-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, q1JMsKRkOJeFaVx/fzYxvL9o9bdNhqsb/6eQ0D64RL6cJE0G7ylquNp+ofMyU4XV KuxCRSVnTiS/cKHa3TvkIw== 0000794619-95-000020.txt : 199507180000794619-95-000020.hdr.sgml : 19950718 ACCESSION NUMBER: 0000794619-95-000020 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950717 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN WOODMARK CORP CENTRAL INDEX KEY: 0000794619 STANDARD INDUSTRIAL CLASSIFICATION: MILLWOOD, VENEER, PLYWOOD & STRUCTURAL WOOD MEMBERS [2430] IRS NUMBER: 541138147 STATE OF INCORPORATION: VA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-14798 FILM NUMBER: 95554376 BUSINESS ADDRESS: STREET 1: 3102 SHAWNEE DR CITY: WINCHESTER STATE: VA ZIP: 22601 BUSINESS PHONE: 7036659100 MAIL ADDRESS: STREET 1: PO BOX 1980 CITY: WINCHESTER STATE: VA ZIP: 22604-8090 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended April 30, 1995 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the transition period from _______ to _______. Commission File Number 0-14798 AMERICAN WOODMARK CORPORATION (Exact name of the registrant as specified in its character) VIRGINIA 54-1138147 (State or other jurisdiction of (I.R.S. Employer incorporation) Identification NO) 3102 Shawnee Drive, Winchester, Virginia 22601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (703) 665-9100 Securities registered pursuant to Section 12(g) of the Act: Name of each exchange on Title of each class which is registered Common Stock (No par value) NASDAQ Indicate by check mark whether the registrant (1) 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 (or for such shorter period that the regis- trant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's Common Stock, no par value, held by non-affiliates of the registrant at April 30, 1995 was: $14,586,806 based on the closing price on that date on the NASDAQ Exchange. As of June 26, 1995, 7,569,663 shares of the Registrant's Common Stock were outstanding. Documents Incorporated by Reference Portions of the annual report to stockholders for the fiscal year ended April 30, 1995 are incorporated by reference into Parts I and II of this Form 10-K. Portions of the proxy statement for the annual meeting of the stockholders to be held on August 23, 1995 are incorporated by reference into Part III of this Form 10-K. PART I Item 1. BUSINESS American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The Company was formed in 1980 by the four principal managers of the Boise Cascade Cabinet Division through a leveraged buyout of that division. The Company was operated privately until 1986 when it became a public company through a common stock offering. The Company currently offers framed stock cabinets in almost 100 diff- erent cabinet lines, ranging in price from relatively inexpensive to medium priced styles. Styles vary by design and color from natural wood finishes to low-pressure laminate surfaces. The entire product offering includes thirty-six door designs and six colors. Stock cabinets consist of a common box with standard interior components and an oak, cherry or maple front frame. The Company's products are sold under the brand names of American Woodmark(R), Crestwood(R), Timberlake(TM), Scots Pride(TM), and Coventry and Case(TM) cabinets. American Woodmark's products are sold on a national basis via three market channels: independent dealer/distributors, home centers, and major builders. It is estimated that 60% of sales during the fiscal year ended April 30, 1995 were to the remodeling market and 40% to the new home market. Products are distributed to each market channel directly from the Company's three assembly plants and through a logistics network consisting of six service centers located in key areas throughout the United States. The primary raw materials used by the Company are oak and maple lum- ber, paint, particle board, manufactured components, and hardware. The Company currently purchases paint from one supplier; however, other sources are available. Oak and maple lumber, particle board, manufactured components, and hardware are purchased from more than one source and are readily available. The Company operates in a highly fragmented industry which is composed of several thousand local, regional and national manufacturers. The Company believes that no other company in the industry has more than a 15% share of the market. The Company also believes that American Woodmark is one of the five largest manufacturers of kitchen cabinets in the United States. The Company's business has historically been subjected to seasonal influences, with higher sales typically realized in the second and fourth fiscal quarters. General economic forces and changes in the Company's customer mix have reduced seasonal fluctuations in the Company's revenue over the past few years. In the fiscal year ended April 30, 1995, the Company had two cust- omers, Builders Square, Inc., a subsidiary of K-mart Corporation, and The Home Depot, who each accounted for in excess of 10% of the Comp- any's sales. At April 30, 1995, the Company had 2,323 employees. Approximately 31% of its employees are represented by labor unions. Management believes its employee relations are excellent. Item 2. PROPERTIES The Company leases its corporate offices which are located in Win- chester, Virginia. In addition, the Company leases one and owns six manufacturing facilities located primarily in the eastern United States. The Company also leases six service centers located through- out the United States which support the distribution of products to each market channel. Item 3. LEGAL PROCEEDINGS 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 con- sultation 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. The Company is voluntarily participating with a group of companies which is cleaning up a waste facility site at the direction of a state environmental authority. The Company is also involved in other mat- ters under the direction of state environmental authorities. The Company records liabilities for all probable and reasonably esti- mable loss contingencies on an undiscounted basis. For loss contin- gencies related to environmental matters, liabilities are based on the Company's proportional share of the contamination obligation of a site since management believes it "probable" that the other parties, which are financially solvent, will fulfill their proportional contamination obligations. There are no probable insurance or other indemnification receivables recorded. The Company has accrued for all known environ- mental remediation costs which are probable and can be reasonably est- imated, and such amounts are not material. Due to factors such as the continuing evolution of environmental laws and regulatory require- ments, technological changes, and the allocation of costs among poten- tially responsible parties, estimation of future remediation costs is necessarily imprecise. It is possible that the ultimate cost, which cannot be determined at this time, could exceed the Company's recorded liability. As a result, charges to income for environmental liabili- ties could have a material effect on results of operations in a parti- cular quarter or year as assessments and remediation efforts proceed. However, management is not aware of any matters which would be ex- pected to have a material adverse effect on the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS "Market Information" in the American Woodmark Corporation's 1995 Annual Report to Stockholders ("1995 Annual Report") is incorporated herein by reference. The Company's primary loan agreement prohibits the payment of cash dividends. The Company has not paid cash dividends on its Common Stock since its inception. Item 6. SELECTED FINANCIAL DATA "Five Year Selected Financial Information" in the 1995 Annual Report is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis" in the 1995 Annual Report is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements, "Quarterly Results of Operations," and the Report of Ernst & Young LLP, Independent Auditors, in the 1995 Annual Report are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning the directors and nominees for director- ships, see the information under the caption "Election of Directors" in the Registrant's Proxy Statement ("Proxy Statement") for the Annual Meeting of Stockholders to be held on August 23, 1995, which informa- tion is incorporated herein by reference. The executive officers of the Registrant as of April 30, 1995 are as follows: Name Age Position Held During Past Five Years William F. Brandt, Jr. 49 Chairman and President since 1980 James J. Gosa 47 Executive Vice President since March, 1993 Vice President, Sales and Marketing 1991-1993 Vice President, Marketing and Branch Operations Thomas Somerville Co. 1985-1991 Director since 1995 Donald P. Mathias 56 Vice President, Assembly and Distribution since January, 1994 Vice President, Operations 1980-1994 Director since 1980 David L. Blount 47 Vice President, Component Manufacturing since January, 1994 Vice President, Manufacturing 1983-1994 Kent B. Guichard 39 Vice President, Finance since August, 1993 Vice President & Controller, AM Graphics Division, AM International 1991-1993 Controller, Aircraft Wheel and Brake Operations, BF Goodrich Company 1989-1991 C. Stokes Ritchie 43 Vice President, Sales & Marketing since May, 1994 Regional Manager, Insulation Division, Owens/Corning Fiberglass Corporation 1991-1994 General Manager, Arabian Fiberglass Insulation Company, Owens/Corning Fiberglass Corporation 1989-1991 For information concerning Item 405, disclosure of delinquent filers, see the information under the caption, "Election of Directors" in the Proxy Statement, which information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION The "Compensation of Executive Officers" segment in the Proxy State- ment is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The "Principal Shareholders of the Company" segment in the Proxy Statement is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Transactions" in the Proxy Statement is incorporated herein by reference. Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following Financial Statements of American Woodmark Corporation are incorporated by reference in Item 8: Balance Sheet - April 30, 1995 and 1994 Statement of Income and Retained Earnings - for each of the years in the three-year period ended April 30, 1995 Statement of Cash Flows - for each of the years in the three-year period ended April 30, 1995 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors (a) 2. Financial Statement Schedules The following Financial Statement schedule is included in a separate section of this report: Schedule Page II. Valuation and qualifying accounts S-1 All other schedules for which provisions are made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) 3. Exhibits Exhibit No. Description 3.1 - Articles of Incorporation as amended effective August 12, 1987 (3) 3.2 - Bylaws (1) 3.3 - Amendment to Bylaws on June 22, 1994 (7) 4 - Amended and Restated Stockholders' Agreement (1) 9 - Voting Agreement (1) 10.1 (a) - Amended and Restated Loan Agreement between the Company and NationsBank of North Carolina as of March 23, 1992 (5) 10.1 (b) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of September 8, 1992 (6) 10.1 (c) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of June 25, 1993 (6) 10.1 (d) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of March 15, 1993 (6) 10.1 (e) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of August 31, 1993 (7) 10.1 (f) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of March 15, 1994 (7) 10.1 (g) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of July 27, 1994 10.2 (a) - Security Agreement between the Company and NationsBank of North Carolina as of March 23, 1992 (5) 10.2 (b) - Amendment to Security Agreement as of August 31, 1993 (7) 10.3 (a) - Bond Purchase Agreement Sale - Orange, Virginia (1) 10.3 (b) - Bond Purchase Agreement and Agreement of Sale - Orange, Virginia (1) 10.3 (c) - Bond Purchase Agreement and Agreement of Sale - The Industrial Development Authority of the County of Mohave, Arizona (2) 10.3 (d) - Bond Purchase Agreement and Agreement of Sales - Stephens County Development Authority (3) 10.3 (e) - Amendment of Bond Purchase Agreement and Agreement of Sale - Orange, Virginia (4) 10.3 (f) - Loan Agreement between the Company and the County Commission of Hardy County, West Virginia as of December 1, 1991, relating to bond financing (5) 10.3 (g) - Promissory Note between the Company and County Commission of Hardy County, West Virginia as of December 18, 1991 (5) 10.3 (h) - Reimbursement Agreement between the Company and NationsBank as of December 1, 1991 (5) 10.3 (i) - Amendment to Reimbursement Agreements as of June 15, 1992 (5) 10.4 (a) - Credit Line Deed of Trust and Security Agreement - Orange and Clarke Counties, Virginia, as amended (1) 10.4 (b) - Deed of Trust and Security Agreement - Hardy County, West Virginia, as amended (1) 10.5 (a) - Loan Agreement between the Company and the West Virginia Economic Development Authority and the Hardy County Rural Development Authority (1) 10.5 (b) - Security Agreement between the Company and the West Virginia Economic Development Authority (1) 10.5 (c) - Deed of Trust - Hardy County, West Virginia (1) 10.6 (a) - Lease between the Company and Amwood Associates (1) 10.6 (b) - Lease between the Company and the West Virginia Industrial and Trade Jobs Development Corporation (3) 10.6 (c) - Lease between the Company and the West Virginia Industrial and Trade Jobs Development Corporation (3) 10.6 (d) - Amendment to Deed of Lease between the Company and West Virginia Economic Development Authority as of March 30, 1992 (5) 10.7 (a) - 1986 Employee Stock Option Plan (1) 10.7 (b) - Form of Option Agreement and Stock Purchase Agreement (1) 10.7 (c) - 1990 Non-Employee Directors Stock Option Plan (7) 10.8 - 1995 Incentive Plan 11 - Computation of Earnings Per Share 13 - 1995 Annual Report to Stockholders 18 - None 23 - Consent of Ernst & Young LLP, Independent Auditors 27 - Financial Data Schedule (b) Reports on Form 8-K None. (1) - Incorporated by reference to exhibits filed with Form S-1, No. 33-6245. (2) - Incorporated by reference to exhibits filed with the 1987 Form 10-K. (3) - Incorporated by reference to exhibits filed with the 1988 Form 10-K. (4) - Incorporated by reference to exhibits filed with the 1989 Form 10-K. (5) - Incorporated by reference to exhibits filed with the 1992 Form 10-K. (6) - Incorporated by reference to exhibits filed with the 1993 Form 10-K. (7) - Incorporated by reference to exhibits filed with the 1994 Form 10-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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/ WILLIAM F. BRANDT, JR. William F. Brandt, Jr. President Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ KENT B. GUICHARD /s/ MARTHA M. DALLY Kent B. Guichard Martha M. Dally Vice-President, Finance Director /s/ JAMES J. GOSA /s/ JOHN T. GERLACH James J. Gosa John T. Gerlach Executive Vice President Director Director /s/ DONALD P. MATHIAS /s/ RICHARD A. GRABER Donald P. Mathias Richard A. Graber Vice President, Assembly and Director Distribution Director /s/ DANIEL T. CARROLL /s/ C. ANTHONY WAINWRIGHT Daniel T. Carroll C. Anthony Wainwright Director Director Schedule II - Valuation and Qualifying Accounts AMERICAN WOODMARK CORPORATION (In Thousands) Additions Balance at Charged to Balance Beginning Cost and Deduc- at End Description(a) of Period Expenses tions of Period Year ended April 30, 1995: Allowance for doubtful accounts $ 313 $ 40 $ (110)(b) $ 243 Reserve for cash discounts $ 225 $2,811(c) $(2,796)(d) $ 240 Reserve for sales returns and allowances $ 679 $3,865(c) $(3,846) $ 698 Year ended April 30, 1994: Allowance for doubtful accounts $ 818 $ 234 $ (739)(b) $ 313 Reserve for cash discounts $ 240 $2,393(c) $(2,408)(d) $ 225 Reserve for sales returns and allowances $ 903 $3,792(c) $(4,016) $ 679 Year ended April 30, 1993: Allowance for doubtful accounts $ 860 $ 372 $ (414)(b) $ 818 Reserve for cash discounts $ 200 $2,352(c) $(2,312)(d) $ 240 Reserve for sales returns and allowances $ 494 $4,579(c) $(4,170) $ 903 (a) All reserves relate to accounts receivable. (b) Principally write-offs, net of collections. (c) Reduction of gross sales. (d) Cash discounts granted. In accordance with Securities and Exchange Commission requirements, the Company will furnish copies of all exhibits to its Form 10-K not contained herein upon receipt of a written request and payment of $.10 (10 cents) per page to: Mr. Kent Guichard Vice President, Finance American Woodmark Corporation P.O. Box 1980 Winchester, Virginia 22604-8090 EX-10 2 AMENDMENT TO LOAN AGREEMENT Exhibit 10.1 (g) SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of July 27, 1994, is to that certain Amended and Restated Loan Agreement dated as of August 31, 1993, as amended as of March 15, 1994 (as amended and restated, the "Loan Agreement"; all defined terms in the Loan Agreement are incorporated herein by reference) by and between AMERICAN WOODMARK CORPORATION, a corporation organized and existing under the laws of the Commonwealth of Virginia and having its principal place of business in Winchester, Virginia (the "Borrower"); and NATIONSBANK OF NORTH CAROLINA, N.A., a national banking association organized and existing under the laws of the United States and having offices in Charlotte, North Carolina (the "Bank"). RECITAL A. The Bank and the Borrower have agreed to make changes to the Loan Agreement as provided for herein. NOW, THEREFORE, the parties hereto agree as follows: 1. The Loan Agreement is hereby amended as follows: (a) Section 1.01 is amended by adding the following definitions in the alphabetically appropriate places: "Applicable Rate" means for any fiscal quarter, the applicable interest rates on the Prime Loans and the Fixed CD Loans set forth below based upon the Pricing Leverage Ratio and the Pricing Coverage Ratio as of the last day of the prior fiscal quarter: Prime Loan Fixed CD Loan Interest Rates Interest Rates --------------------------- ----------------------- Term Loan and Term Loan and Additional Revolving Additional Revolving Term Loan Loans Term Loan Loans Category 1 Pricing Leverage Prime Rate Prime Rate Fixed CD Fixed CD Ratio of less than plus 0.0% plus 0.0% Rate plus Rate plus 1.75 to 1.0 and 1.25% 1.00% Pricing Coverage Ratio of greater than 1.85 to 1.0 Category 2 Pricing Leverage Prime Rate Prime Rate Fixed CD Fixed CD Ratio of less than plus 0.0% plus 0.0% Rate plus Rate plus 2.1 to 1.0 but 1.75% 1.5% equal to or greater than 1.75 to 1.0 and Pricing Coverage Ratio of greater than 1.4 to 1.0 but equal to or less than 1.85 to 1.0 Category 3 Pricing Leverage Prime Rate Prime Rate Prime Rate Prime Rate Ratio equal to or plus 0.0% plus 0.0% plus 0.0% plus 0.0% greater than 2.1 and Pricing Coverage Ratio of equal to or less than 1.4 to 1.0 For purposes of the foregoing, if the Pricing Leverage Ratio and the Pricing Coverage Ratio shall fall within different Categories, the Applicable Rate applicable to any Prime Loan or Fixed CD Loan shall be based upon the inferior (or numerically highest) Category. "Available Committed Amount" or "Available Commitment" means $8,000,000.00, as such amount may be increased from time to time up to the Maximum Commitment pursuant to the terms of Section 2.02; "Clawback Fee" shall have the meaning given to such term in Section 5.09 hereof; "Fixed CD Loan" means a Loan based on the Fixed CD Rate; "Fixed CD Rate" means the rate, on the day of borrowing, bid by New York certificate of deposit dealers of recognized standing for the purchase of the Bank's large negotiable certificates of deposit at face value in the requested amount of maturity, such rate being adjusted for the cost of (i) reserve requirements as prescribed by the Federal Reserve System and (ii) insurance premiums on certificates of deposit paid to the Federal Deposit Insurance Corporation; "Interest Payment Date" means (i) as to any Prime Loan, the first day of January, April, July and October in each year, and the Termination Date (with respect to the Revolving Loans only), the Term Loan Maturity Date (with respect to the Term Loan) and the Additional Term Loan Maturity Date (with respect to the Additional Term Loan), beginning with the first of such dates to occur after the Closing Date; (ii) as to any Fixed CD Loan and any Quoted Loan for which the Interest Period is 90 days or less, the last day of the Interest Period; and (iii) as to any Quoted Loan for which the Interest Period is more than 90 days, the date 90 days from the beginning of the Interest Period and the date ending each 90 day period thereafter until the end of the Interest Period and the last day of the Interest Period. If any Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day; "Interest Period" means (i) as to any Fixed CD Loan, a period of 30, 60 or 90 days' duration as the Borrower may elect, commencing on the date of such Fixed CD Loan or immediately upon expiration of the preceding Fixed CD Loan and (ii) as to any Quoted Loan, a period of time mutually agreed upon by the Borrower and the Bank at the time of such borrowing, commencing on the date of such Quoted Loan or immediately upon expiration of the preceding Quoted Loan; PROVIDED, HOWEVER, that (A) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day and (B) no Interest Period shall end later than the Termination Date (in the case of Revolving Credit Loans), the Term Loan Maturity Date (in the case of the Term Loan) or the Additional Term Loan Maturity Date (in the case of the Additional Term Loan); "Maximum Commitment" means $12,000,000.00; "Pricing Coverage Ratio" means as of the last day of any fiscal quarter, the ratio of Net Income Before Interest and Taxes plus Operating Lease Expense to Interest Expense plus Operating Lease Expense (computed for the most recent twelve month period then ended); "Pricing Leverage Ratio" means as of the last day of any fiscal quarter, the ratio of Total Liabilities to Tangible Net Worth; "Prime Loan" means a Loan based on the Prime Rate; "Quoted Loans" means a Loan based on the Quoted Rate; "Quoted Rate" means that fixed rate of interest quoted by the Bank in its sole discretion and agreed to by the Borrower on the day of borrowing; "Unavailable Committed Amount" shall have the meaning given to such term in Section 2.01 hereof; (b) The definition of "Committed Amount" is deleted; (c) The definition of "Termination Date" is amended so that such definition now reads as follows: "Termination Date" means August 31, 1996; (d) The definition of "Unutilized Commitment" is amended in its entirety so that such definition now reads as follows: "Unutilized Available Commitment" means, at any time, the excess of the Available Committed Amount at such time over the aggregate principal amount of the Revolving Credit Loans outstanding at such time; and (e) Section 2.01 is amended in its entirety so that such Section now reads as follows: 2.01 REVOLVING CREDIT LOANS. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Bank agrees to make Revolving Credit Loans to the Borrower, at any time or from time to time on or after the date hereof and until the Termination Date, in an aggregate principal amount at any time outstanding not to exceed the Available Committed Amount. The Borrower may borrow, repay and reborrow hereunder on or after the date hereof and prior to the Termination Date, subject to the terms, provisions and limitations set forth herein. The Borrower and the Bank have agreed that $4,000,000 of the Maximum Commitment shall initially be unavailable for borrowing hereunder (such unavailable amount, as it may be reduced or reinstated from time to time as hereinafter provided, may be referred to as the "Unavailable Committed Amount"). The Borrower may convert, from time to time at its option and up to the day before the Termination Date, all or a portion of the Unavailable Committed Amount to the Available Committed Amount by delivery of a written notice to the Bank requesting such conversion; provided, however, that each such request shall be in a minimum amount of $1,000,000 or an integral multiple thereof. Upon receipt of such request by the Bank and upon payment by the Borrower of the Clawback Fee, the requested portion of the Unavailable Committed Amount shall be converted to the Available Committed Amount and, subject to the other terms and conditions hereof, shall be available for borrowing hereunder. The Borrower may elect from time to time, at its option, to reconvert and reinstate portions of the Available Committed Amount previously available for borrowing back into the Unavailable Committed Amount by delivery of written notice to the Bank requesting such reconversion; provided, however, (i) such request for reconversion shall be in a minimum amount of $1,000,000 or an integral multiple thereof and (ii) no such reconversion may be made within ninety (90) days of such amounts first being converted into Available Committed Amounts (on a FIFO basis). (f) Section 2.02 is amended in its entirety so that such Section now reads as follows: 2.02 (a) RATE OPTIONS. Each Revolving Credit Loan shall be a Fixed CD Loan, a Quoted Loan or a Prime Loan (or a combination thereof) as the Borrower may request subject to and in accordance with this Section; provided, however, the Borrower shall not be entitled to request Fixed CD Loans during any fiscal quarter if the Pricing Leverage Ratio as of the last day of the prior fiscal quarter is equal to or greater than 2.1 to 1.0 or the Pricing Coverage Ratio as of the last day of the prior fiscal quarter is equal to or less than 1.4 to 1.0. Subject to the other provisions of this Section and the provisions of Section 5.08, Revolving Credit Loans of more than one type may be outstanding at the same time; provided, however, not more than three (3) Fixed CD Loans may be outstanding at the same time. (b) NOTICE. As to each Revolving Credit Loan, the Borrower shall give the Bank prior written, telegraphic or telephonic (and if telephonic, confirmed in writing by the Borrower within 5 days thereof) notice not later than 10:00 a.m. (Charlotte, North Carolina time) on the date of the requested borrowing. In each case such notice shall be irrevocable and shall specify the amount of the proposed borrowing, the date of the proposed borrowing (which shall be a Business Day), the type of Loan requested and, if such Loan is to be a Fixed CD Loan, the Interest Period with respect thereto. If no election is specified in such notice, such Loan shall be a Prime Loan. On the borrowing date specified in such notice, the Bank shall make the borrowing available to the Borrower at the Borrower's account maintained at the offices of the Bank in Charlotte, North Carolina in immediately available funds. (c) MINIMUM AMOUNTS. Each Revolving Credit Loan (i) which is a Prime Loan shall be in a minimum principal amount of $50,000.00, (ii) which is a Fixed CD Loan shall be in a minimum principal amount of $1,000,000.00 and (iii) which is a Quoted Loan shall be in a minimum principal amount determined by the Bank in its sole discretion at the time of borrowing. (d) CONTINUANCE, CONVERSION. The Borrower may continue the Revolving Credit Loans, or convert all or any part of any Revolving Credit Loan into Revolving Credit Loans of a different type in accordance with Section 5.08 and subject to the limitations set forth herein. (g) Section 2.04 is amended in its entirety so that such Section now reads as follows: 2.04 Interest Rate Options. (a) PRIME LOANS. Subject to the provisions of Section 5.01, each Revolving Credit Loan which is a Prime Loan shall bear interest at a rate per annum, (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable Rate. (b) FIXED CD LOANS. Subject to the provisions of Section 5.01, each Revolving Credit Loan which is a Fixed CD Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable Rate. (c) QUOTED LOANS. Subject to the provisions of Section 5.01, each Revolving Credit Loan which is a Quoted Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Quoted Rate. The Bank shall determine the applicable Fixed CD Rate for any Revolving Credit Loan which bears interest based upon the Fixed CD Rate on the date when such determination is to be made in respect of such Interest Period (or as soon thereafter as practicable), and shall notify the Borrower and confirm the Borrower's acceptance of the rate so determined. Such determination shall be conclusive absent manifest error. Any Revolving Credit Loan which bears interest based upon the Prime Rate shall increase or decrease on the same date which the Prime Rate changes. (h) Section 3.02 is amended in its entirety so that such Section now reads as follows: 3.02 (a) RATE OPTIONS. Each Term Loan shall be a Fixed CD Loan, a Quoted Loan or a Prime Loan (or a combination thereof) as the Borrower may request subject to and in accordance with this Section; provided, however, the Borrower shall not be entitled to request Fixed CD Loans during any fiscal quarter if the Pricing Leverage Ratio as of the last day of the prior fiscal quarter is equal to or greater than 2.1 to 1.0 or the Pricing Coverage Ratio as of the last day of the prior fiscal quarter is equal to or less than 1.4 to 1.0. Subject to the other provisions of this Section and the provisions of Section 5.08, Term Loans of more than one type may be outstanding