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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

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TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Flexsteel Industries, Inc. Salaried Employees Retirement and 401(k) Plan

(Name of Plan)

Date: June 10, 2010

/s/ Timothy E. Hall

Timothy E. Hall

Vice President-Finance, Chief Financial Officer and Secretary

Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1

FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008:

Statements of Net Assets Available for Benefits

2

Statements of Changes in Net Assets Available for Benefits

3

Notes to Financial Statements

4–10

SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 2009 —

Schedule H, Line 4i — Schedule of Assets (Held at End of Year)

12

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

13

NOTE: 

All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.

Deloitte & Touche LLP
50 South Sixth Street
Suite 2800
Minneapolis, MN 55402-1538
USA

Tel: +1 612 397 4000
Fax: +1 612 397 4450
www.deloitte.com

Member of
Deloitte Touche Tohmatsu

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2009 AND 2008

2009

2008

ASSETS — Investments at fair value:

  Flexsteel Industries, Inc. common stock

$

1,188,129

$

821,181

  Mutual funds

3,986,433

2,176,553

  Common/collective investment trust

15,173,017

17,098,512

  Guaranteed investment contract

2,113

15,130

  Pooled separate accounts

30,345,737

22,912,996

           Total investments

50,695,429

43,024,372

EMPLOYER CONTRIBUTIONS RECEIVABLE

93,421

67,920

EMPLOYEE CONTRIBUTIONS RECEIVABLE

113,992

111,043

NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE

50,902,842

43,203,335

ADJUSTMENTS FROM FAIR VALUE TO CONTRACT VALUE FOR FULLY BENEFIT-RESPONSIVE STABLE VALUE FUND

(101,838

)

837,368

NET ASSETS AVAILABLE FOR BENEFITS

$

50,801,004

$

44,040,703

STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

2009

2008

CHANGES IN NET ASSETS ATTRIBUTABLE TO:

  Employee contributions

$

1,587,647

$

1,871,896

  Employer contributions

1,069,996

1,274,008

  Dividend and interest income

49,439

97,850

  Net appreciation (depreciation) in fair value of assets (Note 3)

7,764,767

(15,285,657

)

  Transfers (to)/from other plans (Note 1)

(5,255

)

35,240

           Total additions (subtractions)

10,466,594

(12,006,663

)

DISTRIBUTIONS

(3,704,537

)

(5,433,363

)

ADMINISTRATIVE EXPENSES

(1,756

)

(1,609

)

NET INCREASE (DECREASE)

6,760,301

(17,441,635

)

NET ASSETS AVAILABLE FOR BENEFITS:

  Beginning of year

44,040,703

61,482,338

  End of year

$

50,801,004

$

44,040,703

1.

DESCRIPTION OF THE PLAN

The following description of the Flexsteel Industries, Inc. Salaried Employees Retirement and 401(k) Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for more complete information.

General — The Plan is a defined contribution plan covering substantially all salaried employees of Flexsteel Industries, Inc. (the “Company”) who have reached the age of 21 and have completed one year of service. Participation is voluntary. The Plan administrator controls and manages the operation and administration of the Plan. Assets of the Plan are held by the Principal Life Insurance Company and American Trust & Savings Bank of Dubuque, Iowa (collectively, referred to as the “Custodians”). American Trust & Savings Bank holds the Flexsteel Industries, Inc. common stock fund only. A committee appointed by the Board of Directors of the Company administers the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.

Transfers — During the years ended December 31, 2009 and 2008, the Plan recorded transfers (to)/from other company benefit plans totaling $(5,255) and $35,240, respectively, related to certain employee job classification changes.

Contributions and Vesting — The Plan allows eligible employees to elect to have from 1% to 50% (sales personnel are subject to a 6% maximum) of their basic pretax pay contributed to the Plan. Employee contributions are by law subject to a maximum of $16,500 in calendar year 2009 and $15,500 in 2008. The Company contributes a base amount equal to 25% of the first 4% of pay the employee contributes. Participant contributions and Company base contributions are 100% vested. In addition, the Company contributes 4% of pay up to the social security limit and 6% of pay in excess of this limit on a monthly basis. The Company, at its option, may also contribute additional amounts to be allocated among all participants based on the participants’ pay. The Company’s additional contributions and the discretionary contributions vest over six years (20% after two years, 40% after three years, 60% after four years, 80% after five years, and 100% after six years). Employees age 50 or older, or turning 50 during the Plan year, may make additional pre-tax (catch-up) contributions in excess of the Plan limit or statutory limit (not to exceed $5,500 in 2009). Forfeited balances of terminated participants may first be applied to pay expenses, which would otherwise be paid by the Company. Forfeitures not used to pay expenses shall be applied to reduce future company contributions. In 2009 and 2008, forfeitures totaled $42,107 and $17,188, respectively.

