NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A -- Summary of Significant Accounting Policies
The Company manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The Company's products are sold across the United States through a network of independent dealers and distributors and directly to home centers and major builders.
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 subsidiary. Significant inter-company accounts and transactions have been eliminated in consolidation.
Revenue Recognition
: The Company recognizes revenue when product is delivered to the customer and title has passed. Revenue is based on invoice price less allowances for sales returns, cash discounts and other deductions.
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
2016
,
2015
and
2014
were
$38.1 million
,
$34.3 million
and
$30.4 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. Cash equivalents were
$34.0 million
and
$33.0 million
at April 30,
2016
and
2015
, respectively.
Investments in Certificates of Deposit:
The Company invests excess cash in certificates of deposit which 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.
The LIFO cost reserve is determined in the aggregate for inventory and is applied as a reduction to inventories determined on the first-in, first-out method (FIFO). FIFO inventory cost approximates replacement cost.
Property, Plant and Equipment:
Property, plant and equipment is stated on the basis of cost less accumulated depreciation. Depreciation is provided by the straight-line method over the estimated useful lives of the related assets, which range from
15
to
30
years for buildings and improvements and
3
to
10
years for machinery and equipment. Assets under capital leases are amortized over the shorter of their estimated useful lives or the term of the related lease.
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
2016
,
2015
and
2014
, the Company concluded no impairment existed, except for impairments related to restructuring activities.
Promotional Displays
: The Company invests in promotional displays in retail stores to demonstrate product features, product and quality specifications and serve as a training tool for 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
30
to
36
months (the estimated period of benefit). Promotional display amortization expense for fiscal years
2016
,
2015
and
2014
was
$3.4 million
,
$3.6 million
and
$3.7 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
two
non-contributory defined benefit pension plans covering many of the Company’s employees hired before April 30, 2012. 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.
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 sheet.
Recent Accounting Pronouncements
:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” ASU 2014-09 supersedes the revenue recognition requirements in “Accounting Standard Codification 605 - Revenue Recognition” and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date." ASU 2015-14 defers the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. The Company is currently assessing the impact ASU 2014-09 and ASU 2015-14 will have on its financial position and results of operations.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes (Topic 740)." ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The Company retrospectively adopted this guidance on April 30, 2016. As a result of the retrospective adoption of this ASU, current assets decreased and noncurrent assets increased by
$9.6 million
as of April 30, 2015. The adoption of ASU 2015-17 did not impact net income or any other amounts previously reported on the consolidated statements of income or comprehensive income or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." Among other things, ASU 2016-02 requires lessees to recognize most leases on-balance sheet, which will increase reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP. ASU 2016-02 supersedes "Topic 840 - Leases." ASU 2016-02 is effective for public companies for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method for all entities. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Shares-Based Payment Accounting." ASU 2016-09 is intended to improve the accounting for share-based payment transactions as part of the FASB’s simplification initiative. ASU 2016-09 changes several aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those years for public companies. Early adoption is permitted in any interim or annual period provided that the entire ASU is adopted. Even if an entity early adopts the amendments after the first interim period, the adoption date is as of the beginning of the year for the issues adopted by the cumulative-effect and prospective methods. Any adjustments to previously reported interim periods of that fiscal year should be included in the year-to-date results. If those previously reported interim results appear in any future filings, they are reported on the revised basis. The Company is currently assessing the impact that ASU 2016-09 will have on its consolidated financial statements.
Use of Estimates
: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates.
Reclassifications
: Certain reclassifications have been made to prior period balances to conform to the current year presentation.
Note B -- Customer Receivables
The components of customer receivables were:
|
|
|
|
|
|
|
|
|
|
APRIL 30
|
(in thousands)
|
2016
|
|
2015
|
Gross customer receivables
|
$
|
58,593
|
|
|
$
|
48,655
|
|
Less:
|
|
|
|
Allowance for doubtful accounts
|
(171
|
)
|
|
(173
|
)
|
Allowance for returns and discounts
|
(2,609
|
)
|
|
(2,340
|
)
|
|
|
|
|
|
|
Net customer receivables
|
$
|
55,813
|
|
|
$
|
46,142
|
|
Note C -- Inventories
The components of inventories were:
|
|
|
|
|
|
|
|
|
|
APRIL 30
|
(in thousands)
|
2016
|
|
2015
|
Raw materials
|
$
|
17,634
|
|
|
$
|
17,199
|
|
Work-in-process
|
18,414
|
|
|
18,095
|
|
Finished goods
|
17,475
|
|
|
14,797
|
|
|
|
|
|
|
|
Total FIFO inventories
|
53,523
|
|
|
50,091
|
|
Reserve to adjust inventories to LIFO value
|
(14,204
|
)
|
|
(14,103
|
)
|
|
|
|
|
|
|
Total LIFO inventories
|
$
|
39,319
|
|
|
$
|
35,988
|
|
Note D -- Property, Plant and Equipment
The components of property, plant and equipment were:
|
|
|
|
|
|
|
|
|
|
APRIL 30
|
(in thousands)
|
2016
|
|
2015
|
Land
|
$
|
2,311
|
|
|
$
|
5,929
|
|
Buildings and improvements
|
80,042
|
|
|
69,412
|
|
Buildings and improvements - capital leases
|
11,202
|
|
|
11,202
|
|
Machinery and equipment
|
182,937
|
|
|
159,680
|
|
Machinery and equipment - capital leases
|
29,357
|
|
|
29,052
|
|
Construction in progress
|
2,556
|
|
|
12,581
|
|
|
308,405
|
|
|
287,856
|
|
Less accumulated amortization and depreciation
|
(209,073
|
)
|
|
(202,340
|
)
|
|
|
|
|
|
|
Total
|
$
|
99,332
|
|
|
$
|
85,516
|
|
Amortization and depreciation expense on property, plant and equipment amounted to
$11.6 million
,
$9.5 million
and
$9.5 million
in fiscal years
2016
,
2015
and
2014
, respectively. Accumulated amortization on capital leases included in the above table amounted to
$29.6 million
and
$28.6 million
as of April 30,
2016
and
2015
, respectively.
