Flexsteel Industries
Annual Report 2011

Plain-text annual report

Flexsteel Industries, Inc. ANNUAL REPORT Fiscal Year ending June 30, 2011 2011 Financial Highlights For the Years Ended June 30, (Amounts in thousands, except per share data) 2011 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 339,426 Operating income (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,864 Income before income taxes (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,207 Net income (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,417 Weighted Average Common Shares Outstanding - Diluted . . . . . . . . . . . . . . . . 6,929 Earnings per share of Common Stock - Diluted (1) (2). . . . . . . . . . . . . . . . . . . . . $ 1.50 Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.30 Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.16 At June 30, Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,683 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,677 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,104 Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,573 2010 $ 326,466 17,529 17,451 10,801 6,697 $ 1.61 $ 0.20 17.70 $ 90,800 157,670 40,058 117,612 2009 $ 324,158 (2,272) (2,579) (1,509) 6,576 $ (0.23) $ 0.36 16.27 $ 78,416 150,971 43,973 106,998 (1) Fiscal 2011 income and per share amounts include charges consisting of employee separation costs and inventory write down related to closing a manufacturing facility of $1.0 million (after tax) or $0.15 per share. (2) Fiscal 2009 loss and per share amounts reflect facility consolidation and other costs (after tax) of $1.5 million or $0.23 per share. New Corporate Headquarters announced After 75 years in our current location, Flexsteel will break ground in September 2011 for a new corporate headquarters in Dubuque, Iowa, near the Mississippi River. The four-story building will feature 40,000 square feet of office space. The building is designed with large windows to make use of natural light creating an open, airy ambiance. Flexsteel and DMI furniture will be utilized throughout the building. The new facility is designed to be energy-efficient and environmentally friendly. Approximately 100 employees will relocate to the new office and there is room for expansion to take advantage of future growth opportunities. These employees provide administrative and management services to the global operations of Flexsteel and its wholly-owned subsidiary DMI. Additionally, these employees manage residential and commercial products in areas including design, manufacturing, marketing, supply-chain management, purchasing, engineering, advertising, customer service, credit management, information systems and accounting. DMI celebrates 100 years in furniture Founded in 1911 in Huntingburg, Indiana near abundant supplies of native timber, the company was first known as Huntingburg Furniture Company. After decades of success, growth and expansion, including the establishment of additional manufacturing facilities and trucking distribution centers across the U.S., the company was sold in 1964 to Dolly Madison Foods and became Dolly Madison Industries, Inc. More success followed and by the late 1970s, DMI Furniture owned and operated eight manufacturing facilities and five supplier plants. In the early-1980s, the headquarters was moved to Louisville, Kentucky where it remains today. After sourcing in China proved successful, the company established a presence in southern China during the early 1990s. Later in that decade, DMI launched Wynwood, an elegant line of upscale furniture, and HomeStyles, an online source for casual furnishings, as well as DMI Office, which supplies stylish commercial furniture. During that time, DMI expanded its Asia infrastructure to include Vietnam and Thailand. Acquired by Flexsteel Industries, Inc., in 2003, DMI remains a respected and thriving marketer of quality product. To Our Shareholders: Fiscal year 2011 was a very challenging year. Continuing high unemployment, declining consumer confidence, lack of recovery in the housing sector and diminishing consumer discretionary spending all negatively impacted our opportunities for growth. In spite of these challenges, we stayed focused on the strategies that we established and executed since the onset of the “Great Recession” of 2008. This fiscal year we built upon our success in fiscal year 2010 and recorded modest growth in sales for both Residential and Commercial products. Founded in 1893, our Company has survived and thrived during the Great Depression, many recessions and other periods of economic uncertainty. Our corporate culture, long and short- term business strategies, and core values enable our