST RESERVE, LESS RECOVERIES.
9
EXHIBIT 13
FLEXSTEEL INDUSTRIES INCORPORATED
ANNUAL REPORT
FISCAL YEAR ENDED JUNE 30, 1999
IMPACT FOR THE MILLENNIUM
[PHOTO OF FURNITURE]
[COMPANY LOGO]
<PAGE>
FINANCIAL HIGHLIGHTS
[AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA]
Year Ended June 30, 1999 1998 1997
-------- -------- --------
Net Sales ................. $260,519 $236,125 $219,427
Operating Income .......... 15,398 9,868 7,888
Income Before Income Taxes 16,217 11,527 9,473
Net Income ................ 10,317 7,602 6,048
Per Share of Common Stock:
Average Shares Outstanding:
Basic ................... 6,775 6,959 7,024
Diluted ................. 6,850 7,035 7,072
Earnings: (1)
Basic ................... 1.52 1.09 0.86
Diluted ................. 1.51 1.08 0.86
Cash Dividends ............ 0.48 0.48 0.48
At June 30,
Working Capital ........... 50,210 50,549 44,357
Net Plant and Equipment ... 25,912 23,096 26,214
Total Assets .............. 112,684 104,673 99,173
Shareholders' Equity ...... 81,166 78,080 75,238
(1) The earnings per share amounts for 1997 have been restated to comply with
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE.
FLEXSTEEL PROFILE
Begun over a century ago as a midwestern maker of upholstered furniture,
Flexsteel is a national presence in the seating industry, utilizing the
unitized seat spring which gave the company its name.
As Flexsteel furniture began to develop a national reputation for quality,
the company linked its network of factories with its own fleet of trucks, and
direct-to-dealer delivery was soon a Flexsteel hallmark. At the same time, they
combined their metal and tailoring expertise to develop fine seating for
recreational vehicles. Soon interior designers turned to Flexsteel for large
installations, and the company's contract division was born. Today Flexsteel is
found in homes, hotels, hospitals, on the road and on the water.
[BAR CHART]
NET EARNINGS BOOK VALUE RETURN ON
SALES PER SHARE PER SHARE COMMON EQUITY
----- --------- ---------- -------------
1999 $260,519,000 $1.52 $12.50 13.2%
1998 236,125,000 1.09 11.49 10.1
1997 219,427,000 .86 10.86 8.2
1996 205,008,000 .63 10.45 6.1
1995 208,432,000 .73 10.26 7.3
1994 195,388,000 .95 9.96 10.0
1993 177,271,000 .87 9.57 9.6
1992 157,916,000 .24 9.17 2.6
1991 145,566,000 .27 9.34 2.8
1990 173,547,000 .90 9.66 9.7
[PHOTO]
[CAPTION: FRONT COVER AND LEFT: A HIT AT RECENT SHOWS AND WITH FLEXSTEEL DEALERS
IS THE CONVERSATION SOFA, SUCCESSOR TO THE CRESCENT SOFA. TYPICAL OF TODAY'S
ECLECTIC LIFE STYLES IS THE HARMONIZING OF SUCH ELEMENTS AS THE LUSH CHENILLE ON
THIS SOFA WITH A LOUNGE CHAIR IN EVER-POPULAR LEATHER. THE GLASS-AND-METAL
TABLES COMPLETE THE FRESH UPSCALE SETTING.]
[COMPANY LOGO]
<PAGE>
IMPACT FOR THE MILLENNIUM
[PHOTO]
[CAPTION: K. BRUCE LAURITSEN, (L) PRESIDENT & CHIEF EXECUTIVE OFFICER, AND JOHN
R. EASTER, CHAIRMAN OF THE BOARD OF FLEXSTEEL INDUSTRIES]
TO OUR SHAREHOLDERS
Sales for the fiscal year ended June 30, 1999, were $260,519,000, an
increase of 10% over revenues of $236,125,000 in the previous fiscal year. Net
earnings were $10,317,000 or $1.51 per share (diluted), an increase of 39% over
earnings of $7,602,000 or $1.08 per share (diluted) in the last fiscal year. We
are very proud of the contributions of management and associates which have made
these records possible.
HIGHLIGHTS IN RESIDENTIAL FURNITURE
Our furniture has never looked better. Sales increased 9%, with growth in
all areas including independent dealers, national and regional chains and, most
importantly, Flexsteel Galleries and Comfort Seating Showrooms.
Imaginative, attractive innovations in style, comfort, and the use of
fabrics draw more customers to Flexsteel every year. We continually study market
needs and trends, matching new ideas to the desires of our customers. Leather is
still enormously popular, and our new Leather Express program (CENTER PHOTO)
assures delivery in two to three weeks.
We recently added 100,000 square feet of production capacity to our plant
in Dublin, Georgia, which will help sustain our focused growth in reclining
furniture and recliners.
During the past year we added 10 new Comfort Seating Showrooms and 21 new
Flexsteel Galleries. In addition to being admirable showcases for Flexsteel,
these specialized stores provide a pleasant shopping experience and custom-order
choice for the consumer, with an emphasis on quality that cannot be achieved in
more price-competitive standardized units.
HIGHLIGHTS IN RECREATIONAL VEHICLE SEATING
It was another record year with excellent performance in this important
market. As in the residential market, style and comfort contribute to our growth
in the market share for motor home and towable trailer seating. Working closely
with customers, we've produced such innovations as a new fold-over van bed, and,
for motor homes, power footrests and ultra-luxurious sofas.
Though the market for van conversions seems to have stabilized, our
business still increased over the prior year. The benefits from the 1997
acquisition of Dygert Seating are being realized in broader product coverage.
Sales in all three of these markets -- vans, towables and motor homes -- remain
strong, and the demographics for future growth are encouraging. In addition, our
expertise and reputation have opened new doors for us in the market for seating
in yachts and high-end boats. Here again, our ability to listen and identify
customer needs has helped propel our continuing innovation and diversification.
[PHOTO]
[CAPTION: THIS HANDSOME GROUPING IS ONE OF SIX AVAILABLE FROM OUR
HIGHLY-SUCCESSFUL LEATHER EXPRESS PROGRAM. THE CUSTOMER CAN CHOOSE FROM A
SELECTION OF LEATHERS, PREVIOUSLY CUT-AND-SEWN, AND RECEIVE SHIPMENT IN 2 TO 3
WEEKS. IN THIS GROUP, THE COMBINATION OF LEATHER AND FABRIC IS ESPECIALLY
EFFECTIVE IN A LODGE-LIKE SETTING.]
