FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-14798 American Woodmark Corporation (Exact name of registrant as specified in its charter) Virginia 54-1138147 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3102 Shawnee Drive, Winchester, Virginia 22601 (Address of principal executive offices) (Zip Code) (540) 665-9100 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value 7,830,010 shares outstanding Class as of September 3, 1998
AMERICAN WOODMARK CORPORATION FORM 10-Q INDEX PAGE PART I. FINANCIAL INFORMATION NUMBER Item 1. Financial Statements Balance Sheets--July 31, 1998 and April 30, 1998 3 Statements of Income--Three months ended July 31, 1998 and 1997 4 Statements of Cash Flows--Three months ended July 31, 1998 and 1997 5 Notes to Financial Statements--July 31, 1998 6-9 Item 2. Management's Discussion and Analysis 10-13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13-14 Item 6. Reports on Form 8-K 14 SIGNATURE 15 2
PART I. FINANCIAL INFORMATION AMERICAN WOODMARK CORPORATION BALANCE SHEETS (in thousands, except share data) July 31 April 30 1998 1998 ASSETS (Unaudited) (Audited) ----------- ---------- Current Assets Cash and cash equivalents $23,741 $23,925 Customer receivables 29,683 27,365 Inventories 11,993 11,884 Prepaid expenses and other 1,195 1,403 Deferred income taxes 1,428 997 ------- ------- Total Current Assets 68,040 65,574 Property, plant and equipment 39,592 34,522 Deferred costs and other assets 7,054 5,604 Intangible pension assets 781 781 -------- -------- $115,467 $106,481 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $14,124 $12,414 Accrued compensation and related expenses 11,556 13,211 Current maturities of long-term debt 2,001 2,001 Accrued marketing expenses 4,954 3,549 Other accrued expenses 5,743 3,032 ------- ------- Total Current Liabilities 38,378 34,207 Long-Term debt, less current maturities 8,836 8,717 Deferred income taxes 2,800 2,397 Long-Term pension liabilities 2,023 2,023 Commitments and Contingencies -- -- Stockholders' Equity Preferred Stock, $1.00 par value; 2,000,000 shares authorized, none issued Common Stock, no par value; 20,000,000 shares authorized; issued and outstanding 7,813,972 shares at July 31, 1998; 7,800,886 shares at April 30, 1998 18,991 18,704 Retained earnings 44,439 40,433 --------- -------- Total Stockholders' Equity 63,430 59,137 --------- -------- $115,467 $106,481 ========= ======== See notes to financial statements 3
AMERICAN WOODMARK CORPORATION STATEMENTS OF INCOME (in thousands, except share data) (Unaudited) Quarter Ended July 31 ------------------- 1998 1997 ------- ------- Net sales $72,673 $55,970 Cost of sales and distribution 50,767 39,639 ------- ------- Gross Profit 21,906 16,331 Selling and marketing expenses 10,361 8,656 General and administrative expenses 4,596 3,406 ------- ------- Operating Income 6,949 4,269 Interest expense 170 224 Other income (250) (210) -------- -------- Income Before Income Taxes 7,029 4,255 Provision for income taxes 2,788 1,634 ------- ------- Net Income $ 4,241 $ 2,621 ======= ======= Earnings Per Share Weighted average shares outstanding Basic 7,808,792 7,730,318 Diluted 7,993,091 7,857,623 Net income per share Basic $0.54 $0.34 Diluted $0.53 $0.33 ========= ======== See notes to financial statements 4
AMERICAN WOODMARK CORPORATION STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Quarter Ended July 31 ----------------- 1998 1997 ------- ------- Operating Activities Net income $ 4,241 $ 2,621 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 1,997 1,902 Net (gain) loss on disposal of property, plant and equipment (13) (3) Deferred income taxes (28) (25) Other non-cash items 537 90 Changes in operating assets and liabilities: Customer receivables (2,869) (1,195) Inventories (95) (520) Other assets (2,313) (808) Accounts payable 1,710 588 Accrued compensation and related expenses (1,656) (998) Accrued marketing expenses 1,257 730 Accrued taxes payable 2,070 1,551 Other 1,035 1,715 ------- ------- Net Cash Provided by Operating Activities 5,873 5,648 Investing Activities Payments to acquire property, plant and equipment (6,207) (1,702) Proceeds from sales of property, plant and equipment 15 13 ------ ------ Net Cash Used by Investing Activities (6,192) (1,689) ------ ------ Financing Activities Payments of long-term debt (131) (260) Proceeds from the issuance of Common Stock 250 69 Payment of dividends (234) (155) Proceeds from long-term borrowings 250 -- ------ ------ Net Cash Provided/(Used)by Financing Activities 135 (346) ------ ------ Increase/(Decrease) In Cash And Cash Equivalents (184) 3,613 Cash And Cash Equivalents, Beginning Of Period 23,925 17,339 ------ ------ Cash And Cash Equivalents, End Of Period $23,741 $20,952 ====== ====== See notes to financial statements 5
AMERICAN WOODMARK CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE A--BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended July 31, 1998 are not necessarily indicative of the results that may be expected for the year ending April 30, 1999. The unaudited financial statements should be read in conjunction with the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended April 30, 1998. NOTE B--NEW ACCOUNTING PRONOUNCEMENTS As of May 1, 1998 the Company adopted SFAS No. 130 "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in shareholders' equity except those resulting from investments by or distributions to shareholders. The Company currently has no items that would result in comprehensive income differing from net income. The adoption of this statement had no impact on the Company's net income or Stockholders' Equity. In June of 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company must adopt this statement by May 1, 2000. The Company does not believe this statement will have a significant impact on its financial position or results of operations. 6
