-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DcFt71Ai8VpNt4RP4HF7SIwL8UFd3/7SzpHIVn0A0TY9On4dk36mqTTGdsxBrypV sIhmx/mdYTzAFXSq655S6Q== 0000794619-96-000010.txt : 19960718 0000794619-96-000010.hdr.sgml : 19960718 ACCESSION NUMBER: 0000794619-96-000010 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960717 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: 96595699 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 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, 1996 Commission File Number 0-14798 AMERICAN WOODMARK CORPORATION (Exact name of the registrant as specified in its charter) VIRGINIA 54-1138147 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3102 Shawnee Drive, Winchester, Virginia 22601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (540) 665-9100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to section 12(g) of the Act: Common Stock (no par value) (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant 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. [X] The aggregate market value of the registrant's Common Stock, no par value, held by non-affiliates of the registrant at April 30, 1996 was $12,804,306 based on the closing price on that date on the NASDAQ Exchange. As of June 28, 1996, 7,632,081 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, 1996 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 20, 1996 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 different 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-three door designs and five 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, 1996 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 four service centers located in key areas throughout the United States. The primary raw materials used by the Company are oak and maple lumber, 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. 2 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, 1996, the Company had two customers, Builders Square, Inc., a subsidiary of K-mart Corporation, and The Home Depot, who each accounted for in excess of 10% of the Company's sales. At April 30, 1996, the Company had 2,164 employees. Approximately 30% of its employees are represented by labor unions. Management believes its employee relations are excellent. Item 2. PROPERTIES The Company leases its Corporate Office which is located in Winchester, Virginia. In addition, the Company leases one and owns six manufacturing facilities located primarily in the eastern United States. The Company also leases four service centers located throughout 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 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 estimable 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 3 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. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of fiscal 1996. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS "Market Information" in the American Woodmark Corporation's 1996 Annual Report to Stockholders ("1996 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 1996 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 1996 Annual Report is incorporated herein by reference. 4 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 1996 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 directorships, 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 20, 1996, which information is incorporated herein by reference. The executive officers of the Registrant as of April 30, 1996 are as follows: Name Age Position Held During Past Five Years ---------------------- --- ------------------------------------- William F. Brandt, Jr. 50 Chairman and Chief Executive Officer since November, 1995 Chairman and President 1980-1995 James J. Gosa 48 President and Chief Operating Officer since November, 1995 Executive Vice President 1993-1995 Vice President, Sales and Marketing 1991-1993 Vice President, Marketing and Branch Operations Thomas Somerville Co. 1985-1991 Director since 1995 Kent B. Guichard 40 Vice President, Finance and Chief Financial Officer since November 1995 Vice President, Finance 1993-1995 Vice President & Controller, AM Graphics Division, AM International 1991-1993 Controller, Aircraft Wheel and Brake Operations, BF Goodrich Company 1989- 1991 5 David L. Blount 48 Vice President, Manufacturing since May, 1995 Vice President, Component Manufacturing 1994-1995 Vice President, Manufacturing 1983-1994 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 Statement 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, 1996 and 1995 Statement of Income and Retained Earnings - for each of the years in the three-year period ended April 30, 1996 Statement of Cash Flows - for each of the years in the three-year period ended April 30, 1996 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors 6 (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 (a) - Bylaws (1) 3.2 (b) - Amendment to Bylaws on June 22, 1994 (7) 4 - Amended and Restated Stockholders' Agreement (1) 9 - Voting Trust 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) 7 10.1 (g) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of July 27, 1994 (8) 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) 8 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) 10.7 (d) - 1995 Non-Employee Directors Stock Option Plan 10.8 - 1996 Incentive Plan 11 - Computation of Earnings Per Share 13 - 1996 Annual Report to Stockholders 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. 9 (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. (8) - Incorporated by reference to exhibits filed with the 1995 Form 10-K. 10 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. Chief Executive Officer 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/ JAMES J. GOSA /s/ JOHN T. GERLACH James. J. Gosa John T. Gerlach President and Chief Operating Director Officer Director /s/ KENT B. GUICHARD /s/ RICHARD A. GRABER Kent B. Guichard Richard A. Graber Vice President, Finance and Director Chief Financial Officer /s/ DANIEL T. CARROLL /s/ DONALD P. MATHIAS Daniel T. Carroll Donald P. Mathias Director Director /s/ MARTHA M. DALLY /s/ C. ANTHONY WAINWRIGHT Martha M. Dally C. Anthony Wainwright Director Director 11 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, 1996: Allowance for doubtful accounts $ 243 $ 620 $ (234)(b) $ 629 Reserve for cash discounts $ 240 $2,977(c) $(2,967)(d) $ 250 Reserve for sales returns and allowances $ 698 $3,489(c) $(3,560) $ 627 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 (a) All reserves relate to accounts receivable. (b) Principally write-offs, net of collections. (c) Reduction of gross sales. (d) Cash discounts granted. S-1 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 and Chief Financial Officer American Woodmark Corporation P.O. Box 1980 Winchester, Virginia 22604-8090 EX-10 2 Exhibit 10.7d AMERICAN WOODMARK CORPORATION 1995 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN PART I. PLAN ADMINISTRATION AND ELIGIBILITY -------------------------------------------- I. PURPOSE The purpose of this Non-Employee Directors Stock Option Plan (the "Directors Plan") of American Woodmark Corporation (the "Company") is to encourage ownership in the Company by non-employee members of the Board of Directors (the "Board") of the Company, in order to promote long-term shareholder value and to provide non-employee members of the Board with an incentive to continue as directors of the Company. II. ADMINISTRATION The Directors Plan shall be administered by the Board. Grants of stock options ("Options") under the Directors Plan shall be automatic as described in Section VII. However, the Board shall have all powers vested in it by the terms of the Directors Plan, including, without limitation, the authority (within the limitations described herein) to prescribe the form of the agreement embodying awards of stock options under the Directors Plan, to construe the Directors Plan, to determine all questions arising under the Directors Plan, and to adopt and amend rules and regulations for the administration of the Directors Plan as it may deem desirable. Any decision of the Board in the administration of the Directors Plan, as described herein, shall be final and conclusive. The Board may act only by a majority of its members in office, except that members thereof may authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Board. No member of the Board shall be liable for anything done or omitted to be done by him or any other member of the Board in connection with the Directors Plan, except for his own willful misconduct or as expressly provided by statute. III. PARTICIPATION IN THE DIRECTORS PLAN The Terms "parent corporation" and "subsidiary corporation," as used in this Plan, shall have the meanings given them in Section 424(e) and (f) of the Internal Revenue Code of 1990, as amended (the "Internal Revenue Code"), and the term "subsidiary corporation" shall also mean an unconsolidated subsidiary, whether or not 50%-owned. 