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AMWD > SEC Filings for AMWD > Form 10-K on 28-Jun-2013All Recent SEC Filings

Show all filings for AMERICAN WOODMARK CORP



Annual Report


Results of Operations

The following table sets forth certain income and expense items as a percentage of net sales:

                                               PERCENTAGE OF NET SALES
                                             Fiscal Years Ended April 30
                                              2013         2012      2011
Net sales                                     100.0 %       100.0 % 100.0 %
Cost of sales and distribution                 83.7          87.1    88.3
Gross profit                                   16.3          12.9    11.7
Selling and marketing expenses                  9.1          11.3    13.5
General and administrative expenses             4.4           4.9     5.0
Restructuring charges                           0.2           3.2     0.0
Insurance recovery                            (0.1)           0.0     0.0
Operating income (loss)                         2.7         (6.5)   (6.8)
Interest expense/other (income) expense         0.1         (0.1)   (0.2)
Income (loss) before income taxes               2.7         (6.4)   (6.6)
Income tax expense (benefit)                    1.1         (2.4)   (2.2)
Net income (loss)                               1.5         (4.0)   (4.4)

The following discussion should be read in conjunction with the Five-Year Selected Financial Information and the Consolidated Financial Statements and the related notes contained elsewhere herein.

Forward-Looking Statements

This annual 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 annual 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 but are not limited to: (1) general economic or business conditions and instability in the financial and credit markets, including their potential impact on our (i) sales and operating costs and access to financing; and (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses;
(2) the cyclical nature of the Company's industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers' income available for discretionary purchases, and the availability and terms of consumer credit; (3) economic weakness in a specific channel of distribution;
(4) the loss of sales from specific customers due to their loss of market share, bankruptcy or switching to a competitor; (5) risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials as well as fuel, transportation, warehousing and labor costs and environmental compliance and remediation costs;
(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 or a sales decline that requires reduction or realignment of the Company's manufacturing capacity. Additional information concerning the factors that could cause actual results to differ materially from those in forward-looking statements is contained in this annual report, including elsewhere in "Management's Discussion and Analysis" and also in the Company's most recent annual report on

Form 10-K for the fiscal year ended April 30, 2013, filed with the U.S. Securities and Exchange Commission (SEC), including under Item 1A, "Risk Factors," and Item 7A, "Quantitative and Qualitative Disclosures about Market Risk." 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 material adverse impact on its operating results and financial condition.

Any forward-looking statement that the Company makes speaks only as of the date of this annual report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events or otherwise, except as required by law.


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 April 30, 2013, the Company operated 9 manufacturing facilities and 9 service centers across the country.

During the Company's fiscal year that ended on April 30, 2013 (fiscal 2013), the Company experienced improving housing market conditions for the first time since the housing market downturn that began in 2007.

A number of positive factors evidenced the improving housing market, including:

Creation of approximately 2 million private sector jobs in the U.S. during the Company's fiscal years 2012 and 2013 (according to the U.S. Department of Labor);

A 15% improvement in Gross Private Residential Fixed Investment reported by the U.S. Department of Commerce during the most recent four quarters through the first quarter of calendar 2013, as compared with the same period one year ago;

Increases in total housing starts and single family housing starts during the Company's fiscal 2013 of 32% and 28%, respectively, as compared to the Company's fiscal 2012, according to the U.S. Department of Commerce;

The median price of existing homes sold in the U.S. improved for the first time in 7 years, rising by 10% during the Company's fiscal 2013, according to data provided by the National Association of Realtors;

Consumer confidence, as reported by the University of Michigan, averaged 10% higher during the Company's fiscal 2013 than in its prior fiscal year; and

Cabinet sales, as reported by members of the Kitchen Cabinet Manufacturers Association (KCMA), increased by 11% during fiscal 2013, suggesting an increase in both new construction and remodeling sales of cabinets.