Participant Accounts — Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the Company’s contribution and allocations of Plan earnings and is charged with an allocation of Plan losses and administrative expenses. Allocations are based on compensation, participant investment elections, and account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Investments — Plan participants direct their contributions to any of the 21 investment accounts available. The investment option in the guaranteed investment contract is not benefit responsive because participants may not be able to transact at contract value for transactions, such as investment transfers, early withdrawals, or termination. The guaranteed investment contract is presented at fair market value of $2,113 and $15,130 as of December 31, 2009 and 2008, respectively. The contract value of the guaranteed investment contract was $2,113 and $15,130 as of December 31, 2009 and 2008, respectively. Participants will not pay a surrender charge for distributions to participants and qualified domestic relations orders (during 60-day window following event), beneficiaries (during 120-day window), due to normal retirement (during 60-day window after normal retirement date and a second 60-day window after actual physical retirement), or minimum distributions. Participants will not pay a surrender charge when the U.S. Treasury Rate is equal to or less than the guaranteed rate being credited. Participants will pay a surrender charge when the U.S. Treasury Rate is higher than the guaranteed rate being credited.

Payment of Benefits — Distributions of benefits are paid upon retirement, death, disability, and in certain hardship cases. Distributions, in certain cases, may also occur on termination of the Plan or disposition of substantially all of the Company’s assets to another entity. Otherwise, benefits will be distributed on the date the participant attains age 65, the date the participant reaches age 55 and the 10^th anniversary of the participant’s entry date or age 62 (the participant must cease employment to receive this benefit), the date of participant’s disability (the participant must cease employment to receive this benefit), or the date of participant’s termination of employment or death. If a participant’s vested account balance has never exceeded $1,000, the entire vested account balance shall be payable as a single lump sum upon retirement, death, or termination. For participants whose vested account balance exceeds $1,000, benefits are paid in an automatic form unless the participant or their beneficiary has selected an optional form.

Automatic Forms — The automatic form of retirement benefits shall be in the form of an immediate survivorship life annuity with installment refund for participants with a spouse or a single life annuity with installment refund for participants without a spouse.

The automatic form of death benefits shall be: (1) a qualified preretirement survivor annuity for participants who have a spouse to whom they have been continuously married throughout the one-year period ending on the date of their death or (2) a single-sum payment to the participant’s beneficiary for participants who do not have a spouse who is entitled to the qualified preretirement survivor annuity.

Optional Forms — The optional forms of death benefits are a single-sum payment and any annuity that is an optional form of retirement benefit. However, the full flexibility option shall not be available if the beneficiary is not the spouse of the deceased participant.

The optional forms of retirement benefits shall be: (1) straight life annuity; (2) single life annuities with certain periods of 5, 10, or 15 years; (3) single life annuity with installment refund; (4) survivorship life annuities with installment refund and survivorship percentages of 50%, 66 2/3%, or 100%; (5) fixed period annuities; (6) a series of installments chosen by the participant with a minimum payment each year beginning with age 70 1/2 (full flexibility option); or (7) single-sum payment.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting — The financial statements have been prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Plan management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes therein. Actual results could differ from those estimates.

Risks and Uncertainties — The Plan utilizes various investment instruments, including mutual funds. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that these changes could materially affect the amounts reported in the financial statements.

Investment Valuation and Income Recognition — The Plan’s investments are stated at fair value. Shares of mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Plan at year-end. Common stock is valued at quoted market prices. The fair values of the pooled separate accounts are valued based on the quoted market prices of the underlying investments. The fully benefit-responsive common/collective investment trust is stated at fair value and then adjusted to contract value. Fair value of the common/collective investment trust (Principal Stable Value Select Fund) is determined based on the audited financial statements of the fund. The fair values of the conventional investment contracts are based on discounting the related cash flows based on current yields of similar instruments with comparable durations. The Guaranteed Investment Contract is not fully benefit responsive and is stated at fair value. Fair value of the contract is calculated by discounting the related cash flows based on current yields of similar instruments with comparable durations.

