FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-14798
American Woodmark Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1138147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3102 Shawnee Drive, Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
(540) 665-9100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, no par value 7,686,456 shares outstanding
Class as of December 10, 1996
<PAGE>
AMERICAN WOODMARK CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets--October 31, 1996 and April 30, 1996 3
Statements of Income--Three months ended October 31, 1996
and 1995; Six months ended October 31, 1996 and 1995 4
Statements of Cash Flows--Six months ended October 31, 1996
and 1995 5
Notes to Financial Statements--October 31, 1996 6-8
Item 2. Management's Discussion and Analysis 9-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13-14
SIGNATURE 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN WOODMARK CORPORATION
BALANCE SHEETS
(in thousands, except share data)
October 31 April 30
1996 1996
----------- ---------
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 10,924 $ 7,201
Customer receivables 22,335 19,709
Inventories 10,919 10,326
Prepaid expenses and other 1,643 899
Deferred income taxes 1,072 527
----------- ---------
Total Current Assets 46,893 38,662
Property, Plant and Equipment 32,823 33,188
Intangible Pension Assets 504 504
Deferred Costs and Other Assets 4,390 3,982
----------- ---------
$ 84,610 $ 76,336
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,649 $ 7,651
Accrued compensation and related expenses 10,299 8,467
Current maturities of long-term debt 2,606 2,719
Other accrued expenses 4,033 4,416
----------- ---------
Total Current Liabilities 26,587 23,253
Long-Term Debt, less current maturities 12,175 12,866
Long-Term Pension Liabilities 1,592 1,592
Deferred Income Taxes 2,827 2,780
Commitments and Contingencies -- --
Stockholders' Equity
Preferred Stock, $1.00 par value; 2,000,000
shares authorized, none issued
Common Stock, no par value; 20,000,000
shares authorized; issued and outstanding
7,673,656 shares at October 31, 1996;
7,608,761 shares at April 30, 1996 17,853 17,677
Retained earnings 23,576 18,168
----------- ---------
Total Stockholders' Equity 41,429 35,845
----------- ---------
$ 84,610 $ 76,336
=========== =========
See notes to financial statements
3
<PAGE>
AMERICAN WOODMARK CORPORATION
STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
October 31 October 31
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net sales $ 56,976 $ 48,927 $ 110,338 $ 96,177
Cost of sales and distribution 40,483 39,265 80,293 77,221
---------- ---------- ---------- ----------
Gross Profit 16,493 9,662 30,045 18,956
Selling and marketing expenses 7,278 6,211 13,966 12,219
General and administrative expenses 3,511 2,091 6,954 4,503
---------- ---------- ---------- ----------
Operating Income 5,704 1,360 9,125 2,234
Interest expense 263 316 462 610
Other (income) expense (88) 21 (213) 2
---------- ---------- ---------- ----------
Income Before Income Taxes 5,529 1,023 8,876 1,622
Provision for income taxes 2,067 398 3,314 636
---------- ---------- ---------- ----------
Net Income $ 3,462 $ 625 $ 5,562 $ 986
========== ========== ========== ==========
Earnings Per Share
Average shares outstanding 7,664,456 7,598,826 7,645,817 7,582,910
Net income per share $ 0.45 $ 0.08 $ 0.73 $ 0.13
========== ========== ========== ==========
See notes to financial statements
4
<PAGE>
AMERICAN WOODMARK CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
October 31
---------------------
1996 1995
--------- ---------
Operating Activities
Net income $ 5,562 $ 986
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization 3,829 3,685
Net loss on disposal of property, plant and
equipment 70 4
Deferred income taxes (498) (156)
Other non-cash items 991 63
Changes in operating assets and liabilities:
Refundable deposits -- 1,708
Customer receivables (3,524) (348)
Inventories (686) (505)
Other assets (1,672) (1,284)
Accounts payable 1,998 (929)
Accrued compensation and related expenses 1,832 (356)
Other (1,127) (89)
--------- ---------
Net Cash Provided by Operating Activities 6,775 2,779
--------- ---------
Investing Activities
Payments to acquire property, plant and equipment (2,292) (4,068)
Proceeds from sales of property, plant and equipment 22 88
--------- ---------
Net Cash Used by Investing Activities (2,270) (3,980)
--------- ---------
Financing Activities
Payments of long-term debt (804) (907)
Proceeds from the issuance of Common Stock 176 185
Payment of dividends (154) --
--------- ---------
Net Cash Used by Financing Activities (782) (722)
--------- ---------
Increase (Decrease) In Cash And Cash Equivalents 3,723 (1,923)
Cash And Cash Equivalents, Beginning Of Period 7,201 2,876
--------- ---------
Cash And Cash Equivalents, End Of Period $ 10,924 $ 953
========= =========
See notes to financial statements
5
<PAGE>
AMERICAN WOODMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended October 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended April 30, 1997. The unaudited financial statements should be read in
conjunction with the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended April 30, 1996.
