10-Q 1 amwd-20221031.htm 10-Q amwd-20221031
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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 October 31, 2022
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 November 21, 2022, 16,621,827 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) 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II.OTHER INFORMATION 
Item 1.
Item 1A.26
Item 6.26

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) 
 October 31,
2022
April 30,
2022
ASSETS
Current assets
Cash and cash equivalents$44,834 $22,325 
Customer receivables, net153,644 156,961 
Inventories252,961 228,259 
Prepaid expenses and other24,872 21,112 
Total current assets476,311 428,657 
Property, plant and equipment, net203,650 213,808 
Operating lease right-of-use assets103,041 108,055 
Customer relationship intangibles, net53,278 76,111 
Goodwill767,612 767,612 
Promotional displays, net10,352 12,565 
Deferred income taxes1,469 1,469 
Other assets35,315 24,219 
TOTAL ASSETS$1,651,028 $1,632,496 
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities  
Accounts payable$85,622 $111,422 
Current maturities of long-term debt2,466 2,264 
Short-term lease liability - operating22,249 21,985 
Accrued compensation and related expenses58,826 44,436 
Accrued marketing expenses20,186 15,881 
Other accrued expenses21,847 20,240 
Total current liabilities211,196 216,228 
Long-term debt, less current maturities486,181 506,732 
Deferred income taxes34,454 38,340 
Long-term lease liability - operating87,735 95,084 
Other long-term liabilities2,283 3,229 
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 October 31, 2022: 16,621,827; at April 30, 2022: 16,570,619
366,679 363,224 
Retained earnings448,288 399,434 
Accumulated other comprehensive income14,212 10,225 
Total shareholders' equity829,179 772,883 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$1,651,028 $1,632,496 
See notes to condensed consolidated financial statements.  
3


AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
 
 Three Months EndedSix Months Ended
 October 31,October 31,
 2022202120222021
Net sales$561,499 $453,163 $1,104,392 $895,744 
Cost of sales and distribution462,765 401,549 918,911 790,784 
Gross profit98,734 51,614 185,481 104,960 
Selling and marketing expenses24,651 21,484 50,417 44,372 
General and administrative expenses32,101 24,623 62,281 48,357 
Restructuring charges, net (3) 310 
Operating income41,982 5,510 72,783 11,921 
Interest expense, net4,422 2,360 8,475 4,533 
Pension settlement, net(6) (245) 
Other (income) expense, net(897)840 (671)868 
Income before income taxes38,463 2,310 65,224 6,520 
Income tax expense9,679 280 16,370 1,509 
Net income$28,784 $2,030 $48,854 $5,011 
Weighted Average Shares Outstanding    
Basic16,614,677 16,567,391 16,599,136 16,614,112 
Diluted16,657,454 16,605,911 16,638,741 16,662,791 
Net earnings per share    
Basic$1.73 $0.12 $2.94 $0.30 
Diluted$1.73 $0.12 $2.94 $0.30 
See notes to unaudited condensed consolidated financial statements.

4


AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
 Three Months EndedSix Months Ended
 October 31,October 31,
 2022202120222021
Net income$28,784 $2,030 $48,854 $5,011 
Other comprehensive income, net of tax:    
Change in pension benefits, net of deferred taxes of $125 and $251, for the three and six months ended October 31, 2021, respectively
 373  746 
Change in Cash flow hedges (swap), net of deferred taxes of $1,783 and $641, and $1,350 and $641 for the three and six months ended October 31, 2022 and 2021, respectively
5,265 2,465 3,987 1,892 
Total Comprehensive Income$34,049 $4,868 $52,841 $7,649 
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)SHARESAMOUNTEARNINGS(LOSS)/INCOMEEQUITY
Balance, April 30, 2021 16,801,101 $362,524 $448,282 $(54,568)$756,238 
Net income— — 2,981 — 2,981 
Other comprehensive income, 
net of tax— — — (200)(200)
Stock-based compensation— 1,177 — — 1,177 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes20,243 (1,033)— — (1,033)
Stock repurchases(299,781)(5,874)(19,126)— (25,000)
Employee benefit plan 
contributions39,491 2,938 — — 2,938 
Balance, July 31, 202116,561,054 $359,732 $432,137 $(54,768)$737,101 
Net income— — 2,030 — 2,030 
Other comprehensive income, 
net of tax— — — 2,838 2,838 
Stock-based compensation— 1,216 — — 1,216 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes8,531 (46)— — (46)
Balance, October 31, 202116,569,585 $360,902 $434,167 $(51,930)$743,139 
6


