SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended April 30, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from _______ to _______.
Commission File
Number 0-14798
AMERICAN WOODMARK CORPORATION
(Exact name of the registrant as specified in its character)
VIRGINIA 54-1138147
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification NO)
3102 Shawnee Drive, Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(703) 665-9100
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which is registered
Common Stock (No par value) NASDAQ
Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the regis-
trant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock, no par
value, held by non-affiliates of the registrant at April 30, 1995 was:
$14,586,806 based on the closing price on that date on the NASDAQ
Exchange. As of June 26, 1995, 7,569,663 shares of the Registrant's
Common Stock were outstanding.
Documents Incorporated by Reference
Portions of the annual report to stockholders for the fiscal year ended April
30, 1995 are incorporated by reference into Parts I and II of this Form 10-K.
Portions of the proxy statement for the annual meeting of the stockholders to
be held on August 23, 1995 are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
PART I
Item 1. BUSINESS
American Woodmark Corporation manufactures and distributes kitchen
cabinets and vanities for the remodeling and new home construction
markets. The Company was formed in 1980 by the four principal
managers of the Boise Cascade Cabinet Division through a leveraged
buyout of that division. The Company was operated privately until
1986 when it became a public company through a common stock offering.
The Company currently offers framed stock cabinets in almost 100 diff-
erent cabinet lines, ranging in price from relatively inexpensive to
medium priced styles. Styles vary by design and color from natural
wood finishes to low-pressure laminate surfaces. The entire product
offering includes thirty-six door designs and six colors. Stock
cabinets consist of a common box with standard interior components and
an oak, cherry or maple front frame.
The Company's products are sold under the brand names of American
Woodmark(R), Crestwood(R), Timberlake(TM), Scots Pride(TM), and
Coventry and Case(TM) cabinets.
American Woodmark's products are sold on a national basis via three
market channels: independent dealer/distributors, home centers, and
major builders. It is estimated that 60% of sales during the fiscal
year ended April 30, 1995 were to the remodeling market and 40% to the
new home market. Products are distributed to each market channel
directly from the Company's three assembly plants and through a
logistics network consisting of six service centers located in key
areas throughout the United States.
The primary raw materials used by the Company are oak and maple lum-
ber, paint, particle board, manufactured components, and hardware.
The Company currently purchases paint from one supplier; however,
other sources are available. Oak and maple lumber, particle board,
manufactured components, and hardware are purchased from more than one
source and are readily available.
The Company operates in a highly fragmented industry which is composed
of several thousand local, regional and national manufacturers. The
Company believes that no other company in the industry has more than a
15% share of the market. The Company also believes that American
Woodmark is one of the five largest manufacturers of kitchen cabinets
in the United States.
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 revenue over the past few years.
<PAGE>
In the fiscal year ended April 30, 1995, the Company had two cust-
omers, Builders Square, Inc., a subsidiary of K-mart Corporation, and
The Home Depot, who each accounted for in excess of 10% of the Comp-
any's sales.
At April 30, 1995, the Company had 2,323 employees. Approximately 31%
of its employees are represented by labor unions. Management believes
its employee relations are excellent.
Item 2. PROPERTIES
The Company leases its corporate offices which are located in Win-
chester, Virginia. In addition, the Company leases one and owns six
manufacturing facilities located primarily in the eastern United
States. The Company also leases six service centers located through-
out the United States which support the distribution of products to
each market channel.
Item 3. LEGAL PROCEEDINGS
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 con-
sultation 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 is also involved in other mat-
ters under the direction of state environmental authorities.
The Company records liabilities for all probable and reasonably esti-
mable loss contingencies on an undiscounted basis. For loss contin-
gencies 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 environ-
mental remediation costs which are probable and can be reasonably est-
imated, and such amounts are not material. Due to factors such as the
continuing evolution of environmental laws and regulatory require-
ments, technological changes, and the allocation of costs among poten-
tially 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 liabili-
ties could have a material effect on results of operations in a parti-
cular quarter or year as assessments and remediation efforts proceed.
However, management is not aware of any matters which would be ex-
pected to have a material adverse effect on the Company.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
"Market Information" in the American Woodmark Corporation's 1995
Annual Report to Stockholders ("1995 Annual Report") is incorporated
herein by reference.
The Company's primary loan agreement prohibits the payment of cash
dividends. The Company has not paid cash dividends on its Common Stock
since its inception.
Item 6. SELECTED FINANCIAL DATA
"Five Year Selected Financial Information" in the 1995 Annual Report
is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" in the 1995 Annual Report is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements, "Quarterly Results of Operations," and the
Report of Ernst & Young LLP, Independent Auditors, in the 1995 Annual
Report are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the directors and nominees for director-
ships, see the information under the caption "Election of Directors"
in the Registrant's Proxy Statement ("Proxy Statement") for the Annual
Meeting of Stockholders to be held on August 23, 1995, which informa-
tion is incorporated herein by reference.
The executive officers of the Registrant as of April 30, 1995 are as
follows:
Name Age Position Held During Past Five Years
William F. Brandt, Jr. 49 Chairman and President since 1980
James J. Gosa 47 Executive Vice President since March, 1993
Vice President, Sales and Marketing 1991-1993
Vice President, Marketing and Branch Operations
Thomas Somerville Co. 1985-1991
Director since 1995
Donald P. Mathias 56 Vice President, Assembly and
Distribution since January, 1994
Vice President, Operations 1980-1994
Director since 1980
David L. Blount 47 Vice President, Component
Manufacturing since January, 1994
Vice President, Manufacturing 1983-1994
Kent B. Guichard 39 Vice President, Finance since August, 1993
Vice President & Controller, AM Graphics
Division, AM International 1991-1993
Controller, Aircraft Wheel and Brake Operations,
BF Goodrich Company 1989-1991
C. Stokes Ritchie 43 Vice President, Sales & Marketing since May, 1994
Regional Manager, Insulation Division,
Owens/Corning Fiberglass Corporation 1991-1994
General Manager, Arabian Fiberglass
Insulation Company, Owens/Corning
Fiberglass Corporation 1989-1991
<PAGE>
For information concerning Item 405, disclosure of delinquent filers,
see the information under the caption, "Election of Directors" in the
Proxy Statement, which information is incorporated herein by
reference.
Item 11. EXECUTIVE COMPENSATION
The "Compensation of Executive Officers" segment in the Proxy State-
ment is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The "Principal Shareholders of the Company" segment in the Proxy
Statement is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in
the Proxy Statement is incorporated herein by reference.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following Financial Statements of American Woodmark
Corporation are incorporated by reference in Item 8:
Balance Sheet - April 30, 1995 and 1994
Statement of Income and Retained Earnings - for each of
the years in the three-year period ended April 30, 1995
Statement of Cash Flows - for each of the years in the
three-year period ended April 30, 1995
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
<PAGE>
(a) 2. Financial Statement Schedules
The following Financial Statement schedule is included in a
separate section of this report:
Schedule Page
II. Valuation and qualifying accounts S-1
All other schedules for which provisions are made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(a) 3. Exhibits
Exhibit No. Description
3.1 - Articles of Incorporation as amended effective August 12, 1987 (3)
3.2 - Bylaws (1)
3.3 - Amendment to Bylaws on June 22, 1994 (7)
4 - Amended and Restated Stockholders' Agreement (1)
9 - Voting Agreement (1)
10.1 (a) - Amended and Restated Loan Agreement between the Company and
NationsBank of North Carolina as of March 23, 1992 (5)
10.1 (b) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of September 8, 1992 (6)
10.1 (c) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of June 25, 1993 (6)
10.1 (d) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of March 15, 1993 (6)
<PAGE>
10.1 (e) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of August 31, 1993 (7)
10.1 (f) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of March 15, 1994 (7)
10.1 (g) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of July 27, 1994
10.2 (a) - Security Agreement between the Company and NationsBank of North
Carolina as of March 23, 1992 (5)
10.2 (b) - Amendment to Security Agreement as of August 31, 1993 (7)
10.3 (a) - Bond Purchase Agreement Sale - Orange, Virginia (1)
10.3 (b) - Bond Purchase Agreement and Agreement of Sale - Orange, Virginia (1)
10.3 (c) - Bond Purchase Agreement and Agreement of Sale - The Industrial
Development Authority of the County of Mohave, Arizona (2)
10.3 (d) - Bond Purchase Agreement and Agreement of Sales - Stephens County
Development Authority (3)
10.3 (e) - Amendment of Bond Purchase Agreement and Agreement of Sale - Orange,
Virginia (4)
10.3 (f) - Loan Agreement between the Company and the County Commission of
Hardy County, West Virginia as of December 1, 1991, relating to bond
financing (5)
10.3 (g) - Promissory Note between the Company and County Commission of Hardy
County, West Virginia as of December 18, 1991 (5)
10.3 (h) - Reimbursement Agreement between the Company and NationsBank as of
December 1, 1991 (5)
10.3 (i) - Amendment to Reimbursement Agreements as of June 15, 1992 (5)
<PAGE>
10.4 (a) - Credit Line Deed of Trust and Security Agreement - Orange and Clarke
Counties, Virginia, as amended (1)
10.4 (b) - Deed of Trust and Security Agreement - Hardy County, West Virginia,
as amended (1)
10.5 (a) - Loan Agreement between the Company and the West Virginia Economic
Development Authority and the Hardy County Rural Development
Authority (1)
10.5 (b) - Security Agreement between the Company and the West Virginia
Economic Development Authority (1)
10.5 (c) - Deed of Trust - Hardy County, West Virginia (1)
10.6 (a) - Lease between the Company and Amwood Associates (1)
10.6 (b) - Lease between the Company and the West Virginia Industrial and Trade
Jobs Development Corporation (3)
10.6 (c) - Lease between the Company and the West Virginia Industrial and Trade
Jobs Development Corporation (3)
10.6 (d) - Amendment to Deed of Lease between the Company and West Virginia
Economic Development Authority as of March 30, 1992 (5)
10.7 (a) - 1986 Employee Stock Option Plan (1)
10.7 (b) - Form of Option Agreement and Stock Purchase Agreement (1)
10.7 (c) - 1990 Non-Employee Directors Stock Option Plan (7)
10.8 - 1995 Incentive Plan
11 - Computation of Earnings Per Share
13 - 1995 Annual Report to Stockholders
<PAGE>
18 - None
23 - Consent of Ernst & Young LLP, Independent Auditors
27 - Financial Data Schedule
(b) Reports on Form 8-K
None.
(1) - Incorporated by reference to exhibits filed with Form S-1, No. 33-6245.
(2) - Incorporated by reference to exhibits filed with the 1987 Form 10-K.
(3) - Incorporated by reference to exhibits filed with the 1988 Form 10-K.
(4) - Incorporated by reference to exhibits filed with the 1989 Form 10-K.
(5) - Incorporated by reference to exhibits filed with the 1992 Form 10-K.
(6) - Incorporated by reference to exhibits filed with the 1993 Form 10-K.
(7) - Incorporated by reference to exhibits filed with the 1994 Form 10-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 F. BRANDT, JR.
William F. Brandt, Jr.
President
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ KENT B. GUICHARD /s/ MARTHA M. DALLY
Kent B. Guichard Martha M. Dally
Vice-President, Finance Director
/s/ JAMES J. GOSA /s/ JOHN T. GERLACH
James J. Gosa John T. Gerlach
Executive Vice President Director
Director
/s/ DONALD P. MATHIAS /s/ RICHARD A. GRABER
Donald P. Mathias Richard A. Graber
Vice President, Assembly and Director
Distribution
Director
/s/ DANIEL T. CARROLL /s/ C. ANTHONY WAINWRIGHT
Daniel T. Carroll C. Anthony Wainwright
Director Director
<PAGE>
Schedule II - Valuation and Qualifying Accounts
AMERICAN WOODMARK CORPORATION
(In Thousands)
Additions
Balance at Charged to Balance
Beginning Cost and Deduc- at End
Description(a) of Period Expenses tions of Period
Year ended April 30, 1995:
Allowance for doubtful
accounts $ 313 $ 40 $ (110)(b) $ 243
Reserve for cash discounts $ 225 $2,811(c) $(2,796)(d) $ 240
Reserve for sales returns
and allowances $ 679 $3,865(c) $(3,846) $ 698
Year ended April 30, 1994:
Allowance for doubtful
accounts $ 818 $ 234 $ (739)(b) $ 313
Reserve for cash discounts $ 240 $2,393(c) $(2,408)(d) $ 225
Reserve for sales returns
and allowances $ 903 $3,792(c) $(4,016) $ 679
Year ended April 30, 1993:
Allowance for doubtful
accounts $ 860 $ 372 $ (414)(b) $ 818
Reserve for cash discounts $ 200 $2,352(c) $(2,312)(d) $ 240
Reserve for sales returns
and allowances $ 494 $4,579(c) $(4,170) $ 903
(a) All reserves relate to accounts receivable.
(b) Principally write-offs, net of collections.
(c) Reduction of gross sales.
(d) Cash discounts granted.
