UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December
31, 2011
or
☐
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number
0-5151
FLEXSTEEL INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its
Charter)
Incorporated in State of Minnesota
|
42-0442319
|
(State or other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Identification No.)
|
3400 JACKSON STREET
DUBUQUE, IOWA 52004-0877
(Address of Principal Executive Offices) (Zip
Code)
(563) 556-7730
(Registrant’s Telephone Number, Including
Area Code)
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
☒
. No
☐
.
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes
☒
. No
☐
.
Indicate by check mark whether the Registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check
one).
Large accelerated filer
☐
Accelerated
filer
☐
Non-accelerated filer
☐
Smaller
reporting company
☒
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
. No
☒
.
Common Stock - $1.00 Par Value
|
|
|
Shares Outstanding as of December 31, 2011
|
|
6,764,236
|
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
|
|
December 31,
2011
(UNAUDITED)
|
|
|
June 30,
2011
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
15,871
|
|
|
$
|
17,889
|
|
Trade receivables – less allowance for doubtful accounts:
December 31, 2011, $1,910; June 30, 2011, $2,000
|
|
|
32,055
|
|
|
|
31,451
|
|
Inventories
|
|
|
79,012
|
|
|
|
73,680
|
|
Deferred income taxes
|
|
|
3,940
|
|
|
|
3,700
|
|
Other
|
|
|
1,775
|
|
|
|
1,633
|
|
Total current assets
|
|
|
132,653
|
|
|
|
128,353
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
23,348
|
|
|
|
21,387
|
|
Deferred income taxes
|
|
|
2,470
|
|
|
|
2,560
|
|
Other assets
|
|
|
12,450
|
|
|
|
12,377
|
|
TOTAL
|
|
$
|
170,921
|
|
|
$
|
164,677
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
12,180
|
|
|
$
|
9,899
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
Payroll and related items
|
|
|
6,007
|
|
|
|
6,922
|
|
Insurance
|
|
|
5,671
|
|
|
|
5,645
|
|
Other
|
|
|
5,977
|
|
|
|
5,204
|
|
Total current liabilities
|
|
|
29,835
|
|
|
|
27,670
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
5,311
|
|
|
|
5,270
|
|
Other liabilities
|
|
|
2,758
|
|
|
|
3,164
|
|
Total liabilities
|
|
|
37,904
|
|
|
|
36,104
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Cumulative preferred stock – $50 par value;
authorized 60,000 shares; outstanding – none
|
|
|
|
|
|
|
|
|
Undesignated (subordinated) stock – $1 par value;
authorized 700,000 shares; outstanding – none
|
|
|
|
|
|
|
|
|
Common stock – $1 par value; authorized 15,000,000 shares;
outstanding December 31, 2011, 6,764,236 shares;
outstanding June 30, 2011, 6,710,612 shares
|
|
|
6,764
|
|
|
|
6,711
|
|
Additional paid-in capital
|
|
|
7,243
|
|
|
|
6,698
|
|
Retained earnings
|
|
|
119,673
|
|
|
|
115,699
|
|
Accumulated other comprehensive loss
|
|
|
(663
|
)
|
|
|
(535
|
)
|
Total shareholders’ equity
|
|
|
133,017
|
|
|
|
128,573
|
|
TOTAL
|
|
$
|
170,921
|
|
|
$
|
164,677
|
|
See accompanying Notes to Consolidated Financial
Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share data)
|
|
Three Months Ended
December31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
NET SALES
|
|
$
|
85,001
|
|
|
$
|
82,821
|
|
|
$
|
166,522
|
|
|
$
|
170,051
|
|
COST OF GOODS SOLD
|
|
|
(64,543
|
)
|
|
|
(63,996
|
)
|
|
|
(127,100
|
)
|
|
|
(131,620
|
)
|
GROSS MARGIN
|
|
|
20,458
|
|
|
|
18,825
|
|
|
|
39,422
|
|
|
|
38,431
|
|
SELLING, GENERAL AND ADMINISTRATIVE
|
|
|
(15,765
|
)
|
|
|
(15,508
|
)
|
|
|
(31,096
|
)
|
|
|
(30,406
|
)
|
FACILITY CLOSING COSTS
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,016
|
)
|
OPERATING INCOME
|
|
|
4,693
|
|
|
|
3,317
|
|
|
|
8,326
|
