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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission File Number: 000-14798

American Woodmark Corporation
(Exact name of registrant as specified in its charter)
Virginia54-1138147
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
561 Shady Elm Road,Winchester,Virginia22602
(Address of principal executive offices)(Zip Code)
 

(540) 665-9100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockAMWDNASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,”  “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer                 
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
As of February 24, 2021, 17,001,147 shares of the Registrant’s Common Stock were outstanding.




AMERICAN WOODMARK CORPORATION
 
FORM 10-Q
 
INDEX
 
 
PART I.FINANCIAL INFORMATION
PAGE
NUMBER
Item 1.Financial Statements (unaudited) 
 3
 4
 5
6-7
 8-9
 10-20
Item 2.20-28
Item 3.28
Item 4.28
PART II.OTHER INFORMATION 
Item 1.28
Item 1A.28-29
Item 6.29
30

2


PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data) 
(Unaudited) 
 January 31,
2021
April 30,
2020
ASSETS  
Current assets  
Cash and cash equivalents$91,792 $97,059 
Customer receivables, net147,834 106,344 
Inventories144,592 111,836 
Prepaid expenses and other19,836 9,933 
Total current assets404,054 325,172 
Property, plant and equipment, net200,885 203,824 
Operating lease right-of-use assets121,600 127,668 
Customer relationship intangibles, net133,194 167,444 
Trademarks, net 2,222 
Goodwill767,612 767,612 
Promotional displays, net14,221 13,966 
Deferred income taxes1,101 915 
Other assets14,201 13,983 
TOTAL ASSETS$1,656,868 $1,622,806 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities  
Accounts payable$88,765 $56,342 
Current maturities of long-term debt2,044 2,216 
Short-term lease liability - operating18,435 18,896 
Accrued compensation and related expenses66,660 49,064 
Accrued marketing expenses13,046 12,361 
Other accrued expenses21,933 16,727 
Total current liabilities210,883 155,606 
Long-term debt, less current maturities516,556 594,921 
Deferred income taxes45,609 52,935 
Long-term lease liability - operating108,939 112,454 
Other long-term liabilities11,490 6,352 
Shareholders' equity  
Preferred stock, $1.00 par value; 2,000,000 shares authorized, none issued  
Common stock, no par value; 40,000,000 shares authorized; issued and  
outstanding shares: at January 31, 2021: 17,001,147; at April 30, 2020: 16,926,537
365,363 359,430 
Retained earnings448,217 392,281 
Accumulated other comprehensive loss - Defined benefit pension plans(50,189)(51,173)
Total shareholders' equity763,391 700,538 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$1,656,868 $1,622,806 
See notes to unaudited condensed consolidated financial statements.  
3


AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
 
 Three Months EndedNine Months Ended
 January 31,January 31,
 2021202020212020
Net sales$431,954 $395,755 $1,270,624 $1,251,136 
Cost of sales and distribution356,134 323,407 1,025,155 997,219 
Gross Profit75,820 72,348 245,469 253,917 
Selling and marketing expenses21,862 21,401 63,368 62,539 
General and administrative expenses26,202 26,914 86,414 86,246 
Restructuring charges, net(847) 5,404 (207)
Operating Income28,603 24,033 90,283 105,339 
Interest expense, net5,746 6,924 17,757 22,448 
Other income, net(259)(165)(2,928)(699)
Income Before Income Taxes23,116 17,274 75,454 83,590 
Income tax expense5,921 4,470 19,518 21,742 
Net Income$17,195 $12,804 $55,936 $61,848 
Weighted Average Shares Outstanding    
Basic16,994,975 16,922,231 16,974,701 16,902,255 
Diluted17,047,211 16,974,956 17,036,586 16,947,449 
Net earnings per share    
Basic$1.01 $0.76 $3.30 $3.66 
Diluted$1.01 $0.75 $3.28 $3.65 
See notes to unaudited condensed consolidated financial statements.

