Flexsteel Industries, Inc. (NASDAQ:FLXS) today reported record net sales
of $217 million for the six month period ended December 31, 2013, a 17%
increase from the prior year six month period. Net sales for the quarter
ended December 31, 2013 were a second quarter record $113 million, a 19%
increase over prior year quarter net sales of $95 million.
The Company reported net income of $4.9 million or $0.66 per share for
the six month period ended December 31, 2013 compared to $5.8 million or
$0.80 per share for the prior year six month period. Adjusted net income
for the current year six month period was $8.9 million or $1.18 per
share compared to $6.5 million or $0.89 per share in the prior year
period. For the quarter ended December 31, 2013 the Company reported net
income of $1.2 million or $0.16 per share compared to $2.9 million or
$0.40 per share for the prior year quarter. Adjusted net income for the
quarter was $4.5 million or $0.60 per share compared to $3.3 million or
$0.46 per share in the prior year quarter. For additional information
regarding adjusted net income and adjusted earnings per share (which are
non-GAAP measures), please refer to the reconciliations and other
information included in the attached schedules.
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. The Company will contribute $6.3 million
to the settlement as part of an agreement whose terms are otherwise
confidential. 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
payable on the Condensed Consolidated Balance Sheets and as litigation
settlement cost in the Consolidated Statements of Income. The Company
incurred approximately $0.8 million and $1.7 million of legal defense
costs during the quarter and six month period ended December 31, 2013,
respectively, which have been recorded in selling, general and
administrative (SG&A) expense. The Company has received reimbursements
of defense costs of approximately $1.7 million from insurers and this
has been reflected as a reduction in SG&A expense for the quarter ended
December 31, 2013. The Company continues to pursue recovery of defense
and settlement costs from insurance carriers.
Gross margin for the six months ended December 31, 2013 was 22.9% of net
sales compared to 23.6% of net sales in the prior year six month period.
Gross margin for the quarters ended December 31, 2013 and 2012 was 23.2%
and 24.0%, respectively. The decrease in the current year periods was
primarily due to price discounting on certain case goods to address
changing customer requirements.
SG&A expense for the six month period ended December 31, 2013 were 16.9%
of net sales compared to 18.8% of net sales in the prior year six month
period. SG&A expense for the six month period ended December 31, 2012
included pre-tax executive transition costs of $1.2 million or 0.6% of
net sales and $1.0 million pre-tax for legal defense costs related to
the aforementioned Indiana civil litigation. SG&A expense for the
quarter ended December 31, 2013 and 2012 were 16.3% and 19.2% of net
sales, respectively. The current quarter includes $0.8 million pre-tax
in legal defense costs and $1.7 million pre-tax in legal defense
reimbursement related to the Indiana civil litigation. The prior year
quarter includes $0.7 million pre-tax in executive transition costs and
$0.7 million pre-tax in legal defense costs.
Working capital (current assets less current liabilities) at December
31, 2013 was $118.4 million compared to $113.7 million at June 30, 2013.
Changes in working capital from June 30, 2013 to December 31, 2013
include increases in inventory of $6.4 million, accounts receivable of
$5.4 million, and other current assets of $2.9 million, offset by a
decrease in cash of $2.1 million and increases in accounts payable of
$1.5 million and litigation settlement payable of $6.3 million. The
higher inventory levels support the increases in residential sales
volume and expanded product offerings. The increase in accounts
receivable is due to increased sales volume and timing of related
shipments and collections.
The decrease in cash of $2.1 million during the first six months of
fiscal year 2014 reflects net cash provided by operating activities of
$1.2 million, capital expenditures of $1.5 million and payment of
dividends totaling $2.1 million. The Company estimates that capital
expenditures will be approximately $3.0 million for the remainder of
fiscal year 2014 primarily for delivery and manufacturing equipment and
information technology infrastructure.
All earnings per share amounts are on a diluted basis.
