American Woodmark Annual Report 2013

Plain-text annual report

American Woodmark 2013 A n n u a l R e p o r t tm table ofcontents 1 Mission Statement 2 Company Profile 3 Financial Highlights 3 Market Information 4 Letter from the Chief Executive Officer 11 Five-Year Selected Financial Information 12 Management’s Discussion and Analysis 23 Consolidated Financial Statements 27 Notes to Consolidated Financial Statements 45 Report of Independent Registered Public Accounting Firm 46 Management’s Report on Internal Control over Financial Reporting 47 Report of Independent Registered Public Accounting Firm — Internal Control over Financial Reporting 48 Stock Performance Graph 49 Directors and Executive Officers 49 Corporate Information mission statement 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 unrea- sonable, 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 success- ful. 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. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 1 companyproﬁle American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home con- struction markets. The Company operates 9 manufacturing facilities located in Arizona, Georgia, Indiana, Kentucky, Maryland, Tennessee, Virginia and West Virginia and 9 service centers across the country. American Woodmark Corporation was incorporated in 1980 and became a public company through a common stock offering in 1986. The Company offers approximately 550 cabinet lines in a wide variety of designs, materials and finishes. Products are sold across the United States through a network of independent dealers and distrib- utors and directly to home centers and major builders. The Com- pany’s remodeling sales comprised 63% of sales during fiscal 2013, with the remaining 37% sold to the new home market. References in this annual report to fiscal years mean the Company’s fiscal year, which ends on April 30. The Company believes it is one of the three largest manufacturers of kitchen cabinets in the United States. 2 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT market information American Woodmark Corporation common stock is quoted on The NASDAQ Global Select Market under the “AMWD” symbol. Common stock per share market prices and cash divi- dends declared during the last two fiscal years were as follows: MARKET PRICE DIVIDENDS DECLARED High Low (in dollars) FISCAL 2013 First quarter $18.95 $15.46 $0.00 Second quarter Third quarter Fourth quarter 23.30 29.28 36.68 16.45 21.66 27.63 0.00 0.00 0.00 FISCAL 2012 First quarter $22.51 $15.73 $0.09 Second quarter Third quarter Fourth quarter 19.87 17.99 19.52 11.53 10.88 13.19 0.00 0.00 0.00 As of May 16, 2013, there were approximately 6,500 shareholders of record of the Company’s common stock. Included are approximately 52% of the Company’s employees, who are shareholders through the American Woodmark Stock Ownership Plan. The Company paid dividends on its common stock during the first quarter of 2012 and then its quarterly dividend was suspended. The determination as to the payment and the amount of any future dividends will be made by the Board of Directors from time to time and will depend on the Company’s then- current financial condition, capital requirements, results of operations and any other factors then deemed relevant by the Board of Directors. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 3 ﬁnancial highlights (in thousands, except per share data) 20131 20121,2 20112 FISCAL YEARS ENDED APRIL 30 OPERATIONS Net sales Operating income (loss) Net income (loss) Earnings (loss) per share Basic Diluted Average shares outstanding Basic Diluted FINANCIAL POSITION Working capital Total assets Long-term debt, less current maturities Shareholders’ equity Long-term debt to capital ratio3 $ 630,437 17,221 9,758 $ 0.67 0.66 14,563 14,833 $ 108,810 293,993 23,594 146,195 13.9% $ 515,814 (33,446) (20,786) $452,589 (31,054) (20,018) $ (1.45) (1.45) $ (1.40) (1.40) 14,344 14,344 14,252 14,252 $ 71,881 265,121 23,790 130,020 15.5% $ 69,572 268,370 24,655 153,965 13.8% 1 The Company announced plans to realign its manufacturing network during fiscal 2012. The Company recorded restructuring charges related to these initiatives in fiscal 2012 that increased operating loss, net loss and loss per share by $15,917,000, $9,710,000 and $0.68, respectively. During fiscal 2013, the charges related to these initiatives decreased operating income, net income and earnings per share by $1,433,000, $874,000 and $0.06, respectively. 2 The Company performed a reduction-in-force of salaried personnel and announced plans to realign its manufacturing network during fiscal 2009. The impact of these initiatives in fiscal 2011 increased operating loss, net loss and loss per share by $62,000, $39,000 and $0.00, respectively. During fiscal 2012, these initiatives increased operating loss, net loss and loss per share by $404,000, $246,000 and $0.01, respectively. 3 Defined as long-term debt, less current maturities, divided by the sum of long-term debt and shareholders’ equity. to our shareholders KENT B. GUICHARD Chairman and CEO Our goal as we began ﬁscal 2013 was to return the Company to proﬁtability while con- tinuing our commitment to build the strength of the organization, protect our market position, and invest in delivering a superior customer experience. The year was not without challenges, some of our own making. But as we look back over the last twelve months, I am pleased to report that we were ultimately successful on all fronts. We entered our ﬁscal year last spring trying to make some sense of a complicated and often contradictory mix of market indicators. Supporting an optimistic outlook was an improvement in builder sentiment based on increased trafﬁc through model homes and improved sales contract activity. Permits, construction starts, and home completions were trending upward. Foreclosures and mortgage delinquencies were at multiple year lows. Sales of existing homes were showing signs of life and prices were slowly rising. On the side of pessimism, consumers were showing signs of additional stress. Savings rates were dropping. Debt was increasing. Gas prices rising. And consumer conﬁdence wavering. As I shared in this letter last year, most worrisome was the employment outlook. The generally cited government unemployment rate was declining, but real unemployment 4 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT remained painfully high. Adding discouraged workers no longer actively seeking a job, part-time workers that would rather have a full-time position, and underemployed full-time workers to the ofﬁcial unemployment number painted a less than encouraging picture. Our ultimate view was that the ﬁnancial pressure on both unemployed and underemployed families, combined with gen- eral nervousness about the future, would continue to suppress demand for big ticket, discretionary spending. This would be particularly true for projects related to the battered and bruised housing sector. As a result, we began our ﬁscal 2013 anticipat- ing a modest increase in revenue based on ﬂat unit demand and some improvement in product mix driven by new products. As we entered the summer, it became clear that the upward trend in new construction activity was not only continuing, but strength- ening. By the time calendar 2012 ended, total housing starts had increased 30%. Single family starts, more relevant to our business, increased 25%. In this environment our new construction related revenue increased more than 40%, signiﬁcantly outpacing the industry. Our performance was the result of gaining share with builders who were in turn gaining share. Aligning with select national, regional and local builders intent on offering upgraded features also allowed us to increase our average revenue per job. increase. As we began the year, our manufacturing organization Unlike the new construction market, remodel demand remained tepid throughout the year. Private Residential Invest- ment at 2.7% of Gross Domestic Product was slightly improved from the 2.5% in the prior year, but still well below the histori- cal average. The lack of homeowner enthusiasm in making signiﬁcant capital investments in their property was clearly the dominant factor in our category. Despite this headwind, our remodel business grew at a high single digit rate during the year based on our long standing partnerships with the big box home centers and our developing dealer business. Our Waypoint brand, launched three years ago and designed to meet the unique needs of the dealer channel, accounted for almost half of our overall growth rate in remodel. Combined net sales for the ﬁscal year increased over 20%, our third consecutive year of double digit growth. Gross margin rose by over 50%. The leverage on incremental volume, however, was below our expectations given the magnitude of the revenue had just completed two plant closures announced in the fall of 2011 and was in the midst of reﬁning new material ﬂows and absorbing the production volume into our remaining facilities. At the same time, we were presented with the unanticipated ramp up in demand from our new construction customers. We did not handle the combination with the efﬁciency or effective- ness that we expect of ourselves. We responded by absorbing signiﬁcant excess costs to protect our customers. As a result, our incremental margins suffered during the ﬁrst half of the year. We completed our corrective actions during the third ﬁscal quarter and returned to our standard of operating performance during the fourth ﬁscal quarter. Leverage on incremental volume during the last quarter was more acceptable with gross margin as a percent of sales reaching almost 19%. The combination of additional volume, leverage in cost of goods sold, and continued cost management in our sales, general and administrative accounts resulted in net income of $10 million excluding restructuring charges and net insurance proceeds. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 5 Our employees did an outstanding job during the entire year, delivering a remarkable turnaround in a difﬁcult on-going environment. Operating income before charges and proceeds improved by almost $35 million from the prior year and the Company posted a net proﬁt for the ﬁrst time since the depths of the housing cycle began in 2009. While our focus during the year was the return to proﬁtability, we remained cognizant of the importance of maintaining ﬁnan- cial strength. Cash, including restricted cash, increased by almost $23 million to a record $97 million at year end. For the foreseeable future, we will continue to be cautious in the man- agement of the balance sheet. While ﬁscal 2013 was encour- aging, we are by no means out of the woods with regard to the economic environment. Many risks remain. We will make sure that we retain our ﬁnancial strength. As we gain more comfort with the path ahead, we will ﬁrst and foremost look to reinvest in the business as the industry rebuilds to historically normal levels of activity. To the extent that we determine excess cash exists above and beyond prudent reserves and capital require- may not satisfy all in the short term, we believe it is in the best interests of the long term Shareholder. In 2007, we launched the 2013 Vision with a goal to provide a superior customer experience. Over the last six years, we have changed the conversation from simply price and product to the total experience. Service and support have become the third leg of the stool, in many cases even surpassing the importance of product and price to our customers. Our ability to not only weather the economic storm, but to consistently generate revenue growth in excess of the market, is a direct result of pursuing our Vision. Customers ultimately vote with their wallets and our ability to gain share is a direct reﬂection of providing a total experience and value that others are not. ments, we will look to return this amount to shareholders As we look forward to our next six year vision, we will challenge under our stock repurchase authorization when the opportu- ourselves to think on a much bigger stage. The goal is no longer nity arises to enhance Shareholder value. While this approach to be a great cabinet company. Or even a great building materials AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 7 company. But a great company on par with other great companies. A world class company regardless of industry. By 2019 we will: dCreate long term competitive advantage through a self- sustaining culture based on individual accountability for making choices consistent with our Mission Statement and core values and shared responsibility to insist on similar dExhibit outstanding citizenship through deep involvement in the overall betterment of the communities in which we live behavior from each other; and work. dDemonstrate constant innovation through which we challenge our views of the world, seeking out and adopting new ideas, new concepts, and new tools to keep pace with the ever changing reality of our world; As we look to the year ahead, many obstacles remain in our path. In the larger context, worldwide growth continues to slow with particularly troublesome on-going social, economic, and political issues in the extended Eurozone. Domestic uncertainty also dEstablish exceptional customer care in which we make a remains a concern. Government budget battles are left largely promise and keep that promise…every day, every customer, unresolved with the potential for negative impacts across a every time; dBuild an overall operating system based on integrated value streams that deliver quality products and services quickly, reliably, and at a cost that offers compelling value in the market place; wide variety of services and programs including Medicare and Social Security. Credit availability on Main Street is still restricted. Most of all, the overriding challenge of both unemployment and underemployment hangs around the neck of a recovery like an albatross. Consumer conﬁdence remains largely stuck. dOffer solutions when and where required through the practi- Despite these macro concerns, we enter ﬁscal 2014 cautiously cal application of technology; and optimistic about our industry and prospects for continued 8 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT movement upwards, back towards normal levels of activity. recession, we must recapture returns on capital that justify We anticipate another double digit increase in revenue driven continued reinvestment in the business and that support the primarily by new construction demand. While remodeling is creation of value for you, our Shareholders. likely to remain relatively weak, we expect to generate growth in the channel as our dealer business adds incremental busi- ness on top of stable big box demand. None of what we have accomplished, or will accomplish, would be possible without the men and women of our Company. Their attitude and commitment, even in the most trying of Cost control will undoubtedly be a challenge all year. While easing, circumstances, is a reﬂection of their outstanding character. promotional activity is likely to remain elevated by historical stan- They have earned my ultimate respect for their achievements. dards in a highly competitive remodel market. Raw material inﬂa- There are things from time to time that keep me awake at tion has begun to impact critical inputs and we will need to ﬁnd night. The organization is not one of them. I know that these both internal offsets and, ultimately, to secure price increases from ﬁne individuals will always answer the call. I offer them my the consumer as this trend continues. The rate of new construc- sincerest appreciation. tion growth will continue to put pressure on operations as we add resources in an environment constrained by an absence of skilled labor. Despite these and other cost pressures, we expect to gener- ate leverage on incremental volume and improve proﬁtability. As gratifying as ﬁscal 2013 was in terms of improving perform- On behalf of the Board of Directors, the Leadership Team, and the entire Company, we thank you for your continuing support. ance, our work is not done. Simply returning to proﬁtability is not enough. As the market recovers from the long housing Kent B. Guichard Chairman and Chief Executive Ofﬁcer 10 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT FIVE-YEAR SELECTED FINANCIAL INFORMATION (in millions, except per share data) FINANCIAL STATEMENT DATA Net sales Operating income (loss) Net income (loss) Earnings (loss) per share: Basic Diluted Depreciation and amortization expense Total assets Long-term debt, less current maturities Total shareholders’ equity Cash dividends declared per share Average shares outstanding Basic Diluted PERCENT OF SALES Gross proﬁt Selling, general and administrative expenses Income (loss) before income taxes Net income (loss) RATIO ANALYSIS Current ratio Inventory turnover3 Collection period—days4 Percentage of capital (long-term debt plus equity): Long-term debt, less current maturities Equity Return on equity (average %) 20131 $630.4 17.2 9.8 0.67 0.66 14.4 294.0 23.6 146.2 0.00 14.6 14.8 16.3% 13.5 2.7 1.5 2.6 20.4 31.4 13.9% 86.1 7.1 FISCAL YEARS ENDED APRIL 30 20112 20121,2 20102 $515.8 (33.4) (20.8) (1.45) (1.45) 23.4 265.1 23.8 130.0 0.09 14.3 14.3 12.9% 16.2 (6.4) (4.0) 2.2 19.2 30.0 15.5% 84.5 (14.6) $452.6 (31.1) (20.0) (1.40) (1.40) 26.7 268.4 24.7 154.0 0.36 14.3 14.3 11.7% 18.5 (6.6) (4.4) 2.4 16.1 30.1 13.8% 86.2 (12.2) $ 406.5 (37.3) (22.3) (1.58) (1.58) 30.9 282.4 25.6 175.3 0.36 14.1 14.1 12.0% 20.5 (9.1) (5.5) 2.5 12.3 32.9 12.7% 87.3 (11.8) 20092 $545.9 (7.2) (3.2) (0.23) (0.23) 35.1 303.7 26.5 203.7 0.36 14.1 14.1 16.4% 15.9 (1.1) (0.6) 2.6 11.5 33.5 11.5% 88.5 (1.5) 1 The Company announced plans to realign its manufacturing network during fiscal 2012. The impact of these initiatives in fiscal 2012 increased operat- ing loss, net loss and loss per share by $15,917,000, $9,710,000 and $0.68, respectively. During fiscal 2013, the charges related to these initiatives decreased operating income, net income and earnings per share by $1,433,000, $874,000 and $0.06, respectively. 