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This excerpt taken from the FLXS 10-Q filed Feb 9, 2009. Liquidity and Capital Resources Operating
Activities: Investing
Activities: 11 31, 2008. Depreciation and amortization expense was $2.0 million and $2.4 million for the six-month periods ended December 31, 2008 and 2007, respectively. The Company expects that capital expenditures will be less than $1.0 million for the remainder of the 2009 fiscal year. Financing Activities: The Company has begun the process of obtaining an extension or refinancing its working capital line of credit that expires June 30, 2009. The Company believes that it will be able to successfully extend or refinance the terms of the current agreement prior to its expiration date; however, there can be no assurance that the Company will be successful in maintaining all of the current terms of the agreement. Management believes that the Company has adequate cash and credit arrangements to meet its operating and capital requirements for fiscal year 2009. In the opinion of management, the Company’s current 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. However, should the current economic conditions continue for an extended period of time or deteriorate significantly, we would further evaluate all uses of cash and credit facilities, including the payment of dividends and purchase of capital assets. Outlook The consolidation of manufacturing operations that the Company announced on September 10, 2008 has been substantially completed as of December 31, 2008. Significant workforce reductions have taken place at other facilities as we continue to adjust operations to bring production capacity in line with current and expected demand for our products. Company wide employment has been reduced approximately 25% over the past year. Demand for our products is dependent on factors such as consumer confidence, affordable housing, reasonably attainable financing and an economy with low levels of unemployment and high levels of disposable income. These factors are all currently in poor positions, and indications are that they will remain that way in the near-term. We are not anticipating significant improvements in market conditions at this time, and are managing our business on that basis. While we expect that current business conditions will persist for the remainder of fiscal year 2009, we remain optimistic that our strategy of a wide range of quality product offerings and price points to the residential, recreational vehicle and commercial markets combined with our conservative approach to business will be rewarded over the longer-term.
General – Market risk represents the risk of changes in 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, 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 the six months ended December 31, 2008 and 2007, the Company did not have sales, purchases, or other expenses denominated in foreign currencies. As such, the Company is not exposed to material market risk associated with currency exchange rates and prices. Interest Rate Risk – The Company’s primary market risk exposure with regard to financial instruments is changes in interest rates. At December 31, 2008, a hypothetical 100 basis point increase in short-term interest rates would decrease annual pre-tax earnings by approximately $40,000, assuming no change in the volume or composition of debt. On December 31, 12 2008, the Company had effectively fixed the interest rates at 5.0% on approximately $10.0 million of its long-term debt through the use of interest rate swaps. As of December 31, 2008, the cumulative fair value of the swaps is a liability of approximately $0.5 million and is included in other current liabilities. Tariffs – The Company has exposure to actions by governments, including tariffs. Tariffs are a possibility on any imported or exported products. Inflation – Increased operating costs are reflected in product or services pricing with any limitations on price increases determined by the marketplace. The impact of inflation on the Company has not been significant during the past three years because of the relatively low rates of inflation experienced in the United States. Raw material costs, labor costs and interest rates are important components of costs for the Company. Inflation or other pricing pressures could impact any or all of these components, with a possible adverse effect on our profitability, especially where increases in these costs exceed price increases on finished products. In recent years, the Company has faced strong inflationary and other pricing pressures with respect to steel, fuel and health care costs, which have been partially mitigated by pricing adjustments.
