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, 1999
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 7,912,479 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
Consolidated Balance Sheets--January 31, 1999
and April 30, 1998 3
Consolidated Statements of Income--Three months
ended January 31, 1999 and 1998; Nine months
ended January 31, 1999 and 1998 4
Consolidated Statements of Cash Flows--Nine
months ended January 31, 1999 and 1998 5
Notes Consolidated to Financial Statements-
January 31, 1999 6-10
Item 2. Management's Discussion and Analysis 11-15
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K 16
SIGNATURE 17
2
PART I. FINANCIAL INFORMATION
AMERICAN WOODMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
January 31 April 30
1999 1998
---------- ---------
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $12,295 $23,925
Customer receivables 33,557 27,365
Inventories 16,114 11,884
Prepaid expenses and other 1,779 1,403
Deferred income taxes 1,841 997
------- -------
Total Current Assets 65,586 65,574
Property, Plant and Equipment 49,931 34,522
Deferred Costs and Other Assets 9,959 5,604
Intangible Pension Assets 781 781
-------- --------
$126,257 $106,481
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $16,236 $12,414
Accrued compensation and related expenses 13,072 13,211
Current maturities of long-term debt 2,262 2,001
Other accrued expenses 6,165 6,581
------- -------
Total Current Liabilities 37,735 34,207
Long-Term Debt, less current maturities 10,254 8,717
Deferred Income Taxes 3,107 2,397
Long-Term Pension Liabilities 1,728 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 7,904,452 shares at
January 31, 1999; 7,800,886 shares
at April 30, 1998 21,228 18,704
Retained earnings 52,205 40,433
------- -------
Total Stockholders' Equity 73,433 59,137
------- -------
$126,257 $106,481
======== ========
See notes to consolidated financial statements
3
AMERICAN WOODMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
(Unaudited)
Three Months Ended Nine Months Ended
January 31 January 31
------------------ -----------------
1999 1998 1999 1998
------ ------ ------ ------
Net sales $ 81,186 $ 55,545 $233,260 $174,252
Cost of sales and
distribution 59,089 39,343 166,606 122,357
------- ------- ------- -------
Gross Profit 22,097 16,202 66,654 51,895
Selling and marketing
expenses 11,780 8,472 34,374 26,482
General and administrative
expenses 4,594 3,592 11,973 10,375
------- ------- ------- -------
Operating Income 5,723 4,138 20,307 15,038
Interest expense 87 199 277 637
Other income (117) (213) (601) (607)
------- ------- ------- -------
Income Before Income
Taxes 5,753 4,152 20,631 15,008
Provision for income
taxes 2,166 1,603 7,995 5,772
------- ------- ------- -------
Net Income $ 3,587 $ 2,549 $ 12,636 $ 9,236
======== ======== ======== =======
Earnings Per Share
Weighted average
shares outstanding
Basic 7,876,728 7,752,627 7,837,925 7,742,227
Diluted 8,085,101 7,924,672 8,022,835 7,885,819
Net income per share
Basic $0.46 $0.33 $1.61 $1.19
Diluted $0.44 $0.32 $1.58 $1.17
========= ========= ========= =========
Cash Dividends Declared
Per Share $0.08 $0.03 $0.15 $0.08
See notes to consolidated financial statements
4
AMERICAN WOODMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
January 31
-----------------
1999 1998
------- ------
Operating Activities
Net income $12,636 $9,236
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and amortization 6,709 5,731
Net (gain) loss on disposal of property, plant
and equipment (7) 57
Deferred income taxes (269) (3)
Other non-cash items 721 (81)
Changes in operating assets and liabilities:
Customer receivables (5,217) (2,021)
Inventories (3,554) (1,745)
Other assets (6,408) (3,040)
Accounts payable 2,965 731
Accrued compensation and related expenses (570) (1,428)
Other (1,171) 2,121
------ ------
Net Cash Provided by Operating Activities 5,835 9,558
------ ------
Investing Activities
Payments to acquire property, plant and
equipment (16,439) (4,264)
Proceeds from sales of property, plant and
equipment 24 51
------ ------
Net Cash Used by Investing Activities (16,415) (4,213)
------ ------
Financing Activities
Payments of long-term debt (2,183) (1,940)
Proceeds from the issuance of Common Stock 865 390
Payment of dividends (863) (619)
Payment of loans (1,119) -0-
Proceeds from long-term borrowings 2,250 -0-
------ ------
Net Cash Used by Financing Activities (1,050) (2,169)
------ ------
Increase (Decrease) In Cash And Cash Equivalents (11,630) 3,176
Cash And Cash Equivalents, Beginning Of Period 23,925 17,338
------ ------
Cash And Cash Equivalents, End Of Period $12,295 $20,514
====== ======
See notes to consolidated financial statements
5
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,
1999 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 Nine Months Ended
January 31 January 31
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
Numerator:
Net income used for
both basic and dilutive
earnings per share $3,587 $2,549 $12,636 $9,236
(in thousands)
Denominator:
Denominator for basic
