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Flexsteel Announces Third Quarter Profit Improvement on Higher Sales Volume

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Flexsteel Industries, Inc. reported net income for the current quarter of $2.3 million or $0.34 per share compared to a net loss of $1.9 million or $0.28 per share in the prior year quarter.  Net income for the current nine-month period was $6.7 million or $1.00 per share compared to a net loss of $2.3 million or $0.35 per share in the prior year period.  

Net sales for the quarter ended March 31, 2010 were $81.5 million compared to the prior year quarter of $73.6 million, an increase of 11%. Net sales for the nine months ended March 31, 2010 were $240.9 million compared to $249.6 million in the prior year nine-month period.   

For the quarter ended March 31, 2010, residential net sales were $61.6 million, compared to $53.6 million, an increase of 15% from the prior year quarter.  Commercial net sales were $19.9 million for the quarter ended March 31, 2010 compared to $20.0 million in the prior year quarter.  

For the nine months ended March 31, 2010 residential net sales were $180.3 million compared to $173.7 million in the nine months ended March 31, 2009, an increase of 4%.  Commercial net sales were $60.6 million for the nine months ended March 31, 2010, a decrease of 20% from net sales of $75.9 million for the nine months ended March 31, 2009. 

Gross margin for the quarter ended March 31, 2010 was 22.1% compared to 16.5% in the prior year quarter.  These gross margin improvements are primarily due to better capacity utilization and lower fixed manufacturing costs resulting from facility consolidations, changes in product mix and a $1.7 million (2.2% of net sales) inventory write-down in the prior year.  For the nine months ended March 31, 2010, the gross margin was 22.7% compared to 18.2% for the prior year nine-month period.  The nine-month gross margin improvements are primarily due to the aforementioned factors as well as lower ocean freight costs. 

Selling, general and administrative expenses were 17.3% and 19.6% of net sales for the quarters ended March 31, 2010 and 2009, respectively.  This percentage improvement is due to widespread expense reductions through plant closings and staff reductions.  For the nine months ended March 31, 2010 and 2009, selling, general and administrative expenses were 18.1% and 18.7%, respectively.   

During the prior year quarter and nine-month period the Company recorded pre-tax charges of approximately $0.5 million and $2.4 million, respectively, related to facility consolidation and employee separation costs.  

Working capital (current assets less current liabilities) at March 31, 2010 was $86.1 million.  Net cash provided by operating activities was $19.2 million during the nine months ended March 31, 2010 due to improved profitability and reduced inventory levels.  At March 31, 2010 the Company had available cash on hand of $8.8 million and no bank borrowings.  As of April 14, 2010, the Company has negotiated a $15.0 million unsecured credit agreement that extends through June 30, 2011 and replaces a secured credit agreement of $25.0 million.  The Company believes that the available credit under the new agreement is sufficient to support its financing needs.   

Capital expenditures were $1.2 million during the first nine months of fiscal year 2010.  Depreciation and amortization expense was $2.3 million and $2.8 million for the nine-month periods ended March 31, 2010 and 2009, respectively.  The Company expects that capital expenditures will be less than $0.5 million for the remainder of fiscal year 2010.   

All earnings per share amounts are on a diluted basis. 

Outlook

While sales are still down slightly from the prior year on a year to date basis, we have seen an increase in the current quarter due to improved residential sales.  The consolidation of manufacturing operations and workforce reductions that the Company completed during the prior fiscal year has brought production capacity and fixed overhead in line with current and expected demand for our products.  Company wide employment, which was reduced approximately 30% in the prior fiscal year through plant closures and workforce reductions, remains at these reduced levels.  These factors contributed significantly to gross margin improvement and selling, general and administrative expense reductions.  However, we are experiencing selected increases on various manufacturing component materials and significant increases on ocean freight rates in comparison to year ago rates. 

Our residential product category has performed reasonably well in relation to our competition, and we anticipate modest continued improvement in the residential sales category.  However, the fact remains that residential furniture is a highly deferrable purchase item and can be adversely impacted by existing factors, such as, low levels of consumer confidence, a depressed market for new housing, limited consumer credit and high unemployment.  The commercial product category fell considerably as the U. S. economy contracted and credit tightened.  While we believe that sales are at or near the bottom of the downward cycle and should level off, we do not anticipate major improvements in commercial markets through the end of the calendar year.   

We remain committed to our core strategies, which include a wide range of quality product offerings and price points to the residential and commercial markets, combined with a conservative approach to business.  We will maintain our focus on a strong balance sheet during these challenging economic times through emphasis on cash flow and improving profitability.

About Flexsteel

Flexsteel Industries, Inc. is headquartered in Dubuque, Iowa, and was incorporated in 1929.  Flexsteel is a designer, manufacturer, importer and marketer of quality upholstered and wood furniture for residential, recreational vehicle, office, hospitality and healthcare markets.  All products are distributed nationally. 

For more information, visit our web site at http://www.flexsteel.com.

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