AMWD American Woodmark Corp - 10-K

Item 1A.    RISK FACTORS

There are a number of risks and uncertainties that may affect the Company's business, results of operations, and financial condition. These risks and uncertainties could cause future results to differ from past performance or expected results, including results described in statements elsewhere in this report that constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Additional risks and uncertainties not presently known to the Company or currently believed to be immaterial also may adversely impact the Company's business. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the Company's business, financial condition, and results of operations. These risks and uncertainties, which the Company considers to be most relevant to specific business activities, include, but are not limited to, the factors identified below. Additional risks and uncertainties that may affect the Company's business, results of operations, and financial condition are discussed elsewhere in this report, including in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the headings "Forward-Looking Statements," "Seasonality," and "Outlook for Fiscal 2026" and Item 7A. "Quantitative and Qualitative Disclosures about Market Risk."

Risks related to our business and industry

We manufacture our products internationally and are exposed to risks associated with doing business globally. We manufacture our products in the United States and Mexico and sell our products in the United States and Canada. Accordingly, we are subject to risks associated with potential disruption caused by changes in political, monetary, economic, and social environments, including civil and political unrest, terrorism, possible expropriation, local labor conditions, changes in laws, regulations, and policies of foreign governments and trade disputes with the United States, and compliance with U.S. laws affecting activities of U.S. companies abroad. We have been and could be further adversely affected by international trade regulations, including the imposition of sanctions, duties, new or increased tariffs and anti-dumping penalties. Risks inherent to international operations include: tax laws, economic sanctions, and enforcement of contract and intellectual property rights.

We are also subject to the Foreign Corrupt Practices Act and other anti-bribery laws. While we have implemented safeguards and policies to discourage these practices by our employees and agents, our existing safeguards and policies to assure compliance and any future improvements may prove to be less than effective and our employees or agents may engage in conduct for which we might be held responsible. If employees violate our policies, we may be subject to regulatory sanctions. Violations of these laws or regulations could result in sanctions including fines, debarment from export privileges, and penalties and could have a material adverse effect on our business, financial condition, or results of operations.

We may continue to hedge certain foreign currency transactions in the future; however, a change in the value of the currencies may impact our financial statements when translated into U.S. dollars. In addition, fluctuations in currency can adversely impact the cost position in local currency of our products, making it more difficult for us to compete. Our success will depend, in part, on our ability to effectively manage our business through the impact of these potential changes.

In addition, we source raw materials and components from Asia where we have recently experienced higher manufacturing costs and longer lead times due to currency fluctuations, higher wage rates, labor shortages, and higher raw material costs, and we have also experienced higher shipping costs, shipping delays, and higher tariff costs. There is currently uncertainty about the future relationship between the U.S. and various other countries with respect to trade practices. The U.S. government has imposed significant tariffs or other restrictions on certain foreign imports and has raised the possibility of imposing additional tariff increases or expanding the tariffs to capture other countries and types of foreign imports, which have increased and could further increase the cost of certain raw materials and components imported into the U.S. Our international operations and sourcing of materials (including from Asia and Mexico) could be harmed by a variety of factors including, but not limited to:

• increases in transportation costs or transportation delays;

• work stoppages and labor strikes;

• introduction of non-native invasive organisms into new environments;

• recessionary trends in international markets;

• legal and regulatory changes and the burdens and costs of our compliance with a variety of laws, including export controls, import and customs trade restrictions, tariffs and other regulations;

• fluctuations in exchange rates, particularly the value of the U.S. dollar relative to other currencies; and

• political unrest, terrorism, and economic instability.

If any of these or other factors were to render the conduct of our business in a particular country undesirable or impractical, our business, financial condition, or results of operations could be materially adversely affected.

Fluctuating raw material and energy costs could have a material adverse effect on our business and results of operations. We purchase various raw materials, including, among others, wood, wood-based, and resin products, which are subject to price fluctuations that could materially increase our manufacturing costs. Further, increases in energy costs increase our production costs and also the cost to transport our products, each of which could have a material adverse effect on our business and results of operations. In addition, some of our suppliers have consolidated and other suppliers may do so in the future. Combined with increased demand, such consolidation could increase the price of our supplies and raw materials.

We also may be unwilling or unable to pass these cost increases on to our customers. Competitive considerations and customer resistance to price increases may delay or make us unable to adjust selling prices. To the extent we are unable to either re-engineer or otherwise offset increased costs, or are unwilling or unable to build price increases into our sales prices, our margins will be negatively affected. Even if we are able to increase our selling prices, sustained price increases for our products may lead to sales declines and loss of market share, particularly if our competitors do not increase their prices, and there is usually a six to nine month lag before we are able to see the results of our pricing actions. Conversely, when raw materials or energy prices decline, we may receive customer pressure to reduce our sales prices.

These prices are market-based and fluctuate based on factors beyond our control. We do not have long-term fixed supply agreements and do not hedge against price fluctuations. We, therefore, cannot predict our raw materials or energy costs for the coming year.

