City-Flexsteel_ExecutedClosingDocs090117CLOSING CHECKLIST
THE CITY OF DUBUQUE, IOWA,
AND
FLEXSTEEL INDUSTRIES, INC.
September 1, 2017, 10:00 a.m.
Drake Law Firm
300 Main Street Suite 323
Dubuque, IA
Lot 4 of Dubuque Industrial Center South First Addition in the City of
Dubuque, Iowa
1. Abstract brought up to date and delivered City
for review prior to Closing
Memorandum of Development Agreement City/Flexsteel
City Certificate City
City Attorney's Certificate City
Opinion of Counsel for Developer Flexsteel
Financial Commitment Letter Flexsteel
'IT Insurance Certificates Flexsteel
All builder's risk insurance, written on a
Completed Value Form in an amount equal to
one hundred percent (100%) of the replacement
value when construction is completed
Property insurance (upon completion of construction) Flexsteel
Approval of Site Plan (IIW Status Letter) Flexsteel
Evidence of Employer's fuiltime equivalent employees
(FTE) in Dubuque County, Iowa, as of September 1, 2017 Flexsteel
C10. Iowa Economic Development Authority Grant Agreement Flexsteel
082417bal
Prepared by: Barry A. Lindahl 300 Main Street Suite 330 Dubuque IA 52001 563 583-4113
Return to: Barry A. Lindahl 300 Main Street Suite 330 Dubuque IA 52001 563 583-4113
MEMORANDUM OF DEVELOPMENT AGREEMENT
A Development Agreement between the City of Dubuque, Iowa, a municipality
established pursuant to the Iowa code and acting under authorization of Iowa code
Chapter 403, as amended (Urban Renewal Act), and Flexsteel Industries, Inc. an Iowa
corporation, was made regarding the following described premises:
Lot 4 of Dubuque Industrial Center South First Addition in the City of
Dubuque, Iowa
The Development Agreement is dated for reference purposes the 5th day of June,
2017, and contains covenants, conditions, and restrictions concerning the sale and use
of said premises.
This Memorandum of Development Agreement is recorded for the purpose of
constructive notice. In the event of any conflict between the provisions of this
Memorandum and the Development Agreement itself, executed by the parties, the terms
and provisions of the Development Agreement shall prevail. A complete counterpart of
the Development Agreement, together with any amendments thereto, is in the possession
of the City of Dubuque and may be examined at its offices as above provided.
Dated this 151- day of PleirbE6t, 2017.
CITY OF DUBUQUE, IOWA
By:
By:
FLEXSTEEL INDUSTRIES, INC.
0 /2-6-4-19
Roy D,Mttol, Mayor Timothy E4aII, SVP Finance,
CFO and ecretary
STATE OF IOWA
ss:
DUBUQUE COUNTY
On this 31:-4\ day of Pia&MET- 2017, before me, a Notary Public in and for the
State of Iowa, in and for said county, personally appeared Ray D. Buol and Kevin S.
Firnstahl, to me personally known, who being by me duly sworn did say that they are the
Mayor and City Clerk, respectively of the City of Dubuque, a Municipal Corporation,
created and existing under the laws of the State of Iowa, and that the seal affixed to said
instrument is the seal of said Municipal Corporation and that said instrument was signed
and sealed on behalf of said Municipal corporation by authority and resolution of its City
Council and said Mayor and City Clerk acknowledged said instrument to be the free act
and deed of said Municipal Corporation by it voluntarily executed.
State of Iowa
STATE OF IOWA
: ss:
DUBUQUE COUNTY
1
TRACEV L. STECKLEIN
Commission Number 716018
My Comm Exp, 441,11n
On this 's1 day of frzpSAAX, 2017, before me, a Notary Public in and for the
State of Iowa, in and for saki county, personally appeared Timothy E. Hall, to me
personally known, who being by me duly sworn did say that he is the SVP Finance, CFO
and Secretary of Flexsteel Industries, lnc,, and that said instrument was signed on behalf
of said company by authority of its members and that they acknowledged the execution
of this instrument to be the voluntary act and deed of said company by it voluntarily
executed.
Sr4Aret_
Notary Public State of Iowa
TRACEY L. STECKLEIN
7,- Commission Number 716018
My Comm Exp, 41•1114/t)
THE CITY OF
Dubuque
Itteetd
Aii•America et,
DUB B E i r
Masterpiece on the Mississippi 2012
Flexsteel Industries, Inc.
Attn: Timothy E. Hall
SVP Finance, CFO and Secretary
385 Bell Street
Dubuque, Iowa 52001
City Manager's Office
City Hall
50 West 131h Street
Dubuque, lo‘va 52001-4864
(563) 589-4110 office
(563) 589-4149 Fax
cty mg-r@ci tyofdubuq ueorg
September 1, 2017
RE: Development Agreement between the City of Dubuque, Iowa and Flexsteel
Industries, Inc.
Dear Mr. Hall:
I am the City Manager of the City of Dubuque, Iowa and have acted in that capacity in
connection with the execution and delivery of a certain Development Agreement (the
Agreement) between Flexsteel Industries, Inc. (Developer) and the City of Dubuque,
Iowa (City) dated for reference purposes the 5th day of June, 2017, for the development
of Lot 4 of Dubuque Industrial Center South First Addition in the City of Dubuque, Iowa
(the Property).
On behalf of the City of Dubuque, I hereby represent and warrant to Developer that:
(1) There is no action, suit or proceeding pending, or to the best of City's
knowledge, threatened against City which might result in any adverse change in
the Property being conveyed or the possession, use or enjoyment thereof by
Developer, including, but not limited to, any action in condemnation, eminent
domain or public taking.
(2) No ordinance or hearing is now or before any local governmental body
that either contemplates or authorizes any public improvements or special tax
levies, the cost of which may be assessed against the Property. To the best of
City's knowledge, there are no plans or efforts by any government agency to
widen, modify, or re -align any street or highway providing access to the Property
and there are no pending or intended public improvements or special
assessments affecting the Property which will result in any charge or lien be
levied or assessed against the Property.
(3) All leases, contracts, licenses, and permits between City and third parties
in connection with the maintenance, use, and operation of the Property have
been provided to Developer and City has provided true and correct copies of all
such documents to Developer.
(4) The Property has a permanent right of ingress or egress to a public
roadway for the use and enjoyment of the Property.
(5) There are no notices, orders, suits, judgments or other proceedings
relating to fire, building, zoning, aft pollution, health violations or other matters
that have not been corrected. City has notified Developer in writing of any past
notices, orders, suits, judgments or other proceedings relating to fire, building,
zoning, air pollution or health violations as they relate to the Property of which it
has actual notice. The Property is in material compliance with all applicable
zoning, fire, building, and health statutes, ordinances, and regulations. The
Property is currently zoned PUD and Developer's intended use of the Property as
a corporate office/industrial facility is a permitted use in such zoning
classification.
(6) Payment has been made for all labor or materials that have been
furnished to the Property or will be made prior to the Closing Date so that no hen
for labor performed or materials furnished can be asserted against the Property.
(7) The Property will, as of the Closing Date, be free and clear of all liens,
security interests, and encumbrances.
(8) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement do not and
shall not result in any material breach of any terms or conditions of any
mortgage, bond, indenture, agreement, contract, license, or other instrument or
obligation to which City is a party or by which either the City or the Property being
conveyed are bound, nor shall the execution, delivery and performance of this
Agreement violate any statute, regulation. judgment, writ, injunction or decree of
any court threatened or entered in a proceeding or action in which City may be
bound or to which either City or the Property being conveyed may be subject.
(9) City has duly obtained all necessary approvals and consents for its
execution, delivery and performance of this Agreement, and has full power and
authority to execute, deliver and perform its obligations under this Agreement.
City's attorney shall issue a legal opinion to Developer at time of closing
confirming the representation contained herein.
(10) The Property is free and clear of any occupants, and no party has a lease
to or other occupancy or contract right in the Property that shall in any way be
binding upon the Properly or Developer.
(11) City represents and warrants that any fees or other compensation which
may be owed to a broker engaged directly or indirectly by City in connection with
the purchase and sale contemplated in this Agreement are the sole responsibility
and obligation of City and that City will indemnify Developer and hold Developer
harmless from any and all claims asserted by any broker engaged directly or
indirectly by City for any fees or other compensation related to the subject matter
of this Agreement.
(12) City shall exercise its best efforts to assist with Developer in The
development process.
(13) City shall exercise its best efforts to resolve any disputes arising during
the development process in a reasonable and prompt fashion
(14) With respect to the period during which City has owned or occupied the
Property. and to City's knowledge after reasonable investigation with respect to
the time before City owned or occupied the Property, no person or entity has
caused or permitted materials to be stored, deposited, treated, recycled, or
disposed of on, under or at the Property, which materials, if known to be present,
would require cleanup, removal or some other remedial action under
environmental laws,
(15) Ali city utilities necessary for the development and use of the Property as
an industrial manufacturing facility adjoin the Property and Developer shall have
the right to connect to said utilities, subject to City's connection fees
(16) The representations and warranties contained in this article shall be
correct in all respects on and as of the Closing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date.
Sincerely„,
Michael C. Van Milligen
City Manager
MCV NA:t1 s
FAUSERSltsteckle\Lindahl1Flexsteel ClosinglCityCertlficate_090117_clocx
3
Barry A. Lindalil, Esq,
Senor Counsel
Suite 330. Harbor View Place
300 Main Street
Dubuque, Iowa 520I)l.(9,W
(5#3) 583-4113 office
t
563)5#3-I040 fax
balesgru,cityot"dubuque,ora,
Flexsteel Industries, Inc.
Attn: Timothy E. Hall
SVP Finance, CFO and Secretary
385 Bell Street
Dubuque, Iowa 52001
Dubuque THE CITY of
biting
1111-Amertca City
207 • 2012 • 2011
Masterpiece on the Mississippi
September 1, 2017
RE: Development Agreement between the City of Dubuque, Iowa and Flexsteel
Industries, Inc.
Dear Mr. Hall:
I have acted as counsel for the City of Dubuque, Iowa, in connection with the execution
and delivery of a certain Development Agreement between Flexsteel Industries, Inc.
and the City of Dubuque, Iowa, dated for reference purposes the 5th day of June, 2017.
The City has duly obtained all necessary approvals and consents for its execution,
delivery and performance of this Agreement and has full power and authority to
execute, deliver and perform its obligations under this Agreement, and to the best of my
knowledge, the representations of the City Manager in his letter dated the 1st day of
September, 2017, are correct.
BALltis
cerely,
arry A. Lindahl, Esq.
Senior Counsel
F:IUSERSItsteclde\LindahllFlexsteel Closing \CityAttorneyCertificate_094117,docx
FLEXSTEEL
September 1, 2017
Flex;teel I,'dustriea, Inc
385 Bell Street
Dubuque, IA 52001
Mayor and City Councilmembers
City Hail, 13th and Central Avenue
Dubuque IA 52001
T 563.556 7730
F 563 556,8345
www.flexsteet.cam
Re: Development Agreement between the City of Dubuque, Iowa and Flexsteel Industries, Inc.
Dear Mayor and City Councilmembers:
I have acted as counsel for Flexsteel Industries, Inc., (Developer) in connection with the execution and
delivery of a certain Development Agreement (Development Agreement) between Developer and the
City of Dubuque, Iowa (City) dated for reference purposes the 5th day of lune, 2017.
I have examined the original certified copy, or copies otherwise identified to our satisfaction as being
true copies, of the Development Agreement and such other documents and records as we have
deemed relevant and necessary as a basis for the opinions set forth herein.
Based on the pertinent law, the foregoing examination, and such other inquiries as we have deemed
appropriate, I am of the opinion that:
1. Developer is a corporation organized under the law of Minnesota, is headquartered in Iowa, is
in good corporate standing under the laws of the State of Iowa, and has full power and authority to
execute, deliver and perform in full the Development Agreement. The Development Agreement has
been duly and validly authorized, executed and delivered by Developer and, assuming due
authorization, execution and delivery by City, is in full force and effect and is valid and legally binding
instrument of Developer enforceable in accordance with its terms, except as the same may be limited
by bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights
generally.
2. The execution, delivery and performance by Developer of the Development Agreement and the
carrying out of the terms thereof, will not result in violation of any provision of, or in default under, the
articles of incorporation and bylaws of Developer, any indenture, mortgage, deed of trust,
indebtedness, agreement, judgment, decree, order, statute, rule, regulation or restriction to which
Developer is a party or by which Developer's property is bound or subject.
3. There are no actions, suits or proceedings pending or threatened against or affecting Developer
in any court or before any arbitrator or before or by any governmental body in which there is a
reasonable possibility of an adverse decision which could materially adversely affect the business
(present or prospective), financial position or results of operations of Developer or which in any
■
FLEXSTEEL
Flexsteel Industries, Inc
385 Bell Street
Dubuque, IA 52001
T 563.556.7730
F 563.556.8345
www.flexsteet.com
manner raises any questions affecting the validity of the Agreement or the Developer's ability to
perform Developer's obligations thereunder.