|
|
|
7,009
|
|
OTHER INCOME
|
|
|
45
|
|
|
|
14
|
|
|
|
170
|
|
|
|
115
|
|
INCOME BEFORE INCOME TAXES
|
|
|
4,738
|
|
|
|
3,331
|
|
|
|
8,496
|
|
|
|
7,124
|
|
PROVISION FOR INCOME TAXES
|
|
|
(1,790
|
)
|
|
|
(1,200
|
)
|
|
|
(3,170
|
)
|
|
|
(2,650
|
)
|
NET INCOME
|
|
$
|
2,948
|
|
|
$
|
2,131
|
|
|
$
|
5,326
|
|
|
$
|
4,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,763
|
|
|
|
6,691
|
|
|
|
6,745
|
|
|
|
6,676
|
|
Diluted
|
|
|
6,967
|
|
|
|
6,924
|
|
|
|
6,968
|
|
|
|
6,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE OF COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.44
|
|
|
$
|
0.32
|
|
|
$
|
0.79
|
|
|
$
|
0.67
|
|
Diluted
|
|
$
|
0.42
|
|
|
$
|
0.31
|
|
|
$
|
0.76
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS DECLARED PER COMMON SHARE
|
|
$
|
0.10
|
|
|
$
|
0.075
|
|
|
$
|
0.20
|
|
|
$
|
0.15
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands)
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
NET INCOME
|
|
$
|
2,948
|
|
|
$
|
2,131
|
|
|
$
|
5,326
|
|
|
$
|
4,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNREALIZED GAINS (LOSSES) ON SECURITIES
|
|
|
259
|
|
|
|
293
|
|
|
|
(207
|
)
|
|
|
493
|
|
INCOME TAX (EXPENSE) BENEFIT RELATED TO SECURITIES GAINS (LOSSES)
|
|
|
(98
|
)
|
|
|
(111
|
)
|
|
|
79
|
|
|
|
(187
|
)
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
|
|
|
161
|
|
|
|
182
|
|
|
|
(128
|
)
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
$
|
3,109
|
|
|
$
|
2,313
|
|
|
$
|
5,198
|
|
|
$
|
4,780
|
|
See accompanying Notes to Consolidated Financial
Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
|
|
Six Months Ended
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,326
|
|
|
$
|
4,474
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,404
|
|
|
|
1,408
|
|
Change in provision for losses on accounts receivable
|
|
|
(180
|
)
|
|
|
800
|
|
Deferred income taxes
|
|
|
(71
|
)
|
|
|
(498
|
)
|
Stock-based compensation expense
|
|
|
493
|
|
|
|
699
|
|
Gain on disposition of capital assets
|
|
|
(16
|
)
|
|
|
(8
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(425
|
)
|
|
|
2,494
|
|
Inventories
|
|
|
(5,332
|
)
|
|
|
(5,270
|
)
|
Other current assets
|
|
|
(142
|
)
|
|
|
(442
|
)
|
Other assets
|
|
|
10
|
|
|
|
(8
|
)
|
Accounts payable – trade
|
|
|
1,593
|
|
|
|
(650
|
)
|
Accrued liabilities
|
|
|
(219
|
)
|
|
|
(3,028
|
)
|
Other long-term liabilities
|
|
|
(476
|
)
|
|
|
300
|
|
Deferred compensation
|
|
|
41
|
|
|
|
(29
|
)
|
Net cash provided by operating activities
|
|
|
2,006
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from sales of investments
|
|
|
286
|
|
|
|
254
|
|
Purchases of investments
|
|
|
(576
|
)
|
|
|
(443
|
)
|
Proceeds from sale of capital assets
|
|
|
16
|
|
|
|
42
|
|
Capital expenditures
|
|
|
(2,676
|
)
|
|
|
(585
|
)
|
Net cash used in investing activities
|
|
|
(2,950
|
)
|
|
|
(732
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(1,180
|
)
|
|
|
(834
|
)
|
Proceeds from issuance of common stock
|
|
|
106
|
|
|
|
206
|
|
Net cash used in financing activities
|
|
|
(1,074
|
)
|
|
|
(628
|
)
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(2,018
|
)
|
|
|
(1,118
|
)
|
Cash at beginning of period
|
|
|
17,889
|
|
|
|
8,278
|
|
Cash at end of period
|
|
$
|
15,871
|
|
|
$
|
7,160
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
(Amounts in thousands)
|
|
Six Months Ended
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Income taxes paid, net
|
|
$
|
2,390
|
|
|
$
|
4,402
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Capital expenditures included in trade accounts payable
|
|
|
702
|
|
|
|
—
|
|
See accompanying Notes to Consolidated Financial
Statements (Unaudited).
