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 2013, 2012 and 2011 were $36.5 million, $37.4 million and $30.0 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 $38.9 million and $31.8 million at April 30, 2013 and 2012, respectively.
Inventories
: Inventories are stated at lower of cost or market. Inventory costs are determined by the last-in, first-out (LIFO) method.
The LIFO cost reserve is determined in the aggregate for inventory 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 2013, 2012 and 2011, 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 2013, 2012 and 2011 was $4.0 million, $5.6 million and $7.9 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.
Recent Accounting Pronouncements
:
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, “Comprehensive Income (Topic 220): Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. The ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. The ASU is effective prospectively for fiscal years and interim periods within those years beginning after December 15, 2012. The adoption of ASU 2013-02 is not expected to have a significant impact on the Company’s results of operations or financial position.
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. Additionally, ASU 2011-05 eliminates the option to present comprehensive income and its components as part of the statement of shareholders’ equity. The ASU does not change the items that must be reported in other comprehensive income. The Company adopted this guidance effective May 1, 2012 and now includes Statements of Comprehensive Income (Loss) in its financial statements.
In December 2011, the FASB issued ASU No. 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date of Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05.” The amendments were made to allow FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income.
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.
Note B -- Customer Receivables
The components of customer receivables were:
|
|
APRIL 30
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
Gross customer receivables
|
|
$
|
41,397
|
|
|
$
|
34,572
|
|
Less:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
(148
|
)
|
|
|
(93
|
)
|
Allowance for returns and discounts
|
|
|
(2,205
|
)
|
|
|
(1,946
|
)
|
|
|
|
|
|
|
|
|
|
Net customer receivables
|
|
$
|
39,044
|
|
|
$
|
32,533
|
|
Note C -- Inventories
The components of inventories were:
|
|
|
|
|
|
|
|
|
APRIL 30
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
Raw materials
|
|
$
|
11,823
|
|
|
$
|
9,412
|
|
Work-in-process
|
|
|
17,170
|
|
|
|
14,543
|
|
Finished goods
|
|
|
11,318
|
|
|
|
8,734
|
|
|
|
|
|
|
|
|
|
|
Total FIFO inventories
|
|
|
40,311
|
|
|
|
32,689
|
|
Reserve to adjust inventories to LIFO value
|
|
|
(10,973
|
)
|
|
|
(10,349
|
)
|
|
|
|
|
|
|
|
|
|
Total LIFO inventories
|
|
$
|
29,338
|
|
|
$
|
22,340
|
|
There was no liquidation of LIFO based inventories in fiscal 2013 to impact net income. After tax losses were impacted by $125,000 and $34,000 in fiscal years 2012 and 2011, respectively, as a result of liquidation of LIFO based inventories.
Note D -- Property, Plant and Equipment
The components of property, plant and equipment were:
|
|
|
|
|
|
|
|
|
APRIL 30
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
Land
|
|
$
|
5,929
|
|
|
$
|
5,929
|
|
Buildings and improvements
|
|
|
65,245
|
|
|
|
65,750
|
|
Buildings and improvements - capital leases
|
|
|
11,202
|
|
|
|
11,202
|
|
Machinery and equipment
|
|
|
177,393
|
|
|
|
169,406
|
|
Machinery and equipment - capital leases
|
|
|
26,966
|
|
|
|
26,685
|
|
Construction in progress
|
|
|
1,494
|
|
|
|
2,908
|
|
|
|
|
288,229
|
|
|
|
281,880
|
|
Less accumulated amortization and depreciation
|
|
|
(214,165
|
)
|
|
|
(206,505
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74,064
|
|
|
$
|
75,375
|
|
Amortization and depreciation expense on property, plant and equipment amounted to $9.2 million, $16.8 million and $18.1 million in fiscal years 2013, 2012 and 2011, respectively. Accumulated amortization on capital leases included in the above table amounted to $26.6 million as of both April 30, 2013 and 2012.
Note E -- Loans Payable and Long-Term Debt
Maturities of long-term debt are as follows:
|
|
FISCAL YEARS ENDING APRIL 30
|
|
(in thousands)
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019 AND THERE- AFTER
|
|
|
TOTAL OUTSTAND- ING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
10,000
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic development loans
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
3,480
|
|
|
|
3,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans
|
|
|
349
|
|
|
|
370
|
|
|
|
393
|
|
|
|
411
|
|
|
|
2,007
|
|
|
|
--
|
|
|
|
3,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
806
|
|
|
|
835
|
|
|
|
854
|
|
|
|
763
|
|
|
|
593
|
|
|
|
3,888
|
|
|
|
7,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,155
|
|
|
$
|
1,205
|
|
|
$
|
11,247
|
|
|
$
|
1,174
|
|
|
$
|
2,600
|
|
|
$
|
7,368
|
|
|
$
|
24,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,594
|
|
The Company’s primary loan agreement is a $35 million secured revolving credit facility which expires on December 31, 2015 with Wells Fargo Bank, N.A. (Wells Fargo). 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 $61,000, $54,158 and $54,002 for fiscal years 2013, 2012 and 2011, respectively.