4


AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
 Three Months EndedNine Months Ended
 January 31,January 31,
 2021202020212020
Net income$17,195 $12,804 $55,936 $61,848 
Other comprehensive income, net of tax:    
Change in pension benefits, net of deferred taxes of $111 and $107, and $338 and $322 for the three and nine months ended January 31, 2021 and 2020, respectively328 315 984 946 
Total Comprehensive Income$17,523 $13,119 $56,920 $62,794 
See notes to unaudited condensed consolidated financial statements.

5


AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(Unaudited)
    ACCUMULATED   
    OTHERTOTAL
 COMMON STOCKRETAINEDCOMPREHENSIVESHAREHOLDERS'
(in thousands, except share data)SHARESAMOUNTEARNINGSLOSSEQUITY
Balance, April 30, 201916,849,026 $352,424 $317,420 $(49,491)$620,353 
Net income— — 26,881 — 26,881 
Other comprehensive income, 
net of tax— — — 315 315 
Stock-based compensation— 897 — — 897 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes20,923 (1,050)— — (1,050)
Employee benefit plan 
contributions45,721 3,772 — — 3,772 
Balance, July 31, 201916,915,670 $356,043 $344,301 $(49,176)$651,168 
Net income— — 22,163 — 22,163 
Other comprehensive income,     
net of tax— — — 316 316 
Stock-based compensation— 1,178 — — 1,178 
Exercise of stock-based     
compensation awards, net of amounts   
withheld for taxes5,877 83 — — 83 
Stock repurchases— — — —  
Balance, October 31, 201916,921,547 $357,304 $366,464 $(48,860)$674,908 
Net income— — 12,804 — 12,804 
Other comprehensive income,     
net of tax— — — 315 315 
Stock-based compensation— 1,047 — — 1,047 
Exercise of stock-based     
compensation awards, net of amounts   
withheld for taxes3,700 211 — — 211 
Balance, January 31, 202016,925,247 $358,562 $379,268 $(48,545)$689,285 
6


    ACCUMULATED   
    OTHERTOTAL
 COMMON STOCKRETAINEDCOMPREHENSIVESHAREHOLDERS'
(in thousands, except share data)SHARESAMOUNTEARNINGSLOSSEQUITY
Balance, April 30, 202016,926,537 $359,430 $392,281 $(51,173)$700,538 
Net income— — 16,485 — 16,485 
Other comprehensive income,  
net of tax— — — 327 327 
Stock-based compensation— 961 — — 961 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes16,212 (534)— — (534)
Employee benefit plan 
contributions45,591 3,743 — — 3,743 
Balance, July 31, 202016,988,340 $363,600 $408,766 $(50,846)$721,520 
Net income— — 22,256 — 22,256 
Other comprehensive income,  
net of tax— — — 329 329 
Stock-based compensation— 1,266 — — 1,266 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes4,920 (177)— — (177)
Balance, October 31, 202016,993,260 $364,689 $431,022 $(50,517)$745,194 
Net income— — 17,195 — 17,195 
Other comprehensive income,  
net of tax— — — 328 328 
Stock-based compensation— 1,316 — — 1,316 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes7,887 (642)— — (642)
Balance, January 31, 202117,001,147 $365,363 $448,217 $(50,189)$763,391 
See notes to unaudited condensed consolidated financial statements.


