FORM 10-Q UNITED STATES 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 January 31, 2002 ---------------- 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 8,260,096 shares outstanding - -------------------------- ---------------------------- Class as of March 7, 2002
AMERICAN WOODMARK CORPORATION FORM 10-Q INDEX <TABLE> <CAPTION> PAGE PART I. FINANCIAL INFORMATION NUMBER - ------------------------------ ------ <S> <C> Item 1. Financial Statements Consolidated Balance Sheets--January 31, 2002 and April 30, 2001 3 Consolidated Statements of Income--Three months ended January 31, 2002 and 2001; Nine months ended January 31, 2002 and 2001 4 Consolidated Statements of Cash Flows--Nine months ended January 31, 2002 and 2001 5 Notes to Consolidated Financial Statements-- January 31, 2002 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-11 Item 3. Quantitative and Qualitative Disclosures of Market Risk 12 PART II. OTHER INFORMATION - -------------------------- Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURE 13 - --------- </TABLE> 2
PART I. FINANCIAL INFORMATION AMERICAN WOODMARK CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data) <TABLE> <CAPTION> January 31, April 30, 2002 2001 ASSETS (Unaudited) (Audited) ----------- --------- <S> <C> <C> Current Assets Cash and cash equivalents $ 7,376 $ 1,714 Customer receivables 35,695 29,410 Inventories 33,406 30,267 Income taxes receivable 1,572 -- Prepaid expenses and other 2,304 1,728 Deferred income taxes 5,732 4,760 ---------------------- ---------------------- Total Current Assets 86,085 67,879 Property, Plant, and Equipment - Net 106,440 93,641 Deferred Costs and Other Assets 21,533 18,848 ---------------------- ---------------------- $ 214,058 $ 180,368 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable $ 22,267 $ 17,038 Accrued compensation and related expenses 20,006 16,269 Current maturities of long-term debt 1,200 2,118 Accrued marketing expenses 4,400 3,505 Other accrued expenses 4,817 6,289 ---------------------- ---------------------- Total Current Liabilities 52,690 45,219 Long-Term Debt, less current maturities 16,284 16,819 Deferred Income Taxes 9,629 7,246 Long-Term Pension Liabilities 1,571 1,571 Other Long-Term Liabilities 384 -- 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 8,202,971 shares at January 31, 2002; 8,079,093 shares at April 30, 2001 30,044 24,412 Retained earnings 103,689 85,101 Other Comprehensive Income (233) -- ---------------------- ---------------------- Total Stockholders' Equity 133,500 109,513 ---------------------- ---------------------- $ 214,058 $ 180,368 </TABLE> See notes to consolidated financial statements 3
AMERICAN WOODMARK CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share data) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended January 31 January 31 --------------------------------- ---------------------------------- 2002 2001 2002 2001 ----------------- ------------ ------------- ------------- <S> <C> <C> <C> <C> Net Sales $ 128,254 $ 98,940 $ 379,293 $ 307,094 Cost of sales and distribution 90,540 75,142 269,487 232,570 ------------ ------------ ------------- ------------- Gross Profit 37,714 23,798 109,806 74,524 Selling and marketing expenses 18,290 14,209 53,461 42,467 General and administrative expenses 6,683 3,410 17,488 10,885 ------------ ------------ ------------- ------------- Operating Income 12,741 6,179 38,857 21,172 Interest expense 102 432 587 1,039 Other (income)/expense (37) 32 258 108 ------------ ------------ ------------- ------------- Income Before Income Taxes 12,676 5,715 38,012 20,025 Provision for Income Taxes 5,007 2,284 14,994 8,012 ------------ ------------ ------------- ------------- Income before cumulative effect of change in accounting principles $ 7,669 $ 3,431 $ 23,018 $ 12,013 Cumulative effect of change in accounting principles -- -- -- (1,583) ------------ ------------ ------------- ------------- Net Income $ 7,669 $ 3,431 $ 23,018 $ 10,430 ============ ============ ============= ============= Earnings Per Share Weighted average shares outstanding Basic 8,177,054 8,074,993 8,149,061 8,047,594 Diluted 8,416,977 8,131,562 8,371,030 8,124,137 Net income per share before cumulative effect of change in accounting principles Basic $ 0.94 $ 0.42 $ 2.82 $ 1.49 Diluted $ 0.91 $ 0.42 $ 2.75 $ 1.48 Net income per share after cumulative effect of change in accounting principles Basic $ 0.94 $ 0.42 $ 2.82 $ 1.30 Diluted $ 0.91 $ 0.42 $ 2.75 $ 1.28 </TABLE> See notes to consolidated financial statements 4