1 IV. STOCK SUBJECT TO THE DIRECTORS PLAN The maximum number of shares of the Company's Common Stock ("Shares") that may be issued upon exercise of Options granted pursuant to the Directors Plan shall be 30,000, subject to adjustment as provided in Section XII. Shares that have not been issued under the Directors Plan allocable to Options and portions of Options that expire or terminate unexercised may again be subject to a new Option. PART II. OPTIONS ----------------- V. NON-STATUTORY STOCK OPTIONS All Options granted under the Directors Plan shall be non-statutory in nature and shall not be entitled to special tax treatment under Section 422 of the Internal Revenue Code. VI. OPTION EXERCISE PRICE The Option exercise price shall be the fair market value of the Shares subject to such Option on the date the Option is granted, which shall be the average of the highest and lowest reported sale prices per share of the Shares on the NASDAQ National Issues Transaction Tape (or if there have been no transactions, the average of the bid and asked prices) on the date of grant. VII. TERMS, CONDITIONS AND FORM OF OPTIONS Each Option shall be evidenced by a written agreement in such form as the Board shall from time to time approve, which agreement shall comply with and be subject to the following terms and conditions: A. Option Grant Date. Each director of the Company who is eligible to be granted an Option hereunder on the effective date of the Directors Plan (as provided in Section XIII) shall automatically receive an Option to purchase 1,000 Shares. Each director newly elected by the Company's shareholders after the effective date who is eligible to be granted Options hereunder on the anniversary date of the Option grant shall automatically receive an Option to purchase 1,000 Shares on the date of such Directors Plan anniversary. Each director shall annually thereafter on the anniversary date of his first Option grant automatically receive an Option to purchase 1,000 Shares. If at any time under the Directors Plan there are not sufficient shares available to fully permit the automatic Option grants described in this paragraph, the Option grants shall be reduced pro rata (to zero if necessary) so as not to exceed the number of Shares available. 2 B. Options Not Transferable. An Option shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and shall be exercised during the lifetime of the optionee only by him or her. An Option transferred by will or by the laws of descent and distribution may be exercised by the optionee's personal representative within one year of the date of the optionee's death to the extent the optionee could have exercised the Option on the date of his or her death. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. C. Exercise of Options. An Option shall be exercisable as to one-third of the number of shares on the first anniversary of the Date of Grant, and as to an additional one-third of the number of shares on each succeeding anniversary until fully exercisable. No Option may be exercised: 1. before the Directors Plan is approved by shareholders of the Company; 2. after the expiration of four (4) years from the date the Option is granted; provided, however, that each Option shall be subject to termination before its date of expiration as hereinafter provided; 3. except by written notice to the Company at its principal office, stating the number of Shares the optionee has elected to purchase, accompanied by payment in cash and/or by delivery to the Company of Shares (valued at fair market value on the date of exercise) in the amount of the full Option exercise price for the Shares being acquired thereunder; and 4. only at such time as an optionee is a director of the Company, or within three (3) months after the date the optionee ceases to be a director of the Company, to the extent then exercisable. VIII. WITHHOLDING Upon the transfer of Shares as a result of the exercise of an option, the Company shall have the right to retain or sell without notice sufficient Shares (taken at the last reported sales price of such Shares on the NASDAQ National Market Issues Transaction Tape on such date or dates as may be determined by the Board, but not more than five business days prior to the date on which such Shares would otherwise have been delivered) to cover the amount of any federal or state income tax required by any government to be withheld or otherwise deducted and paid with respect to such payment and the exercise of the Options, remitting any balance to the optionee; provided, however, that the 3 optionee shall have the right to provide the Company with the funds to enable it to pay such tax. IX. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS The Board shall have the power to modify, extend or renew outstanding Options and to authorize the grant of new Options in substitution therefor, provided that any such action may not have the effect of altering or impairing any rights or obligations of any person under any Option previously granted without the consent of the optionee. PART III. GENERAL PROVISIONS ----------------------------- X. TERMINATION The Directors Plan shall terminate upon the earlier of: A. The adoption of a resolution of the Board terminating the Directors Plan; or B. August 31, 1999. No termination of the Directors Plan shall without his or her consent materially and adversely affect any of the rights or obligations of any person under any Option previously granted under the Directors Plan. XI. LIMITATION OF RIGHTS A. No Right to Continue as a Director. Neither the Directors Plan nor the granting of an Option nor any other action taken pursuant to the Directors Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain any person as a director for any period of time. B. No Shareholder's Rights Under Options. An optionee shall have no rights as a shareholder with respect to Shares covered by his or her Options until the date of exercise of the Option, and, except as provided in Section XII, no adjustment will be made for dividends or other rights for which the record date is prior to the date of such exercise. XII. CHANGES IN CAPITAL STRUCTURE In the event of any merger, consolidation, reorganization, recapitalization, stock dividend, stock split or other change in the corporate structure or capitalization affecting the Shares, the number of Shares that may 4 be issued under the Directors Plan, and the number of Shares subject to or the Option exercise price per Share under any outstanding Option, shall be adjusted automatically so that the proportionate interest of the participant shall be maintained as before the occurrence of such event. Such adjustment in outstanding Options, with a corresponding adjustment in the Option exercise price per Share, shall be made without change in the total Option exercise price applicable to the unexercised portion of the Option, and any such adjustment shall be conclusive and binding for all purposes of the Directors Plan. XIII. EFFECTIVE DATE OF THE DIRECTORS PLAN The Directors Plan shall be effective on the date of adoption by the shareholders of the Company. XIV. AMENDMENT OF THE DIRECTORS PLAN The Board may suspend or discontinue the Directors Plan or revise or amend the Directors Plan in any respect; provided, however, that without approval of the shareholders no revision or amendment shall increase the number of Shares subject to the Directors Plan (except as provided in Section XII) or materially increase the benefits accruing to participants under the Directors Plan. XV. NOTICE Any written notice to the Company required by any of the provisions of the Directors Plan shall be addressed to the Treasurer of the Company and delivered personally or mailed first class, postage prepaid to the Company at its principal business address. XVI. MISCELLANEOUS PROVISIONS A. Securities Laws. No Shares shall be issued hereunder if counsel for the Company advises that such issuance would constitute a violation of applicable securities laws. B. Ratification. By accepting any Option or other benefit under the Directors Plan, each participant and each person claiming under or through such person shall be conclusively deemed to have given his or her acceptance and ratification of, and consent to, any action taken by the Company or the Board. 