at the same time; provided, however, not more than three (3) Fixed CD Loans may be outstanding at the same time. (b) NOTICE. As to each Term Loan, the Borrower shall give the Bank prior written, telegraphic or telephonic (and if telephonic, confirmed in writing by the Borrower within 5 days thereof) notice not later than 10:00 a.m. (Charlotte, North Carolina time) on the date of the requested borrowing. In each case such notice shall be irrevocable and shall specify the amount of the proposed borrowing, the date of the proposed borrowing (which shall be a Business Day), the type of Loan requested and, if such Loan is to be a Fixed CD Loan, the Interest Period with respect thereto. If no election is specified in such notice, such Loan shall be a Prime Loan. (c) MINIMUM AMOUNTS. Each Term Loan (i) which is a Prime Loan shall be in a minimum principal amount of $50,000.00, (ii) which is a Fixed CD Loan shall be in a minimum principal amount of $1,000,000.00 and (iii) which is a Quoted Loan shall be in a minimum principal amount determined by the Bank in its sole discretion at the time of borrowing. (d) CONTINUANCE, CONVERSION. The Borrower may continue the Term Loans, or convert all or any part of any Term Loan into Term Loans of a different type in accordance with Section 5.08 and subject to the limitations set forth herein. (i) Section 3.04 is amended in its entirety so that such Section now reads as follows: 3.04 INTEREST RATE OPTIONS. (a) PRIME LOANS. Subject to the provisions of Section 5.01, each Term Loan which is a Prime Loan shall bear interest at a rate per annum, (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable Rate. (b) FIXED CD LOANS. Subject to the provisions of Section 5.01, each Term Loan which is a Fixed CD Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable Rate. (c) QUOTED LOANS. Subject to the provisions of Section 5.01, each Term Loan which is a Quoted Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Quoted Rate. The Bank shall determine the applicable Fixed CD Rate for any Term Loan which bears interest based upon the Fixed CD Rate on the date when such determination is to be made in respect of such Interest Period (or as soon thereafter as practicable), and shall notify the Borrower and confirm the Borrower's acceptance of the rate so determined. Such determination shall be conclusive absent manifest error. Any Term Loan which bears interest based upon the Prime Rate shall increase or decrease on the same date which the Prime Rate changes. (j) Section 4.02 is amended in its entirety so that such Section now reads as follows: 4.02 (a) RATE OPTIONS. Each Additional Term Loan shall be a Fixed CD Loan, a Quoted Loan or a Prime Loan (or a combination thereof) as the Borrower may request subject to and in accordance with this Section; provided, however, the Borrower shall not be entitled to request Fixed CD Loans during any fiscal quarter if the Pricing Leverage Ratio as of the last day of the prior fiscal quarter is equal to or greater than 2.1 to 1.0 or the Pricing Coverage Ratio as of the last day of the prior fiscal quarter is equal to or less than 1.4 to 1.0. Subject to the other provisions of this Section and the provisions of Section 5.08, Additional Term Loans of more than one type may be outstanding at the same time; provided, however, not more than three (3) Fixed CD Loans may be outstanding at the same time. (b) NOTICE. As to each Additional Term Loan, the Borrower shall give the Bank prior written, telegraphic or telephonic (and if telephonic, confirmed in writing by the Borrower within 5 days thereof) notice not later than 10:00 a.m. (Charlotte, North Carolina time) on the date of the requested borrowing. In each case such notice shall be irrevocable and shall specify the amount of the proposed borrowing, the date of the proposed borrowing (which shall be a Business Day), the type of Loan requested and, if such Loan is to be a Fixed CD Loan, the Interest Period with respect thereto. If no election is specified in such notice, such Loan shall be a Prime Loan. (c) MINIMUM AMOUNTS. Each Additional Term Loan (i) which is a Prime Loan shall be in a minimum principal amount of $50,000.00, (ii) which is a Fixed CD Loan shall be in a minimum principal amount of $1,000,000.00 and (iii) which is a Quoted Loan shall be in a minimum principal amount determined by the Bank in its sole discretion at the time of borrowing. (d) CONTINUANCE, CONVERSION. The Borrower may continue the Additional Term Loans, or convert all or any part of any Additional Term Loan into Additional Term Loans of a different type in accordance with Section 5.08 and subject to the limitations set forth herein. (k) Section 4.04 is amended in its entirety so that such Section now reads as follows: 4.04 INTEREST RATE OPTIONS. (a) PRIME LOANS. Subject to the provisions of Section 5.01, each Additional Term Loan which is a Prime Loan shall bear interest at a rate per annum, (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable Rate. (b) FIXED CD LOANS. Subject to the provisions of Section 5.01, each Additional Term Loan which is a Fixed CD Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Applicable Rate. (c) QUOTED LOANS. Subject to the provisions of Section 5.01, each Additional Term Loan which is a Quoted Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Quoted Rate. The Bank shall determine the applicable Fixed CD Rate for any Additional Term Loan which bears interest based upon the Fixed CD Rate on the date when such determination is to be made in respect of such Interest Period (or as soon thereafter as practicable), and shall notify the Borrower and confirm the Borrower's acceptance of the rate so determined. Such determination shall be conclusive absent manifest error. Any Additional Term Loan which bears interest based upon the Prime Rate shall increase or decrease on the same date which the Prime Rate changes. (l) Section 5.04 is amended in its entirety so that such Section now reads as follows: 5.04 UNUSED FEES. In consideration of the Bank's commitment to make the Loans, the Borrower agrees to pay (i) an unused fee of three-eighths of one percent (3/8%) per annum (computed on the basis of the actual number of days elapsed in a year of 360 days) on the average daily Unutilized Available Commitment during the preceding period and (ii) an unused fee of one-eighth of one percent (1/8%) per annum (computed on the basis of the actual number of days elapsed in a year of 360 days) on the average daily Unavailable Committed Amount during the preceding period. Such unused fees shall be payable on or before the first day (1st) day of each January, April, July and October for the calendar quarter ending as of the immediately preceding month, commencing July 1, 1994. In addition to the foregoing fees, upon a request for a conversion of all or a portion of the Unavailable Committed Amount to the Available Committed Amount pursuant to Section 2.01, the Borrower agrees to pay to the Bank on the date such notice is given by the Borrower to the Bank pursuant to Section 2.01, a fee (the "Clawback Fee") equal to one- quarter of one percent (1/4%) per annum (computed on the basis of the actual number of days elapsed in a year 360 days) on such converted amount for the six month period immediately preceding the date of such notice. (m) Section 5.05 is amended in its entirety so that such Section now reads as follows: 5.05 COMMITMENT FEE. In consideration of the Bank's commitment to make the Loans, the Borrower agrees to pay a commitment fee of .15% per annum (computed on the basis of the actual number of days elapsed in a year of 360 days) on the Committed Amount. This commitment fee shall be payable on or before the fifteenth (15th) day of each January, April, July and October for the calendar quarter ending as of the immediately preceding month commencing July 1, 1994. (n) Sections 5.08, 5.09, 5.10, 5.11 and 5.12 are added to the Loan Agreement as follows: 5.08 CONVERSION. The Borrower shall have the right on such notice as provided in Sections 2.02(b), 3.02(b) and 4.02(b), (i) to continue any Fixed CD Loan or portion thereof or Quoted Loan or portion thereof into a subsequent Interest Period, and (ii) to convert any Loan or any portion thereof into a Loan of a different type, subject to the following: (a) No Event of Default shall have occurred and be continuing, and the representations and warranties set out in Article IX shall be true and correct (except to the extent such representations and warranties expressly relate to an earlier date); (b) Each conversion shall be effected by applying the proceeds of the new Loan to the Loan (or portion thereof) being converted, and accrued interest on any Fixed CD Loan (or portion thereof) or Quoted Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion; (c) If the new Loan made in respect of a conversion shall be a Fixed CD Loan or Quoted Loan, the interest Period with respect thereto shall commence on the date of conversion; (d) No Loan or any portion thereof may be converted to a Fixed CD Loan or Quoted Loan less than thirty (30) days before the Termination Date (with regard to Revolving Credit Loans), the Term Loan Maturity Date (with regarding to the Term Loan) or the Additional Term Loan Maturity Date (with regard to the Additional Term Loan); (e) No Fixed CD Loan or any portion thereof may be converted to another type of Loan except on the last day of an Interest Period; (f) The making of, conversion to and terms of Quoted Loans or any portion thereof are subject to the sole discretion of the Bank; (g) No more than three different Interest Periods for each type of Loan shall be in effect at the same time; (h) Each request for a Fixed CD Loan or a continuation thereof which shall fail to state an applicable Interest Period shall be deemed to be a request for an Interest Period for a 30 day period; and (i) The Borrower shall not be entitled during any fiscal quarter to request a Fixed CD Loan or to continue a Fixed CD Loan at the end of the applicable Interest Period if the Pricing Leverage Ratio as of the last day of the prior fiscal quarter is equal to or greater than 2.1 to 1.0 or the Pricing Coverage Ratio as of the last day of the prior fiscal quarter is equal to or less than 1.4 to 1.0. In the event that the Borrower shall not give notice to continue or to convert any Fixed CD Loan or Quoted Loan into a different type of Loan, such Fixed CD Loan or Quoted Loan (unless repaid) shall automatically become or remain, as appropriate, a Prime Loan at the expiration of the then current Interest Period. 5.09 CD RATE UNASCERTAINABLE. In the event that the Bank shall determine that the Fixed CD Rate cannot be ascertained for any reason, or that the Fixed CD Rate will not adequately and fairly reflect the cost to the Bank of making or maintaining a Fixed CD Loan, the Bank shall promptly give notice to the Borrower of such determination, and any request by the Borrower for a Fixed CD Loan or for conversion to or maintenance of a Fixed CD Loan shall be deemed to be a request for a Prime Loan. Until the circumstances giving rise to such notice no longer exist, each request for a Fixed CD Loan shall be deemed to be a request for a Prime Loan. Each determination by the Bank hereunder shall be conclusive absent manifest error. 5.10 ADDITIONAL COSTS. (a) The Borrower shall pay directly to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate it for any costs incurred by the Bank which the Bank determines are attributable to its making or maintaining of any Fixed CD Loans hereunder or its obligation to make any of such Loans hereunder, or any reduction in any amount receivable by the Bank hereunder in respect of any of such Loans or such obligation; resulting from any Regulatory Change (such increase in costs and reductions in amounts receivable being herein called "Additional Costs") which: (i) changes the basis of taxation of any amounts payable to the Bank under this Loan Agreement or the Notes in respect of any of such Loans (other than taxes imposed on the overall net income of the Bank for any of such Loans); or (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or liabilities of, the Bank (including any Loans or any deposits included in the definition of "Fixed CD Rate" herein); or (iii) imposes any other condition affecting this Loan Agreement (or any such extensions of credit or liabilities). The Bank will notify the Borrower of any event occurring after the date of this Loan Agreement which will entitle the Bank to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and the Borrower shall pay all such compensation within 15 days after receipt of any such notice; provided, however, if the Bank fails to give the Borrower prompt notice of any such event which entitles the Bank to additional compensation pursuant to this Section, the Bank shall not be entitled to receive such compensation for the period commencing on the last date the Borrower should have received prompt notice and ending on the date the Borrower receives actual notice of such event. The Bank will furnish the Borrower with a certificate setting forth the basis and amount of each request by the Bank for compensation under this Section. If the Bank requests compensation from the Borrower under this Section, the Borrower may, by notice to the Bank, request that such Loans of the type with respect to which such compensation is requested be converted into Prime Loans in accordance with Section 5.04 hereof. (b) Without limiting the effect of the foregoing provisions of this Section, in the event that, by reason of any Regulatory Change, the Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of the Bank which includes deposits by reference to which the interest rate on Fixed CD Loans is determined as provided in this Loan Agreement or a category of extensions of credit or other assets of the Bank which includes Fixed CD Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if the Bank so elects by notice to the Borrower, the obligation of the Bank to make, and to convert Loans of any other type into, Loans of such type hereunder shall be suspended until the date such Regulatory Change ceases to be in effect (and all Loans of such type held by such Bank then outstanding shall be converted into Prime Loans in accordance with Section 6.04 hereof). (c) Determinations by the Bank for purposes of this Section of the effect of any Regulatory Change on its costs of making or maintaining Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required to compensate such Bank in respect of any Additional Costs, shall be conclusive, provided that such determinations are made on a reasonable basis; provided, however, that if such Regulatory Change or other condition is determined to be invalid or inapplicable the Bank will promptly refund any amount erroneously billed to the Borrower together with interest thereon at the instrument rate. 5.11 CERTAIN CONVERSIONS OF LOANS. If the Loans of a particular type (Loans of such type being herein called "Affected Loans" and such type being herein called the "Affected Type") are to be converted pursuant to Section 5.11 hereof, the Bank's Affected Loans shall be automatically converted into Prime Loans on the last day(s) of the then current Interest Period(s) for the Affected Loans (or, in the case of a conversion required by Section 5.11 hereof, on such earlier date as the Bank may specify to the Borrower) and, unless and until the Bank gives notice as provided below that the circumstances specified which give rise to such conversion no longer exist: (a) to the extent that the Affected Loans have been so converted, all payments and prepayments of principal which would otherwise be applied to the Affected Loans shall be applied instead to Prime Loans; (b) all Loans which would otherwise be made as Loans of the Affected Type shall be made instead as Prime Loans and all Loans which would otherwise be converted into Loans of the Affected Type shall be converted into (or shall remain as) Prime Loans. 