UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
FLEXSTEEL INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
Date: October 24, 2003
Office of the Chairman of the Board
Dear Stockholder:
You are cordially invited to attend the Annual Stockholders' Meeting on
Monday, December 8, 2003, at 2:00 p.m. We sincerely want you to come, and we
welcome this opportunity to meet with those of you who find it convenient to
attend.
Time will be provided for stockholder questions regarding the affairs of
the Company and for discussion of the business to be considered at the meeting
as explained in the notice and proxy statement which follow. Directors and other
Company executives expect to be available to talk individually with stockholders
after the meeting. No admission tickets or other credentials are currently
required for attendance at the meeting.
The formal notice of the meeting and proxy statement follow. I hope that
after reading them you will sign and mail the proxy card, whether you plan to
attend in person or not, to assure that your shares will be represented.
Sincerely,
/s/ L. Bruce Boylen
L. Bruce Boylen
CHAIRMAN OF THE BOARD
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RECORD DATE: October 13, 2003
DATE OF MEETING: December 8, 2003
TIME: 2:00 p.m.
PLACE: Hilton Minneapolis
1001 Marquette Avenue
Minneapolis, MN 55403
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IMPORTANT
WHETHER YOU OWN ONE SHARE OR MANY, EACH STOCKHOLDER IS URGED TO VOTE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 8, 2003
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Flexsteel Industries, Inc. will be
held at the Hilton Minneapolis, 1001 Marquette Avenue, Minneapolis, Minnesota
55403, on Monday, December 8, 2003 at 2:00 p.m. for the following purposes:
1. To elect three (3) Class II Directors to serve until the year 2006 Annual
Meeting and until their successors have been elected and qualified or
until their earlier resignation, removal or termination (Proposal I).
2. To ratify or reject the appointment of Deloitte & Touche LLP as
independent auditors for the fiscal year ending June 30, 2004 (Proposal
II).
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
October 13, 2003 has been fixed as the record date for the determination of
common stockholders entitled to notice of and to vote at the meeting, and only
holders of record at the close of business on that date will be entitled to vote
at the meeting or any adjournment thereof.
Whether or not you plan to attend the meeting, please mark, date and sign
the accompanying proxy and return it promptly in the enclosed envelope which
requires no additional postage if mailed in the United States. If you attend the
meeting, you may vote your shares in person even though you have previously
signed and returned your proxy. Voting by ballot at the meeting cancels any
proxy previously returned.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. KLOSTERMAN
R.J. KLOSTERMAN
SECRETARY
October 24, 2003
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PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY
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PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Flexsteel Industries, Inc. (the "Company") to be used at the Annual Meeting of
Stockholders to be held on Monday, December 8, 2003, and any adjournments
thereof, and may be revoked by the stockholder at any time before it is
exercised by a written notice or a later dated proxy delivered to the Secretary
of the Company. Execution of the proxy will in no way affect a stockholder's
right to attend the meeting and vote in person. The proxy will be revoked if the
stockholder is present at the meeting and votes by ballot in person. Properly
executed proxies received prior to the voting at the meeting will be voted at
the meeting or any adjournments thereof. If a stockholder specifies how the
proxy is to be voted on any business to come before the meeting, it will be
voted in accordance with such specification. If no specification is made, it
will be voted FOR the election of James R. Richardson, Patrick M. Crahan and
Robert E. Deignan as Class II Directors (Proposal I), and FOR ratification of
the appointment of Deloitte & Touche LLP (Proposal II). Each of the above named
nominees has been previously elected by the stockholders except Robert E.
Deignan who was appointed to the Board on December 10, 2001.
The mailing address of the corporate office and principal executive office
of the Company is P.O. Box 877, Dubuque, IA 52004-0877. The approximate date on
which this proxy statement and accompanying proxy card are first being mailed to
stockholders is October 24, 2003.
As of the close of business on October 13, 2003, the record date for
determining stockholders entitled to notice and to vote at the meeting, the
Company had 6,431,472 outstanding shares of Common Stock, par value $1.00 per
share. Each share is entitled to one vote and cumulative voting is not
permitted. No Preferred Stock is outstanding.
Stockholder votes will be counted by the Inspector of Election who will be
present at the stockholder meeting. The affirmative vote of a majority of the
shares of stock represented at the meeting shall be the act of the stockholders
for the election of directors. Abstentions and broker non-votes shall not be
counted as votes for or against the proposal being voted on.
EXPENSE OF SOLICITATION
The cost of the solicitation of proxies on behalf of the Board of Directors
will be paid by the Company. Solicitation of proxies will be principally by
mail. In addition, the officers or employees of the Company and others may
solicit proxies, either personally, by telephone, by special letter, or by other
forms of communication. The Company will also make arrangements
1
with banks, brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals and will reimburse them for
reasonable expenses in so doing. Officers and employees of the Company will not
receive additional compensation in connection with the solicitation of proxies.
