Flexsteel Industries, Inc. reported record net income for the fiscal year ended June 30, 2010 of $10.8 million or $1.61 per share compared to a net loss of $1.5 million or $0.23 per share in the prior year. Net income for the quarter ended June 30, 2010 was a record $4.1 million or $0.61 per share compared to net income of $0.8 million or $0.12 per share in the prior year quarter.
Net sales for the fiscal year ended June 30, 2010 were $326.5 million compared to $324.2 million in the prior fiscal year, an increase of 1%. Net sales for the quarter ended June 30, 2010 were $85.6 million compared to the prior year quarter of $74.6 million, an increase of 15%.
For the fiscal year June 30, 2010, residential net sales were $246.0 million compared to $230.7 million for the year ended June 30, 2009, an increase of 7%. Commercial net sales were $80.5 million for the year ended June 30, 2010, a decrease of 14% from net sales of $93.5 million for the year ended June 30, 2009.
For the quarter ended June 30, 2010, residential net sales were $65.7 million compared to the prior year quarter of $57.0 million, an increase of 15%. Commercial net sales were $19.9 million for the quarter ended June 30, 2010 compared to $17.6 million in the prior year quarter, an increase of 13%.
The Company’s operating income improved by $19.8 million in fiscal year 2010 in comparison to the prior year. The Company benefited from strategies implemented and actions taken during fiscal year 2009 including consolidation of manufacturing operations and workforce reductions that brought production capacity and fixed overhead more in line with current product demand. During the prior fiscal year the Company recorded pre-tax charges of approximately $2.6 million related to facility consolidation and employee separation costs. Company wide employment was reduced approximately 30% through plant closures and workforce reductions and remains at these reduced levels. These factors contributed significantly to gross margin improvement and selling, general and administrative expense reductions.
Gross margin for the year ended June 30, 2010 was 22.8% compared to 18.8% for the prior year period. The gross margin improvements for the year were greatly impacted by the operational changes. In addition, gross margin improved due to stability in material and product costs and lower ocean freight costs. Gross margin for the quarter ended June 30, 2010 was 23.5% compared to 21.0% in the prior year quarter. These gross margin improvements for the quarter are primarily due to the operational changes and changes in product mix.
For the fiscal years ended June 30, 2010 and 2009, selling, general and administrative expenses were 17.5% and 18.8% of net sales, respectively. These percentage improvements on a year to date basis are due to the operational changes as well as lower bad debt and advertising costs. Selling, general and administrative expenses were $13.7 million or 16.0% of net sales and $14.2 million or 19.0% of net sales for the quarters ended June 30, 2010 and 2009, respectively, representing a decrease of $0.5 million due to lower advertising and bad debt expenses.
All earnings per share amounts are on a diluted basis.
Working capital (current assets less current liabilities) at June 30, 2010 was $90.8 million as compared to $78.4 million at June 30, 2009. Significant changes in working capital from June 30, 2009 to June 30, 2010 included increased cash of $6.6 million and increased accounts receivable of $4.5 million. The increase in receivables is primarily related to higher shipment volume in the fourth quarter.
Net cash provided by operating activities was $19.1 million for the fiscal year ended June 30, 2010. Cash from operating activities was used primarily to reduce borrowing by $10.0 million and pay dividends of $1.3 million. Capital expenditures were $1.3 million during fiscal year 2010. Depreciation expense was $3.0 million and $3.7 million for the years ended June 30, 2010 and 2009, respectively. The Company expects that capital expenditures will be approximately $4.0 million in fiscal year 2011.
Outlook
We enter the 2011 fiscal year with a strong balance sheet reflecting working capital in excess of $90.0 million and no bank borrowings. We had an increase in sales volume for the current quarter over the prior year quarter, and anticipate modest improvement in sales volume will continue in fiscal 2011. We believe that we have the necessary manufacturing capacity, importing capability and fixed cost controls in place to meet current and expected demand for our products. However, we are experiencing selected cost increases on various manufacturing component materials and increases on ocean freight rates in comparison to prior year rates.
Our residential product category has performed well in relation to our competition, and we anticipate continued improvement in the residential sales category. However, residential furniture remains a highly deferrable item and can be adversely impacted by factors, such as, low levels of consumer confidence, a depressed market for housing, limited consumer credit and high unemployment. Demand for our commercial product shipments fell considerably as the U. S. economy contracted and credit tightened. While we believe that commercial product sales are at or near the bottom of the downward cycle and should level off, we do not anticipate significant improvements in commercial markets before the second half of fiscal year 2011.
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 through emphasis on cash flow and improving profitability. We believe these core strategies will be in the best interest of our shareholders in the longer term.
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.