5.12 COMPENSATION. The Borrower shall pay to the Bank, upon request, such amount or amounts as shall be sufficient (in the reasonable opinion of the Bank) to compensate it for any loss, cost or expense incurred by it as a result of: (a) any payment, prepayment or conversion of a Fixed CD Loan made by the Bank on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Borrower to borrow a Fixed CD Loan to be made on the date for such borrowing specified in the relevant notice of borrowing made by the Borrower under Section 2.02(b), 3.02() or 4.02(b) after the Bank had determined the applicable Fixed CD Rate for such Loan and the Borrower had accepted the rate so determined; such compensation to include, without limitation, an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepaying or conversion or failure to borrow on the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date of such failure to borrow) at the applicable rate of interest for such Loan provided for herein over (ii) the interest component (as reasonably determined by the Bank) of the amount (as reasonably determined by the Bank) the Bank would have bid in the United States certificate of deposit market for dollar deposits of leading banks in amounts comparable to such principal amount and maturities comparable to such period, in the case of Fixed CD Loans. (o) Sections 11.01(f)-(j) are amended in their entirety so that such Sections now read as follows: (f) maintain at end of each fiscal quarter (commencing with the fiscal quarter ending July 31, 1994) Tangible Net Worth in an amount equal to at least $23,000,000.00 increased by (i) fifty percent (50%) of the Borrower's Net Income for the Borrower's fiscal year most recently ended (but with no reduction for losses incurred), such required increases to be cumulative and (ii) one hundred percent (100%) of the net proceeds of common or preferred stock issued by the Borrower subsequent to the Closing Date (excluding stock issued to acquire the good will of another Person or business); (g) maintain at end of each fiscal quarter (commencing with the fiscal quarter ending July 31, 1994) a ratio of Total Liabilities to Tangible Net Worth of not more than 3.0 to 1.0; (h) maintain at end of each fiscal quarter (commencing with the fiscal quarter ending July 31, 1994) a ratio of Current Assets plus the unused portion of the Available Committed Amount to Current Liabilities of not less than 1.2 to 1.0; (i) maintain for the most recent twelve month period ended as at the end of each fiscal quarter (commencing with the fiscal quarter ending July 31, 1994) a ratio of Net Income Before Interest and Taxes plus Operating Lease Expense to Interest Expense plus Operating Lease Expense of not less than 1.0 to 1.0; (j) maintain for the most recent twelve month period ended as of the end of each fiscal quarter (commencing with the fiscal quarter ending July 31, 1994) a ratio of Net Income plus Non-Cash Charges to Scheduled Principal Payments of not less than 1.5 to 1.0; B. The Borrower hereby represents and warrants that: 1. the "Representation and Warranties" set forth in Article IX of the Loan Agreement, as amended, are true and correct as of the date of this Second Amendment; 2. the Borrower is not in default of the Loan Agreement or the other Loan Documents (as defined in the Loan Agreement) and no event or condition exists under the Loan Agreement or the other Loan Documents that, but for the giving of notice or lapse of time or both, would result in such a default as of the date of this Second Amendment. C. Except as modified hereby, all of the terms and provisions of the Loan Agreement (and Exhibits) remain in full force and effect. D. The Borrower agrees that all references to the term "Loan Agreement" in each of the Loan Documents shall mean the "Amended and Restated Loan Agreement, dated August 31, 1993, as amended March 15, 1994 and July 27, 1994, by and between American Woodmark Corporation and NationsBank of North Carolina, N.A." E. This Second Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original. F. This Second Amendment and the Loan Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their duly authorized corporate officers as of the day and year first above written. AMERICAN WOODMARK CORPORATION ATTEST: By: /s/ CAROL LENTZ By: /s/ GLENN EANES Title: Corporate Secretary Title: Treasurer (Corporate Seal) NATIONSBANK OF NORTH CAROLINA, N.A. By: /s/ MICHAEL ANDRY Title: Vice President EX-10 3 1995 INCENTIVE PLAN Exhibit 10.8 AMERICAN WOODMARK CORPORATION Fiscal Year 1995 Incentive Plan for Officers I. Purpose The objectives of the Incentive Plan are threefold: A. To provide an incentive which will encourage and reward outstanding individual performance. B. To help align the personal goals of the individuals with the overall goals and objectives of American Woodmark. C. Together with the Salary Administration Program; to provide a compensation package, both in form and in total compensation value, which is at least equal to or better than programs offered by competition. II. Eligibility for Participation in the Bonus Program Positions included in the program are officers of the Company. III. Payout of Bonus Awards A. Officers Officers will be paid in two components: 1. From 0-70% of their year end salary based upon ROI. 2. From 0-30% of their salary based upon measurable goals which support the achievement of the Company's goals. There will be no payout if the Company loses money for the year. Payouts will be made at the end of the fiscal year, and the individual must be employed as of April 30, 1995 to be eligible. IV. Determination of Payout Payout Percentage A. ROI* Officers Below 12.5 0 12.5 - 15% 14 - 30 15 - 20% 30 - 50 20 - 25% 50 - 65 25 - 30% 65 - 70 V. In addition to the above program, the President has the authority to propose to the Compensation Committee additional special payouts for individuals who perform in an exceptional way to dramatically and favorably impact the Company's performance. * ROI is return on investment: pre-tax pre-interest income (excluding effects of accounting changes) divided by average net assets (excluding cash, accounts payable and current liabilities). EX-11 4 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 AMERICAN WOODMARK CORPORATION Computation of Earnings Per Share Fiscal Year Ended April 30 (in thousands, except per share amounts) 1995 1994 1993 Net income (loss) $5,356 $2,176 $(474) Divided by weighted average shares outstanding 7,544 7,529 7,527 Earnings (loss) per share $.71 $.29 $(.06) EX-23 5 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 Consent Of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of American Woodmark Corporation of our report dated June 9, 1995, included in the April 30, 1995 Annual Report to Shareholders of American Woodmark Corporation. Our audits also included the financial statement schedule of American Woodmark Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-15270) pertaining to the American Woodmark Corporation 1986 Stock Option Plan of our report dated June 9, 1995, with respect to the financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of American Woodmark Corporation. /s/ERNST & YOUNG LLP Baltimore, Maryland July 12, 1995 EX-13 6 ANNUAL REPORT TO SECURITY HOLDERS M I S S I O N S T A T E M E N T CREATING VALUE THROUGH PEOPLE WHO WE ARE American Woodmark is an organization of employees and shareholders who have combined their resources to pursue a common goal. WHAT WE DO Our common goal is to create value by providing kitchens and baths "of pride" for the American family. WHY WE DO IT We pursue this goal to earn a profit, which allows us to reward our shareholders and employees and to make a contribution to our society. HOW WE DO IT Four principles guide our actions: Customer Satisfaction - Providing the best possible quality, service and value to the greatest number of people. Doing whatever is reasonable, and sometimes unreasonable, to make certain that each customer's needs are met each and every day. Integrity - Doing what is right. Caring about the dignity and rights of each individual. Acting fairly and responsibly with all parties. Being a good citizen in the communities in which we operate. Teamwork - Understanding that we must all work together if we are to be successful. Realizing that each individual must contribute to the team to remain a member of the team. Excellence - Striving to perform every job or action in a superior way. Being innovative, seeking new and better ways to get things done. Helping all individuals to become the best that they can be in their jobs and careers. ONCE WE'VE DONE IT When we achieve our goal good things happen: sales increase, profits are made, shareholders and employees are rewarded, jobs are created, our communities benefit, we have fun, and our customers are happy and proud - with a new kitchen or bath from American Woodmark. Table of Contents Company Profile 2 Market Information 2 Financial Highlights 2 President's Letter 3 Five Year Selected Financial Information 5 Today's Success: Our First Step For Tomorrow 6 Management's Discussion and Analysis 12 Financial Statements 17 Notes to Financial Statements 20 Management's Report 27 Report of Independent Auditors 27 Board of Directors and Executive Officers 28 Corporate Information 29 COMPANY PROFILE American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The Company operates seven manufacturing facilities located in Arizona, Georgia, Virginia, and West Virginia, and six service centers across the country. American Woodmark Corporation was formed in 1980 and became a public company through a Common Stock offering in July, 1986. The Company offers almost 100 cabinet lines in a wide variety of designs, materials, and finishes. Its products are sold on a national basis through a network of independent distributors and directly to home centers, major builders and home manufacturers. Approximately 60% of its sales during fiscal year 1995 were to the remodeling market and 40% to the new home market. The Company is one of the five largest manufacturers of kitchen cabinets in the United States. MARKET INFORMATION American Woodmark Corporation no par value Common Stock is traded on the NASDAQ Over-the-Counter market under the AMWD symbol. On April 30, 1995, there were 7,551,109 shares of stock outstanding. Market price ranges for the Company's Common Stock are set forth below (prior stock prices have been restated for a 10% Common Stock dividend in September 1993). Fiscal Years Ended April 30 Quarter Ended 1995 1994 Market Price Market Price High Low High Low July 31 $6.00 $4.88 $4.32 $3.86 October 31 $6.38 $5.25 $4.63 $3.25 January 31 $5.75 $4.50 $4.88 $3.13 April 30 $6.25 $5.38 $7.50 $4.50 As of April 30, 1995, there were approximately 3,100 stockholders of the Company's Common Stock. Included are approximately 75% of the Company's employees who are stockholders through the American Woodmark Stock Ownership Plan. For information regarding dividends, see Notes E and F to the Financial Statements. FINANCIAL HIGHLIGHTS (in thousands, except per share data) Years Ended April 30 1995 1994 1993 OPERATIONS Net sales $197,351 $ 171,343 $167,250 Operating income 10,154 5,423 1,640 Income (loss) before income taxes 8,822 3,523 (726) Net income (loss) 5,356 2,176 (474) Net income (loss) per share $ .71 $ .29 $ (.06) Average shares outstanding -- Note F 7,544 7,529 7,527 FINANCIAL POSITION Working capital $ 14,162 $ 9,732 $ 6,496 Total assets 74,408 72,321 78,453 Long-term debt 15,534 18,334 21,470 Stockholders' equity $ 31,801 $ 26,376 $ 24,186 Long-term debt to equity ratio 49% 70% 89% PRESIDENT'S LETTER To Our Shareholders: Fiscal 1995 was a very good year for American Woodmark. We achieved record sales and earned a net profit of $5,356,000 or $.71 per share, including an after-tax charge of $313,000 or $.04 per share for restructuring costs. We improved year-over-year income performance in each reporting period and for the full year provided a return on average shareholders' equity of 18.4%. Net sales increased 15% to $197.4 million from $171.3 million the previous year. Sales gains occurred as a result of our strong market position with the leaders in the home center industry, the continued growth of our Timberlake brand with distributors and builders, and our innovative product offering and service programs. Over the past three years, sales have grown at a compounded rate of 13% per year. During fiscal 1995, we focused on improving our sales mix, managing material costs, improving productivity and gaining leverage on our overhead expenses. As a result of these activities, gross margin as a percent of net sales improved to 23.5% from 21.4% the prior year. Continuing efforts in these areas should further improve margins in the future. Following the trend of the last few years, the Company ended the year with an improved financial position through an even stronger balance sheet. Total debt was reduced by $5.2 million to $18.3 million. Over the past three years, total debt has been reduced by over $21 million dollars while retained earnings increased by over $7 million. Long-term debt to total capital declined to 33% at year end. We were successful in holding the combination of receivables and inventory levels constant even though we had higher sales. Our financial strength will enable us to more aggressively pursue promising market opportunities and high return cost savings projects. At the end of the fiscal year, Don Mathias, a