1
<PAGE>
HIGHLIGHTS IN COMMERCIAL SEATING
A five-year growth in the hospitality and health care markets has
contributed to strong sales through the first three quarters of our fiscal year.
While these industries may be taking a momentary breather, we are preparing for
future growth by moving contract design and development to Dubuque under
seasoned Flexsteel management, increasing our capacity, and speeding
responsiveness to the hospitality design community.
We are also developing exciting new products especially for these markets,
such as chairs for Alzheimer's patients and day beds which can be free-standing
or integrated into case goods for hotel properties. We are working to increase
our market share and are optimistic about our opportunities for growth in both
the health care and the hospitality industries.
TELLING THE FLEXSTEEL STORY
Some of the newest Flexsteel designs will be featured not only in national
advertising but also in feature stories in consumer magazines. Our Web site
continues to draw interest: hits have increased over 100% in the past year. Our
dealers are pleased with our new fleet identification program, highlighting the
Flexsteel image, for their delivery trucks. See page 4.
PASSING THE BATON
This year saw the retirement from your board of two men who spent decades
directing Flexsteel toward its present success. We are indebted to Jack Crahan
for his many insights, including Flexsteel's introduction to the important
vehicle seating market; and to Art Richardson for the marketing vision which has
helped Flexsteel grow from a regional maker of furniture to a
nationally-distributed, multi-million dollar company.
As Jack Crahan retired, long-time board member John Easter was elected
Chairman of the Board. The Board also welcomed two new members: Lynn J. Davis, a
long-time executive in the communications industry with experience in marketing,
manufacturing, and operations; and Marvin M. Stern, a 35-year veteran of
retailing.
OUTLOOK FOR THE NEW MILLENNIUM
Positive growth signs still mark the economy: low inflation, high
employment, and reasonable interest rates. With sales of both new and existing
homes remaining strong, the outlook for home furnishings sales remains
excellent. We expect to add 7 new Comfort Seating Showrooms and 30 new Flexsteel
Galleries in the coming year.
We expect our exceptional sales growth to continue in residential
furniture, especially leather, in seating for recreational vehicles, and in our
commercial contracts, all supported not only by high consumer confidence but
also by the Flexsteel name for excellence. Add the continuing enthusiasm of
Flexsteel management, sales personnel and associates, and the outlook for
increasing the value of your company is excellent.
/s/K. Bruce Lauritsen
K. BRUCE LAURITSEN
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
/s/John Easter
JOHN EASTER
CHAIRMAN OF THE BOARD
[PHOTO]
[CAPTION: COMFORT SEATING SHOWROOMS ARE IDEALLY SUITED FOR HIGH-DENSITY
METROPOLITAN AREAS. ATTRACTIVE INTERIORS INCLUDE LIGHTING AND CARPETS SPECIALLY
DESIGNED TO DISPLAY THE FULL FLEXSTEEL LINE, CREATE A PLEASING SHOPPING
EXPERIENCE, AND INCREASE DEALERS' SALES.]
2
<PAGE>
IMPACT FOR THE MILLENNIUM
COMFORT
WITH STYLE
Styling at Flexsteel is more exciting than ever, with our 1999 styles
drawing highly favorable comment and exceptional sales response. With new
collections such as the West Indies group, new styling such as our "conversation
sofas" and new offerings in fabrics and accessories, dealers are drawing more
Flexsteel customers into their showrooms.
The conversation sofa is this year's conversation piece, and we have added
this shape to five of our most popular styles, including two leather designs.
Leather is still high in consumer popularity and our new Leather Express program
speeds the customer's selection to her in two to three weeks. By marrying
certain frames to previously cut-and-sewn leather, we give custom styling but
with extra-fast delivery.
Our Starkville, MS, plant, is making complete exposed-wood groups with
matching tables in many popular styles, including Mission. A highlight this year
is our West Indies group (CENTER PHOTO) which has struck a chord for its
casualness touched with a suggestion of the exotic. This group has great
potential with its matching game table and entertainment center.
We also import handsome accent tables to enhance many groups. These tables
are popular with dealers and home owners alike; they help the consumer complete
a room, and help the dealer complete a sale.
Flexsteel designers continually evolve styles as consumer preferences
change. Because today's customer is more likely to prefer a living-room look in
a recliner, we offer more upscale, wing-chair recliner styles. Our "Season's
Best" sofa promotion offers fabrics especially selected for regional suitability
and tastes.
COMFORT AND QUALITY: NOT NEGOTIABLE
Today's furniture shopper is well educated about quality, and Flexsteel
has built-in appeal for her with our century-old reputation for quality and our
famous lifetime-warranted seat spring.
Flexsteel's quality means that comfort is a given. We chose the name
Comfort Seating Showroom for this proven way for dealers to showcase the
complete Flexsteel line because beauty in home fashions is meaningless without
Flexsteel comfort and quality. There are now 17 such Showrooms across the
nation, some free-standing and others integrated into the dealer's existing
installation. Many more are planned, for they have proven to be highly effective
in increasing dealer's sales per square foot.
[PHOTO]
[PHOTO]
[PHOTO]
[PHOTO]
[CAPTION: UNIQUE PLANTATION STYLING IN OUR "WEST INDIES" GROUP (CENTER) INCLUDES
COORDINATED TABLES. COTTAGE STYLING (TOP) CONTINUES IN POPULARITY. A CHARISMA(R)
CHAIR (FAR LEFT) IS PETITELY SCALED, WHILE THE DROP-LEAF COFFEE TABLE (LEFT)
INCLUDES STORAGE DRAWERS.]
3
<PAGE>
IMPACT FOR THE MILLENNIUM
VALUE OF
AN IMAGE
Our customers are not limited to buyers of home furnishings. Flexsteel's
reputation for seating with quality, style and comfort has made Flexsteel a
natural choice for commercial installations such as the health care and
hospitality industries. Added to this is Flexsteel's expertise in metal gained
by years of making the famous Flexsteel seat spring, highly important to our
leadership as a natural source for seating for recreational vehicles.