2 The Company performed a reduction-in-force of salaried personnel and announced plans to realign its manufacturing network during fiscal 2009. The impact of these initiatives in fiscal 2009 reduced operating income (loss), net income (loss) and earnings (loss) per share by $9,743,000, $6,050,000 and $0.43, respectively. During fiscal 2010, these initiatives increased operating loss, net loss and loss per share by $2,808,000, $1,722,000 and $0.12, respectively. During fiscal 2011, these initiatives increased operating loss, net loss and loss per share by $62,000, $39,000 and $0.00, respectively. During fiscal 2012, these initiatives increased operating loss, net loss and loss per share by $404,000, $246,000 and $0.01, respectively. 3 Based on the average of beginning and ending inventory. 4 Based on the ratio of average monthly customer receivables to average sales per day. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 11 ﬁnancial review 2013 management’s discussion and analysis RESULTS OF OPERATIONS The following table sets forth certain income and expense items as a percentage of net sales: Net sales Cost of sales and distribution Gross proﬁt Selling and marketing expenses General and administrative expenses Restructuring charges Insurance recovery Operating income (loss) Interest expense/other (income) expense Income (loss) before income taxes Income tax expense (beneﬁt) Net income (loss) 2013 100.0% 83.7 16.3 9.1 4.4 0.2 (0.1) 2.7 0.1 2.7 1.1 1.5 PERCENTAGE OF NET SALES FISCAL YEARS ENDED APRIL 30 2012 100.0% 87.1 12.9 11.3 4.9 3.2 0.0 (6.5) (0.1) (6.4) (2.4) (4.0) 2011 100.0% 88.3 11.7 13.5 5.0 0.0 0.0 (6.8) (0.2) (6.6) (2.2) (4.4) The following discussion should be read in conjunction with the Five-Year Selected Financial Information and the Consolidated Financial Statements and the related notes contained elsewhere herein. FORWARD-LOOKING STATEMENTS This annual report contains statements concerning the Com- pany’s expectations, plans, objectives, future ﬁnancial perform- ance and other statements that are not historical facts. These statements are “forward-looking statements” within the mean- ing of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by words such as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “would,” “plan,” “may,” or other similar words. Forward-looking statements contained in this annual report, including in Management’s Discussion and Analysis, are based on current expectations and our actual results may differ materially from those projected in any forward- looking statements. In addition, the Company participates in an industry that is subject to rapidly changing conditions and there are numerous factors that could cause the Company to experience a decline in sales and/or earnings or deterioration in ﬁnancial condition. These include but are not limited to: (1) general economic or business conditions and instability in the ﬁnancial and credit markets, including their potential impact on our (i) sales and operating costs and access to ﬁnancing, and (ii) customers and suppliers and their ability to obtain ﬁnancing or generate the cash necessary to conduct their respective busi- nesses; (2) the cyclical nature of the Company’s industry, which is particularly sensitive to changes in consumer conﬁdence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit; (3) economic weakness in a speciﬁc channel of distribution; 12 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT (4) the loss of sales from speciﬁc customers due to their loss During the Company’s ﬁscal year that ended on April 30, 2013 of market share, bankruptcy or switching to a competitor; (ﬁscal 2013), the Company experienced improving housing (5) risks associated with domestic manufacturing operations, market conditions for the ﬁrst time since the housing market including ﬂuctuations in capacity utilization and the prices downturn that began in 2007. and availability of key raw materials as well as fuel, transpor - tation, warehousing and labor costs and environmental compli- ance and remediation costs; (6) the need to respond to price A number of positive factors evidenced the improving housing market, including: or product initiatives launched by a competitor; (7) the Com- dCreation of approximately 2 million private sector jobs pany’s ability to successfully implement initiatives related in the U.S. during the Company’s ﬁscal years 2012 and 2013 to increasing market share, new products, main taining and (according to the U.S. Department of Labor); increasing its sales force and new product displays; and (8) sales growth at a rate that outpaces the Company’s ability to install new capacity or a sales decline that requires reduc - tion or realignment of the Company’s manufacturing capacity. Additional information concerning the factors that could cause actual results to differ materially from those in forward-looking statements is contained in this annual report, including elsewhere in “Management’s Discussion and Analysis” and also in the Company’s most recent annual report on Form 10-K for the ﬁscal year ended April 30, 2013, ﬁled with the U.S. Securities dA 15% improvement in Gross Private Residential Fixed Invest- ment reported by the U.S. Department of Commerce during the most recent four quarters through the ﬁrst quarter of cal- endar 2013, as compared with the same period one year ago; dIncreases in total housing starts and single family housing starts during the Company’s ﬁscal 2013 of 32% and 28%, respectively, as compared to the Company’s ﬁscal 2012, according to the U.S. Department of Commerce; dThe median price of existing homes sold in the U.S. improved and Exchange Commission (SEC), including under Item 1A, “Risk for the ﬁrst time in 7 years, rising by 10% during the Company’s Factors”, and Item 7A, “Quantitative and Qualitative Disclosures ﬁscal 2013, according to data provided by the National Associ- about Market Risk”. While the Company believes that these ation of Realtors; risks are manageable and will not adversely impact the long- dConsumer conﬁdence, as reported by the University of term performance of the Company, these risks could, under certain circumstances, have a material adverse impact on its operating results and ﬁnancial condition. Michigan, averaged 10% higher during the Company’s ﬁs- cal 2013 than in its prior ﬁscal year; and dCabinet sales, as reported by members of the Kitchen Cabinet Any forward-looking statement that the Company makes speaks Manufacturers Association (KCMA), increased by 11% during only as of the date of this annual report. The Company undertakes ﬁscal 2013, suggesting an increase in both new construction no obligation to publicly update or revise any forward-looking and remodeling sales of cabinets. statements or cautionary factors, as a result of new information, future events or otherwise, except as required by law. OVERVIEW American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. Its products are sold on a national basis directly to home centers, major builders and home manu- facturers and through a network of independent dealers and distributors. At April 30, 2013, the Company operated 9 manu- facturing facilities and 9 service centers across the country. Faced with an improving but still relatively subdued remodeling market, the Company’s largest remodeling customers and com- petitors continued to utilize an elevated level of sales promo- tions in the Company’s product category during ﬁscal 2013 to boost sales, although a noticeable easing occurred in the second half of ﬁscal 2013. The Company strives to maintain its promotional levels in line with market activity, with a goal of remaining competitive. The Company experienced promo- tional levels during ﬁscal 2013 that were lower than those experienced in its prior ﬁscal year. The Company’s remodeling AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 13 sales increased at a high-single digit pace during ﬁscal 2013 The Company regularly considers the need for a valuation in a remodeling market that appears to have improved by a bit allowance against its deferred tax assets. The Company less than that level. The Company increased its net sales by 22% during ﬁscal 2013. The Company realized strong sales gains in its new construction channel during ﬁscal 2013, where sales increased by more than 40%, signif- icantly outpacing the improvement in single-family housing starts. Management believes this result, combined with the Com- pany’s increased remodeling sales, indicates the Company realized market share gains in both of its sales channels during ﬁscal 2013. had a history of proﬁtable operations for 16 consecutive years, from 1994 to 2009, followed by losses that coincided with the industry downturn from 2010 to 2012. As of April 30, 2013, the Company had total deferred tax assets of $38.7 million, down from $42.1 million at April 30, 2012. Growth in the Com- pany’s deferred tax assets in recent ﬁscal years resulted primarily from growth in its deﬁned beneﬁt pension liabilities and the impact of its recent losses prior to ﬁscal 2013. The Company earned sufﬁcient net income during ﬁscal 2013 to fully utilize During the third quarter of ﬁscal 2012, the Company announced its Federal net operating loss carryforward. To fully realize several initiatives designed to reduce its cost base (the 2012 Restructuring), including the permanent closure of two manu- facturing plants, the decision to sell a previously closed manu- these net deferred tax assets, the Company will need to, among other things, substantially reduce its net unfunded pension obligation of $53.7 million at April 30, 2013. The Company took facturing facility, and the realignment of its retirement program, deﬁnitive actions when it froze its pension plans as part including the freezing of its pension plans. All of these initia- of the 2012 Restructuring to enhance the probability that this tives were completed either prior to or just after the beginning objective is achieved in the future. of the Company’s ﬁscal 2013, and restructuring charges related to these actions have been reﬂected in the Company’s results during both years. Gross margin for ﬁscal 2013 was 16.3%, signiﬁcantly improved from 12.9% in ﬁscal 2012. The increase in the Company’s gross margin rate was driven by reductions in the labor and overhead costs associated with the Company’s restructuring activities, the beneﬁcial impact of increased sales volume and the absence of the prior year’s inventory write down, which more than offset the impact of rising materials costs. The Company recorded restructuring charges of $15.9 million (pre-tax) and $10.0 million (after-tax) during ﬁscal 2012 and $1.4 million (pre-tax) and $0.9 million (after-tax) during ﬁs- cal 2013 in connection with these initiatives. Because the bulk of these restructuring efforts have been completed, the Com- pany expects that its future out-of-pocket costs will be nominal. The Company sold a previously closed plant during ﬁscal 2013 and continues to include in “Other Assets” at an aggregate $2.7 million book value the other two plants held for sale that were included in the 2012 Restructuring. The Company resumed the funding of its pension plans during ﬁscal year 2012, and expects to continue funding these plans for the foreseeable future, which will reduce both its unfunded pension plan obligation and its deferred tax asset. These actions, coupled with the recent improvement in the U.S. housing market and the Company’s continued ability to grow its sales at a faster rate than its competitors, have enabled the Company to generate net income and reduce its deferred tax assets and unfunded pension obligation during ﬁscal 2013. The Company believes that the positive evidence of the housing industry improvement, coupled with the beneﬁts from the Company’s successful restructuring and continued market share gains have already driven a return to proﬁtability that is expected to con- tinue, and that the combined impact of these positive factors outweighs the negative factor of the Company’s previous losses. Accordingly, Management has concluded it is more likely than not that the Company will realize its deferred tax assets. The Company also regularly assesses its long-lived assets to determine if any impairment has occurred. The Company has concluded that none of the long-lived assets pertaining to its 9 manufacturing plants or any of its other long-lived assets were impaired as of April 30, 2013. 14 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT RESULTS OF OPERATIONS (in thousands) Net sales Gross proﬁt Selling and marketing expenses General and administrative expenses Interest expense FISCAL YEARS ENDED APRIL 30 2013 VS. 2012 2012 VS. 2011 2013 2012 2011 PERCENT CHANGE PERCENT CHANGE $ 630,437 102,656 57,402 27,575 643 $515,814 66,475 58,271 25,329 527 $ 452,589 52,751 61,034 22,709 572 22% 54 (1) 9 22 14% 26 (5) 12 (8) NET SALES Net sales were $630.4 million in ﬁscal 2013, an increase of $114.6 million, or 22%, compared with ﬁscal 2012. Overall unit vol- ume for ﬁscal 2013 was 17% higher than in ﬁscal 2012, which man- driven primarily by inﬂationary pressures in ﬁnishing materials, lumber, cartons, plywood, particleboard and paint, as well as from increased levels of outsourcing following the recent plant closures; and agement believes was driven primarily by the Company’s increased d Sales promotion costs improved by 1.4% of net sales during market share. Average revenue per unit increased 4% in ﬁs- ﬁscal 2013 compared with the prior year, as a result of both cal 2013, driven by improvements in the Company’s product mix. an increased proportion of new construction sales to the Net sales for ﬁscal 2012 increased 14% to $515.8 million from $452.6 million in ﬁscal 2011. Overall unit volume for ﬁscal 2012 was 9% higher than in ﬁscal 2011, which management believes was driven primarily by the Company’s increased market share. Average revenue per unit increased 5% during ﬁscal 2012, driven primarily by improvements in product mix. GROSS PROFIT Gross proﬁt as a percentage of sales increased to 16.3% in ﬁs- Company’s total sales and reduced promotional activity. Sales promotions that involved the use of free products or cash reimbursements back to the Company’s large remodeling customers were deducted from gross margin as opposed to being classiﬁed as operating expenses. During ﬁscal 2012, the Company’s gross proﬁt increased as a percentage of net sales to 12.9% from 11.7% in ﬁscal 2011. Increased sales volume in ﬁscal 2012 created improved labor efﬁciencies and more favorable absorption of manufacturing cal 2013 as compared with 12.9% in ﬁscal 2012. The improvement overhead costs, which were partially offset by increased in gross proﬁt margin was due primarily to the beneﬁcial impact of sales promotion costs, material costs and diesel fuel. Speciﬁc higher sales volume and labor and overhead cost savings asso- changes and additional information included: ciated with the Company’s two plant closures in April and May of 2012. This favorability was partially offset by an increase in mate- rial costs. Speciﬁc changes and additional information included: dLabor and overhead costs improved by 3.6% as a percentage of net sales compared with the prior ﬁscal year, as the combi- nation of the increased sales volume and the plant closures caused both a decrease in overhead costs and improved absorption of ﬁxed overhead costs, while labor costs became increasingly more efﬁcient throughout ﬁscal 2013 as d Labor and overhead costs improved by 3.7% as a percentage of net sales during ﬁscal 2012 compared with the prior ﬁscal year, as increased sales volume caused increased productiv- ity of direct labor and absorption of ﬁxed overhead costs; d Materials and freight costs increased as a percentage of net sales by 1.8% during ﬁscal 2012 as compared with ﬁscal 2011, driven primarily by inﬂationary pressures in ﬁnishing materials, lumber, cartons, imported components, and diesel fuel; and productivity gains were realized following the plant closures; d Sales promotion costs increased by 0.7% of net sales during d Materials and freight costs increased as a percentage of net sales by 1.6% during ﬁscal 2013 as compared with ﬁscal 2012, ﬁscal 2012, as the Company chose to remain competitive with competitors’ promotional offerings to drive sales growth in a challenging market. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 15 SELLING AND MARKETING EXPENSES Selling and marketing expenses in ﬁscal 2013 were 9.1% of net OUTLOOK FOR FISCAL 2014 The Company tracks several metrics, including but not limited sales, compared with 11.3% of net sales in ﬁscal 2012. Selling and to housing starts, existing home sales, mortgage interest marketing costs decreased by 1% despite a 22% increase in net rates, new jobs growth, GDP growth and consumer conﬁdence, sales. The improvement in sales and marketing costs in relation which it believes are leading indicators of overall demand to net sales was due to reduced spending on product launch costs for kitchen and bath cabinetry. The Company believes that and cost reductions related to the Company’s retirement plan housing prices ﬁnally bottomed during its ﬁscal 2012 and changes, which were offset in part by increased sales compensation have begun what it expects will be a multi-year improvement, and stafﬁng costs related to the Company’s increased sales levels. driven by employment growth and a resumption of growth Selling and marketing expenses were 11.3% of net sales in ﬁscal 2012 compared with 13.5% in ﬁscal 2011. Cost savings from lower marketing collateral and branding costs, as well as reductions in product display costs more than offset the increases in employee compensation and travel costs incurred by the Company in ﬁscal 2012. GENERAL & ADMINISTRATIVE EXPENSES General and administrative expenses increased by $2.2 million or 9% during ﬁscal 2013. The increase in cost was entirely related to increased pay-for-performance compensation. How- ever, G&A costs declined to 4.4% of net sales in ﬁscal 2013 compared with 4.9% of net sales in ﬁscal 2012. General and administrative expenses in ﬁscal 2012 increased by $2.6 million, or 12%, compared with ﬁscal 2011 and repre- sented 4.9% of net sales, compared with 5.0% of net sales for ﬁscal 2011. The majority of the cost increase was related to increased pay-for-performance compensation. EFFECTIVE INCOME TAX RATES The Company generated pre-tax income of $16.7 million during ﬁscal 2013, including $1.4 million of restructuring charges. The Company’s effective tax rate increased from 37.6% in ﬁscal 2012 to 41.7% in ﬁscal 2013. The higher effective tax rate was the result of relatively consistent amounts of permanent tax differences in relation to the net income generated in ﬁscal 2013 compared with the net loss generated in the prior year. in new household formation. However, because the number of homeowners still owing more than what their homes are worth remains at historically high levels, the Company expects that while the cabinet remodeling market will show modest improvement it will continue to be well below the historic highs reached in the previous decade. Driven by an improving housing market, the Company expects that industry-wide cabinet remodeling sales will continue a trend that began during ﬁscal 2013 and improve at roughly a mid-single digit rate during its ﬁscal 2014. The Company expects that its home center market share will be relatively stable in ﬁscal 2014 and it will continue to gain market share in its growing dealer business. This combination is expected to result in remodeling sales growth that outpaces the market by several percentage points. The Company agrees with the consensus estimate that new construction starts will continue to grow at a mid-20% rate during its ﬁscal 2014. The Company’s new construction sales growth outperformed the new construction market by approxi- mately 20 points during ﬁscal 2013, and expects that it will again outperform the new construction market during ﬁscal 2014 but by a signiﬁcantly lesser rate, as its comparable prior year sales levels become more challenging. Inclusive of the potential for modest sales mix and pricing improvements, the Company expects that it will grow its total sales at a mid-teen rate in ﬁscal 2014. The Company experi- enced production inefﬁciencies during the ﬁrst half of its ﬁscal 2013 driven by the combination of work transition issues from its closed plants, coupled with production volume increases that were driven by unexpectedly high sales levels. These issues were resolved during the third quarter of the Company’s ﬁscal 2013, 16 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT enabling the Company’s gross margin rate to improve in the impairments related to the 2012 Restructuring. This improvement fourth quarter of ﬁscal 2013. The Company expects that its gross was offset in part by a $13.6 million net working capital invest- margin rate and net income for ﬁscal 2014 will improve com- ment in its operating assets and liabilities to fund growth and pared with its ﬁscal 2013 performance. increased contributions to its pension plans of $2.0 million. The Company had gross outlays for capital expenditures and Cash provided by operating activities in ﬁscal 2012 was customer display units of $13.5 million during ﬁscal 2013, and $16.1 million, compared with $13.2 million in ﬁscal 2011. plans to increase this spending level modestly during ﬁscal 2014. The $2.9 million improvement was primarily attributable However, the Company is undertaking a multi-year review of to the reduction in the Company’s operating loss exclusive its manufacturing capacity and capital expenditure plans which of restructuring charges of $13.9 million. This improvement could cause its capital expenditures to exceed this level. was offset in part by reductions in proceeds from income tax Additional risks and uncertainties that could affect the Company’s results of operations and ﬁnancial condition are discussed elsewhere in this annual report, including under “Forward-Looking Statements,” and elsewhere in “Manage- ment’s Discussion and Analysis,” as well as in the Company’s annual report on Form 10-K for the ﬁscal year ended April 30, 2013 ﬁled with the SEC, including under Item 1A, “Risk Factors” and Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.” LIQUIDITY AND CAPITAL RESOURCES The Company’s cash, cash equivalents and restricted cash totaled $97.0 million at April 30, 2013, which represented an increase of $23.3 million from April 30, 2012. Total debt was $24.7 million at April 30, 2013, virtually unchanged from the prior ﬁscal year refunds of $7.1 million, from increasing funding to its pension plans of $2.9 million, and from funding restructuring costs of $1.2 million. INVESTING ACTIVITIES The Company’s investing activities primarily consist of capital expenditures and investments in promotional displays. Net cash used by investing activities in ﬁscal 2013 was $6.1 million, compared with $9.9 million in ﬁscal 2012 and $5.5 million in ﬁscal 2011. Investments in property, plant and equipment for ﬁscal 2013 were $8.9 million, compared with $6.7 million in ﬁscal 2012 and $5.0 million in ﬁscal 2011. Investments in promotional displays were $4.8 million in ﬁscal 2013, com- pared with $3.3 million in ﬁscal 2012 and $3.5 million in ﬁs- cal 2011. The increased level of investment during ﬁscal 2013 primarily represents machinery and equipment enhancements and long-term debt, excluding current maturities, to capital was to enable production volume to increase and an increase in the 13.9% at April 30, 2013, down from 15.5% at April 30, 2012. number of display units deployed with customers. The Company’s main source of liquidity is its cash and cash equivalents on hand and cash generated from its operating activities. During ﬁscal 2013 the Company renegotiated its revolving credit agreement with its primary lender and is no longer required to hold restricted cash to secure borrowings under that agreement. During ﬁscal 2013, the Company’s reduced net cash used for investing activities was driven by the receipt of $6.4 million in proceeds from the sales of assets from closed plants and insurance proceeds of $1.0 million, which more than offset the aggregate $3.6 million increase in outﬂows for capital expendi- tures and promotional displays. OPERATING ACTIVITIES Cash provided by operating activities in ﬁscal 2013 was $24.5 mil- lion, compared with $16.1 million in ﬁscal 2012. The $8.4 million improvement was primarily attributable to the Company’s $22.9 million improvement in net income and reduction in asset The Company generated positive free cash ﬂow (deﬁned as cash provided by operating activities less cash used for invest- ing activities) of $18.4 million during ﬁscal 2013, compared with $6.1 million in ﬁscal 2012 and $7.7 million in ﬁscal 2011. The increase in ﬁscal 2013 was driven by the net improve- ments in both cash provided by operating activities and AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 17 decreased net outﬂows used for investing activities. The reduc- outstanding indebtedness and other obligations to Wells Fargo tion in ﬁscal 2012 was driven by increased net outﬂows used be secured by cash and securities held in certain of the Com- for investing activities that more than offset net improvements pany’s accounts with Wells Fargo. The Company’s outstanding in cash provided by operating activities. indebtedness and other obligations to Wells Fargo are secured by substantially all of the Company’s assets. The Company can FINANCING ACTIVITIES The Company realized a net inﬂow of $11.9 million from ﬁnanc- borrow under the revolving credit facility up to the lesser of $35 million or the maximum borrowing base (which equals ing activities in ﬁscal 2013, compared with a $5.1 million inﬂow 75% of eligible accounts receivable, 50% of eligible pre bill in ﬁscal 2012, and a net outﬂow of $5.5 million in ﬁscal 2011. reserves and up to $20 million for equipment value, each as Reductions in the amount of restricted cash drove inﬂows deﬁned in the agreement) less any outstanding loan balance. of approximately $7 million in both ﬁscal 2013 and 2012. Any outstanding loan balance bears interest at the London Additional proceeds of $5.9 million were generated during Interbank Offered Rate (LIBOR) (0.25% at April 30, 2013) plus ﬁscal 2013 from the exercise of stock options. Approximately 2.625%. Under the terms of the revolving credit facility, the $1 million was used to repay long-term debt in each of the Company must: (1) maintain at the end of each ﬁscal quarter years in the three-year period ended in ﬁscal 2013, while ﬁs- a ratio of total liabilities to tangible net worth of not greater cal 2012 and 2011 was further impacted by dividend payments than 1.4 to 1.0; (2) maintain at the end of each ﬁscal quarter to shareholders of $1.3 million and $5.1 million, respectively. a ratio of cash ﬂow to ﬁxed charges of not less than 1.25 to 1.0 The Company elected to suspend its quarterly dividend during ﬁscal 2012. The Company ended ﬁscal 2013 with a record level of nearly $97 million in cash and cash equivalents. The Company is authorized to repurchase up to $93.3 million of its stock under an authorization approved by its Board of Directors in 2007. measured on a rolling four-quarter basis; (3) maintain at least $1.00 in net income for the ﬁscal quarter ending April 30, 2013 and at least $1.00 in net income on a rolling four-quarter basis for the ﬁscal quarter ending July 31, 2013; and comply with other customary afﬁrmative and negative covenants. The Company continues to evaluate its cash on hand and The Company was in compliance with all covenants speciﬁed prospects for future cash generation, and compare these against in the amended credit facility as of April 30, 2013, as follows: its go-forward reinvestment plans for future capital expenditures. (1) the Company’s ratio of total liabilities to tangible net worth at Although the evaluation of its future capital expenditures is April 30, 2013 was 1.0 to 1.0; (2) cash ﬂow to ﬁxed charges for its ongoing, the Company expects that it will make repurchases most recent four quarters was 2.72 to 1.0; and (3) its net income of its common stock from time to time during ﬁscal 2014. for the ﬁscal quarter ended April 30, 2013 was $5.2 million. The Company can borrow up to $35 million under the Wells Fargo The revolving credit facility does not limit the Company’s ability credit facility, subject to a maximum borrowing base equal to to pay dividends or repurchase its common stock as long as 75% of eligible accounts receivable, 50% of eligible pre bill reserves the Company is in compliance with these covenants. and up to $20 million for equipment value (each as deﬁned in the agreement). At April 30, 2013, $10 million of loans and $3.7 million of letters of credit were outstanding under the Wells Fargo facility. Cash ﬂow from operations combined with accumulated cash and cash equivalents on hand are expected to be more than sufﬁcient to support forecasted working capital requirements, An amendment to the revolving credit facility and modiﬁca- service existing debt obligations and fund capital expenditures tions to related security arrangements completed on March 18, for ﬁscal 2014. 2013 eliminated the requirement that 50% of the Company’s 18 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT The timing of the Company’s contractual obligations as of April 30, 2013 is summarized in the table below: (in thousands) Revolving credit facility Economic development loans Term loans Capital lease obligations Interest on long-term debt1 Operating lease obligations Pension contributions2 Total TOTAL AMOUNTS $ 10,000 3,480 3,530 7,739 2,622 10,926 33,208 $ 71,505 2014 $ — — 349 806 659 3,411 2,258 $ 7,483 FISCAL YEARS ENDED APRIL 30 2015–2016 2017–2018 2019 AND THEREAFTER $10,000 — 763 1,689 1,113 5,870 10,020 $ 29,455 $ — — 2,418 1,356 488 1,553 15,700 $ — 3,480 — 3,888 362 92 5,230 $ 21,515 $ 13,052 1 Interest commitments under interest bearing debt consist of interest under the Company’s primary loan agreement, term loans and capitalized lease agreements. Amounts outstanding under the Company’s revolving credit facility, $10 million at April 30, 2013, bear a variable interest rate determined by the London Interbank Offered Rate (LIBOR) plus 2.625%. Interest under the Company’s term loans and capitalized lease agreements is fixed at rates between 2% and 6.5%. Interest commitments under interest bearing debt for the Company’s revolving credit facility are at LIBOR plus the spread as of April 30, 2013, throughout the remaining term of the facility. 