FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 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 7,891,867 shares outstanding
Class as of December 11, 1998
AMERICAN WOODMARK CORPORATION
FORM 10-Q
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets--October 31, 1998 and
April 30, 1998 3
Statements of Income--Three months ended
October 31, 1998 and 1997; Six months ended
October 31, 1998 and 1997 4
Statements of Cash Flows--Six months ended
October 31, 1998 and 1997 5
Notes to Financial Statements--October 31, 1998 6-9
Item 2. Management's Discussion and Analysis 10-13
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)
October 31 April 30
1998 1998
ASSETS (Unaudited) (Audited)
---------- ---------
Current Assets
Cash and cash equivalents $19,384 $23,925
Customer receivables 31,562 27,365
Inventories 14,246 11,884
Prepaid expenses and other 1,459 1,403
Deferred income taxes 1,289 997
------ ------
Total Current Assets 67,940 65,574
Property, Plant and Equipment 43,478 34,522
Deferred Costs and Other Assets 8,483 5,604
Intangible Pension Assets 781 781
-------- --------
$120,682 $106,481
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $17,145 $12,414
Accrued compensation and related expenses 13,520 13,211
Current maturities of long-term debt 1,885 2,001
Other accrued expenses 6,729 6,581
------ ------
Total Current Liabilities 39,279 34,207
Long-Term Debt, less current maturities 8,645 8,717
Deferred Income Taxes 2,540 2,397
Long-Term Pension Liabilities 1,860 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 7,835,900 shares at
October 31, 1998; 7,800,886 shares
at April 30, 1998 19,424 18,704
Retained earnings 48,934 40,433
------- -------
Total Stockholders' Equity 68,358 59,137
-------- --------
$120,682 $106,481
======== ========
See notes to financial statements
3
AMERICAN WOODMARK CORPORATION
STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
October 31 October 31
------------------- -----------------
1998 1997 1998 1997
-------- -------- -------- --------
Net sales $ 79,401 $ 62,738 $152,074 $118,708
Cost of sales and
distribution 56,750 43,376 107,517 83,015
-------- -------- -------- --------
Gross Profit 22,651 19,362 44,557 35,693
Selling and marketing
expenses 12,232 9,354 22,594 18,010
General and administrative
expenses 2,783 3,377 7,379 6,783
-------- -------- -------- --------
Operating Income 7,636 6,631 14,584 10,900
Interest expense 20 214 190 438
Other income (233) (184) (484) (394)
-------- ------- -------- --------
Income Before Income
Taxes 7,849 6,601 14,878 10,856
Provision for income
taxes 3,041 2,535 5,829 4,169
-------- ------- -------- --------
Net Income $ 4,808 $ 4,066 $ 9,049 $ 6,687
======== ======== ======== ========
Earnings Per Share
Weighted average
shares outstanding
Basic 7,827,961 7,743,736 7,818,429 7,737,027
Diluted 8,000,211 7,879,628 7,992,216 7,874,434
Net income per share
Basic $0.62 $0.53 $1.16 $0.86
Diluted $0.60 $0.52 $1.13 $0.85
======== ======= ======= ======
See notes to financial statements
4
AMERICAN WOODMARK CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
October 31
------------------
1998 1997
------- -------
Operating Activities
Net income $ 9,049 $6,687
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and amortization 4,170 3,791
Net (gain) loss on disposal of property,
Plant and equipment (13) 21
Deferred income taxes (149) (65)
Other non-cash items 489 254
Changes in operating assets and liabilities:
Customer receivables (4,698) (3,820)
Inventories (2,350) (490)
Other assets (4,750) (2,121)
Accounts payable 4,731 1,298
Accrued compensation and related expenses 308 771
Other 65 1,406
------- -------
Net Cash Provided by Operating Activities 6,852 7,732
Investing Activities
Payments to acquire property, plant and
equipment (11,256) (2,864)
Proceeds from sales of property, plant and
equipment 15 18
------- -------
Net Cash Used by Investing Activities (11,241) (2,846)
------- -------
Financing Activities
Payments of long-term debt (426) (676)
Proceeds from the issuance of Common Stock 583 111
Payment of dividends (547) (386)
Principal payments under capital lease
obligations (12) (13)
Proceeds from Long-term Borrowings 250 --
------- -------
Net Cash Used by Financing Activities (152) (964)
------- -------
Increase (Decrease) In Cash And Cash Equivalents (4,541) 3,922
Cash And Cash Equivalents, Beginning Of Period 23,925 17,338
------- -------
Cash And Cash Equivalents, End Of Period $19,384 $21,260
======= =======
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 six-month period ended October 31, 1998
are not necessarily indicative of the results that may be
expected for the year ended 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.
