Flexsteel Reports Fourth Quarter Results

DUBUQUE, Iowa–(BUSINESS WIRE)–Flexsteel Industries, Inc. (NASDAQ:FLXS) today reported fourth quarter
and fiscal year financial results.

Fiscal Year End Financial Highlights:

  • Net sales increased to a record $500 million, a 7.1% increase;
  • Net income increased to a record $24 million, an 8.7% increase; and
  • Ending cash balance increased $35 million, after eliminating all
    borrowings.

Net sales for the quarters ended June 30, (in millions):

               
2016 2015

$ Change

% Change
Residential $ 103.1 $ 103.0 $ 0.1 0.1 %
Commercial 19.7 18.3 1.4 7.7 %
Total $ 122.8 $ 121.3 $ 1.5 1.2 %
 

Residential net sales increased but were partially offset by lower
delivery charges associated with lower fuel costs. The increase in
commercial net sales was evenly split between price and volume.

Net sales for the fiscal years ended June 30, (in millions):

               
2016 2015

$ Change

% Change
Residential $ 420.9 $ 393.1 $ 27.8 7.1 %
Commercial 79.2 73.8 5.4 7.3 %
Total $ 500.1 $ 466.9 $ 33.2 7.1 %
 

This was the third consecutive year of record net sales and the seventh
consecutive year of growth. The increase in residential net sales 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.
The increase in commercial net sales was substantially due to volume.

Gross margin as a percent of net sales for the quarter ended June 30,
2016 was 24.0% compared to 22.7% for the prior year quarter. In the
current quarter, the Company received a settlement of $1.3 million from
the Polyurethane Foam Antitrust Litigation, contributing 1.1% to the
improved gross margin.

For the fiscal year ended June 30, 2016, gross margin as a percent of
net sales 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 were 16.7% of net
sales in the current year quarter, compared to 15.7% of net sales in the
prior year quarter. SG&A expenses increased $1.0 million or 0.8% as a
result of the Company’s continued investment with strategic customers to
enhance brand recognition.

For the fiscal year ended June 30, 2016, SG&A expenses were 15.6% of net
sales compared to 16.2% of net sales in the prior period. The
improvement in SG&A as a percentage of net sales reflects fixed cost
leverage on higher sales volume.

During the fiscal year ended June 30, 2016, litigation settlement
reimbursements were $2.3 million compared to $0.3 million in the prior
year period. The reimbursements are included in “litigation settlement
reimbursements” in the Consolidated Statements of Income.

The effective income tax rate was 30.5% and 35.6% for the quarters ended
June 30, 2016 and 2015, respectively. During the quarter ended June 30,
2016, the Company recorded a reduction in income tax expense of $1.0
million related to changes in measurement of uncertain tax positions
based on recent experiences with various state tax authorities.

The effective income rate was 36.1% and 37.3% for the fiscal years ended
June 30, 2016 and 2015, respectively. The primary change in the rate is
related to the change in uncertain tax positions discussed above.

The above factors resulted in net income of $6.2 million or $0.78 per
share for the quarter ended June 30, 2016, compared to $5.8 million or
$0.74 per share in the prior year quarter.

The above factors resulted in the fifth consecutive year of record net
income yielding $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.

Working capital (current assets less current liabilities) at June 30,
2016 was $143 million compared to $120 million at June 30, 2015. Primary
changes in working capital include increases in cash of $35.5 million
and other current assets of $2.4 million and decreases in inventory 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 for the current fiscal year
compared to $5.1 million in the prior year. The Company has paid 298
consecutive quarterly cash dividends.

All earnings per share amounts are on a diluted basis.

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.

About Flexsteel

Flexsteel Industries, Inc. and Subsidiaries (the “Company”) was
incorporated in 1929 and is one of the oldest and largest manufacturers,
importers and marketers of residential and commercial upholstered and
wooden furniture products in the United States. Product offerings
include a wide variety of upholstered and wood furniture such as sofas,
loveseats, chairs, reclining and rocker-reclining chairs, swivel
rockers, sofa beds, convertible bedding units, occasional tables, desks,
dining tables and chairs and bedroom furniture. The Company’s products
are intended for use in home, office, hotel, 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.

