American Woodmark - 10-Q quarterly report FY

 

 

 

 

 

 

 

 

 

 

 

 

Virginia (State or other jurisdiction of incorporation or organization)

54-1138147 (I.R.S. Employer Identification No.)

 

3102 Shawnee Drive, Winchester, Virginia		22601
(Address of principal executive offices)		(Zip Code)

 

 

 

 

 

 

Common Stock, no par value		8,181,452 shares outstanding
Class		as of December 11, 2002

 

 

AMERICAN WOODMARK CORPORATION

 

FORM 10-Q

 

INDEX

 

				PAGE NUMBER
PART I.  FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets—October 31, 2002 and April 30, 2002		3
		Consolidated Statements of Income—Three months ended October 31, 2002 and 2001; Six months ended October 31, 2002 and 2001		4
		Consolidated Statements of Cash Flows—Six months ended October 31, 2002 and 2001		5
		Notes to Consolidated Financial Statements—October 31, 2002		6-8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		9-10
Item 3.		Quantitative and Qualitative Disclosures of Market Risk		10
Item 4.		Controls and Procedures		11
PART II.  OTHER INFORMATION
Item 6.		Exhibits and Reports on Form 8-K		11
SIGNATURE				12

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PART I. FINANCIAL INFORMATION

 

AMERICAN WOODMARK CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

		October 31, 2002				April 30, 2002
		(Unaudited)				(Audited)
ASSETS
Current Assets
Cash and cash equivalents		$	6,511			$	13,083
Customer receivables			35,124				32,246
Inventories			40,315				34,872
Prepaid expenses and other			3,568				2,741
Deferred income taxes			6,324				7,569
Total Current Assets			91,842				90,511
Property, Plant, and Equipment – Net			138,105				122,405
Deferred Costs and Other Assets			18,075				21,306
		$	248,022			$	234,222
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable		$	23,877			$	23,059
Accrued compensation and related expenses			27,814				25,888
Current maturities of long-term debt			3,221				3,218
Accrued marketing expenses			5,517				5,627
Other accrued expenses			4,854				6,605
Total Current Liabilities			65,283				64,397
Long-Term Debt, less current maturities			14,041				14,398
Deferred Income Taxes			10,087				9,556
Long-Term Pension Liabilities			238				238
Other Long-Term Liabilities			966				464
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 8,169,319 shares at October 31, 2002; 8,271,496 shares at April 30, 2002			33,209				33,072
Retained earnings			124,782				112,378
Other Comprehensive Income			(584	)			(281	)
Total Stockholders’ Equity			157,407			$	145,169
		$	248,022			$	234,222

 

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 October 31								Six Months Ended October 31
		2002				2001				2002				2001
Net sales		$	144,972			$	125,760			$	282,440			$	242,921
Cost of sales and distribution			109,690				94,353				211,394				181,220
Gross Profit			35,282				31,407				71,046				61,701
Selling and marketing expenses			13,990				12,761				27,736				24,780
General and administrative expenses			6,142				5,314				12,907				10,805
Operating Income			15,150				13,332				30,403				26,116
Interest expense			82				224				82				485
Other (income) expense			(39	)			(54	)			(80	)			295
Income Before Income Taxes			15,107				13,162				30,401				25,336
Provision for income taxes		$	5,967				5,199				12,008				9,987
Net Income		$	9,140			$	7,963			$	18,393			$	15,349
Earnings Per Share
Weighted average shares outstanding
Basic			8,164,678				8,167,366				8,209,678				8,135,064
Diluted			8,404,017				8,358,393				8,458,090				8,348,056
Net income per share
Basic		$	1.12			$	0.98			$	2.24			$	1.89
Diluted		$	1.09			$	0.95			$	2.17			$	1.84

 

See notes to consolidated financial statements

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AMERICAN WOODMARK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

