2020ANNUAL REPORTAmerican Woodmark561 Shady Elm Road Winchester, Virginia 22602(540) 665-9100americanwoodmark.com ONCE WE’VE DONE ITWhen 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.WHO WE AREAmerican 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 ITWe 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 ITFour principles guide our actions:CUSTOMER SATISFACTIONProvide the best possible quality, service and value to the greatest number of people by doing whatever is reasonable and sometimes unreasonable. INTEGRITY Do what is right: act fairly and responsibly, care about the dignity of each person and be a good citizen within the community.TEAMWORKUnderstand that we must all work together in order to succeed. Realize that each person must contribute to the team to be part of the team. EXCELLENCE Strive to perform every job or action in a superior way. Be innovative, always helping others become the best they can be.Creating ValueThrough PeopleDIRECTORS AND EXECUTIVE OFFICERS Robert J. Adams, Jr. Senior Vice President, Value Stream OperationsR. Perry CampbellSenior Vice President, Sales and Commercial Operations Andrew B. CoganDirector Chair of the Audit CommitteeChairman and Chief Executive Officer of Knoll, IncM. Scott Culbreth Senior Vice President and Chief Financial Officer Corporate Secretary James G. Davis, Jr. Director Member of the Governance Committee and Member of the Compensation CommitteePresident and Chief Executive Officer of James G. Davis Construction Corporation S. Cary Dunston Director Chairman and Chief Executive OfficerMartha M. Hayes Director Member of the Compensation Committee and Member of the Governance CommitteeRetired Vice President Customer Development Sara Lee CorporationDaniel T. HendrixDirector Member of the Audit CommitteeChairman, Chief Executive Officer and President of Interface, Inc. Teresa M. MaySenior Vice President and Chief Marketing OfficerCarol B. MoerdykDirector Member of the Audit Committee and Chair of the Governance Committee Retired Senior Vice President, International, OfficeMax Incorporated Vance W. TangLead Independent Director Chair of the Compensation Committee and Member of the Governance CommitteeRetired President and Chief Executive Officer of KONE Inc. CORPORATE INFORMATION ANNUAL MEETINGThe 2020 Annual Meeting of Shareholders will be held on Thursday, August 20, 2020 at 9:00 a.m. at American Woodmark Corporation, 561 Shady Elm Road in Winchester, Virginia.ANNUAL REPORT ON FORM 10-KA copy of the Company’s Annual Report on Form 10-K for the fiscal year ending on April 30, 2020, may be obtained free of charge on the Company’s website at americanwoodmark.com or by writing:Kevin DunniganTreasury Director American Woodmark CorporationPO Box 1980Winchester, VA 22604-8090CORPORATE HEADQUARTERSAmerican Woodmark Corporation 561 Shady Elm RoadWinchester, VA 22602(540) 665-9100MAILING ADDRESSPO Box 1980Winchester, VA 22604-8090TRANSFER AGENTComputershare Shareholder ServicesInvestor Relations(800) 942-5909SHAREHOLDER INQUIRIESInvestor Relations American Woodmark Corporation561 Shady Elm RoadWinchester, VA 22602(540) 665-9100americanwoodmark.com To Our
Shareholders
Our fiscal year 2020 will be a year we will never forget,
towards the end of our fiscal year and we are in hopes to
beginning with the exciting launch of our 2025 Vision, followed
see some recovery in our new fiscal year, pending the macro
by a number of unique events that created cost headwinds,
impact of COVID-19.
and ending with the impact of COVID-19. Despite the
challenges, we remained extremely focused on our new vision.
In home center, our made-to-order platform declined while our
A vision like no other in the history of the company, inspiring
stock kitchen and bath business had a strong positive comp.
us to re-innovate the entire value stream of our business.
Home centers have been struggling for some time within
made-to-order, relying heavily on promotions in an attempt to
Financially, considering the significant cost headwinds we
engage customers. With the changing demographics of our
faced within the fiscal year, we are pleased with our results.
customer base, we strongly believe it will require a strategic
Our adjusted EBITDA came in at 14.3% of sales for the year.
transition to better attract and serve the younger consumer.
Within this, we absorbed the incremental cost associated with
As such, in alignment with our new vision, we are working
the tariffs, the particle board supply disruption, the move of
closely with our business partners on future-state solutions.
our PCS facility in CA, and the disruption of our operations
On the other hand, our stock kitchen business experienced
due to COVID-19. Although tariffs remain in place, the plant
strong double-digit growth in the year. Not only did we benefit
move was a discreet, one-time cost; our particle board supply
from regaining the Northeast market with our home center
continues to improve; and although we are feeling the macro
partner, but we comped positively throughout the country. The
impact of COVID-19 on the economy, our plants are fully
benefit of our stock platform has also become very evident
operational. The fact is, our company was very fortunate to
during the COVID-19 crisis, with lower price point cabinets
be considered an essential supplier to the housing industry
showing more resiliency during the downturn.
and allowed to operate during the pandemic. I cannot begin to
state how grateful I am to all of our employees that kept our
With regards to our dealer/distributor channel, we were down
operations running and in a safe manner.
for the year. As with home center, we believe the dealer
business is being impacted by the changing demographics of
With regards to sales, we experienced significant volatility by
our consumer base. Overall affordability within the housing
channel. Within our Timberlake direct business, we once again
industry is the key driver as younger consumers struggle to
leveraged our service platform to gain share within the single-
purchase an existing single-family home. The fact that existing
family new construction market. Growing high single digits
home inventory at the opening price point remains at record
over prior year, we continued to separate ourselves from the
lows is a contributing factor. However, we firmly believe that
competition with our nationwide service to the country’s top
it is only a matter of time before younger consumers become
builders. Unfortunately, our PCS builder business in Southern
the predominant driver in our industry.
California comped negatively for the year. Affordability has
become a key issue in the region, with new construction starts
As we now look ahead, our short-term view is clouded by
falling off significantly over prior year. The business did stabilize
the current COVID-19 crisis. Far too many variables exist to
accurately predict the near-term outlook on our industry.
competition by stretching ourselves toward a higher level of
One thing is for certain, due to our low-cost Origins product
excellence, engaging and better understanding every customer
within our direct-to-builder channel and our stock product
we serve.
within home center, we will fare much better than many. In
addition, as with prior downturns in our market, we know
In closing, I would like to extend a very heartfelt thank you to
how to operate and make the right strategic choices to win
each and every one of our teammates that kept the livelihood
during the recovery. COVID-19 has awakened a different
of our company running during the pandemic. It was their
way of thinking in many; including our business partners, our
courage and passion that allowed us to not only operate,
consumers, and within our own company. Even prior to the
but to do it in a very safe way. Our commitment to safety
pandemic, few would argue that the world around us was
runs deep as it is engrained in our culture and day-to-day
changing at an ever-increasing pace. Our industry must adapt
lives. Manufacturing 10.4 million cabinets in our fiscal year is
and learn to be innovative and drive change at the same pace,
extraordinary within itself, but doing it with a world-class OSHA
or we will quickly fall behind. Our 2025 Vision is inspiring us
safety rate of 1.23 is simply incredible!
to do just this. Our entire company is united around a vision
that leverages the incredible energy that connects us all.
On behalf of the Board of Directors, the leadership team, and
We will drive innovation in everything that we do, from how
the entire Company, we thank you for your continued support.
we produce our product to how we service our customers.
Digital technology has opened the door for us to fully interface
Please reference the reconciliation of generally accepted
with our consumers, from inspiration to project completion.
accounting principles (“GAAP”) to non-GAAP financial
With our installed nationwide service platform, we have the
measures used in this letter beginning on page 21 of the
footprint to expand to offer a truly customized experience for
Company’s Form 10-K.
all consumers. Our future has never been more exciting. We
look forward to continuing to separate ourselves from our
S. Cary Dunston
Chairman and Chief Executive Officer
American Woodmark Corporation
2020 Annual Report on Form 10-K
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures Executive
Officers of the Registrant
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
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PART I
Item 1.
BUSINESS
Our Company
American Woodmark Corporation (“American Woodmark,” the “Company,” “we,” “our” or “us”) was incorporated in 1980 by
the four principal managers of the Boise Cascade Cabinet Division through a leveraged buyout of that division. We operated
privately until 1986 when we became a public company through a registered public offering of common stock.
We manufacture and distribute kitchen, bath and home organization products for the remodeling and new home construction
markets. Our products are sold on a national basis directly to home centers and builders and through a network of independent
dealers and distributors. We presently operate 18 manufacturing facilities and eight primary service centers across the country and
Mexico.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and all
amendments to those reports are available free of charge on our website, americanwoodmark.com, as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. The contents of our
website are not, however, part of, or incorporated by reference into, this report.
Our Business
Our business offers made-to-order cabinetry in over 550 different cabinet lines, ranging in price from relatively inexpensive to
medium-priced styles. These cabinets are offered in a broad range of sizes, construction and decorative options to achieve a wide
array of design layouts. To satisfy the fashion and style needs of the market place we offer over 100 door designs with a targeted
range of painted or stained finishes, or engineered finishes under the Duraform® mark; on fronts made in a variety of wood species,
including maple, cherry and oak as well as engineered materials.
Additionally, we offer value-based assembled cabinet products for stock kitchen and bath, ready-to-assemble cabinetry for home
organization, countertops and accessories. These lines are available in a more targeted finish and door style assortment, and include
hundreds of products appropriate for home centers, builders, dealers and remodeling contractors.
Our products are sold under the brand names of American Woodmark®, Timberlake®, Shenandoah Cabinetry®, Waypoint Living
Spaces®, Estate by RSI®, Continental Cabinets®, VillaBath by RSI®, Stor-It-All® and Professional Cabinet Solutions®. Products
are also sold under key customer’s private label brands, such as Hampton Bay®, Glacier Bay®, Style Selections®, Allen + Roth®,
Home Decorators Collection and Project Source.
Our Products
We offer a wide variety of products that fall into product lines including kitchen cabinetry, bath cabinetry, office cabinetry, home
organization and hardware. Our cabinetry products are available in a variety of designs, finishes and finish colors and door styles.
We offer products in the following categories: made-to-order and stock. Stock products represent cash and carry products sold
through home centers. Made-to-order products typically utilize higher grade materials with more options as compared to stock
and are all special ordered and shipped directly to the home from the factory. Our home organization products are exclusively
stock products. Our kitchen cabinetry and bath cabinetry are offered across all product categories (made-to-order and stock) and
our office cabinetry is offered as stock. Our stock products are sold through home centers, while our made-to-order products are
sold through home centers, builders and independent dealers and distributors.
Our Market
Our products are sold on a national basis across the United States to the remodeling and new home construction markets. We
service these markets through three primary channels: home centers, builders, and independent dealers and distributors. We
distribute our products to each market channel directly from our assembly plants and through a third party logistics network.
We serve three main categories of customers: home center customers, builders and independent dealers and distributors.
Our Customers
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Home Center Customers
Contractors, builders, remodelers and do-it-yourself homeowners use our products primarily for repair and remodel (“R&R”)
projects. Products for R&R projects are predominately purchased through home centers such as Home Depot and Lowe’s. Due to
the market presence, store network and customer reach of these large home centers, our strategy has been to develop long-term
strategic relationships with both Home Depot and Lowe’s to distribute our products. During the fiscal year ended April 30, 2020
(“fiscal 2020”), Home Depot and Lowe’s combined accounted for approximately 46.5% of net sales of the Company. The loss
of either Home Depot or Lowe’s as a customer would have a material adverse effect on us.
Builders
The builder business represents a large portion of our overall revenue and has historically been a strategic component of our go-
to-market strategy. We serve the majority of the top U.S. builders with a high degree of geographic concentration around major
metro areas where single family starts are most robust. We also serve multi-family builders, primarily in the Southern California
metro area. Our various service center locations serve the function of being close to this business and enable us to deliver exceptional
service to our builder partners. During fiscal 2020, builders accounted for approximately 40.5% of net sales of the Company.
Independent Dealers & Distributors
In 2010, we expanded our business into the dealer channel with the launch of the Waypoint Living Spaces® brand. Today, we sell
this brand to over 1,300 regional and local dealers across the country. The dealer channel of the market is the largest by volume,
characterized by a high degree of entrepreneurship and one that rewards suppliers that deliver great service. Our ability to provide
superior value delivered with exceptional service has helped drive our expansion into this channel and will continue to be a strong
growth and market share opportunity for us. Within our distributor channel we also sell our Timberlake® brand through a network
of regional distributors who are focused on selling a complete variety of building materials to small and midsized builders and
contractors within their local markets. During fiscal 2020, independent dealers and distributors accounted for approximately
13.0% of net sales of the Company.
Manufacturing, Distribution and Service
Our manufacturing facilities are strategically located to serve our customers, which enhances our ability to provide high quality,
value priced products with low production costs. We manufacture our products across 18 facilities located in Maryland, Indiana,
West Virginia, Tennessee, Georgia, Arizona, Kentucky, Virginia, California, Texas, North Carolina and Tijuana, Mexico. The
geographic distribution of our facilities throughout the United States, together with our third party logistics network for the
American Woodmark business and beneficial freight arrangement with home centers, enable us to provide a “short supply chain”
to our U.S. customers. The ordering patterns of Home Depot and Lowe’s, our two biggest customers, require suppliers to have
sufficient manufacturing capacity to meet demand and to serve a large number (frequently hundreds to thousands) of stores. They
impose strict logistics and performance criteria on us. The scale and strategic locations of our manufacturing facilities help us to
meet these demands of the home center customers, as well as provide a logistics platform that we can leverage for builders and
dealers. We distribute our products through distribution centers located in some of our manufacturing facilities and other third
party locations to maximize efficiency. Our vertically-integrated production and assembly lines, standardized product construction
and investments in automation have allowed us to continuously improve productivity and develop an expertise in wood processing
and yield-maximizing technologies. We have standardized our raw material inputs and a number of our production processes,
which reduces logistical requirements to manufacture and gives us increased economies of scale in sourcing these inputs. Certain
of our inputs are also partially processed by our vendors, which reduces cost. In addition, our production of labor-intensive
manufacturing and fabrication processes in our three Tijuana, Mexico facilities have enabled us to keep overall labor costs low
while maintaining higher quality, greater speed-to-market and transportation cost advantage over Asian manufacturers.
We provide complete turnkey installation services to our direct builder customers via our network of eight primary service centers
that are strategically located throughout the United States in Virginia, Texas, North Carolina, Georgia, Florida, Arizona and
California.
We regularly evaluate our organizational productivity and supply chains and assess opportunities to reduce costs and enhance
quality. We strive to improve quality, speed and flexibility to meet changing and uncertain market conditions, as well as manage
cost inflation, including wages and employee medical costs.
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Raw Materials and Suppliers
The primary raw materials used in our products include hard maple, oak, cherry and beech lumber and plywood. Additional raw
materials include paint, particleboard, medium density fiberboard, high density fiberboard, manufactured components and
hardware. We purchase these and other raw materials from more than one source and generally believe them to be readily available.
We rely on outside suppliers for some of our key components and do not typically enter into long-term contracts with our suppliers
or sourcing partners. We source a portion of our components from third parties in Asia. The distances involved in these arrangements,
together with the differences in business practices, shipping and delivery requirements, and laws and regulations add complexity
to our supply chain logistics and increase the potential for interruptions in our production scheduling. In addition, prices and
availability of these components may be affected by world market conditions and government policies and tariffs.
Competition
We operate in a highly fragmented industry that is composed of several thousand local, regional and national manufacturers. Most
of our competitors compete on a local or regional basis, but others, like us, compete on a national basis as well. Our competitors
include importers and large consolidated operations as well as relatively small, local cabinet manufacturers. Moreover, companies
in other building products industries may compete with us. Competitive factors within the industry include pricing, quality, product
availability, service, delivery time and relationships with customers. Our principal means for competition is our breadth and variety
of product offerings, expanded service capabilities, geographic reach, competitive price points for our products and affordable
quality. We are the second or third largest manufacturer of kitchen, bath and home organization products in the United States based
on publicly available information now that one of the top three manufacturers is privately held.
Environmental Matters and Regulatory Matters
Our operations are subject to federal, state and local environmental laws and regulations relating to, among other things, the
generation, storage, handling, emission, transportation and discharge of regulated materials into the environment. Permits are
required for certain of our operations, and these permits are subject to revocation, modification and renewal by issuing authorities.
Governmental authorities have the power to enforce compliance with their regulations, and violations may result in the payment
of fines or the entry of injunctions, or both. We may also incur liability for investigation and clean-up of soil or groundwater
contamination on or emanating from current or formerly owned and operated properties, or at offsite locations at which regulated
materials are located where we are identified as a responsible party. Discovery of currently unknown conditions could require
responses that could result in significant costs.
Intellectual Property
We maintain trademarks, copyrights and trade secrets. We sell many of our products under a number of registered and unregistered
trademarks, which we believe are widely recognized in our industry. We rely on trade secrets and confidentiality agreements to
develop and maintain our competitive position. Monitoring the unauthorized use of our intellectual property is difficult, and the
steps we have taken may not prevent unauthorized use of our intellectual property. The disclosure or misappropriation of our
intellectual property could harm our ability to protect our rights and our competitive position. If we must litigate to protect our
rights, we may incur significant expenses and divert significant attention from our business operations. To date, we have not relied
on patents in operating our business.
Seasonality
Our business has been subject to seasonal influences, with higher sales typically realized in our first and fourth fiscal quarters,
although sales were down in the fourth quarter of fiscal 2020 and we expect sales to be down in the first quarter of fiscal 2021
due to the novel coronavirus ("COVID-19") pandemic. General economic forces and changes in our customer mix have reduced
seasonal fluctuations in revenue over the past few years. 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.
As of April 30, 2020, we employed approximately 9,900 full-time employees, with approximately 210 unionized employees in
Anaheim, California. We believe that our employee relations and relationship with the union representing the employees in Anaheim
are good.
Employees
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Market Leader with Nationwide Manufacturing and Distribution Network
Our Competitive Strengths
We believe our company holds the number two or three market position in the United States cabinet market with an estimated
10% market share based on publicly available information now that one of the top three manufacturers is privately held. We are
one of a select number of market participants with a national manufacturing and distribution footprint, including 18 manufacturing
facilities and eight primary service centers across the United States and Mexico. Our operating footprint provides us an ability to
service our builder, dealer and home center customers on a national basis, and we offer a broad set of products to serve our customers
across a variety of price points. Our facilities are primarily located in or near major metropolitan markets to facilitate efficient
product distribution to our customers. We believe the scale and breadth of our operations differentiate us and result in a competitive
advantage providing superior customer service, low-cost distribution and on-time delivery.
Comprehensive Product Offering with Diversified End Markets
We believe that the diversity of our product portfolio across categories, channels and end markets benefits our financial performance,
both in periods of growth and cyclicality. Our made-to-order offerings provide products for customers looking for a designer
product, which can be used for both new home construction and remodeling applications. The addition of the stock offering allows
us to further serve our existing end markets through the addition of a lower price point product that is well-suited for areas of
growing demand such as new home construction targeting the first-time homebuyer. We also offer turnkey cabinet solutions for
our builder customers which we believe is a unique aspect of our service platform. Our turnkey solution provides in-house design
and measurement as well as installation service. We believe the ability to leverage our labor and expertise is a value-added service
to our builder customers which has helped strengthen our position in the new home construction market.
Deep Relationships with Leading Retailers
We have built strong and stable relationships with a base of long-standing, customers across home centers, builders and independent
dealers and distributors. We have an average relationship length of 20 plus years with our top 10 customers, including long-standing
relationships with Home Depot and Lowe’s. We believe our customers value our national manufacturing and distribution footprint,
which allows us to meet demanding logistics and performance criteria. We believe our focus on providing exceptional customer
service and a quality product at a competitive price have enabled us to establish ourselves as a vendor of choice.
Best-in-Class Manufacturing Capabilities
We operate 18 manufacturing facilities across the United States and Mexico. Our vertically-integrated production and assembly
lines, standardized product construction and investments in automation, have allowed us to continuously improve productivity
and efficiency. We have standardized our raw material inputs and a number of our production processes, which reduces logistical
requirements and provides increased economies of scale in sourcing these inputs. Our labor-intensive manufacturing and fabrication
processes in Mexico offer a low cost alternative to Asian manufacturers, while providing a quality product with lower transportation
costs.
Experienced Management Team
We have assembled an executive team from leading organizations with a deep base of management experience within industrial
manufacturing companies. Our Chairman and Chief Executive Officer, Cary Dunston, joined our team in 2006 and was named
Chief Executive Officer in 2015 and elected Chairman in 2017. Mr. Dunston has a broad range of experience in manufacturing
and supply chain management including the implementation of continuous improvement programs and lean manufacturing
initiatives. Our team has identified and begun to execute on opportunities for operational improvement.
Item 1A.
RISK FACTORS
There are a number of risks and uncertainties that may affect the Company’s business, results of operations and financial condition.
These risks and uncertainties could cause future results to differ from past performance or expected results, including results
described in statements elsewhere in this report that constitute "forward-looking statements" under the Private Securities Litigation
Reform Act of 1995. Additional risks and uncertainties not presently known to the Company or currently believed to be immaterial
also may adversely impact the Company’s business. Should any risks or uncertainties develop into actual events, these developments
could have material adverse effects on the Company’s business, financial condition, and results of operations. These risks and
uncertainties, which the Company considers to be most relevant to specific business activities, include, but are not limited to, the
following. Additional risks and uncertainties that may affect the Company’s business, results of operations and financial condition
5
are discussed elsewhere in this report, including in Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” under the headings “Forward-Looking Statements,” “Seasonality,” and “Outlook for Fiscal 2021” and Item
7A. "Quantitative and Qualitative Disclosures about Market Risk."
The global spread of COVID-19 has significantly impacted our business and is expected to cause further disruptions to our
business, financial performance and operating results. The global spread of COVID-19 in recent months has negatively impacted
the global and U.S. economy, disrupted global supply chains and created significant volatility and disruption in financial markets.
The impact of this pandemic has also created significant uncertainty in the global and U.S. economy and has had, and is expected
to continue to have, a material adverse effect on our business, employees, suppliers, and customers. The duration and the magnitude
of the impact of the COVID-19 pandemic cannot be precisely estimated at this time, as they are affected by a number of rapidly
changing factors, many of which are outside of our control. As a result of the COVID-19 pandemic and potential future pandemic
outbreaks, we face significant risks including, but not limited to:
• Decreases in consumer sentiment, single family housing starts and disposable income and increases in unemployment
could reduce demand for our products by our customers in all of our market channels.
• Tightening credit standards could negatively impact credit availability to consumers which could have an adverse effect
•
on all of our market channels.
Supply chain and shipping interruptions and constraints, volatility in demand for our products caused by sudden and
significant changes in production levels by our suppliers or other restrictions affecting our business could adversely
impact our planning and forecasting, our revenues and our operations.
•
• Disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing
and supply elements such as raw materials or other product components, transportation, work force, or other manufacturing
and distribution capabilities, like the temporary suspension of our Mexican operations in April 2020, could result in our
inability to meet our customer needs and achieve cost targets.