    ACCUMULATED
   OTHERTOTAL
 COMMON STOCKRETAINEDCOMPREHENSIVESHAREHOLDERS'
(in thousands, except share data)SHARESAMOUNTEARNINGS(LOSS)/INCOMEEQUITY
Balance, April 30, 202216,570,619 $363,224 $399,434 $10,225 $772,883 
Net income— — 20,070 — 20,070 
Other comprehensive income,  
net of tax— — — (1,278)(1,278)
Stock-based compensation— 1,635 — — 1,635 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes25,908 (772)— — (772)
Balance, July 31, 202216,596,527 $364,087 $419,504 $8,947 $792,538 
Net income— — 28,784 — 28,784 
Other comprehensive income,  
net of tax— — — 5,265 5,265 
Stock-based compensation— 1,754 — — 1,754 
Exercise of stock-based 
compensation awards, net of amounts
withheld for taxes8,200  — —  
Employee benefit plan
contributions17,100 838 — — 838 
Balance, October 31, 202216,621,827 $366,679 $448,288 $14,212 $829,179 
See notes to unaudited condensed consolidated financial statements.


7


AMERICAN WOODMARK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 Six Months Ended
 October 31,
 20222021
OPERATING ACTIVITIES  
Net income$48,854 $5,011 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization47,598 48,780 
Net loss on disposal of property, plant and equipment214 151 
Reduction in the carrying amount of operating lease right-of-use assets13,455 13,983 
Amortization of debt issuance costs432 434 
Unrealized (gain) loss on foreign exchange forward contracts(580)170 
Stock-based compensation expense3,389 2,393 
Deferred income taxes(5,237)(3,994)
Pension settlement, net(245) 
Pension contributions and related (income) expense 609 
Contributions of employer stock to employee benefit plan838 2,938 
Other non-cash items3,552 169 
Changes in operating assets and liabilities:
Customer receivables1,078 (2,829)
Income taxes receivable(1,258)(5,750)
Inventories(27,747)(33,198)
Prepaid expenses and other assets(9,211)(6,206)
Accounts payable(26,048)(5,214)
Accrued compensation and related expenses13,996 (13,838)
Operating lease liabilities(13,490)(12,798)
Marketing and other accrued expenses5,836 (987)
Net cash provided (used) by operating activities55,426 (10,176)
INVESTING ACTIVITIES  
Payments to acquire property, plant and equipment(9,535)(22,109)
Proceeds from sales of property, plant and equipment21 5 
Investment in promotional displays(1,452)(4,994)
Net cash used by investing activities(10,966)(27,098)
FINANCING ACTIVITIES  
Payments of long-term debt(21,178)(39,705)
Proceeds from long-term debt 20,000 
Repurchase of common stock (25,000)
Withholding of employee taxes related to stock-based compensation(773)(1,079)
Debt issuance cost (6)
Net cash used by financing activities(21,951)(45,790)
Net increase (decrease) in cash and cash equivalents22,509 (83,064)
8


 Six Months Ended
 October 31,
 20222021
Cash and cash equivalents, beginning of period22,325 91,071 
Cash and cash equivalents, end of period$44,834 $8,007 
Supplemental cash flow information:  
     Non-cash investing and financing activities:
          Property, plant and equipment included in accounts payable at period end$247 $701 
    Cash paid during the period for:
         Interest$8,508 $4,324 
      Income taxes$13,362 $11,405 
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 six-month period ended October 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2023 ("fiscal 2023"). 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, 2022 ("fiscal 2022") filed with the U.S. Securities and Exchange Commission ("SEC").

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 it is more likely than not 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 six-month periods ended October 31, 2022 and 2021.

Intangible assets consist of customer relationship intangibles. The Company amortizes the cost of intangible assets over their estimated useful lives, six years, unless such lives are deemed indefinite. There were no impairment charges related to intangible assets for the three- and six-month periods ended October 31, 2022 and 2021.

Derivative Financial Instruments: The Company uses derivatives as part of the normal business operations to manage its exposure to fluctuations in interest rates associated with variable interest rate debt and foreign exchange rates. The Company has established policies and procedures that govern the risk management of these exposures. The primary objective in managing these exposures is to add stability to interest expense, manage the Company's exposure to interest rate movements, and manage the risk from adverse fluctuations in foreign exchange rates.