Sincerely,
Hilary A. Stubben
Flexsteel Industries, Inc.
In -House Corporate Counsel
Cc: Barry A. Lindahl, Esq. Senior Counsel for the City of Dubuque
FL EXSTEEL'
September 1, 2017
Flexsteel Industries, Inc.
385 Bell Street
Dubuque, IA 52001
Mayor and City Councilrrmembers
City Hall, 13th and Central Avenue
Dubuque, Iowa 52001
T 563.556.7730
F 563.556.8345
www.flexsteel.com
Re: Development Agreement between the City of Dubuque, Iowa ("City") and Flexsteel
Industries, Inc. ("Flexsteel")
Dear Mayor and Councilmembers:
Pursuant to Section 1.2 (4), under Conditions of Closing, of the June 5, 2017 Development Agreement
between the City and Flexsteel, Flexsteel has furnished the City with evidence of financial
commitments to the development of a manufacturing facility at 501 Seippel Road, Dubuque, Iowa.
Please see the attached Financial Statements for Flexsteel's fiscal year 2017 as evidence of its financial
commitments.
Sincerely,
Timothy E. Hall
Flexsteel Industries, Inc.
SVP Finance, CFO, Secretary and Treasurer
Cc: Barry A. Lindahl, Esq., Senior Counsel for the City of Dubuque
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 1Q -K
[ ✓ ( Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 2017
or
[ 1 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-5151
FLEXSTEEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
lillinnesota 42-0442319
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
385 Sell Street, Dubuque, lowa 52001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (563) 556-7730
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 Par Value The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act, Yes [ ] No [1]
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No V]
Indicate by check mark whether the registrant (1) has filed ail reports required to be filed by Section 13 or 15(d) of the. Securitles 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 ]f] No [
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation 5-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes [1] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S -K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part lil of this Form 10-K or any amendment to this Form 10-k.1 1
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non -accelerated filer, a smaller reporting company, or an emerging
growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the
Exchange Act (check one). Large accelerated filer (] Accelerated filer [✓] Non -accelerated filer [ ] Smaller reporting company [ ] Emerging growth company [ ]
if an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes( ] No (11
The aggregate market value of the voting stock held by non -affiliates, computed by reference to the last sales price on December 31, 2016 (which was the last
business day of the registrant's most recently completed second quarter) was $391,655,307.
Indicate the number of shares outstanding of each of the registrant's classes of Common Stock, as of the latest practicable date. 7,823,121 Common Shares (51 par
value) as of August 11, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
In Part 111, portions of the registrant's 2017 Proxy Statement to be filed with the Securities and Exchange Commission within 120 days of the Registrant's fiscal year
end.
PART I
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 Company's filings with the Securities and
Exchange Commission and in its reports to stockholders.
Statements. including those in this Annual Report on Form 10-K, 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, 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 this 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.
Item 1. Business
General
Flexsteel Industries. Inc. and Subsidiaries (the "Company") was incorporated in 1929 and is one of the oldest and largest
manufacturer. importer and marketer of residential and contract upholstered and wood 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 contract 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.
The Company operates in one reportable segment. furniture products. Our furniture products business involves the distribution of
manufactured and imported products consisting of a broad line of upholstered and wooden furniture for residential and contract
markets. Set forth below is information for the past three fiscal years showing the Company's net sales attributable to each of the
areas of application:
(in thousands) FOR THE YEARS ENDED JUNE 30,
2017 2016 2015
Residential $ 396,099 $ 420,884 $ 393,143
Contract 72,665 79,222 73,761
$ 468,764 $ 500,106 $ 466,904
Manufacturing and Offshore Sourcing
We operate manufacturing facilities that are located in Arkansas. California, Georgia, Iowa, Mississippi and Juarez, Mexico. These
manufacturing operations are integral to our product offerings and distribution strategy by offering smaller and more frequent product
runs of a wider product selection. We identify and eliminate manufacturing inefficiencies and adjust manufacturing schedules on a
daily basis to meet customer requirements. We have established relationships with key suppliers to ensure prompt delivery of quality
component parts. Our production includes the use of selected component parts sourced offshore to enhance our value in the
marketplace.
We integrate our manufactured products with finished products acquired from offshore suppliers who can meet our quality
specification and scheduling requirements. We will continue to pursue and refine this blended strategy, offering customers
manufactured goods, products manufactured utilizing imported component parts, and ready -to -deliver imported products. This
blended focus on products allows the Company to provide a wide range of price points, styles and product categories to satisfy
customer requirements.
C'ompetitiof
The furniture industry is highly competitive and includes a large number of U.S. and foreign manufacturers and distributors, none of
which dominates the market. The markets in which we compete include a large number of relatively small manufacturers; however,
certain competitors have substantially greater sales volumes than the Company. Our products compete based on style, quality, price,
delivery, service and durability. We believe that our steel seat spring. manufacturing and sourcing capabilities, facility locations,
commitment to customers. product quality, delivery, service. value and experienced production. sales. marketing and management
teams, are some of our competitive advantages.
Seasonality
The Company's business is not considered seasonal,
Foreign Operations
The Company makes minimal export sales. At June 30, 2017, the Company had approximately 100 employees located in Asia to
ensure Flexsteel's quality standards are met, and coordinate the delivery of purchased products. The Company leases and operates a
225,000 square foot production facility in Juarez, Mexico utilizing contracted labor.
Customer Backlog
The approximate backlog of customer orders believed to be firm as of the end of the current fiscal year and the prior two fiscal years
were as follows (in thousands):
June 30, 2017 June 30, 2016 June 30, 2015
$55,000 $46,700 $58,600
Raw Materials
The Company utilizes various types of wood, fabric, leather, filling material, high carbon spring steel, bar and wire stock,
polyurethane and other raw materials in manufacturing furniture. While the Company purchases these materials from numerous
outside suppliers, both U.S. and foreign, it is not dependent upon any single source of supply. The costs of certain raw materials
fluctuate, but all continue to be readily available.
Working Capital Practices
For a discussion of the Company's working capital practices, see "Liquidity and Capital Resources" in Item 7 of this Annual Report
on Form 10-K.
Industry Factors
The Company has exposure to actions by governments, including tariffs, see "Risk Factors" in Item I A of this Annual Report on Form
10-K.
Government Regulations
The Company is subject to various local, state, and federal laws. regulations and agencies that affect businesses generally, see "Risk
Factors" in Item IA of this Annual Report on Form 10-K.
Environmental Matters
The Company is subject to environmental laws and regulations with respect to product content and industrial waste, see "Risk
Factors" in Item IA and "Legal Proceedings" in Item 3 of this Annual Report on Form 10-K.
Trademarks and Patents
The Company owns the. American and Canadian improvement patents to its Flexsteel seat spring, as well as patents on convertible
beds. The Company has patents and owns certain trademarks in connection with its furniture products, which patents are due to expire
on dates ranging from 2017-2034.
It is not common in the furniture industry to obtain a patent for a furniture design. If a particular design of a furniture manufacturer is
well accepted in the marketplace, it is common for other manufacturers to imitate the same design without recourse by the furniture
3
manufacturer who initially introduced the design. Furniture products are designed by the Company's own design staff and through the
services of third -party designers. New models and designs of furniture, as well as new fabrics, are introduced continuously. In the
last three fiscal years, these design activities involved the following expenditures (m thousands):
Fiscal Year Ended June 30,
2017
2016
2015
Employees
Expenditures
$3,700
$4,170
$4,090
The Company had 1,460 employees as of June 30, 2017. including [80 employees that are covered by collective bargaining
agreements. Management believes it has good relations with employees.
Website and Available Information
Our website is located at www.flexsteel.com. Information on the website does not constitute part of this Annual Report on Form 10-K.
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission ("SEC"), other SEC
reports filed or furnished and our Guidelines for Business Conduct are available, without charge, on the Company's website at
www.flexsteel.com or by writing to the Office of the Secretary, Flexsteel Industries, Inc., P. O. Box 877, Dubuque, IA 52004-0877.
The executive officers of the Company, their ages. positions (in each case as of August 11, 2017), and the year they were first elected
or appointed an officer of the registrant, are as follows:
Name (age)
Karel K. Czanderna (61)
Timothy E. Hall (59)
Julia K. Bizzis (60)
Steven K. Hall (47)
Richard J. Stanley (45)
Item 1A. Risk Factors
Position (date first became officer)
President & Chief Executive Officer (2012)
Senior Vice President Finance. Chief Financial Officer, Secretary & Treasurer (2000)
Senior Vice President Strategic Growth (2013)
Senior Vice President Global Supply Chain (2014)
Senior Vice President Contract Group & Home Styles (2014)
Our business is subject to a variety of risks. You should carefirlly consider the risk factors detailed below in conjunction with the
other information contained in this Annual Report on Form 10-K. Should any of these risks actually materialize, our business,
financial condition, and future prospects could be negatively impacted. There may be additional factors that are presently unknown to
us or that we currently believe to be immaterial that could affect our business.
Our business information systems could be impacted by disruptions and security breaches.
We employ information technology systems to support our global business. Security breaches and other disruptions to our information
technology infrastructure could interfere with our operations, compromise information belonging to us and our customers and
suppliers, and expose us to liability which could adversely impact our business and reputation. In the ordinary course of business, we
rely on information technology networks and systems to process, transmit and store electronic information, and to manage or support a
variety of business processes and activities. Additionally, we collect and store certain data, including proprietary business information.
and may have access to confidential or personal information in certain areas of our businesses that is subject to privacy and security
laws, regulations and customer -imposed controls. While security breaches and other disruptions to our information technology
networks and infrastructure could happen, none have occurred to date that have had a material impact to us. Any such events could
result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to our reputation,
which could adversely affect our business.
The implementation of a new business information system could disrupt our business.
We are in the testing phase of implementing a new business information system. The new system will replace our legacy systems to
drive operational efficiencies. An ineffective implementation of the new business information system may result in the following:
• Disruption of our domestic and international supply chain;
• Inability to fill customer orders accurately and on a timely basis;
• Inability to process payments to our suppliers and vendors:
• Negative impact on financials;
Linable to fulfill federal. state and local tax filing requirements in a timely and accurate matter; and
Increased demands of management and associates to the detriment of other corporate initiatives.
4
Our future success depends on our ability to manage our global supply chain.
We acquire raw materials, component parts and certain finished products from external suppliers, both U.S. and foreign. Many of
these suppliers are dependent upon other suppliers in countries other than where they are located. This global interdependence within
our supply chain is subject to delays in delivery, availability, quality and pricing (including tariffs) of products. The delivery of goods
from these suppliers may be delayed by customs, labor issues, changes in political. economic and social conditions, weather, laws and
regulations. Unfavorable fluctuations in price, quality, delivery and availability of these products could negatively affect our ability to
sheet demands of our customers and have a negative impact on product margin.
Competition from U.S. and foreign finished product manufacturers may adversely affect our business, operating results or
financial condition.
The furniture industry is very competitive and fragmented. We compete with U.S. and foreign manufacturers and distributors. As a
result, we may not be able to maintain or raise the prices of our products in response to competitive pressures or increasing costs.
Also, due to the large number of competitors and their wide range of product offerings, we may not be able to significantly
differentiate our products (through styling, finish and other construction techniques) from those of our competitors. As a result, we
are continually subject to the risk of losing market share, which may lower our sales and earnings.
Future costs of complying with various laws and regulations may adversely impact future operating results.
Our business is subject to various laws and regulations which could have a significant impact on our operations and the cost to comply
with such laws and regulations could adversely impact our financial position, results of operations and cash flows, In addition, failure
to comply with such laws and regulations, even inadvertently, could produce negative consequences which could adversely impact our
operations.
Due to our participation in multi-employer pension plans, we may have exposures under those plans that could extend beyond
what our obligations would be with respect to our employees.
We participate in, and make periodic contributions to, three multi-employer pension plans that cover union employees. Multi-
employer pension plans are managed by trustee boards comprised of participating employer and labor union representatives, and the
employers participating in a multi-employer pension plan are jointly responsible for maintaining the plan's funding requirements.
Based on the most recent information available to us, we believe that the present value of actuarially accrued liabilities in one of the
multi-employer pension plans substantially exceeds the value of the assets held in trust to pay benefits. As a result of our
participation, we could experience greater volatility in our overall pension funding obligations. Our obligations may be impacted by
the funded status of the plans, the pians' investment performance, changes in the participant demographics, financial stability of
contributing employers and changes in actuarial assumptions. See Note 9.
Our future results may be affected by various legal proceedings and compliance risk, including those involving product
liability, environmental, or other matters.