NOTE C--EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended July 31 ------------------ 1998 1997 ------ ------ Numerator: Net income used for both basic and dilutive earnings per share $4,241 $2,621 Denominator: Denominator for basic earnings per share - weighted-average shares 7,808,792 7,730,318 Effect of dilutive securities: Employee Stock Options 184,299 127,305 --------- --------- Denominator for diluted earnings per share - adjusted weighted- average shares and assumed conversions 7,993,091 7,857,623 ========= ========= Basic earnings per share $ 0.54 $ 0.34 ====== ====== Diluted earnings per share $ 0.53 $ 0.33 ====== ====== 7
NOTE D--CUSTOMER RECEIVABLES The components of customer receivables were: July 31 April 30 1998 1998 (in thousands) ------- ------- Gross customer receivables $31,817 $29,122 Less: Allowance for doubtful accounts (308) (123) Allowance for returns and discounts (1,826) (1,634) ------- ------- Net customer receivables $29,683 $27,365 ======= ======= NOTE E--INVENTORIES The components of inventories were: July 31 April 30 1998 1998 (in thousands) ------- ------- Raw materials $ 7,136 $ 7,052 Work-in-process 11,375 10,678 Finished goods 813 1,138 ------- ------- Total FIFO inventories $19,324 $18,868 Reserve to adjust inventories to LIFO value (7,331) (6,984) ------- ------- Total LIFO inventories $11,993 $11,884 ======= ======= An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Since they are subject to many forces beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. NOTE F--CASH FLOW Supplemental disclosures of cash flow information: Three Months Ended July 31 ------------------ 1998 1997 (in thousands) ------ ------ Cash paid during the period for: Interest $ 114 $ 165 Income taxes $ 829 $ 77 8
NOTE G--OTHER INFORMATION The Company is involved in various suits and claims in the normal course of business. Included therein are claims against the Company pending before the Equal Employment Opportunity Commission. Although management believes that such claims are without merit and intends to vigorously contest them, the ultimate outcome of these matters cannot be determined at this time. In the opinion of management, after consultation with counsel, the ultimate liabilities and losses, if any, that may result from suits and claims involving the Company will not have a material adverse effect on the Company's results of operations or financial position. The Company is voluntarily participating with a group of companies which is cleaning up a waste facility site at the direction of a state environmental authority. The Company records liabilities for all probable and reasonably estimable loss contingencies on an undiscounted basis. For loss contingencies related to environmental matters, liabilities are based on the Company's proportional share of the contamination obligation of a site since management believes it probable that the other parties, which are financially solvent, will fulfill their proportional contamination obligations. There are no probable insurance or other indemnification receivables recorded. The Company has accrued for all known environmental remediation costs which are probable and can be reasonably estimated, and such amounts are not material. Due to factors such as the continuing evolution of environmental laws and regulatory requirements, technological changes, and the allocation of costs among potentially responsible parties, estimation of future remediation costs is necessarily imprecise. It is possible that the ultimate cost, which cannot be determined at this time, could exceed the Company's recorded liability. As a result, charges to income for environmental liabilities could have a material effect on results of operations in a particular quarter or year as assessments and remediation efforts proceed. However, management is not aware of any matters which would be expected to have a material adverse effect on the Company's results of operations or financial position. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS THREE MONTHS ENDED JULY 31, 1998 AND 1997 RESULTS OF OPERATIONS Net sales for the first quarter of fiscal 1999 were $72.7 million, an increase of 30% over the first quarter of the prior year. Increased sales were a result of continued growth with leading national home center chains and increased shipments to national and regional home builders. Sales to dealer / distributor customers were down slightly, as compared year over year. Current year average unit prices rose due to a general price increase implemented during the third quarter of the prior fiscal year and sales in the current period of a richer product mix. Gross Margin increased to 30.1% in the first quarter of fiscal 1999 from 29.2% in the first quarter of the prior year. The increase was primarily attributable to the impact of favorable leverage with higher volume on fixed and semi-fixed costs and an improvement in labor productivity. Continued increases in productivity more than