American Woodmark Corp (AMWD) 2012 Q4 法說會逐字稿

Good day, and welcome to the American Woodmark Corporation Fourth Quarter Conference Call. Today's call is being recorded. The Company has asked us to read the following Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the Company involve material risks and uncertainties, and are subject to change based on factors that may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements.

Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission, and the Annual Report to shareholders. The Company does not undertake to publicly update or revise its future -- excuse me, forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

At this time, I would like to turn the call over to Glenn Eanes, Vice President and Treasurer.

Good morning, ladies and gentlemen, and welcome to this American Woodmark conference call to review the results of our fourth fiscal quarter and full-year results for fiscal year ended April 30, 2012. Thank you for taking time to participate.

Participating on the call today from American Woodmark will be Kent Guichard, Chairman and Chief Executive Officer, and Jon Wolk, Chief Financial Officer. Jon will begin with a review of the quarter and the year, concluding with an outlook on the future. After Jon's comments, Kent and Jon will be happy to answer your questions. Jon?

Thank you, Glenn. This morning, we released the results of our fourth quarter of fiscal-year 2012 that ended on April 30, 2012. Our earnings release contained the following highlights. Net sales for the fourth quarter were $136.2 million, representing a 10% increase over the prior year's fourth quarter. Net loss, excluding restructuring charges, was $2.3 million, or $0.16 per diluted share, including the impact of a write-down of slow-moving inventory related to the re-layout of the Company's manufacturing plants of $0.7 million after tax. Excluding this item and the restructuring charges, the net loss was $1.6 million, or $0.11 per diluted share.

The prior year's fourth quarter net loss of $3.4 million, or $0.24 per diluted share, included the impact of two items. An adverse tax basis adjustment of $1.4 million, and a net-of-tax gain of $0.6 million from the sale of a previously closed manufacturing plant. Excluding these two items, the prior year's fourth quarter net loss was $2.6 million, or $0.18 per diluted share. Exclusive of unusual adjustments and restructuring charges, the net loss improved by approximately $1 million, or 39%, from prior-year levels.

For the entire fiscal year ended April 30, 2012, net sales were $515.8 million, up 14% over prior year. Net loss excluding restructuring charges was $10.8 million, or $0.76 per diluted share, compared with the net loss of $20 million, or $1.40 per diluted share in the prior year. Excluding the items I just described, net loss excluding restructuring charges and unusual items improved from $19.2 million in the prior year to $10.1 million in fiscal-year 2012.

Last December, we announced several restructuring items to reduce the Company's manufacturing capacity and cost structure. These items included permanently closing two manufacturing plants, placing a previously closed plant up for sale, and realigning the retirement program. The two plants ceased operations in April and May of 2012, respectively, and the retirement plans were modified as of April 30, 2012, as planned.

The Company's results for the quarter and entire fiscal year ended April 30, 2012, included restructuring charges related to these initiatives. The net-of-tax impact for the fourth quarter was $3.6 million, or $0.25 per diluted share, and for the 12 months was $10 million, or $0.71 per diluted share. Including these charges, the Company's results for the fourth quarter of fiscal 2012 were a net loss of $6 million, or $0.42 per diluted share, and for the fiscal-year 2012, a net loss of $20.8 million, or $1.45 per diluted share.

When we commenced fiscal-year 2012, we provided five assumptions about market activity. First, that job growth would average 200,000 per month; second, that consumer confidence would slowly improve; third, that total housing starts would approximate 625,000; fourth, that the remodeling market would be neutral to slightly positive; and fifth, that our remodeling customers would experience sales comps in line with the market. Although total housing starts slightly exceeded our expectations, most of these metrics, and importantly, the overall tone of the housing market fell shy of our expectations. Private-sector job creation started the fiscal year off in a lull, picked up in the middle of our fiscal year, and then lost momentum at the end of our fiscal year. All told, 2 million jobs were created, but this was 15% less than we expected.