An amendment to the revolving credit facility and modifications to related security arrangements completed on March 18, 2013 eliminated the requirement that 50% of the Company’s outstanding indebtedness and other obligations to Wells Fargo be secured by cash and securities held in certain of the Company’s accounts with Wells Fargo. The Company’s outstanding indebtedness and other obligations to Wells Fargo are secured by substantially all of the Company’s assets. The Company can borrow under the revolving credit facility up to the lesser of $35 million or the maximum borrowing base (which equals 75% of eligible accounts receivable, 50% of eligible pre bill 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) (0.25% at April 30, 2013) plus 2.625%. 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 1.25 to 1.0 measured on a rolling four-quarter basis; (3) maintain at least $1.00 in net income for the fiscal quarter ending April 30, 2013 and at least $1.00 in net income on a rolling four-quarter basis for the fiscal quarter ending July 31, 2013; and comply with other customary affirmative and negative covenants.
The Company was in compliance with all covenants specified in the amended revolving credit facility as of April 30, 2013, as follows: (1) the Company’s ratio of total liabilities to tangible net worth at April 30, 2013 was 1.0 to 1.0; (2) cash flow to fixed charges for its most recent four quarters was 2.72 to 1.0; and (3) its net income for the fiscal quarter ended April 30, 2013 was $5.2 million.
The revolving credit facility does not limit the Company’s ability to pay dividends or repurchase its common stock as long as the Company is in compliance with these covenants.
In 2009, the Company entered into a loan agreement with the Board of County Commissioners of Garrett County as part of the Company’s capital investment in land located in Garrett County, Maryland. This loan agreement is secured by a Deed of Trust on the property and bears interest at a fixed rate of 3%. The agreement defers principal
and interest during the term of the obligation and forgives any outstanding balance at December 31, 2019, if the Company complies with certain employment levels. The outstanding balance as of April 30, 2013 and 2012 was $1,290,000.
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 $2,190,000 and $2,234,000 for fiscal years ended April 30, 2013 and 2012, respectively. 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.
In 2002, the Company entered into a loan agreement with the Perry, Harlan, Leslie, Breathitt Regional Industrial Authority (a.k.a. Coalfields Regional Industrial Authority, Inc.) as part of the Company’s capital investment and operations at the Hazard, Kentucky site. This debt facility is a $6 million term loan, which expires November 13, 2017, bearing interest at a fixed rate of 2% per annum. It is secured by a mortgage on the manufacturing facility constructed in Hazard, Kentucky. The loan requires annual debt service payments consisting of principal and interest with a fixed balloon payment of $1.6 million at loan expiration. The outstanding amounts owed as of April 30, 2013 and 2012 were $3,530,000 and $3,858,000, respectively.
In 2013 and 2012, the Company entered into a total of six capitalized lease agreements in the aggregate amount of $639,000 with First American Financial Bancorp related to financing computer equipment. Each lease has a term of 48 months and an interest rate of 6.5%. The leases require quarterly rental payments. The aggregate outstanding amount under all of these leases as of April 30, 2013 and 2012 was $545,000 and $95,000, respectively.
During 2013, the Company entered into five capitalized lease agreements in the aggregate amount of $568,000 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, 2013 was $529,000.
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, 2013 and 2012 were $6,665,000 and $7,188,000, respectively.
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 term loan agreements and capital lease arrangements. The Company was in compliance with all covenants contained in its loan agreements and capital leases at April 30, 2013.
Interest paid under the Company’s loan agreements and capital leases during fiscal years 2013, 2012 and 2011 was $576,000, $453,000 and $467,000, respectively.
Note F -- Earnings (Loss) Per Share
The following table summarizes the computations of basic and diluted earnings (loss) per share:
|
|
FISCAL YEARS ENDED APRIL 30
|
|
(in thousands, except per share amounts)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Numerator used in basic and diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,758
|
|
|
$
|
(20,786
|
)
|
|
$
|
(20,018
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per common share -
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average shares
|
|
|
14,563
|
|
|
|
14,344
|
|
|
|
14,252
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
|
270
|
|
|
|
--
|
|
|
|
--
|
|
Denominator for diluted earnings (loss) per common share -
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average shares and assumed conversions
|
|
|
14,833
|
|
|
|
14,344
|
|
|
|
14,252
|
|
Net earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.67
|
|
|
$
|
(1.45
|
)
|
|
$
|
(1.40
|
)
|
Diluted
|
|
$
|
0.66
|
|
|
$
|
(1.45
|
)
|
|
$
|
(1.40
|
)
|
Potentially dilutive shares of 1.0 million, 1.8 million and 1.7 million issuable under the Company’s stock incentive plans have been excluded from the calculation of net earnings (loss) per share for the fiscal years ended April 30, 2013, 2012 and 2011, respectively, as the effect would be anti-dilutive.
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, 2013, 2012 and 2011 was $3.5 million, $3.4 million and $4.0 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.
At April 30, 2013, the Company had stock option and RSU awards outstanding under four different plans: (1) 1999 stock option plan for employees; (2) amended and restated 2004 stock incentive plan for employees; (3) 2006 non-employee directors equity ownership plan; and (4) 2011 non-employee directors equity ownership plan. As of April 30, 2013, there were 1,133,999 shares of common stock available for future stock-based compensation awards under the Company’s stock incentive plans.
Methodology Assumptions
For purposes of valuing stock option grants, the Company has identified two employee groups and one non-employee director group, based upon observed option exercise patterns. The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for each of the three groups. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s 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 three 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, reduced by the discounted value of future
expected dividend payments during the vesting period, since the recipients are not entitled to dividends during the vesting period. The fair value of the Company’s RSU awards is expensed on a straight-line basis over the vesting period of the RSUs to the extent the Company believes it is probable the related performance criteria, if any, will be met. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the vesting period of the RSU grant.