The inability to obtain raw materials from suppliers in a timely manner would adversely affect our ability to manufacture and market our products. Our ability to offer a wide variety of products depends on our ability to obtain an adequate supply of components from manufacturers and other suppliers, particularly wood-based and resin products. Transportation and container delays may adversely impact our supply chain. Additionally, failure by our suppliers to provide us with quality products on commercially reasonable terms, potential cybersecurity attacks on our suppliers, and failure to comply with legal requirements for business practices, could have a material adverse effect on our business, financial condition, or results of operations. Furthermore, we rely heavily or, in certain cases, exclusively, on outside suppliers for some of our key components. While we do not rely exclusively on any one supplier for any particular raw materials, the loss of a major supplier could increase our costs to obtain raw materials until we obtain an adequate alternative source. Import tariffs or other adverse trade actions have led to increases in prices of raw materials and components which are critical to our business, and additional tariffs or other adverse trade actions could result in further price increases. The ultimate impact of such adverse trade actions remains uncertain as it is subject to a number of factors including the effective date and duration of tariffs, changes in amount, scope and nature of tariffs in the future, any countermeasures that countries subject to the tariffs may take and our ability to mitigate the impact of tariffs.

We typically do not enter into long-term contracts with our suppliers or sourcing partners. Instead, most raw materials and sourced goods are obtained on a "purchase order" basis. Although these components are generally obtainable in sufficient quantities from other sources, resourcing them from another supplier could take time. Financial, operating, or other difficulties encountered by our suppliers or sourcing partners, or changes in our relationships with them could result in manufacturing or sourcing interruptions, delays, and inefficiencies, and prevent us from manufacturing enough products to meet customer demands.

Because of the concentration of our sales to our two largest customers, the loss of either customer or a significant reduction in orders from either customer could adversely affect our financial results. Home Depot and Lowe's collectively accounted for approximately 40.8% of total net sales during the fiscal year 2025. We do not typically enter into long-term sales contracts with Home Depot or Lowe's and our sales usually occur on a "purchase order" basis. Our customers can make significant changes in their purchase volumes and can seek to significantly affect the prices we receive for our products and services and the other terms and conditions on which we do business. They have in the past discontinued, and may in the future choose to discontinue, purchasing some or all of our products with little or no notice. In the past, purchase volumes from our customers, including Home Depot and Lowe's, have fluctuated substantially, and we expect such fluctuations to occur from time to time in the future. Any reduction in, or termination of, our sales to either Home Depot or Lowe's could have a material adverse effect on our business, financial condition, or results of operations.

In addition, the potential for orders from these large retail customers to increase significantly from time to time requires us to have sufficient manufacturing capacity. These large retailers also impose strict logistics and performance criteria and fines. Failure to comply with these obligations may result in these customers reducing or stopping their purchase of our products.

We could also experience delays or defaults in payment from Home Depot or Lowe's, which could adversely affect our business, financial condition or results of operations. The loss of a substantial portion of our order volumes or revenue from either Home Depot or Lowe's for any reason would have a material adverse effect on our business, financial condition, or results of operations.

Our business primarily relies on U.S. home improvement, repair and remodel and new home construction activity levels, all of which are impacted by risks associated with fluctuations in the housing market. Downward changes in the general economy, the housing market, or other business conditions could adversely affect our results of operations, cash flows, and financial condition. Our business primarily relies on home improvement, repair and remodel and new home construction activity levels in the United States. The housing market is sensitive to changes in economic conditions and other factors, such as the level of employment, access to labor, consumer confidence, consumer income, availability of financing and interest rate levels, and available inventory. Net sales volume decreases combined with adverse changes in any of these conditions generally, or in any of the markets where we operate, could decrease demand and could adversely impact our businesses by:

• causing consumers to delay or decrease homeownership or relocation;

• making consumers more price conscious resulting in a shift in demand to smaller, less expensive homes;

• making consumers more reluctant to make investments in their existing homes, including kitchen and bath repair and remodel projects;

• making consumers more price conscious resulting in a shift in demand to less expensive, more value-based product offerings when making investments in their homes; or

• making it more difficult to secure loans for major renovations.

Prolonged economic downturns may adversely impact our sales, earnings, and liquidity. Our industry historically has been cyclical in nature and has fluctuated with economic cycles. During economic downturns, our industry could experience longer periods of recession and greater declines than the general economy. We believe that our industry is significantly influenced by economic conditions generally and particularly by housing activity, consumer confidence, the level of personal discretionary spending, demographics, and credit availability. These factors may affect not only the ultimate consumer of our products, but also may impact home centers, builders, and our other primary customers. As a result, a worsening of economic conditions could adversely affect our sales and earnings as well as our cash flow and liquidity.

The U.S. cabinetry industry is highly competitive, and market share losses could occur. We operate within a highly competitive U.S. cabinetry industry, which is characterized by competition from a number of other manufacturers. Competition is further intensified during economic downturns. We compete with numerous large national and regional home products companies for, among other things, customers, orders from Home Depot and Lowe's, raw materials, skilled management, and labor resources. Purchase volumes from our main home center customers have fluctuated substantially from time to time in the past, and we expect such fluctuations to occur from time to time in the future.

Some of our competitors may have greater financial, marketing, and other resources than we do and, therefore, may be able to adapt to changes in customer preferences more quickly, devote more resources to the marketing and sale of their products, generate greater national brand recognition, or adopt more aggressive pricing policies than we can. In addition, some of our competitors may resort to price competition to sustain or gain market share and manufacturing capacity utilization, and we may have to adjust the prices on some of our products to stay competitive, which could reduce our revenues.