The Company uses interest rate swap contracts to manage interest rate exposures. The Company records derivatives in the condensed consolidated balance sheets at fair value. Changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income (loss), and subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. If a derivative is deemed to be ineffective, the change in fair value of the derivative is recognized directly in earnings.

The Company also manages 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) expense, net in the condensed consolidated statements of income.

Reclassifications: Certain reclassifications have been made to prior period balances to conform to the current year presentation.

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 the London Interbank Offered Rate ("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
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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 the Company's 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 EndedSix Months Ended
 October 31,October 31,
(in thousands, except per share amounts)2022202120222021
Numerator used in basic and diluted net earnings    
per common share:    
Net income$28,784 $2,030 $48,854 $5,011 
Denominator:    
Denominator for basic net earnings per common    
share - weighted-average shares16,615 16,567 16,599 16,614 
Effect of dilutive securities:    
Stock options and restricted stock units42 39 40 49 
Denominator for diluted net earnings per common    
share - weighted-average shares and assumed    
conversions16,657 16,606 16,639 16,663 
Net earnings per share    
Basic$1.73 $0.12 $2.94 $0.30 
Diluted$1.73 $0.12 $2.94 $0.30 

There were no potentially dilutive securities for the three- and six-month periods ended October 31, 2022 and 2021, 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 three-months ended October 31, 2022, the Board of Directors of the Company approved grants of 18,320 service-based restricted stock units ("RSUs") to non-employee directors. These service-based RSUs (i) vest daily through the end of the two-year vesting period as long as the recipient continuously remains a member of the Board and (ii) entitle the recipient to receive one share of the Company's common stock per unit vested. During the six-months ended October 31, 2022, the Board of Directors of the Company approved grants of service-based RSUs and performance-based RSUs to key employees. The performance-based RSUs totaled 119,772 units and the service-based RSUs totaled 64,528 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.

For the three- and six-month periods ended October 31, 2022 and 2021, stock-based compensation expense was allocated as follows: 
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Three Months EndedSix Months Ended
 October 31,October 31,
(in thousands)2022202120222021
Cost of sales and distribution$498 $326 $936 $675 
Selling and marketing expenses572 343 1,070 662 
General and administrative expenses684 547 1,383 1,056 
Stock-based compensation expense$1,754 $1,216 $3,389 $2,393 
 
During the six months ended October 31, 2022, the Company also approved grants of 11,945 cash-settled performance-based restricted stock tracking units ("RSTUs") and 6,490 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. 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 expense recognized for the six-month periods ended October 31, 2022 and 2021, and the liability as of October 31, 2022 and April 30, 2022, related to RSTUs is not significant.

Note E--Customer Receivables
 
The components of customer receivables were: 
 October 31,April 30,
(in thousands)20222022
Gross customer receivables$167,472 $168,699 
Less:
Allowance for doubtful accounts(310)(226)
Allowance for returns and discounts(13,518)(11,512)
Net customer receivables$153,644 $156,961 

Note F--Inventories
 
The components of inventories were: 
 October 31,April 30,
(in thousands)20222022
Raw materials$112,215 $90,451 
Work-in-process57,928 59,180 
Finished goods82,818 78,628 
Total inventories$252,961 $228,259 



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Note G--Property, Plant and Equipment

The components of property, plant and equipment were:
 October 31,April 30,
(in thousands)20222022
Land$4,431 $4,431 
Buildings and improvements120,037 119,066 
Buildings and improvements - finance leases11,164 11,164 
Machinery and equipment331,523 324,417 
Machinery and equipment - finance leases30,546 31,341 
Software27,817 28,115 
Construction in progress22,833 22,794 
548,351 541,328 
Less accumulated amortization and depreciation(344,701)(327,520)
Total$203,650 $213,808 

Amortization and depreciation expense on property, plant and equipment amounted to $9.7 million and $9.4 million for the three months ended October 31, 2022 and 2021, respectively, and $19.4 million and $19.1 million for the six months ended October 31, 2022 and 2021, respectively. Accumulated amortization on finance leases included in the above table amounted to $32.5 million and $32.8 million as of October 31, 2022 and April 30, 2022, respectively.

Note H--Intangibles

The components of customer relationship intangibles were:
 October 31,April 30,
(in thousands)20222022
Customer relationship intangibles$274,000 $274,000 
Less accumulated amortization(220,722)(197,889)
Total$53,278 $76,111 

Customer relationship intangibles are amortized over the estimated useful lives on a straight-line basis over six years. Amortization expense for the three month periods ended October 31, 2022 and 2021 was $11.4 million and $11.4 million, respectively, and $22.8 million and $22.8 million, respectively, for each of the six month periods ended October 31, 2022 and 2021.

