Flexsteel Industries, Inc.
ANNUAL REPORT
Fiscal Year ending June 30, 2012
Financial Highlights
For the Years Ended June 30,
(Amounts in thousands, except per share data)
2010
2011
2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 352,089. . . . . . . . . . . . $ 339,426. . . . . . . . . . . . $ 326,466
Operating income (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,246 . . . . . . . . . . . . . . 15,864 . . . . . . . . . . . . . . 17,529
Income before income taxes (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,668 . . . . . . . . . . . . . . 16,207 . . . . . . . . . . . . . . 17,451
Net income (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,068 . . . . . . . . . . . . . . 10,417 . . . . . . . . . . . . . . 10,801
Weighted Average Common Shares Outstanding - Diluted . . . . . . . . . . . . 7,008 . . . . . . . . . . . . . . . 6,929 . . . . . . . . . . . . . . . 6,697
Earnings per share of Common Stock - Diluted (1) . . . . . . . . . . . . . . . . . . . $ 1.86 . . . . . . . . . . . . . . . $ 1.50 . . . . . . . . . . . . . . . $ 1.61
Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.45 . . . . . . . . . . . . . . . $ 0.30 . . . . . . . . . . . . . . . $ 0.20
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.19 . . . . . . . . . . . . . . . 19.16 . . . . . . . . . . . . . . . 17.70
At June 30,
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,743 . . . . . . . . . . . $ 100,683 . . . . . . . . . . . . $ 90,800
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,672 . . . . . . . . . . . . . 164,677 . . . . . . . . . . . . . 157,670
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,230 . . . . . . . . . . . . . . 36,104 . . . . . . . . . . . . . . 40,058
Shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,442 . . . . . . . . . . . . . 128,573 . . . . . . . . . . . . . 117,612
(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.
Chair of the Board of Directors:
Lynn J. Davis
At the December 12,
2011 Board of Directors
meeting of Flexsteel
Industries, Inc., Lynn J.
Davis, a member of the
Board of Directors since
1999, was elected Chair
of
of
the Board
Directors. He replaces
retiring Chair L. Bruce
Boylen, who was named
Chair of the Board of
Directors in 2000. Mr. Davis serves on the Audit and
Ethics Committee and has served on the Nominating
and Compensation Committee.
Mr. Davis was President and Chief Operation Officer
of ADC Telecommunications, a leading manufacturer
of hardware, soware, and services to broadband
communication providers worldwide, retiring in
2001. He was a founding partner of Tate Capital
Partners in Minneapolis, a private equity firm. Mr.
Davis most recently served as President & C.O.O. for
August Technology, a leading supplier of inspection
equipment to the semiconductor fabrication industry.
Welcome: Karel Czanderna
President & Chief Executive Officer
Following a nationwide search, we were
pleased to announce that Karel Czanderna
was named Flexsteel’s President and Chief
Executive Officer. Ms. Czanderna, an
established leader in the durable goods
industry, is a veteran of Owens Corning and
Whirlpool Corporation. As Flexsteel’s
seventh corporate president since the
in 1893, Ms.
company was founded
Czanderna is committed to maintaining
Flexsteel’s respected corporate culture and
further strengthening the Flexsteel brand.
Ms. Czanderna, who holds a PhD in Materials Science and Engineering
from Cornell University and completed an executive education program
at Harvard Business School, served most recently as Group President of
Building Materials for Owens Corning. In that role, she was responsible
for a $3.3 billion global business that comprised two-thirds of the Fortune
500 company’s revenue. Prior to Owens Corning, she held multiple
executive positions at Whirlpool Corporation, including Vice President
and General Manager of global KitchenAid and Jenn-Air appliance
businesses. In that role, she held responsibility for a $1.8 billion business.
Ms. Czanderna earned a BS degree at Clarkson University and a Master’s
degree from Cornell University. We welcome this accomplished, visionary
executive to Flexsteel Industries, Inc.
To Our Shareholders:
During our last fiscal year the global economy and consumer
confidence were less than robust, continuing to have an adverse
impact on the furniture markets we serve. Our net income
increased 26% to a record $13 million, or $1.86 per share in fiscal
year 2012. Residential net sales increased 7% to $275 million,
and our Commercial net sales decreased 6% to $77 million for
total increase of 4% to $352 million in fiscal year 2012. Our
balance sheet remains strong and free of bank debt.
Flexsteel’s operating results and financial position enabled us to
increase our dividend yet again. We have paid cash dividends
for 282 consecutive quarters. Our current quarterly cash
dividend of $0.15 per share is the highest on record since
Flexsteel became a public company in 1969.
As we assume our leadership roles for Flexsteel, we are resolute
in preserving the heritage, strong financial foundation, and
culture of this successful company. Since 1893, Flexsteel has built
a reputation for unwavering commitment to product and service
excellence. We look forward to pairing our experience and
expertise with Flexsteel’s strengths, to expand your Company’s
market presence, profitable growth and shareholder value.
New Address: Port of Dubuque
385 Bell Street, Dubuque IA
Flexsteel’s new corporate headquarters, many years in planning, is now
housing more than 100 employees in Dubuque, Iowa, near the Mississippi
River. The four-story building is more functional, comfortable and
convenient for staff, customers, and visitors, and is designed to be energy
efficient and cost effective. Continuing Flexsteel’s commitment to
environmental stewardship, set forth by our Board of Directors and pledged
by the officers of Flexsteel Industries, Inc., the new building makes use of
state-of-the-art
many
components and systems
that conserve energy and
reduce waste. Windows
for
the building,
in
example,
energy
efficient and maximize
natural light to reduce
the need for daytime
electric lighting, yet not
that
so much
heating
cooling
and
needs will increase. Drip
is used for
irrigation
landscaping instead of
water-wasting pop-up sprinklers. Light fixtures feature low-energy LEDs
whenever possible and electronic LED TV bulletin boards have been
installed on each floor to display information to eliminate paper use. At
Flexsteel, we are dedicated to environmental stewardship.
light
are
Environmental Stewardship
The Company remains dedicated to its core strategies, which
include offering a wide range of quality products and price points
to the residential and commercial markets. Combined with a
conservative approach to business, we believe this approach is in
the best interest of our shareholders.
Finally, Flexsteel is committed to creating shareholder value and
are honored that our shareholders have entrusted us with their
investment in our company. We thank our shareholders, Board
of Directors, employees, and loyal customers for their stalwart
support. We are solid and steady, ready and poised to write the
next chapter in Flexsteel’s history.
Karel K. Czanderna
President and
Chief Executive Officer
Lynn J. Davis
Chair of the Board of Directors
ank you: Ron Klosterman
A Flexsteel Career Done Well
Since October 1972,
Ron Klosterman has
been part of the
Flexsteel story. He
began his career as a
staff accountant and
moved through the
ranks over the next
34 years to be named
president and chief
executive officer in
2006. Although Mr. Klosterman retired as
President and Chief Executive Office on June
30th, 2012, he remains on the Board of Directors
and will continue to shape the future of the
company with his experience, wisdom and
considerable financial acumen. We appreciate
Mr. Klosterman’s leadership and dedication for
all of his nearly 40 years with the company, but
especially
for decisively and successfully
presiding during the past six years that featured
global changes, economic challenges and the
planning and construction of Flexsteel’s new
Global Headquarters in Dubuque, Iowa.
Fine Furniture Since 1893
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.
residential
commercial
Acute Healthcare
treatment recliner
Above: Custom upholstery, That’s My Style
by Flexsteel sectional with Seville table group
Right: Crosstown power recliner
ModAllure custom chairs
Space-saving queen sleepers
Motor home seating
GEM® (Global
Electric Motors)
specialty seating
Premier
pontoon seating
with storage
Monarch kitchen island
Biscayne outdoor dining set
Above: Alicante mansion bedroom group
Right: Woodlands home office furniture
Above: Keswick
executive collection
Right: Pimlico group — this group is
featured at Flexsteel Global Headquarters
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2012
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)
Minnesota 42-0442319
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
385 Bell Street, Dubuque, Iowa
(Address of principal executive offices)
52001
(Zip Code)
Registrant’s telephone number, including area code:
(563) 556-7730
_______________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1.00 Par Value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
_______________________________________________
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No []
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No []
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 Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. []
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 definitions
of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one).
Large accelerated filer
Smaller reporting company
Non-accelerated filer
Accelerated filer
X
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [ ]
The aggregate market value of the voting stock held by non-affiliates, computed by reference to the last sales price on December 31, 2011 (which was the last
business day of the registrant’s most recently completed second quarter) was $58,373,120.
Indicate the number of shares outstanding of each of the registrant’s classes of Common Stock, as of the latest practicable date. 6,921,284 Common Shares ($1 par
value) as of August 17, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
In Part III, portions of the registrant’s 2012 Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year
end.
1
PART I
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 Annual Report on Form 10-K, 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, including expenses relating to the Indiana
civil 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 this 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.
Item 1.
Business
General
Flexsteel Industries, Inc. and Subsidiaries (the “Company”) was incorporated in 1929 and is one of the oldest and largest
manufacturers, importers and marketers of residential and commercial upholstered and wooden furniture products in the United States.
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, hotel and other commercial 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. The Company’s products are also sold to several national and regional chains, some of which sell on a private label
basis. No single customer accounted for more than 10% of net sales.
The Company has one active wholly-owned subsidiary: DMI Furniture, Inc. (“DMI”), which is a Louisville, Kentucky-based,
importer and marketer of residential and commercial office furniture with warehouses in Indiana and manufacturing sources in Asia;
DMI’s divisions are WYNWOOD, Homestyles and DMI Commercial Office Furniture.
The Company operates in one reportable segment, furniture products. Our furniture products business involves the
distribution of manufactured and imported products consisting of a broad line of upholstered and wooden furniture for residential and
commercial markets. Set forth below is information for the past three fiscal years showing the Company’s net sales attributable to
each of the areas of application:
(in thousands)
Residential ..................................... $
Commercial ...................................
$
FOR THE YEARS ENDED JUNE 30,
2011
258,095
81,331
339,426
2012
275,442
76,647
352,089
2010
246,041
80,425
326,466
$
$
$
$
2
Manufacturing and Offshore Sourcing
We integrate our manufactured products with finished products acquired from offshore suppliers who can meet our quality
specification and scheduling requirements. We will continue to pursue and refine this blended strategy, offering customers
manufactured goods, products manufactured utilizing imported component parts, and ready-to-deliver imported products. The
Company believes that it best serves customers by offering products from each of these categories to assist customers in reaching
specific consumers with varied price points, styles and product categories. This blended focus on products allows the Company to
provide a wide range of options to satisfy customer requirements.
