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 January 31, 2000
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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
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American Woodmark Corporation
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(Exact name of registrant as specified in its charter)
Virginia 54-1138147
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3102 Shawnee Drive, Winchester, Virginia 22601
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(Address of principal executive offices) (Zip Code)
(540) 665-9100
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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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 8,005,864 shares outstanding
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Class as of March 2, 2000
AMERICAN WOODMARK CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
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Item 1. Financial Statements
Consolidated Balance Sheets--January 31, 2000
and April 30, 1999 3
Consolidated Statements of Income--Three months
ended January 31, 2000 and 1999; Nine months
ended January 31, 2000 and 1999 4
Consolidated Statements of Cash Flows--Nine
months ended January 31, 2000 and 1999 5
Notes to Consolidated Financial Statements-
January 31, 2000 6-9
Item 2. Management's Discussion and Analysis 10-14
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 14
PART II. OTHER INFORMATION
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Item 6.
(a) Exhibits 15
(b) Reports on Form 8-K 15
SIGNATURE 16
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PART I. FINANCIAL INFORMATION
AMERICAN WOODMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
January 31 April 30
2000 1999
----------- ---------
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $ 832 $14,165
Customer receivables 31,761 38,925
Inventories 22,515 18,008
Prepaid expenses and other 1,430 1,487
Deferred income taxes 3,611 1,936
-------- --------
Total Current Assets 60,149 74,521
Property, Plant and Equipment 80,738 53,739
Deferred Costs and Other Assets 13,643 11,046
Intangible Pension Assets 1,303 1,303
-------- --------
$155,833 $140,609
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Loans payable $ 7,900 $ 0
Accounts payable 19,879 18,919
Accrued compensation and related expenses 13,296 17,183
Current maturities of long-term debt 1,860 1,974
Other accrued expenses 6,335 6,959
-------- --------
Total Current Liabilities 49,270 45,035
Long-Term Debt, less current maturities 9,733 11,435
Deferred Income Taxes 4,894 3,373
Long-Term Pension Liabilities 2,429 2,429
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 7,988,837 shares at
January 31, 2000; 7,916,135 shares
at April 30, 1999 22,582 21,575
Retained earnings 66,925 56,762
-------- --------
Total Stockholders' Equity 89,507 78,337
-------- --------
$155,833 $140,609
======== ========
See notes to consolidated financial statements
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AMERICAN WOODMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
January 31 January 31
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $ 91,746 $ 81,186 $285,182 $233,260
Cost of sales and
distribution 69,493 59,089 211,347 166,606
-------- -------- -------- --------
Gross Profit 22,253 22,097 73,835 66,654
Selling and marketing
expenses 13,911 11,870 43,117 34,464
General and administrative
expenses 3,661 4,504 11,916 11,883
-------- -------- -------- --------
Operating Income 4,681 5,723 18,802 20,307
Interest expense 129 87 281 277
Other income (39) (117) (381) (601)
-------- -------- -------- --------
Income Before Income
Taxes 4,591 5,753 18,902 20,631
Provision for income
taxes 2,029 2,166 7,626 7,995
-------- -------- -------- --------
Net Income $ 2,562 $ 3,587 $ 11,276 $ 12,636
======== ======== ======== ========
Earnings Per Share
Weighted average
shares outstanding
Basic 7,977,389 7,876,728 7,945,191 7,837,925
Diluted 8,077,645 8,085,101 8,092,168 8,022,835
Net income per share
Basic $0.32 $0.46 $1.42 $1.61
Diluted $0.32 $0.44 $1.39 $1.58
========= ========= ======== =========
See notes to consolidated financial statements
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AMERICAN WOODMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
January 31
-------------------
2000 1999
------- -------
Operating Activities
Net income $11,276 $12,636
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and
amortization 10,370 6,709
Net gain on disposal of property, plant
and equipment 8 (7)
Deferred income taxes (154) (269)
Other non-cash items 699 721
Changes in operating assets and liabilities:
Customer receivables 6,559 (5,217)
Inventories (4,851) (3,554)
Other assets (7,879) (6,408)
Accounts payable 960 2,965
Accrued compensation and related
expenses (3,887) (570)
Other (535) (1,171)
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Net Cash Provided by Operating
Activities 12,566 5,835
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Investing Activities
Payments to acquire property, plant and
equipment (32,106) (16,439)
Proceeds from sales of property, plant and
equipment 11 24
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Net Cash Used by Investing Activities (32,095) (16,415)
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Financing Activities
Payments of long-term debt (1,566) (2,183)
Payment of loans 0 (1,119)
Net Increase in short-term borrowings 7,900 0
Proceeds from long-term borrowings 0 2,250
Proceeds from the issuance of Common Stock 975 865
Payment of dividends (1,113) (863)
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Net Cash Provided(Used)by Financing
Activities 6,196 (1,050)
------- -------
Decrease In Cash And Cash Equivalents (13,333) (11,630)
Cash And Cash Equivalents, Beginning Of
Period 14,165 23,925
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Cash And Cash Equivalents, End Of Period $ 832 $ 12,295
======== ========
See notes to consolidated financial statements
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AMERICAN WOODMARK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period
ended January 31, 2000 are not necessarily indicative of the
results that may be expected for the year ended April 30, 2000.
