2016
Annual Report
Fiscal Year Ending
June 30, 2016
Financial Highlights
For the Year Ended June 30,
2016
2015
2014
2013
2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 500,106
$ 466,904
$ 438,543
$ 386,189
$ 352,089
Operating income . . . . . . . . . . . . . . . . . . . . . . . 38,068
Income before income taxes . . . . . . . . . . . . . . 37,927
34,422
35,559
22,286
23,800
20,271
20,881
20,246
20,668
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,237
$ 22,299
$ 14,990
$ 13,151
$ 13,068
(in thousands, except per-share data)
Weighted Average Common
Shares Outstanding – Diluted . . . . . . . . . . . . . . . 7,765
7,708
7,511
7,326
7,008
Earnings per share of
Common Stock – Diluted . . . . . . . . . . . . . . . . . $ 3.12
$ 2.89
$ 2.00
$ 1.80
$ 1.86
Cash dividends declared
per common share . . . . . . . . . . . . . . . . . . . . . . $ 0.72
$ 0.72
$ 0.60
$ 0.60
$ 0.45
Book value per share . . . . . . . . . . . . . . . . . . . $ 27.23
$ 24.97
$ 22.62
$ 21.28
$ 20.19
At June 30,
Working capital . . . . . . . . . . . . . . . . . . . $ 143,086
$ 119,902
$ 128,644
$ 113,699
$ 103,744
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 246,896
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 37,246
244,619
57,872
210,213
43,478
192,539
41,302
181,672
42,230
Shareholders’ equity . . . . . . . . . . . . . . . $ 209,650
$ 186,747
$ 166,735
$ 151,237
$ 139,442
$467
$439
$386
$352
$500
Net Income
[in millions]
Dividends
[in millions]
$24.2
$22.3
$5.5
$5.1
$15.0
$13.0
$13.2
$4.2
$4.4
$3.1
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
42%
Revenue Growth
[From June 30, 2012 to June 30, 2016]
86%
Profit Growth
77%
Dividend Growth
[From June 30, 2012 to June 30, 2016]
[From June 30, 2012 to June 30, 2016]
To Our Shareholders
On behalf of our shareholders, we are delighted to
present several highlights for fiscal year 2016, most
notably surpassing the $500 million mark.
Fiscal year 2016 delivered the fifth consecutive year
of record net income, and the seventh consecutive
year of net sales growth. The company posted $500
million in sales, a 7.1 percent increase compared to the
previous year’s record of $467 million. Net income was
a record $24.2 million or $3.12 per share compared
to the previous year’s record of $22.3 million or $2.89
per share.
Our commitment to a balanced portfolio is proving
successful. The Residential Group, serving home
furnishings through brick-and-mortar stores as well as
through internet sales, led the company with a net sales
increase of 7 percent or $27.8 million. The Commercial
Group, serving the healthcare, hospitality, office and
recreational vehicle markets, increased 7.3 percent or
net sales of $5.4 million.
The strength of our financial performance enabled the
retirement of all borrowings and the 298th consecutive
quarter of cash dividend payments to our shareholders.
Our long-standing focus on a strong balance sheet is a
source of pride for our shareholders, board of directors,
the executive team and each of our associates. It is also
an attribute our customers value.
The foundation of our success is in our talent bench.
It is people who design, engineer and manufacture
furniture. It is people who sell and deliver furniture.
And it is people who deliver value to our customers
and shareholders each and every day. Through
consistent growth of sales and earnings, we are quickly
approaching our 75th year of consecutive dividend
payments to shareholders. To do so, while retiring
borrowings and prudently investing for strategic
growth, should give shareholders confidence in the
people of Flexsteel.
Our team continues to grow, building critical
organizational capability and capacity to fuel continued
growth. As our baby boomers retire, new associates
are not only drawing on their hundreds of years of
industry experience, but they are also bringing highly
relevant expertise to quickly add value to the company
and our customers.
While we focus our work on delivering each year’s
desired results, there are also several multi-year
projects underway. We made a significant investment
in our corporate footprint by building a new corporate
headquarters four years ago and in a centralized
distribution center two years ago. In both cases we were
preparing for continued growth as well as the graceful
retirement of our 120-year-old hometown facility.
The third and final phase is now underway, with the
development of a streamlined manufacturing hub for
our signature Blue Steel Spring system and recreational
vehicle product portfolio.
Strategic investments further extend into technology
and equipment for manufacturing, logistics and
transportation, as well as advancing our journey toward
a common, comprehensive business information
system. In 2016, the team completed the critical final
preparation phases to move into business system
blueprinting and design over the coming months.
Another highlight for the year was the redesign
and deployment of a fresh new look and consumer
experience
for our Home Styles brand at
www.homestyles-furniture.com. This site along with
our one-year-old www.flexsteel.com has posted
impressive gains in visitors per day, pages viewed, time
spent on the site, downloads and social shares. And,
most importantly, both sites guide visitors on where to
buy Flexsteel furniture.
That last sentence is an important one, as everything
we do is about serving our customers. Building quality
products simply isn’t enough. We listen, we learn,
we understand and we act…and our results speak
for themselves.
Karel K. Czanderna
President and
Chief Executive Officer
Lynn J. Davis
Chair of the Board of
Directors
Jack “JB” Crahan
1923–2015
JB, the fourth CEO of Flexsteel,
was a man of great integrity
and conviction. He never lost
sight of what was important
for the company and its
employees. He taught us to
respect and understand our
customer’s point of view and
to treat them as an extension
of our team. He was a humble
man. He is a legend all his own.
Flexsteel Associate and Executive 1947–1998
Board of Directors 1949–1998
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
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Tomkins Reclining Group with Trestle Tables
Grayson Group with Gemini Tables
Senior Living
Camden Home Office Group
Hospitality
Outland Bedroom Group
Healthcare
Stone Harbor Table and
Laguna Chairs Outdoor Dining
Nantucket Kitchen Island
Government
Marine Seating
Recreational Vehicle
Commercial Office
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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, 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 ....................................
$
FOR THE YEARS ENDED JUNE 30,
2015
393,143
73,761
466,904
2016
420,884
79,222
500,106
2014
359,565
78,978
438,543
$
$
$
$
Manufacturing and Offshore Sourcing
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 steel seat spring, manufacturing
and sourcing capabilities, facility locations, commitment to customers, product quality, delivery, service, value and
experienced production, sales, marketing and management teams, are some of our competitive advantages.
