Financial
hiGhliGhts
(in thousands, except per share data)
For the Year Ended June 30,
2014
2013
2012
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 438,543
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,286
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,800
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,990
$ 386,189
20,271
20,881
$ 13,151
$ 352,089 $ 339,426
15,864
16,207
$ 10,417
20,246
20,668
$ 13,068
Weighted Average Common Shares Outstanding – Diluted . . . . . 7,511
7,326
7,008
6,929
Earnings per share of Common Stock – Diluted . . . . . . . . . . . . . $ 2.00
$ 1.80
$ 1.86
$ 1.50
Cash dividends declared per common share . . . . . . . . . . . . . . . . $ 0.60
$ 0.60
$ 0.45
$ 0.30
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.62
$ 21.28
$ 20.19
$ 19.16
At June 30,
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 128,644
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,213
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,478
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,735
$ 113,699
192,539
41,302
$ 151,237
$ 103,743 $ 100,683
164,677
36,104
$ 139,442 $ 128,573
181,672
42,230
Net Sales
[in millions]
$439
Net Income
[in millions]
$386
$352
$339
$15.0
$13.0
$13.2
$10.4
$4.2
$4.4
Dividends
[in millions]
$3.1
$2.0
2011
2012
2013
2014
2011
2012
2013
2014
2011
2012
2013
2014
29%
Revenue
Growth
[From June 30th 2011 – June 30th 2014]
44%
Profit
Growth
[From June 30th 2011 – June 30th 2014]
220%
Dividend
Growth
[From June 30th 2011 – June 30th 2014]
To Our
shareholDers
“Quality begins with us” are words we live by at Flexsteel. It’s how we design and build our furniture and
how we manage our business. It’s more relevant today than ever, as we continually prepare all facets of the
company for the future. For more than a century, we have built our products and our company on the premise
that our strength comes from within. At the center is our lifetime-guaranteed blue steel seat spring: our
namesake. The iconic spring is a vital part of who we are and why our product line is successful. In addition,
we maintain a fiscally conservative business approach. Our energy is focused on delivering value today
while planning for tomorrow. Throughout every aspect of our business, we concentrate our attention on our
customers. They figure prominently in every decision we make because we know that success with customers
ensures we will deliver value for our investors and our associates.
that is quality you can count on.
Fiscal year 2014 marks the fifth consecutive year of net
sales and net income growth and the third year of record
net income. The company posted record net sales of $439
million, a 14-percent increase compared to $386 million in
fiscal year 2013. Our net income climbed from a previous
record of $13.2 million to a new record of $15 million or
$2.00 per share. Residential net sales increased 16 percent or
$49 million to $360 million, and commercial net sales were
$79 million. Our outstanding financial position has allowed
us to provide cash dividend payments for an impressive 290
consecutive quarters.
In 2014, we continued to build on the premise that quality
begins on the inside. To that end, we leveraged the strength
of our exclusive blue steel seat spring, around which our
popular home furnishings line has been built, by integrating
the technology into new product groups across the company
serving the senior living, patient care, and vehicle seating
markets. We have demonstrated that the blue steel spring
delivers the lasting comfort and performance required in
today’s residential and commercial markets.
With almost 3 million square feet of dedicated retail space
through our home furnishings retailers and a strong track
record of success, Flexsteel viewed 2014 as the foundational
year to provide a “whole-home solution.” By combining
Flexsteel’s design, style, and quality standards with the
Wynwood case goods line, we have crafted an integrated
offering for continued profitable growth: the Flexsteel
Wynwood Collection.
We have strong confidence in our residential businesses,
recently ranked by trade journal Furniture Today as seventh
in the top 20 national sources for home furnishings, up
from ninth last year, and on a steady climb since 2002.
This recognition has been earned through our strong retail
gallery and studio programs as well as by our dynamic
performance in online sales through our high-quality
offering in the ready-to-assemble market with Home
Styles. We continue to introduce a wide variety of designs
and product categories desired by consumers, offering the
quality and performance that matter.
In addition, we launched two strategic corporate initiatives
in 2014: a logistics and supply chain study and modernizing
the business information system. The logistics and supply
chain work has shifted from analysis to action as we
optimize our hub-and-spoke model to create even more
customer-responsive deliveries across our businesses. Fewer
miles and fewer touches and transfers allow customers
shorter delivery times and make Flexsteel a great strategic
partner for growth. The business information optimization
is in the early stages of enabling industry-leading technology
to deliver pace and insight to every level of our business
operations.
We are pleased to report a solid showing for fiscal year
2014. Sales were strong, and our outlook is positive. We
will continue our long-standing tradition of creating and
delivering sustainable value for our shareholders, highly
desirable products for our customers, and compelling
careers for our associates. We thank our investors, Board
of Directors, customers, and associates for their continued
support. Delivering quality today and preparing for the
future is our commitment.
Karel K. Czanderna
President and
Chief Executive Officer
Lynn J. Davis
Chair of the Board of Directors
Fine Furniture Since 1893
Flexsteel Industries, Inc. is headquartered in Dubuque, Iowa. Flexsteel is a designer,
manufacturer, importer and marketer of quality upholstered, wood and metal furniture for residential,
recreational vehicle, office, hospitality and healthcare markets. All products are distributed nationally.
resiDential
commercial
Patterson group with
Sawyer tables
grand beach hotel
Miami, Florida
Port Royal sectional
Melody
lift recliner
Jacinto high-leg recliner
Dynamo sofa sleeper
Como reclining
love seat with console
Evian reclining sofa
Mac chair
olive ottoman
axis chair
Stratus chair
Bixby chair and ottoman
Union group seating
above: kitchen island
left: outdoor furniture
266-BULE captain’s chair
extendaFlex bed
Above: Camberly bedroom group
Right: Theodore home office group
Above: Keswick office group
Right: Causeway Collection
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1
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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, 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
manufacturer, importer and marketer of residential and commercial upholstered and wood 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, healthcare and other commercial applications. A
featured 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 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 ....................................
$
Manufacturing and Offshore Sourcing
FOR THE YEARS ENDED JUNE 30,
2013
311,214
74,975
386,189
2014
359,565
78,978
438,543
2012
275,442
76,647
352,089
$
$
$
$
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 value in the
marketplace.
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. This
2
blended focus on products allows the Company to provide a wide range of price points, styles and product categories to satisfy
customer requirements.
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 and sourcing capabilities, facility locations, commitment to
customers, product quality, delivery, service and value and experienced production, sales, marketing and management teams, are our
competitive advantages.
Seasonality
The Company’s business is not considered seasonal.
Foreign Operations
The Company makes minimal export sales. At June 30, 2014, 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, 2014
$ 45,000
June 30, 2013
$ 43,300
June 30, 2012
$ 38,700
Raw Materials
The Company utilizes various types of wood, fabric, leather, 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.
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 2014-2031.
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 third-party designers. New models and designs of furniture, as well as new fabrics, are introduced
3
continuously. In the last three fiscal years, these design activities involved the following expenditures (in thousands):
Fiscal Year Ended June 30,
2014
2013
2012
Expenditures
$2,820
$2,520
$2,310
Employees
The Company had 1,350 employees as of June 30, 2014, including 220 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.
The executive officers of the Company, their ages, positions (in each case as of August 19, 2014), and the year they were first
elected or appointed an officer of the registrant, are as follows:
Name (age)
Karel K. Czanderna (58)
Timothy E. Hall (56)
Jeffrey T. Bertsch (59)
Julia K. Bizzis (57)
Donald D. Dreher (64)
James R. Richardson (70)
Item 1A. Risk Factors
Position (date first became officer)
President & Chief Executive Officer (2012)
Senior Vice President-Finance, Chief Financial Officer, Secretary & Treasurer (2000)
Senior Vice President of Corporate Services (1989)
Senior Vice President Strategic Growth (2013)
Senior Vice President (2004)
Senior Vice President of Residential Sales and Marketing (1979)
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. 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 business information systems could be impacted by disruptions and security breaches.