We also face competition with respect to some of our products from competitors in countries with lower regulatory, safety, environmental, and other costs, such as China, Vietnam, Thailand, and Malaysia. These competitors may also benefit from certain local government subsidies or other incentives that are not available to us.

We may not ultimately succeed in competing with other manufacturers and distributors in our market, which may have a material adverse effect on our business, financial condition, or results of operations.

Our failure to develop new products or respond to changing consumer preferences and purchasing practices could have a material adverse effect on our business, financial condition, or results of operations. The U.S. cabinetry industry is subject to changing consumer trends, demands, and preferences. The uncertainties associated with developing and introducing new products, such as gauging changing consumer preferences and successfully developing, manufacturing, marketing, and selling new products, could lead to, among other things, rejection of a new product line, reduced demand and price reductions for our products. If our products do not keep up with consumer trends, demands, and preferences, we could lose market share, which could have a material adverse effect on our business, financial condition, or results of operations.

Changes to consumer shopping habits and potential trends toward "online" purchases could also impact our ability to compete. Further, the volatile and challenging economic environment of recent years has caused shifts in consumer trends, demands,

preferences and purchasing practices, and changes in the business models and strategies of our customers. Shifts in consumer preferences, which may or may not be long-term, have altered the quantity, type, and prices of products demanded by the end-consumer and our customers. If we do not timely and effectively identify and respond to these changing consumer preferences and purchasing practices, our relationships with our customers could be harmed, the demand for our products could be reduced, and our market share could be negatively affected.

Manufacturing expansion or reduction of capacity, manufacturing realignments, and other cost savings programs could result in a decrease in our near-term earnings. We continually review our manufacturing operations. These reviews could result in the expansion or reduction of capacity, manufacturing realignments, and various cost savings programs. Effects of manufacturing expansion or reduction, realignments, or cost savings programs could result in a decrease in our short-term earnings until the capacity is right-sized, cost reductions are achieved, and/or production volumes stabilize, such as our expansion of stock kitchen and bath capacity in North Carolina and Mexico, which was completed during the prior fiscal year and the closing of our manufacturing facility in Orange, Virginia during this fiscal year. Such manufacturing expansions or reductions, realignments, and programs involve substantial planning, often require capital investments, and may result in charges for fixed asset impairments or obsolescence and substantial severance costs. We also cannot provide assurance that we will achieve all of the intended cost savings. Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business, financial condition, and results of operations could be materially and adversely affected. In addition, downturns in the economy could potentially have a larger impact on the Company as a result of any added capacity.

Certain of our customers have been expanding and may continue to expand through consolidation and internal growth, which may increase their buying power, which could materially and adversely affect our sales, results of operations, and financial position. Certain of our customers are large companies with significant buying power. In addition, potential further consolidation in the distribution channels could enhance the ability of certain of our customers to seek more favorable terms, including pricing, for the products that they purchase from us. Accordingly, our ability to maintain or raise prices in the future may be limited, including during periods of raw material and other cost increases. If we are forced to reduce prices or to maintain prices during periods of increased costs, or if we lose customers because of pricing or other methods of competition, our sales, operating results, and financial position may be materially and adversely affected.

We may fail to fully realize the anticipated benefits of our growth strategy within the home center, independent dealer and distributor and builder channels. Part of our growth strategy depends on expanding our business in the home center, independent dealer and distributor and builder channels. We may fail to compete successfully against other companies that are already established providers within the home center, independent dealer and distributor and builder channels. Demand for our products within the home center, builder, and independent dealer and distributor channels may not grow, or might even decline. Further, the implementation of our growth strategy may place additional demands on our administrative, operational, and financial resources and may divert management's attention away from our existing business and increase the demands on our financial systems and controls. If our management is unable to effectively manage growth, our business, financial condition, or results of operations could be adversely affected. If our growth strategy is not successful then our revenue and earnings may not grow as anticipated or may decline, we may not be profitable, or our reputation and brand may be damaged. In addition, we may change our financial strategy or other components of our overall business strategy if we believe our current strategy is not effective, if our business or markets change, or for other reasons, which may cause fluctuations in our financial results.

Other general risks applicable to us and our business

The implementation of our Enterprise Resource Planning system could disrupt our business. We are in the process of implementing a common Enterprise Resource Planning ("ERP") platform over several fiscal years. The first wave (including the procurement, general ledger, accounts payable, projects, and fixed asset modules) went live in the second half of fiscal 2022. During fiscal 2024, our new Monterrey, Mexico facility went live. Our Anaheim facility went live in May 2025. We have begun planning for the next implementation in our Lincolnton and Hamlet, North Carolina facilities later in fiscal 2026. Although we currently expect the ERP implementation to increase efficiencies by leveraging a common, cloud-based system throughout the Company and standardizing processes and reporting, it may not result in improvements outweighing its costs and may disrupt our operations. Our inability to mitigate existing and future disruptions could adversely affect our sales, earnings, financial condition and liquidity. The ERP system implementation subjects us to substantial costs and inherent risks associated with migrating from our legacy systems. These costs and risks could include, but are not limited to:

• significant capital and operating expenditures;

• disruptions to our domestic and international supply chains;

• inability to fill customer orders accurately and on a timely basis, or at all;

• inability to process payments to suppliers, vendors and associates accurately and in a timely manner;

• disruption to our system of internal controls;

• inability to fulfill our SEC or other governmental reporting requirements in a timely or accurate manner;

• inability to fulfill federal, state, or local tax filing requirements in a timely or accurate manner; and

• increased demands on management and staff time to the detriment of other corporate initiatives.