Consumer sentiment, as measured by the University of Michigan, averaged 71 in fiscal-year 2011, and was trending upward when we stated our expectation for an improvement in fiscal-year 2012. Unfortunately, confidence was severely hit last summer by the debt crisis, and never fully recovered, averaging a decline of 3 points during our fiscal-year 2012. Total housing starts did slightly exceed our expectation, with an increase of 17% to 647,000 starts; however, the primary driver of this metric was multi-family starts, which do not significantly impact our Company. Single-family housing starts rose by a much less robust 4%, to approximately 450,000 during fiscal-year 2012.

As for the remodeling market, total sales reported by members of the Kitchen Cabinet Manufacturers Association were flat during the Company's fiscal year. Since these results include both new construction, which increased, as well as remodeling, this indicates that remodeling was not at least neutral as we had expected. Since remodeling comprises the largest segment of our market, missing on this assumption essentially indicates that the overall market for cabinetry was roughly flat, contrary to our expectation for an improving market.

Fifth, and finally, our largest remodeling customers' results have essentially tracked with the cabinet remodeling market. These results also fell short of our expectation that our customers would perform slightly better than a remodeling market that unfortunately has not yet improved.

Recognizing that the remodeling market for cabinets is not yet increasing, the Company's largest remodeling customers and its competitors have continued to maintain the elevated level of sales promotions that have persisted for the last 1.5 years in the form of free products and additional discounts based upon the amount of sale. To maintain its market share, the Company has attempted to ease its promotional offerings somewhat compared with the prior year, with the goal of continuing to be competitive, and generally less extreme than some of its competitors. However, to remain competitive, the Company did experience higher promotional costs than in the prior year's fourth quarter.

As expected, the Company's remodeling sales declined by mid-single digits in the second half of the fiscal year, after experiencing double-digit growth in the first half of the fiscal year. For the fiscal year taken as a whole, the Company's remodeling sales improved at a mid-single-digit rate in a market that was somewhat down. The Company's new construction sales continued to exceed its expectations, improving by more than 30% during the fourth quarter, and by more than 25% for the fiscal year, in a market where both total and single-family housing starts grew at a far lower rate.

The Company's gross profit margin for the fourth quarter and entire fiscal-year 2012 were 12.7% and 12.9% of net sales, respectively. Gross profit margin was less favorable than the prior year's fourth quarter of 13.2%, but exceeded the 11.7% generated in the previous fiscal year. Gross profit declined by 0.5% of net sales during the fourth quarter, despite the 10% improvement in net sales.

Gross profit was reduced by 0.8% of net sales in the fourth quarter by the inventory write-down, by 0.4% of net sales for increased promotional cost, by inefficiencies involved in performing its restructuring efforts, and by higher materials and freight cost. The combined impact of these items more than offset the favorable leverage from higher sales volumes upon labor and overhead costs. The Company realized modest overhead cost reduction related to its plant closure activities during the fourth quarter, but these savings were more than offset by the cost to affect the transitions.

Total operating expenses were significantly improved at 15.2% of net sales in the fourth quarter, compared with 16.5% in the prior year's fourth quarter, and 16.2% of net sales for the entire fiscal year, compared with 18.5% in the prior year. Selling and marketing expenses were 10.4% of net sales in the fourth quarter of fiscal 2012, significantly improved from the prior year's 12.1%. Sales and marketing expenses improved to 11.3% of net sales during the entire fiscal year, compared with 13.5% in the prior year.

Selling and marketing costs decreased by $0.9 million, or 6%, in the fourth quarter on a sales increase of 10%. Although the breadth of the Company's recent product launches have been in line with those of prior year, the efficiencies from lower marketing collateral and branding costs, as well as reductions in product display costs, have more than offset increases in compensation and travel costs.

General and administrative expenses were 4.8% of net sales in the fourth quarter of fiscal-year 2012, compared with 4.4% in the prior year's fourth quarter. G&A expenses were 4.9% of net sales for the entire fiscal year, compared with 5.0% in the prior fiscal year. G&A costs were generally flat, but a higher amount of performance-based compensation was responsible for the fourth quarter's increase, compared with the reversal of previously accrued incentive compensation costs in the prior year's fourth quarter.