Seasonality
The Company’s business is not considered seasonal.
Foreign Operations
The Company makes minimal export sales. At June 30, 2016, the Company had approximately 100 employees
located in Asia to ensure Flexsteel’s quality standards are met, and coordinate the delivery of purchased products. The
Company leases and operates a 225,000 square foot production facility in Juarez, Mexico utilizing contracted labor.
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, 2016
$46,700
June 30, 2015
$58,600
June 30, 2014
$45,000
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 2016-2034.
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,
2016
2015
2014
Expenditures
$4,170
$4,090
$2,820
3
Employees
The Company had 1,460 employees as of June 30, 2016, including 200 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 12, 2016), and the year they
were first elected or appointed an officer of the registrant, are as follows:
Name (age)
Karel K. Czanderna (60)
Timothy E. Hall (58)
Julia K. Bizzis (59)
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 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.
We employ information technology systems to support our global business. Security breaches and other disruptions to
our information technology infrastructure could interfere with our operations, compromise information belonging to us and our
customers and suppliers, and expose us to liability which could adversely impact our business and reputation. In the ordinary
course of business, we rely 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, we collect and store certain
data, including proprietary business information, and may have access to confidential or personal information in certain areas
of our businesses that is subject to privacy and security laws, regulations and customer-imposed controls. While security
breaches and other disruptions to our information technology networks and infrastructure could happen, none have occurred to
date that have had a material impact to us. There may be other challenges and risks as we upgrade and standardize our 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 our reputation, which could adversely affect our business.
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.
4
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.
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.
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.
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 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.
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.
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.
(cid:1)(cid:1)
5
(cid:1)(cid:1)
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.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The Company owns the following facilities as of June 30, 2016:
Location
Harrison, Arkansas
Riverside, California
Dublin, Georgia
New Paris, Indiana
Huntingburg, Indiana
Dubuque, Iowa
Dubuque, Iowa
Edgerton, Kansas
Starkville, Mississippi
Lancaster, Pennsylvania
Approximate
Size (square feet)
Principal Operations
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, 2016:
Location
Cerritos, California
Riverside, California
Louisville, Kentucky
Juarez, Mexico
Approximate
Size (square feet)
Principal Operations
32,000
211,000
10,000
225,000
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.
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(cid:1) (cid:58) 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 received $2.3 million and $0.3 million during the fiscal years ended June 30, 2016 and 2015, respectively, for
recovery of litigation settlement costs from insurers. The Company continues to believe that it did not cause or contribute to
the contamination. These amounts are recorded as “litigation settlement reimbursements (costs)” in the consolidated
statements of income.
The Company continues to pursue the recovery of 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
6
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 was then appealed by the insurance
carriers to the Iowa Supreme Court, which referred the appeal to the Iowa Court of Appeals. On August 17, 2016, the Iowa
Court of Appeals affirmed the Iowa District Court dismissal. The insurance carriers may appeal to the Iowa Supreme Court.
Coverage litigation is proceeding against the insurance carriers in Indiana.
Other Proceedings – In March 2016, the Company received a General Notice Letter for the Lane Street
Groundwater Superfund Site located in Elkhart, Indiana from the United States Environmental Protection Agency (EPA).
The EPA has determined that the Company may be responsible under the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA). In April 2016, the EPA issued their proposed clean-up plan for groundwater
pollution and request for public comment. The Company provided public comment to the proposed plan in May 2016. As of
June 30, 2016, no liability was recorded in the Consolidated Balance Sheets because it is not possible to reasonably estimate
the amount, if any, of remediation cost due to the early stages of determining the extent of environmental impact, allocation
amount to the potentially responsible parties and remediation alternatives.
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 (FLXS); (2) The NASDAQ Global Market; and (3) an industry peer group of the following: American
Woodmark Corp, Bassett Furniture Ind., Culp Inc., Dixie Group Inc., Ethan Allen Interiors Inc., Hooker Furniture Corp.,
Johnson Outdoors Inc., Kimball International, Knoll Inc., La-Z-Boy Inc., Lifetime Brands Inc., Patrick Industries Inc., and
Select Comfort Corp. During the fiscal year ended June 30, 2016, the Company completed a compensation study utilizing the
peer group above. The Company chose to utilize the new peer group for the share investment performance graph. The only
change in peer group is Culp Inc. was chosen as a more relevant peer company replacing iRobot Corp.
Flexsteel
Peer Group
NASDAQ
2011
100.00
100.00
100.00
2012
139.05
106.33
96.93
2013
176.19
147.78
126.16
2014
245.94
162.27
169.50
2015
324.44
212.83
196.46
2016
303.87
216.17
141.68
7
The NASDAQ Global Select Market is the market on which the Company’s common stock is traded.
Sale Price of Common Stock
Fiscal 2016
Fiscal 2015
High
44.95
48.67
45.79
45.29
$
Low
27.25
30.31
37.98
36.06
High
$ 38.43
36.71
33.79
46.11
Low
$ 30.25
28.99
28.56
30.51
Cash Dividends
Per Share
$
Fiscal 2016
0.18
0.18
0.18
0.18
$
Fiscal 2015
0.18
0.18
0.18
0.18
$
First Quarter .......
Second Quarter...
Third Quarter .....
Fourth Quarter....
The Company estimates there were approximately 4,800 holders of common stock of the Company as of June 30,
2016. There were no repurchases of the Company’s common stock during the quarter ended June 30, 2016. The payment of
future cash dividends is within the discretion of our Board of Directors and will depend, among other factors, on our
earnings, capital requirements and operating and financial condition.
Item 6. Selected Financial Data
The selected financial data presented below should be read in conjunction with the Company’s consolidated
financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K and with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form
10-K. The selected consolidated statements of income data of the Company is derived from the Company’s consolidated
financial statements.
Five-Year Review
(Amounts in thousands, except certain ratios and
per share data)
SUMMARY OF OPERATIONS
2016
2015
2014
2013
2012
Net sales ................................................................. $
Gross margin..........................................................
Operating income ...................................................
Income before income taxes ..................................
Income tax provision .............................................
Net income .............................................................
Net income, as a percent of sales ...........................
Weighted average diluted shares outstanding ........