7



AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Nine Months Ended
 January 31,
 20212020
OPERATING ACTIVITIES  
Net income$55,936 $61,848 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization76,482 73,362 
Net (gain) loss on disposal of property, plant and equipment(2,008)350 
Reduction in the carrying amount of operating lease right-of-use assets20,252 19,462 
Amortization of debt issuance costs1,901 1,963 
Unrealized gain on foreign exchange forward contracts(1,720)(244)
Stock-based compensation expense3,543 3,122 
Deferred income taxes(8,939)(8,623)
Pension contributions in excess of expense(1,505)(964)
Contributions of employer stock to employee benefit plan3,743 3,772 
Other non-cash items1,899 314 
Changes in operating assets and liabilities:
Customer receivables(43,564)5,170 
Income taxes receivable(4,070)(5,229)
Inventories(33,835)(14,289)
Prepaid expenses and other assets(6,606)(6,785)
Accounts payable31,293 4,438 
Accrued compensation and related expenses9,309 (9,193)
Operating lease liabilities(18,161)(16,731)
Marketing and other accrued expenses23,559 465 
Net cash provided by operating activities107,509 112,208 
INVESTING ACTIVITIES  
Payments to acquire property, plant and equipment(25,479)(25,563)
Proceeds from sales of property, plant and equipment3,872 321 
Maturities of certificates of deposit 1,500 
Investment in promotional displays(7,757)(6,471)
Net cash used by investing activities(29,364)(30,213)
FINANCING ACTIVITIES  
Payments of long-term debt(81,889)(91,833)
Proceeds from issuance of common stock 295 
Withholding of employee taxes related to stock-based compensation(1,351)(1,050)
Debt issuance cost(172) 
Net cash used by financing activities(83,412)(92,588)
Net decrease in cash and cash equivalents(5,267)(10,593)
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 Nine Months Ended
 January 31,
 20212020
Cash and cash equivalents, beginning of period97,059 57,656 
Cash and cash equivalents, end of period$91,792 $47,063 
Supplemental cash flow information:  
     Non-cash investing and financing activities:
          Property, plant and equipment included in accounts payable at period end$1,130 $1,953 
    Cash paid during the period for:
         Interest$11,757 $17,322 
       Income taxes$31,830 $35,870 
See notes to unaudited condensed consolidated financial statements.
9


AMERICAN WOODMARK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A--Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended January 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2021.  The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2020 filed with the U.S. Securities and Exchange Commission (“SEC”).  

COVID-19: 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 was limited due to the timing of the outbreak, we saw more material impacts on our results for the first quarter of fiscal 2021. Although the impacts from the COVID-19 pandemic lessened in the second and third quarter of fiscal 2021, we continue to face numerous uncertainties in estimating the direct and indirect effects of COVID-19 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.

Goodwill and Intangible Assets: Goodwill represents the excess of purchase price over the net amount of identifiable assets acquired and liabilities assumed in a business combination measured at fair value. 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 accounting standards, when evaluating goodwill, 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 three- and nine-month periods ended January 31, 2021 and 2020.

Intangible assets consist of customer relationship intangibles and trademarks. The Company amortizes the cost of intangible assets over their estimated useful lives, which range from 3 to 6 years, unless such lives are deemed indefinite. There were no impairment charges related to intangible assets for the three- and nine-month periods ended January 31, 2021 and 2020.

Foreign Exchange Forward Contracts: In the normal course of business, the Company is subject to risk from adverse fluctuations in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The Company recognizes its outstanding forward contracts in the condensed consolidated balance sheets at their fair values. The Company does not designate the forward contracts as accounting hedges. The changes in the fair value of the forward contracts are recorded in other income, net in the condensed consolidated statements of income.

At January 31, 2021, the Company held forward contracts maturing from February 2021 to April 2021 to purchase 128.8 million Mexican pesos at exchange rates ranging from 22.12 to 23.42 Mexican pesos to one U.S. dollar. An asset of $0.6 million is recorded in prepaid expenses and other on the condensed consolidated balance sheet.

Note B--New Accounting Pronouncements
 
In March 2020, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("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. ASU 2020-04 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
10


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.

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 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 June 2016, the FASB issued 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 was effective for the Company beginning May 1, 2020. The adoption did not have a material impact on our consolidated financial statements.

Note C--Net Earnings Per Share
 
The following table sets forth the computation of basic and diluted net earnings per share:
 Three Months EndedNine Months Ended
 January 31,January 31,
(in thousands, except per share amounts)2021202020212020
Numerator used in basic and diluted net earnings    
per common share:    
Net income$17,195 $12,804 $55,936 $61,848 
Denominator:    
Denominator for basic net earnings per common    
share - weighted-average shares16,995 16,922 16,975 16,902 
Effect of dilutive securities:    
Stock options and restricted stock units52 53 62 45 
Denominator for diluted net earnings per common    
share - weighted-average shares and assumed    
conversions17,047 16,975 17,037 16,947 
Net earnings per share    
Basic$1.01 $0.76 $3.30 $3.66 
Diluted$1.01 $0.75 $3.28 $3.65 

There were no potentially dilutive securities for the three- and nine-month periods ended January 31, 2021 and 2020, which were excluded from the calculation of net earnings per diluted share.