The Company's restructuring initiatives have resulted in the permanent closure of two of its manufacturing plants, and a realignment of its retirement program, which included the freezing of its pension plans effective April 30, 2012. Management made these difficult decisions based upon its assessment of expected conditions in the housing market for the foreseeable future. Management believes the Company will continue to have ample production capacity to aggressively participate in the housing market's recovery. As a rough guide, management estimates that the Company's remaining hard manufacturing capacity is sufficient to service incremental sales growth of approximately 50% without having to make significant capital additions.

The Company recognized pre-tax restructuring charges of $10.3 million in its third quarter, and $6 million in its fourth quarter of fiscal 2012 related to these initiatives. Of the total $16.3 million in pre-tax charges recognized to-date, non-cash asset write-downs comprised approximately $11.1 million. The Company expects that less than $1 million of pre-tax restructuring charges remain to be incurred in the future relating to these initiatives. The Company continues to expect that pre-tax savings of approximately $18 million per year will be realized, or roughly $4 million to $5 million per quarter. The Company further expects that the amount of savings realized during the first quarter of fiscal-year 2013 will be roughly two-thirds of this level, as the remainder of the transitional efforts are completed.

The Company's total outflow for capital expenditures and promotional displays deployed during the fourth quarter of fiscal 2012 was $2.4 million, on par with $2.7 million expended in the prior year's fourth quarter, excluding $1.5 million in proceeds received in the prior year from the sale of a building. Total capital outflows for the entire fiscal-year 2012 were $10 million, compared with $8.4 million in the prior fiscal year, before $2.9 million in prior-year proceeds from the sale of two buildings. Excluding the building sales, gross capital outflows increased by $1.6 million, or 19%, driven by machinery enhancements that helped to enable the recent plant closures to occur.

The Company generated operating cash flow of $2.5 million during its fourth quarter of fiscal-year 2012, compared with $5.5 million in the fourth quarter of its prior fiscal year. The decline was driven by payments aggregating approximately $1 million for restructuring activities, the resumption of funding pension plan contributions, and the timing of cash receipts and disbursements.

The Company's operating cash flow for the entire fiscal year grew by $2.9 million in fiscal 2012, or 21% over prior year, despite receiving $7 million less in income tax refunds, and funding an incremental $2.9 million of pension deposits and $1 million of restructuring activities. Excluding the cumulative $11 million of adverse changes relating to these three items, the Company's operating cash flow improved by approximately $14 million over prior year, driven primarily by the reduction in its operating loss.

The Company generated free cash flow, defined as operating cash flow net of cash used for investing activities, of positive $0.3 million during the fourth quarter of fiscal-year 2012, compared with positive $4.3 million in the fourth quarter of its prior fiscal year. The decline was related to the factors which caused operating cash flow to decline, as well as to the absence of $1.5 million of prior-year building sale proceeds. For the entire fiscal year, the Company generated positive free cash flow of $6.1 million, compared with positive free cash flow of $7.7 million in the prior fiscal year. The Company expects to continue to fund its capital spending from a combination of operating cash flow and existing cash on hand.

The Company's financial position remains outstanding. The Company ended the quarter with a total of $73.7 million in cash, cash equivalents, and restricted cash on hand, compared with long-term debt of $23.8 million. During the quarter, restrictions were removed on approximately 0.5 of the $14 million previously classified as restricted cash, leaving a year-end restricted cash balance of $7.1 million. And debt-to-capital was 15.5% at April 30, 2012.

In closing, we continue to manage the business with the objective of delivering superior customer experience, which in turn delivers long-term value for our shareholders. We have chosen to continue to invest in a number of initiatives, including improving the quality and breadth of the Company's products and services; maintaining elevated promotional activities to remain competitive with competitors' offerings, and sustain our market share gains in a challenging market; in expanding channels of distribution that we have previously not (inaudible - technical difficulty) emphasized; and in maintaining a reduced, but still significant, capability for future growth as market conditions improve.

