UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
AMENDMENT NO. 2 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
----------
Date of Report (Date of earliest event reported) September 18, 2003
----------
FLEXSTEEL INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 0-5151 42-0442319
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
P. O. BOX 877, DUBUQUE, IA 52004-0877
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 563-556-7730
Not applicable.
--------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
--------------------------------------------------------------------------------
1
The registrant hereby amends its Current Report on Form 8-K filed with
Securities and Exchange Commission (the "Commission") on October 2, 2003, as
amended by Amendment No. 1 filed with the Commission on October 2, 2003, to
include the financial and other information set forth below:
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
The audited consolidated balance sheets of DMI Furniture, Inc.
as of August 30, 2003 and August 31, 2002, and the related
audited consolidated statements of operations, stockholders'
equity and cash flows for the years then ended, and the
related independent auditors' report are included on pages 4
through 21.
(b) Pro forma financial information.
The unaudited pro forma combined condensed consolidated
balance sheet of Flexsteel Industries, Inc. as of June 30,
2003 and the unaudited pro forma combined condensed
consolidated statement of operations for the year ended June
30, 2003 are included on pages 22 through 26.
(c) Exhibits
Exhibit Description of Document
------- -----------------------
23 Consent of Deloitte & Touche LLP
2
INDEX TO FINANCIAL STATEMENTS
Consolidated balance sheets of DMI Furniture, Inc. as of August 30, 2003 and
August 31, 2002 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended.
Independent auditors' report 4
Consolidated balance sheets 5
Consolidated statements of operations 6
Consolidated statements of stockholders' equity 7
Consolidated statements of cash flows 8
Notes to consolidated financial statements 9
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Pro forma Combined Condensed Consolidated Financial Statements of Flexsteel
Industries, Inc. (unaudited).
Pro forma combined condensed consolidated balance sheet
as of June 30, 2003 23
Pro forma combined condensed consolidated statement
of operations for the year ended June 30, 2003 24
Notes to pro forma combined condensed consolidated
financial information 25
3
INDEPENDENT AUDITORS' REPORT
To the Shareholders of DMI Furniture, Inc.
Louisville, Kentucky
We have audited the accompanying consolidated balance sheets of DMI Furniture,
Inc. and subsidiary (the Company) as of August 30, 2003 and August 31, 2002, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended August 30, 2003.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements present fairly, in all
material respects, the financial position of DMI Furniture, Inc. and subsidiary
as of August 30, 2003 and August 31, 2002, and the results of their operations
and their cash flows for each of the three years in the period ended August 30,
2003, in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 2, effective September 18, 2003, the Company was sold
pursuant to a purchase agreement dated August 12, 2003.
DELOITTE & TOUCHE LLP
Louisville, Kentucky
October 28, 2003
4
DMI FURNITURE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
August 30, August 31,
2003 2002
---------- ----------
ASSETS
CURRENT ASSETS:
Cash ................................................................. $ 219 $ 169
Accounts receivable (net of allowances):
August 30, 2003, $202;
August 31, 2002, $200 ............................................ 14,768 17,530
Inventories .......................................................... 27,446 17,477
Other current assets ................................................. 615 447
Deferred income taxes ................................................ 1,575 1,058
-------- --------
Total current assets ............................................. 44,623 36,681
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land ................................................................. 655 655
Buildings and improvements ........................................... 8,821 8,815
Machinery and equipment .............................................. 7,563 7,404
Leasehold improvements ............................................... 1,365 513
Assets held for disposition .......................................... 63 377
Construction in progress ............................................. 5 45
-------- --------
18,472 17,809
Less accumulated depreciation ........................................ 9,532 8,920
-------- --------
Net property, plant and equipment ................................ 8,940 8,889
OTHER ASSETS ............................................................. 296 797
-------- --------
TOTAL ASSETS ............................................................. $ 53,859 $ 46,367
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable ................................................ $ 3,223 $ 4,813
Accrued liabilities ................................................... 5,619 3,007
Long-term debt due within one year .................................... 1,025 930
-------- --------
Total current liabilities ......................................... 9,867 8,750
LONG-TERM LIABILITIES:
Long-term debt ........................................................ 24,758 19,391
Accrued pension costs ................................................. 855 963
Deferred compensation ................................................. 29 70
Deferred income taxes ................................................. 93 20
Other long-term liabilities ........................................... 374 584
-------- --------
Total long-term liabilities ....................................... 26,109 21,028
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock - $0.10 par value; authorized 9,600,000 shares;
outstanding August 30, 2003, 4,307,786 shares;
outstanding August 31, 2002, 4,280,378 shares ...................... 431 428
Additional paid-in capital ............................................. 17,148 17,090
Retained earnings (deficit) ............................................ 1,583 (170)
Accumulated other comprehensive loss ................................... (1,279) (759)
-------- --------
Total stockholders' equity ....................................... 17,883 16,589
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $ 53,859 $ 46,367
======== ========
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
5
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except amounts per share)
YEARS ENDED
---------------------------------------
August 30, August 31, September 1,
2003 2002 2001
---------- ---------- ------------