company to continue to succeed in this economic environment. Our core principles remain the same: the integrity of our associates allows us to maintain and grow customer and loyalty, our product quality strengthens these supplier relationships and our product design and innovation provide opportunities for growth. Our financial results for fiscal year 2011 built upon the strong turnaround experienced in fiscal year 2010. Net sales were $339.4 million in fiscal year 2011 compared to $326.5 million in the prior year, an increase of 4.0%. Residential net sales were $258.1 million compared to $246.0 million in fiscal year 2010, an increase of 4.9%. Commercial net sales were $81.3 million for fiscal year 2011, an increase of 1.1% from last year’s net sales of $80.5 million. We maintained our gross margin in spite of significant cost increases for raw materials and finished products. We closed our last domestic commercial office manufacturing facility and downsized our Riverside, CA, residential manufacturing facility to match current demand levels. Both of these adjustments reduced fixed overhead and will help us maintain margins in fiscal year 2012 and beyond. Adjusted operating income in fiscal year 2011 was $17.8 million excluding the costs associated with the commercial office facility closing and the related inventory write down. This compares to fiscal year 2010 operating income of $17.5 million. Net income for fiscal year 2011 was $10.4 million compared to record net income of $10.8 million in fiscal year 2010. We have continued to strengthen our balance sheet over the last two fiscal years. We ended fiscal year 2011 with working capital of $100 million. This includes cash on hand of $18 million. We have no bank borrowings and shareholder equity is $129 million or $19.16 per share. During the year, the Board of Directors approved dividend payments of $0.30 per share, an increase of 50% from prior year dividend payments of $0.20 per share. We would like to thank our shareholders, Board of Directors, our associates and our customers and suppliers for their support. Best regards, Ronald J. Klosterman President and Chief Executive Officer L. Bruce Boylen Chairman of the Board Board members Boylen and Holloran retire Longtime Flexsteel Industries, Inc., board members Bruce Boylen and Tom Holloran, announced their retirement, effective December 2011. Bruce Boylen joined the board in 1994, bringing with him an extensive background in the recreational vehicle industry and manufacturing operations. His career with Fleetwood Enterprises, a recreational vehicle industry leader, involved every facet of development, manufacturing and management. Bruce served and led committees on the Flexsteel board and was named Chairman of the Board in 2000. Tom Holloran has provided extraordinary leadership since 1971. His qualities of integrity, honesty, enthusiasm and leadership have been the basis for his significant contributions. Flexsteel has been fortunate to have someone with his skills, including his abilities in effective corporate governance, on our Board for nearly 40 years. “We will miss the guidance and counsel of Bruce and Tom. Flexsteel insights, contributions, and the consistent support that they have provided during their long tenures as Directors,” said Ronald J. Klosterman, Flexsteel’s President and CEO. is much stronger because of Thomas E. Holloran L. Bruce Boylen their Three new board members appointed During fiscal 2011, three new board members were selected. We look forward to their guidance and contributions. Thomas M. Levine is an independent management advisor based in Pittsburgh, Pennsylvania. Mr. Levine has more than thirty-five years of business management and legal experience. He has served on both public and private company boards and is currently serving on the boards of various private companies. Mr. Levine counsels businesses in a number of areas, including strategic planning, acquisitions, and other initiatives to improve shareholder value. Robert J. Maricich is the President and CEO of World Market Center Ventures LLC, Las Vegas, Nevada. Throughout the past thirty years, Mr. Maricich has developed a comprehensive understanding of the furniture industry. He has furniture expertise in engineering, manufacturing, product development and sourcing, sales and marketing. Mr. Maricich is a passionate leader for the furniture industry and has served and is currently serving on industry association boards. Nancy E. Uridil is the Senior Vice President of Moen Incorporated, North Olmsted, Ohio, responsible for global sourcing, manufacturing, worldwide distribution and logistics, engineering, and quality. Educated as an