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: 
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 Six Months Ended
 October 31,
(in thousands)20222021
Beginning balance at May 1$6,878 $5,249 
Accrual19,022 9,892 
Settlements(17,360)(9,198)
Ending balance at October 31$8,540 $5,943 

Note J--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 former 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; interest rate swap and foreign exchange forward contracts; 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 interest rate swap and foreign exchange 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 October 31, 2022 and April 30, 2022 at fair value on a recurring basis (in thousands):
 Fair Value Measurements
 As of October 31, 2022
 Level 1Level 2Level 3
ASSETS:   
Mutual funds$236 $ $ 
Interest rate swap contracts 19,025  
Foreign exchange forward contracts 580  
Total assets at fair value$236 $19,605 $ 
 As of April 30, 2022
 Level 1Level 2Level 3
ASSETS:   
Mutual funds$404 $ $ 
Interest rate swap contracts 13,687  
Total assets at fair value$404 $13,687 $ 

There were no transfers between Level 1, Level 2, or Level 3 for assets measured at fair value on a recurring basis.
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Note K--Loans Payable and Long-Term Debt

On December 29, 2017, the Company entered into a credit agreement (the "Prior Credit Agreement") with a syndicate of lenders and Wells Fargo Bank, National Association, as administrative agent. The Prior Credit Agreement provided for a $100 million revolving loan facility with a $25 million sub-facility for the issuance of letters of credit, a $250 million initial term loan facility, and a $250 million delayed draw term loan facility. The Company borrowed the entire $250 million under the initial term loan facility, the entire $250 million under the delayed draw term loan facility, and approximately $50 million under the revolving loan facility in connection with its acquisition of RSI Home Products, Inc. ("RSI") and the refinancing of certain senior notes assumed from RSI. The facilities under the Prior Credit Agreement were scheduled to mature on December 29, 2022.

On April 22, 2021, the Company amended and restated the Prior Credit Agreement. The amended and restated credit agreement (the "A&R Credit Agreement") provides for a $500 million revolving loan facility with a $50 million sub-facility for the issuance of letters of credit (the "Revolving Facility") and a $250 million term loan facility (the "Term Loan Facility"). Also on April 22, 2021, the Company borrowed the entire $250 million under the Term Loan Facility and approximately $264 million under the Revolving Facility to fund, in part, the repayment in full of the amounts then outstanding under the Prior Credit Agreement and the complete redemption of its 4.875% Senior Notes due 2026. The Company is required to repay the Term Loan Facility in specified quarterly installments. The Revolving Facility and Term Loan Facility mature on April 22, 2026.

As of October 31, 2022 and April 30, 2022, $231.3 million and $237.5 million, respectively, was outstanding on the Term Loan Facility. As of October 31, 2022 and April 30, 2022, $249.3 million and $263.0 million, respectively, was outstanding under the Revolving Facility. Outstanding letters of credit under the Revolving Facility were $11.4 million as of October 31, 2022, leaving approximately $239.4 million in available capacity under the Revolving Facility as of October 31, 2022. The outstanding balances noted above approximate fair value as the facilities have a floating interest rate.

Amounts outstanding under the Term Loan Facility and the Revolving Facility 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 "Secured Net Leverage 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 "Secured Net Leverage Ratio." In addition, a letter of credit fee accrues 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 October 31, 2022, the applicable margin with respect to base rate loans and LIBOR loans was 0.50% and 1.50%, respectively, and the commitment fee was 0.15%. The A&R Credit Agreement includes provisions providing for the transition from LIBOR to a replacement benchmark upon the occurrence of certain events. The Company does not currently expect any such transition to materially impact its financing costs.

The A&R Credit Agreement includes certain financial covenants that require the Company to maintain (i) a "Consolidated Interest Coverage Ratio" of no less than 2.00 to 1.00 and (ii) a "Total Net Leverage Ratio" of no greater than 4.00 to 1.00, subject, in each case, to certain limited exceptions.

The A&R Credit Agreement includes certain additional covenants, including negative covenants that restrict the ability of the Company and certain of its subsidiaries to incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of its assets, or engage in a merger or other similar transaction, or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the A&R Credit Agreement. The negative covenants further restrict the ability of the Company and certain of its subsidiaries to make certain restricted payments, including, in the case of the Company, the payment of dividends and the repurchase of common stock, in certain limited circumstances.

