AMERICAN WOODMARK CORPORATION Results of Operations
The following table sets forth certain income and expense items as a percentage of net sales:
PERCENTAGE OF NET SALES
Fiscal Years Ended April 30
2021 2020 2019
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales and distribution 81.7 80.1 78.9
Gross profit 18.3 19.9 21.1
Selling and marketing expenses 5.1 5.1 5.5
General and administrative expenses 6.4 6.8 6.9
Restructuring charges, net 0.3 - 0.1
Operating income 6.5 8.0 8.6
Interest expense, net/other (income) expense, net 2.0 1.9 1.9
Income before income taxes 4.5 6.1 6.7
Income tax expense 1.1 1.6 1.6
Net income 3.4 4.5 5.1
The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and the related notes contained elsewhere in this report.
Forward-Looking Statements
This annual report contains statements concerning the Company's expectations, plans, objectives, future financial performance, and other statements that are not historical facts. These statements may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify forward-looking statements by words such as "anticipate," "estimate," "forecast," "expect," "believe," "should," "could," "would," "plan," "may," "intend," "estimate," "prospect," "goal," "will," "predict," "potential," or other similar words. Forward-looking statements contained in this report, including elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations," are based on current expectations and our actual results may differ materially from those projected in any forward-looking statements. In addition, the Company participates in an industry that is subject to rapidly changing conditions and there are numerous factors that could cause the Company to experience a decline in sales and/or earnings or deterioration in financial condition. Factors that could cause actual results to differ materially from those in forward-looking statements made in this report include but are not limited to: •the loss of or a reduction in business from one or more of our key customers; •negative developments in the macro-economic factors that impact our performance such as theU.S. housing market, general economy, unemployment rates, and consumer sentiment and the impact of such developments on our and our customers' business, operations, and access to financing; •competition from other manufacturers and the impact of such competition on pricing and promotional levels; •the impact of COVID-19 on our business, the global andU.S. economy, and our employees, customers, and suppliers; •an inability to develop new products or respond to changing consumer preferences and purchasing practices; •a failure to effectively manage manufacturing operations, alignment, and capacity or an inability to maintain the quality of our products; •the impairment of goodwill, other intangible assets, or our long-lived assets; •an inability to obtain raw materials in a timely manner or fluctuations in raw material, transportation, and energy costs; •information systems interruptions or intrusions or the unauthorized release of confidential information concerning customers, employees, or other third parties; •the cost of compliance with, or liabilities related to, environmental or other governmental regulations or changes in governmental or industry regulatory standards, especially with respect to health and safety and the environment; 17 -------------------------------------------------------------------------------- •a failure to attract and retain certain members of management or other key employees or other negative labor developments, including increases in the cost of labor; •risks associated with the implementation of our growth strategy; •risks related to sourcing and selling products internationally and doing business globally, including the imposition of tariffs or duties on those products; •unexpected costs resulting from a failure to maintain acceptable quality standards; •changes in tax laws or the interpretations of existing tax laws; •the occurrence of significant natural disasters, including earthquakes, fires, floods, hurricanes, or tropical storms; •the unavailability of adequate capital for our business to grow and compete; •increased buying power of large customers and the impact on our ability to maintain or raise prices; and •limitations on operating our business as a result of covenant restrictions under our indebtedness, and our ability to pay amounts due under our credit facilities and our other indebtedness. Additional information concerning the factors that could cause actual results to differ materially from those in forward-looking statements is contained in this annual report, including elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and under Item 1A. "Risk Factors," and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk." While the Company believes that these risks are manageable and will not adversely impact the long-term performance of the Company, these risks could, under certain circumstances, have a material adverse impact on its operating results and financial condition. Any forward-looking statement that the Company makes speaks only as of the date of this annual report. The Company undertakes no obligation to publicly update or revise any forward-looking statements or cautionary factors, as a result of new information, future events or otherwise, except as required by law.
Overview
American Woodmark Corporation manufactures and distributes kitchen, bath and home organization products for the remodeling and new home construction markets. Its products are sold on a national basis directly to home centers and builders and through a network of independent dealers and distributors. AtApril 30, 2021 , the Company operated 17 manufacturing facilities inthe United States andMexico and eight primary service centers and one distribution center located throughoutthe United States .
