FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14798
American Woodmark Corporation
(Exact name of registrant as specified in its charter)
Virginia 54-1138147
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3102 Shawnee Drive, Winchester, Virginia 22601
(Address of principal executive offices) (Zip Code)
(540) 665-9100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90
days. Yes (X) No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, no par value 7,830,010 shares outstanding
Class as of September 3, 1998
<PAGE>
AMERICAN WOODMARK CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets--July 31, 1998 and
April 30, 1998 3
Statements of Income--Three months ended
July 31, 1998 and 1997 4
Statements of Cash Flows--Three months ended
July 31, 1998 and 1997 5
Notes to Financial Statements--July 31, 1998 6-9
Item 2. Management's Discussion and Analysis 10-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 13-14
Item 6. Reports on Form 8-K 14
SIGNATURE 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN WOODMARK CORPORATION
BALANCE SHEETS
(in thousands, except share data)
July 31 April 30
1998 1998
ASSETS (Unaudited) (Audited)
----------- ----------
Current Assets
Cash and cash equivalents $23,741 $23,925
Customer receivables 29,683 27,365
Inventories 11,993 11,884
Prepaid expenses and other 1,195 1,403
Deferred income taxes 1,428 997
------- -------
Total Current Assets 68,040 65,574
Property, plant and equipment 39,592 34,522
Deferred costs and other assets 7,054 5,604
Intangible pension assets 781 781
-------- --------
$115,467 $106,481
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $14,124 $12,414
Accrued compensation and related expenses 11,556 13,211
Current maturities of long-term debt 2,001 2,001
Accrued marketing expenses 4,954 3,549
Other accrued expenses 5,743 3,032
------- -------
Total Current Liabilities 38,378 34,207
Long-Term debt, less current maturities 8,836 8,717
Deferred income taxes 2,800 2,397
Long-Term pension liabilities 2,023 2,023
Commitments and Contingencies -- --
Stockholders' Equity
Preferred Stock, $1.00 par value;
2,000,000 shares authorized, none
issued
Common Stock, no par value; 20,000,000
shares authorized; issued and
outstanding 7,813,972 shares at
July 31, 1998; 7,800,886 shares at
April 30, 1998 18,991 18,704
Retained earnings 44,439 40,433
--------- --------
Total Stockholders' Equity 63,430 59,137
--------- --------
$115,467 $106,481
========= ========
See notes to financial statements
3
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AMERICAN WOODMARK CORPORATION
STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited)
Quarter Ended
July 31
-------------------
1998 1997
------- -------
Net sales $72,673 $55,970
Cost of sales and distribution 50,767 39,639
------- -------
Gross Profit 21,906 16,331
Selling and marketing expenses 10,361 8,656
General and administrative expenses 4,596 3,406
------- -------
Operating Income 6,949 4,269
Interest expense 170 224
Other income (250) (210)
-------- --------
Income Before Income Taxes 7,029 4,255
Provision for income taxes 2,788 1,634
------- -------
Net Income $ 4,241 $ 2,621
======= =======
Earnings Per Share
Weighted average
shares outstanding
Basic 7,808,792 7,730,318
Diluted 7,993,091 7,857,623
Net income per share
Basic $0.54 $0.34
Diluted $0.53 $0.33
========= ========
See notes to financial statements
4
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AMERICAN WOODMARK CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Quarter Ended
July 31
-----------------
1998 1997
------- -------
Operating Activities
Net income $ 4,241 $ 2,621
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and amortization 1,997 1,902
Net (gain) loss on disposal of property,
plant and equipment (13) (3)
Deferred income taxes (28) (25)
Other non-cash items 537 90
Changes in operating assets and liabilities:
Customer receivables (2,869) (1,195)
Inventories (95) (520)
Other assets (2,313) (808)
Accounts payable 1,710 588
Accrued compensation and related expenses (1,656) (998)
Accrued marketing expenses 1,257 730
Accrued taxes payable 2,070 1,551
Other 1,035 1,715
------- -------
Net Cash Provided by Operating Activities 5,873 5,648
Investing Activities
Payments to acquire property, plant and
equipment (6,207) (1,702)
Proceeds from sales of property, plant and
equipment 15 13
------ ------
Net Cash Used by Investing Activities (6,192) (1,689)
------ ------
Financing Activities
Payments of long-term debt (131) (260)
Proceeds from the issuance of Common Stock 250 69
Payment of dividends (234) (155)
Proceeds from long-term borrowings 250 --
------ ------
Net Cash Provided/(Used)by Financing Activities 135 (346)
------ ------
Increase/(Decrease) In Cash And Cash Equivalents (184) 3,613
Cash And Cash Equivalents, Beginning Of Period 23,925 17,339
------ ------
Cash And Cash Equivalents, End Of Period $23,741 $20,952
====== ======
See notes to financial statements
5
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AMERICAN WOODMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period ended July 31, 1998
are not necessarily indicative of the results that may be
expected for the year ending April 30, 1999. The unaudited
financial statements should be read in conjunction with the
financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended
April 30, 1998.