As of October 31, 2022, the Company was in compliance with all covenants included in the A&R Credit Agreement.

The Company's obligations under the A&R Credit Agreement are guaranteed by the Company's domestic subsidiaries, and the obligations of the Company and its domestic subsidiaries under the A&R Credit Agreement and their guarantees, respectively, are secured by a pledge of substantially all of their respective personal property.






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Note L--Derivative Financial Instruments

Interest Rate Swap Contracts

The Company enters into interest rate swap contracts to manage variability in the amount of known or expected cash payments related to portions of its variable rate debt. On May 28, 2021, the Company entered into four interest rate swaps with an aggregate notional amount of $200 million to hedge part of the variable rate interest payments under the Term Loan Facility. The interest rate swaps became effective on May 28, 2021 and will terminate on May 30, 2025. The interest rate swaps economically convert a portion of the variable rate debt to fixed rate debt. The Company receives floating interest payments monthly based on one-month LIBOR and pays a fixed rate of 0.5980% to the counterparty.

The interest rate swaps are designated as cash flow hedges. Changes in fair value are recorded to other comprehensive income. The risk management objective in using interest rate swaps is to add stability to interest expense and to manage the Company's exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the contract agreements without exchange of the underlying notional amount. Realized gains or losses in connection with required interest payments on interest rate swaps are recorded in earnings, as a component of interest expense, net to offset variability in interest expense associated with the underlying debt's cash flows.

For the three- and six-month periods ended October 31, 2022, unrealized gains (losses), net of deferred taxes, of $6.1 million and $5.0 million, respectively, were recorded in other comprehensive income, and $1.1 million and $1.4 million, respectively, of realized gains (losses) were reclassified out of accumulated other comprehensive income (loss) to interest expense, net due to interest received from and payments made to the swap counterparties. For the three- and six-month periods ended October 31, 2021, unrealized gains (losses), net of deferred taxes, of $2.5 million and $1.9 million, respectively, were recorded in other comprehensive income, and $0.3 million and $0.4 million, respectively, of realized gains (losses) were reclassified out of accumulated other comprehensive income (loss) to interest expense, net due to interest received from and payments made to the swap counterparties. As of October 31, 2022, the Company anticipates reclassifying approximately $8.4 million of net hedging gains from accumulated other comprehensive income into earnings during the next 12 months to offset the variability of the hedged items during this period.

Foreign Exchange Forward Contracts

At October 31, 2022, the Company held forward contracts maturing from November 2022 to April 2023 to purchase 422.4 million Mexican pesos at exchange rates ranging from 21.11 to 21.74 Mexican pesos to one U.S. dollar. An immaterial asset is recorded in prepaid expense and other on the condensed consolidated balance sheet.

Note M--Income Taxes

The effective income tax rates for the three- and six-month periods ended October 31, 2022 were 25.2% and 25.1%, respectively, compared with 12.1% and 23.1% in the comparable periods in the prior fiscal year. The effective rates were higher than the 21.0% U.S. statutory rate for the three- and six-month periods ended October 31, 2022 primarily due to state income taxes. The effective rate for the periods ended October 31, 2022 was higher than the comparable periods in the prior fiscal year primarily due to a favorable uncertain tax position reversal booked in the prior periods.

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 six months ended October 31, 2022 and 2021:
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Three Months EndedSix Months Ended
October 31,October 31,
(in thousands)2022202120222021
Home center retailers$237,433 $215,342 $478,750 $424,666 
Builders244,186 183,200 470,962 361,438 
Independent dealers and distributors79,880 54,621 154,680 109,640 
Net Sales$561,499 $453,163 $1,104,392 $895,744 

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 expected credit losses 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.

As of October 31, 2022, the Company's two largest customers, Customers A and B, represented 31.7% and 17.5% of the Company's gross customer receivables, respectively. As of October 31, 2021, Customers A and B represented 31.2% and 19.6% 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 six months ended October 31, 2022 and 2021:
Three Months EndedSix Months Ended
October 31,October 31,
 2022202120222021
Customer A28.9%31.7%29.6%31.8%
Customer B13.4%15.8%13.8%15.6%

Note P--Other Information

The Company is involved in suits and claims in the normal course of business, including without limitation product liability and general liability claims, and claims pending before the Equal Employment Opportunity Commission. On at least a quarterly basis, the Company consults with its legal counsel to ascertain the reasonable likelihood that such claims may result in a loss. As required by FASB Accounting Standards Codification Topic 450, "Contingencies," the Company categorizes the various suits and claims into three categories according to their likelihood for resulting in potential loss: those that are probable, those that are reasonably possible, and those that are deemed to be remote. Where losses are deemed to be probable and estimable, accruals are made. Where losses are deemed to be reasonably possible, a range of loss estimates is determined and considered for disclosure. In determining these loss range estimates, the Company considers known values of similar claims and consults with outside counsel.