founder of American Woodmark and our Vice President of Assembly & Distribution, retired. Don worked in our business for over 30 years in a variety of capacities, starting with Raygold Industries in 1963. In May, Don was honored by receiving a lifetime achievement award from the Kitchen Cabinet Manufacturers Association. On behalf of all employees, officers and directors, I would like to thank Don for his many contributions over the years and wish him well in his retirement. Don will continue to provide valuable counsel as a Director of the Company. During the year, Jake Gosa and Martha Dally joined our Board of Directors. Jake is the Executive Vice President of the Company and has been an officer since 1991. Martha is the Executive Vice President - Personal Products for Sara Lee Corporation. I look forward to the contributions of both Jake and Martha in their new roles. In 1989, we created our "1995 Vision" which initiated a six year journey to transform American Woodmark from a single brand supplier with a limited product line to an organization capable of providing extensive variety across multiple brands. The path we chose was difficult, and we experienced a number of setbacks along the way, but I am now very pleased to say that this "Vision" has been achieved. For the first time in several years, we have earned a reasonable return for our shareholders. Your patience and support have been critical in successfully returning the Company to a position of financial strength. In closing, I would like to thank all of our employees for their commitment and contribution to our success. Our challenge is to build on the foundation we have created, to help our customers grow and to share our future successes with our stockholders, employees and communities. FIVE YEAR SELECTED FINANCIAL INFORMATION Years Ended April 30 1995 1994 1993 1992 1991 FINANCIAL STATEMENT DATA (in millions, except per share data) Net sales $197.4 $171.3 $167.3 $137.4 $149.8 Income (loss) before income taxes 8.8 3.5 (.7) (6.5) (4.2) Net income (loss) 5.4 2.2 (.5) (4.0) (2.6) Net income (loss) per share (1) .71 .29 (.06) (.54) (.34) Depreciation and amortization expense 7.8 7.2 6.8 5.6 5.5 Restructuring costs .5 1.0 1.1 -- -- Total assets 74.4 72.3 78.5 82.3 78.9 Long-term debt 15.5 18.3 21.5 25.1 24.6 Stockholders' equity 31.8 26.4 24.2 24.7 28.7 Average shares outstanding (1) 7.5 7.5 7.5 7.5 7.5 PERCENT OF SALES Gross profit 23.5% 21.4% 18.2% 19.2% 19.6% Sales, General and Administrative expenses 18.1 17.6 16.5 22.1 20.3 Restructuring costs .3 .6 .6 -- -- Income (loss) before income taxes 4.5 2.1 (.4) (4.7) (2.8) Net income (loss) 2.7 1.3 (.3) (2.9) (1.7) RATIO ANALYSIS Current ratio 1.6 1.4 1.2 1.3 1.8 Inventory turnover (2) 11.0 8.5 7.0 5.3 6.0 Percentage of capital: (LTD & equity) Debt 32.8% 41.0% 47.0% 50.5% 46.2% Equity 67.2 59.0 53.0 49.5 53.8 Return on equity (Average %) 18.4 8.6 (1.9) (15.2) (8.5) Collection period-days (3) 34.7 37.2 36.4 37.7 37.8 (1) The weighted average of common shares has been retroactively restated to reflect a 10% stock dividend issued in September 1993. See Notes A and F to the Financial Statements. (2) Based on average of beginning and ending Inventory. (3) Based on ratio of monthly average Accounts Receivable to average sales per day. AMERICAN WOODMARK TODAY'S SUCCESS: OUR FIRST STEP FOR TOMORROW The end of the 1995 fiscal year marks the completion of our "1995 Vision", the six year plan launched in 1989. Closing this chapter in the history of American Woodmark provides an opportunity to take stock of how far we have come and to look forward to the challenges and opportunities that lie ahead. The 1995 Vision We developed the 1995 Vision to create a company with the strength and flexibility to compete in a rapidly changing world. The journey has been even more challenging than we imagined back in 1989, but we take pride in what we have accomplished. During fiscal 1995, the major elements of the 1995 Vision came together to produce a solid performance. All of our key business indicators improved from fiscal 1994. The implementation of our Vision has provided us with several advantages. Customer relationships in key markets are extremely strong. American Woodmark is the preferred supplier of stock cabinets with our major customers. Our innovative products and differentiated brands allow American Woodmark to meet the unique needs of home centers, distributors and builders. Advanced technology has simplified our products, enhanced quality and improved margins. Our new service platform assures an outstanding level of on-time delivery at lower cost. The overall financial position of the Company has improved dramatically with a lower breakeven point, the retirement of debt and the permanent reduction in the level of working capital required to effectively operate our business. The men and women of American Woodmark, working with our customers and suppliers, have come a long way since 1989. We are a more competitive company with a foundation to take advantage of the opportunities that lay ahead. The Future The world we live in today is vastly different than the world of even a decade ago, and the pace of change may even be accelerating. The successful companies of tomorrow will have the ability to adapt rapidly to new realities. A reality we anticipate for American Woodmark in which: End consumers will be more informed and make more educated choices; Industry competition will focus on delivering total value to the end consumer through variety, product quality and superior service; Our direct customers will continue to look for innovative suppliers who understand and support their business; The needs of our customer and the end consumer will change rapidly, requiring virtually immediate response; The current line between customer, supplier and vendor will gradually disappear, with all participating in delivering value to the end consumer; The potential shortage of qualified, skilled individuals, combined with the sophistication required to manage effort in an even more complex world, will place a premium on productivity; Social institutions may struggle to keep pace. The private sector must be prepared to assume a greater role, especially in education of the work force; and Companies that are open to new ideas, that drive innovation and that spark break-through thinking will create competitive advantages. In order to remain competitive and to fulfill our Mission Statement, we are in the process of creating a new six year vision. The "2001 Vision" will further enhance our partnerships with customers, suppliers and the communities in which we live and work. It will involve even greater flexibility in manufacturing and service systems. We will employ effective information technology to increase our productivity and the speed with which we respond to the changing demands of the marketplace. Most importantly, this new vision will create an environment at American Woodmark that: Promotes and rewards innovative and revolutionary thinking in service of the customer; Provides our employees with the opportunity and tools to invest in their personal and professional growth; Utilizes a management approach that recognizes the individual talents of each employee and combines these talents in focused teams; and Links each individual, our organization, our vendors and our customers together in mutual prosperity and growth. Through this environment and culture, we will create a significant and sustainable competitive advantage for American Woodmark. The 1995 Vision has fundamentally changed the way in which American Woodmark approaches the marketplace. We have come a long way since 1989. As we look towards the turn of the century, there are many more challenges ahead. Building on the success of the last six years, we look forward to that continuing challenge. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The following table sets forth certain income and expense items as a percentage of net sales. Percentage of Net Sales Years Ended April 30 1995 1994 1993 Net sales 100.0% 100.0% 100.0% Cost of sales and distribution 76.5 78.6 81.8 Gross profit 23.5 21.4 18.2 Selling and marketing expenses 12.0 12.0 11.3 General and administrative expenses 6.1 5.6 5.2 Restructuring costs .3 .6 .6 Operating income 5.1 3.2 1.0 Interest expense .7 1.1 1.4 Income (loss) before income taxes 4.5 2.1 (.4) Provision (benefit) for income taxes 1.8 .8 (.1) Net income (loss) 2.7 1.3 (.3) FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994 Fiscal 1995 net sales of $197.4 million increased 15.2% from $171.3 million the prior year. A general price increase was implemented during the year to recover rising material costs. Average unit prices increased as the result of the price increase and a shift towards the upper-end of the Company's broad stock product offering. Overall unit volume increased 8.2%, with increases across all three market channels. The volume increase in the Home Center channel was attributed to both strong remodeling activity and increases in market share. Distributor volume increased due to additional distributors marketing the Company's products, strong remodeling activity and improved new construction levels in certain geographical regions. Direct Builder volume increased as the Company benefitted from new construction growth in selected markets. Gross profit improved to 23.5% of net sales from 21.4% the prior year. Higher average unit prices combined with favorable volume leverage on the Company's fixed and semi-fixed costs more than offset increases in per unit material, labor and freight costs. Reductions in warehouse space utilized in the Company's operations contributed to additional cost savings. Material costs increased with sales of a more material intensive product mix and price increases on raw materials, especially on particle board and cardboard. Labor costs rose due to rate increases and costs related to performance incentives. Health care costs were reduced for the second straight year, without a significant change in cost or coverage for the employee, due to participation in a managed care network. Freight costs increased as a result of the reconfiguration of the Company's distribution network. Freight cost increases were more than offset by decreases in costs related to warehousing operations. Per unit overhead costs declined due to the leverage impact of higher volume on fixed and semi-fixed components of expenses. Sales and marketing expenses, as a percentage of net sales, were 12% in both fiscal 1995 and fiscal 1994. The Company continues to pursue market opportunities through aggressive advertising, promotions and other sales support. General and administrative expenses increased from 5.7% of net sales in fiscal 1994 to 6.1% in fiscal 1995 due to increased compensation expenses primarily due to costs associated with the Company's performance incentive programs. Net interest expense in fiscal 1995 declined $534,000 to $1.4 million from the prior year. A slight rise in interest rates was more than offset by a significant reduction in outstanding debt. Total debt decreased $5.2 million or 22%, during fiscal 1995. RESTRUCTURING ACTIVITIES In fiscal 1993, the Company initiated a restructuring plan to lower the Company's break-even point by reducing the overall cost structure and facilitate progress toward Company strategic goals. Specific actions initiated were a salaried headcount reduction, a re-deployment of management to create regional teams for the three areas served by the Company's assembly plants, out-sourcing literature warehousing and distribution operations, and a reduction in finished goods warehousing operations. (See Note I to the Financial Statements.) Restructuring costs of $516,000 were recognized in fiscal 1995 due to continuing efforts to reduce warehousing space. While these costs related to the 1993 plan, they were not accruable until fiscal 1995 when uncertainties for the remaining two Company warehouses in Florida and California were resolved. As a result, $380,000 for lease termination costs and losses on lease commitments, $90,000 for severance costs, and $46,000 for equipment and leasehold improvement write-downs were recognized in fiscal 1995. Annual savings of $340,000 for payroll, $400,000 for lease costs, and $26,000 for depreciation costs will be partially offset by increased freight expenses and additional labor costs to sequence production. In fiscal 1994, the Company recognized $622,000 related to the restructuring activities initiated in fiscal 1993 that did not become accruable until fiscal 1994. Uncertainties for three of the Company's warehouses in Illinois, California and Texas were resolved, resulting in $347,000 for lease termination costs and losses on lease commitments, and $275,000 for equipment and leasehold improvement write-downs. Annual savings of $500,000 for payroll reductions, $600,000 for lease cost reductions, and $25,000 for depreciation cost reductions will be mitigated by incremental variable freight costs and additional labor costs at the assembly plants to sequence production. Also in fiscal 1994, the Company initiated a second restructuring plan to consolidate certain manufacturing operations and to discontinue its frameless product line, resulting in recognition of an additional $391,000 in restructuring costs. Costs of $157,000 were recorded to write-down equipment impaired by the Company's decision to consolidate certain manufacturing operations. Furthermore, the introduction of new technology allowing similar features on a standard cabinet box eliminated the requirement for a frameless product. Accordingly, the Company recognized $234,000 for restructuring costs for write-downs of dedicated frameless equipment and obsolete inventory. The total restructuring charge of $1,084,000 in fiscal 1993 represented $338,000 in severance costs, $171,000 for losses on two warehouse lease commitments in Virginia and Georgia, $377,000 for equipment and leasehold improvement write-downs, and $198,000 for employee relocation costs. Annual savings of $2.5 million from a $1.9 million reduction for payroll costs, $550,000 reduction for lease expense, and $100,000 reduction for depreciation costs were partially offset by $200,000 in incremental expenses to accommodate the new structure. Cash requirements related to the restructuring activities in fiscal 1995, fiscal 1994 and fiscal 1993 will be immaterial in the future. LIQUIDITY AND CAPITAL RESOURCES In fiscal 1995, the Company's operating activities generated $10.9 million in net cash compared to $10.6 million the prior year. Net profit before non-cash charges for depreciation and amortization increased $3.7 million to $13.1 million. Timing differences in the payment of performance incentives