We use every modern technique to publicize information about Flexsteel.
Visits to our Web site have more than doubled this year. Here customers can
learn not only of the various Flexsteel lines, but also of current promotions
at Comfort Seating Showrooms or Flexsteel Galleries. Nearly half of Web site
audiences are our target audience -- women over 18 years of age.
THE LADIES HOME JOURNAL chose Flexsteel for its upholstered furniture in
its 1999 Model Home for the National Builders' Show, and featured us in two
issues. We expect eight to ten other feature stories during the year, and plan
full-page ads in four major consumer magazines.
Changing demographics affect both our presentations and our sales. Our
population is older and more aware of quality standards, while the younger
professional couple is also quality-savvy and an ideal customer for Flexsteel.
Our new Fleet Identification Program has been a hit with dealers. This
program provides the dealer with everything necessary to add a four-color
graphic, highlighting Flexsteel, on the dealer's delivery vehicles. Images are
similar to those used on our delivery trailers (CENTER PHOTO). Typically, an
in-town vehicle garners sixteen million impressions annually -- at a cost far
less than any other advertising medium.
CUSTOMER RELATIONS
With the Flexsteel reputation for quality goes a reputation for service.
Our dealer program goes far beyond furnishing materials for creating ads,
including vast catalogs of CD images. Retailing experts work with Gallery and
Comfort Seating dealers, and our sales personnel are intimately familiar with
dealer's needs and preferences.
In recreational vehicle seating, and in contract furnishings, close
customer relations are essential; in the former we work not only with design and
comfort elements, but also government-mandated safety standards. In the latter,
we must integrate designers' specifications of fabrics and finishes into both
factory and customer's schedules. All help buttress our reputation for
thoughtful customer service.
[PHOTO]
[PHOTO]
[PHOTO]
[PHOTO]
[CAPTION: SOME TRAVELERS WILL VACATION IN THIS LUXURIOUS FLEETWOOD MOTOR HOME
WITH COMFORTABLE SEATING BY FLEXSTEEL (TOP). MOTORISTS ACROSS THE NATION WILL
SEE STRIKING NEW FOUR-COLOR GRAPHICS ON FLEXSTEEL TRUCKS (CENTER). HANDSOME NEW
FLEXSTEEL RECLINERS WITH UPSCALE DESIGNS ARE POPULAR (RIGHT); FULL-PAGE ADS IN
POPULAR MAGAZINES FEATURE BEAUTIFUL FLEXSTEEL (FAR RIGHT).]
4
<PAGE>
IMPACT FOR THE MILLENNIUM
CHALLENGES OF
A DIGITAL AGE
Creating a crafted product such as upholstered furniture in an age of
computerized automation presents unique challenges. Though one of the first to
embrace computerized solutions, we have maintained our dedication to the
personalized craftsmanship which is integral to Flexsteel quality.
Modern communications assist with scheduling, customer relations, order
taking, and shipping. CAD systems include three-dimensional design capabilities.
Our Gerber cutting machines are now supplemented with single-ply cutters. These
cutters can quickly lay out and cut fabric for a single chair or sofa, with
perfect matching and minimum waste. Better frames are made using CNC routers,
while increasing yields of precious raw materials.
Vertical integration at Flexsteel gives the company a vital synergy
between our various seating businesses, as our metal-working expertise meshes
with a century of experience in residential seating. In recreational vehicle
seating, for example, we not only create beautiful interiors but also meet or
exceed all requirements of the Federal Motor Vehicle Safety Standards. Our
nationwide network of factories is so planned that production can be shifted
from one plant to another as conditions warrant.
GOALS FOR THE NEW MILLENNIUM
The new millennium will see Flexsteel teams intensify their focus on
understanding and meeting the needs of home owners and all our customers.
We continue to develop new ways to reduce lead times in all markets.
Designs for recreational vehicles must mesh with automotive model years, while
contract interiors must take into consideration individualized finish and fabric
specifications. Our creativity, our vertical integration, and our long-term
financial stability are assets in our relations with these industries.
The Flexsteel name is an important asset, and we plan to emphasize brand-
name marketing through 23 Comfort Seating Showrooms and 235 Flexsteel Galleries.
Knowing the needs of our customers is vital to our success in the coming years.
We will continue to listen, to study their needs, to refine our displays and
maximize sales per square foot, and to expand the number of exquisite fabrics
which we market exclusively to Gallery and Showroom dealers.
We expect our new millennium to be an exciting one, as we give our
customers more beautiful Flexsteel furniture than ever, at the same time
enjoying the satisfaction of continued solid growth in all our markets.
[PHOTO]
[PHOTO]
[PHOTO]
[CAPTION: A REASSURING VISTA OF COMFORT GREETS PATIENTS AT THE MEDICAL
ASSOCIATES' CLINIC IN DUBUQUE, IOWA, (CENTER). SEATING BY FLEXSTEEL'S COMMERCIAL
SEATING DIVISION, WHOSE CONVERTIBLE DAYBED (TOP AND LEFT) HAS BEEN INSTALLED IN
A NUMBER OF HOTELS.]
5
<PAGE>
[LOGO]
FLEXSTEEL INDUSTRIES, INC.