In accordance with Financial Accounting Standards Board (FASB) Staff Position (FSP), FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined‑Contribution Health and Welfare and Pension Plans (the “FSP”), the statements of net assets available for benefits present an investment contract at fair value, as well as an additional line item showing an adjustment of the fully benefit-responsive contract from fair value to contract value. The statement of changes in net assets available for benefit is presented on a contract value basis and is not affected by the FSP.

Fair Value Measurements — In September 2006, the FASB issued Statement No. 157, Fair Value Measurements.

Effective January 1, 2008, the Plan adopted Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, (formerly known as FASB Statement No. 157) with respect to its investments. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1 — Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.

Level 2 — Inputs to the valuation methodology include:

Ÿ

Quoted prices for similar assets or liabilities in active markets

Ÿ

Quoted prices for identical or similar assets or liabilities in inactive markets

Ÿ

Inputs other than quoted prices that are observable for the asset or liability

Ÿ

Inputs that are derived principally from or corroborated by observable market data by correlation or other means

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Following is a description of the valuation methodologies used for assets measured at fair value.

Common Stock — Valued at the closing price reported on the active market on which the individual securities are traded and are classified within level 1 of the valuation hierarchy.

Mutual Funds — These investments are public investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in an active market and classified within level 1 of the valuation hierarchy.

Pooled Separate Accounts — Valued at the NAV of shares held by the plan at year-end. The NAV of a Pooled Separate Account (PSA) is based on the market value of its underlying investments. The PSA NAV is not a publicly-quoted price in an active market. The determination of where an investment falls in the fair value hierarchy was determined based on the lowest level input that is significant to the fair value measurement in its entirety. The lowest level of input are securities quoted on private markets that are not active, or securities traded on active markets.

Guaranteed Investment Contract — Valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the creditworthiness of the issuer.

Common/Collective Investment Trust — This investment is a public investment vehicle valued using the NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is classified within level 2 of the valuation hierarchy, because the NAV’s unit price is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2009 and 2008:

Assets at Fair Value as of December 31, 2009

Level 1

Level 2

Level 3

Total

Mutual funds

$

3,986,433

$

—

$

—

$

3,986,433

Common stock

1,188,129

—

—

1,188,129

Common/collective investment trust

—

15,173,017

—

15,173,017

Pooled separate accounts

—

30,345,737

—

30,345,737

Guaranteed investment contract

—

2,113

—

2,113

Total assets at fair value

$

5,174,562

$

45,520,867

$

—

$

50,695,429

Assets at Fair Value as of December 31, 2008

Level 1

Level 2

Level 3

Total

Mutual funds

$

2,176,553

$

—

$

—

$

2,176,553

Common stock

821,181

—

—

821,181

Common/collective investment trust

—

17,098,512

—

17,098,512

Pooled separate accounts

—

22,912,996

—

22,912,996

Guaranteed investment contract

—

15,130

—

15,130

Total assets at fair value

$

2,997,734

$

40,026,638

$

 —

$

43,024,372

Expenses — Certain administrative expenses of the Plan, such as contract administration, recordkeeping, and transaction fees, are paid by the Plan. Certain other administrative fees of the Plan are paid by the Company. The Plan is not required to reimburse the Company for any administrative expenses paid by the Company. Expenses not paid by the Company are paid by the Plan. Administrative expenses charged to the Plan were not significant. Expenses paid by the Company were $72,570 and $80,517 for the years ended December 31, 2009 and 2008, respectively.

Payment of Benefits — Benefit payments to participants are recorded when requested, which is effectively upon distribution.

3.