The Company employs information technology systems to support its global business. Security breaches and other
disruptions to the Company’s information technology infrastructure could interfere with the Company’s operations, compromise
information belonging to the Company and its customers and suppliers, and expose the Company to liability which could adversely
impact the Company’s business and reputation. In the ordinary course of business, the Company relies on information technology
networks and systems to process, transmit and store electronic information, and to manage or support a variety of business processes
and activities. Additionally, the Company collects and stores certain data, including proprietary business information, and may have
access to confidential or personal information in certain of our businesses that is subject to privacy and security laws, regulations and
customer-imposed controls. While security breaches and other disruptions to the Company’s information technology networks and
infrastructure could happen, none have occurred to date that have had a material impact to the Company. There may be other
challenges and risks as the Company upgrades and standardizes its business information systems. Any such events could result in legal
claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to the Company’s reputation,
which could adversely affect the Company’s business.
Our operations may be impacted by various business interruptions.
Uncharacteristic or significant weather conditions, natural disasters, political or civil unrest in the countries in which we
operate and source products from can cause property damage or interrupt our business operations. These events can lead to damaged
property, lost sales or lost customers and could adversely affect our short-term results of operations.
4
If we are unable to obtain bank credit or generate cash flow from our operations, our financial position, liquidity and
results of operations could suffer.
We are dependent on a stable, liquid and well-functioning financial system to fund our operations and capital investments.
Our continued access to these markets depends on multiple factors including the condition of capital markets, our operating
performance and maintaining a strong balance sheet. If we lose our ability to generate cash flow from operations or our availability to
borrow with our financial institutions to meet capital and operational needs, our liquidity and results of operations could suffer.
Our products are considered deferrable purchases for consumers during economic downturns. Prolonged negative
economic conditions could impact our business.
Economic downturns and prolonged negative economic conditions could affect consumer spending habits by decreasing the
overall demand for home furnishings and commercial products. These events could impact retailers, offices, 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. As a
result, we are continually subject to the risk of losing market share, which may lower our sales and earnings.
Our failure to anticipate or respond to changes in consumer or designer 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.
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.
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 avert or resolve conflicts as they
arise. However, there can be no assurance that these efforts will be successful.
5
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.
We participate in, and make periodic contributions to, three multi-employer pension plans that cover 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. 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, 2014:
Location
Size (square feet)
Principal Operations
Approximate
Harrison, Arkansas
Riverside, California
Dublin, Georgia
New Paris, Indiana
Huntingburg, Indiana
Dubuque, Iowa
Dubuque, Iowa
Starkville, Mississippi
Lancaster, Pennsylvania
221,000
305,000
300,000
168,000
691,000
719,000
40,000
349,000
216,000
Manufacturing
Manufacturing and Distribution
Manufacturing
Held for sale
Distribution
Manufacturing and Distribution
Corporate Office
Manufacturing
Distribution
The Company leases the following facilities as of June 30, 2014:
Location
Size (square feet)
Principal Operations
Approximate
Cerritos, California
Riverside, California
Ferdinand, Indiana
Louisville, Kentucky
Juarez, Mexico
32,000
65,000
101,000
15,000
225,000
Distribution
Distribution
Distribution
Administrative Offices
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"i"In December 2013, the Company entered into a confidential agreement to settle the Indiana Civil
Litigation. In February 2014, the Company paid $6.25 million to Plaintiffs to settle the matter without admission of wrongdoing. The
Company continues to believe that it did not cause or contribute to the contamination.
The Company will continue to pursue the recovery of defense and settlement costs from insurance carriers. Based on policy
language and jurisdiction, insurance coverage is in question. The Company filed an appeal to the Iowa Supreme Court regarding two
adverse opinions of an Iowa District Court regarding coverage issues. The Iowa Court of Appeals reversed the District Court, ruling in
favor of the Company, and the Iowa Supreme Court denied further review. The cases have now been returned to the Iowa District
Court for further proceedings.
Item 4. Mine Safety Disclosures
None.
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 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: American Woodmark Corp, Bassett
Furniture Ind., Dixie Group Inc., Ethan Allen Interiors Inc., Hooker Furniture Corp., iRobot Corp., Johnson Outdoors Inc., Kimball
International, Knoll Inc., La-Z-Boy Inc., Lifetime Brands Inc., Patrick Industries Inc., and Select Comfort Corp.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
June 2014
500.00
450.00
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
2009
2010
2011
2012
2013
2014
Flexsteel Industries Inc.
NASDAQ Global Market Composite Index
Peer Group
Flexsteel
Peer Group
NASDAQ
2009
100.00
100.00
100.00
2010
133.88
152.33
112.55
2011
181.69
230.26
148.28
2012
252.65
224.73
143.73
2013
320.13
322.00
187.07
2014
446.85
348.35
251.34
The NASDAQ Global Select Market is the principal market on which the Company’s common stock is traded.
7
Sale Price of Common Stock *
Fiscal 2014
Fiscal 2013
High
25.96
31.65
38.63
40.44
$
High
Low
Low
22.27 $ 23.28 $ 18.68
19.01
23.44
22.51
21.15
26.29
25.77
18.56
25.43
30.61
Cash Dividends
Per Share
$
Fiscal 2014
0.15
0.15
0.15
0.15
$
Fiscal 2013
0.15
0.15
0.15
0.15
$
First Quarter .......
Second Quarter ...
Third Quarter ......
Fourth Quarter ....
* Reflects the market price as reported on The NASDAQ Global Market through January 2, 2013 and on The NASDAQ Global Select Market thereafter.
The Company estimates there were approximately 4,000 holders of common stock of the Company as of June 30, 2014.
There were no repurchases of the Company’s common stock during the quarter ended June 30, 2014. 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.
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 ...............................................
Interest and other income ...................................
Interest expense ..................................................
Income before income taxes ...............................
Income tax provision .........................................
Net income (1) (2) (3) .......................................
Earnings per common share: (1) (2) (3)
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 ...........................................
Working capital (current assets less
current liabilities) ............................................
Shareholders’ equity ...........................................
SELECTED RATIOS
Net income, as a percent of sales .......................
Current ratio .......................................................
Return on ending shareholders’ equity ...............
Average number of employees ...........................
2014
2013
2012
2011
2010
$
$
$
438,543 $
338,280
22,286
1,514
–
23,800
8,810
14,990
2.07
2.00
386,189
295,720
20,271
610
–
20,881
7,730
13,151
1.87
1.80
352,089
266,810
20,246
422
–
20,668
7,600
13,068
1.93
1.86
339,426
262,124
15,864
343
–
16,207
5,790
10,417
1.56
1.50
$
326,466
251,685
17,529
361
439
17,451
6,650
10,801
1.63
1.61
$
0.60
$
0.60
$
0.45
$
0.30
$
0.20
$
7,231
7,511
210,213 $
31,900
4,187
7,041
7,326
192,539
32,145
6,225
$
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
128,644
166,735 $
113,699
151,237
$
103,744
139,442
$
100,683
128,573
$
90,800
117,612
$
3.4
4.5 to 1
9.0
1,380
3.4
4.2 to 1
8.7
1,320
3.7
4.3 to 1
9.4
1,280
3.1
4.6 to 1
8.1
1,320
3.3
3.9 to 1
9.2
1,400
(1) Fiscal 2014 net income and per share amounts include litigation settlement costs of $3.9 million (after tax) or $0.52 per share.