Certain fiscal 1996 amounts have been reclassified to conform to fiscal 1997
presentation.
NOTE B--EARNINGS PER SHARE
Earnings per share are based on the weighted average common shares outstanding.
The dilutive effect of stock options on earnings per share is not significant
and has been excluded for all periods presented.
NOTE C--CUSTOMER RECEIVABLES
The components of customer receivables were:
October 31 April 30
(in thousands) 1996 1996
---------- ---------
Gross customer receivables $ 24,727 $ 21,215
Less:
Allowance for doubtful accounts (1,435) (629)
Allowance for returns and discounts (957) (877)
---------- ---------
Net customer receivables $ 22,335 $ 19,709
========== =========
Allowance for doubtful accounts increased $800,000 during the first quarter due
to a Chapter 11 filing by a customer of the Company. Total allowance for
doubtful accounts attributable to this customer is $1.3 million and reflects all
of this customer's outstanding receivables.
6
<PAGE>
NOTE D--INVENTORIES
The components of inventories were:
October 31 April 30
(in thousands) 1996 1996
---------- ---------
Raw materials $ 5,600 $ 5,261
Work-in-process 9,810 9,336
Finished goods 1,345 1,392
---------- ---------
Total FIFO inventories $ 16,755 $ 15,989
Reserve to adjust inventories to LIFO value (5,836) (5,663)
---------- ---------
Total LIFO inventories $ 10,919 $ 10,326
========== =========
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations must necessarily be based on management's
estimates of expected year-end inventory levels and costs. Since they are
subject to many forces beyond management's control, interim results are subject
to the final year-end LIFO inventory valuation.
NOTE E--LOANS PAYABLE
The revolving credit facility is used by the Company as a working capital
account. As such, borrowings and repayments may routinely occur on a daily
basis. There was no activity through the revolving credit facility during the
first six months of fiscal 1997. For the six-month period ended October 31,
1995, total transactions through this revolving credit facility were borrowings
and payments of $7.0 million. There were no revolving credit loans outstanding
at October 31, 1996 and 1995.
The Company's primary loan agreement was amended during the first quarter of
fiscal 1997, allowing the Company to pay cash dividends on Common Stock.
NOTE F--CASH FLOW
Supplemental disclosures of cash flow information:
Six Months Ended
October 31
------------------
(in thousands) 1996 1995
------- -------
Cash paid during the period for:
Interest $ 458 $ 580
Income taxes $ 4,023 $ 775
7
<PAGE>
NOTE G--OTHER INFORMATION
The Company is involved in various suits and claims in the normal course of
business. Included therein are claims against the Company pending before the
Equal Employment Opportunity Commission. Although management believes that such
claims are without merit and intends to vigorously contest them, the ultimate
outcome of these matters cannot be determined at this time. In the opinion of
management, after consultation with counsel, the ultimate liabilities and
losses, if any, that may result from suits and claims involving the Company will
not have a material adverse effect on the Company's results of operations or
financial position.
The Company is voluntarily participating with a group of companies which is
cleaning up a waste facility site at the direction of a state environmental
authority. The Company is also involved in other matters under the direction of
state environmental authorities.
The Company records liabilities for all probable and reasonably estimable loss
contingencies on an undiscounted basis. For loss contingencies related to
environmental matters, liabilities are based on the Company's proportional share
of the contamination obligation of a site since management believes it probable
that the other parties, which are financially solvent, will fulfill their
proportional contamination obligations. There are no probable insurance or
other indemnification receivables recorded. The Company has accrued for all
known environmental remediation costs which are probable and can be reasonably
estimated, and such amounts are not material. Due to factors such as the
continuing evolution of environmental laws and regulatory requirements,
technological changes, and the allocation of costs among potentially responsible
parties, estimation of future remediation costs is necessarily imprecise. It is
possible that the ultimate cost, which cannot be determined at this time, could
exceed the Company's recorded liability. As a result, charges to income for
environmental liabilities could have a material effect on results of operations
in a particular quarter or year as assessments and remediation efforts proceed.