Management remains focused on maintaining the strength of its industry-leading balance sheet. Despite experiencing net losses, the Company has operated at near break-even free cash flow levels for 11 consecutive quarters, and generated positive free cash flow in fiscal years 2011 and 2012. The Company's fourth-quarter sales increase marked its eighth consecutive quarter of year-over-year sales growth, the first time this has happened in several years. However, consumer confidence and market conditions remain uncertain, and difficult to predict.

We continue to expect that market activity will eventually return to its historical norms of 1.25 to 1.4 million new households, and 1.5 million new total new housing starts per year. However, in the short term, many consumers remain unwilling or unable to make large-ticket purchases because of lower home prices, availability of credit, or because they simply lack confidence.

Market conditions have been changing. Instead of a market that is flat to down in both the remodeling and new construction segments, we now have a new construction market where total housing starts have experienced year-over-year increases in 10 of the last 11 months, and single-family starts have increased in five of the last six months. Rental rates are rising as vacancy rates decline, and inventories of both new and existing homes for sale are at their lowest levels in several years, while mortgage rates remain at historic lows.

Although evidence suggests that existing home prices have continued to decline, the Company expects that home prices will finally bottom, and begin to slightly increase during its fiscal-year 2013. The Company expects that cabinet remodeling sales in the overall market will follow the direction of existing home prices, and therefore, expects that market remodeling sales will be roughly flat during its fiscal-year 2013. New construction starts have moved positively, in line with an improving economy and job creation. Although the direction remains positive, momentum may now be slowing as we move towards summer, much as it did last year. Against this backdrop, the Company expects that single-family housing starts will grow at a mid-single-digit rate during fiscal-year 2013.

Having described our expectations for the market, I will provide our expectations for Company-specific performance. The Company's remodeling sales declined at a mid-single-digit rate in the second half of fiscal-year 2012, roughly in line with the market. The Company expects that its remodeling sales will continue to track the market in fiscal-year 2013, and therefore, be relatively flat in terms of units. The Company gained market share in the new construction sector during fiscal-year 2012, with sales growing by more than 25% in a market where total housing starts grew by 17%, and single-family housing starts grew by 4%. The Company expects that its new construction sales will grow at a high-single-digit rate in a market that figures to grow a bit slower than that.

The Company believes there is potential for its realized sales price to improve through a combination of modest sales mix and pricing improvements. Overall, the Company expects that its sales will grow at a mid-single-digit rate during fiscal-year 2013. The Company's operating loss exclusive of restructuring charges was $17 million in fiscal-year 2012. The Company continues to expect that the savings realized from its restructuring will approximate this amount, creating the ability to break even, absent any sales growth.

Because the Company does expect some sales growth, as I have described, we believe the Company has a good chance to return to profitability during its fiscal-year 2013. Tempering these expectations, however, are the impact of rising material costs, particularly for hardwood lumber, plywood, particle board, and paint and finishing materials.

This concludes our prepared remarks. We would be happy to answer any questions you have at this time.

(Operator Instructions)

David McGregor, Longbow Research.

I guess a few questions here. First of all, I wonder if you could just talk about the revenue growth, you're up 10%, 9.7%. Can you just break out volume versus price mix?

Yes, that was primarily volume as it's been all year, but there was a little bit of mix that helped the net price realized.

Okay, thanks. I guess you made the distinction between multi-family and single-family. I know you've always historically been kind of a business targeting the single family. Is there a plan in place to develop a multi-family product offering?

Yes, this is Kent. The historical definitions of single, multi are starting to blur a little bit because of attached housing, whether it's townhouses or other types of developments. To us, it's not so much product line. You can get into some elements of multi-unit housing that are HUD related or have other specific requirements, but generally speaking, the product line that we would put in places isn't any different. It's just a question of targeting and putting together service platforms that kind of go after that unique segment of the market. From that standpoint, there isn't anything we have to do really on the product side to participate more in that. We are participating more, again, in the sense of townhomes and those types of things.