Our operations may be adversely affected by information systems interruptions or intrusions. We rely on a number of information technology systems to process, transmit, store, and manage information to support our business activities. Increased global cybersecurity vulnerabilities, threats, and more sophisticated and targeted attacks pose a risk to our information technology systems. We have established security policies, processes, and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of our systems and information and disruption of our operations. Despite these efforts, systems may be damaged, disrupted, or shut down due to attacks by unauthorized access, malicious software, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery planning may be ineffective or inadequate. These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to litigation, and increased operational costs. Such events could have a material adverse impact on our business, financial condition and results of operation. In addition, we could be adversely affected if any of our significant customers or suppliers experience any similar events that disrupt their business operations or damage their reputation.

Increased compliance costs or liabilities associated with environmental regulations could have a material adverse effect on our business, financial condition, or results of operations. Our facilities are subject to numerous environmental laws, regulations and permits, including those governing emissions to air, discharges to water, storage, treatment and disposal of waste, remediation of contaminated sites, and protection of worker health and safety. We may not be in complete compliance with these laws, regulations, or permits at all times. Our efforts to comply with environmental requirements do not remove the risk that we may incur material liabilities, fines or penalties for, among other things, releases of regulated materials occurring on or emanating from current or formerly owned or operated properties or any associated offsite disposal location, or for contamination discovered at any of our properties from activities conducted by previous occupants. Liability for environmental contamination or a release of hazardous materials may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share.

Changes in environmental laws and regulations or the discovery of previously unknown contamination or other liabilities relating to our properties and operations could result in significant environmental liabilities that could impact our business, financial condition, or results of operation. In addition, we may incur capital and other costs to comply with increasingly stringent environmental laws and enforcement policies. These laws, including, for example, the regulations relating to formaldehyde emissions promulgated by the California Air Resources Board, require us to rely on compliance by our suppliers of raw materials. Should a supplier fail to comply with such regulations, notify us of non-compliance, or provide us with a product that does not comply, we could be subject to disruption in our business and incur substantial liabilities.

Unauthorized disclosure of confidential information provided to us by customers, employees or third parties could harm our business. We rely on the internet and other electronic methods to transmit confidential information and store confidential information on our networks. If there were a disclosure of confidential information provided by, or concerning, our employees, customers or other third parties, including through inadvertent disclosure, unapproved dissemination, or unauthorized access, our reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions.

Changes in government and industry regulatory standards could have a material adverse effect on our business, financial condition, or results of operations. Government regulations pertaining to health and safety and environmental concerns continue to emerge, domestically as well as internationally. These regulations include the Occupational Safety and Health Administration and other worker safety regulations for the protection of employees, as well as regulations for the protection of consumers. It is necessary for us to comply with current requirements (including requirements that do not become effective until a future date), and even more stringent requirements could be imposed on our products or processes. Compliance with these regulations may require us to alter our manufacturing and installation processes and our sourcing. Such actions could increase our capital expenditures and adversely impact our business, financial condition or results of operations, and our inability to effectively and timely meet such regulations could adversely impact our competitive position.

We could pursue growth opportunities through either acquisitions, mergers or internally developed projects, which may be unsuccessful or may adversely affect our future financial condition and operating results. We could pursue opportunities for growth through either acquisitions, mergers, or internally developed projects as part of our growth strategy. We cannot provide assurance that we will be successful in integrating an acquired business or that an internally developed project will perform at the levels we anticipate. We may pay for future acquisitions using cash, stock, the assumption of debt, or a combination of

these. Future acquisitions could result in dilution to existing shareholders and to earnings per share. In addition, we may fail to identify significant liabilities or risks associated with a given acquisition that could adversely affect our future financial condition, and operating results or result in us paying more for the acquired business or assets than they are worth.

Our ability to operate and our growth potential could be materially and adversely affected if we cannot employ, train, and retain qualified personnel at a competitive cost. Many of the products that we manufacture and assemble require manual processes in plant environments. We believe that our success depends upon our ability to attract, employ, train, and retain qualified personnel with the ability to design, manufacture, and assemble these products. In addition, our ability to expand our operations depends in part on our ability to increase our skilled labor force when the housing market recovers in the United States. In addition, we believe that our success depends in part on our ability to quickly and effectively train additional workforce to handle increased volume and production while minimizing labor inefficiencies and maintaining product quality during a housing market recovery. If either of these events were to occur, our cost structure could increase, our margins could decrease, and any growth potential could be impaired.

Our failure to maintain acceptable quality standards could result in significant unexpected costs. Any failure to maintain acceptable quality standards could require us to recall or redesign such products, or pay substantial damages, any of which would result in significant unexpected costs. We may also have difficulty controlling the quality of products or components sourced from other manufacturers, so we are exposed to risks relating to the quality of such products and to limitations on our recourse against such suppliers. Further, any claim or product recall could result in adverse publicity against us, which could decrease our credibility, harm our reputation, adversely affect our sales, or increase our costs. Defects in our products could also result in decreased orders or sales to our customers, which could have a material adverse effect on our business, financial condition or results of operations.