Note E -- Loans Payable and Long-Term Debt
Maturities of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEARS ENDING APRIL 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022 AND THERE-
AFTER
|
|
TOTAL OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic development loans
|
—
|
|
|
—
|
|
|
2,189
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
3,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
1,574
|
|
|
1,265
|
|
|
917
|
|
|
710
|
|
|
617
|
|
|
2,082
|
|
|
7,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term debt
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,198
|
|
|
3,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,574
|
|
|
$
|
1,265
|
|
|
$
|
13,106
|
|
|
$
|
710
|
|
|
$
|
617
|
|
|
$
|
6,780
|
|
|
$
|
24,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,478
|
|
The Company’s primary loan agreement is a
$35 million
unsecured revolving credit facility which expires on December 31, 2018 with Wells Fargo Bank, N.A. (Wells Fargo). At April 30,
2016
and
2015
,
$10 million
of loans were outstanding under this facility, and the Company had additional borrowing base availability of
$25 million
. The Company incurs a fee for amounts not used under the revolving credit facility. Fees paid by the Company related to non-usage of its current and former credit facilities have been included in interest expense and were insignificant in each of fiscal years
2016
,
2015
and
2014
, respectively.
The Company can borrow under the revolving credit facility up to the lesser of
$35 million
or the maximum borrowing base (which equals
75%
of eligible accounts receivable,
50%
of eligible pre bill reserves and up to
$20 million
for equipment value, each as defined in the agreement) less any outstanding loan balance. Any outstanding loan balance bears interest at the London Interbank Offered Rate (LIBOR) (
0.495%
at April 30,
2016
) plus
1.5%
. Under the terms of the revolving credit facility, the Company must: (1) maintain at the end of each fiscal quarter a ratio of total liabilities to tangible net worth of not greater than
1.4
to 1.0; (2) maintain at the end of each fiscal quarter a ratio of cash flow to fixed charges of not less than
1.5
to 1.0 measured on a rolling four-quarter basis; and (3) comply with other customary affirmative and negative covenants.
The Company was in compliance with all covenants specified in the amended revolving credit facility as of April 30,
2016
, including as follows: (1) the Company’s ratio of total liabilities to tangible net worth at April 30,
2016
was
0.67
to 1.0; and (2) cash flow to fixed charges for its most recent four quarters was
3.41
to 1.0.
The revolving credit facility does not limit the Company’s ability to pay dividends or repurchase its common stock as long as the Company is in compliance with these covenants.
In 2009, the Company entered into a loan agreement with the Board of County Commissioners of Garrett County as part of the Company’s capital investment in land located in Garrett County, Maryland. This loan agreement was secured by a Deed of Trust on the property and bears interest at a fixed rate of
3%
. The agreement deferred principal and interest during the term of the obligation and forgives any outstanding balance at December 31, 2019, if the Company complied with certain employment levels. The value of the land and associated site improvements totaled
$3.5 million
. During the fourth quarter of fiscal 2016, the Company conveyed the property for full settlement of the loan and accrued interest totaling
$1.6 million
. The Company recorded a loss on the transaction of
$1.9 million
. The loss was included in other (income) expense on the Company’s statements of income. The outstanding balance as of April 30,
2016
and
2015
was
$0
and
$1.3 million
, respectively.
In 2005, the Company entered into
two
separate loan agreements with the Maryland Economic Development Corporation and the County Commissioners of Allegany County as part of the Company’s capital investment and operations at the Allegany County, Maryland site. These loan agreements were amended in 2013 and 2008. The aggregate balance of these loan agreements was
$2.2 million
as of April 30,
2016
and
2015
. The loan agreements expire at December 31, 2018 and bear interest at a fixed rate of
3%
per annum. These loan agreements are secured by mortgages on the manufacturing facility constructed in Allegany County, Maryland. These loan agreements defer principal and interest during the term of the obligation and forgive any outstanding balance at December 31, 2018, if the Company complies with certain employment levels at the facility.
From 2012 through 2016, the Company entered into a total of
eighteen
capitalized lease agreements in the aggregate amount of
$2.5 million
with First American Financial Bancorp related to financing computer equipment. Each lease has a term of
48
months and an interest rate of
6.5%
. The leases require quarterly rental payments. The aggregate outstanding amount under all of these leases as of April 30,
2016
and
2015
was
$1.1 million
and
$1.3 million
, respectively.
From 2013 through 2016, the Company entered into a total of
seventeen
capitalized lease agreements in the aggregate amount of
$1.9 million
with e-Plus Group related to financing computer equipment. Each lease has a term of
51
months and an interest rate of
6.5%
. The leases require monthly rental payments. The aggregate outstanding amount under all of these leases as of April 30,
2016
and
2015
was
$1.0 million
and
$1.0 million
, respectively.
In 2004, the Company entered into a lease agreement with the West Virginia Economic Development Authority as part of the Company’s capital investment and operations at the South Branch plant located in Hardy County, West Virginia. This capital lease agreement is a
$10 million
term obligation, which expires June 30, 2024, bearing interest at a fixed rate of
2%
per annum. The lease requires monthly rental payments. The outstanding amounts owed as of April 30,
2016
and
2015
were
$5.0 million
and
$5.6 million
, respectively.