Diluted earnings per common share ...................... $
Cash dividends declared per common share .......... $
500,106 $
113,699
38,068
37,927
13,690
24,237
4.8%
7,765
3.12
0.72
$
$
466,904 $
109,860
34,422
35,559
13,260
22,299
4.8%
7,708
2.89
0.72
$
$
438,543 $
100,263
22,286
23,800
8,810
14,990
3.4%
7,511
2.00
0.60
$
$
90,469
20,271
20,881
7,730
13,151
3.4%
386,189 $ 352,089
85,279
20,246
20,668
7,600
13,068
3.7%
7,008
1.86
0.45
7,326
1.80
0.60
$
$
SELECTED DATA AS OF JUNE 30
Total assets ............................................................. $
Shareholders’ equity ..............................................
Trade receivables, net ............................................
Inventories..............................................................
Property, plant and equipment, net ........................
Capital expenditures...............................................
Depreciation expense .............................................
Working capital (current assets less
current liabilities) ................................................
Current ratio ...........................................................
Return on ending shareholders’ equity ..................
Average number of employees ..............................
246,896 $
209,650
44,618
85,904
64,124
7,382
7,556
244,619 $
186,748
45,101
113,842
64,770
37,424
4,945
210,213 $
166,735
38,536
97,940
31,900
4,187
4,197
192,539 $ 181,672
139,442
151,237
33,601
36,075
82,689
92,417
29,867
32,145
10,939
6,225
2,835
3,803
143,086
5.3 to 1
11.6%
1,440
115,682
3.3 to 1
11.9%
1,340
128,644
4.5 to 1
9.0%
1,380
113,699
4.2 to 1
8.7%
1,320
103,744
4.3 to 1
9.4%
1,280
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, 2016, 2015 and 2014. 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,
2015
2014
100.0%
(76.5)
23.5
(16.2)
0.1
7.4
0.2
0.0
7.6
(2.8)
4.8%
100.0%
(77.1)
22.9
(16.4)
(1.4)
5.1
0.3
–
5.4
(2.0)
3.4%
2016
100.0%
(77.3)
22.7
(15.6)
0.4
7.5
0.0
0.0
7.5
(2.7)
4.8%
9
Fiscal 2016 Compared to Fiscal 2015
Net sales for fiscal year 2016 were $500.1 million compared to $466.9 million in the prior fiscal year, an increase of
7.1%. For the fiscal year ended June 30, 2016, residential net sales were $420.9 million compared to $393.1 million for the
year ended June 30, 2015, an increase of 7.1%. The residential net sales increase of $27.8 million for the year ended June 30,
2016 was substantially due to increased sales volume in upholstered and ready-to-assemble products partially offset by
discounting of certain case goods and lower delivery charges associated with lower fuel costs. Commercial net sales were
$79.2 million for the year ended June 30, 2016, an increase of 7.3% from net sales of $73.8 million for the year ended June
30, 2015. The increase in commercial net sales was substantially due to volume.
Gross margin for the fiscal year ended June 30, 2016 was 22.7% compared to 23.5% for the prior fiscal year. The
Company’s investment in its expanded distribution network, designed to meet current and future customer needs while
improving operations became operational in the fourth quarter of fiscal year 2015. This investment increased costs by $2.5
million during fiscal year 2016 or 0.5% of net sales.
Selling, general and administrative (SG&A) expenses for the fiscal year ended June 30, 2016 were 15.6% of net
sales compared to 16.2% of net sales in the prior fiscal year. The improvement in SG&A as a percentage of net sales reflects
fixed cost leverage on higher sales volume. The Company incurred approximately $0.6 million of legal costs related to
Indiana litigation during fiscal year 2016 which has been recorded in SG&A expense. The Company received
reimbursements of legal costs of approximately $0.8 million from insurers which has been reflected as a reduction of legal
expenses in SG&A expenses for fiscal year 2016. The prior fiscal year included $0.6 million in legal costs which was offset
by reimbursements of $0.2 million from insurers.
Litigation settlement reimbursements related to Indiana litigation were $2.3 million for the fiscal year ended June
30, 2016 compared to $0.3 million for the prior fiscal year.
The effective tax rate was 36.1% and 37.3% for fiscal years ended June 30, 2016 and 2015, respectively. The rate
decrease is primarily related to changes in the measurement of uncertain tax positions based on recent experiences with
various state tax authorities.
The above factors resulted in net income of $24.2 million or $3.12 per share for the fiscal year ended June 30, 2016
compared to $22.3 million or $2.89 per share in the prior year period. All earnings per share amounts are on a diluted basis.
Fiscal 2015 Compared to Fiscal 2014
Net sales for fiscal year 2015 were $466.9 million compared to $438.5 million in fiscal year 2014, 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 was substantially due to the increased sales volume of 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. The commercial net sales decrease was substantially related to decreased sales volume.
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 (SG&A) expenses 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 fiscal year 2015 which have been recorded in SG&A expense. The Company received reimbursements of legal
defense costs of approximately $0.2 million from insurers which have been reflected as a reduction of legal expenses in
SG&A expenses for fiscal year 2015. The prior fiscal year included $2.1 million in legal defense costs which were 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 number of diluted shares increased
during fiscal year 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.
10
Liquidity and Capital Resources
Working capital (current assets less current liabilities) at June 30, 2016 was $143.1 million compared to $115.7
million at June 30, 2015. Significant changes in working capital during fiscal year 2016 included increases in cash of $35.5
million and other current assets of $2.4 million and decreases in inventories of $27.9 million, accounts payable of $7.3
million and current borrowings of $11.9 million. Other current assets increased primarily due to changes in tax-related items.
Inventory decreased primarily due to improved supply chain efficiency. Accounts payable decreased primarily due to timing
of payments. For the fiscal year ended June 30, 2016, capital expenditures were $7.4 million including $1.1 million for
distribution network expansion and $2.2 million for delivery equipment. Dividend payments totaled $5.5 million.
The Company’s main sources of liquidity are cash, cash flows from operations and credit arrangements. As of June
30, 2016 and 2015, the Company had cash totaling $36.8 million and $1.3 million, respectively. The Company entered into an
unsecured credit agreement on June 30, 2016, that provides short-term working capital financing up to $10.0 million with
interest of LIBOR plus 1%, including up to $4.0 million of letters of credit. The Company reduced the borrowing availability
from $30.0 million to $10.0 million to align with current business needs. Letters of credit outstanding at June 30, 2016 totaled
$2.3 million. Other than the aforementioned letters of credit, the Company did not utilize borrowing availability under the
credit facility, leaving borrowing availability of $7.7 million as of June 30, 2016. The credit agreement expires June 30, 2017.