(2) Fiscal 2013 net income and per share amounts include executive transition costs of $0.8 million (after tax) or $0.11 per share.
(3) 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.
8
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.
Accounts receivable allowances – the Company establishes accounts receivable allowances to reduce trade accounts
receivable to an amount that reasonably approximates their net realizable value. The Company’s accounts receivable allowances
consist of an allowance for doubtful accounts which is established through review of open accounts, historical collection, and
historical write-off amounts and an allowance for estimated returns on sales of the Company’s products which is based on historical
product returns, as well as existing product return authorizations. The Company records a provision against revenue for estimated
returns on sales of our products in the same period that the related revenues are recognized. The amount ultimately realized from trade
accounts receivable may differ from the amount estimated in the consolidated financial statements.
Inventories – the Company values inventory at the lower of cost or net realizable value. The Company’s inventory valuation
reflects markdowns for the excess of the cost over the amount expected to be realized and considers obsolete and excess inventory.
Markdowns establish a new cost basis for the Company’s inventory. Subsequent changes in facts or circumstances do not result in the
reversal of previously recorded markdowns or an increase in that newly established cost basis.
Revenue recognition – is when both product ownership and the risk of loss have transferred to the customer, collectability is
reasonably assured, and the Company has no remaining obligations. The Company’s ordering process creates persuasive evidence of
the sale arrangement and the sales price 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.
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, 2014, 2013 and 2012. Amounts presented are percentages of the Company’s net sales.
Net sales ................................................................
Cost of goods sold .................................................
Gross margin .........................................................
Selling, general and administrative .......................
Litigation settlement costs ....................................
Operating income .................................................
Interest and other income ......................................
Income before income taxes .................................
Income tax provision ............................................
Net income ...........................................................
FOR THE YEARS ENDED JUNE 30,
2013
100.0%
(76.6)
23.4
(18.2)
–
5.2
0.2
5.4
(2.0)
3.4%
2014
100.0%
(77.1)
22.9
(16.4)
(1.4)
5.1
0.3
5.4
(2.0)
3.4%
2012
100.0%
(75.8)
24.2
(18.4)
–
5.8
0.1
5.9
(2.2)
3.7%
9
Fiscal 2014 Compared to Fiscal 2013
Net sales for fiscal 2014 were $438.5 million compared to $386.2 million in the prior fiscal year, an increase of 13.6%. For
the fiscal year ended June 30, 2014, residential net sales were $359.6 million compared to $311.2 million for the year ended June 30,
2013, an increase of 15.5%. The residential net sales increase of $48.3 million for the year ended June 30, 2014 resulted from
capturing demand for upholstered and ready-to-assemble products. Commercial net sales were $79.0 million for the year ended June
30, 2014, an increase of 5.3% from net sales of $75.0 million for the year ended June 30, 2013.
Gross margin for the fiscal year ended June 30, 2014 was 22.9% compared to 23.4% for the prior fiscal year. The decrease in
the current fiscal year was primarily due to price discounting on certain case goods to address changing customer requirements.
Selling, general and administrative expenses (SG&A) for the fiscal year ended June 30, 2014 were 16.4% of net sales
compared to 18.2% in the prior fiscal year. The Company incurred approximately $2.1 million of legal defense costs during the
current fiscal year which has been recorded in SG&A expense. The Company received reimbursements of legal defense costs of
approximately $2.8 million from insurers which has been reflected as a reduction of legal expenses in SG&A expenses for the current
fiscal year. The prior fiscal year included $2.3 million in legal defense costs.
In December 2013, the Company entered into an agreement to settle the Indiana civil litigation in order to eliminate the
ongoing costs and distraction of the litigation. In February 2014, the Company contributed $6.25 million to the settlement as part of
an agreement. In reaching the agreement, the Company did not admit any wrongdoing and believes that it did not cause or contribute
to the contamination at issue. This amount is recorded as litigation settlement costs in the consolidated statements of income.
The effective tax rate was 37% for fiscal years ended June 30, 2014 and 2013.
The fiscal year 2014 net income increased $1.8 million to $15.0 million, the highest ever reported for the Company. The
number of diluted shares increased during fiscal 2014 due to additional shares outstanding and the impact of more dilutive stock
options at June 30, 2014 based on the Company’s higher stock trading price, resulting in the Company reporting diluted earnings per
share of $2.00 for fiscal year 2014 versus $1.80 for fiscal year 2013. All earnings per share amounts are on a diluted basis.
Fiscal 2013 Compared to Fiscal 2012
Net sales for fiscal 2013 were $386.2 million compared to $352.1 million in the prior fiscal year, an increase of 10%. For the
fiscal year ended June 30, 2013, residential net sales were $311.2 million compared to $275.4 million for the year ended June 30,
2012, an increase of 13.0%. The residential net sales increase of $35.8 million was primarily due to growth from existing customers
and products, and expansion of product portfolio and customer base. Commercial net sales were $75.0 million for the year ended June
30, 2013, a decrease of 2.2% from net sales of $76.7 million for the year ended June 30, 2012.
Gross margin for the fiscal year ended June 30, 2013 was 23.4% compared to 24.2% for the prior fiscal year. During fiscal
year 2013 the Company’s expenses related to workers compensation and health insurance programs were approximately $1.5 million
higher than in fiscal 2012, impacting gross margin by 0.4%.
Selling, general and administrative expenses for the fiscal year ended June 30, 2013 were 18.2% of net sales compared to
18.4% in the prior fiscal year. Fiscal year 2013 includes executive transition costs of $1.3 million or 0.4% of net sales.
The effective tax rate for the fiscal year ended June 30, 2013 was 37.0% compared to 36.8% for fiscal year 2012. The change
in effective tax rate is primarily due to the lower benefit of the Domestic Manufacturing Deduction under Internal Revenue Code
Section 199 (DMD), which provides a tax benefit on U.S. based manufacturing, and the limitation on executive compensation
deduction.
The fiscal year 2013 net income increased $0.1 million to $13.2 million. The number of diluted shares increased during fiscal
2013 due to additional shares outstanding and the impact of the Company’s higher stock trading price on outstanding options,
resulting in the Company reporting diluted earnings per share of $1.80 for fiscal year 2013 versus $1.86 for fiscal year 2012.
10
Liquidity and Capital Resources
Working capital (current assets less current liabilities) at June 30, 2014 was $128.6 million as compared to $113.7 million at
June 30, 2013. Significant changes in working capital during fiscal year 2014 included increases in cash of $11.2 million, inventories
of $5.5 million and accounts receivable of $2.5 million. The higher inventory levels support anticipated increased sales volume in
upholstered and ready-to-assemble product categories.
The Company’s main source of liquidity is cash and cash flows from operations. As of June 30, 2014 and 2013, the
Company had cash totaling $22.2 million and $10.9 million, respectively. The Company maintains a credit agreement which provides
short-term working capital financing up to $25.0 million with interest of LIBOR plus 1%, including up to $4.0 million of letters of
credit. Letters of credit outstanding at June 30, 2014 totaled $2.7 million, leaving borrowing availability of $22.3 million. The
Company did not utilize any borrowing availability under the credit facility during the year other than the aforementioned letters of
credit. The credit agreement expires June 30, 2016. At June 30, 2014, the Company was in compliance with all of the financial
covenants contained in the credit agreement.
An officer of the Company is a director at a bank where the Company maintains an unsecured $8.0 million line of credit, with
interest at prime minus 2%, and where its routine banking transactions are processed. The Company did not utilize any borrowing
availability during the year and no amount was outstanding on the line of credit at June 30, 2014. In addition, the supplemental
retirement plans assets, held in a Rabbi Trust, of $3.8 million are administered by this bank’s trust department. The Company receives
no special services or pricing on the services performed by the bank due to the directorship of this officer.