COVID-19
The COVID-19 pandemic impacted our business operations and financial results beginning in the fourth quarter of fiscal 2020 and continued to impact us in fiscal 2021. All of our manufacturing facilities qualified as essential operations (or the equivalent) under applicable federal and state orders and were able to continue operating. We were negatively impacted by the COVID-19 pandemic as demand for our products significantly decreased during the fourth quarter of fiscal 2020 and first quarter of fiscal 2021, "stay at home" orders and other work disruptions created disruptions to our business operations and our supply chain has been negatively impacted. Additionally, COVID-19 continues to impact our overall business, including hiring and retaining employees and through challenges caused by material availability and transportation delays. Refer to Item 1A. "Risk Factors" for a disclosure of risk factors related to COVID-19. Particleboard Supply Due to a catastrophic fire at a key Southeast supplier plant inMay 2019 (fiscal 2020) and the supplier's subsequent decision to shutter operations over the next 90-days at two additional plants, the Company experienced a temporary disruption in supply of particleboard, a key input component of our cabinetry. This disruption resulted in net expense of$4.2 million during fiscal 2020. Management was successful in containing the situation as to not impact our customers in fiscal 2021.
Financial Overview
A number of general market factors impacted the Company's business in fiscal 2021, including:
•The unemployment rate decreased by 59% compared toApril 2020 , to 6.1% as ofApril 2021 according to data provided by theU.S. Department of Labor ; however, the unemployment rate remained well above levels prior to the COVID-19 pandemic; 18 -------------------------------------------------------------------------------- •Increase in single family housing starts during the Company's fiscal 2021 of 11%, as compared to the Company's fiscal 2020, according to theU.S. Department of Commerce ; •Mortgage interest rates decreased with a 30-year fixed mortgage rate of 3.06% inApril 2021 , a decrease of approximately 25 basis points compared toApril 2020 ; •The median price of existing homes sold in theU.S. rose by 12.2% during the Company's fiscal 2021, according to data provided by theNational Association of Realtors ; •Consumer sentiment, as reported by theUniversity of Michigan , averaged 15.6% lower during the Company's fiscal 2021 than in its prior fiscal year; and •Cabinet sales, as reported by members of theKitchen Cabinet Manufacturers Association (KCMA), increased by 8.7% during fiscal 2021 versus the prior fiscal year. The Company's largest remodeling customers and competitors continued to utilize sales promotions in the Company's product category during fiscal 2021 to boost sales. The Company strives to maintain its promotional levels in line with market activity, with a goal of remaining competitive. The Company experienced lower promotional levels during fiscal 2021 than those experienced in its prior fiscal year. Sales in the remodel channel increased 22% during the fiscal year. Sales in the new construction channel increased 0.7% during fiscal 2021 due to a rise in new housing starts and a shift to the opening price point cabinets in our Origins by Timberlake brand.
The Company increased its net sales by 5.7% during fiscal 2021, which management believes was driven by growth in the home center, builder and independent dealers and distributors channels.
Gross margin for fiscal 2021 was 18.3%, a decrease from 19.9% in fiscal 2020. The decrease in gross margin was primarily due to higher material and logistics costs, investments made to establish our distribution center inTexas , and increases related to wage and retention programs. This was partially offset by the increase in sales creating leverage of our fixed expenses in our operating platforms. The Company regularly considers the need for a valuation allowance against its deferred tax assets. The Company has been profitable for the last 9 years. As ofApril 30, 2021 and 2020, the Company had total deferred tax assets of$45.9 million net of valuation allowance. Deferred tax assets are reduced by a valuation allowance when, after considering all positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The Company has recorded a valuation allowance related to deferred tax assets for certain state investment tax credit ("ITC") carryforwards. These credits expire in various years beginning in fiscal 2028. The Company believes based on positive evidence of the housing industry improvement along with 9 consecutive years of profitability that the Company will more likely than not realize all other remaining deferred tax assets. The Company also regularly assesses its long-lived assets to determine if any impairment has occurred. The Company has concluded that none of its long-lived assets were impaired as ofApril 30, 2021 .