If it continues, and as Jon mentioned, we had kind of a pretty good increase in the building activity along about February going into March and early April. Talking with our single-family customers, they expect a reasonably decent year, particularly as we look forward to the next six months. On the new construction side of our business, and our capacity over that period to actually deliver our product on the service platform, we think that we're going to have kind of a full plate, quite frankly, to keep up with our single-family partners, and are not at this time looking to do any more than we would normally or are already doing through channels with the multi-family.

If I understand you correctly, you've got product. It's probably the low-end Timberlake product, the value-builts, but you need distribution. Is that what it would require as an investment in distribution; a sales force, feet on the street?

There's a little bit of that, because it is a very unique -- you're dealing with a different group of people when you do that. You're dealing with more of the big GCs, you may be dealing with architects; you're a different part in the process to get your product in there. Once you get it in there going into a single-family home logistically is very different than going into a high rise with -- pick your number of units, 20, 30, 100, units whatever it is. That's the real difference. It's up front, the effort and the involvement up front in terms of getting in the development, getting in the plans, working with the architect and the GC. Then on the back end there are some very different service requirements because you're not pulling up to just a street address with a house on it. You're going into a construction site that is many floors and has many different units in it.

You're saying with a large amount of cash. There are people out there that specialize in multi-family and have a strong presence in that niche. Would you ever consider an acquisition to establish a presence there?

No, not really. Again, when you get to your point, when you start to break down that market, there are certain segments of that market that even longer-term we just don't think it's a great fit for us. The ones that we do think are a fit, we're trying to get through some of our existing channels. But as I went back and mentioned, for that element of our product line and our capacities that make the product that generally goes into new construction, in dealing -- in talking with our current partners, the single family homes, we think that our effective capacity over the next six months, maybe a year, is going to be -- all of it's going to be needed to service our existing single- family customers.

Okay, great. Thanks very much, gentlemen.

Sure.

Sam Darkatsh, Raymond James.

Good morning. This is Josh filling in for Sam. Thanks for taking my question.

Good morning, Josh.

Just wanted to dig into the gross margin a little bit more. You mentioned several items that had an effect in the quarter. Could you give us a sense of how those broke down, or which ones were bigger or smaller effects?

The two biggest ones were the inventory write-down and then the transitional impacts from closing the two facilities and moving work around.

Okay, and do you expect there will still be a headwind from the restructuring inefficiencies in the coming quarter, or is that pretty much past?

Well, as I said in my comments, we do expect that we'll get about two-thirds of the benefit from the transition during the first quarter, so that would imply that we do still expect some lingering efforts. As I also mentioned, one of the plants was closed during the month of May, so the transition was continuing into the early part of the first quarter.

Okay, and then you talked about the promotions a little bit. I want to make sure I understand. You said there was more promotional activity year-over-year, but it was down sequentially; correct?

It was actually up a little bit sequentially and it was up year-over-year. It's down from a couple of quarters ago, and we're trying to drive it downward, but we're certainly subject to market forces.

So you would say that the trend is towards more promotional going into the fiscal year 2013 then?

No, I think you've got some, and what Jon's talking about, it's hitting the quarters. If you kind of start to just look at it over time, over selling seasons and those types of things, we really saw the latest big increase really happen a year and a half ago. It was in the fall of 2010 when some of the competitors in the marketplace really kind of increased it. Since that time, in and out its been relatively flat. Again, we and our competitors make choices about when you're in and when you're not in, so it can impact different quarters in different ways. What I would kind of say is that the promotional level on the remodel side has been relatively flat since the big increase we saw about a year and a half ago. We don't see it at this point getting a lot worse than the marketplace, but we also don't see it getting better. It's kind of steady state.

Thank you for parsing that out more for me, and just a quick detail question. I noticed a fairly substantial increase in your payables and accrued expenses. Is that due to the raw material inflation, or is there something else there?