Except as described below, the Company believes that the aggregate range of loss stemming from the various suits and asserted and unasserted claims that were deemed to be either probable or reasonably possible was not material as of October 31, 2022.

Antidumping and Countervailing Duties Investigation

In February 2020, a conglomeration of domestic manufacturers filed a scope and circumvention petition seeking the imposition of antidumping (“AD”) and countervailing duties (“CVD”) with the United States Department of Commerce (“DOC”) and the United States International Trade Commission (“ITC”) against imports of hardwood plywood assembled in Vietnam using
17


cores sourced from China. In July 2022, the DOC issued a Preliminary Scope Determination and Affirmative Preliminary Determination of Circumvention of the Antidumping and Countervailing Duty Orders (“Preliminary Determination”). Included in the Determination is a list of Vietnamese suppliers not eligible for certification.

AD and CVD cash deposits of 206% are required for imports from the Vietnamese suppliers not eligible for certification. Many of the Vietnamese suppliers have appealed their inclusion on the ineligible for certification list. Because two of the Company’s primary Vietnamese plywood vendors are included on the ineligible for certification list, the Company has determined that it is reasonably possible that it may experience a loss due to these matters and estimates that the maximum total potential loss for prior and future purchase to be approximately $8.0 million. During the second quarter of fiscal 2023, the Company remitted deposits of $3.8 million pursuant to the Preliminary Determination. The deposits remitted are included in other assets on the Company’s condensed consolidated balance sheet. Based on the evidence provided from the Vietnamese suppliers, the specific characteristics of the product imported and other relevant matters, the Company intends to vigorously appeal any determination that it is subject to these duties and believes that any deposits made will ultimately be refunded upon settlement of the appeals.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes, both of which are included in Part I, Item 1 of this report. The Company's critical accounting policies are included in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2022.

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

the loss of or a reduction in business from one or more of our key customers;
negative developments in the macro-economic factors that impact our performance such as the U.S. housing market, general economy, unemployment rates, interest 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 obtain raw materials in a timely manner or fluctuations in raw material, transportation, and energy costs, including due to inflation;
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;
an inability to develop new products or respond to changing consumer preferences and purchasing practices;
increased buying power of large customers and the impact on our ability to maintain or raise prices;
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;
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;
risks associated with the implementation of our growth, digital transformation, and platform design strategies;
risks related to sourcing and selling products internationally and doing business globally, including the imposition of tariffs or duties on those products, and increased transportation costs and delays;
unexpected costs resulting from a failure to maintain acceptable quality standards;
changes in tax laws or the interpretations of existing tax laws;
the impact of COVID-19 on our business, the global and U.S. economy, and our employees, customers, suppliers, and logistics system;
18


the occurrence of significant natural disasters, including earthquakes, fires, floods, hurricanes, or tropical storms;
the unavailability of adequate capital for our business to grow and compete; and
limitations on operating our business as a result of covenant restrictions under our indebtedness, and our ability to pay amounts due under our credit facilities and our other indebtedness.

Additional information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained in this report, including elsewhere in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and also in the Company's most recent Annual Report on Form 10-K for the fiscal year ended April 30, 2022, filed with the SEC, including under Item 1A, "Risk Factors," Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," 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 in this report speaks only as of the date of this 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. As of October 31, 2022, the Company operated 17 manufacturing facilities in the United States and Mexico and eight primary service centers and one distribution center located throughout the United States.

The three-month period ended October 31, 2022 was the Company's second quarter of its fiscal year that ends on April 30, 2023 ("fiscal 2023").

