AMERICAN WOODMARK CO

AMWD
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AMERICAN WOODMARK : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

06/29/2020 | 03:01pm

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
2020 2019 2018
Net sales 100.0 % 100.0 % 100.0 %
Cost of sales and distribution 80.1 78.9 79.6
Gross profit 19.9 21.1 20.4
Selling and marketing expenses 5.1 5.5 6.2
General and administrative expenses 6.8 6.9 5.6
Restructuring charges, net - 0.1 -
Operating income 8.0 8.6 8.6
Interest expense/other (income) expense 1.9 1.9 1.0
Income before income taxes 6.1 6.7 7.6
Income tax expense 1.6 1.6 2.5
Net income 4.5 5.1 5.1




The following discussion should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and the related notes
contained elsewhere in this report.



Forward-Looking Statements




This annual report contains statements concerning the Company's expectations,
plans, objectives, future financial performance, and other statements that are
not historical facts. These statements may be "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. In
most cases, the reader can identify forward-looking statements by words such as
"anticipate," "estimate," "forecast," "expect," "believe," "should," "could,"
"would," "plan," "may," "intend," "estimate," "prospect," "goal," "will,"
"predict," "potential" or other similar words. Forward-looking statements
contained in this report, including elsewhere in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," are based on current
expectations and our actual results may differ materially from those projected
in any forward-looking statements. In addition, the Company participates in an
industry that is subject to rapidly changing conditions and there are numerous
factors that could cause the Company to experience a decline in sales and/or
earnings or deterioration in financial condition. Factors that could cause
actual results to differ materially from those in forward-looking statements
made in this report include but are not limited to:


• the impact of COVID-19 on our business, the global and U.S. economy and our



customers and suppliers;



• the loss of or a reduction in business from one or more of our key customers;



• negative developments in the macro-economic factors that impact our



performance such as the U.S. housing market, general economy, unemployment



rates and consumer sentiment and the impact of such developments on our and



our customers' business, operations and access to financing;



• competition from other manufacturers and the impact of such competition on



pricing and promotional levels;



• an inability to develop new products or respond to changing consumer



preferences and purchasing practices;



• a failure to effectively manage manufacturing operations, alignment and



capacity or an inability to maintain the quality of our products;



• the impairment of goodwill, other intangible assets or our long-lived assets;



• an inability to obtain raw materials in a timely manner or fluctuations in



raw material and energy costs;



• information systems interruptions or intrusions or the unauthorized release



of confidential information concerning customers, employees or other third



parties;



• the cost of compliance with, or liabilities related to, environmental or



other governmental regulations or changes in governmental or industry
regulatory standards, especially with respect to health and safety and the
environment;



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• a failure to attract and retain certain members of management or other key



employees or other negative labor developments, including increases in the



cost of labor;



• risks associated with the implementation of our growth strategy;



• risks related to sourcing and selling products internationally and doing



business globally, including the imposition of tariffs or duties on those



products;



• unexpected costs resulting from a failure to maintain acceptable quality



standards;



• changes in tax laws or the interpretations of existing tax laws;



• the occurrence of significant natural disasters, including earthquakes,



fires, floods, and hurricanes or tropical storms;



• the unavailability of adequate capital for our business to grow and compete;



• increased buying power of large customers and the impact on our ability to



maintain or raise prices;



• our ability to successfully integrate RSI into our business and operations



and the risk that the anticipated economic benefits, costs savings and other



synergies in connection with the RSI Acquisition are not fully realized or



take longer to realize than expected; and



• limitations on operating our business as a result of covenant restrictions



under our indebtedness, and our ability to pay amounts due under our credit



facilities, our senior notes and our other indebtedness.






Additional information concerning the factors that could cause actual results to
differ materially from those in forward-looking statements is contained in this
annual report, including elsewhere in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and under Item 1A. "Risk
Factors," and Item 7A. "Quantitative and Qualitative Disclosures about Market
Risk." While the Company believes that these risks are manageable and will not
adversely impact the long-term performance of the Company, these risks could,
under certain circumstances, have a material adverse impact on its operating
results and financial condition.

Any forward-looking statement that the Company makes speaks only as of the date
of this annual report. The Company undertakes no obligation to publicly update
or revise any forward-looking statements or cautionary factors, as a result of
new information, future events or otherwise, except as required by law.


Overview




American Woodmark Corporation manufactures and distributes kitchen, bath and
home organization products for the remodeling and new home construction
markets. Its products are sold on a national basis directly to home centers and
builders and through a network of independent dealers and distributors. At April
30, 2020
, the Company operated 18 manufacturing facilities in the United States
and Mexico and eight primary service centers located throughout the United
States
.

On December 29, 2017, we completed the acquisition of RSI, a leading
manufacturer of kitchen, bath and home organization products. For the fiscal
years ended April 30, 2020 and 2019, the consolidated results include 12 months
of RSI activity and the fiscal year ended April 30, 2018, only includes four
months of RSI activity.

COVID-19

The pandemic caused by COVID-19 was first reported in Wuhan, China in December
2019
and has since spread throughout the world. Financial markets have been
volatile in 2020, primarily due to uncertainty with respect to the severity and
duration of the pandemic.