5 EX-10 3 Exhibit 10.8 AMERICAN WOODMARK CORPORATION Fiscal Year 1996 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, 1996 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). 2 EX-11 4 Exhibit 11 AMERICAN WOODMARK CORPORATION Computation of Earnings Per Share (in thousands, except per share amounts) Fiscal Year Ended April 30 -------------------------- 1996 1995 1994 ------ ------ ------ Net income $3,846 $5,356 $2,176 Divided by weighted average common shares outstanding 7,595 7,544 7,529 ------ ------ ------ Earnings per share $ 0.51 $ 0.71 $ 0.29 ====== ====== ====== EX-13 5 ANNUAL REPORT TO STOCKHOLDERS 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 Letter from the Executive Office 3 Five Year Selected Financial Information 5 The 2001 Vision: A Blueprint for Growth 6 Management's Discussion and Analysis 11 Financial Statements 17 Notes to Financial Statements 20 Management's Report 26 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 four 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 approximately 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 1996 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, 1996, there were 7,608,761 shares of stock outstanding. Market price ranges for the Company's Common Stock are set forth below. Fiscal Years Ended April 30 ----------------------------- Quarter Ended 1996 1995 - ------------------------------------------------------ Market Price Market Price High Low High Low July 31 $6.13 $5.00 $6.00 $4.88 October 31 $5.50 $4.50 $6.38 $5.25 January 31 $4.88 $3.88 $5.75 $4.50 April 30 $5.56 $4.00 $6.25 $5.38 As of April 30, 1996, there were approximately 3,100 stockholders of the Company's Common Stock. Included are approximately 85% 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 -------------------------------------- 1996 1995 1994 -------- -------- -------- OPERATIONS Net sales $196,237 $197,351 $171,343 Operating income 7,281 10,154 5,423 Income before income taxes 6,238 8,822 3,523 Net income 3,846 5,356 2,176 Net income per share $ .51 $ .71 $ .29 Average shares outstanding -- Note F 7,595 7,544 7,529 FINANCIAL POSITION Working capital $ 15,409 $ 14,162 $ 9,732 Total assets 76,336 74,408 72,321 Long-term debt 12,866 15,534 18,334 Stockholders' equity $ 35,845 $ 31,801 $ 26,376 Long-term debt to equity ratio 36% 49% 70% 2 LETTER FROM THE EXECUTIVE OFFICE To Our Shareholders: On balance, fiscal 1996 was a good year for our Company. Despite an unfavorable external environment for most of the year, we earned a net profit of $3,846,000 or $.51 per share, our second best year since 1989. Net sales decreased less than one percent to $196.2 million from $197.4 million the previous year. Overall sales levels were impacted by weak demand across the entire home center industry, our largest single customer segment. Comparative store sales were down at virtually all major home centers for most of the year. Big ticket special order categories such as kitchen cabinets were hit especially hard, with sales down over twenty percent for much of the year at many home center outlets. Despite this environment, we maintained or increased our market share with the leading home center chains. Our partnerships with The Home Depot and Lowe's continued to grow during the year. We are the leading supplier of stock cabinets to these customers, servicing both on a national basis. We've found new ways to enhance our long standing partnership with Builders Square. In addition, regional home center chains found our overall product and service programs provide an effective platform to compete in their local markets. Net sales to distributors and builders continue to grow with the success of our Timberlake(TM) brand of cabinets. Our extensive product line and innovative service programs have successfully attracted new distributors and have enhanced the ability of existing distributors to compete effectively in the marketplace. Builders in key markets, such as Arizona, Florida and Texas, rely upon the superior value offered by American Woodmark as a major component of their sales strategies. 3 The capital spending program which we funded over the past three years substantially improved our operating efficiencies during the second half of fiscal 1996. Material utilization initiatives, combined with favorable market conditions for raw materials, resulted in the lowest overall material cost as a percent of sales since fiscal 1992. New equipment and manufacturing techniques resulted in our finishing the year with the highest labor productivity in the last four years. During the year, we again improved our financial strength with greater cash reserves, further reductions in debt and increased retained earnings. Total debt was reduced by $2.7 million to $15.6 million. With total cash on hand of $7.2 million at year end, net debt was $8.4 million. Long-term debt to total capital declined to 26% at year end, the lowest level in the history of our Company. After a very good year in 1995, fiscal 1996 began on something of a down note. Even though sales in the first quarter were up almost 4% from the prior year, we reported disappointing net income results of $.05 per share. Like many companies, we did not anticipate the downturn in the home center industry and had prepared the Company to support double digit growth. Although we reacted quickly to reduce operating costs in the second quarter, the market continued to drop. We reported an improvement from the first quarter, but net income of $.08 per share was still below our expectations. The home center industry declined further in our third quarter which resulted in a year-over-year decline in sales of 9.4%. Despite this significant impact, net income was consistent with the second quarter at $.07 per share. Through the first nine months of the fiscal year, we continued to focus on the fundamental elements of our business and prepared the Company to take advantage of the home center industry's eventual turnaround. The home center industry strengthened during our fourth quarter and total sales increased to $53.3 million, up 7% from the prior year. Fourth quarter net income was $2.3 million or $.30 per share, a record for fourth quarter earnings. We are extremely proud of the dedication and performance of our employees during this past year. They responded to an unfriendly external environment and they responded quickly. As a result of their efforts, we continued to move American Woodmark forward while remaining profitable in each quarter. To all our employees, we thank you for your hard work and commitment this past year. To our stockholders, thank you for your continuing support. We are confident that we are building long-term value in your Company. We believe that the market place will soon recognize the progress at American Woodmark and place a fair value on your investment. William F. Brandt, Jr. James J. Gosa /s/ BILL BRANDT /s/ JAMES J. GOSA Chairman and President and Chief Executive Officer Chief Operating Officer 4 FIVE YEAR SELECTED FINANCIAL INFORMATION Years Ended April 30 --------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- FINANCIAL STATEMENT DATA (in millions, except per share data) Net sales $196.2 $197.4 $171.3 $167.3 $137.4 Income (loss) before income taxes 6.2 8.8 3.5 (0.7) (6.5) Net income (loss) 3.8 5.4 2.2 (0.5) (4.0) Net income (loss) per share (1) .51 .71 .29 (.06) (.54) Depreciation