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIOD ENDED DECEMBER 31, 2011
|
1.
|
The consolidated financial statements included herein have been prepared by Flexsteel Industries, Inc. and Subsidiaries (the
“Company” or “Flexsteel”), without audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”). The information furnished in the consolidated financial statements includes normal recurring adjustments
and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such consolidated financial
statements. Operating results for the three and six month periods ended December 31, 2011 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2012. Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not misleading. Except to the extent updated or described below,
the significant accounting policies set forth in Note 1 to the consolidated financial statements in the Company’s Annual
Report on Form 10-K for the year ended June 30, 2011, appropriately represent, in all material respects, the current status of
accounting policies and are incorporated by reference.
|
DESCRIPTION OF BUSINESS – Flexsteel was incorporated
in 1929 and is one of the oldest and largest manufacturers, importers and marketers of upholstered and wooden furniture products
in the country. Product offerings include a wide variety of upholstered and wood furniture such as sofas, loveseats, chairs, reclining
and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and
chairs and bedroom furniture. The Company’s products are intended for use in home, office, hospitality, health care and motor
vehicle applications. Featured as a basic component in most of the upholstered furniture is a unique steel drop-in seat spring
from which our name “Flexsteel” is derived. The Company distributes its products throughout the United States through
the Company’s sales force and various independent representatives to furniture dealers, department stores, recreational vehicle
manufacturers, catalogs, hospitality and healthcare facilities. The Company’s products are also sold to several national
and regional chains, some of which sell on a private label basis.
2.
INVENTORIES
The Company values inventory at the lower of cost or
market. Raw steel is valued on the last-in, first-out (“LIFO”) method. Other inventories are valued on the first-in,
first-out (“FIFO”) method. Inventories valued on the LIFO method would have been approximately $1.8 million higher
at December 31, 2011 and $1.9 million higher at June 30, 2011, if they had been valued on the FIFO method. At December 31, 2011
and June 30, 2011, the total value of LIFO inventory was $2.2 million and $1.5 million, respectively. A comparison of inventories
is as follows (in thousands):
|
|
December 31,
2011
|
|
|
June 30,
2011
|
|
Raw materials
|
|
$
|
9,299
|
|
|
$
|
9,235
|
|
Work in process and finished parts
|
|
|
4,441
|
|
|
|
3,951
|
|
Finished goods
|
|
|
65,272
|
|
|
|
60,494
|
|
Total
|
|
$
|
79,012
|
|
|
$
|
73,680
|
|
3.
BORROWINGS AND CREDIT ARRANGEMENTS
The Company maintains a credit
agreement which provides short-term working capital financing of $15.0 million with interest of LIBOR plus 1% with availability
of $10.0 million for letters of credit. No amounts were outstanding at December 31, 2011 and June 30, 2011 under the working capital
facility. The Company is contingently liable to insurance carriers under its comprehensive general, product, and vehicle liability
policies, as well as some workers’ compensation, and has provided letters of credit in the amount of $2.5 million. The credit
agreement contains financial covenants. The primary covenant is an interest coverage ratio of 3.0 to 1.0. The ratio is computed
as net income plus interest expense and stock-based compensation expense less dividends, divided by interest expense. In addition,
the Company must maintain working capital of $60 million. At December 31, 2011, the Company was in compliance with all of the financial
covenants contained in the credit agreement.
An officer of the Company is a
director at a bank where the Company maintains an unsecured $8.0 million line of credit at prime minus 1%, but not less than 2.5%,
and where its routine daily banking transactions are processed. No amount was outstanding on the line of credit at December 31,
2011 and June 30, 2011. In addition, the Rabbi Trust assets of $5.6 million are administered by this bank’s trust department.