Results of Operations
FISCAL YEARS ENDED APRIL 30
2021 vs. 2020 2020 vs. 2019
PERCENT PERCENT
(Dollars in thousands) 2021 2020 2019 CHANGE CHANGE
Net sales $ 1,744,014 $ 1,650,333 $ 1,645,319 5.7 % 0.3 %
Gross profit 319,275 329,186 346,473 (3.0) % (5.0) %
Selling and marketing expenses 89,464 83,608 89,875 7.0 % (7.0) %
General and administrative expenses 112,283 113,334 112,917 (0.9) % 0.4 %
Interest expense, net 23,128 29,027 35,652 (20.3) % (18.6) %
19--------------------------------------------------------------------------------
Net sales for fiscal 2021 increased 5.7% to
Net sales for fiscal 2020 increased 0.3% to
Gross Profit
Gross profit as a percentage of sales decreased to 18.3% in fiscal 2021 as compared with 19.9% in fiscal 2020. The decrease in gross profit margin was primarily due to higher material and logistics costs, investments made to establish our distribution center inTexas , and increases related to wage and retention programs. This was partially offset by the increase in sales creating leverage of our fixed expenses in our operating platforms.
Gross profit as a percentage of sales decreased to 19.9% in fiscal 2020 as
compared with 21.1% in fiscal 2019. The decrease in gross profit margin was
primarily due to tariffs of
Selling and Marketing Expenses
Selling and marketing costs increased by$5.9 million or 7% during fiscal 2021 versus the prior year. Selling and marketing expenses in fiscal 2021 and fiscal 2020 were both 5.1% of net sales. Selling and marketing expenses in fiscal 2020 were 5.1% of net sales, compared with 5.5% of net sales in fiscal 2019. Selling and marketing costs decreased by 7% despite a 0.3% increase in net sales in fiscal 2020. The improvement in the percentage of selling and marketing costs in relation to net sales was due to lower displays and incentive costs.
General and Administrative Expenses
General and administrative expenses decreased by$1.1 million or 0.9% during fiscal 2021 versus the prior fiscal year. General and administrative costs decreased to 6.4% of net sales in fiscal 2021 compared with 6.8% of net sales in fiscal 2020. General and administrative expenses increased by$0.4 million or 0.4% during fiscal 2020 versus the prior fiscal year. General and administrative costs decreased to 6.8% of net sales in fiscal 2020 compared with 6.9% of net sales in fiscal 2019. Effective Income Tax Rates The Company generated pre-tax income of$77.4 million during fiscal 2021. The Company's effective tax rate decreased from 25.5% in fiscal 2020 to 24.1% in fiscal 2021 primarily due to the benefit from federal income tax credits. The Company's effective tax rate increased from 24.5% in fiscal 2019 to 25.5% in fiscal 2020. The higher effective tax rate was primarily due to lower federal income tax credits. Non-GAAP Financial Measures We have reported our financial results in accordance with generally accepted accounting principles ("GAAP"). In addition, we have presented in this report the non-GAAP measures described below.
A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP is set forth below.
Management believes these non-GAAP financial measures provide an additional
means of analyzing the current period's results against the corresponding prior
period's results. However, these non-GAAP financial measures should be viewed in
addition to, and not as a substitute for, the Company's reported results
prepared in accordance with GAAP. Our non-GAAP financial measures are not meant
to be considered in isolation or as a substitute for comparable GAAP measures
and should be read only in conjunction with our consolidated financial
statements prepared in accordance with GAAP.
20
--------------------------------------------------------------------------------EBITDA, Adjusted EBITDA and Adjusted EBITDA margin
We use EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin in evaluating the performance of our business, and we use each in the preparation of our annual operating budgets and as indicators of business performance and profitability. We believe EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin allow us to readily view operating trends, perform analytical comparisons, and identify strategies to improve operating performance. Additionally, Adjusted EBITDA is a key measurement used in our Term Loans to determine interest rates and financial covenant compliance. We define EBITDA as net income adjusted to exclude (1) income tax expense, (2) interest expense, net, (3) depreciation and amortization expense, and (4) amortization of customer relationship intangibles and trademarks. We define Adjusted EBITDA as EBITDA adjusted to exclude (1) expenses related to the RSI Acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition, (2) non-recurring restructuring charges, (3) net gain/loss on debt forgiveness and modification, (4) stock-based compensation expense, (5) gain/loss on asset disposals, and (6) change in fair value of foreign exchange forward contracts. We believe Adjusted EBITDA, when presented in conjunction with comparable GAAP measures, is useful for investors because management uses Adjusted EBITDA in evaluating the performance of our business.
