FORM 10-QUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
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 o
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
AMERICAN WOODMARK CORPORATION
FORM 10-Q
INDEX
Item 6.
PART I. FINANCIAL INFORMATION
AMERICAN WOODMARK CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data)
July 31
April 30
2001
ASSETS
(Unaudited)
(Audited)
Current Assets
Cash and cash equivalents
8,012
1,714
Customer receivables
31,895
29,410
Inventories
30,858
30,267
Prepaid expenses and other
1,676
1,728
Deferred income taxes
4,382
4,760
Total Current Assets
76,823
67,879
Property, Plant, and Equipment
94,636
93,641
Deferred Costs and Other Assets
21,286
18,848
192,745
180,368
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable
18,743
17,038
Accrued compensation and related expenses
14,710
16,269
Current maturities of long-term debt
1,619
2,118
Accrued Marketing Expenses
4,612
3,505
Other accrued expenses
8,018
6,289
Total Current Liabilities
47,702
45,219
Long-Term Debt, less current maturities
17,140
16,819
Deferred Income Taxes
8,119
7,246
Long-Term Pension Liabilities
1,571
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 8,144,954 shares at
July 31, 2001; 8,079,093 shares at
April 30, 2001
26,131
24,412
Retained earnings
92,082
85,101
Total Stockholders' Equity
118,213
109,513
See notes to consolidated financial statements
AMERICAN WOODMARK CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(in thousands, except share data)(Unaudited)
Net sales
121,262
Cost of sales and distribution
85,997
Gross Profit
35,265
Selling and marketing expenses
16,990
General and administrative expenses
5,491
Operating Income
12,784
Interest expense
262
Other (income) expense
349
)
Income Before Income Taxes
12,173
Provision for income taxes
4,788
Income before cumulative effect of change
7,385
in accounting principles
Cumulative effect of change in accounting
Net Income
Weighted average shares outstanding
Basic
8,102,762
Diluted
8,337,718
Net income per share before cumulative
effect of change in accounting principles
0.91
0.89
Net income per share after cumulative
AMERICAN WOODMARK CORPORATIONNOTES 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 three-month period ended July 31, 2001 are not necessarily indicative of the results that may be expected for the year ended April 30, 2002. 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, 2001.
NOTE B—NEW ACCOUNTING PRONOUNCEMENTS
The Company was required to adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138, "Accounting for Derivative Instruments and Certain Hedging Activities" in the first quarter of fiscal 2002. The new standards establish accounting and reporting requirements for derivative instruments and hedging activities. The adoption did not have a material impact on the Company's financial position or results of operations for the first quarter of fiscal 2002.
In April 2001, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached a consensus on issue No. 00-25, "Vendor Income Statement Characterization of Consideration to a Purchaser of the Vendor's Products or Services." The Company is required to adopt EITF 00-25 no later than the fourth quarter of fiscal 2002. EITF 00-25 requires that certain activities such as the payment of "slotting fees", cooperative advertising arrangements and "buy downs" be classified as a reduction in revenue. The adoption of EITF 00-25 will have no impact on the net income or earnings per share of the Company. The impact of the adoption on the consolidated financial statements will result in a material adjustment to both net sales and selling and marketing expense as the Company currently classifies some of the defined activities as expense.
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.
Management's Discussion and AnalysisThree Months Ended July 31, 2001 and 2000
Results of Operations
Net sales for the first quarter of fiscal 2002 were $121.3 million, an increase of 16.3% over the same period in fiscal 2001. Higher sales were the result of continued growth across all channels of distribution, particularly with the Company's strategic home center and direct builder partners. Overall unit volume between the periods grew 13.5% due to the combination of new products and additional outlets. The average revenue per unit in fiscal 2002 increased 2.5% over the first quarter of fiscal 2001 due to a shift in product mix.
Gross margin for the first quarter of fiscal 2002 improved to 29.1% from 25.3% for the same period of the previous fiscal year. The improvement was due to the combination of lower material costs, improved productivity, lower freight expense and leverage on fixed costs with higher volume.
Selling and Marketing expenses for the first quarter of fiscal 2002 were $17.0 million or 14.0% of net sales, an increase of $3.7 million over the same period of fiscal 2001 in which sales and marketing expenses were 12.8% of net sales. Increased sales and marketing expenses were due primarily to customer promotions.
General and administrative expenses for the first quarter of fiscal 2002 were $5.5 million or 4.5% of net sales, an increase of $1.2 million over the same period of fiscal 2001 in which general and administrative expenses were 4.1% of net sales. The increase was due to higher accruals for anticipated payments under the Company's pay-for-performance incentive plans.