AMERICAN WOODMARK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) <TABLE> <CAPTION> Nine Months Ended January 31 ---------------------------- 2002 2001 --------- -------- <S> <C> <C> Operating Activities Net income $ 23,018 $ 10,430 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting Principles -- 1,583 Provision for depreciation and Amortization 17,483 14,267 Net (gain) loss on disposal of property, plant and equipment 71 6 Deferred income taxes 1,411 949 Other non-cash items 84 1,109 Changes in operating assets and liabilities: Customer receivables (6,202) 150 Income taxes receivable (1,572) (135) Inventories (3,306) (3,182) Other assets (11,657) (9,784) Accounts payable 5,229 (4,089) Accrued compensation and related expenses 3,736 (2,081) Other 912 413 -------- -------- Net Cash Provided by Operating Activities 29,207 9,636 -------- -------- Investing Activities Payments to acquire property, plant, and Equipment (21,241) (15,944) Proceeds from sales of property, plant, and equipment 11 10 -------- -------- Net Cash Used by Investing Activities (21,230) (15,934) -------- -------- Financing Activities Payments of Long-term debt (20,459) (86,603) Proceeds from Long-term Borrowings 19,007 89,050 Proceeds from the issuance of Common Stock 3,567 1,299 Repurchase of common stock (3,205) -- Payment of dividends (1,225) (1,207) -------- -------- Net Cash Provided (Used) by Financing Activities (2,315) 2,539 -------- -------- Increase(Decrease) In Cash And Cash Equivalents 5,662 (3,759) Cash And Cash Equivalents, Beginning of Period 1,714 4,183 -------- -------- Cash And Cash Equivalents, End of Period $ 7,376 $ 424 -------- -------- </TABLE> See notes to consolidated financial statements 5
AMERICAN WOODMARK CORPORATION NOTES TO CONSOLIDATED 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 nine-month period ended January 31, 2002 are not necessarily indicative of the results that may be expected for the year ended April 30, 2002. 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, 2001. NOTE B--NEW ACCOUNTING PRONOUNCEMENTS The Company was required to adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138, "Accounting for Derivative Instruments and Certain Hedging Activities" in the first quarter of fiscal 2002. The new standards establish accounting and reporting requirements for derivative instruments and hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. By adoption of SFAS No. 133 and as a result of the use of interest rate swaps, the company has recognized a $239,000 gain in accumulated other comprehensive income, net of tax, and a $233,000 loss in accumulated other comprehensive income, net of tax, during the third quarter and first nine months of the fiscal year, respectively. Comprehensive income was $7.9 and $22.8 million for the quarterly and nine months periods ended January 31, 2002, respectively. The adoption of SFAS No. 133 did not have a material impact on the Company's financial position or results of operations. In May 2000, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives." This issue addresses the recognition, measurement and income statement classification for various types of sales incentives, including discounts, coupons, rebates and free products. The Company is required to adopt EITF 00-14 no later than the fourth quarter of fiscal 2002. The adoption of EITF 00-14 will have no impact on the net income or earnings per share of the Company. The Company is in the process of determining the amounts to be reclassified. In April 2001, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-25, "Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendor's Products or Services." The Company is required to adopt EITF 00-25 no later than the fourth quarter of fiscal 2002. EITF 00-25 requires that certain activities such as the payment of "slotting fees", cooperative advertising arrangements and "buy downs" be classified as a reduction in revenue. The adoption of EITF 00-25 will have no impact on the net income or earnings per share of the Company. The impact of the adoption on the consolidated financial statements will result in a material adjustment to both net sales and selling and marketing expense due to the reclassification of cooperative advertising costs. 6
