UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
FLEXSTEEL INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
Date: November 8, 2001
Office of the Chairman of the Board
Dear Stockholder:
You are cordially invited to attend the Annual Stockholders' Meeting on
Monday, December 10, 2001, at 2:00 p.m. We sincerely want you to come, and we
welcome this opportunity to meet with those of you who find it convenient to
attend.
Time will be provided for stockholder questions regarding the affairs of
the Company and for discussion of the business to be considered at the meeting
as explained in the notice and proxy statement which follow. Directors and other
Company executives expect to be available to talk individually with stockholders
after the meeting. No admission tickets or other credentials are currently
required for attendance at the meeting.
The formal notice of the meeting and proxy statement follow. I hope that
after reading them you will sign and mail the proxy card, whether you plan to
attend in person or not, to assure that your shares will be represented.
Sincerely,
/s/ L. Bruce Boylen
L. Bruce Boylen
CHAIRMAN OF THE BOARD
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RECORD DATE: October 23, 2001
DATE OF MEETING: December 10, 2001
TIME: 2:00 p.m.
PLACE: Hilton Minneapolis
1001 Marquette Avenue
Minneapolis, MN 55403
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IMPORTANT
WHETHER YOU OWN ONE SHARE OR MANY, EACH STOCKHOLDER IS URGED TO VOTE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 10, 2001
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Flexsteel Industries, Inc. will be
held at the Hilton Minneapolis, 1001 Marquette Avenue, Minneapolis, Minnesota
55403, on Monday, December 10, 2001 at 2:00 p.m. for the following purposes:
1. To elect three (3) Class III Directors to serve until the year 2004
Annual Meeting and until their successors have been elected and
qualified or until their earlier resignation, removal or termination
(Proposal I).
2. To ratify or reject the appointment by the Board of Directors of
Deloitte & Touche LLP as independent auditors for the fiscal year
ending June 30, 2002 (Proposal II).
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
October 23, 2001 has been fixed as the record date for the determination of
common stockholders entitled to notice of and to vote at the meeting, and only
holders of record at the close of business on that date will be entitled to vote
at the meeting or any adjournment thereof.
Whether or not you plan to attend the meeting, please mark, date and sign
the accompanying proxy and return it promptly in the enclosed envelope which
requires no additional postage if mailed in the United States. If you attend the
meeting, you may vote your shares in person even though you have previously
signed and returned your proxy. Voting by ballot at the meeting cancels any
proxy previously returned.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. KLOSTERMAN
R.J. KLOSTERMAN
SECRETARY
November 8, 2001
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PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY
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PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Flexsteel Industries, Inc. (the "Company") to be used at the Annual Meeting of
Stockholders to be held on Monday, December 10, 2001, and any adjournments
thereof, and may be revoked by the stockholder at any time before it is
exercised by a written notice or a later dated proxy delivered to the Secretary
of the Company. Execution of the proxy will in no way affect a stockholder's
right to attend the meeting and vote in person. The proxy will be revoked if the
stockholder is present at the meeting and votes by ballot in person. Properly
executed proxies received prior to the voting at the meeting will be voted at
the meeting or any adjournments thereof. If a stockholder specifies how the
proxy is to be voted on any business to come before the meeting, it will be
voted in accordance with such specification. If no specification is made, it
will be voted FOR the election of Edward J. Monaghan, Jeffrey T. Bertsch and
Lynn J. Davis as Class III Directors (Proposal I), and FOR ratification of the
appointment of Deloitte & Touche LLP (Proposal II). Each of the above named
nominees has been previously elected by the stockholders, except Lynn J. Davis.
The mailing address of the corporate office and principal executive office
of the Company is P.O. Box 877, Dubuque, IA 52004-0877. The approximate date on
which this proxy statement and accompanying proxy card are first being mailed to
stockholders is November 8, 2001.
As of the close of business on October 23, 2001, the record date for
determining stockholders entitled to notice and to vote at the meeting, the
Company had 6,072,020 outstanding shares of Common Stock, par value $1.00 per
share. Each share is entitled to one vote and cumulative voting is not
permitted. No Preferred Stock is outstanding.
Stockholder votes will be counted by the Inspector of Election who will be
present at the stockholder meeting. The affirmative vote of a majority of the
shares of stock represented at the meeting shall be the act of the stockholders
for the election of directors. Abstentions and broker non-votes shall not be
counted as votes for or against the proposal being voted on.
