UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 3, 2018
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-6365
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APOGEE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
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| Minnesota | | | | | 41-0919654 |
(State or other jurisdiction of
incorporation or organization)
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Identification No.)
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4400 West 78th78th Street – | Suite 520 Minneapolis, MN
| Minneapolis | Minnesota | | 55435 |
| (Address of principal executive offices) | | | | (Zip Code) |
Registrant’s telephone number, including area code: (952) 835-1874
Securities registered pursuant to Section 12(b) of the Act: |
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| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock, $0.33 1/3 Par Value | | APOG | | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨☒ Yes x☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨☐ Yes x☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x☒ Yes ¨☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x☒ Yes ¨☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large Accelerated Filer | | ☐ | | Accelerated Filer | | ☒ |
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Large accelerated filerNon-accelerated Filer | | x☐ | | Accelerated filerSmaller Reporting Company | | ¨☐ |
| Emerging Growth Company | | ☐ | | | | |
Non-accelerated filer | | ¨ (Do not check if a smaller reporting company)
| | Smaller reporting company | | ¨ |
Emerging growth company | | ¨ | | | | |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | ¨☐ |
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨☐ Yes x☒ No
As of September 2, 2017,August 28, 2020, the last business day of the registrant's most recently completed second fiscal quarter, the approximate aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $1,242,000,000$560,000,000 (based on the closing price of $43.37$21.69 per share as reported on the NASDAQ Stock Market LLC as of that date).
As of April 26, 2018, 28,159,54220, 2021, 25,781,624 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCEREFERENCE:
CertainIn accordance with General Instruction G(3) of Form 10-K, certain information required inby Part III hereof iswill either be incorporated into this Annual Report on Form 10-K by reference to theour Definitive Proxy Statement for the registrant's 2018our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later thanwithin 120 days after the end of theour fiscal year covered byended February 27, 2021 or will be included in an amendment to this Annual Report on Form 10-K.
10-K filed within 120 days of February 27, 2021.
APOGEE ENTERPRISES, INC.
Annual Report on Form 10-K
For the fiscal year ended March 3, 2018February 27, 2021
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
The Company
Apogee Enterprises, Inc. (Apogee, the Company or we) was incorporated under the laws of the State of Minnesota in 1949. We are a world leader in the design and development of value-added glass and metalarchitectural building products and services for enclosing commercial buildings and framing and displays.services.
Our Company has four reporting segments, with three of the segments serving the commercial construction market:
•The Architectural Framing Systems segment designs, engineers, fabricates and finishes the aluminum frames used in customized window, curtainwall, storefront and entrance systems comprising the outside skinexterior of buildings. ForIn fiscal 2018,2021, this segment accounted for approximately 5146 percent of our net sales.
•The Architectural Glass segment coats and fabricates, coated, high-performance glass used globally in customizedcustom window and wall systems. Forsystems on commercial buildings. In fiscal 2018,2021, this segment accounted for approximately 2624 percent of our net sales.
•The Architectural Services segment providesintegrates technical services, project management, and field installation services to design, engineer, fabricate, and install building glass and curtainwall installation services. Forsystems. In fiscal 2018,2021, this segment accounted for approximately 1624 percent of our net sales.
•The Large-Scale Optical Technologies (LSO) segment manufactures value-added coated glass and acrylic products for custom framing, museum, and display applications. Fortechnical glass markets. In fiscal 2018,2021, this segment accounted for approximately 76 percent of our net sales.
On June 12, 2017, we acquired the stock of EFCO Corporation (EFCO), a privately-held U.S. manufacturer of architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects, for $192 million in cash, funded through our committed revolving credit facility, with $7.5 million of that amount payable in annual installments beginning in June 2018. EFCO's results of operations have been included in our consolidated financial statements and within the Architectural Framing Systems segment since the date of acquisition.
On December 14, 2016, we acquired substantially all the assets of Sotawall, Inc. (operating under the name Sotawall Limited or “Sotawall”), a privately-held Canadian designer and fabricator of high-performance, unitized curtainwall systems for commercial construction projects, for approximately $138 million. Sotawall's results of operations have been included in the consolidated financial statements and within the Architectural Framing Systems segment since the date of acquisition.
Strategy
Our strategies arestrategy is to diversify revenue streams and structurewithin the business to provide more stablecommercial construction industry, providing revenue growth and profit generation over an economic cycle. Strategies are focused on diversification ofcycle, and utilize our capabilities to enter adjacent segments. We work to diversify end sectorsmarkets served through growth from new geographies, new products and new markets,market segments, while improvingworking to improve margins through productivity, andintegration, project selection initiatives.and rigorous cost management.
In an effort to drive growth and reduce our exposure to the cyclical nature of the large-building segment of the commercial construction industry, we have expandedare working to expand our focuscapabilities to includeserve small- and mid-sized projects inacross our architectural segments and working to expand our North American geographic reach.
Specifically over the Architectural Glass segment and grown our geographic footprint through organic growth and acquisitionspast fiscal year, in the Architectural Framing Systems segment. We have also increasedsegment, our focus on retrofitwas to drive margin improvement through increased productivity, cost management, integration, supply chain optimization, and renovationnew product development. In the Architectural Glass segment, we began operation of windowsour new fabrication facility designed to serve small-sized and curtainwall as we have seen increased interest from the non-residential and high-end multi-family residential building sectorsquick-turn projects in upgrading building façades and improving energy efficiency.
Dallas, Texas. In the Architectural Services segment, our emphasis is on improvingto generate consistent margins through focused project selection and execution, while continuing to deliver long-term organic growth through targeted geographic expansion in line with our available project management capacity.expansion.
Within the LSO segment, our strategy iswe are working to grow in newer displaynew channels, markets and geographies that desire the value-added properties that our glass and acrylicacrylics products provide, while continuing to convert the domestic and international custom picture framing and fine art markets from clear uncoated glass and acrylic products to value-added products that protect art from UV damage and minimize reflection.provide.
Across all our segments, we also regularly evaluate business development opportunities in adjacent sectors that will complement our existing portfolio. These business development strategies can be executed organically, through acquisition or with strategic alliances.
Finally, we are constantly working to improve the efficiency and productivity of our operations by implementing continuous improvement, lean manufacturing disciplinesprinciples and automation.automation where we can achieve solid return on investment.
Products and Services
Architectural Framing Systems, Architectural Glass and Architectural Services segments
These three segments serve the commercial construction industry and participate in various phases of the value chainstream to design, engineer, fabricate and install customizedcustom glass and aluminum window, curtainwall, storefront and entrance systems comprising the outside skinexterior of buildings, primarily in the commercial, institutional and high-end multi-family residential construction sectors.
Within our Architectural Framing Systems segment, we design, engineer and fabricate aluminum window, curtainwall, storefront and entrance systems using our customizedsystems. We also extrude aluminum and glass, or glass supplied by others. We also provide finishing services for metal components used in windows and curtainwall,a variety of building materials applications, as well as plastic components for other products.markets.
In our Architectural Glass segment, we fabricate coated glass and apply ultra-thin, high-performance coatings to uncoated glass to create a variety of aesthetic characteristics, unique designs and energy efficiency, including varying levels of solar energy management to enhance energy-efficiency.energy-efficient qualities. We also laminate and temper layers of glass and vinyl to protectfor protection and strength against hurricaneshazards such as severe weather and other severe impacts, and temper, or heat strengthen, glass to provide additional strength. Ourblasts. Much of our high-performance glass is
made-to-order and is typically fabricated into insulating and/or laminated glass units for installation into window, curtainwall, storefront or entrance systems.
ByOur Architectural Services segment delivers value by integrating technical capabilities, project management skills and field installation services, our Architectural Services segment providesto provide design, engineering, fabrication and installation services for the outside skinexteriors of commercial buildings. Our ability to efficiently design high-quality window and curtainwall systems and effectively manage the installation of building façades assistsenables our customers in meeting theto meet schedule and cost requirements of their jobs.projects.
Our product and service offerings across these architectural segments allow architects to create distinctive looks for commercial buildingbuildings such as office towers, hotels, education and athletic facilities, and dormitories, health care facilities, government buildings, retail centers, mixed use and multi-family residential buildings, while also meeting functional requirements such as energy efficiency, hurricane, blast and other impact resistance and/or sound control.
Many of our architectural products and services help architects, developers, and building owners achieve their energy-efficiency and sustainability goals, by improving energy performance, thereby reducing greenhouse gas emissions, providing daylight and natural ventilation, and increasing comfort and safety for occupants. These products include high-performance thermal framing systems, energy efficient glass coatings, and sun control products such as sunshades and light shelves. Many of our framing systems products can be specified with recycled aluminum content and utilize environmentally friendly anodize and paint finishes. In addition, we offer a wide range of renovation solutions to help modernize aging buildings, providing significantly improved energy performance, while preserving historically accurate aesthetics.
LSO segment
The LSO segment provides coated glass and acrylic primarily for use in custom picture framing, museum framing, wall decor and technical glass for other display applications. Products vary based on size and coatings applied to provide conservation-grade UV protection, anti-reflective and anti-static properties and/or security features.
Product Demand and Distribution Channels
Architectural Framing Systems, Architectural Glass and Architectural Services segments
Demand for the products and services offered by our Architecturalarchitectural segments is affected by changes in the North American commercial construction industries,industry, as well as by changes in general economic conditions. Additionally, the Architectural Glass segment has an operation in Brazil and is, therefore, alsoBrazilian operations which are impacted by Brazil's commercial construction industry and general economic conditions.
We look at several external indicators to analyze potential demand for our products and services, such as U.S. and Canadian job growth, office space vacancy rates, credit and interest rates available for commercial construction projects, architectural billing statistics and material costs. We also rely on internal indicators to analyze demand, including our sales pipeline, which is made up of contracts in review, projects awarded or committed, and bidding activity. Our sales pipeline, together with ongoing feedback, analysis and data from our customers, architects and building owners, provide visibility into near- and medium-term future demand. Additionally, we evaluate data on U.S. and Canadian non-residential construction market activity, industry analysis and longer-term trends provided by external data sources.
Our architectural products and services are used in subsets of the construction industry differentiated by building type, levelthe following types of customization required, customers, geographic location and project size.factors:
•Building type - The construction industry is typically segmented into residential construction and non-residential construction, which includes commercial, industrial and institutional construction. Our products and services are primarily used in commercial buildings (office towers,buildings, hotels and retail centers) and, institutional buildings (education facilities, and dormitories, health care facilities and government buildings), as well as in high-endand multi-family residential buildings (a subset of residential construction).
•Level of customization - The large majorityMany of our projects involve a high degree of customization, as the product or service is based ondesigned to meet customer-specified requirements for aesthetics, performance and size, and is designed to satisfy local building codes.
•Customers and distribution channels - Our customers are mainly glazing subcontractors and general contractors, with project design being influenced by architects and building owners. Our high-performance architectural glass is primarily sold using both a
direct sales force and independent sales representatives. InstallationOur installation services are sold by a direct sales force in certain metropolitan areas in the U.S. Our window, curtainwall, storefront and entrance systems are sold using a combination of direct sales forces, independent sales representatives and distributors.
•Geographic location - We alsoprimarily supply architectural glass products and aluminum framing systems, including window, curtainwall, storefront and entrance systems, to customers in North America. We are one of only a few
architectural glass installation service companies in the U.S. to have a national presence and we have the ability to provide remote installation project management throughout the U.S. We sell our custom and standard windows, curtainwall, storefront and entrance systems using a combination of direct sales forces, independent sales representatives and distributors.
Geographic location - We primarily supplyOur Architectural Glass segment also supplies architectural glass products to customers in North America, with someBrazil and certain other international sales of our high-performance architectural glass. We estimate the U.S. demand for architectural glass fabrication in non-residential buildings is in excess of $1.5 billion annually. Our aluminum framing systems, including windows, curtainwall, storefront and entrances, are marketed primarily in the U.S. and Canada, and we estimate demand to be in excess of $3 billion annually. In installation services, we are one of only a few architectural glass installation companies in the U.S. to have a national presence, and we estimate the U.S. demand for installation services on commercial projects to be in the range of $10 to $20 billion.locations.
Project size - Our Architectural Glass segment primarily serves mid-size to monumental high-profile projects. Architectural Framing Systems primarily targets small and mid-size projects, and Architectural Services primarily serves mid-size projects.
LSO segment
In our LSO segment, we have a leading brand of value-added coated glass and acrylic used in the custom picture framingpicture-framing market and museum market. Under the Tru Vue brand, products are sold primarily in North America through national and regional retail chains using a direct sales force, as well as through local picture framing shopsretailers using an independent distribution network. We also supply our glass, acrylic and acrylicother products to museums, shopsgalleries and galleries worldwideother organizations in Europe and other international locations through independent distributors. We have also begun to supply to other display markets, such as digital signage, and to other wall decor sectors.
Competitive Conditions
Architectural Framing Systems, Architectural Glass and Architectural Services segments
The North American commercial construction market is highly fragmented. Competitive factors include price, product quality, product attributes and performance, reliable service, on-time delivery, lead-time, warranty and the ability to provide project management, technical engineering and design services. To protect and enhance our competitive position, we maintain strong relationships with building owners and architects, who influence the selection of products and services on a project, and with general contractors, who initiate projects and develop specifications.
TheThere is a great deal of competition in the North American commercial window and storefront manufacturing industry, is highly fragmented, and our Architectural Framing Systems segment competes against several national, regional and local aluminum window and storefront manufacturers, as well as regional paint and anodizing finishing companies. Our businesses compete by providing high-quality products, faster than averageinnovation, reliable on-time delivery and short lead times, and on-time delivery.times.
In our Architectural Glass segment, we experience competition from regional glass fabricators who can provide certain products with attributes similar to our products. Within the market sector for large, complex projects, we encounter competition from international companies and large regional fabricators, some of which have benefited from the relative strength of the U.S. dollar and lower fabrication costs in recent years. We maintain our competitive pricing position against these international competitorsdifferentiate ourselves by providing high-quality, innovative and customizable products, short lead times, and responsivestrong customer service.
Our Architectural Services segment competes against national regional and localregional glass installation companies. We distinguish ourselves from these competitors through our strong project management and our track record of regularly meeting each project's unique execution requirements.
LSO segment
Product attributes, price, quality, marketing and service are the primary competitive factors in the LSO segment. Our competitive strengths include our excellent relationships with customers, innovative marketing programs and the performance of our value-added products. We compete with certain European and U.S. valued-added glass and acrylic products for picture framing and display.companies.
Warranties
We offer product and service warranties that we believe are competitive for the markets in which our products and services are sold. The nature and extent of these warranties depend upon the product or service, the market and, in some cases, the customer being served. Our standard warranties are generally from two to 10 years for our architectural glass, curtainwall and window system products, while we generally offer warranties of two years or less on our other products and services.
Sources and Availability of Raw Materials
Raw materials used within the Architectural Glass segment include flat glass, vinyl, silicone sealants and lumber. Materials used in the Architectural Framing Systems segment include aluminum billet and extrusions, fabricated glass, plastic extrusions, hardware, paint and chemicals. Raw materials used within the Architectural Glass segment include flat glass, vinyl, silicone sealants and lumber. Within the Architectural Services segment, materials used include fabricated glass, finished aluminum
extrusions, and fabricated metal panels. Thepanels and hardware. Materials used in the LSO segment mainly usesare primarily glass and acrylic. A majorityMost of our raw materials are readily available from a variety of domestic and international sources.
Trademarks and Patents
We have several trademarks and trade names that we believe have significant value in the marketing of our products, including APOGEE®APOGEE®. Trademark registrations in the U.S. are generally for a term of 10 years, renewable every 10 years as long as the trademark is used in the regular course of trade.
Within the Architectural Framing Systems segment, LINETEC®, WAUSAU WINDOW AND WALL SYSTEMS®SYSTEMS®, TUBELITE®TUBELITE®, ADVANTAGE BY WAUSAU®WAUSAU®, 300ES®300ES®, FINISHER OF CHOICE®CHOICE®, THERML=BLOCK®BLOCK®, MAXBLOCK®MAXBLOCK®,
DFG®, DFG®ECOLUMINUM®, ECOLUMINUM®, ALUMINATE®ALUMINATE®, GET THE POINT!®, FORCEFRONT®FORCEFRONT®, SOTAWALL®SOTAWALL®, HYBRID-WALL®SOTA®, EFCO®HYBRID-WALL®, TERRASTILE®EFCO®, THERMASTILE®TERRASTILE®, THERMASTILE®, TRIPLE SET®SET®, ULTRADIZE®ULTRADIZE®, ULTRAFLUR®ULTRAFLUR®, ULTRALINE®ULTRALINE®, ULTRAPON®ULTRAPON® and XTHERM®XTHERM® are registered trademarks. CUSTOM WINDOW™, INVENT™, INVENT.PLUS™, INVENT RETRO™, INVISION™, CLEARSTORY™, EPIC™, HERITAGE™, VISULINE™, SEAL™, SUPERWALL™, CROSSTRAK™, HP-Wall™, VersaTherm™, E-Strut™, E-Shade™, E-Lite™, Series 960 Wall™, Durastile™ and X Force™ are unregistered trademarks. ALUMICOR™, BUILDING EXCELLENCE™, TerraPorte 7600 Out-Swing accessABLE™, ThermaSlide™ 7000, Integra 6000™, ThermaSlide™ and Integra 6000™SecureSash™ are unregistered trademarks in Canada.
Within the Architectural Glass segment, VIRACON®VIRACON®, DIGITALDISTINCTIONS®DIGITALDISTINCTIONS®, ROOMSIDE®, EXTREMEDGE®, BUILDING DESIGN®ROOMSIDE®, GLASS IS EVERYTHING®EVERYTHING®, CLEARPOINT®CLEARPOINT®, CYBERSHIELD®CYBERSHIELD®, STORMGUARD®, ACCELERATING YOUR ARCHITECTURAL GLASS®,VELOCITY, AN APOGEE COMPANY® and STORMGUARD® VTS® are registered trademarks. VIRASPAN™ is an unregistered trademark. In addition, GLASSEC®GLASSECVIRACON®, INSULATTO®GLASSEC®, INSULATTO® and BLINDATTO®GV PRIME® are registered trademarks in Brazil. GLASSECVIRACON™ is an unregistered trademark in Brazil.
Within the Architectural Services segment, HARMON®HARMON®, H DESIGN®DESIGN®, HARMON GLASS®GLASS®, HI-7000®HI-7000®, and BUILDING TRUST IN EVERYTHING WE DO® and INNOVATIVE FAÇADE SOLUTIONS® are registered trademarks. UCW-8000™, HI-8500™, HI-9000™, SMU-6000™ and HPW-250™ are unregistered trademarks.
Within the LSO segment, TRU VUE®VUE®, CONSERVATION CLEAR®CLEAR®, CONSERVATION REFLECTION CONTROL®, ULTRAVUE®, MUSEUM GLASS®, OPTIUM®, PREMIUM CLEAN®, REFLECTION CONTROL®, AR REFLECTION-FREE®, OPTIUM ACRYLIC®, OPTIUM MUSEUM ACRYLIC®, CONSERVATION MASTERPIECE®, CONSERVATION MASTERPIECE ACRYLIC®, CONSERVATION REFLECTION CONTROL®, ULTRAVUE®, MUSEUM GLASS®, OPTIUM®, PREMIUM CLEAN®, REFLECTION CONTROL®, AR REFLECTION-FREE®ACRYLIC®, TRU VUE AR®, OPTIUM ACRYLIC®, OPTIUM MUSEUM ACRYLIC®, CONSERVATION MASTERPIECE®AR®, STATICSHIELD®, TRULIFE®TRULIFE®, and VISTA AR®AR® are registered trademarks. TRULIFE INFINITY FRAME™, PREMIUM CLEAR™, THE DIFFERENCE IS CLEAR™ and TRU FRAMEABLE MOMENTS™ are unregistered trademarks.trademarks and TRUBARRIER™ is pending federal registration.
We have several patents pertaining to our glass coating methods and products, for hybrid window wall/curtainwall systems and methods of installation, and for our UV coating and etch processes for anti-reflective glass for the picture framing industry and fine art market. Despite being a point of differentiation from our competitors, no single patent is considered to be material.
Seasonality
We do not experience a significant seasonal effectActivity in our Architectural segments. However, the construction industry is highly cyclical in nature and can be influenced differentlyimpacted by the effectsseasonal impact of local economies. Within the LSO segment, North American picture framing glassweather and acrylic sales tendweather events in our operating locations, with activity in some markets reduced in winter due to increase in the September-to-December timeframe, but the timing of customer promotional activities may offset some of this seasonal impact.inclement weather.
Working Capital Requirements
Trade and contract-related receivables and other contract assets are the largest components of our working capital. Inventory requirements, mainly related to raw materials, are most significant in our Architectural Framing Systems and Architectural Glass segments.
Backlog
Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which ismay be expected to be recognized as revenue primarily in the near-term.future. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. Backlog should not be used as the sole indicator of our future revenue becauseIn addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog. We have stronggood visibility beyond backlog, as projects awarded, verbal commitments and bidding activities are monitored separately and not included in backlog.
Architectural Framing Systems segment backlog grewas of year-end was $411.3 million, compared to $378.4$429.6 million at the end of the prior year, reflecting a decline in order volume. We expect approximately 60 percent of the backlog in this segment to be fulfilled in fiscal 2022, with the remainder expected to be filled in fiscal 2023 and beyond; however, the timing of backlog may be impacted by project delays.
Architectural Glass segment backlog as of year-end was $43.5 million, net of intersegment eliminations, compared to $245.4$31.0 million at the end of the prior year, due primarily to the acquisition of EFCO, which contributed approximately $130 million toextended lead times and order activity. We expect this backlog as well as recent increased order activity, particularly of longer lead-time contracts. Approximately 80 percent
of the backlog in this segment is expected to be fulfilled in fiscal 2019, with the remainder expected to be filled in fiscal 2020 and beyond.2022.
Architectural Glass segment backlog as of year-end was $36.7 million, compared to $66.4 million in the prior year, net of intersegment eliminations. This segment has strategically shortened lead-times, with capability and productivity improvements, in order to serve mid-size projects where there is a higher level of book-and-bill activity within quarters. The backlog is all expected to be fulfilled in fiscal 2019.
Backlog in the Architectural Services segment as of year-end was $426.3$570.9 million, compared to $255.1$659.7 million inat the end of the prior year, due to timing of firm orders, signed contracts and signed contracts. Approximately 65the broader industry slow-down that occurred in fiscal 2021. We expect approximately 50 percent of the backlog in this segment is expected to be filled during fiscal 2019,2022, with the remainder expected to be filled in fiscal 20202023 and beyond.beyond; however, the timing of backlog may be impacted by project delays.
Backlog is not a significant metric for the LSO segment, as orders are typically booked and billed within a short time frame.time-frame.
ResearchCompliance with Government Regulations
We are subject to extensive regulation under environmental and Development
The amount spent on researchoccupational safety and development activities was $14.0 million, $8.6 millionhealth laws and $8.0 million in fiscal 2018, 2017 and 2016, respectively. Of these amounts, $1.5 million, $2.2 million and $2.4 million, respectively, were focused primarily upon design of custom window and curtainwall systems in accordance with customer specifications and are included in cost of salesregulations in the accompanying consolidated financial statements.
Environment
WeUnited States and in other countries in which we operate. These laws and regulations relate to, among other things, our use and storage of hazardous materials in our manufacturing operations and associated air emissions and discharges to surface and underground waters. We have air and water emissions that require controls. As a result, we are subjectseveral continuing programs designed to stringentensure compliance with foreign, federal, state and local regulations governing the storageenvironmental and use of these materialsoccupational safety and disposal of wastes.health laws and regulations. We contract with outside vendors to collect and dispose of waste at our production facilities in compliance with applicable environmental laws. In addition, we have procedures in place that we believe enable us to properly manage the regulated materials used in and wastes created by our manufacturing processes. We believe we are currently in material compliance with all such laws and regulations. While we will continue to incur environmentalcosts for compliance costswith government regulations for our ongoing manufacturing operations, we do not expect these to behave a material toeffect upon our consolidated financial statements. We havecapital expenditures, earnings or competitive position. At one manufacturing facility wherein our Architectural Framing Systems segment, we are workingcontinuing to work to remediate historical environmental impacts. TheThese remediation activities are being conducted without significant disruption to our operations.