FIVE YEAR REVIEW
[ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA]
Year Ended June 30,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(1)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net Sales ............................ $260,519 $236,125 $219,427 $205,008 $208,432
Cost of Sales ........................ 200,965 185,345 173,088 161,451 164,231
Operating Income ..................... 15,398 9,868 7,888 6,362 7,509
Interest and Other Income ............ 1,134 2,015 1,931 1,132 924
Interest and Other Expense ........... 315 356 345 358 372
Income Before Income Taxes ........... 16,217 11,527 9,473 7,052 8,111
Income Taxes ......................... 5,900 3,925 3,425 2,550 2,900
Net Income (2) (3) (4) ............... 10,317 7,602 6,048 4,502 5,211
Earnings per Common Share: (2) (3) (4)
Basic ............................. 1.52 1.09 0.86 0.63 0.73
Diluted ........................... 1.51 1.08 0.86 0.63 0.72
Cash Dividends per Common Share ...... 0.48 0.48 0.48 0.48 0.48
STATISTICAL SUMMARY
Average Common Shares Outstanding:
Basic ............................. 6,775 6,959 7,024 7,172 7,178
Diluted ........................... 6,850 7,035 7,072 7,188 7,205
Book Value per Common Share .......... 12.50 11.49 10.86 10.45 10.26
Total Assets ......................... 112,684 104,673 99,173 95,874 96,271
Property, Plant and Equipment, net ... 25,912 23,096 26,214 23,046 24,376
Capital Expenditures ................. 8,398 2,392 5,273 3,298 9,948
Working Capital ...................... 50,210 50,549 44,357 47,376 46,272
Long-Term Debt ....................... 0 0 0 35 70
Shareholders' Equity ................. 81,166 78,080 75,238 74,147 73,824
SELECTED RATIOS
Net Income as Percent of Sales ....... 4.0% 3.2% 2.8% 2.2% 2.5%
Current Ratio ........................ 2.8 TO 1 3.1 to 1 3.1 to 1 3.5 to 1 3.4 to 1
Return on Ending Common Equity ....... 12.7% 9.7% 8.0% 6.1% 7.1%
Return on Beginning Common Equity .... 13.2% 10.1% 8.2% 6.1% 7.3%
Average Number of Employees .......... 2,400 2,330 2,320 2,230 2,375
</TABLE>
(1) 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.
(2) 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 $0.05 per share.
(3) 1998 income and per share amounts reflect a non-taxable gain from life
insurance proceeds of approximately $720,000 or $0.10 per share.
(4) The earnings per share amounts for 1997, 1996, and 1995 have been restated
to comply with Statement of Financial Accounting Standards No. 128, EARNINGS PER
SHARE.
6
<PAGE>
[LOGO]
FLEXSTEEL INDUSTRIES, INC.
REPORTS OF AUDITOR'S AND MANAGEMENT
INDEPENDENT AUDITOR'S 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results of its operations and cash flows
for each of the three years in the period ended June 30, 1999 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
MINNEAPOLIS, MINNESOTA
AUGUST 5, 1999
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,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 4,886,038 $ 5,464,261
Investments .............................................. 8,967,197 9,877,784
Trade receivables - less allowance for doubtful
accounts: 1999, $2,503,000; 1998, $2,198,000 ........... 31,149,416 28,722,752
Inventories .............................................. 29,503,209 26,607,296
Deferred income taxes .................................... 3,700,000 2,785,000
Other .................................................... 461,406 632,730
------------ ------------
Total current assets ................................. 78,667,266 74,089,823
PROPERTY, PLANT AND EQUIPMENT, net ......................... 25,912,432 23,095,589
OTHER ASSETS ............................................... 8,103,997 7,487,729
------------ ------------
TOTAL ........................... $112,683,695 $104,673,141
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ................................. $ 7,076,729 $ 5,792,708
Accrued liabilities:
Payroll and related items .............................. 6,735,108 5,448,032
Insurance .............................................. 6,688,060 5,834,895
Other accruals ......................................... 6,332,412 4,515,177
Industrial revenue bonds payable ......................... 1,625,000 1,950,000
------------ ------------
Total current liabilities .......................... 28,457,309 23,540,812
DEFERRED COMPENSATION ...................................... 3,060,670 3,052,525
------------ ------------
Total liabilities .................................. 31,517,979 26,593,337
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock - $1 par value; authorized 15,000,000 shares;
issued 1999, 6,491,840 shares; 1998, 6,794,730 shares .. 6,491,840 6,794,730
Retained earnings ........................................ 73,718,238 70,450,282
Unrealized investment gain ............................... 955,638 834,792
------------ ------------
Total shareholders' equity ................... 81,165,716 78,079,804
------------ ------------
TOTAL ........................... $112,683,695 $104,673,141
============ ============
</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,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES ............................................ $ 260,519,459 $ 236,125,280 $ 219,426,736
COST OF GOODS SOLD ................................... 200,965,199 185,345,398 173,088,406
------------- ------------- -------------
GROSS MARGIN ......................................... 59,554,260 50,779,882 46,338,330
SELLING, GENERAL AND ADMINISTRATIVE .................. 44,156,199 40,911,581 38,450,275
------------- ------------- -------------
OPERATING INCOME ..................................... 15,398,061 9,868,301 7,888,055
------------- ------------- -------------
OTHER:
Interest and other income .......................... 1,133,814 2,014,982 1,930,527
Interest and other expense ......................... (315,289) (356,066) (345,148)
------------- ------------- -------------
Total ............................................ 818,525 1,658,916 1,585,379
------------- ------------- -------------
INCOME BEFORE INCOME TAXES ........................... 16,216,586 11,527,217 9,473,434
PROVISION FOR INCOME TAXES ........................... 5,900,000 3,925,000 3,425,000
------------- ------------- -------------
NET INCOME ........................................... $ 10,316,586 $ 7,602,217 $ 6,048,434
============= ============= =============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
BASIC ............................................ 6,774,996 6,959,310 7,024,021
============= ============= =============
DILUTED .......................................... 6,850,115 7,035,158 7,071,895
============= ============= =============
EARNINGS PER SHARE OF COMMON STOCK:
BASIC ............................................ $ 1.52 $ 1.09 $ 0.86
============= ============= =============
DILUTED .......................................... $ 1.51 $ 1.08 $ 0.86
============= ============= =============
STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
NET INCOME ........................................... $ 10,316,586 $ 7,602,217 $ 6,048,434
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME, BEFORE TAX:
Unrealized gains (losses) on securities arising
during period .................................... (1,575) 736,051 643,123
Less: reclassification adjustment for (gains) losses
included in net income ........................... 192,338 (313,294) (121,123)
------------- ------------- -------------
Other comprehensive income, before tax ............... 190,763 422,757 522,000
------------- ------------- -------------
INCOME TAX BENEFIT (EXPENSE):
Income tax benefit (expense) related to securities
(gains) losses arising during period ............... 577 (257,618) (235,811)
