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, 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 7,799,109 shares outstanding
Class as of March 11, 1998
AMERICAN WOODMARK CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets--January 31, 1998 and
April 30, 1997 3
Statements of Income--Three months ended
January 31, 1998 and 1997; Nine months ended
January 31, 1998 and 1997 4
Statements of Cash Flows--Nine months ended
January 31, 1998 and 1997 5
Notes to Financial Statements--January 31, 1998 6-9
Item 2. Management's Discussion and Analysis 10-14
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K 14
SIGNATURE 15
2
PART I. FINANCIAL INFORMATION
AMERICAN WOODMARK CORPORATION
BALANCE SHEETS
(in thousands, except share data)
January 31 April 30
1998 1997
----------- ---------
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $20,514 $17,339
Customer receivables 22,667 20,488
Inventories 12,025 10,356
Prepaid expenses and other 1,436 940
Deferred income taxes 887 720
--------- ---------
Total Current Assets 57,529 49,843
Property, Plant and Equipment 32,857 32,252
Deferred Costs and Other Assets 5,292 4,335
Intangible Pension Assets 727 727
--------- ---------
$96,405 $87,157
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $10,043 $ 9,312
Accrued compensation and related expenses 9,752 11,180
Current maturities of long-term debt 1,983 2,229
Other accrued expenses 6,235 3,680
-------- --------
Total Current Liabilities 28,013 26,401
Long-Term Debt, less current maturities 9,040 10,637
Deferred Income Taxes 2,493 2,328
Long-Term Pension Liabilities 1,493 1,493
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 7,775,143 shares at
January 31, 1998; 7,722,656 shares
at April 30, 1997 18,494 18,043
Retained earnings 36,872 28,255
-------- --------
Total Stockholders' Equity 55,366 46,298
-------- --------
$96,405 $87,157
======== ========
See notes to financial statements
3
AMERICAN WOODMARK CORPORATION
STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
January 31 January 31
1998 1997 1998 1997
------- ------ ------- -------
Net sales $ 55,545 $ 51,643 $174,252 $161,981
Cost of sales and
distribution 39,343 37,189 122,357 117,482
------- ------ ------- -------
Gross Profit 16,202 14,454 51,895 44,499
Selling and marketing
expenses 8,472 7,698 26,482 21,664
General and administrative
expenses 3,592 3,071 10,375 10,025
------- ------- ------- -------
Operating Income 4,138 3,685 15,038 12,810
Interest expense 199 246 637 708
Other income (213) (150) (607) (363)
------- ------- ------- ------
Income Before Income
Taxes 4,152 3,589 15,008 12,465
Provision for income
taxes 1,603 1,526 5,772 4,840
------- ------- ------- -------
Net Income $ 2,549 $ 2,063 $ 9,236 $ 7,625
======= ======= ======= =======
Earnings Per Share
Weighted average
shares outstanding
Basic 7,752,627 7,687,774 7,742,227 7,659,325
Diluted 7,924,672 7,825,374 7,885,819 7,776,012
Net income per share
Basic $0.33 $0.27 $1.19 $1.00
Diluted $0.32 $0.26 $1.17 $0.98
======= ======= ====== ======
See notes to financial statements
4
AMERICAN WOODMARK CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
January 31
1998 1997
Operating Activities -------- --------
Net income $ 9,236 $7,625
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and amortization 5,731 5,786
Net loss on disposal of property, plant
and equipment 57 58
Deferred income taxes (3) (570)
Other non-cash items (81) 1,131
Changes in operating assets and liabilities:
Customer receivables (2,021) (188)
Inventories (1,745) (1,154)
Other assets (3,040) (2,354)
Accounts payable 731 1,690
Accrued compensation and related expenses (1,428) (21)
Other 2,121 (1,934)
------- -------
Net Cash Provided by Operating Activities 9,558 10,069
------- -------
Investing Activities
Payments to acquire property, plant and
equipment (4,264) (3,318)
Proceeds from sales of property, plant and
equipment 51 63
------- -------
Net Cash Used by Investing Activities (4,213) (3,255)
------- -------
Financing Activities
Payments of long-term debt (1,920) (2,171)
Proceeds from the issuance of Common Stock 390 274
Payment of dividends (619) (307)
Principal payments under capital lease
obligations (20) --
------- -------
Net Cash Used by Financing Activities (2,169) (2,204)
------- -------
Increase In Cash And Cash Equivalents 3,176 4,610
Cash And Cash Equivalents, Beginning Of Period 17,338 7,201
------- -------
Cash And Cash Equivalents, End Of Period $20,514 $11,811
======= =======
See notes to financial statements
5
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 nine-month period ended January 31,
1998 are not necessarily indicative of the results that may be
expected for the year ended April 30, 1998. 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, 1997.