2 The estimated cost of the Company’s two defined benefit pension plans is determined annually based upon the discount rate and other assumptions at fiscal year end. Future pension funding contributions beyond fiscal 2019 have not been determined at this time. MARKET RISKS The Company’s business has historically been subjected CRITICAL ACCOUNTING POLICIES Management has chosen accounting policies that are necessary to seasonal inﬂuences, with higher sales typically realized to give reasonable assurance that the Company’s operational in the second and fourth ﬁscal quarters. results and ﬁnancial position are accurately and fairly reported. The costs of the Company’s products are subject to inﬂationary pressures and commodity price ﬂuctuations. The Company has generally been able, over time, to recover the effects of inﬂation and commodity price ﬂuctuations through sales price increases. On April 30, 2013, the Company had no material exposure to changes in interest rates for its debt agreements. The signiﬁcant accounting policies of the Company are disclosed in Note A to the Consolidated Financial Statements included in this annual report. The following discussion addresses the accounting policies that management believes have the greatest potential impact on the presentation of the ﬁnancial condition and operating results of the Company for the periods being reported and that require the most judgment. The Company does not currently use commodity or interest rate derivatives or similar ﬁnancial instruments to manage Management regularly reviews these critical accounting policies and estimates with the Audit Committee of the Board of Directors. its commodity price or interest rate risks. For additional discussion of risks that could affect the Com- pany and its business, see “Forward-Looking Statements” LONG-LIVED ASSET IMPAIRMENT. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may above and “Risk Factors” in the Company’s most recent annual not be recoverable. For purposes of assessing if impairment report on Form 10-K ﬁled with the SEC. OFF-BALANCE SHEET ARRANGEMENTS As of April 30, 2013 and 2012, the Company had no off-balance sheet arrangements. exists, assets are grouped at the lowest level for which there are identiﬁable cash ﬂows that are largely independent of the cash ﬂows of other groups of assets. To determine whether an impair- ment has occurred, the Company compares estimates of the future undiscounted net cash ﬂows of groups of assets to their carrying values. The Company has not recognized impairments AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 19 of long-lived assets in the last three years other than the impair- The estimated expense, beneﬁts and pension obligations of ments related to restructuring activities. these plans are determined using various assumptions. The most REVENUE RECOGNITION. The Company utilizes signed sales agreements that provide for transfer of title to the customer upon delivery. The Company must estimate the amount of sales that have been transferred to third-party carriers but not delivered to customers. The estimate is calculated using a lag factor deter- mined by analyzing the actual difference between shipment date and delivery date of orders over the past 12 months. Revenue is only recognized on those shipments which the Company believes have been delivered to the customer. The Company recognizes revenue based on the invoice price less allowances for sales returns, cash discounts and other deductions as required under U.S. generally accepted accounting principles signiﬁcant assumptions are the long-term expected rate of return on plan assets and the discount rate used to determine the pres- ent value of the pension obligations. In ﬁscal 2013 and 2012, the Company determined the discount rate by referencing the Aon Hewitt AA Bond Universe Yield Curve. In ﬁscal 2011, the Company referred to the Hewitt Above Median Yield Curve in establishing the discount rate. This change was caused by the merger of Aon and Hewitt and the corresponding elimination of the Hewitt Above Median Yield Curve. The Company believes that using a yield curve approach accurately reﬂects changes in the present value of liabilities over time since each cash ﬂow is discounted at the rate at which it could effectively be settled. The long-term expected rate of return on plan assets reﬂects the current mix (GAAP). Collection is reasonably assured as determined through of the plan assets invested in equities and bonds. an analysis of accounts receivable data, including historical prod- uct returns and the evaluation of each customer’s ability to pay. Allowances for sales returns are based on the historical relation- ship between shipments and returns. The Company believes that its historical experience is an accurate reﬂection of future returns. SELF INSURANCE. The Company is self-insured for certain costs related to employee medical coverage and workers’ com- pensation liability. The Company maintains stop-loss coverage with third-party insurers to limit total exposure. The Company The following is a summary of the potential impact of a hypo- thetical 1% change in actuarial assumptions for the discount rate, expected return on plan assets and consumer price index: (in millions) (decrease) increase IMPACT OF 1% IMPACT OF 1% INCREASE DECREASE Effect on annual pension expense $ (1.1) Effect on projected pension beneﬁt obligation $ (21.1) $ 1.1 $26.9 establishes a liability at each balance sheet date based on esti- Pension expense for ﬁscal 2013 and the assumptions used in that mates for a variety of factors that inﬂuence the Company’s ulti- calculation are presented in Note H of the Consolidated Financial mate cost. In the event that actual experience is substantially Statements. At April 30, 2013, the discount rate was 4.21% com- different from the estimates, the ﬁnancial results for the period pared with 4.66% at April 30, 2012. The expected return on plan could be adversely affected. The Company believes that the assets was 7.5% at both April 30, 2013 and April 30, 2012. The methodologies used to estimate all factors related to employee assumed rate of increase in compensation levels was 4.0% for medical coverage and workers’ compensation are an accurate the ﬁscal years ended April 30, 2012 and 2011. The rate of compen- reﬂection of the liability as of the date of the balance sheet. sation increase is not applicable for periods beyond April 30, 2012 PENSIONS. The Company has two non-contributory deﬁned beneﬁt pension plans covering many of the Company’s employ- ees hired prior to April 30, 2012. Effective April 30, 2012, the Company froze all future beneﬁt accruals under the Company’s hourly and salary deﬁned beneﬁt pension plans. because the Company froze its pension plans as of that date. The projected performance of the Company’s pension plans is largely dependent on the assumptions used to measure the obli- gations of the plans and to estimate future performance of the plans’ invested assets. Over the past two measurement periods, the most material deviations between results based on assump- tions and the actual plan performance have resulted from changes to the discount rate used to measure the plans’ beneﬁt 20 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT obligations and the actual return on plan assets. Accounting guidelines require the discount rate to be set to market at each PRODUCT WARRANTY. The Company estimates outstanding warranty costs based on the historical relationship between annual measurement date. From the ﬁscal 2011 to ﬁscal 2012 warranty claims and revenues. The warranty accrual is reviewed measurement dates, the discount rate decreased from 5.66% monthly to verify that it properly reﬂects the Company’s remaining at April 30, 2011 to 4.66% at April 30, 2012, which caused an obligation based on anticipated expenditures over the balance actuarial loss of $26.3 million. From the ﬁscal 2012 to ﬁscal 2013 of the obligation period. Adjustments are made when actual war- measurement dates, the discount rate decreased from 4.66% ranty claim experience differs from estimates. Warranty claims are to 4.21% which caused an actuarial loss of $10.8 million. generally made within two months of the original shipment date. The Company strives to balance expected long-term returns and short-term volatility of pension plan assets. Favorable and unfa- STOCK-BASED COMPENSATION EXPENSE. The calculation of stock-based compensation expense involves estimates that vorable differences between the assumed and actual returns on require management’s judgment. These estimates include the plan assets are generally amortized over a period no longer than fair value of each stock option and restricted stock unit award the average life expectancy of the plans’ active participants. The granted. Stock option awards are estimated on the date of grant actual rates of return on plan assets realized, net of investment using a Black-Scholes option pricing model. There are two signiﬁ- manager fees, were 10.2%, 3.1% and 11.9% for ﬁscal 2013, 2012 cant inputs into the Black-Scholes option pricing model: expected and 2011, respectively. The fair value of plan assets at April 30, 2013 was $95.7 million compared with $85.7 million at April 30, 2012. The Company’s projected beneﬁt obligation exceeded plan assets by $53.7 mil- lion in ﬁscal 2013 and by $50.5 million in ﬁscal 2012. The $3.2 mil- lion increase in the Company’s net under-funded position during ﬁscal 2013 was primarily driven by the Company’s $10.8 million volatility and expected term. The Company estimates expected volatility based on the historical volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding. actuarial losses, offset in part by a higher return on plan assets For performance-based restricted stock units, the Company and Company contributions. The Company expects its pension estimates the number of shares that will be granted upon expense to decrease from $0.6 million in ﬁscal 2013 to $0.2 mil- satisfaction of the performance conditions, based upon actual lion in ﬁscal 2014, due primarily to a higher expected return on and expected future operating results. The assumptions used plan assets. The Company expects to contribute $2.3 million to in calculating the fair value of stock-based payment awards repre- its pension plans in ﬁscal 2014, which represents required fund- sent management’s best estimates, but these estimates involve ing. The Company made contributions of $4.9 million to its pen- inherent uncertainties and the application of signiﬁcant manage- sion plans in ﬁscal 2013. PROMOTIONAL DISPLAYS. The Company invests in promotional displays in retail stores to demonstrate product features, product and quality speciﬁcations and serve as a training tool for design- ers. The investment is carried at cost less applicable amortization. Amortization is provided by the straight-line method on an indi- vidual display basis over the estimated period of economic bene- ﬁt, approximately 30 to 36 months. The Company believes that the estimated period of economic beneﬁt provides an accurate reﬂection of the value of displays as of the date of the balance sheet based on historical experience. ment judgment. As a result, if factors change or the Company uses different assumptions, stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the Company’s actual forfeiture rate is materially different from its estimate, the stock-based compensation expense could be signiﬁcantly different from what the Company has recorded in the current period. See Note G to the Consolidated Financial Statements for further discussion on stock-based compensation. VALUATION OF DEFERRED TAX ASSETS. The Company regularly considers the need for a valuation allowance against its deferred AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 21 tax assets. Based upon the Company’s analysis at April 30, 2013 statement of comprehensive income, or in two separate but and 2012, the Company determined in each case that a valuation consecutive statements. Additionally, ASU 2011-05 eliminates allowance was not required. The Company considered all available the option to present comprehensive income and its compo- evidence, both positive and negative, in determining the need nents as part of the statement of shareholders’ equity. The for a valuation allowance. Based upon this analysis, management ASU does not change the items that must be reported in other determined that it is more likely than not that the Company’s comprehensive income. The Company adopted this guidance deferred tax assets will be realized through expected future income effective May 1, 2012 and now includes Statements of Compre- and the reversal of taxable temporary differences. The Company hensive Income (Loss) in its ﬁnancial statements. will continue to update this analysis on a periodic basis and changes in expectations about future income or the timing of the reversal of taxable temporary differences could cause the Company to record a valuation allowance in a future period. RECENT ACCOUNTING PRONOUNCEMENTS In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, “Comprehensive Income (Topic 220): Reporting Amounts Reclassiﬁed Out of Accumulated Other Comprehensive Income,” which requires an entity to provide information about the amounts reclassiﬁed out of accumulated other comprehensive income by component. In addition, an entity is required to pres- ent, either on the face of the statement where net income is presented or in the notes, signiﬁcant amounts reclassiﬁed out of accumulated other comprehensive income by the respective line items of net income if the amount reclassiﬁed is required under U.S. GAAP to be reclassiﬁed to net income in its entirety in the same reporting period. The ASU does not change the current requirements for reporting net income or other compre- hensive income in ﬁnancial statements. The ASU is effective prospectively for ﬁscal years and interim periods within those years beginning after December 15, 2012. The adoption of ASU 2013-02 is not expected to have a signiﬁcant impact on the Company’s results of operations or ﬁnancial position. In December 2011, the FASB issued ASU No. 2011-12, “Compre - hensive Income (Topic 220): Deferral of the Effective Date of Amendments to the Presentation of Reclassiﬁcations of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05.” The amendments were made to allow FASB time to redeliberate whether to present on the face of the ﬁnancial statements the effects of reclassiﬁcations out of accumulated other comprehensive income on the components of net income and other comprehensive income. LEGAL MATTERS The Company is involved in suits and claims in the normal course of business, including without limitation product liability and gen- eral liability claims and claims pending before the Equal Employ- ment Opportunity Commission. On at least a quarterly basis, the Company consults with its legal counsel to ascertain the reason- able likelihood that such claims may result in a loss. As required by ASC Topic 450, “Contingencies” (ASC 450), the Company cat- egorizes the various suits and claims into three categories accord- ing to their likelihood for resulting in potential loss: those that are probable, those that are reasonably possible and those that are deemed to be remote. Where losses are deemed to be prob- able and estimable, accruals are made. Where losses are deemed to be reasonably possible or remote, a range of loss estimates is determined and considered for disclosure. Where no loss estimate range can be made, the Company and its counsel perform a worst- In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive case estimate. In determining these loss range estimates, the Income (Topic 220): Presentation of Comprehensive Income,” Company considers known values of similar claims and consul- which requires an entity to present the total of comprehensive tation with independent counsel. income, the components of net income, and the components of other comprehensive income either in a single continuous The Company believes that the aggregate range of estimated loss stemming from the various suits and asserted and unasserted claims which were deemed to be either probable or reasonably possible was not material as of April 30, 2013. 