News Column

Flexsteel Reports Strong Financial Results

August 19, 2014

DUBUQUE, Iowa--(BUSINESS WIRE)-- Flexsteel Industries, Inc. (NASDAQ:FLXS) today reported record net sales and net income for the fiscal year ended June 30, 2014.

Financial Highlights:

  • Third consecutive year of record net income.
  • Fifth consecutive year of net sales and net income growth.

    Net sales were $439 million for the fiscal year ended June 30, 2014, a 14% increase from the prior fiscal year. Net income was $15.0 million or $2.00 per share for the fiscal year compared to $13.2 million or $1.80 per share for the prior fiscal year. Adjusted net income for the current fiscal year increased 27% to $18.5 million or $2.46 per share compared to $14.6 million or $2.00 per share in the prior fiscal year. For additional information regarding adjusted net income and adjusted earnings per share (which are non-GAAP measures), please refer to the reconciliation and other information included in the attached schedules.

    The following table compares net sales for the fiscal years ended June 30, 2014 and 2013 (in millions):

           
    2014 2013

    $ Change

    % Change
    Residential $ 360 $ 311 $   49 16 %
    Commercial 79   75     4   5 %
    Total $ 439   $ 386   $   53   14 %
     


    Net sales for the quarter were $111 million, a 9% increase over the $102 million reported in the prior year quarter. For the quarter, the Company reported net income of $5.6 million or $0.74 per share compared to $4.2 million or $0.57 per share for the prior year quarter. Adjusted net income for the quarter was $5.3 million or $0.70 per share compared to $4.6 million or $0.63 per share in the prior year quarter.

    The following table compares net sales for the quarters ended June 30, 2014 and 2013 (in millions):

           

     

    2014 2013

    $ Change

    % Change
    Residential $ 93 $ 82 $   11 14 %
    Commercial 18   20     (2 ) (10 %)
    Total $ 111   $ 102   $   9   9 %
     


    The increase in net sales for the quarter and fiscal year resulted from capturing demand for upholstered and ready-to-assemble products.

    Gross margin for the fiscal year was 22.9% of net sales compared to 23.4% of net sales in the prior year. Gross margin for the quarters ended June 30, 2014 and 2013 was 23.0% and 23.3%, respectively. The current fiscal year and quarter were impacted by $4.1 million or 1.0% of net sales and $1.7 million or 1.5% of net sales, respectively, due to lower margins on case goods as we adjust our product portfolio to respond to changing customer requirements.

    Selling, general and administrative (SG&A) expense for the fiscal year 2014 and 2013 was 16.4% and 18.2% of net sales, respectively. The current fiscal year includes a $0.9 million (0.2%) increase in supplemental retirement plan expense and Indiana civil litigation defense costs of $2.1 million (0.5%) offset by $2.8 million (0.6%) in reimbursements from insurance carriers. SG&A expense for fiscal year 2013 includes Indiana civil litigation defense costs of $2.3 million (0.6%) and executive transition costs of $1.5 million (0.4%). Excluding these costs, SG&A expense decreased from 17.2% of net sales in the prior fiscal year to 16.3% of net sales in the current year, reflecting fixed cost leverage on higher sales volume.

    SG&A expense for the current quarter was 15.0% of net sales compared to 17.0% of net sales in the prior year quarter. The current quarter includes Indiana civil litigation defense costs of $0.1 million (0.1%) offset by $0.6 million (0.6%) in reimbursements from insurance carriers compared to $0.6 million (0.6%) in Indiana civil litigation defense costs in the prior year quarter. Excluding these costs, SG&A expense for the quarter ended June 30, 2014 and 2013 was 15.5% and 16.4% of net sales, respectively. The improvement reflects fixed cost leverage on higher sales volume.

    Interest and other income for the fiscal year ended June 30, 2014 increased $0.9 million. The increase reflects realized gains of $0.9 million recorded by the Company as a result of investment activity related to supplemental retirement plans.

    Working capital (current assets less current liabilities) at June 30, 2014 was $129 million compared to $114 million at June 30, 2013. Primary changes in working capital include increases in cash of $11 million and inventory of $5 million. The increase in inventory is to support anticipated increased sales volume in upholstered and ready-to-assemble product categories.

    The increase in cash of $11 million during fiscal year 2014 is primarily due to net income of $15 million and stock option exercises of $2 million, offset by capital expenditures of $4 million and dividend payments of $4 million.

    All earnings per share amounts are on a diluted basis.