and amortization expense 7.8 7.8 7.2 6.8 5.6 Restructuring costs -- 0.5 1.0 1.1 -- Total assets 76.3 74.4 72.3 78.5 82.3 Long-term debt 12.9 15.5 18.3 21.5 25.1 Stockholders' equity 35.8 31.8 26.4 24.2 24.7 Average shares outstanding (1) 7.6 7.5 7.5 7.5 7.5 PERCENT OF SALES Gross profit 21.5% 23.5% 21.4% 18.2% 19.2% Sales, general and administrative expenses 17.8 18.1 17.6 16.5 22.1 Income (loss) before income taxes 3.2 4.5 2.1 (0.4) (4.7) Net income (loss) 2.0 2.7 1.3 (0.3) (2.9) RATIO ANALYSIS Current ratio 1.7 1.6 1.4 1.2 1.3 Inventory turnover (2) 11.9 11.0 8.5 7.0 5.3 Percentage of capital: (LTD & equity) Debt 26.4% 32.8% 41.0% 47.0% 50.5% Equity 73.6 67.2 59.0 53.0 49.5 Return on equity (average %) 11.4 18.4 8.6 (1.9) (15.2) Collection period--days (3) 36.9 34.7 37.2 36.4 37.7 (1) The weighted average of common shares has been retroactively restated to reflect a 10% stock dividend issued in September 1993. (2) Based on average of beginning and ending Inventory. (3) Based on ratio of monthly average Accounts Receivable to average Sales per day. 5 THE 2001 VISION: A BLUEPRINT FOR GROWTH We are dedicated to a simple goal--superior return on investment for our stockholders. To achieve this goal, we must create sales growth, consistent improvement in period-over-period earnings and predictability in performance. We have worked extremely hard over the past six years to transform American Woodmark from the company it was to the company we believe it can become. We have created our competitive advantage by building a business platform based on four primary elements. HOME CENTER MARKET POSITION We are the leading supplier of stock cabinetry to the home center industry. American Woodmark products are available nationwide through the three largest national chains: The Home Depot, Lowe's and Builders Square. Our products are also available through select regional home centers. These valuable partnerships provide opportunities that few, if any, existing or potential competitors can match. 6 DISTRIBUTOR AND BUILDER MARKET POSITION We have expanded our presence in the distributor channel over the past several years with our Timberlake brand cabinets. Our full line of products and services provide distributors with an extremely competitive offering. Our long-time distributors are using this competitive advantage to gain share in their home markets and to move into new markets. Large regional and national distributors have been attracted to Timberlake and several have entered the retail cabinet industry with American Woodmark supplied cabinets. We have established competitive positions in the strong Sunbelt builder markets. The breadth and value of our product line is helping builders compete successfully. Our innovative service programs and other support services have improved the efficiency of our customers' operations. 7 WOOD PROCESSING TECHNOLOGY As a vertically integrated manufacturer, American Woodmark has developed superior capabilities in wood technologies. Innovative research and development programs and focused capital spending continue to enhance our leadership position. 8 DELIVERY AND SERVICE PLATFORM American Woodmark has developed a distribution system that can deliver customer orders ranging from a single cabinet to a full truckload to virtually any location in the United States quickly and at a competitive cost. We have been a pioneer in such innovative programs as direct home delivery. 9 American Woodmark is implementing a strategy that will provide long-term sales growth through gaining market share in our core kitchen and bath cabinet business and through the introduction of new products that take advantage of the key elements of our business platform. Our expanded base will provide consistent growth and improvements in performance. Fiscal 1996 was the first year in our "2001 Vision," a six-year operating plan designed to implement our strategy. Through this Vision, we have outlined specific targets that will create the following results: * Significant sales in new products and market categories not currently serviced; * Double total sales per home center outlet; * A competitive presence in the top forty distributor/builder markets in the United States; and * Double productivity. Our Vision is ambitious and we are under no allusions about the magnitude of our task. The path we are choosing will be difficult and we will undoubtedly experience a setback or two along this journey. As difficult as it may be, we are committed to our Vision and we will overcome the obstacles. We will find a path to our goal. The men and women of American Woodmark share common values and a belief about who we are and where we are going. We are resourceful and innovative. Each of us contributes our individual talents and, together, we combine these talents into focused teams. And these teams can climb mountains. The "1995 Vision," the six-year plan developed in 1989, was revolutionary in its impact on American Woodmark. The 2001 Vision is different--more evolutionary than revolutionary. We are building new growth on the existing foundation, rather than a new foundation. One thing, however, remains constant: Our Mission Statement defines who we are, what we do, why we do it and how it gets done. We maintain our unwavering belief in Creating Value Through People. 10 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 ---------------------------- 1996 1995 1994 ---------------------------- Net sales 100.0% 100.0% 100.0% Cost of sales and distribution 78.5 76.5 78.6 Gross profit 21.5 23.5 21.4 Selling and marketing expenses 12.6 12.0 12.0 General and administrative expenses 5.2 6.1 5.6 Restructuring costs -- 0.3 0.6 Operating income 3.7 5.1 3.2 Interest expense 0.6 0.7 1.1 Income before income taxes 3.2 4.5 2.1 Provision for income taxes 1.2 1.8 0.8 Net income 2.0 2.7 1.3 FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995 Fiscal 1996 net sales of $196.2 million decreased less than 1% from fiscal 1995 net sales of $197.4 million. A general price increase was implemented during the year to recover rising product costs. Average unit prices increased approximately 3% as the general price increase was partially offset by a shift from the upper-end to the middle of the Company's broad stock product offering. Overall unit volume decreased 3.5%. Unit shipments to home centers declined as the industry experienced a general economic downturn. Demand for durable, big ticket items was down significantly for most of the fiscal year at virtually all home center chains. In this environment, however, the Company was still able to maintain or increase market share at key home center accounts. Unit volumes increased in the Distributor and Builder channels due to strong new construction demand in certain geographical regions and to the addition of new customers. Gross profit declined to 21.5% of net sales from 23.5% the prior year. Higher average unit prices were more than offset by increased per unit labor and freight costs. In addition, gross profit was adversely impacted by unfavorable leverage as a result of lower volumes on fixed and semi-fixed costs. Material cost per unit remained flat with the prior year. Improvements in lumber yield and price decreases for certain raw materials were offset by unfavorable changes in the product mix and by the cost of additional standard features offered on the Company's products. Labor cost per unit rose due to normal rate increases, temporary inefficiencies relating to capital projects early during the fiscal year, an increase in employee health costs resulting from specific claim activity and less than anticipated demand for product during the first nine months of the fiscal year. Freight cost per unit increased due to new service programs developed to support the Company's customer base and maintain the Company's competitive position. Per unit overhead costs rose slightly due to the leverage impact from lower volume on fixed and semi-fixed components of expenses. 