Cash increased by $11.2 million during fiscal year 2014 with net cash provided by operating activities of $16.2 million
driven primarily by net income of $15.0 million and proceeds received from stock option exercises of $2.4 million, partially offset by
capital expenditures of $4.2 million and payment of dividends of $4.3 million.
Net cash provided by operating activities was $16.2 million and $5.9 million in fiscal years 2014 and 2013, respectively. Net
income of $15.0 million was the primary driver of net cash provided by operating activities in fiscal year 2014 and reflects the cash
paid for litigation settlement costs. The Company had net income of $13.2 million that included $4.9 million in non-cash charges in
fiscal year 2013 and was offset by cash utilized for operating assets and liabilities of $12.2 million.
Net cash used in investing activities was $4.4 million and $6.0 million in fiscal years 2014 and 2013, respectively. Capital
expenditures were $4.2 million and $6.2 million during fiscal years 2014 and 2013, respectively.
Net cash used in financing activities was $0.6 million and $2.9 million in fiscal years 2014 and 2013, respectively, primarily
for the payment of dividends of $4.3 million and $4.2 million, partially offset by proceeds from issuance of common stock of $2.4
million and $1.1 million and excess tax benefit from stock-based payment arrangements of $1.4 million and $ 0.2 million in fiscal
years 2014 and 2013, respectively.
The Company expects that capital expenditures for fiscal year 2015 will include approximately $35-$40 million for
purchasing and equipping a Midwest Distribution Center and $6.0 million for other operating capital primarily for delivery and
manufacturing equipment and information technology infrastructure. Management believes that the Company has adequate cash, cash
flows from operations and credit arrangements to meet its operating and capital requirements for fiscal year 2015. 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, 2014, 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, 2014 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 ...........................
Supplemental retirement plans ......................
Total contractual obligations .........................
$
Total
12,081
4,089
16,170
$
1 Year
2,781
693
3,474
$
2 - 3
Years
4,139
–
4,139
$
4 - 5
Years
3,508
–
3,508
$
More than
5 Years
1,653
3,396
5,049
The long-term portion of the contractual obligations associated with the Company’s supplemental retirement plans are
included in the table above under more than five years as the Company cannot predict when the events that trigger payment will occur.
At June 30, 2014, 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.
11
See Note 6 to the consolidated financial statements of this Annual Report on Form 10-K.
Financing Arrangements
Outlook
Due to existing strong order backlog and positive order trends the Company expects top line growth will continue into fiscal
year 2015. Growth is expected from existing customers and products, and through expanding our product portfolio and customer
base. The Company believes this growth will be led by increased demand for upholstered and ready-to-assemble products. The
Company is confident in its ability to take advantage of market opportunities.
The Company has started two multi-year initiatives designed to enhance customer experience and increase shareholder value. In
anticipation of future growth we are implementing a logistics strategy, and are assessing our business information requirements.
Consistent with the logistics strategy and subject to closing, the Company will be investing $35-$40 million to purchase and equip a
Midwest distribution center. We are still in the preliminary stages of the business information system assessment. The timing and
level of additional investment required for these initiatives will be evaluated as the projects progress. Other operating capital
expenditures are estimated at $6.0 million for fiscal 2015. The Company believes it has adequate working capital, ability to generate
cash flow and borrowing capabilities to execute the two multi-year initiatives.
The Company remains committed to its core strategies, which include providing a wide range of quality product offerings and
price points to the residential and commercial markets, combined with a conservative approach to business. We will maintain our
focus on a strong balance sheet through emphasis on cash flow and increasing 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 2014, 2013 and 2012, 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, 2014, the Company did not have any debt outstanding.
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm ........................................................................................
Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting ..................
Consolidated Balance Sheets at June 30, 2014 and 2013 .............................................................................................
Consolidated Statements of Income for the Years Ended June 30, 2014, 2013 and 2012 ............................................
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2014, 2013 and 2012 ..................
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2014, 2013 and 2012 ...
Consolidated Statements of Cash Flows for the Years Ended June 30, 2014, 2013 and 2012 .....................................
Notes to Consolidated Financial Statements ................................................................................................................
Page(s)
13
14
15
16
16
17
18
19-29
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Flexsteel Industries, Inc.
We have audited the accompanying consolidated balance sheets of Flexsteel Industries, Inc. and subsidiaries (the
"Company") as of June 30, 2014 and 2013, 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, 2014. 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. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes 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, 2014 and 2013, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2014, 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, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of June 30, 2014, based on the criteria established in
Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated August 27, 2014 expressed an unqualified opinion on the Company's internal control
over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 27, 2014
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Flexsteel Industries, Inc.
We have audited the internal control over financial reporting of Flexsteel Industries, Inc. and subsidiaries (the "Company") as of June
30, 2014, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel 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. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30,
2014, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement schedule as of and for the year ended June 30, 2014 of the Company and our
report dated August 27, 2014 expressed an unqualified opinion on those consolidated financial statements and financial statement
schedule.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 27, 2014
14
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
ASSETS
CURRENT ASSETS:
Cash
Trade Receivables - less allowances: 2014, $1,370; 2013, $1,560
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:
Supplemental retirement plans
Other liabilities
Total liabilities
June 30,
2014
2013
$
$
22,176
38,536
97,940
4,230
2,528
165,410
31,900
2,170
10,733
210,213
$
$
10,934
36,075
92,417
4,970
4,805
149,201
32,145
1,190
10,003
192,539
$
15,818
$
13,927
8,452
4,602
7,894
36,766
3,396
3,316
43,478
7,836
4,667
9,072
35,502
2,414
3,386
41,302
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 2014, 7,370,735 shares; 2013, 7,106,723 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
TOTAL
See accompanying Notes to Consolidated Financial Statements.
'
'
'
7,371
15,386
145,234
(1,256)
166,735
210,213
$
7,107
10,615
134,606
(1,091)
151,237
192,539
$
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
Litigation settlement costs
Operating income
Interest and other income
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
$
$
$
$
$
2014
For the years ended June 30,
2013
438,543
(338,280)
100,263
(71,727)
(6,250)
22,286
1,514
23,800
(8,810)
14,990
$
$
7,231
7,511
2.07
2.00
0.60
$
$
$
386,189
(295,720)
90,469
(70,198)
–
20,271
610
20,881
(7,730)
13,151
7,041
7,326
1.87
1.80
0.60
$
$
$
$
$
2012
352,089
(266,810)
85,279
(65,033)
–
20,246
422
20,668
(7,600)
13,068
6,781
7,008
1.93
1.86
0.45
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive (loss) income:
Unrealized gains on securities in supplemental
retirement plans
Reclassification of realized gain on supplemental retirement
plans to other income
Unrealized (losses) gains on securities in
supplemental retirement plans before taxes(1)
Income tax benefit (expense) related to securities in
supplemental retirement plans (losses) gains
Net unrealized gains (losses) on securities in supplemental
retirement plans
Minimum pension liability
Income tax (expense) benefit related to minimum pension
Liability
Net minimum pension liability
Other comprehensive (loss) income, net of tax
For the years ended June 30,
2014
2013
2012
$
14,990
$
13,151 $
13,068
674
(1,316)
(642)
244
(398)
376
(143)
233
(165)
452
(356)
96
(36)
60
787
(299)
488
141
(146)
(5)
2
(3)
(1,771)
670
(1,101)
548
(1,104)
Comprehensive income
$
14,825
$
13,699 $
11,964
(1) See Note 9 to the Consolidated Financial Statements
See accompanying Notes to Consolidated Financial Statements.