We face the business risk of exposure to product liability claims in the event that the use of any of our products results in personal
injury or property damage. In the event any of our products prove to be defective, we may be required to recall or redesign such
products. We are also subject to various laws and regulations relating to environmental protection and the discharge of materials into
the environment. We could incur substantial costs, including legal expenses, as a result of the noncompliance with, or liability for
cleanup or other costs or damages under, environmental laws. Given the inherent uncertainty of litigation, these various legal
proceedings and compliance matters could have a material impact on our business, operating results or financial condition,
Our success depends on our ability to recruit and retain key employees.
If we are not successful in recruiting and retaining key employees or experience the unexpected loss of key employees, our operations
may be negatively impacted.
Our failure to anticipate or respond to changes in consumer or designer tastes and fashions in a timely manner could
adversely affect our business and decrease our sales and earnings.
Furniture is a styled product and is subject to rapidly changing consumer and end-user trends and tastes and is highly fashion oriented,
and if we are not able to acquire sufficient fabric variety, or if we are unable to predict or respond to changes in fashion trends, we
may lose sales and have to sell excess inventory at reduced prices.
5
Our products are considered deferrable purchases for consumers during economic downturns. Prolonged negative economic
conditions could impact our business.
Economic downturns and prolonged negative economic conditions could affect consumer spending habits by decreasing the overall
demand for home furnishings and contract products. These events could impact retailers, offices, hospitality, recreational vehicle
seating and healthcare businesses resulting in an impact on our business. A recovery in our sales could lag significantly behind a
general economic recovery due to the deferrable nature and relatively significant cost of home furnishings and contract products
purchases.
Terms of collective bargaining agreements and labor disruptions could adversely impact our results of operations.
Terms of collective bargaining agreements that prevent us from competing effectively could adversely affect our financial condition,
results of operations and cash flows. We are committed to working with those groups to avert or resolve conflicts as they arise.
However, there can be no assurance that these efforts will be successful.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company owns the following facilities as of June 30, 2017:
Location
Harrison, Arkansas
Riverside, California
Riverside, California i l )
Dublin, Georgia
Huntingburg, Indiana
Dubuque, Iowa (2)
Dubuque, Iowa
Edgerton, Kansas
Starkville, Mississippi
Lancaster, Pennsylvania
Approximate
Size (square feet)
221.000
236,000
69,000
315,000
611,000
719,000
40,000
500,000
349,000
216,000
Principal Operations
Ivlanufacturing
Manufacturing and Distribution
Held for Sale
Manufacturing
Distribution
Manufacturing
Corporate Office
Distribution
Manufacturing
Distribution
(1) See Note 3 to the Consolidated Financial Statements included in this Annual Report an Form 10-K,
(2) The Dubuque, Iowa manufacturing facility and land will be donated to a not-for-profit entity when vacated by the
Company, which is expected to happen in fiscal year 2019.
The Company leases the following facilities as ofJune 30, 2017:
Location
Cerritos, California
Riverside, California
Louisville, Kentucky
Juarez, Mexico
Binh Duong, Vietnam
Approximate
Size (square feet)
32,000
211,000
10,000
225,000
39,000
Principal Operations
Distribution
Distribution
Administrative Offices
Manufacturing
Warehouse
The Company leases showrooms for displaying its products in the furniture markets in High Point, North Carolina and Las Vegas,
Nevada,
The Company's operating plants are well suited for their manufacturing purposes and have been updated and expanded from time to
time as conditions warrant.
6
Item 3. legal Proceedings
Indiana Civil Litigation — In December 2013, the Company entered into a confidential agreement to settle the Indiana Civil Litigation,
The Company paid $6.25 million to Plaintiffs to settle the matter without admission of wrongdoing. The Company received $1.2
million. $2.3 million and $0.3 million during the fiscal years ended June 30, 2017, 2016 and 2015, respectively, for recovery of
litigation settlement costs from insurers. These amounts are recorded as "Litigation settlement reimbursements" in the consolidated
statements of income.
The recovery of litigation settlement and defense costs from insurance carriers is complete.
Environmental Matters — In March 2016, the Company received a General Notice Letter for the Lane Street Groundwater Superfund
Site located in Elkhart, Indiana from the United States Environmental Protection Agency (EPA). In April 2016, the EPA issued their
proposed clean-up plan for groundwater pollution and request for public comment. The Company responded to the request for public
comment in May 2016. The EPA issued a Record of Decision selecting a remedy in August 2016 and estimated total costs to
remediate of $3.6 million. In July 2017, the EPA issued a Special Notice Letter to the Company demanding that the Company perform
the remedy selected and pay for the remediation cost and past response costs of $5.5 million. Based on extensive sampling
investigation performed on behalf of the Company, the Company believes that the source of the ground water contamination is
upgradient of the site formerly owned by the Company. The Company continues to believe that it did not cause or contribute to the
contamination. Accordingly, the Company has not recorded a liability in the consolidated balance sheets.
Other Proceedings From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out
of, and are incidental to, the conduct of the Company's business. The Company does not consider any of such other proceedings that
are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material effect on its
consolidated operating results, financial condition, or cash flows.
Item 4. Mine Safety Disclosures
None.
7
PART I1
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Share Investment Performance
The following graph shows changes over the past five-year period in the value of $104 invested in: (1) Flexsteel's common stock
(FLXS); (2) The NASDAQ Global Market; and (3) an industry peer group of the following: American Woodmark Corp, Bassett
Furniture Ind., Culp Inc., Dixie Group Inc., Ethan Allen Interiors Inc., Hooker Furniture Corp., Johnson Outdoors Inc., Kimball
International, knoll Inc., La -Z -Boy Inc., Lifetime Brands Inc., Patrick Industries Inc., and Select Comfort Corp.
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0.00
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
June 2017
2012 2013 2014 2015 2016 2017
- Flexsteel Industries Inc. -a-NASDAQ Global Market Composite Index Peer Group 1
2012 2013 2014 2015 2016 2017
Flexsteel 100.00 I26.71 176.87 233.33 218.55 303.02
Peer Group 100.00 138.98 152.61 200,15 20329 262.05
NASDAQ 100.00 130.16 174.87 202.69 146.18 187.38
The NASDAQ Global Select Market is the market on which the Company's common stock is traded.
Sale Price of Common Stock Cash Dividends
Fiscal 2017 Fiscal 2016 Per Share
High Low High Low Fiscal 2017 Fiscal 2016
First Quarter $ 54.25 $ 37.93 $ 44.95 $ 27.25 $ 0.20 $ 0.18
Second Quarter 62.99 39.98 48.67 30.31 0.20 0.18
Third Quarter 62.55 45.31 45.79 37.98 0.20 0.18
Fourth Quarter 57.48 48.44 45.29 36.06 0.20 0.18
The Company estimates there were approximately 4,600 holders of common stock of the. Company as of .Tune 30, 2017. There were
no repurchases of the Company's common stock during the quarter ended June 30, 2017. The payment of future cash dividends is
within the discretion of our Board of Directors and will depend, among other factors, on our earnings, capital requirements and
operating and financial condition.
Item 6. Selected Financial Data
The selected financial data presented below should be read in conjunction with the Company's consolidated financial statements and
notes thereto included in Item 8 of this Annual Report on Form 10-K and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in [tem 7 of this Annual Report on Form 10-K. The selected consolidated statements
of income data of the Company is derived from the Company's consolidated financial statements.
Five -Year Review
(Amounts in thousands
per share data)
xcept certain ratios and
2017 2016 2015
SUMMARY OF OPERATIONS
Net sales $ 468,764 $ 500,106 $
Gross margin 108,651 113,699
Litigation settlement reimbursements (costs) 1,175 2,280
Operating income 37,264 38,068
Income before income taxes 37,586 37,927
Income tax provision 13,800 13,690
Net income.. 23,786 24,237
Net income, as a percent of sales 5.1% 4.8%
Weighted average diluted shares outstanding.....,7,886 7,765
Diluted earnings per common share $ 3.02 $ 3.12 $
Cash dividends declared per common share $ 0.80 $ 0.72 $
SELECTED DATA AS OF JUNE 30
Total assets $ 270,045 $ 246,896 $
Shareholders' equity 230,760 209.650
Trade receivables, net 42,362 44,618
Inventories .... 99,397 85,904
Property, plant and equipment, net 70,661 64,124
Capital expenditures 13,457 7,382
Depreciation expense 7,936 7,556
Working capital (current assets less
current liabilities) 158,055 143,086
Current ratio 5.2 to 1 5.3 to 1
Return on ending shareholders' equity ..... 10.3% 11.6%
Average number of employees 1,440 1,440
466,904 $
109,860
250
34,422
35,559
13,260
22,299
4.8%
7,708
2.89 $
0.72 $
244,619
186,748
45,101
113,842
64,770
37,424
4,945
115,682
3.3 to 1
11.9%
1,340
2014 2013
438,543
100,263
(6,250)
22,286
23,800
8,810
14,990
3.4%
7,511
2.00
0.60
210,213
166,735
38,536
97,940
31,900
4,187
4,197
128,644
4.5 to 1
9.0%
1,380
$ 386,189
90,469
20,271
20,881
7,730
13,151
3.4%
7,326
$ 1.80
$ 0.60
$ 192,539
151,237
36,075
92,417
32,145
6,225
3,803
113,699
4.2 to 1
8.7%
1,320
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
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 Annual Report on Form 10-K.
Critical Accounting Policies
The discussion and analysis of the Company's consolidated financial statements and results of operations are based on consolidated
financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the United States of America.
Preparation of these consolidated financial statements requires the use of estimates and judgments that affect the reported results. The
Company uses estimates based on the best information available in recording transactions and balances resulting from business
operations. Estimates are used for such items as collectability of trade accounts receivable and inventory valuation. Ultimate results
may differ from these estimates under different assumptions or conditions.
Accounts receivable allowances - the Company establishes accounts receivable allowances to reduce trade accounts receivable to an
amount that reasonably approximates their net realizable value. The Company's accounts receivable allowances consist of an
allowance for doubtful accounts which is established through review of open accounts. historical collection, and historical write-off
amounts and an allowance for estimated returns on sales of the Company's products which is based on historical product returns, as
well as existing product return authorizations. The Company records a provision against revenue for estimated returns on sales of our
products in the same period that the related revenues are recognized. The amount ultimately realized from trade accounts receivable
may differ from the amount estimated in the consolidated financial statements.
9
Inventories - the Company values inventory at the lower of cost or net realizable value. The Company's inventory valuation reflects
markdowns for the excess of the cost over the amount expected to be realized and considers obsolete and excess inventory.
Markdowns establish a new cost basis for the Company's inventory, Subsequent changes in facts or circumstances do not result in the
reversal of previously recorded markdowns or an increase in that newly established cost basis.
Revenue recoenitivn - is when both product ownership and the risk of loss have transferred to the customer, collectibility is
reasonably assured, and the Company has no remaining obligations. The Company's ordering process creates persuasive evidence of
the sale arrangement and the sales price is determined, The delivery of the goods to the customer completes the earnings process. Net
sales consist of product sales and related delivery charge revenue, net of adjustments for returns and allowances. Shipping and
handling costs are included in cost of goods sold.
Recently Issued Accounting Pronouncements
See Item 8. Note 1 to the Company's consolidated financial statements.
Results of Operations
The following table has been prepared as an aid in understanding the Company's results of operations on a comparative basis for the
fiscal years ended June 30, 2017, 2016 and 2015. Amounts presented are percentages of the Company's net sales.
FOR TIIE YEARS ENDED JUNE 30,
20I7 2016 2015
Net sales 100.0% 100.0% 100.0%
Cost of goods sold (76.8) (77,3) (76.5)
Gross margin23.2 22.7 23.5
Selling, general and administrative (15.5) (15.6) (16.2)
Litigation settlement reimbursements (costs) ,.., 0.2 0.4 0.1
Operating income 7,9 7.5 7.4
interest and other income .. 0.1 0.0 0.2
Interest expense - 0.0 0.0
Income before income taxes 8.0 7.5 7.6
Income tax provision (2,9) (2.7) (2.3)
Net income .. ............ .............. .........._...,..,5.1% 4.8% 4.8°%
Fiscal 2017 Compared to Fiscal 2016
Net sales for fiscal year 2017 were $468.8 million compared to $500.1 million in the prior fiscal year, a decrease of 6.3%. For the
fiscal year ended June 30, 2017, residential net sales were $396.1 million compared to $420.9 million for the year ended June 30,
2016, a decrease of 5.9%. The residential net sales decrease of $24.8 million for the year ended June 30, 2017 was substantially due
to decreased sales volume in upholstered and ready -to -assemble products. Contract net sales were $72.7 million for the year ended
June 30, 2017, a decrease of 8.2% from net sales of $79.2 million for the year ended June 30. 2016. The decrease in contract net sales
was substantially due to volume.