Certain fiscal 1997 amounts have been reclassified to conform to
fiscal 1998 presentation.
NOTE B--NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, FASB issued SFAS No. 128, "Earnings per Share,"
which the Company was required to adopt for the fiscal quarter
ending January 31, 1998. The Company was required to change the
method previously 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 is excluded.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which the Company will be required to adopt for the
fiscal quarter ending July 31, 1998. 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 of comprehensive income and
therefore does not expect the adoption of SFAS No. 130 to have a
material impact on the financial statements.
6
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
------------------ -----------------
1998 1997 1998 1997
----- ----- ---- ----
Numerator:
Net income used for
both basic and dilutive
earnings per share $2,549 $2,063 $9,236 $7,625
Denominator:
Denominator for basic
earnings per share -
weighted-average
shares 7,752,627 7,687,774 7,742,227 7,659,325
Effect of dilutive
securities:
Employee Stock
Options 172,045 137,600 143,592 116,687
------- ------- ------- -------
Denominator for diluted
earnings per share -
adjusted weighted-
average shares and
assumed conversions 7,924,672 7,825,374 7,885,819 7,776,012
========= ========= ========= =========
Basic earnings per share $ 0.33 $ 0.27 $ 1.19 $ 1.00
====== ====== ====== ======
Diluted earnings
per share $ 0.32 $ 0.26 $ 1.17 $ 0.98
====== ====== ====== ======
7
NOTE D--CUSTOMER RECEIVABLES
The components of customer receivables were:
January 31 April 30
1998 1997
(in thousands) ------- -------
Gross customer receivables $24,112 $21,869
Less:
Allowance for doubtful accounts (141) (210)
Allowance for returns and discounts (1,304) (1,171)
------- -------
Net customer receivables $22,667 $20,488
====== ======
NOTE E--INVENTORIES
The components of inventories were:
January 31 April 30
1998 1997
(in thousands) ------ ------
Raw materials $ 7,289 $ 6,270
Work-in-process 10,812 9,684
Finished goods 1,127 1,115
------ ------
Total FIFO inventories $19,228 $17,069
Reserve to adjust inventories
to LIFO value (7,203) (6,713)
------ ------
Total LIFO inventories $12,025 $10,356
====== ======
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
-----------------
1998 1997
(in thousands) ---- ----
Cash paid during the period for:
Interest $ 598 $ 616
Income taxes $ 6,231 $ 6,544
8
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
MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED JANUARY 31, 1998 AND 1997
RESULTS OF OPERATIONS
Net sales of $55.5 million for the third quarter of fiscal 1998
increased 7.6% over the third quarter of fiscal 1997. Higher
sales were the result of continued growth with the leading
national home center chains and increased shipments to national
and regional builders. Increased sales to the home center and
builder business were partially offset by lower sales to
distributors. Net sales of $174.2 million for the first nine
months of fiscal 1998 represented a 7.6% improvement over sales
for the same period of fiscal 1997. The Company has gained
overall market share, especially in the home center channel,
due primarily to the impact of new product styles introduced
during the last year. Average price per unit for the third
quarter of fiscal 1998 was up 6.7% over the third quarter of
fiscal 1997. The increase in average price per unit, period
over period, continues to be a result of a shift towards higher
end product offering combined with increased home center
channel sales. For the nine-month period ended, product mix and
a general price increase that was implemented during the third
quarter of fiscal 1997 account for a 2.7% increase for average
unit price period over period.