The weighted-average assumptions and valuation of the Company’s stock options were as follows:
|
|
|
FISCAL YEARS ENDED APRIL 30
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2011
|
|
Weighted-average fair value of grants
|
|
$
|
7.39
|
|
|
$
|
5.43
|
|
|
$
|
8.87
|
|
Expected volatility
|
|
|
42.5
|
%
|
|
|
35.1
|
%
|
|
|
49.1
|
%
|
Expected term in years
|
|
|
6.1
|
|
|
|
6.0
|
|
|
|
6.2
|
|
Risk-free interest rate
|
|
|
1.09
|
%
|
|
|
2.24
|
%
|
|
|
2.64
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
2.0
|
%
|
|
|
1.7
|
%
|
Stock Option Activity
Stock options granted and outstanding under each of the Company’s plans vest evenly over a three-year period and have contractual terms of ten years. The exercise price of all stock options granted is equal to the fair market value of the Company’s common stock on the option grant date.
The following table presents a summary of the Company’s stock option activity for the fiscal years ended April 30, 2013, 2012 and 2011 (remaining contractual term in years and exercise prices are weighted-averages):
|
|
NUMBER OF OPTIONS
|
|
|
REMAINING CONTRACTUAL TERM
|
|
|
WEIGHTED AVERAGE EXERCISE PRICE
|
|
|
AGGREGATE INTRINSIC VALUE (in thousands)
|
|
Outstanding at April 30, 2010
|
|
|
2,105,515
|
|
|
|
5.6
|
|
|
$
|
29.03
|
|
|
$
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
115,000
|
|
|
|
9.1
|
|
|
|
20.87
|
|
|
|
--
|
|
Exercised
|
|
|
(27,000
|
)
|
|
|
--
|
|
|
|
14.80
|
|
|
|
216
|
|
Cancelled or expired
|
|
|
(588,159
|
)
|
|
|
--
|
|
|
|
29.58
|
|
|
|
--
|
|
Outstanding at April 30, 2011
|
|
|
1,605,356
|
|
|
|
5.7
|
|
|
$
|
28.48
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
130,000
|
|
|
|
9.1
|
|
|
|
18.16
|
|
|
|
--
|
|
Exercised
|
|
|
(1,200
|
)
|
|
|
--
|
|
|
|
14.93
|
|
|
|
6
|
|
Cancelled or expired
|
|
|
(109,396
|
)
|
|
|
--
|
|
|
|
28.82
|
|
|
|
--
|
|
Outstanding at April 30, 2012
|
|
|
1,624,760
|
|
|
|
5.1
|
|
|
$
|
27.64
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
125,000
|
|
|
|
9.1
|
|
|
|
17.62
|
|
|
|
--
|
|
Exercised
|
|
|
(251,799
|
)
|
|
|
--
|
|
|
|
23.35
|
|
|
|
1,868
|
|
Cancelled or expired
|
|
|
(96,148
|
)
|
|
|
--
|
|
|
|
31.03
|
|
|
|
--
|
|
Outstanding at April 30, 2013
|
|
|
1,401,813
|
|
|
|
4.8
|
|
|
$
|
27.27
|
|
|
$
|
9,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest in the future at April 30, 2013
|
|
|
1,375,039
|
|
|
|
4.7
|
|
|
$
|
27.43
|
|
|
$
|
8,871
|
|
Exercisable at April 30, 2013
|
|
|
1,156,809
|
|
|
|
4.0
|
|
|
$
|
29.17
|
|
|
$
|
5,509
|
|
The aggregate intrinsic value in the previous table of the outstanding options on April 30, 2013 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 2013 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, 2013. This amount changes based upon the fair market value of the Company’s common stock. The total fair value of options vested for the fiscal years ended April 30, 2013, 2012 and 2011 was $1.2 million, $2.4 million and $3.3 million, respectively.
As of April 30, 2013, there was $0.9 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 1.8 years.
Cash received from option exercises for the fiscal years ended April 30, 2013, 2012 and 2011, was an aggregate of $5.9 million, $0.0 million and $0.4 million, respectively. The actual tax benefit realized for the tax deduction from option exercises of stock option awards totaled $729,000, $3,000 and $84,000 for the fiscal years ended April 30, 2013, 2012 and 2011, respectively.