At June 30, 2016, the Company was in compliance with all of the financial covenants contained in the credit agreement.
A director of the Company is a director at a bank where the Company maintains an additional unsecured $10.0
million line of credit, with interest at prime minus 2%, and where its routine banking transactions are processed. No amount
was outstanding on the line of credit at June 30, 2016. This line of credit matures December 31, 2016. In addition, the
supplemental retirement plans assets, held in a Rabbi Trust, of $2.4 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
director.
Net cash provided by operating activities was $54.4 million and $3.3 million in fiscal years 2016 and 2015,
respectively. The Company had net income of $24.2 million that included $9.6 million in non-cash charges in fiscal year
2016 and was offset by cash utilized for operating assets and liabilities of $20.6 million. Non-cash charges included
depreciation of $7.6 million. In fiscal year 2015, the Company had net income of $22.3 million that included $5.8 million in
non-cash charges including depreciation of $4.9 million and was offset by cash utilized for operating assets and liabilities of
$24.8 million.
Net cash used in investing activities was $4.7 million and $32.6 million in fiscal years 2016 and 2015, respectively.
In fiscal year 2016, the Company made capital expenditures of $7.4 million partially offset by $2.8 million of proceeds from
life insurance policies. 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.
Net cash used in financing activities was $14.2 million in fiscal year 2016 which included repayments of current
notes payable of $11.9 million and dividends payment of $5.5 million. These amounts were offset by proceeds from issuance
of common stock of $1.6 million and excess tax benefit from stock-based payment arrangements of $1.8 million. Net cash
provided by financing activities was $8.4 million in fiscal year 2015 which included proceeds from current notes payable of
$11.9 million, proceeds from issuance of common stock of $0.8 million and excess tax benefit from stock-based payment
arrangements of $0.8 million. These amounts were offset by payment of dividends of $5.1 million.
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 2017. 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, 2016, 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, 2016 and the effect these
obligations are expected to have on the Company’s liquidity and cash flow in the future (in thousands):
Operating lease obligations...........................
Supplemental retirement plans......................
Total contractual obligations.........................
$
$
Total
13,267
2,392
15,659
$
$
1 Year
3,785
1,497
5,282
$
$
2 - 3
Years
5,782
–
5,782
$
$
4 - 5
Years
3,700
–
3,700
More than
5 Years
–
895
895
$
$
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, 2016, the Company had no capital lease obligations, and no purchase obligations for raw
11
materials or finished goods. The purchase price on all open purchase orders was fixed and denominated in U.S. dollars.
Additionally, the Company has excluded the uncertain tax positions from the above table, as the timing of payments, if any,
cannot be reasonably estimated.
See Note 6 to the consolidated financial statements of this Annual Report on Form 10-K.
Financing Arrangements
Outlook
The Company believes that demand for furniture products in the United States continues to be modest due to political and
economic uncertainty. The Company may experience lower residential net sales in the first half of fiscal 2017 versus the prior
year, when backlog was shipped due to the clearing of the west coast port congestion. The Company expects commercial net
sales growth to continue during fiscal 2017. The Company will focus on streamlining product commercialization to increase
sales with customers and continue controlling discretionary spending.
During fiscal year 2017, the Company expects to have the following expenditures:
•
•
$14 million for capital expenditures and $3.5 million as SG&A expense for upgrading its business information systems
to better meet market conditions, customer requirements and increasing operating efficiency; and
$4 million in operating capital expenditures.
During the next two fiscal years, the Company plans to invest $25 million in North American manufacturing infrastructure to
address aging facilities and improve efficiency. 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. The
Company will maintain its focus on a strong balance sheet through emphasis on cash flow and increasing profitability. The
Company believes 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.
Foreign Currency Risk – During fiscal years 2016, 2015 and 2014, the Company did not have sales denominated in foreign
currencies. The Company is exposed to market risk from changes in the value of foreign currencies primarily related to the
Company’s Mexico operations, as wages and other expenses are paid in Mexican pesos. Gains and losses resulting from
changes in foreign currencies have not had a significant impact on the Company’s consolidated financial results.
Interest Rate Risk – The Company’s primary market risk exposure with regard to financial instruments is changes in interest
rates. At June 30, 2016, the Company did not have any debt outstanding.
Item 8.
Financial Statements and Supplementary Data
Page(s)
13
Report of Independent Registered Public Accounting Firm ........................................................................................
14
Report of Independent Registered Public Accounting Firm – Internal Control Over Financial Reporting .................
15
Consolidated Balance Sheets at June 30, 2016 and 2015 .............................................................................................
16
Consolidated Statements of Income for the Years Ended June 30, 2016, 2015 and 2014 ............................................
16
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2016, 2015 and 2014 .................
17
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 30, 2016, 2015 and 2014 ...
Consolidated Statements of Cash Flows for the Years Ended June 30, 2016, 2015 and 2014 .....................................
18
Notes to Consolidated Financial Statements ................................................................................................................ 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, 2016 and 2015, 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, 2016. 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, the consolidated financial statements present fairly, in all material respects, the financial position of Flexsteel
Industries, Inc. and Subsidiaries as of June 30, 2016 and 2015, and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 2016, 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, 2016, 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 24, 2016 expressed an unqualified opinion on the Company's internal control over
financial reporting.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 24, 2016
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, 2016, 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, 2016, 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, 2016 of the
Company and our report dated August 24, 2016 expressed an unqualified opinion on those consolidated financial statements
and financial statement schedule.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 24, 2016
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: 2016, $1,300; 2015, $1,400
Inventories
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,
2016
2015
$
$
$
36,780
44,618
85,904
9,141
176,443
64,124
3,660
2,669
246,896
11,023
–
6,986
5,252
10,096
33,357
894
2,995
37,246
1,282
45,101
113,842
6,777
167,002
64,770
6,090
6,757
244,619
18,329
11,904
7,931
4,308
8,848
51,320
2,915
3,637
57,872
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 2016, 7,700,149 shares; 2015, 7,480,367 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total shareholders' equity
TOTAL
See accompanying Notes to Consolidated Financial Statements.
