Operating
income for the current quarter was $3.6 million compared to operating income of
$3.7 million in the prior year quarter reflecting the aforementioned factors.
The effective
income tax expense rate for the current fiscal quarter was 36.7% compared to an
income tax expense rate of 38.2% in the prior year fiscal quarter. The
effective rates include the federal statutory rate as well as the effect of the
various state taxing jurisdictions.
The above
factors resulted in current quarter net income of $2.4 million or $0.34 per
share, compared to net income of $2.3 million or $0.34 per share in the prior
year quarter.
All earnings
per share amounts are on a diluted basis.
Liquidity and Capital Resources
Operating
Activities:
Working capital (current assets less current liabilities) at September 30, 2011
was $102.7 million. Net cash used in operating activities was $3.0 million
during the first quarter ended September 30, 2011. This use of cash was
primarily related to increases in inventories of $4.7 million and receivables
of $0.6 million.
The Company
expects that due to the nature of our operations that there will be continuing
fluctuations in accounts receivable, inventory, accounts payable, and cash
flows from operations due to the following: (i) we purchase inventory from
overseas suppliers with long lead times and depending on the timing of the
delivery of those orders, inventory levels can be greatly impacted, and (ii) we
have various customers that purchase large quantities of inventory periodically
and the timing of those purchases can significantly impact inventory levels,
accounts receivable, accounts payable and short-term borrowings. As
discussed below, the Company believes it has adequate financing arrangements
and access to capital to absorb these fluctuations in operating cash flow.
Investing
Activities:
Net cash used in investing activities was $0.4 million during the three-month
period ended September 30, 2011. The Company expended $0.6 million for the
purchase of capital assets. The Company expects that capital expenditures will
be approximately $14.0 million for the remainder of the 2012 fiscal year
including the cost to construct and furnish the new corporate office building.
Financing
Activities:
Net cash used in financing activities was $0.4 million during the three-month
period ended September 30, 2011. Dividends of $0.5 million were paid during the
three-month period partially offset by cash received from the exercise of
stock options.
Management
believes that the Company has adequate cash and credit arrangements to meet its
operating and capital requirements for fiscal year 2012. In the opinion of
management, the Companys liquidity and credit resources provide it with the
ability to react to opportunities as they arise, to pay quarterly dividends to
its shareholders, and to purchase productive capital assets that enhance safety
and improve operations.
Outlook
The Company
believes that top line growth will be modest through fiscal year 2012.
Macroeconomic conditions, such as high unemployment, minimal job growth, a weak
housing market and low levels of consumer confidence, continue to adversely
impact our business. The commercial office industry is reporting improving
order trends. While sales have benefited minimally from those improvements to
date, we believe commercial sales volume will increase during fiscal year 2012.
We anticipate increased orders for hospitality products during the remainder of
fiscal year 2012 resulting from pent up demand caused by delays in typical
refurbishing cycles for hotel properties.
9
The Company
remains committed to its core strategies, which include a wide range of quality
product offerings and price points to the residential and commercial markets,
combined with a conservative approach to business. We will maintain our focus on
a strong balance sheet through emphasis on cash flow and improving
profitability. We believe these core strategies are in the best interest of our
shareholders.
Item
3. Quantitative and Qualitative Disclosures About
Market Risk
General
Market risk
represents the risk of changes in the value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates,
foreign exchange rates and equity prices. As discussed below, management of the
Company does not believe that changes in these factors could cause material
fluctuations in the Companys results of operations or cash flows. The ability
to import furniture products can be adversely affected by political issues in
the countries where suppliers are located, disruptions associated with shipping
distances and negotiations with port employees. Other risks related to
furniture product importation include government imposition of regulations
and/or quotas; duties and taxes on imports; and significant fluctuation in the
value of the U.S. dollar against foreign currencies. Any of these factors could
interrupt supply, increase costs and decrease earnings.
Foreign Currency Risk
During the three months ended September 30, 2011 and 2010, the Company did
not have sales, purchases, or other expenses denominated in foreign currencies.
As such, the Company is not exposed to material market risk associated with
currency exchange rates and prices.
Interest Rate Risk
The
Companys primary market risk exposure with regard to financial instruments is
changes in interest rates. The Company does not have any debt outstanding at
September 30, 2011.
Tariffs
The
Company has exposure to actions by governments, including tariffs. Tariffs are
a possibility on any imported or exported products.
Inflation
Increased operating costs are reflected in product or services pricing with any
limitations on price increases determined by the marketplace. Inflation or
other pricing pressures could impact raw material costs, labor costs and
interest rates which are important components of costs for the Company and
could have an adverse effect on our profitability, especially where increases
in these costs exceed price increases on finished products.
Item 4.
Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
Based on their evaluation as of the end of the period covered by this Quarterly
Report on Form 10-Q, our chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) were effective as of September 30, 2011.
(b)
Changes in internal control over financial reporting.
During the quarter ended September 30, 2011, there were no
significant changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended) that has materially affected, or is reasonably likely to materially
affect the Companys internal control over financial reporting.
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 or anticipated results of the
Company, including statements contained in the Companys filings with the
Securities and Exchange Commission and in its reports to stockholders.
Statements,
including those in this Quarterly Report on Form 10-Q, 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 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, supply chain disruptions,
litigation, the effectiveness of new product introductions and distribution
channels, the product mix of sales, pricing pressures, the cost of raw
materials and fuel, retention and recruitment of key employees, actions by
governments including laws, regulations,
taxes and tariffs, inflation, the amount of sales generated and the profit
margins thereon, competition (both U.S. and foreign), credit exposure with
customers, participation in multi-employer pension plans and general
economic conditions. For further information regarding these risks and
uncertainties, see the Risk Factors section in Item 1A of our most recent
Annual Report on Form 10-K.
10
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 OTHER
INFORMATION
Item
1A. Risk Factors
There
has been no material change in the risk factors set forth under Part 1, Item 1A
Risk Factors in the Companys Annual Report on Form 10-K for the fiscal
year ended June 30, 2011.
Item
6. Exhibits
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31.1
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Certification
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31.2
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Certification
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32
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Certification
by Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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SIGNATURES
Pursuant to
the requirements 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.
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FLEXSTEEL
INDUSTRIES, INC.
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Date:
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October 24, 2011
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By:
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S/ Timothy E. Hall
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Timothy E.
Hall
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Chief
Financial Officer
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(Principal
Financial & Accounting Officer)
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11
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