<PAGE>
In accordance with Securities and Exchange Commission requirements, the Company
will furnish copies of all exhibits to its Form 10-K not contained herein upon
receipt of a written request and payment of $.10 (10 cents) per page to:
Mr. Kent Guichard
Vice President, Finance
American Woodmark Corporation
P.O. Box 1980
Winchester, Virginia 22604-8090
<PAGE>
Exhibit 10.1 (g)
SECOND AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as
of July 27, 1994, is to that certain Amended and Restated Loan Agreement
dated as of August 31, 1993, as amended as of March 15, 1994 (as amended and
restated, the "Loan Agreement"; all defined terms in the Loan Agreement are
incorporated herein by reference) by and between
AMERICAN WOODMARK CORPORATION, a corporation organized and existing
under the laws of the Commonwealth of Virginia and having its principal place
of business in Winchester, Virginia (the "Borrower"); and
NATIONSBANK OF NORTH CAROLINA, N.A., a national banking association
organized and existing under the laws of the United States and having offices
in Charlotte, North Carolina (the "Bank").
RECITAL
A. The Bank and the Borrower have agreed to make changes to the Loan
Agreement as provided for herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Section 1.01 is amended by adding the following
definitions in the alphabetically appropriate places:
"Applicable Rate" means for any fiscal quarter, the
applicable interest rates on the Prime Loans and the Fixed CD
Loans set forth below based upon the Pricing Leverage Ratio
and the Pricing Coverage Ratio as of the last day of the prior
fiscal quarter:
Prime Loan Fixed CD Loan
Interest Rates Interest Rates
--------------------------- -----------------------
Term Loan and Term Loan and
Additional Revolving Additional Revolving
Term Loan Loans Term Loan Loans
Category 1
Pricing Leverage Prime Rate Prime Rate Fixed CD Fixed CD
Ratio of less than plus 0.0% plus 0.0% Rate plus Rate plus
1.75 to 1.0 and 1.25% 1.00%
Pricing Coverage
Ratio of greater
than 1.85 to 1.0
<PAGE>
Category 2
Pricing Leverage Prime Rate Prime Rate Fixed CD Fixed CD
Ratio of less than plus 0.0% plus 0.0% Rate plus Rate plus
2.1 to 1.0 but 1.75% 1.5%
equal to or greater
than 1.75 to 1.0 and
Pricing Coverage
Ratio of greater than
1.4 to 1.0 but equal
to or less than
1.85 to 1.0
Category 3
Pricing Leverage Prime Rate Prime Rate Prime Rate Prime Rate
Ratio equal to or plus 0.0% plus 0.0% plus 0.0% plus 0.0%
greater than 2.1
and Pricing Coverage
Ratio of equal to or
less than 1.4 to 1.0
For purposes of the foregoing, if the Pricing Leverage Ratio and the Pricing
Coverage Ratio shall fall within different Categories, the Applicable Rate
applicable to any Prime Loan or Fixed CD Loan shall be based upon the
inferior (or numerically highest) Category.
"Available Committed Amount" or "Available Commitment"
means $8,000,000.00, as such amount may be increased from time
to time up to the Maximum Commitment pursuant to the terms of
Section 2.02;
"Clawback Fee" shall have the meaning given to such term
in Section 5.09 hereof;
"Fixed CD Loan" means a Loan based on the Fixed CD Rate;
"Fixed CD Rate" means the rate, on the day of borrowing,
bid by New York certificate of deposit dealers of recognized
standing for the purchase of the Bank's large negotiable
certificates of deposit at face value in the requested amount
of maturity, such rate being adjusted for the cost of (i)
reserve requirements as prescribed by the Federal Reserve
System and (ii) insurance premiums on certificates of deposit
paid to the Federal Deposit Insurance Corporation;
"Interest Payment Date" means (i) as to any Prime Loan,
the first day of January, April, July and October in each
year, and the Termination Date (with respect to the Revolving
Loans only), the Term Loan Maturity Date (with respect to the
<PAGE>
Term Loan) and the Additional Term Loan Maturity Date (with
respect to the Additional Term Loan), beginning with the first
of such dates to occur after the Closing Date; (ii) as to any
Fixed CD Loan and any Quoted Loan for which the Interest
Period is 90 days or less, the last day of the Interest
Period; and (iii) as to any Quoted Loan for which the Interest
Period is more than 90 days, the date 90 days from the
beginning of the Interest Period and the date ending each 90
day period thereafter until the end of the Interest Period and
the last day of the Interest Period. If any Interest Payment
Date falls on a date which is not a Business Day, such
Interest Payment Date shall be deemed to be the next
succeeding Business Day;
"Interest Period" means (i) as to any Fixed CD Loan, a
period of 30, 60 or 90 days' duration as the Borrower may
elect, commencing on the date of such Fixed CD Loan or
immediately upon expiration of the preceding Fixed CD Loan and
(ii) as to any Quoted Loan, a period of time mutually agreed
upon by the Borrower and the Bank at the time of such
borrowing, commencing on the date of such Quoted Loan or
immediately upon expiration of the preceding Quoted Loan;
PROVIDED, HOWEVER, that (A) each Interest Period which would
otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day and (B) no Interest Period
shall end later than the Termination Date (in the case of
Revolving Credit Loans), the Term Loan Maturity Date (in the
case of the Term Loan) or the Additional Term Loan Maturity
Date (in the case of the Additional Term Loan);
"Maximum Commitment" means $12,000,000.00;
"Pricing Coverage Ratio" means as of the last day of any
fiscal quarter, the ratio of Net Income Before Interest and
Taxes plus Operating Lease Expense to Interest Expense plus
Operating Lease Expense (computed for the most recent twelve
month period then ended);
"Pricing Leverage Ratio" means as of the last day of any
fiscal quarter, the ratio of Total Liabilities to Tangible Net
Worth;
"Prime Loan" means a Loan based on the Prime Rate;
"Quoted Loans" means a Loan based on the Quoted Rate;
<PAGE>
"Quoted Rate" means that fixed rate of interest quoted by
the Bank in its sole discretion and agreed to by the Borrower
on the day of borrowing;
"Unavailable Committed Amount" shall have the meaning
given to such term in Section 2.01 hereof;
(b) The definition of "Committed Amount" is deleted;
(c) The definition of "Termination Date" is amended so that
such definition now reads as follows:
"Termination Date" means August 31, 1996;
(d) The definition of "Unutilized Commitment" is amended in
its entirety so that such definition now reads as follows:
"Unutilized Available Commitment" means, at any time, the
excess of the Available Committed Amount at such time over the
aggregate principal amount of the Revolving Credit Loans
outstanding at such time; and
(e) Section 2.01 is amended in its entirety so that such
Section now reads as follows:
2.01 REVOLVING CREDIT LOANS. Subject to the terms and
conditions and relying upon the representations and warranties
herein set forth, the Bank agrees to make Revolving Credit
Loans to the Borrower, at any time or from time to time on or
after the date hereof and until the Termination Date, in an
aggregate principal amount at any time outstanding not to
exceed the Available Committed Amount. The Borrower may
borrow, repay and reborrow hereunder on or after the date
hereof and prior to the Termination Date, subject to the
terms, provisions and limitations set forth herein. The
Borrower and the Bank have agreed that $4,000,000 of the
Maximum Commitment shall initially be unavailable for
borrowing hereunder (such unavailable amount, as it may be
reduced or reinstated from time to time as hereinafter
provided, may be referred to as the "Unavailable Committed
Amount"). The Borrower may convert, from time to time at its
option and up to the day before the Termination Date, all or
a portion of the Unavailable Committed Amount to the Available
Committed Amount by delivery of a written notice to the Bank
<PAGE>
requesting such conversion; provided, however, that each such
request shall be in a minimum amount of $1,000,000 or an
integral multiple thereof. Upon receipt of such request by
the Bank and upon payment by the Borrower of the Clawback Fee,
the requested portion of the Unavailable Committed Amount
shall be converted to the Available Committed Amount and,
subject to the other terms and conditions hereof, shall be
available for borrowing hereunder. The Borrower may elect
from time to time, at its option, to reconvert and reinstate
portions of the Available Committed Amount previously
available for borrowing back into the Unavailable Committed
Amount by delivery of written notice to the Bank requesting
such reconversion; provided, however, (i) such request for
reconversion shall be in a minimum amount of $1,000,000 or an
integral multiple thereof and (ii) no such reconversion
may be made within ninety (90) days of such amounts first
being converted into Available Committed Amounts (on a FIFO
basis).
(f) Section 2.02 is amended in its entirety so that such
Section now reads as follows:
2.02 (a) RATE OPTIONS. Each Revolving Credit Loan shall
be a Fixed CD Loan, a Quoted Loan or a Prime Loan (or a
combination thereof) as the Borrower may request subject to
and in accordance with this Section; provided, however, the
Borrower shall not be entitled to request Fixed CD Loans
during any fiscal quarter if the Pricing Leverage Ratio as of
the last day of the prior fiscal quarter is equal to or
greater than 2.1 to 1.0 or the Pricing Coverage Ratio as of
the last day of the prior fiscal quarter is equal to or less
than 1.4 to 1.0. Subject to the other provisions of this
Section and the provisions of Section 5.08, Revolving Credit
Loans of more than one type may be outstanding at the same
time; provided, however, not more than three (3) Fixed CD
Loans may be outstanding at the same time.
(b) NOTICE. As to each Revolving Credit Loan, the
Borrower shall give the Bank prior written, telegraphic or
telephonic (and if telephonic, confirmed in writing by the
Borrower within 5 days thereof) notice not later than 10:00
a.m. (Charlotte, North Carolina time) on the date of the
requested borrowing. In each case such notice shall be
irrevocable and shall specify the amount of the proposed
borrowing, the date of the proposed borrowing (which shall be
a Business Day), the type of Loan requested and, if such Loan
<PAGE>
is to be a Fixed CD Loan, the Interest Period with respect
thereto. If no election is specified in such notice, such
Loan shall be a Prime Loan. On the borrowing date specified
in such notice, the Bank shall make the borrowing available
to the Borrower at the Borrower's account maintained at the
offices of the Bank in Charlotte, North Carolina in
immediately available funds.
(c) MINIMUM AMOUNTS. Each Revolving Credit Loan (i)
which is a Prime Loan shall be in a minimum principal amount
of $50,000.00, (ii) which is a Fixed CD Loan shall be in a
minimum principal amount of $1,000,000.00 and (iii) which is
a Quoted Loan shall be in a minimum principal amount
determined by the Bank in its sole discretion at the time of
borrowing.
(d) CONTINUANCE, CONVERSION. The Borrower may continue
the Revolving Credit Loans, or convert all or any part of any
Revolving Credit Loan into Revolving Credit Loans of a
different type in accordance with Section 5.08 and subject to
the limitations set forth herein.
(g) Section 2.04 is amended in its entirety so that such
Section now reads as follows:
2.04 Interest Rate Options.
(a) PRIME LOANS. Subject to the provisions of Section
5.01, each Revolving Credit Loan which is a Prime Loan shall
bear interest at a rate per annum, (computed on the basis of
the actual number of days elapsed over a year of 360 days)
equal to the Applicable Rate.
(b) FIXED CD LOANS. Subject to the provisions of
Section 5.01, each Revolving Credit Loan which is a Fixed CD
Loan shall bear interest at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 360
days) equal to the Applicable Rate.
(c) QUOTED LOANS. Subject to the provisions of Section
5.01, each Revolving Credit Loan which is a Quoted Loan shall
bear interest at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days)
equal to the Quoted Rate.
The Bank shall determine the applicable Fixed CD Rate for any
Revolving Credit Loan which bears interest based upon the Fixed CD
Rate on the date when such determination is to be made in respect
<PAGE>
of such Interest Period (or as soon thereafter as practicable), and
shall notify the Borrower and confirm the Borrower's acceptance of
the rate so determined. Such determination shall be conclusive
absent manifest error. Any Revolving Credit Loan which bears
interest based upon the Prime Rate shall increase or decrease on
the same date which the Prime Rate changes.
(h) Section 3.02 is amended in its entirety so that such
Section now reads as follows:
3.02 (a) RATE OPTIONS. Each Term Loan shall be a Fixed
CD Loan, a Quoted Loan or a Prime Loan (or a combination
thereof) as the Borrower may request subject to and in
accordance with this Section; provided, however, the Borrower
shall not be entitled to request Fixed CD Loans during any
fiscal quarter if the Pricing Leverage Ratio as of the last
day of the prior fiscal quarter is equal to or greater than
2.1 to 1.0 or the Pricing Coverage Ratio as of the last day
of the prior fiscal quarter is equal to or less than 1.4 to
1.0. Subject to the other provisions of this Section and the
provisions of Section 5.08, Term Loans of more than one type
may be outstanding at the same time; provided, however, not
more than three (3) Fixed CD Loans may be outstanding at the
same time.
(b) NOTICE. As to each Term Loan, the Borrower shall
give the Bank prior written, telegraphic or telephonic (and
if telephonic, confirmed in writing by the Borrower within 5
days thereof) notice not later than 10:00 a.m. (Charlotte,
North Carolina time) on the date of the requested borrowing.