11 Sales and marketing expenses rose as a percentage of net sales from 12% in fiscal 1995 to 12.6% in fiscal 1996. The Company implemented several aggressive sales promotions and other sales support initiatives during the fiscal year to maintain market share and generate incremental sales volume during the economic downturn. General and administrative expenses decreased from 6.1% of net sales in fiscal 1995 to 5.2% in fiscal 1996 due to reduced employee compensation costs associated with the Company's performance incentive programs. Fiscal 1996 interest expense declined $146,000 to $1.2 million from the prior year. The decrease resulted from reduced short-term borrowings under the Company's revolving credit facility and a continued reduction in long-term debt. Total debt decreased $2.7 million, or 15%, during fiscal 1996. During the third quarter of fiscal 1996, the Company received a tax refund from the City of Winchester pertaining to property taxes paid in prior years for the Company's Corporate Office in Winchester, Virginia. This tax refund, net of specific recovery expenses, increased other income by $398,000. Restructuring activities in fiscal 1996 were primarily limited to the recognition of cash outlays directly related to ongoing efforts to reduce warehouse space. These activities resulted in a reduction of established restructuring reserves by $161,000 for lease commitments, $18,000 for severance costs and $20,000 for the write-down of equipment. Annual savings of $438,000 for lease costs, $600,000 for payroll costs and $30,000 for depreciation expense were partially offset by increased freight expenses and additional labor costs to sequence production. Restructuring costs of $516,000 were recognized in fiscal 1995 due to the Company's efforts to reduce warehousing space. While these costs related to the plan which initiated the restructuring activity in fiscal 1993, they were not accruable until fiscal 1995 when uncertainties relating to the remaining two 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 $400,000 for lease costs, $340,000 for payroll, and $26,000 for depreciation expense were partially offset by increased freight costs and additional labor costs to sequence production. Future cash outlays to complete the restructuring activities are not anticipated to exceed the remaining balance of $133,000 in the restructuring reserve. (See Note I to the Financial Statements.) LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities in fiscal 1996 generated $11.7 million in net cash compared to $10.9 million the prior year. Net profit before non-cash charges for depreciation and amortization, timing differences in the payment of performance incentives and related compensation expenses, and the refund of short-term deposits were the primary contributors to cash in fiscal 1996. The short-term deposits were made during the prior fiscal year to fund the construction of equipment now in operation at the Toccoa, Georgia facility. The equipment was financed through an operating lease. Promotional display shipments and decreased payables reduced cash provided by operating activities. Capital spending increased $1.1 million from the prior year to $5.0 million as the Company 12 continued its capital spending program designed to improve the Company's competitive position and to lower overall cost. During fiscal 1996, equipment was purchased for the Hardy County, West Virginia facility, the Toccoa, Georgia facility and the Orange, Virginia facility to optimize process flows and lower costs. All other capital expenditures during fiscal 1996 were limited to necessary or replacement items and cost savings projects. Net cash used for financing activities in fiscal 1996 decreased $2.5 million from the prior year. The difference was the result of payments in fiscal 1995 that eliminated the Company's short-term revolving debt balance. The Company reduced overall debt by $2.7 million during fiscal 1996. Total debt on April 30, 1996 was $15.6 million and did not include any short-term borrowings under the Company's credit facility. Long-term debt to total equity declined from 48.8% at April 30, 1995 to 35.9% at April 30, 1996. Cash and cash equivalents increased $4.3 million to $7.2 million at year end. Cash flow from operations, combined with available borrowing capacity, is expected to be sufficient to meet forecasted working capital requirements, service existing debt obligations and fund capital expenditures for fiscal 1997. OUTLOOK FOR 1997 The Company anticipates an overall economic environment of low to moderate growth supported by stable interest rates and low inflation. The Company anticipates that demand in the domestic cabinet market will return to the levels experienced prior to the economic downturn which impacted the home center industry in 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 improve the profitability experienced in fiscal 1996. Additional volume, the full-year impact of the general price increase implemented during the third quarter of fiscal 1996 and higher productivity should be sufficient to offset the anticipated rise in other costs. The Company currently maintains sufficient overall capacity to meet projected growth over the next two years. In this environment, the Company's strategy is, on average, to reinvest at least depreciation on an annual basis. The Company is anticipating average to slightly above average capital expenditures in fiscal 1997. Identified 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 in order to maintain the financial health of the Company 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 flow from operations and cash on hand. While the Company is not currently aware of any events that would result in a material decline in earnings from fiscal 1996, we participate in an industry that is subject to rapidly changing conditions. The preceding forward looking statements are based on current expectations, but there are numerous factors that could cause the Company to experience a decline in sales or earnings including: (1) overall industry demand at depressed levels, (2) economic weakness in a specific channel of distribution, especially the home center industry, (3) the loss of sales from specific customers due to their loss of market share, bankruptcy or switching to a competitor, 13 (4) a sudden and significant rise in basic raw material costs, and (5) the need to respond to competitive initiatives launched by a competitor. While the Company believes these risks to be manageable and believes that these risks will not materially impact the long-term performance of the Company, these risks could under certain circumstances have a materially adverse impact on short-term operating results. 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 benefited 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 continued 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. 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 continued 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 $400,000 for lease costs, $340,000 for payroll, and $26,000 for depreciation expense were partially offset by increased freight costs 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 14 for lease termination costs and losses on lease commitments and $275,000 for equipment and leasehold improvement write-downs. Annual savings of $600,000 for lease cost reductions, $500,000 for payroll reductions and $25,000 for depreciation cost reductions were 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. 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 November 27, 1995 the Company's Board of Directors elected Mr. James J. Gosa to President and Chief Operating Officer. Mr. Gosa was formerly the Executive Vice President of the Company. Mr. William F. Brandt, Jr., formerly President, now serves as Chairman of the Board of Directors and Chief Executive Officer. The Company's Vice President of Sales and Marketing, Mr. C. Stokes Ritchie, resigned from the Company effective April 30, 1996. During the first quarter of fiscal 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Adoption of this Statement did not have a material impact on the Company's operating results or financial position. (See Note D to the Financial Statements.) The Company does not expect that implementation of SFAS No. 123, "Accounting for Stock-Based Compensation", which is required to be adopted by the Company beginning in fiscal 1997, will have a material effect on the Company's operating results or financial position. (See Note F to the Financial Statements.) The Company is involved in various suits and claims in the normal course of 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. 