'
'
16
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(Amounts in thousands)
Total Par
Value of
Common
Shares ($1 Par)
Additional
Paid-In
Capital
Accumulated
Other
Retained
Comprehensive
Earnings
(Loss) Income
Total
$
6,711
$
6,698 $
115,699 $
(535)
$
128,573
156
–
39
–
–
–
–
761
–
761
256
–
–
–
–
–
–
–
–
(3,068)
13,068
–
(3)
–
–
(1,101)
–
–
917
(3)
800
256
(1,101)
(3,068)
13,068
$
6,906
$
8,476 $
125,699 $
(1,639)
$
139,442
92
–
109
–
–
–
–
1,197
–
442
500
–
–
–
–
–
–
–
–
(4,244)
13,151
–
60
–
–
488
–
–
1,289
60
551
500
488
(4,244)
13,151
$
7,107
$
10,615
$
134,606
$
(1,091)
$
151,237
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
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
Issuance of common stock:
Stock options exercised, net
Cash dividends declared
Net income
Balance at June 30, 2013
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
Excess tax benefit from stock-based payment arrangements
Minimum pension liability adjustment, net of tax
Cash dividends declared
Net income
Balance at June 30, 2014
223
–
41
–
–
–
–
–
2,165
–
724
525
1,357
–
–
–
–
–
–
–
–
–
(4,362)
14,990
145,234
–
(398)
–
–
–
233
–
–
(1,256)
2,388
(398)
765
525
1,357
233
(4,362)
14,990
166,735
$
7,371
15,386
See accompanying Notes to Consolidated Financial Statements.
17
2014
FOR THE YEARS ENDED JUNE 30,
2013
2012
$
14,990
$
13,151
$
13,068
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:
Depreciation
Deferred income taxes
Stock-based compensation expense
Excess tax benefit from stock-based payment arrangements
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
Supplemental retirement plans
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:
Dividends paid
Proceeds from issuance of common stock
Excess tax benefit from stock-based payment arrangements
Net cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash at beginning of year
Cash at end of year
SUPPLEMENTAL INFORMATION
Income taxes paid
Capital expenditures in accounts payable
$
$
$
See accompanying Notes to Consolidated Financial!Statements.
18
4,197
(138)
1,290
(1,357)
6
42
(90)
(2,467)
(5,523)
(278)
(163)
2,117
2,986
265
360
16,237
(5,537)
5,209
98
(4,187)
(4,417)
(4,323)
2,388
1,357
(578)
11,242
10,934
22,176
$
3,803
414
1,051
(182)
(215)
69
(18)
(2,260)
(9,728)
58
(307)
1,082
(138)
(665)
(210)
5,905
(1,086)
1,273
21
(6,225)
(6,017)
(4,213)
1,107
182
(2,924)
(3,036)
13,970
10,934
$
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
13,970
FOR THE YEARS ENDED JUNE 30,
2014
2013
2012
6,880
35
$
$
7,250
261
$
$
6,237
389
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
manufacturer, importer and marketer 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.
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.
ACCOUNTS RECEIVABLE ALLOWANCES – the Company establishes accounts receivable allowances to reduce trade
accounts receivable to an amount that reasonably approximates their net realizable value. The Company’s accounts receivable
allowances consist of an allowance for doubtful accounts which is established through review of open accounts, historical
collection, and historical write-off amounts and an allowance for estimated returns on sales of the Company’s products which is
based on historical product returns, as well as existing product return authorizations. The Company records a provision against
revenue for estimated returns on sales of our products in the same period that the related revenues are recognized. The amount
ultimately realized from trade accounts receivable may differ from the amount estimated in the consolidated financial statements.
INVENTORIES – are stated at the lower of cost or net realizable value. Steel products 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. 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. No impairments of long-lived assets or
changes in depreciable or amortizable lives were incurred during fiscal year 2014, 2013 and 2012.
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 when both product ownership and the risk of loss have transferred to the customer, collectability
is reasonably assured, and the Company has no remaining obligations. The Company’s ordering process creates persuasive
evidence of the sale arrangement and the sales price 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 sheets. Advertising expenditures, primarily shared customer advertising in which an identifiable benefit is received and
national trade-advertising programs, were approximately $6.1 million, $5.6 million and $4.9 million in fiscal 2014, 2013 and
2012, respectively.
19
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 $2.8 million, $2.5 million and
$2.3 million in fiscal 2014, 2013 and 2012, 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 year. For workers’ compensation the Company retains the first $450,000 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 accrued liabilities – insurance
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 2014, 2013 and 2012, net income as reported for each respective period is divided by
the fully diluted weighted average number of shares outstanding:
(in thousands)
2014
2013
2012
June 30,
Basic shares
7,231
7,041
6,781
Potential common shares:
Stock options
Long-term incentive plan
254
26
280
253
32
285
142
85
227
Diluted shares
7,511
7,326
7,008
Anti-dilutive shares
–
10
300
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 May 2014, the Financial Accounting Standards Board issued Revenue from Contracts
with Customers, Topic 606 (Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the recognition
of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for
goods and services. This guidance, which includes additional disclosure requirements regarding revenue, cash flows and
obligations related to contracts with customers, will be effective for the Company beginning in fiscal year 2018, early adoption is
not permitted. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated financial
statements, but believes there will be no material impact, if any.
20
2. INVENTORIES
Inventories valued on a LIFO basis (steel) would have been approximately $1.4 million and $1.7 million higher at June 30, 2014
and 2013, respectively, if they had been valued on a FIFO basis. At June 30, 2014 and 2013 the total value of LIFO inventory
was $2.7 million and $2.6 million, respectively. There was no material liquidation of LIFO inventory in 2014, 2013, or 2012. A
comparison of inventories is as follows:
(in thousands)
Raw materials
Work in process and finished parts
Finished goods
Total
June 30,
2014
2013
$
$
11,603
5,470
80,867
97,940
$
$
10,684
5,410
76,323
92,417
3. PROPERTY, PLANT AND EQUIPMENT
(in thousands)
Estimated
June 30,
Life (Years)
2014
2013
Land
Buildings and improvements
Machinery and equipment
Delivery equipment
Furniture and fixtures
Total
Less accumulated depreciation
5-39
3-7
3-5
3-7
$
4,460
$
49,436
27,460
19,556
6,293
107,205
(75,305)
4,233
49,147
27,048
18,689
6,265
105,382
(73,237)
Net
$
31,900
$
32,145
4. OTHER NONCURRENT ASSETS
(in thousands)
June 30,
Cash value of life insurance
Rabbi Trust assets (see Note 9)
Other
Total
2014
2013
$
7,529
3,095
109
7,337
2,529
137
10,733
$
10,003
$
$
21
5. ACCRUED LIABILITIES – OTHER
(in thousands)
Dividends
Income taxes
Advertising
Warranty
Supplemental retirement plans - current
Other
Total
6. CREDIT ARRANGEMENTS
June 30,
2014
2013
$
$
1,106
737
2,706
1,020
693
1,632
7,894
$
$
1,067
299
2,220
1,000
2,989
1,497
9,072
The Company maintains a credit agreement which provides short-term working capital financing up to $25.0 million with interest
of LIBOR plus 1%, including up to $4.0 million of letters of credit. Letters of credit outstanding at June 30, 2014 totaled $2.7
million, leaving borrowing availability of $22.3 million. The Company did not utilize any borrowing availability under the credit
facility during the year other than the aforementioned letters of credit. The credit agreement expires June 30, 2016. At June 30,
2014, the Company was in compliance with all of the financial covenants contained in the credit agreement.
An officer of the Company is a director at a bank where the Company maintains an unsecured $8.0 million line of credit, with
interest at prime minus 2%, and where its routine banking transactions are processed. The Company did not utilize any borrowing
availability during the year and no amount was outstanding on the line of credit at June 30, 2014. In addition, the supplemental
retirement plans assets, held in a Rabbi Trust, of $3.8 million are administered by this bank’s trust department. The Company
receives no special services or pricing on the services performed by the bank due to the directorship of this officer.