(cid:1)
(cid:1)
(cid:1)
7,700
23,259
180,919
(2,228)
209,650
246,896
$
7,480
18,827
162,176
(1,736)
186,747
244,619
$
15
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in thousands, except per share data)
(cid:1)
Net sales
Cost of goods sold
Gross margin
Selling, general and administrative
Litigation settlement reimbursements (costs)
Operating income
Interest and other (expense) 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
$
$
$
$
$
2016
For the years ended June 30,
2015
500,106
(386,407)
113,699
(77,911)
2,280
38,068
(72)
(69)
37,927
(13,690)
24,237
$
$
7,595
7,765
3.19
3.12
0.72
$
$
$
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
$
$
$
$
$
2014
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
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive income (loss):
Unrealized gains on securities in supplemental
retirement plans
Reclassification of realized gain on supplemental
retirement plans to other income
Unrealized gains (losses) on securities in
supplemental retirement plans before taxes(1)
Income tax (expense) benefit related to securities in
supplemental retirement plans gains (losses)
Net unrealized gains (losses) 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, net of tax
For the years ended June 30,
2016
2015
2014
$
24,237
$
22,299
$
14,990
741
(535)
206
(78)
128
(999)
379
(620)
(492)
162
(400)
(238)
91
(147)
(537)
204
(333)
(480)
674
(1,316)
(642)
244
(398)
376
(143)
233
(165)
Comprehensive income
$
23,745
$
21,819
$
14,825
(1) See Note 9 to the Consolidated Financial Statements
See accompanying Notes to Consolidated Financial Statements.
(cid:1)
16
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
(Amounts in thousands)
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
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, 2016
Total Par
Value of
Common
Shares ($1 Par)
Additional
Paid-In
Capital
Accumulated
Other
Retained
Comprehensive
Earnings
(Loss) Income
Total
$
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
184
–
27
9
–
–
–
–
1,407
–
858
406
1,761
–
–
–
–
–
–
–
–
–
(5,494)
24,237
–
128
–
–
–
(620)
–
–
1,591
128
885
415
1,761
(620)
(5,494)
24,237
$
7,700
$
23,259 $
180,919
$
(2,228)
$
209,650
See accompanying Notes to Consolidated Financial Statements.
17
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation
Deferred income taxes
Stock-based compensation expense
Excess tax benefit from stock-based payment
arrangements
Changes in 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
Shares withheld for employee tax obligations
Excess tax benefit from stock-based payment
arrangements
(Repayments of) proceeds from short-term notes payable
Net cash (used in) provided by financing activities
Increase (decrease) 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(cid:1)Statements.
18
2016
FOR THE YEARS ENDED JUNE 30,
2015
2014
$
24,237
$
22,299
$
14,990
7,556
2,731
1,470
(1,761)
(100)
–
(34)
(346)
584
27,938
(1,962)
59
(6,877)
2,052
(1,640)
460
54,367
(3,100)
2,900
76
2,814
(7,382)
(4,692)
(5,455)
1,591
(170)
1,761
(11,904)
(14,177)
35,498
1,282
36,780
$
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
2016
FOR THE YEARS ENDED JUNE 30,
2015
2014
10,140
430
$
$
13,920
130
$
$
6,880
35
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.
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 years 2016, 2015 and
2014.
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.
19
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 $7.5 million, $6.9 million and $6.1
million in fiscal years 2016, 2015 and 2014, respectively.
DESIGN, RESEARCH AND DEVELOPMENT COSTS – are charged to selling, general and administrative expense in
the periods incurred. Expenditures for design, research and development costs were approximately $4.2 million, $4.1
million and $2.8 million in fiscal years 2016, 2015 and 2014, 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 2016, 2015 and 2014, net income as reported for each respective period is divided
by the fully diluted weighted average number of shares outstanding:
(in thousands)
2016
2015
2014
June 30,
Basic shares
7,595
7,423
7,231
Potential common shares:
Stock options
Long-term incentive plan
120
50
170
255
30
285
254
26
280
Diluted shares
7,765
7,708
7,511
Anti-dilutive shares
26
–
–
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.
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.
20
ACCOUNTING DEVELOPMENTS – In November 2015, the Financial Accounting Standards Board (FASB) issued
Balance Sheet Classification of Deferred Taxes (Accounting Standards Update (ASU) No. 2015-17), which amends
Accounting Standards Codification (“ASC”) Topic 740, Income Taxes. ASU 2015-17 requires that deferred tax
liabilities and assets be classified as non-current in a classified statement of financial position. The ASU is effective for
public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal
years. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all
periods presented. The Company elected to early adopt ASU 2015-17 on March 31, 2016 retrospectively to all periods
presented. On June 30, 2015, the Company recorded $4.2 million in current assets “deferred income taxes” and $1.9
million in non-current assets “deferred income taxes” in the Consolidated Balance Sheets. Upon adoption of the
standard, the Company presented a non-current deferred tax asset of $6.1 million in non-current assets “deferred income
taxes” in the Consolidated Balance Sheets.
In May 2014, the FASB issued Revenue from Contracts with Customers, Topic 606 (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.
In July 2015, the FASB issued Inventory, Topic 330: Simplifying the Measurement of Inventory (ASU 2015-11), which
affects inventory balances measured using the first-in, first-out (FIFO) or average cost methods. ASU 2015-11 requires
entities to measure most inventories at the lower of cost and net realizable value, thereby simplifying the current
guidance under which an entity must measure inventory at the lower of cost or market. ASU 2015-11 is effective for
fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted.
The Company is currently evaluating the impact of adopting ASU 2015-11 on its consolidated financial statements.
In February 2016, the FASB issued Leases (ASU 2016-02), which amends ASC Topic 842. ASU 2016-02 introduces a
new lessee model where substantially all leases will be brought onto the balance sheet. ASU 2016-02 is effective for
fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is
permitted. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial
statements.
In March 2016, the FASB issued Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which
amends ASC Topic 718, Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the
accounting for share-based payment transactions, including the income tax consequences, classification of awards as
either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years
beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The
Company is currently in the process of evaluating the impact of adopting ASU 2016-09 on its consolidated financial
statements.