We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.
Adjusted EPS per diluted share
We use Adjusted EPS per diluted share in evaluating the performance of our business and profitability. Management believes that this measure provides useful information to investors by offering additional ways of viewing the Company's results by providing an indication of performance and profitability excluding the impact of unusual and/or non-cash items. We define Adjusted EPS per diluted share as diluted earnings per share excluding the per share impact of (1) expenses related to the RSI Acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition, (2) non-recurring restructuring charges, (3) the amortization of customer relationship intangibles and trademarks, (4) net gain/loss on debt forgiveness and modification, and (5) the tax benefit of RSI Acquisition expenses and subsequent restructuring charges, the net gain/loss on debt forgiveness and modification, and the amortization of customer relationship intangibles and trademarks. The amortization of intangible assets is driven by the RSI Acquisition and will recur in future periods. Management has determined that excluding amortization of intangible assets from our definition of Adjusted EPS per diluted share will better help it evaluate the performance of our business and profitability and we have also received similar feedback from some of our investors regarding the same. Free cash flow To better understand trends in our business, we believe that it is helpful to subtract amounts for capital expenditures consisting of cash payments for property, plant and equipment and cash payments for investments in displays from cash flows from continuing operations which is how we define free cash flow. Management believes this measure gives investors an additional perspective on cash flow from operating activities in excess of amounts required for reinvestment. It also provides a measure of our ability to repay our debt obligations.
A reconciliation of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth in the following tables:
21
--------------------------------------------------------------------------------Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin
FISCAL YEARS ENDED APRIL 30,
(Dollars in thousands) 2021 2020 2019
Net income (GAAP) $ 58,763 $ 74,861 $ 83,688
Add back:
Income tax expense 18,672 25,687 27,200
Interest expense, net 23,128 29,027 35,652
Depreciation and amortization expense 51,100 49,513 45,446
Amortization of customer relationship intangibles
and trademarks 47,889 49,000 49,000
EBITDA (Non-GAAP) $ 199,552 $ 228,088 $ 240,986
Add back:
Acquisition and restructuring related expenses (1) 174 221 4,118
Non-recurring restructuring charges, net (2) 5,848 - -
Change in fair value of foreign exchange forward
contracts (3) (1,102) 1,102 -
Net loss (gain) on debt forgiveness and
modification (4) 13,792 - (5,266)
Stock-based compensation expense 4,598 3,989 3,040
Loss on asset disposal 384 2,629 1,973
Adjusted EBITDA (Non-GAAP) $ 223,246 $ 236,029 $ 244,851
Net Sales $ 1,744,014 $ 1,650,333 $ 1,645,319
Net income margin (GAAP) 3.4 % 4.5 % 5.1 %
Adjusted EBITDA margin (Non-GAAP) 12.8 % 14.3 % 14.9 %
(1) Acquisition and restructuring related expenses are comprised of expenses
related to the RSI Acquisition and the subsequent restructuring charges that the
Company incurred related to the acquisition.
(2) Non-recurring restructuring charges are comprised of expenses incurred
related to the permanent layoffs due to COVID-19 and the closure of the
manufacturing plant in Humboldt, Tennessee . Fiscal year 2021 includes
accelerated depreciation expense of $1.3 million and gain on asset disposal of
$2.2 million related to Humboldt .
(3) In the normal course of business the Company is subject to risk from adverse
fluctuations in foreign exchange rates. The Company manages these risks through
the use of foreign exchange forward contracts. The changes in the fair value of
the forward contracts are recorded in other (income) expense, net in the
operating results.
(4) The Company recognized net loss on debt modification totaling $13.8 million
for fiscal year 2021 related to the restructuring of its debt. The Company had
loans and interest forgiven relating to four separate economic development loans
totaling $5.5 million for fiscal year 2019 and the Company incurred $0.3 million
in loan modification expense with an amendment to the credit agreement during
fiscal year 2019.
A reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as
projected for fiscal 2022 is not provided because we do not forecast net income
as we cannot, without unreasonable effort, estimate or predict with certainty
various components of net income.