Gross margin for the fiscal year ended June 30, 2017 was 23.2% compared to 22.7% for the prior fiscal year.
Selling, general and administrative (SG&A) expenses for the fiscal year ended June 30, 2017 were 15.5% of net sales compared to
15.6% of net sales in the prior fiscal year. The current fiscal year includes reductions in direct selling costs, professional fees and
incentive compensation of $3.6 million, or 0.8% of net sales, offset by S2.9 million, or 0.6% of net sales. related to the business
information system project. SO&A expenses for the current and prior fiscal years include reimbursements, net of recovery expenses,
related to Indiana litigation of $0.9 million and $0.2 million, respectively.
Litigation settlement reitnbursements related to Indiana litigation were $1.2 million or $0.10 per share and $2.3 million or $0.18 per
share during the fiscal years ended June 30, 2017 and 2016. respectively. The recovery of litigation settlement and defense costs from
insurance carriers is complete.
The effective tax rate was 36.7% and 36.1% for fiscal years ended June 30, 2017 and 2016, respectively. The prior fiscal year rate
decrease was primarily related to changes in the measurement of uncertain tax positions based on experiences with various state tax
authorities.
The above factors resulted in net income of 523.8 million or $3,02 per share for the fiscal year ended June 30, 2017 compared to $24,2.
million or $3.12 per share in the prior year period. All earnings per share amounts are on a diluted basis.
10
Fiscal 2016 Compared to Fiscal 2015
Net sales for fiscal year 2Ol6 were $500.1 million compared to $466.9 million in fiscal year 2015, an increase of 7.1%, For the fiscal
year ended June 30, 2016, residential net sales were $420.9 million compared to $393.1 million for the year ended June 30, 2015, an
increase of 7.1%. The residential net sales increase of $27.8 million for the year ended June 30, 2016 was substantially due to the
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. Contract net sales were $79.2 million for the year ended June 30, 2016, an increase
of 7.3% from net sales of $73.8 million for the year ended June 30, 2015. The increase in contract net sales was substantially due to
volume.
Gross margin for the fiscal year ended June 30, 2016 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 for the fiscal year ended June 30, 2016 were 15,6% of net sales compared to
16.2% of net sales in the prior fiscal year. The improvement in SG&A as a percentage of net sales reflects fixed cost leverage on
higher sales volume. The Company incurred approximately $0.6 million of legal costs related to Indiana litigation during fiscal year
2016 which has been recorded in SG&A expense. The Company received reimbursements of legal costs of approximately $0.8 million
from insurers which has been reflected as a reduction of legal expenses in SG&A expenses for fiscal year 2016. The prior fiscal year
included $0.6 million in legal costs which was offset by reimbursements of $0.2 million from insurers.
Litigation settlement reimbursements related to Indiana litigation were $2.3 million for the fiscal year ended June 30, 2016 compared
to $0.3 million for the prior fiscal year.
The effective tax rate was 36.1% and 37.3% for fiscal years ended June 30, 2016 and 2015, respectively. The rate decrease is
primarily related to changes in the measurement of uncertain tax positions based on recent experiences with various state tax
authorities.
The above factors resulted in net income of $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. All earnings per share amounts are on a diluted basis.
Liquidity and Capital Resources
Working capital (current assets less current liabilities) at June 30, 2017 was $158.1 million compared to $143.1 million at June 30,
2016. Significant changes in working capital during fiscal year 2017 included increases in investments of $18.0 million, inventory of
$13.5 million and accounts payable of $5.7 million and decreases in cash and cash equivalents of$7.9 million and accounts receivable
of $2.3 million. Inventory primarily increased to improve stocking positions and to support future sales growth. Accounts payable
primarily increased due to inventory growth and timing of payments, For the fiscal year ended June 30, 2017, capital expenditures
were $13.5 million including $10.6 million for the business information system project. Dividend payments totaled $6.l million.
The Company's main sources of liquidity are cash and cash equivalents, investments, cash flows from operations and credit
arrangements. As of June 30, 2017 and 2016, the Company had cash and cash equivalents totaling $28.9 million and $36.8 million,
respectively. During the current year, the Company invested $18.0 million in short-term investments. These investments consist of
Treasury bills and U.S. Agencies that will mature within six months of June 30, 2017. The Company entered into an unsecured credit
agreement on June 30, 2017, that provides short-term working capital financing up to $10,0 million with interest of LIBOR plus 1%,
including up to $4.0 million of letters of credit. Letters of credit outstanding at .June 30, 2017 totaled $1.3 million. Other than the
outstanding letters of credit, the Company did not utilize borrowing availability under the credit facility, leaving borrowing
availability of $8.7 million as of June 30, 2017. The credit agreement expires June 30, 2018. At June 30, 2017, the Company was in
compliance with all of the financial covenants contained in the credit agreement.
The Company maintains an additional unsecured $10.0 million line of credit, with interest at prime minus 2%. No amount was
outstanding on the line of credit at June 30, 2017. This line of credit matures December 31, 2017.
Net cash provided by operating activities was $26.4 million and $54.4 million in fiscal years 2017 and 2016, respectively. The
Company had net income of $23.8 million that included $9.0 million in non-cash charges, which were offset by cash utilized for
operating assets and liabilities of $6.4 million in fiscal year 2017. Non-cash charges included depreciation of $7.9 million. In fiscal
year 2016, the Company had net income of $24.2 million that included $9.6 million in non-cash charges including depreciation of $7.6
million and cash provided by changes in operating assets and liabilities of $20.6 million.
11
Net cash used in investing activities was $29,7 million and $4.7 million in fiscal years 2017 and 2016. respectively. In fiscal year
2017, the Company had net purchases of investments of $18.1 million and capital expenditures of $13.5 million. In fiscal year 2016,
the Company made capital expenditures of $7.4 million partially offset by $2.8 million of proceeds from life insurance policies.
Net cash used in financing activities was $4.6 million in fiscal year 2017 which included dividend payments of $6.1 million, which
was partially offset by excess stock benefits of $1,5 million and proceeds from issuance of common stock of $1.1 million. Net cash
used in financing activities was $14.2 million in fiscal year 2016 which included repayments of current notes payable of $11.9 million
and dividend payments of $5.5 million. These amounts were offset by excess tax benefit from stock -based payment arrangements of
$1.8 million and proceeds from issuance of common stock of $1.6 million.
Management believes that the Company has adequate cash and cash equivalents, investments, cash flows from operations and credit
arrangements to meet its operating and capital requirements for fiscal year 2018. In the opinion of management, the Company's
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.
At June 30, 2017, the Company had no debt obligations and therefore, had no interest payments related to debt. The following table
summarizes the Company's contractual obligations at June 30, 2017 and the effect these obligations are expected to have on the
Company's liquidity and cash flow in the future (in thousands):
Operating lease obligations .
2 -3 4 - 5 More than
Total 1 Year Years Years 5 Years
$ 14,290 $ 3,853 $ 7,002 $ - 3,435 $ -
At June 30, 2017, the Company had no capital lease obligations, and no purchase obligations for raw materials or finished goods. The
purchase price on all open purchase orders was fixed and denominated in U.S. dollars, The Company has excluded the uncertain tax
positions from the above table as the timing of payments, if any, cannot be reasonably estimated.
Financing Arrangements
See Note 6 to the consolidated financial statements of this Annual Report on Form 10-K.
Outlook
During fiscal year 2018, the Company expects to have moderate revenue growth, tempered by an intentional sales decrease to certain
Contract customers. The Company is focused on improving product delivery and driving efficiencies in operations.
Through June 34, 2017, "Property, plant & equipment, net" in the consolidated balance sheets includes $12.9 million for business
information software and development. The Company has completed the design phase of the project and has progressed to the third of
four testing cycles. Following successful testing, the Company will enter the training and readiness phase of the project for associates.
customers and suppliers. Once this phase indicates readiness, the business information system will be implemented. The Company
anticipates this work will be completed during the fiscal year ending June 30, 2018. During fiscal year 2018, the Company anticipates
spending $5 million for capital expenditures and incurring $2 million ofSG&A expenses related to the business information system
project. Once completed, the business information system will be amortized over an average of 4 years.
During fiscal year 2018, the Company expects to spend $7 million in operating capital expenditures. During the next two fiscal years.
the Company plans to invest $25 million in a new manufacturing facility in Dubuque, Iowa. 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 contract 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.
Item 7A. 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 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, as well as,
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.
12
Foreign Currency Risk — During fiscal years 2017, 2016, and 2015, the Company did not have sales, but has purchases and other
expenses denominated in foreign currencies. The market risk associated with currency exchange rates and prices is not considered
significant.
Interest Rate Risk — The Company's primary market risk exposure with regard to financial instruments is changes in interest rates. At
June 30, 2017, the Company did not have any debt outstanding.
Item 8. Financial Statements and Supplementary Data
Pa ge(s)
Report of Independent Registered Public Accounting Firm 14
Report of Independent Registered Public Accounting Firm — Internal Control Over Financial Reporting 15
Consolidated Balance Sheets at June 30, 2017 and 2016 16
Consolidated Statements of Income for the Years Ended June 30, 2017, 2016 and 2015 17
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2017, 2016 and 2015 17
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended June 30, 2017, 2016 and 201518
Consolidated Statements of Cash Flows for the Years Ended June 30, 2017, 2016 and 2013 19
Notes to Consolidated Financial Statements 20-29
13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Flexsteel Industries. Inc.
We have audited the accompanying consolidated balance sheets of Flexsteel Industries, Inc. and Subsidiaries (the "Company") as of
June 30, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended June 30, 2017. Our audits also included the financial statement schedule
listed in the Index at Item [5. These financial statements and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly, in all material respects, the financial position of Flexsteel
Industries, Inc. and Subsidiaries as of June 30, 2017.and 2016, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 2017, in conformity with accounting principles generally accepted in the United States of
America, Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company's internal control over financial reporting as of June 30, 2017, based on the criteria established in Iruernal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated August 22, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 22, 2017
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Flexsteel Industries, inc.
We have audited the internal control over financial reporting of Flexsteel Industries, Inc. and Subsidiaries (the "Company") as of
June 30, 2017, based on criteria established in Internal Control — Inlwated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to
the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30,
2017, based on the criteria established in internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement schedule as of and for the year ended June 30, 2017 of the Company and our
report dated August 22. 2017 expressed an unqualified opinion on those consolidated financial statements and financial statement
schedule.
is/ Deloitte & Touche LLP
Minneapolis, Minnesota
August 22, 2017
15
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
June 30,
2017 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,874 $ 36.780
Investments 17,958
Trade receivables - less allowances: 2017, $1.200; 2016, $1,:300 42,362 44,618
Inventories 99,397 85.904
Other 6.659 9,141
Total current assets 195,250 176,443
NONCURRENT ASSETS:
Property, plant and equipment, net 70,661 64,124
Deferred income taxes 1,740 3,660
Other assets 2,394 2,669
TOTAL $ 270,045 $ 246,896
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 16,758 $ 11,023
Accrued liabilities:
Payroll and related items 6,255 6,986
Insurance 5,423 5,252
Other _ 8,759 10,096
Total current liabilities 37,195 33,357
LONG-TERM LIABILITIES:
Other liabilities 2,t90 3,889
Total liabilities 39,285 37,246
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS" EQUITY:
Common stock - SI par value; authorized 15,000,000 shares;
outstanding 2017. 7,822,080 shares; 2016, 7,700,149 shares 7,822 7,700
Additional paid -in capital 26,186 23,259
Retained earnings 198,465 180.919
Accumulated other comprehensive loss (1,713) _ (2,228)
Total shareholders' equity 230,760 209.650
TOTAL $ 270,045 $ 246,896
See accompanying Notes to Consolidated Financial Statements.
16
FLEXSTEEL INDUSTRIES. INC AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in thousands, except per share data)
For the years ended June 30,
2017 2016 2015
Net sales $ 468,764 $ 500,106 $ 466,904
Cost of goods sold (360,113)_ _ (386,407) (357,044)
Gross margin 108,651 113,699 109,860
Selling, general and administrative (72,562) (77,911) (75,688)
Litigation settlement reimbursements 1,175 2,280 250
Operating income 37,264 38,068 34,422
Other income (expense):
Other income (expense) 322 (72) 1,267
Interest expense - (69) - (130)
Total_ 322 (141) 1,137
Income before income taxes 37,586 37,927 35,559
Income tax provision (13,800) (13,690) (13,260)
Net income $ _ 23,786 $ 24,237 $ 22,299
Weighted average number of common shares outstanding:
Basic 7,782 7,595 7,423
Diluted 7,886- 7,765 7,708 _
Earnings per share of common stock=
Basic $ 3.06 $ 3,19 $ 100
_
Diluted $ 3M2__ $ 3.12 $ 2,89
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
For the years ended June 30,
2017 2016 2015
Net income $ 23,786 $ 24,237 $ 22,299
Other comprehensive income (loss):
Unrealized (losses) gains on securities (87) 741 162
Reclassification of realized gains (losses) on securities
to other income 145 (535) (400)
Unrealized gains (losses) on securities before taxes 58 206 (238)
Income tax (expense) benefit related to securities gains
(losses) (22) (78) 91
Net unrealized gains (losses) on securities 36 128 (147)
Minimum pension liability 771 (999) (537)
Income tax (expense) benefit related to minimum pension
liability (292) 379 204
Net minimum pension asset (liability) 479 (620) (333)
Other comprehensive gain (toss), net of tax 515 (492) (480)
Comprehensive income $ 24,301 $ 23,745 $ 21,819
See accompanying Notes to Consolidated Financial Statements.