EmployeesImpact of COVID-19 on Our Business
The ongoing COVID-19 pandemic continues to cause uncertainty in global markets. During fiscal 2021, we experienced delays in commercial construction projects and orders because of COVID-19 and other disruptions to our business, including various physical distancing and health-related precautions, and we were required to close operations at two facilities in our LSO segment for a portion of the year due to governmental orders. Earlier in the pandemic, we were impacted by quarantine-related absenteeism among our production workforce, resulting in labor constraints at some of our facilities. While our efforts to mitigate the impacts of the pandemic have evolved positively, the extent to which COVID-19 will continue to impact our business will depend in part on the effectiveness of ongoing public health initiatives, which have been buoyed by vaccine production and distribution.
In response to this pandemic, we took several cost actions, including a merit and hiring freeze, temporary pay reductions, temporary suspension of the Company's 401(k) matching program, and made short term reductions in capital expenses, while emphasizing spending controls across the company. These temporary cost actions were mostly lifted during the fourth quarter of fiscal 2021.
Human Capital Resources
The Company employed 6,700 and 5,511 personshad approximately 6,100 employees on March 3, 2018 and March 4, 2017, respectively. At March 3, 2018, 629February 27, 2021, down from 7,200 employees on February 29, 2020. As of February 27, 2021, approximately 560 of these employees were represented by U.S. labor unions.
Competition for qualified employees in the markets and industries in which we operate is strong, and the success of our Company depends on our ability to attract, select, develop and retain a productive and engaged workforce. Investing in our employees and their well-being, offering competitive compensation and benefits, promoting diversity and inclusion, and adopting positive human capital management practices are critical components of our corporate strategy.
Health, Wellness and Safety
The safety of our employees is integral to our Company. Providing a safe and secure work environment is one of our highest priorities and we devote significant time and resources to workplace safety. Our safety program is directed by our Risk Roundtable, comprised of safety leaders from across our Company. This group meets quarterly to review safety performance, share best practices, set goals and objectives for the organization, and plan safety culture assessments. In support of our safety efforts, we identify, assess and investigate incidents and injury data, and each year set goals to improve key safety performance indicators. We train, promote, consult and communicate with our workforce during this process.
We offer a comprehensive health and wellness program for our employees. In addition to standard health programs including medical insurance and preventive care, we have a variety of resources available to employees relating to physical and mental wellness.
The COVID-19 pandemic has magnified the importance of keeping our employees safe and healthy. In response to the pandemic, we have taken actions consistent with recommendations of the U.S. Centers for Disease Control and Prevention to protect our workforce. We will continue to emphasize the health and safety of our employees going forward.
Diversity, Equity and Inclusion
Our diversity, equity and inclusion program promotes a workplace where each employee’s abilities are recognized, respected, and utilized to further the Company’s goals. Our aim is to create an environment where people feel included as a part of a team
because of their diversity of outlooks, perspectives, and characteristics, which ultimately adds value for our company. We strive to create a culture of inclusion, reduce bias in our talent practices, and invest in and engage with our communities. We conduct diversity and code of conduct trainings with employees and managers to promote an inclusive and diverse workplace, where all individuals feel respected and part of a team regardless of their race, national origin, ethnicity, gender, age, religion, disability, sexual orientation or gender identity.
Talent Management and Development
Our talent management program is focused on developing employees and leaders to meet the Company’s evolving needs. Managers actively engage with their employees to provide coaching and feedback and identify training and development opportunities to improve performance in the employee’s current role and to position the employee for future growth. Training and development opportunities include new-hire training, job specific training, stretch assignments, and safety training. The company also offers leadership development opportunities, such as our Apogee Leadership Program, along with technical training for engineers, designers and sales staff. In addition, the company offers an education assistance program in which certain eligible employees receive tuition reimbursement to help defray the costs associated with their continuing education. Our executive leadership and Human Resources teams regularly conduct talent reviews and succession planning to assist with meeting critical talent and leadership needs.
International Sales
Information regarding export and international sales is included in Item 8, Financial Statements and Supplementary Data, within Note 1615 of our Consolidated Financial Statements.
Available Information
The Company maintains a website at www.apog.com. Through a link to a third-party content provider, this corporateour website provides free access to the Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as soon as reasonably practicable after electronic filing such material with, or furnishing it to, the Securities and Exchange Commission.Commission (SEC). These reports are also available on the SEC's website at www.sec.gov. Also available on our website are various corporate governance documents, including our Code of Business Ethics and Conduct, Corporate Governance Guidelines, and charters for the Audit, Compensation, and Nominating and Corporate Governance Committees of the Board of Directors.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
|
| | | | | | | | | | | | | |
| Name | | Age | | Positions with Apogee Enterprises and Employment HistoryPast Experience |
Joseph F. PuishysTy R. Silberhorn | | 5953 | | Chief Executive Officer of the Company since January 2021. Prior to joining the Company, Mr. Silberhorn worked for 3M, a diversified global manufacturer and technology company, most recently serving as Senior Vice President of 3M's Transformation, Technologies and Services from April 2019 through December 2020. Prior to this position and since 2001, he held several 3M global business unit leadership roles, serving as Vice President and General Manager for divisions within Safety & Industrial, Transportation & Electronics, and the Consumer business groups. |
| Curtis Dobler | | 55 | | Executive Vice President and Chief Human Resources Officer since April 2019. Executive Vice President and Chief Human Resources Officer at Associated Materials, Inc., a manufacturer and distributor of exterior residential building products, from 2015 through 2019. |
| Meghan M. Elliott | | 44 | | Vice President, General Counsel and Secretary of the Company since June 2020. Prior to this role, Ms. Elliot served as Assistant General Counsel for the Company since 2014. |
| Nisheet Gupta | | 46 | | Executive Vice President and Chief Financial Officer of the Company since June 2020. Prior to joining the Company, Mr. Gupta served Vice President of Global Finance Operations at Land O’Lakes, a leading agribusiness and food company, since 2017. Prior to joining Land O’ Lakes, Mr. Gupta worked at Diebold Nixdorf, a banking solutions and retail technology systems company, as Vice President, Finance, Global Transformation from 2016 to 2017, Vice President, Finance and Chief Financial Officer, International from 2014 to 2016 and in various roles of increasing responsibility in Diebold Nixdorf’s financial organization, from 2011 to 2014. |
| Maureen Hayes | | 58 | | Chief Information Officer of the Company since 2012. |
| Gary R. Johnson | | 59 | | Senior Vice President of the Company since 2011. President of Honeywell's Environmental2018, Treasurer and Combustion Controls division from 2008 through 2011, President of Honeywell's Building Solutions from 2005 through 2008, and President of Honeywell Building Solutions, America from 2004 to 2005. |
James S. Porter | | 57 | | Chief Financial Officer since 2005 and Executive Vice President since 2015. Vice President of Strategy2001 and Planning from 2002 through 2005. Various management positions within the Company since 1997. |
Patricia A. Beithon | | 64 | | General Counsel and Secretary since 1999. |
Gary R. Johnson | | 56 | | Vice President, Treasurer since 2001. Various management positions within the Company since 1995. |
John A. Klein | | 61 | | President of EFCO Corporation, a subsidiaryan employee of the Company since February 2018. Senior Vice President, Operations and Supply Chain Management1995. |
| Greg J. Sachs | | 51 | | Chief Procurement Officer of the Company since January 2020. Prior to joining the Company, Mr. Sachs served as Chief Procurement Officer at Resideo Technologies, Inc., a provider of critical comfort, residential thermal solutions and security solutions, from 20122018 through January 2018. Director of Operations at Cooper Industries' Power Systems Division2020, and previously worked for Honeywell International, Inc. as Chief Procurement Officer from 20082016 through 2012,2018 and as Global Vice President of Operations at Rexnord Industries' Bearing DivisionSourcing from 20052014 through 2007.2016. |
Executive officers are elected annually by the Board of Directors to serve for a one-year period. There are no family relationships between any of the executive officers or directors of the Company.
ITEM 1A. RISK FACTORS
Our business faces many risks. Any of the risks discussed below, or elsewhere in this Form 10-K or our other filings with the Securities and Exchange Commission, could have a material adverse impact on our business, financial condition or results of operations.
GeneralCOVID-19 Pandemic Risks
The novel coronavirus (COVID-19) pandemic, efforts to mitigate the pandemic, and the related weakening economic conditions, have impacted our business and could have a significant negative impact on our operations, liquidity, financial condition and financial results
In early 2020, a novel strain of coronavirus, COVID-19, started to impact the global economic environment causing extreme volatility and uncertainty in global markets. In March 2020, the World Health Organization declared COVID-19 to be a global pandemic and we started to see certain impacts to our business. This contagious disease outbreak, which has continued to spread, and the related adverse public health developments, and government orders to "stay in place," have adversely affected work forces, economies and financial markets globally. Quarantines and "stay in place" orders, the timing and length of containment and eradication solutions, travel restrictions, absenteeism by infected workers, labor shortages or other disruptions to our supply chain or to our customers, have adversely impacted our sales and operating results and have resulted in some continued project delays. In addition, the pandemic contributed to an economic downturn that could affect the ability of our customers to obtain financing for projects, which could therefore impact demand for our products and services. Order lead times could be extended or delayed and our pricing or pricing by our suppliers for needed materials could increase. Some critical materials, products or services may become unavailable if the regional or global spread were significant enough to prevent alternative sourcing.
To date, we have experienced delays in commercial construction projects due to COVID-19. While the construction and construction-related industries are considered an "essential service" in most jurisdictions in which we operate, site closures or project delays have occurred and increased social distancing and health-related precautions are required on many work sites, which may cause additional project delays and additional costs to be incurred. Within the LSO segment, we also experienced the temporary closure of many of our customer's retail locations. We also were required temporarily to shut down our factories in this segment to comply with government "stay in place" orders.
We expect this global pandemic to continue to have an impact on our future revenue and results of operations, the size and duration of which we are currently unable to predict. The global outbreak of COVID-19 continues to evolve rapidly. The extent to which COVID-19 will impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate severity and spread of the disease, the intensity and duration of outbreaks, travel restrictions and social distancing requirements in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain, treat and eradicate the disease.
Given the speed and frequency of continuously evolving developments with respect to this pandemic, we cannot reasonably estimate the magnitude of the impact to our future results of operations, liquidity or financial position. To the extent that our customers and suppliers are adversely impacted by the COVID-19 outbreak, this could reduce the availability, or result in delays, of materials or supplies, or delays in customer payments, which in turn could materially interrupt our business operations and/or impact our results of operations and liquidity.
Market and Industry Risks
North American and global economic and industry-related business conditions materially affect our sales and results of operations
Our Architectural Framing Systems, Architectural Glass and Architectural Services segments are dependent on globalsignificantly influenced by North American economic conditions and the cyclical nature of the North American commercial construction industry. The commercial construction industry is impacted by global macroeconomic trends, that, in turn, affect, among other things,such as availability of credit, employment levels, consumer confidence, interest rates and commodity prices. In addition, changes in architectural design trends, demographic trends, and/or remote work trends could negatively impact demand for our products. To the extent changes in these factors negatively impact the overall commercial construction industry, our revenue and profits could be significantly reduced.
Our Architectural Glass segment's operation located in Brazil is subject to the economic, political and tax conditions prevalent in the country. We cannot predict how changing economic conditions in Brazil will impact our financial results; however, our Brazilian operation makes up less than five percent
Our LSO segment primarily depends on the strength of the retail custom picture framing industry. This industry is highly dependent on consumer confidence and the conditions of the U.S. economy. A decline in consumer confidence, whether as a result of an economic slowdown (due to COVID-19 concerns discussed above or otherwise), uncertainty regarding the future or other factors, could result in a decrease in net sales and operating income of this segment.
Foreign currency exchange impacts
Our subsidiaries in CanadaGlobal instability and Brazil report theiruncertainty arising from events outside of our control, such as significant natural disasters, political crises, public health crises and pandemics, and/or other catastrophic events could materially affect our results of operations
Natural disasters, political crises, public health crises, such as the current COVID-19 pandemic, and financial position in their relevant functional currencies (local country currency),other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which are then translated into U.S. dollars. This translated financial information is included inwe depend, have broader adverse impacts on the commercial construction market, consumer confidence and spending, and/or impact both the well-being of our consolidated financial statements. As the relationship between these currenciesemployees and the U.S. dollar changes, thereour ability to operate our facilities. These types of disruptions or other events outside of our control could be a negative impact onaffect our reported results and financial position.
business negatively, cause delays or cancellation of commercial construction projects or cause us to temporarily close our facilities, harming our operating results. In addition, when the U.S. dollar strengthens against foreign currencies, imports of products into the U.S. produced by international competitors become more price competitive and exportsif any of our U.S.-fabricated products become less price competitive. If we are not able to counteract these typesfacilities, including our manufacturing, finishing or distribution facilities, or the facilities of price pressures through superior quality andour suppliers, third-party service providers, or customers, is affected by natural disasters, political crises, public health crises, or other catastrophic events or events outside of our net salescontrol, our business and operating incomeresults could be negatively impacted.suffer.
New competitors or specific actions of our existing competitors could materially harm our business
All of our operating segmentsWe operate in competitive industries wherein which the actions of our existing competitors or new competitors could result in a loss of customers and/or share of customers' demand.market share. Changes in our competitors' products, prices or services could negatively impact our share of demand, net sales or margins.
Our Architectural Framing Systems and Architectural Glass segments have seen an increase in imports of competitive products into the U.S. from international suppliers due to the relative strength of the U.S. dollar. If foreign imports of competitive products were to occur at increased levels for extended periods of time, our net sales and margins in those segments could be negatively impacted.
Our LSO segment competes with several international specialty glass manufacturers.manufacturers and international and domestic acrylic suppliers. If these competitors are able to successfully increaseimprove their product attributes, service capabilities and production capacity and/or increase their sales and marketing focus toin the U.S. custom picture framing market, this segment's net sales and margins could be negatively impacted.
Acquisitions and related integration activities
We have completed and may complete additional acquisitionsOur customer dependence in the futureLSO segment creates a significant risk of reduced demand for our products
The LSO segment is highly dependent on a relatively small number of customers for its sales, while working to accelerate the execution of our growth strategies, includinggrow in new geographies, adjacent market sectorsmarkets and with new product introductions. While we have a disciplined approach to assessing potential acquisition targets, conducting due diligence activities, negotiating appropriate acquisition terms and integration activities, there are risks inherent in completing acquisitions, including:
diversion of management’s attention from existing business activities;
difficulties or delays in integrating and assimilating information and financial systems, operations and products of an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings and synergies;
potentialcustomers. Accordingly, loss of key employees, customers and suppliers of the acquired businesses or adverse effects on relationships with existing customers and suppliers;
adverse impact on overall profitability if the acquired business does not achieve the return on investment projected at the time of acquisition; and
inaccurate assessment of additional post-acquisition capital investments, undisclosed, contingent or other liabilities, problems executing backlog of material supply or installation projects, unanticipated costs and an inability to recover or manage such liabilities and costs.
If one or more of these risks arises in a material manner, our operating results could be negatively impacted.
Goodwill and indefinite-lived intangible asset impairment
Our total assets include a significant amountcustomer, a significant reduction in pricing, or a shift to a less favorable mix of goodwill and indefinite-lived intangible assets as a result of our recent acquisitions. We test goodwill and indefinite-lived intangibles for impairment annually,value-added picture framing glass or more frequently if events or changes in circumstances indicate the potential for impairment. If future operating performance at one or more of our operating units were to fall significantly below forecast levels or if market conditionsacrylic products for one or more of those customers could materially reduce LSO net sales and operating results. Many customers in this segment temporarily closed retail outlets, during a portion of fiscal 2021, as a result of "stay in place" orders within the United States, resulting in reduced demand for our acquired businesses wereproduct. We are unable to decline,estimate the severity or longer-term impact resulting from this COVID-19 pandemic on our business in this segment.
Operational Risks
If we could incur a non-cash impairment charge that would negatively impact our net earnings.
Effective utilizationare not able effectively to utilize and management ofmanage our manufacturing capacity, our results of operations will be negatively affected
Near-term performance depends, to a significant degree, on our ability to provide sufficient available capacity and appropriately utilize existing production capacity. The failure to successfully maintain existing capacity, or manage unanticipated interruptions in production, successfully implement planned capacity expansions, andand/or make timely investments in additional physical capacity and supporting technology systems could adversely affect our operating results.
Loss of key personnel and inability to source sufficient labor could adversely affect our operating results
Our success depends on the skills of the Company's leadership, construction project managers and other key technical personnel, and our ability to secure sufficient manufacturing and installation labor. Increased activity inIn recent years, strong residential and commercial construction and low U.S. unemployment has caused increased competition for experienced construction project managers. Additionally, some of our manufacturing facilities are located in regions that at times have experienced low levels of unemployment.managers and other labor. If we are unable to retain existing employees, provide a safe and healthy working environment, and/or recruit and train additional employees with the requisite skills and experience, our operating results could be adversely impacted.
Commodity
If we are unable to manage our supply chain effectively, including availability and price fluctuations, trade policy impacts and supply availabilityof materials used in our products, our results of operations will be negatively affected
Our Architectural Framing Systems and Architectural Services segments use aluminum as a significant input to their products. While we structure many of our supply agreements in a way to moderate the effects of fluctuations in the market for raw aluminum and we endeavor to adjust marketour pricing to offset potential impacts, operating results could be negatively impacted by price movements in the market for raw aluminum.
As a result of recently announced increased tariffs on aluminum and sanctions against certain producers, In recent years, we have seen increased volatility regardingin the costprice of aluminum that we purchase from both domestic and international sources. Also, recently announced steel tariffs have the potential to impact our customers as steel is a significant input the construction of commercial buildings. Lastly, dueDue to our Architectural Framing Systems segment presence in Canada, we have significant cross-border activity, as our Canadian businesses purchase inputs from U.S.-based suppliers and sell to U.S.-based customers. A significant change in the terms of the North American Free Trade AgreementU.S. trade policy with Canada could, therefore, have an adverse impact on our net sales and operating results.
Our Architectural Glass and LSO segments use raw glass as a significant input to their products. TheWe periodically experience a tighter supply of raw glass has become tighter due to several years ofwhen there is growth in automotive manufacturing and residential and non-residential construction. Although we have secured supply commitments from multiple suppliers that allow usFailure to reach our near-term growth targets,acquire a sufficient amount of raw glass on terms as favorable as current terms, including as a result of a significant unplanned downtime or shift in strategy at one or more of our key suppliers, could negatively impact our operating results.
Our suppliers are subject to the fluctuations in general economic cycles. Global economic conditions may impact their ability to operate their businesses, including recent impacts from the evolving COVID-19 pandemic. They may also be impacted by the increasing costs or availability of raw materials, labor and distribution, resulting in demands for less attractive contract terms or an inability for them to meet our requirements or conduct their own businesses. The performance and financial condition of one or more suppliers may cause us to alter our business terms or to cease doing business with a particular supplier or suppliers, or change our sourcing practices generally, which could in turn adversely affect our business and financial condition.
If we encounter problems with distribution, our ability to deliver our products to market could be adversely affected. Our operations are vulnerable to interruptions in the event of work stoppages, whether due to health concerns, such as COVID-19 or otherwise, labor disputes or shortages, and natural disasters that may affect our distribution and transportation to job sites. Moreover, our distribution system includes computer-controlled and automated equipment, which may be subject to a number of risks related to data and system security or computer viruses, the proper operation of software and hardware, power interruptions or other system failures. If we encounter problems with our distribution systems, our ability to meet customer and consumer expectations, manage inventory, manage transportation-related costs, complete sales and achieve operating efficiencies could be adversely affected.
Product quality issues and product liability claims could adversely affect our operating results
We manufacture and/or install a significant portion of our products based on the specific requirements of each customer. We believe that future orders of our products or services will depend on our ability to maintain the performance, reliability, quality and qualitytimely delivery standards required by our customers. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. If our products have performance, reliability or quality problems, or products are installed using incompatible glazing materials or installed improperly (by us or a customer), we may experience:experience additional warranty expense; reduced or canceled orders; higher manufacturing or installation costs; or delays in the collection of accounts receivable. Additionally, product liability and warranty claims, including relating to the performance, reliability or quality claims fromof our customers, with or without merit,products and services, could result in costly and time-consuming litigation that could require significant time and attention of management and involve significant monetary damages that could negatively impact our operating results. There is also no assurance that the number and value of product liability and warranty claims will not increase as compared to historical claim rates, or that our warranty reserve at any particular time is sufficient. No assurance can be given that coverage under insurance policies, if applicable, will be adequate to cover future product liability claims against us. If we are unable to recover on an insurance claims, in whole or in part, or if we exhaust our available insurance coverage at some point in the future, then we might be forced to expend legal fees and settlement or judgment costs, which could negatively impact our profitability, results of operations, cash flows and financial results.condition.
Project management and installation issues could adversely affect our operating results
The Architectural Services segment and, occasionally, the Architectural Framing Systems segmentSome of our segments are awarded fixed-price contracts that include material supply and installation services. Often, bids are required before all aspects of a construction project are known. An underestimate in the amount of labor required and/or cost of materials for a project; a change in the timing of the delivery of product; system design errors,errors; difficulties or errors in execution; or significant project delays, caused by us or other trades, could result in failure to achieve the expected results. Any one or more of such issues could result in losses on individual contracts that could negatively impact our operating results.
Changes in architectural trends, building codes or consumer preferences
Any change in commercial construction customer preference, architectural trends or building codes that reduce window-to-wall ratios
Risks related to acquisitions and integration activities could negatively impact net salesadversely affect our operating results
We have completed and operating income in our architectural-related segments. The LSO segment depends on U.S. consumers framing art and other decorative items. Any shift in customer preference away from framed art to other forms of wall decor could negatively impact future net sales and operating incomemay complete additional acquisitions in the LSO segment.future to accelerate the execution of our growth strategies, including new geographies, adjacent market sectors and new product introductions. There are risks inherent in completing acquisitions, including:
•diversion of management’s attention from existing business activities;
Customer dependence•difficulties or delays in the LSO segmentintegrating and assimilating information and financial systems, operations and products of an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings and synergies;
The LSO segment continues to be highly dependent on a relatively small number of customers for its sales, while working to grow in new markets and with additional customers. Accordingly,•potential loss of a significant customer, a significant reduction in pricing,key employees, customers and suppliers of the acquired businesses or a shiftadverse effects on relationships with existing customers and suppliers;
•adverse impact on overall profitability if the acquired business does not achieve the return on investment projected at the time of acquisition; and
•with respect to a less favorable mixthe acquired assets and liabilities, inaccurate assessment of value-added picture framing glassadditional post-acquisition capital investments; undisclosed, contingent or acrylic products forother liabilities; problems executing backlog of material supply or installation projects; unanticipated costs; and an inability to recover or manage such liabilities and costs.
If one or more of those customers could materially reduce LSO net sales and operating results.
Results can differ significantly from our expectations and the expectations of analysts
Our sales and earnings guidance and resulting external analyst estimates are largely based on our view of our business and the broader commercial construction market. Even though we have market intelligence through our contact with real estate developers, building owners and architects, and continually monitor micro- and macro-economic indicators of future performance of the commercial construction market, we are unablethese risks were to precisely predict events that can significantly change market cycles. Failure to meet our guidance or analyst expectations for net sales and earnings would likely have an adverse impact on the market price of our common stock.
Significant risk retention through self-insurance programs
We obtain third-party insurance for potential losses from general liability, employment practices, workers' compensation and automobile liability risk, as well as medical insurance. However, a high amount of risk is retained on a self-insured basis, partially through our wholly-owned insurance subsidiary. Therefore,arise in a material architectural product liability event could have a material adverse effect onmanner, our operating results.results could be negatively impacted.
Dependence onDifficulties in maintaining our information technology systems, and potential security threats, could negatively affect our operating results and/or our reputation
Our operations are dependent upon various information technology systems that are used to process, transmit and store electronic information, and to manage or support our manufacturing operations and a variety of other business processes and activities. We could encounter difficulties in maintaining our existing systems, and developing and implementing new systems. Such difficulties could lead to disruption in business operations and/or significant additional expenses that could adversely affect our results.