NET SALES .......................... $ 102,731 $ 100,856 $ 106,328
COST OF SALES ...................... 82,984 83,762 87,881
COST OF SALES - RESTRUCTURING ...... 575
--------- --------- ---------
GROSS PROFIT ....................... 19,747 17,094 17,872
SELLING, GENERAL AND ADMINISTRATIVE 15,136 13,661 14,173
RESTRUCTURING CHARGES .............. 120
--------- --------- ---------
OPERATING INCOME ................... 4,611 3,433 3,579
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense ................. (1,841) (1,583) (2,073)
Other income (expense) ........... (27) (16) 43
--------- --------- ---------
Total ................... (1,868) (1,599) (2,030)
--------- --------- ---------
INCOME BEFORE INCOME TAXES ......... 2,743 1,834 1,549
PROVISION FOR INCOME TAXES ......... (990) (479) (674)
--------- --------- ---------
NET INCOME ......................... $ 1,753 $ 1,355 $ 875
========= ========= =========
AVERAGE COMMON AND EQUIVALENT SHARES
OUTSTANDING:
BASIC ......................... 4,293 4,279 4,221
========= ========= =========
DILUTED ....................... 4,398 4,337 4,365
========= ========= =========
EARNINGS PER COMMON SHARE:
BASIC ......................... $ 0.41 $ 0.32 $ 0.21
========= ========= =========
DILUTED ....................... $ 0.40 $ 0.31 $ 0.20
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
6
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (2)
(In thousands)
Number of Accumulated
Common Additional Retained Other
Common Shares Paid-In Earnings Comprehensive
Stock Outstanding Capital (Deficit) Income (Loss)(3) Total
------ ----------- ---------- --------- ---------------- -------
Balances at September 2, 2000................... $413 4,132 $16,753 $(2,400) $ $14,766
Net income.................................... 875 875
Cumulative effect of change in
accounting principle (1)...................... 194 194
Other comprehensive income:
Change in interest rate derivative,
net of tax................................. (306) (306)
Adjust minimum pension liability,
net of tax................................. (303) (303)
Issuance of common stock...................... 13 131 313 326
---- ----- ------- ------- -------- -------
Balances at September 1, 2001................... 426 4,263 17,066 (1,525) (415) 15,552
Net income.................................... 1,355 1,355
Other comprehensive income:
Change in interest rate derivative,
net of tax................................. (238) (238)
Adjust minimum pension liability,
net of tax................................. (106) (106)
Issuance of common stock...................... 2 17 24 26
---- ----- ------- ------- -------- -------
Balances at August 31, 2002..................... 428 4,280 17,090 (170) (759) 16,589
Net income.................................... 1,753 1,753
Other comprehensive income:
Change in interest rate derivative,
net of tax................................. 118 118
Adjust minimum pension liability,
net of tax................................. (638) (638)
Issuance of common stock...................... 3 28 58 61
---- ----- ------- ------- -------- -------
Balances at August 30, 2003..................... $431 4,308 $17,148 $ 1,583 $ (1,279) $17,883
==== ===== ======= ======= ======== =======
(1) Adoption of SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities"
(2) Total comprehensive income was $1,233, $1,011 and $460 for fiscal 2003,
2002 and 2001, respectively.
(3) The components of accumulated other comprehensive income (loss), net of
tax, were as follows:
o August 30, 2003 - Interest rate derivative ($232) and minimum
pension liability ($1,047)
o August 31, 2002 - Interest rate derivative ($350) and minimum
pension liability ($409)
o September 1, 2001 - Interest rate derivative ($112) and
minimum pension liability ($303)
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
7
DMI FURNITURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEARS ENDED
-------------------------------------
August 30, August 31, September 1,
2003 2002 2001
---------- ---------- ------------
Cash flows provided (used) by operating activities:
Net income ................................................ $ 1,753 $ 1,355 $ 875
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ........................... 1,022 875 986
Loss (gain) on disposal of property, plant and equipment 14 (14)
Deferred income taxes ................................... (583) 209 (174)
Changes in operating assets and liabilities:
Accounts receivable ................................... 2,762 (666) 1,027
Inventories ........................................... (9,969) 168 3,166
Other assets .......................................... 333 (217) (474)
Trade accounts payable ................................ (1,590) 2,025 (789)
Accrued liabilities ................................... 2,045 (164) (915)
Accrued pension costs ................................. (108) 220 743
Deferred compensation ................................. (41) (47) (59)
-------- -------- --------
Net cash (used) provided by operating activities ............ (4,362) 3,758 4,372
-------- -------- --------
Cash flows provided (used) by investing activities:
Capital expenditures ...................................... (1,014) (406) (566)
Proceeds from the disposal of property, plant and equipment 107 14
-------- -------- --------
Net cash used by investing activities ....................... (907) (406) (552)
-------- -------- --------
Cash flows provided (used) by investing activities:
Borrowings from line-of-credit ............................ 18,308 30,100 25,800
Payments on line-of-credit ................................ (14,008) (32,900) (28,350)
Borrowings on long-term debt .............................. 2,067
Payments on long-term debt ................................ (1,085) (900) (1,430)
Proceeds from stock options exercised ..................... 37
-------- -------- --------
Net cash provided (used) in financing activities ............ 5,319 (3,700) (3,980)
-------- -------- --------
Increase (decrease) in cash ................................. 50 (348) (160)
Cash - beginning of period .................................. 169 517 677
-------- -------- --------
Cash - end of period ........................................ $ 219 $ 169 $ 517
======== ======== ========
Cash paid for:
Interest .................................................. $ 1,674 $ 1,609 $ 2,118
======== ======== ========
Income taxes .............................................. $ 635 $ 126 $ 1,243
======== ======== ========
Non-cash items:
Minimum pension liability (net of tax) .................... $ 638 $ 64 $ 200
======== ======== ========
Interest rate derivatives (net of tax) .................... $ (118) $ 283 $ 75
======== ======== ========
Stock grants, previously expensed ......................... $ 24 $ 26 $ 326
======== ======== ========
Assets acquired under capital lease ....................... $ 180
========
See accompanying Notes to Consolidated Financial Statements.
