American Woodmark - 10-Q quarterly report FY

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

OR

Commission file number 0-14798

American Woodmark Corporation

(Exact name of registrant as specified in its charter)

(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  x  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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AMERICAN WOODMARK CORPORATION

FORM 10-Q

INDEX

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PART I.    FINANCIAL INFORMATION

AMERICAN WOODMARK CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

See notes to consolidated financial statements

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AMERICAN WOODMARK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share data)

(Unaudited)

See notes to consolidated financial statements

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AMERICAN WOODMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

See notes to consolidated financial statements

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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 three-month period ended July 31, 2003 are not necessarily indicative of the results that may be expected for the year ended April 30, 2004. 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, 2003.

NOTE B—NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements.” FIN 46 requires that a Company that has a controlling financial interest in a variable interest entity consolidate the assets, liabilities and results of operations of the variable interest entity in the Company’s consolidated financial statements. The Company was required to adopt this statement as of August 1, 2003. The adoption of FIN 46 will have no impact on the Company’s consolidated financial statements.

In April 2003, the FASB issued Statement No. 149 (FAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” FAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging.” The Company did not have any derivative instruments or hedging activities other than interest rate swaps during the three months ended July 31, 2003. The Company was required to adopt this statement as of May 1, 2003. The adoption of FAS 149 had no impact on the Company’s consolidated financial statements.

In May 2003, the FASB issued Statement No. 150 (FAS 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” FAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. The Company was required to adopt this statement as of August 1, 2003. The adoption of FAS 150 will have no impact on the Company’s consolidated financial statements.

NOTE C—COMPREHENSIVE INCOME

The Company’s comprehensive income was $7.5 and $9.1 million for the quarters ended July 31, 2003 and July 31, 2002, respectively. Comprehensive income differs from net income for the quarter ended July 2002 due to a decrease in the unrealized loss on the Company’s interest rate swap agreements.

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NOTE D—EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

NOTE E—Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25 in accounting for stock options and discloses the fair value of options granted as permitted by Statement of Financial Accounting Standards No. 123. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the common stock at date of grant.

The following table summarizes the pro forma effects on net income assuming compensation cost for such awards had been recorded based upon the estimated fair value on the date of the grant (in thousands, except per share data):

To determine these amounts, the fair value of each stock option has been estimated on the date of the grant using a Black-Scholes option-pricing model. Significant assumptions used in this model include a dividend yield of 0.8% and the following:

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NOTE F—CUSTOMER RECEIVABLES

The components of customer receivables were:

NOTE G—INVENTORIES

The components of inventories were:

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 H—PRODUCT WARRANTY

The Company estimates outstanding warranty costs based on the historical relationship between warranty claims and revenues. The warranty accrual is reviewed monthly to verify that it properly reflects the remaining obligation based on the anticipated expenditures over the balance of the obligation period. Adjustments are made when actual warranty claim experience differs from estimates. Warranty claims are generally made within three months of the original shipment date.

The following is a reconciliation of the Company’s warranty liability, in thousands:

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NOTE I—CASH FLOW

Supplemental disclosures of cash flow information:

NOTE J—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.

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Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Results of Operations

Net sales for the first quarter of fiscal 2004 were $154.9 million, an increase of 12.7% over the same period in fiscal 2003, resulting from continued growth across all channels of distribution. Overall unit volume between the periods grew 19.2% due to the combination of new products and additional outlets. In the first quarter of fiscal 2004, the average revenue per unit decreased 5.5% from the first quarter of fiscal 2003. This decline was due to a shift in product mix primarily resulting from the roll out of in-stock product to new retail outlets.

Gross margin for the first quarter of fiscal 2004 declined to 21.8% from 26.0% for the same period of the previous fiscal year. The decrease was due to the combination of shifts in product mix, higher labor and benefit costs, and increases in delivery costs. Product mix was negatively impacted by the aggressive roll out of an opening price point in-stock product. Labor and benefit costs were higher due to increased crewing at the Company’s new operations to support demand, health care inflation, and increased pension costs. Freight costs were higher as variations in regional demand resulted in increased long distance shipments.

Selling and Marketing expenses for the first quarter of fiscal 2004 were $15.4 million or 9.9% net sales compared to $13.7 or 10.0% of net sales in the first quarter of fiscal 2003. The increase of $1.6 million was due to promotional expenses in support of merchandising efforts.

General and administrative expenses for the first quarter of fiscal 2004 were $5.9 million or 3.8% of net sales, as compared to $6.7 million or 4.9% of sales in the same period of fiscal 2003. The decrease was due to lower costs associated with the Company’s pay-for-performance incentive plans.

Interest expense increased $255 thousand from the same period of the prior fiscal year. The increase is attributable to less capitalized interest from capital projects to offset interest expense.

The Company’s combined federal and state tax rate for the first quarter of fiscal 2004 was 39.3% compared to 39.5% for the same period of fiscal 2003. The decrease is attributable to state investment tax credits associated with the start-up of new facilities.

Liquidity and Capital Resources

The Company’s operating activities generated $6.6 million in net cash during the first three months of fiscal 2004 compared to $12.3 million net cash generated in the same period of fiscal 2003. The decrease in cash generated from operations from prior year was due primarily to lower net income and increases in customer receivables, inventories, and other assets which more than offset decreases in compensation and related expenses and increases in all other. The increase in customer receivables was the result of higher sales volume. Inventories rose to support higher demand. Other assets increased primarily due to the Company’s investment in customer displays. Accrued compensation decreased due to lower costs associated with the Company’s pay-for-performance incentive plans. All other increased due to costs associated with the Company’s rebate and promotion activities.

Capital spending during the first quarter of fiscal 2004 was $2.8 million as compared to $14.5 million in the same period of fiscal 2003, a decrease of $11.7 million. The decrease in capital expenditures period to period represents the Company’s return to a maintenance capital spending level after completion of major capital expansions in the previous year. The Company expects that it will be necessary to make additional investments in plant, property and equipment during the remainder of fiscal 2004 to support continued sales growth. The Company currently expects to invest approximately $25 to $30 million in capital spending during the remainder of fiscal 2004.

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Net cash used by financing activities was $230 thousand for the first three months of fiscal 2004 as compared to $6.0 million in the same period of fiscal 2003. The Company did not repurchase any shares of common stock during the quarter. Cash dividends of $404 thousand were paid during the first quarter of fiscal 2004.

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 2004.

Legal Matters

The Company is involved in various suits and claims in the normal course of business which include 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 August 28, 2003, the Board of Directors approved a $.05 per share cash dividend on its Common Stock. The cash dividend will be paid on September 29, 2003, to shareholders of record on September 15, 2003.

On July 31, 2003, 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 2% and 6%.

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. The Company has generally been able over time to recover the effects of inflation and commodity price fluctuations through sales price increases.

We participate in an industry that is subject to rapidly changing conditions. Forward-looking statements, contained in this Management’s Discussion and Analysis 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, and (7) 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.

Evaluation of disclosure controls and procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The evaluation conducted by the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer has provided them with reasonable assurance that our disclosure controls and procedures are effective in alerting them in a timely manner to material information required to be included in periodic SEC filings.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in internal controls. There have been no changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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PART II. OTHER INFORMATION

At the Annual Meeting of Shareholders of American Woodmark Corporation held on August 28, 2003, the holders of 7,328,743 of the total 8,086,040 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.

The following items were approved at the Company’s Annual Meeting:

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.

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The Company filed one report on Form 8-K on May 28, 2003 declaring quarterly cash dividends to shareholders.

SIGNATURES

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.

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