Significant changes in the conditions in markets in which we manufacture, sell or distribute our products, including
additional or expanded quarantines or "stay at home" orders, governmental or regulatory actions, closures or other
restrictions that further limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel
or perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise
prevent our suppliers or customers from sufficiently staffing operations, could adversely impact operations necessary for
the production, distribution, sale, and support of our products.
• Certain of our customers may experience financial difficulties, including bankruptcy or insolvency, as a result of the
impact of COVID-19. If any of our customers suffer significant financial difficulties, they may be unable to pay amounts
due to us timely or at all. If we are unable to collect our accounts receivable as they come due, there may be a material
adverse effect on our financial condition, results of operations and cash flows.
If the Company is unable to continue to operate all of its facilities, our cash flows could be adversely affected, making
it difficult to maintain adequate liquidity or meet debt covenants. As a result, the Company may be required to pursue
additional sources of financing to meet our financial obligations and fund our operations and obtaining such financing
with terms acceptable to the Company is not guaranteed and is largely dependent upon market conditions and other
factors.
•
• Disruptions to our operations related to COVID-19 as a result of absenteeism by infected or ill employees, or absenteeism
by employees who elect not to come to work due to the illness affecting others at our facilities, or due to quarantines.
• The COVID-19 pandemic has led to and could continue to lead to severe disruption and volatility in the United States
and global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital
markets in the future. In addition, trading prices in the public equity markets, including prices of our common stock, have
been highly volatile as a result of the COVID-19 pandemic.
Sustained adverse impacts to the Company, certain suppliers, and customers may also affect the Company’s future
valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve
associated with such assets, including goodwill, long-lived intangible assets, property and equipment, inventories,
accounts receivable, tax assets and other assets.
•
The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is highly
uncertain and cannot be accurately predicted and is dependent on future developments, including the duration of the pandemic
and the length of its impact on the global and U.S. economy, as well as any new information that may emerge concerning the
COVID-19 pandemic and the actions taken to contain it or mitigate its impact. The continued impact on our business as a result
of the COVID-19 pandemic (directly or indirectly) could materially adversely affect our results of operations, financial condition,
cash flows, prospects and the trading prices of our securities in the near-term and beyond fiscal 2021.
Because of the concentration of our sales to our two largest customers, the loss of either customer or a significant reduction
in orders from either customer could adversely affect our financial results. Home Depot and Lowe’s collectively accounted for
approximately 46.5% of total net sales during the fiscal year 2020. We do not typically enter into long-term sales contracts with
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Home Depot or Lowe’s and our sales usually occur on a “purchase order” basis. Our customers can make significant changes in
their purchase volumes and can seek to significantly affect the prices we receive for our products and services and the other terms
and conditions on which we do business. They have discontinued, and may in the future choose to discontinue, purchasing some
or all of our products with little or no notice. In the past, purchase volumes from our customers, including Home Depot and Lowe’s,
have fluctuated substantially, and we expect such fluctuations to occur from time to time in the future. Any reduction in, or
termination of, our sales to either Home Depot or Lowe’s could have a material adverse effect on our business, financial condition
or results of operations.
In addition, the potential for orders from these large retail customers to increase significantly from time to time requires us to have
sufficient manufacturing capacity. These large retailers also impose strict logistics and performance criteria. Failure to comply
with these obligations may result in these customers reducing or stopping their purchase of our products.
We could also experience delays or defaults in payment from Home Depot or Lowe’s, which could adversely affect our business,
financial condition or results of operations. The loss of a substantial portion of our order volumes or revenue from either Home
Depot or Lowe’s for any reason would have a material adverse effect on our business, financial condition or results of operations.
Our business primarily relies on U.S. home improvement, repair and remodel and new home construction activity levels, all
of which are impacted by risks associated with fluctuations in the housing market. Downward changes in the general economy,
the housing market or other business conditions could adversely affect our results of operations, cash flows and financial
condition. Our business primarily relies on home improvement, repair and remodel and new home construction activity levels in
the United States. The housing market is sensitive to changes in economic conditions and other factors, such as the level of
employment, access to labor, consumer confidence, consumer income, availability of financing and interest rate levels. Adverse
changes in any of these conditions generally, or in any of the markets where we operate, including due to the COVID-19 pandemic,
could decrease demand and could adversely impact our businesses by: causing consumers to delay or decrease homeownership;
making consumers more price conscious resulting in a shift in demand to smaller, less expensive homes; making consumers more
reluctant to make investments in their existing homes, including large kitchen and bath repair and remodel projects; or making it
more difficult to secure loans for major renovations.
Prolonged economic downturns may adversely impact our sales, earnings and liquidity. Our industry historically has been
cyclical in nature and has fluctuated with economic cycles. During economic downturns, our industry could experience longer
periods of recession and greater declines than the general economy. We believe that our industry is significantly influenced by
economic conditions generally and particularly by housing activity, consumer confidence, the level of personal discretionary
spending, demographics and credit availability. These factors may affect not only the ultimate consumer of our products, but also
may impact home centers, builders and our other primary customers. As a result, a worsening of economic conditions, including
due to the COVID-19 pandemic, could adversely affect our sales and earnings as well as our cash flow and liquidity.
The U.S. cabinetry industry is highly competitive, and market share losses could occur. We operate within the highly competitive
U.S. cabinetry industry, which is characterized by competition from a number of other manufacturers. Competition is further
intensified during economic downturns. We compete with numerous large national and regional home products companies for,
among other things, customers, orders from Home Depot and Lowe’s, raw materials and skilled management and labor resources.
Purchase volumes from our main home center customers have fluctuated substantially from time to time in the past, and we expect
such fluctuations to occur from time to time in the future.
Some of our competitors may have greater financial, marketing and other resources than we do and, therefore, may be able to
adapt to changes in customer preferences more quickly, devote more resources to the marketing and sale of their products, generate
greater national brand recognition or adopt more aggressive pricing policies than we can. In addition, some of our competitors
may resort to price competition to sustain or gain market share and manufacturing capacity utilization, and we may have to adjust
the prices on some of our products to stay competitive, which could reduce our revenues.
We also face competition with respect to some of our products from competitors in countries with lower regulatory, safety,
environmental and other costs, such as China, Vietnam and Malaysia. These competitors may also benefit from certain local
government subsidies or other incentives that are not available to us.
We may not ultimately succeed in competing with other manufacturers and distributors in our market, which may have a material
adverse effect on our business, financial condition or results of operations.
Our failure to develop new products or respond to changing consumer preferences and purchasing practices could have a
material adverse effect on our business, financial condition or results of operations. The U.S. cabinetry industry is subject to
changing consumer trends, demands and preferences. The uncertainties associated with developing and introducing new products,
7
such as gauging changing consumer preferences and successfully developing, manufacturing, marketing and selling new products,
could lead to, among other things, rejection of a new product line, reduced demand and price reductions for our products. If our
products do not keep up with consumer trends, demands and preference, we could lose market share, which could have a material
adverse effect on our business, financial condition or results of operations.
Changes to consumer shopping habits and potential trends toward “online” purchases could also impact our ability to compete.
Further, the volatile and challenging economic environment of recent years has caused shifts in consumer trends, demands,
preferences and purchasing practices and changes in the business models and strategies of our customers. Shifts in consumer
preferences, which may or may not be long-term, have altered the quantity, type and prices of products demanded by the end-
consumer and our customers. If we do not timely and effectively identify and respond to these changing consumer preferences
and purchasing practices, our relationships with our customers could be harmed, the demand for our products could be reduced
and our market share could be negatively affected.
We may fail to fully realize the anticipated benefits of our growth strategy within the dealer, multi-family and homebuilder
channels. Part of our growth strategy depends on expanding our business in the dealer, multi-family and homebuilder channels.
We may fail to compete successfully against other companies that are already established providers within the dealer and
homebuilder channels. Demand for our products within the homebuilder and dealer channels may not grow, or might even decline.
In addition, we may not accurately gauge consumer preferences and successfully develop, manufacture and market our products
at a national level. Further, the implementation of our growth strategy may place additional demands on our administrative,
operational and financial resources and may divert management’s attention away from our existing business and increase the
demands on our financial systems and controls. If our management is unable to effectively manage growth, our business, financial
condition or results of operations could be adversely affected. If our growth strategy is not successful then our revenue and earnings
may not grow as anticipated or may decline, we may not be profitable, or our reputation and brand may be damaged. In addition,
we may change our financial strategy or other components of our overall business strategy if we believe our current strategy is
not effective, if our business or markets change, or for other reasons, which may cause fluctuations in our financial results.
Manufacturing expansion to add capacity, manufacturing realignments, and other cost savings programs could result in a
decrease in our near-term earnings. We continually review our manufacturing operations. These reviews could result in the
expansion of capacity, manufacturing realignments and various cost savings programs, such as our closure of the Humboldt,
Tennessee manufacturing plant announced in the first quarter of fiscal 2021. See Note S -- Subsequent Events for further information.
Effects of manufacturing expansion, realignments or cost savings programs could result in a decrease in our short-term earnings
until the additional capacity is in place, cost reductions are achieved and/or production volumes stabilize. Such manufacturing
expansions, realignments and programs involve substantial planning, often require capital investments, and may result in charges
for fixed asset impairments or obsolescence and substantial severance costs. We also cannot assure you that we will achieve all
of the intended cost savings. Our ability to achieve cost savings and other benefits within expected time frames is subject to many
estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive, and other
uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or
if other unforeseen events occur, our business, financial condition, and results of operations could be materially and adversely
affected. In addition, downturns in the economy could potentially have a larger impact on the Company as a result of any added
capacity.
We manufacture our products internationally and are exposed to risks associated with doing business globally. We manufacture
our products in the United States and Mexico and sell our products in the United States and Canada. Accordingly, we are subject
to risks associated with potential disruption caused by changes in political, monetary, economic and social environments, including
civil and political unrest, terrorism, possible expropriation, local labor conditions, changes in laws, regulations and policies of
foreign governments and trade disputes with the United States (including tariffs), and compliance with U.S. laws affecting activities
of U.S. companies abroad, including tax laws, economic sanctions and enforcement of contract and intellectual property rights.
We are also subject to the Foreign Corrupt Practices Act and other anti-bribery laws. While we have implemented safeguards and
policies to discourage these practices by our employees and agents, our existing safeguards and policies to assure compliance and
any future improvements may prove to be less than effective and our employees or agents may engage in conduct for which we
might be held responsible. If employees violate our policies, we may be subject to regulatory sanctions. Violations of these laws
or regulations could result in sanctions including fines, debarment from export privileges and penalties and could have a material
adverse effect on our business, financial condition or results of operations.
We may hedge certain foreign currency transactions in the future; however, a change in the value of the currencies may impact
our financial statements when translated into U.S. dollars. In addition, fluctuations in currency can adversely impact the cost
position in local currency of our products, making it more difficult for us to compete. Our success will depend, in part, on our
ability to effectively manage our business through the impact of these potential changes.
8
In addition, we source raw materials and components from Asia where we have recently experienced higher manufacturing costs
and longer lead times due to currency fluctuations, higher wage rates, labor shortages and higher raw material costs. Our international
operations and sourcing of materials (including from Asia and Mexico) could be harmed by a variety of factors including:
•
•
•
introduction of non-native invasive organisms into new environments;
recessionary trends in international markets;
legal and regulatory changes and the burdens and costs of our compliance with a variety of laws, including export controls,
import and customs trade restrictions, tariffs and regulations related to the COVID-19 pandemic such as the temporary
suspension of our operations in Mexico in April 2020;
increases in transportation costs or transportation delays;
•
• work stoppages and labor strikes;
•
•
fluctuations in exchange rates, particularly the value of the U.S. dollar relative to other currencies; and
political unrest, terrorism and economic instability.
If any of these or other factors were to render the conduct of our business in a particular country undesirable or impractical, our
business, financial condition or results of operations could be materially adversely affected.
We may record future goodwill impairment charges or other asset impairment charges which could negatively impact our
future results of operations and financial condition. We have recorded significant goodwill as a result of the acquisition of RSI
Home Products, Inc. (the “RSI Acquisition”), and goodwill and other acquired intangible assets represent a substantial portion of
our assets. We also have long-lived assets consisting of property and equipment and other identifiable intangible assets which we
review both on an annual basis as well as when events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If a determination is made that a significant impairment in value of goodwill, other intangible assets or long-lived
assets has occurred, such determination could require us to impair a substantial portion of our assets. Asset impairments could
have a material adverse effect on our financial condition and results of operations. See Note B -- Acquisition of RSI Home Products,
Inc. for further details.
Fluctuating raw material and energy costs could have a material adverse effect on our business and results of operations. We
purchase various raw materials, including, among others, wood, wood-based and resin products, which are subject to price
fluctuations that could materially increase our manufacturing costs. Further, increases in energy costs increase our production
costs and also the cost to transport our products, each of which could have a material adverse effect on our business and results
of operations. In addition, some of our suppliers have consolidated and other suppliers may do so in the future. Combined with
increased demand, such consolidation could increase the price of our supplies and raw materials.
We also may be unwilling or unable to pass on to customers commensurate cost increases. Competitive considerations and customer
resistance to price increases may delay or make us unable to adjust selling prices. To the extent we are unable to either re-engineer
or otherwise offset increased costs or are unwilling or unable to build price increases into our sales prices, our margins will be
negatively affected. Even if we are able to increase our selling prices, sustained price increases for our products may lead to sales
declines and loss of market share, particularly if our competitors do not increase their prices. Conversely, when raw materials or
energy prices decline, we may receive customer pressure to reduce our sales prices.
These prices are market-based and fluctuate based on factors beyond our control. We do not have long-term fixed supply agreements
and do not hedge against price fluctuations. We, therefore, cannot predict our raw materials costs for the coming year.
The inability to obtain raw materials from suppliers in a timely manner would adversely affect our ability to manufacture and
market our products. Our ability to offer a wide variety of products depends on our ability to obtain an adequate supply of
components from manufacturers and other suppliers, particularly wood-based and resin products. Failure by our suppliers to
provide us with quality products on commercially reasonable terms, and to comply with legal requirements for business practices,
could have a material adverse effect on our business, financial condition or results of operations. Furthermore, we rely heavily or,
in certain cases, exclusively, on outside suppliers for some of our key components. While we do not rely exclusively on any one
supplier for any particular raw materials, the loss of a major supplier could increase our costs to obtain raw materials until we
obtain an adequate alternative source.
We typically do not enter into long-term contracts with our suppliers or sourcing partners. Instead, most raw materials and sourced
goods are obtained on a “purchase order” basis. Although these components are generally obtainable in sufficient quantities from
other sources, resourcing them from another supplier could take time. Financial, operating, or other difficulties encountered by
our suppliers or sourcing partners or changes in our relationships with them could result in manufacturing or sourcing interruptions,
delays and inefficiencies, and prevent us from manufacturing enough products to meet customer demands. As an example, in
fiscal 2020, we experienced several of the adverse impacts set forth above related to a particleboard supplier as more fully described
9
in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - “Particleboard Supply”
herein.
Our operations may be adversely affected by information systems interruptions or intrusions. We rely on a number of information
technology systems to process, transmit, store and manage information to support our business activities. Increased global
cybersecurity vulnerabilities, threats and more sophisticated and targeted attacks pose a risk to our information technology systems.
We have established security policies, processes and layers of defense designed to help identify and protect against intentional
and unintentional misappropriation or corruption of our systems and information and disruption of our operations. Despite these
efforts, systems may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, undetected
intrusion, hardware failures, or other events, and in these circumstances our disaster recovery planning may be ineffective or
inadequate. These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information,
data corruption, damage to our reputation, exposure to litigation and increased operational costs. Such events could have a material
adverse impact on our business, financial condition and results of operation. In addition, we could be adversely affected if any of
our significant customers or suppliers experience any similar events that disrupt their business operations or damage their reputation.
Increased compliance costs or liabilities associated with environmental regulations could have a material adverse effect on
our business, financial condition or results of operations. Our facilities are subject to numerous environmental laws, regulations
and permits, including those governing emissions to air, discharges to water, storage, treatment and disposal of waste, remediation
of contaminated sites and protection of worker health and safety. We may not be in complete compliance with these laws, regulations
or permits at all times. Our efforts to comply with environmental requirements do not remove the risk that we may incur material
liabilities, fines or penalties for, among other things, releases of regulated materials occurring on or emanating from current or
formerly owned or operated properties or any associated offsite disposal location, or for contamination discovered at any of our
properties from activities conducted by previous occupants. Liability for environmental contamination or a release of hazardous
materials may be joint and several, so that we may be held responsible for more than our share of the contamination or other
damages, or even for the entire share.
Changes in environmental laws and regulations or the discovery of previously unknown contamination or other liabilities relating
to our properties and operations could result in significant environmental liabilities that could impact our business, financial
condition or results of operation. In addition, we may incur capital and other costs to comply with increasingly stringent
environmental laws and enforcement policies. These laws, including, for example, the regulations relating to formaldehyde
emissions promulgated by the California Air Resources Board, require us to rely on compliance by our suppliers of raw materials.
Should a supplier fail to comply with such regulations, notify us of non-compliance, or provide us with a product that does not
comply, we could be subject to disruption in our business and incur substantial liabilities.
Unauthorized disclosure of confidential information provided to us by customers, employees or third parties could harm our
business. We rely on the internet and other electronic methods to transmit confidential information and store confidential
information on our networks. If there were a disclosure of confidential information provided by, or concerning, our employees,
customers or other third parties, including through inadvertent disclosure, unapproved dissemination, or unauthorized access, our
reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions.
Changes in government and industry regulatory standards could have a material adverse effect on our business, financial
condition or results of operations. Government regulations pertaining to health and safety and environmental concerns continue
to emerge, domestically as well as internationally, including regulations due to the COVID-19 pandemic. These regulations include
the Occupational Safety and Health Administration and other worker safety regulations for the protection of employees, as well
as regulations for the protection of consumers. It is necessary for us to comply with current requirements (including requirements
that do not become effective until a future date), and even more stringent requirements could be imposed on our products or
processes. Compliance with these regulations may require us to alter our manufacturing and installation processes and our sourcing.
For example, our manufacturing locations enhanced cleaning processes, established health screening procedures, modified work
centers and material flows with established social distancing practices in response to the COVID-19 pandemic in accordance with
guidelines provided by the U.S. Centers for Disease Control and Prevention, as well as local and state health departments. Such
actions could increase our capital expenditures and adversely impact our business, financial condition or results of operations, and
our inability to effectively and timely meet such regulations could adversely impact our competitive position.
The loss of certain members of our management may have an adverse effect on our operating results. Our success will depend,
in part, on the efforts of our senior management and other key employees. These individuals possess sales, marketing, engineering,
manufacturing, financial and administrative skills and know-how that are critical to the operation of our business. If we lose or
suffer an extended interruption in the services of one or more of our senior officers or other key employees, our financial condition
and results of operations may be negatively affected. Moreover, the pool of qualified individuals may be highly competitive and
we may not be able to attract and retain qualified personnel to replace or succeed members of our senior management or other
10
key employees, should the need arise. The loss of the services of any key personnel, or our inability to hire new personnel with
the requisite skills, could impair our ability to develop new products or enhance existing products, sell products to our customers
or manage our business effectively.
We could continue to pursue growth opportunities through either acquisitions, mergers or internally developed projects, which
may be unsuccessful or may adversely affect future financial condition and operating results. We could continue to pursue
opportunities for growth through either acquisitions, mergers or internally developed projects as part of our growth strategy. We
cannot assure you that we will be successful in integrating an acquired business or that an internally developed project will perform
at the levels we anticipate. We may pay for future acquisitions using cash, stock, the assumption of debt, or a combination of these.
Future acquisitions could result in dilution to existing shareholders and to earnings per share. In addition, we may fail to identify
significant liabilities or risks associated with a given acquisition that could adversely affect our future financial condition and
operating results or result in us paying more for the acquired business or assets than they are worth.
Our ability to operate and our growth potential could be materially and adversely affected if we cannot employ, train and retain
qualified personnel at a competitive cost. Many of the products that we manufacture and assemble require manual processes in
plant environments. We believe that our success depends upon our ability to attract, employ, train and retain qualified personnel
with the ability to design, manufacture and assemble these products. In addition, our ability to expand our operations depends in
part on our ability to increase our skilled labor force as the housing market continues to recover in the United States. A significant
increase in the wages paid by competing employers could result in a reduction of our qualified labor force, increases in the wage
rates that we must pay, or both. In addition, we believe that our success depends in part on our ability to quickly and effectively
train additional workforce to handle the increased volume and production while minimizing labor inefficiencies and maintaining
product quality in a housing market recovery. If either of these events were to occur, our cost structure could increase, our margins
could decrease, and any growth potential could be impaired.
Our failure to maintain acceptable quality standards could result in significant unexpected costs. Any failure to maintain
acceptable quality standards could require us to recall or redesign such products, or pay substantial damages, any of which would
result in significant unexpected costs. We may also have difficulty controlling the quality of products or components sourced from
other manufacturers, so we are exposed to risks relating to the quality of such products and to limitations on our recourse against
such suppliers. Further, any claim or product recall could result in adverse publicity against us, which could decrease our credibility,
harm our reputation, adversely affect our sales, or increase our costs. Defects in our products could also result in decreased orders
or sales to our customers, which could have a material adverse effect on our business, financial condition or results of operations.
Future tax law changes or the interpretation of existing tax laws may materially impact our effective income tax rate and the
resolution of unrecognized tax benefits. Our businesses are subject to taxation in the United States as well as internationally.
Tax legislation may be enacted that could have a material adverse impact on our worldwide income tax provision. Tax authorities
in many jurisdictions routinely audit us. Because there are significant uncertainties in the outcome of such audits, the ultimate
outcome from any audit could be materially different from amounts reflected in our income tax provisions and accruals. Future
settlements of income tax audits may have a material adverse effect on earnings between the period of initial recognition of tax
estimates in our financial statements and the point of ultimate tax audit settlement.
Natural disasters could have a material adverse effect on our business, financial condition or results of operations. Many of
our facilities are located in regions that are vulnerable to natural disasters and other risks, such as earthquakes, fires, floods, tropical
storms, hurricanes and snow and ice, which at times have disrupted the local economy and posed physical risks to our property.
In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future
acts of terrorism, may cause further disruptions to the economies of the United States and other countries. Our redundant, multiple
site capacity may not be sufficient in the event of a natural disaster, terrorist act or other catastrophic event. Such disruptions could,
among other things, disrupt our manufacturing or distribution facilities and result in delays or cancellations of customer orders
for our products, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, end-user customers in
that region may delay or forego purchases of our products, which may materially and adversely impact our operating results for
a particular period.
Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available
on terms favorable to us. The ability of our business to grow and compete depends on the availability of adequate capital, which
in turn depends in large part on our cash flow from operations and the availability of equity and debt financing. We cannot assure
you that our cash flow from operations will be sufficient or that we will be able to obtain equity or debt financing on acceptable
terms, if at all, to implement our growth strategy. As a result, we cannot assure you that adequate capital will be available to finance
our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could harm
our business.
11
Certain of our customers have been expanding and may continue to expand through consolidation and internal growth, which
may increase their buying power, which could materially and adversely affect our sales, results of operations and financial
position. Certain of our customers are large companies with significant buying power. In addition, potential further consolidation
in the distribution channels could enhance the ability of certain of our customers to seek more favorable terms, including pricing,
for the products that they purchase from us. Accordingly, our ability to maintain or raise prices in the future may be limited,
including during periods of raw material and other cost increases. If we are forced to reduce prices or to maintain prices during
periods of increased costs, or if we lose customers because of pricing or other methods of competition, our sales, operating results
and financial position may be materially and adversely affected.
Our level and terms of indebtedness could adversely affect our business and liquidity position. Our consolidated indebtedness
level could have important consequences to us, including, among other things, increasing our vulnerability to general economic
and industry conditions; requiring a portion of our cash flow used in operations to be dedicated to the payment of principal and
interest on our indebtedness, therefore reducing our liquidity and our ability to use our cash flow to fund our operations, capital
expenditures and future business opportunities; exposing us to the risk of increased interest rates, and corresponding increased
interest expense, because borrowings under our credit facilities are at variable rates of interest; reducing funds available for working
capital, capital expenditures, acquisitions and other general corporate purposes, due to the costs and expenses associated with such
debt; limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements,
acquisitions, and general corporate or other purposes; and limiting our ability to adjust to changing marketplace conditions and
placing us at a competitive disadvantage compared to our competitors who may have less debt.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay
capital expenditures, sell assets, seek additional capital, or restructure or refinance our indebtedness. These alternative measures
may not be successful and may not permit us to meet our scheduled debt service obligations, which could cause us to default on
our debt obligations and impair our liquidity. In the event of a default under any of our indebtedness, the holders of the defaulted
debt could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest, which in turn
could result in cross-defaults under our other indebtedness. The lenders under our credit facilities could also elect to terminate
their commitments thereunder and cease making further loans, and such lenders could institute foreclosure proceedings against
their collateral, all of which could adversely affect our financial condition in a material way.
The credit agreement that governs our credit facility and the indenture that governs our senior notes impose significant operating
and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities or
otherwise negatively impact our business. The credit agreement that governs our credit facility and the indenture that governs
our senior notes impose significant operating and financial restrictions on us. These restrictions limit our ability and the ability
of our subsidiaries to, among other things, incur additional indebtedness (including guarantee obligations); incur liens; engage in
mergers, consolidations and certain other fundamental changes; dispose of assets; make advances, investments and loans; engage
in sale and leaseback transactions; engage in certain transactions with affiliates; enter into contractual arrangements that encumber
or restrict the ability to (A) (i) pay dividends or make distributions, (ii) pay indebtedness, (iii) make loans or advances or (iv) sell,
lease or transfer property, in each case to us and our subsidiaries, or (B) incur liens; pay dividends, distributions and other payments
in respect of capital stock or subordinated debt; repurchase or retire capital stock, warrants or options or subordinated debt; and
amend the terms of documents governing, or make payments prior to the scheduled maturity of, certain other indebtedness.
As a result of these restrictions, each of which is subject to certain exceptions and qualifications, we will be limited as to how we
conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage
of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We
cannot assure you that we will be able to maintain compliance with these existing covenants in the future and, if we fail to do so,
that we will be able to obtain waivers from the lenders and/or amend the covenants.
Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness and/or the terms
of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our
being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable
terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
12
Item 2.
PROPERTIES
We own our Corporate Office located in Winchester, Virginia. In addition, we lease eight manufacturing facilities and one
manufacturing facility/service center in the United States and Mexico and own nine manufacturing facilities located primarily in
the eastern and southern United States. We also lease seven primary service centers, 12 satellite service centers and four additional
offices located throughout the United States that support the sale and distribution of products to each market channel. We consider
our properties suitable for our business and adequate for our needs and believe that, if necessary, we could find additional and/or
replacement facilities to lease without suffering a material adverse effect on our business.
Item 3.
LEGAL PROCEEDINGS
The Company is involved in suits and claims in the normal course of business, including, without limitation, product liability and
general liability claims and claims pending before 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 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. The Company accounts for these loss contingencies in accordance with ASC 450. Where losses are
deemed to be probable and estimable, accruals are made. Where losses are deemed to be reasonably possible, a range of loss
estimate is determined and considered for disclosure. In determining these loss range estimates, the Company considers known
values of similar claims and consults with independent counsel.
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, 2020.
Item 4.
MINE SAFETY DISCLOSURES
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Company are elected by the Board of Directors and generally hold office until the next annual election
of officers. There are no family relationships between any executive officer and any other officer or director of the Company or
any arrangement or understanding between any executive officer and any other person pursuant to which such officer was elected.
The executive officers of the Company, as of the date of this Report, are as follows:
Name
S. Cary Dunston
M. Scott Culbreth
R. Perry Campbell
Robert J. Adams, Jr.
Teresa M. May
Age
55
Position(s) Held During Past Five Years
Company Chairman from August 2017 to present; Company President and Chief
Executive Officer from August 2015 to present; Company President and Chief
Operating Officer from August 2014 to August 2015.
49
55
54
55
Company Senior Vice President and Chief Financial Officer from February 2014 to
present.
Company Senior Vice President, Sales and Commercial Operations from April 2020
to present; Company Senior Vice President of Sales and Marketing from March 2016
to April 2020; Company Senior Vice President and General Manager, New
Construction from August 2013 to March 2016.
Company Senior Vice President, Value Stream Operations from August 2015 to
present; Company Vice President of Value Stream Operations from September 2012
to August 2015; Company Vice President of Manufacturing and Engineering from
April 2012 to September 2012.
Company Senior Vice President and Chief Marketing Officer from April 2020 to
present; Senior Vice President and Chief Marketing Officer of Asurion from May 2018
to April 2020; Vice President of Owens Corning from March 2012 to March 2018.
13
PART II
Item 5.
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
Market Information
American Woodmark Corporation common stock is listed on The NASDAQ Global Select Market under the “AMWD” symbol.
As of June 19, 2020 there were approximately 17,000 total shareholders of the Company's common stock, including 5,000
shareholders of record and 12,000 beneficial owners whose shares are held in "street" name by securities broker-dealers or other
nominees. The Company's shareholders also include approximately 50% of the Company's employees who are eligible to participate
in the American Woodmark Corporation Retirement Savings Plan. The Company suspended its quarterly dividend during fiscal
2012. The determination as to the payment of future dividends will be made by the Board of Directors (the "Board") from time
to time and will depend on the Company's then current financial condition, capital requirements, and results of operations, as well
as any other factors then deemed relevant by the Board of Directors, and will be subject to applicable restrictions in the credit
agreement governing the Company's credit facility and the indenture governing the Company's senior notes.
Stock Performance Graph
The performance graph shown below compares the percentage change in the cumulative total shareholder return on our common
stock against the cumulative total return of the Russell 2000 Index and Standard & Poor’s Household Durables Index for the period
from April 30, 2015 through April 30, 2020. The graph assumes an initial investment of $100 and the reinvestment of dividends.
The graph is based on historical data and is not intended to be a forecast or indication of future performance of American Woodmark
common stock.
14
2015
2016
2017
2018
2019
American Woodmark Corporation
$100.00
$143.67
$181.26
$162.12
$172.52
Russell 2000 Index
S&P Household Durables Index
100.00
100.00
94.06
103.51
118.16
118.87
131.79
110.36
137.87
101.4
2020
$98.62
115.27
95.17
The graph and related information above are not deemed to be "filed" with the Securities and Exchange ("SEC") for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any future filing made by us
with the SEC, except to the extent that we specifically incorporate it by reference into any such filing.
15
Item 6.
SELECTED FINANCIAL DATA
(Dollars in millions except per share data)
FINANCIAL STATEMENT DATA
Net sales
Operating income
Net income
Earnings per share:
Basic
Diluted
Depreciation and amortization expense
Total assets
Long-term debt, less current maturities
Total shareholders' equity
Average shares outstanding
Basic
Diluted
PERCENT OF SALES
Gross profit
Selling, general and administrative expenses
Income before income taxes
Net income
RATIO ANALYSIS
Current ratio
Inventory turnover4
Collection period - days5
20201,2,3
FISCAL YEARS ENDED APRIL 30
20181,2
20191,2,3
20172
2016
$ 1,650.3
$ 1,645.3
$ 1,250.3
$ 1,030.2
$
947.0
132.3
74.9
4.43
4.42
98.5
141.7
83.7
4.84
4.83
94.4
107.7
63.1
3.80
3.77
45.0
1,622.8
1,529.9
1,645.3
594.9
700.5
16.9
17.0
19.9%
11.9
6.1
4.5
2.1
12.0
34.1
689.2
620.4
17.3
17.3
21.1%
12.4
6.7
5.1
2.0
12.2
35.3
809.9
581.7
16.6
16.7
20.4%
11.8
7.6
5.1
2.1
13.5
33.6
108.2
71.2
4.38
4.34
18.7
501.3
15.3
352.4
16.3
16.4
21.8%
11.3
10.6
6.9
3.3
19.6
32.5
93.2
58.7
3.61
3.57
16.5
466.4
22.1
280.8
16.3
16.4
21.1%
11.2
9.7
6.2
3.3
19.8
31.2
Percentage of capital (long-term debt plus equity):
Long-term debt, less current maturities
45.9%
52.6%
58.2%
4.2%
7.4%
Equity
Return on equity6
54.1
11.3
47.4
13.9
41.8
13.5
95.8
22.5
92.6
23.0
The fiscal 2020, 2019 and 2018 year results include twelve, twelve and four months, respectively, of RSI activity. See Note
B -- Acquisition of RSI Home Products, Inc. for further details.
The Company incurred corporate business development expenses. During fiscal 2020, these expenses decreased operating
income, net income and earnings per share by $0.2 million, $0.2 million and $0.01, respectively. During fiscal 2019, these
expenses decreased operating income, net income and earnings per share by $2.1 million, $1.6 million and $0.09, respectively.
During fiscal 2018, these expenses decreased operating income, net income and earnings per share by $12.9 million, $8.6
million and $0.51, respectively. During fiscal 2017, these expenses decreased operating income, net income and earnings
per share by $2.7 million, $1.8 million and $0.11, respectively.
The Company announced a reduction in workforce in fiscal 2020 and 2019. During fiscal 2020, the net restructuring charges
related to the reduction in workforce did not materially affect the financial statements. During fiscal 2019, the net
restructuring charges related to the reduction in workforce decreased operating income, net income and earnings per share
by $2.0 million, $1.5 million and $0.09, respectively.
Based on average beginning and ending inventory.
Based on the ratio of average monthly customer receivables to average sales per day.
Based on net income divided by average beginning and ending shareholders equity.
1
2
3
4
5
6
16
Item 7.
OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
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, net
Operating income
Interest expense/other (income) expense
Income before income taxes
Income tax expense
Net income
PERCENTAGE OF NET SALES
Fiscal Years Ended April 30
2020
2019
2018
100.0%
100.0%
100.0%
80.1
19.9
5.1
6.8
—
8.0
1.9
6.1
1.6
4.5
78.9
21.1
5.5
6.9
0.1
8.6
1.9
6.7
1.6
5.1
79.6
20.4
6.2
5.6
—
8.6
1.0
7.6
2.5
5.1
The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements
and the related notes contained elsewhere in this report.
Forward-Looking Statements
This annual report contains statements concerning the Company’s expectations, plans, objectives, future financial performance,
and other statements that are not historical facts. These statements may be “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify forward-looking statements by words
such as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “would,” “plan,” “may,” “intend,” “estimate,”
“prospect,” “goal,” “will,” “predict,” “potential” or other similar words. Forward-looking statements contained in this report,
including elsewhere in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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. Factors that
could cause actual results to differ materially from those in forward-looking statements made in this report include but are not
limited to:
•
•
•
•
•
•
•
•
•
•
the impact of COVID-19 on our business, the global and U.S. economy and our customers and suppliers;
the loss of or a reduction in business from one or more of our key customers;
negative developments in the macro-economic factors that impact our performance such as the U.S. housing market, general
economy, unemployment rates and consumer sentiment and the impact of such developments on our and our customers’
business, operations and access to financing;
competition from other manufacturers and the impact of such competition on pricing and promotional levels;
an inability to develop new products or respond to changing consumer preferences and purchasing practices;
a failure to effectively manage manufacturing operations, alignment and capacity or an inability to maintain the quality of
our products;
the impairment of goodwill, other intangible assets or our long-lived assets;
an inability to obtain raw materials in a timely manner or fluctuations in raw material and energy costs;
information systems interruptions or intrusions or the unauthorized release of confidential information concerning
customers, employees or other third parties;
the cost of compliance with, or liabilities related to, environmental or other governmental regulations or changes in
governmental or industry regulatory standards, especially with respect to health and safety and the environment;
17
•
•
•
•
•
•
•
•
•
•
a failure to attract and retain certain members of management or other key employees or other negative labor developments,
including increases in the cost of labor;
risks associated with the implementation of our growth strategy;
risks related to sourcing and selling products internationally and doing business globally, including the imposition of tariffs
or duties on those products;
unexpected costs resulting from a failure to maintain acceptable quality standards;
changes in tax laws or the interpretations of existing tax laws;
the occurrence of significant natural disasters, including earthquakes, fires, floods, and hurricanes or tropical storms;
the unavailability of adequate capital for our business to grow and compete;
increased buying power of large customers and the impact on our ability to maintain or raise prices;
our ability to successfully integrate RSI into our business and operations and the risk that the anticipated economic benefits,
costs savings and other synergies in connection with the RSI Acquisition are not fully realized or take longer to realize than
expected; and
limitations on operating our business as a result of covenant restrictions under our indebtedness, and our ability to pay
amounts due under our credit facilities, our senior notes and our other indebtedness.
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 of Financial Condition
and Results of Operations” and under Item 1A. “Risk Factors,” and Item 7A. “Quantitative and Qualitative Disclosures about
Market Risk.” While the Company believes that these risks are manageable and will not adversely impact the long-term
performance of the Company, these risks could, under certain circumstances, have a material adverse impact on its operating
results and financial condition.
Any forward-looking statement that the Company makes speaks only as of the date of this annual report. The Company undertakes
no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information,
future events or otherwise, except as required by law.
Overview
American Woodmark Corporation manufactures and distributes kitchen, bath and home organization products for the remodeling
and new home construction markets. Its products are sold on a national basis directly to home centers and builders and through
a network of independent dealers and distributors. At April 30, 2020, the Company operated 18 manufacturing facilities in the
United States and Mexico and eight primary service centers located throughout the United States.
On December 29, 2017, we completed the acquisition of RSI, a leading manufacturer of kitchen, bath and home organization
products. For the fiscal years ended April 30, 2020 and 2019, the consolidated results include 12 months of RSI activity and the
fiscal year ended April 30, 2018, only includes four months of RSI activity.
COVID-19
The pandemic caused by COVID-19 was first reported in Wuhan, China in December 2019 and has since spread throughout the
world. Financial markets have been volatile in 2020, primarily due to uncertainty with respect to the severity and duration of the
pandemic.
The pandemic has resulted in federal, state and local governments around the world implementing increasingly stringent measures
to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions or
bans, business curtailments, school closures, and other protective measures.
All of our manufacturing facilities currently qualify as essential operations (or the equivalent) under applicable federal and state
orders. Operations in our component plants in Mexico were temporarily suspended for a period of time in April 2020, however,
all of our manufacturing facilities and service centers are currently open and operating. We are enforcing social distancing and
enhanced health, safety and sanitization measures in accordance with guidelines from the Center for Disease Control. We have
also implemented necessary procedures and support to enable a significant portion of our office personnel to work remotely.
As the spread of the virus began to be identified within the United States in March 2020, we acted by imposing travel restrictions,
transitioning large meetings from in-person to virtual formats, assessing our information technology infrastructure to ensure
readiness for a remote workforce, staying connected to customers, suppliers and business partners, planning for return to the
workplace and making operational adjustments as needed to ensure continued safety of our workforce.
18
The COVID-19 pandemic impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020
and continues to impact us in fiscal 2021. Although the financial impact on our overall fiscal 2020 results is limited due to the
timing of the outbreak, we face numerous uncertainties in estimating the direct and indirect effects on our present and future
business operations, financial condition, results of operations, and liquidity. Due to several rapidly changing variables related to
the COVID-19 pandemic, we cannot reasonably estimate future economic trends and the timing of when stability will return.
Refer to Item 1A. “Risk Factors” for a disclosure of risk factors related to COVID-19.
Particleboard Supply
Due to a catastrophic fire at a key Southeast supplier plant in May 2019 (fiscal 2020) and the supplier’s subsequent decision to
shutter operations over the next 90-days at two additional plants, the Company experienced a temporary disruption in supply of
particleboard, a key input component to the build of our cabinetry. This disruption resulted in net expense of $4.2 million during
fiscal 2020. Management was successful in containing the situation as to not impact our customers.
Financial Overview
A number of general market factors impacted the Company's business in fiscal 2020, including:
• The unemployment rate increased by 308% compared to April 2019, to 14.7% as of April 2020 according to data provided by
the U.S. Department of Labor, although nearly all of the increase occurred in March and April 2020;
• Increase in single family housing starts during the Company’s fiscal 2019 of 5%, as compared to the Company’s fiscal 2019,
according to the U.S. Department of Commerce;
• Mortgage interest rates decreased with a 30-year fixed mortgage rate of 3.31% in April 2020, a decrease of approximately 83
basis points compared to April 2019;
• The median price of existing homes sold in the U.S. rose by 6.1% during the Company’s fiscal 2020, according to data provided
by the National Association of Realtors;
• Consumer sentiment, as reported by the University of Michigan, averaged 2.7% lower during the Company’s fiscal 2020 than
in its prior fiscal year; and
• Cabinet sales, as reported by members of the Kitchen Cabinet Manufacturers Association (KCMA), decreased by 0.1% during
fiscal 2020 versus the prior fiscal year.
The Company’s largest remodeling customers and competitors continued to utilize sales promotions in the Company’s product
category during fiscal 2020 to boost sales. The Company strives to maintain its promotional levels in line with market activity,
with a goal of remaining competitive. The Company experienced promotional levels during fiscal 2020 that were higher than those
experienced in its prior fiscal year. Sales in the remodel channel decreased 3% during the fiscal year due to a decline in the made-
to-order framed business which were partially offset by growth in the stock business.
Sales in the new construction channel increased 6% during the fiscal year due to share penetration with our builder partners and
the health of the markets where we concentrated our business during fiscal 2020.
The Company increased its net sales by 0.3% during fiscal 2020, which management believes was driven primarily by growth in
the builder channel which was partially offset by declines in the home center and independent dealers and distributors channels.
Gross margin for fiscal 2020 was 19.9%, a decrease from 21.1% in fiscal 2019. The decrease in gross margin was primarily due
to tariffs of $6.4 million, net cost impacts related to our particleboard supply disruption of $4.2 million, duplicate rent/move costs
related to our California facility move of $2.4 million and expenses related to the temporary suspension of operations in our
component plants in Mexico during April 2020.
The Company regularly considers the need for a valuation allowance against its deferred tax assets. The Company has been
profitable for the last 8 years. As of April 30, 2020, the Company had total deferred tax assets of $46.0 million net of valuation
allowance, up from $14.3 million of deferred tax assets net of valuation allowance at April 30, 2019. The increase in deferred tax
assets during fiscal 2020 was primarily due to the adoption of new leasing standards. Deferred tax assets are reduced by a valuation
allowance when, after considering all positive and negative evidence, it is determined that it is more likely than not that some
portion, or all, of the deferred tax asset will not be realized. The Company has recorded a valuation allowance related to deferred
19
tax assets for certain state investment tax credit (“ITC”) carryforwards. These credits expire in various years beginning in fiscal
2028. The Company believes based on positive evidence of the housing industry improvement along with 8 consecutive years of
profitability that the Company will more likely than not realize all other remaining 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 its long-lived assets were impaired as of April 30, 2020.
Results of Operations
FISCAL YEARS ENDED APRIL 30
(Dollars in thousands)
2020
2019
2018
2020 vs.
2019
PERCENT
CHANGE
2019 vs.
2018
PERCENT
CHANGE
Net sales
Gross profit
Selling and marketing expenses
General and administrative expenses
Interest expense (income), net
Net Sales
$1,650,333
$1,645,319
$1,250,274
329,186
83,608
113,334
29,027
346,473
89,875
112,917
35,652
255,403
77,843
69,855
13,054
—%
(5)
(7)
—
(19)
32%
36
15
62
173
Net sales for fiscal 2020 increased 0.3% to $1,650.3 million from the prior fiscal year. The Company experienced growth in the
builder channel which was partially offset by declines in the home center and independent dealers and distributors channels.
Net sales for fiscal 2019 increased 32% to $1,645.3 million from the prior fiscal year. The fiscal 2019 results include eight
incremental months of results from the RSI Acquisition. Excluding the impact of the RSI Acquisition, the Company experienced
growth in all channels during fiscal 2019 versus the comparable prior year period.
Gross Profit
Gross profit as a percentage of sales decreased to 19.9% in fiscal 2020 as compared with 21.1% in fiscal 2019. The decrease in
gross profit margin was primarily due to tariffs of $6.4 million, net cost impacts related to our particleboard supply disruption of
$4.2 million, duplicate rent/move costs related to our California facility move of $2.4 million and expenses related to the temporary
suspension of operations in our component plants in Mexico in April 2020.
Gross profit as a percentage of sales increased to 21.1% in fiscal 2019 as compared with 20.4% in fiscal 2018. The increase in
gross profit margin was due primarily to higher sales volumes, price, mix and overhead cost leverage due to higher volumes.
These favorable impacts were partially offset by higher transportation costs, newly enacted tariffs and raw material inflation.
Selling and Marketing Expenses
Selling and marketing expenses in fiscal 2020 were 5.1% of net sales, compared with 5.5% of net sales in fiscal 2019. Selling
and marketing costs decreased by 7% despite a 0.3% increase in net sales. The improvement in the percentage of selling and
marketing costs in relation to net sales was due to lower displays and incentive costs.
Selling and marketing expenses in fiscal 2019 were 5.5% of net sales, compared with 6.2% of net sales in fiscal 2018. Selling
and marketing costs increased by only 15% despite a 32% increase in net sales. The improvement in the percentage of selling
and marketing costs in relation to net sales was due to favorable leverage from increased sales and on-going expense control.
General and Administrative Expenses
General and administrative expenses increased by $0.4 million or 0.4% during fiscal 2020 versus the prior fiscal year. General
and administrative costs decreased to 6.8% of net sales in fiscal 2020 compared with 6.9% of net sales in fiscal 2019.