Natural disasters, terrorist acts or other catastrophic events could have a material adverse effect on our business, financial condition, or results of operations. Many of our facilities are located in regions that are vulnerable to natural disasters and other risks, such as earthquakes, fires, floods, tropical storms, hurricanes, and snow and ice, which at times have disrupted the local economy and posed physical risks to our property. In addition, the continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States and other countries. Our redundant, multiple site capacity may not be sufficient in the event of a natural disaster, terrorist act or other catastrophic event. Such disruptions could, among other things, disrupt our manufacturing or distribution facilities and result in delays or cancellations of customer orders for our products, which in turn could have a material adverse effect on our business, financial condition and results of operations. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, end-user customers in that region may delay or forego purchases of our products, which may materially and adversely impact our operating results for a particular period.

We may incur future goodwill impairment charges or other long-lived asset impairment charges which could negatively impact our future results of operations and financial condition. We recorded significant goodwill as a result of the acquisition of RSI Home Products, Inc. (the "RSI Acquisition" or "RSI") in fiscal 2018. Goodwill represents a substantial portion of our assets. We also have long-lived assets consisting of property and equipment, capitalized internal use software, and certain prepaid customer incentives, as well as other identifiable intangible assets which we review both on an annual basis as well as when events or circumstances indicate that the carrying amount of an asset may not be recoverable. If a determination is made that a significant impairment in value of goodwill or long-lived assets has occurred, such determination could require us to impair a substantial portion of our assets. Asset impairments could have a material adverse effect on our financial condition and results of operations.

Risks related to indebtedness

Our level and terms of indebtedness could adversely affect our business and liquidity position . Our consolidated indebtedness level could have important consequences to us, including, among other things, increasing our vulnerability to general economic and industry conditions; requiring a portion of our cash flow used in operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our liquidity and our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; exposing us to the risk of increased interest rates, and corresponding increased interest expense, because borrowings under our credit facilities are at variable rates of interest; reducing funds available for working capital, capital expenditures, acquisitions, and other general corporate purposes, due to the costs, and expenses associated with such debt; limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate, or other purposes; and limiting our ability to adjust to changing marketplace conditions and placing us at a competitive disadvantage compared to our competitors who may have less debt.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital, or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations, which could cause us to default on our debt obligations and impair our liquidity. In the event of a default under any of our indebtedness, the holders of the defaulted debt could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest. The lenders under our credit facilities could also elect to terminate their commitments thereunder and cease making further loans, and such lenders could institute foreclosure proceedings against their collateral, all of which could adversely affect our financial condition in a material way.

The credit agreement that governs our credit facility imposes operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities or otherwise negatively impact our business. The credit agreement that governs our credit facility imposes operating and financial restrictions on us. These restrictions limit our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of 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 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 a result of these restrictions, each of which is subject to certain exceptions and qualifications, we may be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these existing covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.

Our failure to comply with the restrictive covenants described above as well as other terms of our indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.

Item 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following table sets forth certain income and expense items as a percentage of net sales:

PERCENTAGE OF NET SALES

FISCAL YEARS ENDED APRIL 30,

Net sales

Cost of sales and distribution

Gross profit

Selling and marketing expenses

General and administrative expenses

Restructuring charges, net

Operating income

Interest expense/other (income) expense, net

Income before income taxes

Income tax expense

Net income

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

Forward-Looking Statements

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

• risks related to sourcing and selling products internationally and doing business globally, especially due to our significant operations in Mexico, including the imposition of tariffs or duties on those products, and increased transportation costs and delays;

• an inability to obtain raw materials in a timely manner or fluctuations in raw material, transportation, and energy costs due to inflation or otherwise;

• 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, mortgage interest rates, general economy, unemployment rates, and consumer sentiment and the impact of such developments on our and our customers' business, operations, and access to financing;

• 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;

• competition from other manufacturers and the impact of such competition on pricing and promotional levels;

• an inability to develop new products or respond to changing consumer preferences and purchasing practices;

• 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;

• 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;

• 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 another pandemic on our business, the global and U.S. economy, and our employees, customers, suppliers, and logistics system;

• 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;

• limitations on operating our business as a result of covenant restrictions under our indebtedness, our ability to pay amounts due under our credit facilities and our other indebtedness, and interest rate increases; and

• the impairment of goodwill or our long-lived assets.

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

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

Overview

American Woodmark Corporation manufactures and distributes kitchen, bath and home organization products for the remodeling and new home construction markets. Its products are sold on a national basis directly to home centers and builders and through a network of independent dealers and distributors. At April 30, 2025, the Company operated 17 manufacturing facilities located throughout the United States and Mexico and eight primary service centers and one distribution center located throughout the United States.