Additionally, information technology security threats are increasing in frequency and sophistication. Our information technology and Internet based systems have been in the past, and may be in the future, subject to attempts to gain unauthorized access, breach, malfeasance or other system disruptions, none of which have been material to us to date. These threats pose a risk to the security of our systems and networks, and the confidentiality, availability and integrity of our data. Should such an attack succeed, it could lead to the compromise of confidential information, manipulation and destruction of data and product
specifications, production downtimes, disruption in the availability of financial data, or misrepresentation of information via digital media. The occurrence of any of these events could adversely affect our reputation and could result in litigation, regulatory action, project delay claims, and increased costs and operational consequences of implementing further data protection systems.
UseViolations of hazardous chemicalslegal and regulatory compliance requirements, including environmental compliance
We use hazardous chemicalslaws, and changes in the production processexisting legal and regulatory requirements, may have a negative impact on our business and results of some of our products. As a result, we are subject to a variety of local, state and federal governmental regulations relating to storage, discharge, handling, emission, generation and disposal of toxic or other hazardous substances used to manufacture our products, compliance with which is expensive. Our failure to comply with current or future environmental regulations could result in the imposition of substantial fines, suspension of production, alteration of our manufacturing processes or increased costs.
Changes in tax rates or the adoption of new tax legislationoperations.
We are subject to taxes in thea legal and regulatory framework imposed under federal and state laws and regulatory agencies, including laws and regulations that apply specifically to U.S., Canada public companies and Brazil.laws and regulations applicable to our manufacturing and construction site operations. Our effective tax rateefforts to comply with evolving laws, regulations, and reporting standards may increase our general and administrative expenses, divert management time and attention, or limit our operational flexibility, all of which could be affected byhave a material adverse effect on our business, financial position, and results of operations. Additionally, new laws, rules, and regulations, or changes in the mix of earnings in jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in taxto existing laws or their implementation. On December 22, 2017,interpretations, could create added legal and compliance costs and uncertainty for us.
We use hazardous materials in our manufacturing operations, and have air and water emissions that require controls. Accordingly, we are also subject to federal, state and local environmental laws and regulations, including those governing the Tax Cutsstorage and Jobs Act (the “Act”) was signed into lawuse of hazardous materials and disposal of wastes. A violation of such laws and regulations, or a release of such substances, may expose us to various claims, including claims by third parties, as well as remediation costs and fines.
Financial Risks
Due to our self-insurance programs, we may have a material adverse effect on our operating results in the U.S. While the Act will reduceevent of a material product liability claim
We obtain third-party insurance to provide coverage for potential risk in areas such as employment practices, workers' compensation, directors and officers, automobile, architect's and engineer's errors and omissions, product rework and general liability, as well as medical insurance and various other coverages. However, we retain a high amount of risk on a self-insured basis, partially through our U.S. effective tax rate, the overall impact is uncertain due to the complexity of certain provisions of the Act and ambiguities in the interpretation and application of those provisions.wholly-owned insurance subsidiary. Therefore, anya material change in the interpretation or application of the provisions of the Actarchitectural product liability event could have a significantmaterial adverse effect on our operating results.
Foreign currency effects could negatively affect our sales and operating income
When the U.S. dollar strengthens against foreign currencies, imports of products into the U.S. produced by international competitors become more price competitive and exports of our U.S.-fabricated products become less price competitive. If we are not able to counteract these types of price pressures through superior quality and service, our net sales and operating income could be negatively impacted. Additionally, our international subsidiaries report their results of operations and financial position in their relevant functional currencies (local country currency), which are then translated into U.S. dollars. As the relationship between these currencies and the U.S. dollar changes, there could be a negative impact on our reported results and financial position.
Results can differ significantly from our expectations and the expectations of analysts, which could have an adverse affect on the market price of our common stock
Our sales and earnings guidance and resulting external analyst estimates are largely based on our view of our business and the broader commercial construction market. Further, there is additional risk in our ability to accurately forecast and provide guidance in the current environment, given the evolving conditions as a result of the COVID-19 pandemic and related economic downturn. Failure to meet our guidance or analyst expectations for net earnings.sales and earnings would have an adverse impact on the market price of our common stock.
We may experience further impairment of our goodwill and indefinite-lived intangible assets, in the future, which could adversely impact our financial condition and results of operations Our assets include a significant amount of goodwill and indefinite-lived intangible assets. We evaluate goodwill and indefinite-lived intangible assets for impairment annually in our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. The assessment of impairment involves significant judgment and projections about future performance.
Based on our analysis performed in the fourth quarter of fiscal 2021, we determined impairment of goodwill at two of our reporting units within the Architectural Framing Systems segment, EFCO and Sotawall, and we determined impairment of the EFCO tradename. As a result, we recorded a goodwill impairment expense of $63.8 million and an indefinite-lived intangible asset impairment expense of $6.3 million. Refer to additional information included within Notes 1 and 6 to the Financial Statements contained in Item 8 within this Annual Report on Form 10-K.
The discounted cash flow projections and revenue projections used in these analyses are dependent upon achieving forecasted levels of revenue and profitability. If revenue or profitability were to fall below forecasted levels, or if market conditions were to decline in a material or sustained manner, further impairment could be indicated at these or our other reporting units and we could incur an additional non-cash impairment expense that would negatively impact our financial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table lists, by segment, the Company's major properties as of March 3, 2018.
| | | | | | | | | | | | | | |
| Property Location | | Owned/ Leased | | Function |
| Architectural Framing Systems segment | | | | |
| Wausau, WI | | Owned | | Manufacturing/Administrative |
| Stratford, WI | | Owned | | Manufacturing |
| Reed City, MI | | Owned | | Manufacturing |
| Walker, MI | | Leased | | Manufacturing/Administrative |
| Dallas, TX | | Leased | | Manufacturing |
| Toronto, ON Canada | | Leased | | Manufacturing/Warehouse/Administrative |
| Brampton, ON Canada | | Leased | | Manufacturing/Warehouse/Administrative |
| | | | |
| | | | |
Property LocationMonett, MO | | Owned/ LeasedOwned | | FunctionManufacturing/Warehouse/Administrative |
Architectural Framing Systems segment | | | | |
Wausau, WI | | Owned | | Manufacturing/Administrative
|
Stratford, WI | | Owned | | Manufacturing |
Reed City, MI | | Owned | | Manufacturing |
Walker, MI | | Leased | | Manufacturing/Administrative
|
Dallas, TX | | Leased | | Manufacturing |
Toronto, ON Canada | | Leased | | Manufacturing/Warehouse/Administrative |
Toronto, ON Canada | | Owned | | Manufacturing |
Brampton, ON Canada | | Leased | | Manufacturing/Warehouse/Administrative |
Verona, VA | | Leased | | Manufacturing/Warehouse/Administrative |
Springfield, MO | | Leased | | Manufacturing/Warehouse/Administrative |
Monett, MO | | Owned | | Manufacturing/Warehouse/Administrative |
Architectural Glass segment | | | | |
Owatonna, MN | | Owned | | Manufacturing/Administrative |
Owatonna, MN | | Leased | | Warehouse |
Statesboro, GA | | Owned | | Manufacturing/Warehouse |
St. George, UT | | Owned(1)
| | Manufacturing/Warehouse |
Nazaré Paulista, Brazil | | Owned(2)
| | Manufacturing/Administrative |
Architectural Services segment | | | | |
Minneapolis, MN | | Leased | | Administrative |
West Chester, OH | | Leased | | Manufacturing |
Mesquite, TX | | Leased | | Manufacturing |
Glen Burnie, MD | | Leased | | Manufacturing |
Orlando, FL | | Leased | | Manufacturing |
LSO segment | | | | |
McCook, IL | | Owned | | Manufacturing/Warehouse/Administrative
|
Faribault, MN | | Owned | | Manufacturing/Administrative
|
Other | | | | |
Minneapolis, MN | | Leased | | Administrative |
| |
(1)
Architectural Glass segment | Facility was closed in March 2018 and is classified as held-for-sale as of March 3, 2018. |
| | |
| Owatonna, MN | | Owned | | Manufacturing/Administrative |
| | | | |
| Statesboro, GA | | Owned | | Manufacturing/Warehouse |
| Dallas, TX | | Leased | | Manufacturing/Warehouse |
| Nazaré Paulista, Brazil | | (2)Owned(1)
| This is an owned facility; however, the land is leased from the city. | Manufacturing/Administrative |
| | | | | | | | | | | | | | |
| Property Location | | Owned/ Leased | | Function |
| Architectural Services segment | | | | |
| Minneapolis, MN | | Leased | | Administrative |
| West Chester, OH | | Leased | | Manufacturing |
| Mesquite, TX | | Leased | | Manufacturing |
| Glen Burnie, MD | | Leased | | Manufacturing |
| Orlando, FL | | Leased | | Manufacturing |
| LSO segment | | | | |
| McCook, IL | | Leased | | Manufacturing/Warehouse/Administrative |
| Faribault, MN | | Owned | | Manufacturing/Administrative |
| Other | | | | |
| Minneapolis, MN | | Leased | | Administrative |
(1)This is an owned facility; however, the land is leased from the city.
ITEM 3. LEGAL PROCEEDINGS
TheFrom time to time, the Company has beenis a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company's construction supply and services businesses areCompany is routinely involved in various disputes and claims arising out of construction projects, sometimes involving demands for significant monetary damages or product replacement. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. The Company hasis also been subject to litigation arising out of areas such as employment practices, workers compensation and general liability employment practices, workers' compensation and automobile claims.matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no such claimsmatters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Apogee common stock is traded on the NASDAQ Stock Market LLC (Nasdaq) under the ticker symbol APOG.
"APOG". As of April 12, 2018,7, 2021, there were 1,1421,136 shareholders of record and 14,4769,112 shareholders for whom securities firms acted as nominees.
The following chart shows the quarterly range and year-end closing price for one share of the Company's common stock over the past three fiscal years.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | First | | Second | | Third | | Fourth | | Year-end |
| | | Low | High | | Low | High | | Low | High | | Low | High | | Close |
| 2018 | | $ | 50.72 |
| $ | 59.61 |
| | $ | 41.01 |
| $ | 58.13 |
| | $ | 43.35 |
| $ | 50.12 |
| | $ | 42.01 |
| $ | 50.88 |
| | $ | 43.97 |
|
| 2017 | | 39.93 |
| 45.94 |
| | 41.50 |
| 48.88 |
| | 39.96 |
| 49.17 |
| | 47.64 |
| 59.38 |
| | 58.19 |
|
| 2016 | | 42.35 |
| 56.27 |
| | 49.60 |
| 60.16 |
| | 43.90 |
| 57.86 |
| | 34.52 |
| 50.53 |
| | 39.41 |
|
Dividends
Quarterly, the Board of Directors evaluates declaring dividends based on operating results, available funds and the Company's financial condition. Cash dividends have been paid each quarter since 1974. The chart below shows quarterly and annual cumulative cash dividends per share for the past three fiscal years.
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| Fiscal Year | | First | | Second | | Third | | Fourth | | Total |
| 2021 | | $ | 0.1875 | | | $ | 0.1875 | | | $ | 0.1875 | | | $ | 0.2000 | | | $ | 0.7625 | |
| 2020 | | 0.1750 | | | 0.1750 | | | 0.1750 | | | 0.1875 | | | 0.7125 | |
| 2019 | | 0.1575 | | | 0.1575 | | | 0.1575 | | | 0.1750 | | | 0.6475 | |
| | | | | | | | | | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | First | | Second | | Third | | Fourth | | Total |
| 2018 | | $ | 0.1400 |
| | $ | 0.1400 |
| | $ | 0.1400 |
| | $ | 0.1575 |
| | $ | 0.5775 |
|
| 2017 | | 0.1250 |
| | 0.1250 |
| | 0.1250 |
| | 0.1400 |
| | 0.5150 |
|
| 2016 | | 0.1100 |
| | 0.1100 |
| | 0.1100 |
| | 0.1250 |
| | 0.4550 |
|
Purchases of Equity Securities by the Company
The following table provides information with respect to purchases made by the Company of its own stock during the fourth quarter of fiscal 2018:2021:
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| | | | | | | | | | | | |
| Period | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (b) |
| December 3, 2017 through December 30, 2017 | 75,080 |
| | $ | 45.89 |
| | 74,900 |
| | 667,467 |
|
| December 31, 2017 through January 27, 2018 | 226,251 |
| | 45.13 |
| | 225,998 |
| | 1,441,469 |
|
| January 28, 2018 through March 3, 2018 | 205,678 |
| | 45.59 |
| | 201,401 |
| | 1,240,068 |
|
| Total | 507,009 |
| | $ | 45.43 |
| | 502,299 |
| | 1,240,068 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (b) |
| November 29, 2020 through December 26, 2020 | | — | | | $ | — | | | — | | | 1,443,059 | |
| December 27, 2020 through January 23, 2021 | | 167,567 | | | 37.44 | | | 160,139 | | | 1,282,920 | |
| January 24, 2021 through February 27, 2021 | | 197,680 | | | 37.08 | | | 165,536 | | | 1,117,384 | |
| Total | | 365,247 | | | $ | 37.22 | | | 325,675 | | | 1,117,384 | |
(a) The shares in this column include 180, 253 and 4,277represent the total number of shares respectively, that were repurchased by us pursuant to our publicly announced repurchase program, plus the shares surrendered to us by plan participants during each of the monthly periods referred to above, in order to satisfy stock-for-stock option exercises or withholding tax obligations related to stock-basedshare-based compensation.
(b) In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock, which was announced on April 10, 2003. Subsequently, thestock. The Board of Directors increased the authorization by 750,000 shares, announced on January 24, 2008; by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016, January 9, 2018, and January 14, 2020; and by 2,000,000 shares, announced on October 8, 2008; by 1,000,000 shares, announced on January 13, 2016; and by 1,000,000 shares, announced on January 9,3, 2018. The Company's repurchase program does not have an expiration date.
Comparative Stock Performance
The graph below compares the cumulative total shareholder return on a $100 investment in our common stock for the last five fiscal years with the cumulative total return on a $100 investment in the Russell 2000 Index, a broad equity market index, and the Standard & Poor's Small Cap 600 Growth Index, and the Russell 2000 Index.an index that includes companies of similar market capitalization. The graph assumes an investment at the close of trading on March 2, 2013,February 26, 2016, and also assumes the reinvestment of all dividends.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Apogee | | $ | 100.00 | | | $ | 149.31 | | | $ | 114.13 | | | $ | 94.99 | | | $ | 81.14 | | | $ | 103.58 | |
| S&P Small Cap 600 Growth Index | | 100.00 | | | 131.15 | | | 147.36 | | | 158.24 | | | 147.84 | | | 217.10 | |
| Russell 2000 Index | | 100.00 | | | 136.51 | | | 151.95 | | | 159.67 | | | 150.44 | | | 227.16 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
| Apogee | $ | 100.00 |
| | $ | 132.26 |
| | $ | 179.16 |
| | $ | 155.49 |
| | $ | 232.16 |
| | $ | 177.46 |
|
| S&P Small Cap 600 Growth Index | 100.00 |
| | 131.21 |
| | 140.75 |
| | 129.15 |
| | 169.38 |
| | 190.32 |
|
| Russell 2000 Index | 100.00 |
| | 131.04 |
| | 138.42 |
| | 118.06 |
| | 161.16 |
| | 179.39 |
|
We selected the Standard & Poor's Small Cap 600 Growth Index as an index of companies with similar market capitalization because we are not awareunable to identify a peer group of any competitors, public or private, that arecompanies similar to us in size and scope of business activities or a widely recognized published industry index that accurately reflects our diverse business activities. Most of our direct competitors in our various business units are either privately owned or divisions of larger, publicly owned companies.
ITEM 6. SELECTED FINANCIAL DATA
The following information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this Annual Report on Form 10-K, and our consolidated financial statements and related notes, included in Item 8 of this Report.Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year | | |
| (In thousands, except per share data and percentages) | | 2021(1) | | 2020 | | 2019 | | 2018(2) | | 2017(3)(4) | | |
| Results of Operations Data | | | | | | | | | | | | |
| Net sales | | $ | 1,230,774 | | | $ | 1,387,439 | | | $ | 1,402,637 | | | $ | 1,326,173 | | | $ | 1,114,533 | | | |
| Gross profit | | 275,689 | | | 318,959 | | | 293,565 | | | 333,518 | | | 292,023 | | | |
| Operating income | | 25,527 | | | 87,848 | | | 67,284 | | | 114,284 | | | 122,225 | | | |
| Net earnings | | 15,436 | | | 61,914 | | | 45,694 | | | 79,488 | | | 85,790 | | | |
| Earnings per share - basic | | 0.59 | | | 2.34 | | | 1.64 | | | 2.79 | | | 2.98 | | | |
| Earnings per share - diluted | | 0.59 | | | 2.32 | | | 1.63 | | | 2.76 | | | 2.97 | | | |
| Cash dividends per share | | 0.7625 | | | 0.7125 | | | 0.6475 | | | 0.5775 | | | 0.5150 | | | |
| Balance Sheet Data | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Total assets | | 1,015,099 | | | 1,128,991 | | | 1,068,168 | | | 1,022,320 | | | 784,658 | | | |
| | | | | | | | | | | | |
| Long-term debt | | 165,000 | | | 217,900 | | | 245,724 | | | 215,860 | | | 65,400 | | | |
| Shareholders' equity | | 492,745 | | | 516,778 | | | 496,317 | | | 511,355 | | | 470,577 | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other Data | | | | | | | | | | | | |
| Gross profit as a percentage of sales | | 22.4 | % | | 23.0 | % | | 20.9 | % | | 25.1 | % | | 26.2 | % | | |
| Operating income as a percentage of sales | | 2.1 | % | | 6.3 | % | | 4.8 | % | | 8.6 | % | | 11 | % | | |
Return on average invested capital(5) | | 2.6 | % | | 8.4 | % | | 5.6 | % | | 9.3 | % | | 14.3 | % | | |
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| | | | | | | | | | | | |
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| | | | | | | | | | | | |
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(1)Includes $70.1 million impairment expense on goodwill and indefinite-lived intangible assets.
(2)Includes the acquisition of EFCO in June 2017.
(3)Fiscal 2017 contained 53 weeks. Each of the other periods presented contained 52 weeks.
(4)Includes the acquisition of Sotawall in December 2016.
(5)Return on average invested capital is a non-GAAP financial measure that we define as [operating income x 0.75]/average invested capital. We believe this measure is useful in understanding operational performance over time. This non-GAAP measure should be viewed in addition to, and not as an alternative to, the reported financial results of the company prepared in accordance with GAAP. Other companies may calculate this measure differently from us, thereby limiting the usefulness of the measure for comparison with others.
|
| | | | | | | | | | | | | | | | | | | |
| | Fiscal Year |
| (In thousands, except per share data and percentages) | 2018(1) | | 2017(2)(3) | | 2016 | | 2015 | | 2014(4) |
| Results of Operations Data | | | | | | | | | |
| Net sales | $ | 1,326,173 |
| | $ | 1,114,533 |
| | $ | 981,189 |
| | $ | 933,936 |
| | $ | 771,445 |
|
| Gross profit | 333,518 |
| | 292,023 |
| | 243,570 |
| | 208,544 |
| | 165,252 |
|
| Operating income | 114,284 |
| | 122,225 |
| | 97,393 |
| | 63,585 |
| | 40,285 |
|
| Net earnings | 79,488 |
| | 85,790 |
| | 65,342 |
| | 50,516 |
| | 27,986 |
|
| Earnings per share - basic | 2.79 |
| | 2.98 |
| | 2.25 |
| | 1.76 |
| | 0.98 |
|
| Earnings per share - diluted | 2.76 |
| | 2.97 |
| | 2.22 |
| | 1.72 |
| | 0.95 |
|
| Cash dividends per share | 0.5775 |
| | 0.5150 |
| | 0.4550 |
| | 0.4100 |
| | 0.3700 |
|
| Balance Sheet Data | | | | | | | | | |
| Total assets | 1,022,320 |
| | 784,658 |
| | 657,440 |
| | 612,057 |
| | 569,995 |
|
| Long-term debt | 215,860 |
| | 65,400 |
| | 20,400 |
| | 20,587 |
| | 20,659 |
|
| Shareholders' equity | 511,355 |
| | 470,577 |
| | 406,195 |
| | 382,476 |
| | 356,104 |
|
| Other Data | | | | | | | | | |
| Gross profit as a percentage of sales | 25.1 | % | | 26.2 | % | | 24.8 | % | | 22.3 | % | | 21.4 | % |
| Operating income as a percentage of sales | 8.6 | % | | 11.0 | % | | 9.9 | % | | 6.8 | % | | 5.2 | % |
Return on average invested capital(5) | 9.3 | % | | 14.3 | % | | 12.7 | % | | 8.8 | % | | 6.0 | % |
| |
(1)
| Includes the acquisition of EFCO in June 2017. |
| |
(2)
| Fiscal 2017 contained 53 weeks. Each of the other periods presented contained 52 weeks. |
| |
(3)
| Includes the acquisition of Sotawall in December 2016. |
| |
(4)
| Includes the acquisition of Alumicor in November 2013. |
| |
(5)
| Return on average invested capital is a non-GAAP measure that we define as [operating income x .65]/average invested capital. We believe this measure is useful in understanding operational performance over time. This non-GAAP measure should be viewed in addition to, and not as an alternative to, the reported financial results of the company prepared in accordance with GAAP. Other companies may calculate this measure differently from us, limiting the usefulness of the measure for comparison with others. |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This discussionAnnual Report on Form 10-K, including Management's Discussion and Analysis, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should”“should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this document are “forward-looking statements,” and are based on management's current expectations or beliefs of the Company's near-term results, based on current information available pertaining to the Company, including the risk factors noted under Item 1A in this Form 10-K. From time to time, we also may provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.
Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to, the risks and uncertainties set forth under Item 1A in this Form 10-K.10-K, all of which are incorporated by reference into this Item 7.
We wish to caution investors that other factors might in the future prove to be important in affecting the Company's results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a world leader in the design and development of value-added glass and metal products and services. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical Technologies (LSO).
During fiscal 2018,2021, we advanced strategiesresponded quickly to diversifya challenging environment for our business, driven by the evolving and strengthenongoing impacts of the COVID-19 pandemic and slowness in certain of our revenue streamsend markets. We adapted our business operations so we could continue to serve customers, while keeping the health and safety of our employees a top priority. We focused on driving improvements throughout our business, while using this year to begin positioning the company for sustainable growth and improved profitability in orderthe future. In particular, we paid down a significant percentage of our long-term debt and strengthened our financial position, giving us better financial flexibility going forward. We also made progress on actions to improve the stability of our business throughout an economic cycle, by focusing on diversifying geographies, markets and project sizes served. We also focused on generating cash flow and expanding backlog, as we continue to execute on our strategies and grow our business in fiscal 2019 and beyond.overall cost structure.
Fiscal 20182021 summary of results:
•Consolidated net sales increased to $1.3were $1.2 billion, or 19a decrease of 11 percent over fiscal 2017.2020.
•Operating income was $114.3$25.5 million, a declinedecrease of 6.571 percent from $122.2$87.8 million in the prior year.
•Diluted EPS was $2.76,$0.59, compared to $2.97$2.32 in the prior year, a declinedecrease of 775 percent.
•Adjusted operating income was $132.9$87.1 million, an increasea decrease of 6.83 percent compared to the prior year, and adjusted diluted EPS was $3.23,$2.40 in fiscal 2021, an increase of 6.61 percent compared to the prior year. Refer to the tables that followtable below for detailsa reconciliation to GAAP of these adjusted amounts.
In June 2017, we acquired the assets of EFCO Corporation, a privately-held U.S. manufacturer of architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects, for $192 million in cash. EFCO's results of operations have been included in our consolidated financial statements and within the Architectural Framing Systems segment since the date of acquisition.