The pandemic has resulted in federal, state and local governments around the
world implementing increasingly stringent measures to help control the spread of
the virus, including quarantines, "shelter in place" and "stay at home" orders,
travel restrictions or bans, business curtailments, school closures, and other
protective measures.

All of our manufacturing facilities currently qualify as essential operations
(or the equivalent) under applicable federal and state orders. Operations in our
component plants in Mexico were temporarily suspended for a period of time in
April 2020, however, all of our manufacturing facilities and service centers are
currently open and operating. We are enforcing social distancing and enhanced
health, safety and sanitization measures in accordance with guidelines from the
Center for Disease Control. We have also implemented necessary procedures and
support to enable a significant portion of our office personnel to work
remotely.

As the spread of the virus began to be identified within the United States in
March 2020, we acted by imposing travel restrictions, transitioning large
meetings from in-person to virtual formats, assessing our information technology
infrastructure to ensure readiness for a remote workforce, staying connected to
customers, suppliers and business partners, planning for return to the workplace
and making operational adjustments as needed to ensure continued safety of our
workforce.


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The COVID-19 pandemic impacted our business operations and financial results
beginning in the fourth quarter of fiscal 2020 and continues to impact us in
fiscal 2021. Although the financial impact on our overall fiscal 2020 results is
limited due to the timing of the outbreak, we face numerous uncertainties in
estimating the direct and indirect effects on our present and future business
operations, financial condition, results of operations, and liquidity. Due to
several rapidly changing variables related to the COVID-19 pandemic, we cannot
reasonably estimate future economic trends and the timing of when stability will
return. Refer to Item 1A. "Risk Factors" for a disclosure of risk factors
related to COVID-19.


Particleboard Supply




Due to a catastrophic fire at a key Southeast supplier plant in May 2019 (fiscal
2020) and the supplier's subsequent decision to shutter operations over the next
90-days at two additional plants, the Company experienced a temporary disruption
in supply of particleboard, a key input component to the build of our cabinetry.
This disruption resulted in net expense of $4.2 million during fiscal 2020.
Management was successful in containing the situation as to not impact our
customers.


Financial Overview



A number of general market factors impacted the Company's business in fiscal
2020, including:



• The unemployment rate increased by 308% compared to April 2019, to 14.7% as of



April 2020 according to data provided by the U.S. Department of Labor, although



nearly all of the increase occurred in March and April 2020;



• Increase in single family housing starts during the Company's fiscal 2019 of



5%, as compared to the Company's fiscal 2019, according to the U.S. Department



of Commerce;



• Mortgage interest rates decreased with a 30-year fixed mortgage rate of 3.31%



in April 2020, a decrease of approximately 83 basis points compared to April



2019;



• The median price of existing homes sold in the U.S. rose by 6.1% during the



Company's fiscal 2020, according to data provided by the National Association



of Realtors;



• Consumer sentiment, as reported by the University of Michigan, averaged 2.7%



lower during the Company's fiscal 2020 than in its prior fiscal year; and



Cabinet sales, as reported by members of the Kitchen Cabinet Manufacturers



Association (KCMA), decreased by 0.1% during fiscal 2020 versus the prior
fiscal year.



The Company's largest remodeling customers and competitors continued to utilize
sales promotions in the Company's product category during fiscal 2020 to boost
sales. The Company strives to maintain its promotional levels in line with
market activity, with a goal of remaining competitive. The Company experienced
promotional levels during fiscal 2020 that were higher than those experienced in
its prior fiscal year. Sales in the remodel channel decreased 3% during the
fiscal year due to a decline in the made- to-order framed business which were
partially offset by growth in the stock business.

Sales in the new construction channel increased 6% during the fiscal year due to
share penetration with our builder partners and the health of the markets where
we concentrated our business during fiscal 2020.


The Company increased its net sales by 0.3% during fiscal 2020, which management
believes was driven primarily by growth in the builder channel which was
partially offset by declines in the home center and independent dealers and
distributors channels.




Gross margin for fiscal 2020 was 19.9%, a decrease from 21.1% in fiscal
2019. The decrease in gross margin was primarily due to tariffs of $6.4 million,
net cost impacts related to our particleboard supply disruption of $4.2 million,
duplicate rent/move costs related to our California facility move of $2.4
million
and expenses related to the temporary suspension of operations in our
component plants in Mexico during April 2020.

The Company regularly considers the need for a valuation allowance against its
deferred tax assets. The Company has been profitable for the last 8 years. As of
April 30, 2020, the Company had total deferred tax assets of $46.0 million net
of valuation allowance, up from $14.3 million of deferred tax assets net of
valuation allowance at April 30, 2019. The increase in deferred tax assets
during fiscal 2020 was primarily due to the adoption of new leasing standards.
Deferred tax assets are reduced by a valuation allowance when, after considering
all positive and negative evidence, it is determined that it is more likely than
not that some portion, or all, of the deferred tax asset will not be realized.
The Company has recorded a valuation allowance related to deferred

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tax assets for certain state investment tax credit ("ITC") carryforwards. These
credits expire in various years beginning in fiscal 2028. The Company believes
based on positive evidence of the housing industry improvement along with 8
consecutive years of profitability that the Company will more likely than not
realize all other remaining deferred tax assets.