PROPOSAL I
ELECTION OF DIRECTORS
The Board currently consists of eleven persons divided into three classes.
At each Annual Meeting the terms of one class of Directors expire and persons
are elected to that class for terms of three years or until their respective
successors are duly qualified and elected or until their earlier resignation,
removal or termination.
The Board of Directors of the Company has nominated James R. Richardson,
Patrick M. Crahan and Robert E. Deignan for election as Class II Directors of
the Company. The Class II Directors' term expires at the time of the year 2006
Annual Meeting and until their respective successors have been elected and
qualified or until their earlier resignation, removal or termination. It is the
intention of the proxies named herein to vote FOR these nominees unless
otherwise directed in the proxy. Class II Director Marvin M. Stern has advised
the Board of Directors and the Compensation and Nominating Committee that he
will retire from the Board of Directors at the time of the 2003 stockholder
meeting and will not stand for re-election as a Director.
All nominees named above have consented to serve as Directors if elected.
In the event that any of the nominees should fail to stand for election, the
persons named as proxy in the enclosed form of proxy intend to vote for
substitute nominees. The proxies cannot be voted for a greater number of persons
than the number of nominees named herein.
2
DIRECTOR PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS OR
NAME AGE SINCE EMPLOYMENT DURING THE LAST FIVE YEARS
------------------------------------- ---- -------- ---------------------------------------------------------------------
DIRECTORS WHOSE TERMS EXPIRE AT THE
2003 ANNUAL MEETING, CLASS II
James R. Richardson(3) 59 1990 Senior Vice President Marketing, 1994 to present, Flexsteel
Industries, Inc.
Patrick M. Crahan(3) 55 1997 Vice President, Dubuque Upholstering Division, 1989 to present,
Flexsteel Industries, Inc.; Director, American Trust and Savings
Bank, Dubuque, Iowa; Trustee, University of Dubuque.
Marvin M. Stern(2)(3) 67 1998 Retired Vice President, Sears-Roebuck Company.
Robert E. Deignan(1) 64 2001 Partner, Baker and McKenzie law firm.
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE
2004 ANNUAL MEETING, CLASS III
Edward J. Monaghan(3) 64 1987 Chief Operating Officer and Executive Vice President, 1993 to
present, Flexsteel Industries, Inc.; Trustee, Clarke College.
Jeffrey T. Bertsch(3) 48 1997 Vice President Corporate Services, 1989 to present, Flexsteel
Industries, Inc.; Director, American Trust and Savings Bank,
Dubuque, Iowa; Trustee, University of Dubuque.
Lynn J. Davis(1)(3) 56 1999 General Partner, 2002 to present, Tate Capital Partners;
President, 2001, and Senior Vice President, 1991 to 2001,
ADC Telecommunications, Inc.; Director, Automated Quality
Technologies, Inc. (mfr. of non-contact measurement equipment);
Director, Infrared Solutions (mfr. of specialty camera equipment).
Eric S. Rangen(1) 46 2002 Vice President and Chief Financial Officer, 2001 to present, Alliant
Techsystems, Inc.; Partner, 1994 to 2000, Deloitte & Touche LLP.
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE
2005 ANNUAL MEETING, CLASS I
K. Bruce Lauritsen 61 1987 Chief Executive Officer and President, 1993 to present, Flexsteel
Industries, Inc.
Thomas E. Holloran(1)(2) 74 1971 Professor Emeritus, College of Business, Senior Distinguished
Fellow, School of Law, University of St. Thomas, St. Paul; former
Director, Medtronic, Inc. (1960 -- 2000).
L. Bruce Boylen(2) 71 1993 Retired Vice President, Fleetwood Enterprises, Inc. (mfr. of
recreational vehicles and manufactured homes).
---------------------
(1) Member of Audit and Ethics Committee
(2) Member of Compensation and Nominating Committee
(3) Member of Marketing and Planning Committee
3
CERTAIN INFORMATION CONCERNING BOARD
AND OUTSIDE DIRECTORS' COMPENSATION
During the fiscal year ended June 30, 2003, four meetings of the Board of
Directors were held. No Director attended less than 75% of the Board and
Committee meetings.
Each Director who is not an employee of the Company is paid a retainer at
the rate of $10,600 per year. In addition, each is paid a fee of $2,650 for each
Board meeting each attends. The Chairman of the Board is paid a retainer of
$18,600 per year and a fee of $4,650 for each Board meeting attended. For
attending a committee meeting each is paid a fee of $1,100. The Chairman of each
Committee is paid $1,200 for each meeting attended. The Company pays no
additional remuneration to employees of the Company who are Directors.
