2015
Annual Report
Fiscal Year Ending
June 30, 2015
385 Bell Street | Dubuque, IA | 52001 | www.flexsteel.com
Financial Highlights
Directors
Officers
For the Year Ended June 30,
2015
2014
2013
2012
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 466,904
$ 438,543
$ 386,189
$ 352,089
$ 339,426
Operating income . . . . . . . . . . . . . . . . . . . . . . . 34,422
Income before income taxes . . . . . . . . . . . . . . 35,559
22,286
23,800
20,271
20,881
20,246
20,668
15,864
16,207
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,299
$ 14,990
$ 13,151
$ 13,068
$ 10,417
(in thousands, except per-share data)
Weighted Average Common
Shares Outstanding – Diluted . . . . . . . . . . . . . . . 7,708
7,511
7,326
7,008
6,929
Earnings per share of
Common Stock – Diluted . . . . . . . . . . . . . . . . . $ 2.89
$ 2.00
$ 1.80
$ 1.86
$ 1.50
Cash dividends declared
per common share . . . . . . . . . . . . . . . . . . . . . . $ 0.72
$ 0.60
$ 0.60
$ 0.45
$ 0.30
Book value per share . . . . . . . . . . . . . . . . . . . $ 24.97
$ 22.62
$ 21.28
$ 20.19
$ 19.16
At June 30,
Working capital . . . . . . . . . . . . . . . . . . . $ 119,902
$ 128,644
$ 113,699
$ 103,744
$ 100,683
Total assets . . . . . . . . . . . . . . . . . . . . . . . 244,619
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 57,872
210,213
43,478
192,539
41,302
181,672
42,230
164,677
36,104
Shareholders’ equity . . . . . . . . . . . . . . . $ 186,747
$ 166,735
$ 151,237
$ 139,442
$ 128,573
Net Sales
[in millions]
$467
$439
Net Income
[in millions]
$22.3
Dividends
[in millions]
$386
$352
$339
$15.0
$13.0
$13.2
$10.4
$3.1
$2.0
$5.1
$4.2
$4.4
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
37%Revenue Growth
[From June 30, 2011 to June 30, 2015]
114%Profit Growth
[From June 30, 2011 to June 30, 2015]
155%
Dividend Growth
[From June 30, 2011 to June 30, 2015]
Lynn J. Davis
Chair of the Board of Directors
Retired President and
Chief Operating Officer
August Technology Corp.
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
Committees
Thomas M. Levine
Director
Independent Management Advisor
Robert J. Maricich
Director
Chief Executive Officer
International Market Centers LP
Eric S. Rangen
Director
Senior Vice President and
Chief Accounting Officer
UnitedHealth Group Inc.
James R. Richardson
Director
Retired Senior Vice President
Flexsteel Industries, Inc.
Nancy E. Uridil
Director
Retired Senior Vice President
Moen Incorporated
Audit and Ethics
Committee
Eric S. Rangen, Chair
Thomas M. Levine
Robert J. Maricich
Compensation
Committee
Mary C. Bottie, Chair
Robert J. Maricich
Nancy E. Uridil
Nominating and
Governance Committee
Nancy E. Uridil, Chair
Robert E. Deignan
Thomas M. Levine
Julia K. Bizzis
Senior Vice President
Strategic Growth
Carrie T. Bleile
Vice President Merchandising
Home Furnishings
Lee D. Fautsch
Senior Vice President Sales
Home Furnishings
Steven K. Hall
Vice President
Global Supply Chain
Timothy E. Hall
Senior Vice President Finance
Chief Financial Officer
Secretary, Treasurer
Daniel R. Kennedy
Vice President Marketing
Home Furnishings
Charles T. Piekenbrock
Vice President
Strategic Sourcing
Michael A. Santillo
Vice President
Healthcare
Richard J. Stanley
Vice President
Contract Group
TRAns feR AGenT AnD ReGisTRAR
Wells Fargo Shareowner Services
PO Box 64854
South St. Paul, Minnesota 55164-0854
nAsDAQ GlobAl selecT MARkeT
NASDAQ Symbol • FLXS
AnnuAl MeeTinG
December 7, 2015, 2:00 p.m.
Dubuque, Iowa
locATions
Flexsteel Industries, Inc.
Dubuque, Iowa
Global Headquarters
Dubuque Operations
Dublin, Georgia
Lancaster, Pennsylvania
Riverside, California
Starkville, Mississippi
Harrison, Arkansas
Edgerton, Kansas
DMI Furniture, Inc.
Louisville, Kentucky
Huntingburg, Indiana
websiTe
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.
PO Box 877
Dubuque, Iowa 52004-0877
© 2015 Flexsteel Industries, Inc.
To Our Shareholders
The completion of fiscal year 2015 is the fourth
consecutive year of record net income and the sixth
consecutive year of net sales growth. During fiscal
year 2015, we increased shareholder dividends by
20 percent and completed 294 consecutive quarters
of dividend payments. At the end of fiscal year 2015,
the company had record net sales of $467 million, a
6.5 percent increase compared to the previous year’s
record of $439 million. Net income was a record
$22.3 million or $2.89 per share compared to the
previous year’s record net income of $15 million
or $2.00 per share. Residential net sales increased
9.3 percent or $34 million to $393 million and
commercial net sales were $74 million.
There are many quotes on the topic of change. Many
speak to the need for change, for the pace of change,
and for the dire consequences of failure to change.
There is also a plethora of quotes on the constants
in business: those of corporate values, leadership
principles, and business fundamentals. The Flexsteel
Board of Directors, executive team, and all of our
associates are working together to balance change
and constants as we deliver today while planning for
continued profitable growth.
One of the areas where we have been and remain
constant is in our commitment to safety. Our team
posted impressive gains with year-over-year decreases
in both the frequency and severity of recordable
injuries. And while our record is significantly lower than
the industry average, we all agree improvements must
be made until we reach and sustain a zero-injury level.
Our commitment to quality also remains at the heart of
what we do. It extends well beyond how our products are
made to include the design, packaging, and handling
of all our products. Understanding and anticipating
the demands and desires of consumers as they pursue
furniture purchases is a constant focus. Fashion and
comfort cut across all consumer demographics. From
ready-to-deliver, made-to-order, or ready-to-assemble
to retail and e-tail, we strive to attract a variety of
consumers through an array of styles and price
points. And as home design continues to influence
commercial environments, we are able to leverage our
knowledge and insights across Hospitality, Commercial
Office, Senior Living, Healthcare, Government, and
Recreational Vehicle product portfolios.