2. INVENTORIES
Inventories valued on a LIFO basis (steel) would not differ significantly if they had been valued on a FIFO basis for the
fiscal years ended June 30, 2016 and 2015. A comparison of inventories is as follows:
(in thousands)
Raw materials
Work in process and finished parts
Finished goods
Total
June 30,
2016
2015
12,893
5,810
67,201
85,904
$
12,663
5,772
95,407
$
113,842
$
$
21
3. PROPERTY, PLANT AND EQUIPMENT
(in thousands)
Estimated
Life
(Years)
June 30,
2016
2015
Land
$
7,279
$
Buildings and improvements
Machinery and equipment
Delivery equipment
Furniture and fixtures
Total
Less accumulated depreciation
5-39
3-7
3-5
3-7
72,900
34,015
21,979
10,879
147,052
(82,928)
7,654
72,684
32,263
20,097
8,939
141,637
(76,867)
Net
$
64,124
$
64,770
4. OTHER NONCURRENT ASSETS
(in thousands)
June 30,
Cash value of life insurance
Rabbi Trust assets (see Note 9)
Other
Total
2016
2015
$
$
965
844
860
2,669
$
$
3,434
2,404
919
6,757
5. ACCRUED LIABILITIES – OTHER
(in thousands)
June 30,
2016
2015
Advertising
Supplemental retirement plans -
current
$
$
4,068
1,751
1,386
1,070
1,821
3,661
1,208
1,346
1,010
1,623
8,848
$
10,096
$
Dividends
Warranty
Other
Total
6. CREDIT ARRANGEMENTS
The Company entered into an unsecured credit agreement on June 30, 2016, that provides short-term working capital
financing up to $10.0 million with interest of LIBOR plus 1% (1.47% at June 30, 2016), including up to $4.0 million of
letters of credit. The Company reduced the borrowing availability from $30.0 million to $10.0 million to align with
current business needs. Letters of credit outstanding at June 30, 2016 totaled $2.3 million. Other than the
aforementioned letters of credit, the Company did not utilize borrowing availability under the credit facility, leaving
borrowing availability of $7.7 million as of June 30, 2016. The credit agreement expires June 30, 2017. At June 30,
2016, the Company was in compliance with all of the financial covenants contained in the credit agreement.
A director 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% (1.50% at June 30, 2016), and where its routine banking transactions are
processed. No amount was outstanding on the line of credit at June 30, 2016. This line of credit matures December 31,
2016. In addition, the supplemental retirement plans assets, held in a Rabbi Trust, of $2.4 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 director.
22
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.
During fiscal year 2016, the Company recorded changes in measurement of uncertain tax positions based on recent
experiences with various state tax authorities which reduced the gross liabilities related to unrecognized tax benefits by
$1.3 million and reduced deferred tax assets by $0.4 million. 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,
2016
2015
$
$
$
$
610
250
860 $
250
$
1,580
610
2,190
640
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
Balance at July 1
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
$
1,580
$
1,290
$
45
–
(1,015)
390
–
(100)
2016
2015
2014
Balance at June 30
$
610
$
1,580
$
1,085
325
–
(120)
1,290
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 and other – current
Deferred
Total
$
$
2016
2015
2014
9,343
1,616
2,731
13,690
$
$
11,725
930
605
13,260
$
$
8,395
553
(138)
8,810
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
2016
35.0 %
3.8
(2.7)
2015
35.0 %
2.6
(0.3)
2014
35.0 %
2.2
(0.2)
Effective tax rate
36.1 %
37.3 %
37.0 %
23
The primary components of deferred tax assets and (liabilities) are as follows:
(in thousands)
June 30, 2016
June 30, 2015
Accounts receivable
$
Inventory
Self-insurance
Compensation and benefits
Accrued expenses
490
500
660
2,040
1,100
Property, plant and equipment
(3,080)
Supplemental retirement plans
1,080
Other
Total
870
$
3,660
$
530
925
595
1,825
1,125
(1,225)
1,570
745
$
6,090
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions.
Generally, tax years 2012–2015 remain open to examination by the Internal Revenue Service or other taxing
jurisdictions to which we are subject.
8. STOCK-BASED COMPENSATION
The Company has two stock-based compensation methods available when determining employee compensation.
(1)
Long-Term Incentive Compensation Plans
Long-Term Incentive Compensation Plan
The long-term incentive compensation plan provides for shares of common stock to be awarded to officers and
key employees based on performance targets set by the Nominating and Compensation Committee of the Board of
Directors (the “Committee”). In December 2013, the Company’s shareholders approved 700,000 shares to be
issued under the plan. As of June 30, 2016, 2,594 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), July 1, 2014 – June 30, 2017 (2015-2017) and July 1, 2015 – June 30, 2018 (2016-2018). 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, $1.1 million and $0.5 million for fiscal years ended June
30, 2016, 2015 and 2014, respectively. If the target performance goals for 2014-2016, 2015-2017 and 2016-2018
would be achieved, the total amount of compensation cost recognized over the requisite service periods would be
$1.0 million for each three-year performance period.
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
Fiscal Year 2016 – 2018
Minimum
16
12
10
Target
44
29
25
Maximum
88
57
48
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. A total of
240,325 shares were issued from this plan, following the final distributions in September 2015. No additional
shares can be awarded under the 2007 plan. 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
periods. Payouts for awards earned in these performance periods were 60% stock and 40% cash. The
compensation cost related to the number of shares granted under each performance period was fixed on the grant
date, which was the date the performance period began. The short-term portion of the recorded cash award
24
payable was classified within current liabilities, “payroll and related items”, and the long-term portion of the
recorded cash award payable is classified within long-term liabilities, “other liabilities”, in the consolidated
balance sheets. As of June 30, 2016, the Company had no liability related to the 2007 plan. As of June 30, 2015,
the Company recorded the cash-portion of awards payable of $0.7 million within current liabilities. For the fiscal
years ended June 30, 2016, 2015 and 2014, the Company recorded expense of $0.0 million, $0.6 million and $0.9
million, respectively.
(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 2016, 2015 and 2014, the Company issued options for 25,868, 48,600 and 57,450 common shares
at a weighted average exercise price of $43.09, $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, 2016, 2015 and
2014, the Company recorded expense of $0.2 million, $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 2016, 2015 and 2014, respectively, under
this plan; dividend yield of 1.6%, 2.0% and 2.2%; expected volatility of 26.0%, 29.9% and 32.6%; risk-free
interest rate of 1.6%, 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 2016, 2015 and 2014 were $9.20, $7.33 and $6.63, respectively. The cash proceeds from stock options
exercised were $0.1 million, $0.1 million and $0.1 million for fiscal years ended 2016, 2015 and 2014,
respectively. There was no income tax benefit related to the exercise of stock options for fiscal years ended June
30, 2016, 2015 and 2014. At June 30, 2016, 566,474 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. There were no options granted and no expense was recorded under these Plans during
the fiscal years ended June 30, 2016, 2015 and 2014.