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 estimable 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.) 15 QUARTERLY RESULTS OF OPERATIONS (UNAUDITIED) (in thousands, except per share amounts) Year Ended April 30, 1996 ------------------------------------- 1st 2nd 3rd(a) 4th(b) ------------------------------------- Net sales $47,250 $48,927 $46,793 $53,267 Gross profit 9,294 9,662 9,468 13,831 Income before income taxes 599 1,023 905 3,711 Provision for income taxes 238 398 346 1,410 Net income 361 625 559 2,301 Net income per share .05 .08 .07 .30 Year Ended April 30, 1995 ------------------------------------- 1st 2nd(c) 3rd 4th(d) ------------------------------------- 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 (a) Income before income taxes for the third quarter of fiscal 1996 reflects $109,000 in equipment write-downs and a property tax refund of $398,000, net of specific recovery expenses. (b) Income before income taxes for the fourth quarter of fiscal 1996 includes $530,000 in unfavorable adjustments to increase allowance for bad debt. Also included is the effect of LIFO liquidations which resulted in costs being $120,000 less than would have been recorded in a current cost environment. (c) 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 effect of LIFO liquidations which resulted in costs being $174,000 less than would have been recorded in a current cost environment. (d) Income before income taxes in the fourth quarter of fiscal 1995 reflects $353,000 in favorable adjustments to receivables for over-accrued allowances. 16 BALANCE SHEET (in thousands, except share data) April 30 ---------------------- 1996 1995 -------- -------- ASSETS Current Assets Cash and cash equivalents $ 7,201 $ 2,876 Refundable deposits -- 1,708 Customer receivables 19,709 19,639 Inventories 10,326 10,775 Prepaid expenses and other 899 738 Deferred income taxes 527 433 -------- -------- Total Current Assets 38,662 36,169 Property, Plant and Equipment 33,188 33,722 Deferred Costs and Other Assets 3,982 3,714 Intangible Pension Assets 504 803 -------- -------- $76,336 $74,408 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 7,651 $ 8,876 Accrued compensation and related expenses 8,467 7,156 Current maturities of long-term debt 2,719 2,800 Other accrued expenses 4,416 3,175 -------- -------- Total Current Liabilities 23,253 22,007 Long-Term Debt, less current maturities 12,866 15,534 Deferred Income Taxes 2,780 3,028 Long-Term Pension Liabilities 1,592 2,038 Commitments and Contingencies -- -- 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 7,608,761 -- 1996; 7,551,109 -- 1995 17,677 17,479 Retained earnings 18,168 14,322 -------- -------- Total Stockholders' Equity 35,845 31,801 -------- -------- $76,336 $74,408 ======== ======== See notes to financial statements 17 STATEMENT OF INCOME AND RETAINED EARNINGS Years Ended April 30 -------------------------------------- (in thousands, except share data) 1996 1995 1994 ---------- ---------- ---------- Net sales $ 196,237 $ 197,351 $ 171,343 Cost of sales and distribution 153,982 151,033 134,682 ---------- ---------- ---------- Gross Profit 42,255 46,318 36,661 Selling and marketing expenses 24,775 23,667 20,532 General and administrative expenses 10,199 11,981 9,693 Restructuring costs -- 516 1,013 ---------- ---------- ---------- Operating Income 7,281 10,154 5,423 Interest expense 1,209 1,355 1,889 Other (income) expense (166) (23) 11 ---------- ---------- ---------- Income Before Income Taxes 6,238 8,822 3,523 Provision for income taxes 2,392 3,466 1,347 ---------- ---------- ---------- NET INCOME 3,846 5,356 2,176 RETAINED EARNINGS, BEGINNING OF YEAR 14,322 8,966 9,013 Stock dividend -- -- (2,223) ---------- ---------- ---------- RETAINED EARNINGS, END OF YEAR $ 18,168 $ 14,322 $ 8,966 ========== ========== ========== EARNINGS PER SHARE Average shares outstanding 7,594,977 7,544,385 7,528,526 Net income per share $ .51 $ .71 $ .29 ========== ========== ========== See notes to financial statements 18 STATEMENT OF CASH FLOWS (in thousands) Years Ended April 30 ---------------------------- 1996 1995 1994 -------- -------- -------- OPERATING ACTIVITIES Net income $ 3,846 $ 5,356 $ 2,176 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 7,839 7,758 7,195 Net loss on disposal of property, plant and equipment 126 34 47 Deferred income taxes (342) 284 395 Restructuring costs -- 178 726 Other non-cash items 831 532 18 Changes in operating assets and liabilities: Customer receivables (631) (928) (1,539) Income taxes receivable -- -- 529 Inventories 177 572 2,428 Refundable deposits 1,708 (1,708) -- Other assets (2,828) (2,767) (2,052) Accounts payable (1,231) 625 (1,135) Accrued compensation and related expense 1,338 1,444 1,017 Other 908 (500) 822 -------- -------- -------- Net Cash Provided by Operating Activities 11,741 10,880 10,627 INVESTING ACTIVITIES Payments to acquire property, plant and equipment (5,030) (3,942) (3,379) Funds designated for capital expenditures -- 468 1,002 Proceeds from sales of property, plant and equipment 221 99 59 -------- -------- -------- Net Cash Used by Investing Activities (4,809) (3,375) (2,318) FINANCING ACTIVITIES Payments of long-term debt (2,805) (3,158) (3,641) Net decrease in short-term borrowings -- (2,000) (6,000) Common Stock issued through stock option plans 198 69 14 -------- -------- ------- Net Cash Used by Financing Activities (2,607) (5,089) (9,627) -------- -------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,325 2,416 (1,318) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,876 460 1,778 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,201 $ 2,876 $ 460 ======== ======== ======== See notes to financial statements 19 NOTES TO FINANCIAL STATEMENTS Note A -- Significant Accounting Policies The Company manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The Company's products are sold on a national basis through a network of independent distributors and directly to home centers and major builders. 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 fair value (approximates cost). The Company considers all highly liquid short-term investments purchased with an original 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. The dilutive effect of stock options on earnings per share is not significant and has been excluded. Fair Value of Financial Instruments: The carrying amount of the Company's cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximates fair value. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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) 1996 1995 -------- -------- Gross customer receivables $21,215 $20,820 Less: Allowance for bad debt (629) (243) Allowance for returns and discounts (877) (938) -------- -------- Net customer receivables $19,709 $19,639 ======== ======== Note C -- Inventories The components of Inventories were: April 30 ------------------------ (in thousands) 1996 1995 -------- -------- Raw materials $ 5,261 $ 5,650 Work-in-process 9,336 9,876 Finished goods 1,392 1,110 -------- -------- Total FIFO Inventories 15,989 16,636 Reserve to adjust Inventories to LIFO value (5,663) (5,861) -------- -------- Total LIFO Inventories $10,326 $10,775 ======== ======== As a result of LIFO Inventory liquidations, cost of sales reflected $120,000, $317,000, and $667,000 less expense in fiscal 1996, 1995, and 1994, respectively, than would have been recorded in a current cost environment. 