While we continue to commit to delivering every
customer order on time, in full, and defect free, we
were challenged to do so during the West Coast
port slowdown. Half of our businesses were adversely
impacted, delaying delivery and customer growth.
During 2015, we celebrated the grand opening of our
Edgerton, Kansas, distribution center. This strategic
investment in our distribution network supports our
double-digit growth rate and delivers more products
more quickly to more customers.
We have continued to advance the strategic initiative
to design and develop a strong business information
system, so our customers, suppliers, and associates
can quickly access and leverage information to their
advantage. The business and functional requirements
have been captured and prioritized into a multi-year,
cadenced deployment, and the technology platform
has been selected.
We also invested in the redesign of our corporate
website to meet the ever-changing expectations of
consumers, customers, and purchase influencers.
Designing a highly intuitive user experience with
the requisite social links was critical to meeting our
objectives to attract, retain, and engage consumers
and advocates while generating business. The role of
designers, along with the proliferation of design and
decorating resources in social media, has made the
website experience a critical step in the pre-shopping
experience for both the home and contract markets.
Visit the new www.flexsteel.com and see for yourself.
We utilized this work as the platform for the launch
of our fresh new branding. This bold new identity is
infused with our proud history and brings multiple lines
of business together under a single branded house.
The polish and revitalization of the brand reflects our
internal commitment to modernizing our infrastructure
and creating crafted outcomes for our customers and
stakeholders. This evolved branding will carry Flexsteel
into a bright future.
All of this happens through great people doing their
best work every day. For us, building strong partnerships
goes hand in hand with building strong and comfortable
products. Growing our teams and deepening our talent
bench is foundational to sustaining our growth. We are
proud to have big aspirations and delighted to report
that we are on pace to meet them.
Karel K. Czanderna
President and
Chief Executive Officer
Lynn J. Davis
Chair of the Board of
Directors
A Life Well Lived
Patrick M. Crahan
1948–2014
In remembrance of his
30 years of leadership
and service to Flexsteel
Industries, Inc.
Flexsteel Associate and
Executive 1983–2013
Board of Directors
1997–2014
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.
Nathan Reclining Group
Gregory Group
American Heritage Home Office Group
Bali Bedroom Group
Americana Vintage Kitchen Island
Floral Blossom Outdoor Dining
Senior Living
Healthcare
Government
Hospitality
Marine Seating
Recreational Vehicle
Commercial Office
UNITED
STATES
SECURITIES
AND
EXCHANGE
COMMISSION
Washington,
D.C.
20549
Form
10-‐K
[
ü
]
Annual
Report
Pursuant
to
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
1934
For
the
fiscal
year
ended
June
30,
2015
or
[
]
Transition
Report
Pursuant
to
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
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For
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transition
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from
to
Commission
file
number
0-‐5151
_______________________________________________
FLEXSTEEL
INDUSTRIES,
INC.
(Exact
name
of
registrant
as
specified
in
its
charter)
(State
or
other
jurisdiction
of
incorporation
or
organization)
(I.R.S.
Employer
Identification
No.)
Minnesota
42-‐0442319
Registrant’s
telephone
number,
including
area
code:
385
Bell
Street,
Dubuque,
Iowa
(Address
of
principal
executive
offices)
52001
(Zip
Code)
(563)
556-‐7730
_______________________________________________
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registered
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Section
12(b)
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$1.00
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NASDAQ
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LLC
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registered
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Class)
_______________________________________________
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DOCUMENTS
INCORPORATED
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1
PART I
Cautionary Statement Relevant to Forward-Looking Information for the Purpose of “Safe Harbor” Provisions of
the Private Securities Litigation Reform Act of 1995
The Company and its representatives may from time to time make written or oral forward-looking statements with respect to
long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities
and Exchange Commission and in its reports to stockholders.
Statements, including those in this Annual Report on Form 10-K, which are not historical or current facts, are “forward-
looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause our results to differ materially from those anticipated by some of the statements made
herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect
results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, 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,
2014
359,565
78,978
438,543
2015
393,143
73,761
466,904
2013
311,214
74,975
386,189
$
$
$
$
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
blended focus on products allows the Company to provide a wide range of price points, styles and product categories to satisfy
customer requirements.
2
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, 2015, the Company had approximately 100 employees located in
Asia to ensure Flexsteel’s quality standards are met, 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, 2015
$58,600
June 30, 2014
$45,000
June 30, 2013
$43,300
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 2015-2031.
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
continuously. In the last three fiscal years, these design activities involved the following expenditures (in thousands):
Fiscal Year Ended June 30,
2015
2014
2013
Expenditures
$4,090
$2,820
$2,520
3
Employees
The Company had 1,340 employees as of June 30, 2015, including 215 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 13, 2015), and the year they were first
elected or appointed an officer of the registrant, are as follows:
Name (age)
Karel K. Czanderna (59)
Timothy E. Hall (57)
Jeffrey T. Bertsch (60)
Julia K. Bizzis (58)
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)
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.
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.
4
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, 2015:
Location
Size (square feet)
Principal Operations
Approximate
Harrison, Arkansas
Riverside, California
Dublin, Georgia
New Paris, Indiana
Huntingburg, Indiana
Dubuque, Iowa
Dubuque, Iowa
Edgerton, Kansas
Starkville, Mississippi
Lancaster, Pennsylvania
221,000
305,000
300,000
168,000
691,000
719,000
40,000
500,000
349,000
216,000
Manufacturing
Manufacturing and Distribution
Manufacturing
Held for sale
Distribution
Manufacturing and Distribution
Corporate Office
Distribution
Manufacturing
Distribution
The Company leases the following facilities as of June 30, 2015:
Location
Size (square feet)
Principal Operations
Approximate
Cerritos, California
Riverside, California
Ferdinand, Indiana
Louisville, Kentucky
Juarez, Mexico
32,000
112,380
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. Subsequent to June 30, 2015, the Company added 193,637 square feet of leased space in
Riverside, California to meet present market demands.