Adjusted operating income adjusted operating margin and adjusted earnings per diluted share (“adjusted(adjusted diluted EPS”)EPS) are supplemental non-GAAP financial measures provided by the Company to assess performance on a more comparable basis from period to periodperiod-to-period by excluding amounts that management does not consider part of core operating results. Management uses these non-GAAP measures to evaluate the company’sCompany’s historical and prospective financial performance, measure operational profitability on a consistent basis, and provide enhanced transparency to the investment community. These non-GAAP measures should be viewed in addition to, and not as an alternative to, the reported financial results of the company prepared in accordance with GAAP. Other companies may calculate these measures differently, thereby limiting the usefulness of the measuremeasures for comparison with other companies. Income tax impact on the adjustments is calculated based on the Company's effective tax rate for each period presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Reconciliation of Non-GAAP Financial Information |
| Adjusted Operating Income and Adjusted Net Earnings per Diluted Common Share |
| (Unaudited) |
| | | | | | Diluted per share amounts |
| | Year-ended | | Year-ended |
| (In thousands) | | February 27, 2021 | | February 29, 2020 | | February 27, 2021 | | February 29, 2020 |
| Operating income | | $ | 25,527 | | | $ | 87,848 | | | $ | 0.59 | | | $ | 2.32 | |
| Impairment expense on goodwill and intangible assets | | 70,069 | | | — | | | 2.66 | | | — | |
| Restructuring | | 4,884 | | | — | | | 0.19 | | | — | |
| Gain on sale of building | | (19,346) | | | — | | | (0.74) | | | — | |
| COVID-19 | | 4,988 | | | — | | | 0.19 | | | — | |
| Post-acquisition and acquired project matters | | 1,000 | | | (635) | | | 0.04 | | | (0.02) | |
| Cooperation agreement advisory costs | | — | | | 2,776 | | | — | | | 0.10 | |
Income tax impact on above adjustments (1) | | N/A | | N/A | | (0.53) | | | (0.02) | |
| Adjusted operating income | | $ | 87,122 | | | $ | 89,989 | | | $ | 2.40 | | | $ | 2.38 | |
| | | | | | | | |
| (1) Income tax impact calculated using an estimated statutory tax rate of 25%, which reflects the estimated blended statutory tax rate for the jurisdiction in which the charge or income occurred. Income tax impact excludes the amount of each charge that is non-deductible in the applicable jurisdiction. In prior periods, tax impacts were calculated using an effective tax rate. All such periods were recalculated herein using the 25% estimated statutory tax rate for consistency and comparability with the current period presentation. This change did not have a significant impact on the income tax impact or the adjusted net earnings or adjusted earnings per diluted common share amounts that had been reported for the three months or twelve months ended February 29, 2020. |
|
| | | | | | | | | | | | | | | | | | | | | |
| Reconciliation of Non-GAAP Financial Information |
| Adjusted Operating Income and Adjusted Net Earnings Per Diluted Common Share |
| | | | | | | | Diluted per share amounts |
| In thousands, except per share data | Year-ended March 3, 2018 (52 weeks) | | Year-ended March 4, 2017 (53 weeks) | | % change | | Year-ended March 3, 2018 (52 weeks) | | Year-ended March 4, 2017 (53 weeks) | | % change |
| Operating income | $ | 114,284 |
| | $ | 122,225 |
| | (6.5 | )% | | $ | 2.76 |
| | $ | 2.97 |
| | (7.1 | )% |
| Amortization of short-lived acquired intangibles | 10,521 |
| | 1,722 |
| | N/M |
| | 0.37 |
| | 0.06 |
| | N/M |
|
| Acquisition-related costs | 5,098 |
| | 531 |
| | N/M |
| | 0.18 |
| | 0.02 |
| | N/M |
|
| Restructuring-related costs | 3,026 |
| | — |
| | N/M |
| | 0.11 |
| | — |
| | N/M |
|
| Income tax impact on above adjustments | N/A |
| | N/A |
| | N/M |
| | (0.18 | ) | | (0.02 | ) | | N/M |
|
| Adjusted operating income | $ | 132,929 |
| | $ | 124,478 |
| | 6.8 | % | | $ | 3.23 |
| | $ | 3.03 |
| | 6.6 | % |
Results of Operations
Net Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Net sales | | $ | 1,230,774 | | | $ | 1,387,439 | | | $ | 1,402,637 | | | (11.3) | % | | (1.1) | % |
|
| | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2018 | | 2017 | | 2016 | | 2018 vs. 2017 | | 2017 vs. 2016 |
| Net sales | $ | 1,326,173 |
| | $ | 1,114,533 |
| | $ | 981,189 |
| | 19.0 | % | | 13.6 | % |
Fiscal 20182021 Compared to Fiscal 20172020
Net sales in fiscal 2018 increased2021 decreased by 19.011.3 percent compared to fiscal 2017 due to the acquisition of EFCO2020, reflecting end market softness and COVID-19 related volume declines in the second quarter of 2018. This acquisition, as well as a full year of results from Sotawall (acquired in the fourth quarter of fiscal 2017) and pricing and volume gains from our existing segment businesses, resulted in overall growth in our Architectural Framing Systems, segment, which wasArchitectural Glass and LSO segments, partially offset by increased volume declines in ourthe Architectural Services and Architectural Glass segments.segment, driven by execution of projects in backlog.
Fiscal 20172020 Compared to Fiscal 20162019
Net sales in fiscal 2017 increased2020 decreased by 13.61.1 percent compared to fiscal 2016, due to gains in volume across all three architectural segments, as well as the inclusion of Sotawall, acquired in the fourth quarter of fiscal 2017. Volume growth was2019, driven by continued strength in non-residential construction end-marketsexpected project timing-related decreases within the Architectural Services segment and success in our strategies to expand geographically and introduce new products. Theby lower volumes at certain businesses within the Architectural Framing Systems segment, drove nearly 60 percent of our growth, withpartially offset by improved volume in the acquisition of Sotawall in
the fourth quarter contributing 13 percent of our overall growth. The Architectural Glass segment drove approximately 22 percent of our growth and the Architectural Services segment contributed nearly all of the remainder.segment.
Performance
The relationship between various components of operations, as a percentage of net sales, is provided below.
| | | | | | | | | | | | | | | | | | | | |
| (Percentage of net sales) | | 2021 | | 2020 | | 2019 |
| Net sales | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | | 77.6 | | | 77.0 | | | 79.1 | |
| Gross margin | | 22.4 | | | 23.0 | | | 20.9 | |
| Selling, general and administrative expenses | | 14.6 | | | 16.7 | | | 15.9 | |
| Impairment expense on goodwill and intangible assets | | 5.7 | | | — | | | 0.2 | |
| Operating income | | 2.1 | | | 6.3 | | | 4.8 | |
| | | | | | |
| Interest expense, net | | 0.4 | | | 0.7 | | | 0.6 | |
| Other income (expense), net | | 0.1 | | | 0.1 | | | — | |
| Earnings before income taxes | | 1.8 | | | 5.7 | | | 4.2 | |
| Income tax expense | | 0.6 | | | 1.3 | | | 0.9 | |
| Net earnings | | 1.3 | % | | 4.5 | % | | 3.3 | % |
| Effective income tax rate | | 31.7 | % | | 22.4 | % | | 22.1 | % |
|
| | | | | | | | |
| (Percentage of net sales) | 2018 | | 2017 | | 2016 |
| Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | 74.9 |
| | 73.8 |
| | 75.2 |
|
| Gross profit | 25.1 |
| | 26.2 |
| | 24.8 |
|
| Selling, general and administrative expenses | 16.5 |
| | 15.2 |
| | 14.9 |
|
| Operating income | 8.6 |
| | 11.0 |
| | 9.9 |
|
| Interest (expense) income and other, net | (0.3 | ) | | — |
| | — |
|
| Earnings before income taxes | 8.3 |
| | 11.0 |
| | 9.9 |
|
| Income tax expense | 2.3 |
| | 3.3 |
| | 3.3 |
|
| Net earnings | 6.0 | % | | 7.7 | % | | 6.7 | % |
| Effective income tax rate | 27.7 | % | | 30.1 | % | | 32.9 | % |
Fiscal 20182021 Compared to Fiscal 20172020
Gross profitmargin was 25.122.4 percent in fiscal 2018,2021, a declinedecrease of 11060 basis points from fiscal 2017,2020. This decrease was driven by reduced operating leverage on volume withinthe impact from lower volumes due to end market softness and COVID-19 related project delays, partially offset by strong project execution in the Architectural Services and Architectural Glass segments and the inclusion of EFCO at lower margins, somewhat offset by improved productivity across all our segments.segment.
Selling,Total selling, general and administrative (SG&A) expense for fiscal 20182021, including impairment expense on goodwill and intangible assets noted in the table above, was 16.520.3 percent, an increase of 130360 basis points or $49.4 million, from fiscal 2017, mainly2020. This was driven by a $70.1 million impairment expense taken within the Architectural Framing Systems segment, partially offset by a $19.3 million gain on the sale-leaseback of a building within the Large-Scale Optical segment and $7.4 million of income related to a New Markets Tax Credit transaction within the Architectural Glass segment. In addition, we received a benefit of $7.4 million in fiscal 2021, as a result of a Canadian wage subsidy program offered to support Canadian business impacted by the inclusion of EFCO, as well asCOVID-19 pandemic, thereby offsetting cost actions that would have been taken had this subsidy not been secured.
Net interest expense declined by 30 basis points compared to the prior year, due to the lower average debt balance in fiscal 2021 and a full year of amortization expense on intangible assets acquired in the Sotawall transaction.favorable one-time legal settlement impacting interest.
The effective tax rate for fiscal 20182021 was 27.731.7 percent, compared to 30.122.4 percent in fiscal 2017. The decline2020, primarily due to nondeductible goodwill impairment in Canada and the impact of 240 basis points was a result of benefits from the U.S. Tax Cuts and Jobs Act ("the Act"), enactedunfavorable permanent items in December 2017.relation to reduced earnings in fiscal 2021.
Fiscal 20172020 Compared to Fiscal 20162019
Gross profitmargin was 26.223.0 percent in fiscal 2017,2020, an improvementincrease of 140210 basis points from fiscal 2016,2019. This increase was driven by project-related charges of $40.9 million incurred in fiscal 2019 on certain contracts acquired with the purchase of EFCO. The
increase was also driven by operating improvements in the Architectural Glass segment, partially offset by manufacturing difficulties in certain of the businesses in the Architectural Framing Systems segment and reduced operating leverage in the Architectural Services segment, based on increased volume and improved productivity in our three architectural segments.timing of project activity.
Selling, general and administrativeSG&A expense for fiscal 20172020 was 15.216.7 percent, an increase of 3060 basis points or $23.6 million, from fiscal 2016, mainly as a result of increased incentive-related2019. This was primarily driven by costs for outside advisors and legal fees, including cooperation agreement advisory costs, in addition to higher compensation and intangible asset amortization expenses.related costs compared to the prior year.
The effective tax rate for fiscal 20172020 was 30.122.4 percent, compared to 32.922.1 percent in fiscal 2016. The decline2019, due to the impact of 280 basis points was a result of benefits from various tax planning strategies, including recognition of a foreign tax credit contributing 160 basis points, and increased income in foreign jurisdictions with lower tax rates.state taxes.
Segment Analysis
Architectural Framing Systems
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Net sales | | $ | 570,850 | | | $ | 686,596 | | | $ | 720,829 | | | (16.9) | % | | (4.7) | % |
| Operating income | | (44,761) | | | 36,110 | | | 49,660 | | | N/M | | (27.3) | % |
| Operating margin | | (7.8) | % | | 5.3 | % | | 6.9 | % | | | | |
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Net sales | $ | 677,198 |
| | $ | 385,978 |
| | $ | 308,593 |
|
| Operating income | 59,031 |
| | 44,768 |
| | 31,911 |
|
| Operating margin | 8.7 | % | | 11.6 | % | | 10.3 | % |
Fiscal 20182021 Compared to Fiscal 2017. 2020. Net sales improved 75.4decreased 16.9 percent, or $291.2$115.7 million, overfrom fiscal 2017. EFCO, acquired2020, primarily reflecting lower order volume for short lead-time products and market-related project delays. The segment had an operating loss of $44.8 million and operating margin of (7.8) percent in fiscal 2021, compared to operating income of $36.1 million and operating margin of 5.3 percent in fiscal 2020, reflecting the second quarterimpact of fiscal 2018, contributed net salesthe $70.1 million impairment expense and leverage on the lower revenue, partially offset by cost reduction actions and the benefit of $203.7$7.4 million in fiscal 2018, or approximately 70 percent of the total segment growth, and Sotawall contributed 19 percent of the growth in fiscal 2018. Net sales increased 8.7 percent over the prior year within our existing2021 from a Canadian wage subsidy program offered to Canadian businesses due to increased pricing in order to offset material inflation, volume growth due to gains in share of demand and geographic growth in North America.
Operating margin declined 290 basis points over fiscal 2017, with improved margins in legacy businesses offsetimpacted by the inclusion of EFCO at lower operating margins.COVID-19 pandemic.
Fiscal 20172020 Compared to Fiscal 2016. 2019. Net sales improved 25.1decreased 4.7 percent, or $77.4$34.2 million, overfrom fiscal 2016, due to volume growth across our businesses. Our volume growth resulted from strong U.S. construction market conditions, increased penetration into certain geographies and new product introductions. In addition, Sotawall, acquired in the fourth quarter of fiscal 2017, contributed net sales of $17.8 million in fiscal 2017, or approximately six percentage points of growth. Operating margin improved 130 basis points over fiscal 2016, driven by leverage on volume growth and productivity.
Architectural Glass
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Net sales | $ | 384,137 |
| | $ | 411,881 |
| | $ | 377,713 |
|
| Operating income | 32,764 |
| | 44,656 |
| | 35,504 |
|
| Operating margin | 8.5 | % | | 10.8 | % | | 9.4 | % |
Fiscal 2018 Compared to Fiscal 2017. Fiscal 2018 net sales decreased 6.7 percent, or $27.7 million, over the prior year. The decrease was2019, primarily due to volume declines on larger projects in our U.S.-based business,lower volumes as a result of international competition as well as lower pricing on a higher mix of less complex glass products for mid-size projects.certain customer-driven schedule delays. Operating margin declined 230160 basis points driven by reduced operating leverage onfrom fiscal 2019, reflecting the impact of lower volume, lower pricing due to project mixvolumes and restructuring-related charges associated withcertain operational difficulties negatively impacting customer deliveries in two of the closure of our Utah facility, somewhat offset by improved productivity.segment's businesses, which have since been addressed.
Architectural Glass
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Net sales | | $ | 330,256 | | | $ | 387,191 | | | $ | 367,203 | | | (14.7) | % | | 5.4 | % |
| Operating income | | 18,678 | | | 20,760 | | | 16,503 | | | (10.0) | % | | 25.8 | % |
| Operating margin | | 5.7 | % | | 5.4 | % | | 4.5 | % | | | | |
Fiscal 20172021 Compared to Fiscal 2016. 2020. Fiscal 20172021 net sales increased 9.0decreased 14.7 percent, or $34.2 million, over the prior year. This was primarily due to volume growth and improved pricing and mix in our U.S.-based business, as a result of our focus on growth in the mid-size building sector, as well as the effects of a positive U.S. construction market. Operating margin improved 140 basis points, driven by leverage on volume growth, pricing, mix and productivity.
Architectural Services
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Net sales | $ | 213,757 |
| | $ | 270,937 |
| | $ | 245,935 |
|
| Operating income | 10,420 |
| | 18,494 |
| | 11,687 |
|
| Operating margin | 4.9 | % | | 6.8 | % | | 4.8 | % |
Fiscal 2018 Compared to Fiscal 2017. Net sales decreased 21.1 percent, or $57.2$56.9 million, over the prior year, due to year-on-yearmarket-related volume declines and project delays. Operating margin increased 30 basis points for the fiscal year ended 2021 compared to the prior year period, as a result of $7.4 million of income related to a New Markets Tax Credit transaction, offset by the impacts of lower volume and increased costs related to the small projects growth initiative.
Fiscal 2020 Compared to Fiscal 2019. Fiscal 2020 net sales increased 5.4 percent, or $20.0 million, over fiscal 2019, due to improved volume and mix, with growth in mid-size projects offsetting lower large project revenue due to increased foreign competition. Operating margin increased 90 basis points for fiscal year 2020 compared to fiscal 2019, as a result of improved factory productivity and volume leverage and cost control. This improvement was partially offset by 160 basis points of start-up costs related to a new manufacturing facility for the segment's small projects growth initiative.
Architectural Services
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Net sales | | $ | 295,807 | | | $ | 269,140 | | | $ | 286,314 | | | 9.9 | % | | (6.0) | % |
| Operating income | | 31,182 | | | 23,582 | | | 30,509 | | | 32.2 | % | | (22.7) | % |
| Operating margin | | 10.5 | % | | 8.8 | % | | 10.7 | % | | | | |
Fiscal 2021 Compared to Fiscal 2020. Net sales increased 9.9 percent, or $26.7 million, compared to the prior year, driven by increased volume from executing projects in backlog. Operating margin increased 170 basis points over the prior year, primarily driven by improved volume leverage and strong project execution.
Fiscal 2020 Compared to Fiscal 2019. Net sales decreased 6.0 percent, or $17.2 million, compared to fiscal 2019, as a result of lower volumes due to timing of project activity. Operating margin declineddecreased 190 basis points over fiscal 2019, due primarily to reduced leverage on the lower project volume and project mix.
Large-Scale Optical Technologies (LSO)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 | | 2021 vs. 2020 | | 2020 vs. 2019 |
| Net sales | | $ | 70,050 | | | $ | 87,911 | | | $ | 88,493 | | | (20.3) | % | | (0.7) | % |
| Operating income | | 31,203 | | | 22,642 | | | 23,003 | | | 37.8 | % | | (1.6) | % |
| Operating margin | | 44.5 | % | | 25.8 | % | | 26.0 | % | | | | |
Fiscal 2021 Compared to Fiscal 2020. Fiscal 2021 net sales decreased 20.3 percent, or $17.9 million, compared to the prior year, as a result of lower volume leveragethe required COVID-related closure of most of the segment's customers and the segment's manufacturing locations for several months during the first half of fiscal 2021. The segment had operating margin of 44.5 percent in fiscal 2021 compared to operating margin of 25.8 percent in fiscal 2020, reflecting the impact of a $19.3 million gain on fixed project management, engineering and manufacturing costs,the sale-leaseback of a building recognized during the third quarter of fiscal 2021, partially offset by favorable project performance.the impacts of the temporary shutdown and the related lower volume.
Fiscal 20172020 Compared to Fiscal 2016. 2019. Net sales improved 10.2 percent, or $25.0 million, over fiscal 2016, driven by volume growth. This growth was due to year-on-year timing of project activity, as we continued to experience strong commercial construction activity in the U.S. Operating margin improved 200 basis points over the same period, as a result of leveraging volume growth and continued good execution on projects with better margins.
Large-Scale Optical Technologies (LSO)
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Net sales | $ | 88,303 |
| | $ | 89,710 |
| | $ | 88,541 |
|
| Operating income | 22,000 |
| | 22,467 |
| | 22,963 |
|
| Operating margin | 24.9 | % | | 25.0 | % | | 25.9 | % |
Fiscal 2018 Compared to Fiscal 2017. Net sales decreased 1.6 percent over the prior year and operating margin declined 10 basis points over the prior year, as productivity gains were offset by unfavorable pricing, mixlargely consistent compared to fiscal 2019, with good cost control and volume.operational performance.
Fiscal 2017 Compared to Fiscal 2016. Net sales increased 1.3 percent over the prior year due to volume growth. Operating margin declined 90 basis points over the prior year, as a result of increased investments in new market opportunities.
Liquidity and Capital Resources
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Operating Activities | | | | | | |
| Net cash provided by operating activities | | $ | 141,863 | | | $ | 107,262 | | | $ | 96,423 | |
| Investing Activities | | | | | | |
| Capital expenditures | | (26,165) | | | (51,428) | | | (60,717) | |
| | | | | | |
| Proceeds on sale of property | | 25,108 | | | 5,307 | | | 12,333 | |
| | | | | | |
| Financing Activities | | | | | | |
| (Payments) borrowings on line of credit, net | | (47,739) | | | (177,500) | | | 30,000 | |
| (Repayment) borrowings on debt | | (5,400) | | | 150,000 | | | — | |
| Repurchase and retirement of common stock | | (32,878) | | | (25,140) | | | (43,326) | |
| Dividends paid | | (19,601) | | | (18,714) | | | (17,864) | |
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Operating Activities | | | | | |
| Net cash provided by operating activities | $ | 127,463 |
| | $ | 124,001 |
| | $ | 128,943 |
|
| Investing Activities | | | | | |
| Capital expenditures | (53,196 | ) | | (68,061 | ) | | (42,037 | ) |
| Acquisition of business and intangibles | (182,849 | ) | | (137,932 | ) | | — |
|
| Financing Activities | | | | | |
| Borrowings on line of credit, net | 149,960 |
| | 44,988 |
| | — |
|
| Repurchase and retirement of common stock | (33,676 | ) | | (10,817 | ) | | (24,911 | ) |
| Dividends paid | (16,393 | ) | | (14,667 | ) | | (13,184 | ) |
Operating Activities. Cash provided by operating activities was $127.5$141.9 million in fiscal 2018,2021, an increase of $3.5$34.6 million from fiscal 2017. In both fiscal 2018 and fiscal 2017 we maintained effective2020, primarily reflecting strong working capital management.
Investing Activities. Net cash used in investing activities was $225.7$2.1 million in fiscal 2018, largely2021, compared to $47.0 million in fiscal 2020, due to nearly $20 million of increased proceeds from property sales in fiscal 2021, related to the acquisitionsale of EFCOan LSO manufacturing facility in Illinois in the third quarter of fiscal 2021, and reduced capital expenditures focused primarily on increasing our product capabilities and manufacturing productivity.by $25 million in fiscal 2021 compared to fiscal 2020. In fiscal 2017, cash of $183.82020, we sold an Architectural Framing manufacturing facility in Toronto, and in fiscal 2019, we sold an Architectural Glass manufacturing facility in Utah.
Financing Activities. Cash used in financing activities was $107.9 million was usedin fiscal 2021, compared to acquire Sotawall and to make capital expenditures focused on increasing our product capabilities,$74.5 million in particular related to our oversized glass fabrication project, and manufacturing productivity.fiscal 2020. In fiscal 2016, capital investments were primarily focused2021, we made net repayments on increasing manufacturing productivity and capacity.
We estimate fiscal 2019 capital expenditures to be $60 to $65debt of $53.1 million, as we continue to invest in productivity and capacity to capture new geographic and market segments.
We continue to review our portfolio of businesses and their assets in comparison to our internal strategic and performance objectives. As part of this review, we may continue to acquire other businesses, pursue geographic expansion, take actions to manage capacity and further invest in, fully divest and/or sell parts of our current businesses.
Financing Activities. We paid dividends totaling $16.4$19.6 million in fiscal 2018. Additionally, weand repurchased 702,2991,177,704 shares under our authorized share repurchase program, during fiscal 2018, forat a total cost of $33.7$32.9 million. We repurchased 250,001686,997 shares under the program in fiscal 20172020 and 575,0001,257,983 shares under the program in fiscal 2016.2019. We have repurchased a total of 4,009,9327,132,616 shares, at a total cost of $106.0$207.3 million, since the 2004 inception of this program. We have remaining authority to repurchase 1,240,0681,117,384 shares under this program, which has no expiration date.date, and we will continue to evaluate making future share repurchases, depending on our cash flow and debt levels, market conditions, including the continuing effects of the COVID-19 pandemic, and other potential uses of cash.
We maintain a $335.0 million committed revolving credit facility that expires in NovemberDuring the third quarter of fiscal 2021, we amended our term loan to extend the maturity date to June 2024, as further described in Note 87 of the Notes to Consolidated Financial Statements. $195.0 million wasAs of February 27, 2021, no borrowings were outstanding under this
the revolving credit facility as of March 3, 2018, as we used this facility to finance the EFCO acquisition.facility. As defined within the credit facility, we have two financial covenants which require us to stay below a maximum leverage ratio and to maintain a minimum interest expense-to-EBITDA ratio. At March 3, 2018,February 27, 2021, we were in compliance with both financial covenants.
Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of March 3, 2018:February 27, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Fiscal Period |
| (In thousands) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
| Debt obligations | | $ | 2,000 | | | $ | 1,000 | | | $ | — | | | $ | 150,000 | | | $ | — | | | $ | 12,000 | | | $ | 165,000 | |
| Operating leases (undiscounted) | | 13,731 | | | 12,249 | | | 10,558 | | | 9,290 | | | 7,464 | | | 12,581 | | | 65,873 | |
| Purchase obligations | | 210,268 | | | 39,933 | | | 1,041 | | | 872 | | | 872 | | | 486 | | | 253,472 | |
| Total cash obligations | | $ | 225,999 | | | $ | 53,182 | | | $ | 11,599 | | | $ | 160,162 | | | $ | 8,336 | | | $ | 25,067 | | | $ | 484,345 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Fiscal Period |
| (In thousands) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| Debt obligations | $ | 121 |
| | $ | 121 |
| | $ | 5,520 |
| | $ | 197,120 |
| | $ | 1,098 |
| | $ | 12,000 |
| | $ | 215,980 |
|
| Operating leases (undiscounted) | 14,385 |
| | 12,440 |
| | 9,095 |
| | 7,090 |
| | 6,199 |
| | 14,110 |
| | 63,319 |
|
| Purchase obligations | 149,056 |
| | 31,167 |
| | 2,459 |
| | 1,230 |
| | — |
| | — |
| | 183,912 |
|
| Total cash obligations | $ | 163,562 |
| | $ | 43,728 |
| | $ | 17,074 |
| | $ | 205,440 |
| | $ | 7,297 |
| | $ | 26,110 |
| | $ | 463,211 |
|
In addition toDebt obligations in the committed revolving credit facility discussedtable above we also haveinclude $15.0 million of industrial revenue bond obligations of $20.4 million that mature in fiscal years 20212022 through 2043 and $0.5 million of other debt that matures in August 2022.2043.
We acquire the use of certain assets through operating leases, such as warehouses, vehicles, forklifts,manufacturing equipment, office equipment, hardware, software and some manufacturing equipment.vehicles. While many of these operating leases have termination penalties, we consider the risk related to termination penalties to be minimal.
Purchase obligations in the table above relate to raw material commitments and capital expenditures.
We expect to make contributions of approximately $1.0$0.7 million to our defined-benefit pension plans in fiscal 2019,2022, which will equal or exceed our minimum funding requirements.
As of March 3, 2018,February 27, 2021, we had reserves of $4.6$3.8 million and $1.3$0.5 million for long-term unrecognized tax benefits and environmental liabilities, respectively. We expect approximately $0.5 million of the unrecognized tax benefits to lapse during the next 12 months. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits and environmental liabilities will ultimately be settled.
At March 3, 2018,February 27, 2021, we had ongoing letters of credit of $23.5$18.7 million related to industrial revenue bonds, and construction contracts and insurance collateral that expire in fiscal 20192022 and that reduce availability of fundsborrowing capacity under our committedthe revolving credit facility.
In addition to the above standby letters of credit, we are required, in the ordinary course of business, to provide surety or performance bonds that commit payments to our customers for any non-performance by us.non-performance. At March 3, 2018, $238.6February 27, 2021, $532.4 million of our backlog was bonded by performance bonds with a face value of $519.3 million. Performance$1.1 billion. These bonds do not have stated expiration dates, as we are released from the bonds upon completion of the contracts and any related warranty periods.contract. We have nevernot been required to make any payments related tounder these performance bonds with respect to anyour existing businesses.
During calendar 2020, we took advantage of the option to defer remittance of the employer portion of Social Security tax as provided in the Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"). This deferral allowed us to retain cash during calendar year 2020 that would have otherwise been remitted to the federal government. At the end of fiscal 2021, we had deferred tax payments of $13.6 million, which are included within accrued payroll and other benefits and other non-current liabilities on our current portfolioconsolidated balance sheets. The deferred tax payments will be repaid equally in calendar years 2021 and 2022. The CARES Act, along with other foreign government initiatives, also provides for job retention programs, which have provided payroll tax credits or subsidies of businesses.$8.0 million during calendar year 2020.
We had total cash and short-term marketable securities of $19.8$47.3 million, and $116.5$216.3 million available under our committed revolving credit facility, at March 3, 2018.February 27, 2021. Due to our ability to generate strong cash from operations and our available sources of borrowing capability under our committed revolving credit facility,capacity, we believe that our sources of liquidity will continue to be adequate to fund our working capital requirements plannedand necessary capital expenditures and dividend payments for at least the next 12 months. We also believe we will continue to be in compliance with our existing debt covenants over the next fiscal year.
We continually review our portfolio of businesses and their assets and how they support our business strategy and performance objectives. As part of this review, we may acquire other businesses, pursue geographic expansion, take actions to manage capacity and further invest in, divest and/or sell parts of our current businesses.
Off-balance Sheet Arrangements. With the exception of operating leases, weWe had no off-balance sheet arrangements at March 3, 2018February 27, 2021 or March 4, 2017.February 29, 2020.
Outlook
The following statements are based on our current expectations forFor fiscal 2019 results. These statements are forward-looking, and actual results may differ materially.
Revenue growthyear 2022, we expect full-year earnings to be in the range of approximately 10 percent over fiscal 2018.
Operating margin of 8.8$2.10 to 9.3 percent.
Earnings$2.35 per diluted shareshare. This includes $7 to $10 million of $3.30expected pre-tax costs related to $3.50.
Adjusted operating margin of 9.1 to 9.6 percent and adjusted earnings per diluted share of $3.43 to $3.63. These are non-GAAP measures that reflect the after-tax impact of amortization of short-lived acquired intangible assets from the Sotawall and EFCO acquisitions of $3.8 million ($0.13 per diluted share).
Capital expenditures of approximately $60 to $65 million.
Effective annualinvestments in transformation initiatives. The company currently expects a full-year tax rate of approximately 24 percent.24.5 percent and capital expenditures of approximately $45 million.
Recently Issued Accounting Pronouncements
See Note 1 of the Notes to Consolidated Financial Statements within Item 8 of this Form 10-K for information pertaining to recently issued accounting pronouncements, incorporated herein by reference.
Critical Accounting Policies
Our analysis of operations and financial condition is based on our consolidated financial statements prepared in accordance with U.S. GAAP. Preparation of these consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent assets and liabilities. In developing these estimates and assumptions, a collaborative effort is undertaken involving management across the organization, including finance, sales, project management, quality, risk, legal and tax, as well as outside advisors, such as consultants, engineers, lawyers and actuaries. Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could differ under other assumptions or circumstances.
We consider the following items in our consolidated financial statements to require significant estimation or judgment.
Revenue recognition
We generate revenue from the design, engineering and fabrication of architectural glass, curtainwall, window, storefront and entrance systems, and from installing those products on commercial buildings. We also manufacture value-added glass and acrylic products. Due to the diverse nature of our operations and various types of contracts with customers, we have businesses that recognize revenue when title has transferred, except within our Architectural Services segmentover time and for one business within our Architectural Framing Systems segment,businesses that recognize revenue at a point in time. We believe the most significant areas of estimation and judgment relate to over-time revenue recognition on longer-term contracts.
We have three businesses which enter intooperate under long-term, fixed-price contracts, for projects typically performed over a 12- to 24-month timeframe.representing approximately 36 percent of our total revenue in fiscal February 27, 2021. The contracts clearly specify the enforceable rights of the parties, the consideration and the terms of settlement, and both parties are expected to satisfy all obligations under the contract. We record revenue for these businesses have a single, bundled performance obligation, as these businesses generally provide interrelated products and services and integrate these products and services into a combined output specified by the customer. The customer obtains control of this combined output, generally integrated window systems or installed window and curtainwall systems, over time. We measure progress on these contracts on a percentage-of-completion basis as we are able to reasonably estimate total contract revenue and total contract costs. We compare thefollowing an input method, by comparing total costs incurred to dateto-date to the total estimated costs for the contract, and record that proportion of the total contract price as revenue in the period. Contract costs include materials, labor and other direct costs related to contract performance. We believe utilizingthis method of recognizing revenue is consistent with our progress in satisfying our contract obligations.
Due to the cost-to-cost methodnature of the work required under these long-term contracts, the estimation of costs incurred and remaining to complete on a project is subject to many variables and requires significant judgment. It is common for revenue recognition providesthese contracts to contain potential bonuses or penalties which are generally awarded or charged upon certain project milestones or cost or timing targets, and can be based on customer discretion. We estimate variable consideration at the greatest degree of accuracy in measuring revenue throughout the contract period. Provisions are established formost likely amount to which we expect to be entitled. We include estimated losses, if any, on uncompleted contractsamounts in the periodtransaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in which such lossesthe transaction price are determined. Amounts representing contract change orders, claims or other itemsbased largely on our assessments of anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
Long-term contracts are includedoften modified to account for changes in contract revenue only upon customer approval. Recognizing revenue underspecifications and requirements of work to be performed. We consider contract modifications to exist when the percentage-of-completion methodmodification, generally through a change order, either creates new or changes existing enforceable rights and obligations, and we evaluate these types of accounting requiresmodifications to determine whether they may be considered distinct performance obligations. In many cases, these contract modifications are for goods or services that are not distinct from the existing contract, due to the significant estimates, including total costs andintegration service provided in the percentage completecontext of the contract. Therefore, these modifications are generally accounted for as part of the existing contract. The effect of a contract modification on the contract,transaction price and our measure of progress is recognized as well as any potential losses or contract overruns. During fiscal 2018, approximately 22 percent of our consolidated sales were recordedan adjustment to revenue, generally on a percentage-of-completioncumulative catch-up basis.
Goodwill and indefinite-lived intangible asset impairment
Goodwill
We evaluatehave historically evaluated goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. During the first quarter of fiscal 2021, we identified qualitative indicators of impairment, including a significant decline in our stock price and market capitalization, along with concerns resulting from the COVID-19 pandemic, at four of our reporting units. We performed a quantitative goodwill impairment evaluation at that time and the asset mightestimated fair value of each reporting unit exceeded its carrying value. Therefore, goodwill impairment was not indicated in the first quarter of fiscal 2021. In the third quarter of fiscal 2021, we changed the date of our annual goodwill impairment test from our fiscal year-end to the first day in our fiscal fourth quarter. This change results in better alignment of the annual impairment test with our strategic and annual planning processes. This change was determined not to be impaired. This yearmaterial to and had no impact on our current or historical consolidated financial statements.
Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by segment management on a regular basis. During the third quarter of fiscal 2021, we combined two reporting units into one reporting unit, following certain structural and leadership changes at the Company, specifically within the Architectural Framing Systems segment. Within this segment, as a result of integration efforts that are ongoing, leadership over the Tubelite and Alumicor reporting units has been combined and functional leaders in areas such as operations, sales, marketing and administration are responsible for allocating resources and reviewing results of the combined business. The goodwill of the individual reporting units was therefore aggregated to the combined reporting unit. We evaluated goodwill on a qualitative basis prior to and subsequent to this change and concluded that no adjustment to the carrying value of goodwill was necessary as a result of this change.
For our fiscal 2021 annual impairment test, we elected to bypass the qualitative assessment process and to proceed directly to comparing the fair value of each of our reporting units to carrying value, including goodwill. If the fair value exceeds the carrying value, goodwill impairment is not indicated. Each of our nine businesses (or business units) represents a reporting unit for the goodwill impairment analysis. For our goodwill impairment testing beginning in fiscal 2018, we have elected to early adopt Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment. As a result of this election, ifIf the carrying amount of a reporting unit would be determined to beis higher than its estimated fair value, the excess is recognized as an impairment loss is recognized for the excess.expense.
We base our determination ofestimate the fair value onof a reporting unit using both the income approach and the market approach. The income approach uses a discounted cash flow methodology that involves significant judgment and projections of future performance. Assumptions about future revenues and future operating expenses, capital expenditures and changes in working capital are based on the annual operating plan and long-termother business planplans for each businessreporting unit. These plans take into consideration numerous factors, including historical experience, current and future operational plans, anticipated future economic conditions and growth expectations for the industries and end markets in which we participate. Growth rates for revenues and operating profits vary for each reporting unit. The discount rate assumption is consistent across business units and takes into consideration an estimatedThese projections are discounted using a weighted-average cost of capital.capital, which considers the risk inherent in our projections of future cash flows. We determine the weighted-average cost of capital for this analysis by weighting the required returns on interest bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure, using published data where possible. We used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the internally developed forecasts. The market approach uses a multiple of earnings and revenue based on guidelines for publicly traded companies.
Based on our analysis, thethese analyses, estimated fair value of each reporting unit exceeded its carrying value and, therefore, goodwill impairment was not indicated. However, for oneat six of our businesseseight reporting units. However, driven by a decline in market conditions, partially due to COVID-19 and the ongoing uncertainty related to how some of our end markets will perform in a post-COVID environment, at two reporting units within ourthe Architectural Framing Systems segment, with goodwill of approximately $21.8 million, fair value did not exceedEFCO and Sotawall, carrying value by a significant margin. Wewas in excess of the concluded fair value. For these reporting units, we utilized a discount rateweighted-average cost of 10.8capital of 12.1 percent in determining the discounted cash flows in our fair value analysis and a perpetuallong-term growth rate of 33.0 percent. As a result, as of February 27, 2021, we incurred goodwill impairment expense of $46.7 million and $17.1 million in our EFCO and Sotawall reporting units, respectively.
The discounted cash flow projections used in these analyses are dependent upon achieving forecasted levels of revenue and profitability. If our discount raterevenue or profitability were to increase by 100 basis points, the fair value of thisfall below forecasted levels, or if market conditions were to decline in a material or sustained manner, further impairment could be indicated at these or our other reporting units and we could fall below carrying value, whichincur an additional non-cash impairment expense that would indicate impairment of the goodwill on this business.negatively impact our net earnings.
Indefinite-lived intangible assets
We holdhave intangible assets for certain acquired tradenamestrade names and trademarks which are determined to have indefinite useful lives. We evaluate the reasonableness of the useful lifelives and test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our year-end,fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. We bypassed a qualitative assessment and performed a quantitative impairment test to compare the fair value of each indefinite-lived intangible asset with its carrying amount.
value. If the carrying amountvalue of an indefinite-lived intangible asset exceeds its fair value, an impairment lossexpense is recognized in an amount equal to that excess. AfterIf an impairment lossexpense is recognized, the adjusted carrying amount becomes the asset's new accounting basis.
Fair value is measured using the relief-from-royalty method. This method assumes the trade name or marktrademark has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them.the asset. This method requires us to estimate theestimation of future revenue from the related asset, the appropriate royalty rate, and the weighted average cost of capital. The assessment of fair value involves significant judgment and projections about future performance. In the fair value analysis, we assumed a discount rate of 12.6 percent, royalty rates ranging from 1.5 or 2.0 percent, and a long-term growth rate of 3.0 percent. Based on our analysis, the fair value of each indefinite-lived assetof our trade names and trademarks exceeded the carrying amount, and weexcept for the EFCO tradename. The fair value determined indefinite-lived useful lives continue to be reasonable. However, for one of our tradenames, with athe EFCO tradename exceeded carrying value of $32.4by $6.3 million and this amount was recognized as impairment expense in the fourth quarter ended February 27, 2021. In addition, the fair value ofdetermined for the Sotawall tradename did not exceed carrying value by a significant margin. In determining the discounted future revenue in our fair value analysis, we assumed a discount rate
of 10.8 percent, a royalty rate of 1 percent, and a perpetual growth rate of 3 percent. If our discount rate were to increase by 10100 basis points, the fair value of this tradename couldwould fall below carrying value, which would indicate impairment.
We continue to conclude that the useful lives of our indefinite-lived intangible assets is appropriate. If future revenue were to fall below forecasted levels or if market conditions were to decline in a material or sustained manner, further impairment could be indicated on this or another indefinite-lived intangible asset.
Reserves for disputes and claims regarding product liability, warranties and warrantiesother project-related contingencies
We are subject to claims associated with our products and services, principally as a result of disputes with our customers involving the performance or aesthetics of our architectural products, some of which may be covered under our warranty policies. We have in the past and services.are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. We also are subject to project management and installation-related contingencies as a result of our fixed-price material supply and installation service contracts, primarily in our Architectural Services segment and certain of our Architectural Framing Systems businesses, including those taken on with our acquisition of EFCO. The time period from when a claim is asserted to when it is resolved, either by dismissal, negotiation, settlement or litigation, can be several years. While we maintain various types of product liability insurance, the insurance policies include significant self-retention of risk in the form of policy deductibles. In addition, certain claims could be determined to be uninsured. We also actively manage the risk of these exposures through contract negotiations and proactive project management.
We reserve estimated exposures on known claims, as well as on a portion of anticipated claims for product warranty and rework costs, based on similar historical product liability claims, as a ratio of sales. Factors that could have an impactWe also reserve for estimated exposures on the warranty reserve in any given period include: changes in manufacturing quality, shifts in product mixother claims as they are known and any significant changes in sales volume.reasonably estimable.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to ongoing market risk related to changes in interest rates and foreign currency exchange rates.
A rise in interest rates could negatively affect the fair value of our fixed income holdings,investments, while serving to provide greater long-term return potential on our equitythese investments. To manage our direct risk from changes in market interest rates, we actively monitor the interest-sensitive components of our balance sheet, primarily available-for-sale securities, fixed income securities and debt obligations, and maintain a diversified portfolio in order to minimize the impact of changes in interest rates on net earnings and cash flow. We do not enter intohold any financial instruments for trading purposes, and we currently do not use derivative financial instruments to managepurposes. We also hedge a portion of the floating interest rate risk. We also diversify and manageon our investment portfolio in order to limit the impactlong-term line of potential credit risk.through a floating-to-fixed interest rate swap.
The primary measure of interest rate risk is the simulation of net income under different interest rate environments. If interest rates were to increase or decrease over the next 12 months by 200 basis points, net earnings would be impacted by approximately $1.3$0.5 million. Our debt exceeded investments at March 3, 2018,February 27, 2021, so as interest rates increase, net earnings decrease; as interest rates decrease, net earnings increase.
In addition to the market risk related to interest rate changes on our financial instruments, the commercial construction markets in which our businesses operate are highly affected by changes in interest rates. Increases in interest rates could adversely impact activity in the commercial construction industry and our operating results.
We are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar.
We have operations in Canada and Brazil, which primarily transact business in local currencies. We manage these operating activities locally. Revenues, costs, assets and liabilities of these operations are generally denominated in local currencies, thereby mitigating some of the risk associated with changes in foreign exchange rates. However, our consolidated financial results are reported in U.S. dollars. Thus, changes in exchange rates between the Canadian dollar and Brazilian real, on the one hand, andversus the U.S. dollar, on the other, will impact our reported financial results. From time to time, we enter into forward purchase foreign currency contracts, generally with an original maturity date of less than one year, to hedge foreign currency risk (refer to additional discussion within Note 114 of the Notes to Consolidated Financial Statements). Sales from our domestic operations are generally denominated in U.S. dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Annual Report on Internal Control over Financial Reporting
Management of Apogee Enterprises, Inc. and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) of the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of March 3, 2018,February 27, 2021, using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). The Company's management believes that, as of March 3, 2018,February 27, 2021, the Company's internal control over financial reporting was effective based on those criteria.
In accordance with application guidance of the Securities and Exchange Commission, management has excluded from its assessment the internal control over financial reporting at EFCO. EFCO was acquired on June 12, 2017, and its results constitute 26 percent of total consolidated assets, 15 percent of total consolidated revenues and less than one percent of total consolidated operating income, as of and for the year ended March 3, 2018.
Following this report are reports from the Company's independent registered public accounting firm, Deloitte & Touche LLP, on the Company's consolidated financial statements and on the effectiveness of the Company's internal control over financial reporting as of March 3, 2018.February 27, 2021.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Apogee Enterprises, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apogee Enterprises, Inc. and subsidiaries (the "Company") as of March 3, 2018February 27, 2021 and March 4, 2017,February 29, 2020, and the related consolidated results of operations, statements of comprehensive earnings, statements of cash flows, and statements of shareholders' equity, for each of the three years in the period ended March 3, 2018,February 27, 2021, and the related notes and the financial statement scheduleschedules listed in the Table of ContentsIndex at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 3, 2018February 27, 2021 and March 4, 2017,February 29, 2020, and the results of its operations and its cash flows for each of the three years in the period ended March 3, 2018,February 27, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 3, 2018,February 27, 2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 27, 2018,22, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Net Sales — Revenue Recognition for Long-Term Contracts in the Architectural Services Segment — Refer to Notes 1, 2, and 15 to the consolidated financial statements
The Architectural Services segment, which provides building glass and curtainwall installation services and operates under long-term, fixed-price contracts, accounted for approximately $296 million, or 24 percent of total net sales for the year ended February 27, 2021. The contracts for this business typically have a single, bundled performance obligation, as the business generally provides interrelated services and integrates these services into a combined output specified by the customer. The customer obtains control of this combined output, generally installed window and curtainwall systems, over time. The Company measures progress on these contracts following an input method, by comparing total costs incurred to-date to the total estimated costs for the contract and recording that proportion of the total contract price as revenue.
Given the judgments necessary to estimate total costs and profit for the contract performance obligations used to recognize revenue for long-term, fixed-price contracts in the Architectural Services segment, auditing such estimates required extensive
audit effort due to the complexity of long-term contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates of total costs and profit for the contract performance obligations used to recognize revenue for certain long-term contracts in the Architectural Services segment included, but were not limited to the following:
•We tested the effectiveness of controls over long-term contract revenue in the Architectural Services segment, including those over the estimates of total costs and profit for performance obligations.
•We developed an expectation of the amount of total long-term contract revenue in the Architectural Services segment based on prior year margins applied to cost of sales in the current year and compared our expectation to the amount of long-term contract revenue ultimately recorded by management.
•We evaluated management’s ability to estimate total costs and profit by comparing actual costs and profit to management’s historical estimates for performance obligations that have been fulfilled.
•We selected a sample of long-term contracts from the Architectural Services segment contract portfolio and performed the following procedures:
•Evaluated whether the long-term contracts were properly included in management’s calculation of long-term contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfillment of the performance obligations.
•Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the long-term contracts and any modifications that were agreed upon with the customers.
•Tested management’s identification of distinct performance obligations by evaluating whether the underlying services are highly interdependent and interrelated.
•Tested the accuracy and completeness of the costs incurred to date for the performance obligations.
•We tested the mathematical accuracy of management’s calculation of long-term contract revenue for the performance obligation.
•Evaluated the estimates of total cost and profit for the performance obligations by:
•Comparing costs incurred to date to the costs management estimated to be incurred to date.
•Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering specifications, and supplier contracts.
•Comparing management’s estimates for the selected contracts to costs and profit of similar performance obligations, when applicable.
Goodwill — EFCO and Sotawall Reporting Units — Refer to Notes 1 and 6 to the consolidated financial statements
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company estimates the fair value of its reporting units using both the income approach and the market approach. The income approach uses a discounted cash flow methodology that involves significant judgement and projections of future performance, including future revenues, future operating expenses, and discount rates. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. As of the measurement date in the fourth quarter of fiscal 2021, driven by a decline in market conditions partially due to COVID-19 and the ongoing uncertainty within the Company’s end markets in a post-COVID environment, the EFCO and Sotawall reporting units were each determined to have a carrying value in excess of their fair value, resulting in goodwill impairment charges of $46.7 million and $17.1 million, respectively. As of February 27, 2021, the Company's total goodwill balance was $130.1 million.
Given the significant judgments made by management to estimate the fair value of the EFCO and Sotawall reporting units, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions related to selection of future revenues, future operating expenses, and discount rates required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to future revenues, future operating expenses, and discount rates used by management to estimate the fair value of the EFCO and Sotawall reporting units included the following, among others:
•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the reporting units, such as controls related to management's selection of future revenues, future operating expenses, and discount rates.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rate, including testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the discount rate selected by management.
•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) industry information, and (4) forecasted information included in Company press releases as well as in analyst and industry reports of the Company.
•We evaluated management’s ability to accurately forecast future revenue and future operating expenses by comparing actual results to management’s historical forecasts.
•We evaluated the allocation of the Company’s estimated fair value to its reporting units and the comparison of the Company’s estimated fair value to its market capitalization.