EXPENSE OF SOLICITATION
The cost of the solicitation of proxies on behalf of the Board of Directors
will be paid by the Company. Solicitation of proxies will be principally by
mail. In addition, the officers or employees of the Company and others may
solicit proxies, either personally, by telephone, by special letter, or by other
forms of communication. The Company will also make arrangements with banks,
brokerage houses and other custodians, nominees and fiduciaries to send proxies
1
and proxy material to their principals and will reimburse them for reasonable
expenses in so doing. Officers and employees of the Company will not receive
additional compensation in connection with the solicitation of proxies.
PROPOSAL I
ELECTION OF DIRECTORS
The Board currently consists of nine persons divided into three classes. At
each Annual Meeting the terms of one class of Directors expire and persons are
elected to that class for terms of three years or until their respective
successors are duly qualified and elected or until their earlier resignation,
removal or termination.
The Board of Directors of the Company has nominated Edward J. Monaghan,
Jeffrey T. Bertsch and Lynn J. Davis for election as Class III Directors of the
Company. The Class III Directors' term expires at the time of the year 2004
Annual Meeting and until their respective successors have been elected and
qualified or until their earlier resignation, removal or termination. It is the
intention of the proxies named herein to vote FOR these nominees unless
otherwise directed in the proxy.
All nominees named above have consented to serve as Directors if elected.
In the event that any of the nominees should fail to stand for election, the
persons named as proxy in the enclosed form of proxy intend to vote for
substitute nominees. The proxies cannot be voted for a greater number of persons
than the number of nominees named herein.
2
DIRECTOR PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS OR
NAME AGE SINCE EMPLOYMENT DURING THE LAST FIVE YEARS
------------------------- ----- ---------- ----------------------------------------------------------------
NOMINEES FOR ELECTION FOR A TERM OF THREE YEARS EXPIRING AT THE 2004 ANNUAL
MEETING, CLASS III
Edward J. Monaghan (3) 62 1987 Chief Operating Officer and Executive Vice President, 1993 to
present, Flexsteel Industries, Inc.; Trustee, Clarke College.
Jeffrey T. Bertsch (3) 46 1997 Vice President Corporate Services, 1989 to present, Flexsteel
Industries, Inc.; Director, American Trust and Savings Bank,
Dubuque, Iowa; Trustee, University of Dubuque.
Lynn J. Davis (1)(3) 54 1999 President 2001 to present, Senior Vice President, 1991 to 2001,
ADC Telecommunications, Inc.; Director, Automated Quality
Technologies, Inc. (mfr. of non-contact measurement equipment).
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE 2002 ANNUAL MEETING,
CLASS I
K. Bruce Lauritsen 59 1987 Chief Executive Officer and President, 1993 to present, Flexsteel
Industries, Inc.
Thomas E. Holloran(1)(2) 72 1971 Professor, Graduate School of Business, University of St. Thomas,
St. Paul; former Director, Medtronic, Inc, (1960 - 2000).
L. Bruce Boylen(2) 69 1993 Retired Vice President, Fleetwood Enterprises, Inc. (retired 1991)
(mfr. of recreational vehicles and manufactured homes).
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE 2003 ANNUAL MEETING,
CLASS II
James R. Richardson(3) 57 1990 Senior Vice President Marketing, 1994 to present, Flexsteel
Industries, Inc.
Patrick M. Crahan(3) 53 1997 Vice President, Dubuque Upholstering Division, 1989 to present,
Flexsteel Industries, Inc; Director, American Trust and Savings
Bank, Dubuque, Iowa; Trustee, University of Dubuque.
Marvin M. Stern(1)(2)(3) 65 1998 Retired Vice President, Sears-Roebuck Company (retired 1996).
---------------------
(1) Member of Audit Committee
(2) Member of Compensation and Nominating Committee
(3) Member of Marketing and Planning Committee
3
CERTAIN INFORMATION CONCERNING BOARD
AND OUTSIDE DIRECTOR'S COMPENSATION
During the fiscal year ended June 30, 2001, four meetings of the Board of
Directors were held. No Director attended less than 75% of the meetings.
Each Director who is not an employee of the Company is paid a retainer at
the rate of $9,600 per year. In addition, each is paid a fee of $2,400 for each
Board meeting each attends. The Chairman of the Board is paid a retainer of
$16,800 per year and a fee of $4,200 for each Board meeting attended. For
attending a committee meeting each is paid a fee of $1,000. The Chairman of each
Committee is paid $1,100 for each meeting attended. The Company pays no
additional remuneration to employees of the Company who are Directors. All of
the aforementioned amounts were subject to a voluntary 10% reduction effective
with the March, 2001 Board meeting.
