SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the quarterly period ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQURIED]
For the transition period from _______ to _______
Commission file number 0-5151
Incorporated in State of Minnesota I.R.S. Identification No. 42-0442319
FLEXSTEEL INDUSTRIES, INC.
P. O. BOX 877
DUBUQUE, IOWA 52004-0877
Area code 319 Telephone 556-7730
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_. No ___.
Common Stock - $1.00 Par Value
Shares Outstanding as of December 31, 1999 6,437,491
---------
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 4,574,280 $ 4,886,038
Investments .................................................. 7,697,065 8,967,197
Trade receivables - less allowance for doubtful accounts:
December 31, 1999, $2,586,000;
June 30, 1999, $2,503,000 ................................ 32,046,330 31,149,416
Inventories .................................................. 31,392,414 29,503,209
Deferred income taxes ........................................ 3,700,000 3,700,000
Other ........................................................ 380,103 461,406
------------ ------------
Total current assets .................. 79,790,192 78,667,266
PROPERTY, PLANT, AND EQUIPMENT
at cost less accumulated depreciation:
December 31, 1999, $55,184,416;
June 30, 1999, $52,707,461 ................................... 26,669,404 25,912,432
OTHER ASSETS ....................................................... 7,078,364 8,103,997
------------ ------------
TOTAL .......................... $113,537,960 $112,683,695
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade ..................................... $ 7,946,425 $ 7,076,729
Accrued liabilities:
Payroll and related items ............................... 4,116,492 6,735,108
Insurance ............................................... 6,100,914 6,688,060
Other accruals .......................................... 6,284,792 6,332,412
Industrial revenue bonds payable ............................. 1,625,000 1,625,000
------------ ------------
Total current liabilities .............. 26,073,623 28,457,309
DEFERRED COMPENSATION .............................................. 3,085,470 3,060,670
------------ ------------
Total liabilities ....................................... 29,159,093 31,517,979
------------ ------------
SHAREHOLDERS' EQUITY:
CommonStock - $1 par value; authorized 15,000,000 shares;
issued December 31, 1999, 6,437,491 shares;
issued June 30, 1999, 6,491,840 shares ................. 6,437,491 6,491,840
Retained earnings ............................................ 77,160,263 73,718,238
Unrealized investment gain ................................... 781,113 955,638
------------ ------------
Total shareholders' equity ............. 84,378,867 81,165,716
------------ ------------
TOTAL ........................ $113,537,960 $112,683,695
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
STATEMENTS OF INCOME Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES ..................................... $ 70,403,821 $ 62,575,129 $ 138,104,571 $ 122,628,510
COST OF GOODS SOLD ............................ 54,826,359 48,435,226 107,497,588 95,338,293
------------- ------------- ------------- -------------
GROSS MARGIN .................................. 15,577,462 14,139,903 30,606,983 27,290,217
SELLING, GENERAL AND ADMINISTRATIVE ........... 11,968,905 10,890,191 23,305,675 21,430,161
------------- ------------- ------------- -------------
OPERATING INCOME .............................. 3,608,557 3,249,712 7,301,308 5,860,056
------------- ------------- ------------- -------------
OTHER:
Interest and other income ................ 1,960,325 301,818 2,105,978 576,506
Interest and other expense ............... 109,403 79,782 193,117 159,911
------------- ------------- ------------- -------------
Total ............................... 1,850,922 222,036 1,912,861 416,595
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES .................... 5,459,479 3,471,748 9,214,169 6,276,651
PROVISION FOR INCOME TAXES .................... 1,870,000 1,275,000 3,260,000 2,285,000
------------- ------------- ------------- -------------
NET INCOME .................................... $ 3,589,479 $ 2,196,748 $ 5,954,169 $ 3,991,651
============= ============= ============= =============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC .................................. 6,480,183 6,841,514 6,510,574 6,831,929
============= ============= ============= =============
DILUTED ................................ 6,586,083 6,915,103 6,619,708 6,899,896
============= ============= ============= =============
EARNINGS PER SHARE OF COMMON
STOCK:
BASIC ................................. $ 0.55 $ 0.32 $ 0.91 $ 0.58
============= ============= ============= =============
DILUTED ............................... $ 0.54 $ 0.32 $ 0.90 $ 0.58
============= ============= ============= =============
<CAPTION>
STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
NET INCOME .................................... $ 3,589,479 $ 2,196,748 $ 5,954,169 $ 3,991,651
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE INCOME
BEFORE TAX:
Unrealized gains (losses) on
securities arising during period .... 66,350 363,556 (299,150) 237,119
Less: reclassification adjustment for
losses included in net income ....... 22,500 4,844 22,500 4,844
------------- ------------- ------------- -------------
Other comprehensive income,
before tax .......................... 88,850 368,400 (276,650) 241,963