/s/ Deloitte & Touche LLP
Minneapolis, MN
April 30, 201822, 2021
We have served as the Company's auditor since 2003.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Apogee Enterprises, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Apogee Enterprises, Inc. and subsidiaries (the “Company”) as of March 3, 2018,February 27, 2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 3, 2018,February 27, 2021, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended March 3, 2018,February 27, 2021, of the Company and our report dated April 27, 2018,22, 2021, expressed an unqualified opinion on those financial statements.
As described in Management's Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at EFCO Corporation (EFCO), which was acquired on June 12, 2017 and whose financial statements constitute 26percent of total assets, 15 percent of revenues, and less than one percent of operating income of the consolidated financial statement amounts as of and for the year ended March 3, 2018. Accordingly, our audit did not include the internal control over financial reporting at EFCO.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Minneapolis, MN
April 30, 201822, 2021
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| (In thousands, except per share data) | | February 27, 2021 | | February 29, 2020 |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 47,277 | | | $ | 14,952 | |
| | | | |
| Receivables, net of allowance for doubtful accounts | | 175,917 | | | 196,806 | |
| Inventories | | 72,823 | | | 71,089 | |
| Costs and earnings on contracts in excess of billings | | 29,497 | | | 73,582 | |
| Other current assets | | 25,160 | | | 25,481 | |
| Total current assets | | 350,674 | | | 381,910 | |
| Property, plant and equipment, net | | 298,443 | | | 324,386 | |
| Operating lease right-of-use assets | | 58,864 | | | 52,892 | |
| Goodwill | | 130,098 | | | 185,516 | |
| Intangible assets | | 130,053 | | | 140,191 | |
| Other non-current assets | | 46,967 | | | 44,096 | |
| Total assets | | $ | 1,015,099 | | | $ | 1,128,991 | |
| Liabilities and Shareholders’ Equity | | | | |
| Current liabilities | | | | |
| Accounts payable | | $ | 76,204 | | | $ | 69,056 | |
| Accrued payroll and related benefits | | 50,125 | | | 40,119 | |
| | | | |
| Billings in excess of costs and earnings on uncompleted contracts | | 22,789 | | | 32,696 | |
| Operating lease liabilities | | 13,251 | | | 11,272 | |
| Current portion long-term debt | | 2,000 | | | 5,400 | |
| | | | |
| Other current liabilities | | 53,183 | | | 118,314 | |
| Total current liabilities | | 217,552 | | | 276,857 | |
| Long-term debt | | 163,000 | | | 212,500 | |
| Non-current operating lease liabilities | | 48,439 | | | 43,163 | |
| Non-current self-insurance reserves | | 24,880 | | | 22,831 | |
| Other non-current liabilities | | 68,483 | | | 56,862 | |
| Commitments and contingent liabilities (Note 10) | | 0 | | 0 |
| Shareholders’ equity | | | | |
| Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 25,713,688 and 26,443,166 shares, respectively | | 8,571 | | | 8,814 | |
| Additional paid-in capital | | 154,958 | | | 154,016 | |
| Retained earnings | | 357,243 | | | 388,010 | |
| Common stock held in trust | | (186) | | | (685) | |
| Deferred compensation obligations | | 186 | | | 685 | |
| Accumulated other comprehensive loss | | (28,027) | | | (34,062) | |
| Total shareholders’ equity | | 492,745 | | | 516,778 | |
| Total liabilities and shareholders’ equity | | $ | 1,015,099 | | | $ | 1,128,991 | |
|
| | | | | | | | |
| (In thousands, except per share data) | | March 3, 2018 | | March 4, 2017 |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 19,359 |
| | $ | 19,463 |
|
| Short-term available for sale securities | | 423 |
| | 548 |
|
| Restricted cash | | — |
| | 7,834 |
|
| Receivables, net of allowance for doubtful accounts | | 211,852 |
| | 185,740 |
|
| Inventories | | 85,028 |
| | 73,409 |
|
| Refundable income taxes | | 2,040 |
| | 1,743 |
|
| Other current assets | | 17,576 |
| | 8,724 |
|
| Total current assets | | 336,278 |
| | 297,461 |
|
| Property, plant and equipment, net | | 304,063 |
| | 246,748 |
|
| Available for sale securities | | 8,630 |
| | 9,041 |
|
| Deferred tax assets | | 1,354 |
| | 4,025 |
|
| Goodwill | | 180,956 |
| | 101,334 |
|
| Intangible assets | | 167,349 |
| | 106,686 |
|
| Other non-current assets | | 23,690 |
| | 19,363 |
|
| Total assets | | $ | 1,022,320 |
| | $ | 784,658 |
|
| Liabilities and Shareholders’ Equity | | | | |
| Current liabilities | | | | |
| Accounts payable | | $ | 68,416 |
| | $ | 63,182 |
|
| Accrued payroll and related benefits | | 36,646 |
| | 51,244 |
|
| Accrued self-insurance reserves | | 10,933 |
| | 8,575 |
|
| Other current liabilities | | 79,696 |
| | 34,200 |
|
| Billings in excess of costs and earnings on uncompleted contracts | | 12,461 |
| | 28,857 |
|
| Total current liabilities | | 208,152 |
| | 186,058 |
|
| Long-term debt | | 215,860 |
| | 65,400 |
|
| Unrecognized tax benefits | | 4,568 |
| | 3,980 |
|
| Long-term self-insurance reserves | | 16,307 |
| | 8,831 |
|
| Deferred tax liabilities | | 4,657 |
| | 4,025 |
|
| Other non-current liabilities | | 61,421 |
| | 45,787 |
|
| Commitments and contingent liabilities (Note 11) | |
| |
|
| Shareholders’ equity | | | | |
| Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 28,158,042 and 28,680,841 shares, respectively | | 9,386 |
| | 9,560 |
|
| Additional paid-in capital | | 152,763 |
| | 150,111 |
|
| Retained earnings | | 373,259 |
| | 341,996 |
|
| Common stock held in trust | | (922 | ) | | (875 | ) |
| Deferred compensation obligations | | 922 |
| | 875 |
|
| Accumulated other comprehensive loss | | (24,053 | ) | | (31,090 | ) |
| Total shareholders’ equity | | 511,355 |
| | 470,577 |
|
| Total liabilities and shareholders’ equity | | $ | 1,022,320 |
| | $ | 784,658 |
|
See accompanying notes to consolidated financial statements.
2632
CONSOLIDATED RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | |
| | | Year-Ended |
| (In thousands, except per share data) | | February 27, 2021 | | February 29, 2020 | | March 2, 2019 |
| | | | | | |
| Net sales | | $ | 1,230,774 | | | $ | 1,387,439 | | | $ | 1,402,637 | |
| Cost of sales | | 955,084 | | | 1,068,480 | | | 1,109,072 | |
| Gross profit | | 275,690 | | | 318,959 | | | 293,565 | |
| Selling, general and administrative expenses | | 180,094 | | | 231,111 | | | 223,140 | |
| Impairment expense on goodwill and intangible assets | | 70,069 | | | 0 | | | 3,141 | |
| Operating income | | 25,527 | | | 87,848 | | | 67,284 | |
| | | | | | |
| Interest expense, net | | 4,408 | | | 8,814 | | | 8,094 | |
| Other income (expense), net | | 1,492 | | | 716 | | | (528) | |
| Earnings before income taxes | | 22,611 | | | 79,750 | | | 58,662 | |
| Income tax expense | | 7,175 | | | 17,836 | | | 12,968 | |
| Net earnings | | $ | 15,436 | | | $ | 61,914 | | | $ | 45,694 | |
| | | | | | |
| Earnings per share - basic | | $ | 0.59 | | | $ | 2.34 | | | $ | 1.64 | |
| Earnings per share - diluted | | $ | 0.59 | | | $ | 2.32 | | | $ | 1.63 | |
| Weighted average basic shares outstanding | | 25,955 | | | 26,474 | | | 27,802 | |
| Weighted average diluted shares outstanding | | 26,304 | | | 26,729 | | | 28,082 | |
|
| | | | | | | | | | | | |
| | | Year-Ended |
| | | March 3, 2018 | | March 4, 2017 | | February 27, 2016 |
| (In thousands, except per share data) | | (52 weeks) | | (53 weeks) | | (52 weeks) |
| Net sales | | $ | 1,326,173 |
| | $ | 1,114,533 |
| | $ | 981,189 |
|
| Cost of sales | | 992,655 |
| | 822,510 |
| | 737,619 |
|
| Gross profit | | 333,518 |
| | 292,023 |
| | 243,570 |
|
| Selling, general and administrative expenses | | 219,234 |
| | 169,798 |
| | 146,177 |
|
| Operating income | | 114,284 |
| | 122,225 |
| | 97,393 |
|
| Interest income | | 538 |
| | 1,008 |
| | 981 |
|
| Interest expense | | 5,508 |
| | 971 |
| | 593 |
|
| Other income (expense), net | | 566 |
| | 543 |
| | (457 | ) |
| Earnings before income taxes | | 109,880 |
| | 122,805 |
| | 97,324 |
|
| Income tax expense | | 30,392 |
| | 37,015 |
| | 31,982 |
|
| Net earnings | | $ | 79,488 |
| | $ | 85,790 |
| | $ | 65,342 |
|
| Earnings per share - basic | | $ | 2.79 |
| | $ | 2.98 |
| | $ | 2.25 |
|
| Earnings per share - diluted | | $ | 2.76 |
| | $ | 2.97 |
| | $ | 2.22 |
|
| Weighted average basic shares outstanding | | 28,534 |
| | 28,781 |
| | 29,058 |
|
| Weighted average diluted shares outstanding | | 28,804 |
| | 28,893 |
| | 29,375 |
|
See accompanying notes to consolidated financial statements.
2733
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
| | | | | | | | | | | | | | | | | | | | |
| | | Year-Ended |
| (In thousands) | | February 27, 2021 | | February 29, 2020 | | March 2, 2019 |
| | | | | | |
| Net earnings | | $ | 15,436 | | | $ | 61,914 | | | $ | 45,694 | |
| Other comprehensive earnings (loss): | | | | | | |
| Unrealized gain on marketable securities, net of $22, $67 and $17 of tax expense, respectively | | 80 | | | 257 | | | 64 | |
| Unrealized gain (loss) on foreign currency hedge, net of $450, $(129) and $(172) of tax expense (benefit), respectively | | 1,475 | | | (423) | | | (565) | |
| Unrealized gain (loss) on pension obligation, net of $32, $(124) and $72 of tax expense (benefit), respectively | | 105 | | | (405) | | | 229 | |
| Foreign currency translation adjustments | | 4,375 | | | (1,364) | | | (7,065) | |
| Other comprehensive earnings (loss) | | 6,035 | | | (1,935) | | | (7,337) | |
| Total comprehensive earnings | | $ | 21,471 | | | $ | 59,979 | | | $ | 38,357 | |
|
| | | | | | | | | | | | |
| | | Year-Ended |
| | | March 3,
2018 | | March 4,
2017 | | February 27,
2016 |
| (In thousands) | | (52 weeks) | | (53 weeks) | | (52 weeks) |
| Net earnings | | $ | 79,488 |
| | $ | 85,790 |
| | $ | 65,342 |
|
| Other comprehensive earnings (loss): | | | | | | |
| Unrealized (loss) gain on marketable securities, net of $(29), $(45) and $38 of tax (benefit) expense, respectively | | (95 | ) | | (83 | ) | | 73 |
|
| Unrealized gain on foreign currency hedge, net of $47, $- and $- of tax expense, respectively | | 156 |
| | — |
| | — |
|
| Unrealized gain on pension obligation, net of $87, $74 and $347 of tax expense, respectively | | 284 |
| | 130 |
| | 610 |
|
| Foreign currency translation adjustments | | 6,692 |
| | 234 |
| | (9,734 | ) |
| Other comprehensive earnings (loss) | | 7,037 |
| | 281 |
| | (9,051 | ) |
| Total comprehensive earnings | | $ | 86,525 |
| | $ | 86,071 |
| | $ | 56,291 |
|
See accompanying notes to consolidated financial statements.
2834
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | | |
| | | Year-Ended |
| (In thousands) | | February 27, 2021 | | February 29, 2020 | | March 2, 2019 |
| Operating Activities | | | | | | |
| Net earnings | | $ | 15,436 | | | $ | 61,914 | | | $ | 45,694 | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 51,440 | | | 46,795 | | | 49,798 | |
| Share-based compensation | | 8,573 | | | 6,607 | | | 6,286 | |
| Deferred income taxes | | (6,460) | | | 10,463 | | | (5,506) | |
| Gain on disposal of assets | | (18,644) | | | (2,197) | | | (2,475) | |
| Impairment expense on goodwill and intangible assets | | 70,069 | | | 0 | | | 3,141 | |
| Proceeds from new markets tax credit transaction, net of deferred costs | | 0 | | | 0 | | | 8,850 | |
| Noncash lease expense | | 12,235 | | | 12,420 | | | 0 | |
| Other, net | | (2,088) | | | (1,516) | | | (2,179) | |
| Changes in operating assets and liabilities: | | | | | | |
| Receivables | | 21,630 | | | (4,217) | | | 18,164 | |
| Inventories | | (1,440) | | | 7,142 | | | 5,114 | |
| Costs and earnings on contracts in excess of billings | | 44,183 | | | (18,468) | | | (48,712) | |
| Accounts payable and accrued expenses | | (32,591) | | | (375) | | | 7,600 | |
| Billings in excess of costs and earnings on uncompleted contracts | | (10,351) | | | 11,314 | | | 9,026 | |
| Refundable and accrued income taxes | | 2,652 | | | (8,726) | | | 3,680 | |
| Operating lease liability | | (11,513) | | | (10,829) | | | 0 | |
| Other, net | | (1,268) | | | (3,065) | | | (2,058) | |
| Net cash provided by operating activities | | 141,863 | | | 107,262 | | | 96,423 | |
| Investing Activities | | | | | | |
| Capital expenditures | | (26,165) | | | (51,428) | | | (60,717) | |
| Proceeds from sales of property, plant and equipment | | 25,108 | | | 5,307 | | | 12,333 | |
| Purchases of marketable securities | | (3,606) | | | (7,012) | | | (9,213) | |
| Sales/maturities of marketable securities | | 2,657 | | | 7,768 | | | 6,110 | |
| | | | | | |
| | | | | | |
| Other, net | | (141) | | | (1,673) | | | (2,209) | |
| Net cash used by investing activities | | (2,147) | | | (47,038) | | | (53,696) | |
| Financing Activities | | | | | | |
| Borrowings on line of credit | | 198,601 | | | 229,000 | | | 363,000 | |
| (Repayment) borrowings on debt | | (5,400) | | | 150,000 | | | 0 | |
| Payments on line of credit | | (246,340) | | | (406,500) | | | (333,000) | |
| | | | | | |
| | | | | | |
| | | | | | |
| Repurchase and retirement of common stock | | (32,878) | | | (25,140) | | | (43,326) | |
| Dividends paid | | (19,601) | | | (18,714) | | | (17,864) | |
| Other, net | | (2,258) | | | (3,160) | | | (1,136) | |
| Net cash used by financing activities | | (107,876) | | | (74,514) | | | (32,326) | |
| Increase (decrease) in cash, cash equivalents and restricted cash | | 31,840 | | | (14,290) | | | 10,401 | |
| Effect of exchange rates on cash | | 485 | | | 1 | | | (519) | |
| Cash, cash equivalents and restricted cash at beginning of year | | 14,952 | | | 29,241 | | | 19,359 | |
| Cash, cash equivalents and restricted cash at end of year | | $ | 47,277 | | | $ | 14,952 | | | $ | 29,241 | |
| Noncash Activity | | | | | | |
| Capital expenditures in accounts payable | | $ | 1,101 | | | $ | 2,169 | | | $ | 1,703 | |
| | | | | | |
|
| | | | | | | | | | | | |
| | | Year-Ended |
| | | March 3,
2018 | | March 4,
2017 | | February 27,
2016 |
| (In thousands) | | (52 weeks) | | (53 weeks) | | (52 weeks) |
| Operating Activities | | | | | | |
| Net earnings | | $ | 79,488 |
| | $ | 85,790 |
| | $ | 65,342 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 54,843 |
| | 35,607 |
| | 31,248 |
|
| Share-based compensation | | 6,205 |
| | 5,986 |
| | 4,923 |
|
| Deferred income taxes | | 3,195 |
| | (1,065 | ) | | (6,139 | ) |
| Gain (loss) on disposal of assets | | 1,037 |
| | (371 | ) | | (198 | ) |
| Proceeds from new markets tax credit transaction, net of deferred costs | | — |
| | 5,109 |
| | — |
|
| Other, net | | (1,431 | ) | | (2,331 | ) | | 1,017 |
|
| Changes in operating assets and liabilities: | | | | | | |
| Receivables | | 18,172 |
| | 3,460 |
| | (2,918 | ) |
| Inventories | | 11,521 |
| | (6,387 | ) | | (2,798 | ) |
| Accounts payable and accrued expenses | | (25,627 | ) | | 17,449 |
| | 17,265 |
|
| Billings in excess of costs and earnings on uncompleted contracts | | (16,541 | ) | | (9,991 | ) | | 9,657 |
|
| Refundable and accrued income taxes | | 315 |
| | (9,647 | ) | | 12,589 |
|
| Other, net | | (3,714 | ) | | 392 |
| | (1,045 | ) |
| Net cash provided by operating activities | | 127,463 |
| | 124,001 |
| | 128,943 |
|
| Investing Activities | | | | | | |
| Capital expenditures | | (53,196 | ) | | (68,061 | ) | | (42,037 | ) |
| Purchases of marketable securities | | (10,244 | ) | | (3,705 | ) | | (35,814 | ) |
| Sales/maturities of marketable securities | | 10,476 |
| | 36,433 |
| | 4,047 |
|
| Acquisition of business and intangibles | | (182,849 | ) | | (137,932 | ) | | — |
|
| Change in restricted cash | | 7,834 |
| | (7,834 | ) | | — |
|
| Other, net | | 2,245 |
| | (2,659 | ) | | (4,052 | ) |
| Net cash used in investing activities | | (225,734 | ) | | (183,758 | ) | | (77,856 | ) |
| Financing Activities | | | | | | |
| Borrowings on line of credit | | 385,700 |
| | 121,000 |
| | — |
|
| Payments on line of credit | | (235,740 | ) | | (76,012 | ) | | — |
|
| Borrowings (payments) on debt, net | | 155 |
| | (396 | ) | | (56 | ) |
| Shares withheld for taxes, net of stock issued to employees | | (1,712 | ) | | (446 | ) | | (3,254 | ) |
| Repurchase and retirement of common stock | | (33,676 | ) | | (10,817 | ) | | (24,911 | ) |
| Dividends paid | | (16,393 | ) | | (14,667 | ) | | (13,184 | ) |
| Net cash provided by (used in) financing activities | | 98,334 |
| | 18,662 |
| | (41,405 | ) |
| Increase (decrease) in cash and cash equivalents | | 63 |
| | (41,095 | ) | | 9,682 |
|
| Effect of exchange rates on cash | | (167 | ) | | 88 |
| | (1,397 | ) |
| Cash and cash equivalents at beginning of year | | 19,463 |
| | 60,470 |
| | 52,185 |
|
| Cash and cash equivalents at end of period | | $ | 19,359 |
| | $ | 19,463 |
| | $ | 60,470 |
|
| Noncash Activity | | | | | | |
| Capital expenditures in accounts payable | | $ | 1,784 |
| | $ | 3,254 |
| | $ | (2,737 | ) |
| Deferred payments on acquisition of business | | 7,500 |
| | — |
| | — |
|
See accompanying notes to consolidated financial statements.
