Welcome to Flexsteel's Third Quarter Fiscal Year 2012 Operating Results Conference Call. At this time, I will turn the call over to Mr. Tim Hall, Flexsteel's Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

Thank you, Melissa. Good morning and welcome to our third quarter fiscal year 2012 conference call. We appreciate your participation. Joining me this morning is Mr. Ron Klosterman, our President and Chief Executive Officer. We may make forward-looking statements during this call. While these statements reflect our best judgment at the present time, they are subject to risks and uncertainties that we've described in our SEC filings. Accordingly, our actual results may differ materially from those of our current expectations. We undertake no obligation to update any forward-looking statements made during this call. I would like to highlight some items from our third quarter press release and then I will turn it over to Ron for his comments. Flexsteel is pleased to report that our third quarter earnings were record at $3.3 million or $0.48 per share compared to $2.5 million or $0.35 a share in the prior-year quarter, an increase of 36%. We reported sales for the quarter of $91.6 million, an increase of 7.6% over the prior-year quarter. For the 9 months, net income is $8.7 million or $1.24 a share, about a 25% increase from the prior year 9-month period. Sales during that same period increased 1.1% to $258.2 million. I think that our -- the other comments that I would have would relate to our balance sheet. It remained strong, $19.3 million in cash, $20 million in available borrowing capacity, $103.6 million in working capital. And our book value per share is $20.05 at March 31, 2012, compared to $19.16 at June 30, 2011. That concludes my comments. Ron?

Good morning, and thank you, Tim. Just to expand a little bit on what Tim had to add there, it was a -- for a third quarter of our fiscal year, it was a record net income number at $3.3 million and a very strong increase from a year ago. Going back to the top line, overall, the $91 million revenue number for this March quarter is our highest level of revenue since the June of 2008 quarter. And if I look back at the last 3 years, the March quarters in March of 2010, our revenue was a little over $81 million, in 2011 March quarter, it was $85 million, and now this year, $91.6 million. So I think it shows the continued progress that we're making in the very difficult economic environment that we continue to battle on a day-to-day basis. So we're pleased with the progress both on the top and bottom line. Looking at the details a little bit further. Certainly, the strength is in our Residential business as compared to our Commercial products. And within our Residential, upholstery is stronger than case goods, although this past quarter, we're seeing some positive improvement in our order flow for case goods for our Wynwood product line, and hopefully, that bodes well as we move ahead. We didn't see that in our shipment number because of some lag time between orders and the sourcing of product overseas, et cetera, but our order flow was stronger there. In the Commercial side of the business, our Commercial Office business has improved both on shipments and particularly on orders over the last 90 days from where we were a year ago. On a more restrained side, our Hospitality Senior Living business is not showing improvement yet at this point in time, and our RV business over this fiscal year, over the 3 quarters is down slightly from a year ago, and certainly, it's been impacted during the last quarter with, once again, higher fuel prices seeming to dampen the mood for buying new RVs at this point in time. We're trying to maintain market share in that business but the original equipment manufacturers just aren't producing and selling as many units as we would like to see, and I'm sure is [ph] they would like to see. And as those are pretty well tied into model year programs, our volume is closely tied to whatever level of production and sales that they have. I think on an overall macro basis, we watched closely the housing numbers, which continued to be slow, a little improvement in resale of homes but certainly not robust in spite of very low interest rates. Always concerned about global economic issues, it could impact our U.S. economy, and therefore, the consumer. And certainly, the consumer, I think, in general continues to feel some pressure around their cost of living. We all know what gasoline prices have done and we know that wage increases, for most individuals, continued to be pretty moderate. All of those things give us some cause for caution as we move forward. On the other hand, as I said for our business, our order flow during the January to March quarter was positive both for Residential business, Upholstery and Case Goods, and the DMI Commercial Office, so we feel good about those areas. Tim indicated, we continued to have a very strong balance sheet with now our total assets topping $175 million, having current assets of $134 million versus current liabilities of $30 million, so over $100 million in net current assets. And our shareholder equity on a book value basis, not with the market has [indiscernible] but top $20 for the first time at $20.05 when you take our total equity and divide it by our shares outstanding, so a little bit of a milestone there also, reflecting our long history and I think our conservative nature of managing our business over this time. Those are my prepared remarks at this time. If there are questions, Melissa, we could take those.

[Operator Instructions] Your first question comes from the line of Nick Halen from Sidoti & Company.

Can you just talk a little bit about the sales mix for the upholstered products and I guess what is selling the best right now and where you're seeing demand increase the most on that side?