We operate manufacturing facilities that are located in Arkansas, California, Georgia, Iowa, Mississippi and Juarez, Mexico.
These manufacturing operations are integral to our product offerings and distribution strategy by offering smaller and more frequent
product runs of a wider product selection. We identify and eliminate manufacturing inefficiencies and adjust manufacturing schedules
on a daily basis to meet customer requirements. We have established relationships with key suppliers to ensure prompt delivery of
quality component parts. Our production includes the use of selected offshore component parts to enhance our product quality and
value in the marketplace.
Competition
The furniture industry is highly competitive and includes a large number of U.S. and foreign manufacturers and distributors,
none of which dominates the market. The markets in which we compete include a large number of relatively small manufacturers;
however, certain competitors have substantially greater sales volumes than we have. Our products compete based on style, quality,
price, delivery, service and durability. We believe that our manufacturing capabilities, facility locations, commitment to customers,
product quality and value and experienced production, marketing and management teams, aided by offshore sourced components and
finished product, are our competitive advantages.
Seasonality
The Company’s business is not considered seasonal.
Foreign Operations
The Company makes minimal export sales. At June 30, 2012, the Company had approximately 90 employees located in Asia
to inspect and coordinate the delivery of purchased products.
Customer Backlog
The approximate backlog of customer orders believed to be firm as of the end of the current fiscal year and the prior two
fiscal years were as follows (in thousands):
June 30, 2012
$ 38,700
June 30, 2011
$ 35,700
June 30, 2010
$ 49,000
Raw Materials
The Company utilizes various types of wood, fabrics, leathers, upholstered filling material, high carbon spring steel, bar and
wire stock, polyurethane and other raw materials in manufacturing furniture. While the Company purchases these materials from
numerous outside suppliers, both U.S. and foreign, it is not dependent upon any single source of supply. The costs of certain raw
materials fluctuate, but all continue to be readily available.
Working Capital Practices
For a discussion of the Company’s working capital practices, see “Liquidity and Capital Resources” in Item 7 of this Annual
Report on Form 10-K.
Industry Factors
The Company has exposure to actions by governments, including tariffs, see “Risk Factors” in Item 1A of this Annual Report
on Form 10-K.
Government Regulations
The Company is subject to various local, state, and federal laws, regulations and agencies that affect businesses generally, see
“Risk Factors” in Item 1A of this Annual Report on Form 10-K.
3
Environmental Matters
The Company is subject to environmental laws and regulations with respect to product content and industrial waste, see
“Risk Factors” in Item 1A and “Legal Proceedings” in Item 3 of this Annual Report on Form 10-K.
Trademarks and Patents
The Company owns the American and Canadian improvement patents to its Flexsteel seat spring, as well as patents on
convertible beds. The Company has patents and owns certain trademarks in connection with its furniture products, which are due to
expire on dates ranging from 2013 to 2025. The Company does not consider its trademarks and patents material to its business.
It is not common in the furniture industry to obtain a patent for a furniture design. If a particular design of a furniture
manufacturer is well accepted in the marketplace, it is common for other manufacturers to imitate the same design without recourse by
the furniture manufacturer who initially introduced the design. Furniture products are designed by the Company’s own design staff
and through the services of independent designers. New models and designs of furniture, as well as new fabrics, are introduced
continuously. In the last three fiscal years, these design activities involved the following expenditures (in thousands):
Fiscal Year Ended June 30,
2012
2011
2010
Expenditures
$2,310
$2,190
$2,040
Employees
The Company had 1,300 employees as of June 30, 2012, including 250 employees that are covered by collective bargaining
agreements. Management believes it has good relations with employees.
Website and Available Information
Our website is located at www.flexsteel.com. Information on the website does not constitute part of this Annual Report on
Form 10-K.
A copy of the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (“SEC”),
other SEC reports filed or furnished and our Guidelines for Business Conduct are available, without charge, on the Company’s website
at www.flexsteel.com or by writing to the Office of the Secretary, Flexsteel Industries, Inc., P. O. Box 877, Dubuque, IA 52004-0877.
Effective June 30, 2012, Ronald J. Klosterman retired as President and CEO of Flexsteel. Mr. Klosterman, had been with
Flexsteel for nearly 40 years, and had been President and CEO since 2006. Effective July 1, 2012, Karel K. Czanderna became the
Company’s President and Chief Executive Officer.
The executive officers of the Company, their ages, positions (in each case as of August 14, 2012), and the year they were first
elected or appointed an officer of the registrant, are as follows:
Name (age)
Karel K. Czanderna (56)
James R. Richardson (68)
Thomas D. Burkart (69)
Patrick M. Crahan (64)
Jeffrey T. Bertsch (57)
Donald D. Dreher (62)
James E. Gilbertson (63)
Timothy E. Hall (54)
Item 1A. Risk Factors
Position (date first became officer)
President & Chief Executive Officer (2012)
Senior Vice President of Residential Sales and Marketing (1979)
Senior Vice President of Vehicle Seating (1984)
Senior Vice President of Commercial Seating (1989)
Senior Vice President of Corporate Services (1989)
Senior Vice President (2004), President & CEO of DMI Furniture, Inc. (1986)
Senior Vice President of Vehicle Seating (1989)
Senior Vice President-Finance, Chief Financial Officer, Secretary & Treasurer (2000)
Our business is subject to a variety of risks. You should carefully consider the risk factors detailed below in conjunction with
the other information contained in this Annual Report on Form 10-K. Should any of these risks actually materialize, our business,
financial condition, and future prospects could be negatively impacted. These risks are not the only ones we face. There may be
additional factors that are presently unknown to us or that we currently believe to be immaterial that could affect our business.
Our products are considered highly deferrable purchases for consumers during economic downturns. Prolonged
negative economic conditions could impact our business.
Home furnishings and commercial products are generally considered a deferrable purchase by most consumers and end-users.
Economic downturns and prolonged negative economic conditions could affect consumer spending habits by decreasing the overall
4
demand for home furnishings and commercial products. These events could impact retailers, hospitality, recreational vehicle seating
and healthcare businesses resulting in an impact on our business. A recovery in our sales could lag significantly behind a general
economic recovery due to the deferrable nature and relatively significant cost of home furnishings and commercial products
purchases.
Our future success depends on our ability to manage our global supply chain.
We acquire raw materials, component parts and certain finished products from external suppliers, both U.S. and foreign.
Many of these suppliers are dependent upon other suppliers in countries other than where they are located. This global
interdependence within our supply chain is subject to delays in delivery, availability, quality and pricing (including tariffs) of
products. The delivery of goods from these suppliers may be delayed by customs, labor issues, changes in political, economic and
social conditions, laws and regulations. Unfavorable fluctuations in price, quality, delivery and availability of these products could
negatively affect our ability to meet demands of our customers and have a negative impact on product margin.
Competition from U.S. and foreign finished product manufacturers may adversely affect our business, operating
results or financial condition.
The furniture industry is very competitive and fragmented. We compete with U.S. and foreign manufacturers and
distributors. As a result, we may not be able to maintain or raise the prices of our products in response to competitive pressures or
increasing costs. Also, due to the large number of competitors and their wide range of product offerings, we may not be able to
significantly differentiate our products (through styling, finish and other construction techniques) from those of our competitors. Our
current and potential customers have the ability to obtain products direct from the manufacturers. As a result, we are continually
subject to the risk of losing market share, which may lower our sales and earnings.
Business failures of large dealers or a group of customers could impact our future sales and earnings.
Our business practice has been to extend payment terms to our customers. As a result, we have a large amount of trade
receivables. Although we have no customers that individually represent 10% or more of our annual net sales, business failures of a
large customer or a group of customers could require us to record additional receivable reserves, which would decrease earnings.
Receivables collection can be significantly impacted by economic conditions. Deterioration of the economy or a lack of economic
recovery could cause further business failures of our customers, which could in turn require additional receivable reserves and lower
our earnings.
Our failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner could adversely
affect our business and decrease our sales and earnings.
Furniture is a styled product and is subject to rapidly changing consumer and end-user trends and tastes and is highly fashion
oriented, and if we are not able to acquire sufficient fabric variety, or if we are unable to predict or respond to changes in fashion
trends, we may lose sales and have to sell excess inventory at reduced prices.
Our success depends on our ability to recruit and retain key employees.
Our success depends on our ability to recruit and retain key employees. If we are not successful in recruiting and retaining
key employees or experience the unexpected loss of key employees, our operations may be negatively impacted.
Future costs of complying with various laws and regulations may adversely impact future operating results.
Our business is subject to various laws and regulations which could have a significant impact on our operations and the cost
to comply with such laws and regulations could adversely impact our financial position, results of operations and cash flows. In
addition, failure to comply with such laws and regulations, even inadvertently, could produce negative consequences which could
adversely impact our operations.
Terms of collective bargaining agreements and labor disruptions could adversely impact our results of operations.
We employ approximately 1,300 people, 250 of whom are covered by collective bargaining agreements. Terms of collective
bargaining agreements that prevent us from competing effectively could adversely affect our financial condition, results of operations
and cash flows. We are committed to working with those groups to resolve conflicts as they arise. However, there can be no
assurance that these efforts will be successful.
Due to our participation in multi-employer pension plans, we may have exposures under those plans that could extend
beyond what our obligations would be with respect to our employees.
5
We participate in, and make periodic contributions to, three multi-employer pension plans that cover 200 of our union
employees. Multi-employer pension plans are managed by trustee boards comprised of participating employer and labor union
representatives, and the employers participating in a multi-employer pension plan are jointly responsible for maintaining the plan’s
funding requirements. Based on the most recent information available to us, we believe that the present value of actuarially accrued
liabilities in the multi-employer pension plans substantially exceeds the value of the assets held in trust to pay benefits. As a result of
our participation, we could experience greater volatility in our overall pension funding obligations. Our obligations may be impacted
by the funded status of the plans, the plans’ investment performance, changes in the participant demographics, financial stability of
contributing employers and changes in actuarial assumptions.