The following table summarizes information about stock options outstanding at April 30, 2013 (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
|
|
$
|
17.62-$18.16
|
|
|
|
223,334
|
|
|
|
8.7
|
|
|
$
|
17.86
|
|
|
|
14,998
|
|
|
$
|
18.16
|
|
$
|
20.87-$26.85
|
|
|
|
497,467
|
|
|
|
5.0
|
|
|
|
24.05
|
|
|
|
460,799
|
|
|
|
24.30
|
|
$
|
28.97-$34.63
|
|
|
|
658,400
|
|
|
|
3.4
|
|
|
|
32.39
|
|
|
|
658,400
|
|
|
|
32.39
|
|
$
|
38.37-$42.17
|
|
|
|
22,612
|
|
|
|
1.5
|
|
|
|
41.73
|
|
|
|
22,612
|
|
|
|
41.73
|
|
|
|
|
|
|
1,401,813
|
|
|
|
|
|
|
|
|
|
|
|
1,156,809
|
|
|
|
|
|
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 2013, 2012 and 2011. The PBRSUs granted in fiscal 2013 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 2013. 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, 2013, 2012 and 2011:
|
|
PERFORMANCE-BASED RSUS
|
|
|
SERVICE-BASED RSUS
|
|
|
TOTAL RSUS
|
|
|
WEIGHTED AVERAGE GRANT DATE FAIR VALUE
|
|
Issued and outstanding, April 30, 2010
|
|
|
117,900
|
|
|
|
60,500
|
|
|
|
178,400
|
|
|
$
|
21.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
125,475
|
|
|
|
61,825
|
|
|
|
187,300
|
|
|
$
|
19.25
|
|
Cancelled due to non-achievement of performance goals
|
|
|
(63,145
|
)
|
|
|
--
|
|
|
|
(63,145
|
)
|
|
$
|
22.10
|
|
Settled in common stock
|
|
|
(364
|
)
|
|
|
(260
|
)
|
|
|
(624
|
)
|
|
$
|
22.10
|
|
Forfeited
|
|
|
(5,296
|
)
|
|
|
(2,965
|
)
|
|
|
(8,261
|
)
|
|
$
|
21.96
|
|
Issued and outstanding, April 30, 2011
|
|
|
174,570
|
|
|
|
119,100
|
|
|
|
293,670
|
|
|
$
|
20.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
134,250
|
|
|
|
64,750
|
|
|
|
199,000
|
|
|
$
|
17.00
|
|
Cancelled due to non-achievement of performance goals
|
|
|
(48,870
|
)
|
|
|
--
|
|
|
|
(48,870
|
)
|
|
$
|
19.81
|
|
Settled in common stock
|
|
|
(666
|
)
|
|
|
(17,951
|
)
|
|
|
(18,617
|
)
|
|
$
|
21.15
|
|
Forfeited
|
|
|
(22,208
|
)
|
|
|
(10,171
|
)
|
|
|
(32,379
|
)
|
|
$
|
19.30
|
|
Issued and outstanding, April 30, 2012
|
|
|
237,076
|
|
|
|
155,728
|
|
|
|
392,804
|
|
|
$
|
18.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
129,075
|
|
|
|
63,025
|
|
|
|
192,100
|
|
|
$
|
17.76
|
|
Cancelled due to non-achievement of performance goals
|
|
|
(24,311
|
)
|
|
|
--
|
|
|
|
(24,311
|
)
|
|
$
|
17.09
|
|
Settled in common stock
|
|
|
(49,546
|
)
|
|
|
(58,328
|
)
|
|
|
(107,874
|
)
|
|
$
|
20.66
|
|
Forfeited
|
|
|
(13,189
|
)
|
|
|
(5,425
|
)
|
|
|
(18,614
|
)
|
|
$
|
17.91
|
|
Issued and outstanding, April 30, 2013
|
|
|
279,105
|
|
|
|
155,000
|
|
|
|
434,105
|
|
|
$
|
17.96
|
|
As of April 30, 2013, there was $2.7 million of total unrecognized compensation expense related to unvested RSUs
granted under the Company’s stock-based compensation plans. This expense is expected to be recognized over a
weighted-average period of 1.7 years.
For the fiscal years ended April 30, 2013, 2012 and 2011 stock-based compensation expense was allocated as follows:
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Cost of sales and distribution
|
|
$
|
606
|
|
|
$
|
531
|
|
|
$
|
735
|
|
Selling and marketing expenses
|
|
|
859
|
|
|
|
715
|
|
|
|
842
|
|
General and administrative expenses
|
|
|
2,044
|
|
|
|
2,167
|
|
|
|
2,418
|
|
Stock-based compensation expense, before income taxes
|
|
$
|
3,509
|
|
|
$
|
3,413
|
|
|
$
|
3,995
|
|
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. 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.
Beginning in fiscal 2013, discretionary profit-sharing contributions in the form of Company stock may be made annually. Prior to fiscal 2013, profit-sharing contributions in the form of Company stock were 3% of after-tax earnings, calculated on a quarterly basis. The Company recognized expenses for profit-sharing contributions of
$293,000 in fiscal 2013. The Company did not make, or recognize any expenses for, discretionary profit-sharing contributions in fiscal years 2012 and 2011.
Prior to fiscal 2013, the Company matched 401(k) contributions in the form of Company stock at 50% of an employee's annual contribution to the plan up to 4% of base earnings for an effective maximum Company contribution of 2% of base earnings. Beginning in fiscal 2013, as part of the realignment of its retirement plans, the Company increased the match on 401(k) contributions in the form of Company stock to 100% of an employee’s annual contribution to the plan up to 4% of base earnings. The expense for 401(k) matching contributions for this plan was $2,547,000, $1,284,000 and $1,272,000, in fiscal years 2013, 2012 and 2011, 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 salary defined benefit pension plans.
Included in accumulated other comprehensive loss at April 30, 2013 is $52.7 million ($32.1 million net of tax) related to net unrecognized actuarial losses and unrecognized prior service costs that have not yet been recognized in net periodic pension benefit costs. The Company expects to recognize $1.1 million ($0.7 million net of tax) in net actuarial losses in net periodic pension benefit costs during fiscal 2014. The Company uses an April 30 measurement date for its benefit plans.