In 2015, the Company entered into a
$1.5 million
loan agreement with the West Virginia Economic Development Authority as part of the Company's capital investment and operations at the South Branch plant located in Hardy County, West Virginia. The loan agreement expires on February 1, 2025 and bears interest at a fixed rate of
3%
per annum. The loan agreement is secured by certain equipment. It defers principal and interest during the term of the obligation and forgives any outstanding balance at December 31, 2018 if the Company complies with certain employment levels at the facility.
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
thirty
years with an aggregate interest rate of approximately
1.2%
. As of April 30, 2016 the Company had drawn
$3.2 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 a loan agreement and the capital lease arrangements. The Company was in compliance with all covenants contained in its loan agreements and capital leases at April 30,
2016
.
Interest paid under the Company’s loan agreements and capital leases during fiscal years
2016
,
2015
and
2014
was
$0.5 million
,
$0.5 million
and
$0.7 million
, respectively.
Note F -- Earnings Per Share
The following table summarizes the computations of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEARS ENDED APRIL 30
|
(in thousands, except per share amounts)
|
2016
|
|
2015
|
|
2014
|
Numerator used in basic and diluted earnings per common share:
|
|
|
|
|
|
Net income
|
$
|
58,723
|
|
|
$
|
35,499
|
|
|
$
|
20,461
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per common share -
|
|
|
|
|
|
weighted-average shares
|
16,256
|
|
|
15,764
|
|
|
15,299
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Stock options and restricted stock units
|
186
|
|
|
273
|
|
|
354
|
|
Denominator for diluted earnings per common share -
|
|
|
|
|
|
weighted-average shares and assumed conversions
|
16,442
|
|
|
16,037
|
|
|
15,653
|
|
Net earnings per share
|
|
|
|
|
|
Basic
|
$
|
3.61
|
|
|
$
|
2.25
|
|
|
$
|
1.34
|
|
Diluted
|
$
|
3.57
|
|
|
$
|
2.21
|
|
|
$
|
1.31
|
|
There were no potentially dilutive securities for the fiscal year ended April 30, 2016, which were excluded from the calculation of net earnings per share. Potentially dilutive shares of
0.1 million
issuable under the Company’s stock incentive plans have been excluded from the calculation of net earnings per share for each of the fiscal years ended April 30,
2015
and
2014
, as the effect would be anti-dilutive.
Note G – Stock-Based Compensation
The Company has
two
types of stock-based compensation awards in effect for its employees and directors. The Company has issued stock options since 1986 and restricted stock units ("RSUs") since fiscal 2010. Total compensation expense related to stock-based awards for the fiscal years ended April 30, 2016, 2015 and 2014 was
$3.6 million
,
$3.5 million
and
$3.3 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, 2016, the Company had stock option and RSU awards outstanding under
four
different plans: (1) second amended and restated 2004 stock incentive plan for employees; (2) 2006 non-employee directors equity ownership plan; and (3) 2011 non-employee directors equity ownership plan. As of April 30, 2016, there were
935,626
shares of common stock available for future stock-based compensation awards under the Company’s stock incentive plans.
Methodology Assumptions
For purposes of valuing stock option grants, the Company has identified one employee group and one non-employee director group, based upon observed option exercise patterns. The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for each of the groups. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s stock option awards is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on the historical volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from the Company’s historical exercise experience and represents the period of time that stock option awards granted are expected to be outstanding for each of the identified groups. The expected term assumption incorporates the contractual term of an option grant, which is generally
ten
years for employees and from
four
to
ten
years for non-employee directors, as well as the vesting period of an award, which is typically
three
years. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.
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.
The weighted-average assumptions and valuation of the Company’s stock options were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEARS ENDED APRIL 30
|
|
2016
|
|
2015
|
|
2014
|
Weighted-average fair value of grants
|
$
|
18.59
|
|
|
$
|
9.25
|
|
|
$
|
14.46
|
|
Expected volatility
|
29.8
|
%
|
|
27.4
|
%
|
|
38.2
|
%
|
Expected term in years
|
5.8
|
|
|
5.9
|
|
|
6.1
|
|
Risk-free interest rate
|
2.16
|
%
|
|
2.19
|
%
|
|
1.59
|
%
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Stock Option Activity
Stock options granted and outstanding under each of the Company’s plans vest evenly over a
three
-year period and have contractual terms of
ten
years. The exercise price of all stock options granted is equal to the fair market value of the Company’s common stock on the option grant date.