NOTE C--EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (Note, all numbers in thousands except for per share data): <TABLE> <CAPTION> Three Months Ended Nine Months Ended January 31 January 31 ------------------------------------------ ------------------------------------------ 2002 2001 2002 2001 ------------------- ------------------- ------------------- ------------------- <S> <C> <C> <C> <C> Numerator: Net income used for both basic and dilutive earnings per share $7,669 $3,431 $23,018 $10,430 Denominator: Denominator for basic earnings per share- Weighted average shares 8,177 8,075 8,149 8,047 Effect of dilutive securities: Employee Stock Options 240 57 222 77 ------------------- ------------------- ------------------- ------------------- Denominator for Diluted earnings per share - adjusted weighted average shares and assumed conversions 8,417 8,132 8,371 8,124 ------------------- ------------------- ------------------- ------------------- Net income per share before cumulative effect of change in accounting principles Basic $ 0.94 $ 0.42 $ 2.82 $ 1.49 Diluted $ 0.91 $ 0.42 $ 2.75 $ 1.48 Net income per share after cumulative effect of change in accounting principles Basic $ 0.94 $ 0.42 $ 2.82 $ 1.30 Diluted $ 0.91 $ 0.42 $ 2.75 $ 1.28 ------------------- ------------------- ------------------- ------------------- </TABLE> 7
NOTE D--CUSTOMER RECEIVABLES The components of customer receivables were: <TABLE> <CAPTION> January 31 April 30 (in thousands) 2002 2001 ----------------------- ------------------------- <S> <C> <C> Gross customer receivables $ 40,101 $ 34,066 Less: Allowance for doubtful accounts (976) (1,350) Allowance for returns and discounts (3,430) (3,306) ----------------------- ------------------------- Net customer receivables $ 35,695 $ 29,410 ----------------------- ------------------------- NOTE E--INVENTORIES The components of inventories were: January 31 April 30 (in thousands) 2002 2001 ---------------------- ------------------------- Raw materials $ 12,492 $ 12,041 Work-in-process 22,814 20,600 Finished goods 5,765 5,079 ---------------------- ------------------------- Total FIFO inventories $ 41,071 $ 37,720 Reserve to adjust inventories to LIFO value (7,665) (7,453) ---------------------- ------------------------- Total LIFO inventories $ 33,406 $ 30,267 ---------------------- ------------------------- </TABLE> 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: <TABLE> <CAPTION> Nine Months Ended January 31 --------------------------------------------------- (in thousands) 2002 2001 ---------------------- ------------------------- <S> <C> <C> Cash paid during the period for: Interest $ 1,009 $ 1,322 Income taxes $ 14,751 $ 7,844 </TABLE> 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. 9
Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- Net Sales for the third quarter of fiscal 2002 were $128.3 million, an increase of 29.6% over the same period in fiscal 2001. Net sales for the nine-month period ended January 31, 2002 were $379.3 million representing an increase of 23.5% over the same period in fiscal 2002. Improved sales for both the quarter and nine-month period were the result of continued growth in shipments to both remodel and new construction customers. Unit volume increased 25.9% during the quarter due to the impact of new products and additional outlets. The average price per unit for the most recent quarter increased 3% over the same period in the prior year due to a continued shift in product mix. Third quarter gross margin in fiscal 2002 was 29.4%, up from 24.1% in the third quarter of fiscal 2001. Gross margin was 29.0% for the first nine months of fiscal 2002, up from the previous year nine-month gross margin of 24.3%. Improvements in gross margin for both the quarter and nine-month period were due to the combination of lower material costs, improved productivity, lower freight expense and favorable leverage on fixed costs with higher volume. Selling and marketing expenses for the third quarter of fiscal 2002 were $18.3 million or 14.3% of net sales as compared to $14.2 million or 14.4% of net sales for the third quarter of fiscal 2001. For the first nine months of fiscal 2002, selling and marketing expenses were $53.5 million or 14.1% of net sales, as compared to $42.5 million or 13.8% of net sales for the same period in fiscal 2001. The increased expenses for the quarter and nine-month period were primarily attributable to performance based marketing programs, promotional expense to support merchandising efforts and employee pay-for-performance plans. General and administrative expenses for the third quarter of fiscal 2002 were $6.7 million or 5.2% of net sales, representing an increase of $3.3 million from the third quarter of fiscal 2001. For the first nine months of fiscal 2002 general and administrative expenses were $17.5 million or 4.6% of net sales compared to $10.9 million or 3.5% of net sales in the first nine months of fiscal 2001. The increases during the quarter and nine month period are due to higher accruals for performance based employee incentive plans. Interest expense for the third quarter and first nine months of fiscal 2002 was $102 thousand and $587 thousand, respectively, compared to $432 thousand and $1.0 million in the same periods from the prior year. The decrease was due primarily to lower debt balances and an increase in capitalized interest as the company moved forward with its capital expansion plans. The Company and The Home Depot have come to the mutual conclusion that the Company's continued participation in the Thomasville brand is not in the best interest of the overall special order cabinet category at The Home Depot or the long term performance and growth potential of the Company. Therefore, the Company will be phasing out of the Thomasville brand of cabinetry in the coming periods and does not expect any material impact from this decision. 10