22
--------------------------------------------------------------------------------Adjusted EPS per diluted share
FISCAL YEARS ENDED APRIL 30,
(Dollars in thousands, except share and per
share data) 2021 2020 2019
Net income (GAAP) $ 58,763 $ 74,861 $ 83,688
Add back:
Acquisition and restructuring related expenses 174 221 4,118
Non-recurring restructuring charges, net 5,848 - -
Amortization of customer relationship
intangibles and trademarks 47,889 49,000 49,000
Net loss (gain) on debt forgiveness and
modification 13,792 - (5,266)
Tax benefit of add backs (17,467) (12,305) (11,824)
Adjusted net income (Non-GAAP) $ 108,999 Weighted average diluted shares 17,036,730 16,952,480 17,330,419 EPS per diluted share (GAAP)$ 3.45 $ 4.42 $ 4.83 Adjusted EPS per diluted share (Non-GAAP)$ 6.40 $ 6.59 $ 6.91 Free cash flow FISCAL YEARS ENDED APRIL 30, (Dollars in thousands) 2021 2020 2019
Cash provided by operating activities
Less: Capital expenditures (1) 46,318 40,739 39,385
Free cash flow $ 105,445 $ 136,803 $ 151,460 (1) Capital expenditures consist of cash payments for property, plant and equipment and cash payments for investments in displays.
Outlook for Fiscal 2022
While we are optimistic about fiscal 2022, the impact on our financial results from the COVID-19 pandemic as well as material constraints and labor impacts continue to be uncertain. While the Company's net sales were up 18.6% during the fourth quarter of fiscal 2021 compared to the same period in the prior year, we expect net sales for the first quarter of fiscal 2022 to be up in the mid to upper teens compared with the same period in the prior year. For the first quarter of fiscal 2022 we expect margins to improve sequentially as the pricing actions take effect. This trend could continue as we still do not know the full impact of the pandemic and are waiting for macro-economic factors to stabilize. The Company has taken actions to improve our cash position and as ofApril 30, 2021 had$91.1 million of cash on hand and access to$236.0 million of additional availability under our revolver. In fiscal 2022, the Company may intentionally reduce our cash position to historical norms through debt repayments and share repurchases. We plan to continue our investment back into the business by increasing our capital investment rate to approximately 4.0% of net sales for the full fiscal year. Additional risks and uncertainties that could affect the Company's results of operations and financial condition are discussed elsewhere in this annual report, including under "Forward-Looking Statements," and elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as under Item 1A. "Risk Factors" and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk."
Liquidity and Capital Resources
The Company's cash and cash equivalents totaled$91.1 million atApril 30, 2021 , representing a$6.0 million decrease from itsApril 30, 2020 levels. AtApril 30, 2021 , total long-term debt (including current maturities) was$521.8 million , a decrease of$75.4 million from the balance atApril 30, 2020 . The Company's ratio of long-term debt to total capital was 40.9% atApril 30, 2021 , compared with 45.9% atApril 30, 2020 . The Company's main source of liquidity is its cash and cash equivalents on hand and cash generated from its operating activities. The Company can also borrow up to$500 million under the Revolving 23 --------------------------------------------------------------------------------
Facility. Approximately
The Company added significant indebtedness with the RSI Acquisition in fiscal 2018. Under the Prior Credit Agreement, the Company borrowed$250 million under the Initial Term Loan onDecember 29, 2017 in connection with the closing of the RSI Acquisition and borrowed an additional$250 million under the Delayed Draw Term Loan onFebruary 12, 2018 in connection with the refinancing of the RSI Notes. Amounts outstanding under the Prior Credit Agreement incurred interest based on a fluctuating rate measured by reference to either, at the Company's option, a base rate plus an applicable margin or LIBOR plus an applicable margin, with the applicable margin being determined by reference to the Company's then-current "Total Funded Debt to EBITDA Ratio." OnFebruary 12, 2018 , the Company issued$350 million in aggregate principal amount of the Senior Notes and utilized the proceeds of such issuance, together with the borrowings under the Delayed Draw Term Loan as discussed above and cash on hand, to fund the refinancing of the RSI Notes, which were acquired as part of the RSI Acquisition. OnApril 22, 2021 , the Company amended and restated the Prior Credit Agreement. The amended and restated credit agreement (the "A&R Credit Agreement") provides for a$500 million revolving loan facility with a$50 million sub-facility for the issuance of letters of credit (the "Revolving Facility") and a$250 million term loan facility (the "Term Loan Facility"). Also onApril 22, 2021 , the Company borrowed the entire$250 million under the Term Loan Facility and approximately$264 million under the Revolving Facility to fund, in part, the repayment in full of the amounts then outstanding under the Prior Credit Agreement and the redemption of the Senior Notes. The Company is required to repay the Term Loan Facility in specified quarterly installments. The Revolving Facility and Term Loan Facility mature onApril 22, 2026 . The A&R Credit Agreement includes certain financial covenants that require the Company to maintain (i) a "Consolidated Interest Coverage Ratio" of no less than 2.00 to 1.00 and (ii) a "Total Net Leverage Ratio" of no greater than 4.00 to 1.00, subject, in each case, to certain limited exceptions. The A&R Credit Agreement includes certain additional covenants, including negative covenants that restrict the ability of the Company and certain of its subsidiaries to incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of its assets or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the A&R Credit Agreement. The negative covenants further restrict the ability of the Company and certain of its subsidiaries to make certain restricted payments, including, in the case of the Company, the payment of dividends and the repurchase of common stock, in certain limited circumstances. See Note F - Loans Payable and Long-Term Debt for a discussion of interest rates under the new A&R Credit Agreement and our compliance with the covenants in the credit agreement.