20
General and administrative expenses increased by $43.1 million or 62% during fiscal 2019 versus the prior fiscal year. The increase
was related to intangible amortization and higher compensation incentive costs. General and administrative costs increased to
6.9% of net sales in fiscal 2019 compared with 5.6% of net sales in fiscal 2018.
Effective Income Tax Rates
The Company generated pre-tax income of $100.5 million during fiscal 2020. The Company’s effective tax rate increased from
24.5% in fiscal 2019 to 25.5% in fiscal 2020 primarily due to the benefit from the Tax Cuts and Jobs Act of 2017 (H.R. 1) (the
“Tax Act”) that was recognized in fiscal 2019. The higher effective tax rate was primarily due to lower federal income tax credits.
The Company’s effective tax rate decreased from 33.4% in fiscal 2018 to 24.5% in fiscal 2019. The lower effective tax rate in
fiscal 2019 was primarily due to the overall benefit from the reduction in the tax rate enacted in connection with the Tax Act.
Non-GAAP Financial Measures
We have reported our financial results in accordance with generally accepted accounting principles ("GAAP"). In addition, we
have presented in this report the non-GAAP measures described below.
A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented
in accordance with GAAP is set forth below.
Management believes these non-GAAP financial measures provide an additional means of analyzing the current period’s results
against the corresponding prior period’s results. However, these non-GAAP financial measures should be viewed in addition to,
and not as a substitute for, the Company’s reported results prepared in accordance with GAAP. Our non-GAAP financial measures
are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction
with our consolidated financial statements prepared in accordance with GAAP.
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin
We use EBITDA, Adjusted EBITDA and Adjusted EBITDA margin in evaluating the performance of our business, and we use
each in the preparation of our annual operating budgets and as indicators of business performance and profitability. We believe
Adjusted EBITDA and Adjusted EBITDA margin allow us to readily view operating trends, perform analytical comparisons and
identify strategies to improve operating performance. Additionally, Adjusted EBITDA is a key measurement used in our Term
Loans to determine interest rates and financial covenant compliance.
We define EBITDA as net income adjusted to exclude (1) income tax expense, (2) interest (income) expense, net, (3) depreciation
and amortization expense and (4) amortization of customer relationship intangibles and trademarks. We define Adjusted EBITDA
as EBITDA adjusted to exclude (1) expenses related to the RSI Acquisition and the subsequent restructuring charges that the
Company incurred related to the acquisition, (2) inventory step-up amortization due to the increase in the fair value of inventory
acquired through the RSI Acquisition, (3) non-recurring restructuring charges, (4) net gain on debt forgiveness and modification,
(5) stock-based compensation expense, (6) gain/loss on asset disposals and (7) change in fair value of foreign exchange forward
contracts. We believe Adjusted EBITDA, when presented in conjunction with comparable GAAP measures, is useful for investors
because management uses Adjusted EBITDA in evaluating the performance of our business.
We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.
Adjusted EPS per diluted share
We use Adjusted EPS per diluted share in evaluating the performance of our business and profitability. Management believes that
this measure provides useful information to investors by offering additional ways of viewing the Company’s results by providing
an indication of performance and profitability excluding the impact of unusual and/or non-cash items. We define Adjusted EPS
per diluted share as diluted earnings per share excluding the per share impact of (1) expenses related to the RSI Acquisition and
the subsequent restructuring charges that the Company incurred related to the acquisition, (2) inventory step-up amortization due
to the increase in the fair value of inventory acquired through the RSI Acquisition, (3) non-recurring restructuring charges, (4) the
amortization of customer relationship intangibles and trademarks, (5) net gain on debt forgiveness and modification and (6) the
tax benefit of RSI Acquisition expenses and subsequent restructuring charges, the net gain on debt forgiveness and modification
and the amortization of customer relationship intangibles and trademarks. The amortization of intangible assets is driven by the
RSI Acquisition and will recur in future periods. Management has determined that excluding amortization of intangible assets
from our definition of Adjusted EPS per diluted share will better help it evaluate the performance of our business and profitability
and we have also received similar feedback from some of our investors regarding the same. During the fourth quarter of fiscal
21
2020, management determined that adding non-recurring restructuring charges was an appropriate adjustment due to their non-
recurring nature.
Free cash flow
To better understand trends in our business, we believe that it is helpful to subtract amounts for capital expenditures consisting of
cash payments for property, plant and equipment and cash payments for investments in displays from cash flows from continuing
operations which is how we define free cash flow. Management believes this measure gives investors an additional perspective
on cash flow from operating activities in excess of amounts required for reinvestment. It also provides a measure of our ability to
repay our debt obligations.
A reconciliation of these non-GAAP financial measures and the most directly comparable measures calculated and presented in
accordance with GAAP are set forth in the following tables:
Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin
(Dollars in thousands)
Net income (GAAP)
Add back:
Income tax expense
Interest expense, net
Depreciation and amortization expense
Amortization of customer relationship intangibles and trademarks
EBITDA (Non-GAAP)
Add back:
Acquisition and restructuring related expenses (1)
Inventory step-up amortization (2)
Change in fair value of foreign exchange forward contracts (3)
Net gain on debt forgiveness and modification (4)
Stock-based compensation expense
Loss on asset disposal
Adjusted EBITDA (Non-GAAP)
Net Sales
FISCAL YEARS ENDED APRIL 30,
2020
2019
2018
$
74,861
$
83,688
$
63,141
25,687
29,027
49,513
49,000
27,200
35,652
45,446
49,000
31,619
13,054
28,671
16,333
$
228,088
$
240,986
$
152,818
221
—
1,102
—
3,989
2,629
$
236,029
$
1,650,333
$
$
4,118
—
—
(5,266)
3,040
1,973
244,851
1,645,319
12,902
6,334
—
—
3,097
615
175,766
1,250,274
$
$
Adjusted EBITDA margin (Non-GAAP)
14.3%
14.9%
14.1%
(1) Acquisition and restructuring related expenses are comprised of expenses related to the RSI Acquisition, the subsequent
restructuring charges that the Company incurred related to the acquisition and restructuring charges incurred related to COVID-19.
(2) The inventory step-amortization is the increase in the fair value of inventory acquired through the RSI Acquisition that was
fully expensed when the inventory was sold in the quarter ended January 31, 2018.
(3) In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates. The
Company manages these risks through the use of foreign exchange forward contracts. The changes in the fair value of the forward
contracts are recorded in other expense (income) in the operating results.
(4) The Company had loans and interest forgiven relating to four separate economic development loans totaling $5.5 million for
fiscal year 2019 and the Company incurred $0.3 million in loan modification expense with an amendment to the credit agreement
during fiscal year 2019.
A reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as projected for fiscal 2021 is not provided because
we do not forecast net income as we cannot, without unreasonable effort, estimate or predict with certainty various components
of net income.
22
Adjusted EPS per diluted share
(Dollars in thousands, except share and per share data)
2020
2019
2018
FISCAL YEARS ENDED APRIL 30,
Net income (GAAP)
Add back:
Acquisition and restructuring related expenses
Amortization of intangibles
Inventory step-up amortization
Net gain on debt forgiveness and modification
Tax benefit of add backs
Adjusted net income (Non-GAAP)
Weighted average diluted shares
Adjusted EPS per diluted share (Non-GAAP)
EPS per diluted share (GAAP)
Free cash flow
(Dollars in thousands)
Cash provided by operating activities
Less: capital expenditures (1)
Free cash flow
$
74,861
$
83,688
$
63,141
221
49,000
—
—
(12,305)
111,777
16,952,480
6.59
4.42
$
$
$
4,118
49,000
—
(5,266)
(11,824)
119,716
17,330,419
6.91
4.83
$
$
$
12,902
16,333
6,334
—
(10,970)
87,740
16,744,705
5.24
3.77
FISCAL YEARS ENDED APRIL 30,
2020
2019
2018
177,542
40,739
136,803
$
$
190,845
39,385
151,460
$
$
86,775
49,893
36,882
$
$
$
$
$
(1) Capital expenditures consist of cash payments for property, plant and equipment and cash payments for investments in displays.
Outlook for Fiscal 2021
The impact on our fiscal 2021 financial results from the COVID-19 pandemic are uncertain. The Company’s net sales were down
2% during the fourth quarter of fiscal 2020 but we expect net sales for the first quarter of fiscal 2021 to be down approximately
high single-digit to low double-digit versus the prior year period which will negatively impact Net Income and Adjusted EBITDA.
This trend could continue until the pandemic subsides and macro-economic factors improve. The Company has taken actions to
improve its cash position and as of April 30, 2020 had $97.1 million of cash on hand and access to $94.3 million of additional
availability under its revolver. As of May 31, 2020, our cash position has further improved to $107.4 million. We will continue
to monitor the situation closely and may implement further measures to provide additional financial flexibility as we work to
protect our cash position and liquidity.
Additional risks and uncertainties that could affect the Company’s results of operations and financial condition are discussed
elsewhere in this annual report, including under “Forward-Looking Statements,” and elsewhere in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” as well as under Item 1A. “Risk Factors” and Item 7A. “Quantitative
and Qualitative Disclosures about Market Risk.”
Liquidity and Capital Resources
The Company’s cash and cash equivalents totaled $97.1 million at April 30, 2020, representing a $39.4 million increase from its
April 30, 2019 levels. At April 30, 2020, total long-term debt (including current maturities) was $597.1 million, a decrease of
$94.4 million from its balance at April 30, 2019. The Company’s ratio of long-term debt to total capital was 45.9% at April 30,
2020, compared with 52.6% at April 30, 2019. The Company’s main source of liquidity is its cash and cash equivalents on hand
and cash generated from its operating activities.
23
The Company can also borrow up to $100 million under the Revolving Facility. Approximately $94.3 million was available under
this facility as of April 30, 2020.
The RSI Acquisition significantly affected the Company’s financial condition, liquidity and cash flow. See Note B -- Acquisition
of RSI Home Products, Inc. (the “RSI Acquisition”) for a table detailing the purchase price. The Company borrowed $250 million
under the Initial Term Loan on December 29, 2017 in connection with the closing of the RSI Acquisition and borrowed an additional
$250 million under the Delayed Draw Term Loan on February 12, 2018 in connection with the refinancing of the RSI Notes.
Amounts outstanding under the Credit Facilities bear interest based on a fluctuating rate measured by reference to either, at the
Company’s option, a base rate plus an applicable margin or LIBOR plus an applicable margin, with the applicable margin being
determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio.” The Company also incurs a
quarterly commitment fee on the average daily unused portion of the Revolving Facility during the applicable quarter at a rate per
annum also determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio.” As of April 30, 2020,
the applicable margin with respect to base rate loans and LIBOR loans was 0.50% and 1.50%, respectively, and the commitment
fee was 0.175%.
The Company began repaying the aggregate outstanding amounts under its initial term loan facility and the delayed draw term
loan facility in certain specified quarterly installments on April 30, 2018. The Credit Facilities mature on December 29, 2022.
On February 12, 2018, the Company issued $350 million in aggregate principal amount of the Senior Notes and utilized the
proceeds of such issuance, together with the borrowings under the Delayed Draw Term Loan as discussed above and cash on hand,
to fund the refinancing of the RSI Notes, which were acquired as part of the RSI Acquisition - See Note B -- Acquisition of RSI
Home Products, Inc. (the “RSI Acquisition”).
The credit agreement governing the Company's credit facilities and the indenture governing the Senior Notes restrict the ability
of the Company and certain of the Company’s subsidiaries to, among other things, incur additional indebtedness, create additional
liens, make certain investments, dispose of assets or engage in a merger or consolidation, engage in certain transactions with
affiliates, and make certain restricted payments, including the payment of dividends or the repurchase or redemption of stock,
subject, in each case, to the various exceptions and conditions described in the credit agreement and the indenture. See Note G --
Notes Payable and Long-Term Debt for a discussion of our compliance with the covenants in the credit agreement and the indenture.
OPERATING ACTIVITIES
Cash provided by operating activities in fiscal 2020 was $177.5 million, compared with $190.8 million in fiscal 2019. The decrease
in the Company’s cash from operating activities was driven primarily by a decrease in net income and decreased cash flows from
income taxes receivable and accrued compensation and related expenses, which was partially offset by an increase in cash flows
from customer receivables and accrued marketing expenses.
Cash provided by operating activities in fiscal 2019 was $190.8 million, compared with $86.8 million in fiscal 2018. The increase
in the Company’s cash from operating activities was driven primarily by an increase in net income excluding non-cash items
(primarily depreciation and amortization), lower pension contributions in excess of expense and a decrease in customer receivables
which was partially offset by an increase in inventories and other accrued expenses.
On November 28, 2018, the Board approved up to $5.0 million of discretionary funding to reduce its defined benefit pension
liabilities. The Company made aggregate contributions of $7.3 million to its pension plans during fiscal 2019, including the $5.0
million of discretionary funding. The Company made contributions of $0.5 million to its pension plans during fiscal 2020.
On August 24, 2017, the Board approved up to $13.6 million of discretionary funding to reduce its defined benefit pension liabilities.
The Company made aggregate contributions of $19.3 million to its pension plans during fiscal 2018, including the $13.6 million
of discretionary funding.
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 2020 was $38.9 million, compared with $37.9 million in fiscal 2019 and $44.3 million in
fiscal 2018. Investments in property, plant and equipment for fiscal 2020 were $31.7 million, compared with $32.1 million in
fiscal 2019 and $47.6 million in fiscal 2018. Investments in promotional displays were $9.1 million in fiscal 2020, compared with
$7.3 million in fiscal 2019 and $2.3 million in fiscal 2018.
24
On November 30, 2016 the Board approved the construction of a new corporate headquarters in Winchester, Virginia. The new
space has consolidated employees that previously occupied four buildings in Winchester, Virginia and Frederick County, Virginia,
during the fourth quarter of fiscal 2018. During fiscal 2020, 2019 and 2018, approximately $0.6 million, $6.7 million and $21.1
million, respectively, was spent related to the new corporate headquarters.
FINANCING ACTIVITIES
The Company realized a net outflow of $99.2 million from financing activities in fiscal 2020 compared with a net outflow of
$173.7 million in fiscal 2019, and a net outflow of $141.0 million in fiscal 2018. During fiscal 2020, $98.5 million was used to
repay long-term debt, compared with approximately $122.2 million in fiscal 2019 and $96.6 million in fiscal 2018.
Under a stock repurchase authorization approved by its Board on November 30, 2016, the Company was authorized to purchase
up to $50 million of the Company's common shares. The Board suspended the Company's stock repurchase program in conjunction
with the RSI Acquisition. On August 23, 2018, the Board reinstated the program. On November 28, 2018, the Board authorized
an additional stock repurchase program of up to $14 million of the Company's common shares. This authorization is in addition
to the stock repurchase program authorized on November 30, 2016. The Company funded share repurchases using available cash
and cash generated from operations. Repurchased shares became authorized but unissued common shares. At April 30, 2019, no
funds remained from the amounts authorized by the Board to repurchase the Company’s common shares. On August 22, 2019,
the Board authorized a stock repurchase program of up to $50 million of the Company's common shares. The Company did not
repurchase any of its shares during the fiscal year ended April 30, 2020. The Company repurchased $50.0 million during fiscal
2019 and $29.0 million during fiscal 2018.
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, service existing debt obligations and fund capital expenditures for fiscal 2021.
The timing of the Company’s contractual obligations (excluding interest) as of April 30, 2020 is summarized in the table below:
FISCAL YEARS ENDED APRIL 30
(in thousands)
Total Amounts
2021
2022-2023
2024-2025
Term Loans
The Senior Notes
Capital lease obligations
Other long-term debt
Operating lease obligations
$
244,000
$
— $
244,000
$
— $
350,000
5,687
6,659
154,272
—
2,216
—
24,071
—
2,303
46
40,756
—
1,098
509
33,836
2026 and
Thereafter
—
350,000
70
6,104
55,609
Total
$
760,618
$
26,287
$
287,105
$
35,443
$
411,783
SEASONALITY
Our business has been subject to seasonal influences, with higher sales typically realized in our first and fourth fiscal quarters,
although sales were down in the fourth quarter of fiscal 2020 and we expect sales to be down in the first quarter of fiscal 2021
due to the COVID-19 pandemic. General economic forces and changes in our customer mix have reduced seasonal fluctuations
in revenue over the past few years. 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.
For additional discussion of risks that could affect the Company and its business, see “Forward-Looking Statements” above, as
well as Item 1A. “Risk Factors” and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk.”
OFF-BALANCE SHEET ARRANGEMENTS
As of April 30, 2020 and 2019, the Company had no off-balance sheet arrangements.
25
CRITICAL ACCOUNTING POLICIES
Management has chosen accounting policies that are necessary to give reasonable assurance that the Company’s operational results
and financial position are accurately and fairly reported. 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.
Management regularly reviews these critical accounting policies and estimates with the Audit Committee of the Board.
Revenue Recognition. The Company utilizes signed sales agreements that provide for transfer of title to the customer at the time
of shipment or upon delivery based on the contractual terms. The Company must estimate the amount of sales that have been
transferred to third-party carriers but not delivered to customers as the carriers are not able to report real-time what has been
delivered and thus there is a delay in reporting to the Company. The estimate is calculated using a lag factor determined 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 ("GAAP"). Collection is reasonably assured as determined
through an analysis of accounts receivable data, including historical product returns and the evaluation of each customer’s ability
to pay. Allowances for sales returns are based on the historical relationship 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, workers’ compensation
liability, general liability, auto liability and property insurance. The Company maintains stop-loss coverage with third-party insurers
to limit total exposure. The Company establishes a liability at each balance sheet date based on estimates for a variety of factors
that influence the Company’s ultimate cost. In the event that actual experience is substantially different from the estimates, the
financial results for the period could be adversely affected. The Company believes that the methodologies used to estimate insurance
liabilities are an accurate reflection of the liabilities as of the date of the balance sheets.
Pensions. Prior to April 30, 2020, the Company had two non-contributory defined benefit pension plans covering many of the
Company’s employees hired prior to April 30, 2012. Effective April 30, 2012, the Company froze all future benefit accruals under
the Company’s hourly and salaried defined benefit pension plans. Effective April 30, 2020, these plans were merged into one
plan.
The estimated expense, benefits and pension obligations of these plans are determined using various assumptions. The most
significant assumptions are the long-term expected rate of return on plan assets and the discount rate used to determine the present
value of the pension obligations. The long-term expected rate of return on plan assets reflects the current mix of the plan assets
invested in equities and bonds.
The following is a summary of the potential impact of a hypothetical 1% change in actuarial assumptions for the discount rate,
expected return on plan assets and consumer price index:
(in millions)
(decrease) increase
Effect on annual pension expense
Effect on projected pension benefit obligation
IMPACT OF 1%
INCREASE
IMPACT OF 1%
DECREASE
$
$
(1.7) $
(24.7) $
1.5
31.3
Pension expense for fiscal 2020 and the assumptions used in that calculation are presented in Note J of the Consolidated Financial
Statements. At April 30, 2020, the weighted average discount rate was 3.16% compared with 4.02% at April 30, 2019. The expected
return on plan assets was 5.0% for the year ended April 30, 2020 and 5.5% for the year ended April 30, 2019. The rate of compensation
increase is not applicable for periods beyond April 30, 2012 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 obligations
of the plans and to estimate future performance of the plans’ invested assets. Over the past two measurement periods, the most
26
material deviations between results based on assumptions and the actual plan performance have resulted from changes to the
discount rate used to measure the plans’ benefit obligations and the actual return on plan assets. Accounting guidelines require
the discount rate to be set to a current market rate at each annual measurement date.
The Company strives to balance expected long-term returns and short-term volatility of pension plan assets. Favorable and
unfavorable differences between the assumed and actual returns on plan assets are generally amortized over a period no longer
than the average life expectancy of the plans’ active participants. The actual rates of return on plan assets realized, net of investment
manager fees, were 15.6%, 7.0% and 3.5% for fiscal 2020, 2019 and 2018, respectively.
The fair value of plan assets at April 30, 2020 was $190.7 million compared with $169.5 million at April 30, 2019. The Company’s
projected benefit obligation exceeded plan assets by $0.4 million in fiscal 2020 and the plan assets exceeded the projected benefit
obligation by $0.7 million in fiscal 2019. The $1.1 million increase in the Company’s unfunded position during fiscal 2020 was
primarily driven by the decrease in the discount rate from 4.02% to 3.16%, partially offset by better than assumed asset returns.
The Company expects its pension benefit to increase from $0.7 million in fiscal 2020 to $2.0 million in fiscal 2021, due primarily
to asset returns, partially offset by a decrease in the expected long-term rate of return from 5.0% to 4.5%. The Company does not
expect to contribute to its pension plans in fiscal 2021. The Company made contributions of $0.5 million to its pension plans in
fiscal 2020.
Goodwill. Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company does not
amortize goodwill but evaluates for impairment annually, or whenever events or changes in circumstances indicate that the carrying
value may not be recoverable.
In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events
and circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment an entity concludes
that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then
it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets
must be written down to fair value. There were no impairment charges related to goodwill for the fiscal years ended 2020 and
2019.
Other Intangible Assets. Other intangible assets consist of customer relationship intangibles and trademarks. The Company
amortizes the cost of other intangible assets over their estimated useful lives, which range from three to six years, unless such
lives are deemed indefinite. The Company reviews its intangible assets for impairment when events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges related to other intangible
assets for the fiscal years ended 2020 and 2019.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2016, the Financial Accounting Standards Board (the "FASB") issued a new standard for leases, ASC 842, which
requires lessees to recognize almost all leases on their balance sheet as a right-of-use ("ROU") asset and lease liability. The
standard is effective for annual periods beginning after December 15, 2018. The standard provides for the option to elect a package
of practical expedients upon adoption. The Company adopted the standard on May 1, 2019 using the modified retrospective
transition approach and elected the package of practical expedients that allows it to forgo reassessment of lease classification for
leases that have already commenced. The Company also elected the practical expedients to the new standard without restating
comparative prior period financial information and to not recognize ROU assets and liabilities for operating leases with shorter
than 12-month terms. On May 1, 2019, the Company recognized operating lease assets and operating lease liabilities of $80.4
million. The new standard did not have a material impact on the Company's results of operations, cash flows or opening retained
earnings, or on its debt covenant calculations. ASC 842 also requires entities to disclose certain qualitative and quantitative
information regarding the amount, timing, and uncertainty of cash flows arising from leases. Such disclosures are included in Note
O--Leases.
In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments," which modifies the methodology for recognizing loss impairments
on certain types of financial instruments, including receivables. The new methodology requires an entity to estimate the credit
losses expected over the life of an exposure. ASU 2016-13 is effective for the Company beginning May 1, 2020. This standard
will impact the valuation of credit losses relating to receivables, however, we do not expect the standard to have a material impact
on financial position or results of operations.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes," which simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for
27
investments, performing intraperiod tax allocations and calculating income taxes in interim periods. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU
2019-12 is effective for the Company beginning May 1, 2021. Early adoption is permitted. The Company is currently reviewing
the provisions of this new pronouncement and the impact, if any, the adoption of this guidance may have on financial position and
results of operations.