The Company receives no special services or pricing on the services performed by the bank due to the directorship of this officer.
4.
STOCK-BASED COMPENSATION
The Company has two stock-based compensation methods
available when determining employee compensation.
(1)
|
Long-Term Management Incentive Compensation Plan
– The plan provides for shares of common
stock and cash to be awarded to officers and key employees based on performance targets set by the Nominating and Compensation
Committee of the Board of Directors (the “Committee”). The Company’s shareholders approved 500,000 shares to
be issued under the plan. As of December 31, 2011, 38,944 shares have been issued. The Committee selected consolidated operating
results for organic net sales growth and fully-diluted earnings per share for the three-year performance periods beginning July
1, 2009 and ending on June 30, 2012, beginning July 1, 2010 and ending on June 30, 2013, and beginning July 1, 2011 and ending
on June 30, 2014. The Committee has also specified that payouts, if any, for awards earned in these performance periods will be
60% stock and 40% cash. Awards will be paid to participants as soon as practicable following the end of the performance periods
subject to Committee approval and verification of results. The compensation cost related to the number of shares to be granted
under each performance period is fixed on the grant date, which is the date the performance period begins. The compensation cost
related to the cash portion of the award is re-measured based on the equity award’s estimated fair value at the end of each
reporting period. The accrual is based on the probable outcomes of the performance conditions. The short-term portion of the recorded
cash award payable is classified within current liabilities, payroll and related items, and the long-term portion of the recorded
cash award payable is classified within other long-term liabilities in the Consolidated Balance Sheets. As of December 31, 2011
and June 30, 2011, the Company has recorded cash awards payable of $0.6 million and $0.4 million within current liabilities and
$0.3 million and $0.7 million within long-term liabilities, respectively. During the quarters ended December 31, 2011 and 2010,
the Company recorded expense of $0.1 million and $0.4 million, respectively. For the six month periods ended December 31, 2011
and 2010, the Company recorded expense of $0.4 million and $0.8 million, respectively.
|
|
|
|
If the target performance goals would be achieved, the total amount of compensation cost recognized over the requisite service periods would be $1.0 million (2010-2012), $1.0 million (2011-2013) and $0.9 million (2012-2014) based on the estimated fair values at December 31, 2011.
|
|
|
(2)
|
Stock Option Plans
– The stock option plans for key employees and directors 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 December 31, 2011, 341,950 shares were available for future grants. It is the Company’s policy to issue new shares upon exercise of stock options. The Company accepts shares of the Company’s common stock as payment for the exercise price of options. These shares received as payment are retired upon receipt.
|
A summary of the status of the Company’s stock option
plans as of December 31, 2011, June 30, 2011 and 2010 and the changes during the periods then ended is presented below:
|
|
Shares
(in thousands)
|
|
|
Weighted Average
Exercise Price
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
Outstanding and exercisable at June 30, 2010
|
|
|
1,052
|
|
|
$
|
12.70
|
|
|
$
|
1,168
|
|
Granted
|
|
|
88
|
|
|
|
17.23
|
|
|
|
|
|
Exercised
|
|
|
(91
|
)
|
|
|
7.41
|
|
|
|
|
|
Canceled
|
|
|
(3
|
)
|
|
|
17.30
|
|
|
|
|
|
Outstanding and exercisable at June 30, 2011
|
|
|
1,046
|
|
|
|
13.56
|
|
|
|
2,271
|
|
Granted
|
|
|
83
|
|
|
|
13.87
|
|
|
|
|
|
Exercised
|
|
|
(15
|
)
|
|
|
8.23
|
|
|
|
|
|
Canceled
|
|
|
(3
|
)
|
|
|
17.25
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2011
|
|
|
1,111
|
|
|
$
|
13.66
|
|
|
|
1,767
|
|
The following table summarizes information for options
outstanding and exercisable at December 31, 2011:
|
|
|
|
|
|
Weighted Average
|
Range of
Prices
|
|
|
Options Outstanding
(in thousands)
|
|
|
Remaining
Life (Years)
|
|
Exercise
Price
|
$
|
6.81 – 8.55
|
|
|
|
240
|
|
|
|
7.5
|
|
$
|
7.74
|
|
12.35 – 13.90
|
|
|
|
312
|
|
|
|
6.6
|
|
|
12.87
|
|
14.40 – 16.52
|
|
|
|
350
|
|
|
|
2.9
|
|
|
15.54
|
|
17.23 – 20.27
|
|
|
|
209
|
|
|
|
4.8
|
|
|
18.46
|
$
|
6.81 – 20.27
|
|
|
|
1,111
|
|
|
|
5.3
|
|
$
|
13.66
|
5.