22 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) ASSETS Current Assets Cash and cash equivalents Customer receivables, net Inventories Prepaid expenses and other Deferred income taxes Total Current Assets Property, plant and equipment, net Restricted cash Promotional displays, net Deferred income taxes Other assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable Current maturities of long-term debt Accrued compensation and related expenses Accrued marketing expenses Other accrued expenses Total Current Liabilities Long-term debt, less current maturities Deﬁned beneﬁt pension liabilities Other long-term liabilities Shareholders’ Equity Preferred stock, $1.00 par value; 2,000,000 shares authorized, none issued Common stock, no par value; 40,000,000 shares authorized; issued and outstanding shares: at April 30, 2013: 14,822,580, at April 30, 2012: 14,395,273 Retained earnings Accumulated other comprehensive loss— Deﬁned beneﬁt pension plans Total Shareholders’ Equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY See notes to consolidated financial statements. APRIL 30 2013 2012 $ 96,971 39,044 29,338 3,084 9,481 177,918 74,064 — 5,811 29,262 6,938 $293,993 $ 23,306 1,155 26,213 10,159 8,275 69,108 23,594 53,696 1,400 — 107,165 71,180 (32,150) 146,195 $293,993 $ 66,620 32,533 22,340 2,523 7,086 131,102 75,375 7,064 5,073 34,969 11,538 $265,121 $ 19,492 875 21,963 8,756 8,135 59,221 23,790 50,547 1,543 — 96,205 61,422 (27,607) 130,020 $265,121 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 23 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Net sales Cost of sales and distribution Gross Proﬁt Selling and marketing expenses General and administrative expenses Restructuring charges Insurance proceeds Operating Income (Loss) Interest expense Other income Income (Loss) Before Income Taxes Income tax expense (beneﬁt) Net Income (Loss) SHARE INFORMATION Earnings (loss) per share Basic Diluted Cash dividends per share See notes to consolidated financial statements. 2013 $ 630,437 527,781 102,656 57,402 27,575 1,433 (975) 17,221 643 (162) 16,740 6,982 $ 9,758 $ 0.67 0.66 0.00 FISCAL YEARS ENDED APRIL 30 2012 $515,814 449,339 66,475 58,271 25,329 16,321 — (33,446) 527 (685) (33,288) (12,502) $ (20,786) $ (1.45) (1.45) 0.09 2011 $ 452,589 399,838 52,751 61,034 22,709 62 — (31,054) 572 (1,666) (29,960) (9,942) $ (20,018) $ (1.40) (1.40) 0.36 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) Net income (loss) Other comprehensive loss net of tax: Change in pension beneﬁts, net of deferred taxes of $2,905, $3,624 and $294, respectively Total Comprehensive Income (Loss) See notes to consolidated financial statements. 2013 $ 9,758 (4,543) $ 5,215 FISCAL YEARS ENDED APRIL 30 2012 2011 $(20,786) $ (20,018) (5,669) $(26,455) (460) $ (20,478) 24 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY COMMON STOCK SHARES 14,205,462 AMOUNT $ 88,153 (in thousands, except share data) Balance, May 1, 2010 Net loss Other comprehensive loss, net of tax Stock-based compensation Adjustments to excess tax beneﬁt from stock-based compensation Cash dividends Exercise of stock-based compensation awards Employee beneﬁt plan contributions 27,401 62,677 RETAINED EARNINGS $108,643 (20,018) (5,130) ACCUMULATED OTHER COMPREHENSIVE LOSS TOTAL SHAREHOLDERS’ EQUITY $(21,478) $175,318 (460) (20,018) (460) 3,995 (1,347) (5,130) 394 1,213 3,995 (1,347) 394 1,213 Balance, April 30, 2011 14,295,540 $ 92,408 $ 83,495 $(21,938) $153,965 Net loss Other comprehensive loss, net of tax Stock-based compensation Adjustments to excess tax beneﬁt from stock-based compensation Cash dividends Exercise of stock-based compensation awards Employee beneﬁt plan contributions 19,410 80,323 3,413 (859) 12 1,231 (5,669) (20,786) (1,287) (20,786) (5,669) 3,413 (859) (1,287) 12 1,231 Balance, April 30, 2012 14,395,273 $ 96,205 $ 61,422 $(27,607) $130,020 Net income Other comprehensive loss, net of tax Stock-based compensation Adjustments to excess tax beneﬁt from stock-based compensation Exercise of stock-based compensation awards Employee beneﬁt plan contributions 328,490 98,817 3,509 (650) 5,768 2,333 9,758 (4,543) 9,758 (4,543) 3,509 (650) 5,768 2,333 Balance, April 30, 2013 14,822,580 $107,165 $ 71,180 $(32,150) $146,195 See notes to consolidated financial statements. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 25 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) OPERATING ACTIVITIES Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Net loss on disposal of property, plant and equipment Impairment loss related to restructuring activities (Gain) loss on sales of assets held for sale Gain on insurance recoveries Stock-based compensation expense Deferred income taxes Pension contributions (in excess of) less than expense Tax beneﬁt from stock-based compensation Other non-cash items Changes in operating assets and liabilities: Customer receivables Inventories Prepaid expenses and other assets Accounts payable Accrued compensation, marketing and other accrued expenses Net Cash Provided by Operating Activities INVESTING ACTIVITIES Payments to acquire property, plant and equipment Proceeds from sales of property, plant and equipment Proceeds from sales of assets held for sale Proceeds from insurance recoveries Investment in promotional displays Net Cash Used by Investing Activities FINANCING ACTIVITIES Payments of long-term debt Change in restricted cash Tax beneﬁt from stock-based compensation Proceeds from issuance of common stock and other Payment of dividends Net Cash Provided (Used) by Financing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year 2013 FISCAL YEARS ENDED APRIL 30 2012 2011 $ 9,758 $ (20,786) $(20,018) 14,431 231 270 (481) (975) 3,509 5,789 (4,299) (18) 944 (6,825) (7,068) (1,669) 3,814 7,116 24,527 (8,860) 80 6,447 975 (4,759) (6,117) (1,019) 7,064 18 5,878 — 11,941 30,351 66,620 23,387 180 7,913 111 — 3,413 (12,290) 4,528 — 867 (1,533) 115 (320) 923 9,545 16,053 (6,679) 15 56 — (3,310) (9,918) (1,021) 7,355 — 18 (1,287) 5,065 11,200 55,420 26,703 209 — (982) — 3,995 (8,185) 6,907 (80) (971) (3,514) 331 5,709 4,534 (1,442) 13,196 (4,952) 3 2,939 — (3,456) (5,466) (892) — 80 399 (5,130) (5,543) 2,187 53,233 Cash and Cash Equivalents, End of Year $ 96,971 $ 66,620 $ 55,420 See notes to consolidated financial statements. 26 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT notes to consolidated ﬁnancial statements NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction ADVERTISING COSTS: Advertising costs are expensed as incurred. Advertising expenses for ﬁscal years 2013, 2012 and 2011 were markets. The Company's products are sold across the United $36.5 million, $37.4 million and $30.0 million, respectively. States through a network of independent dealers and distribu- tors and directly to home centers and major builders. CASH AND CASH EQUIVALENTS: Cash in excess of operating requirements is invested in money market accounts which are The following is a description of the Company’s signiﬁcant carried at cost (which approximates fair value). The Company accounting policies: PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION: The consolidated ﬁnancial statements include the accounts of the Company and its wholly-owned subsidiary. Signiﬁcant inter-company accounts and transac- tions have been eliminated in consolidation. REVENUE RECOGNITION: The Company recognizes revenue when product is delivered to the customer and title has passed. considers all highly liquid short-term investments with an origi- nal maturity of three months or less when purchased to be cash equivalents. Cash equivalents were $38.9 million and $31.8 mil- lion at April 30, 2013 and 2012, respectively. INVENTORIES: Inventories are stated at lower of cost or market. Inventory costs are determined by the last-in, ﬁrst-out (LIFO) method. The LIFO cost reserve is determined in the aggregate for inventory Revenue is based on invoice price less allowances for sales and is applied as a reduction to inventories determined on the returns, cash discounts and other deductions. ﬁrst-in, ﬁrst-out method (FIFO). FIFO inventory cost approximates COST OF SALES AND DISTRIBUTION: Cost of sales and distribution includes all costs associated with the manufacture and distribution of the Company’s products including the costs of shipping and handling. replacement cost. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the basis of cost less accumulated depreciation. Depreciation is provided by the straight-line method over the estimated useful lives of the related assets, which range from 15 to 30 years for buildings and improvements and 3 to 10 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 27 years for machinery and equipment. Assets under capital leases of plan assets and the beneﬁt obligation, in its consolidated bal- are amortized over the shorter of their estimated useful lives ance sheets. The Company also recognizes the actuarial gains or the term of the related lease. and losses and the prior service costs, credits and transition costs IMPAIRMENT OF LONG-LIVED ASSETS: The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset as a component of other comprehensive income (loss), net of tax. STOCK-BASED COMPENSATION: The Company recognizes stock-based compensation expense based on the grant date may not be recoverable. During ﬁscal years 2013, 2012 and fair value over the requisite service period. 2011, the Company concluded no impairment existed, except for impairments related to restructuring activities. RECENT ACCOUNTING PRONOUNCEMENTS: In February 2013, the Financial Accounting Standards Board (FASB) issued PROMOTIONAL DISPLAYS: The Company invests in promo- tional displays in retail stores to demonstrate product features, Accounting Standards Update (ASU) No. 2013-02, “Comprehen- sive Income (Topic 220): Reporting Amounts Reclassiﬁed Out product and quality speciﬁcations and serve as a training tool of Accumulated Other Comprehensive Income,” which requires for retail kitchen designers. The Company invests in these long- an entity to provide information about the amounts reclassiﬁed lived productive assets to provide the aforementioned beneﬁts. out of accumulated other comprehensive income by component. The Company's investment in promotional displays is carried In addition, an entity is required to present, either on the face at cost less applicable amortization. Amortization is provided of the statement where net income is presented or in the notes, by the straight-line method on an individual display basis over signiﬁcant amounts reclassiﬁed out of accumulated other com- periods of 30 to 36 months (the estimated period of beneﬁt). prehensive income by the respective line items of net income Promotional display amortization expense for ﬁscal years 2013, if the amount reclassiﬁed is required under U.S. GAAP to be 2012 and 2011 was $4.0 million, $5.6 million and $7.9 million, reclassiﬁed to net income in its entirety in the same reporting respectively, and is included in selling and marketing expenses. period. The ASU does not change the current requirements for INCOME TAXES: The Company accounts for deferred income taxes utilizing the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the tax effects of temporary differences between the ﬁnancial statement amounts and the tax basis of assets and liabilities, using enacted tax rates in effect for the year in which these items are expected reporting net income or other comprehensive income in ﬁnan- cial statements. The ASU is effective prospectively for ﬁscal years and interim periods within those years beginning after Decem- ber 15, 2012. The adoption of ASU 2013-02, is not expected to have a signiﬁcant impact on the Company’s results of operations or ﬁnancial position. to reverse. At each reporting date, the Company evaluates the In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive need for a valuation allowance to adjust deferred tax assets and Income (Topic 220): Presentation of Comprehensive Income,” liabilities to an amount that more likely than not will be realized. which requires an entity to present the total of comprehensive PENSIONS: The Company has two non-contributory deﬁned beneﬁt pension plans covering many of the Company’s employ- ees hired before April 30, 2012. Both deﬁned beneﬁt pension plans were frozen effective April 30, 2012. The Company recog- nizes the overfunded or underfunded status of its deﬁned beneﬁt pension plans, measured as the difference between the fair value income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. Additionally, ASU 2011-05, eliminates the option to present comprehensive income and its compo- nents as part of the statement of shareholders’ equity. The ASU does not change the items that must be reported in other comprehensive income. The Company adopted this guidance effective May 1, 2012 and now includes Statements of Compre- hensive Income (Loss) in its ﬁnancial statements. 28 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT In December 2011, the FASB issued ASU No. 2011-12, “Compre- hensive Income (Topic 220): Deferral of the Effective Date USE OF ESTIMATES: The preparation of consolidated ﬁnancial statements in conformity with U.S. generally accepted account- of Amendments to the Presentation of Reclassiﬁcations ing principles requires management to make estimates and of Items Out of Accumulated Other Comprehensive Income assumptions that affect the reported amounts of assets and in ASU No. 2011-05.” The amendments were made to allow liabilities and disclosure of contingent assets and liabilities FASB time to redeliberate whether to present on the face at the date of the consolidated ﬁnancial statements and the of the ﬁnancial statements the effects of reclassiﬁcations out reported amounts of revenues and expenses during each of accumulated other comprehensive income on the compo- reporting period. Actual results could differ from those estimates. nents of net income and other comprehensive income. NOTE B—CUSTOMER RECEIVABLES The components of customer receivables were: (in thousands) Gross customer receivables Less: Allowance for doubtful accounts Allowance for returns and discounts Net customer receivables NOTE C—INVENTORIES The components of inventories were: (in thousands) Raw materials Work-in-process Finished goods Total FIFO inventories Reserve to adjust inventories to LIFO value Total LIFO inventories APRIL 30 APRIL 30 2013 $ 41,397 (148) (2,205) $ 39,044 2013 $ 11,823 17,170 11,318 40,311 (10,973) $ 29,338 2012 $ 34,572 (93) (1,946) $ 32,533 2012 $ 9,412 14,543 8,734 32,689 (10,349) $ 22,340 There was no liquidation of LIFO based inventories in ﬁscal 2013 to impact net income. After tax losses were impacted by $125,000 and $34,000 in ﬁscal years 2012 and 2011, respectively, as a result of liquidation of LIFO based inventories. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 29 NOTE D—PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment were: (in thousands) Land Buildings and improvements Buildings and improvements—capital leases Machinery and equipment Machinery and equipment—capital leases Construction in progress Less accumulated amortization and depreciation Total $ 2013 5,929 65,245 11,202 177,393 26,966 1,494 288,229 (214,165) $ 74,064 APRIL 30 $ 2012 5,929 65,750 11,202 169,406 26,685 2,908 281,880 (206,505) $ 75,375 Amortization and depreciation expense on property, plant and equipment amounted to $9.2 million, $16.8 million and $18.1 million in ﬁscal years 2013, 2012 and 2011, respectively. Accumulated amortization on capital leases included in the above table amounted to $26.6 million as of both April 30, 2013 and 2012. NOTE E—LOANS PAYABLE AND LONG-TERM DEBT Maturities of long-term debt are as follows: FISCAL YEARS ENDING APRIL 30 (in thousands) 2014 2015 2016 2017 2018 2019 AND TOTAL THEREAFTER OUTSTANDING Revolving credit facility Economic development loans Term loans Capital lease obligations Total Less current maturities Total long-term debt $ — — 349 806 $1,155 $ — — 370 835 $1,205 $10,000 — 393 854 $ 11,247 $ — — 411 763 $ 1,174 $ — — 2,007 593 $2,600 $ — 3,480 — 3,888 $7,368 $10,000 3,480 3,530 7,739 $ 224,749 $ 1,155 $$ 223,594 The Company’s primary loan agreement is a $35 million secured An amendment to the revolving credit facility and modiﬁcations revolving credit facility which expires on December 31, 2015 to related security arrangements completed on March 18, 2013 with Wells Fargo Bank, N.A. (Wells Fargo). The Company incurs eliminated the requirement that 50% of the Company’s out- a fee for amounts not used under the revolving credit facility. standing indebtedness and other obligations to Wells Fargo be Fees paid by the Company related to non-usage of its current secured by cash and securities held in certain of the Company’s and former credit facilities have been included in interest accounts with Wells Fargo. The Company’s outstanding indebt- expense and were $61,000, $54,158 and $54,002 for ﬁscal edness and other obligations to Wells Fargo are secured by years 2013, 2012 and 2011, respectively. substantially all of the Company’s assets. The Company can borrow under the revolving credit facility up to the lesser of $35 million or the maximum borrowing base (which equals 75% of eligible accounts receivable, 50% of eligible pre bill 30 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT reserves and up to $20 million for equipment value, each as Company’s capital investment and operations at the Allegany deﬁned in the agreement) less any outstanding loan balance. County, Maryland site. These loan agreements were amended Any outstanding loan balance bears interest at the London in 2013 and 2008. The aggregate balance of these loan agree- Interbank Offered Rate (LIBOR) (0.25% at April 30, 2013) plus ments was $2,190,000 and $2,234,000 for ﬁscal years ended 2.625%. Under the terms of the revolving credit facility, the April 30, 2013 and 2012, respectively. The loan agreements expire Company must: (1) maintain at the end of each ﬁscal quarter at December 31,2018 and bear interest at a ﬁxed rate of 3% per a ratio of total liabilities to tangible net worth of not greater annum. These loan agreements are secured by mortgages on the than 1.4 to 1.0; (2) maintain at the end of each ﬁscal quarter manufacturing facility constructed in Allegany County, Maryland. a ratio of cash ﬂow to ﬁxed charges of not less than 1.25 to 1.0 These loan agreements defer principal and interest during measured on a rolling four-quarter basis; (3) maintain at least the term of the obligation and forgive any outstanding balance $1.00 in net income for the ﬁscal quarter ending April 30, 2013 at December 31, 2018, if the Company complies with certain and at least $1.00 in net income on a rolling four-quarter basis employment levels at the facility. for the ﬁscal quarter ending July 31, 2013; and comply with other customary afﬁrmative and negative covenants. In 2002, the Company entered into a loan agreement with the Perry, Harlan, Leslie, Breathitt Regional Industrial Authority The Company was in compliance with all covenants speciﬁed (a.k.a. Coalﬁelds Regional Industrial Authority, Inc.) as part of in the amended revolving credit facility as of April 30, 2013, the Company’s capital investment and operations at the Hazard, as follows: (1) the Company’s ratio of total liabilities to tangible Kentucky site. This debt facility is a $6 million term loan, which net worth at April 30, 2013 was 1.0 to 1.0; (2) cash ﬂow to ﬁxed expires November 13,2017, bearing interest at a ﬁxed rate of charges for its most recent four quarters was 2.72 to 1.0; and 2% per annum. It is secured by a mortgage on the manufactur- (3) its net income for the ﬁscal quarter ended April 30, 2013 ing facility constructed in Hazard, Kentucky. The loan requires was $5.2 million. The revolving credit facility does not limit the Company’s ability to pay dividends or repurchase its common stock as long as the Company is in compliance with these covenants. In 2009, the Company entered into a loan agreement with the Board of County Commissioners of Garrett County as part of the Company’s capital investment in land located in Garrett County, Maryland. This loan agreement is secured by a Deed of Trust on the property and bears interest at a ﬁxed rate of 3%. The agreement defers principal and interest during the term of the obligation and forgives any outstanding balance at December 31, 2019, if the Company complies annual debt service payments consisting of principal and inter- est with a ﬁxed balloon payment of $1.6 million at loan expira- tion. The outstanding amounts owed as of April 30, 2013 and 2012 were $3,530,000 and $3,858,000, respectively. In 2013 and 2012, the Company entered into a total of six capitalized lease agreements in the aggregate amount of $639,000 with First American Financial Bancorp related to ﬁnancing computer equipment. Each lease has a term of 48 months and an interest rate of 6.5%. The leases require quarterly rental payments. The aggregate outstanding amount under all of these leases as of April 30, 2013 and 2012 was $545,000 and $95,000, respectively. with certain employment levels. The outstanding balance During 2013, the Company entered into ﬁve capitalized lease as of April 30, 2013 and 2012 was $1,290,000. agreements in the aggregate amount of $568,000 with e-Plus In 2005, the Company entered into two separate loan agree- ments with the Maryland Economic Development Corporation and the County Commissioners of Allegany County as part of the Group related to ﬁnancing computer equipment. Each lease has a term of 51 months and an interest rate of 6.5%. The leases require monthly rental payments. The aggregate out- standing amount under all of these leases as of April 30, 2013 was $529,000. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 31 In 2004, the Company entered into a lease agreement with Certain of the Company’s loan agreements limit the amount and the West Virginia Economic Development Authority as part type of indebtedness the Company can incur and require the of the Company’s capital investment and operations at the Company to maintain speciﬁed ﬁnancial ratios measured on South Branch plant located in Hardy County, West Virginia. a quarterly basis. In addition to the assets previously discussed, This capital lease agreement is a $10 million term obligation, certain of the Company’s property, plant and equipment are pledged which expires June 30, 2024, bearing interest at a ﬁxed rate as collateral under term loan agreements and capital lease of 2% per annum. The lease requires monthly rental payments. arrangements. The Company was in compliance with all covenants The outstanding amounts owed as of April 30, 2013 and 2012 contained in its loan agreements and capital leases at April30,2013. were $6,665,000 and $7,188,000, respectively. Interest paid under the Company’s loan agreements and capital leases during ﬁscal years 2013, 2012 and 2011 was $576,000, $453,000 and $467,000, respectively. NOTE F—EARNINGS (LOSS) PER SHARE The following table summarizes the computations of basic and diluted earnings (loss) per share: (in thousands, except per share amounts) Numerator used in basic and diluted earnings (loss) per common share: Net income (loss) Denominator: Denominator for basic earnings (loss) per common share— weighted-average shares Effect of dilutive securities: Stock options and restricted stock units Denominator for diluted earnings (loss) per common share— weighted-average shares and assumed conversions Net earnings (loss) per share Basic Diluted 2013 $ 9,758 14,563 270 14,833 $ 0.67 $ 0.66 FISCAL YEARS ENDED APRIL 30 2012 2011 $(20,786) $(20,018) 14,344 — 14,344 14,252 — 14,252 $ $ (1.45) (1.45) $ $ (1.40) (1.40) Potentially dilutive shares of 1.0 million, 1.8 million and 1.7 million issuable under the Company’s stock incentive plans have been excluded from the calculation of net earnings (loss) per share for the ﬁscal years ended April 30, 2013, 2012 and 2011, respectively, as the effect would be anti-dilutive. 32 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT NOTE G—STOCK-BASED COMPENSATION The Company has two types of stock-based compensation stock option awards is expensed on a straight-line basis over awards in effect for its employees and directors. The Company the vesting period of the stock options. The expected volatility has issued stock options since 1986 and restricted stock units assumption is based on the historical volatility of the Company’s (RSUs) since ﬁscal 2010. Total compensation expense related stock over a term equal to the expected term of the option to stock-based awards for the ﬁscal years ended April 30, 2013, granted. The expected term of stock option awards granted 2012 and 2011 was $3.5 million, $3.4 million and $4.0 million, is derived from the Company’s historical exercise experience respectively. The Company recognizes stock-based compensa- and represents the period of time that stock option awards tion costs net of an estimated forfeiture rate for those shares granted are expected to be outstanding for each of the three expected to vest on a straight-line basis over the requisite identiﬁed groups. The expected term assumption incorporates service period of the award. The Company estimates the forfei- the contractual term of an option grant, which is generally ten ture rates based upon its historical experience. years for employees and from four to ten years for non-employee STOCK INCENTIVE PLANS At April 30, 2013, the Company had stock option and RSU awards directors, as well as the vesting period of an award, which is typically three years. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a outstanding under four different plans: (1) 1999 stock option remaining term equal to the expected term of the option granted. plan for employees; (2) amended and restated 2004 stock incen- tive plan for employees; (3) 2006 non-employee directors equity ownership plan; and (4) 2011 non-employee directors equity ownership plan. As of April 30, 2013, there were 1,133,999 shares of common stock available for future stock-based compensation awards under the Company’s stock incentive plans. METHODOLOGY ASSUMPTIONS For purposes of valuing stock option grants, the Company has identiﬁed two employee groups and one non-employee director group, based upon observed option exercise patterns. The Com- pany uses the Black-Scholes option-pricing model to value the Company’s stock options for each of the three groups. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s For purposes of determining the fair value of RSUs, the Company uses the closing stock price of its common stock as reported on the NASDAQ Global Select Market on the date of grant, reduced by the discounted value of future expected dividend payments during the vesting period, since the recipients are not entitled to dividends during the vesting period. The fair value of the Company’s RSU awards is expensed on a straight-line basis over the vesting period of the RSUs to the extent the Company believes it is probable the related performance criteria, if any, will be met. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the vesting period of the RSU grant. The weighted-average assumptions and valuation of the Company’s stock options were as follows: Weighted-average fair value of grants Expected volatility Expected term in years Risk-free interest rate Expected dividend yield 2013 $ 7.39 42.5% 6.1 1.09% 0.0% FISCAL YEARS ENDED APRIL 30 2012 $ 5.43 35.1% 6.0 2.24% 2.0% 2011 $ 8.87 49.1% 6.2 2.64% 1.7% AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 33 STOCK OPTION ACTIVITY Stock options granted and outstanding under each of the Company’s plans vest evenly over a three-year period and have contractual terms of ten years. The exercise price of all stock options granted is equal to the fair market value of the Company’s common stock on the option grant date. The following table presents a summary of the Company’s stock option activity for the ﬁscal years ended April 30, 2013, 2012 and 2011 (remaining contractual term in years and exercise prices are weighted-averages): Outstanding at April 30, 2010 Granted Exercised Cancelled or expired Outstanding at April 30, 2011 Granted Exercised Cancelled or expired Outstanding at April 30, 2012 Granted Exercised Cancelled or expired Outstanding at April 30, 2013 NUMBER OF OPTIONS 2,105,515 115,000 (27,000) (588,159) 1,605,356 130,000 (1,200) (109,396) 1,624,760 125,000 (251,799) (96,148) 1,401,813 Vested and expected to vest in the future at April 30, 2013 Exercisable at April 30, 2013 1,375,039 1,156,809 REMAINING CONTRACTUAL TERM WEIGHTED AVERAGE EXERCISE PRICE AGGREGATE INTRINSIC VALUE (in thousands) 5.6 9.1 — — 5.7 9.1 — — 5.1 9.1 — — 4.8 4.7 4.0 $29.03 20.87 14.80 29.58 $28.48 18.16 14.93 28.82 $27.64 17.62 23.35 31.03 $27.27 $27.43 $29.17 $ 295 — 216 — $ 29 — 6 — $ — — 1,868 — $9,272 $8,871 $5,509 The aggregate intrinsic value in the previous table of the As of April 30, 2013, there was $0.9 million of total unrecog- outstanding options on April 30, 2013 represents the total nized compensation expense related to unvested stock options pre-tax intrinsic value (the excess, if any, of the Company’s granted under the Company’s stock-based compensation plans. closing stock price on the last trading day of ﬁscal 2013 over This expense is expected to be recognized over a weighted- the exercise price, multiplied by the number of in-the-money average period of 1.8 years. options) of the shares of the Company’s common stock that would have been received by the option holders had all option holders exercised their options on April 30, 2013. This amount changes based upon the fair market value of the Company’s common stock. The total fair value of options vested for the ﬁscal years ended April 30, 2013, 2012 and 2011 was $1.2 mil- lion, $2.4 million and $3.3 million, respectively. Cash received from option exercises for the ﬁscal years ended April 30, 2013, 2012 and 2011, was an aggregate of $5.9 mil- lion, $0.0 million and $0.4 million, respectively. The actual tax beneﬁt realized for the tax deduction from option exercises of stock option awards totaled $729,000, $3,000 and $84,000 for the ﬁscal years ended April 30, 2013, 2012 and 2011, respectively. 34 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT The following table summarizes information about stock options outstanding at April 30, 2013 (remaining lives in years and exercise prices are weighted-averages): OPTION PRICE PER SHARE $17.62–$18.16 $20.87–$26.85 $28.97–$34.63 $38.37–$42.17 OPTIONS 223,334 497,467 658,400 22,612 1,401,813 OPTIONS OUTSTANDING REMAINING LIFE EXERCISE PRICE OPTIONS EXERCISABLE OPTIONS EXERCISE PRICE 8.7 5.0 3.4 1.5 $17.86 24.05 32.39 41.73 14,998 460,799 658,400 22,612 1,156,809 $ 18.16 24.30 32.39 41.73 RESTRICTED STOCK UNIT ACTIVITY: The Company’s RSUs granted to employees cliff-vest over and 2011. The PBRSUs granted in ﬁscal 2013 are earned based on achievement of a number of goals pertaining to a three-year period from date of grant, while RSUs granted the Company’s operational and ﬁnancial performance during to non-employee directors vest daily over a two-year period the performance period of ﬁscal 2013. Employees who satisfy from date of grant. Directors were granted service-based RSUs the vesting criteria will receive a proportional amount of only, while employees were awarded both service-based and PBRSUs based upon the Compensation Committee’s assessment performance-based RSUs (PBRSUs) in ﬁscal years 2013, 2012 of the Company’s achievement of the performance criteria. The following table contains a summary of the Company’s RSU activity for the ﬁscal years ended April 30, 2013, 2012 and 2011: PERFORMANCE-BASED RSUs SERVICE-BASED RSUs Issued and outstanding, April 30, 2010 Granted Cancelled due to non-achievement of performance goals Settled in common stock Forfeited Issued and outstanding, April 30, 2011 Granted Cancelled due to non-achievement of performance goals Settled in common stock Forfeited Issued and outstanding, April 30, 2012 Granted Cancelled due to non-achievement of performance goals Settled in common stock Forfeited Issued and outstanding, April 30, 2013 117,900 125,475 (63,145) (364) (5,296) 174,570 134,250 (48,870) (666) (22,208) 237,076 129,075 (24,311) (49,546) (13,189) 279,105 60,500 61,825 — (260) (2,965) 119,100 64,750 — (17,951) (10,171) 155,728 63,025 — (58,328) (5,425) 155,000 TOTAL RSUs 178,400 187,300 (63,145) (624) (8,261) 293,670 199,000 (48,870) (18,617) (32,379) 392,804 192,100 (24,311) (107,874) (18,614) 434,105 WEIGHTED AVERAGE GRANT DATE FAIR VALUE $ 21.99 $ 19.25 $ 22.10 $ 22.10 $ 21.96 $20.25 $ 17.00 $ 19.81 $ 21.15 $ 19.30 $ 18.75 $ 17.76 $ 17.09 $20.66 $ 17.91 $ 17.96 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 35 As of April 30, 2013, there was $2.7 million of total unrecognized compensation expense related to unvested RSUs granted under the Company’s stock-based compensation plans. This expense is expected to be recognized over a weighted-average period of 1.7 years. For the ﬁscal years ended April 30, 2013, 2012 and 2011 stock-based compensation expense was allocated as follows: (in thousands) Cost of sales and distribution Selling and marketing expenses General and administrative expenses Stock-based compensation expense, before income taxes 2013 $ 606 859 2,044 $ 3,509 2012 $ 531 715 2,167 $ 3,413 2011 $ 735 842 2,418 $ 3,995 NOTE H—EMPLOYEE BENEFIT AND RETIREMENT PLANS EMPLOYEE STOCK OWNERSHIP PLAN In ﬁscal 1990, the Company instituted the American Woodmark stock to 100% of an employee’s annual contribution to the plan up to 4% of base earnings. The expense for 401(k) matching Investment Savings Stock Ownership Plan. Under this plan, contributions for this plan was $2,547,000, $1,284,000 and all employees who are at least 18 years old and have been $1,272,000, in ﬁscal years 2013, 2012 and 2011, respectively. employed by the Company for at least six consecutive months are eligible to receive Company stock through a discretionary proﬁt-sharing contribution and a 401(k) matching contribution based upon the employee's contribution to the plan. Beginning in ﬁscal 2013, discretionary proﬁt-sharing contribu- tions in the form of Company stock may be made annually. Prior to ﬁscal 2013, proﬁt-sharing contributions in the form of Company stock were 3% of after-tax earnings, calculated on a quarterly basis. The Company recognized expenses PENSION BENEFITS The Company has two deﬁned beneﬁt pension plans covering many of the Company’s employees hired prior to April 30, 2012. These plans provide deﬁned beneﬁts based on years of service and ﬁnal average earnings (for salaried employees) or beneﬁt rate (for hourly employees). Effective April 30, 2012, the Company froze all future beneﬁt accruals under the Company’s hourly and salary deﬁned bene- for proﬁt-sharing contributions of $293,000 in ﬁscal 2013. ﬁt pension plans. The Company did not make, or recognize any expenses for, discretionary proﬁt-sharing contributions in ﬁscal years 2012 and 2011. Prior to ﬁscal 2013, the Company matched 401(k) contribu- tions in the form of Company stock at 50% of an employee’s annual contribution to the plan up to 4% of base earnings for an effective maximum Company contribution of 2% of base earnings. Beginning in ﬁscal 2013, as part of the realignment of its retirement plans, the Company increased the match on 401(k) contributions in the form of Company Included in accumulated other comprehensive loss at April 30, 2013 is $52.7 million ($32.1 million net of tax) related to net unrecognized actuarial losses and unrecognized prior service costs that have not yet been recognized in net periodic pension beneﬁt costs. The Company expects to recognize $1.1 million ($0.7 million net of tax) in net actuarial losses in net periodic pension beneﬁt costs during ﬁscal 2014. The Company uses an April 30 measurement date for its beneﬁt plans. 