Flexsteel Industries, Inc. (NASDAQ:FLXS) today reported sales and
earnings for its second quarter and fiscal year-to-date ended
December 31, 2005. Net sales for the fiscal quarter ended December
31, 2005 were $106.3 million compared to the prior year quarter of
$105.1 million, an increase of 1.2%. Net income for the current
quarter was $0.5 million or $0.07 per share after recording
stock-based compensation expense of $0.4 million or $0.06 per
share, compared to $1.6 million or $0.24 per share in the prior
year quarter. Net sales for the six months ended December 31, 2005
were $203.7 million compared to $202.9 million in the prior year
six months, an increase of 0.4%. Net income for the six months
ended December 31, 2005 was $1.5 million or $0.22 per share after
recording stock-based compensation expense of $0.4 million or $0.06
per share, compared to net income of $2.8 million or $0.42 per
share for the six months ended December 31, 2004 which included a
net gain (after tax) of $0.4 million or $0.06 per share on the sale
of a former manufacturing facility. For the quarter ended December
31, 2005, residential net sales were $69.6 million, compared to
$70.6 million, a decrease of 1.5% from the prior year quarter.
Recreational vehicle net sales were $15.9 million, compared to
$18.9 million, a decrease of 15.8% from the prior year quarter.
Commercial net sales were $20.8 million, compared to $15.5 million
in the prior year quarter, an increase of 34.1%. For the six months
ended December 31, 2005, residential net sales were $127.7 million,
a decrease of 1.5% from the six months ended December 31, 2004.
Recreational vehicle net sales were $34.2 million, a decrease of
19.1% from the six months ended December 31, 2004. Commercial net
sales were $41.8 million, an increase of 22.2% from the six months
ended December 31, 2004. Residential net sales were down slightly
from the prior periods due to lower demand at the retail level. The
decline in recreational vehicle net sales is due primarily to a
weaker wholesale market environment. The increase in commercial net
sales is primarily due to improved commercial office product
offerings and improved industry performance for hospitality
products. Gross margin for the quarter ended December 31, 2005 was
18.5% compared to 19.4% in the prior year quarter. For the six
months ended December 31, 2005, the gross margin was 19.1% compared
to 18.9% for the prior year six-month period. Gross margin erosion
in the current quarter in comparison to the prior year quarter was
caused by rampant increases in raw material costs, particularly
those with petrochemical content, and transportation costs which
the Company was able to partially offset through selected sell
price increases. The gross margin improvement for the six-month
period is a result of changes in product mix, primarily through
increased sales of commercial office and other imported products,
which were not significantly impacted by raw material cost
increases. Selling, general and administrative expenses were 17.5%
and 16.8% of net sales for the quarters ended December 31, 2005 and
2004, respectively. For the six months ended December 31, 2005 and
2004, selling, general and administrative expenses were 17.7% and
16.8%, respectively. The increase in selling, general and
administrative costs on a quarterly and year-to-date basis in
comparison to prior year periods is due to the recording of
approximately $0.4 million in stock-based compensation related to
stock option grants as required under Statement of Financial
Accounting Standards ("SFAS") No. 123 (R), increases in royalties
and general increases in other fixed expenses. Working capital
(current assets less current liabilities) at December 31, 2005 was
$87.3 million, which includes cash, cash equivalents and
investments of $3.4 million. Net cash used in operating activities
was $11.2 million for the six-month period ended December 31, 2005.
Net cash provided by operating activities was $2.1 million for the
six-month period ended December 31, 2004. Fluctuations in net cash
used in operating activities were primarily the result of changes
in accounts receivable, inventories and accounts payable. The
increase in inventories in fiscal 2006 relates primarily to the
expansion of import programs. Capital expenditures were $3.1
million during the first six months of fiscal year 2006.
Depreciation and amortization expense was $2.7 million and $2.9
million for the six-month periods ended December 31, 2005 and 2004,
respectively. The Company expects that capital expenditures will be
approximately $0.5 million for the remainder of the fiscal year.
All earnings per share amounts are on a diluted basis. Outlook
Flexsteel Industries, Inc., and the furniture industry in general,
continue to be impacted by increases in raw material and energy
costs. The second quarter ended December 31, 2005, was dominated by
news of unprecedented cost increases for poly foam and other
materials with petrochemical content, which are major components in
our seating products, as well as increases or expected increases in
other key components such as fabric, steel and plywood. At the same
time, U. S. furniture manufacturers are faced with competition and
pricing pressures from imported products. The Company expects these
challenging business conditions to continue to have an impact on
its results of operations through the remainder of the fiscal year.
In response to the aforementioned challenges, the Company will
implement sell price increases for seating products, as warranted,
and continue to explore cost control opportunities in all facets of
its business. The Company believes it has the necessary
inventories, product offerings and commitments in place to take
advantage of opportunities for expansion of certain markets, such
as commercial office and hospitality. The Company believes that its
strategy of providing furniture from a wide selection of
domestically manufactured and imported products is sound business
practice and will continue. Analysts Conference Call The Company
will host a conference call for analysts on Wednesday, February 8,
2006, at 10:30 a.m. Central Time. To access the call, please dial
1-888-275-4480 and provide the operator with ID# 3182635. A replay
will be available for two weeks beginning approximately two hours
after the conclusion of the call by dialing 1-800-642-1687 and
entering ID# 3182635. Forward-Looking Statements Statements,
including those in this release, 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 cyclical nature of
the furniture industry, the effectiveness of new product
introductions, the product mix of sales, the cost of raw materials,
foreign currency revaluations, actions by governments including
taxes and tariffs, the amount of sales generated and the profit
margins thereon, competition (both foreign and domestic), changes
in interest rates, credit exposure with customers and general
economic conditions. Any forward-looking statement speaks only as
of the date of this press release. 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. About Flexsteel
Flexsteel Industries, Inc. is headquartered in Dubuque, Iowa, and
was incorporated in 1929. Flexsteel is a designer, manufacturer,
importer and marketer of quality upholstered and wood furniture for
residential, recreational vehicle, office, hospitality and
healthcare markets. All products are distributed nationally. For
more information, visit our web site at http://www.flexsteel.com.
