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, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2020. 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, 2019 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 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, 2020 and 2019.
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, 2020 and 2019.
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, 2020, the Company held forward contracts maturing from February 2020 to April 2020 to purchase 115.7 million Mexican pesos at exchange rates ranging from 19.74 to 19.91 Mexican pesos to one U.S. dollar. An asset of $0.2 million is recorded in prepaid expenses and other on the condensed consolidated balance sheets.
Note B--New Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("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 to the general principles in Topic 740. 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 February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use ("ROU") asset and lease liability. The standard is effective for annual periods beginning after December 15, 2018. The standard provides for the option to elect a package of practical expedients upon adoption. The Company adopted the standard on May 1, 2019 using the modified retrospective transition approach and elected the package of practical expedients that allows it to forgo reassessment of lease classification for leases that have already commenced. The Company also elected the practical expedients to the new standard without restating comparative prior period financial information and to not recognize ROU assets and liabilities for operating leases with shorter than 12-month terms. On May 1, 2019, the Company recognized operating lease assets and operating lease liabilities of $80.4 million. The new standard did not have a material impact on the Company's results of operations or cash flows, or on its debt covenant calculations. ASU 2016-02 also requires entities to disclose
certain qualitative and quantitative information regarding the amount, timing, and uncertainty of cash flows arising from leases. Such disclosures are included in Note P--Leases.
Note C--Net Earnings Per Share
The following table sets forth the computation of basic and diluted net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
January 31,
|
|
January 31,
|
(in thousands, except per share amounts)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Numerator used in basic and diluted net earnings
|
|
|
|
|
|
|
|
|
per common share:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,804
|
|
|
$
|
18,409
|
|
|
$
|
61,848
|
|
|
$
|
61,664
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic net earnings per common
|
|
|
|
|
|
|
|
|
share - weighted-average shares
|
|
16,922
|
|
|
17,186
|
|
|
16,902
|
|
|
17,425
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units
|
|
53
|
|
|
30
|
|
|
45
|
|
|
42
|
|
Denominator for diluted net earnings per common
|
|
|
|
|
|
|
|
|
share - weighted-average shares and assumed
|
|
|
|
|
|
|
|
|
conversions
|
|
16,975
|
|
|
17,216
|
|
|
16,947
|
|
|
17,467
|
|
Net earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.76
|
|
|
$
|
1.07
|
|
|
$
|
3.66
|
|
|
$
|
3.54
|
|
Diluted
|
|
$
|
0.75
|
|
|
$
|
1.07
|
|
|
$
|
3.65
|
|
|
$
|
3.53
|
|
The Company repurchased a total of 439,081 and 628,714 shares of its common stock during the three- and nine-month periods ended January 31, 2019, respectively. There were no shares repurchased during the three- and nine-month periods ended January 31, 2020. There were no potentially dilutive securities for the three- and nine-month periods ended January 31, 2020, which were excluded from the calculation of net earnings per diluted share. An immaterial amount of potentially dilutive securities for the three- and nine-month periods ended January 31, 2019 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, 2020, 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 61,379 units and the employee and non-employee director service-based RSUs totaled 42,691 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 (or, for non-employee directors, serving on the Board of Directors) 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 the grant.
For the three- and nine-month periods ended January 31, 2020 and 2019, stock-based compensation expense was allocated as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
Nine Months Ended
January 31,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cost of sales and distribution
|
|
$
|
224
|
|
|
$
|
158
|
|
|
$
|
716
|
|
|
$
|
502
|
|
Selling and marketing expenses
|
|
240
|
|
|
64
|
|
|
713
|
|
|
449
|
|
General and administrative expenses
|
|
583
|
|
|
446
|
|
|
1,693
|
|
|
1,339
|
|
Stock-based compensation expense
|
|
$
|
1,047
|
|
|
$
|
668
|
|
|
$
|
3,122
|
|
|
$
|
2,290
|
|
During the nine months ended January 31, 2020, the Company also approved grants of 6,483 cash-settled performance-based restricted stock tracking units ("RSTUs") and 3,482 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 a 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 a 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 $0.1 million for the three-month periods ended January 31, 2020 and 2019, respectively, and $0.4 million and $0.2 million for the nine-month periods ended January 31, 2020 and 2019, respectively. A liability for payment of the RSTUs is included in the condensed consolidated balance sheets in the amount of $0.7 million and $0.7 million as of January 31, 2020 and April 30, 2019, respectively.