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,
2014
1,290 $
490
1,780 $
2013
1,085
425
1,510
520 $
440
$
$
$
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
Balance at July 1
2014
2013
2012
$
1,085
$
1,000
$
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
325
–
(120)
Balance at June 30
$
1,290
$
265
100
(280)
1,085
$
22
970
207
–
(177)
1,000
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 is as follows for the years ended June 30:
(in thousands)
Federal- current
State - current
Deferred
Total
2014
2013
2012
$
$
8,395
553
(138)
8,810
$
$
6,750
566
414
7,730
$
$
6,969
608
23
7,600
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
2014
35.0 %
2.2
(0.2)
2013
35.0 %
2.6
(0.6)
2012
35.0 %
2.9
(1.1)
Effective tax rate
37.0 %
37.0 %
36.8 %
The effective tax rate for the fiscal years ended June 30, 2014 and 2013 was 37.0% and 36.8% for fiscal year ended June 30,
2012.
The primary components of deferred tax assets and (liabilities) are as follows:
(in thousands)
June 30, 2014
June 30, 2013
Current
Long-term
Current
Long-term
Accounts receivable
$
520
$
Inventory
Self-insurance
Employee benefits
Accrued expenses
Property, plant and equipment
Supplemental retirement plans
Other
Total
1,660
600
650
540
–
260
–
–
–
–
–
–
(740)
1,290
1,620
$
590
$
1,530
500
800
550
–
1,000
–
–
–
–
–
–
(1,150)
810
1,530
$
4,230
$
2,170
$
4,970
$
1,190
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally,
tax years 2010–2013 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 Incentive Compensation Plans
Long-Term Incentive Compensation Plan
The long-term incentive compensation plan provides for shares of common stock 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”). In December 2013, the Company’s shareholders approved 700,000 shares to be issued under the plan.
As of June 30, 2014, no shares have been issued. The Committee selected fully-diluted earnings per share as the
performance goal for the three-year performance period July 1, 2013 – June 30, 2016. Stock awards will be issued to
23
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 Company recorded expense of $0.5 million for the fiscal year ended June 30, 2014 related to this plan. If the target
performance goals would be achieved, the total amount of compensation cost recognized over the requisite service periods
(2014-2016) would be $1.1 million.
The aggregate number of shares that could be awarded to key executives if the minimum, target or maximum performance
goals are met is as follows:
(in thousands)
Performance Period
Fiscal Year 2014 - 2016
Minimum
16
Target
47
Maximum
90
2007 Long-Term Management Incentive Plan (2007 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. Due to the adoption of the Long-Term Incentive
Compensation Plan in December 2013, no additional shares can be awarded under the 2007 Plan. As of June 30, 2014,
189,030 shares have been issued. The Committee selected consolidated operating results for organic net sales growth and
fully-diluted earnings per share as the performance goal for the three-year performance periods beginning July 1, 2011 and
ending on June 30, 2014 and beginning July 1, 2012 and ending on June 30, 2015. The Committee has also specified that
payouts, if any, for awards earned in these performance periods will be 60% stock and 40% cash. Awards will be paid to
participants as soon as practicable following the end of the performance periods subject to Committee approval and
verification of results. The compensation cost related to the number of shares to be granted under each performance period
is fixed on the grant date, which is the date the performance period begins. The compensation cost related to the cash
portion of the award is re-measured based on the equity award’s estimated fair value at the end of each reporting period.
The accrual is based on the probable outcomes of the performance conditions. The short-term portion of the recorded cash
award payable is classified within current liabilities, payroll and related items, and the long-term portion of the recorded
cash award payable is classified within other long-term liabilities in the consolidated balance sheets. As of June 30, 2014
and 2013, the Company has recorded the cash-portion of awards payable of $0.6 million within current liabilities and $0.4
million within long-term liabilities. For the fiscal years ended June 30, 2014, 2013 and 2012, the Company recorded
expense of $0.9 million, $1.2 million and $1.8 million, respectively.
For the fiscal years 2012 – 2014 awards, based on the Company’s performance during that period, $1.0 million of
compensation expense has been recognized over the requisite service periods. If the target performance goals would be
achieved for the fiscal years 2013 – 2015 awards, the amount of compensation cost recognized over the requisite service
periods would be $1.0 million based on the fair values at June 30, 2014.
The aggregate number of shares and cash that could be awarded to key executives if the minimum, target or maximum
performance goals are met is as follows:
(in thousands)
Performance Period
Fiscal Year 2012 - 2014
Fiscal Year 2013 - 2015
Minimum
Shares
8
8
Cash
298
333
$
$
Target
Shares
22
23
Cash
853
951
$
$
Maximum
Shares
35
36
Cash
$
$
1,365
1,522
(2)
Stock Plans
Omnibus Stock Plan
The Omnibus Stock Plan is for key employees, officers and directors and provides for the granting of incentive and
nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and performance units. In
December 2013, the Company’s shareholders approved 700,000 shares to be issued under the plan. The options are
exercisable up to 10 years from the date of grant. 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.
24
In fiscal year 2014, the Company issued options for 57,450 common shares at a weighted average exercise price of $27.49
(the fair market value on the date of grant). The options were immediately available for exercise. For fiscal year ended June
30, 2014, the Company recorded expense of $0.4 million. 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 year 2014 under this plan; dividend yield of 2.2%; expected volatility of 32.6%; risk-free interest rate of 1.5%; and an
expected life of 5 years. 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 year 2014 was $6.63. The cash proceeds from stock
options exercised were $0.1 million for fiscal years ended 2014. At June 30, 2014, 641,550 shares were available for future
grants.
2002, 2006 and 2009 Stock Option Plans
The stock option plans were for key employees, officers and directors and provided for granting incentive and nonqualified
stock options. Under the plans, options were granted at an exercise price equal to the fair market value of the underlying
common stock at the date of grant and exercisable for up to 10 years. All options were exercisable when granted. Due to
the adoption of the Omnibus Stock Plan in December 2013, no additional options can be granted under the 2002, 2006 and
2009 stock option plans.
There were no options granted and no expense was recorded under these Plans during the fiscal year ended June 30, 2014.
For fiscal years ended June 30, 2013 and 2012, the Company issued options for 89,300 and 82,500 common shares at
weighted average exercise prices of $20.31 and $13.87 (the fair market value on the date of grant), respectively. The
options were immediately available for exercise. The Company recorded compensation expense of $0.5 million and $0.3
million during fiscal years ended 2013 and 2012, respectively.
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 2013 and 2012, respectively; dividend yield of 2.5% and
2.9%; expected volatility of 35.4% and 34.4%; risk-free interest rate of 0.8% and 0.9%; and an expected life of 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 2013 and 2012 was $5.06 and $3.11,
respectively. The cash proceeds from stock options exercised were $2.3 million, $1.1 million and $0.9 million, respectively,
for fiscal years ended 2014, 2013 and 2012. The income tax benefit related to the exercise of stock options was $0.4
million, $0.2 million and $0.1 million for fiscal years ended 2014, 2013 and 2012, respectively.