Financial Overview

A number of general market factors impacted the Company's business in fiscal 2025, some positive and some negative, including:

• The unemployment rate increased by 7.7% compared to April 2024, to 4.2% as of April 2025 according to data provided by the U.S. Department of Labor;

• There was an increase in single family housing starts during the Company's fiscal 2025 of 2.0%, as compared to the Company's fiscal 2024, assuming a 60 day lag, and an increase in housing completions during the Company's fiscal 2025 of 1.2%, as compared to the Company's fiscal 2024, according to the U.S. Department of Commerce;

• Mortgage interest rates decreased with a 30-year fixed mortgage rate of 6.76% in April 2025, a decrease of approximately 41 basis points compared to April 2024, according to Freddie Mac;

• While existing home sales remain at thirty-year lows, the median price of existing homes sold in the U.S. rose by 4.1% during the Company's fiscal 2025, according to data provided by the National Association of Realtors; and existing home sales decreased 0.6% during the Company's fiscal 2025 compared to the same period in the prior year;

• Consumer sentiment, as reported by Thomson Reuters/University of Michigan, averaged 32.4% lower during the Company's fiscal 2025 than in its prior fiscal year; and

• The inflation rate as of April 2025 was 2.3%, compared to 3.4% in April 2024 according to data provided by the U.S. Department of Labor.

Our largest remodeling customers and competitors continued to utilize sales promotions in the Company's product category during fiscal 2025. We strive to maintain promotional levels in line with market activity, with a goal of remaining competitive.

Net sales decreased by 7.5% during fiscal 2025, which was driven by declines in all sales channels.

Gross profit for fiscal 2025 was 17.9%, a decrease from 20.4% in fiscal 2024.

Net income decreased $16.8 million from $116.2 million in fiscal 2024 to $99.5 million in fiscal 2025. Net income and gross profit for fiscal 2025 decreased primarily due to the result of lower net sales, fixed cost deleverage, and rising product input costs, partially offset by the roll-off of acquisition-related intangible asset amortization of $30.4 million, which ended in the third quarter of the prior fiscal year, operational efficiencies, lower incentive compensation and controlled spending across all functions.

The Company recognized total pre-tax restructuring charges, net of $4.6 million and $(0.2) million during fiscal 2025 and 2024 respectively. The fiscal 2025 charges are the result of a reduction in force implemented in the second quarter and the closure of the manufacturing plant in Orange, Virginia approved in the third quarter of the fiscal year. See Note O — Restructuring Charges, Net for further discussion.

The Company regularly considers the need for a valuation allowance against its deferred tax assets as we have generated operating profits for the past 13 years. As of April 30, 2025, the Company had total deferred tax assets of $68.9 million net of valuation allowance, up from $59.5 million of deferred tax assets net of valuation allowance at April 30, 2024. Deferred tax assets are reduced by a valuation allowance when, after considering all positive and negative evidence, it is determined that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The Company has recorded a valuation allowance related to deferred tax assets for certain state investment tax credit ("ITC") carryforwards. These credits expire in various years beginning in fiscal 2028. The Company believes based on positive evidence of the housing industry improvement, along with 13 consecutive years of operating profitability, that we will more likely than not realize all other remaining deferred tax assets.

The Company also regularly assesses its long-lived assets to determine if any impairment has occurred. The Company has concluded that none of its long-lived assets were impaired as of April 30, 2025.

Fiscal Year Ended April 30, 2024 Compared to the Fiscal Year Ended April 30, 2023

For a comparison of our performance and financial metrics for the fiscal years ended April 30, 2024 and April 30, 2023, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2024, filed with the SEC on June 26, 2024.

Results of Operations

FISCAL YEARS ENDED APRIL 30,

(Dollars in thousands)

2025 vs. 2024 PERCENT

CHANGE

2024 vs. 2023 PERCENT

CHANGE

Net sales

Gross profit

Selling and marketing expenses

General and administrative expenses

Interest expense, net

Net Sales

Net sales for fiscal 2025 decreased 7.5% to $1,709.6 million from the prior fiscal year. Sales in the home center channel decreased 9.3% and the independent dealer and distributor channel decreased 8.9%, primarily due to lower in-store traffic rates and consumers prioritizing smaller sized projects and more value-based product offerings. Sa

les in the builder channel decreased 5.1%, primarily due to weaker housing completions throughout the second half of the fiscal year, as home builders continue to be impacted by high mortgage rates, weaker consumer confidence, and government policy related uncertainty.

Gross Profit

Gross profit as a percentage of sales decreased to 17.9% in fiscal 2025 as compared with 20.4% in fiscal 2024, representing a 250 basis point decrease. The decrease in gross profit was primarily the result of lower volumes due to macroeconomic conditions causing fixed cost deleverage, and rising product input costs. These decreases were partially offset by our operational enhancements and controlled variable spending.

Selling and Marketing Expenses

Selling and marketing costs decreased by $6.4 million or 6.9% during fiscal 2025 versus the prior year. Selling and marketing expenses were 5.0% of net sales in both fiscal 2025 and 2024. The decrease in selling and marketing expenses was due to the decrease in sales and controlled discretionary spending within the function, partially offset by static fixed costs within the functions.

General and Administrative Expenses

General and administrative expenses decreased by $48.5 million or 39.1% during fiscal 2025 versus the prior fiscal year. General and administrative costs decreased to 4.4% of net sales in fiscal 2025 compared with 6.7% of net sales in fiscal 2024. The decrease in general and administrative expenses was primarily due to reduced amortization of customer relationship intangibles of $30.4 million which ended in the third quarter of the prior fiscal year, decreased incentive and profit sharing costs of $13.4 million, and controlled discretionary spending, partially offset by increases in digital spend related to our ERP cloud strategy and cybersecurity readiness.