The Company also regularly assesses its long-lived assets to determine if any
impairment has occurred. The Company has concluded that none of its long-lived
assets were impaired as of April 30, 2020.

Results of Operations
FISCAL YEARS ENDED APRIL 30



2020 vs. 2019 2019 vs. 2018



PERCENT PERCENT
(Dollars in thousands) 2020 2019 2018 CHANGE CHANGE

Net sales $ 1,650,333 $ 1,645,319 $ 1,250,274 - % 32 %
Gross profit 329,186 346,473 255,403 (5 ) 36
Selling and marketing expenses 83,608 89,875 77,843 (7 ) 15


General and administrative expenses 113,334 112,917 69,855


- 62
Interest expense (income), net 29,027 35,652 13,054 (19 ) 173



Net Sales



Net sales for fiscal 2020 increased 0.3% to $1,650.3 million from the prior
fiscal year. The Company experienced growth in the builder channel which was
partially offset by declines in the home center and independent dealers and
distributors channels.



Net sales for fiscal 2019 increased 32% to $1,645.3 million from the prior
fiscal year. The fiscal 2019 results include eight incremental months of results
from the RSI Acquisition. Excluding the impact of the RSI Acquisition, the
Company experienced growth in all channels during fiscal 2019 versus the
comparable prior year period.



Gross Profit



Gross profit as a percentage of sales decreased to 19.9% in fiscal 2020 as
compared with 21.1% in fiscal 2019. The decrease in gross profit margin was
primarily due to tariffs of $6.4 million, net cost impacts related to our
particleboard supply disruption of $4.2 million, duplicate rent/move costs
related to our California facility move of $2.4 million and expenses related to
the temporary suspension of operations in our component plants in Mexico in
April 2020.




Gross profit as a percentage of sales increased to 21.1% in fiscal 2019 as
compared with 20.4% in fiscal 2018. The increase in gross profit margin was due
primarily to higher sales volumes, price, mix and overhead cost leverage due to
higher volumes. These favorable impacts were partially offset by higher
transportation costs, newly enacted tariffs and raw material inflation.


Selling and Marketing Expenses




Selling and marketing expenses in fiscal 2020 were 5.1% of net sales, compared
with 5.5% of net sales in fiscal 2019. Selling and marketing costs decreased by
7% despite a 0.3% increase in net sales. The improvement in the percentage of
selling and marketing costs in relation to net sales was due to lower displays
and incentive costs.

Selling and marketing expenses in fiscal 2019 were 5.5% of net sales, compared
with 6.2% of net sales in fiscal 2018. Selling and marketing costs increased by
only 15% despite a 32% increase in net sales. The improvement in the percentage
of selling and marketing costs in relation to net sales was due to favorable
leverage from increased sales and on-going expense control.


General and Administrative Expenses




General and administrative expenses increased by $0.4 million or 0.4% during
fiscal 2020 versus the prior fiscal year. General and administrative costs
decreased to 6.8% of net sales in fiscal 2020 compared with 6.9% of net sales in
fiscal 2019.


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General and administrative expenses increased by $43.1 million or 62% during
fiscal 2019 versus the prior fiscal year. The increase was related to intangible
amortization and higher compensation incentive costs. General and administrative
costs increased to 6.9% of net sales in fiscal 2019 compared with 5.6% of net
sales in fiscal 2018.

Effective Income Tax Rates

The Company generated pre-tax income of $100.5 million during fiscal 2020. The
Company's effective tax rate increased from 24.5% in fiscal 2019 to 25.5% in
fiscal 2020 primarily due to the benefit from the Tax Cuts and Jobs Act of 2017
(H.R. 1) (the "Tax Act") that was recognized in fiscal 2019. The higher
effective tax rate was primarily due to lower federal income tax credits. The
Company's effective tax rate decreased from 33.4% in fiscal 2018 to 24.5% in
fiscal 2019. The lower effective tax rate in fiscal 2019 was primarily due to
the overall benefit from the reduction in the tax rate enacted in connection
with the Tax Act.


Non-GAAP Financial Measures




We have reported our financial results in accordance with generally accepted
accounting principles ("GAAP"). In addition, we have presented in this report
the non-GAAP measures described below.


A reconciliation of these non-GAAP financial measures to the most directly
comparable financial measures calculated and presented in accordance with GAAP
is set forth below.




Management believes these non-GAAP financial measures provide an additional
means of analyzing the current period's results against the corresponding prior
period's results. However, these non-GAAP financial measures should be viewed in
addition to, and not as a substitute for, the Company's reported results
prepared in accordance with GAAP. Our non-GAAP financial measures are not meant
to be considered in isolation or as a substitute for comparable GAAP measures
and should be read only in conjunction with our consolidated financial
statements prepared in accordance with GAAP.


