SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1997
Commission File Number 0-14798
AMERICAN WOODMARK CORPORATION
(Exact name of the 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)
Registrant's telephone number, including area code: (540) 665-9100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock (no par value)
(Title of class)
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 (or for such shorter period that the
registrant 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 June 23, 1997 was $60,837,812 based
on the closing price on that date on the NASDAQ Exchange.
As of June 23, 1997, 7,734,889 shares of the Registrant's Common Stock were
outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
April 30, 1997 (1997 Annual Report) are incorporated by reference into Parts I
and II of this Form 10-K.
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on August 27, 1997 (Proxy Statement) 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
different 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 forty-five door designs and eight 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(R), Scots Pride(R), and
Coventry and Case(R) 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, 1997 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 four service centers located in key
areas throughout the United States.
The primary raw materials used by the Company are oak and maple
lumber, 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.
2
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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.
In the fiscal year ended April 30, 1997, the Company had two
customers, The Home Depot and Lowe's Companies, Inc., who each
accounted for in excess of 10% of the Company's sales.
At April 30, 1997, the Company had 2,154 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 Office which is located in
Winchester, Virginia. In addition, the Company leases one and owns
six manufacturing facilities located primarily in the eastern United
States. The Company also leases four service centers located
throughout the United States which support the distribution of
products to each market channel.
Item 3. LEGAL PROCEEDINGS
"Legal Matters" under Note J to the Financial Statements in the 1997
Annual Report is incorporated herein by reference.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS
"Market Information" in the 1997 Annual Report is incorporated herein
by reference.
Item 6. SELECTED FINANCIAL DATA
"Five Year Selected Financial Information" in the 1997 Annual Report
is incorporated herein by reference.
3
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" in the 1997 Annual Report is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements, Notes to Financial Statements, "Quarterly
Results of Operations," and the Report of Ernst & Young LLP,
Independent Auditors, in the 1997 Annual Report are incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the directors and nominees for
directorships, see the information under the caption "Election of
Directors" in the Proxy Statement, which information is incorporated
herein by reference.
The executive officers of the Registrant as of April 30, 1997 are as
follows:
Name Age Position Held During Past Five Years
---- --- ------------------------------------
James J. Gosa 49 President and Chief Executive
Officer since August, 1996
President and Chief Operating
Officer 1995-1996
Executive Vice President 1993-1995
Vice President, Sales and Marketing
1991-1993
Vice President, Marketing and Branch
Operations
Thomas Somerville Co. 1985-1991
Director since 1995
4
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David L. Blount 49 Vice President, Manufacturing since
May, 1995
Vice President, Component
Manufacturing 1994-1995
Vice President, Manufacturing
1983-1994
Kent B. Guichard 41 Vice President, Finance and Chief
Financial Officer since November
1995
Vice President, Finance 1993-1995
Vice President & Controller, AM
Graphics Division, AM International
1991-1993
Controller, Aircraft Wheel and Brake
Operations, BF Goodrich Company
1989-1991
William F. Brandt, Jr. 51 Chairman of the Board since August
1996
Chairman and Chief Executive Officer
1995-1996
Chairman and President 1980-1995
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
Statement 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.
5
<PAGE>
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, 1997 and 1996
Statement of Income and Retained Earnings - for each of
the years in the three-year period ended April 30, 1997
Statement of Cash Flows - for each of the years in the
three-year period ended April 30, 1997
(a) 2. Financial Statement Schedules
Reference is made to Financial Statement schedules and
supplementary data under Item 8 in Part II hereof, where these
documents are listed.
The following Financial Statement schedule is included in a
separate section of this report:
Schedule Page
-------- ----
II. Valuation and qualifying accounts 10
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 (a) - Bylaws (1)
3.2 (b) - Amendment to Bylaws on June 22, 1994 (7)
4 - Amended and Restated Stockholders' Agreement (1)
6
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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)
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 (8)
10.1 (h) - Amendment to Amended and Restated Loan Agreement and to
Reimbursement Agreements as of July 8, 1996
10.1 (i) - Amendment to Amended and Restated Loan Agreement as of
August 31, 1996
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)
10.2 (c) - Second Amendment to Security Agreement as of August 31, 1996
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)
7
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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)
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)
10.7 (d) - 1995 Non-Employee Directors Stock Option Plan (9)
8
<PAGE>
10.7 (e) - 1996 Stock Option Plan (10)
10.8 (a) - 1997 Annual Incentive Plan for Chairman and President/CEO
10.8 (b) - 1997 Annual Incentive Plan for Vice Presidents
11 - Computation of Earnings Per Share
13 - 1997 Annual Report to Shareholders
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.
(8) - Incorporated by reference to exhibits filed with the 1995
Form 10-K.
(9) - Incorporated by reference to exhibit filed with Form S-8,
No. 333-12631.
(10) - Incorporated by reference to exhibit filed with Form S-8,
No. 333-12623.
9
<PAGE>
Schedule II - Valuation and Qualifying Accounts
AMERICAN WOODMARK CORPORATION
(In Thousands)
Additions
Balance at Charged to Balance
Beginning Cost and at End
Description(a) of Period Expenses Deductions of Period
-------------- ---------- ---------- ---------- ---------
Year ended April 30, 1997:
Allowance for doubtful
accounts $ 629 $ 830 $(1,249)(b) $ 210
Reserve for cash discounts $ 250 $3,236(c) $(3,183)(d) $ 303
Reserve for sales returns
and allowances $ 627 $4,492(c) $(4,251) $ 868
Year ended April 30, 1996:
Allowance for doubtful
accounts $ 243 $ 620 $ (234)(b) $ 629
Reserve for cash discounts $ 240 $2,977(c) $(2,967)(d) $ 250
Reserve for sales returns
and allowances $ 698 $3,489(c) $(3,560) $ 627
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
(a) All reserves relate to accounts receivable.
(b) Principally write-offs, net of collections.
(c) Reduction of gross sales.
(d) Cash discounts granted.
10
<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/ JAMES J. GOSA
James J. Gosa
President and Chief Executive Officer
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 and Director
Chief Financial Officer
/s/ WILLIAM F. BRANDT, JR. /s/ JOHN T. GERLACH
William F. Brandt, Jr. John T. Gerlach
Chairman of the Board Director
/s/ DANIEL T. CARROLL /s/ C. ANTHONY WAINWRIGHT
Daniel T. Carroll C. Anthony Wainwright
Director Director
11
<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 and
Chief Financial Officer
American Woodmark Corporation
P.O. Box 1980
Winchester, Virginia 22604-8090
12
<PAGE>
Exhibit 10.1 (h)
July 3, 1996
Mr. Glenn E. Eanes
Treasurer
American Woodmark Corporation
3102 Shawnee Drive
Winchester, VA 22601
RE: Amended and Restated Loan Agreement between NationsBank, N.A. (the "Bank")
and American Woodmark Corporation (the "Borrower") dated as of August 31, 1993,
as Amended (the "Loan Agreement")
Dear Glenn:
Pursuant to your request to allow the Borrower to pay cash dividends under
certain conditions, the Bank hereby agrees to amend the Loan Agreement
referenced above as follows:
Section 11.01 (h) shall be restated as follows:
"(h) pay any dividends other than dividends payable with the stock of the
Borrower or redeem its stock; provided, however, the Borrower may redeem its
stock through redemptions funded entirely by life insurance proceeds payable
to the Borrower; provided further, that so long as the Borrower has not
suffered a net loss for the four fiscal quarters (taken in their entirety)
immediately prior to the payment of any dividend or on account of any other
redemption, the Borrower may pay cash dividends and make additional redemptions
during any fiscal quarter in an amount which in the aggregate does not exceed
25% of the Borrower's Net Income for the four fiscal quarters (taken in their
entirety) immediately prior to the payment of such dividend or on account of
such redemption reduced by 100% of the aggregate amount of cash dividends and
redemptions (excluding redemptions funded entirely by life insurance proceeds)
for the four fiscal quarters (taken in their entirety) immediately prior to
the payment of such dividend or on account of such redemption;"
<PAGE>
The Bank also hereby agrees to permit the payment of cash dividends under the
terms outlined above under all existing letter of credit reimbursement
agreements supporting lower floater Industrial Revenue Bonds between the
Borrower and the Bank.
All other terms and conditions of the Loan Agreement shall remain unchanged
and in full force and effect.