Faced with an improving but still relatively subdued remodeling market, the Company's largest remodeling customers and competitors continued to utilize an elevated level of sales promotions in the Company's product category during fiscal 2013 to boost sales, although a noticeable easing occurred in the second half of fiscal 2013. The Company strives to maintain its promotional levels in line with market activity, with a goal of remaining competitive. The Company experienced promotional levels during fiscal 2013 that were lower than those experienced in its prior fiscal year. The Company's remodeling sales increased at a high-single digit pace during fiscal 2013 in a remodeling market that appears to have improved by a bit less than that level.

The Company increased its net sales by 22% during fiscal 2013. The Company realized strong sales gains in its new construction channel during fiscal 2013, where sales increased by more than 40%, significantly outpacing the improvement in single-family housing starts. Management believes this

result, combined with the Company's increased remodeling sales, indicates the Company realized market share gains in both of its sales channels during fiscal 2013.

During the third quarter of fiscal 2012, the Company announced several initiatives designed to reduce its cost base (the 2012 Restructuring), including the permanent closure of two manufacturing plants, the decision to sell a previously closed manufacturing facility, and the realignment of its retirement program, including the freezing of its pension plans. All of these initiatives were completed either prior to or just after the beginning of the Company's fiscal 2013, and restructuring charges related to these actions have been reflected in the Company's results during both years.

Gross margin for fiscal 2013 was 16.3%, significantly improved from 12.9% in fiscal 2012. The increase in the Company's gross margin rate was driven by reductions in the labor and overhead costs associated with the Company's restructuring activities, the beneficial impact of increased sales volume and the absence of the prior year's inventory write down, which more than offset the impact of rising materials costs.

The Company recorded restructuring charges of $15.9 million (pre-tax) and $10.0 million (after-tax) during fiscal 2012 and $1.4 million (pre-tax) and $0.9 million (after-tax) during fiscal 2013 in connection with these initiatives. Because the bulk of these restructuring efforts have been completed, the Company expects that its future out-of-pocket costs will be nominal. The Company sold a previously closed plant during fiscal 2013 and continues to include in "Other Assets" at an aggregate $2.7 million book value the other two plants held for sale that were included in the 2012 Restructuring.

The Company regularly considers the need for a valuation allowance against its deferred tax assets. The Company had a history of profitable operations for 16 consecutive years, from 1994 to 2009, followed by losses that coincided with the industry downturn from 2010 to 2012. As of April 30, 2013, the Company had total deferred tax assets of $38.7 million, down from $42.1 million at April 30, 2012. Growth in the Company's deferred tax assets in recent fiscal years resulted primarily from growth in its defined benefit pension liabilities and the impact of its recent losses prior to fiscal 2013. The Company earned sufficient net income during fiscal 2013 to fully utilize its Federal net operating loss carryforward. To fully realize these net deferred tax assets, the Company will need to, among other things, substantially reduce its net unfunded pension obligation of $53.7 million at April 30, 2013. The Company took definitive actions when it froze its pension plans as part of the 2012 Restructuring to enhance the probability that this objective is achieved in the future.

The Company resumed the funding of its pension plans during fiscal year 2012, and expects to continue funding these plans for the foreseeable future, which will reduce both its unfunded pension plan obligation and its deferred tax asset. These actions, coupled with the recent improvement in the U.S. housing market and the Company's continued ability to grow its sales at a faster rate than its competitors, have enabled the Company to generate net income and reduce its deferred tax assets and unfunded pension obligation during fiscal 2013. The Company believes that the positive evidence of the housing industry improvement, coupled with the benefits from the Company's successful restructuring and continued market share gains have already driven a return to profitability that is expected to continue, and that the combined impact of these positive factors outweighs the negative factor of the Company's previous losses. Accordingly, Management has concluded it is more likely than not that the Company will realize its deferred tax assets.

The Company also regularly assesses its long-lived assets to determine if any impairment has occurred. The Company has concluded that none of the long-lived assets pertaining to its 9 manufacturing plants or any of its other long-lived assets were impaired as of April 30, 2013.