No, it's just timing.

Okay, thank you very much.

Sure.

Robert Kelly, Sidoti.

In your prepared remarks you ran through some items as far as drag on the gross margin. I thought you said was it the transitional impact was 40 basis points, or the promotional expenses?

Promotional expenses, yes.

Did you quantify the transitional impact?

No.

Is the expectation for fiscal '13 that you continue to see a similar level of promotional expense, or the fact that you see price mix getting slightly better, are you counting on the promotional environment to get a little bit or to ease a little bit?

No, our assumptions of what's kind of inherent in Jon's comments is we expect the promotional activity to kind of, again, continue for what it's been for the last year and a half, thereabouts. Again, you'll get some ebbs and flows depending on timing and when our customers close out their promotions. It is a very promotionally driven environment, so you get a disproportionate amount of your order rate in the last literally 24-48 hours of closing out promotions, and so if a promotion rolls from one quarter to another, and depending on how that rolls through your system, it can have a significant impact. You may quarter-to-quarter see some changes, but we think that next year, we're probably going to be about level in terms of what we're currently running.

Okay, and then as far as the price mix commentary being positive or slightly positive for your fiscal 2013, is that because the builder piece is picking up? How do we think about that?

Well, I think it just goes in the mix and our product of mix, in our product mix, whether it's the new stuff that we are introducing or the way that you actually put incentives out there for the customer, we think that encourages a richer mix of product, either in going up price points or putting more features and options within the product. The other thing that we are seeing that has started to reverse, and on do it on both sides, but we have started to see is that the consumers that are active are buying a richer mix, so we're seeing the square footage, for example, in new construction, the square footage is starting to increase again; not by a lot, but the square footage of a new -- the average new house has been going down for several years.

It's starting to go back up again, and that's kind of a reflection of the people that are active in the marketplace. They're out there because they want to either buy a house or redo their kitchen. They do have some resources; the consumers that are. We'd like more of them out there. There are enough that are active. The ones that are active are not as budget-constrained, or maybe as budget-conscious as they were a couple of years ago. When we are selling a kitchen, whether it's new construction or remodel, we're getting more features and options, more upgrade price points in terms of doors. They may go from a veneer door to a solid door, they may put a premium finish on it, so the actual consumer that's active is buying a richer mix.

That's encouraging, and just one point on the balance sheet. The inventory number for the past two quarters is one of the lowest we've seen in years, and the benefits from your logistic and plant closure actions have really yet to be felt yet. Should we assume this type of term rate inventory -- should it get better as the actions are implemented?

I think you can assume that inventory turns will sort of level out at the level we're at right now. It's possible we could have incremental improvement from here, but it's safe to assume that we're in this range.

But this rate is where we should be. Okay, thanks guys.

Morris Ajzenman, Griffin Securities.

A follow-up to the question you've been getting here on the gross margins, particularly in this fourth quarter. You reported 12.7%, and then you highlighted impacting -- it was impacted by inventory write-downs, as well as inefficiencies from the Company's restructuring efforts. Can you give us some handle on what that 12.7% would have been on a pro forma basis, on a clean basis? Secondly, your gross margins, I think for the full year were 12.9%. You're guesstimating -- you gave us a number there earlier that in fiscal 2013 if revenues are unchanged, you should be close to a break-even level or whatever. Can you just give us some sort of handle on what sort of gross margins, assuming some competitive landscape remains that gross margins can improve to?

Morris, we haven't given specific guidance for fiscal year 2013 and we don't intend to do that, but I think that if you run the math, you can probably derive that. In terms of the fourth quarter gross profit, we did call out and quantify the specific impact of the inventory write-down. The transitional costs were a little bit harder to measure. They hit us in a few different areas, so we haven't specifically quantified or called that out, so no, I don't have that for you.

Okay, one last question. Based on the [bank] closures here, you said you could increase sales ultimately by 50%, which means capacity utilization is probably about 65% or thereabouts currently. If that's correct, what sort of incremental operating margins can you get as your capacity utilization increases?