Interest expense for the first quarter of fiscal 2002 was $262 thousand, an increase of $12 thousand from the same period of the prior fiscal year.
Liquidity and Capital Resources
The Company's operating activities generated $9.4 million in net cash during the first three months of fiscal 2002 compared to $6.3 million net cash generated in the same period of fiscal 2001. The increase in cash generated from operations over prior year was due primarily to higher net income, an increase in the provision for depreciation and amortization, an increase in accounts payable and an increase in all other items. The favorable impacts to cash were only partially offset by increases in customer receivables and other assets and a decrease in accrued compensation. Depreciation and amortization expense increased as a result of the Company's capital investment initiatives. The increase in accounts payable was due to higher activity as the Company did not change any accounts payable practices. All other increased due to additional paid-in-capital from the exercise of employee stock options and an increase in miscellaneous accrued expenses. Customer receivables increased due to higher sales. Other assets increased primarily due to the Company's investment in customer displays. Accrued compensation decreased due to payments under the Company's pay-for-performance incentive plans.
Capital spending during the first quarter of fiscal 2002 was $3.8 million as compared to $10.2 million in the same period of fiscal 2001, a decrease of $6.4 million. During the first quarter of fiscal 2002, the Company began the expansion of the Company's assembly facility in Kingman, Arizona. During the first quarter of the prior year, the Company was installing the main production equipment for its new flat-stock facility in Humboldt, Tennessee and expanding capacity at the Company's lumber facility in Monticello, Kentucky. The Company expects that in order to support continued sales growth, it will be necessary to make additional investments in plant, property and equipment during the remainder of fiscal 2002. The Company currently expects to invest approximately $25 to $30 million in capital spending during fiscal 2002 to complete the expansion of the assembly plant in Kingman, Arizona, to begin the site
development and construction of a new assembly plant and to begin the site development and construction of a new lumber processing facility.
Net cash provided by financing activities was $641 thousand for the first three months of fiscal 2002 due primarily to the exercise of stock options by employees. Proceeds from borrowings offset payments. For the same period of fiscal 2001 the Company generated $1.5 million from financing activities. The outstanding balance on the Company's $45 million revolving credit facility was $10.0 million on July 31, 2001. Cash dividends of $404 thousand were paid during the first quarter of fiscal 2002.
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 2002.
Legal Matters
The Company is involved in various suits and claims in the normal course of business which 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 August 30, 2001, the Board of Directors approved a $.05 per share cash dividend on its Common Stock. The cash dividend will be paid on September 28, 2001, to shareholders of record on September 14, 2001.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
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, 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.
On July 31, 2001, the Company had no material exposure to changes in interest rates. The Company uses interest rate swap agreements to manage exposure to interest rate changes on certain long-term borrowings and as of July 31, 2001, all significant borrowings of the Company carried fixed interest rates between 5% and 6%.
While the Company is not currently aware of any other events that would result in a material decline in earnings from fiscal 2001, 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. 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, (7) a significant investment which provides a substantial opportunity to increase long-term performance, and (8) 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 short-term operating results.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of American Woodmark Corporation held on August 30, 2001, the holders of 6,558,575 of the total 8,095,139 shares of Common Stock outstanding and eligible to vote duly executed and delivered valid proxies. The shareholders approved the two items outlined within the Company's Proxy Statement that was solicited to shareholders and reported to the Commission pursuant to Regulation 14A under the Act.
The following items were approved at the Company's Annual Meeting:
Negative/
Affirmative
Withheld
Abstentions/
Votes
Non-Votes
Election of the Board of Directors.
William F. Brandt, Jr.
5,856,740
701,835
—
Daniel T. Carroll
6,133,109
425,466
Martha M. Dally
6,133,967
424,608
James J. Gosa
6,133,737
424,838
Fred S. Grunewald
6,005,792
552,783
Kent B. Guichard
6,133,409
425,166
Kent J. Hussey
6,133,938
424,640
Albert L. Prillaman
C. Anthony Wainwright
6,133,667
424,908
Independent Certified
6,552,834
30,411
5,330
Public Accountants.
Proposal to Reapprove the
Shareholder Value Plan for
Employees.
As the members of the Board of Directors were elected individually, the aforementioned tallies pertaining to re-election represent a range of affirmative and negative votes.
Item 6. Exhibits and Reports on Form 8-K
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.