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, 1999.
NOTE B-NEW ACCOUNTING PRONOUNCEMENTS
As of May 1, 1999 the Company adopted the Accounting Standards
Executive Committee of the American Institute of Certified
Public Accountants' Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". The SOP requires qualifying
computer software costs incurred in connection with obtaining
or developing software for internal use to be capitalized. In
prior years, the Company capitalized costs of purchased
software and expensed internal costs of developing software.
The effect of adopting this SOP was not material to the results
of the three or nine month periods, and is not expected to be
material for the full year.
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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 Nine Months Ended
January 31 January 31
-------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Numerator:
Net income used for
both basic and dilutive
earnings per share $2,562 $3,587 $11,276 $12,636
Denominator:
Denominator for basic
earnings per share -
weighted-average
shares 7,977,389 7,876,728 7,945,191 7,837,925
Effect of dilutive
securities:
Employee Stock
Options 100,256 208,373 146,977 184,910
--------- --------- --------- ---------
Denominator for diluted
earnings per share -
adjusted weighted-
average shares and
assumed conversions 8,077,645 8,085,101 8,092,168 8,022,835
========= ========= ========= =========
Basic earnings per
Share $ 0.32 $ 0.46 $ 1.42 $ 1.61
====== ====== ====== ======
Diluted earnings
per share $ 0.32 $ 0.44 $ 1.39 $ 1.58
====== ====== ====== ======
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NOTE D--CUSTOMER RECEIVABLES
The components of customer receivables were:
January 31 April 30
2000 1999
(in thousands) ------- -------
Gross customer receivables $34,934 $41,488
Less:
Allowance for doubtful accounts (701) (422)
Allowance for returns and discounts (2,472) (2,141)
------- -------
Net customer receivables $31,761 $38,925
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NOTE E--INVENTORIES
The components of inventories were:
January 31 April 30
(in thousands) 2000 1999
------- -------
Raw materials $11,591 $ 9,433
Work-in-process 16,880 14,409
Finished goods 975 1,069
------- -------
Total FIFO inventories $29,446 $24,911
Reserve to adjust inventories
to LIFO value (6,931) (6,903)
------- -------
Total LIFO inventories $22,515 $18,008
======= =======
Inventories determined using the LIFO inventory method were
$21,572,000 at January 31, 2000 and $17,232,000 at April 30,
1999. Inventories determined using the FIFO inventory method
were $943,000 at January 31, 2000 and $776,000 at the end of
1999. 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:
Nine Months Ended
January 31
-----------------
2000 1999
(in thousands) ------ ------
Cash paid during the period for:
Interest $ 754 $ 492
Income taxes $8,446 $9,158
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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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED JANUARY 31, 2000 AND 1999
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 2000 were $91.8
million, an increase of 13.0% over the third quarter of fiscal
1999. Net sales of $285.2 million for the nine-month period
ended January 31, 2000 were 22.3% higher than the same period of
the prior year. Improved sales were reported across all channels
of distribution as a result of new products introduced over the
past year, a shift in mix to higher-end products, new store
openings in the home center channel and overall market share
gains. Current year average unit prices increased over prior year
due to a general price increase implemented during the third
quarter of the prior fiscal year and improvement in both channel
and product mix.