In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in
accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted
accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR
or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference
rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022 and can be adopted
as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company has identified
loans and other financial instruments that are directly or indirectly influenced by LIBOR and does not expect the adoption of ASU
2020-04 to have a material impact on its consolidated financial statements.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Our revolving credit facility, initial term loan facility and delayed draw term loan facility, include a variable interest rate component.
As a result, we are subject to interest rate risk with respect to such floating-rate debt. A 100 basis point increase in the variable
interest rate component of our borrowings as of April 30, 2020 would increase our annual interest expense by approximately $2.4
million.
The Company does not currently use commodity or interest rate derivatives or similar financial instruments to manage its commodity
price or interest rate risks.
28
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
Current Assets
Cash and cash equivalents
Investments - certificates of deposit
Customer receivables, net
Inventories
Income taxes receivable
Prepaid expenses and other
Total Current Assets
Property, plant and equipment, net
Operating lease right-of-use assets
Customer relationships intangibles, net
Trademarks, net
Goodwill, net
Promotional displays, net
Deferred income taxes
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable
Current maturities of long-term debt
Short-term lease liability - operating
Accrued compensation and related expenses
Accrued marketing expenses
Other accrued expenses
Total Current Liabilities
Long-term debt, less current maturities
Deferred income taxes
Long-term lease liability - operating
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, 2020: 16,926,537, at April 30, 2019: 16,849,026
Retained earnings
Accumulated other comprehensive loss - Defined benefit pension plans
Total Shareholders' Equity
APRIL 30
2020
2019
$
97,059
$
—
106,344
111,836
—
9,933
325,172
203,824
127,668
167,444
2,222
767,612
13,966
915
13,983
57,656
1,500
125,901
108,528
1,009
11,441
306,035
208,263
—
213,111
5,555
767,612
13,058
773
15,524
$
1,622,806
$
1,529,931
$
56,342
$
61,277
2,216
18,896
49,064
12,361
16,727
2,286
—
54,906
12,979
18,142
155,606
149,590
594,921
52,935
112,454
6,352
689,205
64,749
—
6,034
—
—
359,430
392,281
(51,173)
700,538
352,424
317,420
(49,491)
620,353
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
1,622,806
$
1,529,931
See notes to consolidated financial statements.
29
CONSOLIDATED STATEMENTS OF INCOME
(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, net
Operating Income
Interest expense, net
Other (income) expense, net
Income Before Income Taxes
Income tax expense
Net Income
SHARE INFORMATION
Earnings per share
Basic
Diluted
FISCAL YEARS ENDED APRIL 30
2020
2019
2018
$ 1,650,333
$ 1,645,319
$ 1,250,274
1,321,147
1,298,846
329,186
346,473
83,608
113,334
(18)
132,262
29,027
2,687
100,548
89,875
112,917
1,987
141,694
35,652
(4,846)
110,888
994,871
255,403
77,843
69,855
—
107,705
13,054
(109)
94,760
25,687
27,200
31,619
$
74,861
$
83,688
$
63,141
$
$
4.43
4.42
$
$
4.84
4.83
$
$
3.80
3.77
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss) net of tax:
Change in pension benefits, net of deferred taxes
of $(573), $190, and $50 respectively
FISCAL YEARS ENDED APRIL 30
2020
2018
2019
$
74,861
$
83,688
$
63,141
(1,682)
(422)
88
Total Comprehensive Income
$
73,179
$
83,266
$
63,229
See notes to consolidated financial statements.
30
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER
TOTAL
COMPREHENSIVE SHAREHOLDERS
LOSS
'
EQUITY
$
(40,417) $
352,449
(in thousands, except share data)
Balance, May 1, 2017
COMMON STOCK
SHARES AMOUNT
168,835
16,232,775
$
RETAINED
EARNINGS
224,031
$
Net income
Adoption of ASU 2018-02
Other comprehensive income, net of
tax
Stock-based compensation
Exercise of stock-based compensation
awards, net of amounts withheld for
taxes
—
—
—
—
—
—
—
3,097
86,927
(1,513)
Stock issuance related to acquisition
1,457,568
189,849
63,141
8,740
—
—
—
—
Stock repurchases
Employee benefit plan contributions
(309,612)
36,264
(2,664)
3,554
(26,336)
—
—
(8,740)
88
—
—
—
—
—
Balance, April 30, 2018
17,503,922
$
361,158
$
269,576
$
(49,069) $
Net income
Other comprehensive income, net of
tax
Stock-based compensation
Exercise of stock-based compensation
awards, net of amounts withheld for
taxes
Stock repurchases
Employee benefit plan contributions
—
—
—
—
—
3,040
48,928
(745,232)
41,408
(1,241)
(14,156)
3,623
83,688
—
—
—
(35,844)
—
—
(422)
—
—
—
—
Balance, April 30, 2019
16,849,026
$
352,424
$
317,420
$
(49,491) $
Net income
Other comprehensive loss, net of tax
Stock-based compensation
Exercise of stock-based compensation
awards, net of amounts withheld for
taxes
Employee benefit plan contributions
—
—
—
31,790
45,721
—
—
3,989
(755)
3,772
74,861
—
—
—
—
—
(1,682)
—
—
—
Balance, April 30, 2020
16,926,537
$
359,430
$
392,281
$
(51,173) $
See notes to consolidated financial statements.
31
63,141
—
88
3,097
(1,513)
189,849
(29,000)
3,554
581,665
83,688
(422)
3,040
(1,241)
(50,000)
3,623
620,353
74,861
(1,682)
3,989
(755)
3,772
700,538
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation and amortization
Net loss on disposal of property, plant and equipment
Reduction in carrying amount of operating lease right-of-use assets
Amortization of debt issuance costs
Unrealized loss on foreign exchange forward contracts
Loss on extinguishment of debt
Gain on insurance recoveries
Stock-based compensation expense
Deferred income taxes
Pension contributions in excess of expense
Net gain on debt forgiveness and modification
Contributions of employer stock to employee benefit plan
Other non-cash items
Changes in operating assets and liabilities (net of acquired assets and
liabilities):
Customer receivables
Inventories
Income taxes receivable
Prepaid expenses and other assets
Accounts payable
Accrued compensation and related expenses
Operating lease liabilities
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 insurance recoveries
Acquisition of business, net of cash acquired
Purchases of certificates of deposit
Maturities of certificates of deposit
Investment in promotional displays
Net Cash Used by Investing Activities
FINANCING ACTIVITIES
Payments of long-term debt
Proceeds from long-term debt
32
FISCAL YEARS ENDED APRIL 30
2020
2019
2018
$
74,861
$
83,688
$
63,141
98,513
2,629
25,405
2,603
1,102
—
—
3,989
(11,499)
(1,130)
—
3,772
672
21,018
(4,486)
1,162
(3,165)
(6,237)
(5,843)
(22,595)
(3,229)
177,542
94,446
1,973
—
2,724
—
—
(580)
3,040
(7,805)
(7,875)
(5,266)
3,623
916
9,719
(4,852)
26,357
(5,172)
(4,775)
6,225
—
(5,541)
190,845
45,004
615
—
—
—
257
—
3,097
21,404
(20,928)
—
3,554
14
(18,786)
2,802
(7,295)
(7,492)
(858)
(2,525)
—
4,771
86,775
(31,670)
(32,128)
(47,590)
323
—
—
—
1,500
(9,069)
(38,916)
64
580
(7,182)
—
8,000
(7,257)
(37,923)
27
—
(57,200)
(25,000)
87,750
(2,303)
(44,316)
(98,468)
(122,205)
—
—
(96,572)
734
(in thousands)
FISCAL YEARS ENDED APRIL 30
2020
2019
2018
Proceeds from issuance of common stock and other
Repurchase of common stock
Withholding of employee taxes related to stock-based compensation
Debt issuance cost
Net Cash Used by Financing Activities
295
—
(1,050)
—
(99,223)
500
(50,000)
(1,739)
(232)
1,289
(29,000)
(2,803)
(14,675)
(173,676)
(141,027)
Net (Decrease) Increase in Cash and Cash Equivalents
39,403
(20,754)
(98,568)
Cash and Cash Equivalents, Beginning of Year
57,656
78,410
176,978
Cash and Cash Equivalents, End of Year
Supplemental cash flow information:
Non-cash investing and financing activities:
Long-term debt related to funding acquisition
Long-term debt issued to satisfy outstanding debt
Long-term debt satisfied from issuance of debt
Stock issuance in connection with acquisition
Property, plant and equipment
Net other assets and liabilities related to acquisition
Cash paid during the period for:
Interest
Income taxes
See notes to consolidated financial statements.
$
$
$
$
$
$
$
$
$
97,059
$
57,656
$
78,410
— $
— $
— $
— $
— $
— $
300,000
600,000
— $
(602,750)
— $
189,849
1,303
$
1,331
$
— $
— $
5,530
7,169
27,654
36,154
$
$
35,908
22,035
$
$
5,919
18,219
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A -- Summary of Significant Accounting Policies
American Woodmark Corporation (“American Woodmark,” the “Company,” “we,” “our” or “us”) manufactures and distributes
kitchen, bath and home organization products for the remodeling and new home construction markets. Its products are sold on a
national basis directly to home centers, and builders and through a network of independent dealers and distributors. The Company
operates within a single reportable segment primarily within the U.S.; long-lived assets and sales outside the U.S. are not significant.
The following is a description of the Company’s significant accounting policies:
Principles of Consolidation and Basis of Presentation: The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition: Our principal performance obligations are the sale of kitchen, bath and home organization products. The
Company recognizes revenue as control of our products is transferred to our customers, which is at the time of shipment or upon
delivery based on the contractual terms with our customers. Revenue is measured as the amount of consideration we expect to
receive in exchange for transferring goods to our customers. Payment terms on our product sales normally range from 30 to 90
days. Taxes assessed by a governmental authority that we collect are excluded from revenue. The expected costs associated with
our contractual warranties are recognized as expense when the products are sold. See Note L--Commitments and Contingencies
for further discussion.
When revenue is recognized, we record estimates to reduce revenue for customer programs and incentives in order to determine
that amount of consideration the Company will ultimately be entitled to receive. Customer programs and incentives are considered
variable consideration, and include price discounts, volume-based incentives, promotions and cooperative advertising. The
Company includes variable consideration in revenue only to the extent that it is probable that a significant reversal in the amount
of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based
upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our
volume-based incentives. This determination is updated each reporting period. In addition, for certain customer program incentives,
we receive an identifiable benefit (goods or services) in exchange for the consideration given and record the associated expenditure
in selling, general and administrative expenses.
We account for shipping and handling costs that occur before the customer has obtained control of a product as a fulfillment
activity rather than as a promised service. These costs are classified within costs of sales and distribution.
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.
Advertising Costs: Advertising costs are expensed as incurred. Advertising expenses for fiscal years 2020, 2019 and 2018 were
$33.9 million, $38.9 million and $40.1 million, respectively.
Cash and Cash Equivalents: Cash in excess of operating requirements is invested in money market accounts which are carried
at cost (which approximates fair value). The Company considers all highly liquid short-term investments with an original maturity
of three months or less when purchased to be cash equivalents.
Investments in Certificates of Deposit: Certificates of deposit are carried at cost (which approximates fair value). Certificates of
deposit with original maturities greater than three months and remaining maturities less than one year are classified as current
assets. Certificates of deposit with remaining maturities greater than one year are classified as long-term assets.
Inventories: Inventories are stated at lower of cost or market. Inventory costs are determined by the last-in, first-out ("LIFO")
method and for certain subsidiaries by the first-in, first-out ("FIFO") method.
The LIFO cost reserve is determined in the aggregate for inventory and is applied as a reduction to inventories determined on the
FIFO method. FIFO inventory cost approximates 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 12 years for machinery and equipment. Assets under financing leases are
amortized over the shorter of their estimated useful lives or the term of the related lease.
34
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 may not be recoverable. During fiscal years 2020, 2019 and 2018, the
Company concluded no impairment existed.
Goodwill: Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company does not
amortize goodwill but evaluates for impairment annually, or whenever events or changes in circumstances indicate that the carrying
value may not be recoverable.
In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events
and circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment an entity concludes
that the asset is not impaired, the entity is not required to take further action. However, if an entity concludes otherwise, it is
required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must
be written down to fair value. During fiscal years 2020, 2019 and 2018, the Company concluded no impairment existed.
Other Intangible Assets: Intangible assets consist of customer relationship intangibles and trademarks. The Company amortizes
the cost of other intangible assets over their estimated useful lives, which range from three to six years, unless such lives are
deemed indefinite. The Company reviews its intangible assets for impairment when events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. During fiscal years 2020, 2019 and 2018, the Company concluded
no impairment existed.
Promotional Displays: The Company invests in promotional displays in retail stores to demonstrate product features, product and
quality specifications and to serve as a training tool for retail kitchen designers. The Company invests in these long-lived productive
assets to provide the aforementioned benefits. The Company's investment in promotional displays is carried at cost less applicable
amortization. Amortization is provided by the straight-line method on an individual display basis over periods of 24 to 60 months
(the estimated period of benefit). Promotional display amortization expense for fiscal years 2020, 2019 and 2018 was $8.2 million,
$6.4 million and $4.5 million, respectively, and is included in selling and marketing expenses.
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 to reverse. At
each reporting date, the Company evaluates the need for a valuation allowance to adjust deferred tax assets and liabilities to an
amount that more likely than not will be realized.
Pensions: The Company has one non-contributory defined benefit pension plan covering many of the Company’s employees hired
before April 30, 2012. As of April 30, 2020, the Company's two non-contributory defined benefit pension plans were merged into
one plan. Both defined benefit pension plans were frozen effective April 30, 2012. The Company recognizes the overfunded or
underfunded status of its defined benefit pension plans, measured as the difference between the fair value of plan assets and the
benefit obligation, in its consolidated balance sheets. The Company also recognizes the actuarial gains and losses and the prior
service costs, credits and transition costs 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 fair value over
the requisite service period. The Company records the expense for stock-based compensation awards subject to performance-
based criteria vesting over the remaining service period when the Company determines that achievement of the performance
criteria is probable. The Company evaluates when the achievement of performance-based criteria is probable based on the expected
satisfaction of the performance criteria at each reporting date.
Self Insurance: The Company is self-insured for certain costs related to employee medical coverage, workers’ compensation
liability, general liability, auto liability and property insurance. The Company maintains stop-loss coverage with third-party insurers
to limit total exposure. The Company establishes a liability at each balance sheet date based on estimates for a variety of factors
that influence the Company’s ultimate cost. In the event that actual experience is substantially different from the estimates, the
financial results for the period could be adversely affected. The Company believes that the methodologies used to estimate insurance
liabilities are an accurate reflection of the liabilities as of the date of the consolidated balance sheets.
Foreign Exchange Forward Contracts: In the normal course of business, the Company is subject to risk from adverse fluctuations
in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The Company
recognizes its outstanding forward contracts in the consolidated balance sheets at their fair values. The Company does not designate
the forward contracts as accounting hedges. The changes in the fair value of the forward contracts are recorded in other (income)
expense, net in the consolidated statements of income.
35
At April 30, 2020, the Company held forward contracts maturing from May 2020 to April 2021 to purchase 327.0 million Mexican
pesos at exchange rates ranging from 22.18 to 23.42 Mexican pesos to one U.S. dollar. A liability of $1.1 million is recorded in
other accrued expenses on the consolidated balance sheets.
Recent Accounting Pronouncements: In February 2016, the Financial Accounting Standards Board (the "FASB") issued a new
standard for leases, ASC 842, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use ("ROU")
asset and lease liability. The standard is effective for annual periods beginning after December 15, 2018. The standard provides
for the option to elect a package of practical expedients upon adoption. The Company adopted the standard on May 1, 2019 using
the modified retrospective transition approach and elected the package of practical expedients that allows it to forgo reassessment
of lease classification for leases that have already commenced. The Company also elected the practical expedients to the new
standard without restating comparative prior period financial information and to not recognize ROU assets and liabilities for
operating leases with shorter than 12-month terms. On May 1, 2019, the Company recognized operating lease assets and operating
lease liabilities of $80.4 million. The new standard did not have a material impact on the Company's results of operations, cash
flows or opening retained earnings, or on its debt covenant calculations. ASC 842 also requires entities to disclose certain qualitative
and quantitative information regarding the amount, timing, and uncertainty of cash flows arising from leases. Such disclosures
are included in Note O--Leases.
In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments-Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments," which modifies the methodology for recognizing loss impairments
on certain types of financial instruments, including receivables. The new methodology requires an entity to estimate the credit
losses expected over the life of an exposure. ASU 2016-13 is effective for the Company beginning May 1, 2020. This standard
will impact the valuation of credit losses relating to receivables, however, we do not expect the standard to have a material impact
on financial position or results of operations.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes," which simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for
investments, performing intraperiod tax allocations and calculating income taxes in interim periods. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU
2019-12 is effective for the Company beginning May 1, 2021. Early adoption is permitted. The Company is currently reviewing
the provisions of this new pronouncement and the impact, if any, the adoption of this guidance may have on financial position and
results of operations.
In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in
accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted
accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR
or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference
rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022 and can be adopted
as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company has identified
loans and other financial instruments that are directly or indirectly influenced by LIBOR and does not expect the adoption of ASU
2020-04 to have a material impact on its consolidated financial statements.
Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and expenses during each reporting
period. Actual results could differ from those estimates.
Note B -- Acquisition of RSI Home Products, Inc. (the "RSI Acquisition")
On November 30, 2017, American Woodmark, Alliance Merger Sub, Inc. ("Merger Sub"), RSI and Ronald M. Simon, as the RSI
stockholder representative, entered into a merger agreement (the "Merger Agreement") pursuant to which the parties agreed to
merge Merger Sub with and into RSI pursuant to the terms and subject to the conditions set forth in the Merger Agreement, with
RSI continuing as the surviving corporation and as a wholly owned subsidiary of American Woodmark. On December 29, 2017
(the "Acquisition Date"), the Company consummated the RSI Acquisition pursuant to the terms of the Merger Agreement. As a
result of the merger of Merger Sub with and into RSI, Merger Sub’s separate corporate existence ceased, and RSI continued as
the surviving corporation and a wholly owned subsidiary of American Woodmark. RSI is a leading manufacturer of kitchen and
bath cabinetry and home organization products.
36
In connection with the RSI Acquisition, on December 29, 2017, the Company entered into a credit agreement (the "Credit
Agreement") with a syndicate of lenders and Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent,
providing for a $100 million, 5-year revolving loan facility with a $25 million sub-facility for the issuance of letters of credit (the
“Revolving Facility”), a $250 million, 5-year initial term loan facility (the "Initial Term Loan") and a $250 million delayed draw
term loan facility (the "Delayed Draw Term Loan" and, together with the Revolving Facility and the Initial Term Loan, the "Credit
Facilities") (See Note G -- Loans Payable and Long-Term Debt for further details). American Woodmark used the full proceeds
of the Initial Term Loan and approximately $50 million in loans under the Revolving Facility, together with cash on its balance
sheet, to fund the cash portion of the RSI Acquisition consideration and its transaction fees and expenses.
At the closing of the RSI Acquisition, American Woodmark assumed approximately $589 million (including accrued interest) of
RSI’s indebtedness consisting largely of RSI’s 6½% Senior Secured Second Lien Notes due 2023 (the "RSI Notes"). On February
12, 2018, the Company issued $350 million in aggregate principal amount of the Senior Notes and utilized the proceeds of such
issuance, together with the borrowings under the Delayed Draw Term Loan and cash on hand, to fund the refinancing of the RSI
Notes. (See Note G--Loans Payable and Long-Term Debt).
Allocation of Purchase Price to Assets Acquired and Liabilities Assumed
As consideration for the RSI Acquisition, American Woodmark paid total consideration of $554.2 million inclusive of a working
capital adjustment including cash consideration of $364.4 million, net of cash acquired, and 1,457,568 newly issued shares of
American Woodmark common stock valued at $189.8 million based on $130.25 per share, which was the closing stock price on
the Acquisition Date.
The Company accounted for the RSI Acquisition as a business combination, which requires the Company to record the assets
acquired and liabilities assumed at fair value. The amount by which the purchase price exceeds the fair value of net assets acquired
is recorded as goodwill.
The following table summarizes the allocation of the purchase price as of the Acquisition Date, which is based on the consideration
of $554.2 million, to the estimated fair value of assets acquired and liabilities assumed (in thousands):
Goodwill
Customer relationship intangibles
Property, plant and equipment
Inventories
Customer receivables
Income taxes receivable
Trademarks
Prepaid expenses and other
Leasehold interests
Total identifiable assets and goodwill acquired
Debt
Deferred income taxes
Accrued expenses
Accounts payable
Notes payable
Income taxes payable
Total liabilities assumed
$
767,612
274,000
86,275
66,293
54,649
18,926
10,000
4,571
151
1,282,477
602,313
67,542
30,240
25,113
2,988
49
728,245
Total accounting consideration
$
554,232
The fair value of the assets acquired and liabilities assumed were determined using income, market and cost valuation
methodologies. The fair value of debt acquired was determined using Level 1 inputs as quoted prices in active markets for identical
liabilities were available. The fair value measurements, aside from debt, were estimated using significant inputs that are not
observable in the market and thus represent Level 3 measurements as defined in Accounting Standards Codification (ASC) 820.
37
The income approach was primarily used to value the customer relationship intangibles and trademarks. The income approach
determines value for an asset or liability based on the present value of cash flows projected to be generated over the remaining
economic life of the asset or liability being measured. Both the amount and the duration of the cash flows are considered from a
market participant perspective. The estimates of market participant net cash flows considered historical and projected product
pricing, operational performance including company specific synergies, product life cycles, material and labor pricing, and other
relevant customer, contractual and market factors. The net cash flows are discounted to present value using a discount rate that
reflects the relative risk of achieving the cash flow and the time value of money. The market approach is a valuation technique
that uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities,
or a group of assets or liabilities. The cost approach estimates value by determining the current cost of replacing an asset with
another of equivalent economic utility. The cost to replace a given asset reflects the estimated reproduction or replacement cost
for the property, less an allowance for loss in value due to depreciation. The cost and market approaches were used to value
inventory, while the cost approach was the primary approach used to value property, plant and equipment.
The purchase price allocation resulted in the recognition of $767.6 million of goodwill, which is not amortizable for tax purposes.
The goodwill recognized is attributable to expected revenue synergies generated by the integration of the Company’s products
with RSI's, cost synergies resulting from purchasing and manufacturing activities, and intangible assets that do not qualify for
separate recognition, such as the assembled workforce of RSI.
Customer receivables were recorded at the contractual amounts due of $57.1 million, less an allowance for returns and discounts
of $2.4 million, and an allowance for doubtful accounts of $0.1 million, which approximates their fair value.