In each case such notice shall be irrevocable and shall
specify the amount of the proposed borrowing, the date of the
proposed borrowing (which shall be a Business Day), the type
of Loan requested and, if such Loan is to be a Fixed CD Loan,
the Interest Period with respect thereto. If no election is
specified in such notice, such Loan shall be a Prime Loan.
(c) MINIMUM AMOUNTS. Each Term Loan (i) which is a
Prime Loan shall be in a minimum principal amount of
$50,000.00, (ii) which is a Fixed CD Loan shall be in a
minimum principal amount of $1,000,000.00 and (iii) which is
a Quoted Loan shall be in a minimum principal amount
determined by the Bank in its sole discretion at the time of
borrowing.
<PAGE>
(d) CONTINUANCE, CONVERSION. The Borrower may continue
the Term Loans, or convert all or any part of any Term Loan
into Term Loans of a different type in accordance with Section
5.08 and subject to the limitations set forth herein.
(i) Section 3.04 is amended in its entirety so that such
Section now reads as follows:
3.04 INTEREST RATE OPTIONS.
(a) PRIME LOANS. Subject to the provisions of Section
5.01, each Term Loan which is a Prime Loan shall bear interest
at a rate per annum, (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the
Applicable Rate.
(b) FIXED CD LOANS. Subject to the provisions of
Section 5.01, each Term Loan which is a Fixed CD Loan shall
bear interest at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days)
equal to the Applicable Rate.
(c) QUOTED LOANS. Subject to the provisions of Section
5.01, each Term Loan which is a Quoted Loan shall bear
interest at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal
to the Quoted Rate.
The Bank shall determine the applicable Fixed CD Rate for any
Term Loan which bears interest based upon the Fixed CD Rate on the
date when such determination is to be made in respect of such
Interest Period (or as soon thereafter as practicable), and shall
notify the Borrower and confirm the Borrower's acceptance of the
rate so determined. Such determination shall be conclusive absent
manifest error. Any Term Loan which bears interest based upon the
Prime Rate shall increase or decrease on the same date which the
Prime Rate changes.
(j) Section 4.02 is amended in its entirety so that such
Section now reads as follows:
4.02 (a) RATE OPTIONS. Each Additional Term Loan shall
be a Fixed CD Loan, a Quoted Loan or a Prime Loan (or a
combination thereof) as the Borrower may request subject to
and in accordance with this Section; provided, however, the
Borrower shall not be entitled to request Fixed CD Loans
during any fiscal quarter if the Pricing Leverage Ratio as of
<PAGE>
the last day of the prior fiscal quarter is equal to or
greater than 2.1 to 1.0 or the Pricing Coverage Ratio as of
the last day of the prior fiscal quarter is equal to or less
than 1.4 to 1.0. Subject to the other provisions of this
Section and the provisions of Section 5.08, Additional Term
Loans of more than one type may be outstanding at the same
time; provided, however, not more than three (3) Fixed CD
Loans may be outstanding at the same time.
(b) NOTICE. As to each Additional Term Loan, the
Borrower shall give the Bank prior written, telegraphic or
telephonic (and if telephonic, confirmed in writing by the
Borrower within 5 days thereof) notice not later than 10:00
a.m. (Charlotte, North Carolina time) on the date of the
requested borrowing. In each case such notice shall be
irrevocable and shall specify the amount of the proposed
borrowing, the date of the proposed borrowing (which shall be
a Business Day), the type of Loan requested and, if such Loan
is to be a Fixed CD Loan, the Interest Period with respect
thereto. If no election is specified in such notice, such
Loan shall be a Prime Loan.
(c) MINIMUM AMOUNTS. Each Additional Term Loan (i)
which is a Prime Loan shall be in a minimum principal amount
of $50,000.00, (ii) which is a Fixed CD Loan shall be in a
minimum principal amount of $1,000,000.00 and (iii) which is
a Quoted Loan shall be in a minimum principal amount
determined by the Bank in its sole discretion at the time of
borrowing.
(d) CONTINUANCE, CONVERSION. The Borrower may continue
the Additional Term Loans, or convert all or any part of any
Additional Term Loan into Additional Term Loans of a different
type in accordance with Section 5.08 and subject to the
limitations set forth herein.
(k) Section 4.04 is amended in its entirety so that such
Section now reads as follows:
4.04 INTEREST RATE OPTIONS.
(a) PRIME LOANS. Subject to the provisions of Section
5.01, each Additional Term Loan which is a Prime Loan shall
bear interest at a rate per annum, (computed on the basis of
the actual number of days elapsed over a year of 360 days)
equal to the Applicable Rate.
<PAGE>
(b) FIXED CD LOANS. Subject to the provisions of
Section 5.01, each Additional Term Loan which is a Fixed CD
Loan shall bear interest at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 360
days) equal to the Applicable Rate.
(c) QUOTED LOANS. Subject to the provisions of Section
5.01, each Additional Term Loan which is a Quoted Loan shall
bear interest at a rate per annum (computed on the basis of
the actual number of days elapsed over a year of 360 days)
equal to the Quoted Rate.
The Bank shall determine the applicable Fixed CD Rate for any
Additional Term Loan which bears interest based upon the Fixed CD
Rate on the date when such determination is to be made in respect
of such Interest Period (or as soon thereafter as practicable), and
shall notify the Borrower and confirm the Borrower's acceptance of
the rate so determined. Such determination shall be conclusive
absent manifest error. Any Additional Term Loan which bears
interest based upon the Prime Rate shall increase or decrease on
the same date which the Prime Rate changes.
(l) Section 5.04 is amended in its entirety so that such
Section now reads as follows:
5.04 UNUSED FEES. In consideration of the Bank's
commitment to make the Loans, the Borrower agrees to pay (i)
an unused fee of three-eighths of one percent (3/8%) per annum
(computed on the basis of the actual number of days elapsed
in a year of 360 days) on the average daily Unutilized
Available Commitment during the preceding period and (ii) an
unused fee of one-eighth of one percent (1/8%) per annum
(computed on the basis of the actual number of days elapsed
in a year of 360 days) on the average daily Unavailable
Committed Amount during the preceding period. Such unused
fees shall be payable on or before the first day (1st) day of
each January, April, July and October for the calendar quarter
ending as of the immediately preceding month, commencing July
1, 1994. In addition to the foregoing fees, upon a request
for a conversion of all or a portion of the Unavailable
Committed Amount to the Available Committed Amount pursuant
to Section 2.01, the Borrower agrees to pay to the Bank on the
date such notice is given by the Borrower to the Bank pursuant
to Section 2.01, a fee (the "Clawback Fee") equal to one-
quarter of one percent (1/4%) per annum (computed on the basis
<PAGE>
of the actual number of days elapsed in a year 360 days) on
such converted amount for the six month period immediately
preceding the date of such notice.
(m) Section 5.05 is amended in its entirety so that such
Section now reads as follows:
5.05 COMMITMENT FEE. In consideration of the Bank's
commitment to make the Loans, the Borrower agrees to pay a
commitment fee of .15% per annum (computed on the basis of the
actual number of days elapsed in a year of 360 days) on the
Committed Amount. This commitment fee shall be payable on or
before the fifteenth (15th) day of each January, April, July
and October for the calendar quarter ending as of the
immediately preceding month commencing July 1, 1994.
(n) Sections 5.08, 5.09, 5.10, 5.11 and 5.12 are added to the
Loan Agreement as follows:
5.08 CONVERSION. The Borrower shall have the right on
such notice as provided in Sections 2.02(b), 3.02(b) and
4.02(b), (i) to continue any Fixed CD Loan or portion thereof
or Quoted Loan or portion thereof into a subsequent Interest
Period, and (ii) to convert any Loan or any portion thereof
into a Loan of a different type, subject to the following:
(a) No Event of Default shall have occurred and be
continuing, and the representations and warranties set
out in Article IX shall be true and correct (except to
the extent such representations and warranties expressly
relate to an earlier date);
(b) Each conversion shall be effected by applying
the proceeds of the new Loan to the Loan (or portion
thereof) being converted, and accrued interest on any
Fixed CD Loan (or portion thereof) or Quoted Loan (or
portion thereof) being converted shall be paid by the
Borrower at the time of conversion;
(c) If the new Loan made in respect of a conversion
shall be a Fixed CD Loan or Quoted Loan, the interest
Period with respect thereto shall commence on the date of
conversion;
<PAGE>
(d) No Loan or any portion thereof may be converted
to a Fixed CD Loan or Quoted Loan less than thirty (30)
days before the Termination Date (with regard to
Revolving Credit Loans), the Term Loan Maturity Date
(with regarding to the Term Loan) or the Additional Term
Loan Maturity Date (with regard to the Additional Term
Loan);
(e) No Fixed CD Loan or any portion thereof may
be converted to another type of Loan except on the last
day of an Interest Period;
(f) The making of, conversion to and terms of
Quoted Loans or any portion thereof are subject to the
sole discretion of the Bank;
(g) No more than three different Interest Periods
for each type of Loan shall be in effect at the same
time;
(h) Each request for a Fixed CD Loan or a
continuation thereof which shall fail to state an
applicable Interest Period shall be deemed to be a
request for an Interest Period for a 30 day period; and
(i) The Borrower shall not be entitled during any
fiscal quarter to request a Fixed CD Loan or to continue
a Fixed CD Loan at the end of the applicable Interest
Period if the Pricing Leverage Ratio as of the last day
of the prior fiscal quarter is equal to or greater than
2.1 to 1.0 or the Pricing Coverage Ratio as of the last
day of the prior fiscal quarter is equal to or less than
1.4 to 1.0.
In the event that the Borrower shall not give notice to
continue or to convert any Fixed CD Loan or Quoted Loan into
a different type of Loan, such Fixed CD Loan or Quoted Loan
(unless repaid) shall automatically become or remain, as
appropriate, a Prime Loan at the expiration of the then
current Interest Period.
5.09 CD RATE UNASCERTAINABLE. In the event that the Bank
shall determine that the Fixed CD Rate cannot be ascertained
for any reason, or that the Fixed CD Rate will not adequately
and fairly reflect the cost to the Bank of making or
maintaining a Fixed CD Loan, the Bank shall promptly give
<PAGE>
notice to the Borrower of such determination, and any request
by the Borrower for a Fixed CD Loan or for conversion to or
maintenance of a Fixed CD Loan shall be deemed to be a request
for a Prime Loan. Until the circumstances giving rise to such
notice no longer exist, each request for a Fixed CD Loan shall
be deemed to be a request for a Prime Loan. Each
determination by the Bank hereunder shall be conclusive absent
manifest error.
5.10 ADDITIONAL COSTS.
(a) The Borrower shall pay directly to the Bank
from time to time such amounts as the Bank may determine
to be necessary to compensate it for any costs incurred
by the Bank which the Bank determines are attributable to
its making or maintaining of any Fixed CD Loans hereunder
or its obligation to make any of such Loans hereunder,
or any reduction in any amount receivable by the Bank
hereunder in respect of any of such Loans or such
obligation; resulting from any Regulatory Change (such
increase in costs and reductions in amounts receivable
being herein called "Additional Costs") which: (i)
changes the basis of taxation of any amounts payable to
the Bank under this Loan Agreement or the Notes in
respect of any of such Loans (other than taxes imposed on
the overall net income of the Bank for any of such
Loans); or (ii) imposes or modifies any reserve, special
deposit or similar requirements relating to any
extensions of credit or other assets of, or any deposits
with or liabilities of, the Bank (including any Loans or
any deposits included in the definition of "Fixed CD
Rate" herein); or (iii) imposes any other condition
affecting this Loan Agreement (or any such extensions of
credit or liabilities). The Bank will notify the
Borrower of any event occurring after the date of this
Loan Agreement which will entitle the Bank to
compensation pursuant to this Section as promptly as
practicable after it obtains knowledge thereof and the
Borrower shall pay all such compensation within 15 days
after receipt of any such notice; provided, however, if
the Bank fails to give the Borrower prompt notice of any
such event which entitles the Bank to additional
compensation pursuant to this Section, the Bank shall not
be entitled to receive such compensation for the period
<PAGE>
commencing on the last date the Borrower should have
received prompt notice and ending on the date the
Borrower receives actual notice of such event. The Bank
will furnish the Borrower with a certificate setting
forth the basis and amount of each request by the Bank
for compensation under this Section. If the Bank
requests compensation from the Borrower under this
Section, the Borrower may, by notice to the Bank, request
that such Loans of the type with respect to which such
compensation is requested be converted into Prime Loans
in accordance with Section 5.04 hereof.
(b) Without limiting the effect of the foregoing
provisions of this Section, in the event that, by reason
of any Regulatory Change, the Bank either (i) incurs
Additional Costs based on or measured by the excess above
a specified level of the amount of a category of deposits
or other liabilities of the Bank which includes deposits
by reference to which the interest rate on Fixed CD Loans
is determined as provided in this Loan Agreement or a
category of extensions of credit or other assets of the
Bank which includes Fixed CD Loans or (ii) becomes
subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if the
Bank so elects by notice to the Borrower, the obligation
of the Bank to make, and to convert Loans of any other
type into, Loans of such type hereunder shall be
suspended until the date such Regulatory Change ceases to
be in effect (and all Loans of such type held by such
Bank then outstanding shall be converted into Prime Loans
in accordance with Section 6.04 hereof).