Note D--Stock-Based Compensation
 
The Company has various stock-based compensation plans. During the nine-months ended January 31, 2021, the Board of Directors of the Company approved grants of service-based restricted stock units ("RSUs") and performance-based RSUs to key employees and non-employee directors. The employee performance-based RSUs totaled 124,374 units and the employee and non-employee director service-based RSUs totaled 75,206 units. The performance-based RSUs entitle the recipients to receive one share of the Company’s common stock per unit granted if applicable performance conditions are met and the recipient remains continuously employed with the Company until the units vest.  The service-based RSUs entitle the recipients to receive one share of the Company’s common stock per unit granted if they remain continuously employed with the Company until the units vest.  All of the Company’s RSUs granted to employees cliff-vest three years from the grant date, while RSUs granted to non-employee directors vest daily over a two-year period from the date of grant.

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For the three and nine-month periods ended January 31, 2021 and 2020, stock-based compensation expense was allocated as follows: 
 Three Months Ended 
 
January 31,
Nine Months Ended 
 
January 31,
(in thousands)2021202020212020
Cost of sales and distribution$426 $224 $1,134 $716 
Selling and marketing expenses365 240 698 713 
General and administrative expenses525 583 1,711 1,693 
Stock-based compensation expense$1,316 $1,047 $3,543 $3,122 
 
During the nine months ended January 31, 2021, the Company also approved grants of 11,456 cash-settled performance-based restricted stock tracking units ("RSTUs") and 6,229 cash-settled service-based RSTUs for more junior level employees.  Each performance-based RSTU entitles the recipient to receive a payment in cash equal to the fair market value of one share of the Company's common stock as of the payment date if applicable performance conditions are met and the recipient remains continuously employed with the Company until the units vest.  The service-based RSTUs entitle the recipients to receive a payment in cash equal to the fair market value of one share of the Company's common stock as of the payment date if they remain continuously employed with the Company until the units vest.  All of the RSTUs cliff-vest three years from the grant date.  Since the RSTUs will be settled in cash, the grant date fair value of these awards is recorded as a liability until the date of payment.  The fair value of each cash-settled RSTU award is remeasured at the end of each reporting period and the liability is adjusted, and related expense recorded, based on the new fair value.  The Company recognized expense of $0.2 million and $0.2 million for the three-month periods ended January 31, 2021 and 2020, respectively, and $0.6 million and $0.4 million for the nine-month periods ended January 31, 2021 and 2020, respectively. A liability for payment of the RSTUs is included in the condensed consolidated balance sheets in the amount of $0.8 million and $0.4 million as of January 31, 2021 and April 30, 2020, respectively.

Note E--Customer Receivables
 
The components of customer receivables were: 
 January 31,April 30,
(in thousands)20212020
Gross customer receivables$156,732 $112,528 
Less:
Allowance for doubtful accounts(371)(472)
Allowance for returns and discounts(8,527)(5,712)
Net customer receivables$147,834 $106,344 
  



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Note F--Inventories
 
The components of inventories were: 
 January 31,April 30,
(in thousands)20212020
Raw materials$60,321 $51,460 
Work-in-process51,967 42,381 
Finished goods47,343 32,572 
Total FIFO inventories159,631 126,413 
Reserve to adjust inventories to LIFO value(15,039)(14,577)
Total inventories$144,592 $111,836 
 
Of the total inventory of $144.6 million at January 31, 2021, $88.3 million is carried under the FIFO method of accounting and $56.3 million is carried under the LIFO method. Of the total inventory of $111.8 million at April 30, 2020, $66.0 million is carried under the FIFO method and $45.8 million is carried under the LIFO method.
 