6
The Company leases showrooms for displaying its products in the furniture markets in High Point, North Carolina and Las
Vegas, Nevada.
Item 3.
Legal Proceedings
Indiana Civil Litigation
–
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 additional defense and settlement costs from insurance carriers. Based
on policy language and jurisdiction, insurance coverage is in question. The Iowa District Court dismissed litigation filed by the
Company’s insurance carriers in Iowa after the Iowa Court of Appeals found that Indiana law applied to the insurance policies in
question and the Iowa Supreme Court denied further review. However, that dismissal has been appealed by the insurance carriers to
the Iowa Supreme Court. Concurrently, coverage litigation is proceeding against the insurance carriers in Indiana.
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.
Flexsteel
Peer Group
NASDAQ
2010
100.00
100.00
100.00
2011
135.71
151.17
131.75
2012
188.71
147.53
127.70
2013
239.12
211.39
166.22
2014
333.76
228.68
223.32
2015
440.31
277.40
258.85
7
The NASDAQ Global Select Market is the principal market on which the Company’s common stock is traded.
Sale Price of Common Stock
Fiscal 2015
Fiscal 2014
Cash Dividends
Per Share
$
First Quarter .......
Second Quarter ...
Third Quarter ......
Fourth Quarter ....
High
38.43
36.71
33.79
46.11
High
Low
Low
30.25 $ 25.96 $ 22.27
22.51
31.65
28.99
25.77
38.63
28.56
30.61
40.44
30.51
$
Fiscal 2015
0.18
0.18
0.18
0.18
$
Fiscal 2014
0.15
0.15
0.15
0.15
The Company estimates there were approximately 4,000 holders of common stock of the Company as of June 30, 2015.
There were no repurchases of the Company’s common stock during the quarter ended June 30, 2015. 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)
2015
2014
2013
2012
2011
$
SUMMARY OF OPERATIONS
466,904 $
Net sales .........................................................................................
357,044
Cost of goods sold ..........................................................................
34,422
Operating income ...........................................................................
1,267
Interest and other income ...............................................................
(130)
Interest expense ..............................................................................
35,559
Income before income taxes ...........................................................
13,260
Income tax provision .....................................................................
Net income (1) (2) (3) ...................................................................
22,299
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:
7,423
Basic ............................................................................................
Diluted .........................................................................................
7,708
Total assets .....................................................................................
244,619 $
Property, plant and equipment, net .................................................
Capital expenditures .......................................................................
64,770
37,424
3.00
2.89
0.72
$
$
$
$
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
0.60
$
0.60
$
0.45
$
0.30
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
Working capital (current assets less
current liabilities) ........................................................................
119,902
Shareholders’ equity .......................................................................
186,748 $
SELECTED RATIOS
Net income, as a percent of sales ...................................................
Current ratio ...................................................................................
Return on ending shareholders’ equity ...........................................
Average number of employees .......................................................
(1) Fiscal 2014 net income and per share amounts include litigation settlement costs of $3.9 million (after tax) or $0.52 per share.
3.4
4.2 to 1
8.7
1,320
4.8
3.3 to 1
11.9
1,340
3.4
4.5 to 1
9.0
1,380
128,644
166,735 $
113,699
151,237
$
$
103,744
139,442
3.7
4.3 to 1
9.4
1,280
100,683
128,573
$
3.1
4.6 to 1
8.1
1,320
(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, 2015, 2014 and 2013. Amounts presented are percentages of the Company’s net sales.
Net sales ................................................................
Cost of goods sold .................................................
Gross margin .........................................................
Selling, general and administrative .......................
Litigation settlement reimbursements (costs) .......
Operating income .................................................
Interest and other income ......................................
Interest expense .....................................................
Income before income taxes .................................
Income tax provision ............................................
Net income ...........................................................
FOR THE YEARS ENDED JUNE 30,
2014
100.0%
(77.1)
22.9
(16.4)
(1.4)
5.1
0.3
–
5.4
(2.0)
3.4%
2013
100.0%
(76.6)
23.4
(18.2)
–
5.2
0.2
–
5.4
(2.0)
3.4%
2015
100.0%
(76.5)
23.5
(16.2)
0.1
7.4
0.2
0.0
7.6
(2.8)
4.8%
9
Fiscal 2015 Compared to Fiscal 2014
Net sales for fiscal 2015 were $467.0 million compared to $438.5 million in the prior fiscal year, an increase of 6.5%. For
the fiscal year ended June 30, 2015, residential net sales were $393.1 million compared to $359.5 million for the year ended June 30,
2014, an increase of 9.3%. The residential net sales increase of $33.6 million for the year ended June 30, 2015 resulted from capturing
demand for upholstered and ready-to-assemble products. Commercial net sales were $73.8 million for the year ended June 30, 2015, a
decrease of 6.6% from net sales of $79.0 million for the year ended June 30, 2014.
Gross margin for the fiscal year ended June 30, 2015 was 23.5% compared to 22.9% for the prior fiscal year. The
improvement in gross margin for the fiscal year is primarily driven by declining inventory write downs.
Selling, general and administrative expenses (SG&A) for the fiscal year ended June 30, 2015 were 16.2% of net sales
compared to 16.4% in the prior fiscal year. The Company incurred approximately $0.6 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 $0.2 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 $2.1 million in legal defense costs which was offset by reimbursements of $2.8 million from
insurers.
The effective tax rate was 37.3% and 37.0% for fiscal years ended June 30, 2015 and 2014.
The fiscal year 2015 net income increased $7.3 million to $22.3 million, the highest ever reported for the Company. The
number of diluted shares increased during fiscal 2015 due to additional shares outstanding and the impact of more dilutive stock
options at June 30, 2015 based on the Company’s higher stock trading price, resulting in the Company reporting diluted earnings per
share of $2.89 for fiscal year 2015 versus $2.00 for fiscal year 2014. All earnings per share amounts are on a diluted basis.
Fiscal 2014 Compared to Fiscal 2013
Net sales for fiscal 2014 were $438.5 million compared to $386.2 million in fiscal 2013, 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 fiscal year ended June 30, 2013.
