The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to the condensed consolidated financial statements, both of which are included in Part I, Item 1 of this report. The Company's critical accounting policies are included in the Company's 2008 Annual Report, which was filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended April 30, 2008.

Forward-Looking Statements

This report contains statements concerning the Company's expectations, plans, objectives, future financial performance, and other statements that are not historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by words such as "anticipate," "estimate," "forecast," "expect," "believe," "should," "could," "would," "plan," "may" or other similar words. Forward-looking statements contained in this report, including in Management's Discussion and Analysis, are based on current expectations and our actual results may differ materially from those projected in any forward-looking statements. In addition, the Company participates in an industry that is subject to rapidly changing conditions and there are numerous factors that could cause the Company to experience a decline in sales and/or earnings or deterioration in financial condition. These include
(1) overall industry demand at reduced levels, (2) economic weakness in a specific channel of distribution, (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) the Company's ability to successfully implement initiatives related to increasing market share, new products, maintaining and increasing its sales force and new product displays, 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 its operating results and financial condition.

Overview

American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. Its products are sold on a national basis directly to home centers, major builders and home manufacturers, and through a network of independent dealers and distributors. At October 31, 2008, the Company operated 14 manufacturing facilities and 9 service centers across the country.

The three-month period ending October 31, 2008 was the Company's second quarter of its fiscal year that ends on April 30, 2009 (fiscal 2009). During the second quarter of fiscal 2009, the Company experienced a continuation of difficult housing market conditions that began during the Company's 2007 fiscal year. In new construction, housing starts were down 32% on a calendar year-to-date basis through October 2008. In remodeling, year-to-date sales of existing homes were down 15% during the same period, and consumer confidence stood at record lows in October 2008. The Company believes the housing environment is underpinned by sound long-term macro-economic and demographic fundamentals, but these factors are overshadowed by the combined impacts of inventory overhang, falling home prices, the continuing credit crunch, and the overall economic downturn. Accordingly, the Company expects the outlook for the housing economy will remain uncertain until the economic conditions and housing prices have stabilized.

Because the Company believes that the long-term fundamentals for the American housing industry remain strong, the Company has continued to maintain its strategy of investing to improve its operations and its capabilities to best service its customers. The Company remains focused on continuing to gain market share and has continued to invest in developing and launching new products, maintaining its sales force, and its product displays and related marketing collateral deployed with its customers.

The Company believes that it continued to gain market share through fiscal 2008 and during the first half of fiscal 2009. The Company's remodeling sales declined in the low teens during both the second quarter and first six months of fiscal 2009 as compared with the corresponding periods of fiscal 2008, driven entirely by reduced market performance in its product category. The Company believes that the magnitude of these declines was lower than the sales declines experienced by its remodeling customers. The Company's new construction sales for the same periods declined approximately 20% compared with the comparable periods of fiscal 2008, less than the market's 32% reduction in housing starts.

The Company's gross margin rate for the second quarter of fiscal 2009 was 14.4%, down from 17.3% in the second quarter of fiscal 2008. The Company's gross margin rate for the first six months of fiscal 2009 was 15.2%, down from 19.0% in the comparable period of the prior fiscal year. The reduction in the Company's gross margin rate during the three and six month periods ended October 31, 2008 as compared with prior year primarily reflected the unfavorable impact of inefficiencies in overhead and freight costs stemming from lower sales volumes, as well as the impact of higher fuel and petroleum-related costs upon both freight and materials costs.

The Company regularly assesses its long-lived assets to determine if any impairment has occurred. Although the direction of the housing market and its resultant impact upon the Company's performance is not presently positive, the Company continues to believe that the long-term fundamentals for the American housing industry, including relatively low interest rates, continued population growth, and other favorable demographic trends, support a growing and vibrant housing economy in the future. Accordingly, the Company does not believe that its long-lived assets pertaining to its 14 manufacturing plants or any of its other long-lived assets were impaired as of October 31, 2008.

The Company generated a net loss for the second quarter of fiscal 2009 of $(0.5) million, compared to net income of $1.2 million during the second quarter of fiscal 2008. The Company generated a net loss of $(0.3) million for the first six months of fiscal 2009, compared with net income of $6.3 million in the first six months of fiscal 2008.