engineer, she expanded her business knowledge and expertise serving Procter & Gamble, Mary Kay, Inc., and Estee Lauder Companies in various leadership roles. Ms. Uridil offers a unique blend of business talents and has successfully demonstrated her ability to deliver top and bottom line results. Directors L. Bruce Boylen Chair of the Board of Directors Retired Vice President Fleetwood Enterprises, Inc. Ronald J. Klosterman President and Chief Executive Officer Director Jeffrey T. Bertsch Senior Vice President ~ Corporate Services Director Mary C. Bottie Director Retired Vice President Marketing and Operations Motorola, Inc. Patrick M. Crahan Senior Vice President ~ Commercial Seating Director Lynn J. Davis Director Retired President and Chief Operating Officer August Technology Robert E. Deignan Director Attorney at Law ~ Baker & McKenzie LLP Committees Audit and Ethics Committee Eric S. Rangen, Chair Lynn J. Davis Thomas E. Holloran Thomas M. Levine Thomas E. Holloran Director Professor Emeritus, College of Business Senior Distinguished Fellow ~ School of Law University of St. Thomas ~ St. Paul, Minnesota Thomas M. Levine Director Independent Management Advisor Robert J. Maricich Director Chief Executive Officer International Market Centers Eric S. Rangen Director Senior Vice President and Chief Accounting Officer United Health Group James R. Richardson Senior Vice President ~ Sales and Marketing Director Nancy E. Uridil Director Senior Vice President ~ Moen Incorporated Nominating and Compensation Committee Mary C. Bottie, Chair Robert E. Deignan Robert J. Maricich Nancy E. Uridil Officers Carrie T. Bertsch Bleile Vice President ~ Merchandising Thomas D. Burkart Senior Vice President Vehicle Seating Kevin F. Crahan Vice President Commercial Seating Sales Donald D. Dreher Senior Vice President President and Chief Executive Officer DMI Furniture Lee D. Fautsch Vice President ~ Residential Sales James E. Gilbertson Senior Vice President Vehicle Seating Timothy E. Hall Senior Vice President ~ Finance Chief Financial Officer Secretary Michael A. Santillo Vice President Vehicle Seating Marketing Trans fer Agent and Registrar Wells Fargo Shareowner Services P.O. Box 64854 • South St. Paul, Minnesota 55164-0854 General Counsels Gray, Plant, Mooty, Mooty & Bennett, P.A. • Minneapolis, Minnesota O’Connor and Thomas, P.C. • Dubuque, Iowa NASDAQ Global Market NASDAQ Symbol • FLXS Annual Meeting December 12, 2011, 2:00 p.m. • Hilton Minneapolis 1001 Marquette Avenue • Minneapolis, Minnesota 55403 Locations Flexsteel Industries, Inc. Dubuque, Iowa 52001 . . . . . . . . . J. E. Gilbertson, General Manager (executive offices) Dublin, Georgia 31040 . . . . . . . . M.C. Dixon, General Manager Lancaster, Pennsylvania 17604. . D. Kobie, Manager Riverside, California 92504. . . . . D.J. Bashor, General Manager Harrison, Arkansas 72601. . . . . . M.J. Feldman, General Manager Starkville, Mississippi 39760. . . . R. C. Adams, General Manager DMI Furniture, Inc Louisville, Kentucky 40223 . . . . . D.D. Dreher, President & CEO Huntingburg, Indiana 47542 . . . R. Rosbottom, VP Distribution Permanent Showrooms High Point, North Carolina • Las Vegas, Nevada Internet www.flexsteel.com • www.flexsteel.com/home-furniture www.flexsteelhospitality.com • www.flexsteel.com/vehicle-seating www.dmifurniture.com • www.dmiofficefurniture.com www.wynwoodfurniture.com • www.homestyles-furniture.com AFFIRMATIVE ACTION POLICY It is the policy of Flexsteel Industries, Inc. that all employees and potential employees shall be judged on the basis of qualifications and ability, without regard to age, sex, race, creed, color or national origin in all personnel actions. No employee or applicant for employment shall receive discriminatory treatment because of physical or mental disability in regard to any position for which the employee or applicant for employment is qualified. Employment opportunities, and job advancement opportunities will be provided for qualified disabled veterans and veterans of the Vietnam era. This policy is consistent with the Company’s plan for “Affirmative Action” in implementing the intent and provisions of the various laws relating to employment and non-discrimination. ANNUAL REPORT ON FORM 10-K AVAILABLE A copy of the Company’s annual report on Form 10-K, as filed with the Securities and Exchange Commission, can be obtained without charge by writing to: Office of the Secretary • Flexsteel Industries, Inc. P. O. Box 877 • Dubuque, Iowa 52004-0877 © 2011 Flexsteel Industries, Inc. PO Box 877 • Dubuque, IA 52004-0877 PRST STD U.S. Postage Paid Permit #477 Dubuque, IA Fine Furniture Since 1893 

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