17
FLEXSTEEL INDUSTRIES. INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(Amounts in thousands)
Total Par Accumulated
Value of Additional Other
Common Paid -la Retained Comprehensive
Shares (S1 Par) Capital Earnings (Loss) Income Total
Balance at June 30, 2014 $ 7,371 $ 15,386 $ 145,234 $ (1,256) 8 166.735
Issuance ofcommon stock.
Stock options exercised, net 83 707 — — 790
Unrealized loss on available for sale investments, net oftax — — — (147) (147)
Long-term incentive compensation 26 1.310 — — 1,336
Stock -based compensation — 607 — — 607
Excess tax benefit from stock -based payment arrangements — 817 — — 817
Minimum pension liability adjustment, net of tax — — — ( 333) (333)
Cash dividends declared — — (5,357) (5,357)
Net income — — 22,299 — 22,299
Balance at June 30. 2015 $ 7,480 $ 18.827 8 162,176 8 (1,736) $ 186,747
Issuance of common stock.
Stock options exercised, net 184 1,407 — — 1,591
Unrealized loss on available for sale investments, net of tax — — — 128 128
Long -tern incentive compensation 27 858 — — 885
Stock -based compensation 9 406 — 415
Excess tax benefit from stock -based payment arrangements — 1,761 — — 1,761
Minimum pension liability adjustment, net of tax — — — (620) (620)
Cash dividends declared — — (5.494) — (5,494)
Net income — — 24,237 — 24,237
Balance at June 30, 2016 $ 7,700 8 23,259 $ 180.919 $ (2,228) $ 209,650
Issuance ofcommon stock:
Stock options exercised, net 79 999 — — 1,078
Unrealized loss on available for sale investments, net of tax — — — 36 36
Long-term incentive compensation 35 (213) — — (178)
Stock -based compensation 8 647 — — 655
Excess tax benefit from stock -based payment arrangements — 1,494 — — 1,494
Minimum pension liability adjustment, net of tax — _ — 479 479
Cash dividends declared — — (6,240) — (6,240)
Net income — — 23,786 — 23.786
Balance at June 30, 2017 $ 7.822 8 26,186 $ 198,465 $ (1,713) $ 230,760
Cash dividends declared per common share were 80,80, 80.72 and $0.72 for fiscal nears ended June 30, 2017, 2016 and 2015. respectively.
See accompanying Notes to Consolidated Financial Statements.
18
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
FOR THE YEARS ENDED JUNE 30,
2017 2016 2015
OPERATING ACTIVITIES:
Net income $ 23,786 $ 24,237 $ 22,299
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 7.936 7,556 4.945
Deferred income taxes 1,606 2,731 605
Stock -based compensation expense 1.609 1,470 1,943
Excess tax benefit from stock -based payment arrangements (1,494) (1,761) (817)
Change in provision for losses on accounts receivable (100) (100) 30
Other non-cash, net - - (28)
Gain on disposition of capital assets (512) (34) (119)
Gain on life insurance policies - (346) (745)
Changes in operating assets and liabilities:
Trade receivables 2,356 584 (6,596)
Inventories (13.492) 27,938 (I5,902)
Other current assets 1,036 (1,962) (3,882)
Other assets 450 59 (1,024)
Accounts payable - trade 4,028 (6,877) 2,083
Accrued liabilities 477 2,052 201
Other Tong -term liabilities (1,298) (1.180) 276
Net cash provided by operating activities 26,388 54,367 3,269
INVESTING ACTIVITIES:
Purchases of investments (30,537) (3,100) (1,955)
Proceeds from sales of investments 12,474 2,900 1,611
Proceeds from safe of capital assets 1.848 76 155
Proceeds from life insurance policies - 2,814 5,053
Capital expenditures (13,457) (7,382) (37,423)
Net cash used in investing activities (29,672) (4,692) (32,559)
FINANCING ACTIVITIES:
Dividends paid (6.062) (5,455) (5,115)
Proceeds from issuance of common stock 1.078 1,591 790
Shares issued to employees, net of shares withheld (1,132) (170) -
Excess tax benefit from share -based payment 1.494 1,761 817
(Repayments of) proceeds from short-term notes payable, net - (11,904) 11,904
Net cash (used in) provided by financing activities (4,622) (14,177) 8,396
(Decrease) increase in cash and cash equivalents (7,906) 35.498 (20,894)
Cash and cash equivalents at beginning of period 36,780 1,282 22,176
Cash and cash equivalents at end of period $ 28.874 5 36,780 $ 1,282
SUPPLEMENTAL INFORMATION
Income taxes paid, net
Capital expenditures in accounts payable.
See accompanying Notes to Consolidated Financial Statements.
FOR THE YEARS ENDED JUNE 30,
2017 2016 2015
19
9.780 $ 10,140 $ 13,920
1,740 $ 430 S 130
FLEXSTEEL INDUSTRIES. INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS Flexsteel was incorporated in 1929 and is one of the oldest and largest manufacturers.
importers and marketers of residential and contract upholstered and wood 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 contract 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.
PRINCIPLES OF CONSOLIDATION the consolidated financial statements include the accounts of Flexsteel Industries, Inc.
and its wholly owned subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The
Company's consolidated financial statements and results of operations are based on consolidated financial statements prepared in
accordance with GAAP in the United States of America.
USE OF ESTIMATES -- the preparation of consolidated financial statements in conformity with GAAP in the United States of
America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Ultimate results could differ from those estimates.
FAIR VALUE — the Company's cash and cash equivalents, investments, accounts receivable, other current assets, accounts
payable, notes payable and certain accrued liabilities are carried at amounts which reasonably approximate their fair value due to
their short-term nature. GAAP on fair value measurement for certain financial assets and liabilities require that each asset and
liability carried at fair value be classified into one of the following categories: Level I: Quoted market prices in active markets for
identical assets and liabilities; Level 2: Observable market based inputs or unobservable inputs that are corroborated by market
data; or Level 3: Unobservable inputs that are not corroborated by market data. The Company has not changed its valuation
techniques in measuring the fair value of any financial assets and liabilities during the period.
lN'VESTMENTS - during fiscal year 2017, the Company purchased available -for -sale securities, U.S. Treasury bills and U.S.
Agencies, which are recorded at fair market value. These securities are classified as "Investments" in the consolidated balance
sheets, Unrealized gains or losses are recorded in "Accumulated other comprehensive loss." As of lune 30, 2017, the fair market
value and book value of the investments are $18.0 million, These assets are classified as Level 1 in accordance with fair value
measurements described above.
ACCOUNTS RECEIVABLE ALLOWANCES — the Company establishes accounts receivable allowances to reduce trade
accounts receivable to an amount that reasonably approximates their net realizable value, The Company's accounts receivable
allowances consist of an allowance for doubtful accounts which is established through review of open accounts, historical
collection, and historical write-off amounts and an allowance for estimated returns on sales of the Company's products which is
based on historical product returns. as well as existing product return authorizations. The Company records a provision against
revenue for estimated returns on sales of our products in the same period that the related revenues are recognized. The amount
ultimately realized from trade accounts receivable may differ from the amount estimated in the consolidated financial statements,
iNVENTORIES — are stated at the lower of cost or net realizable value utilizing the first -in, first -out ("FIFO") method.
PROPERTY, PLANT AND EQUIPMENT — is stated at cost and depreciated using the straight-line method over the estimated
useful lives of the assets.
VALUATION OF LONG—LIVED ASSETS — the Company periodically reviews the carrying value of long-lived assets and
estimated depreciable or amortizable lives for continued appropriateness. This review is based upon projections of anticipated
future cash bows and is performed whenever events or changes in circumstances indicate that asset carrying values may not be
recoverable or that the estimated depreciable or amortizable lives may have changed. No impairments of long-lived assets or
changes in depreciable or amortizable lives were incurred during fiscal years 2017, 2016 and 2015.
WARRANTY — the Company estimates the amount of warranty claims on sold product that may be incurred based on current and
historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance.
REVENUE RECOGNITION — is when both product ownership and the risk of loss have transferred to the customer. collectability
is reasonably assured. and the Company has no remaining obligations_ The Company's ordering process creates persuasive
20
evidence of the sale arrangement and the sales price is determined. The delivery of the goods to the customer completes the
earnings process. Net sales consist of product sales and related delivery charge revenue, net of adjustments for returns and
allowances. Shipping and handling costs are included in cost of goods sold.
ADVERTISING COSTS — are charged to selling, general and administrative expense in the periods incurred. The Company
conducts no direct -response advertising programs and there are no assets related to advertising recorded on the consolidated
balance sheets. Advertising expenditures, primarily shared customer advertising in which an identifiable benefit is received and
national trade -advertising programs, were approximately $7.3 million, $7.5 million and $6,9 million in fiscal years 2017. 2016
and 2015, respectively.
DESIGN, RESEARCH AND DEVELOPMENT COSTS — are charged to selling, general and administrative expense in the
periods incurred. Expenditures for design, research and development costs were approximately $3.7 million, $4,2 million and
$4.1 million in fiscal years 2017, 2016 and 2015, respectively.
INSURANCE — the Company is self-insured for health care and most workers' compensation up to predetermined amounts above
which third party insurance applies. The Company purchases specific stop -loss insurance for individual health care claims in
excess of $150,000 per plan year. For workers" compensation the Company retains the first $450,000 per claim and purchases
excess coverage up to the statutory limits for amounts in excess of the retention limit. Losses are accrued based upon the
Company's estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance
industry and based on Company experience. The Company records these insurance accruals within "Accrued liabilities —
insurance" on the consolidated balance sheets.
INCOME TAXES — the Company uses the liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The
Company recognizes in its financial statements the tax benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
EARNINGS PER SHARE (EPS) — basic earnings per share (EPS) of common stock is based on the weighted -average number of
common shares outstanding during each fiscal year. Diluted earnings per share of common stock includes the dilutive effect of
potential common shares outstanding. The Company's potential common shares outstanding are stock options, shares associated
with the long-term management incentive compensation plan and non -vested shares. The Company calculates the dilutive effect of
outstanding options using the treasury stock method. Anti -dilutive shares are not included in the computation of diluted EPS
when their exercise price was greater than the average closing market price of the common shares. The Company calculates the
dilutive effect of shares related to the long-term management incentive compensation plan and non -vested shares based on the
number of shares. if any, that would be issuable if the end of the fiscal year were the end of the contingency period.
In computing EPS for the fiscal years 2017, 2016 and 2015, net income as reported for each respective period is divided by the
fully diluted weighted average number of shares outstanding:
June 30,
(in thousands) 2017 2016 2015
Basic shares 7,782 7.595 7,423
Potential common shares:
Stock options 86 120 255
Long-term incentive plan 18 50 30
104 170 285
Diluted shares 7,886 7,765 7,708
Anti -dilutive shares — 26 —
STOCK -BASED COMPENSATION — the Company recognizes compensation expense related to the cost of employee services
received in exchange for Company equity interests based on the award's fair value at the date of grant. See Note 8 Stock -Based
Compensation.
SEGMENT REPORTING — the Company operates in one reportable segment, furniture products. The Company's operations
involve the distribution of manufactured and imported furniture for residential and contract markets. The Company's furniture
21
products are sold primarily throughout the United States by the Company's internal sales force and various independent
representatives. The Company makes minimal export sales. No single customer accounted for more than 10% of net sales.
ACCOUNTING DEVELOPMENTS — In July 2015, the FASB issued Inventory, Topic 330: Simpl Jing the Measurement of
Inventory (ASU 2015-11), which affects inventory balances measured using the first -in, first -out (FIFO) or average cost methods.
ASU 2015-1] requires entities to measure most inventories at the lower of cost and net realizable value, thereby simplifying the
current guidance under which an entity must measure inventory at the lower of cost or market. ASU 2015-11 is effective for fiscal
years beginning after December 15, 2016 and interim periods within those fiscal years. The Company elected to early adopt ASU
2015-11 on June 30, 2017, on a prospective basis. The adoption of this guidance did not have a material effect on the Company's
consolidated financial statements.