		Six Months Ended October 31
		2002				2001
Operating Activities
Net income		$	18,393			$	15,349
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation and amortization			13,791				11,440
Net (gain) loss on disposal of property, plant, and equipment			121				27
Deferred income taxes			1,776				294
Other non-cash items			389				(32	)
Changes in operating assets and liabilities:
Customer receivables			(3,091	)			(5,593	)
Inventories			(5,697	)			(2,599	)
Other assets			(3,597	)			(9,812	)
Accounts payable			818				3,628
Accrued compensation and related expenses			1,927				(3,289	)
Other			(2,502	)			1,172
Net Cash Provided by Operating Activities			22,328				17,163
Investing Activities
Payments to acquire property, plant, and equipment			(22,624	)			(8,057	)
Proceeds from sales of property, plant, and equipment			39				9
Net Cash Used by Investing Activities			(22,585	)			(8,048	)
Financing Activities
Payments of long-term debt			(2,704	)			(19,503	)
Proceeds from long-term borrowings			2,350				19,007
Proceeds from the issuance of Common Stock			518				2,414
Repurchase of Common Stock			(5,657	)			(2,452	)
Payment of dividends			(822	)			(815	)
Net Cash Used by Financing Activities			(6,315	)			(1,349	)
Increase (Decrease) In Cash And Cash Equivalents			(6,572	)			7,766
Cash And Cash Equivalents, Beginning of Period			13,083				1,714
Cash And Cash Equivalents, End of Period		$	6,511			$	9,480

 

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 six-month period ended October 31, 2002 are not necessarily indicative of the results that may be expected for the year ended April 30, 2003. 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, 2002.

 

NOTE B—NEW ACCOUNTING PRONOUNCEMENTS

 

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. The Company was required to adopt SFAS No. 144 as of May 1, 2002. The adoption of this statement had no impact on the Company’s financial position or results of operations.

 

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs from Exit or Disposal Activities” which requires, among other things, that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of this statement shall be effective for exit or disposal activities initiated after December 31, 2002. The Company does not expect any impact on its financial position or results of operations as a result of adoption of this statement.

 

NOTE C—COMPREHENSIVE INCOME

 

The Company’s comprehensive income was $8.6 million and $17.8 million for the three months and six months ended October 31, 2002, respectively, and $7.5 million and $14.9 million for the three months and six months ended October 31, 2001, respectively. Comprehensive income differs from net income for the quarter and six months ending October 2001 due to an increase in the unrealized loss on the Company’s interest rate swap agreements.

 

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NOTE D—EARNINGS PER SHARE

 

The following table sets forth the computation of basic and diluted earnings per share:

 

		Three Months Ended October 31						Six Months Ended October 31
		2002			2001			2002			2001
Numerator:
Net income used for both basic and dilutive earnings per share (in thousands)		$	9,140		$	7,963		$	18,393		$	15,349
Denominator:
Denominator for basic earnings per share - weighted-average shares			8,165			8,167			8,210			8,135
Effect of dilutive securities:
Employee Stock Options			239			191			248			213
Denominator for diluted earnings per per share, adjusted weighted average weighted-average shares and assumed conversions			8,404			8,358			8,458			8,348
Net income per share
Basic		$	1.12		$	0.98		$	2.24		$	1.89
Diluted		$	1.09		$	0.95		$	2.17		$	1.84

 

NOTE E—CUSTOMER RECEIVABLES

 

The components of customer receivables were:

 

		October 31 2002				April 30 2002
		(in thousands)
Gross customer receivables		$	39,891			$	36,872
Less:
Allowance for doubtful accounts			(727	)			(799	)
Allowance for returns and discounts			(4,040	)			(3,827	)
Net customer receivables		$	35,124			$	32,246

 

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NOTE F—INVENTORIES

 

The components of inventories were:

 

		October 31 2002				April 30 2002
		(in thousands)
Raw materials		$	12,933			$	11,971
Work-in-process			26,752				23,021
Finished goods			7,429				6,663
Total FIFO inventories		$	47,114			$	41,655
Reserve to adjust inventories to LIFO value			(6,799	)			(6,783	)
Total LIFO inventories		$	40,315			$	34,872

 

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 G—CASH FLOW

 

Supplemental disclosures of cash flow information:

 

		Six Months Ended October 31
		2002			2001
		(in thousands)
Cash paid during the period for:
Interest		$	548		$	566
Income taxes		$	12,750		$	9,913