EBITDA, Adjusted EBITDA and Adjusted EBITDA margin




We use EBITDA, Adjusted EBITDA and Adjusted EBITDA margin in evaluating the
performance of our business, and we use each in the preparation of our annual
operating budgets and as indicators of business performance and profitability.
We believe Adjusted EBITDA and Adjusted EBITDA margin allow us to readily view
operating trends, perform analytical comparisons and identify strategies to
improve operating performance. Additionally, Adjusted EBITDA is a key
measurement used in our Term Loans to determine interest rates and financial
covenant compliance.

We define EBITDA as net income adjusted to exclude (1) income tax expense, (2)
interest (income) expense, net, (3) depreciation and amortization expense and
(4) amortization of customer relationship intangibles and trademarks. We define
Adjusted EBITDA as EBITDA adjusted to exclude (1) expenses related to the RSI
Acquisition and the subsequent restructuring charges that the Company incurred
related to the acquisition, (2) inventory step-up amortization due to the
increase in the fair value of inventory acquired through the RSI Acquisition,
(3) non-recurring restructuring charges, (4) net gain on debt forgiveness and
modification, (5) stock-based compensation expense, (6) gain/loss on asset
disposals and (7) change in fair value of foreign exchange forward contracts. We
believe Adjusted EBITDA, when presented in conjunction with comparable GAAP
measures, is useful for investors because management uses Adjusted EBITDA in
evaluating the performance of our business.


We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net
sales.



Adjusted EPS per diluted share




We use Adjusted EPS per diluted share in evaluating the performance of our
business and profitability. Management believes that this measure provides
useful information to investors by offering additional ways of viewing the
Company's results by providing an indication of performance and profitability
excluding the impact of unusual and/or non-cash items. We define Adjusted EPS
per diluted share as diluted earnings per share excluding the per share impact
of (1) expenses related to the RSI Acquisition and the subsequent restructuring
charges that the Company incurred related to the acquisition, (2) inventory
step-up amortization due to the increase in the fair value of inventory acquired
through the RSI Acquisition, (3) non-recurring restructuring charges, (4) the
amortization of customer relationship intangibles and trademarks, (5) net gain
on debt forgiveness and modification and (6) the tax benefit of RSI Acquisition
expenses and subsequent restructuring charges, the net gain on debt forgiveness
and modification and the amortization of customer relationship intangibles and
trademarks. The amortization of intangible assets is driven by the RSI
Acquisition and will recur in future periods. Management has determined that
excluding amortization of intangible assets from our definition of Adjusted EPS
per diluted share will better help it evaluate the performance of our business
and profitability and we have also received similar feedback from some of our
investors regarding the same. During the fourth quarter of fiscal

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2020, management determined that adding non-recurring restructuring charges was
an appropriate adjustment due to their non-recurring nature.



Free cash flow




To better understand trends in our business, we believe that it is helpful to
subtract amounts for capital expenditures consisting of cash payments for
property, plant and equipment and cash payments for investments in displays from
cash flows from continuing operations which is how we define free cash flow.
Management believes this measure gives investors an additional perspective on
cash flow from operating activities in excess of amounts required for
reinvestment. It also provides a measure of our ability to repay our debt
obligations.

A reconciliation of these non-GAAP financial measures and the most directly
comparable measures calculated and presented in accordance with GAAP are set
forth in the following tables:
Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin

FISCAL YEARS ENDED APRIL 30,
(Dollars in thousands) 2020 2019 2018

Net income (GAAP) $ 74,861 $ 83,688 $ 63,141
Add back:
Income tax expense 25,687 27,200 31,619
Interest expense, net 29,027 35,652 13,054
Depreciation and amortization expense 49,513 45,446 28,671
Amortization of customer relationship
intangibles and trademarks 49,000 49,000 16,333
EBITDA (Non-GAAP) $ 228,088 $ 240,986 $ 152,818
Add back:
Acquisition and restructuring related
expenses (1) 221 4,118


12,902



Inventory step-up amortization (2) - -


6,334



Change in fair value of foreign exchange
forward contracts (3) 1,102 - -
Net gain on debt forgiveness and
modification (4) - (5,266 ) -
Stock-based compensation expense 3,989 3,040 3,097
Loss on asset disposal 2,629 1,973 615
Adjusted EBITDA (Non-GAAP) $ 236,029 $ 244,851 $ 175,766

Net Sales $ 1,650,333 $ 1,645,319 $ 1,250,274
Adjusted EBITDA margin (Non-GAAP) 14.3 % 14.9


% 14.1 %






(1) Acquisition and restructuring related expenses are comprised of expenses
related to the RSI Acquisition, the subsequent restructuring charges that the
Company incurred related to the acquisition and restructuring charges incurred
related to COVID-19.
(2) The inventory step-amortization is the increase in the fair value of
inventory acquired through the RSI Acquisition that was fully expensed when the
inventory was sold in the quarter ended January 31, 2018.
(3) In the normal course of business the Company is subject to risk from adverse
fluctuations in foreign exchange rates. The Company manages these risks through
the use of foreign exchange forward contracts. The changes in the fair value of
the forward contracts are recorded in other expense (income) in the operating
results.
(4) The Company had loans and interest forgiven relating to four separate
economic development loans totaling $5.5 million for fiscal year 2019 and the
Company incurred $0.3 million in loan modification expense with an amendment to
the credit agreement during fiscal year 2019.

A reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as
projected for fiscal 2021 is not provided because we do not forecast net income
as we cannot, without unreasonable effort, estimate or predict with certainty
various components of net income.

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Adjusted EPS per diluted share




FISCAL YEARS ENDED APRIL 30,
(Dollars in thousands, except share and
per share data) 2020 2019 2018

Net income (GAAP) $ 74,861 $ 83,688 $ 63,141
Add back:
Acquisition and restructuring related
expenses 221 4,118 12,902
Amortization of intangibles 49,000 49,000 16,333
Inventory step-up amortization - - 6,334
Net gain on debt forgiveness and
modification - (5,266 ) -
Tax benefit of add backs (12,305 ) (11,824 ) (10,970 )
Adjusted net income (Non-GAAP) $ 111,777 $ 119,716


$ 87,740




Weighted average diluted shares 16,952,480 17,330,419


16,744,705



Adjusted EPS per diluted share (Non-GAAP) $ 6.59 $ 6.91



$ 5.24
EPS per diluted share (GAAP) $ 4.42 $ 4.83 $ 3.77


Free cash flow

FISCAL YEARS ENDED APRIL 30,
(Dollars in thousands) 2020 2019 2018



Cash provided by operating activities $ 177,542 $ 190,845 $ 86,775
Less: capital expenditures (1)


40,739 39,385 49,893
Free cash flow $ 136,803 $ 151,460 $ 36,882



(1) Capital expenditures consist of cash payments for property, plant and
equipment and cash payments for investments in displays.



Outlook for Fiscal 2021




The impact on our fiscal 2021 financial results from the COVID-19 pandemic are
uncertain. The Company's net sales were down 2% during the fourth quarter of
fiscal 2020 but we expect net sales for the first quarter of fiscal 2021 to be
down approximately high single-digit to low double-digit versus the prior year
period which will negatively impact Net Income and Adjusted EBITDA. This trend
could continue until the pandemic subsides and macro-economic factors improve.
The Company has taken actions to improve its cash position and as of April 30,
2020
had $97.1 million of cash on hand and access to $94.3 million of additional
availability under its revolver. As of May 31, 2020, our cash position has
further improved to $107.4 million. We will continue to monitor the situation
closely and may implement further measures to provide additional financial
flexibility as we work to protect our cash position and liquidity.

Additional risks and uncertainties that could affect the Company's results of
operations and financial condition are discussed elsewhere in this annual
report, including under "Forward-Looking Statements," and elsewhere in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as under Item 1A. "Risk Factors" and Item 7A. "Quantitative
and Qualitative Disclosures about Market Risk."


Liquidity and Capital Resources




The Company's cash and cash equivalents totaled $97.1 million at April 30, 2020,
representing a $39.4 million increase from its April 30, 2019 levels. At April
30, 2020
, total long-term debt (including current maturities) was $597.1
million
, a decrease of $94.4 million from its balance at April 30, 2019. The
Company's ratio of long-term debt to total capital was 45.9% at April 30, 2020,
compared with 52.6% at April 30, 2019. The Company's main source of liquidity
is its cash and cash equivalents on hand and cash generated from its operating
activities.


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The Company can also borrow up to $100 million under the Revolving Facility.
Approximately $94.3 million was available under this facility as of April 30,
2020
.

The RSI Acquisition significantly affected the Company's financial condition,
liquidity and cash flow. See Note B -- Acquisition of RSI Home Products, Inc.
(the "RSI Acquisition") for a table detailing the purchase price. The Company
borrowed $250 million under the Initial Term Loan on December 29, 2017 in
connection with the closing of the RSI Acquisition and borrowed an additional
$250 million under the Delayed Draw Term Loan on February 12, 2018 in connection
with the refinancing of the RSI Notes. Amounts outstanding under the Credit
Facilities bear interest based on a fluctuating rate measured by reference to
either, at the Company's option, a base rate plus an applicable margin or LIBOR
plus an applicable margin, with the applicable margin being determined by
reference to the Company's then-current "Total Funded Debt to EBITDA Ratio." The
Company also incurs a quarterly commitment fee on the average daily unused
portion of the Revolving Facility during the applicable quarter at a rate per
annum also determined by reference to the Company's then-current "Total Funded
Debt to EBITDA Ratio." As of April 30, 2020, the applicable margin with respect
to base rate loans and LIBOR loans was 0.50% and 1.50%, respectively, and the
commitment fee was 0.175%.

The Company began repaying the aggregate outstanding amounts under its initial
term loan facility and the delayed draw term loan facility in certain specified
quarterly installments on April 30, 2018. The Credit Facilities mature on
December 29, 2022.

On February 12, 2018, the Company issued $350 million in aggregate principal
amount of the Senior Notes and utilized the proceeds of such issuance, together
with the borrowings under the Delayed Draw Term Loan as discussed above and cash
on hand, to fund the refinancing of the RSI Notes, which were acquired as part
of the RSI Acquisition - See Note B -- Acquisition of RSI Home Products, Inc.
(the "RSI Acquisition").