Each Director who is not an employee of the Company receives on the first
business day after each annual meeting a non-discretionary, non-qualified stock
option grant for 2,500 shares valued at fair market value on date of grant,
exercisable for 10 years. Each person who becomes for the first time a
non-employee member of the Board, including by reason of election, appointment
or lapse of three (3) years since employment by the Company, will receive an
immediate one-time option grant for 2,500 shares.
The Company has a long standing agreement with Thomas E. Holloran pursuant
to which the Company will pay to him, or his beneficiaries, $20,000 after he
ceases to be a Director as additional compensation in recognition of Director
services rendered.
4
COMMITTEES OF THE BOARD
The Board of Directors has established three standing committees; the names
of the committees and the principal duties are as follows:
AUDIT AND ETHICS COMMITTEE:
Confers with the independent auditors on various matters, including the
scope and results of the audit; authorizes special reviews or audits; reviews
internal auditing procedures and the adequacy of internal controls; and reviews
policies and practices respecting compliance with laws, conflicts of interest
and ethical standards of the Company. The Committee held three meetings during
the fiscal year ended June 30, 2003. The Committee members are Thomas E.
Holloran, Lynn J. Davis, Eric S. Rangen and Robert E. Deignan. The Board of
Directors has adopted a written charter for the Audit and Ethics Committee. The
Board of Directors believes all Audit and Ethics Committee members are
independent as defined in Rule 4200 of NASD listing standards.
COMPENSATION AND NOMINATING COMMITTEE:
Makes recommendations regarding Board compensation, reviews performance and
compensation of all executive officers, determines stock option grants, and
advises regarding employee benefit plans. Makes recommendations regarding Board
of Director nominees and reviews timely proposed nominees received from any
source including nominees by stockholders. Nominations by stockholders must be
received by the Secretary at least 18 days before the annual meeting and set
forth nominee information as required by the Restated Articles which are
available upon request to the Secretary of the Company. The Committee held two
meetings during the fiscal year ended June 30, 2003. The Committee members are
L. Bruce Boylen, Thomas E. Holloran and Marvin M. Stern.
MARKETING AND PLANNING COMMITTEE:
Reviews marketing plans with respect to the Company's position in the
various market places. Makes recommendations regarding marketing direction to
enhance revenues and profit margins. The Committee held one meeting during the
fiscal year ended June 30, 2003. The Committee members are Marvin M. Stern,
Patrick M. Crahan, Jeffrey T. Bertsch, Lynn J. Davis, Edward J. Monaghan and
James R. Richardson.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITS NOMINEES. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES.
5
OWNERSHIP OF STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the shares of Flexsteel's common stock
beneficially owned by the Directors, the Chief Executive Officer, the other four
most highly compensated executive officers and by all directors and executive
officers as a group as of August 19, 2003. Unless otherwise indicated, to the
best knowledge of the Company all persons named in the table have sole voting
and investment power with respect to the shares shown.
PERCENT
SHARES BENEFICIALLY SHARES
NAME TITLE OWNED(1)(2)(6) OUTSTANDING
----------------- ------------------------------------------------- --------------------- ------------
J.T. Bertsch Vice President Corporate Services, Director 429,732(3)(4) 6.8%
L.B. Boylen Chairman of the Board of Director 13,500 0.2%
P.M. Crahan Vice President Dubuque Upholstering 130,379(4) 2.1%
Division, Director
L.J. Davis Director 7,500 0.1%
R.E. Deignan Director 5,500 0.1%
T.E. Holloran Director 19,180 0.3%
K.B. Lauritsen President, Chief Executive Officer, Director 157,591(4) 2.5%
E.J. Monaghan Executive Vice President, Chief Operating 135,156(4) 2.1%
Officer, Director
J.R. Richardson Senior Vice President Marketing, Director 463,981(4)(5) 7.3%
E.S. Rangen Director 5,000 0.1%
M.M. Stern Director 8,500 0.1%
T.D. Burkart Senior Vice President Vehicle Seating 96,017(4) 1.5%
R.J. Klosterman Vice President Finance, Chief Financial Officer 96,205(4) 1.5%
and Secretary
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (13) 1,568,241(4) 24.8%
---------------------
(1) Includes the following number of shares which may be acquired by exercise of
stock options: J.T. Bertsch -- 68,500; L.B. Boylen -- 13,500; P.M. Crahan --
12,500; L.J. Davis -- 7,500; R.E. Deignan -- 3,000; T.E. Holloran -- 11,500;
K.B. Lauritsen -- 63,875; E.J. Monaghan -- 19,750; J.R. Richardson --
40,500; E.S. Rangen -- 4,500; M.M. Stern -- 8,500; T.D. Burkart -- 48,000;
R.J. Klosterman -- 47,700.