Note G--Property, Plant and Equipment

The components of property, plant and equipment were:
 January 31,April 30,
(in thousands)20212020
Land$4,431 $4,431 
Buildings and improvements115,515 120,819 
Buildings and improvements - finance leases11,636 11,636 
Machinery and equipment309,152 312,806 
Machinery and equipment - finance leases31,440 30,911 
Construction in progress19,608 8,164 
491,782 488,767 
Less accumulated amortization and depreciation(290,897)(284,943)
Total$200,885 $203,824 

Amortization and depreciation expense on property, plant and equipment amounted to $10.3 million and $9.3 million for the three months ended January 31, 2021 and 2020, respectively, and $32.5 million and $27.6 million for the nine months ended January 31, 2021 and 2020, respectively. The nine months ended January 31, 2021 includes accelerated depreciation expense of $1.3 million related to the closure of the plant located in Humboldt, Tennessee. There was no accelerated depreciation for the three months ended January 31, 2021. Accumulated amortization on finance leases included in the above table amounted to $33.2 million and $32.3 million as of January 31, 2021 and April 30, 2020, respectively.


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Note H--Intangibles

The components of customer relationship intangibles were:
 January 31,April 30,
(in thousands)20212020
Customer relationship intangibles$274,000 $274,000 
Less accumulated amortization(140,806)(106,556)
Total$133,194 $167,444 

The components of trademarks were:
 January 31,April 30,
(in thousands)20212020
Trademarks$10,000 $10,000 
Less accumulated amortization(10,000)(7,778)
Total$ $2,222 

Customer relationship intangibles and trademarks are amortized over the estimated useful lives on a straight-line basis over six and three years, respectively. Amortization expense for the three month periods ended January 31, 2021 and 2020 was $12.0 million and $12.3 million, respectively, and $36.5 million and $36.8 million, respectively, for each of the nine month periods ended January 31, 2021 and 2020.

Note I--Product Warranty
 
The Company estimates outstanding warranty costs based on the historical relationship between warranty claims and revenues.  The warranty accrual is reviewed monthly to verify that it properly reflects the remaining obligation based on the anticipated expenditures over the balance of the obligation period.  Adjustments are made when actual warranty claim experience differs from estimates.  Warranty claims are generally made within two months of the original shipment date.
 
The following is a reconciliation of the Company’s warranty liability, which is included in other accrued expenses on the unaudited condensed consolidated balance sheets: 
 Nine Months Ended
 January 31,
(in thousands)20212020
Beginning balance at May 1$3,753 $4,616 
Accrual13,885 17,132 
Settlements(13,150)(17,611)
Ending balance at January 31$4,488 $4,137 

Note J--Pension Benefits
 
Prior to April 30, 2020, the Company had two defined benefit pension plans covering many of the Company's employees hired prior to April 30, 2012. Effective April 30, 2012, the Company froze all future benefit accruals under the Company’s defined-benefit pension plan. Effective April 30, 2020, these plans were merged into one plan.

On November 16, 2020 the Company filed an application with the Internal Revenue Service to terminate the American Woodmark Corporation Employee Pension Plan (the “Plan”) with a proposed effective date of December 31, 2020 (the “Plan Termination Date”), in a standard termination and the Company expects to incur approximately $1.6 million to terminate the Plan. In connection with the Plan termination and in addition to the Plan termination costs, the Company may be required to
14


make an additional funding contribution to the Plan in order to ensure the 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.

Net periodic pension benefit cost consisted of the following for the three- and nine-month periods ended January 31, 2021 and 2020: 
 Three Months EndedNine Months Ended
 January 31,January 31,
(in thousands)2021202020212020
Interest cost$1,165 $1,493 $3,496 $4,480 
Expected return on plan assets(2,107)(2,082)(6,322)(6,245)
Recognized net actuarial loss441 423 1,321 1,269 
Net periodic pension benefit$(501)$(166)$(1,505)$(496)
 
The Company did not contribute to its pension plan in the first nine months of fiscal 2021 and does not expect to contribute any funds during the remainder of fiscal 2021. The Company made contributions of $0.5 million to its pension plans in fiscal 2020. 