The credit agreement governing the Company's credit facilities and the indenture
governing the Senior Notes restrict the ability of the Company and certain of
the Company's subsidiaries to, among other things, incur additional
indebtedness, create additional liens, make certain investments, dispose of
assets or engage in a merger or consolidation, engage in certain transactions
with affiliates, and make certain restricted payments, including the payment of
dividends or the repurchase or redemption of stock, subject, in each case, to
the various exceptions and conditions described in the credit agreement and the
indenture. See Note G --Notes Payable and Long-Term Debt for a discussion of our
compliance with the covenants in the credit agreement and the indenture.


OPERATING ACTIVITIES




Cash provided by operating activities in fiscal 2020 was $177.5 million,
compared with $190.8 million in fiscal 2019. The decrease in the Company's cash
from operating activities was driven primarily by a decrease in net income and
decreased cash flows from income taxes receivable and accrued compensation and
related expenses, which was partially offset by an increase in cash flows from
customer receivables and accrued marketing expenses.

Cash provided by operating activities in fiscal 2019 was $190.8 million,
compared with $86.8 million in fiscal 2018. The increase in the Company's cash
from operating activities was driven primarily by an increase in net income
excluding non-cash items (primarily depreciation and amortization), lower
pension contributions in excess of expense and a decrease in customer
receivables which was partially offset by an increase in inventories and other
accrued expenses.

On November 28, 2018, the Board approved up to $5.0 million of discretionary
funding to reduce its defined benefit pension liabilities. The Company made
aggregate contributions of $7.3 million to its pension plans during fiscal 2019,
including the $5.0 million of discretionary funding. The Company made
contributions of $0.5 million to its pension plans during fiscal 2020.


On August 24, 2017, the Board approved up to $13.6 million of discretionary
funding to reduce its defined benefit pension liabilities. The Company made
aggregate contributions of $19.3 million to its pension plans during fiscal
2018, including the $13.6 million of discretionary funding.



INVESTING ACTIVITIES




The Company's investing activities primarily consist of capital expenditures and
investments in promotional displays. Net cash used by investing activities in
fiscal 2020 was $38.9 million, compared with $37.9 million in fiscal 2019 and
$44.3 million in fiscal 2018. Investments in property, plant and equipment for
fiscal 2020 were $31.7 million, compared with $32.1 million in fiscal 2019 and
$47.6 million in fiscal 2018. Investments in promotional displays were $9.1
million
in fiscal 2020, compared with $7.3 million in fiscal 2019 and $2.3
million
in fiscal 2018.


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On November 30, 2016 the Board approved the construction of a new corporate
headquarters in Winchester, Virginia. The new space has consolidated employees
that previously occupied four buildings in Winchester, Virginia and Frederick
County, Virginia
, during the fourth quarter of fiscal 2018. During fiscal 2020,
2019 and 2018, approximately $0.6 million, $6.7 million and $21.1 million,
respectively, was spent related to the new corporate headquarters.


FINANCING ACTIVITIES




The Company realized a net outflow of $99.2 million from financing activities in
fiscal 2020 compared with a net outflow of $173.7 million in fiscal 2019, and a
net outflow of $141.0 million in fiscal 2018. During fiscal 2020, $98.5 million
was used to repay long-term debt, compared with approximately $122.2 million in
fiscal 2019 and $96.6 million in fiscal 2018.

Under a stock repurchase authorization approved by its Board on November 30,
2016
, the Company was authorized to purchase up to $50 million of the Company's
common shares. The Board suspended the Company's stock repurchase program in
conjunction with the RSI Acquisition. On August 23, 2018, the Board reinstated
the program. On November 28, 2018, the Board authorized an additional stock
repurchase program of up to $14 million of the Company's common shares. This
authorization is in addition to the stock repurchase program authorized on
November 30, 2016. The Company funded share repurchases using available cash and
cash generated from operations. Repurchased shares became authorized but
unissued common shares. At April 30, 2019, no funds remained from the amounts
authorized by the Board to repurchase the Company's common shares. On August 22,
2019
, the Board authorized a stock repurchase program of up to $50 million of
the Company's common shares. The Company did not repurchase any of its shares
during the fiscal year ended April 30, 2020. The Company repurchased $50.0
million
during fiscal 2019 and $29.0 million during fiscal 2018.


Cash flow from operations combined with accumulated cash and cash equivalents on
hand are expected to be more than sufficient to support forecasted working
capital requirements, service existing debt obligations and fund capital
expenditures for fiscal 2021.