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)
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
CHANGE IN PROJECTED BENEFIT OBLIGATION
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
136,264
|
|
|
$
|
120,059
|
|
Service cost
|
|
|
--
|
|
|
|
5,305
|
|
Interest cost
|
|
|
6,261
|
|
|
|
6,533
|
|
Actuarial losses
|
|
|
10,801
|
|
|
|
26,318
|
|
Benefits paid
|
|
|
(3,897
|
)
|
|
|
(3,293
|
)
|
Curtailments
|
|
|
--
|
|
|
|
(18,658
|
)
|
Projected benefit obligation at end of year
|
|
$
|
149,429
|
|
|
$
|
136,264
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PLAN ASSETS
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
85,717
|
|
|
$
|
83,334
|
|
Actual return on plan assets
|
|
|
8,993
|
|
|
|
2,805
|
|
Company contributions
|
|
|
4,920
|
|
|
|
2,871
|
|
Benefits paid
|
|
|
(3,897
|
)
|
|
|
(3,293
|
)
|
Fair value of plan assets at end of year
|
|
$
|
95,733
|
|
|
$
|
85,717
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plans
|
|
$
|
(53,696
|
)
|
|
$
|
(50,547
|
)
|
Unamortized prior service cost
|
|
|
--
|
|
|
|
--
|
|
Unrecognized net actuarial loss
|
|
|
52,703
|
|
|
|
45,255
|
|
Accrued benefit cost
|
|
$
|
(993
|
)
|
|
$
|
(5,292
|
)
|
|
|
|
|
|
|
|
|
|
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
Defined benefit pension liabilities
|
|
$
|
(53,696
|
)
|
|
$
|
(50,547
|
)
|
Accumulated other comprehensive loss
|
|
|
52,703
|
|
|
|
45,255
|
|
Net amount recognized
|
|
$
|
(993
|
)
|
|
$
|
(5,292
|
)
|
The accumulated benefit obligation for both pension plans was $149,429,000 and $136,264,000 at April 30, 2013 and 2012, respectively.
|
|
PENSION BENEFITS
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
COMPONENTS OF NET PERIODIC PENSION BENEFIT COST
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
--
|
|
|
$
|
5,305
|
|
|
$
|
4,717
|
|
Interest cost
|
|
|
6,261
|
|
|
|
6,533
|
|
|
|
6,268
|
|
Expected return on plan assets
|
|
|
(6,563
|
)
|
|
|
(6,533
|
)
|
|
|
(6,159
|
)
|
Amortization of prior service cost
|
|
|
--
|
|
|
|
53
|
|
|
|
85
|
|
Curtailment loss
|
|
|
--
|
|
|
|
331
|
|
|
|
--
|
|
Recognized net actuarial loss
|
|
|
923
|
|
|
|
1,710
|
|
|
|
1,996
|
|
Pension benefit cost
|
|
$
|
621
|
|
|
$
|
7,399
|
|
|
$
|
6,907
|
|
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
|
|
|
|
2013
|
|
|
2012
|
|
WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE BENEFIT OBLIGATIONS
|
|
|
|
|
|
|
Discount rate
|
|
|
4.21
|
%
|
|
|
4.66
|
%
|
|
|
FISCAL YEARS ENDED APRIL 30
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE NET PERIODIC PENSION BENEFIT COST
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.66
|
%
|
|
|
5.66%/4.76
|
%
1
|
|
|
5.91
|
%
|
Expected return on plan assets
|
|
|
7.5
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
Rate of compensation increase
|
|
|
*
|
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
1
The discount rate was 5.66% from May 1, 2011 to December 31, 2011 and 4.76% from January 1, 2012 to April 30, 2012. The rate changed during fiscal 2012 as a result of the required re-measurement of the Company's pension liability upon its decision to freeze its pension plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The rate of compensation increase is not applicable for periods beyond April 30, 2012 because the Company froze its pension plans effective as of that date.
|
In fiscal 2013 and 2012, the Company determined the discount rate by referencing the Aon Hewitt AA Bond Universe Yield Curve. In fiscal 2011, the Company referred to the Hewitt Above Median Yield Curve in establishing the discount rate. This change was caused by the merger of Aon and Hewitt and the corresponding elimination of the Hewitt Above Median Yield Curve. The Company believes that using a yield curve approach accurately reflects changes in the present value of liabilities over time since each cash flow is discounted at the rate at which it could effectively be settled.
In developing the expected long-term rate of return assumption for the assets of the defined benefit pension
plans, the Company evaluated input from its third party pension plan asset managers, including their review of asset class return expectations and long-term inflation assumptions. The Company also considered the related historical ten-year average asset returns at April 30, 2013.
The Company amortizes experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over the average remaining lifetime of the active participants.
Contributions:
The Company funds the pension plans in amounts sufficient to meet minimum funding requirements set forth in employee benefit and tax laws plus additional amounts the Company deems appropriate.
The Company expects to contribute $2.3 million to its pension plans in fiscal 2014. The Company made contributions of $4.9 million and $2.9 million to its pension plans in fiscal 2013 and 2012, respectively.