Please indicate your acceptance of this modification to the Loan Agreement by
signing below.
Very truly yours,
NationsBank, N.A.
by /s/ MICHAEL R. WILLIAMS
-----------------------
Senior Vice President
cc Christopher C. Kupec, Esquire
Accepted by American Woodmark Corporation
by /s/ GLENN EANES
---------------
its Treasurer
--------------
Date 7/8/96
--------------
<PAGE>
Exhibit 10.1 (i)
THIRD AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of
August 31, 1996, is to that certain Amended and Restated Loan Agreement dated
as of August 31, 1993, as amended as of March 15, 1994 and July 27, 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, 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) The definition of "Termination Date" is amended so that such definition
now reads as follows:
"Termination Date" means August 31, 1997;
(b) The definition of "Available Committed Amount" or "Available Commitment"
is amended so that such definition now reads as follows:
"Available Committed Amount" or "Available Commitment" means $4,000,000,
as such amount may be increased from time to time up to the Maximum
Commitment pursuant to the terms of Section 2.02;
(c) The third sentence of Section 2.01 is amended by replacing the reference
to "$4,000,000" contained therein with a reference to "$8,000,000".
(d) All references to "NationsBank of North Carolina, N.A." are replaced with
references to "NationsBank, N.A.".
<PAGE>
2. The Borrower hereby represents and warrants that:
(a) 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 Third
Amendment;
(b) 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 Third Amendment.
3. Except as modified hereby, all of the terms and provisions of the Loan
Agreement (and Exhibits) remain in full force and effect.
4. 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, July 27, 1994
and August 31, 1996, by and between American Woodmark Corporation and
NationsBank, N.A."
5. This Third Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original.
6. This Third 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.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be
executed by their duly authorized corporate officers as of the day and year
first above written.
AMERICAN WOODMARK CORPORATION
ATTEST:
By: CAROL LENTZ By: /S/ GLENN EANES
----------- ---------------
Title Corporate Secretary Title: Treasurer
------------------- ---------
(Corporate Seal)
NATIONSBANK, N.A.
By: /S/ ELIZABETH S. DUFF
---------------------
Title: Vice President
--------------
<PAGE>
Exhibit 10.2 (c)
SECOND AMENDMENT TO SECURITY AGREEMENT
THIS SECOND AMENDMENT TO SECURITY AGREEMENT, dated as of August 31, 1996, is
by and between
AMERICAN WOODMARK CORPORATION, a corporation organized and existing under the
laws of the State of Virginia; (the "Borrower"); and
NATIONSBANK, 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 entered into that certain Security Agreement,
dated March 23, 1992, as amended (the "Security Agreement").
B. The Bank and the Borrower has agreed to amend the Security Agreement as
set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Security Agreement is hereby amended by adding the following
sentence to the definition of "Debtor's Liabilities" in Section 1.01:
The term "Borrower's Liabilities" shall also include without
limitation, all present or future liabilities, indebtedness and
obligations of the Borrower to the Bank incurred in connection with
the issuance by the Bank on the application of the Borrower of all
letters of credit, whether now or hereafter issued, such liabilities,
indebtedness and obligations to include all liabilities, indebtedness
and obligations arising under any letter of credit applications and/or
reimbursement agreements now or hereafter executed by the Borrower in
favor of the Bank in connection with such letters of credit.
2. The Borrower acknowledges and agrees that the "Collateral" (as
defined in the Security Agreement) secures all present or future
liabilities, indebtedness and obligations of the Borrower to the Bank
incurred in connection with the issuance by the Bank on the application
of the Borrower of all letters of credit, whether now or hereafter
issued (the "Obligations"), such Obligations to include all
liabilities, indebtedness and obligations arising under any letter of
credit applications and/or reimbursement agreements now of hereafter
executed by the Borrower in favor of the Bank in connection with such
letters of credit. The Borrower hereby grants the Bank a security
interest in the "Collateral" (as defined in the Security Agreement) to
secure the Obligations.
<PAGE>
3. All references to "NationsBank of North Carolina, N.A." in the
Security Agreement are replaced with references to "NationsBank, N.A.".
4. Except as modified hereby, all of the terms and provisions of the
Security Agreement (and Exhibits) remain in full force and effect.
5. This Second Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an
original.
6. 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.
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/ KENT GUICHARD
--------------- -----------------
Title Corporate Secretary Title: Vice President of Finance & CFO
------------------- -------------------------------
(Corporate Seal)
NATIONSBANK, N.A.
By: /s/ MICHAEL R. WILLIAMS
-----------------------
Title: Senior Vice President
---------------------
<PAGE>
Exhibit 10.8 (a)
AMERICAN WOODMARK CORPORATION
FISCAL YEAR 1997
ANNUAL INCENTIVE PLAN FOR THE CHAIRMAN OF THE BOARD
AND THE PRESIDENT/CEO
I. THE OBJECTIVES OF THE ANNUAL INCENTIVE PLAN ARE THREEFOLD:
A. Provide an incentive which will encourage and reward
outstanding individual performance;
B. Help align the personal goals of the individual with the
overall goals and objectives of American Woodmark and the
stockholders of American Woodmark; and
C. Together with base pay and long-term incentive programs,
provide a compensation package, in both form and total value, which is
equal to or better than opportunities offered in the competitive
marketplace for similar performance in similar positions.
II. ELIGIBILITY FOR PARTICIPATION IN THE ANNUAL INCENTIVE PROGRAM
The Chairman and President/CEO of the Company. Eligible
participants must be employed by the Company on April 30, 1997.
All calculations will be reduced on a pro-rated basis for eligible
participants not employed as of May 1, 1996.
III. DETERMINATION OF ANNUAL INCENTIVE PAYOUT
A. Determination of the payout will be based on one component:
1. Zero to 65% of base salary on April 30, 1997 as
determined by income achievement versus predetermined
goals. Net income will be the audited amount as
listed in the Company's Annual Report for fiscal 1998.
2. Zero to 45% of base salary on April 30, 1997 as
determined by cash flow achievement versus
predetermined goals. Cash flow will be calculated
from the audited Financial Statements for fiscal 1997,
and is defined as Net Cash Provided by Operating
Activities less the Net Cash Used by Investing
Activities as listed in the Statement of Cash Flows in
the Company's Annual Report.
B. No payments will be made on the Annual Incentive Plan unless
the Company reports a net profit for the fiscal year.
<PAGE>
Exhibit 10.8 (b)
AMERICAN WOODMARK CORPORATION
FISCAL YEAR 1997
ANNUAL INCENTIVE PLAN FOR VICE PRESIDENTS
I. THE OBJECTIVES OF THE ANNUAL INCENTIVE PLAN ARE THREEFOLD:
A. Provide an incentive which will encourage and reward
outstanding individual performance;
B. Help align the personal goals of the individual with the
overall goals and objectives of American Woodmark and the
stockholders of American Woodmark; and
C. Together with base pay and long-term incentive programs,
provide a compensation package, in both form and total
value, which is equal to or better than opportunities
offered in the competitive marketplace for similar
performance in similar positions.
II. ELIGIBILITY FOR PARTICIPATION IN THE ANNUAL INCENTIVE PROGRAM
All Vice Presidents of the Company. Eligible participants must be
employed by the Company on April 30, 1997. All calculations will
be reduced on a pro-rated basis for eligible participants not
employed as of May 1, 1996.
III. DETERMINATION OF ANNUAL INCENTIVE PAYOUT
A. Determination of the payout will be based on one component:
1. Zero to 42% of base salary on April 30, 1997 as
determined by net income achievement versus
predetermined goals. Net income will be the audited
amount as listed in the Company's Annual Report for
fiscal 1998.
2. Zero to 28% of base salary on April 30, 1997 as
determined by cash flow achievement versus
predetermined goals. Cash flow will be calculated
from the audited Financial Statements for fiscal 1997,
and is defined as Net Cash Provided by Operating
Activities less the Net Cash Used by Investing
Activities as listed in the Statement of Cash Flows in
the Company's Annual Report.
3. Zero to 30% of base salary on April 30, 1997 based on
the individual evaluation of the employee through the
Company's performance review process.
B. No payments will be made on the Annual Incentive Plan unless
the Company reports a net profit for the fiscal year.