(c) Determinations by the Bank for purposes of
this Section of the effect of any Regulatory Change on
its costs of making or maintaining Loans or on amounts
receivable by it in respect of Loans, and of the
additional amounts required to compensate such Bank in
respect of any Additional Costs, shall be conclusive,
provided that such determinations are made on a
reasonable basis; provided, however, that if such
Regulatory Change or other condition is determined to be
invalid or inapplicable the Bank will promptly refund any
amount erroneously billed to the Borrower together with
interest thereon at the instrument rate.
<PAGE>
5.11 CERTAIN CONVERSIONS OF LOANS. If the Loans of a
particular type (Loans of such type being herein called
"Affected Loans" and such type being herein called the
"Affected Type") are to be converted pursuant to Section 5.11
hereof, the Bank's Affected Loans shall be automatically
converted into Prime Loans on the last day(s) of the then
current Interest Period(s) for the Affected Loans (or, in the
case of a conversion required by Section 5.11 hereof, on such
earlier date as the Bank may specify to the Borrower) and,
unless and until the Bank gives notice as provided below that
the circumstances specified which give rise to such conversion
no longer exist:
(a) to the extent that the Affected Loans have
been so converted, all payments and prepayments of
principal which would otherwise be applied to the
Affected Loans shall be applied instead to Prime Loans;
(b) all Loans which would otherwise be made as
Loans of the Affected Type shall be made instead as Prime
Loans and all Loans which would otherwise be converted
into Loans of the Affected Type shall be converted into
(or shall remain as) Prime Loans.
5.12 COMPENSATION. The Borrower shall pay to the Bank,
upon request, such amount or amounts as shall be sufficient
(in the reasonable opinion of the Bank) to compensate it for
any loss, cost or expense incurred by it as a result of:
(a) any payment, prepayment or conversion of a
Fixed CD Loan made by the Bank on a date other than the
last day of an Interest Period for such Loan; or
(b) any failure by the Borrower to borrow a Fixed
CD Loan to be made on the date for such borrowing
specified in the relevant notice of borrowing made by the
Borrower under Section 2.02(b), 3.02() or 4.02(b) after
the Bank had determined the applicable Fixed CD Rate for
such Loan and the Borrower had accepted the rate so
determined; such compensation to include, without
limitation, an amount equal to the excess, if any, of (i)
the amount of interest which would have accrued on the
principal amount so paid, prepaid or converted or not
borrowed for the period from the date of such payment,
prepaying or conversion or failure to borrow on the last
<PAGE>
day of the then current Interest Period for such Loan
(or, in the case of a failure to borrow, the Interest
Period for such Loan which would have commenced on the
date of such failure to borrow) at the applicable rate of
interest for such Loan provided for herein over (ii) the
interest component (as reasonably determined by the Bank)
of the amount (as reasonably determined by the Bank) the
Bank would have bid in the United States certificate of
deposit market for dollar deposits of leading banks in
amounts comparable to such principal amount and
maturities comparable to such period, in the case of
Fixed CD Loans.
(o) Sections 11.01(f)-(j) are amended in their entirety so
that such Sections now read as follows:
(f) maintain at end of each fiscal quarter (commencing
with the fiscal quarter ending July 31, 1994) Tangible Net
Worth in an amount equal to at least $23,000,000.00 increased
by (i) fifty percent (50%) of the Borrower's Net Income for
the Borrower's fiscal year most recently ended (but with no
reduction for losses incurred), such required increases to be
cumulative and (ii) one hundred percent (100%) of the net
proceeds of common or preferred stock issued by the Borrower
subsequent to the Closing Date (excluding stock issued to
acquire the good will of another Person or business);
(g) maintain at end of each fiscal quarter (commencing
with the fiscal quarter ending July 31, 1994) a ratio of Total
Liabilities to Tangible Net Worth of not more than 3.0 to 1.0;
(h) maintain at end of each fiscal quarter (commencing
with the fiscal quarter ending July 31, 1994) a ratio of
Current Assets plus the unused portion of the Available
Committed Amount to Current Liabilities of not less than 1.2
to 1.0;
(i) maintain for the most recent twelve month period
ended as at the end of each fiscal quarter (commencing with
the fiscal quarter ending July 31, 1994) a ratio of Net Income
Before Interest and Taxes plus Operating Lease Expense to
Interest Expense plus Operating Lease Expense of not less than
1.0 to 1.0;
<PAGE>
(j) maintain for the most recent twelve month period
ended as of the end of each fiscal quarter (commencing with
the fiscal quarter ending July 31, 1994) a ratio of Net Income
plus Non-Cash Charges to Scheduled Principal Payments of not
less than 1.5 to 1.0;
B. The Borrower hereby represents and warrants that:
1. the "Representation and Warranties" set forth in Article IX
of the Loan Agreement, as amended, are true and correct as of the date
of this Second Amendment;
2. the Borrower is not in default of the Loan Agreement or the
other Loan Documents (as defined in the Loan Agreement) and no event or
condition exists under the Loan Agreement or the other Loan Documents
that, but for the giving of notice or lapse of time or both, would
result in such a default as of the date of this Second Amendment.
C. Except as modified hereby, all of the terms and provisions of the
Loan Agreement (and Exhibits) remain in full force and effect.
D. The Borrower agrees that all references to the term "Loan
Agreement" in each of the Loan Documents shall mean the "Amended and
Restated Loan Agreement, dated August 31, 1993, as amended March 15, 1994
and July 27, 1994, by and between American Woodmark Corporation and
NationsBank of North Carolina, N.A."
E. This Second Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed
an original.
F. This Second Amendment and the Loan Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with, the laws of the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed by their duly authorized corporate officers as of the day and
year first above written.
AMERICAN WOODMARK CORPORATION
ATTEST:
By: /s/ CAROL LENTZ By: /s/ GLENN EANES
Title: Corporate Secretary Title: Treasurer
(Corporate Seal)
NATIONSBANK OF NORTH CAROLINA,
N.A.
By: /s/ MICHAEL ANDRY
Title: Vice President
<PAGE>
Exhibit 10.8
AMERICAN WOODMARK CORPORATION
Fiscal Year 1995
Incentive Plan for Officers
I. Purpose
The objectives of the Incentive Plan are threefold:
A. To provide an incentive which will encourage and reward outstanding
individual performance.
B. To help align the personal goals of the individuals with the overall
goals and objectives of American Woodmark.
C. Together with the Salary Administration Program; to provide a
compensation package, both in form and in total compensation value,
which is at least equal to or better than programs offered by
competition.
II. Eligibility for Participation in the Bonus Program
Positions included in the program are officers of the Company.
III. Payout of Bonus Awards
A. Officers
Officers will be paid in two components:
1. From 0-70% of their year end salary based upon ROI.
2. From 0-30% of their salary based upon measurable goals which
support the achievement of the Company's goals.
There will be no payout if the Company loses money for the year. Payouts
will be made at the end of the fiscal year, and the individual must be
employed as of April 30, 1995 to be eligible.
<PAGE>
IV. Determination of Payout
Payout Percentage
A. ROI* Officers
Below 12.5 0
12.5 - 15% 14 - 30
15 - 20% 30 - 50
20 - 25% 50 - 65
25 - 30% 65 - 70
V. In addition to the above program, the President has the authority to
propose to the Compensation Committee additional special payouts for
individuals who perform in an exceptional way to dramatically and favorably
impact the Company's performance.
* ROI is return on investment: pre-tax pre-interest income (excluding
effects of accounting changes) divided by average net assets
(excluding cash, accounts payable and current liabilities).
<PAGE>
Exhibit 11
AMERICAN WOODMARK CORPORATION
Computation of Earnings Per Share
Fiscal Year Ended April 30
(in thousands, except per share amounts) 1995 1994 1993
Net income (loss) $5,356 $2,176 $(474)
Divided by weighted average shares
outstanding 7,544 7,529 7,527
Earnings (loss) per share $.71 $.29 $(.06)
<PAGE>
Exhibit 23
Consent Of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Woodmark Corporation of our report dated June 9, 1995, included in
the April 30, 1995 Annual Report to Shareholders of American Woodmark
Corporation.
Our audits also included the financial statement schedule of American Woodmark
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-15270) pertaining to the American Woodmark Corporation 1986
Stock Option Plan of our report dated June 9, 1995, with respect to the
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedule
included in this Annual Report (Form 10-K) of American Woodmark Corporation.
/s/ERNST & YOUNG LLP
Baltimore, Maryland
July 12, 1995
M I S S I O N S T A T E M E N T
CREATING VALUE THROUGH PEOPLE
WHO WE ARE
American Woodmark is an organization of employees and shareholders who have
combined their resources to pursue a common goal.
WHAT WE DO
Our common goal is to create value by providing kitchens and baths "of pride"
for the American family.
WHY WE DO IT
We pursue this goal to earn a profit, which allows us to reward our
shareholders and employees and to make a contribution to our society.
HOW WE DO IT
Four principles guide our actions:
Customer Satisfaction - Providing the best possible quality, service and
value to the greatest number of people. Doing whatever is reasonable,
and sometimes unreasonable, to make certain that each customer's needs
are met each and every day.
Integrity - Doing what is right. Caring about the dignity and rights of
each individual. Acting fairly and responsibly with all parties. Being
a good citizen in the communities in which we operate.
Teamwork - Understanding that we must all work together if we are to be
successful. Realizing that each individual must contribute to the team
to remain a member of the team.
Excellence - Striving to perform every job or action in a superior way.
Being innovative, seeking new and better ways to get things done.
Helping all individuals to become the best that they can be in their
jobs and careers.
ONCE WE'VE DONE IT
When we achieve our goal good things happen: sales increase, profits are
made, shareholders and employees are rewarded, jobs are created, our
communities benefit, we have fun, and our customers are happy and proud - with
a new kitchen or bath from American Woodmark.
<PAGE>
Table of Contents
Company Profile 2
Market Information 2
Financial Highlights 2
President's Letter 3
Five Year Selected Financial Information 5
Today's Success: Our First Step For Tomorrow 6
Management's Discussion and Analysis 12
Financial Statements 17
Notes to Financial Statements 20
Management's Report 27
Report of Independent Auditors 27
Board of Directors and Executive Officers 28
Corporate Information 29
<PAGE>
COMPANY PROFILE
American Woodmark Corporation
manufactures and distributes kitchen
cabinets and vanities for the remodeling
and new home construction markets. The
Company operates seven manufacturing
facilities located in Arizona, Georgia,
Virginia, and West Virginia, and six
service centers across the country.
American Woodmark Corporation was
formed in 1980 and became a public company
through a Common Stock offering in July,
1986.
The Company offers almost 100 cabinet
lines in a wide variety of designs,
materials, and finishes. Its products are
sold on a national basis through a network
of independent distributors and directly to
home centers, major builders and home
manufacturers. Approximately 60% of its
sales during fiscal year 1995 were to the
remodeling market and 40% to the new home
market.
The Company is one of the five
largest manufacturers of kitchen cabinets
in the United States.
<PAGE>
MARKET INFORMATION
American Woodmark Corporation no par
value Common Stock is traded on the NASDAQ
Over-the-Counter market under the AMWD
symbol. On April 30, 1995, there were
7,551,109 shares of stock outstanding.
Market price ranges for the Company's
Common Stock are set forth below (prior
stock prices have been restated for a 10%
Common Stock dividend in September 1993).
Fiscal Years Ended April 30
Quarter Ended 1995 1994
Market Price Market Price
High Low High Low
July 31 $6.00 $4.88 $4.32 $3.86
October 31 $6.38 $5.25 $4.63 $3.25
January 31 $5.75 $4.50 $4.88 $3.13
April 30 $6.25 $5.38 $7.50 $4.50
As of April 30, 1995, there were
approximately 3,100 stockholders of the
Company's Common Stock. Included are
approximately 75% of the Company's
employees who are stockholders through the
American Woodmark Stock Ownership Plan.
For information regarding dividends, see
Notes E and F to the Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(in thousands, except per share data) Years Ended April 30
1995 1994 1993
OPERATIONS
Net sales $197,351 $ 171,343 $167,250
Operating income 10,154 5,423 1,640
Income (loss) before income taxes 8,822 3,523 (726)
Net income (loss) 5,356 2,176 (474)
Net income (loss) per share $ .71 $ .29 $ (.06)
Average shares outstanding -- Note F 7,544 7,529 7,527
FINANCIAL POSITION
Working capital $ 14,162 $ 9,732 $ 6,496
Total assets 74,408 72,321 78,453
Long-term debt 15,534 18,334 21,470
Stockholders' equity $ 31,801 $ 26,376 $ 24,186
Long-term debt to equity ratio 49% 70% 89%
<PAGE>
PRESIDENT'S LETTER
To Our Shareholders:
Fiscal 1995 was a very good year for American Woodmark. We achieved
record sales and earned a net profit of $5,356,000 or $.71 per share,
including an after-tax charge of $313,000 or $.04 per share for restructuring
costs. We improved year-over-year income performance in each reporting period
and for the full year provided a return on average shareholders' equity of
18.4%.
