FLXS Flexsteel Industries Inc

Flexsteel Industries, Inc. (NASDAQ:FLXS) today reported results of operations for its second quarter and fiscal year-to-date December 31, 2009.

The Company reported net sales for the quarter ended December 31, 2009 of $83.5 million compared to $84.5 million in the prior year quarter. The Company reported net income for the current quarter of $3.0 million or $0.45 per share compared to net income of $0.3 million or $0.04 per share in the prior year quarter. The prior year quarter included approximately $0.5 million of pre-tax facility consolidation costs.

For the six months ended December 31, 2009, the Company reported net sales of $159.5 million compared to the prior year sales of $176.0 million, a decrease of 9%. The Company reported net income for the current six-month period of $4.3 million or $0.66 per share compared to a net loss of $0.5 million or $0.07 per share in the prior year period. The prior year six-month period included approximately $1.8 million of pre-tax facility consolidation costs.

For the quarter ended December 31, 2009, residential net sales were $62.6 million, an increase of 8% from the prior year quarter net sales of $58.1 million. Commercial net sales were $20.9 million compared to $26.4 million in the prior year quarter, a decrease of 21%.

For the six months ended December 31, 2009, residential net sales were $118.8 million, slightly less than residential net sales of $120.1 million in the six months ended December 31, 2008. Commercial net sales were $40.7 million for the six months ended December 31, 2009, a decrease of 27% from the six months ended December 31, 2008.

Gross margin for the quarter ended December 31, 2009 was 24.0% compared to 19.1% in the prior year quarter. For the six months ended December 31, 2009, the gross margin was 22.9% compared to 18.9% for the prior year six-month period. These gross margin improvements are primarily due to better capacity utilization and lower fixed manufacturing costs resulting from last year’s facility consolidations, changes in product mix and lower ocean freight costs.

Selling, general and administrative expenses for the quarter ended December 31, 2009 were 18.3% compared to 18.2% in the prior year quarter. For the six months ended December 31, 2009, selling, general and administrative expenses were 18.4% compared to 18.2% in the prior year six-month period.

Working capital (current assets less current liabilities) at December 31, 2009 was $83.1 million. Net cash provided by operating activities was $17.8 million during the six months ended December 31, 2009 due to improved profitability and lower inventory. Subsequent to the end of the quarter the Company paid off the remaining $5.0 million of bank borrowings with available cash.

Capital expenditures were $0.9 million during the first six months of fiscal year 2010. Depreciation expense was $1.5 million and $2.0 million in the six-month periods ended December 31, 2009 and 2008, respectively. The Company expects that capital expenditures will be less than $1.0 million for the remainder of the fiscal year.

All earnings per share amounts are on a diluted basis.

OutlookBased upon current business conditions, we believe sales have stabilized at current levels. The consolidation of manufacturing operations and workforce reductions that the Company completed during the prior fiscal year has brought production capacity and fixed overhead in line with current and expected demand for our products. Company wide employment, which was reduced approximately 30% in the prior fiscal year through plant closures and workforce reductions, remains at these reduced levels.

We believe that our residential product category has performed reasonably well in relation to our competition. However, residential furniture continues to be a highly deferrable purchase item and is adversely impacted by low levels of consumer confidence, a depressed market for new housing, limited consumer credit and high unemployment. The commercial product category fell considerably as the U. S. economy contracted and credit tightened further during the fourth quarter of the prior fiscal year. We do not foresee any immediate improvement in these conditions and continue to operate on that basis.

While we expect that current business conditions will persist for the remainder of fiscal year 2010, we remain optimistic that our strategy, which includes a wide range of quality product offerings and price points to the residential and commercial markets, combined with our conservative approach to business, will be rewarded when business conditions improve. We will maintain our focus on a strong balance sheet during these challenging economic times through emphasis on cash flow and improving profitability.

Conference CallWe will host a conference call on February 5, 2010, at 10:30 a.m. Central Time. To access the call, please dial 1-866-830-5279 and provide the operator with ID# 44642845. 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# 44642845.