2935
Consolidated Statements of Shareholders' Equity |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share data) | | Common Shares Outstanding | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Common Stock Held in Trust | | Deferred Compensation Obligation | | Accumulated Other Comprehensive (Loss) Income |
| Balance at February 28, 2015 | | 29,050 |
| | $ | 9,683 |
| | $ | 138,575 |
| | $ | 256,538 |
| | $ | (801 | ) | | $ | 801 |
| | $ | (22,320 | ) |
| Net earnings | | — |
| | — |
| | — |
| | 65,342 |
| | — |
| | — |
| | — |
|
| Unrealized gain on marketable securities, net of $38 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 73 |
|
| Unrealized gain on pension obligation, net of $347 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 610 |
|
| Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,734 | ) |
| Issuance of stock, net of cancellations | | 102 |
| | 34 |
| | 114 |
| | — |
| | (36 | ) | | 36 |
| | — |
|
| Share-based compensation | | — |
| | — |
| | 4,923 |
| | — |
| | — |
| | — |
| | — |
|
| Tax benefit associated with stock plans | | — |
| | — |
| | 3,856 |
| | — |
| | — |
| | — |
| | — |
|
| Exercise of stock options | | 200 |
| | 67 |
| | 1,539 |
| | — |
| | — |
| | — |
| | — |
|
| Share repurchases | | (575 | ) | | (192 | ) | | (2,996 | ) | | (21,723 | ) | | — |
| | — |
| | — |
|
| Other share retirements | | (93 | ) | | (31 | ) | | (483 | ) | | (4,496 | ) | | — |
| | — |
| | — |
|
| Cash dividends ($0.455 per share) | | — |
| | — |
| | — |
| | (13,184 | ) | | — |
| | — |
| | — |
|
| Balance at February 27, 2016 | | 28,684 |
| | $ | 9,561 |
| | $ | 145,528 |
| | $ | 282,477 |
| | $ | (837 | ) | | $ | 837 |
| | $ | (31,371 | ) |
| Net earnings | | — |
| | — |
| | — |
| | 85,790 |
| | — |
| | — |
| | — |
|
| Unrealized loss on marketable securities, net of $45 tax benefit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (83 | ) |
| Unrealized gain on pension obligation, net of $74 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 130 |
|
| Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 234 |
|
| Issuance of stock, net of cancellations | | 140 |
| | 47 |
| | 105 |
| | 36 |
| | (38 | ) | | 38 |
| | — |
|
| Share-based compensation | | — |
| | — |
| | 5,986 |
| | — |
| | — |
| | — |
| | — |
|
| Tax deficit associated with stock plans | | — |
| | — |
| | (1,745 | ) | | — |
| | — |
| | — |
| | — |
|
| Exercise of stock options | | 163 |
| | 54 |
| | 1,893 |
| | — |
| | — |
| | — |
| | — |
|
| Share repurchases | | (250 | ) | | (83 | ) | | (1,357 | ) | | (9,377 | ) | | — |
| | — |
| | — |
|
| Other share retirements | | (57 | ) | | (19 | ) | | (299 | ) | | (2,263 | ) | | — |
| | — |
| | — |
|
| Cash dividends ($0.515 per share) | | — |
| | — |
| | — |
| | (14,667 | ) | | — |
| | — |
| | — |
|
| Balance at March 4, 2017 | | 28,680 |
| | $ | 9,560 |
| | $ | 150,111 |
| | $ | 341,996 |
| | $ | (875 | ) | | $ | 875 |
| | $ | (31,090 | ) |
| Net earnings | | — |
| | — |
| | — |
| | 79,488 |
| | — |
| | — |
| | — |
|
| Unrealized loss on marketable securities, net of $29 tax benefit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (95 | ) |
| Unrealized gain on foreign currency hedge, net of $47 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 156 |
|
| Unrealized gain on pension obligation, net of $87 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 284 |
|
| Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,692 |
|
| Issuance of stock, net of cancellations | | 128 |
| | 43 |
| | (186 | ) | | 208 |
| | (47 | ) | | 47 |
| | — |
|
| Share-based compensation | | — |
| | — |
| | 6,205 |
| | — |
| | — |
| | — |
| | — |
|
| Exercise of stock options | | 102 |
| | 34 |
| | 800 |
| | — |
| | — |
| | — |
| | — |
|
| Share repurchases | | (702 | ) | | (234 | ) | | (3,886 | ) | | (29,556 | ) | | — |
| | — |
| | — |
|
| Other share retirements | | (50 | ) | | (17 | ) | | (281 | ) | | (2,484 | ) | | — |
| | — |
| | — |
|
| Cash dividends ($0.5775 per share) | | — |
| | — |
| | — |
| | (16,393 | ) | | — |
| | — |
| | — |
|
| Balance at March 3, 2018 | | 28,158 |
| | $ | 9,386 |
| | $ | 152,763 |
| | $ | 373,259 |
| | $ | (922 | ) | | $ | 922 |
| | $ | (24,053 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands, except per share data) | | Common Shares Outstanding | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Common Stock Held in Trust | | Deferred Compensation Obligation | | Accumulated Other Comprehensive (Loss) Income | | Total Shareholders' Equity |
| Balance at March 3, 2018 | | 28,158 | | | $ | 9,386 | | | $ | 152,763 | | | $ | 373,259 | | | $ | (922) | | | $ | 922 | | | $ | (24,053) | | | $ | 511,355 | |
| Net earnings | | — | | | — | | | — | | | 45,694 | | | — | | | — | | | — | | | 45,694 | |
| Cumulative effect adjustment | | — | | | — | | | — | | | 2,999 | | | — | | | — | | | — | | | 2,999 | |
| Unrealized gain on marketable securities, net of $17 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 64 | | | 64 | |
| Unrealized loss on foreign currency hedge, net of $172 tax benefit | | — | | | — | | | — | | | — | | | — | | | — | | | (565) | | | (565) | |
| Unrealized gain on pension obligation, net of $72 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 229 | | | 229 | |
| Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (7,065) | | | (7,065) | |
| Reclassification of tax effects | | — | | | — | | | — | | | 737 | | | — | | | — | | | (737) | | | 0 | |
| Issuance of stock, net of cancellations | | 135 | | | 45 | | | 80 | | | 145 | | | 167 | | | (167) | | | — | | | 270 | |
| Share-based compensation | | — | | | — | | | 6,286 | | | — | | | — | | | — | | | — | | | 6,286 | |
| Exercise of stock options | | 19 | | | 6 | | | 177 | | | — | | | — | | | — | | | — | | | 183 | |
| Share repurchases | | (1,258) | | | (419) | | | (7,204) | | | (35,703) | | | — | | | — | | | — | | | (43,326) | |
| Other share retirements | | (39) | | | (13) | | | (260) | | | (1,670) | | | — | | | — | | | — | | | (1,943) | |
| Cash dividends ($0.6475 per share) | | — | | | — | | | — | | | (17,864) | | | — | | | — | | | — | | | (17,864) | |
| Balance at March 2, 2019 | | 27,015 | | | $ | 9,005 | | | $ | 151,842 | | | $ | 367,597 | | | $ | (755) | | | $ | 755 | | | $ | (32,127) | | | $ | 496,317 | |
| Net earnings | | — | | | — | | | — | | | 61,914 | | | — | | | — | | | — | | | 61,914 | |
| Unrealized gain on marketable securities, net of $67 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 257 | | | 257 | |
| Unrealized loss on foreign currency hedge, net of $129 tax benefit | | — | | | — | | | — | | | — | | | — | | | — | | | (423) | | | (423) | |
| Unrealized loss on pension obligation, net of $124 tax benefit | | — | | | — | | | — | | | — | | | — | | | — | | | (405) | | | (405) | |
| Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (1,364) | | | (1,364) | |
| Issuance of stock, net of cancellations | | 174 | | | 57 | | | (124) | | | 225 | | | 70 | | | (70) | | | — | | | 158 | |
| Share-based compensation | | — | | | — | | | 6,607 | | | — | | | — | | | — | | | — | | | 6,607 | |
| | | | | | | | | | | | | | | | |
| Share repurchases | | (687) | | | (229) | | | (3,963) | | | (20,948) | | | — | | | — | | | — | | | (25,140) | |
| Other share retirements | | (59) | | | (19) | | | (346) | | | (2,064) | | | — | | | — | | | — | | | (2,429) | |
| Cash dividends ($0.7125 per share) | | — | | | — | | | — | | | (18,714) | | | — | | | — | | | — | | | (18,714) | |
| Balance at February 29, 2020 | | 26,443 | | | $ | 8,814 | | | $ | 154,016 | | | $ | 388,010 | | | $ | (685) | | | $ | 685 | | | $ | (34,062) | | | $ | 516,778 | |
| Net earnings | | — | | | — | | | — | | | 15,436 | | | — | | | — | | | — | | | 15,436 | |
| Unrealized gain on marketable securities, net of $22 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 80 | | | 80 | |
| Unrealized gain on foreign currency hedge, net of $450 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 1,475 | | | 1,475 | |
| Unrealized gain on pension obligation, net of $32 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 105 | | | 105 | |
| Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | 4,375 | | | 4,375 | |
| Issuance of stock, net of cancellations | | 432 | | | 145 | | | (1,212) | | | 1,174 | | | 499 | | | (499) | | | — | | | 107 | |
| Share-based compensation | | — | | | — | | | 8,573 | | | — | | | — | | | — | | | — | | | 8,573 | |
| Exercise of stock options | | 127 | | | 42 | | | 1,414 | | | — | | | — | | | — | | | — | | | 1,456 | |
| Share repurchases | | (1,177) | | | (393) | | | (7,144) | | | (25,341) | | | — | | | — | | | — | | | (32,878) | |
| Other share retirements | | (111) | | | (37) | | | (689) | | | (2,435) | | | — | | | — | | | — | | | (3,161) | |
| Cash dividends ($0.7625 per share) | | — | | | — | | | — | | | (19,601) | | | — | | | — | | | — | | | (19,601) | |
| Balance at February 27, 2021 | | 25,714 | | | $ | 8,571 | | | $ | 154,958 | | | $ | 357,243 | | | $ | (186) | | | $ | 186 | | | $ | (28,027) | | | $ | 492,745 | |
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
1. | Summary of Significant Accounting Policies and Related Data |
1.Summary of Significant Accounting Policies and Related Data
Basis of Consolidation. consolidation
The consolidated financial statements include the balances of Apogee Enterprises, Inc. and its subsidiaries (Apogee, we, us, our or the Company or we)Company) after elimination of intercompany balances and transactions. We consolidate variable interest entities whererelated to our New Market Tax Credit transactions as it has been determined that the Company is the primary beneficiary of those entities' operations.operations (refer to Note 10 for more information).
Fiscal Year. year
Our fiscal year ends on the Saturday closest to the last day of February, or as determined by the Board of Directors. Fiscal 20182021, 2020 and 20162019 each consisted of 52 weeks, while fiscal 2017 consisted of 53 weeks. Our Brazilian subsidiary follows a calendar year-end and is consolidated on a two-month lag.
Accounting Estimates.estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.
Reclassifications
Certain reclassifications of amounts previously reported have been made to the accompanying consolidated results of operations to maintain consistency and comparability between periods presented. These reclassifications had no impact on previously reported operating income or net earnings within the consolidated results of operations.
Cash Equivalents.equivalents
Highly liquid investments with an original maturity of three months or less are included in cash equivalents and are stated at cost, which approximates fair value.
Marketable securities
To the extent the amortized cost basis of the available-for-sale securities exceeds the fair value, the Company assesses the debt securities for credit loss. When assessing the risk of credit loss, the Company considers factors such as the severity and the reason of the decline in value, such as any changes to the rating of the security by a rating agency or other adverse conditions specifically related to the security, and management's intended holding period and time horizon for selling. During fiscal 2021, 2020, and 2019, the Company did not recognize any credit losses related to its available-for-sale securities. Our marketableFurther, as of February 27, 2021 and February 29, 2020, the Company did not record an allowance for credit losses related to its available-for-sale securities. Marketable securities are classified as available for sale,included in other current and we test for other-than-temporary lossesnon-current assets on a quarterly basis or whenever events or changes in circumstances indicate that the carrying amount of a security may not be recoverable. We consider all unrealized losses to be temporary in nature. We intend to hold our securities until the full principal amount can be recovered,consolidated balance sheets and we have the ability to do so based on other sources of liquidity. Grossgross realized gains and losses are included in other income (expense), net in our consolidated results of operations.
Inventories.Inventories
Inventories, which consist primarily of purchased glass and aluminum, are valued at lower of cost or market using the first-in, first-out (FIFO) method.
Property, Plantplant and Equipment.equipment
Property, plant and equipment (PP&E) is recorded at cost. Significant improvements and renewals that extend the useful life of the asset are capitalized. Repairs and maintenance are charged to expense as incurred. When an asset is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included in selling, general and administrative expenses. Long-lived assets to be held and used, such as PP&E, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Depreciation is computed on a straight-line basis, based on the following estimated useful lives:lives of 10 to 25 years for buildings and improvements; 3 to 10 years for machinery and equipment; and 3 to 7 years for office equipment and furniture.
Impairment of long-lived assets
Long-lived assets or asset groups, including definite-lived intangible assets ("intangible assets") subject to amortization and property and equipment, are reviewed for impairment whenever events or changes in circumstances such as asset utilization, physical change, legal factors or other matters indicate that the carrying value of those assets may not be recoverable. When this review indicates the carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, an asset impairment expense is recognized in earnings in the
|
| |
| Years |
Buildings and improvements | 10 to 25 |
Machinery and equipment | 3 to 15 |
Office equipment and furniture | 3 to 7 |
period such a determination is made. The amount of the impairment expense recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value based on discounted cash flows.
Goodwill and Intangible Assets.intangible assets
Goodwill
Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. We evaluatehave historically evaluated goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable. In the third quarter of fiscal 2021, we changed the date of our annual goodwill impairment indicators exist.testing from our fiscal year-end to the first day in our fiscal fourth quarter. This year we electedchange results in better alignment of the annual impairment test with our strategic and annual planning processes. This change was determined to bypassnot be material to and had no impact on our current or historical consolidated financial statements.
Evaluating goodwill for impairment involves the qualitative assessment process and to proceed directly to comparingdetermination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. A reporting unit is an operating segment or a component of ouran operating segment for which discrete financial information is available and reviewed by segment management on a regular basis. During the third quarter of fiscal 2021, we combined two reporting units into one reporting unit, following certain structural and leadership changes at the Company, specifically within the Architectural Framing Systems segment. Within this segment, as a result of integration efforts that are ongoing, leadership over the Tubelite and Alumicor reporting units has been combined and functional leaders in areas such as operations, sales, marketing and administration are responsible for allocating resources and reviewing results of the combined business. The goodwill of the individual reporting units was therefore aggregated to the combined reporting unit. We evaluated goodwill on a qualitative basis prior to and subsequent to this change and concluded that no adjustment to the carrying value includingof goodwill was necessary as a result of this change. In addition, no qualitative indicators of impairment were identified during the third quarter of fiscal 2021, and therefore, no interim quantitative goodwill impairment evaluation was performed. Following this change, we have eight reporting units, six of which have goodwill. If the fair value of a reporting unit exceeds the carrying value, goodwill impairment is not indicated. EachIf the carrying amount of our nine business units represents a reporting unit for the goodwill impairment analysis. Based on our analysis, theis determined to be higher than its estimated fair value, the excess is recognized as an impairment expense.
We estimate the fair value of eacha reporting unit exceeded its carrying valueusing both the income approach and therefore, goodwill impairment was not indicated. We have followed a consistent discounted cash flow methodology to evaluate goodwill in all periods presented.
We base our determination of fair value onthe market approach. The income approach uses a discounted cash flow methodology that involves significant judgment and projections of future performance. Assumptions about future revenues and future operating expenses, capital expenditures and changes in working capital are based on the annual operating plan and long-termother business planplans for each businessreporting unit. These plans take into consideration numerous factors, including historical experience, current and future operational plans, anticipated future economic conditions and growth expectations for the industries and end markets in which we participate. GrowthThese projections are discounted using a weighted-average cost of capital, which considers the risk inherent in our projections of future cash flows. We determine the weighted-average cost of capital for this analysis by weighting the required returns on interest bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure, using published data where possible. We used discount rates for revenuesthat are commensurate with the risks and operating profits vary for each reporting unit. The discount rate assumption for each reporting unit takes into consideration our assessment of risksuncertainties inherent in the future cash flowsrespective businesses and in the internally developed forecasts. The market approach uses a multiple of our businessearnings and an estimated weighted-average cost of capital.revenue based on guidelines for publicly traded companies.
Intangible assets with
We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives are testedlives. We test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our year-end,fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment lossexpense is recognized in an amount equal to that excess. If an impairment expense is recognized, the adjusted carrying amount becomes the asset's new accounting basis.
Fair value of indefinite-lived intangible assets is measured using the relief-from-royalty method. This method assumes the trade name or marktrademark has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them.the asset. This method requires us to estimate theestimation of future revenue from the related asset, the appropriate royalty rate, and the weighted average cost of capital. The assessment of fair value involves significant judgment and projections about future performance. Based on our analysis, the fair value of each indefinite-lived asset exceeded the carrying amount.
IntangibleDefinite-lived intangible assets with defined useful lives are amortized based on estimated useful lives ranging from 18 months to 2030 years and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The estimated useful lives of all intangible assets are reviewed annually, and we have determined that the remaining lives were appropriate.
Self-Insurance.
Leases
On March 3, 2019, we adopted ASU 2016-02, Leases, which results in recognizing a right-of-use asset and lease liability on our consolidated balance sheet at lease commencement for leases with terms greater than twelve months. The initial lease liability is recognized at the present value of remaining lease payments over the lease term. Leases with an initial term of twelve months or less are not recorded on our consolidated balance sheet. We recognize lease expense for operating leases on a straight-line basis over the lease term. We combine lease and non-lease components, such as common area maintenance costs, in calculating the related asset and lease liabilities for all underlying asset groups. Refer to additional information in Note 8.
Self-Insurance
We obtain commercial insurance to provide coverage for potential losses for general liability,in areas such as employment practices, workers' compensation, directors and officers, automobile, liability, architect's and engineer's errors and omissions, risk, product rework and other miscellaneous coverages.general liability. A substantial portion of this risk is retained on a self-insured basis through our wholly-owned insurance subsidiary. We establish a reserve for estimated ultimate losses on reported claims and those incurred but not yet reported utilizing actuarial projections. Reserves are classified within accruedother current liabilities or long-term self-insurance reserves based on expectations of when the estimated loss will be paid.
Additionally, we maintain a self-insurance reserve for health insurance programs offered to eligible employees, included within accrued self-insurance reserves. The reserve includes an estimate for losses on reported claims as well as for amounts incurred but not yet reported, based on historical trends.
Warranty.Warranty and project-related contingencies
We are subject to claims associated with our products and services, principally as a result of disputes with our customers involving the performance or aesthetics of our architectural products and services. We reserve estimated exposures on known claims, as well as on a portion of anticipated claims for product warranty and rework costs, based on historical product liability claims as a ratio of sales. Our warranty reservesWe also reserve for estimated exposures on other claims as they are known and reasonably estimable. Reserves are included in other current and non-current liabilities based on the estimated timing of dispute resolution.
Environmental Liability. We recognize environmental clean-up liabilities on an undiscounted basis when loss is probable and can be reasonably estimated based on estimates by specialists and applicable law. Such estimates are based primarily on the estimated cost of investigation and remediation required, and the likelihood that, where applicable, other potentially responsible parties will not be able to fulfill their commitments at the sites where the Company may be jointly and severally liable. The reserve for environmental liabilities is included in other current and non-current liabilities in the consolidated balance sheets.Foreign currency
Foreign Currency.Local currencies are considered the functional currencies for our subsidiaries outside of the United States. Assets and liabilities of these subsidiaries are translated at the exchange rates at the balance sheet date. Income and expense items are translated using average monthly exchange rates. Translation adjustments are included in accumulated other comprehensive loss in the consolidated balance sheets.
Derivatives and Hedging Activities.hedging activities
We periodically enter into forward purchase foreign currency contracts, generally with an original maturity dateare exposed to, among other risks, the impact of less than one year, to hedgechanges in aluminum prices, foreign currency exchange rate risk. rates, and interest rates in the normal course of business. In order to manage the exposure and volatility arising from these risks, we utilize derivative financial instruments to offset a portion of these risks. We use derivative financial instruments only to the extent necessary to hedge identified business risks, and do not hold or issue derivative financial instruments for trading purposes and are not a party to leveraged derivatives.
All derivative instruments within the scope of ASC 815, Derivatives and Hedging, are recorded as either assets or liabilities at fair value on the consolidated balance sheet at fair value.sheets. All hedging instruments that qualify for hedge accounting are designated and effective as hedges.hedges with changes recognized in other comprehensive earnings (loss). Instruments that do not qualify for hedge accounting are marked to market with changes recognized in current earnings. Cash flows from derivative instruments are classified in the statementstatements of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships.We relationships. Please refer to Note 4 for further disclosure on derivatives.
Revenue recognition
On March 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers, and as a result, made updates to our significant accounting policy for revenue recognition. We generate revenue from the design, engineering and fabrication of architectural glass, curtainwall, window, storefront and entrance systems, and from installing those products on commercial buildings. We also manufacture value-added glass and acrylic products. Due to the diverse nature of our operations and various types of contracts with customers, we have businesses that recognize revenue over time and businesses that recognize revenue at a point in time.
During fiscal 2021, approximately 41 percent of our total revenue is recognized at the time products are shipped from our manufacturing facilities, which is when control is transferred to our customer, consistent with past practices. These businesses
do not holdgenerate contract-related assets or issue derivative financial instruments for trading purposesliabilities. Variable consideration associated with these contracts and areorders, generally related to early pay discounts or volume rebates, is not a party to leveraged derivatives.considered significant.
Revenue Recognition.We recognize revenue when title has transferred, except within our Architectural Services segment and for one business within our Architectural Framing Systems segment,also have 3 businesses which enter intooperate under long-term, fixed-price contracts, for projects typically performed over a 12- to 24-month timeframe. We recordrepresenting approximately 36 percent of our total revenue in the current year. The contracts for these businesses have a single, bundled performance obligation, as these businesses generally provide interrelated products and services and integrate these products and services into a combined output specified by the customer. The customer obtains control of this combined output, generally integrated window systems or installed window and curtainwall systems, over time. We measure progress on these contracts on a percentage-of-completion basis as we are able to reasonably estimate total contract revenue and total contract costs. We compare thefollowing an input method, by comparing total costs incurred to dateto-date to the total estimated costs for the contract, and record that proportionproportion of the total contract price as revenue in the period. Contract costs include materials, labor and other direct costs related to contract performance. We believe utilizingthis method of recognizing revenue is consistent with our progress in satisfying our contract obligations.
Due to the cost-to-cost methodnature of the work required under these long-term contracts, the estimation of total revenue and costs incurred throughout a project is subject to many variables and requires significant judgment. It is common for revenue recognition providesthese contracts to contain potential bonuses or penalties which are generally awarded or charged upon certain project milestones or cost or timing targets, and these can be based on customer discretion. We estimate variable consideration at the greatest degree of accuracy in measuring revenue throughout the contract period. Provisions are established formost likely amount to which we expect to be entitled. We include estimated losses, if any, on uncompleted contractsamounts in the periodtransaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in which such lossesthe transaction price are determined. Amounts representingbased largely on our assessments of anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
contract change orders, claims or other itemsLong-term contracts are includedoften modified to account for changes in contract specifications and requirements of work to be performed. We consider contract modifications to exist when the modification, generally through a change order, either creates new or changes existing enforceable rights and obligations, and we evaluate these types of modifications to determine whether they may be considered distinct performance obligations. In most cases, these contract modifications are for goods or services that are not distinct from the existing contract, due to the significant integration service provided in the context of the contract. Therefore, these modifications are accounted for as part of the existing contract. The effect of a contract modification on the transaction price and our measure of progress is recognized as an adjustment to revenue, only upongenerally on a cumulative catch-up basis.
Typically, under these fixed-price contracts, we bill our customers following an agreed-upon schedule based on work performed. Because the progress billings do not generally correspond to our measurement of revenue on a contract, we generate contract assets when we have recognized revenue in excess of the amount billed to the customer. We generate contract liabilities when we have billed the customer approval. Approximately 22 percent, 26 percent and 25in excess of revenue recognized on a contract.
Finally, we have 1 business, making up approximately 23 percent of our consolidated net salestotal revenue in fiscal 2018, 2017the current year, that recognizes revenue following an over-time output method based upon units produced. The customer is considered to have control over the products at the time of production, as the products are highly customized with no alternative use, and 2016, respectively, were recordedwe have an enforceable right to payment for performance completed over the production period. We believe this over-time output method of recognizing revenue reasonably depicts the fulfillment of our performance obligations under our contracts. Billings still occur upon shipment. Therefore, contract assets are generated for the unbilled amounts on a percentage-of-completion basis.contracts when production is complete. Variable consideration associated with these orders, generally related to early pay discounts, is not considered significant.
Revenue excludesAdditionally, we have made the following policy elections associated with revenue recognition:
•We account for shipping and handling activities that occur after control of the related goods transfers to the customer as fulfillment activities, instead of assessing such activities as performance obligations.
•We exclude from the transaction price all sales taxes asrelated to revenue-producing transactions that are collected from the Company considers itselfcustomer for a government authority. We are considered a pass-through conduit for collecting and remitting sales taxes.
•We generally expense incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs primarily relate to sales commissions and are included in selling, general and administrative expenses.
Pricing•We do not adjust contract price for a significant financing component, as we expect the period between when our goods and Sales Incentives. The Company records estimated reductionsservices are transferred to revenuethe customer and when the customer pays for customer programsthose goods and incentive offerings, including pricing arrangements, promotions and other volume-based incentives, at the laterservices to be less than a year.
Shipping and Handling. All amountshandling
Amounts billed to a customer in a sales transaction related to shipping and handling represent revenues earned and are reported as revenue. Costs incurred by the Companywe incur for shipping and handling are reported as cost of sales.
Research and Development.development
Research and development costs are expensed as incurred within selling, general and administrative expenses, and were $14.0$15.3 million,, $8.6 $16.6 million and $8.0$19.5 million for fiscal 2018, 20172021, 2020 and 2016,2019, respectively. Of these amounts, $1.5$9.9 million, $2.2$8.0 million and $2.4$6.5 million,, respectively, were focused primarily upon design of custom window and curtainwall systems in accordance with customer specifications and are included in cost of sales. The remainder of the expense is included within selling, general and administrative expenses.
Advertising. Advertising
Advertising costs are expensed as incurred within selling, general and administrative expenses, and were $1.4 million in fiscal 2018, $1.1 million in fiscal 2017 and $1.22021, $1.4 million in fiscal 2016.2020 and $1.5 million in fiscal 2019.
Income Taxes.taxes
The Company recognizes deferred tax assets and liabilities based upon the future tax consequences of temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. See Note 1413 for additional information regarding income taxes.
Subsequent Events. events
We have evaluated subsequent events for potential recognition and disclosure through the date of this filing and determined that there were no subsequent events that required recognition or disclosure infiling. Subsequent to the consolidated financial statements.end of the year, we purchased 173,000 shares of stock under our authorized share repurchase program, at a total cost of $6.2 million.
New Accounting Standards.Adoption of new accounting standards
In February 2018,June 2016, the Financial Accounting Standards Board (FASB),FASB issued ASU 2018-02, Reclassification2016-13, Measurement of Certain Tax Effects from Accumulated Other Comprehensive IncomeCredit Losses on Financial Instruments, which permits a companyrevises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to reclassifyestimate credit losses on certain types of financial instruments, including accounts receivable, and modifies the disproportionate income tax effectsimpairment model for available-for-sale debt securities.
We adopted this standard at the beginning of fiscal 2021, following the modified retrospective application approach. Additionally, the new guidance makes targeted improvements to the impairment model for certain available-for-sale debt securities, including eliminating the concept of "other than temporary" from that model. The portion of the 2017 Act on items within AOCIguidance related to retained earnings.available-for-sale debt securities was adopted following a prospective approach. The FASB refers to these amounts as “stranded tax effects.” Theadoption of this ASU also requires certain new disclosures, applicable for all companies. The guidance is effective for fiscal years beginning after December 15, 2018, and may be early adopted. We are evaluating the timing of adopting this standard, but dodid not expect it to have a significant impact on our consolidatedearnings or financial statements.condition. Refer to additional disclosures in Notes 2 and 4.
Accounting standards not yet adopted
In August 2017,December 2019, the FASB issued ASU 2017-12, Derivatives2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU removed exceptions on intraperiod tax allocations and Hedging, which improvesreporting and provided simplification on accounting for franchise taxes, tax basis goodwill and tax law changes. We are evaluating the expected impact these amendments will have on our consolidated financial reporting of hedging relationshipsstatements, but the impact is not expected to better portray the economic results of an entity's risk management activities in its financial statements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 (our fiscal 2020), with early adoption permitted. We have elected to early adopt ASU 2017-12, and the standard has been applied to derivative contracts entered into in fiscal 2018.be significant.