Each Director who is not an employee of the Company receives on the first
business day after each annual meeting a non-discretionary, non-qualified stock
option grant for 1,000 shares valued at fair market value on date of grant,
exercisable for 10 years. Each person who becomes for the first time a
non-employee member of the Board, including by reason of election, appointment
or lapse of three (3) years since employment by the Company, will receive an
immediate one-time option grant for 2,000 shares.
The Company has entered into an agreement with Thomas E. Holloran pursuant
to which the Company will pay to him, or his beneficiaries, $20,000 after he
ceases to be a Director as additional compensation in recognition of Director
services rendered.
4
COMMITTEES OF THE BOARD
The Board of Directors has established three standing committees; the names
of the committees and the principal duties are as follows:
AUDIT COMMITTEE:
Confers with the independent auditors on various matters, including the
scope and results of the audit; authorizes special reviews or audits; reviews
internal auditing procedures and the adequacy of internal controls; and reviews
policies and practices respecting compliance with laws, conflicts of interest
and ethical standards of the Company. The Committee held two meetings during the
fiscal year ended June 30, 2001. The Committee members are Thomas E. Holloran,
Marvin M. Stern and Lynn J. Davis. The Board of Directors has adopted a written
charter for the Audit Committee. The Company believes all audit committee
members are independent as defined in Rule 4200(a)(14) of NASD listing
standards.
COMPENSATION AND NOMINATING COMMITTEE:
Makes recommendations regarding Board compensation, reviews performance and
compensation of various executive officers, determines stock option grants, and
advises regarding employee benefit plans. Makes recommendations regarding Board
of Director nominees and reviews timely proposed nominees received from any
source including nominees by stockholders. Nominations by stockholders must be
received by the Secretary at least 18 days before the annual meeting and set
forth nominee information as required by the Restated Articles which are
available upon request to the Secretary of the Company. The Committee held two
meetings during the fiscal year ended June 30, 2001. The Committee members are
L. Bruce Boylen, Thomas E. Holloran and Marvin M. Stern.
MARKETING AND PLANNING COMMITTEE:
Reviews marketing plans with respect to the Company's position in the
various market places. Makes recommendations regarding marketing direction to
enhance revenues and profit margins. The Committee held three meetings during
the fiscal year ended June 30, 2001. The Committee members are Marvin M. Stern,
Patrick M. Crahan, Jeffrey T. Bertsch, Lynn J. Davis, Edward J. Monaghan and
James R. Richardson.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITS NOMINEES. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES.
5
OWNERSHIP OF STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the shares of Flexsteel's common stock
beneficially owned by the Directors, the Chief Executive Officer, the other four
most highly compensated executive officers and by all directors and executive
officers as a group as of August 10, 2001. Unless otherwise indicated, to the
best knowledge of the Company all persons named in the table have sole voting
and investment power with respect to the shares shown.
SHARES BENEFICIALLY PERCENT OF TOTAL SHARES
NAME TITLE OWNED (1)(2)(6) OUTSTANDING
----------------- ------------------------------------------------- ------------------- -----------------------
J.T. Bertsch Vice President Corporate Services, Director 336,724(3)(4) 5.5%
L.B. Boylen Chairman of the Board of Directors 10,000 0.2%
P.M. Crahan Vice President Dubuque Upholstering 135,186(4) 2.2%
Division, Director
L.J. Davis Director 4,000 0.1%
T.E. Holloran Director 15,680 0.3%
K.B. Lauritsen President, Chief Executive Officer, Director 142,776(4) 2.4%
E.J. Monaghan Executive Vice President, Chief Operating 154,629(4) 2.5%
Officer, Director
J.R. Richardson Senior Vice President Marketing, Director 468,786(4)(5) 7.7%
M.M. Stern Director 5,000 0.1%
T.D. Burkart Senior Vice President Vehicle Seating 81,691(4) 1.3%
R.J. Klosterman Vice President Finance, Chief Financial Officer 87,052(4) 1.4%
and Secretary
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (11) 1,441,524 23.8%
-----------------------
(1) Includes the following number of shares which may be acquired by exercise
of stock options: J.T. Bertsch -- 47,000; L.B. Boylen -- 10,000; P.M.
Crahan -- 47,400; L.J. Davis -- 4,000; T.E. Holloran -- 11,000; K.B.