Effective Income Tax Rates

The Company generated pre-tax income of $126.5 million during fiscal 2025. The Company's effective tax rate decreased from 23.5% in fiscal 2024 to 21.4% in fiscal 2025. The effective tax rate was lower in fiscal 2025 than fiscal 2024 due to favorability from reductions in uncertain tax positions of prior years and additional income tax credits.

Non-GAAP Financial Measures

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

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

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

EBITDA, Adjusted EBITDA and Adjusted EBITDA margin

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

We define EBITDA as net income adjusted to exclude (1) income tax expense, (2) interest expense, net, (3) depreciation and amortization expense, and (4) amortization of customer relationship intangibles. We define Adjusted EBITDA as EBITDA adjusted to exclude (1) expenses related to the RSI Acquisition, (2) restructuring charges, net (3) net gain/loss on debt modification, (4) stock-based compensation expense, (5) gain/loss on asset disposals, (6) change in fair value of foreign exchange forward contracts, and (7) pension settlement, net. 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, (2) restructuring charges, net (3) the amortization of customer relationship intangibles, (4) net gain/loss on debt modification, (5) change in fair value of foreign exchange forward contracts, (6) pension settlement, net, and (7) the tax benefit of items (1) - (6). The amortization of intangible assets is driven by the RSI Acquisition. Management has determined that excluding amortization of intangible assets and change in fair value of foreign exchange forward contracts from our definition of Adjusted EPS per diluted share will better help it evaluate the performance of our business and profitability.

During the second quarter of fiscal 2025, the Company changed its definition of Adjusted EPS per diluted share to exclude the change in fair value of foreign exchange forward contracts to be consistent with its definition of Adjusted EBITDA. Prior period amounts have been adjusted to conform to current period presentation.

Free cash flow

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

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

Reconciliation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin

FISCAL YEARS ENDED APRIL 30,

(Dollars in thousands)

Net income (GAAP)

Add back:

Income tax expense

Interest expense, net

Depreciation and amortization expense

Amortization of customer relationship intangibles

EBITDA (Non-GAAP)

Add back:

Acquisition related expenses (1)

Restructuring charges, net (2)

Pension settlement, net

Net gain on debt modification (4)

Change in fair value of foreign exchange forward contracts (3)

Stock-based compensation expense

Loss on asset disposal

Adjusted EBITDA (Non-GAAP)

Net Sales

Net income margin (GAAP)

Adjusted EBITDA margin (Non-GAAP)

(1) Acquisition related expenses are comprised of expenses related to the RSI Acquisition.

(2) Restructuring charges, net are comprised of expenses incurred related to the nationwide reduction-in-force implemented in fiscal 2023, the reductions in force implemented in the second quarter of fiscal 2025, and the closure of the manufacturing facility located in Orange, Virginia, which was announced in January 2025.

(3) In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The changes in the fair value of the forward contracts are recorded in other expense (income), net in the operating results.

(4) The Company recognized net gain on debt modification totaling $2.1 million in fiscal 2023 related to certain New Market Tax Credits.

Reconciliation of Net Income to Adjusted Net Income

FISCAL YEARS ENDED APRIL 30,

(Dollars in thousands, except share and per share data)

Net income (GAAP)

Add back:

Acquisition related expenses

Restructuring charges, net

Pension settlement, net

Amortization of customer relationship intangibles

Net gain on debt modification

Change in fair value of foreign exchange forward contracts (1)

Tax benefit of add backs

Adjusted net income (Non-GAAP)

Weighted average diluted shares (GAAP)

EPS per diluted share (GAAP)

Adjusted EPS per diluted share (Non-GAAP)

(1) Change in fair value of foreign exchange forward contracts was excluded from Adjusted EPS per diluted share beginning in the second quarter of fiscal 2025 to be consistent with the Company's definition of Adjusted EBITDA. Prior period amounts have been adjusted to conform to current period presentation.

Free cash flow

FISCAL YEARS ENDED APRIL 30,

(Dollars in thousands)

Cash provided by operating activities

Less: Capital expenditures (1)

Free cash flow (Non-GAAP)

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

Outlook for Fiscal 2026

We expect a range between low single-digit declines to low-single digit increases in net sales for fiscal 2026 versus fiscal 2025. While the first half of the fiscal year remains challenged by the current macroeconomic environment, we are expecting recovery and growth in the second half of fiscal 2026. Our outlook for Adjusted EBITDA for fiscal 2026 will range from $175 million to $200 million, driven primarily by higher selling and marketing and general and administrative costs, increases in input costs and fixed cost inflationary items, partially offset by our commitment to operational excellence and automation. The change in net sales and Adjusted EBITDA is highly dependent upon overall industry, economic growth trends, material constraints, labor impacts, interest rates, tariff rate changes and consumer behaviors.

During fiscal 2026, we will continue our investment back into the business by continuing our path for our digital transformation with investments in our cloud-based ERP and customer relationship management platforms and investing in automation at our manufacturing locations. We will be opportunistic in our share repurchasing and lastly, we have our debt optimally positioned at a leverage ratio we set to achieve, enabling us to deprioritize debt repayments in fiscal 2026. We expect our interest expense to increase approximately $7 million due to our A&R Credit Agreement. We also expect our depreciation and amortization to increase approximately $11 million due to our cloud-based ERP efforts, automation and platform changes.