The cash proceeds from stock options exercised were $1.5 million, $1.6 million and $2.3 million for fiscal years
ended 2016, 2015 and 2014, respectively. The income tax benefit related to the exercise of stock options were $1.6
million, $0.4 million and $0.4 million for fiscal years ended 2016, 2015 and 2014, respectively.
A summary of the status of the Company’s stock option plans as of June 30, 2016, 2015 and 2014 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, 2014
Granted
Exercised
Canceled
Outstanding and exercisable at June 30, 2015
Granted
Exercised
Canceled
$
$
524
49
(110)
(6)
457
26
(207)
(6)
Outstanding and exercisable at June 30, 2016
270
$
15.39
31.48
15.52
16.98
17.02
43.09
12.68
22.32
22.85
$
9,403
$
11,916
$
4,638
25
The following table summarizes information for options outstanding and exercisable at June 30, 2016:
Range of
Prices
Options
Remaining
Outstanding
Life (Years)
Exercise
Price
Weighted Average
$
6.81 – 12.74
13.75 – 17.23
19.72 – 27.57
31.06 – 43.09
$
6.81 – 43.09
(in thousands)
42
68
90
70
270
1.4
4.9
6.9
8.6
6.0
$
$
11.38
15.60
23.56
35.81
22.85
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 retirement plan
expense was $1.8 million, $2.0 million and $1.9 million in fiscal years 2016, 2015 and 2014, respectively. The amounts
include $0.5 million in each fiscal year 2016, 2015 and 2014, 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.
•
remaining participating employers.
•
required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be shared by the
If a participating employer chooses to stop participating in some of its multi-employer plans, the employer may be
The Company’s participation in these plans for the annual period ended June 30, 2016, is outlined in the following table.
Unless otherwise noted, the most recent Pension Protection Act zone status available in 2016 and 2015 is for the plan’s
year-end at December 31, 2015 and 2014, respectively. The zone status is based on information that the Company
received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally
less than 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
EIN/Pension
Plan Number
Pension
Protection
Act Zone Status
June 30,
2016
2015
Rehabilitation
Plan Status
Company Contributions
(in thousands)
2015
2014
2016
Expiration Date Number of
Company
Employees
in Plan
of Collective
Bargaining
Agreement
Surcharge
Imposed
Central States SE
and SW Areas
Pension Fund
Steelworkers
Pension Trust
Central Pension
Fund
36-6044243
Red
Red
Implemented
$ 200 $ 248 $ 252
No
03/31/2018
12
23-6648508 Green Green
36-6052390 Green Green
No
No
347
364
380
No
11/04/2017
192
6
7
7
No
05/31/2017
3
$ 553 $ 619 $ 639
The estimated cumulative cost to exit the Company’s multi-employer plans was approximately $9.6 million on June 30, 2016.
26
Supplemental Retirement Plans
The Company has unfunded supplemental retirement plans with executive officers. The plans require various annual
contributions for the participants based upon compensation levels and age. All participants are fully vested. At June 30,
2016 and 2015, the supplemental retirement plan liability was $2.4 million and $4.1 million, respectively, of which $1.5
million and $1.2 million were recorded in other current liabilities and $0.9 million and $2.9 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 years 2016, 2015 and 2014, the benefit obligation was increased
by interest expense of $0.5 million, $0.5 million and $1.4 million, deposits of $0.2 million, $0.3 million and $0.3 million,
and decreased by payments of $1.0 million, $0.9 million and $3.1 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, 2016, 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, 2016 and 2015, the fair market value of the assets held in the Rabbi Trust were $2.3 million
and $3.5 million, respectively, $1.5 million and $1.1 million, respectively, of the assets are classified as other current
assets and $0.8 million and $2.4 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 387 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, 2016 and 2015, 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 $1.6
million and $0.9 million, respectively. The accumulated benefit obligation was $8.9 million and $8.0 million at fiscal
years ended June 30, 2016 and 2015, respectively. The Company recorded expense of $0.1 million, $0.1 million and
$0.1 million during fiscal years 2016, 2015 and 2014, respectively, related to the plan.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive loss, net of income taxes, are as
follows:
(in thousands)
Pension and other post-retirement benefit
adjustments, net of tax (1)
Available-for-sale securities, net of tax (2)
Total accumulated other comprehensive loss
2016
June 30,
2015
2014
$
$
(2,203)
$
(1,584)
$
(1,251)
(25)
(152)
(5)
(2,228)
$
(1,736)
$
(1,256)
(1) The tax effect on the pension and other post-retirement benefit adjustments is a tax benefit of $1.4 million, $1.0 million and
$0.8 million at June 30, 2016, 2015 and 2014, respectively.
(2) The tax effect on the available-for-sale securities is a tax benefit of $0.0 million, $0.1 million and $0.0 million at June 30,
2016, 2015 and 2014, 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 received $2.3 million and $0.3 million during the fiscal years ended June 30, 2016 and 2015, respectively,
for recovery of litigation settlement costs from insurers. The Company continues to believe that it did not cause or
contribute to the contamination. These amounts are recorded as “litigation settlement reimbursements (costs)” in the
consolidated statements of income.
The Company continues to pursue the recovery of 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 was then appealed by the
27
insurance carriers to the Iowa Supreme Court, which referred the appeal to the Iowa Court of Appeals. On August 17,
2016, the Iowa Court of Appeals affirmed the Iowa District Court dismissal. The insurance carriers may appeal to the
Iowa Supreme Court. Coverage litigation is proceeding against the insurance carriers in Indiana.
During the fiscal years ended June 30, 2016, 2015 and 2014, the Company recorded $0.6 million, $0.6 million and $2.1
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, 2016, 2015 and 2014, the Company received approximately $0.8 million, $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.
Other Proceedings – In March 2016, the Company received a General Notice Letter for the Lane Street Groundwater
Superfund Site located in Elkhart, Indiana from the United States Environmental Protection Agency (EPA). The EPA
has determined that the Company may be responsible under the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA). In April 2016, the EPA issued their proposed clean-up plan for
groundwater pollution and request for public comment. The Company provided public comment to the proposed plan in
May 2016. As of June 30, 2016, no liability was recorded in the Consolidated Balance Sheets because it is not possible
to reasonably estimate the amount, if any, of remediation cost due to the early stages of determining the extent of
environmental impact, allocation amount to the potentially responsible parties and remediation alternatives.
From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out of, and
are incidental to, the conduct of the Company’s business. The Company does not consider any of such other proceedings
that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material
effect on its consolidated operating results, financial condition, or cash flows.