Income tax benefit (expense) related to securities
reclassification adjustment ........................ (70,494) 109,653 44,411
------------- ------------- -------------
Income tax expense related to other
comprehensive income ............................... (69,917) (147,965) (191,400)
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME, NET OF TAX ............... 120,846 274,792 330,600
------------- ------------- -------------
COMPREHENSIVE INCOME ................................. $ 10,437,432 $ 7,877,009 $ 6,379,034
============= ============= =============
</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, 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
Purchase of
Company Stock ........ (364,092) (364,092) (550,258) (3,810,916) (4,725,266)
Issuance of
Company Stock ........ 61,202 61,202 550,258 611,460
Investment Valuation
Adjustments .......... 120,846 120,846
Cash Dividends ......... (3,237,714) (3,237,714)
Net Income ............. 10,316,586 10,316,586
------------ ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 6,491,840 $ 6,491,840 $ 0 $ 73,718,238 $ 955,638 $ 81,165,716
============ ============ ============ ============ ============ ============
</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,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................... $ 10,316,586 $ 7,602,217 $ 6,048,434
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation .............................................. 5,358,482 5,400,025 5,129,246
(Gain) Loss on disposition of capital assets .............. 134,235 7,106 (646,050)
Trade receivables ......................................... (2,426,664) (3,373,811) 688,561
Inventories ............................................... (2,895,913) 378,258 637,112
Other current assets ...................................... 171,324 173,387 256,487
Other assets .............................................. (616,268) 223,450 (980,666)
Accounts payable - trade .................................. 1,284,021 1,947,346 271,130
Accrued liabilities ....................................... 3,957,476 1,063,236 2,222,184
Deferred compensation ..................................... 8,145 8,107 74,571
Deferred income taxes ..................................... (915,000) (165,000) (610,000)
------------ ------------ ------------
Net cash provided by
operating activities ...................................... 14,376,424 13,264,321 13,091,009
------------ ------------ ------------
INVESTING ACTIVITIES:
Payment for purchase of business assets ................... (6,933,951)
Purchases of investments .................................. (3,750,686) (7,231,401) (1,517,439)
Proceeds from sales of investments ........................ 4,782,119 2,669,563 5,747,488
Proceeds from sales of capital assets ..................... 88,927 104,050 1,112,201
Capital expenditures ...................................... (8,398,487) (2,392,365) (5,273,317)
------------ ------------ ------------
Net cash used in investing activities ........................ (7,278,127) (6,850,153) (6,865,018)
------------ ------------ ------------
FINANCING ACTIVITIES:
Repayment of borrowings ................................... (325,000) (360,000) (360,000)
Payment of dividends ($0.48 per share) .................... (3,237,714) (3,320,676) (3,351,414)
Proceeds from issuance of common stock .................... 611,460 514,417 184,552
Repurchase of common stock ................................ (4,725,266) (2,228,975) (2,121,544)
------------ ------------ ------------
Net cash used in financing activities ........................ (7,676,520) (5,395,234) (5,648,406)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ............. (578,223) 1,018,934 577,585
Cash and cash equivalents at beginning of year ............... 5,464,261 4,445,327 3,867,742
------------ ------------ ------------
Cash and cash equivalents at end of year ..................... $ 4,886,038 $ 5,464,261 $ 4,445,327
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest ................................................ $ 70,000 $ 90,000 $ 103,000
Income taxes ............................................ $ 5,644,000 $ 4,405,000 $ 3,640,000
</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. In fiscal year 1999, the Company adopted Statement of
Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED
OR OBTAINED FOR INTERNAL USE. The Company's policy is to capitalize external
direct costs of materials and services, directly related internal payroll and
payroll-related costs, and interest costs while developing or obtaining
internal use software. The amount of software capitalized in 1999 was
$216,187.
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 $1,159,000. 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.
SEGMENT AND RELATED INFORMATION - in June 1997, the Financial Accounting
Standards Board (FASB) 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.
DERIVATIVES - in 1998, the FASB issued Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133), which is effective
for the Company's fiscal 2001 financial statements. SFAS 133 requires
derivatives to be recognized in the financial statements and measured at fair
value. The Company does not expect the impact of the pronouncement to be
material.
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 1999 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, 1999 June 30, 1998
-------------------------- -------------------------
Debt Equity Debt Equity
Securities Securities Securities Securities
-------------------------- -------------------------
Amortized Cost $ 9,043,136 $ 2,351,845 $10,780,529 $ 2,202,952
Unrealized gains
(losses) (91,762) 1,571,674 44,668 1,277,629
----------- ----------- ----------- -----------
Est. Market Value $ 8,951,374 $ 3,923,519 $10,825,197 $ 3,480,581
=========== =========== =========== ===========
As of June 30, 1999, the maturities of debt securities are $4,010,642 within
one year, $4,013,672 in one to five years, and $927,060 over five years.
3. INVENTORIES
Inventories valued on the LIFO method would have been approximately
$2,016,000 and $2,331,000 higher at June 30, 1999 and 1998, respectively, if
they had been valued on the FIFO method. A comparison of inventories is as
follows:
June 30,
----------------------------
1999 1998
----------- -----------
Raw materials............................. $15,871,466 $13,538,911
Work in process and finished parts........ 7,416,826 7,227,558
Finished goods............................ 6,214,917 5,840,827
----------- -----------
Total.................................. $29,503,209 $26,607,296
=========== ===========
12
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
June 30,
Estimated --------------------------
Life (Years) 1999 1998
----------- ----------- -----------
Land ....................... $ 2,512,715 $ 1,642,422
Buildings and
improvements ............ 3 - 39 27,294,496 24,929,545
Machinery and
equipment ............... 3 - 10 29,306,600 28,655,104
Delivery equipment ......... 3 - 7 14,193,014 13,894,648
Furniture and fixtures ..... 3 - 5 5,313,068 5,307,217
----------- -----------
Total ................... 78,619,893 74,428,936
Less accumulated
depreciation ............ 52,707,461 51,333,347
----------- -----------
Net ..................... $25,912,432 $23,095,589
=========== ===========
5. BORROWINGS
The Company is obligated for $1,625,000 for Industrial Revenue Bonds at June
30, 1999 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, 1999, 1998 and 1997 of 3.70%, 4.06% and
3.94% 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 the
default. No amounts were outstanding on this letter at June 30, 1999.