The decrease in fiscal 2014 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 fiscal year ended June 30, 2013. The Company incurred approximately $2.1 million of legal defense costs
during the 2014 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 2014
fiscal year. Fiscal year 2013 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 37.0% for fiscal years ended June 30, 2014 and 2013.
The fiscal year 2014 net income increased $1.8 million to $15.0 million. 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.
10
Liquidity and Capital Resources
Working capital (current assets less current liabilities) at June 30, 2015 was $119.9 million as compared to $128.6 million at
June 30, 2014. Significant changes in working capital during fiscal year 2015 included a decrease in cash of $20.9 million and
increases in inventories of $15.9 million, short term borrowings of $11.9 million, accounts receivable of $6.6 million and accounts
payable of $2.5 million. During the fiscal year, the Company utilized cash and borrowings to acquire and ready a distribution center in
Edgerton, Kansas. The increase in inventory primarily supports anticipated increased sales volume in upholstered and case goods
product categories. The increase in accounts receivable is due to the increase in sales volume and timing of collections. The increase
in accounts payable is due to timing of payments.
The Company’s main sources of liquidity are cash, cash flows from operations and credit arrangements. As of June 30, 2015
and 2014, the Company had cash totaling $1.3 million and $22.2 million, respectively. The Company maintains an unsecured credit
agreement which was amended on June 29, 2015, and provides short-term working capital financing up to $30.0 million with interest
of LIBOR plus 1%, including up to $4.0 million of letters of credit. The amendment reduced the borrowing availability from $65.0
million to $30.0 million. Letters of credit outstanding at June 30, 2015 totaled $2.9 million. As of June 30, 2015, the Company utilized
$10.6 million of borrowing availability under the credit facility during the year, other than the aforementioned letters of credit, leaving
borrowing availability of $16.5 million. The credit agreement expires June 30, 2016. At June 30, 2015, 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 $10.0 million line of credit,
with interest at prime minus 2%, and where its routine banking transactions are processed. The Company utilized borrowing
availability during the year and $1.3 million was outstanding on the line of credit at June 30, 2015. In addition, the supplemental
retirement plans assets, held in a Rabbi Trust, of $3.5 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.
Net cash provided by operating activities was $3.3 million and $16.2 million in fiscal years 2015 and 2014, respectively. The
Company had net income of $22.3 million that included $5.8 million in non-cash charges in fiscal year 2015 and was offset by cash
utilized for operating assets and liabilities of $24.8 million. Non-cash charges included depreciation of $4.9 million. In fiscal year
2014, the Company had net income of $15.0 million that included $3.9 million in non-cash charges and was offset by cash utilized for
operating assets and liabilities of $2.7 million.
Net cash used in investing activities was $32.6 million and $4.4 million in fiscal years 2015 and 2014, respectively. In fiscal
year 2015, the Company made capital expenditures of $37.4 million partially offset by $5.1 million of proceeds from life insurance
policies. During fiscal year 2015, the Company invested $32.0 million to purchase and equip its Edgerton distribution facility. The
Company made capital expenditures of $4.2 million during fiscal year 2014.
Net cash provided by and used in financing activities was $8.4 million and $0.6 million in fiscal years 2015 and 2014,
respectively. Proceeds from short-term notes payable totaled $11.9 million in fiscal year 2015. Payment of dividends of $5.1 million
and $4.3 million, partially offset by proceeds from issuance of common stock of $0.8 million and $2.4 million and excess tax benefit
from stock-based payment arrangements of $0.8 million and $1.4 million in fiscal years 2015 and 2014, respectively.
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 2016. 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, 2015, the Company had no long-term debt obligations and therefore, had no interest payments related to long-
term debt. The following table summarizes the Company’s contractual obligations at June 30, 2015 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 ...........................
Notes payable - current .................................
Supplemental retirement plans ......................
Total contractual obligations .........................
$
$
Total
12,458
11,904
4,123
28,485
$
$
1 Year
3,785
11,904
1,208
16,897
$
$
2 - 3
Years
5,239
–
–
5,239
$
$
4 - 5
Years
2,982
–
–
2,982
More than
5 Years
452
–
2,915
3,367
$
$
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, 2015, 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 in fiscal
year 2016. Residential 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, ready-to-assemble, and case
goods products. The Company anticipates sales of commercial products consistent with fiscal year 2015. The Company is confident
in its ability to take advantage of market opportunities.
The Company continues to progress on two multi-year initiatives, designed to enhance customer experience and increase
shareholder value. Consistent with the logistics strategy, the Company began operations in April 2015, as planned, at its Edgerton
distribution facility after investing $32.0 million. The Company continues to develop its business information system requirements
and expensed $0.6 million during the current fiscal year related to the project. The timing and level of additional investment required
for these initiatives will be evaluated as the projects progress. Operating capital expenditures are estimated to be $7 million for fiscal
2016. The Company believes it has adequate working capital and borrowing capabilities to meet these requirements.
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, as
well as, 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 2015, 2014 and 2013, the Company did not have sales denominated in foreign
currencies, however did have minimal purchases and 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, 2015, the Company had $11.9 million outstanding under its credit arrangements. See Note 6 to the Consolidated
Financial Statements.
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, 2015 and 2014 .............................................................................................
Consolidated Statements of Income for the Years Ended June 30, 2015, 2014 and 2013 ............................................
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2015, 2014 and 2013 ..................
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2015, 2014 and 2013 ...
Consolidated Statements of Cash Flows for the Years Ended June 30, 2015, 2014 and 2013 .....................................
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, 2015 and 2014, 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, 2015. 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, 2015 and 2014, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 2015, 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, 2015, based on the criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated August 28, 2015 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 28, 2015
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, 2015, based on criteria established in Internal Control — Integrated Framework (2013) 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,
2015, based on the criteria established in Internal Control — Integrated Framework (2013) 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, 2015 of the Company and our
report dated August 28, 2015 expressed an unqualified opinion on those consolidated financial statements and financial statement
schedule.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 28, 2015
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: 2015, $1,400; 2014, $1,370
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
Notes payable – current
Accrued liabilities:
Payroll and related items
Insurance
Other
Total current liabilities
LONG-TERM LIABILITIES:
Supplemental retirement plans
Other liabilities
Total liabilities
$
$
$
June 30,
2015
2014
$
$
$
1,282
45,101
113,842
4,220
6,777
171,222
64,770
1,870
6,757
244,619
18,329
11,904
7,931
4,308
8,848
51,320
2,915
3,637
57,872
22,176
38,536
97,940
4,230
2,528
165,410
31,900
2,170
10,733
210,213
15,818
–
8,452
4,602
7,894
36,766
3,396
3,316
43,478
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 2015, 7,480,367 shares; 2014, 7,370,735 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
TOTAL
See accompanying Notes to Consolidated Financial Statements.