Our future results may be affected by various legal proceedings and compliance risk, including those involving
product liability, environmental, or other matters.
We face the business risk of exposure to product liability claims in the event that the use of any of our products results in
personal injury or property damage. In the event any of our products prove to be defective, we may be required to recall or redesign
such products. We are also subject to various laws and regulations relating to environmental protection and the discharge of materials
into the environment. We could incur substantial costs, including legal expenses, as a result of the noncompliance with, or liability for
cleanup or other costs or damages under, environmental laws. See Note 11, “Litigation” within the Notes to Consolidated Financial
Statements for a description of an existing environmental claim against the Company. Additionally, the Company is involved in
various other kinds of commercial disputes. Given the inherent uncertainty of litigation, these various legal proceedings and
compliance matters could have a material impact on our business, operating results or financial condition.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The Company owns the following facilities as of June 30, 2012:
Location
Dubuque, Iowa
Dubuque, Iowa
Lancaster, Pennsylvania
Riverside, California
Riverside, California
Dublin, Georgia
Harrison, Arkansas
Starkville, Mississippi
New Paris, Indiana
Huntingburg, Indiana
Approximate
Size (square feet)
719,000
40,000
216,000
236,000
69,000
300,000
221,000
349,000
168,000
691,000
Principal Operations
Manufacturing and Distribution
Corporate Office (under construction)
Distribution
Manufacturing and Distribution
Distribution
Manufacturing
Manufacturing
Manufacturing
Held for sale
Distribution
The Company leases the following facilities as of June 30, 2012:
Location
Louisville, Kentucky
Ferdinand, Indiana
Juarez, Mexico
Approximate
Size (square feet)
Principal Operations
15,000
101,000
225,000
Administrative Offices
Distribution
Manufacturing
The Company’s operating plants are well suited for their manufacturing purposes and have been updated and expanded from
time to time as conditions warrant. Management believes there is adequate production and distribution capacity at the Company’s
facilities to meet present market demands.
The Company leases showrooms for displaying its products in the furniture markets in High Point, North Carolina and Las
Vegas, Nevada.
6
Item 3.
Legal Proceedings
Indiana Civil Litigation. The Company has been named as one of several defendants in a 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. 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 June 30, 2012 financial statements. Legal
and other related expenses of $2.4 million and $0.5 million have been incurred responding to this lawsuit for the fiscal years 2012 and
2011, respectively, and are included in Selling, General and Administrative expense in the Consolidated Statements of Income.
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.
Item 4. Mine Safety Disclosures
None.
7
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Share Investment Performance
The following graph is based upon the SIC Code #251 Household Furniture Index as a peer group. It shows changes over the
past five-year period in the value of $100 invested in: (1) Flexsteel’s common stock; (2) The NASDAQ Global Market; and (3) an
industry peer group of the following: Bassett Furniture Ind., Chromcraft Revington Inc., Ethan Allen Interiors, Furniture Brands Intl.,
Hooker Furniture Corp., Kimball International, La-Z-Boy Inc., Natuzzi S.P.A., and Stanley Furniture Inc.
Five-Year Cumulative Total Returns
Value of $100 Invested on June 30, 2007
180
160
140
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
2012
Flexsteel
NASDAQ
Peer Group
Flexsteel
Peer Group
NASDAQ
2007
100.00
100.00
100.00
2008
80.85
71.96
76.08
2009
63.17
35.89
57.88
2010
84.51
45.40
65.14
2011
114.51
56.01
85.82
2012
159.16
56.10
83.18
The NASDAQ Global Market is the principal market on which the Company’s common stock is traded.
Sale Price of Common Stock *
Fiscal 2012
Fiscal 2011
Cash Dividends
Per Share
$
First Quarter ........
Second Quarter ....
Third Quarter .......
Fourth Quarter .....
* Reflects the market price as reported on The NASDAQ Global Market.
15.84 $
18.75
19.69
16.60
$
Low
13.04 $
13.26
13.82
18.28
High
15.91
15.00
18.39
22.00
High
Low
10.08
14.22
14.11
13.80
$
Fiscal 2012
0.10
0.10
0.10
0.15
$
Fiscal 2011
0.075
0.075
0.075
0.075
The Company estimates there were approximately 1,600 holders of common stock of the Company as of June 30, 2012.
There were no repurchases of the Company’s common stock during the quarter ended June 30, 2012.
The payment of future cash dividends is within the discretion of our Board of Directors and will depend, among other factors, on our
earnings, capital requirements and operating and financial condition.
8
Item 6. Selected Financial Data
The selected financial data presented below should be read in conjunction with the Company’s consolidated financial
statements and notes thereto included in Item 8 of this Annual Report on Form 10-K and with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K. The selected
consolidated statements of income data of the Company is derived from the Company’s consolidated financial statements.
Five-Year Review
(Amounts in thousands, except certain ratios
and per share data)
SUMMARY OF OPERATIONS
Net sales ..........................................................
Cost of goods sold ...........................................
Operating income (loss) ..................................
Interest and other income ................................
Interest expense ...............................................
Income (loss) before income taxes ..................
Income tax provision (benefit) ......................
Net income (loss) (1) (2) ................................
Earnings (loss) per common share:
(1) (2)
Basic ............................................................
Diluted .........................................................
Cash dividends declared per
common share ..............................................
SELECTED DATA AS OF JUNE 30
Average common shares outstanding:
Basic ............................................................
Diluted .........................................................
Total assets ......................................................
Property, plant and equipment, net .................
Capital expenditures........................................
Long-term debt ...............................................
Working capital (current assets less
current liabilities) .........................................
Shareholders’ equity .......................................
SELECTED RATIOS
Net income (loss), as a percent of sales ..........
Current ratio ....................................................
Return on ending shareholders’ equity ...........
Average number of employees .......................
2012
2011
2010
2009
2008
$
$
$
352,089 $
266,810
20,246
422
–
20,668
7,600
13,068
339,426
262,124
15,864
343
–
16,207
5,790
10,417
326,466
251,685
17,529
361
439
17,451
6,650
10,801
324,158
263,083
(2,272)
661
968
(2,579)
(1,070)
(1,509)
$
1.93
1.86
1.56
1.50
1.63
1.61
(0.23)
(0.23)
$
0.45
$
0.30
$
0.20
$
0.36
$
405,655
327,165
7,596
469
1,469
6,596
2,360
4,236
0.64
0.64
0.52
$
6,781
7,008
181,672 $
29,867
10,939
–
6,693
6,929
164,677 $
21,387
2,573
–
6,608
6,697
157,670
21,614
1,251
–
$
6,576
6,576
150,971
23,298
1,203
–
$
6,574
6,611
179,906
26,372
1,228
20,811
103,744
139,442 $
100,683
128,573 $
90,800
117,612
$
78,416
106,998
$
100,920
112,752
$
3.7
4.3 to 1
9.4
1,300
3.1
4.6 to 1
8.1
1,320
3.3
3.9 to 1
9.2
1,400
(0.5)
3.2 to 1
(1.4)
1,600
1.0
3.5 to 1
3.8
2,140
(1) Fiscal 2011 net 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 net loss and per share amounts reflect facility consolidation and other costs (after tax) of $1.5 million or $0.23 per
share.
9
Item 7. 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 Annual Report on Form 10-K.
Critical Accounting Policies
The discussion and analysis of the Company’s consolidated financial statements and results of operations are based on
consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of
America. Preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported
results. The Company uses estimates based on the best information available in recording transactions and balances resulting from
business operations. Estimates are used for such items as collectability of trade accounts receivable and inventory valuation. Ultimate
results may differ from these estimates under different assumptions or conditions.
Allowance for doubtful accounts – the Company establishes an allowance for doubtful accounts through review of open
accounts, and historical collection and allowances amounts. The allowance for doubtful accounts is intended to reduce trade accounts
receivable to the amount that reasonably approximates their net realizable value. The amount ultimately realized from trade accounts
receivable may differ from the amount estimated in the consolidated financial statements based on collection experience.
Inventories – the Company values inventory at the lower of cost or net realizable value. Management assesses the inventory
on hand and if necessary writes down the obsolete or excess inventory to net realizable value.
Revenue recognition – is upon delivery of product to our customer and when collectibility is reasonably assured. Delivery of
product to our customer is evidenced through the shipping terms indicating when title and risk of loss is transferred. Our ordering
process creates persuasive evidence of the sale arrangement and the sales amount is determined. The delivery of the goods to our
customer completes the earnings process. Net sales consist of product sales and related delivery charge revenue, net of adjustments
for returns and allowances. Shipping and handling costs are included in cost of goods sold.
Recently Issued Accounting Pronouncements
See Item 8. Note 1 to the Company’s Consolidated Financial Statements.
Results of Operations
The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis
for the fiscal years ended June 30, 2012, 2011 and 2010. Amounts presented are percentages of the Company’s net sales.
Net sales ...............................................................
Cost of goods sold ................................................
Gross margin ........................................................
Selling, general and administrative .......................
Facility consolidation and other charges ..............
Operating income ................................................
Other income, net .................................................
Income before income taxes .................................
Income tax provision ...........................................
Net income ..........................................................
FOR THE YEARS ENDED JUNE 30,
2011
100.0%
(77.2)
22.8
(17.8)
(0.3)
4.7
0.1
4.8
(1.7)
3.1%
2012
100.0%
(75.8)
24.2
(18.4)
–
5.8
0.1
5.9
(2.2)
3.7%
2010
100.0%
(77.2)
22.8
(17.5)
–
5.3
0.0
5.3
(2.0)
3.3%
10
Fiscal 2012 Compared to Fiscal 2011
Net sales for fiscal 2012 were $352.1 million compared to $339.4 million in the prior fiscal year, an increase of 3.7%. For
the fiscal year ended June 30, 2012, residential net sales were $275.4 million compared to $258.1 million for the year ended June 30,
2011, an increase of 6.7%. Commercial net sales were $76.7 million for the year ended June 30, 2012, a decrease of 5.8% from net
sales of $81.3 million for the year ended June 30, 2011.
Gross margin for the year ended June 30, 2012 was 24.2% compared to 22.8% for the prior year primarily due to better
absorption of fixed costs on the higher sales volume and lower freight costs. The prior year included a $0.6 million inventory write-
down related to a facility closing.
