Flexsteel Industries 10-Q 2011
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
x Quarterly Report Pursuant to Section 13 or 15(d) of the
For the quarterly period ended September 30, 2011
Commission file number 0-5151
FLEXSTEEL INDUSTRIES, INC.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x. No o.
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
check mark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act (check one).
check mark whether the Registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
INDUSTRIES, INC. AND SUBSIDIARIES
INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW
INFORMATION Cash paid during the period for:
See accompanying Notes to Consolidated Financial Statements (Unaudited).
INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
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 quarterly report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES:
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, included in our 2011 annual report on Form 10-K.
The following table has been prepared as an aid in understanding the Companys results of operations on a comparative basis for the three months ended September 30, 2011 and 2010. Amounts presented are percentages of the Companys net sales.
Results of Operations for the Quarter Ended September 30, 2011 vs. 2010
The following table compares net sales in total and by area of application for the quarter ended September 30, 2011 to the prior year quarter.
Net sales for the quarter ended September 30, 2010 benefited from a longer than normal lag time on orders received in the spring of 2010, but not shipped to dealers until the quarter ended September 30, 2010. New orders received during the quarter ended September 30, 2011 were approximately 8.4% higher than the prior year period.
Gross margin for the quarter ended September 30, 2011 was 23.3% compared to 22.5% in the prior year quarter. The improvement in gross margin percentage is primarily due to lower ocean freight costs and lower fixed costs resulting from reductions in manufacturing capacity.
Selling, general and administrative expenses were $15.3 million or 18.8% of net sales and $14.9 million or 17.1% of net sales for the quarters ended September 30, 2011 and 2010, respectively. The increase in expenses is primarily due to support expenditures related to residential dealers converting or installing the Companys revised gallery format and higher legal and professional fees.
Operating income for the current quarter was $3.6 million compared to operating income of $3.7 million in the prior year quarter reflecting the aforementioned factors.
The effective income tax expense rate for the current fiscal quarter was 36.7% compared to an income tax expense rate of 38.2% in the prior year fiscal quarter. The effective rates include the federal statutory rate as well as the effect of the various state taxing jurisdictions.
The above factors resulted in current quarter net income of $2.4 million or $0.34 per share, compared to net income of $2.3 million or $0.34 per share in the prior year quarter.
All earnings per share amounts are on a diluted basis.
Liquidity and Capital Resources
The Company expects that due to the nature of our operations that there will be continuing fluctuations in accounts receivable, inventory, accounts payable, and cash flows from operations due to the following: (i) we purchase inventory from overseas suppliers with long lead times and depending on the timing of the delivery of those orders, inventory levels can be greatly impacted, and (ii) we have various customers that purchase large quantities of inventory periodically and the timing of those purchases can significantly impact inventory levels, accounts receivable, accounts payable and short-term borrowings. As discussed below, the Company believes it has adequate financing arrangements and access to capital to absorb these fluctuations in operating cash flow.
Management believes that the Company has adequate cash and credit arrangements to meet its operating and capital requirements for fiscal year 2012. In the opinion of management, the Companys 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.
The Company believes that top line growth will be modest through fiscal year 2012. Macroeconomic conditions, such as high unemployment, minimal job growth, a weak housing market and low levels of consumer confidence, continue to adversely impact our business. The commercial office industry is reporting improving order trends. While sales have benefited minimally from those improvements to date, we believe commercial sales volume will increase during fiscal year 2012. We anticipate increased orders for hospitality products during the remainder of fiscal year 2012 resulting from pent up demand caused by delays in typical refurbishing cycles for hotel properties.
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 improving profitability. We believe these core strategies are in the best interest of our shareholders.
Item 3. 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 Companys 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, 2011 and 2010, 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 Companys primary market risk exposure with regard to financial instruments is changes in interest rates. The Company does not have any debt outstanding at September 30, 2011.
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. Inflation or other pricing pressures could impact raw material costs, labor costs and interest rates which are important components of costs for the Company and could have an adverse effect on our profitability, especially where increases in these costs exceed price increases on finished products.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of September 30, 2011.
(b) Changes in internal control over financial reporting. During the quarter ended September 30, 2011, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect the Companys internal control over financial reporting.
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 Companys filings with the Securities and Exchange Commission and in its reports to stockholders.
Statements, including those in this Quarterly Report on Form 10-Q, 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.
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.
PART II OTHER INFORMATION
Item 1A. Risk Factors
There has been no material change in the risk factors set forth under Part 1, Item 1A Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
Item 6. Exhibits
Pursuant to the requirements 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.