Flexsteel Announces Second Quarter and Year-To-Date Operating Results

DUBUQUE, Iowa--(Business Wire)--
Flexsteel Industries, Inc. (NASDAQ:FLXS) today reported sales and
earnings for its second quarter and fiscal year-to-date ended December
31, 2007.

The Company reported net sales for the quarter ended December 31,
2007 of $106.0 million compared to the prior year quarter of $105.7
million, an increase of 0.3%. Net income for the current quarter was
$1.9 million or $0.28 per share compared to $1.4 million or $0.21 per
share in the prior year quarter.

Net sales for the six months ended December 31, 2007 and 2006 were
$206.9 million and $207.0 million, respectively. Net income for the
six months ended December 31, 2007 was $3.1 million or $0.46 per
share, an increase of 55% from net income of $2.0 million or $0.30 per
share for the six months ended December 31, 2006.

For the quarter ended December 31, 2007, residential net sales
were $67.5 million compared to $67.0 million, an increase of 0.8% from
the prior year quarter. Recreational vehicle net sales were $14.9
million in the current and prior year quarters. Commercial net sales
were $23.6 million compared to $23.8 million in the prior year
quarter, a decrease of 0.7%.

For the six months ended December 31, 2007, residential net sales
were $130.2 million, an increase of 1.1% from the six months ended
December 31, 2006. Recreational vehicle net sales were $30.6 million,
a decrease of 0.9% from the six months ended December 31, 2006.
Commercial net sales were $46.1 million, a decrease of 2.8% from the
six months ended December 31, 2006.

Gross margin for the quarter ended December 31, 2007 was 20.8%
compared to 18.7% in the prior year quarter. For the six months ended
December 31, 2007, the gross margin was 20.2% compared to 18.4% for
the prior year six-month period. The gross margin improvement for the
quarter and the six-month period is primarily due to the impact of
changes in product mix and better cost control, as compared to the
prior year periods.

Selling, general and administrative expenses were 17.8% and 16.4%
of net sales for the quarters ended December 31, 2007 and 2006,
respectively. The increase in quarterly SG&A expenses was due
primarily to an increase in selling expenses of approximately $1.2
million and an increase in bad debt expense of approximately $0.3
million. For the six months ended December 31, 2007 and 2006, selling,
general and administrative expenses were 17.6% and 16.7% of net sales,
respectively. The increase in SG&A expenses for the six-month period
was due primarily to an increase in selling expenses of approximately
$1.3 million and an increase in bad debt expense of approximately $0.5
million.

Working capital (current assets less current liabilities) at
December 31, 2007 was $102.7 million. Net cash provided by operating
activities was $3.7 million for the six months ended December 31,
2007. Significant changes in working capital from June 30, 2007 to
December 31, 2007 included decreased accounts receivable of $8.8
million, increased inventory of $9.3 million and decreased accounts
payable of $0.9 million. The decrease in receivables is related to the
timing of shipments to customers and the related payment terms. The
increase in inventory is due primarily to the timing of purchases of
finished goods to meet our forecasted customer requirements and new
product introductions.

Capital expenditures were $0.9 million during the first six months
of fiscal year 2008. Depreciation and amortization expense was $2.4
million and $2.7 million in the six-month periods ended December 31,
2007 and 2006, respectively. The Company expects that capital
expenditures will be approximately $1.5 million for the remainder of
the fiscal year, primarily for manufacturing equipment. The Company
believes that existing credit facilities are adequate for its capital
requirements for the remainder of fiscal year 2008.

All earnings per share amounts are on a diluted basis.

Outlook

Events on national and international economic and political fronts
have put a significant damper on consumer confidence in the United
States. A slumping housing market impacted greatly by sub-prime
mortgage defaults and rising oil prices leading to increased cost for
materials and transportation are two principal contributors to a
general slowdown of the overall economy and the furniture market in
particular.

