-----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, SAdS66izheSKrhaMSgHE6JxtQcYJwIsShSX+jtZ3vvr3O9z/xrXSfq6FLQYacfsv jR94QpJPfpCQs1xUEfkxLw== 0000794619-97-000015.txt : 19970723 0000794619-97-000015.hdr.sgml : 19970723 ACCESSION NUMBER: 0000794619-97-000015 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970722 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: 97643431 BUSINESS ADDRESS: STREET 1: 3102 SHAWNEE DR CITY: WINCHESTER STATE: VA ZIP: 22601 BUSINESS PHONE: 5406659100 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 For the fiscal year ended April 30, 1997 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. [ ] The aggregate market value of the registrant's Common Stock, no par value, held by non-affiliates of the registrant at June 23, 1997 was $60,837,812 based on the closing price on that date on the NASDAQ Exchange. As of June 23, 1997, 7,734,889 shares of the Registrant's Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended April 30, 1997 (1997 Annual Report) are incorporated by reference into Parts I and II of this Form 10-K. Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 27, 1997 (Proxy Statement) 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 forty-five door designs and eight 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(R), Scots Pride(R), and Coventry and Case(R) 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, 1997 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, 1997, the Company had two customers, The Home Depot and Lowe's Companies, Inc., who each accounted for in excess of 10% of the Company's sales. At April 30, 1997, the Company had 2,154 employees. Approximately 31% of its employees are represented by labor unions. Management believes its employee relations are excellent. Item 2. PROPERTIES The Company leases its Corporate 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 "Legal Matters" under Note J to the Financial Statements in the 1997 Annual Report is incorporated herein by reference. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1997. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS MATTERS "Market Information" in the 1997 Annual Report is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA "Five Year Selected Financial Information" in the 1997 Annual Report is incorporated herein by reference. 3 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis" in the 1997 Annual Report is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements, Notes to Financial Statements, "Quarterly Results of Operations," and the Report of Ernst & Young LLP, Independent Auditors, in the 1997 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 Proxy Statement, which information is incorporated herein by reference. The executive officers of the Registrant as of April 30, 1997 are as follows: Name Age Position Held During Past Five Years ---- --- ------------------------------------ James J. Gosa 49 President and Chief Executive Officer since August, 1996 President and Chief Operating Officer 1995-1996 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 4 David L. Blount 49 Vice President, Manufacturing since May, 1995 Vice President, Component Manufacturing 1994-1995 Vice President, Manufacturing 1983-1994 Kent B. Guichard 41 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 William F. Brandt, Jr. 51 Chairman of the Board since August 1996 Chairman and Chief Executive Officer 1995-1996 Chairman and President 1980-1995 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. 5 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, 1997 and 1996 Statement of Income and Retained Earnings - for each of the years in the three-year period ended April 30, 1997 Statement of Cash Flows - for each of the years in the three-year period ended April 30, 1997 (a) 2. Financial Statement Schedules Reference is made to Financial Statement schedules and supplementary data under Item 8 in Part II hereof, where these documents are listed. The following Financial Statement schedule is included in a separate section of this report: Schedule Page -------- ---- II. Valuation and qualifying accounts 10 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) 6 10.1 (a) - Amended and Restated Loan Agreement between the Company and NationsBank of North Carolina as of March 23, 1992 (5) 10.1 (b) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of September 8, 1992 (6) 10.1 (c) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of June 25, 1993 (6) 10.1 (d) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of March 15, 1993 (6) 10.1 (e) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of August 31, 1993 (7) 10.1 (f) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of March 15, 1994 (7) 10.1 (g) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of July 27, 1994 (8) 10.1 (h) - Amendment to Amended and Restated Loan Agreement and to Reimbursement Agreements as of July 8, 1996 10.1 (i) - Amendment to Amended and Restated Loan Agreement as of August 31, 1996 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) 10.2 (c) - Second Amendment to Security Agreement as of August 31, 1996 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) 7 10.3 (f) - Loan Agreement between the Company and the County Commission of Hardy County, West Virginia as of December 1, 1991, relating to bond financing (5) 10.3 (g) - Promissory Note between the Company and County Commission of Hardy County, West Virginia as of December 18, 1991 (5) 10.3 (h) - Reimbursement Agreement between the Company and NationsBank as of December 1, 1991 (5) 10.3 (i) - Amendment to Reimbursement Agreements as of June 15, 1992 (5) 10.4 (a) - Credit Line Deed of Trust and Security Agreement - Orange and Clarke Counties, Virginia, as amended (1) 10.4 (b) - Deed of Trust and Security Agreement - Hardy County, West Virginia, as amended (1) 10.5 (a) - Loan Agreement between the Company and the West Virginia Economic Development Authority and the Hardy County Rural Development Authority (1) 10.5 (b) - Security Agreement between the Company and the West Virginia Economic Development Authority (1) 10.5 (c) - Deed of Trust - Hardy County, West Virginia (1) 10.6 (a) - Lease between the Company and Amwood Associates (1) 10.6 (b) - Lease between the Company and the West Virginia Industrial and Trade Jobs Development Corporation (3) 10.6 (c) - Lease between the Company and the West Virginia Industrial and Trade Jobs Development Corporation (3) 10.6 (d) - Amendment to Deed of Lease between the Company and West Virginia Economic Development Authority as of March 30, 1992 (5) 10.7 (a) - 1986 Employee Stock Option Plan (1) 10.7 (b) - Form of Option Agreement and Stock Purchase Agreement (1) 10.7 (c) - 1990 Non-Employee Directors Stock Option Plan (7) 10.7 (d) - 1995 Non-Employee Directors Stock Option Plan (9) 8 10.7 (e) - 1996 Stock Option Plan (10) 10.8 (a) - 1997 Annual Incentive Plan for Chairman and President/CEO 10.8 (b) - 1997 Annual Incentive Plan for Vice Presidents 11 - Computation of Earnings Per Share 13 - 1997 Annual Report to Shareholders 23 - Consent of Ernst & Young LLP, Independent Auditors 27 - Financial Data Schedule (b) Reports on Form 8-K None. - -------------------------------------------------------------------------------- (1) - Incorporated by reference to exhibits filed with Form S-1, No. 33-6245. (2) - Incorporated by reference to exhibits filed with the 1987 Form 10-K. (3) - Incorporated by reference to exhibits filed with the 1988 Form 10-K. (4) - Incorporated by reference to exhibits filed with the 1989 Form 10-K. (5) - Incorporated by reference to exhibits filed with the 1992 Form 10-K. (6) - Incorporated by reference to exhibits filed with the 1993 Form 10-K. (7) - Incorporated by reference to exhibits filed with the 1994 Form 10-K. (8) - Incorporated by reference to exhibits filed with the 1995 Form 10-K. (9) - Incorporated by reference to exhibit filed with Form S-8, No. 333-12631. (10) - Incorporated by reference to exhibit filed with Form S-8, No. 333-12623. 9 Schedule II - Valuation and Qualifying Accounts AMERICAN WOODMARK CORPORATION (In Thousands) Additions Balance at Charged to Balance Beginning Cost and at End Description(a) of Period Expenses Deductions of Period -------------- ---------- ---------- ---------- --------- Year ended April 30, 1997: Allowance for doubtful accounts $ 629 $ 830 $(1,249)(b) $ 210 Reserve for cash discounts $ 250 $3,236(c) $(3,183)(d) $ 303 Reserve for sales returns and allowances $ 627 $4,492(c) $(4,251) $ 868 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 (a) All reserves relate to accounts receivable. (b) Principally write-offs, net of collections. (c) Reduction of gross sales. (d) Cash discounts granted. 