Forward-Looking StatementsStatements, 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 our results to differ materially from those anticipated by some of the statements made in this press release. 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 and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, foreign currency valuations, actions by governments including taxes and tariffs, inflation, 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. We specifically decline 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 FlexsteelFlexsteel 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.

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands)       December 31, June 30, 2009   2009  

ASSETS

  CURRENT ASSETS: Cash and cash equivalents $ 12,875 $ 1,714 Trade receivables, net 32,963 31,283 Inventories 66,834 73,844 Other   6,071     7,872   Total current assets 118,743 114,713   NONCURRENT ASSETS: Property, plant, and equipment, net 22,742 23,298 Other assets   13,902     12,960     TOTAL $ 155,387   $ 150,971    

LIABILITIES AND SHAREHOLDERS’ EQUITY

  CURRENT LIABILITIES: Accounts payable – trade $ 9,665 $ 9,745 Notes payable 5,000 10,000 Accrued liabilities   20,959     16,552   Total current liabilities 35,624 36,297   LONG-TERM LIABILITIES: Other long-term liabilities   8,194     7,676   Total liabilities 43,818 43,973   SHAREHOLDERS’ EQUITY   111,569     106,998     TOTAL $ 155,387   $ 150,971     FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data)     Three Months Ended Six Months Ended December 31, December 31, 2009   2008 2009   2008 NET SALES $ 83,524 $ 84,550 $ 159,465 $ 175,966 COST OF GOODS SOLD   (63,483 )   (68,419 )   (122,868 )   (142,699 ) GROSS MARGIN 20,041 16,131 36,597 33,267 SELLING, GENERAL AND ADMINISTRATIVE (15,263 ) (15,393 ) (29,404 ) (32,163 ) FACILITY CONSOLIDATION AND OTHER CHARGES   --     (504 )   --     (1,852 ) OPERATING INCOME (LOSS)   4,778     234     7,193     (748 )

OTHER INCOME (EXPENSE):

Interest and other income 91 503 123 613 Interest expense   (95 )   (271 )   (233 )   (558 ) Total   (4 )   232     (110 )   55   INCOME (LOSS) BEFORE INCOME TAXES

4,774

466

7,083

(693

)

(PROVISION FOR) BENEFIT FROM

INCOME TAXES   (1,810 )   (170 )   (2,740 )   240   NET INCOME (LOSS) $ 2,964   $ 296   $ 4,343   $ (453 ) AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic   6,588     6,576     6,582     6,576   Diluted   6,627     6,652     6,621     6,576   EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Basic $ 0.45   $ 0.04   $ 0.66   $ (0.07 ) Diluted $ 0.45   $ 0.04   $ 0.66   $ (0.07 )   FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)     Six Months Ended   December 31,     2009       2008  

OPERATING ACTIVITIES:

    Net income (loss) $ 4,343 $ (453 ) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 1,545 1,986 Deferred income taxes (922 ) (241 ) Stock-based compensation expense 431 114 Gain on disposition of capital assets (6 ) (186 ) Gain on sale of investments -- (462 ) Impairment of long-lived assets -- 137 Changes in operating assets and liabilities     12,391         8,368     Net cash provided by operating activities     17,782         9,263      

INVESTING ACTIVITIES:

Net sales of investments (292 ) 1,090 Proceeds from sale of capital assets 11 554 Capital expenditures     (923 )       (772 )   Net cash (used in) provided by investing activities     (1,204 )       872      

FINANCING ACTIVITIES:

Repayment of borrowings, net (5,000 ) (10,464 ) Dividends paid (658 ) (1,710 ) Proceeds from issuance of common stock     241         –     Net cash used in financing activities     (5,417 )       (12,174 )     Increase (decrease) in cash and cash equivalents 11,161 (2,039 ) Cash and cash equivalents at beginning of period     1,714         2,841     Cash and cash equivalents at end of period   $ 12,875       $ 802