--------------------------------------------------------------------------------
8
DMI FURNITURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED August 30, 2003, August 31, 2002 and September 1, 2001
1. Summary of Significant Accounting Policies
The Company - The consolidated financial statements include DMI Furniture, Inc.
and its wholly owned subsidiary, DMI Management, Inc. (DMI or Company). All
significant inter-company accounts and transactions have been eliminated. DMI
Furniture, Inc. operates in one industry - the Company manufactures, imports,
and sells residential, home office, and commercial office furniture. The Company
has more than one operating segment which are aggregated into one reportable
segment, in accordance with Financial Accounting Standards Board (FASB)
Statement No. 131, "Disclosures About Segments of an Enterprise and Related
Information." Its principal distribution channels are multi-market furniture
retailers, distributors, independent retailers, catalogers, and warehouse clubs
located primarily throughout the United States.
Accounting Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Inventories - Inventories are valued at the lower of cost (first-in, first-out
method) or market.
Depreciation - Depreciation is provided on the basis of estimated useful lives
of the property, plant and equipment, using the straight-line method. The useful
lives of property, plant and equipment are as follows: Building and leasehold
improvements, 8-35 years; and machinery and equipment, 3-15 years.
Income Taxes - The Company recognizes deferred tax assets and liabilities based
upon the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
(See Note 8 for additional information.)
Consolidated Statements of Cash Flows - For purposes of the Consolidated
Statements of Cash Flows, the Company considers all highly liquid debt
instruments with an initial maturity of three months or less at the date of
purchase to be cash equivalents.
Advertising - The Company expenses advertising-type costs as incurred as a
component of selling, general and administrative expenses on the accompanying
statements of operations. Advertising expense was approximately $1,565,000,
$1,492,000 and $1,482,000 in fiscal 2003, 2002 and 2001, respectively.
9
Long-Lived Assets - Long-lived assets and intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of the
assets to the expected future net cash flows generated by the asset. If such
assets are considered to be impaired, the impairment is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the assets.
The Company has not recorded an impairment loss in the accompanying statements
of operations relating to long-lived assets or intangible assets under Statement
of Financial Accounting Standards Nos. 142, "Goodwill and Other Intangible
Assets," and 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets."
Revenue Recognition - The Company recognizes sales of its products when the
products are shipped to customers and title passes.
Shipping and Handling Costs - The Company reflects revenue received from
shipping and handling fees in net sales in accordance with Emerging Issues Task
Force (EITF) 00-10, "Accounting for Shipping and Handling Fees and Costs." The
Company records shipping and handling costs in cost of sales.
Stock-Based Compensation - The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued To Employees" (APB
25) in accounting for its employee stock options because the alternative fair
value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Had compensation cost for all option grants to employees and directors been
determined consistent with FASB Statement No. 123, the Company's net income and
earnings per share would have been affected as follows. Because the method of
accounting required by FASB No. 123 has not been applied to options granted
prior to January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
(In thousands, except per share amounts)
2003 2002 2001
------ ------ -----
NET INCOME:
As reported............................. $1,753 $1,355 $ 875
Compensation expense related to
stock option plans determined using
fair value method.................... 43 50 145
------ ------ -----
Pro forma............................... 1,710 1,305 730
====== ====== =====
DILUTED EARNINGS PER COMMON SHARE:
As reported............................. 0.40 0.31 0.20
Compensation expense related to
stock option plans determined using
fair value method..................... 0.01 0.01 0.03
------ ------ -----
Pro forma............................... $ 0.39 $ 0.30 $0.17
====== ====== =====
10
Impact of Recently Issued Accounting Standards - In June 2001, the FASB issued
Statement No. 142 "Goodwill and Other Intangible Assets" and Statement No. 143,
"Accounting for Asset Retirement Obligations." In August 2001, the FASB issued
Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets." In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." In June 2002, the FASB issued Statement No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." The Company's adoption of
these statements on September 1, 2002 did not have an effect on its results of
operations or financial position of the Company.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation --Transition and Disclosure, an amendment of FASB Statement No.
123." In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." The Company's adoption of these
statements did not have a material effect on its results of operations or
financial position.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." In June 2003, the FASB issued Statement No. 149, "Amendments of
Statement 133 on Derivative Instruments and Hedging Activities." The statement
is effective for contracts entered into or modified after June 30, 2003. The
Company does not believe the adoption of these statements will have a material
effect on the results of operations or financial position of the Company.
In June 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after December 15, 2003. The Company does not believe the
adoption of this statement will have a material effect on the results of
operations or financial position of the Company.
Reclassifications - Certain reclassifications have been made to the August 31,
2002 and September 1, 2001 financial statements to conform to the August 30,
2003 classifications. These reclassifications had no effect on previously
reported operations.
2. Subsequent Events
On August 12, 2003, the Company and Churchill Acquisition Corporation
(Purchaser), a wholly owned subsidiary of Flexsteel Industries, Inc., entered
into an agreement for Purchaser to make a cash tender offer to acquire all
shares of the issued and outstanding shares, par value $0.10 per share, of the
Company for $3.30 per share, net to the seller in cash.
On August 20, 2003 the Purchaser filed the Tender Offer Statement with the
Securities and Exchange Commission, which expired on September 17, 2003 unless
otherwise extended. On September 17, 2003 the Purchaser had received
approximately 90% of the shares validly tendered and commenced a subsequent
offering period, until September 30, 2003 to allow option holders to exercise
and tender their options shares and allow any remaining stockholders additional
time to tender their shares.
11
Beginning September 18, 2003, the Company became a wholly owned subsidiary of
Flexsteel Industries Inc. and began reporting its results of operations as part
of Flexsteel Industries, Inc.