(2) Includes shares, if any, owned beneficially by their respective spouses.
(3) Does not include 179,238 shares held in irrevocable trusts for which trusts
American Trust & Savings Bank serves as sole trustee. Under the Terms of
Trust, J. T. Bertsch has a possible contingent interest. J. T. Bertsch
disclaims beneficial ownership in the shares held by each such trust.
(4) Includes shares awarded pursuant to the Company's Long-Term Incentive Plan
over which shares the Grantee has voting rights. Investment rights are
restricted subject to continued service with the Company.
(5) Includes 235,920 shares held in the Irrevocable Arthur D. Richardson Trust
for which J.R. Richardson serves as co-trustee and over which shares J.R.
Richardson has the rights of voting and disposition.
(6) Includes the following number of shares deferred pursuant to election to
participate in the Company's Voluntary Deferred Compensation Plan: J.T.
Bertsch -- 5,711; P.M. Crahan -- 7,230; K.B. Lauritsen -- 15,306; E.J.
Monaghan -- 10,253; J.R. Richardson -- 9,135.
6
OWNERSHIP OF STOCK BY
CERTAIN BENEFICIAL OWNERS
AS OF AUGUST 19, 2003
To the best knowledge of the Company, no person owns beneficially 5% or
more of the outstanding common stock of the Company except as is set forth
below.
AMOUNT PERCENT
TITLE OF BENEFICIALLY OF
CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS
---------- ----------------------------------------------------- ---------------- --------
Common J.T. Bertsch, P.O. Box 877, Dubuque, IA 52004 429,732 6.8%
Common J.R. Richardson, P.O. Box 877, Dubuque, IA 52004 463,981(2) 7.3%
Common Dimensional Fund Advisors, Inc., 1299 Ocean Avenue,
Santa Monica, CA 90401 394,900 6.2%
Common Royce & Associates, 1414 Avenue of the Americas, New
York, NY 10019 731,900 11.6%
---------------------
(1) To the best knowledge of the Company, no beneficial owner named above has
the right to acquire beneficial ownership in additional shares.
(2) Includes 235,920 shares held in the Irrevocable Arthur D. Richardson Trust
for which J.R. Richardson serves as co-trustee and over which shares J.R.
Richardson has the rights of voting and disposition.
7
The following table discloses compensation received by the Company's Chief
Executive Officer and the other four most highly compensated executive officers
for the three (3) fiscal years ending June 30, 2003.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------------------------- -------------------------- -------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
SALARY BONUS COMP AWARDS OPTIONS PAYOUTS COMP
NAME & PRINCIPAL POSITION YEAR $ $ $ $ # $ $(1)
---------------------------- ------ --------- --------- -------- ------------ ------------ --------- --------
K. Bruce Lauritsen 2003 363,600 133,662 15,000 37,528 125,540
President & Chief 2002 327,750 104,524 15,000 54,322 107,868
Executive Officer 2001 323,589 0 14,000 63,307 136,287
Edward J. Monaghan 2003 273,100 86,227 10,750 24,390 136,870
Executive Vice President 2002 246,615 77,446 10,750 36,726 115,576
& Chief Operating Officer 2001 243,945 0 10,000 42,747 130,421
James R. Richardson 2003 238,920 83,070 10,750 21,857 60,526
Senior Vice President of 2002 215,700 76,551 10,750 33,128 49,397
Marketing 2001 213,699 0 10,000 37,449 68,753
Ronald J. Klosterman 2003 209,000 81,293 10,750 19,708 37,643
Vice President of 2002 188,085 53,656 10,750 27,386 32,913
Finance & Secretary 2001 185,319 0 10,000 32,472 57,183
Thomas D. Burkart 2003 211,860 90,040 10,750 20,486 47,730
Senior Vice President 2002 191,160 46,965 10,750 26,989 42,948
Vehicle Seating 2001 188,535 0 10,000 33,036 67,402
---------------------
(1) All Other Compensation -- Includes for the fiscal years and the named
executive officers indicated below: (i) retirement plan contributions, (ii)
Company matching contributions to the Section 401k plan, (iii) accruals made
in accordance with the Company's Senior Officer Deferred Compensation Plans
and (iv) gross-up amounts to cover income taxes payable on common stock
awards taxable in 2001.