NOTE B--NEW ACCOUNTING PRONOUNCEMENTS
As of May 1, 1998 the Company adopted SFAS No. 130 "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial
statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. The Company
currently has no items that would result in comprehensive income
differing from net income. The adoption of this statement had no
impact on the Company's net income or Stockholders' Equity.
In June of 1998, the FASB issued Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The Company
must adopt this statement by May 1, 2000. The Company does not
believe this statement will have a significant impact on its
financial position or results of operations.
6
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NOTE C--EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended
July 31
------------------
1998 1997
------ ------
Numerator:
Net income used for
both basic and dilutive
earnings per share $4,241 $2,621
Denominator:
Denominator for basic
earnings per share -
weighted-average
shares 7,808,792 7,730,318
Effect of dilutive
securities:
Employee Stock
Options 184,299 127,305
--------- ---------
Denominator for diluted
earnings per share -
adjusted weighted-
average shares and
assumed conversions 7,993,091 7,857,623
========= =========
Basic earnings per share $ 0.54 $ 0.34
====== ======
Diluted earnings
per share $ 0.53 $ 0.33
====== ======
7
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NOTE D--CUSTOMER RECEIVABLES
The components of customer receivables were:
July 31 April 30
1998 1998
(in thousands) ------- -------
Gross customer receivables $31,817 $29,122
Less:
Allowance for doubtful accounts (308) (123)
Allowance for returns and discounts (1,826) (1,634)
------- -------
Net customer receivables $29,683 $27,365
======= =======
NOTE E--INVENTORIES
The components of inventories were:
July 31 April 30
1998 1998
(in thousands) ------- -------
Raw materials $ 7,136 $ 7,052
Work-in-process 11,375 10,678
Finished goods 813 1,138
------- -------
Total FIFO inventories $19,324 $18,868
Reserve to adjust inventories
to LIFO value (7,331) (6,984)
------- -------
Total LIFO inventories $11,993 $11,884
======= =======
An actual valuation of inventory under the LIFO method can be
made only at the end of each year based on the inventory levels
and costs at that time. Accordingly, interim LIFO calculations
must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Since they are subject to
many forces beyond management's control, interim results are
subject to the final year-end LIFO inventory valuation.
NOTE F--CASH FLOW
Supplemental disclosures of cash flow information:
Three Months Ended
July 31
------------------
1998 1997
(in thousands) ------ ------
Cash paid during the period for:
Interest $ 114 $ 165
Income taxes $ 829 $ 77
8
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NOTE G--OTHER INFORMATION
The Company is involved in various suits and claims in the normal
course of business. Included therein are claims against the
Company pending before the Equal Employment Opportunity Commission.
Although management believes that such claims are without merit and
intends to vigorously contest them, the ultimate outcome of these
matters cannot be determined at this time. In the opinion of
management, after consultation with counsel, the ultimate
liabilities and losses, if any, that may result from suits and
claims involving the Company will not have a material adverse
effect on the Company's results of operations or financial
position.
The Company is voluntarily participating with a group of companies
which is cleaning up a waste facility site at the direction of a
state environmental authority.
The Company 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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED JULY 31, 1998 AND 1997
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1999 were $72.7 million,
an increase of 30% over the first quarter of the prior year.
Increased sales were a result of continued growth with leading
national home center chains and increased shipments to national and
regional home builders. Sales to dealer / distributor customers
were down slightly, as compared year over year. Current year
average unit prices rose due to a general price increase
implemented during the third quarter of the prior fiscal year and
sales in the current period of a richer product mix.
Gross Margin increased to 30.1% in the first quarter of fiscal
1999 from 29.2% in the first quarter of the prior year. The
increase was primarily attributable to the impact of favorable
leverage with higher volume on fixed and semi-fixed costs and an
improvement in labor productivity. Continued increases in
productivity more than offset the normal rate increases and higher
incentive pay. Material cost per unit increased due to the
continued growth in sales of a more material intensive product, the
unfavorable impact of out-sourced components and increased cost
associated with a change in channel mix.
General and administrative expenses in the first quarter of fiscal
year 1999 increased $1.2 million dollars over the same period in
fiscal 1998. The primary components of this increase are
incentives, reserves for bad debt and payroll expense. Reductions
in relocation fees slightly offset these increases.
Sales and marketing expenses increased $1.7 million compared to the
first quarter of the prior fiscal year. The increase was primarily
attributed to an increase in promotional costs, increased staffing
and sales personnel incentive expense tied to sales performance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $5.9 million in net
cash in the first quarter of fiscal 1999 compared to $5.6 million
net cash generated the same period of the prior fiscal year.
Increased net income offset somewhat by an increased investment in
working capital was the primary contributor to the current period
increase in cash generated from operations.