OPERATING ACTIVITIES
Cash provided by operating activities in fiscal 2021 was$151.8 million , compared with$177.5 million in fiscal 2020. The decrease in the Company's cash from operating activities was driven primarily by a decrease in net income and decreased cash flows from customer receivables and inventories, which were partially offset by an increase in cash flows from accounts payable and accrued marketing expenses. Cash provided by operating activities in fiscal 2020 was$177.5 million , compared with$190.8 million in fiscal 2019. The decrease in the Company's cash from operating activities was driven primarily by a decrease in net income and decreased cash flows from income taxes receivable and accrued compensation and related expenses, which was partially offset by an increase in cash flows from customer receivables and accrued marketing expenses. OnNovember 28, 2018 , the Board approved up to$5.0 million of discretionary funding to reduce its defined benefit pension liabilities. The Company made aggregate contributions of$7.3 million to its pension plans during fiscal 2019, including$5.0 million of discretionary funding. The Company made no contributions to its pension plan in fiscal 2021 and made contributions of$0.5 million to its pension plans during fiscal 2020.
INVESTING ACTIVITIES
The Company's investing activities primarily consist of capital expenditures and investments in promotional displays. Net cash used by investing activities in fiscal 2021 was$42.4 million , compared with$38.9 million in fiscal 2020 and$37.9 million in fiscal 2019. Investments in property, plant and equipment for fiscal 2021 were$35.7 million , compared with$31.7 million in 24 --------------------------------------------------------------------------------
fiscal 2020 and
FINANCING ACTIVITIES
The Company realized a net outflow of$115.3 million from financing activities in fiscal 2021 compared with a net outflow of$99.2 million in fiscal 2020, and a net outflow of$173.7 million in fiscal 2019. During fiscal 2021,$82.5 million , net, was used to repay long-term debt, compared with approximately$98.5 million in fiscal 2020 and$122.2 million in fiscal 2019. Under a stock repurchase authorization approved by its Board onNovember 30, 2016 , the Company was authorized to purchase up to$50 million of the Company's common shares. OnNovember 28, 2018 , the Board authorized an additional stock repurchase program of up to$14 million of the Company's common shares. This authorization is in addition to the stock repurchase program authorized onNovember 30, 2016 . The Company funded share repurchases using available cash and cash generated from operations. Repurchased shares became authorized but unissued common shares. AtApril 30, 2019 , no funds remained from the amounts authorized by the Board to repurchase the Company's common shares. OnAugust 22, 2019 , the Board authorized a stock repurchase program of up to$50 million of the Company's common shares. The Company repurchased$20.0 million during fiscal 2021 and$50.0 million during fiscal 2019. The Company did not repurchase any of its shares during the fiscal year endedApril 30, 2020 . OnMay 25, 2021 , the Board authorized a stock repurchase program of up to$100 million of the Company's outstanding common shares. In conjunction with this authorization the Board cancelled the remaining portion of the$50 million existing authorization, of which the Company had repurchased$20 million in the fourth quarter of fiscal 2021.