and related compensation expenses and a decrease in inventories provided additional sources of cash flow. Promotional display shipments and refundable deposits on manufacturing equipment reduced cash provided by operating activities. The manufacturing equipment is being financed by a long-term operating lease. The refundable deposits will be returned to the Company by the lessor when the subject equipment is accepted and placed into commercial operation. During fiscal 1995, the Toccoa, Georgia facility was expanded to accommodate additional equipment and to promote a more efficient and cost effective process flow. Additional equipment was purchased for the Hardy County, West Virginia facility to increase efficiency and lower overall production costs. New equipment was purchased for the Orange, Virginia facility to improve lumber processing and reduce cost. All other capital expenditures in fiscal 1995 were limited to necessary or replacement items and cost savings projects. Capital spending increased $563,000 from the prior year primarily as the result of the Toccoa expansion and the new equipment at Orange. These increases in expenditures were partially offset by a reduction in spending at the Kingman, Arizona facility due to the completion in fiscal 1994 of the facility expansion. Approximately 12% of the fiscal 1995 spending was financed through proceeds received in a prior year from industrial revenue bonds. Net cash used by financing activities in fiscal 1995 decreased $4.5 million from the prior year. The difference was the result of lower payments on long-term debt agreements and a smaller reduction in short-term debt. The Company reduced overall debt by $5.2 million during fiscal 1995. Total debt on April 30, 1995 was $18.3 million and did not include any short- term borrowings under the Company's credit facility. Cash and cash equivalents increased $2.4 million to $2.9 million at year end. Cash flow from operations, combined with available borrowing capacity, is expected to be sufficient to meet forecasted working capital requirements, to service existing debt obligations, and to fund capital expenditures for fiscal 1996. OUTLOOK FOR 1996 The Company anticipates an overall economic environment of slow growth supported by stable interest rates and low inflation. The Company anticipates increased demand in the U.S. cabinet market in fiscal 1996, although the rate of growth is expected to be below that experienced during fiscal 1995. In this environment, the Company expects to gain market share and to generate higher sales based on its position with major customers, its broad stock product offering and its ability to deliver quality products with superior service. The Company expects to maintain the profitability experienced in fiscal 1995. The full-year impact of the general price increase implemented during the third quarter of fiscal 1995 should be sufficient to offset the rise in material costs. Gross margins are expected to improve based on the leverage impact that higher volumes have on the Company's fixed and semi- fixed costs and the full-year impact of reduced warehouse space. Improvements in gross profit are expected to be partially offset by increased freight costs. Sales and marketing expenses are projected to rise as the Company defends its market position and continues to aggressively pursue new opportunities in the marketplace. The Company's strategy is, on average, to reinvest depreciation on an annual basis. The Company is anticipating above average capital expenditures of $8.0 million in fiscal 1996. Projects include expansion to remove specific capacity limitations in certain processes, productivity improvements, cost savings and replacement of aging equipment. The Company establishes debt to equity targets and is prepared to trim capital spending plans if cash flow from operations is below planned levels. The Company anticipates capital expenditures will be funded from a combination of cash provided by operations and the replacement of current long-term debt payments with new long-term borrowings. FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993 Fiscal 1994 net sales increased 2% over the prior year to $171.3 million. Overall, unit volume declined 5% as a result of the Company's planned withdrawal from selected direct Builder markets with unacceptable margins. Sales to the increasingly competitive remodeling sector of the cabinet market through the Company's two primary market channels, Home Centers and Distributors, increased due to the Company's aggressive marketing efforts and brand differentiation strategy. A general price increase was implemented to recover the rapid rise in lumber costs experienced in fiscal 1992 and 1993. By the end of fiscal 1994, only partial recovery of the lumber price increases had occurred. Average unit prices were also impacted by a sales mix shift toward the upper-end of the Company's broad stock product offering. Gross profit improved from 18.2% of net sales in fiscal 1993 to 21.4% in fiscal 1994. Per unit material, labor, and freight costs grew at a slower rate than the average unit sales price. In addition, savings were generated from the reduction of warehouse space in the past year and from reduced service requirements as a result of the lower level of direct Builder volume. Material costs increased with sales of a more material-intensive product mix. This rise is partially attributable to the greater demand for white products. The Company was able to offset moderately higher lumber costs with lower door component prices and a return to discounted purchasing. Labor costs rose due to rate increases and costs related to the Company's performance incentive program. Health care costs for the Company were reduced due to a change in the Company's health care administrator without a significant change in cost or coverage for the employee. Freight costs increased as the Company reconfigured its distribution network. As a percent of net sales, sales and marketing expenses moved up from 11.3% in fiscal 1993 to 12.0% in 1994. Advertising, promotion, and travel costs increased with the Company's aggressive marketing efforts. General and administrative expenses increased from 5.2% of net sales in fiscal 1993 to 5.7% in 1994 primarily due to costs associated with additions to the executive management team and increased compensation expenses as part of the Company's performance incentive program. Net interest expense in fiscal 1994 declined $405,000 from the prior year. A slight rise in interest rates was more than offset by a significant reduction in outstanding debt. Total debt decreased $9.6 million or 29%, during fiscal 1994. OTHER COMMENTS The Company's business has historically been subjected to seasonal influences, with higher sales typically realized in the second and fourth fiscal quarters. General economic forces and changes in the Company's customer mix have reduced seasonal fluctuations in the Company's revenue over the past few years. 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 over 35% during fiscal 1993. The Company has generally been able over time to recover the effects of inflation and commodity price fluctuations through sales price increases. On February 28, 1995 the Board of Directors elected two new Directors. Elected were James J. Gosa, Executive Vice President of American Woodmark, and Martha M. Dally, Executive Vice President-Personal Products for Sara Lee Corporation. For more information, the Company's Proxy Statement should be referenced. During the first quarter of fiscal 1995, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The adoption of this standard did not have a material impact on the Company's operating results or financial position. (See Note G to the Financial Statements.) The Company does not expect that implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which is required to be adopted by the Company beginning in fiscal 1996, will have a material effect on the Company's operating results or financial position. The Company is voluntarily participating with a group of companies which is cleaning up a waste facility site at the direction of a state environmental authority. The Company is also involved in other matters under the direction of state environmental authorities. The Company records liabilities for all probable and reasonably estimatable loss contingencies on an undiscounted basis. For loss contingencies related to environmental matters, liabilities are based on the Company's proportional contamination of a site since management believes it "probable" that the other parties, which are financially solvent, will fulfill their proportional share of the contamination obligation of a site. There are no probable insurance or other indemnification receivables recorded. The Company has accrued for all known environmental remediation costs which are probable and can be reasonably estimated, and such amounts are not material. (See Note J to the Financial Statements.) 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 any material adverse effect on the Company's operating results or financial position. QUARTERLY RESULTS OF OPERATIONS (Unaudited) Year Ended April 30, 1995 ----------------------------------------- (in thousands, except per share amounts) 1st 2nd(a) 3rd 4th(b) ----------------------------------------- Net sales $45,518 $54,004 $48,145 $49,684 Gross profit 10,786 13,353 11,056 11,123 Income before income taxes 1,967 3,065 1,742 2,048 Provision for income taxes 799 1,180 640 847 Net income 1,168 1,885 1,102 1,201 Net income per share .16 .25 .15 .16 Year Ended April 30, 1994 ----------------------------------------- 1st(c) 2nd(d) 3rd(e) 4th(f) ----------------------------------------- Net sales $39,753 $44,424 $41,843 $45,323 Gross profit 6,948 9,480 9,221 11,012 Income (loss) before income taxes (392) 682 1,389 1,844 Provision (benefit) for income taxes (123) 261 524 685 Net income (loss) (269) 421 865 1,159 Net income (loss) per share (.04) .06 .11 .15 (a) Income before income taxes in the second quarter of fiscal 1995 reflects $516,000 in restructuring costs and $204,000 in equipment write-downs. Also included is the pre-tax effect of LIFO liquidations which resulted in costs being $174,000 less than would have been recorded in a current cost environment. (b) Income before income taxes in the fourth quarter of fiscal 1995 reflects $353,000 in favorable adjustments to receivables for over-accrued allowances. (c) Loss before income taxes for the first quarter of fiscal 1994 includes the effects of LIFO liquidations which resulted in costs being $341,000 less than would have been recorded in a current cost environment. (d) Income before income taxes for the second quarter of fiscal 1994 reflects $683,000 associated with restructuring costs to reduce the level of overhead expense and to discontinue the Company's frameless products. Income before income taxes for the second quarter includes the effects of LIFO liquidations which resulted in costs being $289,000 less than would have been recorded in a current cost environment. Also reflected in the second quarter is $358,000 in costs primarily related to changes in the Company's executive management team. (e) Income before income taxes for the third quarter of fiscal 1994 reflects $171,000 of additional restructuring costs and $154,000 of unfavorable worker's compensation premium adjustments. (f) Income before income taxes for the fourth quarter of fiscal 1994 reflects $159,000 in restructuring costs, $224,000 of unfavorable worker's compensation premium adjustments, and $247,000 in employee relocation costs. BALANCE SHEET (in thousands, except share data) April 30 ------------------------- 1995 1994 ASSETS Current Assets Cash and cash equivalents $ 2,876 $ 460 Refundable deposits 1,708 -- Customer receivables 19,639 18,845 Inventories 10,775 11,715 Prepaid expenses and other 738 963 Deferred income taxes 433 456 ------- ------- TOTAL CURRENT ASSETS 36,169 32,439 Property, Plant and Equipment 33,722 35,872 Deferred Costs and Other Assets 3,714 3,252 Intangible Pension Asset 803 758 ------- ------- $74,408 $72,321 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Loans payable $ -- $ 2,000 Accounts payable 9,496 8,776 Accrued compensation and related expenses 6,536 5,151 Current maturities of long-term debt 2,800 3,158 Other accrued expenses 3,175 3,622 ------- ------- TOTAL CURRENT LIABILITIES 22,007 22,707 Long-Term Debt, less current maturities 15,534 18,334 Deferred Income Taxes 3,028 2,767 Long-Term Pension Liabilities 2,038 2,137 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 7,551,109 -- 1995; 7,531,225 -- 1994 17,479 17,410 Retained earnings 14,322 8,966 ------- ------- TOTAL STOCKHOLDERS' EQUITY 31,801 26,376 ------- ------- Commitments and Contingencies $74,408 $72,321 ======= ======= See notes to financial statements STATEMENT OF INCOME AND RETAINED EARNINGS Years Ended April 30 --------------------------------------- (in thousands, except share data) 1995 1994 1993 Net sales $ 197,351 $ 171,343 $ 167,250 Cost of sales and distribution 151,033 134,682 136,881 --------- --------- --------- GROSS PROFIT 46,318 36,661 30,369 Selling and marketing expenses 23,667 20,532 18,942 General and administrative expenses 11,981 9,693 8,703 Restructuring costs 516 1,013 1,084 --------- --------- --------- OPERATING INCOME 10,154 5,423 1,640 Interest expense 1,355 1,889 2,294 Other (income) expense (23) 11 72 --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES 8,822 3,523 (726) Provision (benefit) for income taxes 3,466 1,347 (252) --------- --------- --------- NET INCOME (LOSS) 5,356 2,176 (474) RETAINED EARNINGS, BEGINNING OF YEAR 8,966 9,013 9,487 Stock dividend -- (2,223) -- --------- --------- --------- RETAINED EARNINGS, END OF YEAR $ 14,322 $ 8,966 $ 9,013 ========= ========= ========= EARNINGS PER SHARE Average shares outstanding 7,544,385 7,528,526 7,527,415 Net income (loss) per share $ .71 $ .29 $ (.06) ========= ========= ======== See notes to financial statements STATEMENT OF CASH FLOWS (in thousands) Years Ended April 30 ----------------------------- 1995 1994 1993 OPERATING ACTIVITIES Net income (loss) $ 5,356 $ 2,176 $ (474) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for depreciation and amortization 7,758 7,195 6,797 Net loss on disposal of property, plant and equipment 34 47 73 Deferred income taxes 284 39 (634) Restructuring costs 178 726 284 Other 100 209 459 Changes in operating assets and liabilities: Receivables (834) (1,753) (3,671) Income taxes receivable -- 529 1,387 Inventories 911 2,451 3,495 Refundable deposits (1,708) -- -- Other assets (2,767) (2,052) (2,324) Accounts payable 721 (1,316) 2,744 Accrued compensation and related expense 1,348 1,198 (502) Other (501) 822 1,875 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 10,880 10,627 9,509 INVESTING ACTIVITIES Payments to acquire property, plant and equipment (3,942) (3,379) (2,796) Funds designated for capital expenditures 468 1,002 907 Proceeds from sales of property, plant and equipment 99 59 37 ------- ------- ------- NET CASH USED BY INVESTING ACTIVITIES (3,375) (2,318) (1,852) FINANCING ACTIVITIES Payments of long-term debt (3,158) (3,641) (3,759) Net decrease in short-term borrowings (2,000) (6,000) (2,500) Common Stock issued through stock option plans 69 14 -- ------- ------- ------- NET CASH USED BY FINANCING ACTIVITIES (5,089) (9,627) (6,259) ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,416 (1,318) 1,398 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 460 1,778 380 CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,876 $ 460 $ 1,778 ======= ======= ======= See notes to financial statements NOTES TO FINANCIAL STATEMENTS NOTE A -- SIGNIFICANT ACCOUNTING POLICIES The Company is engaged in the manufacture and distribution of kitchen cabinets and vanities. The following is a description of the more significant accounting policies of the Company. Revenue Recognition: Revenue is recognized as shipments are made to the customer. Revenue is based on invoice price less allowances for sales returns and cash discounts. Cash and Cash Equivalents: Cash in excess of operating requirements is invested in short-term instruments which are carried at cost (approximates market). The Company considers all highly liquid short-term investments purchased with a maturity of three months or less to be cash equivalents. Inventories: Inventories are stated at lower of cost, determined by the last-in, first-out method (LIFO), or market. The LIFO cost reserve is determined in the aggregate for inventory and is applied as a reduction to inventories determined on the first-in, first-out method (FIFO). FIFO inventory cost approximates replacement cost. Property, Plant and Equipment:Property, plant and equipment is stated on the basis of cost less an allowance for depreciation. Depreciation of plant and equipment is provided by the straight-line method over the estimated useful lives. Advertising Costs: Advertising costs are expensed as incurred. Promotional Displays: The Company's investment in promotional displays is carried at cost less applicable amortization. Amortization is provided by the straight-line method on an individual display basis over the estimated period of benefit (approximately 30 months). Income Taxes: Income taxes are calculated using the liability method in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. The liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Earnings Per Share: Earnings per share are based on the weighted average common shares outstanding, giving retroactive effect to a stock dividend. The dilutive effect of stock options on earnings per share is not significant and has been excluded. Reclassifications: Certain prior years' amounts have been reclassified to conform to the current year's presentation. NOTE B -- CUSTOMER RECEIVABLES The components of customer receivables were: April 30 ------------------------- (in thousands) 1995 1994 Gross customer receivables $20,820 $20,062 Less: Allowance for doubtful accounts (243) (313) Allowance for returns and discounts (938) (904) ------- ------- Net customer receivables $19,639 $18,845 ======= ======= NOTE C -- INVENTORIES The components of inventories were: April 30 ------------------------ (in thousands) 1995 1994 Raw materials $ 5,650 $ 5,849 Work-in-process 9,876 8,885 Finished goods 1,110 3,206 ------- ------- Total FIFO Inventories 16,636 17,940 Reserve to adjust inventories to LIFO value (5,861) (6,225) ------- ------- Total LIFO Inventories $10,775 $11,715 ======= ======= As a result of LIFO inventory liquidations, cost of sales reflected $317,000, $667,000, and $550,000 less expense in fiscal 1995, 1994, and 1993, respectively, than would have been recorded in a current cost environment. NOTE D -- PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment were: April 30 --------------------- (in thousands) 1995 1994 Land $ 876 $ 880 Buildings and improvements 16,504 16,035 Buildings and improvements - capital leases 6,550 6,550 Machinery and equipment 48,221 47,194 Machinery and equipment - capital leases 1,956 2,221 Construction in progress 1,331 536 Funds designated for capital expenditures -- 468 ------- ------- 75,438 73,884 Less allowance for depreciation (41,716) (38,012) ------- ------- Total $33,722 $35,872 ======= ======= Depreciation expense amounted to $5,028,000, $5,372,000, and $5,519,000 in fiscal 1995, 1994, and 1993, respectively. NOTE E -- LOANS PAYABLE AND LONG-TERM DEBT
Maturities of long-term debt are as follows: Years Ending April 30 -------------------------------------------------------------------------- 2001 and Total There- Out- (in thousands) 1996 1997 1998 1999 2000 after standing Notes payable $1,015 $1,015 $ 758 $ 500 $ 125 $ -- $ 3,413 Industrial Revenue Bonds 1,230 1,105 1,105 1,120 750 4,175 9,485 Capital lease obligations 555 581 347 358 376 3,219 5,436 ------ ------ ------ ------ ------ ------ ------- Total $2,800 $2,701 $2,210 $1,978 $1,251 $7,394 $18,334 ====== ====== ====== ====== ====== ====== Less current maturities 2,800 ------- Total $15,534 =======
The Company's primary loan agreement provides for term loans and a $12 million revolving credit facility. This agreement includes various variable interest rate options which lower and raise the interest rate based on Company performance. The maximum interest rate under the agreement is the prime rate. The revolving credit facility is used by the Company as a working capital account. As such, borrowings and repayments routinely occur on a daily basis. The outstanding balance against this line of credit never exceeded $3.3 million and $8.5 million in fiscal 1995 and 1994, respectively. In fiscal 1995, the total transactions through this credit facility were borrowings of $10.2 million and payments of $12.2 million, resulting in a net reduction of $2.0 million for the fiscal year. In fiscal 1994, the total transactions through this facility were borrowings of $38.2 million and payments of $44.2 million, resulting in a net reduction of $6.0 million for the fiscal year. The weighted average interest rate was 6.0% for revolving credit loans outstanding at April 30, 1994. No revolving credit loans were outstanding at April 30, 1995. The Company employs straight-forward interest rate swap agreements to assist in maintaining a balance between fixed and variable interest rates on outstanding debt. Any deferred gain or loss associated with the swap agreements is accounted for over the life of the swaps at the fixed rate stipulated in the executed agreements. On April 30, 1995, these amounts were immaterial. The Company does not invest, trade, or otherwise speculate in any derivatives or similar type instruments. At April 30, 1995, term loans of $3.4 million were outstanding. The term loans bore a variable interest rate of 7.6% on April 30, 1995. On April 30, 1995, the Company had $9.5 million outstanding in industrial revenue bonds, maturing at various dates through 2002. Due to an interest rate swap agreement, a fixed rate of 6.2% applies to $7.5 million through June 1, 1999. The variable rate that would have applied if the rate swap had not occurred was 4.9% on April 30, 1995. On $1.9 million of outstanding bonds, the variable interest rate was 4.9% on April 30, 1995. The remaining outstanding bond of $125,000 bore a variable interest rate of 7.6% on April 30, 1995. Substantially all of the industrial revenue bonds are redeemable at the option of the bondholder. The Company has irrevocable arrangements to refinance these bonds on a long-term basis in the event they are redeemed. Interest rates on the Company's capital lease obligations were approximately 5.0% on April 30, 1995 and these obligations mature through 2007. The Company's primary loan agreement limits the amount and type of indebtedness the Company can incur, prohibits the payment of cash dividends, and requires the Company to maintain a specific minimum net worth and specified financial ratios measured on a quarterly basis. Substantially all assets of the Company are pledged as collateral under the primary loan agreement, industrial revenue bond agreements and capital lease arrangements. The Company was in compliance with all covenants contained in its loan agreements at April 30, 1995. Interest paid was $1,376,000, $1,927,000, and $2,283,000 during fiscal 1995, 1994, and 1993, respectively. Net amounts to be received or paid under interest rate swap agreements are accrued as an adjustment to interest expense. NOTE F -- STOCKHOLDERS' EQUITY COMMON STOCK Transactions affecting Common Stock were as follows: Shares Amount Outstanding (in thousands) Balance at April 30, 1993 6,843,255 $ 15,173 Stock dividend-Sept. 1993 684,160 2,223 Stock options exercised 3,810 14 --------- ---------- Balance at April 30, 1994 7,531,225 $ 17,410 Stock options exercised 19,884 69 --------- ---------- Balance at April 30, 1995 7,551,109 $ 17,479 ========= ========== In August 1993, the Board of Directors declared a ten percent Common Stock dividend payable to stockholders of record on September 13, 1993. The dividend is reflected in the financial statements as a $2.2 million charge to retained earnings and a corresponding increase in common stock based upon the market price for the Company's Common Stock. Average shares outstanding and all per share amounts included in the financial statements and footnotes are based upon the increased number of shares giving retroactive effect to the stock dividend. The Company has first right of refusal to purchase the majority of shares if sold by certain stockholders. The Company has not paid any cash dividends on its Common Stock since its inception. EMPLOYEE STOCK OWNERSHIP PLAN In fiscal 1990, the Company instituted the American Woodmark Stock Ownership Plan (AWSOP). Under this plan, all employees over the age of 18 who have been employed by the Company for a minimum of one year are eligible to receive Company stock through a profit sharing contribution and a 401(k) matching contribution based upon the employee's contribution to the plan. Profit sharing contributions are 3% of after tax earnings, calculated on a quarterly basis and distributed equally to all employees eligible to participate in the plan. The Company recognized expenses for profit sharing contributions of $155,000, $81,000, and $29,000 in fiscal 1995, 1994, and 1993, respectively. The Company matches 401(k) contributions in the amount of 50% of an employee's contribution to the plan up to 3% of base salary for an effective maximum Company contribution of 1.5%. The expense for 401(k) matching contributions for this plan was $407,000, $237,000, and $364,000 in fiscal 1995, 1994, and 1993, respectively. STOCK OPTIONS Under the 1986 Employee Stock Option Plan, stock options may be granted to selected key employees for up to 551,654 shares of Common Stock at an option price not less than the fair market value of the Common Stock at the date of grant. The outstanding options are exercisable in annual cumulative increments of 33.33% beginning one year after the date of grant and must be exercised within twelve months after the cumulative increments equal 100%, at which time the options expire. The following table summarizes stock option activity under this plan for the fiscal year ended April 30, 1995: Options outstanding at May 1, 1994 ($2.39 to $8.69 per share) 342,513 Granted ($5.63 per share) 20,000 Expired ($3.86 to $8.69 per share) (38,924) Exercised ($2.39 to $5.13 per share) (19,884) Options outstanding at April 30, 1995 ($2.39 to $5.64 per share) 303,705 ======== Options exercisable at April 30, 1995 ($2.39 to $5.64 per share) 191,032 ======== Options available for future issuance at April 30, 1995 197,368 ======== Under the 1990 Non-Employee Director Stock Option Plan, options may be granted for up to 22,000 shares of Common Stock at market value on the date of grant. At April 30, 1995, options granted (ranging from $2.50 to $5.75 per share) for 15,737 shares were outstanding, of which 7,337 options (ranging from $2.50 to $3.69 per share) were exercisable. No options were exercised in fiscal 1995. During fiscal 1995, options for 4,000 shares were granted at $5.75 per share, while options for 2,200 shares expired at $4.03 per share. NOTE G -- EMPLOYEE BENEFITS The Company has two defined benefit pension plans covering substantially all employees. The plan covering salaried employees provides pension benefits based upon a formula which considers salary levels and length of service. The hourly pension plan provides benefits based upon an hourly rate formula. Contributions to the plans meet or exceed the minimum funding standards set forth in the Employee Retirement Income Security Act of 1974. Pension plan assets are invested in equity mutual funds, fixed income security funds and real estate mutual funds. Net periodic pension costs were comprised of the following: Years Ended April 30 --------------------------- (in thousands) 1995 1994 1993 Service cost-benefits earned during the year $ 663 $ 637 $ 655 Interest cost on projected benefit obligation 880 790 717 Actual return on plan assets (684) (528) (592) Net amortization and deferrals (109) (231) (78) ------ ------ ------ Net periodic pension cost $ 750 $ 668 $ 702 ====== ====== ====== The funded status of the Company's pension plans was as follows for the fiscal years ended April 30: 1995 1994 ------------------------ ------------------------ Plan assets Accumulated Plan assets Accumulated exceed benefit exceed benefit accumulated obligation accumulated obligation benefit exceeds benefit exceeds (in thousands) obligation plan assets obligation plan assets ---------- ----------- ---------- ----------- Actuarial present value of pension benefit obligation: Vested $ 5,531 $ 4,460 $ 4,812 $ 4,023 Non-vested 362 393 298 379 -------- ------- ------- ------- Accumulated 5,893 4,853 5,110 4,402 Effect of anticipated future salary increases 2,269 -- 1,602 -- -------- ------- ------- ------- Projected 8,162 4,853 6,712 4,402 Fair value of plan assets 7,309 4,086 6,926 3,332 -------- ------- ------- ------- Projected benefit obligation in excess of (less than) the fair value of plan assets 853 767 (214) 1,070 Unrecognized prior service cost (61) (307) (68) (354) Unrecognized net gain (loss) 1,089 (318) 1,897 (195) Unrecognized net obligation at May 1, 1987, being recognized over 14 years (315) (178) (366) (209) Additional minimum liability -- 803 -- 758 ------- ------- ------- ------- Net pension