20 Note D -- Property, Plant and Equipment The components of property, plant and equipment were: April 30 ------------------------ (in thousands) 1996 1995 -------- -------- Land $ 876 $ 876 Buildings and improvements 16,817 16,504 Buildings and improvements - capital leases 6,550 6,550 Machinery and equipment 49,383 48,221 Machinery and equipment - capital leases 1,861 1,956 Construction in progress 850 1,331 -------- -------- 76,337 75,438 Less allowance for depreciation (43,149) (41,716) -------- -------- Total $33,188 $33,722 ======== ======== Depreciation expense amounted to $5,128,000, $5,028,000, and $5,372,000 in fiscal 1996, 1995, and 1994, respectively. The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", in the first quarter of fiscal 1996. SFAS 121 addresses situations where information indicates that a company might be unable to recover, through future operations or sale, the carrying amount of long-lived assets, identifiable intangibles, and goodwill related to those assets. Adoption of this Statement did not have a material impact on the Company's results of operations or financial position. Note E -- Loans Payable and Long-Term Debt Maturities of long-term debt are as follows: Years Ending April 30 --------------------------------------------------- 2002 and Total There- Out- (in thousands) 1997 1998 1999 2000 2001 after standing ------ ------ ------ ------ ------ -------- -------- Notes payable $1,015 $ 758 $ 500 $ 125 $ -- $ -- $ 2,398 Industrial Revenue Bonds 1,105 1,105 1,120 750 750 3,425 8,255 Capital lease obligations 599 367 372 376 395 2,823 4,932 ------ ------ ------ ------ ------ -------- -------- Total $2,719 $2,230 $1,992 $1,251 $1,145 $6,248 $15,585 ====== ====== ====== ====== ====== ======== Less current maturities 2,719 -------- Total $12,866 ======== 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 may routinely occur on a daily basis. The outstanding balance against this line of credit never exceeded $1.7 million and $3.3 million in fiscal 1996 and 1995, respectively. In fiscal 1996, the total transactions through this credit facility were borrowings of $7.5 million and payments of $7.5 million. In fiscal 1995, the total transactions through this 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. No revolving credit loans were outstanding at April 30, 1996 and 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, 1996, these amounts were immaterial. The Company does not invest, trade, or otherwise speculate in any derivatives or similar type instruments. At April 30, 1996, term loans of $2.4 million were outstanding. The term loans bore a variable interest rate of 6.6% on April 30, 1996. On April 30, 1996, the Company had $8.3 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 $6.6 million through June 1, 1999. The variable rate that would have applied if the rate swap had not occurred was 4.4% on April 30, 1996. On $1.7 million of outstanding bonds, the variable interest rate was 4.4% on April 30, 1996. 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, 1996, 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, 21 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, 1996. Interest paid was $1,178,000, $1,376,000, and $1,927,000 during fiscal 1996, 1995, and 1994, 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, 1994 7,531,225 $ 17,410 Stock options exercised 19,884 69 ----------- -------------- Balance at April 30, 1995 7,551,109 $ 17,479 Stock options exercised 57,652 198 ----------- -------------- Balance at April 30, 1996 7,608,761 $ 17,677 =========== ============== 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 $115,000, $155,000, and $81,000 in fiscal 1996, 1995, and 1994, 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 $502,000, $407,000, and $237,000 in fiscal 1996, 1995, and 1994, respectively. Stock Options In 1986, stockholders approved a stock option plan for key employees of the Company. This plan expired in April 1996. 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, 1996: Number Option Price of Shares per Share --------- ------------ Outstanding at May 1, 1995 303,705 $2.39-$5.64 Granted 60,600 $4.38-$5.50 Exercised (57,652) $2.39-$4.09 Expired or cancelled (71,808) $2.39-$5.13 --------- Outstanding at April 30, 1996 234,845 $2.39-$5.64 ========= Exercisable at April 30, 1996 134,745 $2.39-$5.64 ========= Available for future issuance at April 30, 1996 0 ========= In August 1995, stockholders approved a stock option plan for non-employee directors, which replaced the 1990 Plan that had expired. At April 30, 1996, options granted under the 1990 Plan (ranging from $2.50 to $5.75 per share) for 18,074 shares were outstanding, of which 7,941 options (ranging from $2.50 to $5.75 per share) were exercisable. Under the 1990 Plan options for 3,663 shares expired at $3.64 per share during fiscal 1996. Under the new 1995 Plan, 30,000 shares of Common Stock may be granted as options. During fiscal 1996, options for 6,000 shares were granted under the new plan at $4.94 per share. No options were exercised under either plan in fiscal 1996. The Company currently accounts for its stock-based compensation plans using the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, "Accounting for Stock-Based Compensation". Under the provisions of SFAS 123, companies may elect to account for stock-based compensation plans using a fair-value-based method or continue measuring compensation expense for those plans using the intrinsic value method prescribed in APB 25. SFAS 123 requires that companies electing to continue using the intrinsic value method must make pro forma disclosures of net income and earnings per share as if the fair-value-based method of accounting had been applied. The disclosures required by SFAS 123 will be included in the Company's 1997 financial statements. As the Company anticipates continuing to account for stock-based compensation using the intrinsic value method, SFAS 123 will not have an impact on the Company's results of operations or financial position. 22 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 and fixed income security funds. Net periodic pension costs were comprised of the following: Years Ended April 30 --------------------------- (in thousands) 1996 1995 1994 Service cost-benefits ------- ------- ------- earned during the year $ 763 $ 663 $ 637 Interest cost on projected benefit obligation 1,031 880 790 Actual return on plan assets (1,846) (684) (528) Net amortization and deferrals 1,045 (109) (231) ------- ------- ------- Net periodic pension cost $ 993 $ 750 $ 668 ======= ======= ======= The funded status of the Company's pension plans was as follows for the fiscal years ended April 30: 1996 1995 ------------------------ ------------------------ 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 $ 6,495 $ 4,904 $5,531 $ 4,460 Non-vested 402 449 362 393 ----------- ----------- ----------- ----------- Accumulated 6,897 5,353 5,893 4,853 Effect of anticipated future salary increases 2,200 -- 2,269 -- ----------- ----------- ----------- ----------- Projected 9,097 5,353 8,162 4,853 Fair value of plan assets 8,525 4,668 7,309 4,086 ----------- ----------- ----------- ----------- Projected benefit obligation in excess of the fair value of plan assets 572 685 853 767 Unrecognized prior service cost (53) (310) (61) (307) Unrecognized net gain (loss) 1,746 (48) 1,089 (318) Unrecognized net transition obligation (264) (146) (315) (178) Additional minimum liability -- 504 -- 803 ----------- ----------- ----------- ----------- Net pension obligation $ 2,001 $ 685 $ 1,566 $ 767 =========== =========== =========== =========== Primary assumptions utilized in accounting for the Company's pension plans were as follows: Years Ended April 30 -------------------------------- 1996 1995 1994 ---- ---- ---- 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. 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. 