Selling, general and administrative expenses for the fiscal year ended June 30, 2012 were $65.0 million or 18.4% of net sales
compared to $60.4 million or 17.8% of net sales in the year ended June 30, 2011. The current year includes an increase in legal and
professional fees of $2.1 million, or 0.6% of sales, primarily related to an Indiana civil lawsuit and a $1.0 million decrease in bad debt
expense, compared to the prior year.
Operating income increased by $4.4 million in fiscal year 2012 in comparison to the prior year. During fiscal year 2011, the
Company recorded pre-tax charges of $1.6 million related to closing a manufacturing facility. Of these pre-tax charges, employee
separation and other closing costs of $1.0 million are reported as facility closing costs and an inventory write-down of $0.6 million is
reported as cost of goods sold.
The effective tax rate for the fiscal year ended June 30, 2012 was 36.8% compared to 35.7% for fiscal year 2011. The change
in effective tax rate is primarily due to the benefit of the Domestic Manufacturing Deduction under Internal Revenue Code Section
199 (DMD), which provides a tax benefit on U.S. based manufacturing, the change in provision for uncertain tax positions related to
various state taxing jurisdictions and stock-based compensation.
The above factors resulted in net income for the fiscal year ended June 30, 2012 of $13.1 million or $1.86 per share
compared to $10.4 million or $1.50 per share in fiscal 2011.
All earnings per share amounts are on a diluted basis.
Fiscal 2011 Compared to Fiscal 2010
Net sales for fiscal 2011 were $339.4 million compared to $326.5 million in the prior fiscal year, an increase of 4.5%.
Residential net sales were $258.1 million compared to $246.0 million in fiscal 2010, an increase of 4.9%. Commercial net sales were
$81.3 million for fiscal 2011, a increase of 1.1% from net sales of $80.5 million for fiscal 2010.
The Company’s operating income decreased by $1.7 million in fiscal year 2011 in comparison to the prior year. During
fiscal year 2011, the Company recorded pre-tax charges of $1.6 million related to closing a manufacturing facility. Of these pre-tax
charges, employee separation and other closing costs of $1.0 million are reported as facility closing costs and an inventory write down
of $0.6 million is reported as cost of goods sold.
Gross margin for fiscal year 2011 and 2010 was 22.8%. The gross margin for the year ended June 30, 2011, includes the $0.6
million inventory write-down related to facility closing offset by operational improvements.
For the fiscal years ended 2011 and 2010, selling, general and administrative expenses were 17.8% and 17.5% of net sales,
respectively. The percentage increase for the year ended June 30, 2011 reflects higher legal and professional fees.
The effective tax rate for the fiscal year ended June 30, 2011 was 35.7% compared to 38.1% for fiscal year 2010. The change
in the effective tax rate is primarily due to the change in provision for uncertain tax positions related to various state taxing
jurisdictions, stock-based compensation and the benefit of the DMD. The DMD tax benefit available in previous years was being
phased in by statute and was therefore lower than the full DMD tax benefit for 2011.
The above factors resulted in net income for the fiscal year ended June 30, 2011 of $10.4 million or $1.50 per share
compared to $10.8 million or $1.61 per share in fiscal 2010.
All earnings per share amounts are on a diluted basis.
11
Liquidity and Capital Resources
Working capital (current assets less current liabilities) at June 30, 2012 was $103.7 million as compared to $100.7 million at
June 30, 2011. Significant changes in working capital from June 30, 2011 to June 30, 2012 included increased inventories of $9.0
million and increased accounts receivable of $2.2 million, offset by a decrease in cash of $3.9 million and increased current liabilities
of $4.4 million. The higher inventory levels are to support the increases in residential sales volume, expanded product offerings and
also reflect the timing of inventory receipts, especially imported finished products and components which require longer lead times.
The increase in accounts receivable resulted from the higher shipments in the fourth fiscal quarter.
The Company’s main source of liquidity is cash and cash flows from operations. As of June 30, 2012 and 2011, the
Company had cash totaling $14.0 million and $17.9 million, respectively. The Company has borrowing availability under a credit
agreement of up to $12.5 million.
Cash decreased by $3.9 million during fiscal year 2012 with net cash provided by operating activities of $9.0 million offset
by capital expenditures of $10.9 million, including $8.8 million related to construction of our corporate office building, and payment
of dividends of $2.5 million. Net cash provided by operating activities of $13.8 million in fiscal year 2011 was comprised primarily of
net income of $10.4 million, changes in operating assets and liabilities of $1.3 million and non-cash charges of $4.7 million.
Depreciation expense was $2.8 million and $2.7 million for the years ended June 30, 2012 and 2011, respectively.
Net cash used in investing activities was $11.3 million in fiscal year 2012 compared to cash used in investing activities of
$2.7 million in fiscal year 2011. Net purchases of investments were $0.4 million. Capital expenditures were $10.9 million during fiscal
year 2012.
Net cash used in financing activities was $1.6 million in fiscal year 2012, primarily for the payment of dividends of $2.5
million, compared to $1.5 million in fiscal year 2011. For fiscal year 2011, the cash was used primarily for the payment of dividends
of $1.8 million.
The Company expects that capital expenditures will decrease to approximately $6.0 million in fiscal year 2013, including
$2.6 million for the completion of the corporate office building. Management believes that the Company has adequate cash and credit
arrangements to meet its operating and capital requirements for fiscal year 2013, including the completion of the corporate office
building. 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.
At June 30, 2012, the Company has no long-term debt obligations and therefore, no contractual interest payments are
included in the table below. The following table summarizes the Company’s contractual obligations at June 30, 2012 and the effect
these obligations are expected to have on the Company’s liquidity and cash flow in the future (in thousands):
Operating lease obligations ..........................
$
Total
10,337
Less than
1 Year
1,842
$
$
1 - 3
Years
4,146
3 - 5
Years
931
More than
5 Years
3,418
$
$
Contractual obligations associated with the Company’s deferred compensation plans were excluded from the table above as
the Company cannot predict when the events that trigger payment will occur. Total accumulated deferred compensation liabilities
were $5.6 million at June 30, 2012. At June 30, 2012, the Company had no capital lease obligations, and no purchase obligations for
raw materials or finished goods. The purchase price on all open purchase orders was fixed and denominated in U.S. dollars.
Additionally, the Company has excluded the uncertain tax positions from the above table, as the timing of payments, if any, cannot be
reasonably estimated.
See Note 6 to the Consolidated Financial Statements of this Annual Report on Form 10-K.
Financing Arrangements
12
Outlook
The Company believes that moderate overall top line growth will continue through the end of calendar year 2012 through
additions to product offerings and expanding our residential customer base. The Company is expecting current order trends for
commercial products to continue for the remainder of the calendar year. The Company is confident in its ability to take advantage of
market opportunities as they present themselves. However, our optimism is guarded due to the uncertainty that the upcoming
elections and economic factors have on consumers’ confidence and willingness to buy.
The Company remains committed to its core strategies, which include offering a wide range of quality products 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 and improving profitability. We believe these core strategies are in the best interest of our shareholders.
Item 7A. 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.
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.
Foreign Currency Risk – During fiscal years 2012, 2011 and 2010, the Company did not have sales, purchases, or other
expenses denominated in foreign currencies. As such, the Company is not directly exposed to 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. At June 30, 2012, the Company does not have any debt outstanding.
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm .......................................................................................
Consolidated Balance Sheets at June 30, 2012 and 2011.............................................................................................
Consolidated Statements of Income for the Years Ended June 30, 2012, 2011 and 2010 ...........................................
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2012, 2011 and 2010 .................
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2012, 2011 and 2010 ...
Consolidated Statements of Cash Flows for the Years Ended June 30, 2012, 2011 and 2010 ....................................
Notes to Consolidated Financial Statements ...............................................................................................................
Page(s)
14
15
16
16
17
18
19-28
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Flexsteel Industries, Inc.
We have audited the accompanying consolidated balance sheets of Flexsteel Industries, Inc. and subsidiaries (the
"Company") as of June 30, 2012 and 2011, and the related consolidated statements of income, comprehensive income,
changes in shareholders' equity, and cash flows for each of the three years in the period ended June 30, 2012. Our audits
also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Flexsteel Industries, Inc. and subsidiaries as of June 30, 2012 and 2011, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2012, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the
information set forth therein.
/S/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 22, 2012
14
June 30,
2012
2011
$
$
$
13,970
33,601
82,689
3,750
1,583
135,593
29,867
3,160
13,052
181,672
$
$
17,889
31,451
73,680
3,700
1,633
128,353
21,387
2,560
12,377
164,677
12,973
$
9,899
8,037
4,440
6,399
31,849
5,613
4,768
42,230
6,906
8,476
125,699
(1,639)
139,442
181,672
$
6,922
5,645
5,204
27,670
5,270
3,164
36,104
6,711
6,698
115,699
(535)
128,573
164,677
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
ASSETS
CURRENT ASSETS:
Cash
Trade Receivables - less allowance for doubtful accounts: 2012, $1,910; 2011, $2,000
Inventories
Deferred income taxes
Other
Total current assets
NONCURRENT ASSETS:
Property, plant and equipment, net
Deferred income taxes
Other assets
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade
Accrued liabilities:
Payroll and related items
Insurance
Other
Total current liabilities
LONG-TERM LIABILITIES:
Deferred compensation
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 12)
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 2012, 6,905,534
shares; 2011, 6,710,612 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
TOTAL
$
See accompanying Notes to Consolidated Financial Statements.