Well, again for competitive reasons we're not going to provide that, not going to guide to that, but I think as a guide you could look back to historical performance where we've levered sales and probably get a pretty decent idea. The other thing I'd say is that because we have made some efficiencies into the system, we should do a little bit better than that going forward.

Thank you.

Peter Lisnic, Robert W. Baird.

I guess first question, if you could just refresh us on capital allocation priorities and strategies. Any change in how you're thinking about the dividend given the balance sheet being in good shape and the cash flow you're generating, and then how buy-back might fit in as well?

No, really no change from a couple of quarters ago when we announced it. I think there's still a significant uncertainty out there in the world. We all read obviously the papers every day and you can start in Europe and come this way. Most recently probably the one this week was the jobs report so there's still a tremendous amount of uncertainty out there. As Jon mentioned, we do think the market will improve slightly in fiscal 2013. Our primary improvement is going to come from the cost actions that we took, the restructuring actions. We're not out of the woods yet from a market standpoint, and because of that, the rationale that led us to spend the dividend I think is still there. I don't think that that's changed much.

In terms of the buy-back, again as we said when we get to the point, any point where we feel that we do have some cash that's excess related to not only our plans but the potential for down-side in the market place, and the price is where we think it's attractive on behalf of the shareholders, then we'll go out and use some of the authorization that we have, but that's kind of a long way of saying really no change from where we were a couple quarters ago.

Okay, that is perfect. Thank you for that, and then Jon just a quick couple quick ones on cash flow. Any sort of pension funding required for 2013, and then the -- I may have missed it, but the CapEx outlook for 2013 would be helpful as well?

Yes Pete, we expect that the CapEx requirements or funding will probably go up about $3 million to $4 million, and the pension funding requirement will increase by about $4 million above what we funded in fiscal year 2012.

So it's an incremental $4 million on top of the $3-ish million or so in the 2012?

Yes, we resumed funding as the fiscal year was rolling in. About halfway through we really started funding that again pursuant to the schedule, so it will be a full year of funding in 2013 versus a partial year in 2012.

Okay, got you. On the selling and marketing as a percentage of sales, that took a pretty nice step down in the fourth quarter to 10.4%, according to my math. Just wondering kind of how that layers into the fiscal 2013 outlook? In the past, you've had numbers that are closer to 10% or below 10%; presumably, you'll get some restructuring savings to drive that number lower in 2013, but can you give us a sense as to what the -- have you hit a new, sort of a new level on that selling and marketing,? Are you more efficient on that front? Where that might shake out over the longer term would be helpful.

Well, I think that the way we're looking at this is that over time, the business, in a decent market, in a more typical market, will be able to pull gross margins north of 20%, and we should be able to approach an operating margin of about 10% or so. That will take a bit of time to get there, but we feel we've got the capability to do that, so I think you'll continue to see leverage on the sales or the SG&A line, as you say, partially due to the restructuring, and hopefully partially due to some additional sales leverage.

We should see those restructuring savings come through, both on COGS, or gross profit I should say, and that selling and marketing line, is that safe to say?

That's right.

Okay. Thank you very much for your time and help.

(Operator Instructions)

Dennis McGill, Zelman & Associates.

Hi guys, this is Scott Rednor on for Dennis. I was just hoping you could give us an update on your initiatives in the dealer channel, and if you guys think that that will be evident to the investment community in your fiscal 2013 outlook?

Yes, our initiative continues there. We kind of continued to refine and expand that model that we have. We now have a sales presence in most states, certainly the top 40 SMSAs and are in the process of signing up dealers. As we look at 2013, again, and start to build critical mass, we think it will be noticeable, and we anticipate that we'll start to talk about it in certainly Jon's prepared remarks and maybe be able to share a little bit more with you and any questions. In terms of magnitude of it, we think in terms of top line as we get through the year that it's probably going to be worth a couple points, thereabouts, and will start to favorably impact as we kind of roll down through the income statement. We think as we get -- certainly by the end, second half of 2013, with our momentum and signing up new dealers and picking up business, that that will actually start to move the needle on the top line.