8
RETIREMENT DEFERRED
NAME YEAR PLAN 401K COMP TAXES
-------------------------------- ------ ----------- ------- ---------- ---------
K. Bruce Lauritsen 2003 10,302 2,000 113,238 0
2002 8,592 1,700 97,576 0
2001 8,676 1,700 82,911 43,000
Edward J. Monaghan 2003 10,302 2,386 124,182 0
2002 8,592 1,700 105,284 0
2001 8,676 1,700 91,045 29,000
James R. Richardson 2003 9,838 2,213 48,475 0
2002 8,592 1,700 39,105 0
2001 8,676 1,700 32,977 25,400
Ronald J. Klosterman 2003 8,937 2,063 26,643 0
2002 8,592 1,700 22,621 0
2001 8,676 1,700 18,307 28,500
Thomas D. Burkart 2003 9,019 2,076 36,635 0
2002 8,592 1,700 32,656 0
2001 8,676 1,700 27,126 29,900
STOCK OPTIONS/SAR*
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION FOR
OPTION TERM(1)
---------------------------------------------
EXERCISE
NAME SHARES PRICE ($/SH) EXPIRE DATE 5% 10%
---------------------- --------- -------------- ------------- -------------------- ---------------------
K. Bruce Lauritsen 15,000 15.925 12/9/2012 150,227 380,705
Edward J. Monaghan 10,750 15.925 12/9/2012 107,663 272,839
James R. Richardson 10,750 15.925 12/9/2012 107,663 272,839
Ronald J. Klosterman 10,750 15.925 12/9/2012 107,663 272,839
Thomas D. Burkart 10,750 15.925 12/9/2012 107,663 272,839
---------------------
* The Company does not have a stock appreciation rights plan (SAR).
(1) The amounts set forth in these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercise are dependent on the future
performance of the Company's common stock.
9
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
# FY-END 2003 AT FY-END 2003(1)
OF SHARES $ ------------------------ ---------------------
ACQUIRED ON VALUE # $
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
------------------------ ------------- ---------- ------------------------ ---------------------
K. Bruce Lauritsen 63,875 250,979
Edward J. Monaghan 32,700 172,689 19,750 39,359
James R. Richardson 16,100 80,298 40,500 159,176
Ronald J. Klosterman 47,700 195,554
Thomas D. Burkart 48,000 204,101
---------------------
(1) Based on the closing price as published in The Wall Street Journal for the
last business day of the fiscal year ($16.49). All options are exercisable
at time of grant.
10
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
OTHER PERIOD ESTIMATED FUTURE
NUMBER OF UNTIL PAYOUTS UNDER
SHARES, UNITS MATURATION OR NON-STOCK PRICE BASED
NAME OR OTHER RIGHTS PAYOUT(1) PLANS(2)
----------------------------- ----------------- --------------- ----------------------
K. Bruce Lauritsen 3,422
Edward J. Monaghan 2,224
James R. Richardson 1,993
Ronald J. Klosterman 1,797
Thomas D. Burkart 1,868
---------------------
Shares of the Company's common stock are available for award annually to key
employees based on the average of the returns on beginning equity for the last
three fiscal years.
(1) Shares awarded are subject to restriction, with 33.3% of the stock received
by the employee on the award date and 33.3% each year for the next two
years. Restricted Stock Awards -- The aggregate stock holdings (number of
shares and value) as of July 1, 2003 are as follows: K. Bruce Lauritsen --
2,281 shares, $37,528; Edward J. Monaghan -- 1,482 shares, $24,390; James R.
Richardson -- 1,328 shares, $21,857; Ronald J. Klosterman -- 1,198 shares,
$19,708; Thomas D. Burkart -- 1,245 shares, $20,486. Dividends are paid to
the employee on restricted shares.
(2) Not applicable to Plan.
NOMINATING AND COMPENSATION COMMITTEE REPORT CONCERNING
FLEXSTEEL'S EXECUTIVE COMPENSATION POLICY
The Nominating and Compensation Committee of the Board of Directors is
responsible for the establishing of the Company's policy for compensating
executive officers. The Committee is comprised of independent directors.
COMPENSATION PHILOSOPHY -- The fundamental objective of Flexsteel's
executive compensation program is to support the achievement of the Company's
business objectives and, thereby, the creation of stockholder value. As such,
the Company's philosophy is that executive compensation policy and practice
should be designed to achieve the following objectives:
o Align the interests of executives with those of the Company and its
stockholders by providing a significant portion of compensation in Company
stock.
o Provide an incentive to executives by tying a meaningful portion of
compensation to the achievement of Company financial objectives.
o Enable the Company to attract and retain key executives whose skills and
capabilities are needed for the continued growth and success of Flexsteel
by offering competitive total compensation opportunities and providing
attractive career opportunities.
11
In compensating executive officers for their performance, total
compensation is influenced by return on equity and stock price. At the executive
level, overall Company performance is emphasized in an effort to encourage
teamwork and cooperation.
While a significant portion of compensation fluctuates with annual results,
the total program is structured to emphasize longer-term performance and
sustained growth in stockholder value.