In May 2014, the FASB issued Revenue from Contracts with Customers, Topic 606 (ASU No, 2014-09), which provides a
framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is
entitled to receive in exchange for goods and services. This guidance, which includes additional disclosure requirements
regarding revenue, cash flows and obligations related to contracts with customers, was originally to be effective for the Company
beginning in fiscal year 2018, In July 2015, the FASB confirmed a one year deferral of the effective date of the new revenue
standard which also allows early adoption as of the original effective date. The updated guidance will be effective for the
Company's first quarter of 2019. The Company is currently evaluating the impact of adopting ASU 2014-09 on its consolidated
financial statements.
In February 2016, the FASB issued Leases (.SSU 2016-02), which amends ASC Topic 842. ASU 2016-02 introduces a new lessee
model where substantially all leases will be brought onto the balance sheet. ASU 2016-02 is effective for fiscal years beginning
after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently
evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.
In March 2016, the FASB issued Improvements to Employee Share -Based Payment Accounting (ASU 2016-09), which amends
ASC Topic 718, Compensation — Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share -based
payment transactions. including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and
interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of evaluating the
impact of adopting ASU 2016-09 on its consolidated financial statements.
2. INVENTORIES
A comparison of inventories is as follows:
(in thousands) June 30,
2017 2016
Raw materials $ 15,043 $ 12,893
Work in process and finished parts 7,047 5,810
Finished goods 77,307 67,201
Total $ 99,397 $ 85,904
3. PROPERTY, PLANT AND EQUIPMENT
(in thousands) Estimated June 30,
Life (Years) 2017 2016
Land $ 6,987 $ 7,279
Buildings and improvements 5-39 70,741 72,900
Machinery and equipment 3-7 33,441 34,015
Delivery equipment 3-5 20,866 21,979
Furniture and fixtures 3-7 4,474 4,509
Computer software and hardware 3-10 18,903 6,370
Total 155,412 147,052
Less accumulated depreciation J84,751) (82,928)
Net $ 70,661 $ 64,124
The Company owns a 69,000 square foot facility in Riverside, California that is held for sale as it does not have sufficient square
footage to meet the needs of the business. The sale of the building is expected to take place in early fiscal year 2018. The net hook
value of the facility is $4.3 million as of June 30, 2017.
4. OTHER NONCURRENT ASSETS
(in thousands) June 30,
2017 2016
Cash value of life insurance $ 989 $ 965
Other 1,405 1.704
Total $ 2,394 $ 2,669
5. ACCRUED LIABILITIES—OTHER
(in thousands) June 30,
2017 2016
Advertising $ 3.883 $ 4,068
Dividends 1,564 1,386
Warranty 1,080 1,070
Other 2,232 3,572
Total $ 8,759 $ 10,096
6. CREDIT ARRANGEMENTS
The Company entered into an unsecured credit agreement on June 30, 2017, that provides short-term working capital financing up
to $10.0 million with interest of LIBOR plus 1% (2.22% at June 30, 2017), including up to $4.0 million of letters of credit. Letters
of credit outstanding at June 30, 2017 totaled $1.3 million. Other than the outstanding letters of credit, the Company did not
utilize borrowing availability under the credit facility, leaving borrowing availability of $8.7 million as of June 30, 2017. The
credit agreement expires June 30, 2018. At June 30, 2017, the Company was in compliance with all of the financial covenants
contained in the credit agreement.
The Company maintains an unsecured $10.0 million line of credit, with interest at prime minus 2% (2.25% at June 30, 2017). No
amount was outstanding on the line of credit at June 30, 2017. This line of credit matures December 31, 2017.
23
7. INCOME TAXES
In determining the provision for income taxes, the Company uses an estimated annual effective tax rate that is based on the annual
income, statutory tax rates and permanent differences between book and tax. This includes recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns to
the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect
tax rates by tax jurisdiction. based on currently enacted tax laws, which are expected to be in effect in the years in which the
temporary differences are expected to reverse. In accordance witli the Company's income tax policy, significant or unusual items
are separately recognized when they occur.
The components of the gross liabilities related to unrecognized tax benefits and the related deferred tax assets are as follows:
(in thousands)
June 30,
2017 2016
Gross unrecognized tax benefits $ 320 $ 610
Accrued interest and penalties 130 250
Gross liabilities related to unrecognized tax benefits $ 450 $ 860
Deferred tax assets
$ 130 $ 250
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands) 2017 2016 2015
Balance at July 1 $ 610 $ 1,580 $ 1,290
Additions based on tax positions related to the current year 130 45 390
Additions for tax positions of prior years — —
Reductions for tax positions of prior years (420) (1,015) (100L
Balance at June 30 $ 320 $ 610 $ 1,580
The Company records interest and penalties related to income taxes as income tax expense in the consolidated statements of
income. The Company does not expect that there will be any positions for which it is reasonably possible that the total amounts of
unrecognized lax benefits will significantly increase or decrease within the next twelve months.
The income tax provision is as follows for the years ended June 30:
(in thousands) _ 2017 2016 2015
Federal — current $ 11,015 $ 9,343 $_ 11,725
State and other — current 1,179 1,616 930
Deferred 1,606 _ 2,731 605
Total $ 13,800 $ 13.690 $ 13,260
Reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows for the years ended June 30:
2017 2016 2015
Federal statutory tax rate 35.0 % 35.0 % 35.0 %
State taxes, net of federal effect 2.7 3.8 2.6
Other (1.0) (2.7) (0.3)
Effective tax rate 36.7 % 36.1 % 37.3 %
24
The primary components of deferred tax assets and ( liabilities) are as follows:
June 30,
(in thousands) 2017 2016
Accounts receivable $ 460 $ 490
Inventory (50) 500
Self-insurance 560 660
Payroll and related 1,690 3,120
Accrued liabilities 1,240 1,100
Property, plant and equipment (2,850) (3,080)
Investment tax credit 1,930 1,990
Valuation allowance (1,390) (1,380)
Other 150 260
Total $ 1,740 $ 3,660
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. Generally,
tax years 2013-2016 remain open to examination by the Internal Revenue Service or other taxing jurisdictions to which we are
subject.
STOCK -BASED COMPENSATION
The Company has two stock -based compensation methods available when determining employee compensation.
(1) Lona -Term Incentive Compensation Plans
Long -Term Incentive Compensation Plan
The long-term incentive compensation plan provides for shares of common stock to be awarded to officers and key
employees based on performance targets set by the Compensation Committee of the Board of Directors (the "Committee").
The Company's shareholders previously approved 700,000 shares to be issued under the plan. As of June 30, 2017, 61,969
shares have been issued. The Committee selected fully -diluted earnings per share as the performance goal for the three-
year performance periods July 1, 2014 — June 30, 2017 (2015-2017), July 1, 20I5 — June 30, 2018 (2016-2018) and July 1,
2016 — June 30, 2019 (2017-2019). The Committee also selected total shareholder return as a performance goal for the
executive officers for the three year performance period July 1, 2016 -- June 30, 2019 (2017-2019). Stock awards will be
issued to participants as soon as practicable following the end of the performance periods subject to verification of results
and Committee approval. The compensation cost related to the number of shares to be granted under each performance
period is fixed on the grant date, which is the date the performance period begins.
The Company recorded plan expenses of $0,9 million, $1.1 million and $1.1 million for fiscal years ended June 30, 2017,.
2016 and 2015, respectively. If the target performance goals for 2015-2017, 2016-2018 and 2017-2019 would be achieved,
the total amount of compensation cost recognized over the requisite performance periods would be $0.9 million, $1.0
million and $1.1 million, respectively.
The aggregate number of shares that could be awarded to key executives if the minimum, target or maximum performance
goals are met is as follows:
On thousands)
Performance Period Minimum Target Maximum
Fiscal Year 2015 — 2017 11 28 55
Fiscal Year 2016 — 2018 9 23 45
Fiscal Year 2017 — 2019 11 27 52
25
(2) Stock Plans
Omnibus Stock Plan
The Omnibus Stock Plan is for key employees, officers and directors and provides for the granting of incentive and
nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and performance units. The
Company's shareholders previously approved 700,000 shares to be issued under the plan.
Under the plan, options were granted at an exercise price equal to the fair market value of the underlying common stock at
the date of grant and exercisable for up to 10 years. All options were exercisable when granted. It is the Company's policy
to issue new shares upon exercise of stock options. The Company accepts shares of the Company's common stock as
payment for the exercise price of options. These shares received as payment are retired upon receipt.
For fiscal years 2017, 2016 and 2015, the Company issued options for 24,317, 25,868, and 48,600 common shares at a
weighted average exercise price of $47.45, $43.09 and $3148 (the fair market value on the date of grant), respectively. The
options were immediately available for exercise. For fiscal years ended June 30, 2017, 2016 and 2015, the Company
recorded expense of $0.3 million, $0.2 million and $0.4 million, respectively. The fair value of each option grant is
estimated on the date of grant using the Black -Scholes option -pricing model with the following weighted -average
assumptions used for grants in fiscal years 2017, 2016 and 2015, respectively, under this plan; dividend yield of L5%,
1.6% and 2.0%; expected volatility of 30.8%, 26.0% and 29.9%; risk-free interest rate of 1.2%, 1.6% and 1.6%; and an
expected life of 5 years. The expected volatility and expected life are determined based on historical data. The weighted -
average grant date fair value of stock options granted during fiscal years 2017, 2016 and 2015 were $11.76, $9.20 and
$7.33, respectively. The cash proceeds from stock options exercised were $0.7 million, $0.1 million and $0.1 million for
fiscal years ended 2017. 2016 and 2015, respectively. There was no income tax benefit related to the exercise of stock.
options for fiscal years ended June 30, 2017.2016 and 2015.
Under the plan, the Company issued 6,997 and 6,208 restricted shares to non-executive directors as compensation and
recorded expense of $0.4 million and $0.3 million during fiscal years ended June 30, 2017 and 2016. respectively.
At June 30, 2017, 537,762 shares were available for future grants.
2006 and 2009 Stock Option Plans
The stock option plans were for key employees, officers and directors and provided for granting incentive and nonqualified
stock options. Under the plans, options were granted at an exercise price equal to the fair market value of the underlying
common stock at the date of grant and exercisable for up to 10 years. All options were exercisable when granted, No
additional options can be granted under the 2006 and 2009 stock option plans. There were no options granted and no
expense was recorded under these plans during the fiscal years ended June 30, 2017, 2016 and 2015.
The cash proceeds from stock options exercised were $0.4 million, $1.5 million and $1.6 million for fiscal years ended
2017. 2016 and 2015, respectively. The income tax benefit related to the exercise of stock options were $0.6 million, $1.6
million and $0.4 million for fiscal years ended 2017, 2016 and 2015, respectively.
A summary of the status of the Company's stock option plans as of June 30, 2017, 2016 and 2015 and the changes during
the years then ended is presented below:
Aggregate
Shares Weighted Average Intrinsic Value
(in thousands) Exercise Price (in thousands)
Outstanding and exercisable at June 30, 2015 457 $ 17.02 $ 11,916
Granted 26 43.09
Exercised (207) 12.68
Canceled (6) 22.32
Outstanding and exercisable at June 30, 20I6 270 $ 22.85 $ 4,638
Granted 24 47,45
Exercised (98) 20.57
Canceled (9) 20.51
Outstanding and exercisable at June 30, 2017 187 $ 27.21 5,039
26
The following table summarizes information for options outstanding and exercisable at June 30, 2017:
Range of
Prices
$ 6.96 -13.90
17.23 - 19.77
20.50 - 27.57
31.06 -32.13
43.09 - 47.45
$ 6.96 - 47.45
BENEFIT AND RETIREMENT PLANS
Options
Outstanding
(in thousands)
38
34
40
33
42
187
Defined Contribution and Retirement Plans
Weighted Average
Remaining
Life (Years)
2.4 $
4.5
6.1
7.4
8.7
5.9 :$
Exercise
Price
12.13
18.54
25.72
31.60
45.52
27.21
The Company sponsors various defined contribution retirement plans, which cover substantially all employees, other than
employees covered by multi-employer pension plans under collective bargaining agreements. Total retirement plan expense was
$2.3 million, $1.8 million and $2.0 million in fiscal years 2017. 2016 and 2015, respectively. The amounts include $0.8 million,
$0.5 million and $0.5 million in fiscal years 2017, 2016 and 2015, for the Company's matching contribution to retirement savings
plans.
Multi-employer Pension Plans
The Company contributes to three multi-employer defined benefit pension plans under the terms of collective-bargaining
agreements that cover its union -represented employees. The risks of participating in these multi-employer plans are different
from single -employer plans in the following aspects:
• Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other
participating employers.