INCOME TAXES
In determining the quarterly provision for income taxes,
the Company uses an estimated annual effective tax rate, which is based on the expected annual income, statutory tax rates and
tax planning opportunities available to the Company in the various jurisdictions in which it operates. This includes
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in
the financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The
deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected
to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s
income tax policy, significant or unusual items are separately recognized in the quarter in which they occur.
The components of the gross liabilities related to unrecognized
tax benefits and the related deferred tax assets are as follows (in thousands):
|
|
December 31,
2011
|
|
|
June 30,
2011
|
|
Gross unrecognized tax benefits
|
|
$
|
1,000
|
|
|
$
|
970
|
|
Accrued interest and penalties
|
|
|
360
|
|
|
|
340
|
|
Gross liabilities related to unrecognized tax benefits
|
|
$
|
1,360
|
|
|
$
|
1,310
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
350
|
|
|
$
|
330
|
|
The recognition of the above amounts would impact the
Company’s effective tax rate. The Company does not expect that there will be any positions for which it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months. The Company records
interest and penalties related to income taxes as income tax expense in the Consolidated Statements of Operations.
6.
EARNINGS PER SHARE
Basic earnings per share (“EPS”) of common
stock are based on the weighted-average number of common shares outstanding for each period. Diluted EPS of common stock includes
the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options
and shares associated with the long-term management incentive compensation plan, which resulted in a dilutive effect of 203,633
shares and 232,514 shares for the three months ended December 31, 2011 and 2010, respectively, and 223,381 shares and 205,682 shares
for the six months ended December 31, 2011 and 2010, respectively. The Company calculates the dilutive effect of outstanding options
using the treasury stock method. The Company calculates the dilutive effect of shares related to the long-term management incentive
compensation plan based on the number of shares, if any, that would be issuable if the end of the fiscal year were the end of the
contingency period. Options to purchase 624,450 shares and 563,150 shares of common stock were outstanding for the three months
ended December 31, 2011 and 2010, respectively, and 559,450 shares and 563,150 shares for the six months ended December 31, 2011
and 2010, respectively, but were not included in the computation of diluted EPS as their exercise prices were greater than the
average market price of the common shares.
7.
LITIGATION
The
Company has been named as one of several defendants in an Indiana civil lawsuit related to groundwater contamination. The lawsuit
alleges that the contamination source is a property once owned by the Company. The Company does not believe that it caused or contributed
to the contamination. This lawsuit is in its preliminary stages. Plaintiffs have not identified a dollar amount of their alleged
damages and the status of insurance coverage has not been determined. We are unable to estimate a range of reasonably possible
outcomes or losses at this time. Accordingly, no accrual related to this matter has been recorded in the December 31, 2011 financial
statements. During the three and six months ended December 31, 2011, legal and other related expenses of $0.6 million and $1.1
million have been incurred responding to this lawsuit and are included in Selling, General and Administrative expense in the Consolidated
Statement of Operations.
Other
Proceedings
– From time to time, the Company is subject to various other legal proceedings, including lawsuits, which
arise out of, and are incidental to, the conduct of the Company’s business. The Company does not consider any of such other
proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in
a material effect on its consolidated operating results, financial condition, or cash flows.
8.
ACCOUNTING DEVELOPMENTS
In September 2011, the FASB issued
ASU 2011-09 which pertains to employer’s participation in multiemployer benefit plans, amending ASC 715-80. ASU 2011-09 enhances
the disclosures about significant multiemployer plans in which an employer participates, the level of the employer’s participation,
the financial health of the plans and the nature of the employer’s commitments to the plans. The new disclosure requirements
are required for fiscal years ending after December 15, 2011 and there will be no financial impact on the Company.
9.