-0- *T FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31, June 30, 2005
2005 ------------- ------------- ASSETS CURRENT ASSETS: Cash and
cash equivalents............. $1,856,229 $1,706,584
Investments........................... 1,546,693 1,508,751 Trade
receivables, net................ 50,175,351 48,355,070
Inventories........................... 88,438,515 69,945,400
Other................................. 6,572,394 6,281,869
------------- ------------- Total current
assets...................... 148,589,182 127,797,674 NONCURRENT
ASSETS: Property, plant, and equipment, net... 26,542,587
26,140,914 Other assets.......................... 13,314,578
12,719,090 ------------- -------------
TOTAL..................................... $188,446,347
$166,657,678 ============= ============= LIABILITIES AND
SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable -
trade............... $21,524,954 $16,259,905 Notes
payable.......................... 19,500,153 5,000,000 Accrued
liabilities.................... 20,221,380 21,149,428 -------------
------------- Total current liabilities................. 61,246,487
42,409,333 LONG-TERM LIABILITIES: Long-term
debt......................... 15,105,963 12,800,000 Other long-term
liabilities............ 6,766,083 6,650,625 -------------
------------- Total liabilities......................... 83,118,533
61,859,958 SHAREHOLDERS' EQUITY...................... 105,327,814
104,797,720 ------------- -------------
TOTAL..................................... $188,446,347
$166,657,678 ============= ============= FLEXSTEEL INDUSTRIES, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended December 31, December 31,
--------------------------- --------------------------- 2005 2004
2005 2004 ------------- ------------- ------------- -------------
NET SALES..... $106,301,259 $105,050,826 $203,736,422 $202,906,383
COST OF GOODS SOLD......... (86,598,189) (84,650,206) (164,890,157)
(164,650,909) ------------- ------------- -------------
------------- GROSS MARGIN.. 19,703,070 20,400,620 38,846,265
38,255,474 SELLING, GENERAL AND ADMINI- STRATIVE..... (18,610,560)
(17,670,182) (36,097,226) (34,010,070) GAIN ON SALE OF FACILITY..
608,613 ------------- ------------- ------------- -------------
OPERATING INCOME....... 1,092,510 2,730,438 2,749,039 4,854,017
------------- ------------- ------------- ------------- OTHER
INCOME (EXPENSE): Interest and other income..... 137,630 161,000
306,935 294,686 Interest expense.... (371,123) (266,870) (631,404)
(543,993) ------------- ------------- ------------- -------------
Total..... (233,493) (105,870) (324,469) (249,307) -------------
------------- ------------- ------------- INCOME BEFORE INCOME
TAXES........ 859,017 2,624,568 2,424,570 4,604,710 PROVISION FOR
INCOME TAXES........ (370,000) (1,020,000) (950,000) (1,800,000)
------------- ------------- ------------- ------------- NET
INCOME.... $489,017 $1,604,568 $1,474,570 $2,804,710 =============
============= ============= ============= AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING: Basic...... 6,560,190 6,537,071 6,553,776
6,522,729 ============= ============= ============= =============
Diluted.... 6,583,053 6,617,606 6,573,116 6,600,727 =============
============= ============= ============= EARNINGS PER SHARE OF
COMMON STOCK: Basic...... $0.07 $0.25 $0.22 $0.43 =============
============= ============= ============= Diluted.... $0.07 $0.24
$0.22 $0.42 ============= ============= ============= =============
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended December 31,
--------------------------- 2005 2004 ------------- -------------
OPERATING ACTIVITIES: Net income................................
$1,474,570 $2,804,710 Adjustments to reconcile net income to net
cash provided by (used in) operating activities: Depreciation and
amortization.......... 2,699,355 2,937,938 Gain on disposition of
capital assets.. (24,447) (608,513) Stock based compensation
expense....... 427,000 Changes in operating assets and liabilities,
net of acquisitions....................... (15,818,842) (3,014,076)
------------- ------------- Net cash (used in) provided by
operating activities............................... (11,242,364)
2,120,059 ------------- ------------- INVESTING ACTIVITIES: Net
purchases and sales of investments...........................
88,500 44,230 Proceeds from sale of capital assets... 58,086
1,581,575 Capital expenditures................... (3,064,688)
(2,508,987) ------------- ------------- Net cash used in investing
activities..... (2,918,102) (883,182) ------------- -------------
FINANCING ACTIVITIES: Net proceeds of borrowings.............
16,806,114 (455,427) Dividends paid.........................
(2,555,874) (1,693,817) Proceeds from issuance of common
stock................................. 59,871 80,967 -------------
------------- Net cash provided by (used in) financing
activities............................... 14,310,111 (2,068,277)
------------- ------------- Increase (decrease) in cash and cash
equivalents.............................. 149,645 (831,400) Cash
and cash equivalents at beginning of
period................................... 1,706,584 2,476,521
------------- ------------- Cash and cash equivalents at end of
period................................... $1,856,229 $1,645,121
============= ============= *T
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