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
PART I. FINANCIAL INFORMATION
AMERICAN WOODMARK CORPORATIONCONSOLIDATED BALANCE SHEETS(in thousands, except share data)
October 31,2001(Unaudited)
April 30,2001(Audited)
ASSETS
Current Assets
Cash and cash equivalents
9,480
1,714
Customer receivables
35,204
29,410
Inventories
32,698
30,267
Prepaid expenses and other
2,521
1,728
Deferred income taxes
4,582
4,760
Total Current Assets
84,485
67,879
Property, Plant, and Equipment - Net
96,114
93,641
Deferred Costs and Other Assets
23,076
18,848
203,675
180,368
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable
20,666
17,038
Accrued compensation and related expenses
19,559
16,269
Current maturities of long-term debt
1,629
2,118
Accrued marketing expenses
5,151
3,505
Other accrued expenses
5,245
6,289
Total Current Liabilities
52,250
45,219
Long-Term Debt, less current maturities
16,812
16,819
Deferred Income Taxes
7,363
7,246
Long-Term Pension Liabilities
1,571
Other Long-Term Liabilities
780
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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 8,154,304 shares at
October 31, 2001; 8,079,093 shares
at April 30, 2001
28,189
24,412
Retained earnings
97,182
85,101
Other Comprehensive Income
(472
Total Stockholders' Equity
124,899
109,513
See notes to consolidated financial statements
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 six-month period ended October 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 statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The adoption of SFAS No. 133 did not have a material impact on the Company's financial position or results of operations.
In May 2000, the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives." This issue addresses the recognition, measurement and income statement classification for various types of sales incentives, including discounts, coupons, rebates and free products. The Company is required to adopt EITF 00-14 no later than the fourth quarter of fiscal 2002. The adoption of EITF 00-14 will have no impact on the net income or earnings per share of the Company. The Company is in the process of determining the amounts to be reclassified.
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 due to the reclassification of cooperative advertising costs.
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 Analysis of Financial Conditionand Results of Operations
Results of Operations
Net Sales for the second quarter of fiscal 2002 were $129.8 million, an increase of 25.0% over the same period in fiscal 2001. Net sales of $251.0 million for the six-month period ended October 31, 2001 were 20.6% higher than the same period of the prior year. Improved sales for both the quarter and six-month period 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 for the second quarter grew 24% due to the impact of new products and additional outlets. The average price per unit for the most recent quarter increased 1% over the same period in the prior year due to a shift in product mix.
In fiscal 2002, second quarter gross margin was 28.4%, up from 23.4% in the second quarter of fiscal 2001. For the first six months of fiscal 2002, gross margin was 28.7%, up from the previous year six-month gross margin of 24.4%. Improvements in gross margin for both the quarter and the six-month period were due to the combination of lower material costs, improved productivity, lower freight expense and favorable leverage on fixed costs with higher volume.
Selling and marketing expenses for the second quarter of fiscal 2002 were $18.2 million or 14.0% of net sales, an increase of $3.2 million over fiscal 2001. For the first six months of fiscal 2002, selling and marketing expenses were $35.2 million or 14.0% of net sales, an increase of $6.9 million from the same period of the prior fiscal year. The increased expenses for both periods were primarily attributable to performance based marketing programs, promotional expense to support merchandizing efforts and employee pay-for-performance plans.
General and administrative expenses for the second quarter of fiscal 2002 were $5.3 million or 4.1%, an increase of $2.1 million from the second quarter of fiscal 2001. For the first six months of fiscal 2002 general and administrative expenses were $10.8 million or 4.3% of net sales versus 3.6% in the first six months of fiscal 2001. Both period increases are due to higher accruals for performance based employee incentive plans.
Interest expense for the second quarter and the first six-months of fiscal 2002 was $224 thousand and $485 thousand, respectively, versus $357 thousand and $607 thousand in the prior year. The decrease in interest expense was due primarily to lower rates on the Company's outstanding variable rate debt and lower debt balances.
Liquidity and Capital Resources
The Company's operating activities generated $17.2 million in net cash during the first six months of fiscal 2002 compared to $7.0 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 an increase in net income, an increase in the provision for depreciation and amortization. The period-over-period favorable impacts to cash were only partially offset by increases in working capital to support the Company's growth.
Capital spending during the first six months of fiscal 2002 was $8.1 million as compared to $14.9 million in the same period of fiscal 2001. Capital spending for fiscal 2002 was lower than fiscal 2001 due to the timing of the Company's expansion program. 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 expects that its capital investment spending in the second half of fiscal year 2002 will be more than that experienced in the first six months of fiscal 2002. Major projects include the expansion of the Monticello, Kentucky, lumber processing and the Kingman, Arizona, assembly plants and the construction of a new lumber processing facility in Hazard, Kentucky, and a new assembly facility in a site to be determined.
Net cash used by financing activities was $1.3 million for the first six months of fiscal 2002, as proceeds from borrowings did not offset payments. For the same period of fiscal 2001 the Company received $4.7 million from financing activities. Cash dividends of $815 thousand were paid during the first six months of fiscal 2002. The Company repurchased $2.5 million in Common Stock during the first six months 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 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 29, 2001, the Board of Directors approved a $.05 per share cash dividend on its Common Stock. The cash dividend will be paid on January 4, 2002, to shareholders of record on December 19, 2001.
Item 3. Quantitative and Qualitative Disclosures 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.
The Company is also exposed to changes in interest rates from its long-term debt arrangements and its investment in securities. The Company uses interest rate swap agreements to manage exposure to interest rate changes on certain long-term borrowings. The Company has variable-rate debt instruments representing approximately 2% of its total long-term debt at October 31, 2001. If interest rates average 100 basis points (1.00%) more in fiscal 2002 than during fiscal 2001, the impact on the Company's interest expense would be immaterial. These amounts are determined by considering the impact of the hypothetical interest rates on the Company's variable-rate, long-term debt at October 31, 2001.
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.
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.