Estimated Future Benefit Payments
: The following benefit payments, which reflect expected future service, are expected to be paid:
FISCAL YEAR
|
|
BENEFIT PAYMENTS (in thousands)
|
|
|
|
|
|
2014
|
|
$
|
4,247
|
|
2015
|
|
|
4,698
|
|
2016
|
|
|
5,156
|
|
2017
|
|
|
5,511
|
|
2018
|
|
|
5,888
|
|
Years 2019-2023
|
|
|
35,710
|
|
Plan Assets:
Pension assets by major category and the type of fair value measurement as of April 30, 2013 and 2012 are presented in the following tables:
FAIR VALUE MEASUREMENTS AT APRIL 30, 2013
|
|
(in thousands)
|
|
TOTAL
|
|
QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)
|
|
SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)
|
|
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
|
|
Cash Equivalents
|
|
|
$
|
315
|
|
|
$
|
315
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Equity Collective Funds:
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Index Value Fund
|
|
|
|
19,202
|
|
|
|
--
|
|
|
|
19,202
|
|
|
|
--
|
|
Equity Index Growth Fund
|
|
|
|
19,245
|
|
|
|
--
|
|
|
|
19,245
|
|
|
|
--
|
|
Small Cap Index Fund
|
|
|
|
5,632
|
|
|
|
--
|
|
|
|
5,632
|
|
|
|
--
|
|
International Equity Fund
|
|
|
|
3,932
|
|
|
|
--
|
|
|
|
3,932
|
|
|
|
--
|
|
Fixed Income Collective Funds:
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Fixed Income Fund
|
|
|
|
17,407
|
|
|
|
--
|
|
|
|
17,407
|
|
|
|
--
|
|
Capital Preservation Fund
|
|
|
|
30,000
|
|
|
|
--
|
|
|
|
30,000
|
|
|
|
--
|
|
Total
|
|
|
$
|
95,733
|
|
|
$
|
315
|
|
|
$
|
95,418
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAIR VALUE MEASUREMENTS AT APRIL 30, 2012
|
|
(in thousands)
|
|
TOTAL
|
|
QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)
|
|
SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)
|
|
SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
|
|
Cash Equivalents
|
|
|
$
|
273
|
|
|
$
|
273
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Equity Collective Funds:
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Index Value Fund
|
|
|
|
16,850
|
|
|
|
--
|
|
|
|
16,850
|
|
|
|
--
|
|
Equity Index Growth Fund
|
|
|
|
17,094
|
|
|
|
--
|
|
|
|
17,094
|
|
|
|
--
|
|
Small Cap Index Fund
|
|
|
|
5,002
|
|
|
|
--
|
|
|
|
5,002
|
|
|
|
--
|
|
International Equity Fund
|
|
|
|
3,315
|
|
|
|
--
|
|
|
|
3,315
|
|
|
|
--
|
|
Fixed Income Collective Funds:
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Fixed Income Fund
|
|
|
|
25,824
|
|
|
|
--
|
|
|
|
25,824
|
|
|
|
--
|
|
Capital Preservation Fund
|
|
|
|
17,359
|
|
|
|
--
|
|
|
|
17,359
|
|
|
|
--
|
|
Total
|
|
|
$
|
85,717
|
|
|
$
|
273
|
|
|
$
|
85,444
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 occasionally the Pension Committee will approve allocations above or below a target range.
During a period of uncertainty in the equity and fixed income markets, the Pension Committee may suspend the Target Asset Allocation and manage the investment mix as it sees reasonable, prudent and in the best interest of the plans to better protect the value of the plan assets.
The Company’s pension plans’ weighted-average asset allocations at April 30, 2013 and 2012, by asset category, were as follows:
PLAN ASSET ALLOCATION
|
|
|
2013
|
|
2013
|
|
2012
|
APRIL 30
|
|
TARGET
|
|
ACTUAL
|
|
ACTUAL
|
|
|
|
|
|
|
|
|
|
|
Equity Funds
|
|
|
50.0
|
%
|
|
|
50.2
|
%
|
|
|
49.5
|
%
|
Fixed Income Funds
|
|
|
50.0
|
%
|
|
|
49.8
|
%
|
|
|
50.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Within the broad categories outlined in the preceding table, the Company has targeted the following specific allocations as a percentage of total funds invested: 19% Capital Preservation, 31% Bond, 20% Large Capital Growth, 20% Large Capital Value, 6% Small Capital and 4% International.
Note I -- Income Taxes
Income tax expense was comprised of the following:
|
|
FISCAL YEARS ENDED APRIL 30
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT EXPENSE (BENEFIT)
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,031
|
|
|
$
|
(36
|
)
|
|
$
|
(2,368
|
)
|
State
|
|
|
162
|
|
|
|
(176
|
)
|
|
|
611
|
|
Total current expense (benefit)
|
|
|
1,193
|
|
|
|
(212
|
)
|
|
|
(1,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED EXPENSE (BENEFIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,859
|
|
|
|
(10,115
|
)
|
|
|
(6,065
|
)
|
State
|
|
|
930
|
|
|
|
(2,175
|
)
|
|
|
(2,120
|
)
|
Total deferred expense (benefit)
|
|
|
5,789
|
|
|
|
(12,290
|
)
|
|
|
(8,185
|
)
|
Total expense (benefit)
|
|
|
6,982
|
|
|
|
(12,502
|
)
|
|
|
(9,942
|
)
|
Other comprehensive loss
|
|
|
(2,905
|
)
|
|
|
(3,624
|
)
|
|
|
(294
|
)
|
Total comprehensive income tax expense (benefit)
|
|
$
|
4,077
|
|
|
$
|
(16,126
|
)
|
|
$
|
(10,236
|
)
|
The Company's effective income tax rate varied from the federal statutory rate as follows:
|
|
FISCAL YEARS ENDED APRIL 30
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax basis adjustment
|
|
|
0.0
|
%
|
|
|
(1.7
|
) %
|
|
|
(3.3
|
) %
|
Meals and entertainment
|
|
|
1.5
|
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
Other
|
|
|
1.1
|
|
|
|
0.0
|
|
|
|
(0.8
|
)
|
Total
|
|
|
2.6
|
%
|
|
|
(2.5
|
) %
|
|
|
(4.9
|
) %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective federal income tax rate
|
|
|
37.6
|
%
|
|
|
32.5
|
%
|
|
|
30.1
|
%
|
State income taxes, net of federal tax effect
|
|
|
4.1
|
|
|
|
5.1
|
|
|
|
3.1
|
|
Effective income tax rate
|
|
|
41.7
|
%
|
|
|
37.6
|
%
|
|
|
33.2
|
%
|
Income taxes paid were $1,219,000, $229,000 and $235,000 for fiscal years 2013, 2012 and 2011, respectively.