Financial Overview

The Company's remodeling-based business was impacted by the following trends during the second quarter of fiscal 2023:

The median price per existing home sold rose during the second calendar quarter of 2022 compared to the same period one year ago by 8.7% according to data provided by the National Association of Realtors, and existing home sales decreased 21.4% during the second calendar quarter of 2022 compared to the same period in the prior year;
The unemployment rate decreased to 3.7% as of October 2022 compared to 4.6% as of October 2021 according to data provided by the U.S. Department of Labor; additionally, the unemployment rate increased slightly from 3.6% in April 2022;
Mortgage interest rates increased with a thirty-year fixed mortgage rate of approximately 7.1% in October 2022, an increase of approximately 390 basis points compared to the same period in the prior year, according to Freddie Mac;
Consumer sentiment as tracked by Thomson Reuters/University of Michigan decreased from 71.7 in October 2021 to 59.9 in October 2022; and
The inflation rate as of October 2022 was 7.7%, compared to 6.2% in October 2021 and 8.3% in April 2022 according to data provided by the U.S. Department of Labor.

The Company believes there is no single indicator that directly correlates with cabinet remodeling market activity. For this reason, the Company considers other factors in addition to those discussed above as indicators of overall market activity including credit availability, home owner equity, and housing affordability.
 
The Company's total net sales increased 23.9% during the second quarter and 23.3% during the first half of fiscal 2023 compared to the same prior-year period.

The Company's remodeling sales, which consist of our independent dealer and distributor channel sales and home center retail sales, increased 17.5% during the second quarter and 18.6% during the first half of fiscal 2023 compared to the same prior-year periods. Our independent dealer and distributor channel increased by 46.2% during the second quarter and 41.1% during the first half of fiscal 2023 compared to the comparable prior-year periods. Our home center channel increased by 10.3% during the second quarter and 12.7% during the first half of fiscal 2023 compared to the comparable prior-year periods.

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New construction sales increased 33.3% in the second quarter and 30.3% during the first half of fiscal 2023, compared to the same periods of fiscal 2022. The Company believes that fluctuations in single-family housing starts are the best indicator of new construction cabinet activity. Assuming a sixty to ninety day lag between housing starts and the installation of cabinetry, single-family housing starts decreased 15.8% during the second quarter over the comparable prior year period, according to the U.S. Department of Commerce.  In comparison, housing completions increased 7.0% during the second quarter of fiscal 2023 over the comparable prior year period, according to U.S. Department of Commerce. The Company believes we are continuing to see a temporary shift to extend the lag from 90 days to 120 days or longer.

The Company earned net income of $28.8 million for the second quarter of fiscal 2023, compared with $2.0 million in the same period of the prior year, and earned net income of $48.9 million for the first six months of fiscal 2023, compared with $5.0 million in the same period of the prior year.

Results of Operations
 Three Months EndedSix Months Ended
 October 31,October 31,
(in thousands)20222021Percent Change20222021Percent Change
Net sales$561,499 $453,163 23.9 %$1,104,392 $895,744 23.3 %
Gross profit$98,734 $51,614 91.3 %$185,481 $104,960 76.7 %
Selling and marketing expenses$24,651 $21,484 14.7 %$50,417 $44,372 13.6 %
General and administrative expenses$32,101 $24,623 30.4 %$62,281 $48,357 28.8 %
 
Net Sales. Net sales were $561.5 million for the second quarter of fiscal 2023, an increase of 23.9% compared with the second quarter of fiscal 2022. For the first half of fiscal 2023, net sales were $1,104.4 million, reflecting a 23.3% increase compared to the same period of fiscal 2022. The Company experienced growth in all sales channels during the second quarter and first half of fiscal 2023 primarily due to the impact of price increases.

Gross Profit. Gross profit margin for the second quarter of fiscal 2023 was 17.6% compared with 11.4% for the same period of fiscal 2022. Gross profit margin for the first half of fiscal 2023 was 16.8% compared with 11.7% for the same period of fiscal 2022. Gross profit margin in the second quarter and first six months of the current fiscal year was positively impacted by increased net sales and productivity, which were partially offset by higher material and logistics costs which are starting to stabilize.

Selling and Marketing Expenses. Selling and marketing expenses were 4.4% of net sales in the second quarter of fiscal 2023, compared with 4.7% for the same period of fiscal 2022. Selling and marketing expenses were 4.6% of net sales in the first half of fiscal 2023, compared with 5.0% for the same period of fiscal 2022.

General and Administrative Expenses. General and administrative expenses were 5.7% of net sales in the second quarter of fiscal 2023, compared with 5.4% of net sales in the second quarter of fiscal 2022. General and administrative expenses were 5.6% of net sales in the first half of fiscal 2023, compared with 5.4% of net sales in the second quarter of fiscal 2022. The increase in general and administrative expenses as a percentage of net sales during the second quarter and first half of fiscal 2023 was driven by higher employee incentive costs, partially offset by leverage created by higher sales.