Certain fiscal 1998 amounts have been reclassified to conform to
fiscal 1999 presentation.
6
NOTE B--EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Six Months Ended
October 31 October 31
------------------ -------------------
1998 1997 1998 1997
------- ------- ------- -------
Numerator:
Net income used for
both basic and dilutive
earnings per share $4,808 $4,066 $9,049 $6,687
Denominator:
Denominator for basic
earnings per share -
weighted-average
shares 7,827,961 7,743,736 7,818,429 7,737,027
Effect of dilutive
securities:
Employee Stock
Options 172,250 135,892 173,787 137,407
------- ------- ------- -------
Denominator for diluted
earnings per share -
adjusted weighted-
average shares and
assumed conversions 8,000,211 7,879,628 7,992,216 7,874,434
========= ========= ========= =========
Basic earnings per share $ 0.62 $ 0.53 $ 1.16 $ 0.86
====== ====== ====== ======
Diluted earnings
per share $ 0.60 $ 0.52 $ 1.13 $ 0.85
====== ====== ====== ======
7
NOTE C--CUSTOMER RECEIVABLES
The components of customer receivables were:
October 31 April 30
1998 1998
------- -------
(in thousands)
Gross customer receivables $33,754 $29,122
Less:
Allowance for doubtful accounts (262) (123)
Allowance for returns and discounts (1,930) (1,634)
------- -------
Net customer receivables $31,562 $27,365
======= =======
NOTE D--INVENTORIES
The components of inventories were:
October 31 April 30
1998 1998
-------- -------
(in thousands)
Raw materials $ 7,726 $ 7,052
Work-in-process 13,100 10,678
Finished goods 914 1,138
-------- -------
Total FIFO inventories $21,740 $18,868
Reserve to adjust inventories
to LIFO value (7,494) (6,984)
-------- -------
Total LIFO inventories $14,246 $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 E--CASH FLOW
Supplemental disclosures of cash flow information:
Six Months Ended
October 31
-----------------
1998 1997
------- ------
(in thousands)
Cash paid during the period for:
Interest $ 313 $ 414
Income taxes $ 6,278 $ 3,408
8
NOTE F--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
SIX MONTHS ENDED OCTOBER 31, 1998 AND 1997
RESULTS OF OPERATIONS
Net sales for the second quarter of fiscal 1999 were $79.4
million, an increase of 26.5% over the second quarter of fiscal
1998. Net sales of $152.1 million for the six-month period ended
October 31, 1998 were 28.1% higher than the same period of the
prior year. The increase in net sales for both periods was the
result of continued growth with the leading national home center
chains and increased direct shipments to new home builders.
Sales within the distributor channel were up slightly for the
second quarter of fiscal 1999 as compared to the same period of
fiscal 1998 and flat for the six-month period, compared year over
year. 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 1999, second quarter gross margin was 28.5%, down from
the fiscal 1998 second quarter gross margin of 30.9%. For the
first six months of fiscal 1999, gross margin was 29.3%, down
slightly from the previous year six month gross margin of 30.1%.
The decreases were due to the negative impact of using out-
sourced components as sales demand exceeded component
manufacturing capacity. Material cost per unit increased due to
lumber cost and a shift towards higher end products. Efficiency
gains in hourly labor for both the quarter and six month periods
were not sufficient to off-set the increase in material cost.