    Outlook

    Due to existing strong order backlog and positive order trends the Company expects top line growth will continue into fiscal year 2015. Residential growth is expected from existing customers and products, and through expanding our product portfolio and customer base. The Company believes this growth will be led by increased demand for upholstered and ready-to-assemble products. The Company anticipates sales of commercial products to remain at current levels for fiscal year 2015. The Company is confident in its ability to take advantage of market opportunities.

    The Company has started two multi-year initiatives designed to enhance customer experience and increase shareholder value. In anticipation of future growth we are implementing a logistics strategy, and are assessing our business information system requirements. Consistent with the logistics strategy and subject to closing, the Company will be investing $35-$40 million to purchase and equip a Midwest distribution center. We are still in the preliminary stages of the business information system assessment. The timing and level of additional investment required for these initiatives will be evaluated as the projects progress. Other operating capital expenditures are estimated at $6.0 million for fiscal 2015. The Company believes it has adequate working capital and borrowing capabilities.

    The Company remains committed to its core strategies, which include providing a wide range of quality product offerings and price points to the residential and commercial markets, combined with a conservative approach to business. We will maintain our focus on a strong balance sheet through emphasis on cash flow and increasing profitability. We believe these core strategies are in the best interest of our shareholders.

    About Flexsteel

    Flexsteel Industries, Inc. is headquartered in Dubuque, Iowa, and was incorporated in 1929. Flexsteel is a designer, manufacturer, importer and marketer of quality upholstered and wood furniture for residential, recreational vehicle, office, hospitality and healthcare markets. All products are distributed nationally.

    Analysts Conference Call

    We will host a conference call on August 20, 2014, at 10:30 a.m. Central Time. To access the call, please dial 1-866-830-5279 and provide the operator with ID# 41083071. A replay will be available for two weeks beginning approximately two hours after the conclusion of the call by dialing 1-855-859-2056 or 1-404-537-3406 and entering ID# 41083071.

    Forward-Looking Statements

    Statements, including those in this release, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause our results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, inflation, the amount of sales generated and the profit margins thereon, competition (both U.S. and foreign), credit exposure with customers, participation in multi-employer pension plans and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of our most recent Annual Report on Form 10-K.

    For more information, visit our web site at http://www.flexsteel.com.

       
    FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    (in thousands)
     
    June 30, June 30,
    2014 2013
     

    ASSETS

     
    CURRENT ASSETS:
    Cash $ 22,176 $ 10,934
    Trade receivables, net 38,536 36,075
    Inventories 97,940 92,417
    Other 6,758 9,775
    Total current assets 165,410 149,201
     
    NONCURRENT ASSETS:
    Property, plant, and equipment, net 31,900 32,145
    Other assets 12,903 11,193
     
    TOTAL $ 210,213 $ 192,539
     
     

    LIABILITIES AND SHAREHOLDERS’ EQUITY

     
    CURRENT LIABILITIES:
    Accounts payable – trade $ 15,818 $ 13,927
    Accrued liabilities 20,948 21,575
    Total current liabilities 36,766 35,502
     
    LONG-TERM LIABILITIES:
    Other long-term liabilities 6,712 5,800
    Total liabilities 43,478 41,302
     
    SHAREHOLDERS’ EQUITY 166,735 151,237
     
    TOTAL $ 210,213 $ 192,539
     


       
    FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
    (in thousands, except per share data)
     

    Quarter Ended June 30,

    Fiscal Year Ended June 30,

    2014   2013 2014   2013
    NET SALES $ 111,129 $ 102,010 $ 438,543 $ 386,189
    COST OF GOODS SOLD (85,614 ) (78,229 ) (338,280 ) (295,720 )
    GROSS MARGIN 25,515 23,781 100,263 90,469

    SELLING, GENERAL AND ADMINISTRATIVE

    (16,713

    )

    (17,366

    )

     

    (71,727

    )

    (70,198

    )

    LITIGATION SETTLEMENT COSTS       (6,250 )  
    OPERATING INCOME 8,802 6,415 22,286 20,271

    OTHER INCOME:

    Interest and other income 120   245   1,514   610  
    INCOME BEFORE INCOME TAXES. 8,922 6,660 23,800 20,881
    INCOME TAX PROVISION (3,290 ) (2,420 ) (8,810 ) (7,730 )
    NET INCOME $ 5,632   $ 4,240   $ 14,990   $ 13,151  

    AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

    Basic 7,331   7,106   7,231  

    7,041

     
    Diluted 7,655   7,417   7,511   7,326  

    EARNINGS PER SHARE OF COMMON STOCK:

    Basic $ 0.77   $ 0.60

     

    $

    2.07   $ 1.87  
    Diluted $ 0.74   $ 0.57

     

    $

    2.00   $ 1.80  
     


     
    FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (in thousands)
     

    Fiscal Year Ended June 30,

    2014   2013

    OPERATING ACTIVITIES:

    Net income $ 14,990 $ 13,151

    Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    Depreciation 4,197 3,803
    Deferred income taxes (138 ) 414
    Stock-based compensation expense 1,290 687
    Excess tax benefit from share based payments (1,357 ) (182 )
    Provision for losses on accounts receivable 6 (215 )
    Other non-cash,net 42 69
    Gain on disposition of capital assets (90 ) (18 )
    Changes in operating assets and liabilities (2,703 ) (12,168 )
    Net cash provided by operating activities 16,237   5,905  
     

    INVESTING ACTIVITIES:

    Net purchases of investments (328 ) 187
    Proceeds from sale of capital assets 98 21
    Capital expenditures (4,187 ) (6,225 )
    Net cash used in investing activities (4,417 ) (6,017 )
     

    FINANCING ACTIVITIES:

    Dividends paid (4,323 ) (4,213 )
    Proceeds from issuance of common stock 2,388 1,107
    Excess tax benefit from share based payments 1,357   182  
    Net cash used in financing activities (578 ) (2,924 )
     
    Increase (decrease) in cash 11,242 (3,036 )
    Cash at beginning of period 10,934   13,970  
    Cash at end of period $ 22,176   $ 10,934  
     


       
    SEC REG G NON-GAAP DISCLOSURE (Unaudited)
    IMPACT OF INDIANA CIVIL LITIGATION
     
    The Company is providing information regarding adjusted net income and adjusted diluted earnings per share of common stock, which are not recognized terms under U.S. Generally Accepted Accounting Principles (“GAAP”) and do not purport to be alternatives to net income or diluted earnings per share of common stock as a measure of operating performance. A reconciliation of adjusted net income and adjusted diluted earnings per share of common stock is provided below. Management believes the use of these non-GAAP financial measures provide investors with additional useful information on the impact of Indiana civil litigation costs. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.
     
    In December 2013, the Company entered into an agreement to settle the Indiana civil litigation in order to eliminate the ongoing costs and distraction of the litigation. In February 2014, the Company contributed $6.25 million to the settlement agreement. In reaching the agreement, the Company does not admit any wrongdoing and believes that it did not cause or contribute to the contamination at issue. This amount is recorded as litigation settlement costs in the Consolidated Statements of Income. The cost to defend the company in this litigation, net of amounts reimbursed by insurance companies, is recorded as SG&A expense in the financial statements. These amounts are shown net of tax in the table below. The Company continues to pursue recovery of defense and settlement costs from insurance carriers.
     
    Reconciliation of GAAP net income to adjusted net income:
     

    The following table sets forth the reconciliation of the Company’s reported GAAP net income to the calculation of adjusted net income for the periods ended June 30th:

     
    (in millions, net of income tax)
    Quarter Fiscal Year
    2014   2013 2014   2013
    Net income $ 5.6 $ 4.2 $ 15.0 $ 13.2
    Defense costs, net of reimbursements (0.3 ) 0.4 (0.4 ) 1.4
    Settlement costs -   -   3.9   -  
    Adjusted net income $ 5.3   $ 4.6   $ 18.5   $ 14.6  
     
     
    Reconciliation of GAAP diluted earnings per share of common stock to adjusted diluted earnings per share (EPS) of common stock:
     

    The following table sets forth the reconciliation of the Company’s reported GAAP diluted earnings per share of common stock to the calculation of adjusted diluted earnings per share of common stock for the periods ended June 30th:

     

    Quarter

    Fiscal Year

    2014 2013 2014 2013
    Diluted EPS of common stock $ 0.74 $ 0.57 $ 2.00 $ 1.80
    Defense costs, net of reimbursement (0.04 ) 0.06 (0.06 ) 0.20
    Settlement costs -   -   0.52   -  
    Adjusted diluted EPS of common stock $ 0.70   $ 0.63

     

    $ 2.46   $ 2.00  
     





    Flexsteel Industries, Inc., Dubuque, IA

    Timothy E. Hall, 563-585-8392

    Chief Financial Officer

    Source: Flexsteel Industries, Inc.


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