The following table presents a summary of the Company’s stock option activity for the fiscal years ended April 30, 2016, 2015 and 2014 (remaining contractual term in years and exercise prices are weighted-averages):
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF OPTIONS
|
|
REMAINING CONTRACTUAL TERM
|
|
WEIGHTED AVERAGE EXERCISE PRICE
|
|
AGGREGATE INTRINSIC VALUE
(in thousands)
|
Outstanding at April 30, 2013
|
1,401,813
|
|
|
4.8
|
|
$27.27
|
|
$
|
9,272
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
60,500
|
|
|
9.1
|
|
36.74
|
|
—
|
|
Exercised
|
(551,485
|
)
|
|
—
|
|
26.61
|
|
5,156
|
|
Cancelled or expired
|
(59,514
|
)
|
|
—
|
|
30.17
|
|
—
|
|
Outstanding at April 30, 2014
|
851,314
|
|
|
4.3
|
|
$28.16
|
|
$
|
3,121
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
66,600
|
|
|
9.1
|
|
29.92
|
|
—
|
|
Exercised
|
(508,639
|
)
|
|
—
|
|
28.05
|
|
7,209
|
|
Cancelled or expired
|
(11,200
|
)
|
|
—
|
|
32.64
|
|
—
|
|
Outstanding at April 30, 2015
|
398,075
|
|
|
5.0
|
|
$28.46
|
|
$
|
8,851
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
30,700
|
|
|
9.1
|
|
57.11
|
|
—
|
|
Exercised
|
(287,975
|
)
|
|
—
|
|
27.99
|
|
11,089
|
|
Cancelled or expired
|
(14,167
|
)
|
|
—
|
|
40.43
|
|
—
|
|
Outstanding at April 30, 2016
|
126,633
|
|
|
5.8
|
|
$35.15
|
|
$
|
4,773
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest in the future at April 30, 2016
|
120,715
|
|
|
5.7
|
|
$34.97
|
|
$
|
4,572
|
|
Exercisable at April 30, 2016
|
46,599
|
|
|
1.7
|
|
$26.72
|
|
$
|
2,149
|
|
The aggregate intrinsic value in the previous table of the outstanding options on April 30, 2016 represents the total pre-tax intrinsic value (the excess, if any, of the Company’s closing stock price on the last trading day of fiscal 2016 over the exercise price, multiplied by the number of in-the-money options) of the shares of the Company’s common stock that would have been received
by the option holders had all option holders exercised their options on April 30, 2016. This amount changes based upon the fair market value of the Company’s common stock. The total fair value of options vested for the fiscal years ended April 30, 2016, 2015 and 2014 was
$0.7 million
,
$0.7 million
and
$0.7 million
, respectively.
As of April 30, 2016, there was
$0.6 million
of total unrecognized compensation expense related to unvested stock options granted under the Company’s stock-based compensation plans. This expense is expected to be recognized over a weighted-average period of
1.7
years.
Cash received from option exercises for the fiscal years ended April 30, 2016, 2015 and 2014, was an aggregate of
$8.1 million
,
$14.3 million
and
$14.7 million
, respectively. The actual tax benefit realized for the tax deduction from option exercises of stock option awards totaled
$4.3 million
,
$2.8 million
and
$2.0 million
for the fiscal years ended April 30, 2016, 2015 and 2014, respectively.
The following table summarizes information about stock options outstanding at April 30, 2016 (remaining lives in years and exercise prices are weighted-averages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTIONS OUTSTANDING
|
|
OPTIONS EXERCISABLE
|
OPTION PRICE
|
|
|
REMAINING
|
|
EXERCISE
|
|
|
|
EXERCISE
|
PER SHARE
|
OPTIONS
|
|
LIFE
|
|
PRICE
|
|
OPTIONS
|
|
PRICE
|
$22.77-$23.96
|
27,900
|
|
|
2.2
|
|
$23.32
|
|
27,900
|
|
|
$23.32
|
$29.92-$34.11
|
57,766
|
|
|
5.8
|
|
30.52
|
|
18,633
|
|
|
31.79
|
$36.74-$36.74
|
14,867
|
|
|
7.1
|
|
36.74
|
|
66
|
|
|
36.74
|
$57.11-$57.11
|
26,100
|
|
|
9.1
|
|
57.11
|
|
—
|
|
|
—
|
|
126,633
|
|
|
|
|
|
|
46,599
|
|
|
|
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 2016, 2015 and 2014. The PBRSUs granted in fiscal 2016 are earned based on achievement of a number of goals pertaining to the Company’s operational and financial performance during the performance period of fiscal 2016. 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.
The following table contains a summary of the Company’s RSU activity for the fiscal years ended April 30, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
PERFORMANCE-BASED RSUs
|
|
SERVICE-BASED RSUs
|
|
TOTAL RSUs
|
|
WEIGHTED AVERAGE GRANT
DATE FAIR VALUE
|
Issued and outstanding, April 30, 2013
|
279,105
|
|
|
155,000
|
|
|
434,105
|
|
|
$17.96
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
75,600
|
|
|
44,092
|
|
|
119,692
|
|
|
$36.09
|
Cancelled due to non-achievement of performance goals
|
(23,384
|
)
|
|
—
|
|
|
(23,384
|
)
|
|
$17.62
|
Settled in common stock
|
(74,935
|
)
|
|
(60,310
|
)
|
|
(135,245
|
)
|
|
$19.75
|
Forfeited
|
(20,591
|
)
|
|
(15,407
|
)
|
|
(35,998
|
)
|
|
$23.12
|
Issued and outstanding, April 30, 2014
|
235,795
|
|
|
123,375
|
|
|
359,170
|
|
|
$22.79
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
79,500
|
|
|
40,100
|
|
|
119,600
|
|
|
$30.82
|
Cancelled due to non-achievement of performance goals
|
(16,218
|
)
|
|
—
|
|
|
(16,218
|
)
|
|
$36.18
|
Settled in common stock
|
(79,407
|
)
|
|
(54,861
|
)
|
|
(134,268
|
)
|
|
$17.45
|
Forfeited
|
(8,726
|
)
|
|
(4,764
|
)
|
|
(13,490
|
)
|
|
$27.78
|
Issued and outstanding, April 30, 2015
|
210,944
|
|
|
103,850
|
|
|
314,794
|
|
|
$27.15
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
48,201
|
|
|
22,349
|
|
|
70,550
|
|
|
$57.83
|
Cancelled due to non-achievement of performance goals
|
(19,657
|
)
|
|
—
|
|
|
(19,657
|
)
|
|
$29.92
|
Settled in common stock
|
(89,665
|
)
|
|
(46,950
|
)
|
|
(136,615
|
)
|
|
$19.57
|
Forfeited
|
(9,056
|
)
|
|
(3,537
|
)
|
|
(12,593
|
)
|
|
$40.99
|
Issued and outstanding, April 30, 2016
|
140,767
|
|
|
75,712
|
|
|
216,479
|
|
|
$40.88
|
As of April 30, 2016, there was
$3.3 million
of total unrecognized compensation expense related to unvested RSUs granted under the Company’s stock-based compensation plans. This expense is expected to be recognized over a weighted-average period of
1.7
years.