earnings per share -
weighted-average
shares 7,876,728 7,752,627 7,837,925 7,742,227
Effect of dilutive
securities:
Employee Stock
Options 208,373 172,045 184,910 143,592
------- ------- ------- --------
Denominator for diluted
earnings per share -
adjusted weighted-
average shares and
assumed conversions 8,085,101 7,924,672 8,022,835 7,885,819
========= ========= ========= =========
Basic earnings per share $ 0.46 $ 0.33 $ 1.61 $ 1.19
====== ====== ====== ======
Diluted earnings
per share $ 0.44 $ 0.32 $ 1.58 $ 1.17
====== ====== ====== ======
7
NOTE C--CUSTOMER RECEIVABLES
The components of customer receivables were:
January 31 April 30
1999 1998
(in thousands) ---------- ---------
Gross customer receivables $36,244 $29,122
Less:
Allowance for doubtful accounts (773) (123)
Allowance for returns and discounts (1,914) (1,634)
-------- --------
Net customer receivables $33,557 $27,365
-------- --------
NOTE D--INVENTORIES
The components of inventories were:
January 31 April 30
1999 1998
(in thousands) ---------- ---------
Raw materials $ 8,762 $ 7,052
Work-in-process 13,227 10,678
Finished goods 946 1,138
---------- ---------
Total FIFO inventories $22,935 $18,868
Reserve to adjust inventories
to LIFO value (6,821) (6,984)
---------- ---------
Total LIFO inventories $16,114 $11,884
========== =========
Approximately 95% of the Company's inventories were stated on the
basis of the last-in, first-out (LIFO) method at January 31, 1999
and 100% at April 30, 1998. All remaining inventories were
valued using the first-in, first-out (FIFO) method. 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:
Nine Months Ended
January 31
-----------------
1999 1998
(in thousands) ------ ------
Cash paid during the period for:
Interest $ 492 $ 598
Income taxes $ 9,158 $ 6,231
8
NOTE F--LOANS PAYABLE AND LONG-TERM DEBT
In the third quarter of fiscal 1999, the Company borrowed
$500,000 from the West Virginia Economic Development Authority.
The borrowing bears interest at a fixed rate of 5.0% and
requires monthly payments through 2008. Capital lease
obligations increased $1,500,000 in the third quarter as a
result of a sale leaseback transaction entered into with the
state of West Virginia. This transaction has been accounted
for as a financing arrangement. The obligations bear interest
at a fixed rate of 6.18% and require semiannual payments
through 2007.
On December 2, 1998, the Company acquired Knapp Cabinets in
exchange for American Woodmark Corporation stock. As part of
the transaction American Woodmark Corporation assumed Knapp
loans payable of $1.1 million and long-term debt of
$1.7 million. Subsequent to the date of acquisition, the
Company paid off the loans payable balance and repaid $487
thousand of the long-term debt. The remaining Knapp Cabinet
long-term debt bears interest at variable rates which
approximated 9.25% as of January 31, 1999 and require monthly
payments of principle and interest.
NOTE G--COMMITMENTS AND CONTINGENCIES
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.
9
The Company has accrued for all known environmental remediation
costs that 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. However, management is not aware
of any matters that would be expected to have a material adverse
effect on the Company's results of operations or financial
position.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED JANUARY 31, 1999 AND 1998
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 1999 were $81.2
million, an increase of 46% over the same quarter of fiscal
1998. The Company's acquisition of Knapp Cabinets in December
1998 had no material impact on total reported net sales growth.
Net sales for the nine-month period ending January 31, 1999
were $233.3 million, an increase of 34% over the same period of
the prior year. The increase in net sales for the third
quarter and current fiscal year to date were the result of
continued growth with leading national home center chains,
direct shipments to national and regional builders and sales to
distributors. 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.
For the third quarter gross margin declined from 29.2% in
fiscal year 1998 to 27.2% in fiscal year 1999. For the nine-
months ended January 31, 1999 gross margin declined from 29.8%
in fiscal 1998 to 28.6% in fiscal 1999. The decrease in both
periods was attributed to the negative impact of using out-
sourced components as sales demand exceeded component
manufacturing capacity. In addition, the Company experienced
higher cost of product distribution due to both delivery rate
increases and change in customer mix. Quarter over quarter,
material cost per unit increased in fiscal 1999 due to the
purchase of out-sourced components. Year-to-date, fiscal year
1999 material cost per unit has increased, as compared to the
same period in fiscal 1998, due to the purchase of out-sourced
components and a shift towards higher end products. Efficiency
gains in hourly labor for both the quarter and nine-month
periods partially offset the increase in material cost.