In fiscal 2000, third quarter gross margin was 24.3%, a decline
from the fiscal 1999 third quarter gross margin of 27.2%. For
the first nine months of fiscal 2000, gross margin was 25.9%,
down from the previous year gross margin of 28.6%. Both
decreases were due to the combination of higher labor, overhead
and distribution costs. The Company experienced higher labor
costs due to the short-term impact of new and inexperienced
production employees hired to support the Company's growth.
Higher overhead costs were the result of start-up expenses
incurred at new facilities constructed to support the increased
demand for the Company's products. Higher distribution costs
were the result of increased fuel surcharges and other increases
in standard freight rates from third party carriers.
Selling and marketing expenses in the third quarter of fiscal
2000 were 15.2% of net sales, up $2.0 million from 14.6% in the
same period of fiscal year 1999. Year to date, selling and
marketing expenses, as a percent of net sales, for fiscal year
2000 are 15.1%, up $8.7 million from 14.8% in fiscal year 1999.
The increased expenses for both periods is primarily attributable
to an increase in performance based marketing programs, start-up
expenses related to the Coventry & Case custom cabinet line in
the home center channel and increased staffing levels to support
the Company's growth. General and administrative expenses
decreased $843 thousand for the third quarter and increased $33
thousand for the nine month period when comparing fiscal 2000 to
fiscal 1999. The decrease experienced in the third quarter of
fiscal 2000 is primarily associated with a reduction in
performance based employee bonus compensation accruals.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $12.6 million in net
cash in the first nine months of fiscal year 2000 compared to
$5.8 million net cash generated in the same period of the prior
fiscal year. Additional cash generated from a decrease in
customer receivables and the favorable cash flow impact of an
increase in provision for depreciation and amortization was only
partially offset by the unfavorable cash flow impact of a
reduction in accrued expenses and increases in both inventory and
investments in promotional displays. Customer receivables
decreased due to the timing of payments from certain accounts.
Increased depreciation expense resulted from the Company's
aggressive capital expenditure program over the past eighteen
months. The decrease in accrued compensation and related
expenses is in correlation to the performance based employee
bonus compensation program. The increase in inventory levels
resulted from higher levels of work-in-process inventory required
to support the Company's expanded product offering and overall
growth, as well as planned support for peak demand during the
spring selling season. Additionally, increases to both raw
material and work-in-process inventory levels resulted from the
addition of the Company's two new facilities in Monticello,
Kentucky and Gas City, Indiana. The period-over-period reduction
in favorable cash flow from other accrued liabilities resulted
primarily from changes in the timing of payments for promotional
and tax related expense items.
Capital spending during the first nine months of fiscal year 2000
was $32.1 million, an increase of $15.7 million over the same
period of the prior fiscal year. The Company is continuing to
invest capital in additional capacity through a combination of
new facility construction and plant expansions. During the first
nine months of fiscal year 2000 the Company invested in the
initial construction of its new assembly and finishing facility
located in Gas City, Indiana, expansion of finishing operations
at its Moorefield, West Virginia facility, expansion of the
drying and lumber processing capabilities of its lumber dimension
facility located in Monticello, Kentucky, as well as general
spending for machinery to increase capacity and efficiency. The
Company anticipates that capital expenditures will continue at a
rate equal to that of the first nine months of the current fiscal
year throughout the remainder of fiscal year 2000. While the
Company has increased capacity sufficiently to service both
current and anticipated short-term growth, it does expect to
continue a capital investment plan consistent with projected
increases in long-term demand.