COMPETITIVE POSITIONING -- The Committee regularly reviews executive
compensation levels to ensure that the Company will be able to attract and
retain the caliber of executives needed to run the Company and that pay for
executives is reasonable and appropriate relative to market practice. In making
these evaluations, the Committee annually reviews the result of surveys of
executive salary and annual bonus levels among durable goods manufacturers of
comparable size. The Committee periodically completes an in-depth analysis of
salary, annual bonus, and long-term incentive opportunities among specific
competitors assisted by an independent compensation consulting firm. The
surveyed companies are included in the Household Furniture Index used as the
peer group for purposes of the performance graph. While the pay of an individual
executive may vary, the Company's Policy is to target aggregate compensation for
executive officers at average competitive levels, provided commensurate
performance.
COMPONENTS OF EXECUTIVE COMPENSATION -- The principal components of
Flexsteel's executive compensation program include base salaries, annual cash
bonuses, and longer-term incentives using Company stock.
BASE SALARY -- An individual executive's base salary is based upon the
executive's level of responsibility and performance within the Company, as well
as competitive rates of pay. The Committee reviews each executive officer's
salary annually and makes adjustments, as appropriate, in light of any change in
the executive's responsibility, changes in competitive salary levels, and the
Company's performance.
ANNUAL INCENTIVE -- The purpose of the Company's annual incentive program
is to provide a direct monetary incentive to executives in the form of annual
cash bonus tied to the achievement of performance objectives. For executive
officers, the Committee annually sets a targeted return on equity for the coming
year, from which minimum and maximum levels are determined. Corresponding
incentive award levels, expressed as a percentage of salary, also are set based
primarily on an individual's responsibility level. If minimum performance levels
are not met, no bonus award is made. After the completion of the year, the
Committee ratifies cash bonuses as awarded based principally on the extent to
which targeted return on equity has been achieved.
12
LONG-TERM INCENTIVES -- Longer-term incentive compensation involves the use
of stock under two types of awards: Long-term incentive awards and stock
options. Both types of awards are intended to focus executives' attention on the
achievement of the Company's longer term performance objectives, to align the
executive officers' interests with those of stockholders and to facilitate
executives' accumulations of sustained holding of Company stock. The level of
award opportunities, as combined under both plans, are intended to be consistent
with typical levels of comparable companies and reflect an individual's level of
responsibility and performance.
Long-term incentive awards are paid under the stockholder approved
Management Incentive Plan. Awards give executives the opportunity to earn shares
of Company stock to the extent that the three-year average return on equity
objectives are achieved. As with annual incentives, various levels of
performance goals and corresponding compensation amounts are established, with
no awards earned if a minimum level is not achieved. Two-thirds of any earned
shares are subject to forfeiture provisions tied to the executive's continued
service with the Company. This provision is intended to enhance the Company's
ability to retain key executives and provide a longer-term performance focus.
Stock options, as awarded under stockholder approved plans, give executives
the opportunity to purchase Flexsteel common stock for a term not to exceed ten
years and at a price of no less than the fair market value of Company stock on
the date of grant. Executives benefit from stock options only to the extent
stock price appreciates after the grant of the option.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER -- The total compensation for
Flexsteel's CEO in fiscal year 2003 was established in accordance with the
policies discussed above. Mr. Lauritsen's base salary increase reflects market
movements in executive salaries. His annual cash incentive award and his
long-term incentive award were based on the Company's achievement of minimum
established target levels for return on equity. Mr. Lauritsen's stock option
award was consistent with prior awards and those to other senior executives.
The Company's current levels of compensation are less than the $l,000,000
level of non-deductibility with respect to Section 162(m) of the Internal
Revenue Code.
This report has been prepared by members of the Compensation and Nominating
Committee of the Board of Directors. Members of this Committee are:
L. Bruce Boylen Thomas E. Holloran Marvin M. Stern
Chair
13
AUDIT AND ETHICS COMMITTEE REPORT
The Audit and Ethics Committee has reviewed and discussed the audited
financial statements with management. The Audit and Ethics Committee has
discussed with the independent auditors the matters required to be discussed by
Statements on Auditing Standards (SAS) No. 61 and 90 "Communication with Audit
Committees", as may be modified or supplemented. The Audit and Ethics Committee
has received the written disclosures and the letter from the independent auditor
required by Independence Standards Board Standard No. 1, as may be modified or
supplemented, and has discussed with the independent auditor, the independent
auditor's independence. Based on the review and discussions referred to above in
this report, the Audit and Ethics Committee recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the last fiscal year for filing with the
Commission.
This report has been prepared by members of the Audit and Ethics Committee.