 

NOTE—LONG TERM DEBT

 

Subsequent to the second quarter of fiscal year 2003, the company entered into a loan agreement November 13, 2002 with the Perry, Harlan, Leslie, Breathitt Regional Industrial Authority (a.k.a. Hazard, KY Regional Authority) as part of the company’s capital investment and operations at the Hazard, Kentucky site. This debt facility is a $6 million term loan, which expires November 13, 2017 bearing interest at a fixed rate of 2%. It is secured by a mortgage on the manufacturing facility constructed in Hazard, Kentucky. The loan requires annual debt service payments consisting of principle and interest with a fixed balloon payment of $1.6 million at loan completion, November 13, 2017.

 

NOTE I—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.

 

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Results of Operations

 

Net Sales were $145.0 for the second quarter of fiscal 2003, an increase of 15.3% over the second quarter of fiscal 2002. For the first six months of fiscal 2003, sales were $282.4 million, an increase of 16.3% over the same period in fiscal 2002. Higher sales for both the quarter and six-month period were the result of continued growth in shipments to both the remodel and new home construction markets. Overall unit volume between periods was up 10.3% due to the combination of new products and new outlets. The average revenue per unit in the most recent quarter increased 4.6% due to a shift in product mix.

 

Gross margin for the second quarter of fiscal 2003 was 24.3% down from 25.0% for the second quarter of fiscal 2002. For the first six months of fiscal 2003, gross margin was 25.2% down slightly from 25.4% in the same period of fiscal 2002. Favorable freight and material costs were offset by higher labor and overhead cost, for both the quarter and six month periods. Labor costs increased due to higher crewing and increased benefits cost. Increases in labor were the result of hiring at the newest facilities to support increased volumes and the startup of finishing operations at the Company’s Kingman, AZ facility. In addition, the Company incurred some labor inefficiencies as it rationalized new material flows associated with new capacity. Benefits increased due to higher head count and general health care inflationary pressures. Overhead costs were up due to higher depreciation and other operating costs associated with the Company’s capital expansion program.

 

Selling and marketing expenses for the second quarter of fiscal 2003 were $14.0 million or 9.7% of sales compared to $12.8 million or 10.1% of sales for the same period in fiscal 2002. For the first six months of fiscal 2003, selling and marketing expenses were $27.7 million or 9.8% of sales compared to $24.8 million or 10.2% of sales for the first six months of fiscal 2002. The decrease as a percent of sales in both periods was attributable to favorable leverage gained in merchandising and promotional expenses, due to product mix combined with cost management efforts.

 

General and administrative expenses for the second quarter of fiscal 2003 were $6.1 million or 4.2% of net sales compared to $5.3 million or 4.2% of net sales in the first quarter of fiscal 2002. For the first six months of fiscal 2003, G&A expenses were $12.9 million or 4.6% of sales compared to $10.8 million or 4.4% of sales for the period of fiscal 2002. Increases of $0.8 million and $2.1 million for the second quarter and six month periods respectively, were the result of higher headcount and miscellaneous overhead. For the second quarter favorable leverage was expected as higher sales offset higher costs.

 

Interest expense for the second quarter and six-month period of fiscal 2003 was $82 thousand compared to $224 thousand and $485 thousand for similar periods in fiscal 2002. The decrease is attributable to lower long-term debt levels and capitalized interest as a result of the Company’s capital expansion program.

 

Liquidity and Capital Resources

 

The Company’s operating activities generated $22.3 million in net cash during the first six months of fiscal 2003 compared to $17.2 million for the same period in fiscal 2002. This favorable cash position was realized due to increases in net income and the provision for depreciation and amortization, and decreased use of cash for accrued compensation and related expenses and other assets. The change in other assets, period to period, was the result of fewer planned display additions and the phase out of Thomasville displays.