• If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be shared by the
remaining participating employers,
• If a participating employer chooses to stop participating in some of its multi-employer plans, the employer may be required to
pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company's participation in these plans for the annual period ended June 30, 2017, is outlined in the following table. Unless
otherwise noted, the most recent Pension Protection Act zone status available in 2017 and 2016 is for the plan's year-end at
December 31, 2016 and 2015, respectively, The zone status is based on information that the Company received from the plan and
is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in
the yellow zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded.
Pension Fund
EIN/Pension
Plan Number
Pension
Protection
Act Zone Status
June 30,
2017 2016
Company Contributions
Rehabilitation (in thousands)
Plan Status 2017 2016 2015
Surcharge
linpased
Central States SE
and SW Areas
Pension Fund 36-6044243 Red Red implemented $ 166 $ 200 $ 248 No
Steelworkers
Pension Trust 23-6648508 Green Green. No 308 347 364 No
Central Pension
Fund 36-6052390 Green Green No 6 6 7 No
$ 480 S 553 $ 619
Expiration Date
of Collective
Bargain ing
Agreement
Number of
Company
Employees
in Plan
03/31/2018 9
11/04/2017 171
02/15/2023 3
The estimated cumulative cost to exit the Company's multi-employer plans was approximately $12.3 million on June 30, 2017,
27
Defined Benefit Plan
The Company's defined benefit pension plan is frozen. There are a total of 379 participants in the plan. Retirement benefits are
based on years of credited service multiplied by a dollar amount negotiated under collective bargaining agreements. The
Company's policy is to fund normal costs and amortization of prior service costs at a level that is equal to or greater than the
minimum required under the Employee Retirement Income Security Act of 1974 (ERISA), As of June 30, 2017 and 2016, the
Company recorded an accrued benefit liability related to the funded status of the defined benefit pension plan recognized on the
Company's consolidated balance sheets in other long-term liabilities of $0.2 million and $1.6 million, respectively. The
accumulated benefit obligation was $8.5 million and $8.9 million at fiscal years ended June 30, 20] 7 and 2016, respectively. The
Company recorded expense of $0.2 million, $0.1 million and $0.1 million during fiscal years 2017, 2016 and 2015, respectively,
related to the plan.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive loss. net of income taxes, are as follows
June 30,
(in thousands) 2017 2016 _ 2015
Pension and other post-retirement benefit adjustments,
net of tax (l) $ (1,725) $ (2,203) $ (1,584)
Available -for -sale securities. net of tax (2) _ 12 _ (25) _ (152)
Total accumulated other comprehensive loss $ (1,713) $ (2,228) $ (1,736)
(1)
(2)
The tax effect on the pension and other post-retirement benefit adjustments is a tax benefit of $1.1 million, $1,4 million and $1.0
million at June 30, 2017, 2016 and 2015. respectively.
The tax effect on the available -for -sale securities is a tax benefit of $0.0 million, $0.0 million and $0.1 million at June 30. 2017, 2016
and 2015, respectively.
11. LITIGATION
Indiana Civil Litigation — In December 2013, the Company entered into a confidential agreement to settle the Indiana Civil
Litigation, The Company paid $6.25 million to Plaintiffs to settle the matter without admission of wrongdoing, The Company
received $1,2 million, $2.3 million and $0.3 million during the fiscal years ended June 30, 20I7, 2016 and 2015, respectively, for
recovery of litigation settlement costs from insurers. These amounts are recorded as "Litigation settlement reimbursements" in
the consolidated statements of income.
During the fiscal years ended June 30, 2017, 2016 and 2015, the Company recorded $0.3 million, $0,6 million and $0.6 million,
respectively, in legal and other related expenses that were incurred responding to the lawsuits and pursuing insurance coverage.
These expenses are included in SG&A expense in the consolidated statements of income.
During the fiscal years ended June 30, 2017, 2016 and 2015, the Company received approximately $1.2 million, $0.8 million and
$0.2 million from insurance carriers to reimburse the Company for certain legal defense costs, These reimbursement amounts are
recorded in SG&A as a reduction of legal expenses.
The recovery of litigation settlement and defense costs from insurance carriers is complete.
Environmental Matters — In March 2016, the Company received a General Notice Letter for the Lane Street Groundwater
Superfund Site located in Elkhart, Indiana from the United States Environmental Protection Agency (EPA). In April 2016, the
EPA issued their proposed clean-up plan for groundwater pollution and request for public comment. The Company responded to
the request for public comment in May 2016. The EPA issued a Record of Decision selecting a remedy in August 2016.and
estimated total costs to remediate of $3.6 million. In July 2017, the EPA issued a Special Notice Letter to the Company
demanding that the Company perform the remedy selected and pay for the remediation cost and past response costs of $5.5
million, Based on extensive sampling investigation performed on behalf of the Company, the Company believes that the source of
the ground water contamination is upgradient of the site formerly owned by the Company. The Company continues to believe that
it did not cause or contribute to the contamination. Accordingly, the Company has not recorded a liability in the consolidated
balance sheets.
Other Proceedings — From time to time, the Company is subject to various other legal proceedings, including lawsuits, which
arise out of. and are incidental to. the conduct oldie Company's business. The Company does not consider any of such other
proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a
material effect on its consolidated operating results, financial condition, or cash flows.
78
12. COMMITMENTS AND CONTINGENCIES
FACILITY LEASES — the Company leases certain facilities and equipment under various operating leases. These leases require
the Company to pay the lease cost, operating costs, including property taxes. insurance, and maintenance. Total lease expense
related to the various operating leases was approximately $4.6 million, $4.9 million and $3,8 million in fiscal years 2017, 2016
and 2015, respectively,
Expected future minimum commitments under operating leases as ofJune 30, 2017 were as follows:
(in thousands)
Fiscal Year Ended June 30,
2018 3,853
2019 3,868
2020 3,134
2021 2,444
2022. 991
Thereafter
$ 14,290
13. SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION — UNAUDITED
(in thousands, except per
share amounts) FOR THE QUARTER ENDED
September 30 December 31 March 31 June 30
Fiscal 2017:
Net sales $ 112,050 $ 118,530 $ 120,750 $ 117.434
Gross margin 26,630 26,748 28,446 26,827
Litigation settlement
reimbursements — — 1,175 —
Net income 4,752 5.389 7,624 6,021
Earnings per share:
Basic $ 0.62 $ 0.69 $ 0.98 $ 0.77
Diluted $ 0.61 $ 0.68 $ 0.96 $ 0.76
(in thousands, except per
share amounts) FOR THE QUARTER ENDED
September 30 December 31 March 31 June 30
Fiscal 2016:
Net sales $ 126,531 $ 125,410 $ 125,401 $ 1?2,764
Gross margin 27,869 27,684 28,716 29,430
Litigation settlement
reimbursements — 250 2,030
Net income (1) 5.763 5,366 6,944 6,164
Earnings per share:
Basic $ 0.77 $ 0.71 $ 0,91 $ 0.80
Diluted $ 0.75 $ 0.69 $ 0,89 $ 0.79
(i) The quarter ended June 30, 2016, reflects a change in the measurement of uncertain tax positions of $1.0
million (before tax).
l4. SUBSEQUENT EVENTS
As of August 22, 2017, there were no subsequent events.
29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and nrocedures – Based on their evaluation as of the end of the period covered by this Annual Report
on Form 10-K, 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 June 30, 2017.
Chanties in internal control over financial renortine, – During the fiscal quarter ended June 30, 2017, 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 have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.
Management's Annual Report on Internal Control Over Financial Renortine Management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a -15(f) or 15d -15(f) of the Securities
Exchange Act of 1934, as amended. We performed an evaluation under the supervision and with the participation of our management,
including the CEO and CFO, to assess the effectiveness of the design and operation of our disclosure controls and procedures under
the Exchange Act as of June 30, 2017. In making this assessment, we used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on those criteria,
management concluded that the internal control over financial reporting is effective as of June 30, 2017. The effectiveness of the
Company's internal control over financial reporting as of June 30, 2017, has been audited by Deloitte & Touche LLP, our independent
registered public accounting firm, as stated in their report in Part II, Item 8 of this Form 10-K.
Item 9B. Other Information
None,
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information contained in the Company's 2017 definitive proxy statement to be filed with the Securities and Exchange
Commission under the sections captioned "Proposal 1 Election of Directors," "Corporate Governance – Audit and Ethics Committee,"
"Corporate Governance – Nominating Matters,' "Corporate Governance – Code of Ethics" and "Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated herein by reference.
Item I1. Executive Compensation
The information contained in the Company's 2017 definitive proxy statement to be filed with the Securities and Exchange
Commission under the sections captioned "Director Compensation," "Corporate Governance – Compensation Committee Interlocks
and Insider Participation" and "Executive. Compensation" is incorporated herein by reference.
Item I2. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information contained in the Company's 2017 definitive proxy statement to be filed with the Securities and Exchange
Commission under the sections captioned "Ownership of Stock By Directors and Executive Officers," "Ownership of Stock by
Certain Beneficial Owners." and "Equity Compensation Plan Information" is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information contained under the sections "Corporate Governance – Board of Directors" and "Corporate Governance – Related
Party Transaction Policy" in the Company's 2017 definitive proxy statement to be filed with the Securities and Exchange Commission
is incorporated herein by reference.
Item 14. Principal. Accountant Fees and Services
The information contained in the Company's 2017 definitive proxy statement to be filed with the Securities and Exchange
Commission under the sections captioned "Independent Registered Public Accounting Firm" is incorporated herein by reference.
�0
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The financial statements of the Company are set forth above in Item 8.
(2) Schedules
The following financial statement schedules for the years ended June 30, 2017,. 2016 and 2015 are submitted herewith:
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Far the Years Ended June 30, 2017, 2016 and 2015
(in thousands) Balance at (Additions)
Beginning of Reductions to Deductions from Balance at End
Description Year Income Reserves of1ear
Accounts Receivable Allowances
2017 1,3011 70 (170) 1,800
2016 ......... ....... 1,400 (10) (90) 1,300
•
2015 ......................... 1,370 72 (42) 1,400
Other schedules are omitted because they are not required or are not applicable or because the required information is
included in the financial statements.
(3) Exhibits
Exhibit No.
3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Form 8-K, as filed with
the Securities and Exchange Commission on December 7, 2016).
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Form 8-K, as filed with the Securities
and Exchange Commission on December 7, 2016).
10,1 Flexsteel Industries, Inc. Restoration Retirement Plan (incorporated by reference to Exhibit No. 10.6 to the Annual
Report on Form 10-K for the fiscal year ended June 30, 2001). *
10.2 Flexsteel Industries, Inc. Senior Officer Supplemental Retirement Pian (incorporated by reference to Exhibit No.
10.7 to the Annual Report on Form l0 -K for the fiscal year ended June 30, 2001).
10.3 2002 Stock Option Plan (incorporated by reference to Appendix A from the 2002 Flexsteel definitive proxy
statement). *
10.4 Flexsteel Industries, Inc. 2006 Stock Option Plan (incorporated by reference to Appendix C from the 2006 Flexsteel
Proxy Statement filed with the Securities and Exchange Commission on October 31, 2006). *
10.5 Flexsteel Industries, inc. 2007 Long -Term Management Compensation Plan (incorporated by reference to Appendix
C to the Definitive Proxy Statement on Schedule 14A filed with the Commission on November 1, 2007). *
10.6 2009 Stock Option Plan (incorporated by reference to Appendix A from the 2009 Flexsteel definitive proxy
statement), *
10.7 Restricted Stock Unit Award Agreement for Karel K. Czanderna, dated July 1, 2012 (incorporated by reference to
Exhibit 4.1 of Flexsteei's Form S-8 filed with the Securities and Exchange Commission on August 20, 2012). *
10.8 Foran of Notification of Award for the Cash Incentive Compensation Plan (incorporated by reference to Form 84(
filed with the Securities and Exchange Commission on December 13, 2013).
10.9 Form of Notification of Award for the Long -Term Incentive Compensation Plan (incorporated by reference to Form
8-K filed with the Securities and Exchange Commission on December 13, 2013). }
31
10,10 Form of Notification of Award for incentive stock options issued under the Omnibus Stock Plan (incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on December 13, 2013). *
10.11 Form of Notification of Award for non-qualified stock options issued under the Omnibus Stock Plan (incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission on December 13, 2013). *
10.12 Form of Notification of Award for director non-qualified stock options issued under the Omnibus Stock. Plan
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on December 13,
2013).*
10.13 Form of Notification of Award for restricted stock units issued under the Omnibus Stock Plan (incorporated by
reference to Form 8-K filed with the Securities and Exchange Commission on December 13, 2013).