Net sales increased 15% to $197.4 million from $171.3 million the
previous year. Sales gains occurred as a result of our strong market position
with the leaders in the home center industry, the continued growth of our
Timberlake brand with distributors and builders, and our innovative product
offering and service programs. Over the past three years, sales have grown at
a compounded rate of 13% per year.
During fiscal 1995, we focused on improving our sales mix, managing
material costs, improving productivity and gaining leverage on our overhead
expenses. As a result of these activities, gross margin as a percent of net
sales improved to 23.5% from 21.4% the prior year. Continuing efforts in
these areas should further improve margins in the future.
Following the trend of the last few years, the Company ended the year
with an improved financial position through an even stronger balance sheet.
Total debt was reduced by $5.2 million to $18.3 million. Over the past three
years, total debt has been reduced by over $21 million dollars while retained
earnings increased by over $7 million. Long-term debt to total capital
declined to 33% at year end. We were successful in holding the combination of
receivables and inventory levels constant even though we had higher sales.
Our financial strength will enable us to more aggressively pursue promising
market opportunities and high return cost savings projects.
At the end of the fiscal year, Don Mathias, a founder of American
Woodmark and our Vice President of Assembly & Distribution, retired. Don
worked in our business for over 30 years in a variety of capacities, starting
with Raygold Industries in 1963. In May, Don was honored by receiving a
lifetime achievement award from the Kitchen Cabinet Manufacturers Association.
On behalf of all employees, officers and directors, I would like to thank Don
for his many contributions over the years and wish him well in his retirement.
Don will continue to provide valuable counsel as a Director of the Company.
During the year, Jake Gosa and Martha Dally joined our Board of
Directors. Jake is the Executive Vice President of the Company and has been
an officer since 1991. Martha is the Executive Vice President - Personal
Products for Sara Lee Corporation. I look forward to the contributions of
both Jake and Martha in their new roles.
In 1989, we created our "1995 Vision" which initiated a six year journey
to transform American Woodmark from a single brand supplier with a limited
product line to an organization capable of providing extensive variety across
multiple brands. The path we chose was difficult, and we experienced a number
of setbacks along the way, but I am now very pleased to say that this "Vision"
has been achieved. For the first time in several years, we have earned a
reasonable return for our shareholders. Your patience and support have been
critical in successfully returning the Company to a position of financial
strength.
In closing, I would like to thank all of our employees for their
commitment and contribution to our success. Our challenge is to build on the
foundation we have created, to help our customers grow and to share our future
successes with our stockholders, employees and communities.
<PAGE>
FIVE YEAR SELECTED FINANCIAL INFORMATION
Years Ended April 30
1995 1994 1993 1992 1991
FINANCIAL STATEMENT DATA
(in millions, except per share data)
Net sales $197.4 $171.3 $167.3 $137.4 $149.8
Income (loss) before income taxes 8.8 3.5 (.7) (6.5) (4.2)
Net income (loss) 5.4 2.2 (.5) (4.0) (2.6)
Net income (loss) per share (1) .71 .29 (.06) (.54) (.34)
Depreciation and amortization expense 7.8 7.2 6.8 5.6 5.5
Restructuring costs .5 1.0 1.1 -- --
Total assets 74.4 72.3 78.5 82.3 78.9
Long-term debt 15.5 18.3 21.5 25.1 24.6
Stockholders' equity 31.8 26.4 24.2 24.7 28.7
Average shares outstanding (1) 7.5 7.5 7.5 7.5 7.5
PERCENT OF SALES
Gross profit 23.5% 21.4% 18.2% 19.2% 19.6%
Sales, General and Administrative
expenses 18.1 17.6 16.5 22.1 20.3
Restructuring costs .3 .6 .6 -- --
Income (loss) before income taxes 4.5 2.1 (.4) (4.7) (2.8)
Net income (loss) 2.7 1.3 (.3) (2.9) (1.7)
RATIO ANALYSIS
Current ratio 1.6 1.4 1.2 1.3 1.8
Inventory turnover (2) 11.0 8.5 7.0 5.3 6.0
Percentage of capital:
(LTD & equity)
Debt 32.8% 41.0% 47.0% 50.5% 46.2%
Equity 67.2 59.0 53.0 49.5 53.8
Return on equity (Average %) 18.4 8.6 (1.9) (15.2) (8.5)
Collection period-days (3) 34.7 37.2 36.4 37.7 37.8
(1) The weighted average of common shares has been retroactively restated to
reflect a 10% stock dividend issued in September 1993. See Notes A and F
to the Financial Statements.
(2) Based on average of beginning and ending Inventory.
(3) Based on ratio of monthly average Accounts Receivable to average sales per
day.
<PAGE>
AMERICAN WOODMARK
TODAY'S SUCCESS: OUR FIRST STEP FOR TOMORROW
The end of the 1995 fiscal year marks the completion of our "1995 Vision",
the six year plan launched in 1989. Closing this chapter in the history of
American Woodmark provides an opportunity to take stock of how far we have
come and to look forward to the challenges and opportunities that lie ahead.
The 1995 Vision
We developed the 1995 Vision to create a company with the strength and
flexibility to compete in a rapidly changing world. The journey has been even
more challenging than we imagined back in 1989, but we take pride in what we
have accomplished.
During fiscal 1995, the major elements of the 1995 Vision came together to
produce a solid performance. All of our key business indicators improved from
fiscal 1994. The implementation of our Vision has provided us with several
advantages.
Customer relationships in key markets are extremely strong. American
Woodmark is the preferred supplier of stock cabinets with our major
customers.
Our innovative products and differentiated brands allow American
Woodmark to meet the unique needs of home centers, distributors and
builders.
Advanced technology has simplified our products, enhanced quality and
improved margins.
Our new service platform assures an outstanding level of on-time
delivery at lower cost.
The overall financial position of the Company has improved dramatically
with a lower breakeven point, the retirement of debt and the permanent
reduction in the level of working capital required to effectively
operate our business.
The men and women of American Woodmark, working with our customers and
suppliers, have come a long way since 1989. We are a more competitive company
with a foundation to take advantage of the opportunities that lay ahead.
<PAGE>
The Future
The world we live in today is vastly different than the world of even a
decade ago, and the pace of change may even be accelerating. The successful
companies of tomorrow will have the ability to adapt rapidly to new realities.
A reality we anticipate for American Woodmark in which:
End consumers will be more informed and make more educated choices;
Industry competition will focus on delivering total value to the end
consumer through variety, product quality and superior service;
Our direct customers will continue to look for innovative suppliers who
understand and support their business;
The needs of our customer and the end consumer will change rapidly,
requiring virtually immediate response;
The current line between customer, supplier and vendor will gradually
disappear, with all participating in delivering value to the end
consumer;
The potential shortage of qualified, skilled individuals, combined with
the sophistication required to manage effort in an even more complex
world, will place a premium on productivity;
Social institutions may struggle to keep pace. The private sector must
be prepared to assume a greater role, especially in education of the
work force; and
Companies that are open to new ideas, that drive innovation and that
spark break-through thinking will create competitive advantages.
<PAGE>
In order to remain competitive and to fulfill our Mission Statement, we are
in the process of creating a new six year vision. The "2001 Vision" will
further enhance our partnerships with customers, suppliers and the communities
in which we live and work. It will involve even greater flexibility in
manufacturing and service systems. We will employ effective information
technology to increase our productivity and the speed with which we respond to
the changing demands of the marketplace.
Most importantly, this new vision will create an environment at American
Woodmark that:
Promotes and rewards innovative and revolutionary thinking in service of
the customer;
Provides our employees with the opportunity and tools to invest in their
personal and professional growth;
Utilizes a management approach that recognizes the individual talents of
each employee and combines these talents in focused teams; and
Links each individual, our organization, our vendors and our customers
together in mutual prosperity and growth.
Through this environment and culture, we will create a significant and
sustainable competitive advantage for American Woodmark.
The 1995 Vision has fundamentally changed the way in which American
Woodmark approaches the marketplace. We have come a long way since 1989. As
we look towards the turn of the century, there are many more challenges ahead.
Building on the success of the last six years, we look forward to that
continuing challenge.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth certain income and expense items as a
percentage of net sales.
Percentage of Net Sales
Years Ended April 30
1995 1994 1993
Net sales 100.0% 100.0% 100.0%
Cost of sales and distribution 76.5 78.6 81.8
Gross profit 23.5 21.4 18.2
Selling and marketing expenses 12.0 12.0 11.3
General and administrative expenses 6.1 5.6 5.2
Restructuring costs .3 .6 .6
Operating income 5.1 3.2 1.0
Interest expense .7 1.1 1.4
Income (loss) before income taxes 4.5 2.1 (.4)
Provision (benefit) for income taxes 1.8 .8 (.1)
Net income (loss) 2.7 1.3 (.3)
<PAGE>
FISCAL YEAR 1995 COMPARED TO FISCAL
YEAR 1994
Fiscal 1995 net sales of $197.4 million increased 15.2% from $171.3
million the prior year. A general price increase was implemented during
the year to recover rising material costs. Average unit prices increased
as the result of the price increase and a shift towards the upper-end of the
Company's broad stock product offering.
Overall unit volume increased 8.2%, with increases across all three market
channels. The volume increase in the Home Center channel was attributed to
both strong remodeling activity and increases in market share. Distributor
volume increased due to additional distributors marketing the Company's
products, strong remodeling activity and improved new construction levels in
certain geographical regions. Direct Builder volume increased as the Company
benefitted from new construction growth in selected markets.
Gross profit improved to 23.5% of net sales from 21.4% the prior year.
Higher average unit prices combined with favorable volume leverage on the
Company's fixed and semi-fixed costs more than offset increases in per unit
material, labor and freight costs. Reductions in warehouse space utilized
in the Company's operations contributed to additional cost savings.
Material costs increased with sales of a more material intensive product
mix and price increases on raw materials, especially on particle board
and cardboard.
Labor costs rose due to rate increases and costs related to
performance incentives. Health care costs were reduced for the second
straight year, without a significant change in cost or coverage for the
employee, due to participation in a managed care network.
Freight costs increased as a result of the reconfiguration of the Company's
distribution network. Freight cost increases were more than offset by
decreases in costs related to warehousing operations. Per unit
overhead costs declined due to the leverage impact of higher volume on
fixed and semi-fixed components of expenses.
<PAGE>
Sales and marketing expenses, as a percentage of net sales, were 12% in
both fiscal 1995 and fiscal 1994. The Company continues to pursue market
opportunities through aggressive advertising, promotions and other sales
support. General and administrative expenses increased from 5.7% of net
sales in fiscal 1994 to 6.1% in fiscal 1995 due to increased compensation
expenses primarily due to costs associated with the Company's
performance incentive programs.
Net interest expense in fiscal 1995 declined $534,000 to $1.4 million from
the prior year. A slight rise in interest rates was more than offset by
a significant reduction in outstanding debt. Total debt decreased $5.2
million or 22%, during fiscal 1995.
RESTRUCTURING ACTIVITIES
In fiscal 1993, the Company initiated a restructuring plan to lower
the Company's break-even point by reducing the overall cost structure and
facilitate progress toward Company strategic goals. Specific actions
initiated were a salaried headcount reduction, a re-deployment of
management to create regional teams for the three areas served by the Company's
assembly plants, out-sourcing literature warehousing and distribution
operations, and a reduction in finished goods warehousing operations. (See
Note I to the Financial Statements.)
Restructuring costs of $516,000 were recognized in fiscal 1995 due to
continuing efforts to reduce warehousing space. While these costs
related to the 1993 plan, they were not accruable until fiscal 1995 when
uncertainties for the remaining two Company warehouses in Florida and
California were resolved. As a result, $380,000 for lease termination costs
and losses on lease commitments, $90,000 for severance costs, and
$46,000 for equipment and leasehold improvement write-downs were recognized
in fiscal 1995. Annual savings of $340,000 for payroll, $400,000 for
lease costs, and $26,000 for depreciation costs will be partially
offset by increased freight expenses and additional labor costs to sequence
production.
<PAGE>
In fiscal 1994, the Company recognized $622,000 related to the
restructuring activities initiated in fiscal 1993 that did not become
accruable until fiscal 1994. Uncertainties for three of the
Company's warehouses in Illinois, California and Texas were resolved,
resulting in $347,000 for lease termination costs and losses on lease
commitments, and $275,000 for equipment and leasehold improvement write-downs.
Annual savings of $500,000 for payroll reductions, $600,000 for lease cost
reductions, and $25,000 for depreciation cost reductions will be
mitigated by incremental variable freight costs and additional labor
costs at the assembly plants to sequence production.
Also in fiscal 1994, the Company initiated a second restructuring plan
to consolidate certain manufacturing operations and to discontinue its
frameless product line, resulting in recognition of an additional $391,000
in restructuring costs. Costs of $157,000 were recorded to write-down
equipment impaired by the Company's decision to consolidate certain
manufacturing operations. Furthermore, the introduction of new technology
allowing similar features on a standard cabinet box eliminated the requirement
for a frameless product. Accordingly, the Company recognized $234,000 for
restructuring costs for write-downs of dedicated frameless equipment and
obsolete inventory.