7,480
18,827
162,176
(1,736)
186,747
244,619
$
7,371
15,386
145,234
(1,256)
166,735
210,213
$
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 reimbursements (costs)
Operating income
Interest and other income
Interest expense
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
2015
For the years ended June 30,
2014
466,904
(357,044)
109,860
(75,688)
250
34,422
1,267
(130)
35,559
(13,260)
22,299
7,423
7,708
3.00
2.89
0.72
$
$
$
$
$
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
$
$
$
$
$
2013
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
$
$
$
$
$
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 (losses) gains on securities in supplemental
retirement plans
Minimum pension liability
Income tax benefit (expense) related to minimum pension
liability
Net minimum pension liability
Other comprehensive (loss) income, net of tax
For the years ended June 30,
2015
2014
2013
$
22,299
$
14,990 $
13,151
162
(400)
(238)
91
(147)
(537)
204
(333)
(480)
674
(1,316)
(642)
244
(398)
376
(143)
233
452
(356)
96
(36)
60
787
(299)
488
(165)
548
Comprehensive income
$
21,819
$
14,825 $
13,699
(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)
Balance at June 30, 2012
Issuance of common stock:
Stock options exercised, net
Unrealized gain on available for sale investments, net of tax
Long-term incentive compensation
Stock-based compensation
Minimum pension liability adjustment, net of tax
Cash dividends declared
Net income
Balance at June 30, 2013
Issuance of common stock:
Stock options exercised, net
Unrealized loss 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
Issuance of common stock:
Stock options exercised, net
Unrealized loss 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, 2015
Total Par
Value of
Common
Shares ($1 Par)
Additional
Paid-In
Capital
Accumulated
Other
Retained
Comprehensive
Earnings
(Loss) Income
Total
$
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
223
–
41
–
–
–
–
–
2,165
–
724
525
1,357
–
–
–
–
–
–
–
–
–
(4,362)
14,990
–
(398)
–
–
–
233
–
–
2,388
(398)
765
525
1,357
233
(4,362)
14,990
$
7,371
$
15,386
$
145,234
$
(1,256)
$
166,735
83
–
26
–
–
–
–
–
707
–
1,310
607
817
–
–
–
–
–
–
–
–
–
(5,357)
22,299
–
(147)
–
–
–
(333)
–
–
790
(147)
1,336
607
817
(333)
(5,357)
22,299
$
7,480
$
18,827
$
162,176
$
(1,736)
$
186,747
See accompanying Notes to Consolidated Financial Statements.
17
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(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
Gain on life insurance policies
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
Proceeds from life insurance policies
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
Proceeds from short-term notes payable
Net cash provided by (used in) financing activities
(Decrease) increase in cash
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.
2015
FOR THE YEARS ENDED JUNE 30,
2014
2013
$
22,299
$
14,990
$
13,151
4,945
605
1,943
(817)
30
(28)
(119)
(745)
(6,596)
(15,902)
(3,882)
(1,024)
2,083
201
(187)
463
3,269
(1,955)
1,611
155
5,053
(37,423)
(32,559)
(5,115)
790
817
11,904
8,396
(20,894)
22,176
1,282
$
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
2015
FOR THE YEARS ENDED JUNE 30,
2014
2013
13,920
130
$
$
6,880
35
$
$
7,250
261
18
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and subsidiaries (the “Company”) is one of the oldest and largest
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, notes 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 2015, 2014 and 2013.
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 $6.9 million, $6.1 million and $5.6 million in fiscal 2015, 2014 and
2013, 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 $4.1 million, $2.8 million and
$2.5 million in fiscal 2015, 2014 and 2013, 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 2015, 2014 and 2013, net income as reported for each respective period is divided by
the fully diluted weighted average number of shares outstanding:
(in thousands)
2015
2014
2013
June 30,
Basic shares
7,423
7,231
7,041
Potential common shares:
Stock options
Long-term incentive plan
255
30
285
254
26
280
253
32
285
Diluted shares
7,708
7,511
7,326
Anti-dilutive shares
–
–
10
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, was originally to be effective for the Company beginning in fiscal year 2018. In
July 2015, the FASB confirmed a one year deferral of the effective date of the new revenue standard which also allows early
adoption as of the original effective date. The updated guidance will be effective for the Company’s first quarter of 2019. 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 $1.6 million and $1.4 million higher at June 30, 2015
and 2014, respectively, if they had been valued on a FIFO basis. At June 30, 2015 and 2014 the total value of LIFO inventory
was $2.6 million and $2.7 million, respectively. There was no material liquidation of LIFO inventory in 2015, 2014, or 2013. A
comparison of inventories is as follows:
(in thousands)
June 30,
2015
2014
Raw materials
$
Work in process and finished parts
12,663
5,772
95,407
$
113,842
$
$
11,603
5,470
80,867
97,940
Finished goods
Total
3. PROPERTY, PLANT AND EQUIPMENT
(in thousands)
Estimated
June 30,
Life (Years)
2015
2014
Land
$
7,654
$
Buildings and improvements
Machinery and equipment
Delivery equipment
Furniture and fixtures
Total
Less accumulated depreciation
5-39
3-7
3-5
3-7
72,684
32,263
20,097
8,939
141,637
(76,867)
4,460
49,436
27,460
19,556
6,293
107,205
(75,305)
Net
$
64,770
$
31,900
4. OTHER NONCURRENT ASSETS
(in thousands)
June 30,
Cash value of life insurance
Rabbi Trust assets (see Note 9)
Other
Total
2015
2014
3,434
2,404
919
6,757
$
$
7,529
3,095
109
10,733
$
$
21
5. ACCRUED LIABILITIES – OTHER
(in thousands)
Dividends
Income taxes
Advertising
Warranty
Supplemental retirement plans - current
Other
Total
6. CREDIT ARRANGEMENTS
June 30,
2015
2014
$
$
1,346
–
3,661
1,010
1,208
1,623
8,848
$
$
1,106
737
2,706
1,020
693
1,632
7,894
The Company maintains a credit agreement which was amended on June 29, 2015, that provides short-term working capital