Liquidity and Capital Resources - ------------------------------- The Company's operating activities generated $29.2 million in net cash during the first nine months of fiscal 2002 compared to $9.6 million for the same period in fiscal 2001. The increase in cash generated from operations over prior year was due primarily to an increase in net income, an increase in the provision for depreciation and amortization and a larger increase in working capital in the previous year. Capital spending during the first nine months of fiscal 2002 was $21.2 million as compared to $15.9 million in the same period of fiscal 2001. Capital spending rose due to increased activity in the company's expansion program. In order to support continued sales growth, the company expects to make additional investments in plant, property and equipment during the remainder of fiscal year 2002. Major projects include the expansion of Monticello, Kentucky, lumber processing; expansion of the Kingman, Arizona, assembly operation; construction of a new lumber processing facility in Hazard, Kentucky and a new assembly facility in Tahlequah, Oklahoma. Net cash used by financing activities was $2.3 million for the first nine months of fiscal 2002, as proceeds from borrowings did not offset payments. For the same period in fiscal 2001, the company received $2.5 million from financing activities. Cash dividends of $1.2 million were paid during the first nine months of fiscal 2002. The company repurchased $3.2 million in Common Stock during the first nine months of fiscal 2002. Cash flow from operations combined with accumulated cash on hand and available borrowing capacity is expected to be sufficient to meet forecasted working capital requirements, service existing debt obligations and fund capital expenditures of the remainder of fiscal 2002. Legal Matters - ------------- The Company is involved in various suits and claims in the normal course of business that includes claims against the Company pending before the Equal Employment Opportunity Commission. Although management believes that such suits and EEOC 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. Dividends Declared - ------------------ On February 28, 2002, the Board of Directors approved a $.05 per share cash dividend on its Common Stock. The cash dividend will be paid on April 1, 2002, to shareholders of record on March 18, 2002. 11
Item 3. Quantitative and Qualitative Disclosures of Market Risk ------------------------------------------------------- The Company's business has historically been subjected to seasonal influences, with higher sales typically realized in the second and fourth fiscal quarters. 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. On January 31, 2002, the company had no material exposure to changes in interest rates for its debt agreements. All significant borrowings of the company carry a fixed interest rate between 5% and 6%. 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. These include (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) a dramatic increase to the cost of diesel fuel, and/or transportation related services, (6) the need to respond to price or product initiatives launched by a competitor, (7) a significant investment which provides a substantial opportunity to increase long-term performance, and (8) sales growth at a rate that outpaces the Company's ability to install new capacity. 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 circumstances, have a materially adverse impact on operating results. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits. None. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the three months ended January 31, 2002. 12
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/Dennis M. Nolan, Jr. /s/Kent B. Guichard ----------------------- ------------------- Dennis M. Nolan, Jr. Kent B. Guichard Corporate Controller Senior Vice President, Finance and Chief Financial Officer Date: March 7, 2002 Date: March 7, 2002 Signing on behalf of the Signing on behalf of the registrant and as principal registrant and as principal accounting officer financial officer 13