Results of Operations



                                                      Three Months Ended                            Six Months Ended
                                                          October 31                                   October 31
                                                                         Percent                                      Percent
                                                2008         2007        Change              2008         2007        Change
(in thousands)
Net Sales                                     $ 134,939    $ 160,231    (15.8% )           $ 274,092    $ 326,287    (16.0% )
Gross Profit                                     19,468       27,709    (29.7% )              41,528       62,018    (33.0% )
Selling and Marketing Expenses                   15,122       18,525    (18.4% )              30,691       38,743    (20.8% )
General and Administrative Expenses               5,435        7,859    (30.8% )              11,976       14,526    (17.6% )
Interest Expense                                    192          192     (0.0% )                 375          383     (2.1% )

Net Sales. Net sales were $134.9 million for the second quarter of fiscal 2009, a decrease of 16% as compared with the second quarter of fiscal 2008. For the first six months of fiscal 2009, net sales were $274.1 million, reflecting a decrease of 16% compared with the same period of fiscal 2008. Unit volume decreased 16% while average revenue per unit increased by less than 1% during the three and six-month periods ended October 31, 2008.

Gross Profit. Gross profit margin for the second quarter of fiscal 2009 was 14.4%, compared with 17.3% for the same period of fiscal 2008. Gross profit margin was 15.2% for the first half of fiscal 2009, compared with 19.0% in the first half of fiscal 2008. Manufacturing overhead increased by 1.4% of sales in the second quarter and 2.2% of sales in the first half of fiscal 2009 compared with the prior year periods, driven by lower sales volumes, while freight costs increased by 1.2% of sales in the second quarter and by 1.4% during the first half of fiscal 2009, driven by increased fuel costs and the impact of lower shipping volumes.

Selling and Marketing Expenses. Selling and marketing expenses for the second quarter of fiscal 2009 were $15.1 million or 11.2% of sales, compared with $18.5 million or 11.6% of sales for the same period in fiscal 2008. For the first six months of fiscal 2009, selling and marketing costs were $30.7 million, or 11.2% of net sales, compared with $38.7 million, or 11.9% of net sales for the same period of fiscal 2008. The reduction in sales and marketing costs resulted from careful management of the Company's spending, focusing on reducing costs that are not essential to servicing the Company's customers or maintaining its customer touch points, which remain central to the Company's strategy of protecting its customer relationships and continuing to gain market share. Cost reductions in the second quarter and first half of fiscal 2009 occurred across several categories of spend, including lower volume-driven costs such as sales commissions, sales promotions, promotional literature and model home installations, and to a lesser extent, reduced headcount levels compared with prior year.

General and Administrative Expenses. General and administrative expenses for the second quarter of fiscal 2009 were $5.4 million or 4.0% of sales compared to $7.9 million or 4.9% of sales for the same period in fiscal 2008. For the first six months of fiscal 2009, general and administrative costs were $12.0 million, or 4.4% of net sales, compared with $14.5 million, or 4.5% of net sales for the same period of fiscal 2008. The cost reduction of $2.4 million in the second quarter of fiscal 2009 was driven by a reduction in bad debt expense of $1.3 million, as well as the impact of the settlement of the Company's healthcare obligations to a handful of its retirees resulting in a settlement gain of $0.6 million. As of October 31, 2008, the Company had aggregate receivables from customers with a higher perceived level of risk of $1.3 million, of which $0.5 million had been reserved for potential uncollectibility.

Interest Expense. Interest expense for the both the second quarter and first half of fiscal 2009 was comparable to that incurred during the comparable periods of fiscal 2008.

Effective Income Tax Rates. The Company's effective income tax rates for the second quarter and first six months of fiscal year 2009 were 36.8% and 41.0%, respectively, as compared with 31.2% and 34.9% in the comparable periods of fiscal 2008. The increases in fiscal 2009 were primarily the result of relatively consistent amounts of permanent differences from items such as tax-exempt interest income and non-deductible meals and entertainment expense, in relation to the reduced levels of net income (loss) generated in fiscal 2009 as compared with the net income generated in fiscal year 2008.

Outlook. The Company expects the continuing negative impact of the tighter credit conditions, falling real estate prices, inventory of foreclosed and available new homes, and unstable financial markets will cause the remodeling and new construction markets to remain subdued until these conditions are resolved. The Company continues to expect that it will gain market share in fiscal 2009, causing its sales to decline at a lower rate than that of the overall market.