On October 1, 2003 the Company merged into Churchill Acquisition Corporation and
Churchill Acquisition Corporation changed its name to DMI Furniture, Inc.
3. Long-term Debt
Long-term debt consisted of the following (in thousands):
2003 2002
------- -------
Capital lease obligations due November 2003 $ 25
Economic development revenue bonds; payable
October 2003; weekly adjustable coupon rate;
1.1% at August 30, 2003 2,230 $ 2,230
Economic development revenue bonds; payable
May 2004; weekly adjustable coupon rate;
1.1% at August 30, 2003 2,020 2,020
Reducing revolving loan with monthly principal
installments of $83,334; through March 1,
2006; interest rate at prime +.5% or
LIBOR+3%; 4.1% at August 30, 2003 2,608 1,471
$28,000,000 Revolving Loan; expires March 1,
2006; interest rate at prime +.5% or
LIBOR+3%; 4.1% at August 30, 2003 18,900 14,600
------- -------
Total outstanding under credit facility 25,783 20,321
Less portion due within one-year 1,025 930
------- -------
Long-term debt $24,758 $19,391
======= =======
With respect to the reducing revolver loan and revolving loan above, the Company
has the option of borrowing based on prime rate + .5% or London Interbank
Offered Rate (LIBOR) + 3.0%. As of August 30, 2003, $18.9 million of the
revolving note and $2.6 million of the reducing revolver loan were LIBOR priced.
Substantially all assets are pledged to collateralize long-term debt. On August
30, 2003, the Company had $1.5 million available under the formula for
calculating its available borrowings.
With respect to the Economic Development Revenue Bonds (Bonds), the Company has
the option to establish the Bonds' interest rate form (variable or fixed
interest rate). When the Bonds are in the variable rate form, or at the end of a
fixed interest rate period, the Bondholders reserve the right to demand payment
on the Bonds. If any of the Bondholders exercise their rights, a remarketing
agent is responsible for remarketing the Bonds on a best efforts basis for not
less than the outstanding principal and accrued interest. If the Bonds cannot be
remarketed, the lender is committed to providing financing for up to 372 days.
As a result of these written commitments, the Bonds are classified as long-term
debt in the accompanying balance sheet.
12
The Company's bank financing agreement contains restrictive covenants that
require the Company, among other things, to maintain a fixed charge ratio,
tangible net worth, ratio of total funded debt to EBITDA and limitations on the
total capital expenditures, all as defined in the bank financing agreement. The
financing agreement restricts the Company from, without prior written consent,
redeeming or purchasing any of its outstanding capital stock; acquiring, merging
or consolidating with any other business and paying dividends. As of August 30,
2003 the Company was not in compliance with the leverage ratio and capital
expenditure covenants. On October 17, 2003 the Company's lenders waived the
defaults under the Amended and Restated Credit Agreement dated August 4, 2003.
The aggregate maturities of long-term debt, after the restructuring discussed
above, for the next fiscal years are as follows (in thousands):
2004 $ 1,025
2005 1,000
2006 23,758
------
$25,783
======
4. Lease Commitments
The Company leases certain of its facilities and equipment under operating
leases. The leases generally require the Company to pay taxes, insurance,
maintenance and utilities. Some of the leases contain renewal options.
Future minimum lease payments at August 30, 2003 under these leases for fiscal
years are as follows (in thousands):
2004 $ 1,392
2005 1,037
2006 637
2007 468
------
$ 3,534
======
Rent expense under operating leases charged to operations during fiscal 2003,
2002 and 2001 was approximately $1,050,000, $1,250,000 and $1,038,000,
respectively.
5. Commitments and Contingencies
The Company has entered into individual employment agreements with certain of
its officers, which expire at various times through August 31, 2004. Certain of
these agreements provide for lump sum payments in the event employment is
terminated as a result of a change in ownership of the Company as defined in the
agreements.
The Company is subject to various environmental laws of federal, state and local
governments. Compliance by the Company with existing laws has not had a material
adverse effect on the Company's financial condition and results of operations.
However, the Company cannot predict the impact of new or changed laws or
regulations on its current properties or on properties that it may acquire in
the future.
13
The Company does not believe there is any litigation threatened against the
Company, other than routine litigation arising out of the ordinary course of
business, which is not expected to have a material effect on the financial
position, results of operations and cash flows of the Company.
6. Stock Options
Stock options granted prior to February 22, 1994 were granted pursuant to the
Amended Employee Incentive Stock Option Plan approved by stockholders in
February 1989. In February 1994, the stockholders approved the 1993 Long Term
Incentive Stock Plan For Employees under which the Company is authorized to
issue options to selected key employees to acquire a maximum of 600,000 shares
of its common stock in addition to option shares outstanding at the time of its
adoption. On February 15, 2000, the maximum shares of common stock allowed to be
issued were increased to 800,000 shares for the 1993 Long Term Incentive Stock
Plan for Employees. The option price cannot be less than 100% of the fair market
value of the stock at date of grant for Incentive Stock Options (or 110% for a
10% beneficial owner), and not less than 50% of the fair market value at date of
grant for Non-Qualified Stock Options. Options vest at the cumulative rate of
33%, 67%, and 100% on the first three anniversaries of the date of grant and
expire ten years from date of grant. A summary of the option transactions during
the three years ended August 30, 2003 follows (in thousands, except per share
amounts):
2003 2002 2001
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at beginning of year.. 938 $2.03 1,010 $2.05 927 $1.98
Granted........................ 91 2.75
Exercised...................... (5) 1.38
Expired........................ (192) 2.00 (72) 2.38 (8) 2.00
------- ----- -----
Outstanding at end of year........ 741 2.00 938 2.03 1,010 2.05
======= ===== =====
Exercisable at end of year........ 741 $2.00 881 $1.98 911 $1.97
======= ===== =====
Weighted-average fair value of
options granted during year.... $1.48
Exercise prices for options outstanding as of August 30, 2003 ranged from $1.38
to $3.63. The weighted-average remaining contractual life of those options is
3.4 years. Included in the above option table are non-qualified options for
366,724 shares of common stock for $1.38 to $2.50 per share to certain
employees/directors, which have a total option price of approximately $652,000.