Determining the fair value of assets acquired and liabilities assumed requires the exercise of significant judgment, including the
amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed in the
valuation are based on the Company’s best estimates of future sales, earnings and cash flows after considering factors such as
general market conditions, expected future customer orders, contracts with suppliers, labor costs, changes in working capital, long
term business plans and recent operating performance. Use of different estimates and judgments could yield different results.
Impact to Financial Results for the Fiscal Year Ended April 30, 2018
RSI’s financial results have been included in our consolidated financial results of fiscal 2018 for the period from the Acquisition
Date to April 30, 2018. As a result, our consolidated financial results for the fiscal year ended April 30, 2018 do not reflect a full
year of RSI results. From December 29, 2017 to April 30, 2018, RSI generated net sales of approximately $177.7 million and an
operating income of approximately $9.1 million, inclusive of intangible amortization and adjustments to account for the acquisition,
including a $6.3 million charge to cost of sales as a result of the step-up of inventory as of the Acquisition Date to fair value.
The Company incurred approximately $12.9 million of transaction costs associated with the RSI Acquisition during the twelve
months ended April 30, 2018 which the Company expensed as incurred. These costs are included in general and administrative
expenses on the Consolidated Statements of Income.
Supplemental Pro Forma Financial Information (unaudited)
The following table presents summarized unaudited pro forma financial information as if RSI had been included in the Company’s
financial results for the entire fiscal year ended April 30, 2018:
(in thousands)
Net Sales
Net Income (1)
Net earnings per share - basic
Net earnings per share - diluted
FISCAL YEAR
ENDED
APRIL 30, 2018
1,613,663
$
67,388
$
3.83
$
3.80
$
(1) Includes stock compensation expense of $17.5 million for the fiscal year ended April 30, 2018 calculated under the intrinsic
value method in measuring stock-based liability awards related to stock-based grants made by RSI prior to the RSI Acquisition.
The unaudited supplemental pro forma financial data above assumes the RSI Acquisition occurred on May 1, 2016 and has been
calculated after applying the Company’s accounting policies and adjusting the historical results of RSI with pro forma adjustments,
net of a statutory tax rate of 34.4% for the fiscal year ended April 30, 2018. Significant pro forma adjustments include the recognition
38
of additional amortization expense of $20.0 million for the fiscal year ended April 30, 2018, related to acquired intangible assets
(net of historical amortization expense of RSI) and additional net interest expense of $2.4 million for the fiscal year ended April
30, 2018, related to the $300 million borrowed under the Credit Agreement to finance the acquisition. Transaction expenses, net
of tax, of $8.5 million for the fiscal year ended April 30, 2018, and inventory fair value step-up expense, net of tax of $4.1 million
for the fiscal year ended April 30, 2018 were also excluded from net income.
The unaudited supplemental pro forma financial information does not reflect the realization of any expected ongoing cost or
revenue synergies relating to the integration of the two companies. Further, the pro forma data should not be considered indicative
of the results that would have occurred if the RSI Acquisition, related financing and associated issuance of Senior Notes (defined
herein) and repurchase or redemption of the RSI Notes had been actually consummated on May 1, 2016, nor are they indicative
of future results.
Note C -- 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 D -- 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 inventories
APRIL 30
2020
2019
112,528
$
132,145
(472)
(5,712)
(249)
(5,995)
106,344
$
125,901
APRIL 30
2020
2019
51,460
$
42,381
32,572
126,413
(14,577)
46,054
43,794
34,873
124,721
(16,193)
111,836
$
108,528
$
$
$
$
Of the total inventory of $111.8 million, $66.0 million is carried under the FIFO method and $45.8 is carried under the LIFO
method of accounting as of April 30, 2020. Of the total inventory of $108.5 million, $58.6 million is carried under the FIFO
method and $49.9 million is carried under the LIFO method of accounting as of April 30, 2019.
39
Note E -- Property, Plant and Equipment
The components of property, plant and equipment were:
(in thousands)
Land
Buildings and improvements
Buildings and improvements - financing leases
Machinery and equipment
Machinery and equipment - financing leases
Construction in progress
Less accumulated amortization and depreciation
APRIL 30
2020
2019
$
4,431
$
120,819
11,636
312,806
30,911
8,164
488,767
(284,943)
4,751
114,421
11,202
294,993
30,574
7,002
462,943
(254,680)
Total
$
203,824
$
208,263
Amortization and depreciation expense on property, plant and equipment amounted to $36.9 million, $36.2 million and $21.9
million in fiscal years 2020, 2019 and 2018, respectively. Accumulated amortization on financing leases included in the above
table amounted to $32.3 million and $30.8 million as of April 30, 2020 and 2019, respectively.
Note F -- Intangible Assets and Trademarks
The components of customer relationships intangibles were:
(in thousands)
Customer relationship intangibles
Less accumulated amortization
Total
The components of trademarks were:
(in thousands)
Trademarks
Less accumulated amortization
Total
APRIL 30
2020
2019
274,000
(106,556)
$
274,000
(60,889)
167,444
$
213,111
APRIL 30
2020
2019
$
10,000
(7,778)
2,222
$
10,000
(4,445)
5,555
$
$
$
$
Customer relationship intangibles and trademarks are amortized over the estimated useful lives on a straight-line basis over six
and three years, respectively. Amortization expense on customer relationship intangibles and trademarks amounted to $49.0 million
for each of the years ended April 30, 2020 and 2019, respectively.
40
Note G -- Loans Payable and Long-Term Debt
Maturities of long-term debt are as follows:
FISCAL YEARS ENDING APRIL 30
(in thousands)
2021
2022
2023
2024
2025
2026
AND
THERE-
AFTER
TOTAL
OUTSTANDING
AS OF APRIL
30, 2020
TOTAL
OUTSTANDING
AS OF APRIL
30, 2019
Term loans
$
— $
— $244,000
$
— $
— $
— $
244,000
$
340,000
The Senior
Notes
Finance lease
obligations
Other long-term
debt
—
—
—
—
— 350,000
350,000
350,000
2,216
1,345
958
836
262
70
5,687
6,645
—
—
46
253
256
6,104
6,659
6,660
Total
$ 2,216
$ 1,345
$245,004
$ 1,089
$
518
$356,174
$
606,346
$
703,305
Debt issuance
costs
Current
maturities
Total long-term
debt
Term Loans
$
$
$
(9,209) $
(11,814)
(2,216) $
(2,286)
594,921
$
689,205
On December 29, 2017, the Company entered into the Credit Agreement, which provides for the Revolving Facility, the Initial
Term Loan and the Delayed Draw Term Loan. Also on December 29, 2017, the Company borrowed the entire $250 million
available under the Initial Term Loan and approximately $50 million under the Revolving Facility to fund, in part, the cash portion
of the RSI Acquisition consideration and the Company’s transaction fees and expenses related to the RSI Acquisition. On February
12, 2018, the Company borrowed the entire $250 million under the Delayed Draw Term Loan in connection with the refinancing
of the RSI Notes as discussed below and to repay, in part, amounts outstanding under the Revolving Facility. In connection with
its entry into the Credit Agreement, the Company terminated its prior $35 million revolving credit facility with Wells Fargo. The
Company is required to make specified quarterly installments on both the Initial Term Loan and the Delayed Draw Loan. As of
April 30, 2020, $122 million was outstanding on each of the Initial Term Loan and Delayed Draw Term Loan for a total of $244
million. As of April 30, 2019, $170 million was outstanding on each of the Initial Term Loan and Delayed Draw Term Loan for
a total of $340 million. The outstanding balance approximates fair value as the Term Loans have a floating interest rate. There
were no amounts outstanding on the Revolving Facility as of April 30, 2020 and 2019. The Credit Facilities mature on December
29, 2022.
Amounts outstanding under the Credit Facilities bear interest based on a fluctuating rate measured by reference to either, at the
Company’s option, a base rate plus an applicable margin or LIBOR plus an applicable margin, with the applicable margin being
determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio.” The Company also incurs a
quarterly commitment fee on the average daily unused portion of the Revolving Facility during the applicable quarter at a rate per
annum also determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio.” In addition, a letter
of credit fee will accrue on the face amount of any outstanding letters of credit at a per annum rate equal to the applicable margin
on LIBOR loans, payable quarterly in arrears. On January 25, 2019, the Company entered into an amendment to the Credit
41
Agreement (the “Amendment”) that reduced the applicable margin for both base rate and LIBOR rate loans and reduced the
commitment fee incurred on unused portions of the Revolving Facility. As of April 30, 2020, the applicable margin with respect
to base rate loans and LIBOR loans was 0.50% and 1.50%, respectively, and the commitment fee was 0.175%. As of December
31, 2021, the Company will transition to the Secured Overnight Financing Rate (SOFR) as required by the Credit Facilities. The
Company expects the transition to SOFR to be materially similar to LIBOR.
The Credit Agreement includes certain financial covenants. The Amendment amended these covenants by (i) removing the
requirement to maintain a “Total Secured Debt to EBITDA Ratio” of no more than 2.50 to 1.00 and (ii) setting a maximum “Total
Funded Debt to EBITDA Ratio” of no more than 3.25 to 1.00 (with an increase to 3.75 to 1.00 for a certain period upon the
consummation of a “Qualified Acquisition”). The Credit Agreement also requires that the Company maintain a Fixed Charge
Coverage Ratio (as defined in the Credit Agreement) of no less than 1.25 to 1.00.
The Credit Agreement includes certain additional covenants, including negative covenants that restrict the ability of the Company
and certain of its subsidiaries to incur additional indebtedness, create additional liens on its assets, dispose of its assets or engage
in a merger or another similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions
and conditions described in the Credit Agreement. The negative covenants further restrict the Company’s ability to make certain
restricted payments, including the payment of dividends and repurchase of common stock, in certain limited circumstances. In
September 2018, the Company entered into an amendment to the Credit Agreement that amended the restricted payments covenant
to (i) permit unlimited restricted payments so long as the “Total Funded Debt to EBITDA Ratio” would be less than or equal to
2.50 to 1.00 after giving effect to any such payment and no default or event of default has occurred and is continuing or would
result from any such payment and (ii) permit up to an aggregate of $50 million in restricted payments not otherwise permitted
under the Credit Agreement so long as no default or event of default has occurred and is continuing or would result from any such
payment. The Amendment further amended the restricted payments covenant to increase the “Total Funded Debt to EBITDA
Ratio” applicable to the exception permitting unlimited restricted payments discussed above to 2.75 to 1.00. The negative covenants
in the Credit Agreement also include a covenant restricting the Company’s ability to make certain investments.
As of April 30, 2020, the Company was in compliance with the covenants included in the Credit Agreement.
The Company’s obligations under the Credit Agreement are guaranteed by the Company’s subsidiaries and the obligations of the
Company and its subsidiaries are secured by a pledge of substantially all of their respective personal property.
The Senior Notes
On February 12, 2018, the Company issued $350 million in aggregate principal amount of 4.875% Senior Notes due 2026 (the
“Senior Notes”). The Senior Notes mature on March 15, 2026 and interest on the Senior Notes is payable semi-annually in arrears
on March 15 and September 15 of each year, which payments began on September 15, 2018. The Senior Notes are, and will be,
fully and unconditionally guaranteed by each of the Company’s current and future wholly owned domestic subsidiaries that
guarantee the Company’s obligations under the Credit Agreement. The indenture governing the Senior Notes restricts the ability
of the Company and the Company’s “restricted subsidiaries” to, as applicable, (i) incur additional indebtedness or issue certain
preferred shares, (ii) create liens, (iii) pay dividends, redeem or repurchase stock or make other distributions or restricted payments,
(iv) make certain investments, (v) create restrictions on the ability of the “restricted subsidiaries” to pay dividends to the Company
or make other intercompany transfers, (vi) transfer or sell assets, (vii) merge or consolidate with a third party and (viii) enter into
certain transactions with affiliates of the Company, subject, in each case, to certain qualifications and exceptions as described in
the indenture. As of April 30, 2020, the Company and its restricted subsidiaries were in compliance with all covenants under the
indenture governing the Senior Notes.
At the closing of the RSI Acquisition, American Woodmark assumed approximately $589 million (including accrued interest) of
RSI’s indebtedness consisting largely of RSI’s 6½% Senior Secured Second Lien Notes due 2023 (the "RSI Notes"). On February
12, 2018, the Company utilized the proceeds of the Senior Notes, together with the borrowings under the Delayed Draw Term
Loan and cash on hand, to fund the refinancing of the RSI Notes - See Note B -- Acquisition of RSI Home Products, Inc. (the “RSI
Acquisition”).
At April 30, 2020, the book value of the Senior Notes was $350 million and the fair value was $330 million, based on Level 1
inputs.
42
Financing Lease Obligations
The Company has various financing leases which interest rates between 3.5% and 6.5%. The leases require monthly payments
and expire by February 15, 2026. The outstanding amounts owed as of April 30, 2020 and 2019 were $5.7 million and $6.6 million,
respectively.
Other Long-term Debt
On January 25, 2016, the Company entered into a New Markets Tax Credit ("NMTC") financing agreement, pursuant to section
45D of the Internal Revenue Code of 1986, as amended, and Kentucky Revised Statutes Sections 141.432 through 141.434, to
take advantage of a tax credit related to working capital and capital improvements at its Monticello, Kentucky facility. This
financing agreement was structured with unrelated third party financial institutions (the "Investors"), their wholly-owned
investment funds ("Investment Funds") and their wholly-owned community development entities ("CDEs") in connection with
our participation in qualified transactions under the NMTC program. In exchange for substantially all of the benefits derived from
the tax credits, the Investors made a contribution of $2.3 million, net of syndication fees, to the project. Upon closing the transaction,
a wholly owned subsidiary of the Company provided a $4.3 million loan receivable to the Investment Funds, which is included
in other long term assets in the accompanying consolidated balance sheets. The Company also entered into loan agreements
aggregating $6.6 million payable to the CDEs sponsoring the project. The loans have a term of 30 years with an aggregate interest
rate of approximately 1.2%. As of April 30, 2020 and 2019, the Company had drawn $6.7 million of the loan proceeds, which is
included in long-term debt in the accompanying consolidated balance sheets. The NMTC is subject to recapture for a period of
seven years, the compliance period. During the compliance period, the Company is required to comply with various regulations
and contractual provisions that apply to the NMTC arrangement. We do not anticipate any credit recaptures will be required in
connection with this arrangement. This transaction also includes a put/call feature which becomes enforceable at the end of the
compliance period whereby we may be obligated or entitled to repurchase the Investors’ interest in the Investment Funds. The
value attributable to the put/call is nominal. Direct costs of $0.3 million incurred in structuring the financing arrangement are
deferred and will be recognized as expense over the term of the loans (30 years).
Certain of the Company's loan agreements limit the amount and type of indebtedness the Company can incur and require the
Company to maintain specified financial ratios measured on a quarterly basis. In addition to the assets previously discussed, certain
of the Company’s property, plant and equipment are pledged as collateral under certain loan agreements and the capital lease
arrangements. The Company was in compliance with all covenants contained in its loan agreements and financing leases at April
30, 2020.
Note H -- Earnings Per Share
The following table summarizes the computations of basic and diluted earnings per share:
(in thousands, except per share amounts)
Numerator used in basic and diluted earnings per common share:
Net income
Denominator:
Denominator for basic earnings per common share -
weighted-average shares
Effect of dilutive securities:
Stock options and restricted stock units
Denominator for diluted earnings per common share -
weighted-average shares and assumed conversions
Net earnings per share
Basic
Diluted
FISCAL YEARS ENDED APRIL 30
2020
2019
2018
$
74,861
$
83,688
$
63,141
16,908
17,289
16,631
44
41
114
16,952
17,330
16,745
$
$
4.43
4.42
$
$
4.84
4.83
$
$
3.80
3.77
An immaterial amount of anti-dilutive securities for the fiscal year ended April 30, 2019 were excluded from the calculation of
net earnings per share. There were no anti-dilutive securities for the fiscal years ended April 30, 2020 and 2018, which were
excluded from the calculation of net earnings per share.
43
Under a stock repurchase authorization approved by its Board of Directors (the "Board") on November 30, 2016, the Company
was authorized to purchase up to $50 million of the Company's common shares. The Board suspended the Company's stock
repurchase program in conjunction with the RSI Acquisition. On August 23, 2018, the Board reinstated the program. On November
28, 2018, the Board of Directors of the Company authorized an additional stock repurchase program of up to $14 million of the
Company's common shares. This authorization was in addition to the stock repurchase program authorized on November 30, 2016.
No funds remained from the amount authorized by the Board to repurchase the Company’s common shares. On August 22, 2019,
the Board authorized an additional stock repurchase program of up to $50 million of the Company's common shares. The Company
funded share repurchases using available cash and cash generated from operations. Repurchased shares became authorized but
unissued common shares. The Company did not repurchase any of its shares during fiscal 2020. The Company purchased a total
of 745,232 common shares, for an aggregate purchase price of $50.0 million and a total of 309,612 common shares for an aggregate
purchase price of $29.0 million during fiscal 2019 and 2018, respectively, under the authorizations pursuant to a repurchase plan
intended to comply with the requirements of Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
Note I -- Stock-Based Compensation
The Company has two types of stock-based compensation awards in effect for its employees and directors. The Company issued
stock options until fiscal 2015 and has issued restricted stock units ("RSUs") since fiscal 2010. Total compensation expense related
to stock-based awards for the fiscal years ended April 30, 2020, 2019 and 2018 was $4.0 million, $3.0 million and $3.1 million,
respectively. The Company recognizes stock-based compensation costs net of an estimated forfeiture rate for those shares expected
to vest on a straight-line basis over the requisite service period of the award. The Company estimates the forfeiture rates based
upon its historical experience.
Stock Incentive Plans
At April 30, 2020, the Company had RSU awards outstanding under two different plans: (1) 2016 employee stock incentive plan;
and (2) 2015 non-employee directors equity ownership plan. As of April 30, 2020, there were 716,027 shares of common stock
available for future stock-based compensation awards under the Company’s stock incentive plans.
Methodology Assumptions
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. 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.
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 Company did not grant stock options during the fiscal years ended April 30, 2020, 2019 and 2018. There were no stock
options outstanding at April 30, 2020.
44
The following table presents a summary of the Company’s stock option activity for the fiscal years ended April 30, 2020, 2019
and 2018 (remaining contractual term in years and exercise prices are weighted-averages):
Outstanding at April 30, 2017
Exercised
Outstanding at April 30, 2018
Exercised
Outstanding at April 30, 2019
Exercised
Outstanding at April 30, 2020
Vested and expected to vest in the future
at April 30, 2020
Exercisable at April 30, 2020
NUMBER OF
OPTIONS
54,918
(36,950)
17,968
(12,801)
5,167
(5,167)
—
—
—
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
TERM
5.6
0
4.5
0
6.1
0
0
0
0
WEIGHTED
AVERAGE
EXERCISE
PRICE
AGGREGATE
INTRINSIC
VALUE
(in thousands)
$37.95
34.90
$44.23
39.04
$57.11
57.11
$—
$—
$—
$
$
$
$
$
$
2,963
1,748
682
651
170
—
—
—
—
Cash received from option exercises for the fiscal years ended April 30, 2020, 2019 and 2018, was an aggregate of $0.3 million,
$0.5 million and $1.3 million, respectively. The actual tax benefit realized for the tax deduction from option exercises of stock
option awards was immaterial for the fiscal years ended April 30, 2020, 2019 and 2018, respectively.
Restricted Stock Unit Activity:
The Company’s RSUs granted to employees cliff-vest over a three-year period from date of grant, while RSUs granted to non-
employee directors vest daily over a two-year period from date of grant. Directors were granted service-based RSUs only, while
employees were awarded both service-based and performance-based RSUs ("PBRSUs") in fiscal years 2020, 2019 and 2018. The
PBRSUs granted in fiscal 2020, 2019 and 2018 are earned based on achievement of a number of goals pertaining to the Company’s
financial performance during three one-year performance periods and the achievement of certain cultural goals for the three-year
period. Employees who satisfy the vesting criteria will receive a proportional amount of PBRSUs based upon the Compensation
Committee’s assessment of the Company’s achievement of the performance criteria.
45
The following table contains a summary of the Company’s RSU activity for the fiscal years ended April 30, 2020, 2019 and 2018:
PERFORMANCE-
BASED RSUs
SERVICE-
BASED RSUs
TOTAL RSUs
WEIGHTED
AVERAGE
GRANT
DATE FAIR
VALUE
Issued and outstanding, April 30, 2017
Granted
Cancelled due to non-achievement of
performance goals
Settled in common stock
Forfeited
Issued and outstanding, April 30, 2018
Granted
Cancelled due to non-achievement of
performance goals
Settled in common stock
Forfeited
Issued and outstanding, April 30, 2019
Granted
Cancelled due to non-achievement of
performance goals
Settled in common stock
Forfeited
Issued and outstanding, April 30, 2020
125,067
33,080
—
(51,191)
(9,305)
97,651
67,454
22,250
—
(28,447)
(6,198)
55,059
192,521
$50.09
55,330
$95.62
—
(79,638)
(15,503)
152,710
$—
$32.96
$71.91
$73.34
45,615
30,335
75,950
$104.10
(10,352)
(34,475)
(9,257)
89,182
—
(18,778)
(5,347)
61,269
(10,352)
(53,253)
(14,604)
150,451
$80.26
$60.50
$79.49
$76.91
61,379
42,691
104,070
$53.95
(11,305)
(18,628)
(2,941)
117,687
—
(21,521)
(3,229)
79,210
(11,305)
(40,149)
(6,170)
196,897
$85.13
$67.03
$86.68
$66.68
As of April 30, 2020, there was $7.9 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
1.6 years.
For the fiscal years ended April 30, 2020, 2019 and 2018 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
Restricted Stock Tracking Units:
2020
2019
2018
$
$
809
$
1,006
2,174
$
691
649
1,700
3,989
$
3,040
$
667
756
1,674
3,097
During fiscal 2020, the Board approved grants of 6,483 cash-settled performance-based restricted stock tracking units ("RSTUs")
and 3,482 cash-settled service-based RSTUs for more junior level employees. Each performance-based RSTU entitles the recipient
to receive a payment in cash equal to the fair market value of a share of the Company’s common stock as of the payment date if
applicable performance and cultural conditions are met and the recipient remains continuously employed with the Company until
the units vest. The service-based RSTUs entitle the recipients to receive a payment in cash equal to the fair market value of a
share of our common stock as of the payment date if they remain continuously employed with the Company until the units vest. All
of the RSTUs cliff-vest three years from the grant date. The fair value of each cash-settled RSTU award is remeasured at the end
of each reporting period and the liability is adjusted, and related expense recorded, based on the new fair value. The Company
recognized expense of $0.0 million, $0.5 million and $0.4 million related to RSTUs for the fiscal years ended April 30, 2020, 2019
and 2018, respectively. A liability for payment of the RSTUs is included in the Company's balance sheets in the amount of $0.4
million and $0.7 million as of April 30, 2020 and 2019, respectively.