Great and that would be embedded right now in the guidance that you provided?

Correct.

Right now, it's kind of embedded in Jon's comments on remodel, which is what it is. It's virtually all remodel.

Great and then just secondly for Jon. What was the motivation behind the credit amendment yesterday? You guys pretty much don't need the extra cash, but just hoping you could take us through your thoughts there?

Well, unrestricted is always better than restricted, right? That's the motivation.

All right, fair enough. Thank you.

Jeff Matthews, Ram Partners.

Thanks very much. I just wondered if you could comment on any incremental changes in the cost outlook on raw materials? Thank you.

Yes, we're -- it has been kind of ebbing and flowing. I would say that the inflationary pressure we're getting on most of our raw materials is not as intense as it was, say, in the fall. I think a lot of that is petroleum-based. We've seen a lot of pressure come off the petroleum side, so whether it's finishing materials or other things where petroleum is actually an element to the product, or it's just the transportation of moving the stuff around. I would say that that's now versus where we were six months ago, that's probably the big difference is that we've seen pressure come off transportation in terms of diesel and other transportation costs, and anything that actually has petroleum-base kind of input into the material that we use.

Having said that, the pressure that's still out there, the supply/demand pressure, as Jon mentioned on several of our significant categories, the underlying inflationary pressure is still there. It's still there in hardwood lumber. A lot of the logs in America are going overseas, particularly to the Far East, which has created kind of a supply/demand imbalance, particularly in a couple of species. We're seeing it on particle board as Jon mentioned, we're seeing it on plywood, and we're seeing it in some other categories, so it hasn't gone away. I think we're kind of in a little bit of a lull, and again it's driven almost exclusively by the drop in petroleum.

Thanks very much.

David McGregor, Longbow Research.

Just to follow-up on the raw material question, how much forward visibility do you have right now?

In terms of raw materials?

Yes.

Well it depends on the material that we buy. For example, on lumber, we're out there in the green, we're vertically integrated, so we're out in the green markets. We're pretty close to actually the logs. Other stuff is obviously down the line. Generally speaking, I would say that our window is probably 60 to 120 days depending on the actual material and our conversations with our vendors. Again, sometimes they don't have information to pass through to us because of the chain all the way back to somebody cutting a tree down or pulling a material out of the ground, but generally speaking, we see inflation coming again on the category 60 to 120 days out.

Okay, good. Last question, just more sort of a high-level question, but I guess going back a couple of years when we sort of the downturn was really at its worst, there had been an up-turn in re-facing of cabinets as sort of a consumer trend. I was just wondering if you could update us on what you're seeing there. Is that really dying down now, and people are coming back to the market for new cabinets, or is that still a competitive issue for you?

Well I'm not sure. I may disagree a bit with your premise. I'm not sure how much of the market that ever took. I think it's one of those things that for a certain consumer in the right place, in the right frame of mind, with everything lining up that it probably makes sense, but its never been a big piece of the market. It's always been a relatively small piece of the market. It's one of those things that gets its share for those unique consumers because of the limitations of not being able to change the configuration of the kitchen and several other things. I'm not, I may disagree again with your premise a little bit that it ever got to the point where it was taking a significant amount of share as it related to the industry. It gets its share because again there are some consumers out there that that is just the right fit for them, but we don't see it in terms of our overall business. We don't really see it as a competitive threat. It's a different kind of consumer, and we don't really compete with the re-facing industry for most of our volume.

Okay, great. Thanks very much and good luck for the year ahead.

Thank you.

That does conclude today's question-and-answer session. I'd like to turn the conference back over to Management for any further comments.

Since there are no additional questions, this does conclude our call, and I'd like to take time to thank you again for participating on this call. Speaking on behalf of Management of American Woodmark we appreciate your continuing support. Thank you, have a good day.

That concludes today's presentation. We thank you again for your participation.