Although industry-wide trends indicate a soft market environment
for residential products, orders for the Company's residential
products have remained constant throughout the first half of fiscal
2008. The Company expects order levels to remain comparable to the
prior year levels throughout fiscal year 2008. However, further
industry-wide declines could result in lower order levels for the
Company. Orders for recreational vehicle products continue to be down,
and we expect this to continue through the remainder of fiscal year
2008. Our orders for products into commercial hospitality applications
slowed in the first half of the 2008 fiscal year as compared to the
relatively high levels experienced in the first half of fiscal year
2007, and we expect orders to be lower than the prior year period into
the second half of fiscal year 2008. The Company anticipates continued
modest increases in commercial office orders and shipments through the
balance of fiscal year 2008.

The Company continues to review capital allocation in relation to
business conditions and to explore cost control opportunities in all
facets of its business. The Company believes it has the necessary
inventories, product offerings and marketing strategies in place to
take advantage of opportunities for expansion of market share. We
believe that consumers will continue to value a broad selection of
designs, as well as a wide range of fabrics and leathers. Based on
this, the Company anticipates continuing its strategy of providing
furniture from a wide selection of domestically manufactured and
imported products.

Analysts Conference Call

We will host a conference call for analysts on Friday, February 8,
2008, at 10:30 a.m. Central Time. To access the call, please dial
1-888-275-4480 and provide the operator with ID# 25554745. A replay
will be available for two weeks beginning approximately two hours
after the conclusion of the call by dialing 1-800-642-1687 and
entering ID# 25554745.

Forward-Looking Statements

Statements, including those in this release, which are not
historical or current facts, are "forward-looking statements" made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. There are certain important factors
that could cause our results to differ materially from those
anticipated by some of the statements made in this press release.
Investors are cautioned that all forward-looking statements involve
risk and uncertainty. Some of the factors that could affect results
are the cyclical nature of the furniture industry, the effectiveness
of new product introductions and distribution channels, the product
mix of sales, pricing pressures, the cost of raw materials and fuel,
foreign currency valuations, actions by governments including taxes
and tariffs, the amount of sales generated and the profit margins
thereon, competition (both foreign and domestic), changes in interest
rates, credit exposure with customers and general economic conditions.
Any forward-looking statement speaks only as of the date of this press
release. We specifically decline to undertake any obligation to
publicly revise any forward-looking statements that have been made to
reflect events or circumstances after the date of such statements or
to reflect the occurrence of anticipated or unanticipated events.

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
www.flexsteel.com.

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FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

December 31, June 30,
2007 2007
------------ ------------
ASSETS

CURRENT ASSETS:
Cash and cash equivalents........... $ 2,183,824 $ 900,326
Investments......................... 1,094,574 976,180
Trade receivables, net.............. 47,491,746 56,273,874
Inventories......................... 88,049,886 78,756,985
Other............................... 5,650,014 5,609,045
------------ ------------
Total current assets...................... 144,470,044 142,516,410

NONCURRENT ASSETS:
Property, plant, and equipment, net. 26,686,809 28,168,244
Other assets........................ 13,636,156 13,479,528
------------ ------------

TOTAL..................................... $ 184,793,009 $ 184,164,182
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable - trade............... $ 12,751,555 $ 13,607,485
Notes payable and current maturities of
long-term debt........................ 7,048,988 7,030,059
Accrued liabilities.................... 21,939,851 22,540,063
------------ ------------
Total current liabilities................. 41,740,394 43,177,607

LONG-TERM LIABILITIES:
Long-term debt......................... 21,076,747 21,336,352
Other long-term liabilities............ 6,472,528 5,535,113
------------ ------------
Total liabilities......................... 69,289,669 70,049,072

