Flexsteel Industries Inc. is engaged in the design manufacture and sale of a broad line of quality upholstered furniture for residential commercial and recreational vehicle seating use. Flexsteel primarily distributes its products throughout most of the United States through their sales force to furniture dealers department stores recreational vehicle manufacturers and van converters and hospitality and healthcarefacilities. The products are also sold to several national chains some of which sell on a private label basis. Flexsteel Industries Inc. has a market cap of $54.7 million; its shares were traded at around $8.6 with a P/E ratio of 43.8 and P/S ratio of 0.2. The dividend yield of Flexsteel Industries Inc. stocks is 2.4%. Highlight of Business Operations: The above factors resulted in current quarter net income of $1.4 million or $0.21 per share, compared to the prior year quarter net loss of $0.7 million or $0.11 per share.
Operating Activities: Working Capital (current assets less current liabilities) at September 30, 2009 was $79.4 million. Net cash provided by operating activities was $3.0 million during the first quarter ended September 30, 2009 due to net income of $1.4 million, depreciation of $0.8 million and changes in net current assets of $0.8 million. Net cash provided by operating activities was $2.2 million at September 30, 2008. Cash from operating activities was used primarily to reduce borrowings by $3.0 million and pay dividends of $0.3 million. Significant changes in working capital from June 30, 2009 to September 30, 2009 included increased accounts receivable of $1.6 million, decreased inventory of $1.8 million and decreased accounts payable of $1.4 million. The increase in receivables is related to the timing of shipments to customers and the related payment terms. Inventory decreased $1.8 million due to lower forecasted customer requirements. The decrease in accounts payable relates to reduced purchase volume based on current demand. The Company expects that due to the nature of our operations that there will be continuing fluctuations in accounts receivable, inventory, accounts payable, and cash flows from operations due to the following: (i) we purchase inventory from overseas suppliers with long lead times and depending on the timing of the delivery of those orders inventory levels can be greatly impacted, and (ii) we have various customers that purchase large quantities of inventory periodically and the timing of those purchases can significantly impact inventory levels, accounts receivable, accounts payable and short-term borrowings. As discussed below, the Company believes it has adequate financing arrangements and access to capital to absorb these fluctuations in operating cash flow.
Investing Activities: Net cash used in investing activities was $0.4 million during the three-month period ended September 30, 2009 and included $0.6 million for the purchase of capital assets. The Company expects that capital expenditures will be $1.5 million for the remainder of the 2010 fiscal year.
Financing Activities: Net cash used in financing activities was $3.3 million during the three-month period ended September 30, 2009. Borrowings were lower by $3.0 million primarily due to the reduction in inventory. Dividends of $0.3 million were paid during the three-month period.
During the third quarter of fiscal year 2009, the Company negotiated a refinancing of its working capital line of credit that would have expired June 30, 2009. The Companys short-term credit facility was increased from $12 million to $15 million and expires June 30, 2010. The long-term credit facility was reduced from $20 million to $10 million and expires September 30, 2011.
Interest Rate Risk The Companys primary market risk exposure with regard to financial instruments is changes in interest rates. At September 30, 2009, a hypothetical 100 basis point increase in short-term interest rates would decrease annual pre-tax earnings by approximately $20,000, assuming no change in the volume or composition of debt. At September 30, 2009, the Company had effectively fixed the interest rates at 4.9% on approximately $5.0 million of its short-term debt through the use of interest rate swaps. As of September 30, 2009, the cumulative fair value of the swaps is a liability of approximately $0.2 million and is included in other liabilities.
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