<PAGE>
Exhibit 11
AMERICAN WOODMARK CORPORATION
Computation of Earnings Per Share
(in thousands, except per share amounts)
Fiscal Year Ended April 30
------------------------------
1997 1996 1995
-------- -------- --------
Net income $10,548 $3,846 $5,356
Divided by weighted average
common shares outstanding 7,673 7,595 7,544
-------- -------- --------
Earnings per share $1.37 $0.51 $0.71
======== ======== ========
<PAGE>
TABLE OF CONTENTS
Company Profile 2
Market Information 2
Financial Highlights 2
Letter from the President 3
Five Year Selected Financial Information 5
Opening the Door to the 2001 Vision 6
Management's Discussion and Analysis 10
Financial Statements 16
Notes to Financial Statements 19
Management's Report 27
Report of Independent Auditors 28
Board of Directors and Executive Officers
Corporate Information
<PAGE>
Exhibit 13
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.
1
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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 four 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 approximately 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 1997 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.
MARKET INFORMATION
American Woodmark Corporation no par value Common Stock is traded on the
NASDAQ Over-the-Counter market under the AMWD symbol. Common Stock per share
market prices and cash dividends declared during the last two fiscal years
were as follows:
Market Price
----------------- Dividends
(in dollars) High Low Declared
-------- ------- ---------
FISCAL 1997
First quarter $ 6.13 $ 4.75 $ --
Second quarter 9.75 5.13 .02
Third quarter 19.00 8.13 .02
Fourth quarter 22.38 10.75 .02
FISCAL 1996
First quarter 6.13 5.00 --
Second quarter 5.50 4.50 --
Third quarter 4.88 3.88 --
Fourth quarter 5.56 4.00 --
As of April 30, 1997, there were approximately 4,100 stockholders of record
of the Company's Common Stock. Included are approximately 84% of the Company's
employees who are stockholders through the American Woodmark Stock Ownership
Plan.
<PAGE>
FINANCIAL HIGHLIGHTS
(in thousands, except share data) Years Ended April 30
------------------------------
1997 1996 1995
-------- -------- --------
OPERATIONS
Net sales $219,402 $196,237 $197,351
Operating income 17,606 7,281 10,154
Income before income taxes 17,114 6,238 8,822
Net income 10,548 3,846 5,356
Earnings per share $ 1.37 $ .51 $ .71
Average shares outstanding -- Note A 7,673 7,595 7,544
FINANCIAL POSITION
Working capital $ 23,442 $ 15,409 $ 14,162
Total assets 87,157 76,336 74,408
Long-term debt 10,637 12,866 15,534
Stockholders' equity $ 46,298 $ 35,845 $ 31,801
Long-term debt to equity ratio 23% 36% 49%
2
<PAGE>
TO OUR SHAREHOLDERS:
Fiscal 1997 was an extraordinary year for American Woodmark. We achieved
record sales and reported record net income of $10,548,000 or $1.37 per share.
Based on our performance, the value of a share of American Woodmark stock
increased from under $5.00 in April 1996 to almost $13.00 in April 1997. The
total return to our shareholders for the year including cash dividends was
180%, placing us at the top of our peer group.
Net sales increased 12% to $219.4 million from $196.2 million the previous
year. We continue to gain market share, especially in the critical home
center channel, based on our strong market position, our key customer
relationships and our innovative product and service programs. Year-over-year
sales increased at The Home Depot, Lowe's and Builders Square. During the year
we completed our roll-out into the Northeast Region of The Home Depot, the
largest home center chain in the country. American Woodmark cabinets are now
available nationwide in virtually all 500 Home Depot stores. We continued our
partnership program and growth rate with Lowe's, the second largest home center
chain in North America. Our products are proudly offered in almost 350 Lowe's
stores. Sales to Builders Square increased for the first time in three years.
In addition to our core special order cabinet business, we completed the
roll-out of a successful new in-stock cabinet program across the over 160 stores
operated by Builders Square.
We continue to be very aggressive and gain market share through our
Timberlake(R) brand program designed for the new construction industry.
Throughout the year, we successfully expanded existing relationships with
national and regional builders and established a new presence in markets
previously not served by our Company.
In addition to our traditional cabinet business, we began to generate
significant sales for the first time during this year from our efforts to
develop and introduce new products and to enter new markets. Sales were
generated from new in-stock programs in both cabinets and vanities. In
addition, our engineered cabinet line has been greeted with enthusiasm by the
industry. This new line accounted for a significant increase in units shipped
by the end of the fiscal year. We are confident that in the years ahead these
new business efforts will generate growth rates above those available in our
traditional cabinet business.
Our capital spending program continues to drive substantial improvements in
operating efficiencies. Material utilization increased from the prior year to
the highest point in over five years, despite significant cost pressure in the
hardwood lumber markets. New equipment and manufacturing techniques improved
labor productivity by 16% over the prior year. Capacity utilization increased
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with higher volumes, creating operating leverage on fixed costs. The
improvements in efficiencies resulted in gross margins rising from below 22% in
fiscal 1996 to almost 28% in fiscal 1997.
Net income set a new record in each of the four quarters in fiscal 1997. Net
income improved over the previous records by 11% in the first quarter, 30% in
the second, 62% in the third and 26% in the fourth. Including the fourth
quarter of the previous year, American Woodmark has now established a new level
of earnings performance in five consecutive quarters. Net income for the year
was 41% above the previous high set in fiscal 1989.
Our record performance during this past year was the result of efforts over the
years by many employees. Two individuals, Al Graber and Don Mathias, were
founders of our Company in 1980. They left active management in years past and,
in 1997, Al and Don decided to retire from our Board of Directors as well. They
both worked tirelessly over the years to build American Woodmark into the
Company it is today. We will miss their energy and counsel, and we recognize
them for tremendous contributions over their fifty years of combined service.
In closing, I would like to thank all the fine men and women that work at
American Woodmark. Not only did our employees achieve record levels of
performance in fiscal 1997, they did so while continuing to build the foundation
for an even better future.
As we continue on our path towards the 2001 Vision, our goal is to create growth
not only in our core business but also through investments in new products and
new markets. The in-stock program for cabinets and vanities and the engineered
cabinet line are just two examples of these new products. Several other
exciting new ideas are in development that will help us reach our growth
objectives. We are committed to driving double digit annual sales growth and
to creating leverage on the bottom line with this growth.
As excited as we are about the performance of our Company this past year, we are
even more excited about our future prospects. We are dedicated to delivering
consistent period-over-period earnings growth within the context of our
long-term strategy and to consistently provide a superior return to those
shareholders investing for the long term.
/s/ JAMES J. GOSA
James J. Gosa
President and Chief Executive Officer
4
<PAGE>
FIVE YEAR SELECTED FINANCIAL INFORMATION
Years Ended April 30
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
FINANCIAL STATEMENT DATA
(in millions, except share data)
Net sales $219.4 $196.2 $197.4 $171.3 $167.3
Income (loss) before income taxes 17.1 6.2 8.8 3.5 (0.7)
Net income (loss) 10.5 3.8 5.4 2.2 (0.5)
Earnings (loss) per share (1) 1.37 .51 .71 .29 (.06)
Depreciation and amortization expense 7.8 7.8 7.8 7.2 6.8
Restructuring costs -- -- 0.5 1.0 1.1
Total assets 87.2 76.3 74.4 72.3 78.5
Long-term debt 10.6 12.9 15.5 18.3 21.5
Stockholders' equity 46.3 35.8 31.8 26.4 24.2
Cash dividends declared per share .06 -- -- -- --
Average shares outstanding (1) 7.7 7.6 7.5 7.5 7.5
PERCENT OF SALES
Gross profit 27.8% 21.5% 23.5% 21.4% 18.2%
Sales, general and administrative
expenses 19.8 17.8 18.1 17.6 16.5
Income (loss) before income taxes 7.8 3.2 4.5 2.1 (0.4)
Net income (loss) 4.8 2.0 2.7 1.3 (0.3)
RATIO ANALYSIS
Current ratio 1.9 1.7 1.6 1.4 1.2
Inventory turnover (2) 15.3 11.9 11.0 8.5 7.0
Percentage of capital:
(LTD & equity)
Debt 18.7% 26.4% 32.8% 41.0% 47.0%
Equity 81.3 73.6 67.2 59.0 53.0
Return on equity (average %) 25.7 11.4 18.4 8.6 (1.9)
Collection period--days (3) 36.1 36.9 34.7 37.2 36.4
(1) The weighted average of common shares has been retroactively restated to
reflect a 10% stock dividend issued in September 1993.