A summary of the status of the Company’s stock option plans as of June 30, 2014, 2013 and 2012 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, 2012
818
$
13.94
$
4,783
Granted
Exercised
Canceled
89
(109)
(11)
Outstanding and exercisable at June 30, 2013
787
$
Granted
Exercised
Canceled
58
(292)
(29)
Outstanding and exercisable at June 30, 2014
524
$
20.31
13.38
16.09
14.71
27.49
15.55
19.35
15.39
$
7,609
$
9,403
25
The following table summarizes information for options outstanding and exercisable at June 30, 2014:
Range of
Prices
Options
Remaining
Outstanding
Life (Years)
Exercise
Price
Weighted Average
$
6.81 - 8.55
12.35 - 13.90
14.40 – 17.23
19.21 – 27.57
$
6.81 – 27.57
(in thousands)
93
153
150
128
524
5.0
4.4
3.1
8.8
5.2
$
$
7.73
12.93
15.83
23.33
15.39
9. BENEFIT AND RETIREMENT PLANS
Defined Contribution and Retirement Plans
The Company sponsors various defined contribution 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 $1.9 million, $1.8 million and $1.6 million in fiscal years 2014, 2013 and 2012. The amounts include $0.5 million
in fiscal year 2014, $0.5 million in fiscal year 2013 and $0.4 million in fiscal 2012, for the Company’s matching contribution to
retirement savings plans.
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, 2014, is outlined in the following table. Unless
otherwise noted, the most recent Pension Protection Act zone status available in 2014 and 2013 is for the plan’s year-end at
December 31, 2013 and 2012, 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 Fund
Central States SE
and SW Areas
Pension Fund
Steelworkers
Pension Trust
Central Pension
Fund
Pension Protection
Act Zone Status
EIN/Pension
Plan Number 2014
June 30,
2013
Rehabilitation
Plan Status
Company Contributions
(in thousands)
2013
2014
Surcharge Bargaining
2012 Imposed Agreement
Expiration Date Number of
of Collective Company
Employees
in Plan
36-6044243 Red
Red
Implemented $ 252 $ 243 $ 254
No
03/28/2015
19
23-6648508 Green
Green
No
380
347
285
No
10/31/2015
196
36-6052390 Green
Green
No
7
7
7
No
05/31/2017
3
$ 639 $ 597 $ 546
The cumulative cost to exit the Company’s multi-employer plans was approximately $8.9 million on June 30, 2014.
26
Supplemental Retirement Plans
The Company has unfunded supplemental retirement 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, 2014
and 2013, the supplemental retirement plan liability was $4.1 million and $5.4 million, respectively, of which $0.7 million and
$3.0 million were recorded in other current liabilities and $3.4 million and $2.4 million were recorded in other long-term
liabilities, 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 certain of the Company’s
executive officers. For fiscal 2014, 2013 and 2012, the benefit obligation was increased by interest expense of $1.4 million, $0.5
million and $0.3 million, deposits of $0.3 million, $0.5 million and $0.4 million, and decreased by payments of $3.1 million,
$1.3 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, 2014, the
Company’s deferred compensation plan assets, held in the Rabbi Trust, were invested in stock and bond funds and are recorded
in the consolidated balance sheets at fair market value. As of June 30, 2014 and 2013, the fair market value of the assets held in
the Rabbi Trust were $3.8 million and $5.8 million, respectively, $0.7 million and $3.3 million, respectively, of the assets are
classified as other current assets and $3.1 million and $2.5 million, respectively, 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.
Defined Benefit Plan
The Company’s defined benefit pension plan is frozen. There are a total of 408 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, 2014 and 2013, 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 $0.7 million and $1.5 million, respectively. The
accumulated benefit obligation was $7.8 million and $7.4 million at fiscal years ended June 30, 2014 and 2013, respectively.
The Company recorded expense of $0.1 million, $0.1 million and $0.0 million during fiscal years 2014, 2013 and 2012,
respectively, related to the plan.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive loss, net of income taxes, are as follows:
(in thousands)
Available-for-sale securities, net of tax (1)
Pension and other post-retirement benefit adjustments,
net of tax (2)
$
Total accumulated other comprehensive loss
$
(1,256)
$
(1,091)
$
(1,251)
(1,485)
(1,973)
(1,639)
2014
June 30,
2013
2012
(5)
$
394
$
334
(1) The tax effect on the available-for-sale securities is a tax (benefit) expense of $(0.0) million, $0.2 million and $0.2 million at June 30,
2014, 2013 and 2012, respectively.
(2) The tax effect on the pension and other post-retirement benefit adjustments is a tax benefit of $0.8 million, $0.9 million and $1.2
million at June 30, 2014, 2013 and 2012, respectively.
11. LITIGATION
Indiana Civil Litigation – In December 2013, the Company entered into a confidential agreement to settle the Indiana Civil
Litigation. The Company paid $6.25 million to Plaintiffs to settle the matter without admission of wrongdoing. The Company
continues to believe that it did not cause or contribute to the contamination. This settlement is recorded as litigation settlement
costs in the consolidated statements of income.
During the fiscal years ended June 30, 2014, 2013 and 2012, the Company recorded $2.1 million, $2.3 million and $2.4 million,
respectively, in legal and other related expenses that were incurred responding to the lawsuits and pursuing insurance coverage.
These expenses are included in SG&A expense in the consolidated statements of income.
During the fiscal year ended June 30, 2014, the Company received approximately $2.8 million from insurance carriers to
reimburse the Company for certain legal defense costs. These reimbursement amounts are recorded in SG&A as a reduction of
27
legal expenses. The Company did not receive reimbursements for certain legal defense costs during fiscal years 2013 and 2012.
The Company will continue to pursue the recovery of additional defense and settlement costs from insurance carriers. Based on
policy language and jurisdiction, insurance coverage is in question. The Company filed an appeal to the Iowa Supreme Court
regarding two adverse opinions of an Iowa District Court regarding coverage issues. The Iowa Court of Appeals reversed the
District Court, ruling in favor of the Company, and the Iowa Supreme Court denied further review. The cases have now been
returned to the Iowa District Court for further proceedings.
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 $2.8 million, $2.5 million and $2.2 million in fiscal 2014, 2013 and
2012, respectively.
Expected future minimum commitments under operating leases as of June 30, 2014 were as follows:
(in thousands)
Fiscal Year Ended June 30,
2015
2016
2017
2018
2019
Thereafter
$
$
2,781
2,464
1,675
1,727
1,781
1,653
12,081
13. 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,
2014
2013
2012
Residential
$
359,565
$
311,214
$
275,442
Commercial
78,978
74,975
76,647
$
438,543
$
386,189
$
352,089
14. SUBSEQUENT EVENT
On August 8, 2014, the Company entered into an agreement with ELHC I, LLC (the Seller), to purchase real property from the
Seller for $24.1 million. The real property is located in Edgerton, Kansas and includes approximately 26.6 acres of land together
with a building of approximately 500,000 square feet. The Company intends to utilize available cash and borrowing availability
to fund the transaction.
28
15. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION – UNAUDITED
(in thousands, except
per share amounts)
Fiscal 2014:
Net sales
Gross margin
Litigation settlement
Net income
Earnings per share:
Basic
Diluted
(in thousands, except
per share amounts)
Fiscal 2013:
Net sales
Gross margin
Net income
Earnings per share:
Basic
Diluted
September 30
FOR THE QUARTER ENDED
March 31
December 31
$
104,348
$
23,645
–
3,768
112,534
26,059
(6,250)
1,170
$
$
0.53
0.51
$
$
0.16
0.16
$
$
$
110,532
25,044
–
4,420
0.61
0.58
September 30
FOR THE QUARTER ENDED
March 31
December 31
$
$
$
91,237
21,101
2,872
0.41
0.40
$
$
$
94,590
22,747
2,922
0.42
0.40
$
$
$
98,351
22,839
3,118
0.44
0.42
June 30
111,129
25,515
–
5,632
0.77
0.74
June 30
102,010
23,781
4,240
0.60
0.57
$
$
$
$
$
$
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, 2014.