SHAREHOLDERS' EQUITY...................... 115,503,340 114,115,110
------------ ------------

TOTAL..................................... $ 184,793,009 $ 184,164,182
============ ============
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FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended
December 31,
--------------------------
2007 2006
------------ ------------
NET SALES................................ $105,985,985 $105,699,659
COST OF GOODS SOLD....................... (83,916,419) (85,925,703)
------------ ------------
GROSS MARGIN............................. 22,069,566 19,773,956
SELLING, GENERAL AND
ADMINISTRATIVE........................... (18,818,209) (17,326,814)
------------ ------------
OPERATING INCOME......................... 3,251,357 2,447,142
------------ ------------
OTHER INCOME (EXPENSE):
Interest and other income........... 121,380 173,287
Interest expense.................... (414,560) (391,772)
------------ ------------
Total.......................... (293,180) (218,485)
------------ ------------
INCOME BEFORE INCOME TAXES............... 2,958,177 2,228,657
PROVISION FOR INCOME TAXES............... (1,090,000) (820,000)
------------ ------------
NET INCOME............................... $ 1,868,177 $ 1,408,657
============ ============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic............................. 6,573,559 6,566,340
============ ============
Diluted........................... 6,616,133 6,579,053
============ ============
EARNINGS PER SHARE OF COMMON STOCK:
Basic............................ $ 0.28 $ 0.21
============ ============
Diluted.......................... $ 0.28 $ 0.21
============ ============

Six Months Ended
December 31,
----------------------------
2007 2006
------------- -------------
NET SALES................................$ 206,886,348 $ 207,039,215
COST OF GOODS SOLD....................... (165,053,239) (168,860,032)
------------- -------------
GROSS MARGIN............................. 41,833,109 38,179,183
SELLING, GENERAL AND
ADMINISTRATIVE........................... (36,381,294) (34,607,791)
------------- -------------
OPERATING INCOME......................... 5,451,815 3,571,392
------------- -------------
OTHER INCOME (EXPENSE):
Interest and other income........... 220,962 331,007
Interest expense.................... (841,950) (780,617)
------------- -------------
Total.......................... (620,988) (449,610)
------------- -------------
INCOME BEFORE INCOME TAXES............... 4,830,827 3,121,782
PROVISION FOR INCOME TAXES............... (1,780,000) (1,150,000)
------------- -------------
NET INCOME...............................$ 3,050,827 $ 1,971,782
============= =============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic............................. 6,572,365 6,565,684
============= =============
Diluted........................... 6,610,176 6,574,963
============= =============
EARNINGS PER SHARE OF COMMON STOCK:
Basic............................$ 0.46 $ 0.30
============= =============
Diluted..........................$ 0.46 $ 0.30
============= =============
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FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended
December 31,
------------------------
2007 2006
----------- -----------
OPERATING ACTIVITIES:
Net income...................................$ 3,050,827 $ 1,971,782
Adjustments to reconcile net income to net
cash Provided by (used in) operating
activities:
Depreciation and amortization............ 2,363,095 2,723,279
Gain on disposition of capital assets.... (43,101) (15,732)
Stock-based compensation expense......... 186,000 274,000
Changes in operating assets and
liabilities............................. (1,841,019) 6,348,886
----------- -----------
Net cash provided by operating activities.... 3,715,802 11,302,215
----------- -----------

INVESTING ACTIVITIES:
Net sales of investments................. 293,244 101,413
Proceeds from sale of capital assets..... 62,496 16,650
Capital expenditures..................... (881,955) (2,984,043)
----------- -----------
Net cash used in investing activities........ (526,215) (2,865,980)
----------- -----------

FINANCING ACTIVITIES:
Net proceeds (payment) of borrowings..... (240,676) (7,641,499)
Dividends paid........................... (1,708,795) (1,706,737)
Proceeds from issuance of common stock... 43,382 34,307
----------- -----------
Net cash used in financing activities........ (1,906,089) (9,313,929)
----------- -----------

Increase in cash and cash equivalents........ 1,283,498 (877,694)
Cash and cash equivalents at beginning of
period...................................... 900,326 1,985,768
----------- -----------
Cash and cash equivalents at end of period...$ 2,183,824 $ 1,108,074
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Flexsteel Industries, Inc., Dubuque
Timothy E. Hall, Chief Financial Officer, 563/585-8392

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