The options are immediately exercisable for up to ten years after the date of
grant.
14
The Company has a stock option plan under which the Company is authorized to
issue options to non-employee directors to acquire a maximum of 160,000 shares
of its common stock for options granted prior to March 15, 1998. A new plan was
adopted effective March 15, 1998 authorizing the Company to issue options to
non-employee directors to acquire a maximum of 100,000 shares of its common
stock. The option price is the closing bid price for shares on NASDAQ on the
date of grant. Options vest at the cumulative rate of 50% and 100% on the first
two anniversaries of the date of grant and expire ten years from date of grant.
A summary of the option transactions during the three years ended August 30,
2003 follows (in thousands, except per share amounts):
2003 2002 2001
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
Outstanding at beginning of year.. 59 $2.69 56 $2.75 48 $2.85
Granted........................ 9 1.78 6 1.59 9 2.00
Exercised...................... (9) 1.86 (1) 1.38
Expired........................ (3) 2.88 (2) 1.38 (1) 1.19
------- ----- -----
Outstanding at end of year........ 56 2.67 59 2.69 56 2.75
======= ===== =====
Exercisable at end of year........ 56 $2.67 46 $2.88 38 $2.84
======= ===== =====
Weighted-average fair value of
options granted during year.... $1.78 $1.59 $2.00
Exercise prices for options outstanding as of August 30, 2003 ranged from $1.56
to $4.00. The weighted-average remaining contractual life of those options is
6.3 years.
The fair value of each option 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 2003, 2002 and 2001: expected volatility
of 46% for fiscal 2003, 2002 and 2001, respectively; risk-free interest rate of
3%, 2% and 5% for fiscal 2003, 2002 and 2001, respectively; expected lives for
options of 7 years; and expected dividend yield of zero percent based on the
Company's history of no dividend payments on common stock.
7. Pension Plans
The Company has a defined benefit pension plan that covers substantially all
hourly employees. 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
ERISA.
15
Net pension costs for the defined benefit plan in fiscal 2003, 2002 and 2001
were computed as follows (in thousands):
2003 2002 2001
---- ---- ----
Service cost-benefits earned........... $ 38 $ 57 $ 49
Interest costs of projected benefit
obligation........................... 244 244 239
Expected return on plan assets......... (227) (241) (261)
Amortization of transition obligation.. 10 10 10
Amortization of unrecognized prior
service cost......................... 17 17 15
Recognized actuarial (gain) loss....... 42 15 (1)
----- ----- -----
Net pension expense.................... $ 124 $ 102 $ 51
===== ===== =====
The funded status of the defined benefit plan at August 30, 2003 and August 31,
2002 is shown below (in thousands):
2003 2002
------- -------
Change in benefit obligation:
Benefit obligation at beginning of year......... $ 3,592 $ 3,643
Service cost.................................... 38 57
Interest cost................................... 244 245
Benefits paid................................... (239) (304)
Actuarial (gain) loss........................... 298 (73)
Plan amendments................................. 24
------- -------
Benefit obligation at end of year............... $ 3,933 $ 3,592
======= =======
2003 2002
------- -------
Change in plan assets:
Fair value of plan assets at beginning of year.. $ 2,628 $ 2,900
Actual gain (loss) on plan assets............... 286 (218)
Employer contributions.......................... 403 250
Benefits paid................................... (239) (304)
------- -------
Fair value of plan assets at end of year........ $ 3,078 $ 2,628
======= =======
2003 2002
------- -------
Reconciliation of funded status:
Funded status................................... $ (855) $ (963)
Unrecognized actuarial (gain) loss.............. 1,275 1,078
Unrecognized transition (asset) obligation...... 69 79
Unrecognized prior service cost................. 185 202
------- -------
Net amount recognized at year-end............... $ 674 $ 396
======= =======
16
2003 2002
------- -------
Amounts recognized in the statement of financial
position consist of:
Prepaid benefit cost......................... $ $ 396
Accrued benefit liability.................... (855) (963)
Intangible asset............................. 254 281
Accumulated other comprehensive income...... 1,275 682
------ ------
Net amount recognized at year end............ $ 674 $ 396
====== ======
Other comprehensive income attributable to
change in additional minimum liability
recognition..................................... 197 223
August 30, August 31,
Weighted-average assumption as of: 2003 2002
-------------------------------------------------- ---------- ----------
Discount rate..................................... 6.50% 7.00%
Expected long-term rate of return on plan assets.. 8.25% 8.25%
The Company has defined contribution 401(k) retirement plans for salaried and
hourly personnel. Costs charged to operations in fiscal 2003, 2002 and 2001 for
these plans were approximately $121,000, $162,000 and $179,000, respectively.
The Company had a non-qualified deferred compensation plan that was terminated
for all non-retired executive participants during fiscal 1989. The present value
of future payments under the plan accrued at August 30, 2003 and August 31, 2002
was approximately $29,000 and $70,000, respectively.