The timing of the Company's contractual obligations (excluding interest) as of
April 30, 2020 is summarized in the table below:



FISCAL YEARS ENDED APRIL 30

2026 and
(in thousands) Total Amounts 2021 2022-2023


2024-2025 Thereafter




Term Loans $ 244,000 $ - $ 244,000 $ - $ -
The Senior Notes 350,000 - - - 350,000
Capital lease obligations 5,687 2,216 2,303 1,098 70
Other long-term debt 6,659 - 46 509 6,104


Operating lease obligations 154,272 24,071 40,756



33,836 55,609

Total $ 760,618 $ 26,287 $ 287,105 $ 35,443 $ 411,783



SEASONALITY

Our business has been subject to seasonal influences, with higher sales
typically realized in our first and fourth fiscal quarters, although sales were
down in the fourth quarter of fiscal 2020 and we expect sales to be down in the
first quarter of fiscal 2021 due to the COVID-19 pandemic. General economic
forces and changes in our customer mix have reduced seasonal fluctuations in
revenue over the past few years. The costs of the Company's products are subject
to inflationary pressures and commodity price fluctuations. The Company has
generally been able over time to recover the effects of inflation and commodity
price fluctuations through sales price increases.


For additional discussion of risks that could affect the Company and its
business, see "Forward-Looking Statements" above, as well as Item 1A. "Risk
Factors" and Item 7A. "Quantitative and Qualitative Disclosures About Market
Risk."



OFF-BALANCE SHEET ARRANGEMENTS



As of April 30, 2020 and 2019, the Company had no off-balance sheet
arrangements.



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CRITICAL ACCOUNTING POLICIES




Management has chosen accounting policies that are necessary to give reasonable
assurance that the Company's operational results and financial position are
accurately and fairly reported. The significant accounting policies of the
Company are disclosed in Note A to the Consolidated Financial Statements
included in this annual report. The following discussion addresses the
accounting policies that management believes have the greatest potential impact
on the presentation of the financial condition and operating results of the
Company for the periods being reported and that require the most judgment.


Management regularly reviews these critical accounting policies and estimates
with the Audit Committee of the Board.




Revenue Recognition. The Company utilizes signed sales agreements that provide
for transfer of title to the customer at the time of shipment or upon delivery
based on the contractual terms. The Company must estimate the amount of sales
that have been transferred to third-party carriers but not delivered to
customers as the carriers are not able to report real-time what has been
delivered and thus there is a delay in reporting to the Company. The estimate is
calculated using a lag factor determined by analyzing the actual difference
between shipment date and delivery date of orders over the past 12 months.
Revenue is only recognized on those shipments which the Company believes have
been delivered to the customer.

The Company recognizes revenue based on the invoice price less allowances for
sales returns, cash discounts and other deductions as required under U.S.
Generally Accepted Accounting Principles ("GAAP"). Collection is reasonably
assured as determined through an analysis of accounts receivable data, including
historical product returns and the evaluation of each customer's ability to pay.
Allowances for sales returns are based on the historical relationship between
shipments and returns. The Company believes that its historical experience is an
accurate reflection of future returns.

Self Insurance. The Company is self-insured for certain costs related to
employee medical coverage, workers' compensation liability, general liability,
auto liability and property insurance. The Company maintains stop-loss coverage
with third-party insurers to limit total exposure. The Company establishes a
liability at each balance sheet date based on estimates for a variety of factors
that influence the Company's ultimate cost. In the event that actual experience
is substantially different from the estimates, the financial results for the
period could be adversely affected. The Company believes that the methodologies
used to estimate insurance liabilities are an accurate reflection of the
liabilities as of the date of the balance sheets.

Pensions. Prior to April 30, 2020, the Company had two non-contributory defined
benefit pension plans covering many of the Company's employees hired prior to
April 30, 2012. Effective April 30, 2012, the Company froze all future benefit
accruals under the Company's hourly and salaried defined benefit pension plans.
Effective April 30, 2020, these plans were merged into one plan.

The estimated expense, benefits and pension obligations of these plans are
determined using various assumptions. The most significant assumptions are the
long-term expected rate of return on plan assets and the discount rate used to
determine the present value of the pension obligations. The long-term expected
rate of return on plan assets reflects the current mix of the plan assets
invested in equities and bonds.

The following is a summary of the potential impact of a hypothetical 1% change
in actuarial assumptions for the discount rate, expected return on plan assets
and consumer price index:
(in millions) IMPACT OF 1% INCREASE IMPACT OF 1% DECREASE
(decrease) increase

Effect on annual pension expense $ (1.7 ) $ 1.5

Effect on projected pension benefit obligation $ (24.7 ) $ 31.3



Pension expense for fiscal 2020 and the assumptions used in that calculation are
presented in Note J of the Consolidated Financial Statements. At April 30, 2020,
the weighted average discount rate was 3.16% compared with 4.02% at April 30,
2019
. The expected return on plan assets was 5.0% for the year ended April 30,
2020
and 5.5% for the year ended April 30, 2019. The rate of compensation
increase is not applicable for periods beyond April 30, 2012 because the Company
froze its pension plans as of that date.

The projected performance of the Company's pension plans is largely dependent on
the assumptions used to measure the obligations of the plans and to estimate
future performance of the plans' invested assets. Over the past two measurement
periods, the most

26
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material deviations between results based on assumptions and the actual plan
performance have resulted from changes to the discount rate used to measure the
plans' benefit obligations and the actual return on plan assets. Accounting
guidelines require the discount rate to be set to a current market rate at each
annual measurement date.