46
Note J -- Employee Benefit and Retirement Plans
Retirement Savings Plans
In fiscal 1990, the Company instituted the American Woodmark Investment Savings Stock Ownership Plan and effective January
1, 2016 the plan name was changed to the American Woodmark Corporation Retirement Savings Plan (the "Plan"). Under the
Plan, all employees who are at least 18 years old and have been 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.
Discretionary profit-sharing contributions ranging from 0-5% of net income, based on predetermined net income levels of the
Company, may be made annually in the form of Company stock. The Company recognized expenses for profit-sharing contributions
of $3.7 million, $3.8 million and $3.7 million in fiscal years 2020, 2019 and 2018, respectively.
The Company matches 100% of an employee’s annual 401(k) contributions to the Plan up to 4% of annual compensation.
Through December 31, 2018, RSI had the RSI Home Products 401K Retirement Savings Plan (the “RSI Plan”) for all non-union
employees. Employees were eligible to contribute to the RSI Plan 60 days after starting employment. The Company elected to
make safe harbor matching contributions of up to 4% of each participant’s eligible compensation. The Company’s safe harbor
contributions vested immediately.
On January 1, 2019, the Plan merged with the RSI Plan to transfer all assets of the RSI Plan into the Plan.
Effective January 1, 2019, all new eligible participants will be automatically enrolled in the Plan at a contribution rate of 3% with
the option of opting out. Beginning January 1, 2021, the contribution rate for the eligible participants as of January 1, 2019 and
thereafter will automatically escalate by 1%. The automatic escalation will continue at the rate of 1% per calendar year, up to a
contribution rate cap of 8%.
Participants who transferred from the RSI Plan effective January 1, 2019 will be eligible for a profit sharing contribution as of
April 30, 2020. Effective April 1, 2020, union employees are eligible to participate in the Plan.
The expense for 401(k) matching contributions for both plans was $10.1 million, $9.9 million and $8.0 million, in fiscal years
2020, 2019 and 2018, respectively.
Pension Benefits
Prior to April 30, 2020, the Company had two defined benefit pension plans covering many of the Company’s employees hired
prior to April 30, 2012. Effective April 30, 2020, these plans were merged into one plan and the plan name was changed to the
American Woodmark Corporation Employee Pension Plan. The plan provides 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 defined benefit pension plan.
Included in accumulated other comprehensive loss at April 30, 2020 is $68.6 million ($51.2 million net of tax) related to net
unrecognized actuarial losses that have not yet been recognized in net periodic pension benefit costs. The Company expects to
recognize $1.8 million ($1.3 million net of tax) in net actuarial losses in net periodic pension benefit costs during fiscal 2021.
The Company uses an April 30 measurement date for its benefit plans.
47
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
Interest cost
Actuarial gains
Benefits paid
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
APRIL 30
2020
2019
$
$
$
$
$
168,788
5,974
22,293
(5,871)
191,184
169,471
26,674
469
(5,871)
190,743
$
$
$
$
163,423
6,269
4,850
(5,754)
168,788
156,463
11,479
7,283
(5,754)
169,471
(441) $
683
The accumulated benefit obligation for both pension plans was $191.2 million and $168.8 million at April 30, 2020 and 2019,
respectively.
(in thousands)
2020
APRIL 30
2019
2018
COMPONENTS OF NET PERIODIC PENSION BENEFIT COST
Interest cost
Expected return on plan assets
Recognized net actuarial loss
Pension benefit cost
$
$
$
5,974
(8,327)
1,692
(661) $
$
6,269
(8,509)
1,648
(592) $
5,727
(8,936)
1,601
(1,608)
The components of net periodic pension benefit cost do not include service costs or prior service costs due to the plans being
frozen.
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
FISCAL YEARS ENDED APRIL 30
2020
2019
3.16 %
4.02 %
FISCAL YEARS ENDED APRIL 30
2020
2019
2018
WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE NET
PERIODIC PENSION BENEFIT COST
Discount rate
Expected return on plan assets
4.02 %
5.0 %
4.18 %
5.5 %
4.12%
6.5 %
48
The Company bases the discount rate on a current yield curve developed from a portfolio of high-quality fixed-income investments
with maturities consistent with the projected benefit payout period. The long-term rate of return on assets is determined based on
consideration of historical and forward-looking returns and the current and expected asset allocation strategy.
The method used to determine the service and interest costs is known as the spot rate approach, under which individual spot rates
along the yield curve that correspond with the timing of each benefit payment are used.
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 amortizes experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions,
over the average remaining lifetime of employees expected to receive benefits under the plan.
Contributions: The Company funds the pension plans in amounts sufficient to meet minimum funding requirements under
applicable employee benefit and tax laws plus additional amounts the Company deems appropriate.
The Company does not expect to contribute to its pension plans in fiscal 2021. The Company made contributions of $0.5 million
and $7.3 million to its pension plans in fiscal 2020 and 2019, respectively.
Estimated Future Benefit Payments: The following benefit payments are expected to be paid:
FISCAL YEAR
2021
2022
2023
2024
2025
Years 2026-2030
BENEFIT
PAYMENTS
(in thousands)
$
6,913
7,263
7,653
8,048
8,413
47,525
Plan Assets: Pension assets by major category and the type of fair value measurement as of April 30, 2020 and 2019 are presented
in the following tables:
FAIR VALUE MEASUREMENTS AT APRIL 30, 2020
QUOTED PRICES
IN ACTIVE
MARKETS
(LEVEL 1)
SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
TOTAL
$
490
$
490
$
0
$
37,569
24,578
128,106
190,743
37,569
24,578
128,106
190,743
—
—
—
—
—
—
—
—
(in thousands)
Cash Equivalents
Equity Funds:
US Equity
International Equity
Fixed Income Funds:
Investment Grade Fixed Income
Total plan assets
49
FAIR VALUE MEASUREMENTS AT APRIL 30, 2019
QUOTED PRICES
IN ACTIVE
MARKETS
(LEVEL 1)
SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 2)
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
TOTAL
$
469
$
469
(in thousands)
Cash Equivalents
Equity Funds:
US Equity
International Equity
Fixed Income Funds:
Investment Grade Fixed Income
117,306
Total plan assets
$
169,471
$
31,143
20,553
31,143
20,553
117,306
169,471
—
—
—
—
—
—
—
—
—
—
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 established at an asset class level by the Company’s Pension Committee. Target allocation
ranges are guidelines, not limitations, and the Pension Committee may 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.
The Company’s pension plans’ weighted-average asset allocations at April 30, 2020 and 2019, by asset category, were as follows:
PLAN ASSET ALLOCATION
2020
2019
2020
APRIL 30
Equity Funds
Fixed Income Funds
Total
Note K -- Income Taxes
TARGET
ACTUAL
ACTUAL
30.0 %
70.0 %
33.0 %
67.0 %
31.0 %
69.0 %
100.0 %
100.0 %
100.0 %
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed
into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of
2017 (the "2017 Tax Act"). Among other provisions, the CARES Act makes qualified improvement property generally eligible
for 15-year cost-recovery and 100% bonus depreciation. The tax effects of the CARES Act are not significant and have been
recognized in the current reporting period.
50
Income tax expense was comprised of the following:
(in thousands)
CURRENT EXPENSE
Federal
State
Foreign
Total current expense
DEFERRED EXPENSE
Federal
State
Foreign
Total deferred (benefit) expense
Total expense
Other comprehensive income (loss)
Total comprehensive income tax expense
FISCAL YEARS ENDED APRIL 30
2020
2019
2018
$
29,072
$
25,649
$
7,581
533
37,186
8,231
1,125
35,005
(7,167)
(4,190)
(142)
(11,499)
25,687
(573)
25,114
$
(4,498)
(3,266)
(41)
(7,805)
27,200
190
$
27,390
$
31,669
8,668
1,290
257
10,215
17,833
3,642
(71)
21,404
31,619
50
The Company's effective income tax rate varied from the federal statutory rate as follows:
FISCAL YEARS ENDED APRIL 30
2019
2018
2020
Federal statutory rate
Effect of:
Federal income tax credits
Acquisition and integration costs
Stock compensation
Meals and entertainment
Effect of Tax Act
Domestic production deduction
Valuation allowance for deferred taxes
Foreign
Other
Total
Effective federal income tax rate
State income taxes, net of federal tax effect
Effective income tax rate
21.0 %
21.0 %
30.4 %
(0.9)%
—
(0.1)
0.3
—
—
0.7
0.4
0.7
1.1 %
22.1 %
3.4
25.5 %
(1.4)%
—
(0.5)
0.3
(1.1)
—
0.6
0.8
1.2
(0.1)%
20.9 %
3.6
24.5 %
(0.5)%
1.2
(2.4)
0.3
1.2
(0.8)
—
—
0.4
(0.6)%
29.8 %
3.6
33.4 %
51
The significant components of deferred tax assets and liabilities were as follows:
(in thousands)
Deferred tax assets:
Accounts receivable
Product liability
Employee benefits
Tax credit carryforwards
Operating leases
Other
Gross deferred tax assets, before valuation allowance
Valuation allowance
Gross deferred tax assets, after valuation allowance
Deferred tax liabilities:
Pension benefits
Inventory
Depreciation
Intangibles
Operating leases
Other
Gross deferred tax liabilities
APRIL 30
2020
2019
$
1,730
$
862
5,189
4,995
33,258
4,330
50,364
(4,415)
45,949
—
125
24,147
40,677
32,325
695
97,969
Net deferred tax liability
$
52,020
$
1,852
2,133
6,192
4,439
—
3,272
17,888
(3,630)
14,258
119
76
23,721
53,259
—
1,059
78,234
63,976
We have not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations. Undistributed earnings that are indefinitely reinvested in foreign operations are not significant
as of April 30, 2020.
The Company recorded a valuation allowance related to deferred tax assets for certain state investment tax credit ("ITC")
carryforwards and foreign tax credit ("FTC") carryforwards. Deferred tax assets are reduced by a valuation allowance when, after
considering all positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the
deferred tax asset will not be realized. In fiscal 2019, the Company determined that there will not be sufficient income in states
for which an ITC deferred tax asset exists and that there will not be sufficient foreign source income to utilize the FTCs. Therefore,
the Company reassessed the valuation allowance and recorded an additional valuation allowance in the amount of $0.2 million
and $0.5 million related to ITCs and FTCs, respectively.
The gross amount of state tax credit carryforwards related to state ITCs as of April 30, 2020 and 2019 was $3.9 million and $4.6
million. These credits expire in various years beginning in fiscal 2028. Net of the federal impact and related valuation allowance,
the Company recorded $0.6 million and $0.8 million of deferred tax assets related to these credits, as of April 30, 2020 and 2019.
The Company accounts for ITCs under the deferral method, under which the tax benefit from the ITC is deferred and amortized
into income tax expense over the book life of the related property. As of April 30, 2020 and 2019, a deferred credit balance of
$0.8 million and $1.0 million, respectively, is included in other liabilities on the balance sheet.
The gross amount of foreign tax credit carryforwards as of April 30, 2020 and 2019 is $1.2 million and $0.7 million, respectively,
which begin to expire in fiscal 2029.
52
The following table summarizes the activity related to unrecognized tax benefits, excluding the federal tax benefit of state tax
deductions:
(in thousands)
Change in Unrecognized Tax Benefits
Balance at beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Balance at end of year
APRIL 30
2020
2019
$
$
2,240
$
65
—
2,305
$
928
120
1,192
2,240
The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination
by various taxing authorities. Such examinations may result in future assessments by these taxing authorities, and the Company
has accrued a liability when it believes that it is not more likely than not that it will realize the benefits of tax positions that it has
taken or for the amount of any tax benefit that exceeds the cumulative probability threshold in accordance with accounting standards.
As of April 30, 2020, federal tax years 2016 through 2019 remain subject to examination. The Company believes that adequate
provisions have been made for all tax returns subject to examination. The Company is currently not under federal audit. If the
liability for uncertain tax positions is released the entire amount would impact the Company’s effective tax rate.
Note L -- Commitments and Contingencies
Legal Matters
The Company is involved in suits and claims in the normal course of business, including without limitation product liability and
general liability claims, and claims pending before 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 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 be reasonably possible, a range of loss estimates is determined and considered for disclosure. 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
were deemed to be either probable or reasonably possible is not material as of April 30, 2020.
COVID-19
The COVID-19 pandemic impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020.
Although the financial impact on our overall fiscal 2020 results is limited due to the timing of the outbreak, we face numerous
uncertainties in estimating the direct and indirect effects on our future business operations, financial condition, results of operations,
and liquidity. We will continue to monitor developments affecting our consolidated financial statements, including indicators that
goodwill or other long-lived assets may be impaired, increases in valuation allowances for doubtful accounts or deferred tax assets
may be necessary or other accruals that may increase or be necessary resulting from actions taken to reduce our cost structure or
conserve our liquidity.
Product Warranty
The Company estimates outstanding warranty costs based on the historical relationship between warranty claims and revenues.
The warranty accrual is reviewed monthly to verify that it properly reflects the remaining obligation based on the anticipated
expenditures over the balance of the obligation period. Adjustments are made when actual warranty claim experience differs from
estimates. Warranty claims are generally made within two months of the original shipment date.
53
The following is a reconciliation of the Company’s warranty liability:
(in thousands)
PRODUCT WARRANTY RESERVE
Beginning balance
Accrual for warranties
Settlements
Ending balance at fiscal year end
Note M -- Revenue Recognition
APRIL 30
2020
2019
$
$
4,616
$
21,886
(22,749)
3,753
$
4,045
24,994
(24,423)
4,616
The Company disaggregates revenue from contracts with customers into major sales distribution channels as these categories
depict the nature, amount, timing and uncertainty of revenues and cash flows that are affected by economic factors. The following
table disaggregates our consolidated revenue by major sales distribution channels for the years ended April 30, 2020, 2019 and
2018:
(in thousands)
Home center retailers
Builders
Independent dealers and distributors
Net Sales
Note N -- Credit Concentration
FISCAL YEARS ENDED APRIL 30
2020
2019
2018
$
768,043
$
788,803
$
493,904
668,765
213,525
631,474
225,042
557,382
198,988
$ 1,650,333
$ 1,645,319
$ 1,250,274
Financial instruments that potentially subject the Company to concentrations of risk consist primarily of cash and cash equivalents
and accounts receivable. The Company maintains its cash and cash equivalents with major financial institutions and such balances
may, at times, exceed Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant risk on cash.
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 condition. Estimates and assumptions are periodically reviewed and updated. Any
resulting adjustments to the allowance are reflected in current operating results.
At April 30, 2020, the Company's two largest customers, Customers A and B, represented 26.4% and 22.9% of the Company's
gross customer receivables, respectively. At April 30, 2019, Customers A and B represented 28.2% and 25.9% of the Company’s
gross customer receivables, respectively.
The following table summarizes the percentage of net sales to the Company's two largest customers for the last three fiscal years:
PERCENT OF ANNUAL NET SALES
2020
2019
2018
Customer A
Customer B
29.3%
17.2%
29.3%
18.6%
23.5%
16.0%
54
Note O -- Leases
On May 1, 2019, the Company adopted ASC 842, Leases. Changes to the Company’s accounting policy as a result of adoption
are discussed below.
Operating Leases - ROU assets related to operating leases are presented as “Operating lease right-of-use assets” on the consolidated
balance sheet. Lease liabilities related to operating leases that are subject to the ASC 842 measurement requirements such as
operating leases with lease terms greater than twelve months are presented in “Short-term lease liability - operating” and “Long-
term lease liability - operating” on the consolidated balance sheet.
Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future
lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit
in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in
determining the present value of the future lease payments. The incremental borrowing rate is the rate of interest that the Company
would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar
economic environment. Operating lease ROU assets may also include any cumulative prepaid or accrued rent when the lease
payments are uneven throughout the lease term. The ROU assets and lease liabilities may also include options to extend or terminate
the lease when it is reasonably certain that the Company will exercise that option. The ROU asset includes any lease payments
made and lease incentives received prior to the commencement date. The Company has lease arrangements with lease and non-
lease components which are accounted for separately. Non-lease components of the lease payments are expensed as incurred and
are not included in determining the present value.
Finance Leases - ROU assets related to finance leases are presented in "Property, plant and equipment, net” on the consolidated
balance sheet. Lease liabilities related to finance leases are presented in “Current maturities of long-term debt” and “Long-term
debt, less current maturities” on the consolidated balance sheet.
Finance lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future
lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit
in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in
determining the present value of the future lease payments. The incremental borrowing rate is the rate of interest that the Company
would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar
economic environment.
The components of lease costs were as follows:
(in thousands)
Finance lease cost:
FISCAL YEAR ENDED
APRIL 30, 2020
Reduction in the carrying value of right-of-use assets
$
Interest on lease liabilities
Operating lease cost
2,582
205
25,405
55
Additional information related to leases was as follows:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for finance leases
Operating cash flows for operating leases
Financing cash flows for financing leases
Right-of-use assets obtained in exchange for new finance lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted average remaining lease term (years)
Weighted average remaining lease term - finance leases
Weighted average remaining lease term - operating leases
Weighted average discount rate
Weighted average discount rate - finance leases
Weighted average discount rate - operating leases
FISCAL YEAR ENDED
APRIL 30, 2020
$
205
22,595
2,512
1,650
72,703
3.36
7.41
3.19%
4.27%
The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related
ROU assets, presented on the consolidated balance sheet as of April 30, 2020:
FISCAL YEAR
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less imputed interest
Total lease liability
Current maturities
Lease liability - long-term
Lease assets
OPERATING
(in thousands)
FINANCING
(in thousands)
$
$
$
$
24,071
$
20,886
19,870
17,977
15,859
55,609
154,272
(22,922)
131,350
(18,896)
112,454
127,668
$
$
$
2,359
1,423
1,003
858
267
71
5,981
(294)
5,687
(2,216)
3,471
10,248
56
As we have not restated prior year information for our adoption of ASC 842, the following presents our future minimum lease
payments for operating and capital leases under ASC 840 on April 30, 2019:
FISCAL YEAR
2020
2021
2022
2023
2024
Thereafter
Less amounts representing interest (2% - 6.5%)
NOTE P -- Restructuring Charges
OPERATING
(in thousands)
CAPITAL
(in thousands)
$
$
17,943
$
17,649
12,435
10,636
9,854
38,871
107,388
$
$
2,456
1,953
1,013
705
701
166
6,994
(349)
6,645
In the fourth quarter of fiscal 2020, the Company implemented a nationwide reduction in force. Severance and outplacement
charges relating to the reduction in force totaled approximately $0.2 million and the reduction in force was substantially completed
in fiscal 2020.
In the first quarter of fiscal 2019, the Company implemented a nationwide reduction in force. Severance and outplacement charges
relating to the reduction in force totaled approximately $1.8 million and the reduction in force was substantially completed during
fiscal 2019.
During fiscal years 2020 and 2019, the Company recognized total pre-tax restructuring charges of $18,000 and $2.0 million,
respectively.
A reserve for restructuring charges is included in accrued compensation and related expenses in the consolidated balance sheets
as of April 30, 2020 and 2019 which relates to employee termination costs accrued but not yet paid as follows:
(in thousands)
Restructuring reserve balance, beginning of year
Expense
Payments and adjustments
Restructuring reserve balance, end of year
Note Q -- Fair Value Measurements
APRIL 30
2020
2019
387
(18)
(180)
189
$
$
—
1,987
(1,600)
387
$
$
The Company utilizes the hierarchy of fair value measurements to classify certain of its assets and liabilities based upon the
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 certificates of deposit. The Company’s mutual fund investment assets represent
contributions made and invested on behalf of the Company’s named executive officers in a supplementary employee retirement
plan.
Level 2 – Investments with observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; 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.
Level 3 – Investments with unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities. The Company has no Level 3 assets or liabilities measured on a recurring basis.
The fair value measurement of assets held by the Company’s defined benefit pension plans is discussed in Note J.
57
The Company's financial instruments include cash and equivalents, marketable securities and other investments; accounts
receivable and accounts payable; and short- and long-term debt. The carrying values of cash and equivalents, accounts receivable
and payable and short-term debt on the consolidated balance sheets approximate their fair value due to the short maturities of these
items. The forward contracts were marked to market and therefore represent fair value. The fair values of these contracts are
determined based on inputs that are readily available in public markets or can be derived from information available in publicly
quoted markets. The following table summarizes the fair value of assets and liabilities that are recorded in the Company’s
consolidated financial statements as of April 30, 2020 and 2019 at fair value on a recurring basis:
$
$
$
(in thousands)
ASSETS:
Mutual funds
LIABILITIES:
Foreign exchange forward contracts
(in thousands)
ASSETS:
Certificates of deposit
Mutual funds
Total assets at fair value
Note R -- Quarterly Financial Data (Unaudited)
FISCAL 2020
(in thousands, except per share amounts)
Net sales
Gross profit
Income before income taxes
Net income
Earnings per share
Basic
Diluted
FISCAL 2019
(in thousands, except per share amounts)
Net sales
Gross profit
Income before income taxes
Net income
Earnings per share
Basic
Diluted
FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2020
LEVEL 1
LEVEL 2
LEVEL 3
773
$
0
$
—
(1,102)
FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2019
LEVEL 2
LEVEL 1
LEVEL 3
1,500
1,604
3,104
$
$
— $
—
— $
0
0
—
—
—
07/31/19
10/31/19
01/31/20
04/30/20
$ 427,365
$ 428,016
$ 395,755
$ 399,197
94,519
36,338
26,881
87,050
29,978
22,163
72,348
17,274
12,804
75,269
16,958
13,013
$
$
1.59
1.59
$
$
1.31
1.31
$
$
0.76
0.75
$
$
0.77
0.77
07/31/18
10/31/18
01/31/19
04/30/19
$ 428,962
$ 424,878
$ 384,080
$ 407,399
95,736
32,539
24,767
86,762
25,409
18,488
76,853
24,126
18,409
87,122
28,814
22,024
$
$
1.41
1.41
$
$
1.05
1.05
$
$
1.07
1.07
$
$
1.31
1.30
58
Note S -- Subsequent Events
During May 2020, the Company implemented a nationwide reduction in force. Severance and outplacement charges relating to
the reduction in force will total approximately $1.5 million and is expected to be completed during fiscal 2021.
During June 2020, the Company's Board of Directors approved the closure and eventual disposal of its manufacturing plant located
in Humboldt, Tennessee. The manufacturing plant is expected to cease operations in September 2020. The Company expects to
incur total pre-tax restructuring costs of $3.0 million to $5.0 million related to the closing of the plant, net of building proceeds.
The restructuring costs consist of employee severance and separation costs of approximately $0.5 million to $1.0 million, and
charges for asset impairment of property, equipment and inventory of approximately $2.5 million to $4.0 million. The Company
expects to recognize substantially all of these costs during fiscal 2021.
