Flexsteel Industries, Inc. reported results of operations for its fourth quarter and fiscal year ended June 30, 2009.
The Company reported net sales for the quarter ended June 30, 2009 of $74.6 million compared to the prior year quarter of $100.6 million, a decrease of 25.9%. The Company reported net income for the current quarter of $0.8 million or $0.12 per share compared to net income of $0.3 million or $0.05 per share in the prior year quarter.
Net sales for the fiscal year ended June 30, 2009 were $324.2 million compared to $405.7 million in the prior fiscal year, a decrease of 20.1%. The Company reported a net loss for the current fiscal year of $1.5 million or $0.23 per share compared to net income of $4.2 million or $0.64 per share in the prior year. On a pre-tax basis the reported loss of $2.6 million includes approximately $2.6 million related to facility consolidation and employee separation costs, reflecting near break-even results from continuing operations.
The information regarding facility consolidation and employee separation costs is non-GAAP disclosure. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures prepared in accordance with GAAP. We believe this information is relevant to our investors due to the significance of these items on net income and earnings per share and have included a table in the financial statements demonstrating the impact on earnings.
For the quarter ended June 30, 2009, residential net sales were $57.0 million, compared to $66.9 million, a decrease of 14.8% from the prior year quarter. Commercial net sales were $14.8 million for the quarter ended June 30, 2009, compared to $22.1 million in the prior year quarter, a decrease of 33.0%. Recreational vehicle net sales were $2.8 million for the quarter ended June 30, 2009, compared to $11.6 million in the prior year quarter, a decrease of 75.9%.
For the fiscal year June 30, 2009, residential net sales were $230.7 million, compared to $258.1 million, a decrease of 10.6% from the year ended June 30, 2008. Commercial net sales were $77.2 million for the year ended June 30, 2009, a decrease of 15.6% from net sales of $91.5 million for the year ended June 30, 2008. Recreational vehicle net sales were $16.2 million for the year ended June 30, 2009, a decrease of 71.1% from net sales of $56.1 million for the year ended June 30, 2008.
Gross margin for the quarter ended June 30, 2009 was 21.0% compared to 18.5% in the prior year quarter. Gross margin improvement in comparison to prior year quarter was primarily due to cost reductions related to facility consolidation and a LIFO benefit increase of approximately $0.4 million. Gross margin was 18.8% and 19.3% for the fiscal years ended June 30, 2009 and 2008, respectively. The decrease in gross margin percentage for the year is primarily due to an approximate $2.0 million adjustment to realizable value on inventory and to a lesser extent to under-utilization of capacity on significantly lower sales volume. These factors were partially offset by a LIFO benefit increase of approximately $0.6 million.
Selling, general and administrative expenses were 19.0% and 17.9% of net sales for the quarters ended June 30, 2009 and 2008, respectively. For the fiscal years ended June 30, 2009 and 2008, selling, general and administrative expenses were 18.8% and 17.5%, respectively. The percentage increase in selling, general and administrative costs for the quarter and the year is primarily due to under-absorption of fixed costs on the lower sales volume and the lag time in reducing advertising and other sales support costs in response to the lower volume.
Although our effective full year tax expense rate is normally in the 35% - 39% range, fiscal year ended June 30, 2009 reflects an effective income tax benefit rate of 41.5% due to losses or low level of earnings in various tax jurisdictions. The effective income tax rate was 35.8% for the fiscal year ended June 30, 2008. Effective tax expense rates for the quarters ended June 30, 2009 and 2008 were 23.8% and 27.9%, respectively, due to year to date fluctuations
All earnings per share amounts are on a diluted basis.
Working capital (current assets less current liabilities) at June 30, 2009 was $78.4 million as compared to $100.9 million at June 30, 2008. Significant changes in working capital from June 30, 2008 to June 30, 2009 included decreased accounts receivable of $12.5 million, decreased inventory of $11.9 million and decreased accounts payable of $4.8 million. The decrease in receivables is primarily related to lower shipment volume. Lower customer demand for our products reduced production levels and finished product purchases, which resulted in an inventory decrease. The decrease in accounts payable relates to lower purchase volume based on current demand.
Net cash provided by operating activities was $17.3 million for the fiscal year ended June 30, 2009. Cash from operating activities was used primarily to reduce borrowing by $15.9 million and pay dividends of $2.9 million. Capital expenditures were $1.2 million during fiscal year 2009. Depreciation and amortization expense was $3.7 million and $4.4 million for the years ended June 30, 2009 and 2008, respectively. The Company expects that capital expenditures will be approximately $2.0 million in fiscal year 2010.
Outlook
We believe that the consolidation of manufacturing operations and workforce reductions that the Company completed during the fiscal year has brought production capacity and fixed overhead in line with current and expected demand for our products. Company wide employment has been reduced approximately 30% over the past year through plant closures and workforce reductions related to business conditions.
The recreational vehicle industry continues to be the hardest hit product category with the initial impact of high fuel costs compounded by credit tightening and lack of consumer confidence in the economy as a whole. Recreational vehicle industry published data indicates that motor home unit sales, the sector that encompasses the majority of our sales, are down nearly 80%. The commercial seating product category held up well early in our fiscal year, but fell considerably as the U.S. economy contracted and credit tightened. We believe that our residential product category has performed reasonably well in relation to our competition. However, residential furniture remains a deferrable purchase item and is adversely impacted by tighter consumer credit, higher unemployment and low levels of consumer confidence.
As demonstrated above, demand for our products is dependent on factors such as consumer confidence, affordable housing, reasonably attainable financing and an economy with low levels of unemployment and high levels of disposable income. These factors remain in depressed positions, and indications are that they will remain that way in the near-term. We are not anticipating significant improvements in market conditions at this time, and are managing our business on that basis.
While we expect that current business conditions will persist for the remainder of calendar year 2009, we remain optimistic that our strategy of a wide range of quality product offerings and price points to the residential, recreational vehicle and commercial markets combined with our conservative approach to business will be rewarded when business conditions improve. 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.