Lauritsen -- 72,345; E.J. Monaghan -- 63,920; J.R. Richardson -- 61,970;
M.M. Stern -- 5,000; T.D. Burkart -- 44,000; R.J. Klosterman -- 52,700.
(2) Includes shares, if any, owned beneficially by their respective spouses.
(3) Does not include 178,192 shares held in irrevocable trusts for which trusts
American Trust & Savings Bank serves as sole trustee. Under the Terms of
Trust, J. T. Bertsch has a possible contingent interest. J. T. Bertsch
disclaims beneficial ownership in the shares held by each such trust.
(4) Includes shares awarded pursuant to the Company's Long-Term Incentive Plan
over which shares the Grantee has voting rights. Investment rights are
restricted subject to continued service with the Company.
(5) Includes 240,312 shares held in the Irrevocable Arthur D. Richardson Trust
for which American Trust & Savings Bank serves as sole trustee but over
which shares J.R. Richardson has the rights of voting and disposition.
(6) Includes the following number of shares deferred pursuant to election to
participate in the Company's Voluntary Deferred Compensation Plan: J.T.
Bertsch -- 2,083; P.M. Crahan -- 2,626; K.B. Lauritsen -- 5,724; E.J.
Monoaghan -- 3,865; J.R. Richardson -- 3,386.
6
OWNERSHIP OF STOCK BY
CERTAIN BENEFICIAL OWNERS
AS OF AUGUST 10, 2001
To the best knowledge of the Company, no person owns beneficially 5% or
more of the outstanding common stock of the Company except as is set forth
below.
AMOUNT PERCENT
BENEFICIALLY OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) CLASS
-------------- ------------------------------------------------ ------------ -------
Common J.T. Bertsch, P.O. Box 877, Dubuque, IA 52004 336,724 5.5%
Common J.B. Crahan, P.O. Box 877, Dubuque, IA 52004 359,213 5.9%
Common J.R. Richardson, P.O. Box 877, Dubuque, IA 52004 468,786(2) 7.7%
Common Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, Santa Monica, CA 90401 476,700 7.9%
Common Royce & Associates
1414 Avenue of the Americas
New York, NY 10019 410,400 6.8%
-----------------------
(1) To the best knowledge of the Company, no beneficial owner named above has
the right to acquire beneficial ownership in additional shares.
(2) Includes 240,312 shares held in the Irrevocable Arthur D. Richardson Trust
for which American Trust & Savings Bank serves as sole trustee but over
which shares J.R. Richardson has the rights of voting and disposition.
7
The following table discloses compensation received by the Company's Chief
Executive Officer and the four remaining most highly paid executive officers for
the three (3) fiscal years ending June 30, 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------------------------- ------------------------ ---------------------
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
SALARY BONUS COMP AWARDS OPTIONS PAYOUTS COMP
NAME & PRINCIPAL POSITION YEAR $ $ $ $ # $ $(1)
--------------------------- ---- ------- ------- -------- ---------- ---------- --------- --------
K. Bruce Lauritsen 2001 323,589 0 14,000 63,307 136,287
President & Chief 2000 316,500 181,068 12,000 76,020 169,744
Executive Officer 1999 302,850 178,239 9,500 70,587 26,616
Edward J. Monaghan 2001 243,945 0 10,000 42,747 130,421
Executive Vice President 2000 239,700 137,559 9,000 52,054 119,708
& Chief Operating Officer 1999 229,950 121,809 9,000 46,596 9,832
James R. Richardson 2001 213,699 0 10,000 37,449 68,753
Senior Vice President of 2000 210,300 121,046 9,000 45,714 117,627
Marketing 1999 201,750 105,896 8,500 40,748 23,152
Ronald J. Klosterman 2001 185,319 0 10,000 32,472 57,183
Vice President of 2000 180,600 92,292 9,000 37,647 171,770
Finance & Secretary 1999 171,750 90,312 8,500 34,706 33,066
Thomas D. Burkart 2001 188,535 0 10,000 33,036 67,402
Senior Vice President 2000 183,600 105,889 9,000 39,938 93,212
Vehicle Seating 1999 174,300 103,734 7,500 36,826 26,596
-----------------------
(1) All Other Compensation -- Includes for the fiscal years and the named
executive officers indicated below: (i) retirement plan contributions, (ii)
Company matching contributions to the Section 401k plan, (iii) accruals
made in accordance with the Company's Senior Officer Deferred Compensation
Plans and (iv) gross-up amounts to cover income taxes payable on current
and prior years common stock awards taxable in the current year.