------------- ------------- ------------- -------------
INCOME TAX (EXPENSE) BENEFIT:
Income tax (expense) benefit related to
securities losses or gains arising
during period ............................ (24,785) (130,880) 110,450 (85,363)
Income tax expense related to securities
reclassification adjustment .............. (8,325) (1,744) (8,325) (1,744)
------------- ------------- ------------- -------------
Income tax (expense) benefit related to
other comprehensive income ............... (33,110) (132,624) 102,125 (87,107)
------------- ------------- ------------- -------------
OTHER COMPREHENSIVE
INCOME, NET OF TAX ....................... 55,740 235,776 (174,525) 154,856
------------- ------------- ------------- -------------
COMPREHENSIVE INCOME .......................... $ 3,645,219 $ 2,432,524 $ 5,779,644 $ 4,146,507
============= ============= ============= =============
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income ..................................................... $ 5,954,169 $ 3,991,651
Adjustments to reconcile net income to net cash
provided by operating activities ........................... (1,814,812) 2,185,104
----------- -----------
Net cash provided by operating activities ...................... 4,139,357 6,176,755
----------- -----------
INVESTING ACTIVITIES:
Purchases of investments ............................... (5,752) (2,297,528)
Proceeds from sales of investments ...................... 1,101,360 1,954,458
Proceeds from sales of capital assets ................... 1,567,006 36,328
Capital expenditures .................................... (3,952,018) (4,080,043)
----------- -----------
Net cash used in investing activities .......................... (1,289,404) (4,386,785)
----------- -----------
FINANCING ACTIVITIES:
Payment of dividends .................................... (1,687,884) (1,639,087)
Proceeds from issuance of common stock .................. 83,611 139,196
Repurchase of common stock .............................. (1,557,438) (199,625)
----------- -----------
Net cash used in financing activities .......................... (3,161,711) (1,699,516)
----------- -----------
Increase (decrease) in cash and cash equivalents ............... (311,758) 90,454
Cash and cash equivalents at beginning of year ................. 4,886,038 5,464,261
----------- -----------
Cash and cash equivalents at end of period ..................... $ 4,574,280 $ 5,554,715
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest .................................................. $ 31,000 $ 37,000
Income taxes .............................................. $ 2,917,000 $ 2,723,000
</TABLE>
See accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. These financial statements do not include certain information and
footnotes required by generally accepted accounting principles for
complete financial statements. However, in the opinion of management,
all adjustments considered necessary for a fair presentation have been
included and are of a normal recurring nature. Operating results for
the three month period ended December 31, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year
ending June 30, 2000.
2. The inventories are categorized as follows:
December 31, June 30,
1999 1999
------------ ------------
Raw materials .......................... $ 16,383,223 $ 15,871,466
Work in process and finished parts ..... 8,549,928 7,416,826
Finished goods ......................... 6,459,263 6,214,917
------------ ------------
Total ............. $ 31,392,414 $ 29,503,209
============ ============
3. In 1997, the Financial Accounting Standards board issued Statement No.
128, EARNINGS PER SHARE (SFAS 128). SFAS 128 replaced the calculation
of primary and fully dilated earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options. All earnings
per share amounts for all periods have been presented and, where
appropriate, restated to conform to the SFAS 128 requirements.
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
December 31, December 31,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Income available to common
shareholders ....................... $ 3,589,479 $ 2,196,748 5,954,169 $ 3,991,651
Weighted average shares
outstanding ........................ 6,480,183 6,841,514 6,510,574 6,831,929
----------- ----------- ----------- -----------
Earnings Per Share - Basic .............. 0.55 0.32 0.91 0.58
=========== =========== =========== ===========
Diluted Earnings Per Share:
Income available to common
shareholders ....................... $ 3,589,479 $ 2,196,748 $ 5,954,169 $ 3,991,651
----------- ----------- ----------- -----------
Weighted average shares
outstanding ........................ 6,480,183 6,841,514 6,510,574 6,831,929
Dilutive shares issuable in
connection with stock option
plans .............................. 536,037 504,445 504,422 461,220
Less shares purchasable with
proceeds ........................... (430,137) (430,856) (395,288) (393,253)
----------- ----------- ----------- -----------
Total Shares ............................ 6,586,083 6,915,103 6,619,708 6,899,896
----------- ----------- =========== ===========
Earnings Per Share - Diluted ............ $ 0.54 $ 0.32 $ 0.90 $ 0.58
=========== =========== =========== ===========
</TABLE>
4. RECLASSIFICATIONS - certain prior year amounts have been reclassified
to conform to the current period presentation. These reclassifications
had no impact on net income or shareholders' equity as previously
reported.