However, management is not aware of any matters which would be expected to have
a material adverse effect on the Company's results of operations or financial
position.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995
RESULTS OF OPERATIONS
Net sales of $57.0 million for the second quarter of fiscal 1997 increased 16.5%
over the second quarter of fiscal 1996. Net sales of $110.3 million for the
six-month period ended October 31, 1996 were 14.7% higher than the same period
of the prior year. The increase in net sales for both periods resulted from
growth in unit volumes in all three market channels, as the Company benefitted
from improved overall economic conditions and specific relationships with key
home centers, distributors and builders. Current year average unit prices
increased over prior year due to a general price increase implemented during the
third quarter of the prior fiscal year and a shift towards the higher end of the
Company's broad stock product offering.
Fiscal 1997 second quarter and six-month period gross margins were 28.9% and
27.2% of net sales, increasing from comparative gross margins of 19.7% of net
sales for both periods in fiscal 1996. The increases were primarily
attributable to better material utilization, increased labor productivity and
the impact of favorable leverage with higher volume on fixed and semi-fixed
costs. Material cost per unit decreased as the Company recognized improved
operating efficiencies from capital projects and material utilization programs.
Significant increases in labor productivity resulting from the use of new
equipment and manufacturing techniques more than offset normal rate increases,
higher health care costs, and increased incentive pay expenses.
Selling and marketing expenses increased $1.1 million for the second quarter of
fiscal 1997 and $1.7 million for the first six months compared to the prior
year. The increased expenses for both periods were primarily attributed to
increases in variable promotional costs and increased incentive pay expenses.
General and administrative expenses were 6.2% and 6.3% of net sales for the
three- and six-month periods ended October 31, 1996 as compared to 4.3% and 4.7%
for the comparable periods of fiscal 1996. The increase for both periods was
primarily due to employee compensation costs associated with the Company's
performance incentive programs. Recognition of $830,000 in bad debt reserves
also unfavorably impacted the first half of fiscal 1997.
Interest expense decreased $53,000 and $148,000 for the second quarter and
six-month period of fiscal 1997, respectively, as compared to the prior year.
The decline resulted from continued reduction in long-term debt. As of
October 31, 1996, long-term debt to total capital has been reduced to 22.7%.
Other income increased $109,000 for the second quarter and $215,000 for the
first six months compared to the prior year. The increase in other income
resulted from increased interest income from short-term investments of surplus
cash.
Fiscal 1997 effective tax rates reflected in the statement of income differ from
the U.S. federal statutory rate because of state taxes and the effects of
tax-exempt interest income.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating activities generated $6.8 million in cash for the first six months of
fiscal 1997 as compared to $2.8 million in the comparable period of fiscal 1996.
The increase in cash generated from operations was primarily attributable to
increased profits arising from growth in sales. Other non-cash items, increased
accounts payable, and timing differences in the payment of performance
incentives and related compensation had favorable impacts upon cash flow, but
were offset by a rise in prepaid expenses and seasonal increases in customer
receivables and inventory. An $800,000 increase in bad debt reserves, reflected
in other non-cash items, was made in the first quarter to fully reserve against
the receivables of a customer which filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code.
Capital expenditures were $2.3 million for the first six months of fiscal 1997.
During this period, the Company purchased equipment to optimize lumber
processing for the Orange, Virginia facility, and completed several projects
designed to increase efficiency and lower overall production costs. The Company
anticipates that, with the initiation of future projects designed to lower
overall costs and improve the Company's competitive position, capital spending
will increase in the last half of the fiscal year, with total fiscal 1997
capital spending approximating or exceeding fiscal 1996.
The Company reduced overall debt by $804,000 during the first six months of
fiscal 1997. Long-term debt to total equity declined from 35.9% at
April 30, 1996 to 29.4% at October 31, 1996. There were no borrowings against
the Company's short-term revolving credit facility during the period.
During the second fiscal quarter, the Company paid cash dividends of $154,000,
or $.02 per share, on its Common Stock.
Cash flow from operations, combined with accumulated cash on hand and available
borrowing capacity, is expected to be sufficient to meet forecasted working
capital requirements, service existing debt obligations and fund capital
expenditures for the remainder of fiscal 1997.
OTHER
The Company anticipates an overall economic environment of moderate growth
supported by stable interest rates and low inflation for the remainder of fiscal
1997. The Company anticipates that demand in the domestic cabinet market will
return to the levels experienced prior to the economic downturn which impacted
the home center industry in the first half of fiscal 1996. 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.