Results of Operations

                                                           FISCAL YEARS ENDED APRIL 30
                                                                                 2013 vs.        2012 vs.
                                                                                   2012            2011
                                                                                  PERCENT         PERCENT
(in thousands)                          2013          2012          2011          CHANGE          CHANGE

Net sales                             $ 630,437     $ 515,814     $ 452,589              22 %            14 %
Gross profit                            102,656        66,475        52,751              54              26
Selling and marketing expenses           57,402        58,271        61,034              (1 )            (5 )
General and administrative expenses      27,575        25,329        22,709               9              12
Interest expense                            643           527           572              22              (8 )

Net Sales

Net sales were $630.4 million in fiscal 2013, an increase of $114.6 million, or 22%, compared with fiscal 2012. Overall unit volume for fiscal 2013 was 17% higher than in fiscal 2012, which management believes was driven primarily by the Company's increased market share. Average revenue per unit increased 4% in fiscal 2013, driven by improvements in the Company's product mix.

Net sales for fiscal 2012 increased 14% to $515.8 million from $452.6 million in fiscal 2011. Overall unit volume for fiscal 2012 was 9% higher than in fiscal 2011, which management believes was driven primarily by the Company's increased market share. Average revenue per unit increased 5% during fiscal 2012, driven primarily by improvements in product mix.

Gross Profit

Gross profit as a percentage of sales increased to 16.3% in fiscal 2013 as compared with 12.9% in fiscal 2012. The improvement in gross profit margin was due primarily to the beneficial impact of higher sales volume and labor and overhead cost savings associated with the Company's two plant closures in April and May of 2012. This favorability was partially offset by an increase in material costs. Specific changes and additional information included:

Labor and overhead costs improved by 3.6% as a percentage of net sales compared with the prior fiscal year, as the combination of the increased sales volume and the plant closures caused both a decrease in overhead costs and improved absorption of fixed overhead costs, while labor costs became increasingly more efficient throughout fiscal 2013 as productivity gains were realized following the plant closures;

Materials and freight costs increased as a percentage of net sales by 1.6% during fiscal 2013 as compared with fiscal 2012, driven primarily by inflationary pressures in finishing materials, lumber, cartons, plywood, particleboard and paint, as well as from increased levels of outsourcing following the recent plant closures; and

Sales promotion costs improved by 1.4% of net sales during fiscal 2013 compared with the prior year, as a result of both an increased proportion of new construction sales to the Company's total sales and reduced promotional activity. Sales promotions that involved the use of free products or cash reimbursements back to the Company's large remodeling customers were deducted from gross margin as opposed to being classified as operating expenses.

During fiscal 2012, the Company's gross profit increased as a percentage of net sales to 12.9% from 11.7% in fiscal 2011. Increased sales volume in fiscal 2012 created improved labor efficiencies and more favorable absorption of manufacturing overhead costs, which were partially offset by increased sales promotion costs, material costs and diesel fuel. Specific changes and additional information included:

Labor and overhead costs improved by 3.7% as a percentage of net sales during fiscal 2012 compared with the prior fiscal year, as increased sales volume caused increased productivity of direct labor and absorption of fixed overhead costs;

Materials and freight costs increased as a percentage of net sales by 1.8% during fiscal 2012 as compared with fiscal 2011, driven primarily by inflationary pressures in finishing materials, lumber, cartons, imported components, and diesel fuel; and

Sales promotion costs increased by 0.7% of net sales during fiscal 2012, as the Company chose to remain competitive with competitors' promotional offerings to drive sales growth in a challenging market.

Selling and Marketing Expenses

Selling and marketing expenses in fiscal 2013 were 9.1% of net sales, compared with 11.3% of net sales in fiscal 2012. Selling and marketing costs decreased by 1% despite a 22% increase in net sales. The improvement in sales and marketing costs in relation to net sales was due to reduced spending on product launch costs and cost reductions related to the Company's retirement plan changes, which were offset in part by increased sales compensation and staffing costs related to the Company's increased sales levels.

Selling and marketing expenses were 11.3% of net sales in fiscal 2012 compared with 13.5% in fiscal 2011. Cost savings from lower marketing collateral and branding costs, as well as reductions in product display costs more than offset the increases in employee compensation and travel costs incurred by the Company in fiscal 2012.