For the fiscal years ended April 30, 2016, 2015 and 2014 stock-based compensation expense was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
Cost of sales and distribution
|
$
|
608
|
|
|
$
|
518
|
|
|
$
|
505
|
|
Selling and marketing expenses
|
1,079
|
|
|
954
|
|
|
801
|
|
General and administrative expenses
|
1,922
|
|
|
2,025
|
|
|
1,989
|
|
Stock-based compensation expense, before income taxes
|
$
|
3,609
|
|
|
$
|
3,497
|
|
|
$
|
3,295
|
|
Restricted Stock Tracking Units:
During fiscal 2016, the Board of Directors of the Company approved grants of
7,616
cash-settled performance-based restricted stock tracking units ("RSTUs") and
2,499
cash-settled service-based RSTUs for more junior level employees who previously received RSU grants under the Company’s shareholder approved plan. 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 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. The RSTUs cliff-vest
three
years from the grant date. Since the RSTUs will be settled in cash, the grant date fair value of these awards is recorded as a liability until the date of payment. 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
$0.8 million
,
$0.4 million
and
$0.1 million
related to RSTUs for the fiscal years ended April 30, 2016, 2015 and 2014, respectively. A liability for payment of the RSTUs is included in the Company's balance sheets in the amount of
$1.2 million
and
$0.4 million
as of April 30, 2016 and 2015, respectively.
Note H – Employee Benefit and Retirement Plans
Employee Stock Ownership Plan
In fiscal 1990, the Company instituted the American Woodmark Investment Savings Stock Ownership Plan. Effective January 1, 2016 the plan name was changed to the American Woodmark Corporation Retirement Savings Plan. Under this 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%
, 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
$2.9 million
,
$1.8 million
and
$0.8 million
in fiscal years 2016, 2015 and 2014, respectively.
In fiscal 2013, as part of the realignment of its retirement plans, the Company increased the match on 401(k) contributions in the form of Company stock to
100%
of an employee’s annual contribution to the plan up to
4%
of annual compensation. Effective May 1, 2015, matching contributions are made in cash by the Company. The expense for 401(k) matching contributions for this plan was
$6.6 million
,
$5.6 million
and
$4.1 million
, in fiscal years 2016, 2015 and 2014, respectively.
Pension Benefits
The Company has
two
defined benefit pension plans covering many of the Company’s employees hired prior to April 30, 2012. These plans provide defined benefits based on years of service and final average earnings (for salaried employees) or benefit rate (for hourly employees).
Effective April 30, 2012, the Company froze all future benefit accruals under the Company’s hourly and salaried defined benefit pension plans.
Included in accumulated other comprehensive loss at April 30, 2016 is
$77.5 million
(
$47.3 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
(
$1.1 million
net of tax) in net actuarial losses in net periodic pension benefit costs during fiscal 2017. The Company uses an April 30 measurement date for its benefit plans.
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:
|
|
|
|
|
|
|
|
|
|
APRIL 30
|
(in thousands)
|
2016
|
|
2015
|
CHANGE IN PROJECTED BENEFIT OBLIGATION
|
|
|
|
Projected benefit obligation at beginning of year
|
$
|
169,986
|
|
|
$
|
144,142
|
|
Interest cost
|
7,014
|
|
|
6,466
|
|
Actuarial losses
|
1,921
|
|
|
24,168
|
|
Benefits paid
|
(4,825
|
)
|
|
(4,790
|
)
|
Projected benefit obligation at end of year
|
$
|
174,096
|
|
|
$
|
169,986
|
|
|
|
|
|
CHANGE IN PLAN ASSETS
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
108,661
|
|
|
$
|
102,599
|
|
Actual return on plan assets
|
(1,887
|
)
|
|
6,583
|
|
Company contributions
|
5,016
|
|
|
4,269
|
|
Benefits paid
|
(4,825
|
)
|
|
(4,790
|
)
|
Fair value of plan assets at end of year
|
$
|
106,965
|
|
|
$
|
108,661
|
|
|
|
|
|
|
|
Funded status of the plans
|
$
|
(67,131
|
)
|
|
$
|
(61,325
|
)
|
Unrecognized net actuarial loss
|
77,514
|
|
|
66,975
|
|
Prepaid benefit cost
|
$
|
10,383
|
|
|
$
|
5,650
|
|
The accumulated benefit obligation for both pension plans was
$174.1 million
and
$170.0 million
at April 30, 2016 and 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION BENEFITS
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
COMPONENTS OF NET PERIODIC PENSION BENEFIT COST
|
|
|
|
|
|
Interest cost
|
$
|
7,014
|
|
|
$
|
6,466
|
|
|
$
|
6,203
|
|
Expected return on plan assets
|
(8,142
|
)
|
|
(7,666
|
)
|
|
(7,113
|
)
|
Recognized net actuarial loss
|
1,412
|
|
|
865
|
|
|
1,129
|
|
Pension benefit cost
|
$
|
284
|
|
|
$
|
(335
|
)
|
|
$
|
219
|
|
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:
|
|
|
|
|
|
FISCAL YEARS ENDED APRIL 30
|
|
2016
|
|
2015
|
|
|
|
|
WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE BENEFIT OBLIGATIONS
|
|
|
|
Discount rate
|
4.06 %
|
|
4.19 %
|
|
|
|
|
|
|
|
|
FISCAL YEARS ENDED APRIL 30
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE NET PERIODIC PENSION BENEFIT COST
|
|
|
|
|
|
Discount rate
|
4.19 %
|
|
4.56 %
|
|
4.21%
|
Expected return on plan assets
|
7.5 %
|
|
7.5 %
|
|
7.5 %
|
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.