We normally don't break down too much between Upholstered versus Case Goods. Our Upholstered is our larger segment and has been for many years. Within the upholstery, we're actually seeing strength with our source products, what we call our Latitudes collection especially with the larger independent retailers. And yes, we've seen growth over the last couple of quarters in our Domestically Manufactured Special Ordered business, which primarily we sell through our dedicated gallery and studio locations. Once again, they're -- I don't want to say they're all smaller independent dealers because some of them have some nice size in their given markets but broad base of 600-plus dedicated displays that we have.

Okay. And obviously, you guys have done a great job taking a lot of costs out of the business and there's definitely a lot of leverage going on there. And I was kind of wondering if you see many more opportunities to cut more expenses, I guess, from where you currently are in terms of fixed costs.

I think in the cost of goods area, our fixed costs are really -- were pretty well down to warehousing costs in our remaining manufacturing. And assuming our domestic manufacturing continues to grow, there will be some opportunities for absorption of some of those fixed costs. I don't think at this time that we see any significant cost cutting measures that we're looking at in the area of fixed cost. So we'll be looking at top line growth and further leveraging as -- the current base of fixed costs that we have.

Got you. Okay. And then just on the RV business, I know it's, as you mentioned, it's been pretty stagnant, I guess, just the industry in general. And I was kind of just wondering what your take was in terms of the timeline and when you guys are, I guess internally, I guess hoping and anticipating that industry starting to ramp up a little bit?

Well, it's really been hard to predict. We thought we would have seen a greater turnaround by this time already than what we have. It's been a little bit unusual. The RV industry historically has seen some very substantial dips in their volume but normally have bounced back with pretty good strength after a dip that may last 1 year or 18 months or perhaps even 2 years. This is a little bit different than what has happened in the past and we're having a harder time seeing when that jump in volume might happen. The industry, we know, is now -- is projecting -- the industry organization is projecting growth in the low single-digit percentage for the balance of calendar year 2012. So even their optimism is pretty tempered at this point in time.

Okay. And just lastly real quick, just in terms of the legal fees that you guys incurred in the quarter, I guess, related to the lawsuit. I mean should we expect you guys tinker more of those going forward? I mean, how should we kind of look at that?

Unfortunately, we -- we're -- we think we will have some more. This is turning out to be a fairly lengthy issue that we're battling and it's likely to go on for a few more quarters, but -- we even have a hard time commenting on it because it's just fairly uncertain at this point in time.

Your next question comes from the line of Budd Bugatch from Raymond James.

A couple of questions. One, I've heard from some others in the industry that the business kind of softened toward the latter part of March and into April. And I'm wondering whether you saw that in either order rates or anything geographically that might either confirm or deny that kind of issue?

Sure. Our residential order rate was not -- comparatively, was not a strong year-over-year in March and the first half of April here versus the increases that we saw in January and February. Don't know exactly why that has happened. We frequently talked during the winter months about the negative impact of bad weather, snowstorms, et cetera. I'm not sure that in the month of March in the good part of the country especially here in the Midwest and the East that we weren't adversely affected by great weather. This is my personal opinion. We saw how strong car sales were, automobile sales were in the month of March, and it could very well be that, at least here in Iowa when we're experiencing temperatures in the upper 70s and low 80s in the middle of March instead of having a foot and a half of snow on the ground. Folks were outside and doing other things and maybe that had some impact.

Well, we thought that maybe we've seen some pull forward because we had, actually, good weather in January and February throughout the country. Some of your geographies also had good weather so we might have seen some pull forward into those months. I was wondering whether or not you're had talked to retailers, you had experienced that but I know you will see more retailers this weekend.

Yes. I think for most of our -- most of the home furnishings industries, it seems like retail was relatively strong in most parts of the country in January and February and not quite as strong in March and maybe the first 2 weeks of April there. You're right, it could have been pull forward, as well as people doing other things here in parts of the country when [indiscernible].

We won't know until we know, I guess. Secondly, we've also heard that due to shortages of TDI and polyol, we've seen some relatively significant price increase, cost increases in -- from the foamers, from the chemical suppliers to the foamers and to the foamers to their customers. Are you seeing that?

We are. We started to take some increases from some of our suppliers in the second half of the month of March, more now in April. And as recently as this morning, I had a call, the drum beat is on for more increases. So it's certainly driven by the chemical people, the foamers are trying to pass it through. We've accepted some increases, are trying to battle others and we are -- have announced in our Residential Upholstery business a price increase effective with the market. It's probably not going to be enough to cover if all these increases come through but it will at least be...

We've heard ranges of 14% to 22%.

Yes. Yes.

So you're not -- that's the ranges?

Those are the ranges that they quote and we all try to negotiate our best deal.

All right. Well, that's what the next question was. As -- where does it land and what kind of cost and price increase would be needed to cover just the cost increase without any margin impact, not to get your margin percentage but just to cover the cost increase?