Note K--Fair Value Measurements
 
The Company utilizes the hierarchy of fair value measurements to classify certain of its assets and liabilities based upon the following definitions:
Level 1- Investments with quoted prices in active markets for identical assets or liabilities. The Company’s cash equivalents are invested in money market funds, mutual funds and certificates of deposit.  The Company’s mutual fund investment assets represent contributions made and invested on behalf of the Company’s named executive officers in a supplementary employee retirement plan.

Level 2- Investments with observable inputs other than Level 1 prices, such as: quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3- Investments with unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no Level 3 assets or liabilities measured on a recurring basis.

The Company's financial instruments include cash and equivalents, marketable securities and other investments; accounts receivable and accounts payable; and short- and long-term debt. The carrying values of cash and equivalents, accounts receivable and payable and short-term debt on the condensed consolidated balance sheets approximate their fair value due to the short maturities of these items. The forward contracts were marked to market and therefore represent fair value. The fair values of these contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The following table summarizes the fair value of assets and liabilities that are recorded in the Company’s consolidated financial statements as of January 31, 2021 and April 30, 2020 at fair value on a recurring basis (in thousands):
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 Fair Value Measurements
 As of January 31, 2021
 Level 1Level 2Level 3
ASSETS:   
Mutual funds$659 $ $ 
Foreign exchange forward contracts 618  
Total assets at fair value$659 $618 $ 
 As of April 30, 2020
 Level 1Level 2Level 3
ASSETS:   
Mutual funds$773 $ $ 
LIABILITIES:
Foreign exchange forward contracts$ $(1,102)$ 

There were no transfers between Level 1, Level 2 or Level 3 for assets measured at fair value on a recurring basis.

Note L--Loans Payable and Long-Term Debt

On December 29, 2017, the Company entered into a credit agreement (as subsequently amended, the "Credit Agreement") with a syndicate of lenders and Wells Fargo Bank, National Association, as administrative agent, providing for a $100 million, 5-year revolving loan facility with a $25 million sub-facility for the issuance of letters of credit (the “Revolving Facility”), a $250 million, 5-year initial term loan facility (the "Initial Term Loan") and a $250 million delayed draw term loan facility (the "Delayed Draw Term Loan" and, together with the Revolving Facility and the Initial Term Loan, the "Credit Facilities"). The Company borrowed the entire $250 million available under each of the Initial Term Loan and the Delayed Draw Term Loan on December 29, 2017 and February 12, 2018, respectively, in connection with its acquisition of RSI Home Products, Inc. (“RSI”) and subsequent refinancing of RSI’s debt. The Company is required to make specified quarterly installments on both the Initial Term Loan and the Delayed Draw Loan. As of January 31, 2021, $82 million was outstanding on each of the Initial Term Loan and the Delayed Draw Loan for a total of $164 million. As of April 30, 2020, $122 million was outstanding on each of the Initial Term Loan and the Delayed Draw Loan for a total of $244 million. The outstanding balance approximates fair value as the Initial Term Loan and Delayed Draw Term Loan have a floating interest rate. There were no amounts outstanding on the Revolving Facility as of January 31, 2021 or April 30, 2020. The Credit Facilities mature on December 29, 2022.

Amounts outstanding under the Credit Facilities bear interest based on a fluctuating rate measured by reference to either, at the Company’s option, a base rate plus an applicable margin or LIBOR plus an applicable margin, with the applicable margin being determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio.” The Company also incurs a quarterly commitment fee on the average daily unused portion of the Revolving Facility during the applicable quarter at a rate per annum also determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio.” In addition, a letter of credit fee will accrue on the face amount of any outstanding letters of credit at a per annum rate equal to the applicable margin on LIBOR loans, payable quarterly in arrears. As of January 31, 2021, the applicable margin with respect to base rate loans and LIBOR loans was 0.50% and 1.50%, respectively, and the commitment fee was 0.175%. As of December 31, 2021, the Company will transition to the Secured Overnight Financial Rate ("SOFR") as required by the Credit Facilities. The Company expects the transition to SOFR to be materially similar to LIBOR.