The following table compares net sales for the quarter ended December
31, 2013 to the prior year quarter.
|
|
|
Net Sales (in millions)
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31,
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
$ Change
|
|
|
% Change
|
Residential
|
|
$
|
92
|
|
$
|
77
|
|
$
|
|
15
|
|
|
19
|
%
|
Commercial
|
|
|
21
|
|
|
18
|
|
|
|
3
|
|
|
18
|
%
|
Total
|
|
$
|
113
|
|
$
|
95
|
|
$
|
|
18
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table compares net sales for the six months ended December
31, 2013 to the prior year six month period.
|
|
|
Net Sales (in millions)
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
$ Change
|
|
|
% Change
|
Residential
|
|
$
|
175
|
|
$
|
149
|
|
$
|
|
26
|
|
|
18
|
%
|
Commercial
|
|
|
42
|
|
|
37
|
|
|
|
5
|
|
|
13
|
%
|
Total
|
|
$
|
217
|
|
$
|
186
|
|
$
|
|
31
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in residential sales for the three and six months ended
December 31, 2013 is primarily due to increased demand for upholstered
and, to a lesser extent, ready-to-assemble products. The increase in
commercial sales for the three and six months ended December 31, 2013 is
primarily from hospitality and vehicle seating products.
Outlook
The Company believes that top line growth will continue through the end
of fiscal year 2014. Residential growth is expected to continue with
existing customers and products, and through expanding our product
portfolio and customer base. The Company expects this growth to be led
by increased demand for upholstered and ready to assemble products. The
Company anticipates sales of commercial products to moderately increase
for the remainder of the fiscal year. The Company is confident in its
ability to take advantage of market opportunities.
The Company remains committed to its core strategies, which include 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 February 6, 2014, at 10:30 a.m.
Central Time. To access the call, please dial 1-866-830-5279 and provide
the operator with ID# 20484149. A replay will be available for two weeks
beginning approximately two hours after the conclusion of the call by
dialing 1-800-585-8367 and entering ID# 20484149.
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, including expenses related to the Indiana
civil 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.
TABLES FOLLOW
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2013
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
8,876
|
|
$
|
10,934
|
Trade receivables, net
|
|
|
41,506
|
|
|
36,075
|
Inventories
|
|
|
98,853
|
|
|
92,417
|
Other
|
|
|
12,677
|
|
|
9,775
|
Total current assets
|
|
|
161,912
|
|
|
149,201
|
|
|
|
|
|
|
|
NONCURRENT ASSETS:
|
|
|
|
|
|
|
Property, plant, and equipment, net
|
|
|
31,616
|
|
|
32,145
|
Other assets
|
|
|
13,024
|
|
|
11,193
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
206,552
|
|
$
|
192,539
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Accounts payable – trade
|
|
$
|
15,416
|
|
$
|
13,927
|
Litigation settlement payable
|
|
|
6,250
|
|
|
–
|
Accrued liabilities
|
|
|
21,836
|
|
|
21,575
|
Total current liabilities
|
|
|
43,502
|
|
|
35,502
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
7,209
|
|
|
5,800
|
Total liabilities
|
|
|
50,711
|
|
|
41,302
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
155,841
|
|
|
151,237
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
206,552
|
|
$
|
192,539
|
|
|
|
|
|
|
|
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
NET SALES
|
|
$
|
112,534
|
|
|
$
|
94,590
|
|
|
$
|
216,882
|
|
|
$
|
185,827
|
|
COST OF GOODS SOLD
|
|
|
(86,475
|
)
|
|
|
(71,843
|
)
|
|
|
(167,178
|
)
|
|
|
(141,979
|
)
|
GROSS MARGIN
|
|
|
26,059
|
|
|
|
22,747
|
|
|
|
49,704
|
|
|
|
43,848
|
|
SELLING, GENERAL AND ADMINISTRATIVE
|
|
|
(18,351
|
)
|
|
|
(18,150
|
)
|
|
|
(36,560
|
)
|
|
|
(34,860
|
)
|
LITIGATION SETTLEMENT COSTS
|
|
|
(6,250
|
)
|
|
|
-
|
|
|
|
(6,250
|
)
|
|
|
-
|
|
OPERATING INCOME
|
|
|
1,458
|
|
|
|
4,597
|
|
|
|
6,894
|
|
|
|
8,988
|
|
OTHER INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
422
|
|
|
|
65
|
|
|
|
924
|
|
|
|
225
|
|
INCOME BEFORE INCOME TAXES.