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/ JAMES J. GOSA James J. Gosa President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ KENT B. GUICHARD /s/ MARTHA M. DALLY Kent B. Guichard Martha M. Dally Vice President, Finance and Director Chief Financial Officer /s/ WILLIAM F. BRANDT, JR. /s/ JOHN T. GERLACH William F. Brandt, Jr. John T. Gerlach Chairman of the Board Director /s/ DANIEL T. CARROLL /s/ C. ANTHONY WAINWRIGHT Daniel T. Carroll C. Anthony Wainwright Director Director 11 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 12 EX-10 2 Exhibit 10.1 (h) July 3, 1996 Mr. Glenn E. Eanes Treasurer American Woodmark Corporation 3102 Shawnee Drive Winchester, VA 22601 RE: Amended and Restated Loan Agreement between NationsBank, N.A. (the "Bank") and American Woodmark Corporation (the "Borrower") dated as of August 31, 1993, as Amended (the "Loan Agreement") Dear Glenn: Pursuant to your request to allow the Borrower to pay cash dividends under certain conditions, the Bank hereby agrees to amend the Loan Agreement referenced above as follows: Section 11.01 (h) shall be restated as follows: "(h) pay any dividends other than dividends payable with the stock of the Borrower or redeem its stock; provided, however, the Borrower may redeem its stock through redemptions funded entirely by life insurance proceeds payable to the Borrower; provided further, that so long as the Borrower has not suffered a net loss for the four fiscal quarters (taken in their entirety) immediately prior to the payment of any dividend or on account of any other redemption, the Borrower may pay cash dividends and make additional redemptions during any fiscal quarter in an amount which in the aggregate does not exceed 25% of the Borrower's Net Income for the four fiscal quarters (taken in their entirety) immediately prior to the payment of such dividend or on account of such redemption reduced by 100% of the aggregate amount of cash dividends and redemptions (excluding redemptions funded entirely by life insurance proceeds) for the four fiscal quarters (taken in their entirety) immediately prior to the payment of such dividend or on account of such redemption;" The Bank also hereby agrees to permit the payment of cash dividends under the terms outlined above under all existing letter of credit reimbursement agreements supporting lower floater Industrial Revenue Bonds between the Borrower and the Bank. All other terms and conditions of the Loan Agreement shall remain unchanged and in full force and effect. Please indicate your acceptance of this modification to the Loan Agreement by signing below. Very truly yours, NationsBank, N.A. by /s/ MICHAEL R. WILLIAMS ----------------------- Senior Vice President cc Christopher C. Kupec, Esquire Accepted by American Woodmark Corporation by /s/ GLENN EANES --------------- its Treasurer -------------- Date 7/8/96 -------------- EX-10 3 Exhibit 10.1 (i) THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of August 31, 1996, is to that certain Amended and Restated Loan Agreement dated as of August 31, 1993, as amended as of March 15, 1994 and July 27, 1994 (as amended and restated, the "Loan Agreement"; all defined terms in the Loan Agreement are incorporated herein by reference) by and between AMERICAN WOODMARK CORPORATION, a corporation organized and existing under the laws of the Commonwealth of Virginia and having its principal place of business in Winchester, Virginia (the "Borrower"); and NATIONSBANK, N.A., a national banking association organized and existing under the laws of the United States and having offices in Charlotte, North Carolina (the "Bank"). RECITAL - ------- A. The Bank and the Borrower have agreed to make changes to the Loan Agreement as provided for herein. NOW, THEREFORE, the parties hereto agree as follows: 1. The Loan Agreement is hereby amended as follows: (a) The definition of "Termination Date" is amended so that such definition now reads as follows: "Termination Date" means August 31, 1997; (b) The definition of "Available Committed Amount" or "Available Commitment" is amended so that such definition now reads as follows: "Available Committed Amount" or "Available Commitment" means $4,000,000, as such amount may be increased from time to time up to the Maximum Commitment pursuant to the terms of Section 2.02; (c) The third sentence of Section 2.01 is amended by replacing the reference to "$4,000,000" contained therein with a reference to "$8,000,000". (d) All references to "NationsBank of North Carolina, N.A." are replaced with references to "NationsBank, N.A.". 2. The Borrower hereby represents and warrants that: (a) the "Representation and Warranties" set forth in Article IX of the Loan Agreement, as amended, are true and correct as of the date of this Third Amendment; (b) the Borrower is not in default of the Loan Agreement or the other Loan Documents (as defined in the Loan Agreement) and no event or condition exists under the Loan Agreement or the other Loan Documents that, but for the giving of notice or lapse of time or both, would result in such a default as of the date of this Third Amendment. 3. Except as modified hereby, all of the terms and provisions of the Loan Agreement (and Exhibits) remain in full force and effect. 4. The Borrower agrees that all references to the term "Loan Agreement" in each of the Loan Documents shall mean the "Amended and Restated Loan Agreement, dated August 31, 1993, as amended March 15, 1994, July 27, 1994 and August 31, 1996, by and between American Woodmark Corporation and NationsBank, N.A." 5. This Third Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original. 6. This Third Amendment and the Loan Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the state of North Carolina. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed by their duly authorized corporate officers as of the day and year first above written. AMERICAN WOODMARK CORPORATION ATTEST: By: CAROL LENTZ By: /S/ GLENN EANES ----------- --------------- Title Corporate Secretary Title: Treasurer ------------------- --------- (Corporate Seal) NATIONSBANK, N.A. By: /S/ ELIZABETH S. DUFF --------------------- Title: Vice President -------------- EX-10 4 Exhibit 10.2 (c) SECOND AMENDMENT TO SECURITY AGREEMENT THIS SECOND AMENDMENT TO SECURITY AGREEMENT, dated as of August 31, 1996, is by and between AMERICAN WOODMARK CORPORATION, a corporation organized and existing under the laws of the State of Virginia; (the "Borrower"); and NATIONSBANK, N.A., a national banking association organized and existing under the laws of the United States and having offices in Charlotte, North Carolina (the "Bank"). RECITAL - ------- A. The Bank and the Borrower entered into that certain Security Agreement, dated March 23, 1992, as amended (the "Security Agreement"). B. The Bank and the Borrower has agreed to amend the Security Agreement as set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. The Security Agreement is hereby amended by adding the following sentence to the definition of "Debtor's Liabilities" in Section 1.01: The term "Borrower's Liabilities" shall also include without limitation, all present or future liabilities, indebtedness and obligations of the Borrower to the Bank incurred in connection with the issuance by the Bank on the application of the Borrower of all letters of credit, whether now or hereafter issued, such liabilities, indebtedness and obligations to include all liabilities, indebtedness and obligations arising under any letter of credit applications and/or reimbursement agreements now or hereafter executed by the Borrower in favor of the Bank in connection with such letters of credit. 2. The Borrower acknowledges and agrees that the "Collateral" (as defined in the Security Agreement) secures all present or future liabilities, indebtedness and obligations of the Borrower to the Bank incurred in connection with the issuance by the Bank on the application of the Borrower of all letters of credit, whether now or hereafter issued (the "Obligations"), such Obligations to include all liabilities, indebtedness and obligations arising under any letter of credit applications and/or reimbursement agreements now of hereafter executed by the Borrower in favor of the Bank in connection with such letters of credit. The Borrower hereby grants the Bank a security interest in the "Collateral" (as defined in the Security Agreement) to secure the Obligations. 3. All references to "NationsBank of North Carolina, N.A." in the Security Agreement are replaced with references to "NationsBank, N.A.". 4. Except as modified hereby, all of the terms and provisions of the Security Agreement (and Exhibits) remain in full force and effect. 5. This Second Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original. 6. This Second Amendment and the Loan Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the state of North Carolina. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed by their duly authorized corporate officers as of the day and year first above written. AMERICAN WOODMARK CORPORATION ATTEST: By: /s/ CAROL LENTZ By: /s/ KENT GUICHARD --------------- ----------------- Title Corporate Secretary Title: Vice President of Finance & CFO ------------------- ------------------------------- (Corporate Seal) NATIONSBANK, N.A. By: /s/ MICHAEL R. WILLIAMS ----------------------- Title: Senior Vice President --------------------- EX-10 5 Exhibit 10.8 (a) AMERICAN WOODMARK CORPORATION FISCAL YEAR 1997 ANNUAL INCENTIVE PLAN FOR THE CHAIRMAN OF THE BOARD AND THE PRESIDENT/CEO I. THE OBJECTIVES OF THE ANNUAL INCENTIVE PLAN ARE THREEFOLD: A. Provide an incentive which will encourage and reward outstanding individual performance; B. Help align the personal goals of the individual with the overall goals and objectives of American Woodmark and the stockholders of American Woodmark; and C. Together with base pay and long-term incentive programs, provide a compensation package, in both form and total value, which is equal to or better than opportunities offered in the competitive marketplace for similar performance in similar positions. II. ELIGIBILITY FOR PARTICIPATION IN THE ANNUAL INCENTIVE PROGRAM The Chairman and President/CEO of the Company. Eligible participants must be employed by the Company on April 30, 1997. All calculations will be reduced on a pro-rated basis for eligible participants not employed as of May 1, 1996. III. DETERMINATION OF ANNUAL INCENTIVE PAYOUT A. Determination of the payout will be based on one component: 1. Zero to 65% of base salary on April 30, 1997 as determined by income achievement versus predetermined goals. Net income will be the audited amount as listed in the Company's Annual Report for fiscal 1998. 2. Zero to 45% of base salary on April 30, 1997 as determined by cash flow achievement versus predetermined goals. Cash flow will be calculated from the audited Financial Statements for fiscal 1997, and is defined as Net Cash Provided by Operating Activities less the Net Cash Used by Investing Activities as listed in the Statement of Cash Flows in the Company's Annual Report. B. No payments will be made on the Annual Incentive Plan unless the Company reports a net profit for the fiscal year. EX-10 6 Exhibit 10.8 (b) AMERICAN WOODMARK CORPORATION FISCAL YEAR 1997 ANNUAL INCENTIVE PLAN FOR VICE PRESIDENTS I. THE OBJECTIVES OF THE ANNUAL INCENTIVE PLAN ARE THREEFOLD: A. Provide an incentive which will encourage and reward outstanding individual performance; B. Help align the personal goals of the individual with the overall goals and objectives of American Woodmark and the stockholders of American Woodmark; and C. Together with base pay and long-term incentive programs, provide a compensation package, in both form and total value, which is equal to or better than opportunities offered in the competitive marketplace for similar performance in similar positions. II. ELIGIBILITY FOR PARTICIPATION IN THE ANNUAL INCENTIVE PROGRAM All Vice Presidents of the Company. Eligible participants must be employed by the Company on April 30, 1997. All calculations will be reduced on a pro-rated basis for eligible participants not employed as of May 1, 1996. III. DETERMINATION OF ANNUAL INCENTIVE PAYOUT A. Determination of the payout will be based on one component: 1. Zero to 42% of base salary on April 30, 1997 as determined by net income achievement versus predetermined goals. Net income will be the audited amount as listed in the Company's Annual Report for fiscal 1998. 2. Zero to 28% of base salary on April 30, 1997 as determined by cash flow achievement versus predetermined goals. Cash flow will be calculated from the audited Financial Statements for fiscal 1997, and is defined as Net Cash Provided by Operating Activities less the Net Cash Used by Investing Activities as listed in the Statement of Cash Flows in the Company's Annual Report. 3. Zero to 30% of base salary on April 30, 1997 based on the individual evaluation of the employee through the Company's performance review process. B. No payments will be made on the Annual Incentive Plan unless the Company reports a net profit for the fiscal year. EX-11 7 Exhibit 11 AMERICAN WOODMARK CORPORATION Computation of Earnings Per Share (in thousands, except per share amounts) Fiscal Year Ended April 30 ------------------------------ 1997 1996 1995 -------- -------- -------- Net income $10,548 $3,846 $5,356 Divided by weighted average common shares outstanding 7,673 7,595 7,544 -------- -------- -------- Earnings per share $1.37 $0.51 $0.71 ======== ======== ======== EX-13 8 ANNUAL REPORT TO STOCKHOLDERS TABLE OF CONTENTS Company Profile 2 Market Information 2 Financial Highlights 2 Letter from the President 3 Five Year Selected Financial Information 5 Opening the Door to the 2001 Vision 6 Management's Discussion and Analysis 10 Financial Statements 16 Notes to Financial Statements 19 Management's Report 27 Report of Independent Auditors 28 Board of Directors and Executive Officers Corporate Information Exhibit 13 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. 1 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 1997 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. Common Stock per share market prices and cash dividends declared during the last two fiscal years were as follows: Market Price ----------------- Dividends (in dollars) High Low Declared -------- ------- --------- FISCAL 1997 First quarter $ 6.13 $ 4.75 $ -- Second quarter 9.75 5.13 .02 Third quarter 19.00 8.13 .02 Fourth quarter 22.38 10.75 .02 FISCAL 1996 First quarter 6.13 5.00 -- Second quarter 5.50 4.50 -- Third quarter 4.88 3.88 -- Fourth quarter 5.56 4.00 -- As of April 30, 1997, there were approximately 4,100 stockholders of record of the Company's Common Stock. Included are approximately 84% of the Company's employees who are stockholders through the American Woodmark Stock Ownership Plan. FINANCIAL HIGHLIGHTS (in thousands, except share data) Years Ended April 30 ------------------------------ 1997 1996 1995 -------- -------- -------- OPERATIONS Net sales $219,402 $196,237 $197,351 Operating income 17,606 7,281 10,154 Income before income taxes 17,114 6,238 8,822 Net income 10,548 3,846 5,356 Earnings per share $ 1.37 $ .51 $ .71 Average shares outstanding -- Note A 7,673 7,595 7,544 FINANCIAL POSITION Working capital $ 23,442 $ 15,409 $ 14,162 Total assets 87,157 76,336 74,408 Long-term debt 10,637 12,866 15,534 Stockholders' equity $ 46,298 $ 35,845 $ 31,801 Long-term debt to equity ratio 23% 36% 49% 2 TO OUR SHAREHOLDERS: Fiscal 1997 was an extraordinary year for American Woodmark. We achieved record sales and reported record net income of $10,548,000 or $1.37 per share. Based on our performance, the value of a share of American Woodmark stock increased from under $5.00 in April 1996 to almost $13.00 in April 1997. The total return to our shareholders for the year including cash dividends was 180%, placing us at the top of our peer group. Net sales increased 12% to $219.4 million from $196.2 million the previous year. We continue to gain market share, especially in the critical home center channel, based on our strong market position, our key customer relationships and our innovative product and service programs. Year-over-year sales increased at The Home Depot, Lowe's and Builders Square. During the year we completed our roll-out into the Northeast Region of The Home Depot, the largest home center chain in the country. American Woodmark cabinets are now available nationwide in virtually all 500 Home Depot stores. We continued our partnership program and growth rate with Lowe's, the second largest home center chain in North America. Our products are proudly offered in almost 350 Lowe's stores. Sales to Builders Square increased for the first time in three years. In addition to our core special order cabinet business, we completed the roll-out of a successful new in-stock cabinet program across the over 160 stores operated by Builders Square. We continue to be very aggressive and gain market share through our Timberlake(R) brand program designed for the new construction industry. Throughout the year, we successfully expanded existing relationships with national and regional builders and established a new presence in markets previously not served by our Company. In addition to our traditional cabinet business, we began to generate significant sales for the first time during this year from our efforts to develop and introduce new products and to enter new markets. Sales were generated from new in-stock programs in both cabinets and vanities. In addition, our engineered cabinet line has been greeted with enthusiasm by the industry. This new line accounted for a significant increase in units shipped by the end of the fiscal year. We are confident that in the years ahead these new business efforts will generate growth rates above those available in our traditional cabinet business. Our capital spending program continues to drive substantial improvements in operating efficiencies. Material utilization increased from the prior year to the highest point in over five years, despite significant cost pressure in the hardwood lumber markets. New equipment and manufacturing techniques improved labor productivity by 16% over the prior year. Capacity utilization increased 3 with higher volumes, creating operating leverage on fixed costs. The improvements in efficiencies resulted in gross margins rising from below 22% in fiscal 1996 to almost 28% in fiscal 1997. Net income set a new record in each of the four quarters in fiscal 1997. Net income improved over the previous records by 11% in the first quarter, 30% in the second, 62% in the third and 26% in the fourth. Including the fourth quarter of the previous year, American Woodmark has now established