8
RETIREMENT DEFERRED COMP
NAME YEAR PLAN 401K COMP TAXES
---------------------- ---- ---------- ------ -------- -------
K. Bruce Lauritsen 2001 8,676 1,700 82,911 43,000
2000 8,148 1,600 159,996 0
1999 8,232 1,600 16,784 0
Edward J. Monaghan 2001 8,676 1,700 91,045 29,000
2000 8,148 1,600 109,960 0
1999 8,232 1,600 0 0
James R. Richardson 2001 8,676 1,700 32,977 25,400
2000 8,148 1,600 107,879 0
1999 8,232 1,600 13,320 0
Ronald J. Klosterman 2001 8,676 1,700 18,307 28,500
2000 8,148 1,600 162,022 0
1999 8,232 1,600 23,234 0
Thomas D. Burkart 2001 8,676 1,700 27,126 29,900
2000 8,148 1,600 83,464 0
1999 8,232 1,600 16,764 0
STOCK OPTIONS/SAR*
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
OPTION TERM (1)
---------------------
EXERCISE
NAME SHARES PRICE ($/SH) EXPIRE DATE 5% 10%
-------------------- -------- ------------ ----------- --------- ----------
K. Bruce Lauritsen 14,000 10.75 11/14/2010 94,649 239,858
Edward J. Monaghan 10,000 10.75 11/14/2010 67,606 171,327
James R. Richardson 10,000 10.75 11/14/2010 67,606 171,327
Ronald J. Klosterman 10,000 10.75 11/14/2010 67,606 171,327
Thomas D. Burkart 10,000 10.75 11/14/2010 67,606 171,327
-----------------------
* The Company does not have a stock appreciation rights plan (SAR).
(1) The amounts set forth in these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercise are dependent on the future
performance of the Company's common stock.
9
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FY-END 2001 AT FY-END 2001 (1)
---------------------- --------------------
# OF SHARES
ACQUIRED ON $ VALUE # $
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
-------------------- ----------- -------- ---------------------- --------------------
K. Bruce Lauritsen -0- -0- 72,345 73,431
Edward J. Monaghan -0- -0- 63,920 66,675
James R. Richardson -0- -0- 61,970 64,258
Ronald J. Klosterman -0- -0- 52,700 53,676
Thomas D. Burkart 5,000 12,188 44,000 40,956
-----------------------
(1) Based on the closing price as published in The Wall Street Journal for the
last business day of the fiscal year ($11.98). All options are exercisable
at time of grant.
10
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
OTHER PERIOD ESTIMATED FUTURE
NUMBER OF UNTIL PAYOUTS UNDER
SHARES, UNITS MATURATION OR NON-STOCK PRICE BASED
NAME OR OTHER RIGHTS PAYOUT (1) PLANS (2)
--------------------- --------------- -------------- ---------------------
K. Bruce Lauritsen 5,724
Edward J. Monaghan 3,865
James R. Richardson 3,386
Ronald J. Klosterman 2,936
Thomas D. Burkart 2,987
-----------------------
Shares of the Company's common stock are available for award annually to key
employees based on the average of the returns on beginning equity for the last
three years.
(1) Shares awarded are subject to restriction, with 33.3% of the stock received
by the employee on the award date and 33.3% each year for the next two
years. Restricted Stock Awards -- The aggregate stock holdings (number of
shares and value) as of August 1, 2001 are as follows: K. Bruce Lauritsen
-- 3,816 shares, $42,205; Edward J. Monaghan -- 2,577 shares, $28,498;
James R. Richardson -- 2,257 shares, $24,966; Ronald J. Klosterman -- 1,957
shares, $21,648; Thomas D. Burkart -- 1,991 shares, $22,024. Dividends are
paid to the employee on restricted shares.
(2) Not applicable to Plan.
NOMINATING AND COMPENSATION COMMITTEE REPORT CONCERNING
FLEXSTEEL'S EXECUTIVE COMPENSATION POLICY
The Nominating and Compensation Committee of the Board of Directors is
responsible for the establishing of the Company's policy for compensating
executives. The Committee is comprised of non-employee directors.
COMPENSATION PHILOSOPHY -- The fundamental objective of Flexsteel's
executive compensation program is to support the achievement of the Company's
business objectives and, thereby, the creation of stockholder value. As such,
the Company's philosophy is that executive compensation policy and practice
should be designed to achieve the following objectives:
* Align the interests of executives with those of the Company and its
stockholders by providing a significant portion of compensation in
Company stock.