(a) Evaluation of disclosure controls and procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”) of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were not effective as of December 31, 2008 because they are not yet able to conclude that we have remediated the material weakness in internal control over financial reporting identified in Item 9A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. (b) Changes in internal control over financial reporting. As of June 30, 2008, our assessment of the effectiveness of our internal control over financial reporting identified a material weakness in our internal control over financial reporting. The material weakness is related to the design and operating effectiveness of controls over the Company’s material consolidated subsidiary’s reconciliation of accounts payable records to the general ledger. We have implemented the following remediation steps to address the material weakness discussed above:
We believe these remediation steps will correct the material weakness discussed above. We will assess the effectiveness of our remediation efforts in connection with our management’s tests of internal control over financial reporting in conjunction with our fiscal year 2009 testing procedures. Except as discussed above, we have not identified any changes in our internal control over financial reporting during the first six months of fiscal year 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. This excerpt taken from the FLXS 10-Q filed Oct 24, 2008. Liquidity and Capital Resources Operating
Activities: Investing
Activities: Financing
Activities: Management believes that the Company has adequate cash, cash equivalents, and credit arrangements to meet its operating and capital requirements for fiscal year 2009. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. Outlook The impact of the slowdown of the U. S. economy, where most of our products are sold, has magnified as the news media reports of job losses or layoffs related to cutbacks and closings over a broad spectrum of industries, including the furniture industry. With instability in the financial markets despite government relief efforts, rising prices throughout our supply chain and a changing political landscape, prospects for a recovery appear to be moving further into the future. In response to these conditions, we continue to adjust our operations and workforce to bring production capacity in line with current and expected demand for our products. Our workforce has been reduced approximately 15% over the past year through layoffs and attrition. As announced in September, we have proceeded with the closing of two long-established manufacturing operations. Our Lancaster, PA facility has produced and distributed high quality residential furniture for over fifty years. As demand tightens and foreign sourced products continue to gain acceptance as providing 11 better value at the retail level, we no longer require this manufacturing capacity for residential products. Our New Paris, IN facility has been an integral part of our success in supplying quality recreational vehicle seating for over twenty-five years. With the recreational vehicle seating industry experiencing such a drastic decline in demand, as reflected by our 62% decrease in recreational vehicle seating net sales from the prior year period, we can no longer support our current capacity. While these are difficult decisions to make, we expect annual pre-tax cost savings of $3.5 million to $4.0 million going forward, and will continue to pursue cost savings in all aspects of our operations. While we expect that current business conditions will persist for most, if not all, of fiscal year 2009, we remain optimistic that our strategy of a wide range of quality product offerings and price points to the residential, recreational vehicle and commercial markets combined with our conservative approach to business will be rewarded over the longer-term.
General – Market risk represents the risk of changes in 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, 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 the three-months ended September 30, 2008 and 2007, the Company did not have sales, purchases, or other expenses denominated in foreign currencies. As such, the Company is not exposed to material market risk associated with currency exchange rates and prices. Interest Rate Risk – The Company’s primary market risk exposure with regard to financial instruments is changes in interest rates. At September 30, 2008, a hypothetical 100 basis point increase in short-term interest rates would decrease annual pre-tax earnings by approximately $0.1 million, assuming no change in the volume or composition of debt. On September 30, 2008, the Company had effectively fixed the interest rates at 5.0% on approximately $10.0 million of its long-term debt through the use of interest rate swaps. As of September 30, 2008, the cumulative fair value of the swaps is a liability of approximately $0.2 million and is included in other current liabilities. Tariffs – The Company has exposure to actions by governments, including tariffs. Tariffs are a possibility on any imported or exported products. Inflation – Increased operating costs are reflected in product or services pricing with any limitations on price increases determined by the marketplace. The impact of inflation on the Company has not been significant during the past three years because of the relatively low rates of inflation experienced in the United States. Raw material costs, labor costs and interest rates are important components of costs for the Company. Inflation or other pricing pressures could impact any or all of these components, with a possible adverse effect on our profitability, especially where increases in these costs exceed price increases on finished products. In recent years, the Company has faced strong inflationary and other pricing pressures with respect to steel, fuel and health care costs, which have been partially mitigated by pricing adjustments.