15
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in thousands, except per share data)
NET SALES
COST OF GOODS SOLD
GROSS MARGIN
SELLING, GENERAL AND ADMINISTRATIVE
FACILITY CLOSING COSTS
OPERATING INCOME
OTHER INCOME (EXPENSE):
Interest and other income
Interest expense
Total
INCOME BEFORE INCOME TAXES
INCOME TAX PROVISION
NET INCOME
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic
Diluted
EARNINGS PER SHARE OF COMMON STOCK:
Basic
Diluted
CASH DIVIDENDS DECLARED PER COMMON SHARE
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
2012
FOR THE YEARS ENDED JUNE 30,
2011
2010
$
$
352,089
(266,810)
85,279
(65,033)
-
20,246
422
-
422
20,668
(7,600)
13,068
6,781
7,008
1.93
1.86
0.45
$
$
$
$
$
339,426
(262,124)
77,302
(60,422)
(1,016)
15,864
343
-
343
16,207
(5,790)
10,417
6,693
6,929
1.56
1.50
0.30
$
$
$
326,466
(251,685)
74,781
(57,252)
-
17,529
361
(439)
(78)
17,451
(6,650)
10,801
6,608
6,697
1.63
1.61
0.20
$
$
$
$
$
NET INCOME
$
13,068
$
10,417 $
10,801
2012
2011
2010
UNREALIZED (LOSSES) GAINS ON SECURITITES
INCOME TAX BENEFIT (EXPENSE) RELATED TO SECURITIES
GAINS
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
INTEREST RATE DERIVATIVE
INCOME TAX EXPENSE RELATED TO INTEREST RATE
DERIVATIVE
NET INTEREST RATE DERIVATIVE
MINIMUM PENSION LIABILITY
INCOME TAX BENEFIT (EXPENSE) RELATED TO MINIMUM
PENSION LIABILITY
NET MINIMUM PENSION LIABILITY
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
COMPREHENSIVE INCOME
$
See accompanying Notes to Consolidated Financial Statements.
(5)
2
(3)
-
-
-
(1,771)
670
(1,101)
(1,104)
11,964
562
(214)
348
-
-
-
1,401
(532)
869
1,217
63
(24)
39
285
(108)
177
(328)
124
(204)
12
$
11,634 $
10,813
16
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(Amounts in thousands)
Balance at July 1, 2009
Issuance of common stock:
Stock options exercised, net
Unrealized gain on available for sale investments, net
of tax
Long-term incentive compensation
Stock-based compensation
Interest rate swaps valuation adjustment, net of tax
Minimum pension liability adjustment, net of tax
Cash dividends declared
Net income
Balance at June 30, 2010
Issuance of common stock:
Stock options exercised, net
Unrealized gain on available for sale investments, net
of tax
Long-term incentive compensation
Stock-based compensation
Minimum pension liability adjustment, net of tax
Cash dividends declared
Net income
Balance at June 30, 2011
Issuance of common stock:
Stock options exercised, net
Unrealized gain on available for sale investments, net
of tax
Long-term incentive compensation
Stock-based compensation
Minimum pension liability adjustment, net of tax
Cash dividends declared
Net income
Balance at June 30, 2012
Total Par
Value of
Common
Shares ($1 Par)
Additional
Paid-In
Capital
Accumulated
Other
Retained
Comprehensive
Earnings
(Loss) Income
Total
S
6,576 S
4,370 S
97,816 S
(1,764)
S
106,998
70
-
-
-
-
-
-
-
274
-
510
271
-
-
-
-
6,646
5,425
65
-
-
-
-
-
-
259
-
590
424
-
-
-
6,711
6,698
156
-
39
-
-
-
-
761
-
761
256
-
-
-
-
-
-
-
-
-
(1,324)
10,801
107,293
-
-
-
-
-
(2,011)
10,417
115,699
-
-
-
-
-
(3,068)
13,068
-
39
-
-
177
(204)
-
-
(1,752)
-
348
-
-
869
-
-
(535)
-
(3)
-
-
(1,101)
-
-
344
39
510
271
177
(204)
(1,324)
10,801
117,612
324
348
590
424
869
(2,011)
10,417
128,573
917
(3)
800
256
(1,101)
(3,068)
13,068
S
6,906 S
8,476 S
125,699 S
(1,639)
S
139,442
See accompanying Notes to Consolidated Financial Statements.
17
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
2012
FOR THE YEARS ENDED JUNE 30,
2011
2010
$
13,068 $
10,417 $
10,801
Depreciation
Deferred income taxes
Stock-based compensation expense
Provision for losses on accounts receivable
Other non-cash, net
Gain on disposition of capital assets
Changes in operating assets and liabilities:
Trade receivables
Inventories
Other current assets
Other assets
Accounts payable - trade
Accrued liabilities
Other long-term liabilities
Deferred compensation
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of investments
Proceeds from sales of investments
Proceeds from sale of capital assets
Capital expenditures
Net cash used in investing activities
FINANCING ACTIVITIES:
Repayments of short-term borrowings, net
Dividends paid
Proceeds from issuance of common stock
Net cash used in financing activities
(Decrease) increase in cash and cash equivalents
Cash at beginning of year
Cash at end of year
2,835
23
1,056
(150)
7
(34)
(2,000)
(9,009)
50
(308)
2,699
572
(174)
342
8,977
(777)
405
34
(10,939)
(11,277)
-
(2,535)
916
(1,619)
(3,919)
17,889
2,690
54
1,014
870
224
(185)
3,427
(1,043)
(557)
(270)
(841)
(2,541)
367
174
13,800
(698)
410
187
(2,573)
(2,674)
-
(1,839)
324
(1,515)
9,611
8,278
$
13,970 $
17,889 $
FOR THE YEARS ENDED JUNE 30,
2012
2011
2010
2,986
(963)
781
920
218
(9)
(5,386)
1,207
2,837
(18)
994
3,618
1,028
105
19,119
(721)
359
34
(1,251)
(1,579)
(10,000)
(1,320)
344
(10,976)
6,564
1,714
8,278
SUPPLEMENTAL INFORMATION CASH PAID DURING
THE PERIOD FOR:
Interest
Income taxes paid
See accompanying Notes to Consolidated Financial Statements.
$
$
- $
6,237 $
- $
7,647 $
439
3,587
18
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and subsidiaries (the “Company”) is one of the oldest and largest manufacturers,
importers and marketers of residential and commercial upholstered and wooden furniture products in the United States. The Company’s
furniture products include a broad line of quality upholstered and wooden furniture for residential and commercial use. 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, bedroom furniture and home and commercial office
furniture. The Company has one active wholly-owned subsidiary: DMI Furniture, Inc. (“DMI”), which is a Louisville, Kentucky-based,
importer and marketer of residential and commercial office furniture with warehouses in Indiana and manufacturing sources in Asia; DMI’s
divisions are WYNWOOD, Homestyles and DMI Commercial Office Furniture.
PRINCIPLES OF CONSOLIDATION – the consolidated financial statements include the accounts of Flexsteel Industries, Inc. and its
wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES – the preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Ultimate results could differ from those estimates.
FAIR VALUE – the Company’s cash, accounts receivable, other current assets, accounts payable and certain accrued liabilities are carried at
amounts which reasonably approximate their fair value due to their short-term nature. Generally accepted accounting principles on fair value
measurement for certain financial assets and liabilities require that each asset and liability carried at fair value be classified into one of the
following categories: Level 1: Quoted market prices in active markets for identical assets and liabilities; Level 2: Observable market based
inputs or unobservable inputs that are corroborated by market data; or Level 3: Unobservable inputs that are not corroborated by market data.
The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
ALLOWANCE FOR DOUBTFUL ACCOUNTS – the Company establishes an allowance for doubtful accounts through review of open
accounts, and historical collection and allowances amounts. The allowance for doubtful accounts is intended to reduce trade accounts receivable
to the amount that reasonably approximates their net realizable value. The amount ultimately realized from trade accounts receivable may differ
from the amount estimated in the consolidated financial statements based on collection experience.
INVENTORIES – are stated at the lower of cost or net realizable value. Steel products, which represent approximately 6% of total inventory,
are valued on the last-in, first-out (“LIFO”) method. All other inventories are valued on the first-in, first-out (“FIFO”) method.
PROPERTY, PLANT AND EQUIPMENT – is stated at cost and depreciated using the straight-line method over the estimated useful lives
of the assets. For internal use software, the Company’s policy is to capitalize external direct costs of materials and services, directly related
internal payroll and payroll-related costs, and interest costs. These costs are amortized using the straight-line method over the useful lives.
VALUATION OF LONG–LIVED ASSETS – the Company periodically reviews the carrying value of long-lived assets and estimated
depreciable or amortizable lives for continued appropriateness. This review is based upon projections of anticipated future cash flows and is
performed whenever events or changes in circumstances indicate that asset carrying values may not be recoverable or that the estimated
depreciable or amortizable lives may have changed.
WARRANTY – the Company estimates the amount of warranty claims on sold product that may be incurred based on current and historical
data. The actual warranty expense could differ from the estimates made by the Company based on product performance.
REVENUE RECOGNITION – is upon delivery of product to the Company’s customer and when collectibility is reasonably assured. The
Company’s ordering process creates persuasive evidence of the sale arrangement and the sales amount is determined. The delivery of the goods
to the customer completes the earnings process. Net sales consist of product sales and related delivery charge revenue, net of adjustments for
returns and allowances. Shipping and handling costs are included in cost of goods sold.
ADVERTISING COSTS – are charged to selling, general and administrative expense in the periods incurred. The Company conducts no
direct-response advertising programs and there are no assets related to advertising recorded on the consolidated balance sheet. Advertising
expenditures, primarily shared customer advertising in which an identifiable benefit is received and national trade-advertising programs, were
approximately $4.9 million, $4.5 million and $4.1 million in fiscal 2012, 2011 and 2010, respectively.
DESIGN, RESEARCH AND DEVELOPMENT COSTS – are charged to selling, general and administrative expense in the periods
incurred. Expenditures for design, research and development costs were approximately $2.3 million, $2.2 million and $2.0 million in fiscal
2012, 2011 and 2010, respectively.
INSURANCE – the Company is self-insured for health care and most workers’ compensation up to predetermined amounts above which third
party insurance applies. The Company purchases specific stop-loss insurance for individual health care claims in excess of $150,000 per plan
19
year. For workers’ compensation the Company retains the first $350,000 per claim and purchases excess coverage up to the statutory limits for
amounts in excess of the retention limit. Losses are accrued based upon the Company’s estimates of the aggregate liability for claims incurred
using certain actuarial assumptions followed in the insurance industry and based on Company experience. The Company records these insurance
accruals within the accrued liabilities insurance account on the consolidated balance sheets.
INCOME TAXES – the Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company recognizes in its financial statements
the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position.
EARNINGS PER SHARE (EPS) – basic earnings per share of common stock is based on the weighted-average number of common shares
outstanding during each fiscal year. Diluted earnings per share 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. The Company calculates the dilutive effect of outstanding options using the treasury stock method. Anti-dilutive
shares are not included in the computation of diluted EPS when their exercise price was greater than the average closing market price of the
common shares. 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.