FACILITY CLOSING COSTS
During the six months
ended December 31, 2010, the Company closed a manufacturing facility and recorded pre-tax charges for facility closing costs of
$1.0 million. The charges represented employee separation costs of $0.6 million and other closing costs of $0.4 million with no
future benefit to the Company and are classified as “Facility Closing Costs” in the Consolidated Statements of Operations.
The $1.0 million was included in other current liabilities at December 31, 2010 and was fully paid as of June 30, 2011.
Item 2. 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 the Company should be read in conjunction with the consolidated financial statements and related notes included elsewhere
in this quarterly report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES:
There have been no material changes to our critical accounting policies
and estimates from the information provided in Item 7, “Management's Discussion and Analysis of Financial Condition and Results
of Operations”, included in our 2011 annual report on Form 10-K.
Overview
The following table has been prepared as an aid in understanding
the Company’s results of operations on a comparative basis for the three and six months ended December 31, 2011 and 2010.
Amounts presented are percentages of the Company’s net sales.
|
|
Three Months Ended
December 31,
|
|
|
Six Months Ended
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of goods sold
|
|
|
(75.9
|
)
|
|
|
(77.3
|
)
|
|
|
(76.3
|
)
|
|
|
(77.4
|
)
|
Gross margin
|
|
|
24.1
|
|
|
|
22.7
|
|
|
|
23.7
|
|
|
|
22.6
|
|
Selling, general and administrative
|
|
|
(18.6
|
)
|
|
|
(18.7
|
)
|
|
|
(18.7
|
)
|
|
|
(17.9
|
)
|
Facility closing costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.6
|
)
|
Operating income
|
|
|
5.5
|
|
|
|
4.0
|
|
|
|
5.0
|
|
|
|
4.1
|
|
Other income
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Income before income taxes
|
|
|
5.6
|
|
|
|
4.0
|
|
|
|
5.1
|
|
|
|
4.2
|
|
Income tax expense
|
|
|
(2.1
|
)
|
|
|
(1.4
|
)
|
|
|
(1.9
|
)
|
|
|
(1.6
|
)
|
Net income
|
|
|
3.5
|
%
|
|
|
2.6
|
%
|
|
|
3.2
|
%
|
|
|
2.6
|
%
|
Results of Operations for the Quarter Ended December 31, 2011
vs. 2010
The following table compares net sales in total and by area of application
for the quarter ended December 31, 2011 to the prior year quarter.
|
|
Net Sales (in thousands)
Quarter Ended December 31,
|
|
|
$ Change
|
|
|
|
|
Area of Application
|
|
2011
|
|
|
2010
|
|
|
(in thousands)
|
|
|
% Change
|
|
Residential
|
|
$
|
66,968
|
|
|
$
|
63,528
|
|
|
$
|
3,440
|
|
|
|
5.4
|
%
|
Commercial
|
|
|
18,033
|
|
|
|
19,293
|
|
|
|
(1,260
|
)
|
|
|
(6.5
|
)%
|
Total
|
|
$
|
85,001
|
|
|
$
|
82,821
|
|
|
$
|
2,180
|
|
|
|
2.6
|
%
|
Gross margin for the quarter ended December 31, 2011 was 24.1% compared
to 22.7% in the prior year quarter. Gross margin for the prior year quarter was adversely impacted by inventory write-down of $0.6
million associated with closing a facility.
Selling, general and administrative expenses for the quarter ended
December 31, 2011 were $15.8 million or 18.6% of net sales, including an increase in legal and professional fees of $0.7 million,
primarily related to an Indiana civil lawsuit and a decrease in bad debt expense of $0.7 million, compared to $15.5 million or
18.7% of net sales for the quarter ended December 31, 2010.
Operating income for the current quarter was $4.7 million compared
to operating income of $3.3 million in the prior year quarter reflecting the aforementioned factors
.
The effective income tax expense rate for the current fiscal quarter
was 37.8% compared to an income tax expense rate of 36.0% 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 $2.9
million or $0.42 per share, compared to net income of $2.1 million or $0.31 per share in the prior year quarter.
All earnings per share amounts are on a diluted basis.