* Provide an incentive to executives by tying a meaningful portion of
compensation to the achievement of Company financial objectives.
11
* Enable the Company to attract and retain key executives whose skills
and capabilities are needed for the continued growth and success of
Flexsteel by offering competitive total compensation opportunities and
providing attractive career opportunities.
In compensating senior management for its performance, two key measures are
considered: return on equity and stock price. At the executive level, overall
Company performance is emphasized in an effort to encourage teamwork and
cooperation.
While a significant portion of compensation fluctuates with annual results,
the total program is structured to emphasize longer-term performance and
sustained growth in stockholder value.
COMPETITIVE POSITIONING -- The Committee regularly reviews executive
compensation levels to ensure that the Company will be able to attract and
retain the caliber of executives needed to run the Company and that pay for
executives is reasonable and appropriate relative to market practice. In making
these evaluations, the Committee annually reviews the result of surveys of
executive salary and annual bonus levels among durable goods manufacturers of
comparable size. The Committee periodically completes an in-depth analysis of
salary, annual bonus, and long-term incentive opportunities among specific
competitors assisted by an independent compensation consulting firm. The
surveyed companies are included in the Household Furniture Index used as the
peer group for purposes of the performance graph. While the pay of an individual
executive may vary, the Company's Policy is to target aggregate compensation for
executives at average competitive levels, provided commensurate performance.
COMPONENTS OF EXECUTIVE COMPENSATION -- The principal components of
Flexsteel's executive compensation program include base salaries, annual cash
bonuses, and longer-term incentives using Company stock.
BASE SALARY -- An individual executive's base salary is based upon the
executive's level of responsibility and performance within the Company, as well
as competitive rates of pay. The Committee reviews each executive officer's
salary annually and makes adjustments, as appropriate, in light of any change in
the executive's responsibility, changes in competitive salary levels, and the
Company's performance.
ANNUAL INCENTIVE -- The purpose of the Company's annual incentive program
is to provide a direct monetary incentive to executives in the form of annual
cash bonus tied to the achievement of performance objectives. For executive
officers, the Committee annually sets a targeted return on equity for the coming
year, from which minimum and maximum levels are determined. Corresponding
incentive award levels, expressed as a percentage of salary, also
12
are set based primarily on an individual's responsibility level. If minimum
performance levels are not met, no bonus award is made. After the completion of
the year, the Committee ratifies cash bonuses as awarded based principally on
the extent to which targeted return on equity has been achieved.
LONG-TERM INCENTIVES -- Longer-term incentive compensation involves the use
of stock under two types of awards: Long-term incentive awards and stock
options. Both types of awards are intended to focus executives' attention on the
achievement of the Company's longer term performance objectives, to align the
executive officers' interests with those of stockholders and to facilitate
executives' accumulations of sustained holding of Company stock. The level of
award opportunities, as combined under both plans, are intended to be consistent
with typical levels of comparable companies and reflect an individual's level of
responsibility and performance.
Long-term incentive awards are paid under the stockholder approved
Management Incentive Plan. Awards give executives the opportunity to earn shares
of Company stock to the extent that the three-year average return on equity
objectives are achieved. As with annual incentives, various levels of
performance goals and corresponding compensation amounts are established, with
no awards earned if a minimum level is not achieved. Two-thirds of any earned
shares are subject to forfeiture provisions tied to the executive's continued
service with the Company. This provision is intended to enhance the Company's
ability to retain key executives and provide a longer-term performance focus.
Stock options, as awarded under stockholder approved plans, give executives
the opportunity to purchase Flexsteel common stock for a term not to exceed ten
years and at a price of no less than the fair market value of Company stock on
the date of grant. Executives benefit from stock options only to the extent
stock price appreciates after the grant of the option.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER -- The total compensation for
Flexsteel's CEO in fiscal year 2001 was established in accordance with the
policies discussed above. Mr. Lauritsen's base salary increase reflects market
movements in executive salaries. Mr. Lauritsen did not receive an annual cash
bonus award for fiscal year 2001 as the minimum level for the annual return on
equity was not achieved. His long-term incentive award was based on the
Company's achievement of minimum established target levels for the three year
average return on equity. Mr. Lauritsen's stock option award was consistent with
prior awards and those to other senior executives.
The Company's current levels of compensation are less than the $l,000,000
level of non-deductibility with respect to Section 162(m) of the Internal
Revenue Code.