The total restructuring charge of $1,084,000 in fiscal 1993 represented
$338,000 in severance costs, $171,000 for losses on two warehouse lease
commitments in Virginia and Georgia, $377,000 for equipment and leasehold
improvement write-downs, and $198,000 for employee relocation costs. Annual
savings of $2.5 million from a $1.9 million reduction for payroll costs,
$550,000 reduction for lease expense, and $100,000 reduction for depreciation
costs were partially offset by $200,000 in incremental expenses to accommodate
the new structure.
Cash requirements related to the restructuring activities in fiscal
1995, fiscal 1994 and fiscal 1993 will be immaterial in the future.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1995, the Company's operating activities generated $10.9
million in net cash compared to $10.6 million the prior year. Net profit
before non-cash charges for depreciation and amortization increased
$3.7 million to $13.1 million. Timing differences in the payment of
performance incentives and related compensation expenses and a decrease in
inventories provided additional sources of cash flow. Promotional display
shipments and refundable deposits on manufacturing equipment reduced cash
provided by operating activities. The manufacturing equipment is being
financed by a long-term operating lease. The refundable deposits will be
returned to the Company by the lessor when the subject equipment is accepted
and placed into commercial operation.
During fiscal 1995, the Toccoa, Georgia facility was expanded to
accommodate additional equipment and to promote a more efficient and cost
effective process flow. Additional equipment was purchased for the Hardy
County, West Virginia facility to increase efficiency and lower overall
production costs. New equipment was purchased for the Orange, Virginia
facility to improve lumber processing and reduce cost. All other capital
expenditures in fiscal 1995 were limited to necessary or replacement
items and cost savings projects.
Capital spending increased $563,000 from the prior year primarily as the
result of the Toccoa expansion and the new equipment at Orange. These
increases in expenditures were partially offset by a reduction in
spending at the Kingman, Arizona facility due to the completion in
fiscal 1994 of the facility expansion. Approximately 12% of the fiscal 1995
spending was financed through proceeds received in a prior year from industrial
revenue bonds.
<PAGE>
Net cash used by financing activities in fiscal 1995 decreased
$4.5 million from the prior year. The difference was the result of lower
payments on long-term debt agreements and a smaller reduction in short-term
debt. The Company reduced overall debt by $5.2 million during fiscal 1995.
Total debt on April 30, 1995 was $18.3 million and did not include any short-
term borrowings under the Company's credit facility. Cash and cash
equivalents increased $2.4 million to $2.9 million at year end.
Cash flow from operations, combined with available borrowing capacity, is
expected to be sufficient to meet forecasted working capital
requirements, to service existing debt obligations, and to fund capital
expenditures for fiscal 1996.
OUTLOOK FOR 1996
The Company anticipates an overall economic environment of slow growth
supported by stable interest rates and low inflation. The Company anticipates
increased demand in the U.S. cabinet market in fiscal 1996, although the
rate of growth is expected to be below that experienced during fiscal 1995.
In this environment, the Company expects to gain market share and to
generate higher sales based on its position with major customers, its
broad stock product offering and its ability to deliver quality products
with superior service.
The Company expects to maintain the profitability experienced in fiscal
1995. The full-year impact of the general price increase implemented
during the third quarter of fiscal 1995 should be sufficient to offset the rise
in material costs. Gross margins are expected to improve based on the
leverage impact that higher volumes have on the Company's fixed and semi-
fixed costs and the full-year impact of reduced warehouse space. Improvements
in gross profit are expected to be partially offset by increased freight
costs. Sales and marketing expenses are projected to rise as the Company
defends its market position and continues to aggressively pursue new
opportunities in the marketplace.
<PAGE>
The Company's strategy is, on average, to reinvest depreciation on an
annual basis. The Company is anticipating above average capital
expenditures of $8.0 million in fiscal 1996. Projects include expansion to
remove specific capacity limitations in certain processes, productivity
improvements, cost savings and replacement of aging equipment. The
Company establishes debt to equity targets and is prepared to trim capital
spending plans if cash flow from operations is below planned levels.
The Company anticipates capital expenditures will be funded from a
combination of cash provided by operations and the replacement of
current long-term debt payments with new long-term borrowings.
FISCAL YEAR 1994 COMPARED TO FISCAL
YEAR 1993
Fiscal 1994 net sales increased 2% over the prior year to $171.3 million.
Overall, unit volume declined 5% as a result of the Company's planned
withdrawal from selected direct Builder markets with unacceptable margins.
Sales to the increasingly competitive remodeling sector of the cabinet market
through the Company's two primary market channels, Home Centers and
Distributors, increased due to the Company's aggressive marketing efforts
and brand differentiation strategy. A general price increase was implemented
to recover the rapid rise in lumber costs experienced in fiscal 1992 and
1993. By the end of fiscal 1994, only partial recovery of the lumber price
increases had occurred. Average unit prices were also impacted by a sales
mix shift toward the upper-end of the Company's broad stock product offering.
Gross profit improved from 18.2% of net sales in fiscal 1993 to 21.4% in
fiscal 1994. Per unit material, labor, and freight costs grew at a slower rate
than the average unit sales price. In addition, savings were generated from
the reduction of warehouse space in the past year and from reduced service
requirements as a result of the lower level of direct Builder volume.
<PAGE>
Material costs increased with sales of a more material-intensive product
mix. This rise is partially attributable to the greater demand for
white products. The Company was able to offset moderately higher lumber
costs with lower door component prices and a return to discounted purchasing.
Labor costs rose due to rate increases and costs related to the
Company's performance incentive program. Health care costs for the
Company were reduced due to a change in the Company's health care administrator
without a significant change in cost or coverage for the employee. Freight
costs increased as the Company reconfigured its distribution network.
As a percent of net sales, sales and marketing expenses moved up from 11.3%
in fiscal 1993 to 12.0% in 1994. Advertising, promotion, and travel
costs increased with the Company's aggressive marketing efforts.
General and administrative expenses increased from 5.2% of net sales in
fiscal 1993 to 5.7% in 1994 primarily due to costs associated with additions
to the executive management team and increased compensation expenses as part
of the Company's performance incentive program.
Net interest expense in fiscal 1994 declined $405,000 from the prior year.
A slight rise in interest rates was more than offset by a significant
reduction in outstanding debt. Total debt decreased $9.6 million or 29%,
during fiscal 1994.
OTHER COMMENTS
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 revenue
over the past few years.
<PAGE>
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 over 35% during fiscal 1993. The Company has
generally been able over time to recover the effects of inflation and
commodity price fluctuations through sales price increases.
On February 28, 1995 the Board of Directors elected two new Directors.
Elected were James J. Gosa, Executive Vice President of American Woodmark,
and Martha M. Dally, Executive Vice President-Personal Products for Sara
Lee Corporation. For more information, the Company's Proxy Statement should be
referenced.
During the first quarter of fiscal 1995, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The adoption
of this standard did not have a material impact on the Company's
operating results or financial position. (See Note G to the Financial
Statements.)
The Company does not expect that implementation of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," which is required to be adopted by the Company beginning
in fiscal 1996, will have a material 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 is also involved in other matters under
the direction of state environmental authorities.
<PAGE>
The Company records liabilities for all probable and reasonably estimatable
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. (See Note J to the Financial Statements.)
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.
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Year Ended April 30, 1995
-----------------------------------------
(in thousands, except per share amounts) 1st 2nd(a) 3rd 4th(b)
-----------------------------------------
Net sales $45,518 $54,004 $48,145 $49,684
Gross profit 10,786 13,353 11,056 11,123
Income before income taxes 1,967 3,065 1,742 2,048
Provision for income taxes 799 1,180 640 847
Net income 1,168 1,885 1,102 1,201
Net income per share .16 .25 .15 .16
Year Ended April 30, 1994
-----------------------------------------
1st(c) 2nd(d) 3rd(e) 4th(f)
-----------------------------------------
Net sales $39,753 $44,424 $41,843 $45,323
Gross profit 6,948 9,480 9,221 11,012
Income (loss) before income taxes (392) 682 1,389 1,844
Provision (benefit) for income taxes (123) 261 524 685
Net income (loss) (269) 421 865 1,159
Net income (loss) per share (.04) .06 .11 .15
(a) Income before income taxes in the second quarter of fiscal 1995 reflects
$516,000 in restructuring costs and $204,000 in equipment write-downs.
Also included is the pre-tax effect of LIFO liquidations which resulted in
costs being $174,000 less than would have been recorded in a current cost
environment.
(b) Income before income taxes in the fourth quarter of fiscal 1995 reflects
$353,000 in favorable adjustments to receivables for over-accrued
allowances.
(c) Loss before income taxes for the first quarter of fiscal 1994 includes the
effects of LIFO liquidations which resulted in costs being $341,000 less
than would have been recorded in a current cost environment.
(d) Income before income taxes for the second quarter of fiscal 1994 reflects
$683,000 associated with restructuring costs to reduce the level of
overhead expense and to discontinue the Company's frameless products.
Income before income taxes for the second quarter includes the effects of
LIFO liquidations which resulted in costs being $289,000 less than would
have been recorded in a current cost environment. Also reflected in the
second quarter is $358,000 in costs primarily related to changes in the
Company's executive management team.
(e) Income before income taxes for the third quarter of fiscal 1994 reflects
$171,000 of additional restructuring costs and $154,000 of unfavorable
worker's compensation premium adjustments.
(f) Income before income taxes for the fourth quarter of fiscal 1994 reflects
$159,000 in restructuring costs, $224,000 of unfavorable worker's
compensation premium adjustments, and $247,000 in employee relocation
costs.
<PAGE>
BALANCE SHEET
(in thousands, except share data) April 30
-------------------------
1995 1994
ASSETS
Current Assets
Cash and cash equivalents $ 2,876 $ 460
Refundable deposits 1,708 --
Customer receivables 19,639 18,845
Inventories 10,775 11,715
Prepaid expenses and other 738 963
Deferred income taxes 433 456
------- -------
TOTAL CURRENT ASSETS 36,169 32,439
Property, Plant and Equipment 33,722 35,872
Deferred Costs and Other Assets 3,714 3,252
Intangible Pension Asset 803 758
------- -------
$74,408 $72,321
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Loans payable $ -- $ 2,000
Accounts payable 9,496 8,776
Accrued compensation and related expenses 6,536 5,151
Current maturities of long-term debt 2,800 3,158
Other accrued expenses 3,175 3,622
------- -------
TOTAL CURRENT LIABILITIES 22,007 22,707
Long-Term Debt, less current maturities 15,534 18,334
Deferred Income Taxes 3,028 2,767
Long-Term Pension Liabilities 2,038 2,137
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
7,551,109 -- 1995; 7,531,225 -- 1994 17,479 17,410
Retained earnings 14,322 8,966
------- -------
TOTAL STOCKHOLDERS' EQUITY 31,801 26,376
------- -------
Commitments and Contingencies
$74,408 $72,321
======= =======
See notes to financial statements
<PAGE>
STATEMENT OF INCOME AND RETAINED EARNINGS
Years Ended April 30
---------------------------------------
(in thousands, except share data) 1995 1994 1993
Net sales $ 197,351 $ 171,343 $ 167,250
Cost of sales and distribution 151,033 134,682 136,881
--------- --------- ---------
GROSS PROFIT 46,318 36,661 30,369
Selling and marketing expenses 23,667 20,532 18,942
General and administrative expenses 11,981 9,693 8,703
Restructuring costs 516 1,013 1,084
--------- --------- ---------
OPERATING INCOME 10,154 5,423 1,640
Interest expense 1,355 1,889 2,294
Other (income) expense (23) 11 72
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 8,822 3,523 (726)
Provision (benefit) for income taxes 3,466 1,347 (252)
--------- --------- ---------
NET INCOME (LOSS) 5,356 2,176 (474)
RETAINED EARNINGS, BEGINNING OF YEAR 8,966 9,013 9,487
Stock dividend -- (2,223) --
--------- --------- ---------
RETAINED EARNINGS, END OF YEAR $ 14,322 $ 8,966 $ 9,013
========= ========= =========
EARNINGS PER SHARE
Average shares outstanding 7,544,385 7,528,526 7,527,415
Net income (loss) per share $ .71 $ .29 $ (.06)
========= ========= ========
See notes to financial statements
<PAGE>
STATEMENT OF CASH FLOWS
(in thousands) Years Ended April 30
-----------------------------
1995 1994 1993
OPERATING ACTIVITIES
Net income (loss) $ 5,356 $ 2,176 $ (474)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Provision for depreciation and amortization 7,758 7,195 6,797
Net loss on disposal of property, plant
and equipment 34 47 73
Deferred income taxes 284 39 (634)
Restructuring costs 178 726 284
Other 100 209 459
Changes in operating assets and liabilities:
Receivables (834) (1,753) (3,671)
Income taxes receivable -- 529 1,387
Inventories 911 2,451 3,495
Refundable deposits (1,708) -- --
Other assets (2,767) (2,052) (2,324)
Accounts payable 721 (1,316) 2,744
Accrued compensation and related expense 1,348 1,198 (502)
Other (501) 822 1,875
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,880 10,627 9,509
INVESTING ACTIVITIES
Payments to acquire property, plant
and equipment (3,942) (3,379) (2,796)
Funds designated for capital expenditures 468 1,002 907
Proceeds from sales of property, plant and
equipment 99 59 37
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES (3,375) (2,318) (1,852)
FINANCING ACTIVITIES
Payments of long-term debt (3,158) (3,641) (3,759)
Net decrease in short-term borrowings (2,000) (6,000) (2,500)
Common Stock issued through stock
option plans 69 14 --
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES (5,089) (9,627) (6,259)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,416 (1,318) 1,398
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 460 1,778 380
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,876 $ 460 $ 1,778
======= ======= =======
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged in the manufacture and distribution of kitchen
cabinets and vanities. The following is a description of the more significant
accounting policies of the Company.