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
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(in thousands)
       
June 30, June 30,
2016 2015
 

ASSETS

 
CURRENT ASSETS:
Cash $ 36,780 $ 1,282
Trade receivables, net 44,618 45,101
Inventories 85,904 113,842
Other 9,141 10,997
Total current assets 176,443 171,222
 
NONCURRENT ASSETS:
Property, plant, and equipment, net 64,124 64,770
Other assets 6,329 8,627
 
TOTAL $ 246,896 $ 244,619
 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 
CURRENT LIABILITIES:
Accounts payable – trade $ 11,023 $ 18,329
Notes payable – current 11,904
Accrued liabilities 22,334 21,087
Total current liabilities 33,357 51,320
 
LONG-TERM LIABILITIES:
Other long-term liabilities 3,889 6,552
Total liabilities 37,246 57,872
 
SHAREHOLDERS’ EQUITY 209,650 186,747
 
TOTAL $ 246,896 $ 244,619
 
 
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
       
Quarter Ended Fiscal Year Ended
June 30, June 30,
2016     2015 2016     2015
NET SALES $ 122,764 $ 121,323 $ 500,106 $ 466,904
COST OF GOODS SOLD (93,334 ) (93,744 ) (386,407 ) (357,044 )
GROSS MARGIN 29,430 27,579 113,699 109,860

SELLING, GENERAL AND ADMINISTRATIVE

(20,478

)

(18,997

)

 

(77,911

)

(75,688

)

LITIGATION SETTLEMENT REIMBURSEMENTS

 

 

2,280

 

 

250

 
OPERATING INCOME 8,952 8,582 38,068 34,422
OTHER (EXPENSE) INCOME (78 ) 429 (72 ) 1,267
INTEREST EXPENSE   (41 ) (69 ) (130 )
INCOME BEFORE INCOME TAXES 8,874 8,970 37,927 35,559
INCOME TAX PROVISION (2,710 ) (3,190 ) (13,690 ) (13,260 )
NET INCOME $ 6,164   $ 5,780   $ 24,237   $ 22,299  
 

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

Basic 7,679   7,466     7,595   7,423  
Diluted 7,865   7,766     7,765   7,708  
 

EARNINGS PER SHARE OF COMMON STOCK:

Basic $ 0.80   $ 0.77  

 

$

3.19

  $ 3.00  
Diluted $ 0.78   $ 0.74  

 

$

3.12

  $ 2.89  
 
 
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
   
Fiscal Year Ended
June 30,
2016     2015
 

OPERATING ACTIVITIES:

Net income $ 24,237 $ 22,299

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

Depreciation 7,556 4,945
Stock-based compensation expense 1,462 1,943
Deferred income taxes 2,731 605
Excess tax (benefit) expense from share-based payments

(1,761

)

 

(817

)

Change in provision for losses on accounts receivable

(100

)

 

30

Gain (loss) on disposition of capital assets (34 ) (119 )
Gain on life insurance policies (346 ) (745 )
Other non-cash, net (28 )
Changes in operating assets and liabilities 20,614   (24,844 )
Net cash provided by operating activities 54,359   3,269  
 

INVESTING ACTIVITIES:

Net purchases of investments (200 ) (343 )
Proceeds from sale of capital assets 76 155
Proceeds from life insurance policies 2,814 5,053
Capital expenditures (7,382 ) (37,424 )
Net cash used in investing activities (4,692 ) (32,559 )
 

FINANCING ACTIVITIES:

Dividends paid (5,455 ) (5,115 )
Proceeds from issuance of common stock 1,593 790
Shares issued to employees, net of shares withheld (164 )
Excess tax benefit from share-based payments 1,761 817
(Repayments of) proceeds from current notes payable

(11,904

)

11,904

 
Net cash (used in) provided by financing activities (14,169 ) 8,396  
 
Increase (decrease) in cash 35,498 (20,894 )
Cash at beginning of period 1,282   22,176  
Cash at end of period $ 36,780   $ 1,282  
 

Contacts

Flexsteel Industries, Inc., Dubuque, IA
Timothy E. Hall,
563-585-8392
Chief Financial Officer

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