offset the normal rate increases and higher incentive pay. Material cost per unit increased due to the continued growth in sales of a more material intensive product, the unfavorable impact of out-sourced components and increased cost associated with a change in channel mix. General and administrative expenses in the first quarter of fiscal year 1999 increased $1.2 million dollars over the same period in fiscal 1998. The primary components of this increase are incentives, reserves for bad debt and payroll expense. Reductions in relocation fees slightly offset these increases. Sales and marketing expenses increased $1.7 million compared to the first quarter of the prior fiscal year. The increase was primarily attributed to an increase in promotional costs, increased staffing and sales personnel incentive expense tied to sales performance. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities generated $5.9 million in net cash in the first quarter of fiscal 1999 compared to $5.6 million net cash generated the same period of the prior fiscal year. Increased net income offset somewhat by an increased investment in working capital was the primary contributor to the current period increase in cash generated from operations. Capital spending in the first quarter of fiscal 1999 increased $4.5 million over the prior year to $6.2 million as the Company began an aggressive capital expenditure program designed to increase production capacity in line with continuing sales growth. The 10
primary spending during the first quarter of fiscal year 1999 relates to the start-up of a new lumber processing facility in Monticello, Kentucky; the final stages of the expansion to the Hardy County, West Virginia finishing facility; and for down payments on equipment intended to update and expand the capabilities of the Toccoa, Georgia flat stock facility. Net cash provided by financing activities was $135 thousand for the first quarter of fiscal year 1999 as opposed to $346 thousand in funds used during the same period last year. A $250 thousand loan was received in conjunction with the start-up of the Monticello plant. Cash dividends of $234 thousand were paid during the first quarter of fiscal 1999. Long-term debt to total equity declined from 14.7% at April 30, 1998 to 13.9% at July 31, 1998. There were no borrowings against the Company's short-term revolving credit facility during the period. Cash flow from operations, combined with available borrowing capacity, is expected to be sufficient to meet forecasted working capital requirements, service existing debt obligations and fund capital expenditures for the remainder of fiscal 1999. OTHER The Company recognizes that the year 2000 presents many challenges for information systems, specifically the issue of two-digit determination of year. At the beginning of fiscal year 1998, the Company performed a self-assessment and has identified all known software and hardware issues associated with the two-character versus four-character year codes. Business plans have been developed and are being initiated which will bring about four-digit year compliance for all software and hardware systems by the end of calendar year 1999. The cost of updating systems to comply with four-digit dating is believed to be incrementally immaterial as the Company's strategic business plan had already called for upgrading information systems technology. The Company further recognizes a risk from the year 2000 impact on its suppliers and customers. In response, the Company has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which the Company's interface systems are vulnerable to those third parties' failures to remediate their own Year 2000 issues. The Company's total anticipated expenditures for Year 2000 conversions includes the estimated costs and time associated with the impact of third party Year 2000 issues based on presently available information. However, there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and would not have an adverse effect on the Company's systems. The Company has determined it has no exposure to contingencies related to the Year 2000 Issue for the products it has sold. 11
The Company's business has historically been subjected to seasonal influences, with higher sales typically realized in the second and fourth fiscal quarters. General economic forces and changes in the Company's customer mix have reduced seasonal fluctuations in the Company's performance over the past few years. The costs of the Company's products are subject to inflationary pressures and commodity price fluctuations. Inflationary pressure and commodity price increases have been relatively modest over the past five years, except for lumber prices which rose significantly during fiscal 1997. The Company has generally been able over time to recover the effects of inflation and commodity price fluctuations through sales price increases. The Company expects to maintain or increase recent profitability performance while investing resources in future products, facilities and markets. Additional volume and improved efficiencies should be sufficient to offset the anticipated rise in other costs. The Company currently has insufficient overall capacity to meet projected growth. Capital spending has been initiated to correct this situation within the current fiscal year. Identified capital projects include expansion to remove specific capacity limitations in