Well, when domestic product for us -- if -- on a sofa that maybe would retail for $1200, if the foam increase, it ends up being -- make it really easy, if the foam increases 10% and we got $100 of content, it's a $10 bill. So it gets pretty large pretty quickly.

No, my question is what is foam as a percentage of selling -- of wholesale selling price?

Well, it vary -- it does really vary a lot by product because it depends if we have poly foam in the in backs or if it's all fiberfill...

Yes, but you know your overall foam usage and you know your overall selling value so you got it. I mean I don't care about the individual, I care about kind of an average. Is it 5% of selling value?

More like 7% or 8%.

Okay, that's very helpful, that's very helpful. And my last question is a little ticklish, but I guess I've always ask those kinds. You've announced that your plans to retire I think by the end of this year, that's still in place? You're still a young man so...

Yes. Well, thank you. Yes, it's -- we're working on a plan here for transition, et cetera, that hopefully will be completed before the end of the calendar year.

And has your successor been named, that's what I have.

Not at its time.

Okay. And the board is going through its process?

Yes, it is.

Okay. Any timeframe as to when that might be done or before the end of the year? I suspect you'd want to have that done long before the end of the year.

We would hope so.

Your next question comes from the line of Paul Resnick [ph] from Common [ph] Equities.

Chinese policies have been kind of shifting lately towards increasing the value of the loan. And I was wondering whether that's potentially going to create some cost difference for you as well?

If it's substantial and over a long period of time, it's likely to. It will change the dynamics between product sourced in China versus product produced elsewhere. For our particular business, certainly, part of our upholstered product comes out of China. Some of our commercial office product comes out of China. A lot of our case goods and other products come out of other Asian countries, Vietnam and Thailand, et cetera. So it's kind of -- it could impact some of our products more than others. We -- basically, we feel it just in cost increases because we don't do anything in fee transactions and foreign currency, everything we purchase is in U.S. dollars, which protects us short term from some fluctuations but obviously, eventually, it works through the cost structure.

Okay. And by the way I just want to tell everybody else and congratulate you on a great quarter particularly with these legal fees. Outstanding.

Our leadership, all and all of our associates here, all of our employees have really worked hard and continued to work hard. But we appreciate the recognition.

[Operator Instructions] Your next question comes from the line of Irwin Michael from ABC Funds.

I'd like to reiterate, congratulations particularly how you handled the business from, say 2008 to 2009. You lost money in 2009, correct? Minus $0.23?

We did because of some non-recurring plant closing restructuring charges. Without those, our operating income was about a breakeven that year.

Well, I think it's great because this foreshadows what could happen. And it looks like you've cleaned out a lot of the unnecessary costs, so you probably have a lot of potential torque if -- as -- when the economy gets better.

We would like to think so.

Okay. And having said that, you've got, just working out the numbers, almost $15.25 of working capital, you're debt-free, you're not even using your line and you’re sitting on cash. What do you do with all of this? Is the Board looking at maybe a dividend increase? Are you looking at a share buyback? Are there some potential tuck-in acquisitions you could make opportunistically?

Yes to basically all of those. Our Board meets quarterly and we have discussions regarding the dividend and our ability to return monies to shareholders. And in addition to that, we have and have been open to and continue to be open to looking at potential acquisitions that we think would be -- make sense for the businesses that we participate in and would make sense for our shareholders.

What does the scenery look in that scene, are there opportunities?

It -- it's -- as things -- as the general economy has bottomed out and gotten a little bit stronger, there are more and more things that are coming forward and being presented. Some of them are of interest and many of them aren't of interest. But it's sort of the ebb and flow that I think companies always go through, in general, industry, the investment community goes through as things start to get a little bit better. There are those who suddenly have an interest in selling their businesses and we have a number of avenues where things are presented to us.

On the real estate, I assume your new building is complete or is it?

It will be completed later this summer, probably during the September quarter.

Okay. And if you can -- what is your intention with the old building, the old structure?

The old building is attached to our warehousing facilities here in Dubuque, Iowa for some of our product. And we have probably 25,000 square feet or thereabouts that we'll look at, if you will, removing the office structure and probably using it for additional warehouse space.

So you have no intention of selling that?

No, it's attached to -- it's on a footprint here where we have about 750,000 square feet of manufacturing and warehousing. So -- and it's really, it's an office within an old manufacturing building, if that makes sense to you.

[Operator Instructions] And there are no further questions at this time.

All right. Well, thank you, all, for listening this morning. I may just close with we hope and are confident that we continue to move along on the right path. If we continue to get a little cooperation for the economy overall, we're confident that we continue to build upon this success that we've had. We thank you very sincerely for your interest in Flexsteel and in your participation in our call this morning. And we'll report our June 30, 2012 fiscal year end results probably sometime in mid-August. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.