Note E--Customer Receivables
The components of customer receivables were:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
April 30,
|
(in thousands)
|
|
2020
|
|
2019
|
Gross customer receivables
|
|
$
|
128,815
|
|
|
$
|
132,145
|
|
Less:
|
|
|
|
|
Allowance for doubtful accounts
|
|
(460
|
)
|
|
(249
|
)
|
Allowance for returns and discounts
|
|
(6,002
|
)
|
|
(5,995
|
)
|
|
|
|
|
|
|
|
Net customer receivables
|
|
$
|
122,353
|
|
|
$
|
125,901
|
|
Note F--Inventories
The components of inventories were:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
April 30,
|
(in thousands)
|
|
2020
|
|
2019
|
Raw materials
|
|
$
|
55,875
|
|
|
$
|
46,054
|
|
Work-in-process
|
|
45,230
|
|
|
43,794
|
|
Finished goods
|
|
37,018
|
|
|
34,873
|
|
|
|
|
|
|
|
|
Total FIFO inventories
|
|
138,123
|
|
|
124,721
|
|
|
|
|
|
|
|
|
Reserve to adjust inventories to LIFO value
|
|
(16,193
|
)
|
|
(16,193
|
)
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
121,930
|
|
|
$
|
108,528
|
|
Of the total inventory of $121.9 million at January 31, 2020, $72.9 million is carried under the FIFO method of accounting and $49.0 million is carried under the LIFO method. Of the total inventory of $108.5 million at April 30, 2019, $58.6 million is carried under the FIFO method and $49.9 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)
|
|
2020
|
|
2019
|
Land
|
|
$
|
4,431
|
|
|
$
|
4,751
|
|
Buildings and improvements
|
|
115,004
|
|
|
114,421
|
|
Buildings and improvements - finance leases
|
|
11,676
|
|
|
11,202
|
|
Machinery and equipment
|
|
308,141
|
|
|
294,993
|
|
Machinery and equipment - finance leases
|
|
30,772
|
|
|
30,574
|
|
Construction in progress
|
|
18,000
|
|
|
7,002
|
|
|
|
488,024
|
|
|
462,943
|
|
Less accumulated amortization and depreciation
|
|
(279,244
|
)
|
|
(254,680
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
208,780
|
|
|
$
|
208,263
|
|
Amortization and depreciation expense on property, plant and equipment amounted to $9.3 million and $9.0 million for the three months ended January 31, 2020 and 2019, respectively, and $27.6 million and $26.8 million for the nine months ended January 31, 2020 and 2019, respectively. Accumulated amortization on finance leases included in the above table amounted to $31.9 million and $30.8 million as of January 31, 2020 and April 30, 2019, respectively.
Note H--Intangibles
The components of customer relationship intangibles were:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
April 30,
|
(in thousands)
|
|
2020
|
|
2019
|
Customer relationship intangibles
|
|
$
|
274,000
|
|
|
$
|
274,000
|
|
Less accumulated amortization
|
|
(95,139
|
)
|
|
(60,889
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
178,861
|
|
|
$
|
213,111
|
|
The components of trademarks were:
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
April 30,
|
(in thousands)
|
|
2020
|
|
2019
|
Trademarks
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Less accumulated amortization
|
|
(6,944
|
)
|
|
(4,445
|
)
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,056
|
|
|
$
|
5,555
|
|
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 each of the three month periods ended January 31, 2020 and 2019 was $12.2 million, and $36.7 million for each of the nine month periods ended January 31, 2020 and 2019, respectively.