Net cash provided by financing activities was $6.2 million for
the first nine months of fiscal year 2000 as proceeds from short-
term borrowings offset payment of long-term debt and cash-
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dividends. In the same period of the prior fiscal year financing
activities used $1.1 million in net cash. The Company continued
to borrow against the Company's short-term revolving credit
facility during the third quarter of fiscal year 2000 as cash on-
hand combined with cash generated by operating activities became
insufficient to support payments to acquire plant, property and
equipment. 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. During the third quarter
of fiscal year 2000 the outstanding balance against this line of
credit never exceeded $11.5 million. In this same period, the
total transactions through this credit facility were borrowings
of $42.7 million and payments of $34.8 million. The outstanding
balance on this revolving credit facility was $7.9 million on
January 31, 2000. On February 7, 2000 the Company replaced its
$12 million revolving credit facility with a $45 million
revolving credit facility. The increased credit facility will
better facilitate the Company's cash flow requirements. Long-
term debt to total equity declined from 14.6% at April 30, 1999
to 10.9% at January 31, 2000. Cash dividends of $399 thousand, or
$0.05 per share, were paid during the third quarter of fiscal
year 2000.
Cash flow from operations combined with accumulated cash on hand
and available borrowing capacity is expected to be sufficient to
meet forecasted working capital requirements, service existing
debt obligations and fund capital expenditures for the remainder
of fiscal year 2000.
YEAR 2000
In prior years, the Company discussed the nature and progress of
its plans to become Year 2000 ready. In late 1999, the Company
completed its remediation and testing of systems. As a result of
those planning and implementation efforts, the Company
experienced no significant disruptions in mission critical
information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000
date change. The Company did not experience any incremental
expense associated with its Year 2000 preparation, as this work
was carried out during the Company's planned conversion from
mainframe operations to a PC based client-server network. No
significant additional expense beyond the standard information
systems operating cost was incurred. The Company is not aware of
any material problems resulting from Year 2000 issues, either
with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor
its mission critical computer applications and those of its
suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
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OTHER
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 currently has sufficient overall capacity to meet
projected short-term growth. 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.
Based on the financial performance of the first nine months of
fiscal year 2000, the Company expects that its total fiscal year
2000 earnings will be below those achieved in fiscal year 1999.
The Company expects to maintain or increase recent profitability
performance while investing resources in future products,
facilities and markets. The Company expects that actions taken to
exit certain lower margin, non-strategic businesses will position
the Company to regain the efficiencies and cost structures
achieved during both Fiscal 1998 and 1999. The Company expects
to complete this repositioning objective by the end of the fourth
quarter of fiscal year 2000.
The Company participates 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. These include (1) overall
industry demand at reduced levels, (2) economic weakness in a
specific channel of distribution, especially the home center
industry, (3) the loss of sales from specific customers due to
their loss of market share, bankruptcy or switching to a
competitor, (4) a sudden and significant rise in basic raw
material costs, (5) the need to respond to price or product
initiatives launched by a competitor, (6) a significant
investment which provides a substantial opportunity to increase
long-term performance and (7) sales growth at a rate that
outpaces the Company's ability to employ new capacity resulting
in the requirement to outsource certain manufactured components.
While the Company believes that these risks are manageable and
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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.
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 are 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 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 that are probable and can be
reasonably estimated, and such amounts are not material.
On February 25, 2000 the Board of Director's approved a $0.05 per
share cash dividend on its common stock. The cash dividend will
be paid on March 27, 2000 to shareholders of record on March 15,
2000.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKT RISK
The Company is exposed to changes in interest rates primarily
from its long-term debt arrangements and, secondarily, its
investments in securities. The Company uses interest rate swap
agreements to manage exposure to interest rate changes on certain
long-term borrowings. The Company's exposure to interest rate
changes is not considered to be material.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Financing Agreement and related Revolving Credit Note, each
dated February 7, 2000, between the Company and Bank of
America, N.A.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended January 31, 2000.
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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
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William A. Armstrong Kent B. Guichard
Corporate Controller Senior Vice President, Finance
and Chief Financial Officer
Date: March 2, 2000 Date: March 2, 2000
Signing on behalf of the
registrant and as principal
financial officer
Exhibit No.
10.1 (a) $45,000,000 Financing Agreement Dated February 7,
2000 By and Between American Woodmark Corporation
and Bank of America, N.A.
10.1 (b) Revolving Credit Note, $45,000,000, Baltimore,
Maryland, February 7, 2000
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