Members of this Committee are:
Thomas E. Holloran Robert E. Deignan Lynn J. Davis Eric S. Rangen
Chair
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The current members of Flexsteel's Compensation and Nominating Committee
are L. Bruce Boylen, Chairman, Thomas E. Holloran and Marvin M. Stern. No
executive officer of Flexsteel served as a director of another entity that had
an executive officer serving on Flexsteel's compensation committee. No executive
officer of Flexsteel served as a member of the compensation committee of another
entity which had an executive officer who served as a director of Flexsteel.
CODE OF ETHICS
The Board of Directors has adopted "Guidelines for Business Conduct" which,
among other matters, applies a code of ethics to the Company's principal
executive officer, principal financial officer and treasurer.
SHARE INVESTMENT PERFORMANCE
The following graph is based upon the SIC Code #251 Household Furniture
Index as a peer group. It shows changes over the past five-year period in the
value of $100 invested in: (1) Flexsteel's Common Stock; (2) the NASDAQ Market
Index; and (3) an industry group
14
of the following: Bassett Furniture Ind., Bush Industries Inc. CL A, Chromcraft
Revington Inc., DMI Furniture, Inc., Ethan Allen Interiors, Furniture Brands
Intl., Industrie Natuzzi S.P.A., Keller Manufacturing, La-Z-Boy Inc., Leggett &
Platt Inc., The Rowe Companies and Stanley Furniture Inc. This data was
furnished by Zacks Investment Research. The graph assumes reinvestment of
dividends.
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON JUNE 30, 1998
[GRAPH]
1998 1999 2000 2001 2002 2003
----------- ---------- ---------- ---------- ----------- -----------
Flexsteel 100.00 98.80 94.66 96.75 126.09 143.61
NASDAQ 100.00 143.83 212.68 115.30 78.11 80.45
Furniture Household 100.00 104.85 65.08 88.47 99.57 86.52
15
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes share information about the Company's equity
compensation plans, including the 1989, 1995, 1999 and 2002 Stock Option Plan,
and the 1981 Management Incentive Plan. All of these plans have been approved by
our shareholders.
(c)
NUMBER OF SECURITIES
(a) REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO (b) FUTURE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
OF OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (a))
----------------------- ------------------------- ------------------------------- ------------------------------
Equity compensation
plans approved by
security holders 557,845 $ 12.70 715,450
Equity compensation
plans not approved by
security holders 0 0
------- -------
Total 557,845 $ 12.70 715,450
======= ======= =======
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Information with respect to directorships held by certain directors of the
Company in local financial institutions is set forth in the table under
"Proposal I -- Election of Directors," in the column captioned "Principal
Occupation and Other Directorships or Employment during the Last Five Years."
The Company maintains normal banking relations with the bank named in the table.
It is expected that the Company's relationship with the bank will continue in
the future.
16
PROPOSAL II
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit and Ethics Committee has appointed Deloitte & Touche LLP as
independent auditor to examine the financial statements of the Company for the
fiscal year ending June 30, 2004. The Board has endorsed this appointment.
Deloitte & Touche LLP previously audited the financial statements of the Company
and during the two years ended June 30, 2003 provided both audit and non-audit
services.
Representatives of Deloitte & Touche LLP are expected to be present during
the annual meeting. They are expected to be available to respond to appropriate
questions and will have the opportunity to make a statement if they wish.
The Audit and Ethics Committee preapproves both the type of services to be
provided by Deloitte & Touche LLP and the estimated fees related to these
services. Professional services were reviewed by the Audit and Ethics Committee
and the possible effect on the auditor's independence was considered. The Audit
and Ethics Committee has considered and found the provision of services for
non-audit services compatible with maintaining Deloitte & Touche LLP's
independence.
2003 2002
-------- --------
Audit Fees -- Professional fees and expenses for the audit $146,800 $136,800
of the annual financial statements, review of financial
statements included in Form 10-Q and services provided in
connection with statutory and regulatory filings.
Audit Related Fees -- Professional fees and expenses for $ 53,000 $ 21,900
employee benefit plan audits and reviews and related
matters.
Tax Fees -- Professional fees and expenses for tax compliance, $ 53,000 $ 37,300
including the preparation of tax returns, tax advice and tax
planning.
All Other Fees -- No other professional services were
provided during the fiscal years ended June 30, 2003 and
2002.
Appointment of the Company's independent auditors is not required to be
submitted to a vote of the stockholders of the Company for ratification.
However, the Audit and Ethics Committee has recommended that the board of
directors submit this matter to the stockholders
17
as a matter of good corporate practice, which the board of directors is doing.
If the stockholders fail to ratify the appointment, the Audit and Ethics
Committee will reconsider whether to retain Deloitte & Touche LLP, and may
retain that firm or another without resubmitting the matter to the Company's
stockholders. Even if the appointment is ratified, the Audit and Ethics
Committee may, in its discretion, direct the appointment of different
independent auditors at any time during the year if it determines that such a
change would be in the best interests of the Company and the stockholders.