(a) Evaluation of disclosure controls and procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”) of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were not effective as of September 30, 2008 because they are not yet able to conclude that we have remediated the material weakness in internal control over financial reporting identified in Item 9A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2008. 12 (b) Changes in internal control over financial reporting. As of June 30, 2008, our assessment of the effectiveness of our internal control over financial reporting identified a material weakness in our internal control over financial reporting. The material weakness is related to the design and operating effectiveness of controls over the Company’s material consolidated subsidiary’s reconciliation of accounts payable records to the general ledger. During the first quarter of fiscal year 2009, we have implemented the following remediation steps to address the material weakness discussed above:
We believe these remediation steps will correct the material weakness discussed above. We will assess the effectiveness of our remediation efforts in connection with our management’s tests of internal control over financial reporting in conjunction with our fiscal year 2009 testing procedures. Except as discussed above, we have not identified any changes in our internal control over financial reporting during the first quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. This excerpt taken from the FLXS 10-K filed Sep 7, 2006. Liquidity and Capital Resources Working capital (current assets less current liabilities) at June 30, 2006 was $97.0 million compared to $85.4 million at June 30, 2005. Net cash used by operating activities was $7.3 million in fiscal year 2006. Cash used by operating activities included increased inventory from the expansion of import programs, including commercial office product offerings, and increased accounts receivable due the higher sales volumes in the fourth quarter. The Company does not expect significant future increases in inventory related to our import programs. The available credit facilities were adequate to provide the additional cash required to support the Company’s operations. Capital expenditures were $3.4 million (including a non-cash acquisition of $2.6 million for delivery equipment financed by long-term debt), $3.3 million and $6.0 million in fiscal 2006, 2005 and 2004, respectively. Fiscal 2006 expenditures were incurred for delivery and manufacturing equipment. Projected capital spending for fiscal 2007 is $4.0 million and will be used for delivery and manufacturing equipment. Cash generated from operations and available lines of credit are expected to provide funds necessary for projected capital expenditures. Financing activities provided net cash of $7.6 million in fiscal year 2006 and utilized $12.0 million and $0.8 million in fiscal 2005 and 2004, respectively. For fiscal year 2006, borrowings were used to pay for the expansion of inventory programs and accounts receivable and the payment of dividends. Management believes that the Company has adequate cash, cash equivalents, and credit arrangements to meet its operating and capital requirements for fiscal 2007. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. The following table summarizes the Company’s contractual obligations at June 30, 2006 and the effect these obligations are expected to have on the Company’s liquidity and cash flow in the future (in thousands):
At June 30, 2006 the Company had no capital lease obligations, and no purchase obligations for raw materials or finished goods extending more than six months. The purchase price on all open purchase orders was fixed and denominated in U.S. dollars. 13 This excerpt taken from the FLXS 10-Q filed Apr 21, 2006. Liquidity and Capital Resources Working capital (current assets less current liabilities) at March 31, 2006 was $96.0 million, compared to $85.4 million at June 30, 2005. Inventories increased $16.8 million primarily to meet current and anticipated future demand for foreign sourced product. Accounts receivable increased $2.2 million due to expected timing fluctuations in collections. Short-term borrowings increased by $1.4 million and accounts payable increased $4.2 million due to increases in inventories and accounts receivable. Net cash used in operating activities was $6.5 million in the nine months ended March 31, 2006. Net cash provided by operating activities was $13.6 million in the nine months ended March 31, 2005. Fluctuations in net cash provided by operating activities were primarily the result of changes in net income, accounts receivable, inventories and accounts payable. Capital expenditures were $3.2 million and $2.7 million during the first nine months of fiscal 2006 and 2005, respectively, primarily for delivery equipment. During the next three months, it is anticipated that less than $0.5 million will be used for the acquisition of capital assets. Cash generated from operations and available lines of credit are expected to provide funds necessary for projected capital expenditures. The Company has adequate cash and credit arrangements to meet its operating and capital requirements. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. During fiscal 2006, the Company has begun the process of obtaining an extension or refinancing their working capital line of credit that expires June 29, 2006. The Company believes that they will be able to successfully refinance or extend the terms of the current agreement prior to its expiration date; however, there can be no assurance that the Company will be successful in these endeavors or that completion of such extension or refinancing will be on terms acceptable to the Company. This excerpt taken from the FLXS 10-Q filed Feb 9, 2006. Liquidity and Capital Resources Working capital (current assets less current liabilities) at December 31, 2005 was $87.3 million, which includes cash, cash equivalents and investments of $3.4 million. Working capital increased by $2.0 million from June 30, 2005. Inventories increased $18.5 million primarily to meet current and anticipated future demand for import product. Accounts receivable increased $1.8 million due to expected timing fluctuations in collections. Short-term borrowings increased by $14.5 million and accounts payable increased $5.3 million to meet cash requirements related to increase in inventories and accounts receivable. Net cash used in operating activities was $11.2 million in the six months ended December 31,2004. Net cash provided by operating activities was $2.1 million in the six months ended December 31, 2004. Fluctuations in net cash provided by operating activities were primarily the result of changes in net income, accounts receivable, inventories, accounts payable and notes payable. Capital expenditures were $3.1 million and $2.5 million during the first six months of fiscal 2006 and 2005, respectively. During the next six months, it is anticipated that approximately $1.0 million will be used for the acquisition of capital assets. Cash generated from operations and available lines of credit are expected to provide funds necessary for projected capital expenditures. The Company has adequate cash, cash equivalents, short-term investments and credit arrangements to meet its operating and capital requirements. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. During fiscal 2006, the Company has begun the process of obtaining an extension or refinancing their working capital line of credit that expires June 29, 2006. The Company believes that they will be able to successfully refinance or extend the terms of the current agreement prior to its expiration date; however, there can be no assurance that the Company will be successful in these endeavors or that completion of such extension or refinancing will be on terms acceptable to the Company. This excerpt taken from the FLXS 10-Q filed Oct 26, 2005. Liquidity and Capital Resources Working capital (current assets less current liabilities) at September 30, 2005 was $86.6 million, which includes cash, cash equivalents and investments of $3.0 million. Working capital increased by $1.2 million from June 30, 2005. Inventories increased $13.2 million primarily to meet current and anticipated future demand for import product. Accounts receivable decreased $5.3 million due to expected timing fluctuations in collections. Short-term borrowings increased by $7.6 million to meet cash requirements related to increase in inventories. Net cash used in operating activities was $6.8 million and $1.8 million in the three months ended September 30, 2005 and 2004, respectively. Fluctuations in net cash provided by operating activities were primarily the result of changes in net income, accounts receivable, inventories and notes payable. Capital expenditures were $0.2 million and $1.0 million during the first three months of fiscal 2006 and 2005, respectively. During the next nine months, it is anticipated that approximately $4.0 million will be used for the acquisition of capital assets. Cash generated from operations and available lines of credit are expected to provide funds necessary for projected capital expenditures. The Company has adequate cash, cash equivalents, short-term investments and credit arrangements to meet its operating and capital requirements. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. During fiscal 2006, the Company will begin the process of obtaining an extension or refinancing their working capital line of credit that expires June 29, 2006. The Company believes that they will be able to successfully refinance or extend the terms of the current agreement prior to its expiration date; however, there can be no assurance that the Company will be successful in these endeavors or that completion of such extension or refinancing will be on terms acceptable to the Company. This excerpt taken from the FLXS 10-K filed Aug 30, 2005. Liquidity and Capital ResourcesWorking capital at June 30, 2005, was $85.4 million, which includes cash, cash equivalents and investments of $3.2 million. Net cash provided by operating activities was $12.7 million, $7.5 million and $9.2 million in fiscal 2005, 2004 and 2003, respectively. Fluctuations in net cash provided by operating activities were primarily the result of changes in net income, inventories and accounts payable. The increase in inventories and accounts payable relates primarily to the expansion of import programs. On September 17, 2003, the Company effectively acquired 100% of the outstanding common stock of DMI for $3.30 per share in cash. The results of DMI’s operations have been included in the consolidated financial statements of the Company since that date. The aggregate purchase price was $54.9 million. The purchase price consisted of $16.7 million in