13
This report has been prepared by members of the Compensation and Nominating
Committee of the Board of Directors. Members of this Committee are:
L. Bruce Boylen Thomas E. Holloran Marvin M. Stern
Chair
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the audited financial
statements with management. The Audit Committee has discussed with the
independent auditors the matters required to be discussed by Statements on
Auditing Standards (SAS) No. 61 "Communication with Audit Committees", as may be
modified or supplemented. The Audit Committee has received the written
disclosures and the letter from the independent accountant required by
Independence Standards Board Standard No. 1, as may be modified or supplemented,
and has discussed with the independent accountant, the independent accountant's
independence. Based on the review and discussions referred to above in this
report, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the last fiscal year for filing with the Commission.
This report has been prepared by members of the Audit Committee. Members of
this Committee are:
Thomas E. Holloran Marvin M. Stern Lynn J. Davis
Chair
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The current members of Flexsteel's Compensation and Nominating Committee
are L. Bruce Boylen, Chairman, Thomas E. Holloran and Marvin M. Stern. No
executive officer of Flexsteel served as a director of another entity that had
an executive officer serving on Flexsteel's compensation committee. No executive
officer of Flexsteel served as a member of the compensation committee of another
entity which had an executive officer who served as a director of Flexsteel.
14
SHARE INVESTMENT PERFORMANCE
The following graph is based upon the SIC Code #251 Household Furniture
Index as a peer group. It shows changes over the past five-year period in the
value of $100 invested in: (1) Flexsteel's Common Stock; (2) the NASDAQ Market
Index; and (3) an industry group of the following: Bassett Furniture Ind., Bush
Industries Inc. CL A, Chromcraft Revington Inc., DMI Furniture, Inc., Ethan
Allen Interiors, Flexsteel Industries, Inc., Furniture Brands Intl., Industrie
Natuzzi S.P.A., Keller Manufacturing, Krause's Furniture, Inc., La-Z-Boy Inc.,
Leggett & Platt Inc., The Rowe Companies, Stanley Furniture Inc. and Wellington
Hall, Ltd. This data was furnished by Media General Financial Services. The
graph assumes reinvestment of dividends.
15
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON JUNE 30, 1996
[PLOT POINTS CHART]
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
Flexsteel 100.00 104.13 128.79 127.34 121.99 124.77
Furniture Household 100.00 144.66 183.47 191.42 118.41 159.80
NASDAQ 100.00 120.46 159.68 223.77 336.71 186.46
16
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Information with respect to directorships held by certain directors of the
Company in local financial institutions is set forth in the table under
"Proposal I -- Election of Directors," in the column captioned "Principal
Occupation and Other Directorships or Employment during the Last Five Years."
The Company maintains normal banking relations with the bank named in the table.
It is expected that the Company's relationship with the bank will continue in
the future.
PROPOSAL II
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has
appointed Deloitte & Touche LLP as independent certified public accountants to
examine the financial statements of the Company for the fiscal year ending June
30, 2002.
The Company has been informed by Deloitte & Touche LLP that neither it nor
its members nor its associates has any direct, nor any material indirect
financial interest in the Company. Management is not aware of any material
connection by such firm in the recent past with the Company in any capacity
other than as independent auditors. Representatives of Deloitte & Touche LLP are
expected to be present during the annual meeting. They are expected to be
available to respond to appropriate questions and will have the opportunity to
make a statement if they wish.
Audit services performed by Deloitte & Touche LLP during the fiscal year
include examinations of the financial statements of the Company, services
related to filings with the Securities and Exchange Commission and consultation
on matters related to accounting, taxation and financial reporting. Professional
services were reviewed by the Audit Committee and the possible effect on the
auditor's independence was considered.
AUDIT FEES
The aggregate fees billed for professional services rendered for the audit
of the Company's annual financial statements for the 2001 fiscal year and the
reviews of the financial statements included in the Company's Form 10-Q for that
fiscal year were $125,000.
FINANCIAL INFORMATION DESIGN AND IMPLEMENTATION FEES
There were no fees billed for professional services described in Paragraph
(c)(4)(ii) of Rule 2-01 of Regulation S-X rendered by Deloitte & Touche LLP, the
Company's principal independent accountant, for the fiscal year 2001.
17
ALL OTHER FEES
The aggregate fees billed for services by Deloitte & Touche LLP, other than
the services covered in the preceding two paragraphs, for the fiscal year 2001
were $48,000, which were primarily tax services.
The Audit Committee has considered and found the provision of services
covered in the two preceding paragraphs compatible with maintaining Deloitte &
Touche LLP's independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF DELOITTE & TOUCHE LLP. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR
PROXIES.