In computing EPS for the fiscal years ended 2012, 2011 and 2010, net income as reported for each respective period is divided by the fully
diluted weighted average number of shares outstanding:
(in thousands)
2012
2011
2010
June 30,
Basic shares
6,781
6,693
6,608
Potential common shares:
Stock options
Long-term incentive plan
142
85
227
147
89
236
62
27
89
Diluted shares
7,008
6,929
6,697
Anti-dilutive shares
300
424
717
STOCK–BASED COMPENSATION – the Company recognizes compensation expense related to the cost of employee services received in
exchange for Company equity interests based on the award’s fair value at the date of grant. See Note 8 Stock-Based Compensation.
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 were required for fiscal years
ending after December 15, 2011 and there was no financial impact on the Company. See Note 9, Multi-employer Pension Plans.
In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current
option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity is
required to present either a continuous statement of net income and other comprehensive income or in two separate but
consecutive statements. This guidance was effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011, with early adoption permitted. The Company adopted this presentation of comprehensive income during the
first quarter of fiscal 2012 and has presented separate consolidated statements of comprehensive income.
20
2. INVENTORIES
Inventories valued on a LIFO basis (steel) would have been approximately $1.7 million and $1.9 million higher at June 30, 2012 and 2011,
respectively, if they had been valued on a FIFO basis. At June 30, 2012 and 2011 the total value of LIFO inventory was $2.9 million and $1.5
million, respectively. There was no material liquidation of LIFO inventory in 2012 and 2011. A comparison of inventories is as follows:
(in thousands)
Raw materials
Work in process and finished parts
Finished goods
Total
June 30,
2012
2011
$
$
10,410
$
5,288
66,991
82,689
$
9,235
3,951
60,494
73,680
3. PROPERTY, PLANT AND EQUIPMENT
(in thousands)
Estimated
June 30,
Life (Years)
2012
2011
Land
Buildings and improvements
Machinery and equipment
Delivery equipment
Furniture and fixtures
Construction in progress
Total
Less accumulated depreciation
Net
5-39
3-7
3-5
3-7
$
4,150
$
39,978
26,449
18,113
3,843
9,333
101,866
(71,999)
29,867
3,984
39,851
26,513
18,180
4,000
366
92,894
(71,507)
21,387
4. OTHER NONCURRENT ASSETS
(in thousands)
June 30,
Cash value of life insurance
Rabbi Trust assets (see Note 9)
Other
Total
2012
2011
$
7,072
5,900
80
6,815
5,533
29
13,052
$
12,377
$
$
5. ACCRUED LIABILITIES – OTHER
(in thousands)
June 30,
2012
2011
Dividends
Income taxes
Advertising
Warranty
Other
Total
$
$
1,036
562
1,899
1,010
1,892
6,399
$
$
21
504
-
1,873
970
1,857
5,204
6. CREDIT ARRANGEMENTS
The Company maintains a credit agreement which provides short-term working capital financing up to $15.0 million with interest of LIBOR
plus 1%, including $5.0 million of letters of credit availability. This credit agreement expires June 30, 2013. No amounts were outstanding at
June 30, 2012 and 2011 under the working capital facility. 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 $60.0 million. At June 30, 2012, the
Company was in compliance with all of the covenants contained in the credit agreement. 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 at June 30, 2012.
7. INCOME TAXES
In determining the provision for income taxes, the Company uses an estimated annual effective tax rate that is based on the annual income,
statutory tax rates and permanent differences between book and tax. 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 when they occur.
The components of the gross liabilities related to unrecognized tax benefits and the related deferred tax assets are as follows:
(in thousands)
Gross unrecognized tax benefits
Accrued interest and penalties
Gross liabilities related to unrecognized tax benefits
Deferred tax assets
June 30,
2012
2011
1,000
$
365
970
340
1,365
$
1,310
350
$
330
$
$
$
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
Balance at July 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Balance at June 30
$
$
$
2012
970
207
-
(177)
1,000
$
2011
995
193
41
(259)
970
$
$
2010
404
250
420
(79)
995
The Company records interest and penalties related to income taxes as income tax expense in the Consolidated Statements of Income. 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 the next twelve months.
The income tax provision (benefit) is as follows for the years ended June 30:
(in thousands)
Federal- current
State - current
Deferred
Total
2012
2011
2010
$
$
6,969
608
23
7,600
$
$
5,313
423
54
5,790
$
$
6,630
975
(955)
6,650
22
A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows for the years ended June 30:
Federal statutory tax rate
State taxes, net of federal effect
Other
2012
35.0 %
2.9
(1.1)
2011
35.0 %
2.6
(1.9)
2010
35.0 %
3.7
(0.6)
Effective tax rate
36.8 %
35.7 %
38.1 %
The effective tax rate for the fiscal years ended June 30, 2012, 2011, 2010 was 36.8%, 35.7%, and 38.1%, respectively. The changes in effective
tax rates are primarily due to the change in provision for uncertain tax positions related to various state taxing jurisdictions, the benefit of the
Domestic Manufacturing Deduction under Section 199 (DMD), which provides a tax benefit on U.S. based manufacturing and stock-based
compensation.
The primary components of deferred tax assets and (liabilities) are as follows:
(in thousands)
June 30, 2012
June 30, 2011
Current
Long-term
Current
Long-term
Accounts receivable
$
710
$
Inventory
Self insurance
Employee benefits
Accrued expenses
Property, plant and equipment
Deferred compensation
Other
Total
1,390
480
480
690
-
-
-
-
-
-
-
-
(860)
2,430
1,590
$
740
$
1,360
620
360
620
-
-
-
-
-
-
-
-
(760)
2,520
800
$
3,750
$
3,160
$
3,700
$
2,560
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally, tax years 2008–2011
remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which we are subject.
8. 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 June 30, 2012, 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 under the fiscal years 2010-2012, 2011-2013 and 2012-2014 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 and the long-term portion of the recorded cash award payable is classified within other long-term liabilities
in the Consolidated Balance Sheets. The Company has recorded cash awards payable of $1.1 million and $0.4 million within current
liabilities and $0.7 million and $0.7 million within long-term liabilities for the fiscal years ended June 30, 2012 and 2011, respectively.
23
The aggregate number of shares and cash that could be awarded to key executives if the minimum, target and maximum performance
goals are met, based upon the fair market value at June 30, 2012, is as follows:
(in thousands)
Minimum
Target
Maximum
Performance Period
Shares
Cash
Shares
Cash
Shares
Cash
Fiscal Year 2010 - 2012
Fiscal Year 2011 - 2013
Fiscal Year 2012 - 2014
20 $
17 $
13 $
268
219
171
58 $
48 $
37 $
767
627
490
93 $
76 $
59 $
1,227
1,003
784
If the target performance goals would be achieved, the total amount of compensation cost recognized over the requisite service periods
would be $1.3 million (2010-2012), $1.1 million (2011-2013) and $1.0 million (2012-2014) based on the estimated fair values at June
30, 2012. The Company recorded compensation expense of $1.8 million, $1.3 million, and $0.9 during fiscal years 2012, 2011, 2010,
respectively.
(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.
In fiscal years 2012, 2011 and 2010, the Company issued options for 82,500, 87,500 and 165,000 common shares at weighted average
exercise prices of $13.87, $17.23 and $8.43 (the fair market value on the date of grant), respectively. The options were immediately
available for exercise and may be exercised for a period of 10 years. The Company recorded compensation expense of $0.3 million, $0.4
million and $0.3 million during fiscal years 2012, 2011 and 2010, respectively. The assumptions used in determining the compensation
expense are discussed below.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 2012, 2011 and 2010, respectively; dividend yield of 2.9%, 1.2% and 2.4%,
expected volatility of 34.4%, 33.4% and 25.3%; risk-free interest rate of 0.9%, 1.5% and 2.2%; and an expected life of 5, 5 and 5 years,
respectively. The expected volatility and expected life are determined based on historical data.
The weighted-average grant date fair value of stock options granted during fiscal years 2012, 2011 and 2010 was $3.11, $4.84 and $1.64,
respectively. The cash proceeds from stock options exercised were $0.9 million, $0.3 million and $0.3 million, respectively, for fiscal
years ended June 30, 2012, 2011 and 2010. The income tax benefit related to the exercise of stock options was $0.1 million, $0.0 million
and $0.0 million for fiscal year ended June 30, 2012, 2011 and 2010, respectively.
At June 30, 2012, 343,850 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 June 30, 2012, 2011 and 2010 and the changes during the years then
ended is presented below:
Shares
Weighted Average
Intrinsic Value
(in thousands)
Exercise Price
(in thousands)
Aggregate
Outstanding and exercisable at June 30, 2010
1,052 $
12.70 $
1,168
Granted
Exercised
Canceled
Outstanding and exercisable at June 30, 2011
Granted
Exercised
Canceled
88
(91)
(3)
1,046
83
(306)
(5)
17.23
7.41
17.30
13.56
13.87
12.57
17.12
2,271
Outstanding and exercisable at June 30, 2012
818 $
13.94 $
4,783
24
The following table summarizes information for options outstanding and exercisable at June 30, 2012:
Weighted Average
Range of
Prices
Options
Remaining
Outstanding
Life (Years)
Exercise
Price
(in thousands)
$
6.81 - 8.55
12.35 - 13.90
14.40 - 16.52
17.23 - 20.27
$
6.81 - 20.27
153
254
214
197
818
7.0 $
6.1
2.8
4.1
4.9
7.67
12.86
15.49
18.52
13.94
9. BENEFIT AND RETIREMENT PLANS
Defined Contribution and Retirement Plans
The Company sponsors various defined contribution pension and retirement plans, which cover substantially all employees, other than
employees covered by multi-employer pension plans under collective bargaining agreements. Total pension and retirement plan expense was
$1.6 million, $1.7 million and $1.5 million in fiscal years 2012, 2011 and 2010. The amounts include $0.4 million in fiscal year 2012, $0.5
million in fiscal 2011 and $0.4 million in fiscal years 2010, for the Company’s matching contribution to retirement savings plans. The
Company’s cost for pension plans is generally determined as 2% - 6% of each covered employee’s wages. The Company’s matching
contribution for the retirement savings plans is generally 25% - 50% of employee contributions (up to 4% of employee earnings).