Capital spending in the first quarter of fiscal 1999 increased $4.5
million over the prior year to $6.2 million as the Company began an
aggressive capital expenditure program designed to increase
production capacity in line with continuing sales growth. The
10
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primary spending during the first quarter of fiscal year 1999
relates to the start-up of a new lumber processing facility in
Monticello, Kentucky; the final stages of the expansion to the
Hardy County, West Virginia finishing facility; and for down
payments on equipment intended to update and expand the
capabilities of the Toccoa, Georgia flat stock facility.
Net cash provided by financing activities was $135 thousand for the
first quarter of fiscal year 1999 as opposed to $346 thousand in
funds used during the same period last year. A $250 thousand loan
was received in conjunction with the start-up of the Monticello
plant. Cash dividends of $234 thousand were paid during the first
quarter of fiscal 1999. Long-term debt to total equity declined
from 14.7% at April 30, 1998 to 13.9% at July 31, 1998. There were
no borrowings against the Company's short-term revolving credit
facility during the period.
Cash flow from operations, combined with available borrowing
capacity, is expected to be sufficient to meet forecasted working
capital requirements, service existing debt obligations and fund
capital expenditures for the remainder of fiscal 1999.
OTHER
The Company recognizes that the year 2000 presents many challenges
for information systems, specifically the issue of two-digit
determination of year. At the beginning of fiscal year 1998, the
Company performed a self-assessment and has identified all known
software and hardware issues associated with the two-character
versus four-character year codes. Business plans have been
developed and are being initiated which will bring about four-digit
year compliance for all software and hardware systems by the end of
calendar year 1999. The cost of updating systems to comply with
four-digit dating is believed to be incrementally immaterial as the
Company's strategic business plan had already called for upgrading
information systems technology.
The Company further recognizes a risk from the year 2000 impact on
its suppliers and customers. In response, the Company has
initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties'
failures to remediate their own Year 2000 issues. The Company's
total anticipated expenditures for Year 2000 conversions includes
the estimated costs and time associated with the impact of third
party Year 2000 issues based on presently available information.
However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's
systems. The Company has determined it has no exposure to
contingencies related to the Year 2000 Issue for the products it
has sold.
11
<PAGE>
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 fiscal 1997. The Company has generally been able over time
to recover the effects of inflation and commodity price
fluctuations through sales price increases.
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 has insufficient overall capacity to meet
projected growth. Capital spending has been initiated to correct
this situation within the current fiscal year. 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 1998, 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
12
<PAGE>
circumstances, have a materially adverse impact on short-term
operating results.
On August 26, 1998 the Board of Directors approved a $.04 per share
cash dividend on its Common Stock. The cash dividend will be paid
on September 25, 1998 to shareholders of record on September 11,
1998.
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.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of American Woodmark
Corporation held on August 21, 1998, the holders of 7,274,999 of
the total 7,811,080 shares of Common Stock outstanding and eligible
to vote duly executed and delivered valid proxies. The
shareholders approved the two items outlined within the Company's
Proxy Statement that was solicited to shareholders and reported to
the Commission pursuant to Regulation 14A under the
Act.
13
<PAGE>
The following items were approved at the Company's Annual Meeting:
Negative/
Affirmative Withheld Abstentions/
Votes Votes Non-Votes
----------- -------- ------------
1. Election of the 7,264,624 11,375 --
Board of Directors. 7,263,624 10,375 --
2. Ratification of 7,262,044 1,968 10,987
Selection of
Independent Certified
Public Accountants.
As the members of the Board of Directors were elected individually,
the aforementioned tallies pertaining to re-election represent a
range of affirmative and negative votes.
Disclosure
The SEC has adopted Rule 14a-4(c) under the Securities Exchange Act
of 1934, as amended, which regulates when proxies may confer
discretionary authority to vote on shareholder proposals that have
not been included in the Company's proxy statement for its annual
meeting. The persons named in the Company's proxy for the 1999
Annual Meeting of Shareholders will be entitled to exercise the
discretionary voting power conferred by such proxy under the
circumstances specified in Rule 14a-4(c), including with respect to
proposals received by the Company after June 5, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Company hereby agrees to furnish the Commission, upon request,
instruments defining the rights of shareholders of long-term
debt of the Company.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended July 31, 1998.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMERICAN WOODMARK CORPORATION
(Registrant)
/s/ William A. Armstrong /s/ Kent B. Guichard
William A. Armstrong Kent B. Guichard
Corporate Controller Vice President, Finance and
Chief Financial Officer
Date: September 3, 1998 Date: September 3, 1998
Signing on behalf of the
registrant and as principal
financial officer
<TABLE> <S> <C>
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<PERIOD-END> JUL-31-1998
<CASH> 23,741
<SECURITIES> 0
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<ALLOWANCES> 2,134
<INVENTORY> 11,993
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<PP&E> 86,610
<DEPRECIATION> 47,018
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0
0
<COMMON> 18,991
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<TOTAL-LIABILITY-AND-EQUITY> 115,467
<SALES> 72,673
<TOTAL-REVENUES> 72,673
<CGS> 50,767
<TOTAL-COSTS> 50,767
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