59
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
American Woodmark Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of American Woodmark Corporation and subsidiaries (the
Company) as of April 30, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’
equity, and cash flows for each of the years in the three-year period ended April 30, 2020, and the related notes and financial
statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of April 30, 2020 and 2019, and the results of its
operations and its cash flows for each of the years in the three-year period ended April 30, 2020, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of April 30, 2020, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated June 29, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Change in Accounting Principle
As discussed in Note A to the consolidated financial statements, the Company has changed its method of accounting for leases as
of May 1, 2019 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic
842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of goodwill recoverability
As discussed in Note A to the consolidated financial statements and disclosed in the consolidated balance sheet, the carrying
amount of goodwill as of April 30, 2020 was $767.6 million. The Company evaluates its goodwill for impairment annually
on February 1, or whenever events or changes in circumstances indicate that it is more likely than not the carrying value of
goodwill may not be recoverable. The Company performed a qualitative impairment test for goodwill which resulted in no
impairment.
We identified the assessment of events or changes in circumstances that may indicate that the fair value of the reporting unit
is below its carrying value as a critical audit matter. A higher degree of auditor judgement was required to evaluate these
events or changes in circumstances as a result of uncertainty in the economy. These events or changes in circumstances could
60
have a significant effect on the Company’s qualitative impairment assessment and the determination of whether further
quantitative analysis of goodwill impairment was required.
The following are the primary procedures we performed to address this critical audit matter. We tested certain internal controls
over the Company’s goodwill impairment assessment process, including controls related to the Company’s assessment of
events or changes in circumstances that may indicate the fair value of the reporting unit is below its carrying value. We
evaluated the Company’s qualitative goodwill impairment assessment through comparison to the Company’s market
capitalization and macroeconomic information contained in third party analyst reports on the Company.
/s/ KPMG LLP
We have served as the Company’s auditor since 2004.
Richmond, Virginia
June 29, 2020
61
Management's Annual 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 reasonable 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, a system of 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, 2020. In making its assessment, Management has utilized the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control-Integrated Framework (2013) (the “COSO 2013 Framework”). Management
concluded that based on its assessment, American Woodmark Corporation’s internal control over financial reporting was effective
as of April 30, 2020. The Company’s internal control over financial reporting as of April 30, 2020 has been audited by KPMG
LLP, an independent registered public accounting firm, as stated in their report, which appears in this Annual Report on Form 10-
K.
/s/ S. CARY DUNSTON
S. Cary Dunston
President and Chief Executive Officer
/s/ M. SCOTT CULBRETH
M. Scott Culbreth
Senior Vice President and Chief Financial Officer
62
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
American Woodmark Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited American Woodmark Corporation and subsidiaries’ (the Company) internal control over financial reporting as
of April 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of April 30, 2020, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of April 30, 2020 and 2019, the related consolidated statements of
income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended April
30, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our
report dated June 29, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material 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 as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
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, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Richmond, Virginia
June 29, 2020
63
Item 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None.
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Senior Management, including the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of April
30, 2020. Based on this evaluation, and due to the remediation of the previously disclosed material weakness in our internal control
over financial reporting as discussed below, the Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control over Financial Reporting. Management had conducted an assessment of the
Company’s internal control over financial reporting as of April 30, 2020. Management's report regarding that assessment is included
with the Consolidated Financial Statements included in this report under Item 8, "Financial Statements and Supplementary Data,"
and is incorporated in this item by reference.
Report of Registered Public Accounting Firm. The Company’s independent registered public accounting firm, KPMG LLP
(KPMG), has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. KPMG's report
on the effectiveness of the Company's internal control over financial reporting is included with the Consolidated Financial
Statements included in this report under Item 8, "Financial Statements and Supplementary Data," and is incorporated in this item
by reference.
Remediation of Previously Disclosed Material Weakness. We previously disclosed in Part II, Item 9A of our Annual Report on
Form 10-K for the fiscal year ended April 30, 2019 (our “2019 Annual Report”) a material weakness in our internal control over
financial reporting involving ineffective general information technology controls related to RSI. During the fiscal quarter ended
April 30, 2020, we completed the implementation of our remediation plan described in Part II, Item 9A of our 2019 Annual Report,
as well as sufficient testing to conclude that the applicable controls are operating effectively. Accordingly, management has
concluded that the previously disclosed material weakness was fully remediated as of April 30, 2020.
Changes in Internal Control over Financial Reporting. Except as described above, there has been no change in the Company's
internal control over financial reporting during the fiscal quarter ended April 30, 2020, that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial reporting.
Item 9B.
OTHER INFORMATION
None.
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
In response to this Item, and in accordance with General Instruction G(3) of Form 10-K:
(1) the information concerning the Company’s directors is set forth under the caption “Item 1 - Election of Directors - Information
Regarding Nominees” in the Company’s Proxy Statement for its Annual Meeting of Shareholders to be held on August 20, 2020
(“Proxy Statement”) and is incorporated in this Item by reference;
(2) the information concerning the Company’s executive officers is set forth under the caption “Executive Officers of the
Registrant” in Part I of this report and is incorporated in this Item by reference;
(3) the information concerning compliance with Section 16(a) of the Exchange Act is set forth under the caption “Delinquent
Section 16(a) Reports” in the Proxy Statement and is incorporated in this Item by reference;
(4) the information concerning the Code of Business Conduct and Ethics governing the Company’s Chief Executive Officer,
Chief Financial Officer, Controller, and Treasurer is set forth under the caption “Corporate Governance – Codes of Business
Conduct and Ethics” in the Proxy Statement and is incorporated in this Item by reference;
64
(5) the information concerning material changes, if any, in the procedures by which security holders may recommend nominees
to the Company’s Board of Directors is set forth under the caption “Corporate Governance – Procedures for Shareholder
Nominations of Directors” in the Proxy Statement and is incorporated in this Item by reference; and
(6) the information concerning the Audit Committee of the Company’s Board of Directors, including the members of the Audit
Committee and the Board’s determination concerning whether certain members of the Audit Committee are “audit committee
financial experts” as that term is defined under Item 407(d)(5) of Regulation S-K is set forth under the captions “Corporate
Governance – Board of Directors and Committees – Audit Committee” in the Proxy Statement and is incorporated in this Item by
reference.
Item 11.
EXECUTIVE COMPENSATION
In response to this Item, and in accordance with General Instruction G(3) of Form 10-K, the information set forth under the captions
“Executive Compensation,” “Compensation Committee Report,” "Compensation Committee Interlocks and Insider Participation,"
"Company's Compensation Policies and Practices Relating to Risk Management" and "Non-Management Directors'
Compensation" in the Proxy Statement is incorporated in this Item by reference.
Item 12.
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
In response to this Item, and in accordance with General Instruction G(3) of Form 10-K, the information set forth under the caption
“Security Ownership” and "Equity Compensation Plan Information" in the Proxy Statement is incorporated in this Item by reference.
Item 13.
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
In response to this Item, and in accordance with General Instruction G(3) of Form 10-K, the information set forth under the captions
“Certain Related Party Transactions” and “Corporate Governance – Director Independence” in the Proxy Statement is incorporated
in this Item by reference.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
In response to this Item, and in accordance with General Instruction G(3) of Form 10-K, the information concerning fees and
services of the Company’s principal accounting firm set forth under the captions “Report of the Audit Committee - Independent
Auditor Fee Information” and “Report of the Audit Committee - Pre-Approval Policies and Procedures” in the Proxy Statement
is incorporated in this Item by reference.
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1.
Financial Statements
PART IV
The following consolidated financial statements of American Woodmark Corporation are incorporated
by reference to Item 8 of this report:
Consolidated Balance Sheets as of April 30, 2020 and 2019.
Consolidated Statements of Income – for each year of the three-year period ended April 30, 2020.
Consolidated Statements of Comprehensive Income – for each year of the three-year period ended
April 30, 2020.
Consolidated Statements of Shareholders’ Equity – for each year of the three-year period ended April
30, 2020.
Consolidated Statements of Cash Flows – for each year of the three-year period ended April 30, 2020.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
Management’s Annual Report on Internal Control over Financial Reporting.
Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting.
(a)2.
Financial Statement Schedules
65
The following financial statement schedule is filed as a part of this Form 10-K:
Schedule II – Valuation and Qualifying Accounts for each year of the three-year period ended April
30, 2020.
Schedules other than the one listed above are omitted either because they are not required or are
inapplicable.
(a)3.
Exhibits
2.1
3.1
Agreement and Plan of Merger, dated as of November 30, 2017, among RSI Home Products, Inc., American
Woodmark Corporation, Alliance Merger Sub, Inc. and Ronald M. Simon, solely in his capacity as the Stockholder
Representative (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K as filed on December 1,
2017; Commission File No. 000-14798)
Articles of Incorporation as amended effective August 12, 1987 (incorporated by reference to Exhibit 3.1 to the
Registrant’s Form 10-Q for the quarter ended January 31, 2003; Commission File No. 000-14798).
3.1(b)
Articles of Amendment to the Articles of Incorporation effective September 10, 2004 (incorporated by reference
to Exhibit 3.1 to the Registrant’s Form 8-K as filed on August 31, 2004; Commission File No. 000-14798).
3.2
4.1
4.2
4.3
10.1(a)
10.1(b)
10.1(c)
10.1(d)
10.1(e)
10.1(f)
Bylaws - as amended and restated effective May 21, 2020 (incorporated by reference to Exhibit 3.1 to the
Registrant’s Form 8-K as filed on May 26, 2020; Commission File No. 000-14798).
The Articles of Incorporation and Bylaws of the Registrant as currently in effect (incorporated by reference to
Exhibits 3.1 and 3.2).
Indenture, dated as of February 12, 2018, among American Woodmark Corporation, the guarantors from time
to time party thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit
4.1 to the Registrant’s Form 8-K as filed on February 14, 2018; Commission File No. 000-14798).
Description of Capital Stock (incorporated by reference to Exhibit 4.4 to the Registrant’s Form 10-K for the
fiscal year ended April 30, 2019; Commission File No. 000-14798).
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments that define the rights of holders of the Registrant's
long-term debt securities, where the long-term debt securities authorized under each such instrument do not
exceed 10% of the Registrant's total assets, have been omitted and will be furnished to the Securities and Exchange
Commission upon request.
Commitment Letter, dated as of November 30, 2017, among American Woodmark Corporation, Wells Fargo
Bank, National Association, and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 10.1 to the
Registrant’s Form 8-K as filed on December 1, 2017; Commission File No. 000-14798).
Credit Agreement, dated as of December 29, 2017, by and among American Woodmark Corporation, as Borrower,
the Lenders referred to therein as Lenders and Wells Fargo Bank, National Association, as Administrative Agent,
Swingline Lender and Issuer Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K as
filed on January 5, 2018; Commission File No. 000-14798).
Collateral Agreement, dated as of December 29, 2017, by American Woodmark Corporation and certain of its
subsidiaries, as Grantors, in favor of Wells Fargo Bank, National Association, as Administrative Agent
(incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K as filed on January 5, 2018; Commission
File No. 000-14798).
Joinder Agreement, dated as of February 12, 2018, by American Woodmark Corporation and each of its subsidiary
named therein in favor of Wells Fargo Bank, National Association, as Administrative Agent, for the benefit of
the Secured Parties (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarter
ended January 31, 2018; Commission File No. 000-14798).
Amendment No. 1, dated as of September 7, 2018, to the Credit Agreement, dated as of December 29, 2017,
among American Woodmark Corporation, the lenders from time to time party thereto and Wells Fargo Bank,
National Association, as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Form
8-K as filed on September 11, 2018; Commission File No. 000-14798).
Amendment No. 2, dated as of January 25, 2019, to the Credit Agreement, dated as of December 29, 2017,
among American Woodmark Corporation, the lenders from time to time party thereto and Wells Fargo Bank,
National Association, as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Form
8-K filed on January 29, 2019; Commission File No. 000-14798).
66
10.6
10.7(a)
10.8 (a)
10.8 (b)
10.8 (c)
10.8 (d)
10.8(e)
10.8(f)
10.8(g)
10.8(h)
10.8(i)
10.8(j)
10.8(k)
10.8(l)
10.10(a)
10.10(b)
10.11
10.11(a)
10.11(b)
10.11(c)
Lease, dated as of December 15, 2000, between the Company and the Industrial Development Board of The
City of Humboldt, Tennessee (incorporated by reference to Exhibit 10.6(d) to the Registrant’s Form 10-K for
the fiscal year ended April 30, 2001; Commission File No. 000-14798).
2015 Non-Employee Directors Restricted Stock Unit Plan (incorporated by reference to Appendix A to the
Registrant's Definitive Proxy Statement on Schedule 14A as filed on June 30, 2015; Commission File No.
000-14798).
Form of Grant Letter used in connection with awards of stock options granted under the Company’s Second
Amended and Restated 2004 Stock Incentive Plan for Employees (incorporated by reference to Exhibit 10.5 to
the Registrant’s Form 8-K as filed on June 5, 2013; Commission File No. 000-14798).*
Form of Grant Letter used in connection with awards of service-based restricted stock units granted under the
Company’s Second Amended and Restated 2004 Stock Incentive Plan for Employees (incorporated by reference
to Exhibit 10.6 to the Registrant’s Form 8-K as filed on June 5, 2013; Commission File No. 000-14798).*
Form of Grant Letter used in connection with awards of performance-based restricted stock units granted under
the Company’s Second Amended and Restated 2004 Stock Incentive Plan for Employees (incorporated by
reference to Exhibit 10.7 to the Registrant’s Form 8-K as filed on June 5, 2013; Commission File No. 000-14798).*
Form of Grant Letter used in connection with restricted stock unit awards granted under the Company's Second
Amended and Restated 2004 Stock Incentive Plan for Employees (incorporated by reference to Exhibit 10.1 to
the Registrant’s Form 8-K as filed on June 10, 2016; Commission File No. 000-14798).*
Employment Agreement for Mr. M. Scott Culbreth (incorporated by reference to Exhibit 10.1 to the Registrant’s
Form 8-K as filed on August 27, 2014; Commission File No. 000-14798).*
Amendment to Employment Agreement for Mr. M. Scott Culbreth (incorporated by reference to Exhibit 10.2
to the Registrant’s Form 8-K as filed on May 29, 2019; Commission File No. 000-14798).*
Employment Agreement for Mr. R. Perry Campbell (incorporated by reference to Exhibit 10.2 to the Registrant’s
Form 8-K as filed on August 27, 2014; Commission File No. 000-14798).*
Amendment to Employment Agreement for Mr. R. Perry Campbell (incorporated by reference to Exhibit 10.3
to the Registrant’s Form 8-K as filed on May 29, 2019; Commission File No. 000-14798).*
Employment Agreement for Mr. S. Cary Dunston (incorporated by reference to Exhibit 10.1 to the Registrant’s
Form 8-K as filed on August 31, 2015; Commission File No. 000-14798).*
Amendment to Employment Agreement for Mr. S. Cary Dunston (incorporated by reference to Exhibit 10.1 to
the Registrant’s Form 8-K as filed on May 29, 2019; Commission File No. 000-14798).*
Employment Agreement for Mr. Robert J. Adams, Jr. (incorporated by reference to Exhibit 10.3 to the Registrant’s
Form 8-K as filed on August 31, 2015; Commission File No. 000-14798).*
Amendment to Employment Agreement for Mr. Robert J. Adams, Jr. (incorporated by reference to Exhibit 10.4
to the Registrant’s Form 8-K as filed on May 29, 2019; Commission File No. 000-14798).*
Equipment Lease, dated as of June 30, 2004, between the Company and the West Virginia Economic Development
Authority (incorporated by reference to Exhibit 10.1(l) to the Registrant's Form 10-Q for the quarter ended July
31, 2004; Commission File No. 000-14798).
West Virginia Facility Lease, dated as of July 30, 2004, between the Company and the West Virginia Economic
Development Authority (incorporated by reference to Exhibit 10.1(m) to the Registrant’s Form 10-Q for the
quarter ended July 31, 2004; Commission File No. 000-14798).
2016 Employee Stock Incentive Plan (incorporated by reference to Exhibit A to the Registrant’s Definitive Proxy
Statement on Schedule 14A as filed on June 29, 2016; Commission File No. 000-14798).
Form of Grant Letter used in connection with awards of service-based restricted stock units granted under the
Company's 2016 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1(a) to the Registrant’s
Form 10-Q for the quarter ended July 31, 2017; Commission File No. 000-14798).*
Form of Grant Letter used in connection with awards of performance-based restricted stock units granted under
the Company's 2016 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1(b) to the
Registrant’s Form 10-Q for the quarter ended July 31, 2017; Commission File No. 000-14798).*
Form of Grant Letter used in connection with awards of cultural-based restricted stock units granted under the
Company's 2016 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1(c) to the Registrant’s
Form 10-Q for the quarter ended July 31, 2017; Commission File No. 000-14798).*
67
21
23.1
31.1
31.2
32.1
101
Subsidiaries of the Company (Filed Herewith).
Consent of KPMG LLP, Independent Registered Public Accounting Firm (Filed Herewith).
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act (Filed Herewith).
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act (Filed Herewith).
Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) of the
Exchange Act and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (Furnished Herewith).
Interactive Data File for the Registrant’s Annual Report on Form 10-K for the year ended April 30, 2020 formatted
in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated
Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated
Statements of Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated
Financial Statements (Filed Herewith).
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
*Management contract or compensatory plan or arrangement.
68
Schedule II - Valuation and Qualifying Accounts
AMERICAN WOODMARK CORPORATION
(In Thousands)
Description (a)
Year ended April 30, 2020:
Allowance for doubtful accounts
Reserve for cash discounts
Reserve for sales returns and allowances
Year ended April 30, 2019:
Allowance for doubtful accounts
Reserve for cash discounts
Reserve for sales returns and allowances
Year ended April 30, 2018:
Allowance for doubtful accounts
Reserve for cash discounts
Reserve for sales returns and allowances
$
$
$
$
$
$
$
$
$
Balance at
Beginning of
Year
Additions
(Reductions)
Charged to
Cost and
Expenses
Other
Deductions
Balance at
End of
Year
249
1,451
$
$
323
$ — $
(100) (b) $
472
16,810 (c) $ — $
(17,090) (d) $
1,171
4,545
$
17,049 (c) $ — $
(17,053)
$
4,541
259
1,627
$
$
72
$ — $
(82) (b) $
249
16,994 (c) $ — $
(17,170) (d) $
1,451
4,381
$
11,867 (c) $ — $
(11,703)
$
4,545
148
979
$
$
169
$
78
11,999 (c) $ 584
$
$
(136) (b) $
259
(11,935) (d) $
1,627
2,131
$
11,318 (c) $ 1,829
$
(10,897)
$
4,381
(a)
(b)
(c)
(d)
All reserves relate to accounts receivable.
Principally write-offs, net of collections.
Reduction of gross sales.
Cash discounts granted.
Item 16. Form 10-K Summary
None.
69
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
June 29, 2020
American Woodmark Corporation
(Registrant)
/s/ S. CARY DUNSTON
S. Cary Dunston
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
June 29, 2020
June 29, 2020
June 29, 2020
June 29, 2020
/s/ S. CARY DUNSTON
S. Cary Dunston
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Director
/s/ ANDREW B. COGAN
Andrew B. Cogan
Director
/s/ MARTHA M. HAYES
Martha M. Hayes
Director
/s/ CAROL B. MOERDYK
Carol B. Moerdyk
Director
June 29, 2020
June 29, 2020
June 29, 2020
June 29, 2020
/s/ M. SCOTT CULBRETH
M. Scott Culbreth
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JAMES G. DAVIS, JR.
James G. Davis, Jr.
Director
/s/ DANIEL T. HENDRIX
Daniel T. Hendrix
Director
/s/ VANCE W. TANG
Vance W. Tang
Director
In accordance with Securities and Exchange Commission requirements, the Company will furnish copies of all exhibits to its Form
10-K not contained herein upon receipt of a written request and payment of $0.10 per page to:
Mr. Kevin Dunnigan
Treasury Director
American Woodmark Corporation
P.O. Box 1980
Winchester, Virginia 22604-8090
70
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ONCE WE’VE DONE ITWhen 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.WHO WE AREAmerican 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 ITWe 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 ITFour principles guide our actions:CUSTOMER SATISFACTIONProvide the best possible quality, service and value to the greatest number of people by doing whatever is reasonable and sometimes unreasonable. INTEGRITY Do what is right: act fairly and responsibly, care about the dignity of each person and be a good citizen within the community.TEAMWORKUnderstand that we must all work together in order to succeed. Realize that each person must contribute to the team to be part of the team. EXCELLENCE Strive to perform every job or action in a superior way. Be innovative, always helping others become the best they can be.Creating ValueThrough PeopleDIRECTORS AND EXECUTIVE OFFICERS Robert J. Adams, Jr. Senior Vice President, Value Stream OperationsR. Perry CampbellSenior Vice President, Sales and Commercial Operations Andrew B. CoganDirector Chair of the Audit CommitteeChairman and Chief Executive Officer of Knoll, IncM. Scott Culbreth Senior Vice President and Chief Financial Officer Corporate Secretary James G. Davis, Jr. Director Member of the Governance Committee and Member of the Compensation CommitteePresident and Chief Executive Officer of James G. Davis Construction Corporation S. Cary Dunston Director Chairman and Chief Executive OfficerMartha M. Hayes Director Member of the Compensation Committee and Member of the Governance CommitteeRetired Vice President Customer Development Sara Lee CorporationDaniel T. HendrixDirector Member of the Audit CommitteeChairman, Chief Executive Officer and President of Interface, Inc. Teresa M. MaySenior Vice President and Chief Marketing OfficerCarol B. MoerdykDirector Member of the Audit Committee and Chair of the Governance Committee Retired Senior Vice President, International, OfficeMax Incorporated Vance W. TangLead Independent Director Chair of the Compensation Committee and Member of the Governance CommitteeRetired President and Chief Executive Officer of KONE Inc. CORPORATE INFORMATION ANNUAL MEETINGThe 2020 Annual Meeting of Shareholders will be held on Thursday, August 20, 2020 at 9:00 a.m. at American Woodmark Corporation, 561 Shady Elm Road in Winchester, Virginia.ANNUAL REPORT ON FORM 10-KA copy of the Company’s Annual Report on Form 10-K for the fiscal year ending on April 30, 2020, may be obtained free of charge on the Company’s website at americanwoodmark.com or by writing:Kevin DunniganTreasury Director American Woodmark CorporationPO Box 1980Winchester, VA 22604-8090CORPORATE HEADQUARTERSAmerican Woodmark Corporation 561 Shady Elm RoadWinchester, VA 22602(540) 665-9100MAILING ADDRESSPO Box 1980Winchester, VA 22604-8090TRANSFER AGENTComputershare Shareholder ServicesInvestor Relations(800) 942-5909SHAREHOLDER INQUIRIESInvestor Relations American Woodmark Corporation561 Shady Elm RoadWinchester, VA 22602(540) 665-9100americanwoodmark.com 2020ANNUAL REPORTAmerican Woodmark561 Shady Elm Road Winchester, Virginia 22602(540) 665-9100americanwoodmark.com