a new level of earnings performance in five consecutive quarters. Net income for the year was 41% above the previous high set in fiscal 1989. Our record performance during this past year was the result of efforts over the years by many employees. Two individuals, Al Graber and Don Mathias, were founders of our Company in 1980. They left active management in years past and, in 1997, Al and Don decided to retire from our Board of Directors as well. They both worked tirelessly over the years to build American Woodmark into the Company it is today. We will miss their energy and counsel, and we recognize them for tremendous contributions over their fifty years of combined service. In closing, I would like to thank all the fine men and women that work at American Woodmark. Not only did our employees achieve record levels of performance in fiscal 1997, they did so while continuing to build the foundation for an even better future. As we continue on our path towards the 2001 Vision, our goal is to create growth not only in our core business but also through investments in new products and new markets. The in-stock program for cabinets and vanities and the engineered cabinet line are just two examples of these new products. Several other exciting new ideas are in development that will help us reach our growth objectives. We are committed to driving double digit annual sales growth and to creating leverage on the bottom line with this growth. As excited as we are about the performance of our Company this past year, we are even more excited about our future prospects. We are dedicated to delivering consistent period-over-period earnings growth within the context of our long-term strategy and to consistently provide a superior return to those shareholders investing for the long term. /s/ JAMES J. GOSA James J. Gosa President and Chief Executive Officer 4 FIVE YEAR SELECTED FINANCIAL INFORMATION Years Ended April 30 -------------------------------------- 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ FINANCIAL STATEMENT DATA (in millions, except share data) Net sales $219.4 $196.2 $197.4 $171.3 $167.3 Income (loss) before income taxes 17.1 6.2 8.8 3.5 (0.7) Net income (loss) 10.5 3.8 5.4 2.2 (0.5) Earnings (loss) per share (1) 1.37 .51 .71 .29 (.06) Depreciation and amortization expense 7.8 7.8 7.8 7.2 6.8 Restructuring costs -- -- 0.5 1.0 1.1 Total assets 87.2 76.3 74.4 72.3 78.5 Long-term debt 10.6 12.9 15.5 18.3 21.5 Stockholders' equity 46.3 35.8 31.8 26.4 24.2 Cash dividends declared per share .06 -- -- -- -- Average shares outstanding (1) 7.7 7.6 7.5 7.5 7.5 PERCENT OF SALES Gross profit 27.8% 21.5% 23.5% 21.4% 18.2% Sales, general and administrative expenses 19.8 17.8 18.1 17.6 16.5 Income (loss) before income taxes 7.8 3.2 4.5 2.1 (0.4) Net income (loss) 4.8 2.0 2.7 1.3 (0.3) RATIO ANALYSIS Current ratio 1.9 1.7 1.6 1.4 1.2 Inventory turnover (2) 15.3 11.9 11.0 8.5 7.0 Percentage of capital: (LTD & equity) Debt 18.7% 26.4% 32.8% 41.0% 47.0% Equity 81.3 73.6 67.2 59.0 53.0 Return on equity (average %) 25.7 11.4 18.4 8.6 (1.9) Collection period--days (3) 36.1 36.9 34.7 37.2 36.4 (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 customer receivables to average sales per day. 5 OPENING THE DOOR TO THE 2001 VISION In 1996, we launched the "2001 Vision", a six year blueprint for growth. Our Vision is built on four primary competitive advantages. HOME CENTER MARKET POSITION. We are the leading supplier of stock cabinetry to the home center industry and are the stock vendor of choice at The Home Depot, Lowe's, Builders Square and 84 Lumber. Our products are featured in almost 1,000 big box home center outlets nationwide. DISTRIBUTOR AND BUILDER MARKET POSITION. We have several key customer relationships with national and regional companies in both the distributor and direct builder channels. Our Timberlake brand has enabled us to expand our presence in these important markets. WOOD TECHNOLOGY. As a vertically integrated manufacturer, we have developed expertise in the full range of wood processing and wood finishing technologies. DELIVERY AND SERVICE PLATFORM. We have created a sophisticated distribution system that offers superior service and significant flexibility to our customers. During this past year our Vision has begun to take shape and receive definition. Overall strategies have led to tactical plans which, in turn, have led to specific action steps. Targets have been established throughout the organization that, by the year 2001, will result in: * Significant sales in new products and market categories not currently serviced; * Double total sales per home center outlet; 6 * A competitive presence in the top forty distributor/builder markets in the United States; and * Double productivity. Our action steps and targets are focused in three areas. First and foremost, we are a product driven Company in a product driven business. And we think about products in the largest sense of the word. Our product is the total experience of the end consumer's construction or remodeling project, from design to order to delivery to installation. Since the beginning of the 2001 Vision, American Woodmark has introduced a wide variety of new products and features including: * A popular shaker design in maple and oak with a variety of finishes including natural, traditional stains and frost; * A high-end white line using thermofoil technology to create a custom look and feel at a reasonable price; * A new cherry line offered in both classic Bordeaux and contemporary Spice finishes; 7 * A natural, character oak line with the timeless look of traditional oak; * A value white line, providing the style of an all white cabinet at an entry level price point; * A new finish, BeautyGuard(R), which creates a durable, custom feel at reasonable prices; * Many new features across both new and existing lines including Hidden Glides(R), upgraded hardware, thicker shelves, mullion doors on wall cabinets, more accessories and more mouldings; * A new Ready-to-Assemble line of cabinets and vanities for both the Do-It- Yourself consumer and the value conscious professional; * A new "in-stock" vanity line for the customer that wants the quality of a full-framed, wood cabinet with in-stock convenience; * Expanded delivery partnerships which increase our ability to service the customer when they want, where they want and how they want; * New customer service systems to make ordering and issue resolution both quicker and easier for the customer; and * An installed sales program that supports the builder from the initial house design to final installation of the cabinets and other related products. Second, we continue to develop our relationships with key customers and suppliers. With our customers, we have developed partnership teams to identify and take advantage of opportunities through joint training and problem solving activities. With our suppliers, we have also developed 8 partnership teams to lower overall costs and increase value to our customers. In both instances, we are working to break down the historical win/lose structure of customer and supplier relationships. We are effectively creating consistent win/win situations with our external partners. Third, we continue to work extremely hard on our organizational strengths. Having the right products is necessary to "get into the game" in our industry. Outstanding customer and supplier relationships put us "one leg up" on our competition. But a superior organization provides American Woodmark with a long-term, sustainable advantage. We continue to invest heavily in our organization and in our people. We invest in their working environment and in the tools our people need. We invest in their training and their development. Most importantly, we invest in programs to attract and retain the right people. Every full time American Woodmark employee, for example, shares in our success through participation in a cash bonus program. For over a decade, our Mission Statement has defined who we are, what we do, why we do it and how it gets done. We are dedicated to Creating Value Through People. Ultimately, we believe that our success and our greatest advantage comes from committed individuals with shared values pursuing a common goal. 9 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 ------------------------ 1997 1996 1995 ------ ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales and distribution 72.2 78.5 76.5 Gross profit 27.8 21.5 23.5 Selling and marketing expenses 14.0 12.6 12.0 General and administrative expenses 5.8 5.2 6.1 Operating income 8.0 3.7 5.1 Interest expense 0.4 0.6 0.7 Income before income taxes 7.8 3.2 4.5 Provision for income taxes 3.0 1.2 1.8 Net income 4.8 2.0 2.7 FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996 Fiscal 1997 net sales of $219.4 million increased 12% from fiscal 1996 net sales of $196.2 million. Average unit prices increased approximately 4% over the prior year due to the general price increase implemented during the third quarter of the prior fiscal year, favorable changes in the sales mix by market channel, and a shift towards the higher end of the Company's broad