Changes in internal control over financial reporting – During the fiscal quarter ended June 30, 2014, 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, 2014. 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 (1992). Based on those criteria,
management concluded that the internal control over financial reporting is effective as of June 30, 2014. The effectiveness of the
Company’s internal control over financial reporting as of June 30, 2014, has been audited by Deloitte & Touche LLP, our independent
registered public accounting firm, as stated in their report in Part II, Item 8 of this Form 10-K.
Item 9B.
Other Information
None.
29
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information contained in the Company’s 2014 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 2014 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.
Item 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The information contained in the Company’s 2014 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
The information contained under the sections “Interest of Management and Others in Certain Transactions” and “Corporate
Governance – Board of Directors” in the Company’s 2014 definitive proxy statement to be filed with the Securities and Exchange
Commission is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information contained in the Company’s 2014 definitive proxy statement to be filed with the Securities and Exchange
Commission under the sections captioned “Independent Registered Public Accounting Firm” is incorporated herein by reference.
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.
(2)
Schedules
The following financial statement schedules for the years ended June 30, 2014, 2013 and 2012 are submitted herewith:
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 2014, 2013 and 2012
(in thousands)
Description
Accounts Receivable Allowances:
2014………………….
2013..............................
2012..............................
$
$
Balance at
Beginning of
Year
(Additions)
Reductions to
Income
Additions to
(Deductions from)
Reserves
Balance at End
of Year
1,560
1,910
2,000
$
$
6
(215)
(150)
$
$
(196)
(135)
60
$
$
1,370
1,560
1,910
30
Other schedules are omitted because they are not required or are not applicable or because the required information is
included in the financial statements.
(3)
Exhibits
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
10.1
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).
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). *
10.2
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). *
10.3
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). *
10.4 2002 Stock Option Plan (incorporated by reference to Appendix A from the 2002 Flexsteel definitive proxy
statement). *
10.5
10.6
10.7
10.8
10.9
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).*
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). *
2009 Stock Option Plan (incorporated by reference to Appendix A from the 2009 Flexsteel definitive proxy
statement). *
10.10 Credit Agreement dated April 14, 2010 between Flexsteel Industries, Inc. and Wells Fargo Bank, N.A. (incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission on April 19, 2010).
10.11 First Amendment dated June 7, 2011 to Credit Agreement dated April 14, 2010 between Flexsteel Industries, Inc.
and Wells Fargo Bank, N.A. (incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on June 9, 2011).
10.12 Second Amendment dated May 11, 2012 to Credit Agreement dated April 14, 2010 between Flexsteel Industries,
Inc. and Wells Fargo Bank, N.A. (incorporated by reference to Form 10-Q for the period ended March 31, 2013
filed with the Securities and Exchange Commission on April 18, 2013).
10.13 Third Amendment dated June 28, 2013 to Credit Agreement dated April 14, 2010 between Flexsteel Industries, Inc.
and Wells Fargo Bank, N.A. (incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on July 5, 2013).
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.)*
10.15 Form of Notification of Award for the Cash Incentive Compensation Plan (incorporated by reference to Form 8-K
filed with the Securities and Exchange Commission on December 13, 2013.)
31
10.16 Form of Notification of Award for the Long-Term Incentive Compensation Plan (incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on December 13, 2013.)
10.17 Form of Notification of Award for incentive stock options issued under the Omnibus Stock Plan (incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on December 13, 2013.)
10.18 Form of Notification of Award for non-qualified stock options issued under the Omnibus Stock Plan (incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission on December 13, 2013.)
10.19 Form of Notification of Award for director non-qualified stock options issued under the Omnibus Stock Plan
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on December 13, 2013.)
10.20 Form of Notification of Award for restricted stock units issued under the Omnibus Stock Plan (incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on December 13, 2013.)
10.21 Long-Term Incentive Compensation Plan, dated July 1, 2013 (incorporated by reference to Exhibit 4.1 of Flexsteel’s
Form S-8 filed with the Securities and Exchange Commission on December 23, 2013.)*
10.22 Omnibus Stock Plan, dated July 1, 2013 (incorporated by reference to Exhibit 4.1 of Flexsteel’s Form S-8 filed with
the Securities and Exchange Commission on December 23, 2013.)*
10.23 Fourth Amendment to Credit Agreement dated June 27, 2014 between Flexsteel Industries, Inc. and Wells Fargo
Bank, N.A. (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 27,
2014).
10.24 Revolving Line of Credit Note dated June 27, 2014 between Flexsteel Industries, Inc. and Wells Fargo Bank, N.A.
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 27, 2014).
10.25 Purchase and Sale Agreement dated August 8, 2014 between Flexsteel Industries, Inc. and ELHC I, LLC
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on August 14, 2014).
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.
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.
32
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 27, 2014
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
33
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.
/S/ Lynn J. Davis
Lynn J. Davis
Chair of the Board of Directors
/S/ Karel K. Czanderna
Karel K. Czanderna
Director
/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
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
Date: August 27, 2014
34
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.
35
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-151865, 333-140811, 333-105951, 333-164994,
333-183443, 333-193041 and 333-193042 on Form S-8 of our reports dated August 27, 2014, relating to the consolidated financial
statements and financial statement schedule of Flexsteel Industries, Inc. and subsidiaries (the “Company”), and the effectiveness of the
Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Flexsteel Industries, Inc. for
the year ended June 30, 2014.
EXHIBIT 23
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 27, 2014
36
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 27, 2014
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
37
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 27, 2014
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
38
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, 2014 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 27, 2014
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
39
Directors
Lynn J. Davis
Chair of the Board of Directors
Retired President and Chief Operating Officer
August Technology
Karel K. Czanderna
President and Chief Executive Officer
Flexsteel Industries, Inc.
Director
Jeffrey T. Bertsch
Senior Vice President
Flexsteel Industries, Inc.
Director
Mary C. Bottie
Director
Retired Vice President
Motorola, Inc.
Robert E. Deignan
Director
Attorney at Law
Baker & McKenzie LLP
Ronald J. Klosterman
Director
Retired President and Chief Executive Officer
Flexsteel Industries, Inc.
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
Flexsteel Industries, Inc.
Director
Nancy E. Uridil
Director
Retired Senior Vice President
Moen Incorporated
committees
Audit and Ethics Committee
Eric S. Rangen, Chair
Lynn J. Davis
Thomas M. Levine
Nominating and
Compensation Committee
Mary C. Bottie, Chair
Robert E. Deignan
Robert J. Maricich
Nancy E. Uridil
officers
Julia K. Bizzis
Senior Vice President
Strategic Growth
Carrie T. Bertsch Bleile
Vice President – Merchandising
Home Furnishings
Donald D. Dreher
Senior Vice President
President and
Chief Executive Officer
DMI Furniture
Lee D. Fautsch
Senior Vice President
Home Furnishings Sales
Steven K. Hall
Vice President
North American Operations
Timothy E. Hall
Senior Vice President – Finance
Chief Financial Officer
Secretary, Treasurer
Michael A. Santillo
Vice President
Healthcare
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 SeleCT MarkeT
NASDAQ Symbol • FLXS
aNNual MeeTINg
December 8, 2014, 2:00 p.m.
Dubuque, Iowa
loCaTIoNS
Flexsteel Industries, Inc.
Dubuque Iowa
Global Headquarters . . . . . . K. K. Czanderna, President & CEO
Dubuque Operations . . . . . G. L. Santiago, 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 . . . . . M. B. Chandler, 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
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 found
online via the website www.flexsteel.com under
“About Flexsteel” or can be obtained by
writing to: Office of the Secretary
Flexsteel Industries, Inc.
P . O . Box 877
Dubuque, Iowa 52004-0877
© 2014 Flexsteel Industries, Inc.
PO Box 877 • Dubuque, IA 52004-0877
residential
commercial
Fine Furniture Since 1893