Results of Operations for the Six Months Ended December 31, 2011
vs. 2010
The following table compares net sales in total and by area of application
for the six months ended December 31, 2011 to the prior year six month period.
|
|
Net Sales (in thousands)
Six Months Ended December 31,
|
|
|
$ Change
|
|
|
|
|
Area of Application
|
|
2011
|
|
|
2010
|
|
|
(in thousands)
|
|
|
% Change
|
|
Residential
|
|
$
|
129,491
|
|
|
$
|
128,753
|
|
|
$
|
738
|
|
|
|
0.6
|
%
|
Commercial
|
|
|
37,031
|
|
|
|
41,298
|
|
|
|
(4,267
|
)
|
|
|
(10.3
|
)%
|
Total
|
|
$
|
166,522
|
|
|
$
|
170,051
|
|
|
$
|
(3,529
|
)
|
|
|
(2.1
|
)%
|
Gross margin for the six months ended December 31, 2011 was 23.7%
compared to 22.6% in the prior year six month period. Gross margin for the prior year six-month period was adversely impacted by
inventory write-down of $0.6 million associated with closing a facility.
Selling, general and administrative expenses were $31.1 million
or 18.7% of net sales, including a $1.2 million increase in legal and professional fees, primarily related to an Indiana civil
lawsuit, and a $1.0 million decrease in bad debt expense, compared to $30.4 million or 17.9% of net sales in the prior year six-month
period.
Operating income for the current six month period was $8.3 million
compared to operating income of $7.0 million in the prior year six month period reflecting the aforementioned factors
.
During
the prior year six month period the Company recorded a pre-tax charge of $1.0 million to facility closing costs for employee separation
and other closing costs.
The effective income tax expense rate for the current six month
period was 37.3% compared to an income tax expense rate of 37.2% in the prior year six month period. The effective rates include
the federal statutory rate as well as the effect of the various state taxing jurisdictions.
The above factors resulted in net income for the current six month
period of $5.3 million or $0.76 per share, compared to net income of $4.5 million or $0.65 per share in the prior year six month
period.
All earnings per share amounts are on a diluted basis.
Liquidity and Capital Resources
Operating Activities:
Working capital (current assets
less current liabilities) at December 31, 2011 was $102.8 million. Net cash provided by operating activities was $2.0 million during
the six months ended December 31, 2011. Net income of $5.3 million and increased accounts payable of $1.6 million were offset by
a $5.3 million planned increase in inventory. Depreciation expense was $1.4 million in the six-month periods ended December 31,
2011 and 2010.
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 $2.9 million during the
six-month period ended December 31, 2011. During the first six months of fiscal year 2012 capital expenditures were $3.4 million,
including $2.1 million related to construction of a corporate office building. The Company expects that capital expenditures will
be approximately $10 million for the remainder of the 2012 fiscal year including costs related to construction, furnishing and
equipping the corporate office building which is expected to be completed in August 2012.
Financing Activities:
Net cash used in financing activities was $1.1 million during the
six-month period ended December 31, 2011. Dividends of $1.2 million were paid during the six-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 Company’s
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
the second half of fiscal year 2012. Our business continues to be adversely impacted by macroeconomic conditions such as high unemployment,
limited job growth and a depressed housing market resulting in low consumer confidence levels. We expect orders for residential
seating products to continue to perform slightly above prior year levels. Our commercial office business has picked up modestly
as we enter the second half of the fiscal year. The Company is expecting flat order trends for our vehicle and hospitality seating
products for the remainder of the fiscal year.
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 Company’s 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 and six months ended December 31, 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 Company’s primary market
risk exposure with regard to financial instruments is changes in interest rates. The Company does not have any debt outstanding
at December 31, 2011.
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 December 31, 2011.
(b)
Changes in internal control over financial reporting.
During
the quarter ended December 31, 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 Company’s 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 Company’s 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.
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 Company’s Annual Report on Form 10-K for the fiscal
year ended June 30, 2011.
Item 6. Exhibits
|
31.1
|
Certification
|
|
|
|
|
31.2
|
Certification
|
|
|
|
|
32
|
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.
|
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.
|
|
|
FLEXSTEEL INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
February 7, 2012
|
|
By:
|
/
S/ Timothy E. Hall
|
|
|
|
|
|
Timothy E. Hall
|
|
|
|
|
|
Chief Financial Officer
|
|
|
|
|
|
(Principal Financial & Accounting Officer)
|
|
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