6. INCOME TAXES
The total income tax provision for the years ended June 30, 1999, 1998 and
1997 was 36.4%, 34.0%, 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:
1999 1998 1997
----------- ----------- -----------
Federal - current $ 4,285,000 $ 3,580,000 $ 3,528,000
State - current . 700,000 510,000 507,000
Deferred ........ 915,000 (165,000) (610,000)
----------- ----------- -----------
Total ........ $ 5,900,000 $ 3,925,000 $ 3,425,000
=========== =========== ===========
DEFERRED INCOME TAXES - COMPRISED OF THE FOLLOWING:
Asset (Liability)
June 30, 1999 June 30, 1998
------------- -------------
Asset allowances ............ $ 910,000 $ 805,000
Deferred compensation ....... 1,130,000 1,130,000
Other accruals and allowances 2,355,000 1,940,000
Property, plant and
equipment ................. (695,000) (1,090,000)
----------- -----------
Total .................... $ 3,700,000 $ 2,785,000
=========== ===========
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 1999 or 1998.
8. 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, 1999, 140,100 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 FASB 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 below:
1999 1998 1997
----------- ---------- ----------
Net Income As reported $10,316,586 $7,602,217 $6,048,434
Pro forma 10,171,214 7,462,506 5,907,480
Earnings per share:
- Basic As reported $1.52 $1.09 $0.86
Pro forma $1.50 $1.07 $0.84
- Diluted As reported $1.51 $1.08 $0.86
Pro forma $1.48 $1.06 $0.84
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 1999, 1998 and 1997, respectively: dividend
yield of 4.5%, 4.2% and 4.6%; expected volatility of 27.1%, 26.3% and 27.3%;
interest rates of 6.8%, 6.8% and 6.9%; and an expected life of 8 to 10 years
on all options.
A summary of the status of the Company's stock option plans as of June 30,
1999, 1998 and 1997 and the changes during the years ending on those dates is
presented below:
Shares Price Range
------- ---------------
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
Granted ................. 106,450 10.50 - 12.75
Exercised ............... (34,088) 10.25 - 11.44
Cancelled ............... (13,600) 11.13 - 15.75
-------
June 30, 1999 Outstanding 559,267 $10.25 - 15.75
=======
Significant option groups outstanding at June 30, 1999 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 32,670 10.500 0.3
July 6, 1993 74,360 14.875 1.9
July 28, 1994 72,712 10.500 5.0
August 16, 1995 81,950 11.250 6.1
July 30, 1996 88,400 10.250 7.0
November 7, 1997 82,225 11.438 8.3
November 2, 1998 96,950 10.500 9.3
All other 30,000 13.091 6.6
-------
Total 559,267
=======
13
<PAGE>
9. 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 $1,427,000 in 1999, $1,373,000 in 1998 and
$1,352,000 in 1997 including $330,000 in 1999, $311,000 in 1998 and $300,000
in 1997 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
$1,355,000 in 1999, $1,184,000 in 1998 and $1,102,000 in 1997.
The Company has an unfunded deferred compensation plan with certain officers
providing for fixed benefits upon retirement over fifteen years or until
death, whichever is longer. Participants become fully vested at age 59. The
Company records a liability for this obligation based on the present value
of accumulated plan benefits discounted at 8%. The beginning of the year
benefit obligation of $3,052,525 was increased by interest expense of
$247,228, service costs of $146,917 and decreased by payments of $386,000,
resulting in the end of the year benefit obligation of $3,060,670.
10. 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 331
1/43% of the stock received by the employee on the award date and the
remaining shares issued after one and two years. Under the plan 45,158,
35,459 and 31,053 shares were awarded, and the amounts charged to income
were $598,000, $406,000 and $365,000 in 1999, 1998 and 1997, respectively.
At June 30, 1999, 267,640 shares were available for future grants.
11. 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.
12. EARNINGS PER SHARE
In 1997, FASB 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.
1999 1998 1997
------------ ------------ ------------
Basic Earnings Per Share:
Income available to common
shareowners $ 10,316,586 $ 7,602,217 $ 6,048,434
Weighted average shares
outstanding 6,774,996 6,959,310 7,024,021
------------ ------------ ------------
Earnings Per Share - Basic $ 1.52 $ 1.09 $ 0.86
============ ============ ============
Diluted Earnings Per Share:
Income available to common
shareowners $ 10,316,586 $ 7,602,217 $ 6,048,434
------------ ------------ ------------
Weighted average shares
outstanding 6,774,996 6,959,310 7,024,021
Dilutive shares issuable in
connection with stock
option plans 477,907 418,145 339,820
Less shares purchasable
with proceeds (402,788) (342,297) (291,946)
------------ ------------ ------------
Total Shares 6,850,115 7,035,158 7,071,895
------------ ------------ ------------
Earnings Per Share - Diluted $ 1.51 $ 1.08 $ 0.86
============ ============ ============
Options to purchase 81,360 shares of common stock at a range of $14.875 to
$15.75 were outstanding during 1999 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.
13. SUPPLEMENTARY QUARTERLY
FINANCIAL INFORMATION
(UNAUDITED - in thousands of dollars, except per share amounts)
Quarters
-------------------------------------------------
1st 2nd 3rd 4th
---------- ---------- ---------- ----------
1999:
-----
Net Sales ......... $ 60,053 $ 62,575 $68,615 $69,276
Gross Margin ...... 13,150 14,140 15,743 16,521
Net Income ........ 1,795 2,197 2,829 3,496
Earnings Per Share:
Basic ........... 0.26 0.32 0.42 0.52
Diluted ......... 0.26 0.32 0.41 0.52
Dividends Per Share 0.12 0.12 0.12 0.12
* Market Price
High ............ 14 1/8 13 1/2 14 14 1/8
Low ............. 10 3/8 8 3/4 11 3/8 11 3/4
Quarters
-------------------------------------------------
1st 2nd 3rd 4th
---------- ---------- ---------- ----------
1998:
-----
Net Sales ......... $ 55,159 $ 56,260 $62,090 $62,616
Gross Margin ...... 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.
* 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, 1999, 1998 and 1997. Amounts presented are percentages of the
Company's net sales.
For the Years Ended June 30,
---------------------------
1999 1998 1997
------ ------ ------
Net Sales 100.0% 100.0% 100.0%
Cost of goods sold 77.1 78.5 78.9
----- ----- -----
Gross margin 22.9 21.5 21.1
Selling, general &
administrative expenses 16.9 17.3 17.5
----- ----- -----
Operating income 6.0 4.2 3.6
Other income, net 0.3 0.7 0.7
----- ----- -----
Income before income taxes 6.3 4.9 4.3
Income tax expense 2.3 1.7 1.5
----- ----- -----
Net income 4.0% 3.2% 2.8%
===== ===== =====
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for 1999 increased by $24,394,000 or 10% compared to 1998.