The significant components of deferred tax assets and liabilities were as follows:
|
|
APRIL 30
|
|
(in thousands)
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Pension benefits
|
|
$
|
20,563
|
|
|
$
|
18,238
|
|
Accounts receivable
|
|
|
3,983
|
|
|
|
3,103
|
|
Product liability
|
|
|
700
|
|
|
|
735
|
|
Employee benefits
|
|
|
11,243
|
|
|
|
10,878
|
|
Net operating loss carryforward
|
|
|
1,099
|
|
|
|
6,686
|
|
Income tax credits
|
|
|
1,088
|
|
|
|
747
|
|
Depreciation
|
|
|
73
|
|
|
|
896
|
|
Other
|
|
|
496
|
|
|
|
772
|
|
Total
|
|
|
39,245
|
|
|
|
42,055
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
502
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
38,743
|
|
|
$
|
42,055
|
|
The net operating loss carryforward value for April 30, 2013 contained in the above table includes amounts pertaining to various state net operating loss carryforwards with various expiration dates.
Management believes it is more likely than not that the Company will realize its gross deferred tax assets due to expected future taxable income and the reversal of taxable temporary differences.
Note J -- Accounting for Uncertainty in Income Taxes
The Company accounts for its income tax uncertainties in accordance with ASC Topic 740, “Income Taxes.” The Company had no liability relating to uncertain tax positions for the years ended April 30, 2013 and 2012.
With minor exceptions, the Company is currently open to audit by tax authorities for tax years ending April 30, 2010 through April 30, 2013. 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 or remote, a range of loss estimates is determined and considered for disclosure. Where no loss estimate range can be made, the Company and its counsel perform a worst-case estimate. In determining these loss range estimates, the Company considers known values of similar claims and consultation with independent counsel.
The Company believes that the aggregate range of loss stemming from the various suits and asserted and unasserted claims which were deemed to be either probable or reasonably possible was not material as of April 30, 2013.
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)
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
PRODUCT WARRANTY RESERVE
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,885
|
|
|
$
|
1,738
|
|
Accrual for warranties
|
|
|
9,839
|
|
|
|
8,605
|
|
Settlements
|
|
|
(9,929
|
)
|
|
|
(8,458
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance at fiscal year end
|
|
$
|
1,795
|
|
|
$
|
1,885
|
|
Lease Agreements
The Company leases certain office buildings, manufacturing buildings, service centers and equipment. Total rental expenses under operating leases amounted to approximately $7,378,000, $7,206,000 and $7,518,000, in fiscal years 2013, 2012 and 2011, respectively. Minimum rental commitments as of April 30, 2013, under noncancelable leases with terms in excess of one year are as follows:
FISCAL YEAR
|
|
OPERATING
(in thousands)
|
|
|
CAPITAL
(in thousands)
|
|
2014
|
|
$
|
3,411
|
|
|
$
|
997
|
|
2015
|
|
|
3,102
|
|
|
|
997
|
|
2016
|
|
|
2,768
|
|
|
|
986
|
|
2017
|
|
|
1,336
|
|
|
|
866
|
|
2018
|
|
|
217
|
|
|
|
678
|
|
2019 (and thereafter)
|
|
|
92
|
|
|
|
4,140
|
|
|
|
$
|
10,926
|
|
|
$
|
8,664
|
|
Less amounts representing interest (2%)
|
|
|
|
|
|
|
(925
|
)
|
|
|
|
|
|
|
|
|
|
Total obligations under capital leases
|
|
|
|
|
|
$
|
7,739
|
|
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. As of April 30, 2013, the Company is in the third year of the latest five-year renewal period, which expires in 2016. Under this agreement, rental expense was $461,000, $460,000 and $460,000, in fiscal years 2013, 2012 and 2011, respectively. Rent during the remaining term of approximately $1,397,000 (included in the preceding table) is subject to annual increases of 2% through the remaining term of the lease.
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, 2013, the Company's two largest customers, Customers A and B, represented 21.1% and 21.1% of the Company's gross customer receivables, respectively. At April 30, 2012, Customers A and B represented 26.5% and 30.7% of the Company’s gross customer receivables, respectively.
The following table summarizes the percentage of sales to the Company's two largest customers for the last three fiscal years:
|
|
PERCENT OF ANNUAL GROSS SALES
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Customer A
|
|
|
35.7
|
|
|
|
41.5
|
|
|
|
38.7
|
|
Customer B
|
|
|
22.8
|
|
|
|
26.0
|
|
|
|
34.2
|
|
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 United States Treasury instruments. 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 following table summarizes the fair value of assets that are recorded in the Company’s consolidated financial statements as of April 30, 2013 and 2012 at fair value on a recurring basis:
|
FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2013
|
|
(in thousands)
|
|
LEVEL 1
|
|
|
LEVEL 2
|
|
|
LEVEL 3
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
38,875
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Mutual funds
|
|
|
1,311
|
|
|
|
--
|
|
|
|
--
|
|
Total assets at fair value
|
|
$
|
40,186
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAIR VALUE MEASUREMENTS AS OF APRIL 30, 2012
|
|
(in thousands)
|
|
LEVEL 1
|
|
|
LEVEL 2
|
|
|
LEVEL 3
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
38,874
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Mutual funds
|
|
|
1,357
|
|
|
|
--
|
|
|
|
--
|
|
Total assets at fair value
|
|
$
|
40,231
|
|
|
$
|
--
|
|
|
$
|
--
|
|
The fair value measurement of assets held by the Company’s defined benefit pension plans is discussed in Note H.