The Credit Agreement includes certain financial covenants. On September 16, 2020 the “Total Funded Debt to EBITDA Ratio” was amended to a “Total Net Funded Debt to EBITDA Ratio” to include Unrestricted Cash in the aggregate amount not to exceed $100 million. The maximum “Total Net Funded Debt to EBITDA Ratio” can be no more than 3.25 to 1.00 (with an increase to 3.75 to 1.00 for a certain period upon the consummation of a “Qualified Acquisition”). The Company is also required to maintain a “Fixed Charge Coverage Ratio” of no less than 1.25 to 1.00. 

The Credit Agreement includes certain additional covenants, including negative covenants that restrict the ability of the Company and certain of its subsidiaries to incur additional indebtedness, create additional liens on its assets, dispose of its assets or engage in a merger or another similar transaction or engage in transactions with affiliates, subject, in each case, to the
16


various exceptions and conditions described in the Credit Agreement. The negative covenants also restrict the Company’s ability to make certain investments and to make certain restricted payments, including the payment of dividends and repurchase of common stock, in certain limited circumstances. The Company is, however, permitted to make unlimited investments so long as the "Total Net Funded Debt to EBITDA Ratio" is less than or equal to 3.00 to 1.00 after giving effect to any such investment and no default or event of default has occurred and is continuing or would result from any such investment. The Company is also permitted to make (i) unlimited restricted payments so long as the “Total Net Funded Debt to EBITDA Ratio” would be less than or equal to 2.75 to 1.00 after giving effect to any such payment and no default or event of default has occurred and is continuing or would result from any such payment and (ii) up to an aggregate of $50 million in restricted payments not otherwise permitted under the Credit Agreement so long as no default or event of default has occurred and is continuing or would result from any such payment.
As of January 31, 2021, the Company's Total Net Funded Debt to EBITDA Ratio was 1.91 to 1.00 and the Fixed Charge Coverage Ratio was 6.50 to 1.00. As of January 31, 2021, the Company was in compliance with the covenants included in the Credit Agreement.

The Company’s obligations under the Credit Agreement are guaranteed by the Company’s subsidiaries and the obligations of the Company and its subsidiaries are secured by a pledge of substantially all of their respective personal property.

On February 12, 2018, the Company issued $350 million in aggregate principal amount of 4.875% Senior Notes due 2026 (the “Senior Notes”). The Senior Notes mature on March 15, 2026 and interest on the Senior Notes is payable semi-annually in arrears on March 15 and September 15 of each year. The Senior Notes are fully and unconditionally guaranteed by each of the Company’s current and future wholly-owned domestic subsidiaries that guarantee the Company’s obligations under the Credit Agreement. The indenture governing the Senior Notes restricts the ability of the Company and the Company’s “restricted subsidiaries” to, as applicable, (i) incur additional indebtedness or issue certain preferred shares, (ii) create liens, (iii) pay dividends, redeem or repurchase stock or make other distributions or restricted payments, (iv) make certain investments, (v) create restrictions on the ability of the “restricted subsidiaries” to pay dividends to the Company or make other intercompany transfers, (vi) transfer or sell assets, (vii) merge or consolidate with a third party and (viii) enter into certain transactions with affiliates of the Company, subject, in each case, to certain qualifications and exceptions as described in the indenture. As of January 31, 2021, the Company and its restricted subsidiaries were in compliance with all covenants under the indenture governing the Senior Notes.

At January 31, 2021, the book value of the Senior Notes was $350 million and the fair value was $360.5 million, based on Level 1 inputs.

Note M--Income Taxes

The effective income tax rate for the three- and nine-month periods ended January 31, 2021 was 25.6% and 25.9%, respectively, compared with 25.9% and 26.0% in the comparable periods in the prior fiscal year. The effective rate was higher than the 21.0% U.S. statutory rate for all periods presented primarily due to state income taxes.