(2) Based on average of beginning and ending inventory.
(3) Based on ratio of monthly average customer receivables to average sales
per day.
5
<PAGE>
OPENING THE DOOR TO THE 2001 VISION
In 1996, we launched the "2001 Vision", a six year blueprint for growth. Our
Vision is built on four primary competitive advantages.
HOME CENTER MARKET POSITION. We are the leading supplier of stock cabinetry to
the home center industry and are the stock vendor of choice at The Home Depot,
Lowe's, Builders Square and 84 Lumber. Our products are featured in almost
1,000 big box home center outlets nationwide.
DISTRIBUTOR AND BUILDER MARKET POSITION. We have several key customer
relationships with national and regional companies in both the distributor and
direct builder channels. Our Timberlake brand has enabled us to expand our
presence in these important markets.
WOOD TECHNOLOGY. As a vertically integrated manufacturer, we have developed
expertise in the full range of wood processing and wood finishing technologies.
DELIVERY AND SERVICE PLATFORM. We have created a sophisticated distribution
system that offers superior service and significant flexibility to our
customers.
During this past year our Vision has begun to take shape and receive
definition. Overall strategies have led to tactical plans which, in turn,
have led to specific action steps. Targets have been established throughout
the organization that, by the year 2001, will result in:
* Significant sales in new products and market categories not currently
serviced;
* Double total sales per home center outlet;
6
<PAGE>
* A competitive presence in the top forty distributor/builder markets in the
United States; and
* Double productivity.
Our action steps and targets are focused in three areas. First and foremost,
we are a product driven Company in a product driven business. And we think
about products in the largest sense of the word. Our product is the total
experience of the end consumer's construction or remodeling project, from
design to order to delivery to installation.
Since the beginning of the 2001 Vision, American Woodmark has introduced a
wide variety of new products and features including:
* A popular shaker design in maple and oak with a variety of finishes
including natural, traditional stains and frost;
* A high-end white line using thermofoil technology to create a custom look
and feel at a reasonable price;
* A new cherry line offered in both classic Bordeaux and contemporary Spice
finishes;
7
<PAGE>
* A natural, character oak line with the timeless look of traditional oak;
* A value white line, providing the style of an all white cabinet at an
entry level price point;
* A new finish, BeautyGuard(R), which creates a durable, custom feel at
reasonable prices;
* Many new features across both new and existing lines including Hidden
Glides(R), upgraded hardware, thicker shelves, mullion doors on wall
cabinets, more accessories and more mouldings;
* A new Ready-to-Assemble line of cabinets and vanities for both the Do-It-
Yourself consumer and the value conscious professional;
* A new "in-stock" vanity line for the customer that wants the quality of a
full-framed, wood cabinet with in-stock convenience;
* Expanded delivery partnerships which increase our ability to service the
customer when they want, where they want and how they want;
* New customer service systems to make ordering and issue resolution both
quicker and easier for the customer; and
* An installed sales program that supports the builder from the initial
house design to final installation of the cabinets and other related
products.
Second, we continue to develop our relationships with key customers and
suppliers. With our customers, we have developed partnership teams to
identify and take advantage of opportunities through joint training and
problem solving activities. With our suppliers, we have also developed
8
<PAGE>
partnership teams to lower overall costs and increase value to our customers.
In both instances, we are working to break down the historical win/lose
structure of customer and supplier relationships. We are effectively creating
consistent win/win situations with our external partners.
Third, we continue to work extremely hard on our organizational strengths.
Having the right products is necessary to "get into the game" in our industry.
Outstanding customer and supplier relationships put us "one leg up" on our
competition. But a superior organization provides American Woodmark with a
long-term, sustainable advantage.
We continue to invest heavily in our organization and in our people. We
invest in their working environment and in the tools our people need. We invest
in their training and their development. Most importantly, we invest in
programs to attract and retain the right people. Every full time American
Woodmark employee, for example, shares in our success through participation in a
cash bonus program.
For over a decade, our Mission Statement has defined who we are, what we do,
why we do it and how it gets done. We are dedicated to Creating Value Through
People. Ultimately, we believe that our success and our greatest advantage
comes from committed individuals with shared values pursuing a common goal.
9
<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
------------------------
1997 1996 1995
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales and distribution 72.2 78.5 76.5
Gross profit 27.8 21.5 23.5
Selling and marketing expenses 14.0 12.6 12.0
General and administrative expenses 5.8 5.2 6.1
Operating income 8.0 3.7 5.1
Interest expense 0.4 0.6 0.7
Income before income taxes 7.8 3.2 4.5
Provision for income taxes 3.0 1.2 1.8
Net income 4.8 2.0 2.7
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Fiscal 1997 net sales of $219.4 million increased 12% from fiscal 1996 net
sales of $196.2 million. Average unit prices increased approximately 4% over
the prior year due to the general price increase implemented during the third
quarter of the prior fiscal year, favorable changes in the sales mix by market
channel, and a shift towards the higher end of the Company's broad stock product
offering.
Overall unit volume increased approximately 8% from the prior year as the
Company benefited from a stronger economy and increased market share. Unit
shipments to home centers increased to record levels based on strong overall
remodeling activity and the Company's relationships with the leading domestic
home center chains. Unit volumes to distributors increased due to good overall
market demand and the Company's access to key markets through both new and
established customers. Unit shipments to direct builders remained flat, but at
historically high levels, as aggressive pricing initiatives by certain
competitors offset the addition of several new customers.
Gross profit improved to 27.8% of net sales from 21.5% the prior year. The
increase in gross profit was attributable to higher average unit prices,
decreased per unit material and labor costs, and the favorable impact of
leverage with higher volume on fixed and semi-fixed costs.
Material cost per unit declined from the prior year. Continued improvements
in lumber yield, more efficient material utilization and price decreases on
specific raw materials more than offset increased hardwood lumber prices and
costs associated with a more material intensive product mix.
<PAGE>
Labor costs per unit decreased, as productivity resulting from the use of
new equipment and manufacturing techniques more than offset normal labor rate
increases and increased incentive pay expenses.
Per unit freight and overhead costs declined due to the leverage impact of
higher volume on fixed and semi-fixed components of expenses.
Selling and marketing expenses increased as a percentage of net sales from
12.6% in fiscal 1996 to 14.0% in fiscal 1997. The increase in sales and
marketing costs was the result of a one-time national sales event, higher
incentive pay expenses associated with higher sales levels, and aggressive
advertising and promotional costs designed to increase market share and launch
several new product and market initiatives.
General and administrative expenses increased from 5.2% of net sales in
10
<PAGE>
fiscal 1996 to 5.8% in fiscal 1997 primarily due to employee compensation costs
associated with the Company's performance incentive programs.
Interest expense for fiscal 1997 declined $295,000 to $915,000 from the prior
year. The decrease resulted from the continued reduction of outstanding debt.
Total debt decreased $2.7 million during fiscal 1997. As of April 30, 1997,
long-term debt to total capital was reduced to 18.7%.
Other income increased $256,000 for fiscal 1997 compared to the prior year
due to a combination of increased interest income from short-term investments
of cash and less expenses pertaining to the disposal of property, plant and
equipment. The effect of this increase over prior year was lessened by a
property tax refund received by the Company in the third quarter of the prior
fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $17.4 million in net cash during
fiscal 1997 as compared to $11.7 million the prior year. The increase in cash
generated from operations was primarily attributable to increased net income.
Other non-cash items, increased accounts payable, and timing differences in the
payment of performance incentives and related compensation expenses contributed
favorably to cash flow. Increased customer receivables resulting from strong
year-end sales reduced cash provided by operating activities.
Capital spending decreased $493,000 from the prior year to $4.5 million, as
the Company continued its capital spending program designed to lower overall
cost and improve the Company's competitive position. During fiscal 1997, the
Company purchased equipment to optimize lumber processing for the Orange,
Virginia facility, and began expansion efforts that will increase production
capacity at the Jackson, Georgia facility. The Company also completed several
projects designed to increase efficiency and lower production costs. All other
capital expenditures during fiscal 1997 were limited to necessary or replacement
items and cost savings projects. The Company anticipates that, with continued
investments in current and future projects under the capital spending program,
expenditures for fiscal 1998 will approximate or exceed fiscal 1997.