<PAGE>
FLEXSTEEL INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED STATEMENT OF EARNINGS
Results of Operations:
The following table has been prepared as an aid in understanding the Company's
results of operations on a comparative basis for the second quarter and
six-month ended December 31, 1999 and 1998. Amounts presented are percentages of
the Company's net sales.
<TABLE>
<CAPTION>
Second Quarter Ended Six Month Ending
December 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales ................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ........................ 77.9% 77.4% 77.8% 77.7%
---------- ---------- ---------- ----------
Gross margin .............................. 22.1% 22.6% 22.2% 22.3%
Selling, general & administrative
expense .............................. 17.0% 17.4% 16.9% 17.5%
---------- ---------- ---------- ----------
Operating income .......................... 5.1% 5.2% 5.3% 4.8%
Other income, net ......................... 2.7% 0.4% 1.4% 0.4%
---------- ---------- ---------- ----------
Income before income taxes ................ 7.8% 5.6% 6.7% 5.2%
Income tax expense ........................ 2.7% 2.0% 2.4% 1.9%
---------- ---------- ---------- ----------
Net income ................................ 5.1% 3.6% 4.3% 3.3%
========== ========== ========== ==========
</TABLE>
RESULTS OF OPERATIONS FOR THE QUARTER - Net sales for the quarter ended December
31, 1999 increased by $7,829,000 or 12.5% compared to the prior year quarter.
Residential seating sales volume increased $7,084,000 or 19.2%. Recreational
vehicle seating sales increased $2,748,000 or 14.4%. Commercial seating volume
decreased $2,003,000 or 30.6%.
Gross margin increased $1,437,559 to $15,577,462 of sales in the current year
from $14,139,903 reflecting higher sales volume.
Selling, general and administrative expenses as a percentage of sales were 17.0%
and 17.4% for the current year and prior year, respectively. The cost percentage
decrease was due to improved absorption of fixed costs.
The current year quarter ended December 31, 1999 includes a net gain of
$790,000, or $0.12 per share, on the sale of land and $405,000, or $0.06 per
share, from the proceeds of life insurance.
The above factors resulted in current fiscal quarter earnings of $3,589,479 or
$0.54 per share (diluted) compared to $2,196,748 or $0.32 per share (diluted) in
the prior year quarter, a net increase of $1,392,731 or $0.22 per share.
Excluding the sale of land and life insurance proceeds, net earnings for the
quarter ended December 31, 1999, improved $0.04 per share over the prior year
quarter.
RESULTS OF OPERATIONS FOR THE LAST SIX MONTHS - Net sales for the six-months
ended December 31, 1999 increased by $15,476,000 or 12.6% compared to the prior
year six-month period. Residential seating sales volume increased $10,615,000 or
14.7%. Recreational vehicle seating sales increased $7,299,000 or 18.8%.
Commercial seating volume decreased $2,438,000 or 20.9%.
Gross margin increased $3,316,766 to $30,606,983 of sales in the current year
from $27,290,217 reflecting higher sales volume.
Selling, general and administrative expenses as a percentage of sales were 16.9%
and 17.5% for the current year and prior year, respectively. The cost percentage
decrease was due to improved absorption of fixed costs.
<PAGE>
The current six-months ended December 31, 1999 includes a net gain of $790,000,
or $0.12 per share, on the sale of land and $405,000, or $0.06 per share, from
the proceeds of life insurance.
The above factors resulted in current fiscal year earnings of $5,954,169 or
$0.90 per share (diluted) compared to $3,991,651 or $0.58 per share (diluted) in
the prior year, a net increase of $1,962,518 or $0.32 per share. Excluding the
land sale and life insurance proceeds reported in the current year, net earnings
for the six-months ended December 31, 1999 improved $0.14 per share or 19% over
the prior six-month period.