Multi-employer Pension Plans
The Company contributes to three multi-employer defined benefit pension plans under the terms of collective-bargaining agreements that cover
its union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the
following aspects:
• Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating
•
•
employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be shared by the remaining
participating employers.
If a participating employer chooses to stop participating in some of its multi-employer plans, the employer may be required to pay
those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company’s participation in these plans for the annual period ended June 30, 2012, is outlined in the following table. Unless otherwise
noted, the most recent Pension Protection Act zone status available in 2012 and 2011 is for the plan’s year-end at December 31, 2011 and
2010, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary.
Among other factors, plans in the red zone are generally less that 65 percent funded, plans in the yellow zone are between 65 percent and 80
percent funded, and plans in the green zone are at least 80 percent funded.
Pension
Protection
Act Zone Status
June 30,
Rehabilitation
Company Contributions
(in thousands)
Surcharge
Expiration
Date
Number of
of Collective Company
Employees
Bargaining
Pension Fund
2012
2011 Plan Status
2012
2011
2010
Imposed
Agreement
in Plan
EIN/Pension
Plan
Number
Central States Southeast and
36-6044243 Red
Red
Implemented $
254 $
249 $
228
Yes
03/28/2015
18
Southwest Areas Pension Fund
Steelworkers Pension Trust
23-6648508 Green Green
No
285
283
278
No
11/03/2012
175
Central Pension Fund
36-6052390 Green Green
No
7
7
8
No
06/01/2013
3
$
546 $
539 $
514
The cumulative cost to exit the Company’s multi-employer plans was approximately $7.8 million, $7.2 million and $7.3 million on June 30,
2012.
25
Deferred Compensation Plans
The Company has unfunded deferred compensation plans with executive officers. The plans require various annual contributions for the
participants based upon compensation levels and age. All participants are fully vested. At June 30, 2012 and 2011, the deferred compensation
liability was $5.6 million and $5.3 million, respectively.
The Company maintains supplemental retirement plans, collectively referred to as the Supplemental Plan, which provides for additional annual
defined contributions toward retirement benefits to the Company’s executive officers. For fiscal 2012, 2011 and 2010, the benefit obligation
was increased by interest expense of $0.3 million, $0.2 million and $0.2 million, service costs of $0.4 million, $0.4 million and $0.3 million,
and decreased by payments of $0.4 million, $0.4 million and $0.4 million, respectively. Funds of the deferred compensation plans are held in a
Rabbi Trust. The assets held in the Rabbi Trust are not available for general corporate purposes. The Rabbi Trust is subject to creditor claims in
the event of insolvency, but otherwise must be used only for purposes of providing benefits under the plans. As of June 30, 2012, the
Company’s deferred compensation plan assets, held in the Rabbi Trust, were invested in stock and bond funds. As of June 30, 2012 and 2011,
the fair market value of the assets held in the Rabbi Trust were $5.9 million and $5.5 million, respectively, and are classified as “Other Assets”
in the Consolidated Balance Sheets. These assets are classified as Level 2 in accordance with fair value accounting as discussed in Note 1.
Under provisions of the Company’s Voluntary Deferred Compensation Plan, executive officers may defer common stock awards received as
part of incentive compensation plans until retirement. Under the plan, no shares were deferred during the fiscal years ended June 30, 2012 and
2011. At June 30, 2012 and 2011, 36,867 shares with an award date value of $0.7 million and $0.5 million, respectively, had been deferred and
are being held on behalf of the employees. Under the plan, no shares and 5,227 shares were distributed in fiscal years 2012 and 2011,
respectively.
Defined Benefit Plan
The Company’s defined benefit pension plan is frozen. There are a total of 430 participants in the plan. Retirement benefits are based on years
of credited service multiplied by a dollar amount negotiated under collective bargaining agreements. The Company’s policy is to fund normal
costs and amortization of prior service costs at a level that is equal to or greater than the minimum required under the Employee Retirement
Income Security Act of 1974 (ERISA). As of June 30, 2012 and 2011, the Company recorded an accrued benefit liability related to the funded
status of the defined benefit pension plan recognized on the Company’s consolidated balance sheets in other long-term liabilities of $2.7
million and $1.1 million, respectively. The accumulated benefit obligation was $7.8 million and $6.2 million at fiscal years ended June 30,
2012 and 2011, respectively. The Company recorded expense of $0.0 million, $0.2 million and $0.2 million during fiscal years 2012, 2011 and
2010, respectively, related to the plan.
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss, net of income taxes, are as follows:
(in thousands)
Available-for-sale securities
Pension and other post-retirement benefit adjustments
Total accumulated other comprehensive loss
11. LITIGATION
June 30,
2012
2011
$
$
334
(1,973)
(1,639)
$
$
337
(872)
(535)
Indiana Civil Litigation – The Company has been named as one of several defendants in a 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. 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 June 30, 2012 financial statements. Legal and other related expenses of $2.4 million and $0.5
million have been incurred responding to this lawsuit for the fiscal year 2012 and 2011, respectively, and are included in Selling, General and
Administrative expense in the Consolidated Statements of Income.
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.
12. COMMITMENTS AND CONTINGENCIES
FACILITY LEASES – the Company leases certain facilities and equipment under various operating leases. These leases require the
Company to pay the lease cost, operating costs, including property taxes, insurance, and maintenance. Total lease expense related to the various
operating leases was approximately $2.2 million, $2.7 million and $3.4 million in fiscal 2012, 2011 and 2010, respectively.
26
Expected future minimum commitments under operating leases as of June 30, 2012 were as follows (in thousands):
Fiscal Year Ended June 30,
2013
2014
2015
2016
2017
Thereafter
$
1,842
1,705
1,372
1,069
931
3,418
$
10,337
13. FACILITY CLOSING COSTS
During the fiscal year 2011, the Company closed a manufacturing facility and recorded pre-tax charges for facility closing costs of $1.0 million. The
charges represent employee separation costs of $0.6 million and other closing costs of $0.4 million and were classified as “Facility Closing Costs” in
the Consolidated Statements of Income for the fiscal year ended June 30, 2011.
14. SEGMENT REPORTING
The Company operates in one reportable segment, furniture products. Our operations involve the distribution of manufactured and imported
furniture for residential and commercial markets. The Company’s furniture products are sold primarily throughout the United States by the
Company’s internal sales force and various independent representatives. The Company makes minimal export sales. No single customer
accounted for more than 10% of net sales.
Set forth below is information for the past three fiscal years showing the Company’s net sales attributable to each of the areas of application:
(in thousands)
FOR THE YEARS ENDED JUNE 30,
Residential
Commercial
2012
2011
2010
$
$
275,442
76,647
352,089
$
$
258,095
81,331
339,426
$
$
246,041
80,425
326,466
15. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION – UNAUDITED
(in thousands, except per share amounts)
FOR THE QUARTER ENDED
September 30
December 31
March 31
June 30
Fiscal 2012:
Net sales
Gross margin
Net income
Earnings per share:
Basic
Diluted
$
$
$
81,520
18,964
2,378
0.35
0.34
$
$
$
85,001
20,458
2,948
0.44
0.42
$
$
$
91,631
22,098
3,343
0.49
0.48
$
$
$
93,936
23,759
4,399
0.64
0.61
27
Fiscal 2011:
Net sales
Gross margin
Net income (1)
Earnings per share:
Basic
Diluted
September 30
December 31
March 31
June 30
FOR THE QUARTER ENDED
$
$
$
87,230
19,606
2,343
0.35
0.34
$
$
$
82,821
18,825
2,131
0.32
0.31
$
$
$
85,175
18,207
2,455
0.37
0.35
$
$
$
84,200
20,664
3,488
0.52
0.50
(1)
The quarter ended September 30, 2010 includes facility closing costs after-tax of $1.0 million or $0.15 per share,
respectively.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures – Based on their evaluation as of the end of the period covered by this Annual Report on
Form 10-K, the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) under the Securities Act of 1934, as amended) were effective as of June 30,
2012.
Changes in internal control over financial reporting – During the year-ended June 30, 2012, there was no change in the Company’s internal
control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is
reasonably likely to materially affect the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting – Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) or 15d-15(f) of the Securities Exchange Act of 1934, as
amended. We performed an evaluation under the supervision and with the participation of our management, including the CEO and CFO, to assess
the effectiveness of the design and operation of our disclosure controls and procedures under the Exchange Act as of June 30, 2012. In making this
assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control —
Integrated Framework. Based on those criteria, management concluded that the internal control over financial reporting is effective as of June 30,
2012.
Item 9B.
Other Information
None.
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information contained in the Company’s 2012 definitive proxy statement to be filed with the Securities and Exchange Commission
under the sections captioned “Proposal 1 Election of Directors,” “Corporate Governance – Audit and Ethics Committee,” “Corporate Governance –
Nomination Matters,” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.
The Company has adopted a code of ethics called the Guidelines for Business Conduct that applies to the Company’s employees, including
the principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A
copy of the code of ethics is posted on our website at www.flexsteel.com.
Item 11.
Executive Compensation
The information contained in the Company’s 2012 definitive proxy statement to be filed with the Securities and Exchange Commission
under the sections captioned “Executive Compensation,” and “Director Compensation,” is incorporated herein by reference.
28
Item 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The information contained in the Company’s 2012 definitive proxy statement to be filed with the Securities and Exchange Commission
under the sections captioned “Ownership of Stock By Directors and Executive Officers,” “Ownership of Stock by Certain Beneficial Owners,” and
“Equity Compensation Plan Information” is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
This information contained under the sections “Interest of Management and Others in Certain Transactions” and “Corporate Governance –
Board of Directors” in the Company’s 2012 definitive proxy statement to be filed with the Securities and Exchange Commission is incorporated
herein by reference.
Item 14.
Principal Accountant Fees and Services
Deloitte & Touche LLP was the Company’s independent registered public accounting firm in fiscal 2012. In addition to performing the
audit of the Company's consolidated financial statements, Deloitte & Touche LLP provided various audit-related services during fiscal 2012.
The Audit and Ethics Committee pre-approves both the type of services to be provided by Deloitte & Touche LLP and the estimated fees
related to these services. The Audit and Ethics Committee reviewed professional services and the possible effect on Deloitte & Touche LLP’s
independence was considered. The Audit and Ethics Committee has considered and found the provision of services for non-audit services
compatible with maintaining Deloitte & Touche LLP’s independence. All services provided by Deloitte & Touche LLP during fiscal 2012 were pre-
approved by the Audit and Ethics Committee.