stock product offering. Overall unit volume increased approximately 8% from the prior year as the Company benefited from a stronger economy and increased market share. Unit shipments to home centers increased to record levels based on strong overall remodeling activity and the Company's relationships with the leading domestic home center chains. Unit volumes to distributors increased due to good overall market demand and the Company's access to key markets through both new and established customers. Unit shipments to direct builders remained flat, but at historically high levels, as aggressive pricing initiatives by certain competitors offset the addition of several new customers. Gross profit improved to 27.8% of net sales from 21.5% the prior year. The increase in gross profit was attributable to higher average unit prices, decreased per unit material and labor costs, and the favorable impact of leverage with higher volume on fixed and semi-fixed costs. Material cost per unit declined from the prior year. Continued improvements in lumber yield, more efficient material utilization and price decreases on specific raw materials more than offset increased hardwood lumber prices and costs associated with a more material intensive product mix. Labor costs per unit decreased, as productivity resulting from the use of new equipment and manufacturing techniques more than offset normal labor rate increases and increased incentive pay expenses. Per unit freight and overhead costs declined due to the leverage impact of higher volume on fixed and semi-fixed components of expenses. Selling and marketing expenses increased as a percentage of net sales from 12.6% in fiscal 1996 to 14.0% in fiscal 1997. The increase in sales and marketing costs was the result of a one-time national sales event, higher incentive pay expenses associated with higher sales levels, and aggressive advertising and promotional costs designed to increase market share and launch several new product and market initiatives. General and administrative expenses increased from 5.2% of net sales in 10 fiscal 1996 to 5.8% in fiscal 1997 primarily due to employee compensation costs associated with the Company's performance incentive programs. Interest expense for fiscal 1997 declined $295,000 to $915,000 from the prior year. The decrease resulted from the continued reduction of outstanding debt. Total debt decreased $2.7 million during fiscal 1997. As of April 30, 1997, long-term debt to total capital was reduced to 18.7%. Other income increased $256,000 for fiscal 1997 compared to the prior year due to a combination of increased interest income from short-term investments of cash and less expenses pertaining to the disposal of property, plant and equipment. The effect of this increase over prior year was lessened by a property tax refund received by the Company in the third quarter of the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities generated $17.4 million in net cash during fiscal 1997 as compared to $11.7 million the prior year. The increase in cash generated from operations was primarily attributable to increased net income. Other non-cash items, increased accounts payable, and timing differences in the payment of performance incentives and related compensation expenses contributed favorably to cash flow. Increased customer receivables resulting from strong year-end sales reduced cash provided by operating activities. Capital spending decreased $493,000 from the prior year to $4.5 million, as the Company continued its capital spending program designed to lower overall cost and improve the Company's competitive position. During fiscal 1997, the Company purchased equipment to optimize lumber processing for the Orange, Virginia facility, and began expansion efforts that will increase production capacity at the Jackson, Georgia facility. The Company also completed several projects designed to increase efficiency and lower production costs. All other capital expenditures during fiscal 1997 were limited to necessary or replacement items and cost savings projects. The Company anticipates that, with continued investments in current and future projects under the capital spending program, expenditures for fiscal 1998 will approximate or exceed fiscal 1997. The Company reduced overall debt by $2.7 million during fiscal 1997. Total debt on April 30, 1997 was $12.9 million and did not include any short-term borrowings under the Company's revolving credit facility. Long-term debt to total equity declined from 35.9% at April 30, 1996 to 23.0% at April 30, 1997. Cash dividends of $461,000 were paid on Common Stock during fiscal 1997. (See Notes E and F to the Financial Statements.) Cash flow from operations, combined with accumulated cash on hand and available borrowing capacity, is expected to be sufficient to meet forecasted working capital requirements, service existing debt obligations and fund capital expenditures for fiscal 1998. OUTLOOK FOR FISCAL 1998 The Company anticipates continued underlying strength in the domestic economy through fiscal 1998. Under normal conditions, this strength would result in the continued growth and expansion of the relevant markets for the Company. The Company also expects, however, that there is a significant likelihood that either anticipated or actual increases in interest rates will dampen this growth. The adverse impact of higher interest rates on the new housing and remodeling sectors could result in periods of low growth in the Company's primary markets and overall growth for fiscal 1998 that is below the rate experienced during fiscal 1997. In this environment, the Company expects to continue to gain market share based on its position with major customers, its broad stock product offering 11 and its ability to deliver quality products with superior service. During a period of growth in the housing and remodeling sectors, the Company expects to continue to generate higher sales. The Company expects to further enhance sales growth during the second half of fiscal 1998 through the addition of new products and new markets. The Company expects to maintain or increase recent profitability performance while investing resources in future products, facilities and markets. Additional volume and improved efficiencies should be sufficient to offset the anticipated rise in other costs. The Company currently maintains sufficient overall capacity to meet projected growth. Identified capital projects include expansion to remove specific capacity limitations in certain processes, productivity improvements, cost savings initiatives and replacement of aging equipment. The Company is also considering investment opportunities to increase the Company's business base, to acquire new products, and to gain access to new markets. The Company establishes debt to equity targets in order to maintain the financial health of the Company and is prepared to trim investment plans to maintain financial strength. While the Company is not currently aware of any events that would result in a material decline in earnings from fiscal 1997, we participate in an industry that is subject to rapidly changing conditions. The preceding forward looking statements are based on current expectations, but there are numerous factors that could cause the Company to experience a decline in sales and/or earnings including: (1) overall industry demand at reduced levels, (2) economic weakness in a specific channel of distribution, especially the home center industry, (3) the loss of sales from specific customers due to their loss of market share, bankruptcy or switching to a competitor, (4) a sudden and significant rise in basic raw material costs, (5) the need to respond to price or product initiatives launched by a competitor, and (6) a significant investment which provides a substantial opportunity to increase long-term performance. While the Company believes that these risks are manageable and will not adversely impact the long-term performance of the Company, these risks could, under certain circumstances, have a materially adverse impact on short-term operating results. 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. 12 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. 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 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 for fiscal 1996 were limited to previously anticipated cash outlays. In fiscal 1995, the Company recognized $516,000 in restructuring costs related to warehouse space reduction. 