8. Income Taxes
The tax effect of each temporary basis difference and carryforward that gives
rise to significant deferred tax assets and deferred tax liabilities as of
August 30, 2003 and August 31, 2002 was as follows (in thousands):
2003 2002
------ ------
Accumulated tax depreciation of property and
equipment in excess of book depreciation.... $ (427) $ (457)
Net operating loss carryforward............... 57 101
Various accruals and reserves................. 1,540 1,181
Inventory..................................... 312 210
Other......................................... 3
------ ------
Net deferred tax asset........................ $1,482 $1,038
====== ======
17
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. Management believes the
existing net deductible temporary differences will reverse during the periods in
which the Company generates net taxable income. Based on this belief and the
Company's historical and current pre-tax earnings as well as its expectations
for the future, management believes it is more likely than not that the Company
will realize its deferred tax assets. As a result, no valuation allowance was
required as of August 30, 2003 and August 31, 2002. Further, except for the
effects of the reversal of net deductible temporary differences, the Company is
not currently aware of any factors that would cause significant differences
between taxable income and pre-tax book income in future years.
Income tax expense in fiscal 2003, 2002 and 2001 consisted of the following (in
thousands):
2003 2002 2001
------ ---- ----
Currently payable, federal............... $1,509 $216 $ 848
Currently payable, state................. 64 54
Deferred................................. (583) 209 (174)
------ ---- -----
$ 990 $479 $ 674
====== ==== =====
The deferred tax provision excludes the impact of deferred taxes associated with
the minimum pension liability. The minimum pension liability is charged directly
to equity net of tax.
The provision for income taxes in fiscal 2003, 2002 and 2001 differed from that
computed at the federal statutory corporate tax rate as follows (in thousands):
2003 2002 2001
----- ----- ----
Tax at 34% statutory rate..................... $ 969 $ 642 $527
State income taxes (net of federal benefit)... 35 105
Other......................................... 21 (198) 42
----- ----- ----
$ 990 $ 479 $674
===== ===== ====
9. Other Information
INVENTORIES - Inventories at August 30, 2003 and August 31, 2002 were as follows
(in thousands):
2003 2002
------- -------
Finished products................... $22,558 $14,669
Work in process..................... 377 428
Raw materials....................... 4,511 2,380
------- -------
$27,446 $17,477
======= =======
18
ACCRUED LIABILITIES - Accrued liabilities at August 30, 2003 and August 31, 2002
were as follows (in thousands):
Description 2003 2002
---------------------------------------------- ------- ------
Property, payroll and other taxes............. $1,998 $ 886
Payroll, bonuses and commissions............. 2,590 1,802
Legal & professional.......................... 508 110
Interest...................................... 127 64
Other......................................... 396 145
------- ------
$5,619 $3,007
====== ======
10. Major Customers and Sources of Supply
The Company's five largest customers accounted for approximately 29%, 30% and
44% of the Company's total sales in fiscal 2003, 2002 and 2001, respectively.
One customer accounted for approximately 11%, 15% and 28% of the Company's total
net sales in fiscal 2003, 2002 and 2001, respectively. The loss of one or more
of these customers could have a materially adverse effect on the Company's
financial condition and results of operations. As of August 30, 2003 and August
31, 2002, one customer accounted for approximately 8% and 13%, respectively, of
total accounts receivable. The Company's customers include large furniture chain
store retailers, wholesale clubs, catalog retailers, and independent
distributors, as well as numerous smaller retailers.
The Company's total sales of imported product were 78%, 74% and 64% for fiscal
2003, 2002 and 2001, respectively. The Company designs the majority of the
furniture it purchases from foreign factories and actively participates in the
production and quality control process. The Company maintains administrative
offices in China and Thailand to manage the quality control, production process
and other supply chain functions. The Company maintains small amounts of
finished goods inventories in China at a vendor provided warehouse. An
unanticipated interruption in the flow of products from one or more of the
overseas factories could have a short-term material adverse effect on the
Company's results of operations.
11. Plant Closing and Restructuring
During the fourth quarter of fiscal 2001, the Company committed to discontinue
the manufacturing of promotional bedroom furniture during the first quarter of
fiscal 2002. The Company believes the decline in aggregate demand for fully
assembled promotional bedroom furniture and excess industry capacity prevent
this product line from recovering the costs of manufacturing, including the cost
of capital. The Company does not anticipate the trend reversing. As a result,
during the fourth quarter of fiscal 2001, the Company recorded a pre-tax charge
of $775,000 for the expected cost of discontinuing the production of
promotionally priced bedroom furniture. The charge included provisions of
approximately $575,000 for reducing certain inventory items to estimated net
realizable value. The inventory charge representing a permanent inventory basis
reduction was recorded as a separate component of cost of sales. An $80,000
charge for expected losses relating to uncollectible accounts receivable was
charged to bad debt expense, a component of selling, general, and administrative
expenses. A $120,000
19
charge for severance pay, which is called for under Company policy, relates to
the termination of certain salaried and support staff personnel, and was charged
to restructuring costs in the statements of operations.
12. Derivative Instruments and Hedging Activities
The Company has interest rate swaps in the notional amount of approximately
$20.7 million and $14.4 million as of August 30, 2003 and August 31, 2002,
respectively. The Company utilizes interest rate swaps to hedge against adverse
changes in interest rates relative to the Company's variable rate debt. The
interest rate swaps are not utilized to take speculative positions. The
Company's policies with regards to activities involving derivative instruments
were established and those policies along with actual derivative related results
are periodically reviewed with the Company's Board of Directors.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company adopted the new Statement
effective September 3, 2000 and recorded $194,000 as a cumulative effect of a
change in accounting principle. As a result, the Company has recorded the fair
market value of its interest rate swaps as cash flow hedges on its balance sheet
and has marked them to fair value through other comprehensive income. The fair
market values of the swaps are approximately ($374,000) and ($584,000) as of
August 30, 2003 and August 31, 2002, respectively, and are reflected as other
long-term liabilities on the accompanying balance sheet.