Beginning with the April 30, 2016 measurement, the Company refined the method used to determine the service and interest cost components of its net periodic benefit cost. Previously, the cost was determined using a single weighted-average discount rate derived from the yield curve. Under the refined method, known as the spot rate approach, individual spot rates along the yield curve that correspond with the timing of each benefit payment will be used. The Company believes this change provides a more precise measurement of service and interest costs by improving the correlation between projected cash outflows and corresponding spot rates on the yield curve. Compared to the previous method, the spot rate approach will decrease the service and interest components of the benefit costs in fiscal 2017. There is no impact on the total benefit obligation. The Company will account for this change prospectively as a change in accounting estimate.
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 the active participants.
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 expects to contribute
$7.3 million
to its pension plans in fiscal 2017. The Company made contributions of
$5.0 million
and
$4.3 million
to its pension plans in fiscal 2016 and 2015, respectively.
Estimated Future Benefit Payments
: The following benefit payments, which reflect expected future service, are expected to be paid:
|
|
|
|
|
FISCAL YEAR
|
BENEFIT PAYMENTS (in thousands)
|
|
|
2017
|
$
|
5,547
|
|
2018
|
5,903
|
|
2019
|
6,334
|
|
2020
|
6,696
|
|
2021
|
7,147
|
|
Years 2022-2026
|
41,024
|
|
Plan Assets:
Pension assets by major category and the type of fair value measurement as of April 30, 2016 and 2015 are presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAIR VALUE MEASUREMENTS AT APRIL 30, 2016
|
(in thousands)
|
TOTAL
|
|
QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)
|
|
SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)
|
|
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
|
Cash Equivalents
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Funds:
|
|
|
|
|
|
|
|
Mutual Fund Equity
|
61,338
|
|
|
61,338
|
|
|
—
|
|
|
—
|
|
Fixed Income Funds:
|
|
|
|
|
|
|
|
Mutual Fund Tax Income
|
27,681
|
|
|
27,681
|
|
|
—
|
|
|
—
|
|
Common and Collective Funds:
1
|
|
|
|
|
|
|
|
|
|
|
|
Capital Preservation Fund
|
17,936
|
|
|
—
|
|
|
17,936
|
|
|
—
|
|
Total
|
$
|
106,965
|
|
|
$
|
89,029
|
|
|
$
|
17,936
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAIR VALUE MEASUREMENTS AT APRIL 30, 2015
|
(in thousands)
|
TOTAL
|
|
QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)
|
|
SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)
|
|
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
|
Cash Equivalents
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Funds:
|
|
|
|
|
|
|
|
Mutual Fund Equity
|
62,533
|
|
|
62,533
|
|
|
—
|
|
|
—
|
|
Fixed Income Funds:
|
|
|
|
|
|
|
|
Mutual Fund Tax Income
|
28,408
|
|
|
28,408
|
|
|
—
|
|
|
—
|
|
Common Collective Funds:
1
|
|
|
|
|
|
|
|
|
|
|
|
Capital Preservation Fund
|
17,712
|
|
|
—
|
|
|
17,712
|
|
|
—
|
|
Total
|
$
|
108,661
|
|
|
$
|
90,949
|
|
|
$
|
17,712
|
|
|
$
|
—
|
|
1
The Collective Trust Funds are valued by applying each plan's ownership percentage in the fund to the fund's net assets at fair value at the valuation date.
Investment Strategy:
The Company has established formal investment policies for the assets associated with its pension plans. The objectives of the investment strategies include preservation of capital and long-term growth of capital while avoiding excessive risk. Target allocation percentages are 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, 2016 and 2015, by asset category, were as follows:
|
|
|
|
|
|
|
|
PLAN ASSET ALLOCATION
|
|
2016
|
|
2016
|
|
2015
|
APRIL 30
|
TARGET
|
|
ACTUAL
|
|
ACTUAL
|
|
|
|
|
|
|
Equity Funds
|
50.0 %
|
|
57.0 %
|
|
58.0 %
|
Fixed Income Funds
|
50.0 %
|
|
43.0 %
|
|
42.0 %
|
Total
|
100.0 %
|
|
100.0 %
|
|
100.0 %
|
Within the broad categories outlined in the preceding table, the Company has the following specific allocations as a percentage of total funds invested:
17%
Capital Preservation,
26%
Bond and
57%
Equity.