Cash flow from operations combined with accumulated cash and cash equivalents on hand are expected to be more than sufficient to support forecasted working capital requirements, service existing debt obligations, and fund capital expenditures for fiscal 2022.
The timing of the Company's contractual obligations (excluding interest) as of
FISCAL YEARS ENDED APRIL 30
2027 and
(in thousands) Total Amounts 2022 2023-2024 2025-2026 Thereafter
Term Loans $ 250,000 $ 6,250 $ 18,750 $ 225,000 $ -
Revolving credit 264,000 - - 264,000 -Capital lease obligations 5,494 2,072 2,982 440 - Other long-term debt 6,659 - 299 515 5,845 Operating lease obligations 144,308 23,761
43,756 35,910 40,881
Total $ 670,461 $ 32,083 $ 65,787 $ 525,865 $ 46,726
SEASONALITY
Our business has been subject to seasonal influences, with higher sales
typically realized in our first and fourth fiscal quarters, however sales were
down in the fourth quarter of fiscal 2020 and the first quarter of fiscal 2021
due to the COVID-19 pandemic. General economic forces and changes in our
customer mix have reduced seasonal fluctuations in revenue over the past few
years. The costs of the Company's products are subject to inflationary pressures
and commodity price fluctuations. The Company has generally been able over time
to recover the effects of inflation and commodity price fluctuations through
sales price increases.
For additional discussion of risks that could affect the Company and its business, see "Forward-Looking Statements" above, as well as Item 1A. "Risk Factors" and Item 7A. "Quantitative and Qualitative Disclosures About Market Risk."
OFF-BALANCE SHEET ARRANGEMENTS
As of
25
--------------------------------------------------------------------------------CRITICAL ACCOUNTING POLICIES
Management has chosen accounting policies that are necessary to give reasonable assurance that the Company's operational results and financial position are accurately and fairly reported. The significant accounting policies of the Company are disclosed in Note A to the Consolidated Financial Statements included in this annual report. The following discussion addresses the accounting policies that management believes have the greatest potential impact on the presentation of the financial condition and operating results of the Company for the periods being reported and that require the most judgment.
Management regularly reviews these critical accounting policies and estimates with the Audit Committee of the Board.
Revenue Recognition. The Company utilizes signed sales agreements that provide for transfer of title to the customer at the time of shipment or upon delivery based on the contractual terms. The Company must estimate the amount of sales that have been transferred to third-party carriers but not delivered to customers as the carriers are not able to report real-time what has been delivered and thus there is a delay in reporting to the Company. The estimate is calculated using a lag factor determined by analyzing the actual difference between shipment date and delivery date of orders over the past 12 months. Revenue is recognized on those shipments which the Company believes have been delivered to the customer. The Company recognizes revenue based on the invoice price less allowances for sales returns, cash discounts, and other deductions as required under GAAP. Collection is reasonably assured as determined through an analysis of accounts receivable data, including historical product returns and the evaluation of each customer's ability to pay. Allowances for sales returns are based on the historical relationship between shipments and returns. The Company believes that its historical experience is an accurate reflection of future returns. Pensions. Prior toApril 30, 2020 , the Company had two non-contributory defined benefit pension plans covering many of the Company's employees hired prior toApril 30, 2012 . EffectiveApril 30, 2012 , the Company froze all future benefit accruals under the Company's hourly and salaried defined benefit pension plans. EffectiveApril 30, 2020 , these plans were merged into one plan. OnNovember 16, 2020 the Company filed an application with the Internal Revenue Service to terminate the Pension Plan with an effective date ofDecember 31, 2020 (the "Plan Termination Date"), in a standard termination and the Company expects to incur approximately$1.6 million to terminate the Pension Plan,$0.4 million of which was incurred in fiscal 2021. In connection with the Pension Plan termination and in addition to the Pension Plan termination costs, the Company may be required to make an additional funding contribution to the Pension Plan in order to ensure the Pension Plan is fully funded on a termination basis as of the Benefit Distribution Date, with the amount of such contribution still to be determined. The Benefit Distribution Date will be determined once the Company receives approval from certain regulatory agencies. The additional funding contribution is expected to be funded from cash on hand and the amount will vary depending on the lump sum distribution take rate and the interest rate on the Benefit Distribution Date. The estimated expense, benefits and pension obligations of the pension plan is determined using various assumptions. The most significant assumptions are the long-term expected rate of return on plan assets and the discount rate used to determine the present value of the pension obligations. The long-term expected rate of return on plan assets reflects the current mix of the plan assets invested in equities and bonds. The following is a summary of the potential impact of a hypothetical 1% change in actuarial assumptions for the discount rate, expected return on plan assets and consumer price index: (in millions) IMPACT OF 1% INCREASE IMPACT OF 1% DECREASE (decrease) increase Effect on annual pension expense $ (1.7) $