10
<PAGE>
The Company expects to experience continued improvement from the profitability
experienced in fiscal 1996. Additional volume, the full-year impact of the
general price increase implemented during the third quarter of fiscal 1996 and
higher productivity should more than offset the anticipated rise in other costs.
The Company currently maintains sufficient overall capacity to meet projected
growth over the next two years. In this environment, the Company's strategy is,
on average, to reinvest at least depreciation on an annual basis. The Company
is anticipating average to slightly above average capital expenditures in fiscal
1997. Identified projects include expansion to remove specific capacity
limitations in certain processes, productivity improvements, cost savings and
replacement of aging equipment. The Company anticipates capital expenditures
will be funded from a combination of cash flow from operations and cash on hand.
While the Company is not currently aware of any events that would result in a
material decline in earnings from fiscal 1996, we participate in an industry
that is subject to rapidly changing conditions. The preceding forward-looking
statements are based on current expectations, but there are numerous factors
that could cause the Company to experience a decline in sales or earnings
including: (1) overall industry demand at depressed levels, (2) economic
weakness in a specific channel of distribution, especially the home center
industry, (3) the loss of sales from specific customers due to their loss of
market share, bankruptcy or switching to a competitor, (4) a sudden and
significant rise in basic raw material costs, and (5) the need to respond to
competitive initiatives launched by a competitor. While the Company believes
these risks to be manageable and believes that these risks will not materially
impact the long-term performance of the Company, these risks could under certain
circumstances have a materially adverse impact on short-term operating results.
During the first quarter of fiscal 1997, a customer of the Company filed a
petition for reorganization under Chapter 11 of the United States Bankruptcy
Code. In addition, the customer of the Company recently announced plans to
liquidate under provisions provided by the Bankruptcy Code. As of
October 31, 1996, the Company has fully reserved for all outstanding receivables
pertaining to this customer. The Company's management anticipates that these
events will not have any material adverse effect on the Company's future results
of operations or financial position.
On August 20, 1996 the Company's Board of Directors elected James J. Gosa to
President and Chief Executive Officer. William F. Brandt, Jr., formerly
Chairman of the Board of Directors and Chief Executive Officer, will continue to
serve as Chairman.
On November 25, 1996 the Company announced a $0.02 per share cash dividend on
its Common Stock. The cash dividend will be paid on December 27, 1996, to
shareholders of record on December 13, 1996.
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 results of operations or
financial position.
11
<PAGE>
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 estimable loss
contingencies on an undiscounted basis. For loss contingencies related to
environmental matters, liabilities are based on the Company's proportional share
of the contamination obligation of a site since management believes it probable
that the other parties, which are financially solvent, will fulfill their
proportional contamination obligations. There are no probable insurance or
other indemnification receivables recorded. The Company has accrued for all
known environmental remediation costs which are probable and can be reasonably
estimated, and such amounts are not material.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11--Earnings Per Share Computation Page 14
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the six months
ended October 31, 1996.
13
<PAGE>
AMERICAN WOODMARK CORPORATION
Exhibit 11
Computation of Earnings per Share
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
October 31 October 31
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Net income $ 3,462 $ 625 $ 5,562 $ 986
Divided by weighted average
common shares outstanding 7,664 7,599 7,646 7,583
------- ------- ------- -------
Earnings per share $ 0.45 $ 0.08 $ 0.73 $ 0.13
======= ======= ======= =======
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN WOODMARK CORPORATION
(Registrant)
Date: December 10, 1996 /s/ KENT B. GUICHARD
Kent B. Guichard
Vice President, Finance and
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial officer
15
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> OCT-31-1996
<CASH> 10,924
<SECURITIES> 0
<RECEIVABLES> 24,727
<ALLOWANCES> 2,392
<INVENTORY> 10,919
<CURRENT-ASSETS> 46,893
<PP&E> 77,040
<DEPRECIATION> 44,217
<TOTAL-ASSETS> 84,610
<CURRENT-LIABILITIES> 26,587
<BONDS> 12,175
0
0
<COMMON> 17,853
<OTHER-SE> 23,576
<TOTAL-LIABILITY-AND-EQUITY> 84,610
<SALES> 110,338
<TOTAL-REVENUES> 110,338
<CGS> 80,293
<TOTAL-COSTS> 80,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 830
<INTEREST-EXPENSE> 462
<INCOME-PRETAX> 8,876
<INCOME-TAX> 3,314
<INCOME-CONTINUING> 5,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,562
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
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