General & Administrative Expenses

General and administrative expenses increased by $2.2 million or 9% during fiscal 2013. The increase in cost was entirely related to increased pay-for-performance compensation. However, G&A costs declined to 4.4% of net sales in fiscal 2013 compared with 4.9% of net sales in fiscal 2012.

General and administrative expenses in fiscal 2012 increased by $2.6 million, or 12%, compared with fiscal 2011 and represented 4.9% of net sales, compared with 5.0% of net sales for fiscal 2011. The majority of the cost increase was related to increased pay-for-performance compensation.

Effective Income Tax Rates

The Company generated pre-tax income of $16.7 million during fiscal 2013, including $1.4 million of restructuring charges. The Company's effective tax rate increased from 37.6% in fiscal 2012 to 41.7% in fiscal 2013. The higher effective tax rate was the result of relatively consistent amounts of permanent tax differences in relation to the net income generated in fiscal 2013 compared with the net loss generated in the prior year.

Outlook for Fiscal 2014

The Company tracks several metrics, including but not limited to housing starts, existing home sales, mortgage interest rates, new jobs growth, GDP growth and consumer confidence, which it believes are leading indicators of overall demand for kitchen and bath cabinetry. The Company believes that housing prices finally bottomed during its fiscal 2012 and have begun what it expects will be a multi-year improvement, driven by employment growth and a resumption of growth in new household formation. However, because the number of homeowners still owing more than what their homes are worth remains at historically high levels, the Company expects that while the cabinet remodeling market will show modest improvement it will continue to be well below the historic highs reached in the previous decade.

Driven by an improving housing market, the Company expects that industry-wide cabinet remodeling sales will continue a trend that began during fiscal 2013 and improve at roughly a mid-single digit rate during its fiscal 2014. The Company expects that its home center market share will

be relatively stable in fiscal 2014 and it will continue to gain market share in its growing dealer business. This combination is expected to result in remodeling sales growth that outpaces the market by several percentage points.

The Company agrees with the consensus estimate that new construction starts will continue to grow at a mid-20% rate during its fiscal 2014. The Company's new construction sales growth outperformed the new construction market by approximately 20 points during fiscal 2013, and expects that it will again outperform the new construction market during fiscal 2014 but by a significantly lesser rate, as its comparable prior year sales levels become more challenging.

Inclusive of the potential for modest sales mix and pricing improvements, the Company expects that it will grow its total sales at a mid-teen rate in fiscal 2014. The Company experienced production inefficiencies during the first half of its fiscal 2013 driven by the combination of work transition issues from its closed plants, coupled with production volume increases that were driven by unexpectedly high sales levels. These issues were resolved during the third quarter of the Company's fiscal 2013, enabling the Company's gross margin rate to improve in the fourth quarter of fiscal 2013. The Company expects that its gross margin rate and net income for fiscal 2014 will improve compared with its fiscal 2013 performance.

The Company had gross outlays for capital expenditures and customer display units of $13.5 million during fiscal 2013, and plans to increase this spending level modestly during fiscal 2014. However, the Company is undertaking a multi-year review of its manufacturing capacity and capital expenditure plans which could cause its capital expenditures to exceed this level.

Additional risks and uncertainties that could affect the Company's results of operations and financial condition are discussed elsewhere in this annual report, including under "Forward-Looking Statements," and elsewhere in "Management's Discussion and Analysis," as well as in the Company's annual report on Form 10-K for the fiscal year ended April 30, 2013 filed with the SEC, including under Item 1A, "Risk Factors" and Item 7A, "Quantitative and Qualitative Disclosures about Market Risk."

Liquidity and Capital Resources

The Company's cash, cash equivalents and restricted cash totaled $97.0 million at April 30, 2013, which represented an increase of $23.3 million from April 30, 2012. Total debt was $24.7 million at April 30, 2013, virtually unchanged from the prior fiscal year and long-term debt, excluding current maturities, to capital was 13.9% at April 30, 2013, down from 15.5% at April 30, 2012.