Gross margin for the second quarter of fiscal 1998 was up 1.2%
over the second quarter of fiscal 1997, increasing from 28.0%
to 29.2% of net sales. Gross margin for the first nine months
of fiscal 1998 was 29.8% of net sales, up 2.3% from the same
period of fiscal 1997. Gross margin improvements for both the
third quarter and nine-month period are primarily attributed to
the shift towards higher end products, favorable channel mix
and increased productivity. Rising costs and significant
demand for hardwood lumber negatively impacted material costs,
as did the shift towards more material intensive higher end
products. Labor productivity continued to increase, but at a
slower rate during the third quarter of fiscal 1998, due to
seasonal fluctuations in volume. Labor productivity increases
are the result of the continued replacement of older machinery
with new equipment, combined with updated manufacturing
techniques which more than offset the normal rate increases and
increased incentive pay.
Selling and marketing expenses increased by $774 thousand from
fiscal year 1997 to fiscal year 1998; for the nine-month period
10
ended, total sales and marketing expenses have increased by
$4.8 million, year over year. The increased expenses for both
periods are attributed primarily to an increase in performance
based marketing programs. General and administrative expenses
for the third quarter of fiscal 1998 were up $521 thousand, or
0.6% of net sales. For the nine-month period, general
and administrative expenses are up $348 thousand, but down
0.24% of net sales. Increased expenses within the general and
administrative category are primarily attributed to performance-
based incentives and increased staffing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $9.5 million in
net cash for the first nine months of fiscal 1998 as compared
to $10.1 million for the same period of fiscal 1997. Increased
net income of $1.6 million was more than offset by an increase
in customer receivables, increased inventory and timing
differences related to accrued compensation.
Capital expenditures during the first nine months of fiscal
year 1998 were $4.3 million as the Company continued to invest
in equipment and processes designed to increase productivity
and increase the Company's competitive position. During this
period capital spending included expansion of the Company's
Jackson, Georgia facility, the purchase of wood dimensioning
and other lumber processing equipment intended to increase
capacity and efficiency in component manufacturing. The
Company anticipates that capital expenditures will continue at
a rate equal to or greater than that of the first nine months
of the current fiscal year as the Company begins expansion of
its Hardy County manufacturing facility, anticipates ground
breaking of a new wood processing facility and continues to
fund projects designed to lower costs and improve the Company's
competitive position.
Net cash used by financing activities remained at $2.2 million,
consistent with fiscal year 1997. Reduced payments of long-
term debt and increased proceeds from the issuance of common
stock were slightly offset by an increase in the payment of
dividends, providing a slight favorable impact of $35 thousand.
Long-term debt to total equity decreased from 23.0% at April
30, 1997 to 16.3% at January 31, 1998. There were no
borrowings against the Company's short-term revolving credit
facility during the period.
During the third fiscal quarter, the Company paid cash
dividends of $233 thousand, or $0.03 per share.
11
Cash flow from operations combined with the 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 1998.
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 this fiscal
year, the Company performed a self-assessment and has identified
all known software and hardware issues associated with coding and
processing of year 2000 dates. 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 the risk the year 2000 imposes 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.
The Company anticipates continued underlying strength in the
domestic economy through the remainder of fiscal 1998. Under
normal conditions, this strength would result in the continued
growth and expansion of the relevant markets for the Company.
In this environment, the Company expects to continue to gain
market share based on its position with major customers, its
broad stock product offering 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.
12
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.
On February 24, 1998 the Board of Directors approved a $.03 per
share cash dividend on its Common Stock. The cash dividend will
be paid on April 3, 1998 to shareholders of record on March 20,
1998.
13
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 6. Reports on Form 8-K
(a) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended January 31, 1998.
14
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: March 13, 1998 Date: March 13, 1998
Signing on behalf of the
registrant and as principal
financial officer
15