THE AUDIT AND ETHICS COMMITTEE RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY
THE APPOINTMENT OF DELOITTE & TOUCHE LLP. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR
PROXIES.
PROPOSALS BY STOCKHOLDERS
Stockholders wishing to have a proposal considered for inclusion in the
Company's proxy statement for the 2004 annual meeting must submit the proposal
in writing and direct it to the Secretary of the Company at the address shown
herein. It must be received by the Company no later than June 30, 2004.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) requires the Company's directors and executive officers to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership of the Company's Common Stock, and the Company is required
to identify any of those persons who fail to file such reports on a timely
basis. To the best of the Company's knowledge, there were no late filings by
directors and executive officers during fiscal year 2003.
OTHER MATTERS
The percentage total number of the outstanding shares represented at each
of the last three years stockholders' meetings was as follows: 2000 -- 89.5%;
2001 -- 94.0%; 2002 -- 95.0%.
UPON WRITTEN REQUEST THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2003. REQUESTS SHOULD
BE DIRECTED TO THE SECRETARY OF THE COMPANY AT P.O. BOX 877, DUBUQUE, IA
52004-0877.
The Board of Directors does not know of any other matter which may come
before the meeting. However, should any other matter properly come before the
meeting, the persons named in the Proxy will vote in accordance with their
judgment upon such matters unless a contrary direction is indicated by the
Stockholder by his lining or crossing out the authority on the Proxy.
18
Stockholders are urged to vote, date, sign and return the Proxy form in the
enclosed envelope to which no postage need be affixed if mailed in the United
States. Prompt response is helpful and your cooperation will be appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. KLOSTERMAN
R.J. KLOSTERMAN
SECRETARY
Dated: October 24, 2003
Dubuque, Iowa
19
[LOGO]
FLEXSTEEL(R)
AMERICAN'S SEATING SPECIALIST
NOTICE OF 2003
ANNUAL MEETING
AND
PROXY STATEMENT
THE FLEXSTEEL INDUSTRIES, INC. THIS PROXY IS SOLICITED ON BEHALF OF
P.O. BOX 877 BOARD OF DIRECTORS FOR THE ANNUAL MEETING
DUBUQUE, IOWA 52004-0877 OF STOCKHOLDERS TO BE HELD DECEMBER 8, 2003
The undersigned, a stockholder of Flexsteel Industries, Inc., hereby
appoints K. Bruce Lauritsen and Ronald J. Klosterman and each of them, as
proxies, with full power of substitution, to vote on behalf of the undersigned
the same number of shares which the undersigned is then entitled to vote at the
Annual Meeting of the Stockholders of Flexsteel Industries, Inc., to be held on
Monday, December 8, 2003 at 2:00 P.M. at the Hilton Minneapolis, 1001 Marquette
Avenue, Minneapolis, Minnesota 55403, and at any adjournments thereof as
follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
----------------------------------------------------------------------------------------------------------------------------
Proposal No. 1 -- Election of three (3) Class II Directors (Term Expires at the 2006 Annual Meeting):
JAMES R. RICHARDSON PATRICK M. CRAHAN ROBERT E. DEIGNAN
(Class II) (Class II) (Class II)
[ ] FOR all Nominees [ ] WITHHELD from all [ ] WITHHELD from the following only: (Write name(s) below)
(Except as marked to Nominees ______________________________________________________
the contrary) ______________________________________________________
----------------------------------------------------------------------------------------------------------------------------
Proposal No. 2 -- Ratification of Appointment of Deloitte & Touche LLP as Independent Auditors for the ensuing fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
----------------------------------------------------------------------------------------------------------------------------
In their discretion to vote upon such other business as may properly come
before the meeting, or any adjournments thereof, UNLESS THE STOCKHOLDER LINES OR CROSSES OUT THIS AUTHORITY.
----------------------------------------------------------------------------------------------------------------------------
(IMPORTANT: continued, and to be signed and dated, on the reverse side)
(CONTINUED FROM OTHER SIDE)
The Undersigned hereby revokes any proxy or proxies to
vote such shares heretofore given.
PLEASE VOTE, DATE, SIGN, AND RETURN IN THE ENCLOSED ENVELOPE.
Dated ___________________________ , 2003.
_________________________________________
(Signature)
_________________________________________
Signature of stockholder shall correspond
exactly with the name appearing hereon.
If a joint account, each owner must sign.
When signing as attorney, executor, administrator,
trustee, guardian or corporate official, give
your full title as such.
This proxy when properly executed will be voted in the manner directed hereon by
the above signed stockholder. If no direction is given, this proxy will be voted
FOR Proposals 1 and 2, and the grant of authority to vote upon such other
business as may properly come before the meeting or any adjournments thereof
will not be crossed out.