Flexsteel Industries Inc. By Ari Lazar and Lerissa Li February 23, 2016

Agenda Business Overview Company Profile Macroeconomic Overview Industry Outlook Financial Analysis Projections Valuation Stock Market Prospects Recommendation

Business Overview “ Incorporated in 1929, Flexsteel is one of the oldest and largest manufacturer, importer and marketer of residential and commercial upholstered and wood furniture products in the United States. ” Trademarks and Patents: Flexsteel Seat Spring, convertible beds Manufacturing Facilities: Arkansas, California, Georgia, Iowa, Mississippi and Juarez, Mexico Distribution Facilities: California, Indiana, Iowa, Kansas, Pennsylvania Distribution Channels: 1,200 retail stores, hundreds of company- owned trucks, unparalleled logistical precision 3 new facilities in last quarter in Indiana, Pennsylvania, and Kansas Sources: Company 10K and Company Website

Realized Rate of Return Company Profile NASDAQ: FLXS Current Price: $41.53 52 Week Range: $27.25 - $48.67 Market Cap: $314.08M P/E Ratio: 13.54 Forward P/E: N/A Dividend Yield: 1.80% EV/Revenue: 0.60x EV/EBITDA: 8.30x Realized Rate of Return Feb 25, 2011 – Feb 22,2016 FLXS NASDAQ Sources: Yahoo Finance and Google Finance

Company CEO Karel Czanderna Became CEO July 2012 100% increase in stock price Harvard Business School B.A. Physics from Clarkson University PHD Materials Science and Engineering from Cornell University VP and General Manager of Portrait Photography Business at Eastman Kodak Helped renovate technology to create new industry standard VP of Cooking Products and Outdoor Kitchens at Whirlpool Responsible for KitchenAid, Maytag, and Whirlpool branded appliances Largest all-kitchen product launch in history of major appliance industry Source: Bloomberg

Macroeconomic Overview U.S. Fixed Mortgage Rate Sources: Mortgage-X-.Com, Nasdaq.com, and Avondale.com (Avondale Asset Management)

Porter’s Five Analysis Supplier Bargaining Power Low Many offshore suppliers of raw materials Threat of Substitutes High Substitute: Second hand furniture Threat of New Entrants Moderate Simple industry Scaling buffer Rivalry Moderate/High Minimal product differentiation Product saturation Buyer Substitute threat Household Furniture Manufacturing Can I say second hand furniture a substitute for this industry

Industry Revenue Outlook Industry Outlook The Household Furniture Manufacturing industry is cyclical  As household incomes rise, US furniture manufacturers will leverage their competitive advantage in producing high-end goods Industry manufacturers are expected to delve deeper into furniture customization over the next five years as a potential competitive advantage over foreign manufacturers Industry Revenue Outlook ( $ in Million) Source: IBIS World

SWOT and Risk Analysis Business Risks Strengths Hand made products Blue Steel Spring Patent No debt, high liquidity 3 new distribution centers Long term outlook Logistics network Weaknesses Limited pricing power Competitors can copy products quickly Opportunities Few regulations Constant innovation Online sales growth International Expansion Increase in home buying (low interest rates) Low commodity prices Threats Potential increase in price of raw materials (wood, steel) Higher competition from large retailers Increased restrictions on trade Economic Slowdown Business Risks Loss of market share to larger retailers Product liability if personal injury occurs International operation risk Exchange rate risk Changes in commodity prices (Lumber)

Financial Analysis Profitability Liquidity Greenblatt

DuPont Analysis DuPont Analysis ROE 8.7% 9.0% 11.9% 11.7% 2013 2014 2015 LTM ROE 8.7% 9.0% 11.9% 11.7% Tax Burden 63.0% 62.7% Interest Burden 103.0% 106.8% 103.3% 101.8% Operating Margin 5.2% 5.1% 7.4% 7.5% Asset Turnover 2.0x 2.1x 1.9x Equity Multiplier 1.3x

Relative Financial Analysis *Ratios are based on companies’ LTM figures

Technical Analysis Source: Yahoo Finance

Key Assumptions

Discount rate

DCF

Comparable Company Analysis

Industry Comparable Stats Source: Morningstar

Stock Market Prospects Attractive Growth Prospects Low interest rates 3 new distribution centers Graham implied growth rate Modernizing business systems Strong Growth, Profitability, and Returns (ROE, ROIC, ROA) Mispriced by Market Long Term Outlook Management focuses on growth and efficiency not hitting quarterly numbers No Debt 3 Competitors with no debt also have below average comps Low Analyst Coverage Only two analysts asked questions on their earnings call Huge Discount to Peers

Portfolio Holdings Analysis Company Industry Abbott Laboratories (ABT) Medical Appliance & Equipment AbbVie, Inc. (ABBV) Drug Manufacture Air Lease Corporation (AL) Rental & Leasing service Cal-Maine Foods, Inc. (CALM) Food Capital One Financial Corp. (COF) Credit Service Jack Henry Associates (JKHY) Business Software The Goodyear Tire & Rubber Company (GT) Rubber plastic Union Pacific Corporation (UNP) Railroads Walgreens Boots Alliance (WBA) Drug store Zix Corporation (ZIXI) Application software Flexsteel operates in the Home furnishings & Fixtures industry, which has little correlation with the current holdings in our portfolio.

Buy 300 Shares of Flexsteel Industries Inc. (FLXS) -NasdaqGS Recommendation Buy 300 Shares of Flexsteel Industries Inc. (FLXS) -NasdaqGS @ Market Price DCF Valuation Relative Valuation Implied Price $48.61 $55.70 Weight 50% Target Price $52.16 (26% Premium) Current Price $41.53