Note I -- Income Taxes
Income tax expense was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEARS ENDED APRIL 30
|
(in thousands)
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
CURRENT EXPENSE
|
|
|
|
|
|
Federal
|
$
|
18,239
|
|
|
$
|
12,663
|
|
|
$
|
4,825
|
|
State
|
3,195
|
|
|
1,890
|
|
|
406
|
|
Total current expense
|
21,434
|
|
|
14,553
|
|
|
5,231
|
|
|
|
|
|
|
|
DEFERRED EXPENSE
|
|
|
|
|
|
Federal
|
10,179
|
|
|
3,024
|
|
|
6,076
|
|
State
|
1,450
|
|
|
1,311
|
|
|
1,902
|
|
Total deferred expense
|
11,629
|
|
|
4,335
|
|
|
7,978
|
|
Total expense
|
33,063
|
|
|
18,888
|
|
|
13,209
|
|
Other comprehensive income (loss)
|
(4,110
|
)
|
|
(9,510
|
)
|
|
3,944
|
|
Total comprehensive income tax expense
|
$
|
28,953
|
|
|
$
|
9,378
|
|
|
$
|
17,153
|
|
The Company's effective income tax rate varied from the federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEARS ENDED APRIL 30
|
|
2016
|
|
2015
|
|
2014
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Effect of:
|
|
|
|
|
|
Research and experimentation tax credit
|
—
|
%
|
|
(2.3
|
)%
|
|
—
|
%
|
Meals and entertainment
|
0.3
|
|
|
0.5
|
|
|
0.8
|
|
Domestic production deduction
|
(2.5
|
)
|
|
(2.4
|
)
|
|
(1.8
|
)
|
Other
|
(0.1
|
)
|
|
0.1
|
|
|
0.7
|
|
Total
|
(2.3
|
)%
|
|
(4.1
|
)%
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
Effective federal income tax rate
|
32.7
|
%
|
|
30.9
|
%
|
|
34.7
|
%
|
State income taxes, net of federal tax effect
|
3.3
|
|
|
3.8
|
|
|
4.5
|
|
Effective income tax rate
|
36.0
|
%
|
|
34.7
|
%
|
|
39.2
|
%
|
Included in the fiscal year 2015 effective income tax rate are research and experimentation tax credits for fiscal years 2011 through 2014. The research and experimentation tax credit for fiscal year 2016 is not estimated to be significant.
Income taxes paid were
$24.5 million
,
$13.3 million
and
$4.3 million
for fiscal years 2016, 2015 and 2014, respectively.
The significant components of deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
APRIL 30
|
(in thousands)
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
Pension benefits
|
$
|
24,930
|
|
|
$
|
23,074
|
|
Accounts receivable
|
5,981
|
|
|
5,523
|
|
Product liability
|
1,141
|
|
|
1,031
|
|
Employee benefits
|
7,101
|
|
|
7,429
|
|
State tax credit carryforwards
|
4,867
|
|
|
—
|
|
Other
|
353
|
|
|
266
|
|
Gross deferred tax assets, before valuation allowance
|
44,373
|
|
|
37,323
|
|
Valuation allowance
|
(3,061
|
)
|
|
—
|
|
Gross deferred tax assets, after valuation allowance
|
41,312
|
|
|
37,323
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Inventory
|
440
|
|
|
451
|
|
Depreciation
|
8,298
|
|
|
3,485
|
|
|
8,738
|
|
|
3,936
|
|
|
|
|
|
|
|
Net deferred tax asset
|
$
|
32,574
|
|
|
$
|
33,387
|
|
The Company has recorded a valuation allowance related to deferred tax assets for certain state investment tax credit (ITC) 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.
The gross amount of state tax credit carryforwards related to state ITCs as of April 30, 2016 was
$5.8 million
. These credits expire in various years beginning in fiscal 2020. Net of the federal impact and related valuation allowance, the Company has recorded
$1.8 million
of deferred tax assets related to these credits. 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, 2016, a deferred credit balance of
$1.8 million
is included in other liabilities on the balance sheet.
Note J -- Accounting for Uncertainty in Income Taxes
The Company accounts for its income tax uncertainties in accordance with ASC Topic 740, “Income Taxes.” The Company had recorded a liability relating to uncertain tax positions for the years ended April 30, 2016 and 2015 of
$30,000
and
$0
, respectively.
With minor exceptions, the Company is currently open to audit by tax authorities for tax years ending April 30, 2013 through April 30, 2016. The Company is currently not under federal audit.
Note K -- 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, 2016.
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.
The following is a reconciliation of the Company’s warranty liability:
|
|
|
|
|
|
|
|
|
|
APRIL 30
|
(in thousands)
|
2016
|
|
2015
|
|
|
|
|
PRODUCT WARRANTY RESERVE
|
|
|
|
Beginning balance
|
$
|
2,643
|
|
|
$
|
1,910
|
|
Accrual for warranties
|
16,279
|
|
|
14,738
|
|
Settlements
|
(15,996
|
)
|
|
(14,005
|
)
|
Ending balance at fiscal year end
|
$
|
2,926
|
|
|
$
|
2,643
|
|
Lease Agreements
The Company leases certain office buildings, manufacturing buildings, service centers and equipment. Total rental expenses under operating leases amounted to approximately
$9.8 million
,
$8.8 million
and
$8.0 million
, in fiscal years 2016, 2015 and 2014, respectively. Minimum rental commitments as of April 30, 2016, under noncancelable leases with terms in excess of one year are as follows:
|
|
|
|
|
|
|
|
|
FISCAL YEAR
|
OPERATING (in thousands)
|
|
CAPITAL (in thousands)
|
2017
|
$
|
3,143
|
|
|
$
|
1,781
|
|
2018
|
2,533
|
|
|
1,402
|
|
2019
|
2,330
|
|
|
1,008
|
|
2020
|
2,090
|
|
|
774
|
|
2021
|
559
|
|
|
666
|
|
2022 (and thereafter)
|
16
|
|
|
2,152
|
|
|
$
|
10,671
|
|
|
$
|
7,783
|
|
Less amounts representing interest (2%)
|
|
|
(618
|
)
|
Total obligations under capital leases
|
|
|
$
|
7,165
|
|
Related Parties
During fiscal 1985, prior to becoming a publicly held corporation, the Company entered into an agreement with a partnership which includes certain former executive officers and current significant shareholders of the Company, including one current member of the Board of Directors of the Company, to lease the Company’s headquarters building which was constructed and is owned by the partnership. The Company has subsequently renewed this lease in accordance with Company policy and procedures which includes approval by the Board of Directors. In considering the renewal of this lease, the Company assesses the lease terms in relation to market terms for comparable properties. Based upon this review, the Company believes that the rent under the lease is in line with market rates that could be obtained at arm’s length from unaffiliated third parties. As of April 30, 2016, the Company is in the first year of the latest
five
-year renewal period, which expires in 2021. Under this agreement, rental expense was
$0.5 million
,
$0.5 million
and
$0.5 million
, in fiscal years 2016, 2015 and 2014, respectively. Rent due during the remaining term of the lease is approximately
$2.5 million
(included in the preceding table).