Selling and marketing expenses increased $2.9 million for the
second quarter of fiscal 1999 and $4.6 for the first six months
compared to the prior year. The increased expenses for both
periods is primarily attributable to an increase in performance
based marketing programs. General and administrative expenses
decreased $594 thousand for the second quarter and increased $596
for the six month period when comparing fiscal 1999 to fiscal
1998. The decreased experienced in the second quarter of fiscal
1999 is associated with the timing of performance based employee
bonus compensation accruals. The $596 thousand increase for the
six months, fiscal 1999 over fiscal 1998, reflects increased
reserves for bad debt and an overall increase in accruals for
performance based employee bonus compensation.
LIQUIDITY AND CAPITAL RESOURCES
The company's operating activities generated $6.9 million in net
cash for the first six months of fiscal year 1999 compared to
$7.7 million net cash generated during the same period of the
prior fiscal year. The increase in cash generated from net
income in fiscal 1999 was more than offset by increases in
customer receivables and inventories. Customer receivables have
increased primarily as a result of the strong growth in sales.
DSO has increased moderately based on change in channel mix.
Inventory has increased with the increase in sales volume and
10
wider product offering. Increased accounts payable, associated
with increased production volume, produced a favorable impact on
cash flow from operations during the first six months ended
fiscal 1999 compared to the same period of the prior fiscal year.
Capital expenditures during the first six months of fiscal year
1999 were $11.3 million as the Company significantly increased
its investment in facilities and equipment to support sales
growth. During this period, capital spending included the start-
up of a new lumber processing facility in Monticello, Kentucky,
the continued expansion of the dimensioning and finishing
facility located in Hardy County, West Virginia, and additional
equipment for both the lumber processing facility in Orange,
Virginia and the flatstock facility in Toccoa, Georgia. The
Company anticipates that capital expenditures will continue at a
rate equal to that of the first six months of the current fiscal
year throughout the remainder of fiscal 1999 as the Company
further invests in the Monticello, Kentucky facility and
continues to fund projects designed to increase capacity and
improve the Company's competitive position.
Net cash used by financing activities decreased $812 thousand
over the prior year to $152 thousand due to the timing of
payments on long-term debt, proceeds from the issuance of common
stock and a $250 thousand long-term loan received in conjunction
with the start-up of the Monticello, Kentucky facility. Long-
term debt to total equity decreased from 14.7% at April 30, 1998
to 12.6% at October 31, 1998. There were no borrowings against
the Company's short-term revolving credit facility during the
period.
During the second fiscal quarter, the Company paid cash dividends
of $313 thousand or $0.04 or per share.
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 year 1999.
On December 7, 1998 the Board of Directors approved a $.04 per
share cash dividend on its Common Stock. The cash dividend will
be paid on January 8, 1999 to shareholders of record on December
22, 1998.
YEAR 2000
The Company recognizes that the year 2000 presents many
challenges for information systems, specifically the issue of two-
digit determination of year. The Company has 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 during 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 has determined it has no exposure to
contingencies related to the year 2000 issue for the products it
has sold.
11
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.
There can be no guarantee that the systems of suppliers and
customers will be converted by the end of calendar 1999. In
response, the company is developing contingency plans to address
critical system interfaces with these third parties in the event
that these third parties are unable to resolve their year 2000
compliance issues by the end of calendar year 1999. Based on
presently available information, the company does not believe
that the incremental cost associated with the year 2000
compliance activities of third parties is material to the
company.
OTHER
On December 2, 1998 the company acquired Knapp Woodworking, Inc.,
a privately held Minnesota based manufacturer of custom cabinetry
whose customer base is composed of both dealer-distributors and
home builders. The company intends to operate Knapp Woodworking
Inc. as an independent subsidiary for the foreseeable future. The
Company is also considering other investment opportunities to
increase the Company's business base, to acquire new products,
and to gain access to new markets.
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. As long as demand exceeds capacity and the
company continues to purchase outside material, gross margins
will be negatively impacted by continued higher cost of goods
sold. Capital spending is under way 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.
12
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, (6) a significant
investment which provides a substantial opportunity to increase
long-term performance and (7) disruption of business from the
failure of a significant customer or supplier to attain year 2000
compliance. 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.
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.
13
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
six months ended October 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: December 14, 1998 Date: December 14, 1998
Signing on behalf of the
registrant and as principal
financial officer