Effective Income Tax Rates. The effective income tax rates for the three- and six-month periods ended October 31, 2022 was 25.2% and 25.1%, respectively, compared with 12.1% and 23.1% in the comparable periods in the prior fiscal year. The effective rates were higher than the 21.0% U.S. statutory rate for the three- and six-month periods ended October 31, 2022 primarily due to state income taxes. The effective rate for the periods ended October 31, 2022 was higher than the comparable periods in the prior fiscal year primarily due to a favorable uncertain tax position reversal booked in the prior periods.

Non-GAAP Financial Measures. We have reported our financial results in accordance with U.S. generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using 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.
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Management believes that 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 EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance.

We define Adjusted EBITDA as net income adjusted to exclude (1) income tax expense, (2) interest expense, net, (3) depreciation and amortization expense, (4) amortization of customer relationship intangibles, (5) expenses related to the acquisition of RSI Home Products, Inc. ("RSI acquisition") and the subsequent restructuring charges that the Company incurred related to the acquisition, (6) non-recurring restructuring charges, (7) stock-based compensation expense, (8) gain/loss on asset disposals, (9) change in fair value of foreign exchange forward contracts, and (10) pension settlement charges. 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 RSI acquisition, (2) non-recurring restructuring charges, (3) the amortization of customer relationship intangibles, (4) pension settlement charges, and (5) 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.
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Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin
Three Months EndedSix Months Ended
October 31,October 31,
(in thousands)2022202120222021
Net income (GAAP)$28,784 $2,030 $48,854 $5,011 
Add back:
Income tax expense9,679 280 16,370 1,509 
Interest expense, net4,422 2,360 8,475 4,533 
Depreciation and amortization expense12,334 12,921 24,764 25,946 
Amortization of customer relationship intangibles11,417 11,417 22,834 22,834 
EBITDA (Non-GAAP)$66,636 $29,008 121,297 59,833 
Add back:
Acquisition and restructuring related expenses (1)20 20 40 40 
Non-recurring restructuring charges (2)— (3)— 310 
Pension settlement, net(6)— (245)— 
Change in fair value of foreign exchange forward contracts (3)(818)520 (580)170 
Stock-based compensation expense1,754 1,216 3,389 2,393 
Loss on asset disposal37 36 214 151 
Adjusted EBITDA (Non-GAAP)$67,623 $30,797 124,115 62,897 
Net Sales$561,499 $453,163 $1,104,392 $895,744 
Net income margin (GAAP)5.1 %0.4 %4.4 %0.6 %
Adjusted EBITDA margin (Non-GAAP)12.0 %6.8 %11.2 %7.0 %
(1) Acquisition and restructuring related expenses are comprised of expenses related to the RSI acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition.
(2) Non-recurring restructuring charges are comprised of expenses incurred related to the permanent layoffs due to COVID-19 and the closure of the manufacturing plant in Humboldt, Tennessee.
(3) In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The changes in the fair value of the forward contracts are recorded in other (income) expense, net in the operating results.

A reconciliation of Adjusted EBITDA and Adjusted EBITDA margin as projected for fiscal 2023 is not provided because we do not forecast net income (loss) as we cannot, without unreasonable effort, estimate or predict with certainty various components of net income (loss).

Adjusted EBITDA. Adjusted EBITDA for the second quarter of fiscal 2023 was $67.6 million or 12.0% of net sales compared to $30.8 million or 6.8% of net sales for the same quarter of the prior fiscal year. Adjusted EBITDA for the first half of fiscal 2023 was $124.1 million or 11.2% of net sales compared to $62.9 million or 7.0% of net sales for the same quarter of the prior fiscal year. The increase in Adjusted EBITDA for the second quarter and first half of fiscal 2023 is primarily due to increased net income due to higher net sales driven by pricing actions and increased efficiencies.

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Reconciliation of Net Income to Adjusted Net Income
Three Months EndedSix Months Ended
October 31,October 31,
(in thousands, except share data)2022202120222021
Net income (GAAP)$28,784 $2,030 $48,854 $5,011 
Add back:
Acquisition and restructuring related expenses20 $20 40 40 
Non-recurring restructuring charges— $(3)— 310 
Pension settlement, net(6)$— (245)— 
Amortization of customer relationship intangibles11,417 $11,417 22,834 22,834 
Tax benefit of add backs(2,961)$(3,100)(5,861)(6,167)
Adjusted net income (Non-GAAP)$37,254 $10,364