13. Fair Value of Financial Instruments
The book values of cash, accounts receivable and accounts payable are considered
to be representative of their respective fair values because of the immediate or
short-term maturities of these financial instruments. The fair value of the
Company's debt instruments approximated the book value because substantial
portions of the underlying instruments are variable rate notes, which re-price
frequently. The fair value of the Company's interest rate swaps were a liability
of approximately $374,000 and $584,000 as of August 30, 2003 and August 31,
2002, respectively (see Note 12).
14. Source and Supply of Labor
The Company employs approximately 240 employees, of whom approximately 99 are
covered by a collective bargaining contract, which expires March 31, 2004.
20
15. Earnings Per Common Share
(In thousands, except earnings per share amounts)
2003 2002 2001
------ ------ -----
Net income............................. $1,753 $1,355 $ 875
====== ====== ======
Average common shares outstanding...... 4,293 4,279 4,221
Common stock equivalents-dilutive
options............................. 105 58 144
------ ------ ------
Average shares of common stock and
equivalents outstanding............. 4,398 4,337 4,365
====== ====== ======
Basic earnings per share............... $ 0.41 $ 0.32 $ 0.21
====== ====== ======
Diluted earnings per share............. $ 0.40 $ 0.31 $ 0.20
====== ====== ======
16. Quarterly Financial Data (unaudited)
(In thousands, except per share amounts)
First Second Third Fourth
Fiscal 2003 Quarter Quarter Quarter Quarter Year
--------------------------- -------- ------- ------- ------- --------
Net sales.................. $25,994 $30,015 $22,622 $24,100 $102,731
Gross profit............... 4,232 5,321 4,715 5,479 19,747
Net income................. 424 748 324 257 1,753
Diluted earnings per
common share (1)......... $ 0.10 $ 0.17 $ 0.07 $ 0.06 $ 0.40
First Second Third Fourth
Fiscal 2002 Quarter Quarter Quarter Quarter Year
--------------------------- -------- ------- ------- ------- --------
Net sales.................. $25,266 $22,205 $25,154 $28,231 $100,856
Gross profit............... 4,337 3,724 4,498 4,535 17,094
Net income................. 327 67 373 588 1,355
Diluted earnings per
common share (1)......... $ 0.08 $ 0.02 $ 0.09 $ 0.12 $ 0.31
(1) Diluted earnings per common share are calculated by dividing
net income by the weighted average number of common and common
equivalent shares outstanding during the period. Diluted
earnings per share are computed independently for each of the
quarters presented.
21
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed consolidated financial
statements are presented to give effect to the purchase agreement and the
acquisition of DMI Furniture, Inc. (DMI) under the purchase method of
accounting. The balance sheet assumes that the DMI acquisition had been
consummated on June 30, 2003. The statements of operations for the year ended
June 30, 2003 assume that the acquisition of DMI had been consummated on July 1,
2002. The pro forma financial statements are not necessarily indicative of the
results of operations or the financial position, which would have occurred had
the DMI acquisition been consummated at such times, nor are they necessarily
indicative of the results of future results of operations or financial position.
The allocation of the purchase price of DMI has been determined based upon
preliminary estimates and is subject to future adjustment. The unaudited pro
forma combined condensed consolidated financial statements should be read in
conjunction with the historical consolidated financial statements of Flexsteel
Industries, Inc. (Flexsteel) including notes thereto, and the consolidated
financial statements of DMI, included herein, including the notes thereto.
22
FLEXSTEEL INDUSTRIES, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 2003
(In thousands)
Historical Pro Forma
------------------------- Adjustments Pro Forma
Flexsteel DMI For DMI As Adjusted
June 30, August 30, Acquisition For DMI
2003 2003 (Note 1) Acquisition
----------- -------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 12,811 $ 219 $ (12,500)(a) $ 530
Investments..................................... 9,532 (5,737)(a) 3,795
Trade receivables - less allowance
for doubtful accounts........................ 29,612 14,768 (326)(b) 44,054
Inventories..................................... 32,473 27,446 (120)(c) 59,799
Deferred income taxes........................... 4,070 1,575 808 (d) 6,453
Other........................................... 1,324 615 1,939
----------- -------- --------- ----------
Total current assets............................ 89,822 44,623 (17,875) 116,570
PROPERTY, PLANT AND EQUIPMENT, net................. 20,378 8,940 413 (e) 29,731
DEFERRED INCOME TAXES.............................. 1,560 (151)(d) 1,409
OTHER ASSETS....................................... 8,940 296 312 (f) 9,548
----------- -------- --------- ----------
TOTAL..................................... $ 120,700 $ 53,859 $ (17,301) $ 157,258
=========== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade........................ $ 2,747 $ 3,223 $ $ 5,970
Current portion of long-term debt............... 1,025 1,025
Accrued liabilities:
Payroll and related items..................... 7,565 2,388 9,953
Insurance..................................... 6,374 182 6,556
Restructuring................................. 711 711
Other......................................... 4,760 3,049 675 (g) 8,484
----------- -------- --------- ----------
Total current liabilities................... 22,157 9,867 675 32,699
NONCURRENT LIABILITIES:
Long-term debt, less current portion............ 24,758 24,758
Accrued pension costs........................... 855 855
Deferred income taxes........................... 93 (93)(d)
Other long-term liabilities..................... 374 374
Deferred compensation........................... 4,790 29 4,819
----------- -------- --------- ----------
Total liabilities............................... 26,947 35,976 582 63,505
----------- -------- --------- ----------
SHAREHOLDERS' EQUITY:
Common stock.................................... 6,295 431 (431)(h) 6,295