LIQUIDITY AND CAPITAL RESOURCES

On October 31, 2008, the Company's cash and cash equivalents totaled $61.1 million, up from $56.9 million at April 30, 2008. At October 31, 2008, total short-term and long-term debt was $26.6 million, down slightly from its balance at April 30, 2008. The Company's ratio of long-term debt to total capital was 10.8% at both April 30, 2008 and October 31, 2008.

The Company's main source of liquidity is cash on hand and cash generated from operating activities.

Cash provided by operating activities in the first half of fiscal 2009 was $16.5 million, compared with $18.8 million in the comparable period of fiscal 2008. The $2.3 million reduction in cash provided from operations during the first half of fiscal 2009 was primarily attributable to a decrease in net income of $6.6 million, offset in part by improvements in net cash provided by reductions in working capital items such as inventory, accrued expenses and deferred taxes.

The Company's primary investing activities are capital expenditures and investments in promotional displays. Net cash used by investing activities in the first half of fiscal 2009 was $7.0 million, which was $3.7 million less than in the comparable period of the prior fiscal year. Additions to property, plant, and equipment for the first half of fiscal 2009 were $2.4 million, compared with $5.0 million in the first half of fiscal 2008. The property, plant, and equipment additions made in both periods did not reflect any new plant construction activities. The Company's investment in promotional displays for the first half of fiscal 2009 was $4.6 million, compared with $5.6 million in the first half of fiscal 2008, due primarily to a decline in the number of new stores built by its customers.

During the first half of fiscal 2009, net cash used by financing activities was $5.4 million, compared with net cash used in the comparable period of fiscal 2008 of $20.1 million. Nearly all of the Company's cash used for financing activities related to returning cash to its shareholders in the form of stock repurchases and cash dividend payments. The $14.7 million decline in cash used for financing activities during the first half of fiscal year 2009 related to the $15.5 million reduction in stock repurchased by the Company.

The Company repurchased $2.5 million of its common stock during the first half of fiscal 2009 and had $93.3 million of remaining stock repurchases authorized by its Board of Directors as of October 31, 2008. See Part II, Item 2 for a table summarizing stock repurchases in the quarter ended October 31, 2008, and the approximate dollar value of shares that may be repurchased under the program.

Cash flow from operations combined with accumulated cash on hand and available borrowing capacity on the Company's $40 million line of credit, of which there were no borrowings during fiscal 2008 and 2009, is expected to be more than sufficient to meet forecasted working capital requirements, service existing debt obligations, and fund capital expenditures for the remainder of fiscal 2009.

The timing of the Company's contractual obligations as of April 30, 2008 is summarized in the table below.

                                                  FISCAL YEARS ENDING APRIL 30
                                 Total                                              2014 and
                                Amounts      2009      2010-2011     2012-2013     Thereafter
(in thousands)
Term credit facility            $ 10,000   $     -    $        -    $    10,000   $         -
Economic development loans         2,234         -             -             -           2,234
Term loans                         5,495        381           756           828          3,530
Capital lease obligations          9,178        483           996         1,035          6,664
Interest on long-term debt(a)      4,609        730         1,396         1,174          1,309
Operating lease obligations       20,066      4,400         6,528         3,558          5,580
Pension contributions (b)         31,433      6,560        12,164        12,709             -

Total                           $ 83,015   $ 12,554   $    21,840   $    29,304   $     19,317

(a) Interest commitments under interest bearing debt consists of interest under the Company's primary loan agreement and other term loans and capitalized lease agreements. The Company's term credit facility includes a $10 million term note that bears a variable interest rate determined by the London Interbank Offered Rate (LIBOR) plus a spread of .50%. Interest under other term loans and capitalized lease agreements is fixed at rates between 2% and 6%. Interest commitments under interest bearing debt for the Company's term credit facility is at LIBOR plus the spread as of April 30, 2008, throughout the remaining term of the agreement.

(b) The estimated cost of the Company's two defined benefit pension plans are determined annually based upon the discount rate and other assumptions at fiscal year end. Future pension funding contributions beyond 2013 have not been determined at this time. Expected contributions for the Company's two defined benefit pension plans for fiscal year 2009 were reduced to $5.6 million subsequent to April 30, 2008.

Dividends Declared

On November 20, 2008, the Board of Directors approved a $.09 per share cash dividend on its common stock. The cash dividend will be paid on December 22, 2008, to shareholders of record on December 8, 2008.

Seasonal and Inflationary Factors

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

Critical Accounting Policies

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes to the Company's critical accounting policies as disclosed in the Company's 2008 Annual Report, which was filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2008.