(in thousands)
Audit Fees (1) ...................................... $
Tax Fees (2) ..........................................
$
2012
363
–
363
$
$
2011
358
15
373
(1) Professional fees and expenses for the audit of financial statements for fiscal 2012 and fiscal 2011 consisted of (i) audit of the Company’s
annual consolidated financial statements; (ii) reviews of the Company’s quarterly consolidated financial statements; (iii) employee benefit
plan audits; (iv) consents and other services related to Securities and Exchange Commission matters; and (v) consultations on financial
accounting and reporting matters arising during the course of the audit and reviews.
(2) Professional fees and expenses for tax services billed in fiscal 2011 consisted of tax planning and advice services totaling $15,000 and
consisted of (i) tax advice related to structuring certain proposed transactions; and (ii) general tax planning matters.
PART IV
Item 15.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)
(1)
Financial Statements
The financial statements of the Company are set forth above in Item 8.
(1) Schedules
The following financial statement schedules for the years ended June 30, 2012, 2011 and 2010 are submitted herewith:
SCHEDULE II
RESERVES
For the Years Ended June 30, 2012, 2011 and 2010
Balance at
Beginning of
Year
(Additions)
Reductions
to Income
Additions to
(Deductions
from) Reserves
Balance at
End of Year
(in thousands)
Description
Allowance for Doubtful Accounts:
2012..............................
2011..............................
2010..............................
$
$
$
2,000
2,020
1,760
$
$
$
(150)
870
920
$
$
$
60
(890)
(660)
$
$
$
1,910
2,000
2,020
Other schedules are omitted because they are not required or are not applicable or because the required information is included in the
financial statements.
29
(3)
Exhibit No.
3.1
Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Form 8-K, as filed with the Securities
and Exchange Commission on December 8, 2010).
3.2
Amended and Restated Bylaws of the Company (incorporated by reference to Form 8-K, as filed with the Securities and
Exchange Commission on December 8, 2010).
10.1 1995 Stock Option Plan (incorporated by reference from the 1995 Flexsteel definitive proxy statement). *
10.2
10.3
1999 Stock Option Plan (incorporated by reference from the 1999 Flexsteel definitive proxy statement). *
Flexsteel Industries, Inc. Voluntary Deferred Compensation Plan (incorporated by reference to Exhibit No. 10.5 to the Annual
Report on Form 10-K for the fiscal year ended June 30, 2001). *
10.4
Flexsteel Industries, Inc. Restoration Retirement Plan (incorporated by reference to Exhibit No. 10.6 to the Annual Report on
Form 10-K for the fiscal year ended June 30, 2001). *
10.5
Flexsteel Industries, Inc. Senior Officer Supplemental Retirement Plan (incorporated by reference to Exhibit No. 10.7 to the
Annual Report on Form 10-K for the fiscal year ended June 30, 2001). *
10.6 2002 Stock Option Plan (incorporated by reference to Appendix A from the 2002 Flexsteel definitive proxy statement). *
10.7
Agreement and Plan of Merger, dated as of August 12, 2003, by and among Flexsteel, Churchill Acquisition Corp. and DMI
(incorporated by reference to Exhibit 99(d)(1) of Flexsteel Industries, Inc.’s Tender Offer Statement on Schedule TO filed with
the Securities and Exchange Commission on August 20, 2003).
10.8
10.9
10.10
Flexsteel Industries, Inc. 2006 Stock Option Plan (incorporated by reference to Appendix C from the 2006 Flexsteel Proxy
Statement filed with the Securities and Exchange Commission on October 31, 2006).
Employment Agreement dated October 1, 2006 between Flexsteel Industries, Inc. and Donald D. Dreher (incorporated by
reference to Exhibit 10.1 to Flexsteel’s Form 8-K filed with the Securities and Exchange Commission on October 5, 2006). *
Amendment to Employment Agreement dated June 27, 2008 between Flexsteel Industries, Inc. and Donald D. Dreher
(incorporated by reference to Exhibit 10.3 to Flexsteel’s Form 8-K filed with the Securities and Exchange Commission on June
27, 2008).*
10.11
Flexsteel Industries, Inc. 2007 Long-Term Management Compensation Plan (incorporated by reference to Appendix C to the
Definitive Proxy Statement on Schedule 14A filed with the Commission on November 1, 2007). *
10.12
2009 Stock Option Plan (incorporated by reference to Appendix A from the 2009 Flexsteel definitive proxy statement). *
10.13
One-Year Incentive Compensation Award for Karel K. Czanderna, dated July1, 2012 (incorporated by reference to Exhibit 4.1 of
Flexsteel’s Form S-8 filed with the Securities and Exchange Commission on August 20, 2012.)*
10.14
Restricted Stock Unit Award Agreement for Karel K. Czanderna, dated July 1, 2012 (incorporated by reference to Exhibit 4.1 of
Flexsteel’s Form S-8 filed with the Securities and Exchange Commission on August 20, 2012.)*
21.1
Subsidiaries of the Company. Filed herewith.
23
Consent of Independent Registered Public Accounting Firm. Filed herewith.
31.1
Certification. Filed herewith.
31.2
Certification. Filed herewith.
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. Filed herewith.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Labels Linkbase Document.
30
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
*Management contracts, compensatory plans and arrangements required to be filed as an exhibit to this
report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: August 22, 2012
FLEXSTEEL INDUSTRIES, INC.
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
and
Principal Executive Officer
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
and
Principal Financial and Accounting Officer
31
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: August 22, 2012
Date: August 22, 2012
Date: August 22, 2012
Date: August 22, 2012
Date: August 22, 2012
Date: August 22, 2012
Date: August 22, 2012
Date: August 22, 2012
Date: August 22, 2012
Date:
August 22, 2012
Date:
August 22, 2012
/S/ Lynn J. Davis
Lynn J. Davis
Chairman of the Board of Directors
/S/ Jeffrey T. Bertsch
Jeffrey T. Bertsch
Director
/S/ Mary C. Bottie
Mary C. Bottie
Director
/S/ Patrick M. Crahan
Patrick M. Crahan
Director
/S/ Robert E. Deignan
Robert E. Deignan
Director
/S/ Thomas M. Levine
Thomas M. Levine
Director
/S/ Ronald J. Klosterman
Ronald J. Klosterman
Director
/S/ Robert J. Maricich
Robert J. Maricich
Director
/S/ Eric S. Rangen
Eric S. Rangen
Director
/S/ James R. Richardson
James R. Richardson
Director
/S/ Nancy E. Uridil
Nancy E. Uridil
Director
32
Exhibit 21.1
Subsidiaries of Flexsteel Industries, Inc.
• DMI Furniture, Inc. (Delaware)
o DMI Management, Inc. (Kentucky)*
o DMI Sourcing Company, LLC (Kentucky) *
DMI Business Consulting Company (Shenzhen) Co. Ltd. *
Home Styles Furniture Co., Ltd. (Thailand) (99.99% interest) *
Vietnam Representative Office *
• Desert Dreams, Inc. (Iowa)
o Shelf Company No. 74 (Mexico)
*
Subsidiaries of DMI Furniture, Inc.
33
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-151865, 333-140811, 333-
105951, 333-45768, 333-01413, 333-164994, 333-183443 and 333-183444 on Form S-8 of our report dated
August 22, 2012, relating to the financial statements and financial statement schedule of Flexsteel Industries,
Inc. and Subsidiaries (the “Company”), appearing in this Annual Report on Form 10-K of the Company for the
year ended June 30, 2012.
/S/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 22, 2012
34
CERTIFICATION
EXHIBIT 31.1
I, Karel K. Czanderna, certify that:
1.
I have reviewed this annual report on Form 10-K of Flexsteel Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the
periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any changes in the Registrant’s internal control over financial reporting that occurred during
the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Registrant’s auditors and the Audit and Ethics Committee of the Registrant’s Board of
Directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.
Date: August 22, 2012
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
35
CERTIFICATION
EXHIBIT 31.2
I, Timothy E. Hall, certify that:
1.
I have reviewed this annual report on Form 10-K of Flexsteel Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the
periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any changes in the Registrant’s internal control over financial reporting that occurred during
the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Registrant’s auditors and the Audit and Ethics Committee of the Registrant’s Board of
Directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.
Date: August 22, 2012
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
36
EXHIBIT 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
In connection with the Annual Report of Flexsteel Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended
June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Karel K. Czanderna, Chief
Executive Officer, and Timothy E. Hall, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and;
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and
results of operations of the Company.
Date: August 22, 2012
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
37
Directors
Lynn J. Davis
Chair of the Board of Directors
Retired President and Chief Operating Officer
August Technology
Ronald J. Klosterman
Director
Retired President and Chief Executive Officer
Flexsteel Industries, Inc.
Karel K. Czanderna
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
Robert E. Deignan
Director
Attorney at Law ~ Baker & McKenzie LLP
Committees
Audit and Ethics Committee
Eric S. Rangen, Chair
Lynn J. Davis
Thomas M. Levine
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, Treasurer
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 10, 2012, 2:00 p.m. • Hilton Minneapolis
1001 Marquette Avenue • Minneapolis, Minnesota 55403
Locations
Flexsteel Industries, Inc.
Dubuque Iowa
Global Headquarters. . . . . . . . . . . K. K. Czanderna, President & CEO
Dubuque Operations . . . . . . . . . J. E. Gilbertson, General Manager
Dublin, Georgia . . . . . . . . . . . . . . . M. C. Dixon, General Manager
Lancaster, Pennsylvania . . . . . . . D. Kobie, Manager
Riverside, California . . . . . . . . . . D. J. Bashor, General Manager
Harrison, Arkansas . . . . . . . . . . . M. J. Feldman, General Manager
Starkville, Mississippi . . . . . . . . . R. C. Adams, General Manager
DMI Furniture, Inc
Louisville, Kentucky . . . . . . . . . . D. D. Dreher, President & CEO
Huntingburg, Indiana . . . . . . . . . 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
© 2012 Flexsteel Industries, Inc.
PO Box 877 • Dubuque, IA 52004-0877
PRST STD
U.S. Postage Paid
Permit #477
Dubuque, IA
residential
commercial
Fine Furniture Since 1893