Note L -- Credit Concentration
Credit is extended to customers based on an evaluation of each customer's financial condition and generally collateral is not required. The Company's customers operate in the new home construction and home remodeling markets.
The Company maintains an allowance for bad debt based upon management's evaluation and judgment of potential net loss. The allowance is estimated based upon historical experience, the effects of current developments and economic conditions and of each customer’s current and anticipated financial condition. Estimates and assumptions are periodically reviewed and updated. Any resulting adjustments to the allowance are reflected in current operating results.
At April 30, 2016, the Company's two largest customers, Customers A and B, represented
12.4%
and
21.0%
of the Company's gross customer receivables, respectively. At April 30, 2015, Customers A and B represented
14.4%
and
21.9%
of the Company’s gross customer receivables, respectively.
The following table summarizes the percentage of sales to the Company's two largest customers for the last three fiscal years:
|
|
|
|
|
|
|
|
PERCENT OF ANNUAL GROSS SALES
|
|
2016
|
|
2015
|
|
2014
|
Customer A
|
23.9%
|
|
26.5%
|
|
28.6%
|
Customer B
|
17.2%
|
|
18.6%
|
|
20.6%
|
Note M -- Fair Value Measurements
The Company utilizes the hierarchy of fair value measurements to classify certain of its assets and liabilities based upon the 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. The Company has no Level 2 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.
The fair value measurement of assets held by the Company’s defined benefit pension plans is discussed in Note H.
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- and long-term debt on the Consolidated Balance Sheets approximate their fair value. The following table summarizes the fair value of assets that are recorded in the Company’s consolidated financial statements as of
April 30, 2016
and
2015
at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2016
|
(in thousands)
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
ASSETS:
|
|
|
|
|
|
Money market funds
|
$
|
30,490
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mutual funds
|
998
|
|
|
—
|
|
|
—
|
|
Certificates of deposit
|
47,500
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
78,988
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2015
|
(in thousands)
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
ASSETS:
|
|
|
|
|
|
Money market funds
|
$
|
30,480
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mutual funds
|
1,048
|
|
|
—
|
|
|
—
|
|
Certificates of deposit
|
38,000
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
$
|
69,528
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Note N -- Restructuring Charges
In the third quarter of fiscal 2012, the Company announced a restructuring initiative (“2012 Restructuring Plan”) that committed to the closing of
two
of the Company’s manufacturing plants located in Hardy County, West Virginia and Hazard, Kentucky, offering its previously idled plant in Tahlequah, Oklahoma for sale, and realigning its retirement program, including freezing the Company’s defined benefit pension plans. Operations ceased at the Hazard plant in April 2012 and at the Hardy County plant in May 2012. The 2012 Restructuring Plan was adopted to reduce costs and increase the Company’s capacity utilization rates.
During fiscal years 2015 and 2014, the Company recognized total pre-tax restructuring charges for the 2012 Restructuring Plan of
$(0.2) million
and
$(0.2) million
, respectively. The Company did not recognize any restructuring charges during fiscal year 2016.
During the fourth quarter of fiscal 2015, the Company sold its closed plant located in Hardy County, West Virginia and recognized a gain of
$0.3 million
on the sale. During the fourth quarter of fiscal 2014, the Company sold its closed plant located in Hazard, Kentucky and recognized a gain of
$0.3 million
on the sale. The gains were included in restructuring charges on the Company’s statements of income.
Note O -- Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL 2016
|
07/31/15
|
|
10/31/2015
|
|
01/31/16
|
|
04/30/16
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
Net sales
|
$
|
231,198
|
|
|
$
|
256,292
|
|
|
$
|
218,632
|
|
|
$
|
240,923
|
|
Gross profit
|
50,173
|
|
|
56,052
|
|
|
44,598
|
|
|
48,871
|
|
Income before income taxes
|
23,721
|
|
|
28,533
|
|
|
18,683
|
|
|
20,849
|
|
Net income
|
15,158
|
|
|
18,180
|
|
|
12,013
|
|
|
13,372
|
|
Earnings per share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.94
|
|
|
$
|
1.12
|
|
|
$
|
0.74
|
|
|
$
|
0.82
|
|
Diluted
|
$
|
0.92
|
|
|
$
|
1.10
|
|
|
$
|
0.73
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
FISCAL 2015
|
07/31/14
|
|
10/31/2014
|
|
01/31/15
|
|
04/30/15
|
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
Net sales
|
$
|
211,917
|
|
|
$
|
217,693
|
|
|
$
|
188,963
|
|
|
$
|
206,892
|
|
Gross profit
|
37,114
|
|
|
36,981
|
|
|
35,117
|
|
|
43,320
|
|
Income before income taxes
|
13,054
|
|
|
12,322
|
|
|
10,976
|
|
|
18,035
|
|
Net income
|
9,238
|
|
|
7,671
|
|
|
7,282
|
|
|
11,308
|
|
Earnings per share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.59
|
|
|
$
|
0.49
|
|
|
$
|
0.46
|
|
|
$
|
0.71
|
|
Diluted
|
$
|
0.59
|
|
|
$
|
0.48
|
|
|
$
|
0.45
|
|
|
$
|
0.69
|
|