obligation $ 1,566 $ 767 $ 1,249 $ 1,070 ======= ======= ======= ======= Primary assumptions utilized in accounting for the Company's pension plans were as follows: Years Ended April 30 --------------------------- 1995 1994 1993 Weighted average assumed discount rate 8.0% 8.0% 8.0% Estimate of salary increases (salaried plan only) 4.0% 4.0% 4.0% Expected long-term rate of return on assets 8.0% 8.0% 8.0% The Company adopted SFAS No. 106,"Employers' Accounting for Postretirement Benefits Other than Pensions," in the first quarter of fiscal 1994. SFAS No. 106 requires the Company to accrue the expected cost of health care benefits for employees who retired prior to May 1, 1991. The Company does not bear the costs for employees retiring subsequent to that date. Adoption of this statement did not have a material impact on the Company's operating results or financial position for fiscal 1995 or 1994. The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," in the first quarter of fiscal 1995. SFAS No. 112 requires the Company to accrue for postemployment benefits provided to former or inactive employees that have not retired. Adoption of this statement did not have a material impact on the Company's operating results or financial position for fiscal 1995. In addition, no future material impact on operating results or financial position is expected. NOTE H -- INCOME TAXES During fiscal 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes," which requires the Company to change its method of accounting for income taxes. The adoption of this standard did not have a material effect on the Company's financial position or results of operations. The provision (benefit) for income taxes is comprised of the following: Years Ended April 30 --------------------------------- (in thousands) 1995 1994 1993 Current Federal $ 2,619 $ 787 $ 407 State 563 165 (25) ------- ------- ------- Total current 3,182 952 382 Deferred Federal 272 361 (620) State 12 34 (14) ------- ------- ------- Total deferred 284 395 (634) ------- ------- ------- Total $ 3,466 $ 1,347 $ (252) ======= ======= ======= The Company's effective income tax rate varied from the federal statutory rate as follows: Years Ended April 30 ---------------------------- 1995 1994 1993 Federal statutory rate 34% 34% (34)% State income taxes, net of federal tax effect 4 4 (3) Other 1 -- 2 ---- ---- ---- Effective Rate 39% 38% (35)% ==== ==== ==== Income taxes paid were $3,547,000, $1,128,000, and $3,700 for fiscal years 1995, 1994 and 1993, respectively. Income tax refunds received were $3,000, $534,000, and $1,615,000 for fiscal years 1995, 1994 and 1993, respectively. The significant components of deferred tax assets and liabilities are as follows: April 30 ------------------ (in thousands) 1995 1994 Deferred Tax Assets Alternative Minimum Tax Credit $ -- $ 618 Employee Benefits 566 642 Other 845 937 ------ ------ Total 1,411 2,197 Deferred Tax Liabilities Depreciation 3,344 3,844 Inventory 530 548 Other 132 116 ------ ------ Total 4,006 4,508 Net Deferred Tax Liabilities $2,595 $2,311 ====== ====== NOTE I -- RESTRUCTURING PROVISIONS Restructuring charges in fiscal 1993 and fiscal 1994 were recognized pursuant to SFAS No. 5 and AIN-APB 30#1. Costs were recorded when the Company decided to initiate the restructuring, a plan of action had been determined, and costs for the plan became reasonably estimable. Restructuring charges in fiscal 1995 were recorded using the same methodology except that the additional requirements of EITF 94-3 were adopted. In fiscal 1993, the Company initiated a restructuring plan to lower the Company's break-even point by reducing the overall cost structure and facilitate progress toward Company strategic goals. Specific actions initiated were a salaried headcount reduction, a re-deployment of management to create regional teams for the three areas served by the Company's assembly plants, out-sourcing literature warehousing and distribution operations, and a reduction in finished goods warehousing operations. As a result, $1,084,000 in restructuring costs were recorded to reflect severance costs for 46 people, losses on two warehouse lease commitments in Virginia and Georgia, equipment and leasehold improvement write-downs, and employee relocation costs. In fiscal 1994, the Company initiated a second restructuring plan to consolidate certain manufacturing operations and to discontinue its frameless product line. As a result, $391,000 in restructuring costs were recorded. The Company recognized $622,000 in restructuring costs in fiscal 1994 related to the restructuring activities initiated in fiscal 1993 that did not become accruable until fiscal 1994. These costs included additional lease termination costs, losses on lease commitments, and equipment and leasehold improvement write-downs. In fiscal 1995, the Company recognized $516,000 in restructuring costs to reflect restructuring activities initiated in fiscal 1993 that did not become accruable until fiscal 1995. These costs included severance, lease termination costs, losses on lease commitments, and equipment and leasehold improvement write-downs. A summary of the Company's restructuring provisions follows: Years ended April 30 ---------------------- (in thousands) 1995 1994 1993 Warehouse space reduction $ 516 $ 622 $ 548 Salaried headcount reduction and re-deployment 0 0 536 Discontinuance of frameless products 0 234 0 Manufacturing consolidation 0 157 0 ----- ------ ------ Total $ 516 $1,013 $1,084 ===== ====== ====== An analysis of the Company's activities against the restructuring provisions for the last three fiscal years are presented below: (in thousands) A B C D Total FY93 Restructuring provisions $548 $536 $ 0 $ 0 $1,084 FY93 Cash expenditures 350 450 0 0 800 FY93 Non-cash/other 0 0 0 0 0 April 30, 1993 accrual $198 $ 86 $ 0 $ 0 $ 284 ==== ==== ==== ==== ====== FY94 Restructuring provisions 622 0 234 157 1,013 FY94 Cash expenditures 380 78 0 0 458 FY94 Non-cash/other 242 8 64 0 314 April 30, 1994 accrual $198 $ 0 $170 $157 $ 525 ==== ==== ==== ==== ====== FY95 Restructuring provisions 516 0 0 0 516 FY95 Cash expenditures 338 0 0 0 338 FY95 Non-cash/other 44 0 170 157 371 April 30, 1995 accrual $332 $ 0 $ 0 $ 0 $ 332 ==== ==== ==== ==== ====== A - Warehouse space reduction (substantially all of which relates to lease termination costs and PP&E write-downs) B - Salaried headcount reduction (severance) and other employee costs C - Discontinuance of frameless line D - Manufacturing consolidation (PP&E write-downs) Cash outlays after April 30, 1995 to complete the restructuring activities are estimated at $332,000. The outlays are primarily required to fund outstanding lease commitments until fiscal 1997. NOTE J -- COMMITMENTS AND CONTINGENCIES LEGAL MATTERS 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. The Company is voluntarily participating with a group of companies which is cleaning up a waste facility site at the direction of a state environmental authority. The Company is also involved in other matters under the direction of state environmental authorities. The Company records liabilities for all probable and reasonably estimatable loss contingencies on an undiscounted basis. For loss contingencies related to environmental matters, liabilities are based on the Company's proportional share of the contamination obligation of a site since management believes it "probable" that the other parties, which are financially solvent, will fulfill their proportional contamination obligations. There are no probable insurance or other indemnification receivables recorded. The Company has accrued for all known environmental remediation costs which are probable and can be reasonably estimated, and such amounts are not material. Due to factors such as the continuing evolution of environmental laws and regulatory requirements, technological changes, and the allocation of costs among potentially responsible parties, estimation of future remediation costs is necessarily imprecise. It is possible that the ultimate cost, which cannot be determined at this time, could exceed the Company's recorded liability. As a result, charges to income for environmental liabilities could have a material effect on results of operations in a particular quarter or year as assessments and remediation efforts proceed. However, management is not aware of any matters which would be expected to have a material adverse effect on the Company's results of operations or financial position. LEASE AGREEMENTS The Company leases an office building, certain of its service centers and equipment. Total rental expenses amounted to approximately $3,780,000, $4,211,000, and $4,515,000 in fiscal 1995, 1994, and 1993, respectively. Minimum rental commitments as of April 30, 1995, under noncancellable leases are as follows: (in thousands) Fiscal Year Operating Capital 1996 $ 1,970 $ 819 1997 1,571 818 1998 1,038 558 1999 942 552 2000 898 551 2001 and thereafter 642 3,855 ------- ------- $ 7,061 $ 7,153 ======= Less amounts representing interest 1,717 ------- Total obligation under capital leases $ 5,436 ======= RELATED PARTIES During fiscal 1985, prior to becoming a publicly held corporation, the Company entered into an agreement with a partnership formed by certain executive officers of the Company to lease an office building constructed and owned by the partnership. The initial lease term has six remaining years with two five-year renewal periods available at the Company's option. Under this agreement, rental expense was $365,000, $358,000, and $351,000 in fiscal 1995, 1994, and 1993, respectively. Rent during the remaining base term of approximately $369,000 annually (included in the above table) is subject to adjustment based upon changes in the Consumer Price Index. NOTE K -- OTHER INFORMATION Credit is extended based on an evaluation of the customer's financial condition and generally collateral is not required. The Company's customers operate in the construction and remodeling markets. At April 30, 1995, the Company's two largest customers, Customer A and Customer B, represented 13.3% and 6.6% of the Company's accounts receivable, respectively. The following table summarizes the percentage of sales to the Company's two largest customers for the last three fiscal years: Percent of Annual Sales 1995 1994 1993 Customer A 15.8 14.7 14.3 Customer B 14.2 13.0 10.5 MANAGEMENT'S REPORT The accompanying financial statements are the responsibility of and have been prepared by the management of American Woodmark. The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include some amounts that are based on management's best estimates and judgements. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are properly recorded, that policies and procedures are adhered to and that assets are adequately safeguarded. The system of internal controls is supported by written policies and guidelines, an organizational structure designed to ensure appropriate segregation of responsibilities and selection and training of qualified personnel. To ensure that the system of internal controls operates effectively, management and the internal audit staff review and monitor internal controls on an ongoing basis. In addition, as part of the audit of the financial statements the Company's independent auditors evaluate selected internal accounting controls to establish a basis for reliance thereon indetermining the nature, timing and extent of audit tests to be performed. The Company believes its system of internal controls is adequate to accomplish the intended objectives, and continues its efforts to further improve those controls. The Audit Committee of the Board of Directors, which is composed solely of non-management Directors, oversees the financial reporting and internal control functions. The Audit Committee meets periodically and separately with Company management, the internal audit staff, and the independent auditors to ensure these individuals are fulfilling their obligations and to discuss auditing, internal controls and financial reporting matters. The Audit Committee reports its findings to the Board of Directors. The independent auditors and the internal audit staff have unrestricted access to the Audit Committee. /s/BILL BRANDT /s/KENT GUICHARD William F. Brandt, Jr. Kent B. Guichard Chairman & President Vice President, Finance REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Stockholders and Board of Directors American Woodmark Corporation We have audited the accompanying balance sheets of American Woodmark Corporation as of April 30, 1995 and 1994, and the related statements of income and retained earnings, and cash flows for each of the three years in the period ended April 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Woodmark Corporation at April 30, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 1995, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP Baltimore, Maryland June 9, 1995 Directors and Executive Officers William F. Brandt, Jr. Chairman and President James J. Gosa Director, Executive Vice President David L. Blount Vice President, Component Manufacturing Kent B. Guichard Vice President, Finance Donald P. Mathias Director, Vice President, Assembly and Distribution C. Stokes Ritchie Vice President, Sales & Marketing Daniel T. Carroll Director, Chairman & President The Carroll Group, Inc., A Management Consulting Firm Martha M. Dally Director, Executive Vice President-Personal Products Sara Lee Corporation John T. Gerlach Director, Director of MBA Programs Sacred Heart University Richard A. Graber Director, Retired Vice President, Marketing American Woodmark Corporation C. Anthony Wainwright Director, Chairman Harris, Drury, Cohen, Inc. CORPORATE INFORMATION ANNUAL MEETING The annual meeting of the stockholders of American Woodmark Corporation will be held on August 23, 1995, at 9:00 a.m. at Piper's at Creekside in Winchester, Virginia. FORM 10-K REPORT A copy of the Form 10-K for the year ended April 30, 1995, may be obtained by writing to: Kent Guichard Vice President, Finance American Woodmark Corporation P.O. Box 1980 Winchester, VA 22604-8090 CORPORATE HEADQUARTERS American Woodmark Corporation 3102 Shawnee Drive Winchester, VA 22601-4208 (703) 665-9100 MAILING ADDRESS P.O. Box 1980 Winchester, VA 22604-8090 TRANSFER AGENT Chemical Bank 800-851-9677 1995 American Woodmark Corporation(R) American Woodmark(R) is a trademark of American Woodmark Corporation. Printed in U.S.A. EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR APR-30-1995 APR-30-1995 2,876 0 20,820 1,181 10,775 36,169 75,438 41,716 74,408 22,007 15,534 17,479 0 0 14,322 74,408 197,351 197,351 151,033 151,033 36,141 40 1,355 8,822 3,466 5,356 0 0 0 5,356 .71 .71
-----END PRIVACY-ENHANCED MESSAGE-----