certain processes, productivity improvements, cost savings initiatives and replacement of aging equipment. The Company is also considering investment opportunities to increase the Company's business base, to acquire new products, and to gain access to new markets. The Company establishes debt to equity targets in order to maintain the financial health of the Company and is prepared to trim investment plans to maintain financial strength. While the Company is not currently aware of any events that would result in a material decline in earnings from fiscal 1998, we participate in an industry that is subject to rapidly changing conditions. The preceding forward looking statements are based on current expectations, but there are numerous factors that could cause the Company to experience a decline in sales and/or earnings including (1) overall industry demand at reduced levels, (2) economic weakness in a specific channel of distribution, especially the home center industry, (3) the loss of sales from specific customers due to their loss of market share, bankruptcy or switching to a competitor, (4) a sudden and significant rise in basic raw material costs, (5) the need to respond to price or product initiatives launched by a competitor, and (6) a significant investment which provides a substantial opportunity to increase long-term performance. While the Company believes that these risks are manageable and will not adversely impact the long-term performance of the Company, these risks could, under certain 12
circumstances, have a materially adverse impact on short-term operating results. On August 26, 1998 the Board of Directors approved a $.04 per share cash dividend on its Common Stock. The cash dividend will be paid on September 25, 1998 to shareholders of record on September 11, 1998. The Company is involved in various suits and claims in the normal course of business. Included therein are claims against the Company pending before the Equal Employment Opportunity Commission. Although management believes that such claims are without merit and intends to vigorously contest them, the ultimate outcome of these matters cannot be determined at this time. In the opinion of management, after consultation with counsel, the ultimate liabilities and losses, if any, that may result from suits and claims involving the Company will not have any material adverse effect on the Company's operating results or financial position. The Company is voluntarily participating with a group of companies which is cleaning up a waste facility site at the direction of a state environmental authority. The Company records liabilities for all probable and reasonably estimable loss contingencies on an undiscounted basis. For loss contingencies related to environmental matters, liabilities are based on the Company's proportional contamination of a site since management believes it "probable" that the other parties, which are financially solvent, will fulfill their proportional share of the contamination obligation of a site. There are no probable insurance or other indemnification receivables recorded. The Company has accrued for all known environmental remediation costs which are probable and can be reasonably estimated, and such amounts are not material. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders of American Woodmark Corporation held on August 21, 1998, the holders of 7,274,999 of the total 7,811,080 shares of Common Stock outstanding and eligible to vote duly executed and delivered valid proxies. The shareholders approved the two items outlined within the Company's Proxy Statement that was solicited to shareholders and reported to the Commission pursuant to Regulation 14A under the Act. 13
The following items were approved at the Company's Annual Meeting: Negative/ Affirmative Withheld Abstentions/ Votes Votes Non-Votes ----------- -------- ------------ 1. Election of the 7,264,624 11,375 -- Board of Directors. 7,263,624 10,375 -- 2. Ratification of 7,262,044 1,968 10,987 Selection of Independent Certified Public Accountants. As the members of the Board of Directors were elected individually, the aforementioned tallies pertaining to re-election represent a range of affirmative and negative votes. Disclosure The SEC has adopted Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended, which regulates when proxies may confer discretionary authority to vote on shareholder proposals that have not been included in the Company's proxy statement for its annual meeting. The persons named in the Company's proxy for the 1999 Annual Meeting of Shareholders will be entitled to exercise the discretionary voting power conferred by such proxy under the circumstances specified in Rule 14a-4(c), including with respect to proposals received by the Company after June 5, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The Company hereby agrees to furnish the Commission, upon request, instruments defining the rights of shareholders of long-term debt of the Company. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended July 31, 1998. 14
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN WOODMARK CORPORATION (Registrant) /s/ William A. Armstrong /s/ Kent B. Guichard William A. Armstrong Kent B. Guichard Corporate Controller Vice President, Finance and Chief Financial Officer Date: September 3, 1998 Date: September 3, 1998 Signing on behalf of the registrant and as principal financial officer