Selling and marketing expenses increased $3.3
million for the third quarter of fiscal year 1999 and $7.9
million for the first nine months compared to prior year.
Increases for both periods were due to customer marketing
programs designed to increase sales of the Company's products,
performance based sales compensation and personnel additions to
support the overall higher level of activity. General and
administrative expenses were up $1.0 million for the third
quarter and $1.6 for the nine months as compared to the prior
fiscal year. Quarter over quarter, fiscal year 1999 to 1998,
increased general and administrative expenses were due to
11
additional payroll, increased consulting fees associated with
the Company's periodic review of compensation plans and the
general and administrative expenses incurred at Knapp Cabinets.
General and administrative spending year to date fiscal year
1999 over fiscal 1998 increased due to increased reserves for
bad debt, payroll and consulting fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated $5.8 million in
net cash for the first nine months of fiscal year 1999 as
compared to $9.6 million during the same period of the prior
fiscal year. The additional 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.
Days sales outstanding has increased slightly due to a change
in customer mix. Inventory increased due to higher sales
volume and the continued expansion of the Company's product
offering. Increased accounts payable, associated with
increased production volume, produced a favorable impact on
cash flow from operations during the first nine months of
fiscal 1999 compared to the same period of fiscal 1998.
Throughout fiscal 1999, the Company increased its net
investment in customer displays which has negatively impacted
cash flow as reported in other assets. The change in "other"
items between fiscal years is associated with timing
differences in payments of accrued customer promotions and
taxes.
Capital expenditures during the first nine months of fiscal
1999 were $16.4 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 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 nine 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 $1.0 million.
As part of the Knapp acquisition the Company assumed loans
payable of $1.1 million and long-term outstanding debt of $1.7
million. Subsequent to the date of acquisition, the Company
paid off the loans payable balance and repaid $487 thousand of
12
the long-term debt. Proceeds from long-term borrowings of
$2.25 million were primarily associated with the expansion of
the Hardy County, West Virginia facility. Long-term debt to
equity decreased from 14.7% at April 30, 1998 to 14.0% at
January 31, 1999. There was a single, one-day, borrowing
against the Company's short-term revolving credit facility of
$500,000 due to a timing issue between the maturity date of a
short-term cash investment and larger than expected demands for
cash disbursement on that date.
During the third quarter of fiscal 1999, the Company paid cash
dividends of $316 thousand, or $0.04 per share.
Cash flow from operations combined with the accumulated cash on
hand and available borrowing capacity is expected to be
sufficient to meet the forecasted working capital requirements,
service existing debt obligations and fund capital expenditures
for the reminder of fiscal year 1999.
On December 2, 1998 the Board of Directors approved a $0.04 per
share cash dividend on its common stock. The cash dividend was
paid on January 8, 1999 to shareholders of record on December
22, 1998. On January 29, 1999 the Board of Directors approved
a $0.04 per share cash dividend on its common stock. The cash
dividend will be paid on March 1, 1999 to shareholders of
record on February 15, 1999.
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
initiated which will bring about four-digit year compliance for
all software and hardware systems during 1999. The Company has
completed 100% of the conversion of its order billing, accounts
receivable and financial systems, with the exception of
payroll, to a client-server based architecture that is Year
2000 compliant. As of January 31, 1999 the only remaining
systems requiring conversion to client-server based Year 2000
compliant software were the payroll and manufacturing systems.
Conversion of the Company's payroll system to a year 2000
complaint client-server architecture was 75% complete at
January 31, 1999 and is expected to be 100% complete by July
31, 1999. Conversion of the Company's mainframe manufacturing
information system to a year 2000 compliant system was 50%
complete on January 31, 1999 and is expected to be 100%
complete by September 30, 1999.
13
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 and expects to incur no
significant additional expense beyond its standard information
systems operating cost. To date, 70% of the total conversion
is complete. The Company has determined it has no exposure to
contingencies related to the year 2000 issue for the products
it has sold.
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 has contacted 546 of its vendors with greater than
$20,000 in activity over the last twelve months. Of this
vendor group 33% have responded. Of the vendor respondents,
63% have indicated that they will be year 2000 compliant on or
before July 31, 1999. To date 50% of the Company's key
customers have be identified as being year 2000 compliant, and
the Company is working to further confirm year 2000 compliance
among its customer base. However, 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.
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.
At this point the Company has not quantified the impact of the
most reasonably likely worst case scenario.
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
14
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.
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
15
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 that 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, 1999.
16
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 12, 1999 Date: March 12, 1999
Signing on behalf of the
registrant and as principal
financial officer
17