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 performance 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 significantly during both fiscal 1997 and 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 August 20, 1996, the Company's Board of Directors elected James J. Gosa to President and Chief Executive Officer. William F. Brandt, Jr., formerly Chairman of the Board and Chief Executive Officer, continues to serve as Chairman. Richard A. Graber, Director and Retired Vice President, Marketing, resigned from the Board of Directors effective January 31, 1997. Donald P. Mathias, Director and Retired Vice President, Assembly and 13 Distribution, resigned from the Board of Directors effective March 17, 1997. During fiscal 1997, a customer of the Company filed a voluntary bankruptcy petition under Chapter 7 of the United States Bankruptcy Code. The Company incurred bad debt expense for all outstanding receivables pertaining to this customer during the fourth quarter of fiscal 1996 and first quarter of fiscal 1997. As of April 30, 1997, allowance for bad debt reflected the full write-off of these outstanding receivables. During the first quarter of fiscal 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Adoption of this Statement did not impact the Company's operating results or financial position. (See Notes A and F to the Financial Statements.) The Company is required to adopt SFAS No. 128, "Earnings per Share," for the fiscal quarter ending January 31, 1998. The Company does not expect the implementation of SFAS No. 128 to have a material impact on the determination of earnings per share. (See Note A to the Financial Statements.) On May 29, 1997, the Board of Directors approved a $.02 per share cash dividend on its Common Stock. The cash dividend was paid on June 30, 1997, to shareholders of record on June 13, 1997. The Company is involved in various suits and claims in the normal course of business. Included therein are claims against the Company pending before the Equal Employment Opportunity Commission. Although management believes that such claims are without merit and intends to vigorously contest them, the ultimate outcome of these matters cannot be determined at this time. In the opinion of management, after consultation with counsel, the ultimate liabilities and losses, if any, that may result from suits and claims involving the Company will not have any material adverse effect on the Company's operating results or financial position. 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 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.) 14 QUARTERLY RESULTS OF OPERATIONS (Unaudited) Year Ended April 30, 1997 ------------------------------------- (in thousands, except share amounts) 1st(a) 2nd 3rd 4th(b) ------- ------- ------- ------- Net sales $53,362 $56,976 $51,643 $57,421 Gross profit 13,552 16,493 14,454 16,547 Income before income taxes 3,347 5,529 3,589 4,649 Provision for income taxes 1,247 2,067 1,526 1,726 Net income 2,100 3,462 2,063 2,923 Earnings per share .28 .45 .27 .38 Year Ended April 30, 1996 ------------------------------------- 1st 2nd 3rd(c) 4th(d) ------- ------- ------- ------- 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 Earnings per share .05 .08 .07 .30 (a) Income before income taxes for the first quarter of fiscal 1997 includes $830,000 in unfavorable adjustments for an additional bad debt provision. (b) Income before income taxes for the fourth quarter of fiscal 1997 includes $193,000 for increased inventory obsolescence costs. (c) 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. (d) 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. 15 BALANCE SHEET (in thousands, except share data) April 30 ----------------- 1997 1996 ------- ------- ASSETS Current Assets Cash and cash equivalents $17,339 $ 7,201 Customer receivables 20,488 19,709 Inventories 10,356 10,326 Prepaid expenses and other 940 899 Deferred income taxes 720 527 ------- ------- TOTAL CURRENT ASSETS 49,843 38,662 Property, Plant and Equipment 32,252 33,188 Deferred Costs and Other Assets 4,335 3,982 Intangible Pension Assets 727 504 ------- ------- $87,157 $76,336 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 9,312 $ 7,651 Accrued compensation and related expenses 11,180 8,467 Current maturities of long-term debt 2,229 2,719 Other accrued expenses 3,680 4,416 ------- ------- TOTAL CURRENT LIABILITIES 26,401 23,253 Long-Term Debt, less current maturities 10,637 12,866 Deferred Income Taxes 2,328 2,780 Long-Term Pension Liabilities 1,493 1,592 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 shares: 7,722,656 -- 1997; 7,608,761 -- 1996 18,043 17,677 Retained earnings 28,255 18,168 ------- ------- TOTAL STOCKHOLDERS' EQUITY 46,298 35,845 ------- ------- $87,157 $76,336 ======= ======= See notes to financial statements 16 STATEMENT OF INCOME AND RETAINED EARNINGS Years Ended April 30 ------------------------------- (in thousands, except share data) 1997 1996 1995 --------- --------- --------- Net sales $ 219,402 $ 196,237 $ 197,351 Cost of sales and distribution 158,356 153,982 151,033 --------- --------- --------- GROSS PROFIT 61,046 42,255 46,318 Selling and marketing expenses 30,678 24,775 23,667 General and administrative expenses 12,762 10,199 11,981 Restructuring costs -- -- 516 --------- --------- --------- OPERATING INCOME 17,606 7,281 10,154 Interest expense 915 1,209 1,355 Other income (423) (166) (23) --------- --------- --------- INCOME BEFORE INCOME TAXES 17,114 6,238 8,822 Provision for income taxes 6,566 2,392 3,466 --------- --------- --------- NET INCOME 10,548 3,846 5,356 RETAINED EARNINGS, BEGINNING OF YEAR 18,168 14,322 8,966 Cash dividends (461) -- -- --------- --------- --------- RETAINED EARNINGS, END OF YEAR $ 28,255 $ 18,168 $ 14,322 ========= ========= ========= SHARE INFORMATION Average shares outstanding 7,672,873 7,594,977 7,544,385 Earnings per share $ 1.37 $ .51 $ .71 ========= ========= ========= Cash dividends per share $ .06 $ -- $ -- ========= ========= ========= See notes to financial statements 17 STATEMENT OF CASH FLOWS (in thousands) Years Ended April 30 ---------------------------- 1997 1996 1995 -------- -------- -------- OPERATING ACTIVITIES Net income $ 10,548 $ 3,846 $ 5,356 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation and amortization 7,810 7,839 7,758 Net loss on disposal of property, plant and equipment 220 126 34 Deferred income taxes (645) (342) 284 Restructuring costs -- -- 178 Other non-cash items 1,432 831 532 Changes in operating assets and liabilities: Customer receivables (1,891) (631) (928) Inventories (384) 177 572 Refundable deposits -- 1,708 (1,708) Other assets (2,995) (2,828) (2,767) Accounts payable 1,661 (1,231) 625 Accrued compensation and related expenses 2,706 1,338 1,444 Other (1,058) 908 (500) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 17,404 11,741 10,880 -------- -------- -------- INVESTING ACTIVITIES Payments to acquire property, plant and equipment (4,537) (5,030) (3,942) Funds designated for capital expenditures -- -- 468 Proceeds from sales of property, plant and equipment 85 221 99 -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES (4,452) (4,809) (3,375) -------- -------- -------- FINANCING ACTIVITIES Payments of long-term debt (2,719) (2,805) (3,158) Net decrease in short-term borrowings -- -- (2,000) Common Stock issued through stock option plans 366 198 69 Dividends paid (461) -- -- -------- -------- -------- NET CASH USED BY FINANCING ACTIVITIES (2,814) (2,607) (5,089) -------- -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS 10,138 4,325 2,416 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,201 2,876 460 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 17,339 $ 7,201 $ 2,876 ======== ======== ======== See notes to financial statements 18 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. ADVERTISING COSTS: Advertising costs are expensed in the fiscal year incurred. 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. 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). PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the basis of cost less an allowance for depreciation. Depreciation is provided by the straight-line method over the estimated useful lives of the related assets, which range from fifteen to thirty years for buildings and improvements and three to ten years for furniture and equipment. Equipment under capital lease and leasehold improvements are amortized over the shorter of their estimated useful lives or term of the related lease. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts of the Company's cash and cash equivalents, customer receivables, accounts payable and long-term debt approximate fair value. PER SHARE INFORMATION: Earnings per share and cash dividends per share are based on weighted average common shares outstanding. The dilutive effect of stock options on earnings per share is not significant and has been excluded. NEW ACCOUNTING RULES: During 1995, The Financial Accounting Standards Board (FASB)issued SFAS No. 123, "Accounting for Stock-Based Compensation." While SFAS No. 123 established financial accounting and reporting standards for stock-based employee compensation plans using a fair value method of accounting, it allows companies to continue to measure compensation costs for those plans using the intrinsic value method of accounting prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." As permitted by SFAS No. 123, the Company has elected to continue using the intrinsic value method of accounting for stock options and has provided the additional required disclosures. (See Note F to the Financial Statements.) In February 1997, FASB issued SFAS No. 128, "Earnings per Share," which the Company will be required to adopt for the fiscal quarter ending January 31, 1998. At that time, the Company will be required to change the method currently 19 used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of common stock equivalents will be excluded. The Company does not expect the adoption of SFAS No. 128 to have a material impact on the determination of earnings per share. 