INVESTMENTS

Investments that represent 5% or more of the Plan’s net assets for the years ended December 31, 2009 and 2008, were as follows:

2009

2008

Principal Private Market Bond and Mortgage Account*

$

4,463,397

$

3,333,863

Principal Large Cap Stock Index Fund*

9,411,066

7,777,771

Principal Small Company Blend Stock Fund*

3,571,170

3,081,489

Principal Diversified International Separate Account*

3,963,436

2,835,755

Principal Mid Cap Stock Index Fund* +

2,885,807

1,519,661

Principal Stable Value Select Fund*

15,173,017

17,098,512

* Denotes party-in-interest

+ Did not meet 5% test in prior plan year

The net appreciation (depreciation) in the fair value of investments for the years ended December 31, 2009 and 2008, was as follows:

2009

2008

Flexsteel Industries, Inc. common stock

$

413,771

$

(664,542

)

Guaranteed investment contract

—

8,747

Mutual funds

878,580

(1,538,504

)

Common/collective investment trust

359,089

641,925

Pooled separate accounts

6,113,328

(13,733,283

)

$

7,764,767

$

(15,285,657

)

4.

RELATED-PARTY TRANSACTIONS

At December 31, 2009 and 2008, the Plan held 116,140 and 122,748 shares, respectively, of common stock of Flexsteel Industries, Inc., the sponsoring employer. During 2009 and 2008, the Plan recorded dividend income of $0.20 and $0.52 per share, respectively.

Certain Plan investments are managed by Principal Life or its affiliates. Principal Life is the custodian as defined by the Plan.

The above transactions are exempt party-in-interest transactions.

5.

PLAN TERMINATION

Although it has not expressed any intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA. In the event that the Plan is terminated, participants would become 100% vested in their account.

6.

FEDERAL INCOME TAX STATUS

The Internal Revenue Service has determined and informed the Company by letter dated September 27, 2002, that the Plan qualifies under the applicable sections of the Internal Revenue Code (IRC) and, therefore, the related trust is not subject to tax under current tax law. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its tax qualification. The Plan has been amended since receiving the determination letter. The Plan filed for its latest determination letter in January 2010. The Plan administrator believes the Plan is currently designed and is being operated in compliance with the applicable requirements of the IRC and, as a result, no provision for income taxes is believed necessary.

7.

RECONCILIATION of financial statements TO FORM 5500

As of December 31, 2009 and 2008, a reconciliation of net assets available for benefits per the financial statements to the Form 5500 is a follows:

2009

2008

Net assets available for benefits per the financial statements

$

50,801,004

$

44,040,703

Adjustment from contract value to fair value for fully benefit-responsive investment contract(s)

(101,838

)

837,368

Net assets available for benefits per the Form 5500

$

50,902,842

$

43,203,335

For the year ended December 31, 2009, the following is a reconciliation of total subtractions per the financial statements to the Form 5500:

Total additions per the financial statements

$

10,466,594

Transfers to other plans

5,255

Adjustment from contract value to fair value for fully benefit-responsive investment contract (prior year)

837,368

Adjustment from contract value to fair value for fully benefit-responsive investment contract (current year)

101,838

Total income per Form 5500

$

11,411,055

SCHEDULE H, LINE 4i — SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2009

Current
Value

Common Stock — Flexsteel Industries, Inc. common stock (1)

$

1,188,129

Mutual Funds:

  Vanguard Explorer Fund

1,969,545

  American Funds Growth Fund of America

2,016,888

Principal Life Insurance Company (2):

  Guaranteed Interest Account (interest rate ranges: 2.45%–3.78%)

2,113

  Stable Value Select Fund

15,173,017

  Pooled Separate Accounts:

    Private Market Bond and Mortgage Account

4,463,397

    Large Cap Stock Index Fund

9,411,066

    Large Cap Blend Account

21,278

    Mid Cap Stock Index Fund

2,885,807

    Small Company Blend Stock Fund

3,571,170

    Small Cap Value Fund

22,079

    Large Cap Value Account

590,706

    Diversified International Separate Account

3,963,436

    Lifetime Strategic Income Account

298,293

    Lifetime 2010 Account

1,868,798

    Lifetime 2015 Account

180,493

    Lifetime 2020 Account

2,061,449

    Lifetime 2025 Account

49,970

    Lifetime 2030 Account

307,060

    Lifetime 2035 Account

17,156

    Lifetime 2040 Account

363,510

    Lifetime 2045 Account

21,171

    Lifetime 2050 Account

195,235

    Lifetime 2055 Account

53,663

TOTAL

$

50,695,429