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 balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
January 31,
|
(in thousands)
|
|
2020
|
|
2019
|
Beginning balance at May 1
|
|
$
|
4,616
|
|
|
$
|
4,045
|
|
Accrual
|
|
17,132
|
|
|
18,406
|
|
Settlements
|
|
(17,611
|
)
|
|
(18,315
|
)
|
|
|
|
|
|
|
|
Ending balance at January 31
|
|
$
|
4,137
|
|
|
$
|
4,136
|
|
Note J--Pension Benefits
Effective April 30, 2012, the Company froze all future benefit accruals under the Company’s hourly and salary defined-benefit pension plans.
Net periodic pension benefit cost consisted of the following for the three- and nine-month periods ended January 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
January 31,
|
|
January 31,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Interest cost
|
|
$
|
1,493
|
|
|
$
|
1,567
|
|
|
$
|
4,480
|
|
|
$
|
4,702
|
|
Expected return on plan assets
|
|
(2,082
|
)
|
|
(2,127
|
)
|
|
(6,245
|
)
|
|
(6,382
|
)
|
Recognized net actuarial loss
|
|
423
|
|
|
412
|
|
|
1,269
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit
|
|
$
|
(166
|
)
|
|
$
|
(148
|
)
|
|
$
|
(496
|
)
|
|
$
|
(444
|
)
|
The Company contributed $0.5 million to its pension plans in the first nine months of fiscal 2020, which represents discretionary funding, and does not expect to contribute any additional funds during the remainder of fiscal 2020. The Company made contributions of $7.3 million to its pension plans in fiscal 2019.
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, certificates of deposit, 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, 2020 and April 30, 2019 at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
As of January 31, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
ASSETS:
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
808
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign exchange forward contracts
|
|
—
|
|
|
244
|
|
|
—
|
|
Total assets at fair value
|
|
$
|
808
|
|
|
$
|
244
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2019
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
ASSETS:
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
1,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mutual funds
|
|
1,604
|
|
|
—
|
|
|
—
|
|
Total assets at fair value
|
|
$
|
3,104
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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, 2020, $125 million was outstanding on each of the Initial Term Loan and the Delayed Draw Loan for a total of $250 million. As of April 30, 2019, $170 million was outstanding on each of the Initial Term Loan and the Delayed Draw Loan for a total of $340 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, 2020 or April 30, 2019. 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, 2020, the applicable margin with respect to base rate loans and LIBOR loans was 0.50% and 1.50%, respectively, and the commitment fee was 0.18%.
The Credit Agreement includes certain financial covenants, including a maximum “Total Funded Debt to EBITDA Ratio” of 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 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 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 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, 2020, 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, 2020, the Company and its restricted subsidiaries were in compliance with all covenants under the indenture governing the Senior Notes.
At January 31, 2020, the book value of the Senior Notes was $350 million and the fair value was $361.4 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, 2020 was 25.9% and 26.0%, respectively, compared with 23.7% and 24.9% in the comparable periods in the prior fiscal year. The increase in the effective tax rate for the third quarter as compared to the comparable period in the prior fiscal year was primarily due to benefits from credits finalized with the filing of the fiscal 2018 tax return in the prior year. The overall increase in the effective tax rate for the first nine months of fiscal 2020, as compared to the comparable period in the prior year, was primarily due to a decrease in the benefit from stock-based compensation transactions and benefits from credits finalized with the filing of the fiscal 2018 tax return during fiscal 2019.
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, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine months ended
|
|
|
January 31,
|
|
January 31,
|
(in thousands)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Home center retailers
|
|
$
|
191,544
|
|
|
$
|
186,001
|
|
|
$
|
579,443
|
|
|
$
|
587,592
|
|
Builders
|
|
155,169
|
|
|
147,343
|
|
|
512,513
|
|
|
482,023
|
|
Independent dealers and distributors
|
|
49,042
|
|
|
50,736
|
|
|
159,180
|
|
|
168,305
|
|
Net Sales
|
|
$
|
395,755
|
|
|
$
|
384,080
|
|
|
$
|
1,251,136
|
|
|
$
|
1,237,920
|
|
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 on 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 of each customer’s current and anticipated financial condition. Estimates and assumptions are periodically reviewed and updated. Any resulting adjustments to the allowance are reflected in current operating results.