 

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Capital spending during the first six months of fiscal 2003 was $22.6 million compared to $8.1 million in the same period of fiscal 2002. Capital spending rose due to the completion of the new assembly facility in Tahlequah, OK, and the new lumber processing facility in Hazard, KY. Additionally, expansion projects were completed at the lumber processing facility in Monticello, KY, and the assembly facility in Kingman, AZ. The Company expects to continue with its capital spending plans for the remainder of fiscal 2003 as it completes projects and makes additional investments. Total capital spending is expected to be between $7.5 million and $10.5 million for the remainder of the fiscal year.

 

Net cash used by financing activities was $6.3 million for the first six months of fiscal 2003 compared to net cash used of $1.3 million in the first six months of fiscal 2002. The Company repurchased $5.7 million in common stock and paid cash dividends of $822 thousand during the first six months of fiscal 2003. Subsequent to the second quarter of fiscal 2003, on November 13, 2002, the Company received a 15-year, $6.0 million loan from the Hazard, KY Regional Authority in connection with the completion of the Hazard, KY lumber processing facility. The loan bears a fixed 2% interest rate, requires annual principle and interest payments, and carries a $1.6 million payment due upon loan termination on November 13, 2017.

 

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 of the remainder of fiscal 2003.

 

 

The Company is involved in various suits and claims in the normal course of business that includes claims against the Company pending before the Equal Employment Opportunity Commission. Although management believes that such suits and EEOC 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.

 

Dividends Declared

 

On November 21, 2002, the Board of Directors approved a $.05 per share cash dividend on its Common Stock. The cash dividend will be paid on December 23, 2002, to shareholders of record on December 9, 2002.

 

 

The Company’s business has historically been subjected to seasonal influences, with higher sales typically realized in the second and fourth fiscal quarters.

 

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. The Company has generally been able over time to recover the effects of inflation and commodity price fluctuations through sales price increases.

 

On October 31, 2002, the Company had no material exposure to changes in interest rates for its debt agreements. All significant borrowings of the Company carry a fixed interest rate between 5% and 6%.

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We participate in an industry that is subject to rapidly changing conditions. Forward-looking statements, contained in this Management’s Discussion and Analysis 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) a dramatic increase to the cost of diesel fuel, and/or transportation related services, (6) the need to respond to price or product initiatives launched by a competitor, and (7) sales growth at a rate that outpaces the Company’s ability to install new capacity. 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 operating results.

 

 

During the 90-day period prior to the date of this report, an evaluation was performed under the supervision and with the participation of our Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. Subsequent to the date of this evaluation, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls, and no corrective actions taken with regard to significant deficiencies or material weaknesses in such controls.

 

PART II. OTHER INFORMATION

 

Item 6.  Exhibits and Reports on Form 8-K

 

 

99.1		Certification of the Chief Executive Officer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (18 U.S.C. Section 1350). Filed herewith.
99.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (18 U.S.C. Section 1350). Filed herewith.
3.1		Articles of Incorporation as amended effective August 12, 1987 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-K (Commission File No. 0-14798) for year ended April 30, 1988).
3.2		Bylaws of the Registrant as amended on November 28, 2001 (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 10-K (Commission File No. 0-14798) for year ended April 30, 2002).
10.1		Loan Agreement between Perry, Harlan, Leslie, Brethitt Regional Industrial Authority, Inc. as of March 1, 2002 (Filed Herewith)

 

 

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SIGNATURES

 

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/    Dennis M. Nolan, Jr. Dennis M. Nolan, Jr. Corporate Controller						/s/    Kent B. Guichard Kent B. Guichard Senior Vice President, Finance and Chief Financial Office
Date: December 12, 2002 Signing on behalf of the registrant and as principal accounting officer						Date: December 12, 2002 Signing on behalf of the registrant and as principal financial officer

 

CERTIFICATION UNDER SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

 

CERTIFICATIONS

 

I, James J. Gosa, certify that:

 

 

 

 

 

 

 

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/s/    James J. Gosa James J. Gosa President and Chief Executive Officer (Principal Executive Officer) Date: December 12, 2002

 

I, Kent B. Guichard, certify that:

 

 

 

 

 

 

 

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/s/    Kent B. Guichard Kent B. Guichard Senior Vice President, Finance and   Chief Financial Officer (Principal Financial Officer) Date: December 12, 2002

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