Residential sales volume increased $12,388,000 or 9%. Vehicle seating sales
increased $12,715,000 or 17%. Commercial sales volume decreased $709,000 or
3%.
Gross margin increased $8,774,000 to $59,554,000, or 22.9% of sales, in
1999, from $50,780,000, or 21.5% in 1998. 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
16.9% and 17.3% for 1999 and 1998 respectively. The cost percentage decrease
was due to management's continued efforts to control fixed costs as volume
increased.
Net other income was $819,000 in 1999 and $1,659,000 for 1998. During the
second quarter of 1998 the Company realized a non-taxable gain on the
proceeds of life insurance of $720,000.
The effective tax rate in 1999 was 36.4% compared to 34.0% in 1998. The
lower effective income tax rate in 1998 is attributable to the non-taxable
gain on the proceeds of life insurance.
The above factors resulted in 1999 fiscal year net income of $10,317,000
or $1.51 per share (diluted) compared to $7,602,000 or $1.08 per share
(diluted) in fiscal 1998, a net increase of $2,715,000 or $0.43 per share.
FISCAL 1998 COMPARED TO FISCAL 1997
Sales for 1998 increased by $16,699,000 or 8% compared to 1997.
Residential sales volume increased $5,647,000 or 4%. 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 sales 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 net income of $7,602,000 or
$1.08 per share (diluted) compared to $6,048,000 or $0.86 per share (diluted)
in fiscal 1997, a net increase of $1,554,000 or $0.22 per share.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1999, is $50,210,000 which includes cash, cash
equivalents and investments of $13,853,000. Working capital decreased by
$339,000 from the June 30, 1998 amount.
Net cash provided by operating activities was $14,376,000, $13,284,000 and
$13,114,000 in 1999, 1998 and 1997, 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 $8,398,000, $2,392,000 and $5,273,000 for 1999,
1998 and 1997, respectively. The current year expenditures were incurred
primarily for land, manufacturing and delivery equipment and the expansion of
our Dublin, Georgia facility. Projected capital spending for fiscal 2000 is
$6,000,000, with approximately $1,000,000 for expansion of our Riverside,
California facility. The remainder of the projected capital expenditures will
be for manufacturing and delivery equipment. The funds for projected capital
expenditures are expected to be provided from cash generated from operations
and available cash.
Financing activities utilized net cash of $7,709,000, $5,415,000 and
$5,671,000 in 1999, 1998 and 1997, respectively. During the current year the
Company's Board of Directors approved the repurchase of up to 700,000 shares
of the Company's common stock. Under that authority, the Company repurchased
363,600
15
<PAGE>
shares of its outstanding common stock in 1999. Under prior authority the
Company repurchased 176,489 and 186,345 shares of its outstanding common
stock during 1998 and 1997, respectively.
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 $1,625,000 in the form of variable rate demand
industrial development revenue bonds. During fiscal 1999, the
weighted-average interest rate on the industrial development revenue bonds
was 3.70%.
OTHER
Year 2000 Issue - The Company developed a plan to identify and modify its
computer information systems to ensure that transactions will be properly
processed on and after January 1, 2000. The Company also reviewed its
computer dependent manufacturing activities to identify areas of concern
related to the year 2000 issues. The plan has been completed and tested. The
Company believes that it is prepared internally for January 1, 2000. The
internal conversion costs were not material to the Company's financial
position. None of the Company's other information technology projects have
been delayed due to the implementation of the year 2000 plan. As a part of
developing a contingency plan for year 2000 issues, the Company will continue
testing each of the major systems.
The Company continues to communicate with major suppliers to emphasize
that operations must continue without interruption through January 1, 2000,
and beyond. 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 ability to conduct operations.
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 here-in.
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
there-on 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]
[CAPTION: ANOTHER EXAMPLE OF HOW OUR TABLES HARMONIZE WITH OUR UPHOLSTERED
FURNITURE: NOTE THE TURNED WOOD LEGS ON BOTH TABLE AND LAWSON-ARM TRANSITIONAL
SOFA. AN INTERESTING ACCENT IS THE CHARISMA(R) CHAIR WITH NAILHEAD TRIM AND
GRACEFULLY-SHAPED CARVED ARMS.]
16
<PAGE>
PLANT LOCATIONS
* Flexsteel Industries, Inc.
DUBUQUE, IOWA 52001
(319) 556-7730
P. M. Crahan, General Manager
Flexsteel Industries, Inc.
DUBLIN, GEORGIA 31040
(912) 272-6911
M. C. Dixon, General Manager
Flexsteel Industries, Inc.
LANCASTER, PENNSYLVANIA 17604
(717) 392-4161
T. P. Fecteau, General Manager
Flexsteel Industries, Inc.
RIVERSIDE, CALIFORNIA 92504
(909) 354-2440
T. D. Burkart, General Manager
Flexsteel Industries, Inc.
NEW PARIS, INDIANA 46553
(219) 831-4050
G. H. Siemer, General Manager
Wood Products Division
HARRISON, ARKANSAS 72601
(870) 743-1101
M. J. Feldman, General Manager
Metal Division
DUBUQUE, IOWA 52001
(319) 556-7730
J. E. Gilbertson, General Manager
Commercial Seating Division
STARKVILLE, MISSISSIPPI 39760
(662) 323-5481
S. P. Salmon, General Manager
Dygert Seating Division
ELKHART, INDIANA 46515
(219) 262-4675
D. L. Dygert, General Manager
Vancouver Distribution Center
VANCOUVER, WASHINGTON 98668
(206) 696-9955
R. Heying, Supervisor
* EXECUTIVE OFFICES
PERMANENT SHOWROOMS
Dubuque, Iowa
High Point, North Carolina
San Francisco, California
DIRECTORS AND OFFICERS
John R. Easter
CHAIRMAN OF THE BOARD OF DIRECTORS
RETIRED VICE PRESIDENT
SEARS, ROEBUCK & COMPANY
K. Bruce Lauritsen
PRESIDENT
CHIEF EXECUTIVE OFFICER
DIRECTOR
Edward J. Monaghan
EXECUTIVE VICE PRESIDENT
CHIEF OPERATING OFFICER
DIRECTOR
James R. Richardson
SENIOR VICE PRESIDENT, MARKETING
DIRECTOR
Jeffrey T. Bertsch
VICE PRESIDENT
DIRECTOR
L. Bruce Boylen
DIRECTOR
RETIRED VICE PRESIDENT
FLEETWOOD ENTERPRISES, INC.