At January 31, 2020, the Company's two largest customers, Customers A and B, represented 30.3% and 24.5% of the Company's gross customer receivables, respectively. At January 31, 2019, Customers A and B represented 26.4% and 24.4% 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, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine months ended
|
|
January 31,
|
|
January 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Customer A
|
30.1%
|
|
29.3%
|
|
29.2%
|
|
29.0%
|
Customer B
|
18.3%
|
|
19.2%
|
|
17.2%
|
|
18.4%
|
Note P--Leases
On May 1, 2019, the Company adopted ASC 842, Leases. Changes to the Company’s accounting policy as a result of adoption are discussed below.
Operating Leases - ROU assets related to operating leases are presented as “Operating lease right-of-use assets” on the unaudited condensed consolidated balance sheet. Lease liabilities related to operating leases that are subject to the ASC 842 measurement requirements such as 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 sheet.
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 sheet.
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.
The components of lease costs were as follows:
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
January 31,
|
(in thousands)
|
|
2020
|
Finance lease cost:
|
|
|
|
Reduction in the carrying value of right-of-use assets
|
|
$
|
1,922
|
|
Interest on lease liabilities
|
|
157
|
|
Operating lease cost
|
|
19,462
|
|
Additional information related to leases was as follows:
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
January 31,
|
(in thousands)
|
|
2020
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows for finance leases
|
|
$
|
157
|
|
Operating cash flows for operating leases
|
|
16,731
|
|
Financing cash flows for financing leases
|
|
1,883
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
1,399
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
29,622
|
|
|
|
|
Weighted average remaining lease term (years)
|
|
|
Weighted average remaining lease term - finance leases
|
|
3.44
|
|
Weighted average remaining lease term - operating leases
|
|
6.38
|
|
|
|
|
Weighted average discount rate
|
|
|
Weighted average discount rate - finance leases
|
|
3.20
|
%
|
Weighted average discount rate - operating leases
|
|
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, 2020:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Operating leases
|
|
Financing leases
|
Year ending April 30,
|
|
|
|
|
|
|
2020
|
|
$
|
6,305
|
|
|
$
|
687
|
|
2021
|
|
23,959
|
|
|
2,316
|
|
2022
|
|
17,911
|
|
|
1,381
|
|
2023
|
|
12,762
|
|
|
921
|
|
2024
|
|
10,735
|
|
|
858
|
|
Thereafter
|
|
36,142
|
|
|
338
|
|
Total lease payments
|
|
107,814
|
|
|
6,501
|
|
Less imputed interest
|
|
(13,680
|
)
|
|
(382
|
)
|
Total lease liability
|
|
$
|
94,134
|
|
|
$
|
6,119
|
|
Current maturities
|
|
(20,837
|
)
|
|
(2,355
|
)
|
Lease liability - long-term
|
|
$
|
73,297
|
|
|
$
|
3,764
|
|
Lease assets
|
|
$
|
90,530
|
|
|
$
|
10,582
|
|
As we have not restated prior-year information for our adoption of ASC Topic 842, the following presents our future minimum lease payments for operating leases and capital leases under ASC Topic 840 on April 30, 2019:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Operating (in thousands)
|
|
Capital (in thousands)
|
2020
|
$
|
17,943
|
|
|
2,456
|
|
2021
|
17,649
|
|
|
1,953
|
|
2022
|
12,435
|
|
|
1,013
|
|
2023
|
10,636
|
|
|
705
|
|
2024
|
9,854
|
|
|
701
|
|
2025 (and thereafter)
|
38,871
|
|
|
166
|
|
|
$
|
107,388
|
|
|
$
|
6,994
|
|
Less amounts representing interest (2% - 6.5%)
|
|
|
(349
|
)
|
Total obligations under capital leases
|
|
|
$
|
6,645
|
|
Note Q--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.
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 January 31, 2020.