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.