The Company reduced overall debt by $2.7 million during fiscal 1997. Total
debt on April 30, 1997 was $12.9 million and did not include any short-term
borrowings under the Company's revolving credit facility. Long-term debt to
total equity declined from 35.9% at April 30, 1996 to 23.0% at April 30, 1997.
Cash dividends of $461,000 were paid on Common Stock during fiscal 1997.
(See Notes E and F to the Financial Statements.)
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 fiscal 1998.
<PAGE>
OUTLOOK FOR FISCAL 1998
The Company anticipates continued underlying strength in the domestic economy
through fiscal 1998. Under normal conditions, this strength would result in
the continued growth and expansion of the relevant markets for the Company.
The Company also expects, however, that there is a significant likelihood that
either anticipated or actual increases in interest rates will dampen this
growth. The adverse impact of higher interest rates on the new housing and
remodeling sectors could result in periods of low growth in the Company's
primary markets and overall growth for fiscal 1998 that is below the rate
experienced during fiscal 1997.
In this environment, the Company expects to continue to gain market share
based on its position with major customers, its broad stock product offering
11
<PAGE>
and its ability to deliver quality products with superior service. During a
period of growth in the housing and remodeling sectors, the Company expects to
continue to generate higher sales. The Company expects to further enhance sales
growth during the second half of fiscal 1998 through the addition of new
products and new markets.
The Company expects to maintain or increase recent profitability performance
while investing resources in future products, facilities and markets. Additional
volume and improved efficiencies should be sufficient to offset the anticipated
rise in other costs.
The Company currently maintains sufficient overall capacity to meet projected
growth. Identified capital projects include expansion to remove specific
capacity limitations in certain processes, productivity improvements, cost
savings initiatives and replacement of aging equipment. The Company is also
considering investment opportunities to increase the Company's business base,
to acquire new products, and to gain access to new markets.
The Company establishes debt to equity targets in order to maintain the
financial health of the Company and is prepared to trim investment plans to
maintain financial strength.
While the Company is not currently aware of any events that would result in
a material decline in earnings from fiscal 1997, we participate in an industry
that is subject to rapidly changing conditions. The preceding forward looking
statements are based on current expectations, but there are numerous factors
that could cause the Company to experience a decline in sales and/or earnings
including: (1) overall industry demand at reduced levels, (2) economic weakness
in a specific channel of distribution, especially the home center industry, (3)
the loss of sales from specific customers due to their loss of market share,
bankruptcy or switching to a competitor, (4) a sudden and significant rise in
basic raw material costs, (5) the need to respond to price or product
initiatives launched by a competitor, and (6) a significant investment which
provides a substantial opportunity to increase long-term performance. While
the Company believes that these risks are manageable and will not adversely
impact the long-term performance of the Company, these risks could, under
certain circumstances, have a materially adverse impact on short-term operating
results.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Fiscal 1996 net sales of $196.2 million decreased less than 1% from fiscal
1995 net sales of $197.4 million. A general price increase was implemented
during the year to recover rising product costs. Average unit prices increased
approximately 3% as the general price increase was partially offset by a shift
from the upper-end to the middle of the Company's broad stock product offering.
Overall unit volume decreased 3.5%. Unit shipments to home centers declined
as the industry experienced a general economic downturn. Demand for durable,
big ticket items was down significantly for most of the fiscal year at virtually
all home center chains. In this environment, however, the Company was still
able to maintain or increase market share at key home center accounts. Unit
volumes increased in the distributor and builder channels due to strong new
construction demand in certain geographical regions and to the addition of new
customers.
Gross profit declined to 21.5% of net sales from 23.5% the prior year.
Higher average unit prices were more than offset by increased per unit labor
and freight costs. In addition, gross profit was adversely impacted by
unfavorable leverage as a result of lower volumes on fixed and semi-fixed costs.
12
<PAGE>
Material cost per unit remained flat with the prior year. Improvements in
lumber yield and price decreases for certain raw materials were offset by
unfavorable changes in the product mix and by the cost of additional standard
features offered on the Company's products.
Labor cost per unit rose due to normal rate increases, temporary
inefficiencies relating to capital projects early during the fiscal year, an
increase in employee health costs resulting from specific claim activity and
less than anticipated demand for product during the first nine months of the
fiscal year.
Freight cost per unit increased due to new service programs developed to
support the Company's customer base and maintain the Company's competitive
position. Per unit overhead costs rose slightly due to the leverage impact
from lower volume on fixed and semi-fixed components of expenses.
Sales and marketing expenses rose as a percentage of net sales from 12% in
fiscal 1995 to 12.6% in fiscal 1996. The Company implemented several
aggressive sales promotions and other sales support initiatives during the
fiscal year to maintain market share and generate incremental sales volume
during the economic downturn.
General and administrative expenses decreased from 6.1% of net sales in
fiscal 1995 to 5.2% in fiscal 1996 due to reduced employee compensation costs
associated with the Company's performance incentive programs.
Fiscal 1996 interest expense declined $146,000 to $1.2 million from the
prior year. The decrease resulted from reduced short-term borrowings under
the Company's revolving credit facility and continued reduction in long-term
debt. Total debt decreased $2.7 million, or 15%, during fiscal 1996.
During the third quarter of fiscal 1996, the Company received a tax refund
from the City of Winchester pertaining to property taxes paid in prior years
for the Company's Corporate Office in Winchester, Virginia. This tax refund,
net of specific recovery expenses, increased other income by $398,000.
Restructuring activities for fiscal 1996 were limited to previously
anticipated cash outlays. In fiscal 1995, the Company recognized $516,000 in
restructuring costs related to warehouse space reduction.
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 performance over the
past few years.
The costs of the Company's products are subject to inflationary pressures
and commodity price fluctuations. Inflationary pressure and commodity price
increases have been relatively modest over the past five years, except for
lumber prices which rose significantly during both fiscal 1997 and 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 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 and Chief Executive Officer, continues to serve as
Chairman.
Richard A. Graber, Director and Retired Vice President, Marketing, resigned
from the Board of Directors effective January 31, 1997.
Donald P. Mathias, Director and Retired Vice President, Assembly and
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<PAGE>
Distribution, resigned from the Board of Directors effective March 17, 1997.
During fiscal 1997, a customer of the Company filed a voluntary bankruptcy
petition under Chapter 7 of the United States Bankruptcy Code. The Company
incurred bad debt expense for all outstanding receivables pertaining to this
customer during the fourth quarter of fiscal 1996 and first quarter of fiscal
1997. As of April 30, 1997, allowance for bad debt reflected the full
write-off of these outstanding receivables.
During the first quarter of fiscal 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." Adoption of this Statement did not impact the Company's
operating results or financial position. (See Notes A and F to the Financial
Statements.)
The Company is required to adopt SFAS No. 128, "Earnings per Share," for
the fiscal quarter ending January 31, 1998. The Company does not expect the
implementation of SFAS No. 128 to have a material impact on the determination
of earnings per share. (See Note A to the Financial Statements.)
On May 29, 1997, the Board of Directors approved a $.02 per share cash
dividend on its Common Stock. The cash dividend was paid on June 30, 1997,
to shareholders of record on June 13, 1997.
The Company is involved in various suits and claims in the normal course of
business. Included therein are claims against the Company pending before the
Equal Employment Opportunity Commission. Although management believes that
such claims are without merit and intends to vigorously contest them, the
ultimate outcome of these matters cannot be determined at this time. In the
opinion of management, after consultation with counsel, the ultimate liabilities
and losses, if any, that may result from suits and claims involving the Company
will not have any material adverse effect on the Company's operating results or
financial position.
The Company is voluntarily participating with a group of companies which is
cleaning up a waste facility site at the direction of a state environmental
authority.
The Company records liabilities for all probable and reasonably estimable
loss contingencies on an undiscounted basis. For loss contingencies related
to environmental matters, liabilities are based on the Company's proportional
contamination of a site since management believes it "probable" that the other
parties, which are financially solvent, will fulfill their proportional share
of the contamination obligation of a site. There are no probable insurance or
other indemnification receivables recorded. The Company has accrued for all
known environmental remediation costs which are probable and can be reasonably
estimated, and such amounts are not material. (See Note J to the Financial
Statements.)