12. COMMITMENTS AND CONTINGENCIES
FACILITY LEASES – the Company leases certain facilities and equipment under various operating leases. These leases
require the Company to pay the lease cost, operating costs, including property taxes, insurance, and maintenance. Total
lease expense related to the various operating leases was approximately $4.9 million, $3.8 million and $2.8 million in
fiscal 2016, 2015 and 2014, respectively.
Expected future minimum commitments under operating leases as of June 30, 2016 were as follows:
(in thousands)
Fiscal Year Ended June 30,
2017
2018
2019
2020
2021
Thereafter
$
$
3,785
2,870
2,912
2,209
1,491
–
13,267
28
13. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION – UNAUDITED
(in thousands, except
per share amounts)
Fiscal 2016:
Net sales
Gross margin
Litigation settlement
reimbursements
Net income (1)
Earnings per share:
Basic
Diluted
(in thousands, except
per share amounts)
Fiscal 2015:
Net sales
Gross margin
Litigation settlement
reimbursements
Net income
Earnings per share:
Basic
Diluted
FOR THE QUARTER ENDED
September 30
December
31
March 31
June 30
$
$
$
126,531
27,869
$
125,410
27,684
–
5,763
0.77
0.75
250
5,366
0.71
0.69
$
$
$
$
$
125,401
28,716
$
122,764
29,430
2,030
6,944
0.91
0.89
–
6,164
0.80
0.79
$
$
FOR THE QUARTER ENDED
September 30
December
31
March 31
June 30
$
$
$
108,666
25,520
$
114,386
27,094
–
4,878
0.66
0.64
–
4,685
$
$
0.63
0.61
$
$
$
122,529
29,667
$
121,323
27,579
250
6,956
0.94
0.90
–
5,780
0.77
0.74
$
$
(1) The quarter ended June 30, 2016, reflects a change in the measurement of uncertain tax positions of
$1.0 million (before tax). For more information, see Note 7.
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, 2016.
Changes in internal control over financial reporting – During the fiscal quarter ended June 30, 2016, 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, 2016. 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, 2016. The effectiveness of the Company’s internal control over financial reporting as of
June 30, 2016, has been audited by Deloitte & Touche LLP, our independent registered public accounting firm, as stated in
their report in Part II, Item 8 of this Form 10-K.
Item 9B.
Other Information
None.
29
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information contained in the Company’s 2016 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,” “Corporate Governance – Code of Ethics” and “Section
16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.
Item 11.
Executive Compensation
The information contained in the Company’s 2016 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 2016 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 “Related Party Transaction Policy” and “Corporate Governance –
Board of Directors” in the Company’s 2016 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 2016 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, 2016, 2015 and 2014 are submitted
herewith:
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended June 30, 2016, 2015 and 2014
(in thousands)
Description
Accounts Receivable Allowances:
2016…………..………….
2015…………..………….
2014…………..………….
Balance at
Beginning of
Year
(Additions)
Reductions to
Income
Deductions from
Reserves
Balance at End
of Year
1,400
1,370
1,560
(10)
72
6
(90)
(42)
(196)
1,300
1,400
1,370
Other schedules are omitted because they are not required or are not applicable or because the required information
is included in the financial statements.
30
(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
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
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). *
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). *
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). *
2002 Stock Option Plan (incorporated by reference to Appendix A from the 2002 Flexsteel definitive proxy
statement). *
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). *
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). *
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). *
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). *
10.10
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). *
10.11
10.12
10.13
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). *
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). *
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).*
10.14
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). *
10.15
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). *
10.16 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). *
10.17
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).
31
10.18
10.19
10.20
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).
Credit Agreement dated June 30, 2016 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,
2016).
Revolving Line of Credit Note dated June 30, 2016 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, 2016).
21.1
Subsidiaries of the Company. Filed herewith.
23
Consent of Independent Registered Public Accounting Firm. Filed herewith.
31.1
Certification. Filed herewith.
31.2
Certification. Filed herewith.
32
Certification by Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Labels Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.
*Management contracts, compensatory plans and arrangements required to be filed as an exhibit to this report.
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 24, 2016
FLEXSTEEL INDUSTRIES, INC.
By:
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
and
Principal Executive Officer
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
and
Principal Financial and Accounting Officer
32
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date:
August 24, 2016
Date:
August 24, 2016
Date:
August 24, 2016
Date:
August 24, 2016
Date:
August 24, 2016
Date:
August 24, 2016
Date:
August 24, 2016
Date:
August 24, 2016
/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/ Thomas M. Levine
Thomas M. Levine
Director
/S/ Robert J. Maricich
Robert J. Maricich
Director
/S/ Eric S. Rangen
Eric S. Rangen
Director
/S/ Nancy E. Uridil
Nancy E. Uridil
Director
33
Subsidiaries of Flexsteel Industries, Inc.
• DMI Furniture, Inc. (Delaware)
o DMI Management, Inc. (Kentucky)*
o DMI Sourcing Company, LLC (Kentucky) *
Exhibit 21.1
(cid:2) DMI Business Consulting Company (Shenzhen) Co. Ltd. *
(cid:2) Home Styles Furniture Co., Ltd. (Thailand) (99.99% interest) *
(cid:2) Vietnam Representative Office *
• Desert Dreams, Inc. (Iowa)
o
Shelf Company No. 74 (Mexico)
* Subsidiaries of DMI Furniture, Inc.
34
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-140811, 333-105951, 333-164994, 333-
183443, 333-193041 and 333-193042 on Form S-8 of our reports dated August 24, 2016, 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, 2016.
EXHIBIT 23
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 24, 2016
35
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)
b)
c)
d)
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;
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;
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
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 24, 2016
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
36
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 24, 2016
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
37
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, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Karel K.
Czanderna, Chief Executive Officer, and Timothy E. Hall, Chief Financial Officer, of the Company, certify, pursuant to 18
U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, and;
The information contained in the Report fairly presents, in all material respects, the consolidated financial
condition and results of operations of the Company.
Date: August 24, 2016
By:
/S/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
By:
/S/ Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
38
Directors
Officers
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
Retired Senior Vice President
Flexsteel Industries, Inc.
Director
Mary C. Bottie
Director
Retired Vice President
Motorola, Inc.
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.
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
Mary C. Bottie
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
TRANSFER 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 5, 2016, 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
• 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
© 2016 Flexsteel Industries, Inc.
385 Bell Street | Dubuque, IA | 52001 | www.flexsteel.com