23 Note H -- Income Taxes The provision for income taxes is comprised of the following: Years Ended April 30 ---------------------------------- (in thousands) 1996 1995 1994 Current -------- -------- -------- Federal $ 2,429 $ 2,619 $ 787 State 305 563 165 -------- -------- -------- Total current 2,734 3,182 952 -------- -------- -------- Deferred Federal (283) 272 361 State (59) 12 34 -------- -------- -------- Total deferred (342) 284 395 -------- -------- -------- Total $ 2,392 $ 3,466 $ 1,347 ======== ======== ======== The Company's effective income tax rate varied from the federal statutory rate as follows: Years Ended April 30 ---------------------- 1996 1995 1994 ------ ------ ------ Federal statutory rate 34% 34% 34% State income taxes, net of federal tax effect 3 4 4 Other 1 1 -- ------ ------ ------ Effective Rate 38% 39% 38% ====== ====== ====== Income taxes paid were $1,809,000, $3,547,000, and $1,128,000 for fiscal years 1996, 1995, and 1994, respectively. Income tax refunds received were $64,000, $3,000, and $534,000 for fiscal years 1996, 1995 and 1994, respectively. The significant components of deferred tax assets and liabilities are as follows: April 30 ----------------- (in thousands) 1996 1995 Deferred Tax Assets ------ ------ Employee benefits $ 579 $ 566 Other 913 845 ------ ------ Total 1,492 1,411 Deferred Tax Liabilities Depreciation 2,996 3,344 Inventory 555 530 Other 194 132 ------ ------ Total 3,745 4,006 ------ ------ Net Deferred Tax Liabilities $2,253 $2,595 ====== ====== Note I -- Restructuring Provisions The Company initiated a restructuring plan in fiscal 1993 to lower the Company's break-even point by reducing the overall cost structure and facilitate progress toward Company strategic goals. Restructuring charges were recognized in fiscal 1994 and fiscal 1995 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. In fiscal 1994, the Company initiated a second restructuring plan, recording $391,000 in restructuring costs, to consolidate certain manufacturing operations and to discontinue its frameless product line. 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. The Company recognized $516,000 in restructuring costs in fiscal 1995 related to the restructuring activities initiated in fiscal 1993 that did not become accruable until fiscal 1995. Fiscal year 1996 restructuring activities were limited to the expenditure of the previously anticipated cash outlays as estimated in the two prior fiscal years. A summary of the Company's restructuring provisions and activities against these provisions follows: (in thousands) A B C D Total ----- ----- ----- ----- ------- 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 FY96 Restructuring provisions 0 0 0 0 0 FY96 Cash expenditures 179 0 0 0 179 FY96 Non-cash/other 20 0 0 0 20 ----- ----- ----- ----- ------- April 30, 1996 accrual $133 $ 0 $ 0 $ 0 $ 133 ===== ===== ===== ===== ======= 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, 1996 to complete the restructuring activities are estimated at $133,000. The outlays are required to fund outstanding lease commitments until fiscal 1997. 24 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 estimable 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 $3,378,000, $3,780,000, and $4,211,000 in fiscal 1996, 1995, and 1994, respectively. Minimum rental commitments as of April 30, 1996, under noncancelable leases are as follows: (in thousands) Fiscal Year Operating Capital - ------------------- ---------- -------- 1997 $ 1,668 $ 842 1998 1,020 581 1999 1,057 566 2000 927 551 2001 864 551 2002 and thereafter 548 3,303 ---------- -------- $ 6,084 $ 6,394 ========== Less amounts representing interest 1,462 -------- Total obligation under capital leases $ 4,932 ======== 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 five remaining years with two five-year renewal periods available at the Company's option. Under this agreement, rental expense was $370,000, $365,000, and $358,000 in fiscal 1996, 1995, and 1994, respectively. Rent during the remaining base term of approximately $376,000 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, 1996, the Company's two largest customers, Customer A and Customer B, represented 7.9% and 13.2% of the Company's customer receivables, 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 ------------------------ 1996 1995 1994 ------ ------ ------ Customer A 10.7 15.8 14.7 Customer B 17.5 14.2 13.0 The Company maintains an allowance for bad debt based upon management's evaluation and judgment of potential net loss. The allowance is estimated based upon historical experience, the effects of current developments and economic conditions, and anticipation of customers' financial condition. Estimates and assumptions are periodically reviewed and updated with any resulting adjustments to the allowance reflected in current operating results. 25 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 in determining 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 entirely 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 control 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 William F. Brandt, Jr. Chairman & Chief Executive Officer /s/ JAMES J. GOSA James J. Gosa President and Chief Operating Officer /s/ KENT GUICHARD Kent B. Guichard Vice President, Finance and Chief Financial Officer 26 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, 1996 and 1995, and the related statements of income and retained earnings, and cash flows for each of the three years in the period ended April 30, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Baltimore, Maryland June 7, 1996 27 DIRECTORS AND EXECUTIVE OFFICERS William F. Brandt, Jr. Chairman and Chief Executive Officer James J. Gosa Director; President and Chief Operating Officer David L. Blount Vice President, Manufacturing Kent B. Guichard Vice President, Finance and Chief Financial Officer Donald P. Mathias Director; Retired Vice President, Assembly and Distribution Daniel T. Carroll Director; Chairman 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 Program Sacred Heart University Richard A. Graber Director; Retired Vice President, Marketing American Woodmark Corporation C. Anthony Wainwright Director; Chairman Harris, Drury, Cohen, Inc. 28 CORPORATE INFORMATION Annual Meeting The annual meeting of the stockholders of American Woodmark Corporation will be held on August 20, 1996, 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, 1996, 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 (540) 665-9100 Mailing Address P.O. Box 1980 Winchester, VA 22604-8090 Transfer Agent ChaseMellon Shareholder Services, L.L.C. 800-851-9677 1996 American Woodmark Corporation(R) American Woodmark(R) and Timberlake(TM) are trademarks of American Woodmark Corporation. Printed in U.S.A. 29 APPENDIX TO EXHIBIT 13 Front cover Picture Shows portion of a modern kitchen: "Designing Our Future" Page 3 Picture Shows James J. Gosa (President and Chief Operating Officer) and William F. Brandt, Jr. (Chairman and Chief Executive Officer) Page 6 Picture Shows a family and sales representative at a home center showroom Caption: "Home Centers will continue to be a growth market for many years. Our strong relationships with the major home center chains will help us meet our own growth objectives." Page 7 Picture Shows a new kitchen Caption: "The Distributor and Builder Channels are a significant and growing part of our sales base. Additional growth will be generated from penetrating new markets and from innovative products and services for new home buyers and remodelers." Page 8 Two pictures Each picture shows a portion of a production line Caption: "Wood Finishing is at the heart of our production process. Finding new applications for our expertise will provide growth opportunities in new products and channels of distribution." Page 9 Picture Shows a kitchen cabinet being delivered Caption: "Home Delivery of our products, virtually anywhere in the country, helps distinguish our after-sale service from our competitors. Future opportunities for growth are increased by the business partnerships that make this service possible." Page 10 Picture Shows the Company symbol for the "2001 Vision" Caption: CREATING VALUE THROUGH PEOPLE Page 12 Graph Graph of inventory turnover for last five fiscal years Caption: INVENTORY TURNOVER 1992 1993 1994 1995 1996 5.3 7.0 8.5 11.0 11.9 Page 13 Graph Graph of long-term debt for last five fiscal years Caption: LONG-TERM DEBT AS A PERCENTAGE OF CAPITAL 1992 1993 1994 1995 1996 50.5% 47.0% 41.0% 32.8% 26.4% EX-23 6 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 7, 1996, included in the April 30, 1996 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. /s/ERNST & YOUNG LLP Baltimore, Maryland July 12, 1996 EX-27 7
5 1,000 YEAR APR-30-1996 APR-30-1996 7,201 0 21,215 1,506 10,326 38,662 76,337 43,149 76,336 23,253 12,866 0 0 17,677 18,168 76,336 196,237 196,237 153,982 153,982 0 620 1,209 6,238 2,392 3,846 0 0 0 3,846 .51 .51
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