14
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Year Ended April 30, 1997
-------------------------------------
(in thousands, except share amounts) 1st(a) 2nd 3rd 4th(b)
------- ------- ------- -------
Net sales $53,362 $56,976 $51,643 $57,421
Gross profit 13,552 16,493 14,454 16,547
Income before income taxes 3,347 5,529 3,589 4,649
Provision for income taxes 1,247 2,067 1,526 1,726
Net income 2,100 3,462 2,063 2,923
Earnings per share .28 .45 .27 .38
Year Ended April 30, 1996
-------------------------------------
1st 2nd 3rd(c) 4th(d)
------- ------- ------- -------
Net sales $47,250 $48,927 $46,793 $53,267
Gross profit 9,294 9,662 9,468 13,831
Income before income taxes 599 1,023 905 3,711
Provision for income taxes 238 398 346 1,410
Net income 361 625 559 2,301
Earnings per share .05 .08 .07 .30
(a) Income before income taxes for the first quarter of fiscal 1997 includes
$830,000 in unfavorable adjustments for an additional bad debt provision.
(b) Income before income taxes for the fourth quarter of fiscal 1997 includes
$193,000 for increased inventory obsolescence costs.
(c) Income before income taxes for the third quarter of fiscal 1996 reflects
$109,000 in equipment write-downs and a property tax refund of $398,000,
net of specific recovery expenses.
(d) Income before income taxes for the fourth quarter of fiscal 1996 includes
$530,000 in unfavorable adjustments to increase allowance for bad debt.
Also included is the effect of LIFO liquidations which resulted in costs
being $120,000 less than would have been recorded in a current cost
environment.
15
<PAGE>
BALANCE SHEET
(in thousands, except share data) April 30
-----------------
1997 1996
------- -------
ASSETS
Current Assets
Cash and cash equivalents $17,339 $ 7,201
Customer receivables 20,488 19,709
Inventories 10,356 10,326
Prepaid expenses and other 940 899
Deferred income taxes 720 527
------- -------
TOTAL CURRENT ASSETS 49,843 38,662
Property, Plant and Equipment 32,252 33,188
Deferred Costs and Other Assets 4,335 3,982
Intangible Pension Assets 727 504
------- -------
$87,157 $76,336
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,312 $ 7,651
Accrued compensation and related expenses 11,180 8,467
Current maturities of long-term debt 2,229 2,719
Other accrued expenses 3,680 4,416
------- -------
TOTAL CURRENT LIABILITIES 26,401 23,253
Long-Term Debt, less current maturities 10,637 12,866
Deferred Income Taxes 2,328 2,780
Long-Term Pension Liabilities 1,493 1,592
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 shares:
7,722,656 -- 1997; 7,608,761 -- 1996 18,043 17,677
Retained earnings 28,255 18,168
------- -------
TOTAL STOCKHOLDERS' EQUITY 46,298 35,845
------- -------
$87,157 $76,336
======= =======
See notes to financial statements
16
<PAGE>
STATEMENT OF INCOME AND RETAINED EARNINGS
Years Ended April 30
-------------------------------
(in thousands, except share data) 1997 1996 1995
--------- --------- ---------
Net sales $ 219,402 $ 196,237 $ 197,351
Cost of sales and distribution 158,356 153,982 151,033
--------- --------- ---------
GROSS PROFIT 61,046 42,255 46,318
Selling and marketing expenses 30,678 24,775 23,667
General and administrative expenses 12,762 10,199 11,981
Restructuring costs -- -- 516
--------- --------- ---------
OPERATING INCOME 17,606 7,281 10,154
Interest expense 915 1,209 1,355
Other income (423) (166) (23)
--------- --------- ---------
INCOME BEFORE INCOME TAXES 17,114 6,238 8,822
Provision for income taxes 6,566 2,392 3,466
--------- --------- ---------
NET INCOME 10,548 3,846 5,356
RETAINED EARNINGS, BEGINNING OF YEAR 18,168 14,322 8,966
Cash dividends (461) -- --
--------- --------- ---------
RETAINED EARNINGS, END OF YEAR $ 28,255 $ 18,168 $ 14,322
========= ========= =========
SHARE INFORMATION
Average shares outstanding 7,672,873 7,594,977 7,544,385
Earnings per share $ 1.37 $ .51 $ .71
========= ========= =========
Cash dividends per share $ .06 $ -- $ --
========= ========= =========
See notes to financial statements
17
<PAGE>
STATEMENT OF CASH FLOWS
(in thousands) Years Ended April 30
----------------------------
1997 1996 1995
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 10,548 $ 3,846 $ 5,356
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 7,810 7,839 7,758
Net loss on disposal of property, plant
and equipment 220 126 34
Deferred income taxes (645) (342) 284
Restructuring costs -- -- 178
Other non-cash items 1,432 831 532
Changes in operating assets and liabilities:
Customer receivables (1,891) (631) (928)
Inventories (384) 177 572
Refundable deposits -- 1,708 (1,708)
Other assets (2,995) (2,828) (2,767)
Accounts payable 1,661 (1,231) 625
Accrued compensation and related expenses 2,706 1,338 1,444
Other (1,058) 908 (500)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,404 11,741 10,880
-------- -------- --------
INVESTING ACTIVITIES
Payments to acquire property, plant
and equipment (4,537) (5,030) (3,942)
Funds designated for capital expenditures -- -- 468
Proceeds from sales of property, plant
and equipment 85 221 99
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (4,452) (4,809) (3,375)
-------- -------- --------
FINANCING ACTIVITIES
Payments of long-term debt (2,719) (2,805) (3,158)
Net decrease in short-term borrowings -- -- (2,000)
Common Stock issued through stock option plans 366 198 69
Dividends paid (461) -- --
-------- -------- --------
NET CASH USED BY FINANCING ACTIVITIES (2,814) (2,607) (5,089)
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 10,138 4,325 2,416
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,201 2,876 460
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,339 $ 7,201 $ 2,876
======== ======== ========
See notes to financial statements
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
The Company manufactures and distributes kitchen cabinets and vanities for
the remodeling and new home construction markets. The Company's products are
sold on a national basis through a network of independent distributors and
directly to home centers and major builders.
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.
ADVERTISING COSTS: Advertising costs are expensed in the fiscal year
incurred.
CASH AND CASH EQUIVALENTS: Cash in excess of operating requirements is
invested in short-term instruments which are carried at fair value (approximates
cost). The Company considers all highly liquid short-term investments purchased
with an original 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.
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).
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on
the basis of cost less an allowance for depreciation. Depreciation is provided
by the straight-line method over the estimated useful lives of the related
assets, which range from fifteen to thirty years for buildings and improvements
and three to ten years for furniture and equipment. Equipment under capital
lease and leasehold improvements are amortized over the shorter of their
estimated useful lives or term of the related lease.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of the Company's
cash and cash equivalents, customer receivables, accounts payable and long-term
debt approximate fair value.
PER SHARE INFORMATION: Earnings per share and cash dividends per share are
based on weighted average common shares outstanding. The dilutive effect of
stock options on earnings per share is not significant and has been excluded.
NEW ACCOUNTING RULES: During 1995, The Financial Accounting Standards Board
(FASB)issued SFAS No. 123, "Accounting for Stock-Based Compensation." While
SFAS No. 123 established financial accounting and reporting standards for
stock-based employee compensation plans using a fair value method of accounting,
it allows companies to continue to measure compensation costs for those plans
using the intrinsic value method of accounting prescribed in Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees." As permitted by SFAS No. 123, the Company has elected to continue
using the intrinsic value method of accounting for stock options and has
provided the additional required disclosures. (See Note F to the Financial
Statements.)