36 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT The following provides a reconciliation of beneﬁt obligations, plan assets and funded status of the Company’s non-contributory deﬁned beneﬁt pension plans as of April 30: (in thousands) CHANGE IN PROJECTED BENEFIT OBLIGATION Projected beneﬁt obligation at beginning of year Service cost Interest cost Actuarial losses Beneﬁts paid Curtailments Projected beneﬁt obligation at end of year CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year Actual return on plan assets Company contributions Beneﬁts paid Fair value of plan assets at end of year Funded status of the plans Unamortized prior service cost Unrecognized net actuarial loss Accrued beneﬁt cost AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS Deﬁned beneﬁt pension liabilities Accumulated other comprehensive loss Net amount recognized PENSION BENEFITS 2013 2012 $136,264 — 6,261 10,801 (3,897) — $149,429 $ 85,717 8,993 4,920 (3,897) $ 95,733 $ (53,696) — 52,703 $ (993) $ (53,696) 52,703 $ (993) $120,059 5,305 6,533 26,318 (3,293) (18,658) $136,264 $ 83,334 2,805 2,871 (3,293) $ 85,717 $ (50,547) — 45,255 $ (5,292) $ (50,547) 45,255 $ (5,292) The accumulated beneﬁt obligation for both pension plans was $149,429,000 and $136,264,000 at April 30, 2013 and 2012, respectively. (in thousands) 2013 PENSION BENEFITS 2012 COMPONENTS OF NET PERIODIC PENSION BENEFIT COST Service cost Interest cost Expected return on plan assets Amortization of prior service cost Curtailment loss Recognized net actuarial loss Pension beneﬁt cost $ — 6,261 (6,563) — — 923 $ 621 $ 5,305 6,533 (6,533) 53 331 1,710 $ 7,399 2011 $ 4,717 6,268 (6,159) 85 — 1,996 $ 6,907 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 37 ACTUARIAL ASSUMPTIONS: The discount rate at April 30 was used to measure the year-end beneﬁt obligations and the earnings effects for the subsequent year. Actuarial assumptions used to determine beneﬁt obligations and earnings effects for the pension plans follow: WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE BENEFIT OBLIGATIONS Discount rate WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE NET PERIODIC PENSION BENEFIT COST Discount rate Expected return on plan assets Rate of compensation increase FISCAL YEARS ENDED APRIL 30 2012 2013 4.21% 2013 4.66% 7.5% * 4.66% FISCAL YEARS ENDED APRIL 30 2012 2011 5.66%/4.76%1 8.0% 4.0% 5.91% 8.0% 4.0% 1 The discount rate was 5.66% from May 1, 2011 to December 31, 2011 and 4.76% from January 1, 2012 to April 30, 2012. The rate changed during fiscal 2012 as a result of the required re-measurement of the Company’s pension liability upon its decision to freeze its pension plans. * The rate of compensation increase is not applicable for periods beyond April 30, 2012 because the Company froze its pension plans effective as of that date. In ﬁscal 2013 and 2012, the Company determined the discount rate by referencing the Aon Hewitt AA Bond Universe Yield CONTRIBUTIONS: The Company funds the pension plans in amounts sufﬁcient to meet minimum funding requirements set Curve. In ﬁscal 2011, the Company referred to the Hewitt forth in employee beneﬁt and tax laws plus additional amounts Above Median Yield Curve in establishing the discount rate. the Company deems appropriate. This change was caused by the merger of Aon and Hewitt and the corresponding elimination of the Hewitt Above Median Yield Curve. The Company believes that using a yield curve approach accurately reﬂects changes in the present value of liabilities over time since each cash ﬂow is discounted at the rate at which it could effectively be settled. In developing the expected long-term rate of return assumption for the assets of the deﬁned beneﬁt pension plans, the Company evaluated input from its third party pension plan asset managers, including their review of asset class return expectations and long- term inﬂation assumptions. The Company also considered the related historical ten-year average asset returns at April 30, 2013. The Company amortizes experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over the average remaining lifetime of the active participants. The Company expects to contribute $2.3 million to its pension plans in ﬁscal 2014. The Company made contributions of $4.9 million and $2.9 million to its pension plans in ﬁscal 2013 and 2012, respectively. ESTIMATED FUTURE BENEFIT PAYMENTS: The following beneﬁt payments, which reﬂect expected future service, are expected to be paid: FISCAL YEAR 2014 2015 2016 2017 2018 Years 2019–2023 BENEFIT PAYMENTS (in thousands) $ 4,247 4,698 5,156 5,511 5,888 35,710 38 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT PLAN ASSETS: Pension assets by major category and the type of fair value measurement as of April 30, 2013 and 2012 are presented in the following tables: (in thousands) Cash Equivalents Equity Collective Funds:1 Equity Index Value Fund Equity Index Growth Fund Small Cap Index Fund International Equity Fund Fixed Income Collective Funds:1 Core Fixed Income Fund Capital Preservation Fund Total (in thousands) Cash Equivalents Equity Collective Funds:1 Equity Index Value Fund Equity Index Growth Fund Small Cap Index Fund International Equity Fund Fixed Income Collective Funds:1 Core Fixed Income Fund Capital Preservation Fund Total FAIR VALUE MEASUREMENTS AT APRIL 30, 2013 QUOTED SIGNIFICANT PRICES IN ACTIVE OBSERVABLE MARKETS (LEVEL 1) $ 315 — — — — — — $315 INPUTS (LEVEL 2) $ — 19,202 19,245 5,632 3,932 17,407 30,000 $ 95,418 SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) $ — — — — — — — $ — FAIR VALUE MEASUREMENTS AT APRIL 30, 2012 QUOTED SIGNIFICANT PRICES IN ACTIVE OBSERVABLE MARKETS (LEVEL 1) $ 273 — — — — — — $273 INPUTS (LEVEL 2) $ — 16,850 17,094 5,002 3,315 25,824 17,359 $85,444 SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) $ — — — — — — — $ — TOTAL $ 315 19,202 19,245 5,632 3,932 17,407 30,000 $95,733 TOTAL $ 273 16,850 17,094 5,002 3,315 25,824 17,359 $85,717 1 The Collective Trust Funds are valued by applying each plan’s ownership percentage in the fund to the fund’s net assets at fair value at the valuation date. INVESTMENT STRATEGY: The Company has established formal investment policies for the assets associated with its pension plans. The objectives of the investment strategies include preservation of capital and long-term growth of capital while avoiding excessive risk. Target allocation percentages are estab- lished at an asset class level by the Company’s Pension Commit- tee. Target allocation ranges are guidelines, not limitations, and occasionally the Pension Committee will approve allocations above or below a target range. During a period of uncertainty in the equity and ﬁxed income markets, the Pension Committee may suspend the Target Asset Allocation and manage the investment mix as it sees reasonable, prudent and in the best interest of the plans to better protect the value of the plan assets. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 39 The Company’s pension plans’ weighted-average asset allocations Within the broad categories outlined in the preceding table, at April 30, 2013 and 2012, by asset category, were as follows: the Company has targeted the following speciﬁc allocations APRIL 30 Equity Funds Fixed Income Funds Total PLAN ASSET ALLOCATION 2013 ACTUAL 2013 TARGET 2012 ACTUAL 50.0% 50.0% 50.2% 49.8% 100.0% 100.0% 49.5% 50.5% 100.0% NOTE I—INCOME TAXES Income tax expense was comprised of the following: (in thousands) CURRENT EXPENSE (BENEFIT) Federal State Total current expense (beneﬁt) DEFERRED EXPENSE (BENEFIT) Federal State Total deferred expense (beneﬁt) Total expense (beneﬁt) Other comprehensive loss Total comprehensive income tax expense (beneﬁt) as a percentage of total funds invested: 19% Capital Preserva- tion, 31% Bond, 20% Large Capital Growth, 20% Large Capital Value, 6% Small Capital and 4% International. 2013 FISCAL YEARS ENDED APRIL 30 2012 2011 $ 1,031 162 1,193 4,859 930 5,789 6,982 (2,905) $ 4,077 $ (36) (176) (212) (10,115) (2,175) (12,290) (12,502) (3,624) $(16,126) The Company’s effective income tax rate varied from the federal statutory rate as follows: Federal statutory rate Effect of: Tax basis adjustment Meals and entertainment Other Total Effective federal income tax rate State income taxes, net of federal tax effect Effective income tax rate 2013 35.0% 0.0% 1.5 1.1 2.6% 37.6% 4.1 41.7% FISCAL YEARS ENDED APRIL 30 2012 35.0% (1.7)% (0.8) 0.0 (2.5)% 32.5% 5.1 37.6% Income taxes paid were $1,219,000, $229,000 and $235,000 for ﬁscal years 2013, 2012 and 2011, respectively. 40 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT $ (2,368) 611 (1,757) (6,065) (2,120) (8,185) (9,942) (294) $(10,236) 2011 35.0% (3.3)% (0.8) (0.8) (4.9)% 30.1% 3.1 33.2% The signiﬁcant components of deferred tax assets and liabilities were as follows: (in thousands) Deferred tax assets: Pension beneﬁts Accounts receivable Product liability Employee beneﬁts Net operating loss carryforward Income tax credits Depreciation Other Total Deferred tax liabilities: Inventory Net deferred tax asset APRIL 30 2013 2012 $20,563 3,983 700 11,243 1,099 1,088 73 496 39,245 502 $38,743 $ 18,238 3,103 735 10,878 6,686 747 896 772 42,055 — $42,055 The net operating loss carryforward value for April 30, 2013 contained in the above table includes amounts pertaining to various state net operating loss carryforwards with various expiration dates. Management believes it is more likely than not that the Company will realize its gross deferred tax assets due to expected future taxable income and the reversal of taxable temporary differences. NOTE J—ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES The Company accounts for its income tax uncertainties in accordance with ASC Topic 740, “Income Taxes.” The Company had no liability relating to uncertain tax positions for the years ended April 30, 2013 and 2012. result in a loss. As required by ASC Topic 450, “Contingencies” (ASC 450), the Company categorizes the various suits and claims into three categories according to their likelihood for resulting in potential loss: those that are probable, those that are reasonably possible and those that are deemed to be remote. Where losses are deemed to be probable and estimable, accruals are made. Where losses are deemed to With minor exceptions, the Company is currently open to audit be reasonably possible or remote, a range of loss estimates by tax authorities for tax years ending April 30, 2010 through is determined and considered for disclosure. Where no loss April 30, 2013. The Company is currently not under federal audit. estimate range can be made, the Company and its counsel NOTE K—COMMITMENTS AND CONTINGENCIES LEGAL MATTERS The Company is involved in suits and claims in the normal perform a worst-case estimate. In determining these loss range estimates, the Company considers known values of similar claims and consultation with independent counsel. The Company believes that the aggregate range of loss stemming from the various suits and asserted and unasserted claims which course of business, including without limitation product liability were deemed to be either probable or reasonably possible was and general liability claims, and claims pending before not material as of April 30, 2013. the Equal Employment Opportunity Commission. On at least a quarterly basis, the Company consults with its legal counsel to ascertain the reasonable likelihood that such claims may PRODUCT WARRANTY The Company estimates outstanding warranty costs based AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 41 on the historical relationship between warranty claims and is owned by the partnership. The Company has subsequently revenues. The warranty accrual is reviewed monthly to verify renewed this lease in accordance with Company policy and that it properly reﬂects the remaining obligation based on procedures which includes approval by the Board of Directors. the anticipated expenditures over the balance of the obligation As of April 30, 2013, the Company is in the third year of the period. Adjustments are made when actual warranty claim latest ﬁve-year renewal period, which expires in 2016. Under experience differs from estimates. Warranty claims are gener- this agreement, rental expense was $461,000, $460,000 ally made within two months of the original shipment date. and $460,000, in ﬁscal years 2013, 2012 and 2011, respectively. The following is a reconciliation of the Company’s warranty liability: Rent during the remaining term of approximately $1,397,000 (included in the preceding table) is subject to annual increases (in thousands) 2013 2012 of 2% through the remaining term of the lease. PRODUCT WARRANTY RESERVE Beginning balance Accrual for warranties Settlements Ending balance at ﬁscal year end $ 1,885 9,839 (9,929) $ 1,795 $ 1,738 8,605 (8,458) $ 1,885 LEASE AGREEMENTS The Company leases certain ofﬁce buildings, manufacturing buildings, service centers and equipment. Total rental expenses under operating leases amounted to approximately $7,378,000, $7,206,000 and $7,518,000, in ﬁscal years 2013, 2012 and 2011, respectively. Minimum rental commitments as of April 30, 2013, under noncancelable leases with terms in excess of one year are as follows: NOTE L—CREDIT CONCENTRATION Credit is extended to customers based on an evaluation of each customer’s ﬁnancial condition and generally collateral is not required. The Company’s customers operate in the new home construction and home remodeling markets. The Company maintains an allowance for bad debt based upon management’s evaluation and judgment of potential net loss. The allowance is estimated based upon historical experience, the effects of current developments and economic conditions and of each customer’s current and anticipated ﬁnancial con- dition. Estimates and assumptions are periodically reviewed and updated. Any resulting adjustments to the allowance are FISCAL YEAR 2014 2015 2016 2017 2018 2019 (and thereafter) Less amounts representing interest (2%) Total obligations under capital leases OPERATING (in thousands) CAPITAL (in thousands) reﬂected in current operating results. $ 3,411 3,102 2,768 1,336 217 92 $10,926 $ 997 997 986 866 678 4,140 $ 8,664 (925) $ 7,739 At April 30, 2013, the Company’s two largest customers, Customers