financing up to $30.0 million with interest of LIBOR plus 1% (1.19% at June 30, 2015), including up to $4.0 million of letters of
credit. The amendment decreased the borrowing availability from $65.0 to $30.0 million. Letters of credit outstanding at June 30,
2015 totaled $2.9 million. As of June 30, 2015, the Company utilized $10.6 million of borrowing availability under the credit
facility, other than the aforementioned letters of credit, leaving borrowing availability of $16.5 million. The credit agreement
expires December 31, 2016. At June 30, 2015, 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 $10.0 million line of credit, with
interest at prime minus 2% (1.25% at June 30, 2015), and where its routine banking transactions are processed. As of June 30,
2015, the Company utilized borrowing availability during the year and $1.3 million was outstanding on the line of credit at June
30, 2015. In addition, the supplemental retirement plans assets, held in a Rabbi Trust, of $3.5 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,
2015
1,580 $
610
2,190 $
2014
1,290
490
1,780
640 $
520
$
$
$
22
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
Balance at July 1
2015
2014
$
1,290
$
1,085
$
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
390
–
(100)
Balance at June 30
$
1,580
$
325
–
(120)
1,290
$
2013
1,000
265
100
(280)
1,085
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
2015
2014
2013
$
$
11,725
930
605
13,260
$
$
8,395
553
(138)
8,810
$
$
6,750
566
414
7,730
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
2015
2014
35.0 %
35.0 %
2.6
(0.3)
2.2
(0.2)
2013
35.0 %
2.6
(0.6)
Effective tax rate
37.3 %
37.0 %
37.0 %
The effective tax rate for the fiscal year ended June 30, 2015 was 37.3% and 37.0% for fiscal years ended June 30, 2014 and
2013.
The primary components of deferred tax assets and (liabilities) are as follows:
(in thousands)
June 30, 2015
June 30, 2014
Current
Long-term
Current
Long-term
Accounts receivable
$
Inventory
Self-insurance
Compensation and benefits
Accrued expenses
Property, plant and equipment
Supplemental retirement plans
Other
Total
530
925
595
585
1,125
–
460
–
$
–
–
–
1,240
–
(1,225)
1,110
745
$
520
$
1,660
600
650
540
–
260
–
–
–
–
950
–
(740)
1,290
670
$
4,220
$
1,870
$
4,230
$
2,170
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally,
tax years 2011–2014 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which we are
subject.
23
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, 2015, no shares have been issued. The Committee selected fully-diluted earnings per share as the
performance goal for the three-year performance periods July 1, 2013 – June 30, 2016 (2014-2016) and July 1, 2014 – June
30, 2017 (2015-2017). Stock awards will be issued 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 Company recorded plan expenses of $1.1 million and $0.5 million for fiscal years ended June 30, 2015 and 2014,
respectively. If the target performance goals for 2014-2016 and 2015-2017 would be achieved, the total amount of
compensation cost recognized over the requisite service periods would be $1.1 million and $1.0 million, respectively.
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
Fiscal Year 2015 - 2017
Minimum
17
12
Target
48
31
Maximum
91
60
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, 2015,
215,082 shares have been issued. The Committee selected consolidated operating results for organic net sales growth and
fully-diluted earnings per share as the performance goals for the three-year performance period beginning July 1, 2012 and
ending on June 30, 2015 (2013-2015). 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, 2015, the Company has recorded the cash-portion of
awards payable of $0.7 million within current liabilities. For fiscal year ended June 30, 2014, the Company 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, 2015, 2014 and 2013, the Company recorded expense of $0.6 million, $0.9 million and $1.2
million, respectively.
For the fiscal year 2013-2015 awards, based on the Company’s performance during that period, $1.2 million of
compensation expense has been recognized over the requisite service periods.
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 2013 - 2015
Minimum
Shares
9
Cash
251
$
Target
Maximum
Shares
24
Cash
686
$
Shares
39
Cash
$
1,133
24
(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.
For fiscal years 2015 and 2014, the Company issued options for 48,600 and 57,450 common shares at a weighted average
exercise price of $31.48 and $27.49 (the fair market value on the date of grant), respectively. The options were immediately
available for exercise. For fiscal years ended June 30, 2015 and 2014, the Company recorded expense of $0.4 million and
$0.4 million, 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 year 2015 and 2014,
respectively, under this plan; dividend yield of 2.0% and 2.2%; expected volatility of 29.9% and 32.6%; risk-free interest
rate of 1.6% and 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 2015 and 2014 were
$7.33 and $6.63, respectively. The cash proceeds from stock options exercised were $0.1 million for fiscal years ended
2015 and 2014. At June 30, 2015, 595,400 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 years ended June 30, 2015
and June 30, 2014. For fiscal year ended June 30, 2013, the Company issued options for 89,300 common shares at the
weighted average exercise price of $20.31 (the fair market value on the date of grant). The options were immediately
available for exercise. The Company recorded compensation expense of $0.5 million during fiscal year ended June 30,
2013.
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; dividend yield of 2.5%; expected volatility of
35.4%; risk-free interest rate of 0.8%; 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 year 2013 was $5.06. The cash proceeds
from stock options exercised were $1.6 million, $2.3 million and $1.1 million, respectively, for fiscal years ended 2015,
2014 and 2013. The income tax benefit related to the exercise of stock options was $0.4 million, $0.4 million and $0.2
million for fiscal years ended 2015, 2014 and 2013, respectively.