The Company strives to balance expected long-term returns and short-term
volatility of pension plan assets. Favorable and unfavorable differences between
the assumed and actual returns on plan assets are generally amortized over a
period no longer than the average life expectancy of the plans' active
participants. The actual rates of return on plan assets realized, net of
investment manager fees, were 15.6%, 7.0% and 3.5% for fiscal 2020, 2019 and
2018, respectively.

The fair value of plan assets at April 30, 2020 was $190.7 million compared with
$169.5 million at April 30, 2019. The Company's projected benefit obligation
exceeded plan assets by $0.4 million in fiscal 2020 and the plan assets exceeded
the projected benefit obligation by $0.7 million in fiscal 2019. The $1.1
million
increase in the Company's unfunded position during fiscal 2020 was
primarily driven by the decrease in the discount rate from 4.02% to 3.16%,
partially offset by better than assumed asset returns. The Company expects its
pension benefit to increase from $0.7 million in fiscal 2020 to $2.0 million in
fiscal 2021, due primarily to asset returns, partially offset by a decrease in
the expected long-term rate of return from 5.0% to 4.5%. The Company does not
expect to contribute to its pension plans in fiscal 2021. The Company made
contributions of $0.5 million to its pension plans in fiscal 2020.

Goodwill. Goodwill represents the excess of purchase price over the fair value
of net assets acquired. The Company does not amortize goodwill but evaluates for
impairment annually, or whenever events or changes in circumstances indicate
that the carrying value may not be recoverable.

In accordance with the accounting standards, an entity has the option first to
assess qualitative factors to determine whether events and circumstances
indicate that it is more likely than not that goodwill is impaired. If after
such assessment an entity concludes that the asset is not impaired, then the
entity is not required to take further action. However, if an entity concludes
otherwise, then it is required to determine the fair value of the asset using a
quantitative impairment test, and if impaired, the associated assets must be
written down to fair value. There were no impairment charges related to goodwill
for the fiscal years ended 2020 and 2019.

Other Intangible Assets. Other intangible assets consist of customer
relationship intangibles and trademarks. The Company amortizes the cost of other
intangible assets over their estimated useful lives, which range from three
to six years, unless such lives are deemed indefinite. The Company reviews its
intangible assets for impairment when events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. There were
no impairment charges related to other intangible assets for the fiscal years
ended 2020 and 2019.


RECENT ACCOUNTING PRONOUNCEMENTS




In February 2016, the Financial Accounting Standards Board (the "FASB") issued a
new standard for leases, ASC 842, which requires lessees to recognize almost all
leases on their balance sheet as a right-of-use ("ROU") asset and lease
liability. The standard is effective for annual periods beginning after December
15, 2018
. The standard provides for the option to elect a package of practical
expedients upon adoption. The Company adopted the standard on May 1, 2019 using
the modified retrospective transition approach and elected the package of
practical expedients that allows it to forgo reassessment of lease
classification for leases that have already commenced. The Company also elected
the practical expedients to the new standard without restating comparative prior
period financial information and to not recognize ROU assets and liabilities for
operating leases with shorter than 12-month terms. On May 1, 2019, the Company
recognized operating lease assets and operating lease liabilities of $80.4
million
. The new standard did not have a material impact on the Company's
results of operations, cash flows or opening retained earnings, or on its debt
covenant calculations. ASC 842 also requires entities to disclose certain
qualitative and quantitative information regarding the amount, timing, and
uncertainty of cash flows arising from leases. Such disclosures are included in
Note O--Leases.

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13,
"Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments," which modifies the methodology for recognizing loss
impairments on certain types of financial instruments, including receivables.
The new methodology requires an entity to estimate the credit losses expected
over the life of an exposure. ASU 2016-13 is effective for the Company beginning
May 1, 2020. This standard will impact the valuation of credit losses relating
to receivables, however, we do not expect the standard to have a material impact
on financial position or results of operations.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes," which simplifies the accounting
for income taxes by removing certain exceptions for recognizing deferred taxes
for

27



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investments, performing intraperiod tax allocations and calculating income taxes
in interim periods. The amendments also improve consistent application of and
simplify GAAP for other areas of Topic 740 by clarifying and amending existing
guidance. ASU 2019-12 is effective for the Company beginning May 1, 2021. Early
adoption is permitted. The Company is currently reviewing the provisions of this
new pronouncement and the impact, if any, the adoption of this guidance may have
on financial position and results of operations.

In March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting." These amendments provide temporary optional guidance to ease the
potential burden in accounting for reference rate reform. The ASU provides
optional expedients and exceptions for applying generally accepted accounting
principles to contract modifications and hedging relationships, subject to
meeting certain criteria, that reference LIBOR or another reference rate
expected to be discontinued. It is intended to help stakeholders during the
global market-wide reference rate transition period. The guidance is effective
for all entities as of March 12, 2020 through December 31, 2022 and can be
adopted as of any date from the beginning of an interim period that includes or
is subsequent to March 12, 2020. The Company has identified loans and other
financial instruments that are directly or indirectly influenced by LIBOR and
does not expect the adoption of ASU 2020-04 to have a material impact on its
consolidated financial statements.

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