Liquidity and Capital Resources:
Working capital at December 31, 1999 is $53,717,000 which includes cash, cash
equivalents and investments of $12,271,000. Working capital increased by
$3,507,000 from the June 30, 1999 amount. Net cash provided by operating
activities was $4,139,000 during the first six months of fiscal year 2000 versus
$6,177,000 in the first six months of fiscal year 1999.
Capital expenditures were $3,952,000 during the first six months of fiscal 2000
and $4,080,000 in fiscal 1999. The current year expenditures were incurred
primarily for manufacturing and delivery equipment and the expansion of our
Riverside, California facility. During the next six months approximately
$2,750,000 will be spent on manufacturing equipment, leasehold improvements and
the completion of the expansion project in California. The Company has leased a
90,000 square foot residential furniture production facility in Harrison,
Arkansas and a 30,000 square foot vehicle seating production facility in
Dunkirk, Indiana. Both of these facilities are scheduled to begin production
during the quarter ending March 31, 2000. Approximately $1,000,000 of projected
capital expenditures relate to these facilities.
On November 4, 1998 the Company announced a plan to repurchase up to 700,000
shares, or slightly more than 10% of the Company's outstanding common stock. The
Company will make the purchases, from time to time, in the open market as the
Company deems appropriate. Under this authorization, 478,600 shares of common
stock have been repurchased to date.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE
OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
The Company and its representatives may from time to time make written or oral
forward-looking statements with respect to goals and expectations of the
Company, including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to stockholders.
Statements, including those in this report, which are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risk and uncertainty. Some of the
factors that could affect results are the effectiveness of new product
introductions, the product mix of our sales, the cost of raw materials, the
amount of sales generated and the profit margins thereon or volatility in the
major markets, competition and general economic conditions.
The Company specifically declines to undertake any obligation to publicly revise
any forward-looking statements that have been made to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders on December 9, 1999, Proposals one, two,
and three set forth in the Board of Directors' definitive Proxy Statement dated
October 27, 1999, were approved and adopted by the stockholders. Proposals one,
two, and three, respectively, received votes as follows:
Proposal 1 (Election of Directors): K. Bruce Lauritsen: For 5,946,533, Withheld
46,989, Abstentions and Broker Non-votes 522,289. Thomas E. Holloran: For
5,946,283, Withheld 47,239, Abstentions and Broker Non-votes 522,289. L. Bruce
Boylen: For 5,945,433, Withheld 48,089, Abstentions and Broker Non-votes
522,289. John R. Easter: For 5,945,557, Withheld 47,965, Abstentions and Broker
Non-votes 522,289. The names of each Director whose term of office as a Director
continued after the meeting are as follows:, Edward J. Monaghan, James R.
Richardson, Jeffrey T. Bertsch, Patrick M. Crahan, Marvin M.Stern and Lynn J.
Davis.
Proposal 2 (Approve 1999 Stock Option Plan): For: 5,229,301, Against: 156,189,
and Abstain: 608,032.
Proposal 3 (Appointment of Deloitte & Touche, LLP as Independent Auditors): For:
5,966,090, Against: 7,051, and Abstain: 20,381.
Item 6. Exhibits and Reports on Form 8-K
The registrant did not file a report on Form 8-K during the quarter for which
this report is filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on by its behalf by the
undersigned officer there unto duly authorized.
FLEXSTEEL INDUSTRIES, INC.
Date: February 11, 2000 By: /S/ R.J. Klosterman
----------------- -------------------
R.J. Klosterman
Financial Vice President &
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 4,574,280
<SECURITIES> 7,697,065
<RECEIVABLES> 29,460,330
<ALLOWANCES> 2,586,000
<INVENTORY> 31,392,414
<CURRENT-ASSETS> 79,790,192
<PP&E> 81,853,820
<DEPRECIATION> 55,185,416
<TOTAL-ASSETS> 113,537,960
<CURRENT-LIABILITIES> 26,073,623
<BONDS> 0
0
0
<COMMON> 6,437,491
<OTHER-SE> 77,941,376
<TOTAL-LIABILITY-AND-EQUITY> 113,537,960
<SALES> 70,403,821
<TOTAL-REVENUES> 72,364,146
<CGS> 54,826,359
<TOTAL-COSTS> 66,795,264
<OTHER-EXPENSES> 11,968,905
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,403
<INCOME-PRETAX> 5,459,479
<INCOME-TAX> 1,870,000
<INCOME-CONTINUING> 3,589,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,589,479
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.54
</TABLE>