|
|
|
1,880
|
|
|
|
4,662
|
|
|
|
7,818
|
|
|
|
9,213
|
|
INCOME TAX PROVISION
|
|
|
(710
|
)
|
|
|
(1,740
|
)
|
|
|
(2,880
|
)
|
|
|
(3,420
|
)
|
NET INCOME
|
|
$
|
1,170
|
|
|
$
|
2,922
|
|
|
$
|
4,938
|
|
|
$
|
5,793
|
|
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,205
|
|
|
|
7,030
|
|
|
|
7,165
|
|
|
|
6,984
|
|
Diluted
|
|
|
7,537
|
|
|
|
7,275
|
|
|
|
7,477
|
|
|
|
7,245
|
|
EARNINGS PER SHARE OF COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.42
|
|
|
$
|
0.69
|
|
|
$
|
0.83
|
|
Diluted
|
|
$
|
0.16
|
|
|
$
|
0.40
|
|
|
$
|
0.66
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
(in thousands)
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
$
|
4,938
|
|
|
$
|
5,793
|
|
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
|
2,030
|
|
|
|
1,772
|
|
Deferred income taxes
|
|
|
(2,826
|
)
|
|
|
(353
|
)
|
Stock-based compensation expense
|
|
|
723
|
|
|
|
860
|
|
Change in provision for losses on accounts receivable
|
|
|
45
|
|
|
|
88
|
|
Gain on disposition of capital assets
|
|
|
(23
|
)
|
|
|
(3
|
)
|
Changes in operating assets and liabilities
|
|
|
(3,661
|
)
|
|
|
(6,092
|
)
|
Net cash provided by operating activities
|
|
|
1,226
|
|
|
|
2,065
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Net purchases of investments
|
|
|
(818
|
)
|
|
|
(623
|
)
|
Proceeds from sale of capital assets
|
|
|
30
|
|
|
|
3
|
|
Capital expenditures
|
|
|
(1,481
|
)
|
|
|
(4,918
|
)
|
Net cash used in investing activities
|
|
|
(2,269
|
)
|
|
|
(5,538
|
)
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Dividends paid
|
|
|
(2,143
|
)
|
|
|
(3,148
|
)
|
Proceeds from issuance of common stock
|
|
|
1,128
|
|
|
|
800
|
|
Net cash used in financing activities
|
|
|
(1,015
|
)
|
|
|
(2,348
|
)
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(2,058
|
)
|
|
|
(5,821
|
)
|
Cash at beginning of period
|
|
|
10,934
|
|
|
|
13,970
|
|
Cash at end of period
|
|
$
|
8,876
|
|
|
$
|
8,149
|
|
|
|
|
|
|
|
|
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.
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 three and six months ended December 31, 2013 and 2012:
(in millions, net of income tax)
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Net income
|
|
$
|
1.2
|
|
|
$
|
2.9
|
|
$
|
4.9
|
|
$
|
5.8
|
Defense costs, net of reimbursements
|
|
|
(0.7
|
)
|
|
|
0.4
|
|
|
–
|
|
|
0.7
|
Settlement costs
|
|
|
4.0
|
|
|
|
–
|
|
|
4.0
|
|
|
–
|
Adjusted net income
|
|
$
|
4.5
|
|
|
$
|
3.3
|
|
$
|
8.9
|
|
$
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 three and six months ended December 31, 2013 and 2012:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
Diluted EPS of common stock
|
|
$
|
0.16
|
|
|
$
|
0.40
|
|
$
|
0.66
|
|
$
|
0.80
|
Defense costs, net of reimbursement
|
|
|
(0.08
|
)
|
|
|
0.06
|
|
|
–
|
|
|
0.09
|
Settlement costs
|
|
|
0.52
|
|
|
|
–
|
|
|
0.52
|
|
|
–
|
Adjusted diluted EPS of common stock
|
|
$
|
0.60
|
|
|
$
|
0.46
|
|
$
|
1.18
|
|
$
|
0.89
|
Copyright Business Wire 2014