In February 1997, FASB issued SFAS No. 128, "Earnings per Share," which
the Company will be required to adopt for the fiscal quarter ending January 31,
1998. At that time, the Company will be required to change the method currently
19
<PAGE>
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating basic earnings per share, the dilutive effect
of common stock equivalents will be excluded. The Company does not expect the
adoption of SFAS No. 128 to have a material impact on the determination of
earnings per share.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
NOTE B -- CUSTOMER RECEIVABLES
The components of customer receivables were:
April 30
------------------
(in thousands) 1997 1996
------- -------
Gross customer receivables $21,869 $21,215
Less:
Allowance for bad debt (210) (629)
Allowance for returns
and discounts (1,171) (877)
------- -------
Net customer receivables $20,488 $19,709
======= =======
<PAGE>
NOTE C -- INVENTORIES
The components of inventories were:
April 30
------------------
(in thousands) 1997 1996
------- -------
Raw materials $ 6,270 $ 5,261
Work-in-process 9,684 9,336
Finished goods 1,115 1,392
------- -------
Total FIFO inventories 17,069 15,989
Reserve to adjust
inventories to LIFO value (6,713) (5,663)
------- -------
Total LIFO inventories $10,356 $10,326
======= =======
Valuation of inventories, as determined by the LIFO method, did not result
in the Company recognizing less expense in fiscal 1997. As a result of LIFO
inventory liquidations, cost of sales reflected $120,000 and $317,000 less
expense in fiscal 1996 and 1995, 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) 1997 1996
-------- --------
Land $ 876 $ 876
Buildings and improvements 17,416 16,817
Buildings and improvements -
capital leases 6,550 6,550
Machinery and equipment 48,697 49,383
Machinery and equipment -
capital leases 1,836 1,861
Construction in progress 1,250 850
-------- --------
76,625 76,337
Less allowance for depreciation (44,373) (43,149)
-------- --------
Total $32,252 $33,188
======== ========
Depreciation expense amounted to $5,168,000, $5,128,000, and $5,028,000 in
fiscal 1997, 1996, and 1995, respectively.
20
<PAGE>
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," in the first quarter
of fiscal 1996. Adoption of this Statement did not have a material impact on
the Company's results of operations or financial position.
NOTE E -- LOANS PAYABLE AND LONG-TERM DEBT
Maturities of long-term debt are as follows:
Years Ending April 30
----------------------------------------------------
2003 and Total
There- Out-
(in thousands) 1998 1999 2000 2001 2002 after standing
------ ------ ------ ------ ------ ------- --------
Notes payable $ 758 $ 500 $ 125 $ -- $ -- $ -- $ 1,383
Industrial revenue bonds 1,105 1,120 750 750 925 2,500 7,150
Capital lease obligations 366 372 376 395 414 2,410 4,333
------ ------ ------ ------ ------ ------- --------
Total $2,229 $1,992 $1,251 $1,145 $1,339 $4,910 $12,866
====== ====== ====== ====== ====== ======
Less current maturities (2,229)
--------
Total long-term debt $10,637
========
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 may routinely occur on a daily
basis. There was no activity through the revolving credit facility during
fiscal 1997. In fiscal 1996, total transactions through this credit facility
were borrowings and repayments of $7.5 million, with the outstanding balance
against this line of credit never exceeding $1.7 million. There were no
revolving credit loans outstanding at April 30, 1997 and 1996.
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, 1997, these amounts were
immaterial. The Company does not invest, trade, or otherwise speculate in any
derivatives or similar type instruments.
At April 30, 1997, term loans of $1.4 million were outstanding. The term
loans bore a variable interest rate of 6.6% on April 30, 1997.
On April 30, 1997, the Company had $7.2 million outstanding in industrial
revenue bonds, maturing at various dates through 2003. Due to an interest rate
swap agreement, a fixed rate of 6.2% applies to $5.8 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, 1997. On $1.4 million of outstanding bonds, the
variable interest rate was 4.9% on April 30, 1997.
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, 1997, with these obligations maturing through 2007.
21
<PAGE>
The Company's primary loan agreement limits the amount and type of
indebtedness the Company can incur and requires the Company to maintain a
specific minimum net worth and specified financial ratios measured on a
quarterly basis. The primary loan agreement was amended during the first
quarter of fiscal 1997, allowing the Company to pay cash dividends on Common
Stock. 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, 1997.
Interest paid was $989,000, $1,178,000, and $1,376,000 during fiscal 1997,
1996, and 1995, 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, 1995 7,551,109 $ 17,479
Stock options exercised 57,652 198
----------- ------------
Balance at April 30, 1996 7,608,761 $ 17,677
Stock options exercised 113,895 366
----------- ------------
Balance at April 30, 1997 7,722,656 $ 18,043
=========== ============
The Company paid cash dividends of $461,000 on its Common Stock during
fiscal 1997.
EMPLOYEE STOCK OWNERSHIP PLAN
In fiscal 1990, the Company instituted the American Woodmark Stock Ownership
Plan. 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.
<PAGE>
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 $317,000, $115,000, and $155,000 in fiscal 1997, 1996, and 1995,
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 $619,000, $502,000, and $407,000 in fiscal
1997, 1996, and 1995, respectively.
STOCK OPTIONS
The 1986 stock option plan for key employees of the Company expired in April
1996. Outstanding options under this plan 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 cumulative increments equal 100%, at which
time options expire.
In August 1996, stockholders approved a new stock option plan for key
employees of the Company. Under the plan, up to 750,000 shares of Common
Stock may be granted as options, with the term of options granted not exceeding
ten years. Options granted are subject to vesting conditions and other
requirements prescribed by a participant's stock option agreement.
In August 1995, stockholders approved a stock option plan for non-employee
directors, which replaced the 1990 plan that had expired. Under the new 1995
plan, up to 30,000 shares of Common Stock may be granted as options, with each
non-employee director receiving an option to purchase 1,000 shares on the
22
<PAGE>
anniversary date of the plan. Outstanding options under both plans 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 cumulative
increments equal 100%, at which time options expire.
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards for fiscal years 1997 and 1996 consistent with the
provisions of SFAS No. 123, there would have been no material effect on reported
net income and earnings per share.
The following table summarizes stock option activity and related information
under the stock option plans for the fiscal years ended April 30:
1997 1996 1995
------- ------- -------
Outstanding at beginning
of year 252,919 319,442 356,450
Granted 206,600 66,600 24,000
Exercised (113,895) (57,652) (19,884)
Expired or cancelled (33,624) (75,471) (41,124)
------- ------- -------
Outstanding at April 30 312,000 252,919 319,442
======= ======= =======
Exercisable at April 30 64,867 142,686 198,291
======= ======= =======
Available for future
issuance at April 30 570,734 24,000 201,068
======= ======= =======
Weighted average exercise
prices (in dollars):
Outstanding at beginning
of year $4.01 $3.84 $3.78
Granted 7.70 4.47 5.65
Exercised 3.22 3.41 3.63
Expired or cancelled 5.19 4.15 4.43
Outstanding at April 30 6.62 4.01 3.84
Exercisable at April 30 4.61 3.57 3.65
<PAGE>
The following table summarizes information about stock options outstanding
at April 30, 1997 [remaining lives (in years) and exercise prices are
weighted-averages]:
Options Outstanding Options Exercisable
--------------------------- -------------------
Option Price Remaining Exercise Exercise
per Share Options Life Price Options Price
- ------------ ------- --------- -------- ------- --------
$3.18-$ 3.69 13,800 .3 $ 3.26 13,800 $3.26
$4.38-$ 5.75 128,600 3.9 $ 4.88 51,067 $4.97
$6.50-$ 7.50 115,400 9.1 $ 6.53 -- --
$9.25-$13.13 54,200 9.8 $11.76 -- --
- ------------ ------- --------- -------- ------- --------
$3.18-$13.13 312,000 6.7 $ 6.62 64,867 $4.61
============ ======= ========= ======== ======= ========
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 and fixed income security funds.