The Company's main source of liquidity is its cash and cash equivalents on hand and cash generated from its operating activities. During fiscal 2013 the Company renegotiated its revolving credit agreement with its primary lender and is no longer required to hold restricted cash to secure borrowings under that agreement.


Cash provided by operating activities in fiscal 2013 was $24.5 million, compared with $16.1 million in fiscal 2012. The $8.4 million improvement was primarily attributable to the Company's $22.9 million improvement in net income and reduction in asset impairments related to the 2012 Restructuring. This improvement was offset in part by a $13.6 million net working capital investment in its operating assets and liabilities to fund growth and increased contributions to its pension plans of $2.0 million.

Cash provided by operating activities in fiscal 2012 was $16.1 million, compared with $13.2 million in fiscal 2011. The $2.9 million improvement was primarily attributable to the reduction in the Company's operating loss exclusive of restructuring charges of $13.9 million. This improvement was offset in part by reductions in proceeds from income tax refunds of $7.1 million, from increasing funding to its pension plans of $2.9 million, and from funding restructuring costs of $1.2 million.


The Company's investing activities primarily consist of capital expenditures and investments in promotional displays. Net cash used by investing activities in fiscal 2013 was $6.1 million, compared with $9.9 million in fiscal 2012 and $5.5 million in fiscal 2011. Investments in property, plant and equipment for fiscal 2013 were $8.9 million, compared with $6.7 million in fiscal 2012 and $5.0 million in fiscal 2011. Investments in promotional displays were $4.8 million in fiscal 2013, compared with $3.3 million in fiscal 2012 and $3.5 million in fiscal 2011. The increased level of investment during fiscal 2013 primarily represents machinery and equipment enhancements to enable production volume to increase and an increase in the number of display units deployed with customers.

During fiscal 2013, the Company's reduced net cash used for investing activities was driven by the receipt of $6.4 million in proceeds from the sales of assets from closed plants and insurance proceeds of $1.0 million, which more than offset the aggregate $3.6 million increase in outflows for capital expenditures and promotional displays.

The Company generated positive free cash flow (defined as cash provided by operating activities less cash used for investing activities) of $18.4 million during fiscal 2013, compared with $6.1 million in fiscal 2012 and $7.7 million in fiscal 2011. The increase in fiscal 2013 was driven by the net improvements in both cash provided by operating activities and decreased net outflows used for investing activities. The reduction in fiscal 2012 was driven by increased net outflows used for investing activities that more than offset net improvements in cash provided by operating activities.


The Company realized a net inflow of $11.9 million from financing activities in fiscal 2013, compared with a $5.1 million inflow in fiscal 2012, and a net outflow of $5.5 million in fiscal 2011. Reductions in the amount of restricted cash drove inflows of approximately $7 million in both fiscal 2013 and 2012. Additional proceeds of $5.9 million were generated during fiscal 2013 from the exercise of stock options. Approximately $1 million was used to repay long-term debt in each of the years in the three-year period ended in fiscal 2013, while fiscal 2012 and 2011 was further impacted by dividend payments to shareholders of $1.3 million and $5.1 million, respectively.

The Company elected to suspend its quarterly dividend during fiscal 2012. The Company ended fiscal 2013 with a record level of nearly $97 million in cash and cash equivalents. The Company is authorized to repurchase up to $93.3 million of its stock under an authorization approved by its Board of Directors in 2007. The Company continues to evaluate its cash on hand and prospects for future cash generation, and compare these against its go-forward reinvestment plans for future capital expenditures. Although the evaluation of its future capital expenditures is ongoing, the Company expects that it will make repurchases of its common stock from time to time during fiscal 2014.

The Company can borrow up to $35 million under the Wells Fargo credit facility, subject to a maximum borrowing base equal to 75% of eligible accounts receivable, 50% of eligible pre bill reserves and up to $20 million for equipment value (each as defined in the agreement). At April 30, 2013, $10 million of loans and $3.7 million of letters of credit were outstanding under the Wells Fargo facility.

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