10.14 Long -Term Incentive Compensation Plan, dated July 1, 2013 (incorporated by reference to Exhibit 4.1 of Flexsteel-s
Form S-8 filed with the Securities and Exchange Commission on December 23, 2013). *
10.15 Omnibus Stock Plan, dated July 1, 2013 (incorporated by reference to Exhibit 4.1 of Flexsteel's Form S-8 filed with
the Securities and Exchange Commission on December 23, 2013). *
10.16 Purchase and Sale Agreement dated August 8, 2014 between Flexsteel Industries, Inc. and ELHC 1, LLC
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on August I4, 2014).
10.17 Completion of Acquisition of Assets dated September 26, 2014 between Flexsteel Industries, Inc. and ELHC I, LLC.
(incorporated by reference to Forrn 8-K filed with the Securities and Exchange Commission on October 1, 2014).
10,18 Credit Agreement dated June 30. 2016 between Flexsteel industries, Inc. and Wells Fargo Bank, N.A. (incorporated
by reference to Form 8-K filed with the Securities and Exchange Commission on July 1, 2016).
10.19 Development Agreement dated June 5, 2017 between Flexsteel Industries, Inc. and The City of Dubuque, Iowa,
Redevelopment Project Agreement dated May 15, 2017 between Flexsteel Industries, Inc., The City of Dubuque,
Iowa and Dubuque Initiatives. (incorporated by reference to Form 8-K filed with the Securities and Exchange
Commission on June 12, 2017).
10,20 Revolving Line of Credit Note dated June 30, 2017 between Flexsteel Industries, Inc. and Wells Fargo Bank, N.A.
(incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 30, 2017).
10.21 First Amendment to Credit Agreement dated June 30, 2017 between Flexsteel Industries, Inc. and Wells Fargo
Bank, N.A. (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on June 30,
2017).
21.1 Subsidiaries of the Company. Filed herewith.
23 Consent of Independent Registered Public Accounting Firm. Filed herewith.
31.1 Certification, Filed herewith.
31.2 Certification. Filed herewith.
32 Certification by Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith,
101.1NS XBRL Instance Document,
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XI3RL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Labels Linkbase Document.
101 .DEF XBRL Taxonomy Extension Definition Linkbase Document.
32.
1O1,PRE XBRL Taxonomy Extension Presentation Linkbase Document.
Management contracts, compensatory plans and arrangements required to be tiled as ari exhibit to this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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,
Date: August 22, 2417 FLEXSTEEL INDUSTRIES, INC.
By: ;S, Karel K Cranderna
Karel K. Czanderna
Chief Executive Officer
and
Principal Executive Officer
Bv: !Sr Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
and
Principal Financial and Accounting Officer
33
Pursuant to the requirements of the Securities Exchange Act of 1934,.this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: August 22. 2017 /S/ Eric S. Raneen
Eric S. Rangen
Chair of the Board of Directors
Date: August 22. 2017 !S/ Karel K. Czanderna
Karel K. Czanderna
Director
Date: August 22, 2017 Sr.lef•ev T Bertsch
Jeffrey T. Bertsch
Director
Date: August 22. 2017 S' Mary C. Bottle
Mary C. Bottie
Director-
Date:
irector
Date: August 22.2017 /S/Michael 1 Edwards
Michael J. Edwards
Director -
Date: August 22. 2017 IS/ Thomas M. Levine
Thomas M. Levine
Director
Date: August 22. 2017 IS/ Robert J. Maricich
Robert J. Maricich
Director
Date: August 22. 2017 /S/ Nancy E. Uridil
Nancy E. Uridil
Director
34
Subsidiaries of Flexstee1 Industries, Inc.
■ DMI Furniture, Inc. (Delaware)
o DMI Management, Inc. (Kentucky)*
o DMI Sourcing Company, LLC (Kentucky)
■ DMI Business Consulting Company (Shenzhen) Co. Ltd. *
■
Horne Styles Furniture Co., Ltd. (Thailand) (99.99% interest) *
■ Vietnam Representative Office *
■ Desert Dreams, Inc. (Iowa)
o Shelf Company No. 74 (Mexico)
Subsidiaries of DMI Furniture, Inc.
35
Exhibit 2L1
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-140811. 333-105951, 333-164994, 333-193041 and
333-193042 on Form S-8 of our reports dated August 22, 2017, relating to the consolidated financial statements and financial
statement schedule of Flexsteel Industries, Inc. and Subsidiaries (the "Company"), and the effectiveness of the Company's internal
control over financial reporting. appearing in this Annual Report on Form 10-K of Flexsteel Industries, Inc. for the year ended June
30, 2017.
Is/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 22, 2017
36
EXHIBIT 31.1
CERTIFICATION
1, Karel K. Czanderna, certify that:
I , 1 have reviewed this annual report on Form 10-K of Flexsteel Industries, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in Tight of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the
periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any changes in the Registrant's internal control over financial reporting that occurred during
the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially atTect, the
Registrant's internal control over financial reporting; and
5. The Registrant's other certifying officer and l have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the Registrant's auditors and the Audit and Ethics Committee of the Registrant's Board of
Directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: August 22. 2017
37
By: 'S/ Karel K Czanderna
Karel K. Czanderna
Chief Executive Officer
EXHIBIT 3L2
CERTIFICATION
I. Timothy E. Hall, certify that:
I. 1 have reviewed this annual report on Form 10-K of Flexsteel Industries, Inc„
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the
periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a -15(e) and 15d -15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any changes in the Registrant's intental control over financial reporting that occurred during
the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control aver financial reporting; and
5, The Registrant's other certifying officer and 1 have disclosed, based on our most recent evaluation of intei-nal control
over financial reporting, to the Registrant's auditors and the Audit and Ethics Committee of the Registrant's Board of
Directors (or persons performing the equivalent functions):
) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant's internal control over financial reporting.
Date: August 22.2017
38
By; S' T irothv E. Hall
Timothy E. Hall
Chief Financial Officer
EXHIBIT 32
CERTIFICATION BY
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Flexsteel Industries, Inc. (the "Company") on Forin 10-K for the fiscal year ended
June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Karel K. Czanderna, Chief
Executive Officer, and Timothy E. Hall, Chief Financial Officer. of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2001 that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and;
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and
results of operations of the Company.
Date: Aueust 22.2017
By:
39
/5/ Karel K. Czanderna
Karel K. Czanderna
Chief Executive Officer
,SV Timothy E. Hall
Timothy E. Hall
Chief Financial Officer
Factory Mutual insurance Company
Waterford Pork
51)5 1lighwav 169 North
Suite 375
Plymouth. Minnesota
55441
Lnited States ofAinerica
Tel: { 11763 553-1150
Fax: (1 ) 163 553-0894
POLICY INFORMATION FORM
This docttnment is issued :ms a miner of infuriation only
amend. extend. or alter the coverage. terms. exclusions,
coverage is non in force with our Company as outlined
Policy No.:
:Account .No.:
1016906
1-329211
NAMED INSI RED:
Flexsteel 1 ndustries. Inc.
DESCRIPTION AND LOCATION OF PROPERTY
Real and Personal Property
and confers no rights upon the document holder, this Policy Information Form does not
conditions, or other provisions afforded by the policy. We hereby certify that insurance
helost.
Polley. Term
Effective Date:
Expiration Date:
COVERED:
61 October 2016
01 October 2017
COVERAGE IN FORCE: (subject to limits or liability. deductibles and conditions in the Policy)
Insurance Provided:
Property Damage
CERTIF KATE TERN':
Peril:
Ali Risk
Limit Of Liability:
USD 300.000.000
Effective: 11 July 2017
Expires: 01 October 2017
Property insurance coverage is provided for the new building being constructed at 501 Seippel Road. Dubuque. Iowa 520111 (Latitude/Longitude
42.4754/-900.77258). legal description is Lut 4 of Dubuque Industrial Center South First Addition.
Property Damage is an a Replacement Basis.
City of Dubuque
50 W. 13th Street
Dubuque, Iowa 52001, USA
742016,'12) IDI COI 286067-2 06 12 Page 1 of 1
Certificate No: 0001 1-001
iviLefi
Authorized Signature / Issue /)ate
Russell lannetto / 2-1 Auausl 2017
Fur questions. rnnI.tct::ltnma 1.lonskey
August 25, 2017
Mr. Barry Lindahl, Esq., Senior Counsel
City of Dubuque, Iowa
300 Main Street
Suite 330
Dubuque, IA 52001
Re: Flexsteel Manufacturing Facility, 501 Seippel Road, Dubuque, Iowa
Site Design, Submittal & Approval Status
IIW Project No.:16108
Dear Barry:
On behalf of Flexsteel Industries, inc., IIW, P.C. has prepared a summary of the site design,
submittal and approval status as requested.
IIW prepared a preliminary site design and submitted to the City on June 30, 2017 for comment at
the July 6, 2017 Development Review meeting. The discussion and comments informed the
advancement of the site design for preparing the first bid package comprising the mass grading and
site preparation. Subsequently, a Mass Grading bid package was submitted to the City on August 4,
2017 for comment at the August 10, 2017 Development Review meeting. Once again the comments
were incorporated and a revised Mass Grading site design is scheduled to be submitted to the City
on August 25, 2017.
It is our understanding the City requires the submittal of the site utility design prior to issuing a
building permit for the foundation. To coincide with the completion of the Foundation bid package
slated for August 31, 2017, coupled with including the site utilities with the Superstructure bid
package slated for completion on September 29, 2017, we are anticipating a Site Utility submittal to
the City on September 1, 2017 for consideration at the September 7, 2017 Development Review
meeting.
We are also anticipating a final site design submittal to the City to coincide with the final Office and
Plant Buildout bid package slated for completion in December 2017.
Feel free to contact me if you have any questions. Thank you.
Sincerely,
IIW, P.C.
Michael A. Jansen, P.E., S.F.
Chief Executive Officer 1 Principal Civil & Structural Engineer
Copy: Hilary Stubben - Flexsteel
4155 Pennsylvania Avenue, Dubuque, IA 52002-2628 * [P] 563.556,24641800.556.4491 • [F] 563,556.7811
ENGINEERS. ARCHITECTS. SURVEYORS.
IIW, P.C.
www.iiwengr.com
ARCHITECTURE
CIVIL ENGINEERING
CONSTRUCTION SERVICES
ENVIRONMENTAL ENGINEERING
LAND SURVEYING
MUNICIPAL ENGINEERING
STRUCTURAL ENGINEERING
TRANSPORTATION ENGINEERING
Dennis F. Waugh, PE/SE`
Charles k Cate, PE **
Gary D. Seikora, PE **
Michael A. Jansen, PE/SE
Timothy J. Tranel, PE`
John F. Wandsnider, PE
Julie P. Neebel, PE
James P. Kaune, PE
Thomas J. Oster, PLS "
Wray A. Childers, PLS
Geoffry T. Blandin, PE
Mark C_ Jobgen, PE**
Lauren N. Ray, PE/SE
Cody T_ Austin, PE*
Marc D. Ruden, PE
Mark R. Fassbinder, AIA'
Michael A. Ruden, NCARBIAIA'
Craig J, Elskamp, AIA
Eric J. Helminiak, PE/SE"
Jeffrey J. Brandt, PLS
Craig L. Geiser, PLS
Adam J. Maris, PE
David A. Leapaldt, AIA, CID*
Nathan W. Miller, PE
Damian D. Baumhover, NCARB/AIA
Nicholas A. Schneider, PE
Christian J. Hendrie, AIA
Eldon M. Schneider, PE
Whitney A. Lougheed, AIA*
Jessica L. Olson, NCARBIAIA*
Patrick R. Ready, PE
Nicholas M. Rettenberger, AIA
Christopher A. Becklin, PE
Courtney E. Wand, PE
Jonathan H. Lutz, PE
John M. Tranmer, PLS
Andrew C. Busch, AIA
Marie P. Amundson, PE
LEED AP
** Retired
ijw
FLEXSTEEL'
September 1, 2017
Flexsteel Industries, Inc.
385 Bell Street
Dubuque, IA 52001
Mayor and City Councilmembers
City Hall, 13th and Central Avenue
Dubuque, Iowa 52001
T 563.556.7730
F 563.556.8345
www.flensteel.cem
Re: Development Agreement between the City of Dubuque, Iowa ("City") and Flexsteel
Industries, Inc. ("Flexsteel")
Dear Mayor and City Councilmembers:
As Vice President of Human Resources for Flexsteel, I certify that pursuant to Section 6.1, Job
Retention, of the June 5, 2017 Development Agreement between the City and Flexsteel, Flexsteel's
Dubuque Operations currently employees r. l 3 fulltime equivalent positions.
Sincerely,
,,11-0-N gar att.4,3
Stacy Kammes
Flexsteel Industries, Inc.
Vice President, Human Resources
Cc: Barry A. Lindahl, Esq., Senior Counsel for the City of Dubuque