Additional paid-in capital...................... 1,353 17,148 (17,148)(h) 1,353
Retained earnings............................... 85,788 1,583 (1,583)(h) 85,788
Accumulated other comprehensive income (loss)... 317 (1,279) 1,279 (h) 317
----------- -------- --------- ----------
Total shareholders' equity................... 93,753 17,883 (17,883) 93,753
----------- -------- --------- ----------
TOTAL.................................... $ 120,700 $ 53,859 $ (17,301) $ 157,258
=========== ======== ========= ==========
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
23
FLEXSTEEL INDUSTRIES, INC.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED JUNE 30, 2003
(In thousands, except amounts per share)
Historical Pro Forma
------------------------- Adjustments Pro Forma
Flexsteel DMI For DMI As Adjusted
June 30, August 30, Acquisition For DMI
2003 2003 (Note 2) Acquisition
----------- -------- ----------- -----------
NET SALES.......................................... $ 291,977 $102,731 $ $ 394,708
COST OF GOODS SOLD................................. (226,438) (82,984) (22)(i) (309,444)
----------- -------- --------- ----------
GROSS MARGIN....................................... 65,539 19,747 (22) 85,264
SELLING, GENERAL AND
ADMINISTRATIVE.................................. (52,658) (15,136) 394(j) (67,400)
GAIN ON SALE OF LAND............................... 403 403
----------- -------- --------- ----------
OPERATING INCOME................................... 13,284 4,611 372 18,267
----------- -------- --------- ----------
OTHER:
Interest and other income (expense)............. 1,084 (27) (752)(k) 305
Interest expense................................ (127) (1,841) (1,968)
----------- -------- --------- ----------
Total........................................ 957 (1,868) (752) (1,663)
----------- -------- --------- ----------
INCOME BEFORE INCOME TAXES......................... 14,241 2,743 (380) 16,604
PROVISION FOR INCOME TAXES......................... (5,950) (990) 148(l) (6,792)
----------- -------- --------- ----------
NET INCOME......................................... $ 8,291 $ 1,753 $ (232) $ 9,812
=========== ======== ========= ==========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC.......................................... 6,255 4,293 6,225
=========== ======== ==========
DILUTED........................................ 6,367 4,398 6,367
=========== ======== ==========
EARNINGS PER SHARE OF COMMON
STOCK:
BASIC.......................................... $ 1.33 $ 0.41 $ 1.58
=========== ======== ==========
DILUTED........................................ $ 1.30 $ 0.40 $ 1.54
=========== ======== ==========
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
24
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 - Pro Forma Balance Sheet Adjustments
On September 18, 2003, Flexsteel Industries, Inc. (Flexsteel) acquired DMI
Furniture, Inc. (DMI) in a business combination accounted for as a purchase.
Under the merger agreement, the common shareholders of DMI received $16.7
million in cash in exchange for tendering 5,060,887 common shares to Flexsteel.
In addition, Flexsteel incurred acquisition costs of $2.8 million and assumed
debt of $35.0 million. The following notes explain the pro forma adjustments:
(a) Adjustment to record the $16.7 million cash payment to the
common shareholders' of DMI and acquisition costs of $2.8
million offset by $1.3 million cash received upon the exercise
of DMI common stock options. For purposes of the pro forma
adjustments, it was assumed that Flexsteel would use all cash
available, except for a minimum amount of $0.5 million
necessary for working capital needs. The remaining $5.7
million was subtracted from investments.
(b) Adjustment to increase the allowance for doubtful accounts by
$0.3 million to conform DMI's allowance for doubtful accounts
to Flexsteel's accounting policies and methodologies.
(c) Adjustment to reduce finished goods inventory by $0.1 million
to estimated fair value at the acquisition date.
(d) Adjustment to deferred income taxes to reflect the difference
between the book and tax basis of DMI's net assets.
(e) Adjustment to increase net property, plant, and equipment by
$0.4 million to estimated fair value.
(f) Adjustment to increase other assets by $0.6 million to
estimated fair value assigned to customer relationships
intangible asset and reduce intangible pension plan assets by
$0.3 million.
(g) Adjustment to increase other liabilities by $0.7 million for
warranty and related costs to conform DMI's warranty reserve
to Flexsteel's accounting policies and methodologies.
(h) Adjustment to record the elimination of the historical equity
of DMI including $0.4 million of common stock, $17.1 million
of additional paid-in-capital, $1.6 million of retained
earnings, and $(1.3) million of accumulated other
comprehensive loss.
25
Note 2 - Pro Forma Statement of Operations Adjustments
Details of the pro forma adjustments relating to the acquisition and financing
are set forth below:
(i) Adjustment to increase annual depreciation expense by less
than $0.1 million as a result of the increase in the estimated
fair value of property, plant, and equipment acquired over its
historical book value.
(j) Adjustment to record additional expense of $0.1 million for
the amortization of customer relationships intangible asset
offset by a reduction in expense of $0.5 million to eliminate
acquisition costs incurred by DMI in fiscal 2003 in connection
with the acquisition of DMI by Flexsteel.
(k) Adjustment to decrease interest income by $0.8 million due to
the use of cash and investments in the acquisition of DMI.
(l) Adjustment to record an income tax benefit for pro forma
adjustments using a 39% statutory tax rate.
26
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FLEXSTEEL INDUSTRIES, INC.
----------------------------------
(Registrant)
Date: November 13, 2003 By: /s/ R. J. Klosterman
----------------------------------
R. J. Klosterman
Financial Vice President &
Principal Financial Officer
27
EXHIBIT INDEX
Exhibit Description of Document
------- -----------------------
23 Consent of Deloitte & Touche LLP
28