25
A summary of the status of the Company’s stock option plans as of June 30, 2015, 2014 and 2013 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, 2013
787
$
14.71
$
7,609
Granted
Exercised
Canceled
58
(292)
(29)
Outstanding and exercisable at June 30, 2014
524
$
Granted
Exercised
Canceled
49
(110)
(6)
Outstanding and exercisable at June 30, 2015
457
$
27.49
15.55
19.35
15.39
31.48
15.52
16.98
17.02
$
9,403
$
11,916
The following table summarizes information for options outstanding and exercisable at June 30, 2015:
Range of
Prices
Options
Remaining
Outstanding
Life (Years)
Exercise
Price
Weighted Average
$
6.81 – 8.55
12.35 – 14.40
17.23 – 22.82
27.38 – 32.13
$
6.81 – 32.13
(in thousands)
93
152
117
95
457
4.0
2.9
6.6
4.2
4.3
$
$
7.73
13.25
19.06
29.52
17.02
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 $2.0 million, $1.9 million and $1.8 million in fiscal years 2015, 2014 and 2013. The amounts include $0.5 million
in fiscal years 2015, 2014 and 2013, 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, 2015, is outlined in the following table. Unless
otherwise noted, the most recent Pension Protection Act zone status available in 2015 and 2014 is for the plan’s year-end at
December 31, 2014 and 2013, respectively. The zone status is based on information that the Company received from the plan
26
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 2015
June 30,
2014
Rehabilitation
Plan Status
Company Contributions
(in thousands)
2014
2015
Surcharge Bargaining
2013 Imposed Agreement
Expiration Date Number of
of Collective Company
Employees
in Plan
36-6044243 Red
Red
Implemented $ 248 $ 252 $ 243
No
03/31/2018
15
23-6648508 Green
Green
No
364
380
347
No
10/31/2015
197
36-6052390 Green
Green
No
7
7
7
No
05/31/2017
3
$ 619 $ 639 $ 597
The cumulative cost to exit the Company’s multi-employer plans was approximately $9.2 million on June 30, 2015.
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, 2015
and 2014, the supplemental retirement plan liability was $4.1 million, respectively, of which $1.2 million and $0.7 million were
recorded in other current liabilities and $2.9 million and $3.4 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
2015, 2014 and 2013, the benefit obligation was increased by interest expense of $0.5 million, $1.4 million and $0.5 million,
deposits of $0.3 million, $0.3 million and $0.5 million, and decreased by payments of $0.9 million, $3.1 million and $1.3
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, 2015, 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, 2015 and 2014, the fair market value of the assets held in the Rabbi Trust
were $3.5 million and $3.8 million, respectively, $1.1 million and $0.7 million, respectively, of the assets are classified as other
current assets and $2.4 million and $3.1 million, respectively, are classified as other noncurrent 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 403 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, 2015 and 2014, 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 $0.9 million and $0.7 million, respectively. The
accumulated benefit obligation was $8.0 million and $7.8 million at fiscal years ended June 30, 2015 and 2014, respectively.
The Company recorded expense of $0.1 million, $0.1 million and $0.1 million during fiscal years 2015, 2014 and 2013,
respectively, related to the plan.
27
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
$
(1,736)
$
(1,256)
$
(1,584)
(1,251)
(1,485)
(1,091)
2015
June 30,
2014
2013
$
(152)
$
(5)
$
394
(1) The tax effect on the available-for-sale securities is a tax (benefit) expense of $(0.1) million, $(0.0) million and $0.2 million at June
30, 2015, 2014 and 2013, respectively.
(2) The tax effect on the pension and other post-retirement benefit adjustments is a tax benefit of $1.0 million, $0.8 million and $0.9
million at June 30, 2015, 2014 and 2013, 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, 2015, 2014 and 2013, the Company recorded $0.6 million, $2.1 million and $2.3 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 years ended June 30, 2015 and 2014, the Company received approximately $0.2 million and $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 legal expenses. The Company did not receive reimbursements for certain legal defense costs during fiscal year
2013. 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 Iowa District Court dismissed litigation filed by
the Company’s insurance carriers in Iowa after the Iowa Court of Appeals found that Indiana law applied to the insurance policies
in question and the Iowa Supreme Court denied further review. The dismissal has been appealed by the insurance carriers to the
Iowa Supreme Court. Concurrently, coverage litigation is proceeding against the insurance carriers in Indiana.
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.
28
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 $3.8 million, $2.8 million and $2.5 million in fiscal 2015, 2014 and
2013, respectively.
Expected future minimum commitments under operating leases as of June 30, 2015 were as follows:
(in thousands)
Fiscal Year Ended June 30,
2016
2017
2018
2019
2020
Thereafter
3,785
3,514
1,725
1,781
1,201
452
12,458
$
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,
2015
2014
Residential
$
393,143
$
359,565
Commercial
73,761
78,978
$
466,904
$
438,543
2013
311,214
74,975
386,189
$
$
29
14. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION – UNAUDITED
(in thousands, except
per share amounts)
Fiscal 2015:
Net sales
Gross margin
Litigation settlement
reimbursements
Net income
Earnings per share:
Basic
Diluted
(in thousands, except
per share amounts)
Fiscal 2014:
Net sales
Gross margin
Litigation settlement
costs
Net income
Earnings per share:
Basic
Diluted
September 30
FOR THE QUARTER ENDED
March 31
December 31
June 30
$
$
$
108,666
25,520
$
114,386
27,094
–
4,878
0.66
0.64
$
$
–
7,502
0.63
0.61
$
$
$
122,530
29,668
$
121,323
27,579
250
6,956
0.94
0.90
$
$
–
5,780
0.77
0.74
September 30
FOR THE QUARTER ENDED
March 31
December 31
June 30
$
$
$
104,348
23,645
$
112,534
26,059
–
3,768
(6,250)
1,170
0.53
0.51
$
$
0.16
0.16
$
$
$
110,532
25,044
$
111,129
25,515
–
4,420
0.61
0.58
$
$
–
5,632
0.77
0.74
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, 2015.
Changes in internal control over financial reporting – During the fiscal quarter ended June 30, 2015, 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, 2015. 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 (2013). Based on those criteria,
management concluded that the internal control over financial reporting is effective as of June 30, 2015. The effectiveness of the
Company’s internal control over financial reporting as of June 30, 2015, 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.
30
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information contained in the Company’s 2015 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 2015 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 2015 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 2015 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 2015 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, 2015, 2014 and 2013 are submitted herewith:
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 2015, 2014 and 2013
Balance at
Beginning of
Year
(Additions)
Reductions to
Income
Additions to
(Deductions from)
Reserves
Balance at End
of Year
(in thousands)
Description
Accounts Receivable Allowances:
2015…………..………….