PROPOSALS BY STOCKHOLDERS
Stockholders wishing to have a proposal considered for inclusion in the
Company's proxy statement for the 2002 annual meeting must submit the proposal
in writing and direct it to the Secretary of the Company at the address shown
herein. It must be received by the Company no later than June 30, 2002.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) requires the Company's directors and executive officers to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership of the Company's Common Stock, and the Company is required
to identify any of those persons who fail to file such reports on a timely
basis. To the best of the Company's knowledge, there were no late filings by
directors and executive officers during fiscal year 2001.
OTHER MATTERS
The percentage total number of the outstanding shares represented at each
of the last three years stockholders' meetings was as follows: 1998 -- 80.1%;
1999 -- 92.0%; 2000 -- 89.5%.
UPON WRITTEN REQUEST THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2001. REQUESTS SHOULD
BE DIRECTED TO THE SECRETARY OF THE COMPANY AT P.O. BOX 877, DUBUQUE, IA
52004-0877.
The Board of Directors does not know of any other matter which may come
before the meeting. However, should any other matter properly come before the
meeting, the persons named in the Proxy will vote in accordance with their
judgment upon such matters unless a contrary direction is indicated by the
Stockholder by his lining or crossing out the authority on the Proxy.
18
Stockholders are urged to vote, date, sign and return the Proxy form in the
enclosed envelope to which no postage need be affixed if mailed in the United
States. Prompt response is helpful and your cooperation will be appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. KLOSTERMAN
R.J. KLOSTERMAN
SECRETARY
Dated: November 8, 2001
Dubuque, Iowa
19
[LOGO]
FLEXSTEEL(R)
AMERICA'S SEATING SPECIALIST
NOTICE OF 2001
ANNUAL MEETING
AND
PROXY STATEMENT
THE FLEXSTEEL INDUSTRIES, INC. THIS PROXY IS SOLICITED ON BEHALF OF
P.O. BOX 877 BOARD OF DIRECTORS FOR THE ANNUAL MEETING
DUBUQUE, IOWA 52004-0877 OF STOCKHOLDERS TO BE HELD DECEMBER 10, 2001
The undersigned, a stockholder of Flexsteel Industries, Inc., hereby
appoints K. Bruce Lauritsen and R. J. Klosterman and each of them, as proxies,
with full power of substitution, to vote on behalf of the undersigned the same
number of shares which the undersigned is then entitled to vote at the Annual
Meeting of the Stockholders of Flexsteel Industries, Inc., to be held on Monday,
December 10, 2001 at 2:00 P.M. at the Hilton Minneapolis, 1001 Marquette Avenue,
Minneapolis, Minnesota 55403, and at any adjournments thereof as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
--------------------------------------------------------------------------------
Proposal No. 1 -- Election of three (3) Class III Directors (Term Expires at the
2004 Annual Meeting):
EDWARD J. MONAGHAN JEFFREY T. BERTSCH LYNN J. DAVIS
(Class III) (Class III) (Class III)
[ ] FOR all Nominees [ ] WITHHELD from all [ ] WITHHELD from the following
(Except as marked to Nominees only: (Write name(s) below)
the contrary)
---------------------------
---------------------------
--------------------------------------------------------------------------------
Proposal No. 2 -- Appointment of Deloitte & Touche LLP as Independent Auditors
for the ensuing fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
--------------------------------------------------------------------------------
In their discretion to vote upon such other business as may properly come before
the meeting, or any adjournments thereof, UNLESS THE STOCKHOLDER LINES OR
CROSSES OUT THIS AUTHORITY.
--------------------------------------------------------------------------------
(IMPORTANT: continued, and to be signed and dated, on the reverse side)
(CONTINUED FROM OTHER SIDE)
The Undersigned hereby revokes any proxy or proxies to vote such
shares heretofore given.
PLEASE VOTE, DATE, SIGN, AND RETURN IN THE ENCLOSED ENVELOPE.
Dated _____________________________, 2001.
__________________________________________
(Signature)
__________________________________________
Signature of stockholder shall
correspond exactly with the name appearing
hereon.
If a joint account, each owner must
sign. When signing as attorney, executor,
administrator, trustee, guardian or
corporate official, give your full title
as such.
This proxy when properly executed will be voted in the manner directed hereon by
the above signed stockholder. If no direction is given, this proxy will be voted
FOR Proposals 1 and 2, and the grant of authority to vote upon such other
business as may properly come before the meeting or any adjournments thereof
will not be crossed out.