Revenue Recognition: Revenue is recognized as shipments are made to the
customer. Revenue is based on invoice price less allowances for sales returns
and cash discounts.
Cash and Cash Equivalents: Cash in excess of operating requirements is
invested in short-term instruments which are carried at cost (approximates
market). The Company considers all highly liquid short-term investments
purchased with a maturity of three months or less to be cash equivalents.
Inventories: Inventories are stated at lower of cost, determined by the
last-in, first-out method (LIFO), or market. The LIFO cost reserve is
determined in the aggregate for inventory and is applied as a reduction
to inventories determined on the first-in, first-out method (FIFO). FIFO
inventory cost approximates replacement cost.
Property, Plant and Equipment:Property, plant and equipment is stated on
the basis of cost less an allowance for depreciation. Depreciation of plant
and equipment is provided by the straight-line method over the estimated
useful lives.
Advertising Costs: Advertising costs are expensed as incurred.
Promotional Displays: The Company's investment in promotional displays is
carried at cost less applicable amortization. Amortization is provided
by the straight-line method on an individual display basis over the
estimated period of benefit (approximately 30 months).
Income Taxes: Income taxes are calculated using the liability method
in accordance with Statement of Financial Accounting Standards (SFAS)
No. 109. The liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities.
Earnings Per Share: Earnings per share are based on the weighted average
common shares outstanding, giving retroactive effect to a stock dividend.
The dilutive effect of stock options on earnings per share is not significant
and has been excluded.
Reclassifications: Certain prior years' amounts have been reclassified
to conform to the current year's presentation.
<PAGE>
NOTE B -- CUSTOMER RECEIVABLES
The components of customer receivables were:
April 30
-------------------------
(in thousands) 1995 1994
Gross customer receivables $20,820 $20,062
Less:
Allowance for doubtful accounts (243) (313)
Allowance for returns and discounts (938) (904)
------- -------
Net customer receivables $19,639 $18,845
======= =======
NOTE C -- INVENTORIES
The components of inventories were:
April 30
------------------------
(in thousands) 1995 1994
Raw materials $ 5,650 $ 5,849
Work-in-process 9,876 8,885
Finished goods 1,110 3,206
------- -------
Total FIFO Inventories 16,636 17,940
Reserve to adjust inventories to LIFO value (5,861) (6,225)
------- -------
Total LIFO Inventories $10,775 $11,715
======= =======
As a result of LIFO inventory liquidations, cost of sales reflected
$317,000, $667,000, and $550,000 less expense in fiscal 1995, 1994, and 1993,
respectively, than would have been recorded in a current cost environment.
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were:
April 30
---------------------
(in thousands) 1995 1994
Land $ 876 $ 880
Buildings and improvements 16,504 16,035
Buildings and improvements - capital leases 6,550 6,550
Machinery and equipment 48,221 47,194
Machinery and equipment - capital leases 1,956 2,221
Construction in progress 1,331 536
Funds designated for capital expenditures -- 468
------- -------
75,438 73,884
Less allowance for depreciation (41,716) (38,012)
------- -------
Total $33,722 $35,872
======= =======
Depreciation expense amounted to $5,028,000, $5,372,000, and $5,519,000
in fiscal 1995, 1994, and 1993, respectively.
<PAGE>
NOTE E -- LOANS PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
Maturities of long-term debt are as follows:
Years Ending April 30
--------------------------------------------------------------------------
2001 and Total
There- Out-
(in thousands) 1996 1997 1998 1999 2000 after standing
<S> <C> <C> <C> <C> <C> <C> <C>
Notes payable $1,015 $1,015 $ 758 $ 500 $ 125 $ -- $ 3,413
Industrial Revenue Bonds 1,230 1,105 1,105 1,120 750 4,175 9,485
Capital lease obligations 555 581 347 358 376 3,219 5,436
------ ------ ------ ------ ------ ------ -------
Total $2,800 $2,701 $2,210 $1,978 $1,251 $7,394 $18,334
====== ====== ====== ====== ====== ======
Less current maturities 2,800
-------
Total $15,534
=======
</TABLE>
The Company's primary loan agreement provides for term loans and a $12
million revolving credit facility. This agreement includes various
variable interest rate options which lower and raise the interest rate based
on Company performance. The maximum interest rate under the agreement is
the prime rate.
The revolving credit facility is used by the Company as a working capital
account. As such, borrowings and repayments routinely occur on a daily
basis. The outstanding balance against this line of credit never exceeded $3.3
million and $8.5 million in fiscal 1995 and 1994, respectively. In fiscal
1995, the total transactions through this credit facility were borrowings of
$10.2 million and payments of $12.2 million, resulting in a net reduction
of $2.0 million for the fiscal year. In fiscal 1994, the total transactions
through this facility were borrowings of $38.2 million and payments of $44.2
million, resulting in a net reduction of $6.0 million for the fiscal year.
The weighted average interest rate was 6.0% for revolving credit loans
outstanding at April 30, 1994. No revolving credit loans were outstanding
at April 30, 1995.
The Company employs straight-forward interest rate swap agreements to assist
in maintaining a balance between fixed and variable interest rates on
outstanding debt. Any deferred gain or loss associated with the swap
agreements is accounted for over the life of the swaps at the fixed rate
stipulated in the executed agreements. On April 30, 1995, these amounts were
immaterial. The Company does not invest, trade, or otherwise speculate
in any derivatives or similar type instruments.
At April 30, 1995, term loans of $3.4 million were outstanding. The term
loans bore a variable interest rate of 7.6% on April 30, 1995.
On April 30, 1995, the Company had $9.5 million outstanding in industrial
revenue bonds, maturing at various dates through 2002. Due to an interest
rate swap agreement, a fixed rate of 6.2% applies to $7.5 million through
June 1, 1999. The variable rate that would have applied if the rate swap had
not occurred was 4.9% on April 30, 1995. On $1.9 million of outstanding
bonds, the variable interest rate was 4.9% on April 30, 1995. The remaining
outstanding bond of $125,000 bore a variable interest rate of 7.6% on April
30, 1995.
<PAGE>
Substantially all of the industrial revenue bonds are redeemable at the
option of the bondholder. The Company has irrevocable arrangements to
refinance these bonds on a long-term basis in the event they are redeemed.
Interest rates on the Company's capital lease obligations were
approximately 5.0% on April 30, 1995 and these obligations mature through
2007.
The Company's primary loan agreement limits the amount and type of
indebtedness the Company can incur, prohibits the payment of cash
dividends, and requires the Company to maintain a specific minimum net worth
and specified financial ratios measured on a quarterly basis. Substantially
all assets of the Company are pledged as collateral under the primary loan
agreement, industrial revenue bond agreements and capital lease
arrangements. The Company was in compliance with all covenants contained
in its loan agreements at April 30, 1995.
Interest paid was $1,376,000, $1,927,000, and $2,283,000 during
fiscal 1995, 1994, and 1993, respectively. Net amounts to be
received or paid under interest rate swap agreements are accrued as an
adjustment to interest expense.
NOTE F -- STOCKHOLDERS' EQUITY
COMMON STOCK
Transactions affecting Common Stock were as follows:
Shares Amount
Outstanding (in thousands)
Balance at April 30, 1993 6,843,255 $ 15,173
Stock dividend-Sept. 1993 684,160 2,223
Stock options exercised 3,810 14
--------- ----------
Balance at April 30, 1994 7,531,225 $ 17,410
Stock options exercised 19,884 69
--------- ----------
Balance at April 30, 1995 7,551,109 $ 17,479
========= ==========
In August 1993, the Board of Directors declared a ten percent Common
Stock dividend payable to stockholders of record on September 13, 1993. The
dividend is reflected in the financial statements as a $2.2 million charge to
retained earnings and a corresponding increase in common stock based upon the
market price for the Company's Common Stock. Average shares outstanding and
all per share amounts included in the financial statements and footnotes are
based upon the increased number of shares giving retroactive effect to the
stock dividend. The Company has first right of refusal to purchase the
majority of shares if sold by certain stockholders.
The Company has not paid any cash dividends on its Common Stock since its
inception.
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
In fiscal 1990, the Company instituted the American Woodmark Stock
Ownership Plan (AWSOP). Under this plan, all employees over the age of 18
who have been employed by the Company for a minimum of one year are eligible
to receive Company stock through a profit sharing contribution and a
401(k) matching contribution based upon the employee's contribution to the
plan.
Profit sharing contributions are 3% of after tax earnings, calculated on a
quarterly basis and distributed equally to all employees eligible to
participate in the plan. The Company recognized expenses for profit sharing
contributions of $155,000, $81,000, and $29,000 in fiscal 1995, 1994, and 1993,
respectively.
The Company matches 401(k) contributions in the amount of 50% of
an employee's contribution to the plan up to 3% of base salary for an
effective maximum Company contribution of 1.5%. The expense for 401(k)
matching contributions for this plan was $407,000, $237,000, and $364,000 in
fiscal 1995, 1994, and 1993, respectively.
STOCK OPTIONS
Under the 1986 Employee Stock Option Plan, stock options may be granted to
selected key employees for up to 551,654 shares of Common Stock at an
option price not less than the fair market value of the Common Stock at the
date of grant. The outstanding options are exercisable in annual cumulative
increments of 33.33% beginning one year after the date of grant and must be
exercised within twelve months after the cumulative increments equal 100%,
at which time the options expire.
The following table summarizes stock option activity under this plan for
the fiscal year ended April 30, 1995:
Options outstanding at May 1, 1994
($2.39 to $8.69 per share) 342,513
Granted ($5.63 per share) 20,000
Expired ($3.86 to $8.69 per share) (38,924)
Exercised ($2.39 to $5.13 per share) (19,884)
Options outstanding at April 30, 1995
($2.39 to $5.64 per share) 303,705
========
Options exercisable at April 30, 1995
($2.39 to $5.64 per share) 191,032
========
Options available for future issuance
at April 30, 1995 197,368
========
<PAGE>
Under the 1990 Non-Employee Director Stock Option Plan, options may be
granted for up to 22,000 shares of Common Stock at market value on the
date of grant. At April 30, 1995, options granted (ranging from $2.50 to
$5.75 per share) for 15,737 shares were outstanding, of which 7,337 options
(ranging from $2.50 to $3.69 per share) were exercisable. No options were
exercised in fiscal 1995. During fiscal 1995, options for 4,000 shares
were granted at $5.75 per share, while options for 2,200 shares expired at
$4.03 per share.
NOTE G -- EMPLOYEE BENEFITS
The Company has two defined benefit pension plans covering substantially
all employees. The plan covering salaried employees provides pension
benefits based upon a formula which considers salary levels and length of
service. The hourly pension plan provides benefits based upon an hourly
rate formula. Contributions to the plans meet or exceed the minimum
funding standards set forth in the Employee Retirement Income Security Act
of 1974. Pension plan assets are invested in equity mutual funds, fixed
income security funds and real estate mutual funds.
<PAGE>
Net periodic pension costs were comprised of the following:
Years Ended April 30
---------------------------
(in thousands) 1995 1994 1993
Service cost-benefits earned during the year $ 663 $ 637 $ 655
Interest cost on projected benefit obligation 880 790 717
Actual return on plan assets (684) (528) (592)
Net amortization and deferrals (109) (231) (78)
------ ------ ------
Net periodic pension cost $ 750 $ 668 $ 702
====== ====== ======
The funded status of the Company's pension plans was as follows for the
fiscal years ended April 30:
1995 1994
------------------------ ------------------------
Plan assets Accumulated Plan assets Accumulated
exceed benefit exceed benefit
accumulated obligation accumulated obligation
benefit exceeds benefit exceeds
(in thousands) obligation plan assets obligation plan assets
---------- ----------- ---------- -----------
Actuarial present
value of pension
benefit obligation:
Vested $ 5,531 $ 4,460 $ 4,812 $ 4,023
Non-vested 362 393 298 379
-------- ------- ------- -------
Accumulated 5,893 4,853 5,110 4,402
Effect of anticipated
future salary
increases 2,269 -- 1,602 --
-------- ------- ------- -------
Projected 8,162 4,853 6,712 4,402
Fair value of plan assets 7,309 4,086 6,926 3,332
-------- ------- ------- -------
Projected benefit
obligation in excess of
(less than) the fair
value of plan assets 853 767 (214) 1,070
Unrecognized prior
service cost (61) (307) (68) (354)
Unrecognized net
gain (loss) 1,089 (318) 1,897 (195)
Unrecognized net
obligation at May 1,
1987, being
recognized over 14
years (315) (178) (366) (209)
Additional minimum
liability -- 803 -- 758
------- ------- ------- -------
Net pension obligation $ 1,566 $ 767 $ 1,249 $ 1,070
======= ======= ======= =======
Primary assumptions utilized in accounting for the Company's pension
plans were as follows:
Years Ended April 30
---------------------------
1995 1994 1993
Weighted average assumed
discount rate 8.0% 8.0% 8.0%
Estimate of salary increases
(salaried plan only) 4.0% 4.0% 4.0%
Expected long-term rate of
return on assets 8.0% 8.0% 8.0%
<PAGE>
The Company adopted SFAS No. 106,"Employers' Accounting for
Postretirement Benefits Other than Pensions," in the first quarter of
fiscal 1994. SFAS No. 106 requires the Company to accrue the expected cost of
health care benefits for employees who retired prior to May 1, 1991. The
Company does not bear the costs for employees retiring subsequent to that
date. Adoption of this statement did not have a material impact on the
Company's operating results or financial position for fiscal 1995 or
1994.
The Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," in the first quarter of fiscal 1995. SFAS No. 112
requires the Company to accrue for postemployment benefits provided to
former or inactive employees that have not retired. Adoption of this
statement did not have a material impact on the Company's operating
results or financial position for fiscal 1995. In addition, no future
material impact on operating results or financial position is expected.
NOTE H -- INCOME TAXES
During fiscal 1994, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires the Company to change its method of
accounting for income taxes. The adoption of this standard did not have
a material effect on the Company's financial position or results of
operations.
The provision (benefit) for income taxes is comprised of the following:
Years Ended April 30
---------------------------------
(in thousands) 1995 1994 1993
Current
Federal $ 2,619 $ 787 $ 407
State 563 165 (25)
------- ------- -------
Total current 3,182 952 382
Deferred
Federal 272 361 (620)
State 12 34 (14)
------- ------- -------
Total deferred 284 395 (634)
------- ------- -------
Total $ 3,466 $ 1,347 $ (252)
======= ======= =======
The Company's effective income tax rate varied from the federal statutory
rate as follows:
Years Ended April 30
----------------------------
1995 1994 1993
Federal statutory rate 34% 34% (34)%
State income taxes,
net of federal tax effect 4 4 (3)
Other 1 -- 2
---- ---- ----
Effective Rate 39% 38% (35)%
==== ==== ====
<PAGE>
Income taxes paid were $3,547,000, $1,128,000, and $3,700 for fiscal years
1995, 1994 and 1993, respectively. Income tax refunds received were
$3,000, $534,000, and $1,615,000 for fiscal years 1995, 1994 and 1993,
respectively.
The significant components of deferred tax assets and liabilities are
as follows:
April 30
------------------
(in thousands) 1995 1994
Deferred Tax Assets
Alternative Minimum Tax Credit $ -- $ 618
Employee Benefits 566 642
Other 845 937
------ ------
Total 1,411 2,197
Deferred Tax Liabilities
Depreciation 3,344 3,844
Inventory 530 548
Other 132 116
------ ------
Total 4,006 4,508
Net Deferred Tax Liabilities $2,595 $2,311
====== ======
NOTE I -- RESTRUCTURING PROVISIONS
Restructuring charges in fiscal 1993 and fiscal 1994 were recognized
pursuant to SFAS No. 5 and AIN-APB 30#1. Costs were recorded when the
Company decided to initiate the restructuring, a plan of action had
been determined, and costs for the plan became reasonably estimable.
Restructuring charges in fiscal 1995 were recorded using the same
methodology except that the additional requirements of EITF 94-3 were adopted.
In fiscal 1993, the Company initiated a restructuring plan to lower the
Company's break-even point by reducing the overall cost structure and
facilitate progress toward Company strategic goals. Specific actions
initiated were a salaried headcount reduction, a re-deployment of
management to create regional teams for the three areas served by the Company's
assembly plants, out-sourcing literature warehousing and distribution
operations, and a reduction in finished goods warehousing operations. As a
result, $1,084,000 in restructuring costs were recorded to reflect
severance costs for 46 people, losses on two warehouse lease commitments in
Virginia and Georgia, equipment and leasehold improvement write-downs, and
employee relocation costs.
In fiscal 1994, the Company initiated a second restructuring plan to
consolidate certain manufacturing operations and to discontinue its
frameless product line. As a result, $391,000 in restructuring costs were
recorded. The Company recognized $622,000 in restructuring costs in
fiscal 1994 related to the restructuring activities initiated in
fiscal 1993 that did not become accruable until fiscal 1994. These
costs included additional lease termination costs, losses on lease
commitments, and equipment and leasehold improvement write-downs.
<PAGE>
In fiscal 1995, the Company recognized $516,000 in restructuring
costs to reflect restructuring activities initiated in fiscal 1993
that did not become accruable until fiscal 1995. These costs included
severance, lease termination costs, losses on lease commitments, and
equipment and leasehold improvement write-downs.
A summary of the Company's restructuring provisions follows:
Years ended April 30
----------------------
(in thousands) 1995 1994 1993
Warehouse space reduction $ 516 $ 622 $ 548
Salaried headcount reduction and re-deployment 0 0 536
Discontinuance of frameless products 0 234 0
Manufacturing consolidation 0 157 0
----- ------ ------
Total $ 516 $1,013 $1,084
===== ====== ======
An analysis of the Company's activities against the restructuring
provisions for the last three fiscal years are presented below:
(in thousands) A B C D Total
FY93 Restructuring provisions $548 $536 $ 0 $ 0 $1,084
FY93 Cash expenditures 350 450 0 0 800
FY93 Non-cash/other 0 0 0 0 0
April 30, 1993 accrual $198 $ 86 $ 0 $ 0 $ 284
==== ==== ==== ==== ======
FY94 Restructuring provisions 622 0 234 157 1,013
FY94 Cash expenditures 380 78 0 0 458
FY94 Non-cash/other 242 8 64 0 314
April 30, 1994 accrual $198 $ 0 $170 $157 $ 525
==== ==== ==== ==== ======
FY95 Restructuring provisions 516 0 0 0 516
FY95 Cash expenditures 338 0 0 0 338
FY95 Non-cash/other 44 0 170 157 371
April 30, 1995 accrual $332 $ 0 $ 0 $ 0 $ 332
==== ==== ==== ==== ======
A - Warehouse space reduction (substantially all of which relates
to lease termination costs and PP&E write-downs)
B - Salaried headcount reduction (severance) and other employee
costs
C - Discontinuance of frameless line
D - Manufacturing consolidation (PP&E
write-downs)
Cash outlays after April 30, 1995 to complete the restructuring activities
are estimated at $332,000. The outlays are primarily required to fund
outstanding lease commitments until fiscal 1997.
<PAGE>
NOTE J -- COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
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 is also involved in other matters under
the direction of state environmental authorities.
The Company records liabilities for all probable and reasonably estimatable
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.
LEASE AGREEMENTS
The Company leases an office building, certain of its service
centers and equipment. Total rental expenses amounted to approximately
$3,780,000, $4,211,000, and $4,515,000 in fiscal 1995, 1994, and 1993,
respectively.
Minimum rental commitments as of April 30, 1995, under noncancellable
leases are as follows:
(in thousands)
Fiscal Year Operating Capital
1996 $ 1,970 $ 819
1997 1,571 818
1998 1,038 558
1999 942 552
2000 898 551
2001 and thereafter 642 3,855
------- -------
$ 7,061 $ 7,153
=======
Less amounts representing interest 1,717
-------
Total obligation under capital leases $ 5,436
=======
RELATED PARTIES
During fiscal 1985, prior to becoming a publicly held corporation, the
Company entered into an agreement with a partnership formed by certain
executive officers of the Company to lease an office building constructed
and owned by the partnership. The initial lease term has six remaining
years with two five-year renewal periods available at the Company's
option. Under this agreement, rental expense was $365,000, $358,000, and
$351,000 in fiscal 1995, 1994, and 1993, respectively. Rent during the
remaining base term of approximately $369,000 annually (included in the
above table) is subject to adjustment based upon changes in the Consumer
Price Index.
NOTE K -- OTHER INFORMATION
Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. The Company's customers
operate in the construction and remodeling markets. At April 30, 1995,
the Company's two largest customers, Customer A and Customer B, represented
13.3% and 6.6% of the Company's accounts receivable, respectively.
The following table summarizes the percentage of sales to the Company's
two largest customers for the last three fiscal years:
Percent of Annual Sales
1995 1994 1993
Customer A 15.8 14.7 14.3
Customer B 14.2 13.0 10.5
<PAGE>
MANAGEMENT'S REPORT
The accompanying financial statements are the responsibility of and have been
prepared by the management of American Woodmark. The financial statements have
been prepared in accordance with generally accepted accounting principles and
necessarily include some amounts that are based on management's best estimates
and judgements. Financial information throughout this annual report is
consistent with the financial statements.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are properly recorded, that
policies and procedures are adhered to and that assets are adequately
safeguarded. The system of internal controls is supported by written policies
and guidelines, an organizational structure designed to ensure appropriate
segregation of responsibilities and selection and training of qualified
personnel.
To ensure that the system of internal controls operates effectively,
management and the internal audit staff review and monitor internal controls on
an ongoing basis. In addition, as part of the audit of the financial statements
the Company's independent auditors evaluate selected internal accounting
controls to establish a basis for reliance thereon indetermining the nature,
timing and extent of audit tests to be performed. The Company believes its
system of internal controls is adequate to accomplish the intended objectives,
and continues its efforts to further improve those controls.
The Audit Committee of the Board of Directors, which is composed solely of
non-management Directors, oversees the financial reporting and internal control
functions. The Audit Committee meets periodically and separately with Company
management, the internal audit staff, and the independent auditors to ensure
these individuals are fulfilling their obligations and to discuss auditing,
internal controls and financial reporting matters. The Audit Committee reports
its findings to the Board of Directors. The independent auditors and the
internal audit staff have unrestricted access to the Audit Committee.
/s/BILL BRANDT /s/KENT GUICHARD
William F. Brandt, Jr. Kent B. Guichard
Chairman & President Vice President,
Finance
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
American Woodmark Corporation
We have audited the accompanying balance sheets of American Woodmark
Corporation as of April 30, 1995 and 1994, and the related statements of income
and retained earnings, and cash flows for each of the three years in the period
ended April 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Woodmark Corporation
at April 30, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended April 30, 1995, in conformity
with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Baltimore, Maryland
June 9, 1995
<PAGE>
Directors and
Executive Officers
William F. Brandt, Jr.
Chairman and President
James J. Gosa
Director, Executive Vice President
David L. Blount
Vice President, Component Manufacturing
Kent B. Guichard
Vice President, Finance
Donald P. Mathias
Director, Vice President, Assembly and Distribution
C. Stokes Ritchie
Vice President, Sales & Marketing
Daniel T. Carroll
Director, Chairman & President
The Carroll Group, Inc., A Management Consulting Firm
Martha M. Dally
Director, Executive Vice President-Personal Products
Sara Lee Corporation
John T. Gerlach
Director, Director of MBA Programs
Sacred Heart University
Richard A. Graber
Director, Retired Vice President, Marketing
American Woodmark Corporation
C. Anthony Wainwright
Director, Chairman
Harris, Drury, Cohen, Inc.
<PAGE>
CORPORATE INFORMATION
ANNUAL MEETING
The annual meeting of the stockholders of American Woodmark Corporation will
be held on August 23, 1995, at 9:00 a.m. at Piper's at Creekside in
Winchester, Virginia.
FORM 10-K REPORT
A copy of the Form 10-K for the year ended April 30, 1995, may be obtained
by writing to:
Kent Guichard
Vice President, Finance
American Woodmark Corporation
P.O. Box 1980
Winchester, VA 22604-8090
CORPORATE HEADQUARTERS
American Woodmark Corporation
3102 Shawnee Drive
Winchester, VA 22601-4208
(703) 665-9100
MAILING ADDRESS
P.O. Box 1980
Winchester, VA 22604-8090
TRANSFER AGENT
Chemical Bank
800-851-9677
1995 American Woodmark Corporation(R)
American Woodmark(R) is a trademark of American Woodmark Corporation.
Printed in U.S.A.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-END> APR-30-1995
<CASH> 2,876
<SECURITIES> 0
<RECEIVABLES> 20,820
<ALLOWANCES> 1,181
<INVENTORY> 10,775
<CURRENT-ASSETS> 36,169
<PP&E> 75,438
<DEPRECIATION> 41,716
<TOTAL-ASSETS> 74,408
<CURRENT-LIABILITIES> 22,007
<BONDS> 15,534
<COMMON> 17,479
0
0
<OTHER-SE> 14,322
<TOTAL-LIABILITY-AND-EQUITY> 74,408
<SALES> 197,351
<TOTAL-REVENUES> 197,351
<CGS> 151,033
<TOTAL-COSTS> 151,033
<OTHER-EXPENSES> 36,141
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 1,355
<INCOME-PRETAX> 8,822
<INCOME-TAX> 3,466
<INCOME-CONTINUING> 5,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,356
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