Note N--Revenue Recognition

The Company disaggregates revenue from contracts with customers into major sales distribution channels as these categories depict the nature, amount, timing and uncertainty of revenues and cash flows that are affected by economic factors. The following table disaggregates our consolidated revenue by major sales distribution channels for the three- and nine-months ended January 31, 2021 and 2020:
Three Months EndedNine Months Ended
January 31,January 31,
(in thousands)2021202020212020
Home center retailers$216,819 $191,544 $613,932 $579,443 
Builders161,113 155,169 496,503 512,513 
Independent dealers and distributors54,022 49,042 160,189 159,180 
Net Sales$431,954 $395,755 $1,270,624 $1,251,136 


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Note O--Concentration of Risks

Financial instruments that potentially subject the Company to concentrations of risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with major financial institutions and such balances may, at times, exceed Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk with respect to cash.

Credit is extended to customers based on an evaluation of each customer's financial condition and generally collateral is not required. The Company's customers operate in the new home construction and home remodeling markets. 
 
The Company maintains an allowance for bad debt based upon management's evaluation and judgment of potential net loss. The allowance is estimated based upon historical experience, the effects of current developments and economic conditions and each customer’s current and anticipated financial condition. Estimates and assumptions are periodically reviewed and updated. Any resulting adjustments to the allowance are reflected in current operating results.

At January 31, 2021, the Company's two largest customers, Customers A and B, represented 32.9% and 21.1% of the Company's gross customer receivables, respectively. At January 31, 2020, Customers A and B represented 30.3% and 24.5% of the Company’s gross customer receivables, respectively.

The following table summarizes the percentage of net sales attributable to the Company's two largest customers for the three- and nine-months ended January 31, 2021 and 2020:
Three Months EndedNine Months Ended
January 31,January 31,
 2021202020212020
Customer A31.8%30.1%30.1%29.2%
Customer B18.4%18.3%18.2%17.2%

Note P--Leases

Operating Leases - ROU assets related to operating leases are presented as “Operating lease right-of-use assets” on the unaudited condensed consolidated balance sheets. Lease liabilities related to operating leases with lease terms greater than twelve months are presented in “Short-term lease liability - operating” and “Long-term lease liability - operating” on the unaudited condensed consolidated balance sheets.

Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Operating lease ROU assets may also include any cumulative prepaid or accrued rent when the lease payments are uneven throughout the lease term. The ROU assets and lease liabilities may also include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The ROU asset includes any lease payments made and lease incentives received prior to the commencement date. The Company has lease arrangements with lease and non-lease components which are accounted for separately. Non-lease components of the lease payments are expensed as incurred and are not included in determining the present value.

Finance Leases - ROU assets related to finance leases are presented in "Property, plant and equipment, net” on the unaudited condensed consolidated balance sheet. Lease liabilities related to finance leases are presented in “Current maturities of long-term debt” and “Long-term debt, less current maturities” on the unaudited condensed consolidated balance sheets.

Finance lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

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The components of lease costs were as follows:
 Nine Months Ended
 January 31,
(in thousands)20212020
Finance lease cost:
Reduction in the carrying value of right-of-use assets$403 $1,922 
Interest on lease liabilities50 157 
Operating lease cost20,252 19,462 

Additional information related to leases was as follows:
 Nine Months Ended
 January 31,
(in thousands)20212020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for finance leases$50 $157 
Operating cash flows for operating leases18,161 16,731 
Financing cash flows for financing leases384 1,883 
Right-of-use assets obtained in exchange for new finance lease liabilities1,531 1,399 
Right-of-use assets obtained in exchange for new operating lease liabilities6,886 29,622 
Weighted average remaining lease term (years)
Weighted average remaining lease term - finance leases3.063.44
Weighted average remaining lease term - operating leases6.896.38
Weighted average discount rate
Weighted average discount rate - finance leases3.00 %3.20 %
Weighted average discount rate - operating leases3.29 %4.26 %

The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on the unaudited condensed consolidated balance sheet as of January 31, 2021:
(in thousands)Operating leasesFinancing leases
Year ending April 30,
2021$6,036 $639 
202221,984 1,966 
202321,009 1,500 
202419,101 1,137 
202516,902 325 
Thereafter57,709 95 
Total lease payments142,741 5,662 
Less imputed interest(15,367)(240)
Total lease liability