1.5
Pension expense for fiscal 2021 and the assumptions used in that calculation are presented in Note I of the Consolidated Financial Statements. AtApril 30, 2021 , the weighted average discount rate was 2.80% compared with 3.16% atApril 30, 2020 . The expected return on plan assets was 3.25% for the year endedApril 30, 2021 and 5.0% for the year endedApril 30, 2020 . The rate of compensation increase is not applicable for periods beyondApril 30, 2012 because the Company froze its pension plans as of that date. 26 -------------------------------------------------------------------------------- The projected performance of the Company's pension plan is largely dependent on the assumptions used to measure the obligations of the plan and to estimate future performance of the plan's invested assets. Over the past two measurement periods, the most material deviations between results based on assumptions and the actual plan performance have resulted from changes to the discount rate used to measure the plan's benefit obligations and the actual return on plan assets. Accounting guidelines require the discount rate to be set to a current market rate at each annual measurement date. The Company strives to balance expected long-term returns and short-term volatility of pension plan assets. Favorable and unfavorable differences between the assumed and actual returns on plan assets are generally amortized over a period no longer than the average life expectancy of the plans' active participants. The actual rates of return on plan assets realized, net of investment manager fees, were 3.2%, 15.6% and 7.0% for fiscal 2021, 2020, and 2019, respectively. The fair value of plan assets atApril 30, 2021 was$193.6 million compared with$190.7 million atApril 30, 2020 . The Company's projected benefit obligation exceeded plan assets by$3.0 million in fiscal 2021 and$0.4 million in fiscal 2020. The$2.6 million increase in the Company's unfunded position during fiscal 2021 was primarily driven by the decrease in the discount rate from 3.16% to 2.80%.Goodwill .Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company does not amortize goodwill but evaluates for impairment annually, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value. There were no impairment charges related to goodwill for the fiscal years 2021 and 2020. Other Intangible Assets. Other intangible assets consist of customer relationship intangibles and trademarks. The Company amortizes the cost of other intangible assets over their estimated useful lives, which range from three to six years, unless such lives are deemed indefinite. The Company reviews its intangible assets for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges related to other intangible assets for the fiscal years 2021 and 2020.
RECENT ACCOUNTING PRONOUNCEMENTS
InFebruary 2016 , theFinancial Accounting Standards Board (the "FASB") issued a new standard for leases, ASC 842, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use ("ROU") asset and lease liability. The standard is effective for annual periods beginning afterDecember 15, 2018 . The standard provides for the option to elect a package of practical expedients upon adoption. The Company adopted the standard onMay 1, 2019 using the modified retrospective transition approach and elected the package of practical expedients that allows it to forgo reassessment of lease classification for leases that have already commenced. The Company also elected the practical expedients to the new standard without restating comparative prior period financial information and to not recognize ROU assets and liabilities for operating leases with shorter than 12-month terms. OnMay 1, 2019 , the Company recognized operating lease assets and operating lease liabilities of$80.4 million . The new standard did not have a material impact on the Company's results of operations, cash flows or opening retained earnings, or on its debt covenant calculations. ASC 842 also requires entities to disclose certain qualitative and quantitative information regarding the amount, timing, and uncertainty of cash flows arising from leases. Such disclosures are included in Note N - Leases. InDecember 2019 , the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intraperiod tax allocations and calculating income taxes in interim periods. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company beginningMay 1, 2021 . The Company has reviewed the provisions of this new pronouncement and the adoption of this guidance is not expected to have an impact on financial position or results of operations. InMarch 2020 , the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that 27
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reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as ofMarch 12, 2020 throughDecember 31, 2022 and can be adopted as of any date from the beginning of an interim period that includes or is subsequent toMarch 12, 2020 . The Company has identified loans and other financial instruments that are directly or indirectly influenced by LIBOR and does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.
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