cash paid to the shareholders of DMI, $2.8 million in acquisition costs paid by the Company, and the assumption of all DMI liabilities totaling $35.4 million, including $25.5 million of long-term debt. Capital expenditures were $3.3 million, $6.0 million and $5.1 million in fiscal 2005, 2004 and 2003, respectively. Fiscal 2005 expenditures were incurred for delivery and manufacturing equipment. Projected capital spending for fiscal 2006 is $6.0 million and will be used for manufacturing and delivery equipment. Cash generated from operations and available lines of credit are expected to provide funds necessary for projected capital expenditures. Financing activities utilized net cash of $12.0 million, $0.8 million and $4.3 million in fiscal 2005, 2004 and 2003, respectively. For fiscal year 2005 repayment of debt and the payment of dividends were the primary financing activities utilizing cash. In fiscal years 2004 and 2003, the payment of dividends was the primary financing activity utilizing cash. The Company has adequate cash, cash equivalents, short-term investment and credit arrangements to meet its operating and capital requirements. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. 8 The Company’s contractual obligations as of June 30, 2005 are as follows (in thousands):
At June 30, 2005 the Company had no capital lease obligations, and no purchase obligations for raw materials or finished goods extending more than six months. The purchase price on all open purchase orders was fixed and denominated in U.S. dollars. This excerpt taken from the FLXS 10-Q filed Apr 25, 2005. Liquidity and Capital Resources Working capital (current assets less current liabilities) at March 31, 2005 was $88.2 million, which includes cash, cash equivalents and investments of $4.6 million. Working capital increased by $4.8 million from June 30, 2004. Current assets declined $7.6 million. Accounts receivable declined $6.2 million with the decrease in net sales. Inventories declined $1.8 million as a result of lower manufacturing levels. Current liabilities decreased $12.4 million. Accounts payable declined $1.4 million while lower inventory purchases and the decrease in accounts receivable and inventory allowed for a reduction in current notes payable of $9.0 million. Net cash provided by operating activities was $13.6 million and $12.5 million in the nine months ended March 31, 2005 and 2004, respectively. Fluctuations in net cash provided by operating activities were primarily the result of changes in net income, accounts receivable, inventories and notes payable. In addition, current fiscal year cash flows from operations were impacted by a decrease in accrued payroll and related items due to incentive payments and other timing differences. Capital expenditures were $2.7 million and $5.4 million during the first nine months of fiscal 2005 and 2004, respectively. Current fiscal year-to-date expenditures were incurred primarily for manufacturing and delivery equipment. During the next three months, it is anticipated that less than $1.0 million will be used for the acquisition of capital assets. Cash generated from operations and available lines of credit are expected to provide funds necessary for projected capital expenditures. The Company has adequate cash, cash equivalents, short-term investments and credit arrangements to meet its operating and capital requirements. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. This excerpt taken from the FLXS 10-Q filed Feb 9, 2005. Liquidity and Capital Resources Working capital (current assets less current liabilities) at December 31, 2004 was $88.2 million, which includes cash, cash equivalents and investments of $2.7 million. Working capital increased by $4.9 million from June 30, 2004 with operations generating $3.1 million and an increase in long-term borrowings of $1.8 million. Net cash provided by operating activities was $2.1 million and $8.4 million in the six months ended December 31 2004 and 2003, respectively. Fluctuations in net cash provided by operating activities were primarily the result of changes in net income, inventories and notes payable. The increase in inventories reflects higher levels of finished goods, primarily from imported products. In addition, current fiscal year cash flows from operations were impacted by a decrease in accrued payroll and related items due to incentive payments and other timing differences. Capital expenditures were $2.5 million and $3.2 million during the first six months of fiscal 2005 and 2004, respectively. Current quarter expenditures were incurred primarily for manufacturing and delivery equipment. During the next six months, it is anticipated that approximately $2.0 million will be used for additional manufacturing equipment. Cash generated from operations and available lines of credit are expected to provide funds necessary for projected capital expenditures. The Company has adequate cash, cash equivalents, short-term investments and credit arrangements to meet its operating and capital requirements. In the opinion of management, the Company’s liquidity and credit resources provide it with the ability to react to opportunities as they arise, the ability to pay quarterly dividends to its shareholders, and ensures that productive capital assets that enhance safety and improve operations are purchased as needed. | EXCERPTS ON THIS PAGE:
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