Note N -- Restructuring Charges
In the third quarter of fiscal 2012, the continuing impact of the housing economy’s lengthy downturn caused the Company to announce a restructuring initiative (“2012 Restructuring Plan”) that committed to the closing of two of the Company’s manufacturing plants located in Hardy County, West Virginia and Hazard, Kentucky, offering its previously idled plant in Tahlequah, Oklahoma for sale, and realigning its retirement program, including freezing the Company’s defined benefit pension plans. Operations ceased at the Hazard plant in April 2012 and at the Hardy County plant in May 2012. The 2012 Restructuring Plan was adopted to reduce costs and increase the Company’s capacity utilization rates.
During fiscal 2012, the Company recognized pre-tax restructuring charges of $15.9 million related to the 2012 Restructuring Plan. During fiscal 2013, the Company recognized pre-tax restructuring charges of $1.4 million related to the 2012 Restructuring Plan, including severance and separation costs of $0.2 million, building impairment charges of $0.3 million, facilities-related expenses of $0.7 million and professional fees of $0.2 million.
A reserve for restructuring charges in the amount of $13 thousand is included in the Company’s consolidated balance sheet as of April 30, 2013 which relates to employee termination costs accrued but not yet paid. Below is the summary of the restructuring reserve balance as of April 30, 2013:
(in thousands)
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|
|
|
|
|
|
|
2012 Restructuring Plan
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|
|
|
Restructuring reserve balance as of April 30, 2012
|
|
$
|
2,817
|
|
Additions
|
|
|
196
|
|
Payments
|
|
|
(3,000
|
)
|
Reserve balance as of April 30, 2013
|
|
$
|
13
|
|
In the fourth quarter of fiscal 2009, the Company announced a restructuring plan (“2009 Restructuring Plan”) to close two of its manufacturing plants, located in Berryville, Virginia and Moorefield, West Virginia and suspend operations in a third manufacturing plant located in Tahlequah, Oklahoma. These actions were completed during the first quarter of fiscal 2010. These initiatives were intended to increase the Company’s capacity utilization rates and decrease overhead costs. In addition to these initiatives, the Company made other staffing reductions during the fourth quarter of fiscal 2009.
During fiscal years 2013, 2012 and 2011, the Company recognized total pre-tax restructuring charges for both the 2012 Restructuring Plan and the 2009 Restructuring Plan of $1.4 million, $16.3 million and $62,000, respectively. The Company recognized recurring operating costs for the facilities closed as part of the 2012 Restructuring Plan of $0.9 million in fiscal 2013. The Company will continue to incur costs related to its closed and unsold plants until they are sold.
The Company has a total of two manufacturing plants classified as held for sale, which were closed in the 2012 Restructuring Plan. During the second quarter of fiscal 2013, the Company sold its closed plant located in Tahlequah, Oklahoma and recognized a gain of $0.3 million on the sale. The gain was included in restructuring charges on the Company’s statements of operations. During fiscal 2013, the Company recorded impairment charges of $0.3 million relating to one of the plants that is included as held for sale. The Company believes that the remaining $2.7 million net book value of the properties classified as held for sale is fully recoverable. These assets are included in Other Assets on the Company’s balance sheet at April 30, 2013.
Note O -- Quarterly Financial Data (Unaudited)
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FISCAL 2013
|
|
07/31/12
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|
|
10/31/12
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|
|
01/31/13
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|
|
04/30/13
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|
(in thousands, except per share amounts)
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
148,252
|
|
|
$
|
159,760
|
|
|
$
|
151,346
|
|
|
$
|
171,079
|
|
Gross profit
|
|
|
22,043
|
|
|
|
24,794
|
|
|
|
23,507
|
|
|
|
32,312
|
|
Income before income taxes
|
|
|
1,015
|
|
|
|
3,371
|
|
|
|
3,476
|
|
|
|
8,878
|
|
Net income
|
|
|
561
|
|
|
|
1,950
|
|
|
|
2,057
|
|
|
|
5,190
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
0.13
|
|
|
$
|
0.14
|
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
0.13
|
|
|
$
|
0.14
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
FISCAL 2012
|
|
07/31/11
|
|
|
10/31/11
|
|
|
01/31/12
|
|
|
04/30/12
|
|
(in thousands, except per share amounts)
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
131,199
|
|
|
$
|
128,418
|
|
|
$
|
119,976
|
|
|
$
|
136,221
|
|
Gross profit
|
|
|
18,407
|
|
|
|
16,114
|
|
|
|
14,588
|
|
|
|
17,366
|
|
Loss before income taxes
|
|
|
(3,908
|
)
|
|
|
(4,523
|
)
|
|
|
(15,653
|
)
|
|
|
(9,204
|
)
|
Net loss
|
|
|
(2,716
|
)
|
|
|
(2,976
|
)
|
|
|
(9,114
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)
|
|
|
(5,980
|
)
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.19
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.42
|
)
|
Diluted
|
|
$
|
(0.19
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(0.42
|
)
|