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) 1997 1996 ------- ------- Gross customer receivables $21,869 $21,215 Less: Allowance for bad debt (210) (629) Allowance for returns and discounts (1,171) (877) ------- ------- Net customer receivables $20,488 $19,709 ======= ======= NOTE C -- INVENTORIES The components of inventories were: April 30 ------------------ (in thousands) 1997 1996 ------- ------- Raw materials $ 6,270 $ 5,261 Work-in-process 9,684 9,336 Finished goods 1,115 1,392 ------- ------- Total FIFO inventories 17,069 15,989 Reserve to adjust inventories to LIFO value (6,713) (5,663) ------- ------- Total LIFO inventories $10,356 $10,326 ======= ======= Valuation of inventories, as determined by the LIFO method, did not result in the Company recognizing less expense in fiscal 1997. As a result of LIFO inventory liquidations, cost of sales reflected $120,000 and $317,000 less expense in fiscal 1996 and 1995, respectively, than would have been recorded in a current cost environment. NOTE D -- PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment were: April 30 ------------------ (in thousands) 1997 1996 -------- -------- Land $ 876 $ 876 Buildings and improvements 17,416 16,817 Buildings and improvements - capital leases 6,550 6,550 Machinery and equipment 48,697 49,383 Machinery and equipment - capital leases 1,836 1,861 Construction in progress 1,250 850 -------- -------- 76,625 76,337 Less allowance for depreciation (44,373) (43,149) -------- -------- Total $32,252 $33,188 ======== ======== Depreciation expense amounted to $5,168,000, $5,128,000, and $5,028,000 in fiscal 1997, 1996, and 1995, respectively. 20 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. 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 ---------------------------------------------------- 2003 and Total There- Out- (in thousands) 1998 1999 2000 2001 2002 after standing ------ ------ ------ ------ ------ ------- -------- Notes payable $ 758 $ 500 $ 125 $ -- $ -- $ -- $ 1,383 Industrial revenue bonds 1,105 1,120 750 750 925 2,500 7,150 Capital lease obligations 366 372 376 395 414 2,410 4,333 ------ ------ ------ ------ ------ ------- -------- Total $2,229 $1,992 $1,251 $1,145 $1,339 $4,910 $12,866 ====== ====== ====== ====== ====== ====== Less current maturities (2,229) -------- Total long-term debt $10,637 ======== 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. There was no activity through the revolving credit facility during fiscal 1997. In fiscal 1996, total transactions through this credit facility were borrowings and repayments of $7.5 million, with the outstanding balance against this line of credit never exceeding $1.7 million. There were no revolving credit loans outstanding at April 30, 1997 and 1996. 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, 1997, these amounts were immaterial. The Company does not invest, trade, or otherwise speculate in any derivatives or similar type instruments. At April 30, 1997, term loans of $1.4 million were outstanding. The term loans bore a variable interest rate of 6.6% on April 30, 1997. On April 30, 1997, the Company had $7.2 million outstanding in industrial revenue bonds, maturing at various dates through 2003. Due to an interest rate swap agreement, a fixed rate of 6.2% applies to $5.8 million through June 1, 1999. The variable rate that would have applied if the rate swap had not occurred was 4.9% on April 30, 1997. On $1.4 million of outstanding bonds, the variable interest rate was 4.9% on April 30, 1997. 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, 1997, with these obligations maturing through 2007. 21 The Company's primary loan agreement limits the amount and type of indebtedness the Company can incur and requires the Company to maintain a specific minimum net worth and specified financial ratios measured on a quarterly basis. The primary loan agreement was amended during the first quarter of fiscal 1997, allowing the Company to pay cash dividends on Common Stock. 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, 1997. Interest paid was $989,000, $1,178,000, and $1,376,000 during fiscal 1997, 1996, and 1995, 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, 1995 7,551,109 $ 17,479 Stock options exercised 57,652 198 ----------- ------------ Balance at April 30, 1996 7,608,761 $ 17,677 Stock options exercised 113,895 366 ----------- ------------ Balance at April 30, 1997 7,722,656 $ 18,043 =========== ============ The Company paid cash dividends of $461,000 on its Common Stock during fiscal 1997. EMPLOYEE STOCK OWNERSHIP PLAN In fiscal 1990, the Company instituted the American Woodmark Stock Ownership Plan. 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 $317,000, $115,000, and $155,000 in fiscal 1997, 1996, and 1995, 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 $619,000, $502,000, and $407,000 in fiscal 1997, 1996, and 1995, respectively. STOCK OPTIONS The 1986 stock option plan for key employees of the Company expired in April 1996. Outstanding options under this plan 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 cumulative increments equal 100%, at which time options expire. In August 1996, stockholders approved a new stock option plan for key employees of the Company. Under the plan, up to 750,000 shares of Common Stock may be granted as options, with the term of options granted not exceeding ten years. Options granted are subject to vesting conditions and other requirements prescribed by a participant's stock option agreement. In August 1995, stockholders approved a stock option plan for non-employee directors, which replaced the 1990 plan that had expired. Under the new 1995 plan, up to 30,000 shares of Common Stock may be granted as options, with each non-employee director receiving an option to purchase 1,000 shares on the 22 anniversary date of the plan. Outstanding options under both plans 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 cumulative increments equal 100%, at which time options expire. The Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards for fiscal years 1997 and 1996 consistent with the provisions of SFAS No. 123, there would have been no material effect on reported net income and earnings per share. The following table summarizes stock option activity and related information under the stock option plans for the fiscal years ended April 30: 1997 1996 1995 ------- ------- ------- Outstanding at beginning of year 252,919 319,442 356,450 Granted 206,600 66,600 24,000 Exercised (113,895) (57,652) (19,884) Expired or cancelled (33,624) (75,471) (41,124) ------- ------- ------- Outstanding at April 30 312,000 252,919 319,442 ======= ======= ======= Exercisable at April 30 64,867 142,686 198,291 ======= ======= ======= Available for future issuance at April 30 570,734 24,000 201,068 ======= ======= ======= Weighted average exercise prices (in dollars): Outstanding at beginning of year $4.01 $3.84 $3.78 Granted 7.70 4.47 5.65 Exercised 3.22 3.41 3.63 Expired or cancelled 5.19 4.15 4.43 Outstanding at April 30 6.62 4.01 3.84 Exercisable at April 30 4.61 3.57 3.65 The following table summarizes information about stock options outstanding at April 30, 1997 [remaining lives (in years) and exercise prices are weighted-averages]: Options Outstanding Options Exercisable --------------------------- ------------------- Option Price Remaining Exercise Exercise per Share Options Life Price Options Price - ------------ ------- --------- -------- ------- -------- $3.18-$ 3.69 13,800 .3 $ 3.26 13,800 $3.26 $4.38-$ 5.75 128,600 3.9 $ 4.88 51,067 $4.97 $6.50-$ 7.50 115,400 9.1 $ 6.53 -- -- $9.25-$13.13 54,200 9.8 $11.76 -- -- - ------------ ------- --------- -------- ------- -------- $3.18-$13.13 312,000 6.7 $ 6.62 64,867 $4.61 ============ ======= ========= ======== ======= ======== 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) 1997 1996 1995 ------ ------ ------ Service cost-benefits earned during the year $ 767 $ 763 $ 663 Interest cost on projected benefit obligation 1,142 1,031 880 Actual return on plan assets (1,272) (1,846) (684) Net amortization and deferrals 280 1,045 (109) ------- ------ ------ Net periodic pension cost $ 917 $ 993 $ 750 ======= ====== ====== 23 The funded status of the Company's pension plans was as follows for the fiscal years ended April 30: 1997 1996 ------------------------- ------------------------- 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 $ 7,444 $ 5,572 $ 6,495 $ 4,904 Non-vested 424 512 402 449 ----------- ----------- ----------- ----------- Accumulated 7,868 6,084 6,897 5,353 Effect of anticipated future salary increases 2,589 -- 2,200 -- ----------- ----------- ----------- ----------- Projected 10,457 6,084 9,097 5,353 Less fair value of plan assets (9,808) (5,259) (8,525) (4,668) ----------- ----------- ----------- ----------- Projected benefit