A and B, represented 21.1% and 21.1% of the Company’s gross customer receivables, respectively. At April 30, 2012, Customers A and B represented 26.5% and 30.7% of the Company’s gross customer receivables, respectively. The following table summarizes the percentage of sales to the Company’s two largest customers for the last three ﬁscal years: PERCENT OF ANNUAL GROSS SALES 2012 2011 2013 Customer A Customer B 35.7 22.8 41.5 26.0 38.7 34.2 RELATED PARTIES During ﬁscal 1985, prior to becoming a publicly held corpora- tion, the Company entered into an agreement with a partnership which includes certain former executive ofﬁcers and current signiﬁcant shareholders of the Company, including one current member of the Board of Directors of the Company, to lease the Company’s headquarters building which was constructed and 42 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT NOTE M—FAIR VALUE MEASUREMENTS The Company utilizes the hierarchy of fair value measurements to classify certain of its assets and liabilities based upon the LEVEL 2—Investments with observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; following deﬁnitions: LEVEL 1— Investments with quoted prices in active markets for identical assets or liabilities. The Company’s cash equivalents are invested in money market funds, mutual funds and United States quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company has no Level 2 assets or liabilities. Treasury instruments. The Company’s mutual fund investment assets represent contributions made and invested on behalf LEVEL 3—Investments with unobservable inputs that are supported by little or no market activity and that are signiﬁcant of the Company’s named executive ofﬁcers in a supplementary to the fair value of the assets or liabilities. The Company has employee retirement plan. no Level 3 assets or liabilities. The following table summarizes the fair value of assets that are recorded in the Company’s consolidated ﬁnancial statements as of April 30, 2013 and 2012 at fair value on a recurring basis: (in thousands) ASSETS: Money market funds Mutual funds Total assets at fair value (in thousands) ASSETS: Money market funds Mutual funds Total assets at fair value FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2013 LEVEL 2 LEVEL 3 LEVEL 1 $ 38,875 1,311 $ 40,186 $ — — $ — $ — — $ — FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2012 LEVEL 2 LEVEL 3 LEVEL 1 $ 38,874 1,357 $ 40,231 $ — — $ — $ — — $ — The fair value measurement of assets held by the Company’s deﬁned beneﬁt pension plans is discussed in Note H. NOTE N—RESTRUCTURING CHARGES In the third quarter of ﬁscal 2012, the continuing impact of the housing economy’s lengthy downturn caused the Company to announce a restructuring initiative (“2012 Restructuring Plan”) that committed to the closing of two of the Company’s manufacturing plants located in Hardy County, West Virginia and Hazard, Kentucky, offering its previously idled plant in Tahlequah, Oklahoma for sale, and realigning its retirement program, including freezing the Company’s deﬁned beneﬁt pension plans. Operations ceased at the Hazard plant in April 2012 and at the Hardy County plant in May 2012. The 2012 Restructuring Plan was adopted to reduce costs and increase the Company’s capacity utilization rates. During ﬁscal 2012, the Company recognized pre-tax restructuring charges of $15.9 million related to the 2012 Restructuring Plan. During ﬁscal 2013, the Company recognized pre-tax restructuring charges of $1.4 million related to the 2012 Restructuring Plan, including severance and separation costs of $0.2 million, building impairment charges of $0.3 million, facilities-related expenses of $0.7 million and professional fees of $0.2 million. AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 43 A reserve for restructuring charges in the amount of $13 thousand During ﬁscal years 2013, 2012 and 2011, the Company is included in the Company’s consolidated balance sheet as recognized total pre-tax restructuring charges for both the of April 30, 2013 which relates to employee termination costs 2012 Restructuring Plan and the 2009 Restructuring Plan accrued but not yet paid. Below is the summary of the restruc- of $1.4 million, $16.3 million and $62,000, respectively. The turing reserve balance as of April 30, 2013: Company recognized recurring operating costs for the facilities (in thousands) 2012 RESTRUCTURING PLAN Restructuring reserve balance as of April 30, 2012 Additions Payments Reserve balance as of April 30, 2013 $ 2,817 196 (3,000) $ 13 In the fourth quarter of ﬁscal 2009, the Company announced a restructuring plan (“2009 Restructuring Plan”) to close two of its manufacturing plants, located in Berryville, Virginia and Mooreﬁeld, West Virginia and suspend operations in a third manufacturing plant located in Tahlequah, Oklahoma. These actions were completed during the ﬁrst quarter of ﬁscal 2010. These initiatives were intended to increase the Company’s capacity utilization rates and decrease overhead costs. In addition to these initiatives, the Company made other stafﬁng reductions during the fourth quarter of ﬁscal 2009. closed as part of the 2012 Restructuring Plan of $0.9 million in ﬁscal 2013. The Company will continue to incur costs related to its closed and unsold plants until they are sold. The Company has a total of two manufacturing plants classiﬁed as held for sale, which were closed in the 2012 Restructuring Plan. During the second quarter of ﬁscal 2013, the Company sold its closed plant located in Tahlequah, Oklahoma and recognized a gain of $0.3 million on the sale. The gain was included in restructuring charges on the Company’s statements of operations. During ﬁscal 2013, the Company recorded impairment charges of $0.3 million relating to one of the plants that is included as held for sale. The Company believes that the remaining $2.7 million net book value of the properties classiﬁed as held for sale is fully recoverable. These assets are included in Other Assets on the Company’s balance sheet at April 30, 2013. NOTE O—QUARTERLY FINANCIAL DATA (UNAUDITED) FISCAL 2013 (in thousands, except per share amounts) Net sales Gross proﬁt Income before income taxes Net income Earnings per share Basic Diluted FISCAL 2012 (in thousands, except per share amounts) Net sales Gross proﬁt Loss before income taxes Net loss Loss per share Basic Diluted 7/31/12 10/31/12 1/31/13 4/30/13 $148,252 22,043 1,015 561 $ $ 0.04 0.04 $159,760 24,794 3,371 1,950 $ $ 0.13 0.13 $ 151,346 23,507 3,476 2,057 $ $ 0.14 0.14 $171,079 32,312 8,878 5,190 $ $ 0.36 0.35 7/31/11 10/31/11 1/31/12 4/30/12 $ 131,199 18,407 (3,908) (2,716) $ $ (0.19) (0.19) $ 128,418 16,114 (4,523) (2,976) $ $ (0.21) (0.21) $ 119,976 14,588 (15,653) (9,114) $ $ (0.63) (0.63) $ 136,221 17,366 (9,204) (5,980) $ $ (0.42) (0.42) 44 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT report of independent registered public accounting ﬁrm THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AMERICAN WOODMARK CORPORATION: We have audited the accompanying consolidated balance sheets In our opinion, the consolidated ﬁnancial statements referred of American Woodmark Corporation and subsidiary (the Com- to above present fairly, in all material respects the ﬁnancial pany), as of April 30, 2013 and 2012, and the related consoli- position of American Woodmark Corporation and subsidiary dated statements of operations, comprehensive income (loss), as of April 30, 2013 and 2012, and the results of their operations shareholders’ equity, and cash ﬂows for each of the years in and their cash ﬂows for each of the years in the three year the three year period ended April 30, 2013. These consolidated period ended April 30, 2013, in conformity with U.S. generally ﬁnancial statements are the responsibility of the Company’s accepted accounting principles. management. Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audits. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), We conducted our audits in accordance with the standards of the Company’s internal control over ﬁnancial reporting as of the Public Company Accounting Oversight Board (United States). April 30, 2013, based on criteria established in Internal Control— Those standards require that we plan and perform the audit Integrated Framework issued by the Committee of Sponsoring to obtain reasonable assurance about whether the ﬁnancial Organizations of the Treadway Commission (COSO), and our statements are free of material misstatement. An audit includes report dated June 28, 2013 expressed an unqualiﬁed opinion examining, on a test basis, evidence supporting the amounts on the effectiveness of the Company’s internal control over and disclosures in the ﬁnancial statements. An audit also includes ﬁnancial reporting. 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. Richmond, Virginia June 28, 2013 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 45 management’s report on internal control over ﬁnancial reporting Management has responsibility for establishing and maintaining adequate internal control over ﬁnancial reporting. Internal control over ﬁnancial reporting is a process designed to provide reason- able assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the Company’s internal control over ﬁnancial reporting as of April 30, 2013. In making its assessment, Management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Management concluded that based on its assess- ment, American Woodmark Corporation’s internal control over ﬁnancial reporting was effective as of April 30, 2013. The Company’s internal control over ﬁnancial reporting as of April 30, 2013, has been audited by KPMG LLP, an independent registered public accounting ﬁrm, as stated in their report, which appears in this Annual Report to Shareholders. Kent B. Guichard Chairman and Chief Executive Ofﬁcer Jonathan H. Wolk Senior Vice President and Chief Financial Ofﬁcer 46 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT report of independent registered public accounting firm— internal control over financial reporting THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AMERICAN WOODMARK CORPORATION: We have audited American Woodmark Corporation’s internal transactions are recorded as necessary to permit preparation control over ﬁnancial reporting as of April 30, 2013, based on of ﬁnancial statements in accordance with generally accepted criteria established in Internal Control—Integrated Framework, account ing principles, and that receipts and expenditures of the issued by the Committee of Sponsoring Organizations of the company are being made only in accordance with authorizations Treadway Commission (COSO). The Company’s management is of management and directors of the company; and (3) provide responsible for maintaining effective internal control over ﬁnan- reasonable assurance regarding prevention or timely detection cial reporting and for its assessment of the effectiveness of inter- of unauthorized acquisition, use, or disposition of the company’s nal control over ﬁnancial reporting, included in the accompanying assets that could have a material effect on the ﬁnancial statements. Management’s Report on Internal Control over Financial Report- ing. Our responsibility is to express an opinion on the Company’s internal control over ﬁnancial reporting based on our audit. Because of its inherent limitations, internal control over ﬁnan- cial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods We conducted our audit in accordance with the standards of are subject to the risk that controls may become inadequate the Public Company Accounting Oversight Board (United States). because of changes in conditions, or that the degree of compli- Those standards require that we plan and perform the audit ance with the policies or procedures may deteriorate. to obtain reasonable assurance about whether effective internal control over ﬁnancial reporting was maintained in all material respects. Our audit included obtaining an understanding of inter- nal control over ﬁnancial reporting, assessing the risk that a mate- rial weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures In our opinion, American Woodmark Corporation maintained, in all material respects, effective internal control over ﬁnancial reporting as of April 30, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the as we considered necessary in the circumstances. We believe that Public Company Accounting Oversight Board (United States), the our audit provides a reasonable basis for our opinion. A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accu- rately and fairly reﬂect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that consolidated balance sheets of American Woodmark Corporation and subsidiary as of April 30, 2013 and 2012, and the related con- solidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash ﬂows for each of the years in the three-year period ended April 30, 2013 and our report dated June 28, 2013 expressed an unqaliﬁed opinion on those consol- idated ﬁnancial statements. Richmond, Virginia June 28, 2013 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT 47 stock performance graph Set forth below is a graph comparing the ﬁve-year cumulative total shareholder return, including reinvestment of dividends, from investing $100 on May 1, 2008 through April 30, 2013 in American Woodmark Corporation common stock, the Russell 2000 Index and the S&P Household Durables Index: COMPARATIVE FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURNS $200.00 $150.00 $100.00 $50.00 $0.00 American Woodmark Corporation Russell 2000 Index S&P Household Durables Index 2008 2009 2010 2011 2012 2013 FISCAL YEARS ENDED APRIL 30 48 AMERICAN WOODMARK CORPORATION ® 2013 ANNUAL REPORT DIRECTORS AND EXECUTIVE OFFICERS CORPORATE INFORMATION ANNUAL MEETING The Annual Meeting of Shareholders of American Woodmark Corporation will be held on Thursday, August 22, 2013, at 9:00 a.m. at the Holiday Inn, 333 Front Royal Pike in Winchester, Virginia. ANNUAL REPORT ON FORM 10-K A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2013, may be obtained free of charge on the Company’s Web site at www.americanwoodmark.com or by writing: Glenn Eanes Vice President & Treasurer American Woodmark Corporation PO Box 1980 Winchester, VA 22604-8090 CORPORATE HEADQUARTERS American Woodmark Corporation 3102 Shawnee Drive Winchester, VA 22601-4208 (540) 665-9100 MAILING ADDRESS PO Box 1980 Winchester, VA 22604-8090 TRANSFER AGENT Registrar and Transfer Company Investor Relations (800) 368-5948 SHAREHOLDER INQUIRES Investor Relations American Woodmark Corporation 3102 Shawnee Drive Winchester, VA 22601-4208 (540) 665-9100 www.americanwoodmark.com Bradley S. Boyer Senior Vice President, Sales and Marketing Remodel William F. Brandt, Jr. Director; Former Chairman and Chief Executive Officer Andrew B. Cogan Director; Member of the Audit Committee Chief Executive Officer of Knoll, Inc. Martha M. Dally Director; Chair of the Governance Committee and Member of the Compensation Committee Retired Vice President Customer Development of Sara Lee Corporation James G. Davis, Jr. Director; Member of the Audit Committee and Member of the Governance Committee President and Chief Executive Officer of James G. Davis Construction Corporation S. Cary Dunston Executive Vice President, Operations Kent B. Guichard Director; Chairman and Chief Executive Officer Daniel T. Hendrix Director; Chair of the Compensation Committee Chairman and Chief Executive Officer of Interface, Inc. Kent J. Hussey Director; Member of the Audit Committee and Member of the Governance Committee Retired Chairman, President and Chief Executive Officer of Spectrum Brands, Inc. Carol B. Moerdyk Director; Chair of the Audit Committee and Member of the Governance Committee Retired Senior Vice President, International, OfficeMax Incorporated Vance W. Tang Director; Member of the Compensation Committee Retired President and Chief Executive Officer of KONE Inc. Jonathan H. Wolk Senior Vice President and Chief Financial Officer; Corporate Secretary American Woodmark™ is a trademark of American Woodmark Corporation.® Printed in U.S.A. ©2013 American Woodmark Corporation® Printed on recycled paper m o c . p u o r g e v i t a e r c x i n e o h p w w w . , p u o r G e v i t a e r C x i n e o h P y b n g i s e D 3102 Shawnee Drive Winchester, Virginia 22601-4208 (540) 665-9100 (540) 665-9176 Fax www.americanwoodmark.com

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