A reconciliation of EBITDA and Adjusted EBITDA is not provided for fiscal 2026 because we do not forecast net income as we cannot, without unreasonable effort, estimate or predict with certainty various components of net income.

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

Liquidity and Capital Resources

The Company's cash and cash equivalents totaled $48.2 million at April 30, 2025, representing a $39.2 million decrease from its April 30, 2024 levels. At April 30, 2025, total long-term debt (including current maturities) was $373.5 million, a decrease of $1.0 million from the balance at April 30, 2024. The Company's ratio of long-term debt to total capital was 28.5% at April 30, 2025, compared with 29.0% at April 30, 2024. The Company's main source of liquidity is its cash and cash equivalents on hand and cash generated from its operating activities, which we expect to continue into fiscal 2026. See Note E — Loans Payable and Long-Term Debt for further discussion on our indebtedness.

On October 10, 2024, the Company amended and restated its prior 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 $200 million term loan facility (the "Term Loan Facility"). Also on October 10, 2024, the Company borrowed the entire $200 million under the Term Loan Facility and approximately $173 million under the Revolving Facility to repay in full the approximately $370 million then outstanding under its prior credit agreement, plus accrued and unpaid interest, and to pay related fees and expenses. The Company began repaying the Term Loan Facility in specified quarterly installments on January 31, 2025. The Revolving Facility and Term Loan Facility mature on October 10, 2029. Approximately $314.2 million was available under this facility as of April 30, 2025.

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. See Note E — Loans Payable and Long-Term Debt for a discussion of interest rates under the new A&R Credit Agreement and our compliance with the covenants in the A&R Credit Agreement. We were in compliance with each of the covenants under the A&R Credit Agreement during fiscal 2025 and expect to remain in compliance throughout fiscal 2026.

As of April 30, 2025 and 2024, the Company had no off-balance sheet arrangements.

OPERATING ACTIVITIES

Cash provided by operating activities in fiscal 2025 was $108.4 million, compared with $230.8 million in fiscal 2024. The decrease in the Company's cash from operating activities was driven primarily by decreases in net income of $16.8 million and amortization of customer relationship intangibles of $30.4 million and increased cash outflows from inventories of $51.2, prepaid expenses and other assets of $12.0 million, accounts payable of $18.8 million, accrued marketing expenses of $8.1 million, and accrued compensation and related expenses of $21.0 million, which were partially offset by a decrease in cash outflows from income taxes of $27.9 million.

INVESTING ACTIVITIES

The Company's investing activities primarily consist of capital expenditures and investments in promotional displays. Net cash used by investing activities in fiscal 2025 was $42.7 million, compared with $92.2 million in fiscal 2024. Investments in property, plant and equipment for fiscal 2025 were $39.7 million, compared with $91.0 million in fiscal 2024, primarily due to our plant expansions in Monterrey, Mexico and Hamlet, North Carolina in fiscal 2024. Investments in promotional displays were $3.0 million in fiscal 2025, compared with $1.2 million in fiscal 2024.

FINANCING ACTIVITIES

The Company realized a net outflow of $105.0 million from financing activities in fiscal 2025 compared with a net outflow of $92.9 million in fiscal 2024. During fiscal 2025, $5.3 million, net, was used to repay long-term debt, compared with approximately $2.7 million in fiscal 2024.

On November 20, 2024, the Board authorized an additional stock repurchase program of up to $125 million of the Company's outstanding common shares. This authorization is in addition to the $125 million stock repurchase program authorized on November 29, 2023. The Company repurchased $96.7 million and $87.7 million of its common shares during fiscal 2025 and 2024, respectively. As of April 30, 2025, the current stock repurchase program has a remaining authorization of $117.8 million.

Cash flow from operations combined with accumulated cash and cash equivalents on hand are expected to be more than sufficient to support forecasted working capital requirements, service existing debt obligations, and fund capital expenditures for fiscal 2026.

Future minimum annual commitments for contractual obligations under the Term Loan Facility, the Revolving Facility, capital and operating lease obligations, and other long-term debt amount to $46.6 million in fiscal 2026, $84.2 million in fiscal 2027-28, $375.6 million in fiscal 2029-30, and $24.2 million in fiscal 2031 and thereafter. Estimated required interest payments based on rates as of April 30, 2025 would be $24.3 million in fiscal 2026, $46.0 million in fiscal 2027-28, $31.5 million in fiscal 2029-30, and $2.1 million in fiscal 2031 and thereafter.

SEASONALITY

Our business has been subject to seasonal influences, with higher sales typically realized in our first and fourth fiscal quarters. General economic forces and changes in our customer mix have reduced seasonal fluctuations in revenue over the past few years.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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

Goodwill.  Goodwill represents the excess of purchase price over the fair value of net assets acquired. The Company does not amortize goodwill but evaluates for impairment annually, or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

In accordance with the accounting standards, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill is impaired. If after such assessment an entity

concludes that the asset is not impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value. There were no impairment charges related to goodwill for the fiscal years 2025, 2024, and 2023.