obligation in excess of the fair value of plan assets 649 825 572 685 Unrecognized prior service cost (46) (475) (53) (310) Unrecognized net gain (loss) 1,515 (136) 1,746 (48) Unrecognized net transition obligation (212) (116) (264) (146) Additional minimum liability -- 727 -- 504 ----------- ------------ ---------- ----------- Net pension obligation $ 1,906 $ 825 $ 2,001 $ 685 =========== ============ ========== =========== Primary assumptions utilized in accounting for the Company's pension plans were as follows: Years Ended April 30 ------------------------- 1997 1996 1995 ------- ------- ------- 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% NOTE H -- INCOME TAXES The provision for income taxes was comprised of the following: Years Ended April 30 ---------------------------- (in thousands) 1997 1996 1995 -------- -------- -------- Current Federal $ 6,307 $ 2,429 $ 2,619 State 904 305 563 -------- -------- -------- Total current 7,211 2,734 3,182 Deferred Federal (546) (283) 272 State (99) (59) 12 -------- -------- -------- Total deferred (645) (342) 284 Total provision $ 6,566 $ 2,392 $ 3,466 ======== ======== ======== The Company's effective income tax rate varied from the federal statutory rate as follows: Years Ended April 30 ---------------------------- 1997 1996 1995 -------- -------- -------- Federal statutory rate 35% 34% 34% State income taxes, net of federal tax effect 3 3 4 Other -- 1 1 -------- -------- -------- Effective income tax rate 38% 38% 39% ======== ======== ======== Income taxes paid were $8,199,000, $1,809,000, and $3,547,000 for fiscal years 1997, 1996, and 1995, respectively. 24 The significant components of deferred tax assets and liabilities were as follows: April 30 ------------------ (in thousands) 1997 1996 -------- -------- Deferred tax assets Employee benefits $ 757 $ 579 Other 858 913 -------- -------- Total 1,615 1,492 Deferred tax liabilities Depreciation 2,518 2,996 Inventory 511 555 Other 194 194 -------- -------- Total 3,223 3,745 Net deferred tax liability $1,608 $2,253 ======== ======== NOTE I -- RESTRUCTURING PROVISIONS Restructuring activities for fiscal years 1997 and 1996 were limited to the expenditure of previously anticipated cash outlays as estimated in prior fiscal years. In fiscal 1995, the Company recognized $516,000 in restructuring costs related to warehouse space reduction. All restructuring activities were completed in fiscal 1997. NOTE J -- COMMITMENTS AND CONTINGENCIES LEGAL MATTERS The Company is involved in various suits and claims in the normal course of business. Included therein are claims against the Company pending before the Equal Employment Opportunity Commission. Although management believes that such claims are without merit and intends to vigorously contest them, the ultimate outcome of these matters cannot be determined at this time. In the opinion of management, after consultation with counsel, the ultimate liabilities and losses, if any, that may result from suits and claims involving the Company will not have a material adverse effect on the Company's results of operations or financial position. The Company is voluntarily participating with a group of companies which is cleaning up a waste facility site at the direction of a state environmental authority. The Company 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. 25 LEASE AGREEMENTS The Company leases an office building, a manufacturing facility, four service centers and certain equipment. Total rental expenses amounted to approximately $3,428,000, $3,378,000, and $3,780,000 in fiscal 1997, 1996, and 1995, respectively. Minimum rental commitments as of April 30, 1997, under noncancelable leases are as follows: (in thousands) Fiscal Year Operating Capital - ----------- --------- --------- 1998 $ 2,096 $ 580 1999 1,629 566 2000 1,316 551 2001 866 551 2002 363 550 2003 (and thereafter) 83 2,753 --------- --------- $ 6,353 $ 5,551 ========= Less amounts representing interest (1,218) --------- Total obligation under capital leases $ 4,333 ========= 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 four remaining years with two five-year renewal periods available at the Company's option. Under this agreement, rental expense was $377,000, $370,000, and $365,000 in fiscal 1997, 1996, and 1995, respectively. Rent during the remaining base term of approximately $384,000 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, 1997, the Company's three largest customers, Customers A, B and C, represented 13.1%, 18.7% and 10.0% of the Company's customer receivables, respectively. The following table summarizes the percentage of sales to the Company's three largest customers for the last three fiscal years: Percent of Annual Sales ------------------------ 1997 1996 1995 ------ ------ ------ Customer A 9.9 10.7 15.8 Customer B 25.7 17.5 14.2 Customer C 11.9 9.7 8.9 The Company maintains an allowance for bad debt based upon management's evaluation and judgement 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. 26 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/ JAMES J. GOSA James J. Gosa President and Chief Executive Officer /s/ KENT B. GUICHARD Kent B. Guichard Vice President, Finance and Chief Financial Officer 27 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, 1997 and 1996, and the related statements of income and retained earnings, and cash flows for each of the three years in the period ended April 30, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 1997, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Baltimore, Maryland June 6, 1997 28 DIRECTORS AND EXECUTIVE OFFICERS JAMES J. GOSA Director; President and Chief Executive Officer DAVID L. BLOUNT Vice President, Manufacturing KENT B. GUICHARD Vice President, Finance and Chief Financial Officer WILLIAM F. BRANDT, JR. Chairman of the Board 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 C. ANTHONY WAINWRIGHT Director; Vice Chairman McKinney & Silver CORPORATE INFORMATION ANNUAL MEETING The Annual Meeting of Shareholders of American Woodmark Corporation will be held on August 27, 1997, 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, 1997, may be obtained by writing: Kent Guichard Vice President, Finance and Chief Financial Officer 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 American Woodmark(R) BeautyGuard(R) Coventry & Case(R) Crestwood(R) Hidden Glides(R) Scots Pride(R) Timberlake(R) are trademarks of American Woodmark Corporation. (C)1997 American Woodmark Corporation(R) Printed in U.S.A. Appendix to Exhibit 13 Front cover Corporate logo, picture Picture shows a cabinet door Caption: "Opening the Door to the 2001 Vision: 1997 Annual Shareholders Report" Page 1 Corporate logo Page 3 Picture Shows James J. Gosa (President and Chief Executive Officer) Page 6 American Woodmark brand logo, two pictures Caption under logo: "American Woodmark brand cabinetry is sold through the nation's leading home center outlets, including The Home Depot and Lowe's." First picture shows two construction workers at new home site. Second picture shows cabinet doors. Page 7 Picture, Coventry & Case brand logo Picture shows a kitchen. Caption under logo: "Coventry & Case(R) brand cabinetry, established in 1991, can be found exclusively at 84 Lumber locations." Page 8 Picture and Timberlake brand logo Picture shows a kitchen. Caption under logo: "Introduced in 1990, Timberlake brand cabinetry is sold through the company's builder direct service centers and through a network of distributors and dealers throughout the United States and Canada." Page 9 Picture, Crestwood brand logo and Scots Pride brand logo Picture shows cabinets in cartons. Crestwood and Scots Pride logos with caption: "Scots Pride(R) and Crestwood(R) brand cabinetry are offered in Builders Square stores nationwide." Back cover Corporate logo, Address, Phone Number, Fax Number Corporate logo American Woodmark Corporation 3102 Shawnee Drive Winchester, VA 22601-4208 (540) 665-9100 (540) 665-9176 Fax EX-23 9 Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10K) of American Woodmark Corporation of our report dated June 6, 1997, included in the April 30, 1997 Annual Report to Shareholders of American Woodmark Corporation. Our audits also included the financial statement schedule of American Woodmark Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-12631) pertaining to the American Woodmark Corporation 1995 Non-Employee Directors Stock Option Plan and the Registration Statement (Form S-8 No. 333-12623) pertaining to the American Woodmark Corporation 1996 Stock Option Plan for Employees of our reports dated June 6, 1997 and included herein, with respect to the consolidated financial statements and schedule of American Woodmark Corporation incorporated by reference and included in the annual report (Form 10-K) for the year ended April 30, 1997. /s/ ERNST & YOUNG LLP Baltimore, Maryland July 18, 1997 EX-27 10
5 1,000 YEAR APR-30-1997 APR-30-1997 17,339 0 21,869 1,381 10,356 49,843 76,625 44,373 87,157 26,401 10,637 0 0 18,043 28,255 87,157 219,402 219,402 158,356 158,356 0 830 915 17,114 6,566 10,548 0 0 0 10,548 1.37 1.37
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