2014…………..………….
1,370
1,560
72
6
(42)
(196)
1,400
1,370
1,560
2013...................................
$
1,910
$
(215)
$
(135)
$
31
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). *
32
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).
10.26 Completion of Acquisition of Assets dated September 26, 2014 between Flexsteel Industries, Inc. and ELHC I, LLC.
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on October 1, 2014).
10.27 Promissory Note dated January 1, 2015 between Flexsteel Industries, Inc. and American Trust & Savings Bank.
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on January 8, 2015).
10.28 Sixth Amendment to Credit Agreement dated January 12, 2015 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 January
14, 2015).
10.29 Seventh Amendment to Credit Agreement dated June 29, 2015 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 1,
2015).
10.30 First Modification to Revolving Line of Credit Note dated June 29, 2015 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 1, 2015).
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.
33
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.
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 28, 2015
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
34
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/ Robert E. Deignan
Robert E. Deignan
Director
/S/ Thomas M. Levine
Thomas M. Levine
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 28, 2015
Date: August 28, 2015
Date: August 28, 2015
Date: August 28, 2015
Date: August 28, 2015
Date: August 28, 2015
Date: August 28, 2015
Date: August 28, 2015
Date: August 28, 2015
Date: August 28, 2015
35
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.
36
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 28, 2015, 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, 2015.
EXHIBIT 23
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 28, 2015
37
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 28, 2015
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
38
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 28, 2015
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
39
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, 2015 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)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and;
(2)
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 28, 2015
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
40
Financial Highlights
Directors
Officers
For the Year Ended June 30,
2015
2014
2013
2012
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 466,904
$ 438,543
$ 386,189
$ 352,089
$ 339,426
Operating income . . . . . . . . . . . . . . . . . . . . . . . 34,422
Income before income taxes . . . . . . . . . . . . . . 35,559
22,286
23,800
20,271
20,881
20,246
20,668
15,864
16,207
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,299
$ 14,990
$ 13,151
$ 13,068
$ 10,417
(in thousands, except per-share data)
Weighted Average Common
Shares Outstanding – Diluted . . . . . . . . . . . . . . . 7,708
7,511
7,326
7,008
6,929
Earnings per share of
Common Stock – Diluted . . . . . . . . . . . . . . . . . $ 2.89
$ 2.00
$ 1.80
$ 1.86
$ 1.50
Cash dividends declared
per common share . . . . . . . . . . . . . . . . . . . . . . $ 0.72
$ 0.60
$ 0.60
$ 0.45
$ 0.30
Book value per share . . . . . . . . . . . . . . . . . . . $ 24.97
$ 22.62
$ 21.28
$ 20.19
$ 19.16
At June 30,
Working capital . . . . . . . . . . . . . . . . . . . $ 119,902
$ 128,644
$ 113,699
$ 103,744
$ 100,683
Total assets . . . . . . . . . . . . . . . . . . . . . . . 244,619
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 57,872
210,213
43,478
192,539
41,302
181,672
42,230
164,677
36,104
Shareholders’ equity . . . . . . . . . . . . . . . $ 186,747
$ 166,735
$ 151,237
$ 139,442
$ 128,573
Net Sales
[in millions]
$467
$439
Net Income
[in millions]
$22.3
Dividends
[in millions]
$386
$352
$339
$15.0
$13.0
$13.2
$10.4
$3.1
$2.0
$5.1
$4.2
$4.4
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
37%Revenue Growth
[From June 30, 2011 to June 30, 2015]
114%Profit Growth
[From June 30, 2011 to June 30, 2015]
155%
Dividend Growth
[From June 30, 2011 to June 30, 2015]
Lynn J. Davis
Chair of the Board of Directors
Retired President and
Chief Operating Officer
August Technology Corp.
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
Committees
Thomas M. Levine
Director
Independent Management Advisor
Robert J. Maricich
Director
Chief Executive Officer
International Market Centers LP
Eric S. Rangen
Director
Senior Vice President and
Chief Accounting Officer
UnitedHealth Group Inc.
James R. Richardson
Director
Retired Senior Vice President
Flexsteel Industries, Inc.
Nancy E. Uridil
Director
Retired Senior Vice President
Moen Incorporated
Audit and Ethics
Committee
Eric S. Rangen, Chair
Thomas M. Levine
Robert J. Maricich
Compensation
Committee
Mary C. Bottie, Chair
Robert J. Maricich
Nancy E. Uridil
Nominating and
Governance Committee
Nancy E. Uridil, Chair
Robert E. Deignan
Thomas M. Levine
Julia K. Bizzis
Senior Vice President
Strategic Growth
Carrie T. Bleile
Vice President Merchandising
Home Furnishings
Lee D. Fautsch
Senior Vice President Sales
Home Furnishings
Steven K. Hall
Vice President
Global Supply Chain
Timothy E. Hall
Senior Vice President Finance
Chief Financial Officer
Secretary, Treasurer
Daniel R. Kennedy
Vice President Marketing
Home Furnishings
Charles T. Piekenbrock
Vice President
Strategic Sourcing
Michael A. Santillo
Vice President
Healthcare
Richard J. Stanley
Vice President
Contract Group
TRAns feR AGenT AnD ReGisTRAR
Wells Fargo Shareowner Services
PO Box 64854
South St. Paul, Minnesota 55164-0854
nAsDAQ GlobAl selecT MARkeT
NASDAQ Symbol • FLXS
AnnuAl MeeTinG
December 7, 2015, 2:00 p.m.
Dubuque, Iowa
locATions
Flexsteel Industries, Inc.
Dubuque, Iowa
Global Headquarters
Dubuque Operations
Dublin, Georgia
Lancaster, Pennsylvania
Riverside, California
Starkville, Mississippi
Harrison, Arkansas
Edgerton, Kansas
DMI Furniture, Inc.
Louisville, Kentucky
Huntingburg, Indiana
websiTe
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.
PO Box 877
Dubuque, Iowa 52004-0877
© 2015 Flexsteel Industries, Inc.
2015
Annual Report
Fiscal Year Ending
June 30, 2015
385 Bell Street | Dubuque, IA | 52001 | www.flexsteel.com