Patrick M. Crahan
VICE PRESIDENT
DIRECTOR
Lynn J. Davis
DIRECTOR
SENIOR VICE PRESIDENT
ADC TELECOMMUNICATIONS, INC.
Thomas E. Holloran
DIRECTOR
PROFESSOR, GRADUATE SCHOOL OF BUSINESS,
UNIVERSITY OF ST. THOMAS
ST. PAUL, MINNESOTA
Marvin M. Stern
DIRECTOR
RETIRED VICE PRESIDENT
SEARS, ROEBUCK & COMPANY
Carolyn T. B. Bleile
VICE PRESIDENT
Thomas D. Burkart
SENIOR VICE PRESIDENT, VEHICLE SEATING
Kevin F. Crahan
VICE PRESIDENT
Keith R. Feuerhaken
VICE PRESIDENT
James E. Gilbertson
VICE PRESIDENT
James M. Higgins
VICE PRESIDENT, COMMERCIAL SEATING
Ronald J. Klosterman
VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER
SECRETARY
Michael A. Santillo
VICE PRESIDENT
AUDIT & ETHICS
COMMITTEE
Thomas E. Holloran, Chairman
L. Bruce Boylen
Lynn J. Davis
COMPENSATION &
NOMINATING COMMITTEE
L. Bruce Boylen, Chairman
Thomas E. Holloran
Marvin M. Stern
MARKETING &
PLANNING COMMITTEE
Marvin M. Stern, Chairman
Jeffrey T. Bertsch
Patrick M. Crahan
Lynn J. Davis
Edward J. Monaghan
James R. Richardson
TRANSFER AGENT AND
REGISTRAR
Norwest Capital Resources
P. 0. Box 738
South St. Paul,
Minnesota 55075-0738
GENERAL COUNSEL
Irving C. MacDonald
Minneapolis, Minnesota
O'Connor and Thomas, P.C.
Dubuque, Iowa
NATIONAL OVER
THE COUNTER
NASDAQ SYMBOL - FLXS
ANNUAL MEETING
December 9, 1999, 3:30 p.m.
The Marquette
710 Marquette Avenue, 3rd floor
Minneapolis, Minnesota 55402
AFFIRMATIVE ACTION POLICY
It is the policy of Flexsteel Industries, Inc. that all employees and potential
employees shall be judged on the basis of qualifications and ability, without
regard to age, sex, race, creed, color or national origin in all personnel
actions. No employee or applicant for employment shall receive discriminatory
treatment because of physical or mental disability in regard to any position for
which the employee or applicant for employment is qualified. Employment
opportunities and job advancement opportunities will be provided for qualified
disabled veterans and veterans of the Vietnam era. This policy is consistent
with the Company's plan for "Affirmative Action" in implementing the intent and
provisions of the various laws relating to employment and non-discrimination.
ANNUAL REPORT ON FORM 10-K AVAILABLE
A copy of the Company's annual report on Form 10-K, as filed with the Securities
and Exchange Commission, can be obtained without charge by writing to: Office of
the Secretary, Flexsteel Industries, Inc., P. O. Box 877, Dubuque, Iowa
52004-0877.
VISIT US ON THE INTERNET
http://flexsteel.com
[LOGO] FLEXSTEEL
AMERICA'S SEATING SPECIALIST
(C) 1999 FLEXSTEEL INDUSTRIES, INC.
<PAGE>
[PHOTO]
[CAPTION: PHOTO COURTESY OF NEWMAR CORP.]
For a motor home with every luxury imaginable, the discriminating traveler
finds the 2000 Londonaire by Newmar(R) is the choice for elegance, performance
and comfort. Its top-of-the-line furnishings include a Flexsteel Easy Bed Sofa
and a Flexsteel leather-and-vinyl sofa with incliner or optional recliner.
The front passenger and driver's seats include power, lumbar support, and an
integrated seat belt developed by Flexsteel engineers. Other new Flexsteel
developments include power foot rests for motor homes; for vans, a new Flex-Over
bed and restraint packages for seats, all tested for FMVSS codes. Recreational
vehicle buyers have learned to look for and trust the Flexsteel name for smart,
dependable, and comfortable seating.
- --------------------------------------------------------------------------------
[LOGO] FLEXSTEEL
AMERICA'S SEATING SPECIALIST
- -------------------------------------
P.O. BOX 877 * DUBUQUE IA 52004-0877
EXHIBIT 23.1
INDEPENDENT AUDITOR'S REPORT
Flexsteel Industries, Inc.:
We have audited the financial statements of Flexsteel Industries, Inc.
(the Company) as of June 30, 1999 and 1998 and for each of the three years in
the period ended June 30, 1999, and have issued our report thereon dated August
5, 1999. Such financial statements and report are included in your 1999 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of Flexsteel Industries, Inc., listed
in Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial statement
taken as a whole, presents fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 5, 1999
10
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
Flexsteel Industries, Inc.:
We consent to the incorporation by reference in Registration Statement
No. 33-1836 on Form S-8 as amended by Post-Effective Amendment No. 1 for the
Flexsteel Salaried Employees' Savings Plan 401(k) and in Registration Statement
No. 2-86782 on Form S-8 as amended by Post-Effective Amendment No. 3 for the
Flexsteel 1983 Stock Option Plan and in Registration Statement No. 33-26267 on
Form S-8 for the Flexsteel 1989 Stock Option Plan and in Registration Statement
No. 333-1413 on Form S-8 for the Flexsteel 1995 Stock Option Plan of our reports
dated August 5, 1999 appearing in and incorporated by reference in the Annual
Report on Form 10-K of Flexsteel Industries, Inc. for the year ended June 30,
1999.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
September 29, 1999
11
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,886,038
<SECURITIES> 8,967,197
<RECEIVABLES> 33,652,459
<ALLOWANCES> 2,503,043
<INVENTORY> 29,503,209
<CURRENT-ASSETS> 78,667,266
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0
0
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