Net periodic pension costs were comprised of the following:
Years Ended April 30
----------------------------
(in thousands) 1997 1996 1995
------ ------ ------
Service cost-benefits earned during the year $ 767 $ 763 $ 663
Interest cost on projected benefit obligation 1,142 1,031 880
Actual return on plan assets (1,272) (1,846) (684)
Net amortization and deferrals 280 1,045 (109)
------- ------ ------
Net periodic pension cost $ 917 $ 993 $ 750
======= ====== ======
23
<PAGE>
The funded status of the Company's pension plans was as follows for the
fiscal years ended April 30:
1997 1996
------------------------- -------------------------
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 $ 7,444 $ 5,572 $ 6,495 $ 4,904
Non-vested 424 512 402 449
----------- ----------- ----------- -----------
Accumulated 7,868 6,084 6,897 5,353
Effect of anticipated
future salary
increases 2,589 -- 2,200 --
----------- ----------- ----------- -----------
Projected 10,457 6,084 9,097 5,353
Less fair value of
plan assets (9,808) (5,259) (8,525) (4,668)
----------- ----------- ----------- -----------
Projected benefit
obligation in excess
of the fair value of
plan assets 649 825 572 685
Unrecognized prior
service cost (46) (475) (53) (310)
Unrecognized net
gain (loss) 1,515 (136) 1,746 (48)
Unrecognized net
transition obligation (212) (116) (264) (146)
Additional minimum
liability -- 727 -- 504
----------- ------------ ---------- -----------
Net pension obligation $ 1,906 $ 825 $ 2,001 $ 685
=========== ============ ========== ===========
Primary assumptions utilized in accounting for the Company's pension plans
were as follows:
Years Ended April 30
-------------------------
1997 1996 1995
------- ------- -------
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>
NOTE H -- INCOME TAXES
The provision for income taxes was comprised of the following:
Years Ended April 30
----------------------------
(in thousands) 1997 1996 1995
-------- -------- --------
Current
Federal $ 6,307 $ 2,429 $ 2,619
State 904 305 563
-------- -------- --------
Total current 7,211 2,734 3,182
Deferred
Federal (546) (283) 272
State (99) (59) 12
-------- -------- --------
Total deferred (645) (342) 284
Total provision $ 6,566 $ 2,392 $ 3,466
======== ======== ========
The Company's effective income tax rate varied from the federal statutory
rate as follows:
Years Ended April 30
----------------------------
1997 1996 1995
-------- -------- --------
Federal statutory rate 35% 34% 34%
State income taxes, net of federal tax effect 3 3 4
Other -- 1 1
-------- -------- --------
Effective income tax rate 38% 38% 39%
======== ======== ========
Income taxes paid were $8,199,000, $1,809,000, and $3,547,000 for fiscal
years 1997, 1996, and 1995, respectively.
24
<PAGE>
The significant components of deferred tax assets and liabilities were as
follows:
April 30
------------------
(in thousands) 1997 1996
-------- --------
Deferred tax assets
Employee benefits $ 757 $ 579
Other 858 913
-------- --------
Total 1,615 1,492
Deferred tax liabilities
Depreciation 2,518 2,996
Inventory 511 555
Other 194 194
-------- --------
Total 3,223 3,745
Net deferred tax liability $1,608 $2,253
======== ========
NOTE I -- RESTRUCTURING PROVISIONS
Restructuring activities for fiscal years 1997 and 1996 were limited to the
expenditure of previously anticipated cash outlays as estimated in prior fiscal
years. In fiscal 1995, the Company recognized $516,000 in restructuring costs
related to warehouse space reduction. All restructuring activities were
completed in 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 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.
25
<PAGE>
LEASE AGREEMENTS
The Company leases an office building, a manufacturing facility, four service
centers and certain equipment. Total rental expenses amounted to approximately
$3,428,000, $3,378,000, and $3,780,000 in fiscal 1997, 1996, and 1995,
respectively.
Minimum rental commitments as of April 30, 1997, under noncancelable leases
are as follows:
(in thousands)
Fiscal Year Operating Capital
- ----------- --------- ---------
1998 $ 2,096 $ 580
1999 1,629 566
2000 1,316 551
2001 866 551
2002 363 550
2003 (and thereafter) 83 2,753
--------- ---------
$ 6,353 $ 5,551
=========
Less amounts representing interest (1,218)
---------
Total obligation under capital leases $ 4,333
=========
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 four remaining years with two five-year
renewal periods available at the Company's option. Under this agreement, rental
expense was $377,000, $370,000, and $365,000 in fiscal 1997, 1996, and 1995,
respectively. Rent during the remaining base term of approximately $384,000
annually (included in the above table) is subject to adjustment based upon
changes in the Consumer Price Index.
<PAGE>
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, 1997, the
Company's three largest customers, Customers A, B and C, represented 13.1%,
18.7% and 10.0% of the Company's customer receivables, respectively.
The following table summarizes the percentage of sales to the Company's
three largest customers for the last three fiscal years:
Percent of Annual Sales
------------------------
1997 1996 1995
------ ------ ------
Customer A 9.9 10.7 15.8
Customer B 25.7 17.5 14.2
Customer C 11.9 9.7 8.9
The Company maintains an allowance for bad debt based upon management's
evaluation and judgement of potential net loss. The allowance is estimated
based upon historical experience, the effects of current developments and
economic conditions, and anticipation of customers' financial condition.
Estimates and assumptions are periodically reviewed and updated with any
resulting adjustments to the allowance reflected in current operating results.
26
<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 in determining 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 entirely 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 control 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/ JAMES J. GOSA
James J. Gosa
President and Chief Executive Officer
/s/ KENT B. GUICHARD
Kent B. Guichard
Vice President, Finance and
Chief Financial Officer
27
<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, 1997 and 1996, and the related statements of
income and retained earnings, and cash flows for each of the three years in
the period ended April 30, 1997. 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, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended April 30, 1997,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
June 6, 1997
28
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
JAMES J. GOSA
Director; President and
Chief Executive Officer
DAVID L. BLOUNT
Vice President, Manufacturing
KENT B. GUICHARD
Vice President, Finance and
Chief Financial Officer
WILLIAM F. BRANDT, JR.
Chairman of the Board
DANIEL T. CARROLL
Director; Chairman
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 Program
Sacred Heart University
C. ANTHONY WAINWRIGHT
Director; Vice Chairman
McKinney & Silver
<PAGE>
CORPORATE INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders of American Woodmark Corporation will
be held on August 27, 1997, 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, 1997, may be obtained
by writing:
Kent Guichard
Vice President, Finance and
Chief Financial Officer
American Woodmark Corporation
P.O. Box 1980
Winchester, VA 22604-8090
CORPORATE HEADQUARTERS
American Woodmark Corporation
3102 Shawnee Drive
Winchester, VA 22601-4208
(540) 665-9100
MAILING ADDRESS
P.O. Box 1980
Winchester, VA 22604-8090
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
(800) 851-9677
American Woodmark(R)
BeautyGuard(R)
Coventry & Case(R)
Crestwood(R)
Hidden Glides(R)
Scots Pride(R)
Timberlake(R)
are trademarks of American Woodmark Corporation.
(C)1997 American Woodmark Corporation(R)
Printed in U.S.A.
<PAGE>
Appendix to Exhibit 13
Front cover Corporate logo, picture
Picture shows a cabinet door
Caption: "Opening the Door to the 2001 Vision: 1997 Annual Shareholders
Report"
Page 1 Corporate logo
Page 3 Picture
Shows James J. Gosa (President and Chief Executive Officer)
Page 6 American Woodmark brand logo, two pictures
Caption under logo: "American Woodmark brand cabinetry is sold through the
nation's leading home center outlets, including The Home Depot and Lowe's."
First picture shows two construction workers at new home site.
Second picture shows cabinet doors.
Page 7 Picture, Coventry & Case brand logo
Picture shows a kitchen.
Caption under logo: "Coventry & Case(R) brand cabinetry, established in 1991,
can be found exclusively at 84 Lumber locations."
Page 8 Picture and Timberlake brand logo
Picture shows a kitchen.
Caption under logo: "Introduced in 1990, Timberlake brand cabinetry is sold
through the company's builder direct service centers and through a network of
distributors and dealers throughout the United States and Canada."
Page 9 Picture, Crestwood brand logo and Scots Pride brand logo
Picture shows cabinets in cartons.
Crestwood and Scots Pride logos with caption: "Scots Pride(R) and
Crestwood(R) brand cabinetry are offered in Builders Square stores nationwide."
Back cover Corporate logo, Address, Phone Number, Fax Number
Corporate logo
American Woodmark Corporation
3102 Shawnee Drive
Winchester, VA 22601-4208
(540) 665-9100
(540) 665-9176 Fax
<PAGE>
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10K)
of American Woodmark Corporation of our report dated June 6, 1997, included in
the April 30, 1997 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. 333-12631) pertaining to the American Woodmark Corporation 1995
Non-Employee Directors Stock Option Plan and the Registration Statement (Form
S-8 No. 333-12623) pertaining to the American Woodmark Corporation 1996 Stock
Option Plan for Employees of our reports dated June 6, 1997 and included herein,
with respect to the consolidated financial statements and schedule of American
Woodmark Corporation incorporated by reference and included in the annual
report (Form 10-K) for the year ended April 30, 1997.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
July 18, 1997
<PAGE>
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<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
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0
0
<COMMON> 18,043
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<SALES> 219,402
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