In January 2017,March 2020, the FASB issued ASU 2017-04, Simplifying2020-04, Reference Rate Reform (Topic 848): Facilitation of the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment by requiring impairment charges to be basedEffects of Reference Rate Reform on the first stepFinancial Reporting. The amendments in the current two-step impairment test process. The new guidance eliminates the current requirement to calculate a goodwill impairment charge using step 2. The standard is applicable to impairment tests performed in periods beginning after December 15, 2019 (our fiscal 2020), with early adoption permitted. We elected to early adopt this standard for our fiscal 2018 goodwill impairment assessment process.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, and in November 2016, it issued 2016-18, Restricted Cash. Both standards provide optional guidance for presentationa limited period of certain topics withintime to ease the statement of cash flows, including presenting restricted cash within cash and cash equivalents, and are intended to improve consistency in presentation. The new classification guidance is effective for fiscal years beginning after December 15, 2017 (our fiscal 2019), and is to be applied retrospectively for comparability across all periods. These standards may be adopted early, and we are considering the timing of adoption but we do not expect this guidance to have a significant impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which provides for a comprehensive change to lease accounting. The new standard requires that a lessee recognize a lease obligation liability and a right to use asset for virtually all leases of property, plant and equipment, subsequently amortized over the lease term. The new standard is effective for fiscal years beginning after
December 15, 2018 (our fiscal 2020), with a modified retrospective transition. The adoption of this standard will result in reflecting assets and liabilities for the value of our leased property and equipment on our consolidated balance sheet, but it is not expected to have a significant impact on our consolidated results of operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model to usepotential burden in accounting for revenue arising from(or recognizing the effects of) reference rate reform on financial reporting. The amendments in this ASU provide optional expedients and exceptions for applying U.S. GAAP to contracts, with customershedging relationships, and supersedes most current revenue recognition guidance. Under the new standard, an entity recognizes revenueother transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to depict the transfer of promised goodscontracts, hedging relationships, and other transactions that reference LIBOR or services to customers in an amount that reflects the consideration to which the entity expectsanother reference rate expected to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017, our fiscal 2019discontinued because of reference rate reform. We are evaluating the expected impact these amendments and we adopted the standard beginning in our fiscal year 2019.
We adopted the guidance following a modified retrospective transition method, with a cumulative effect adjustment to opening retained earnings in fiscal 2019. We estimate this retained earnings adjustment to be approximately $3 to $5 million.
Some of our business unitsreference rate reform will continue to recognize revenue at the point in time when goods are shipped, as that represents when control is transferred to the customer. We also have business units that will continue to recognize revenue over time, following a cost-to-cost percentage of completion method for revenue recognition.
Two of our business units, representing approximately 38 percent of our total net sales, will change from recognizing revenue at a point in time to recognizing revenue over time, to better reflect transfer of control to the customer in line with the new guidance. We have determined measures of progress toward completion for each business, based on the contract terms and the facts and circumstances associated with the performance obligations of each business.
2. Acquisitions
EFCO
On June 12, 2017, we acquired 100 percent of the stock of EFCO Corporation, a privately-held U.S. manufacturer of architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects, for approximately $192 million in cash. The acquisition was funded through our committed revolving credit facility, with $7.5 million of that amount payable in three annual installments beginning in June 2018. Subsequent to the acquistion, we received approximately $2 million through a working capital settlement. EFCO's results of operations have been included in our consolidated financial statements and withinvarious contracts but the Architectural Framing Systems segment since the dateimpact is not expected to be significant.
2.Revenue, Receivables and $0.8 million of operating income. As of March 3, 2018, we had incurred approximately $5.1 million of acquisition-related costs associated with this transaction.Contract Assets and Liabilities
The assets and liabilities of EFCO were recorded in our consolidated balance sheet as of the acquisition date, at their respective fair values. Fair value is estimated based on one or a combination of income, cost and/or market approaches, as determined based on the nature of the asset or liability, and the level of inputs available. With respect to assets and liabilities, the determination of fair value requires management to make subjective judgments, including projections of future operating performance, the appropriate discount rate to apply and long-term growth rates (unobservable inputs classified as Level 3 inputs under the fair value hierarchy described in Note 5), which affect the amounts recorded in the purchase price allocation. The excess of the consideration transferred over the fair value of the identifiable assets, net of liabilities, is recorded as goodwill, which is indicative of the expected continued growth and development of EFCO. The purchase price allocation is based on the estimated fair values of assets acquired and liabilities assumed, including estimated acquired contract liabilities, as follows:
|
| | | | |
| (In thousands) | | |
| Net working capital | | $ | 7,689 |
|
| Property, plant and equipment | | 44,641 |
|
| Goodwill | | 84,162 |
|
| Other intangible assets | | 71,500 |
|
| Less: Long-term liabilities acquired, net | | 17,643 |
|
| Net assets acquired | | $ | 190,349 |
|
Other intangible assets reflect the following:
|
| | | | | | |
| (In thousands) | | Estimated fair value | | Estimated useful life (in years) |
| Customer relationships | | $ | 34,800 |
| | 16 |
| Tradename | | 32,400 |
| | Indefinite |
| Backlog | | 4,300 |
| | 1.5 |
| | | $ | 71,500 |
| | |
These fair values are based on estimates and are subject to change, based on finalization of net working capital amounts.
Sotawall
On December 14, 2016, we acquired substantially all the assets of Sotawall, Inc. (now operating under the name Sotawall Limited or "Sotawall"), for approximately $138 million, funded by cash and short-term investments of approximately $73 million and by approximately $65 million of borrowings under our committed revolving line of credit. Sotawall specializes in the design, engineering, fabrication, assembly and installation of unitized curtainwall systems for industrial, commercial and institutional buildings, primarily serving the Canadian and northeastern U.S. geographic regions. Sotawall's results of operations have been included in the consolidated financial statements and within the Architectural Framing Systems segment since the date of acquisition. Purchase accounting related to this acquisition was completed during the first quarter of fiscal 2018. Final purchase price allocation was as follows:
|
| | | |
| (In thousands) | |
| Net working capital | $ | 10,682 |
|
| Property, plant and equipment | 7,993 |
|
| Goodwill | 21,380 |
|
| Other intangible assets | 94,630 |
|
| Net assets acquired | $ | 134,685 |
|
Revenue
The following table provides certain unaudited pro forma consolidated informationdisaggregates total revenue by timing of recognition (see Note 15 for disclosure of revenue by segment):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| (In thousands) | | | | | | February 27, 2021 | | February 29, 2020 | | March 2, 2019 |
| Recognized at shipment | | | | | | $ | 504,583 | | | $ | 610,049 | | | $ | 623,357 | |
| Recognized over time | | | | | | 726,191 | | | 777,390 | | | 779,280 | |
| Total | | | | | | $ | 1,230,774 | | | $ | 1,387,439 | | | $ | 1,402,637 | |
Receivables
Receivables reflected in the combined companyfinancial statements represent the net amount expected to be collected. An allowance for the fourth quarters and fiscal years 2018 and 2017, as if the EFCO and Sotawall acquisitions were consummated pursuant to each of their respective same terms at the beginningcredit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the fiscaldebtor, recent payment history, current and forecast economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible. Retainage on construction contracts represents amounts withheld by our customers on long-term projects until the project reaches a level of completion where amounts are released.
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Trade accounts | | $ | 120,534 | | | $ | 141,126 | |
| Construction contracts | | 12,163 | | | 20,808 | |
| Contract retainage | | 45,167 | | | 37,341 | |
| | | | |
| Total receivables | | 177,864 | | | 199,275 | |
| Less: allowance for credit losses | | 1,947 | | | 2,469 | |
| Receivables, net | | $ | 175,917 | | | $ | 196,806 | |
The following table summarizes the activity in the allowance for credit losses:
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Beginning balance | | $ | 2,469 | | | $ | 4,372 | |
| Additions charged to costs and expenses | | 389 | | | 1,192 | |
| Deductions from allowance, net of recoveries | | (887) | | | (3,085) | |
| Other deductions | | (24) | | | (10) | |
| Ending balance | | $ | 1,947 | | | $ | 2,469 | |
Contract assets and liabilities
Contract assets consist of retainage, costs and earnings in excess of billings and other unbilled amounts typically generated when revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts. Retainage is classified within receivables and deferred revenue is classified within other current liabilities on our consolidated balance sheets.
The time period between when performance obligations are complete and when payment is due is not significant. In certain of our businesses that recognize revenue over time, progress billings follow an agreed-upon schedule of values, and retainage is withheld by the customer until the project reaches a level of completion where amounts are released.
| | | | | | | | | | | | | | |
| (In thousands) | | February 27, 2021 | | February 29, 2020 |
| Contract assets | | $ | 74,664 | | | $ | 110,923 | |
| Contract liabilities | | 25,000 | | | 35,954 | |
The decrease in contract assets was due to a reduction in costs and earnings in excess of billings, which is driven by the settlement of matters related to a legacy EFCO project, as well as the timing of projects. The change in contract liabilities was due to timing of project activity from businesses that operate under long-term contracts.
Other contract-related disclosures
| | | | | | | | | | | | | | | | | | |
| | | | |
| (In thousands) | | | | | | February 27, 2021 | | February 29, 2020 |
| Revenue recognized related to contract liabilities from prior year-end | | | | | | $ | 16,341 | | | $ | 23,221 | |
| Revenue recognized related to prior satisfaction of performance obligations | | | | | | 19,705 | | | 15,641 | |
Some of our contracts have an expected duration of longer than a year, preceding their respective acquisition dates.
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended | | Twelve Months Ended |
| (In thousands, except per share data) | | March 3, 2018 | March 4, 2017 | | March 3, 2018 | | March 4, 2017 |
| Net sales | | $ | 353,453 |
| $ | 390,669 |
| | $ | 1,398,733 |
| | $ | 1,474,021 |
|
| Net earnings | | 23,157 |
| 26,624 |
| | 81,653 |
| | 98,795 |
|
| Earnings per share | | | | | | | |
| Basic | | 0.82 |
| 0.93 |
| | 2.86 |
| | 3.44 |
|
| Diluted | | 0.81 |
| 0.92 |
| | 2.83 |
| | 3.43 |
|
Unaudited pro forma information has been provided for comparative purposes onlywith performance obligations extending over that timeframe. Generally these contracts are in our businesses with long-term contracts which recognize revenue over time. As of February 27, 2021, the transaction price associated with unsatisfied performance obligations was approximately $857.5 million. The performance obligations are expected to be satisfied, and the information does not necessarily reflect whatcorresponding revenue to be recognized, over the combined results of operations actually would have been had the acquisitions occurred at the beginning of fiscal year 2017. The information does not reflect the effect of any synergies or integration costs that we expect to result from the acquisitions.following estimated time periods:
| | | | | | | | |
3.(In thousands) | Working Capital | February 27, 2021 |
Receivables
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Trade accounts | $ | 157,562 |
| | $ | 122,149 |
|
| Construction contracts | 26,545 |
| | 31,923 |
|
| Contract retainage | 26,388 |
| | 29,191 |
|
| Other receivables | 2,887 |
| | 3,972 |
|
| Total receivables | 213,382 |
| | 187,235 |
|
| Less allowance for doubtful accounts | (1,530 | ) | | (1,495 | ) |
| Net receivables | $ | 211,852 |
| | $ | 185,740 |
|
Inventories
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Raw materials | $ | 35,049 |
| | $ | 22,761 |
|
| Work-in-process | 17,406 |
| | 16,154 |
|
| Finished goods | 28,453 |
| | 29,372 |
|
| Costs and earnings in excess of billings on uncompleted contracts | 4,120 |
| | 5,122 |
|
| Total inventories | $ | 85,028 |
| | $ | 73,409 |
|
Other Current Liabilities
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Warranties | $ | 18,110 |
| | $ | 21,100 |
|
| Acquired contract liabilities | 26,422 |
| | — |
|
| Taxes, other than income taxes | 5,342 |
| | 4,452 |
|
| Unearned revenue | 7,659 |
| | 411 |
|
| Other | 22,163 |
| | 8,237 |
|
| Total other current liabilities | $ | 79,696 |
| | $ | 34,200 |
|
| Within one year | | $ | 472,728 | |
4.Within two years | Marketable Securities | 316,847 | |
| Beyond | | 67,946 | |
| Total | | $ | 857,521 | |
We hold the following marketable securities, classified as available for sale:
3.Supplemental Balance Sheet Information
Inventories
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Raw materials | | $ | 36,681 | | | $ | 36,611 | |
| Work-in-process | | 18,932 | | | 17,520 | |
| Finished goods | | 17,210 | | | 16,958 | |
| Total inventories | | $ | 72,823 | | | $ | 71,089 | |
Other current liabilities
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Warranties | | $ | 12,298 | | | $ | 12,822 | |
| Accrued project losses | | 4,572 | | | 48,962 | |
| Income and other taxes | | 7,459 | | | 5,952 | |
| Accrued self-insurance reserves | | 6,482 | | | 8,307 | |
| Other | | 22,372 | | | 42,271 | |
| Total other current liabilities | | $ | 53,183 | | | $ | 118,314 | |
Other non-current liabilities
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Deferred benefit from New Markets Tax Credit transactions | | $ | 15,717 | | | $ | 15,717 | |
| Retirement plan obligations | | 7,730 | | | 8,294 | |
| Deferred compensation plan | | 13,507 | | | 8,452 | |
| Deferred tax liabilities | | 8,310 | | | 7,940 | |
| Deferred payroll taxes | | 6,789 | | | 0 | |
| Other | | 16,430 | | | 16,459 | |
| Total other non-current liabilities | | $ | 68,483 | | | $ | 56,862 | |
|
| | | | | | | | | | | | | | | |
| (In thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| March 3, 2018 | | | | | | | |
| Municipal bonds | $ | 9,183 |
| | $ | 8 |
| | $ | (138 | ) | | $ | 9,053 |
|
| March 4, 2017 | | | | | | | |
| Municipal bonds | 9,595 |
| | 91 |
| | (97 | ) | | 9,589 |
|
4.Financial Instruments
We have a
Marketable Securities
Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), which holds ourwe hold the following available-for-sale marketable securities, made up of municipal bonds. and corporate bonds:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| February 27, 2021 | | $ | 12,517 | | | $ | 386 | | | $ | 10 | | | $ | 12,893 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| February 29, 2020 | | 11,692 | | | 275 | | | 0 | | | 11,967 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Prism insures a portion of our general liability, workers' compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments, which are generally high-quality municipal bonds, for the purpose of providing collateral for Prism's obligations under the reinsurance agreement.agreements.
The following table presents the length of time that our securities were in continuous unrealized loss positions, but were not deemed to be other than temporarily impaired, as of March 3, 2018:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Less Than 12 Months | | Greater Than or Equal to 12 Months | | Total |
| (In thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| Municipal bonds | $ | 8,165 |
| | $ | (138 | ) | | $ | — |
| | $ | — |
| | $ | 8,165 |
| | $ | (138 | ) |
The amortized cost and estimated fair values of our municipal and corporate bonds at March 3, 2018,February 27, 2021, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without penalty. Gross realized gains and losses were insignificant for all periods presented.
| | | | | | | | | | | | | | |
| (In thousands) | | Amortized Cost | | Estimated Fair Value |
| Due within one year | | $ | 873 | | | $ | 881 | |
| Due after one year through five years | | 8,610 | | | 8,906 | |
| Due after five years through 10 years | | 2,234 | | | 2,277 | |
| | | | |
| Due beyond 15 years | | 800 | | | 829 | |
| Total | | $ | 12,517 | | | $ | 12,893 | |
|
| | | | | | | |
| (In thousands) | Amortized Cost | | Estimated Market Value |
| Due within one year | $ | 423 |
| | $ | 423 |
|
| Due after one year through five years | 4,606 |
| | 4,543 |
|
| Due after five years through 10 years | 3,349 |
| | 3,287 |
|
| Due after 10 years through 15 years | 141 |
| | 140 |
|
| Due beyond 15 years | 664 |
| | 660 |
|
| Total | $ | 9,183 |
| | $ | 9,053 |
|
Derivative instruments
We use interest rate swaps, currency swaps, and forward purchase contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments we use, how such instruments are accounted for, and how such instruments impact our financial position and performance. | |
5. | Fair Value Measurements |
In fiscal 2020, we entered into an interest rate swap to hedge a portion of our exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility and term loan facility. As of February 27, 2021, the interest rate swap contract had a notional value of $50 million.
We periodically enter into forward purchase contracts to manage the risk associated with fluctuations in foreign currency rates (primarily related to the Canadian dollar and Euro) and aluminum prices, generally with an original maturity date of less than one year. As of February 27, 2021, we held foreign exchange forward contracts and aluminum purchase contracts with U.S. dollar notional values of $4.0 million and $3.0 million, respectively.
These derivative instruments are recorded within our consolidated balance sheets within other current assets and liabilities. Gains or losses associated with these instruments are recorded as a component of accumulated other comprehensive income.
Fair value measurements
Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 assets or liabilities.
Financial assets and liabilities measured at fair value on a recurring basis were:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Quoted Prices in
Active Markets
(Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
| February 27, 2021 | | | | | | |
| Assets: | | | | | | |
| Money market funds | | $ | 26,034 | | | $ | 0 | | | $ | 26,034 | |
| | | | | | |
| Municipal and corporate bonds | | 0 | | | 12,893 | | | 12,893 | |
| Cash surrender value of life insurance | | — | | | 18,632 | | | 18,632 | |
| Foreign currency forward/option contract | | — | | | 606 | | | 606 | |
| Aluminum hedging contract | | — | | | 363 | | | 363 | |
| | | | | | |
| Liabilities: | | | | | | |
| Deferred compensation | | — | | | 13,507 | | | 13,507 | |
| | | | | | |
| Interest rate swap contract | | — | | | 504 | | | 504 | |
| February 29, 2020 | | | | | | |
| Assets: | | | | | | |
| Money market funds | | $ | 2,689 | | | $ | 0 | | | $ | 2,689 | |
| Commercial paper | | 0 | | | 1,500 | | | 1,500 | |
| Municipal and corporate bonds | | 0 | | | 11,967 | | | 11,967 | |
| Cash surrender value of life insurance | | — | | | 16,560 | | | 16,560 | |
| | | | | | |
| | | | | | |
| Liabilities: | | | | | | |
| Deferred compensation | | — | | | 14,042 | | | 14,042 | |
| Foreign currency forward/option contract | | — | | | 340 | | | 340 | |
| Interest rate swap contract | | — | | | 561 | | | 561 | |
|
| | | | | | | | | | | |
| (In thousands) | Quoted Prices in Active Markets (Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
| March 3, 2018 | | | | | |
| Cash equivalents | | | | | |
| Money market funds | $ | 2,901 |
| | $ | — |
| | $ | 2,901 |
|
| Commercial paper | — |
| | 400 |
| | 400 |
|
| Total cash equivalents | 2,901 |
| | 400 |
| | 3,301 |
|
| Short-term securities | | | | |
|
|
| Municipal bonds | — |
| | 423 |
| | 423 |
|
| Long-term securities | | | | | |
| Municipal bonds | — |
| | 8,630 |
| | 8,630 |
|
| Total assets at fair value | $ | 2,901 |
| | $ | 9,453 |
| | $ | 12,354 |
|
| March 4, 2017 | | | | | |
| Cash equivalents | | | | | |
| Money market funds | $ | 4,423 |
| | $ | — |
| | $ | 4,423 |
|
| Commercial paper | — |
| | 5,500 |
| | 5,500 |
|
| Total cash equivalents | 4,423 |
|
| 5,500 |
|
| 9,923 |
|
| Short-term securities | | | | | |
| Municipal bonds | — |
| | 548 |
| | 548 |
|
| Long-term securities | | | | | |
| Municipal bonds | — |
| | 9,041 |
| | 9,041 |
|
| Total assets at fair value | $ | 4,423 |
|
| $ | 15,089 |
|
| $ | 19,512 |
|
Cash equivalentsMoney market funds and commercial paper
Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets. These assets are included within cash and cash equivalents on our consolidated balance sheets.
Short- and long-term securities
Municipal and corporate bonds
Municipal and corporate bonds were measured at fair value based on market prices from recent trades of similar securities and are classified within our consolidated balance sheets as short-termother current or long-termother non-current assets based on maturity date. Mutual
Cash surrender value of life insurance and deferred compensation
Contracts insuring the lives of certain employees who are eligible to participate in non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds werethat shadow the deferral investment allocations made by these participants. Changes in cash surrender value are recorded in other expense. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.
Derivative instruments
The interest rate swap is measured at fair value using unobservable market inputs, based on quoted prices for identical assets in active markets.
Foreign currency instruments. We periodically enter intooff benchmark interest rates. Forward foreign exchange and forward purchase foreign currency contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk. In the fourth quarter, we held foreign exchange forward contracts with a U.S. dollar notional value of $15.2 million, with the objective of reducing the exposure to fluctuations in the Canadian dollar and the Euro. The fair value of these contracts was a net liability of $0.1 million at year-end. These forwardaluminum contracts are measured at fair value using unobservable market inputs, such as quotations on forward foreign exchange points, and foreign currency exchange rates and would be classifiedforward purchase aluminum prices. Derivative positions are primarily valued using standard calculations and models that use as Level 2 withintheir basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for interest and currency rates and aluminum prices.
Nonrecurring fair value measurements
We measure certain financial instruments at fair value on a nonrecurring basis including goodwill, intangible assets, property and equipment and right-of-use lease assets. These assets were initially measured and recognized at amounts equal to the fair value hierarchy above.determined as of the date of acquisition or purchase subject to changes in value only for foreign currency translation.
| |
6. | Property, Plant and Equipment |
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Land | $ | 7,251 |
| | $ | 8,400 |
|
| Buildings and improvements | 172,468 |
| | 162,184 |
|
| Machinery and equipment | 380,952 |
| | 316,406 |
|
| Office equipment and furniture | 56,752 |
| | 49,720 |
|
| Construction in progress | 44,095 |
| | 46,544 |
|
| Total property, plant and equipment | 661,518 |
| | 583,254 |
|
| Less accumulated depreciation | (357,455 | ) | | (336,506 | ) |
| Net property, plant and equipment | $ | 304,063 |
| | $ | 246,748 |
|
See Note 1 and Note 6 for additional information on the impairment charges recorded to goodwill and indefinite-lived intangible assets during the fourth quarter of fiscal 2021.
5.Property, Plant and Equipment
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Land | | $ | 3,607 | | | $ | 5,381 | |
| Buildings and improvements | | 204,660 | | | 210,171 | |
| Machinery and equipment | | 425,525 | | | 418,240 | |
| Office equipment and furniture | | 68,516 | | | 60,409 | |
| Construction in progress | | 13,750 | | | 17,496 | |
| Total property, plant and equipment | | 716,058 | | | 711,697 | |
| Less accumulated depreciation | | (417,615) | | | (387,311) | |
| Net property, plant and equipment | | $ | 298,443 | | | $ | 324,386 | |
Depreciation expense was $37.1$43.9 million,, $31.6 $36.1 million, and $29.8$37.1 million in fiscal 2018, 20172021, 2020, and 2016,2019, respectively.
As previously announced,In September 2020, we sold a building in McCook, IL within our LSO segment for $25.1 million. The carrying value of the building was $4.3 million, and we recognized a gain on this sale of approximately $19.3 million, net of associated transaction costs, which is included as a resultreduction of selling, general and administrative expenses within our consolidated statements of operations. We entered into a separate operating lease agreement for this facility, which commenced in September 2020. Refer to Note 8 for related lease disclosures.
During fiscal 2021, we closed seven facilities within our Architectural Framing Systems segment, exited certain leases for those facilities, and provided certain termination benefits to employees across the company, resulting in restructuring-related costs of $5.8 million, of which $5.2 million is included within cost of sales and $0.6 million is included within selling, general and administrative expenses within our consolidated statements of operations.
Certain amounts associated with the restructuring expense incurred during fiscal 2021 are accrued as of year-end within accrued payroll and related costs and other current liabilities in the consolidated balance sheets, and are expected to be paid within the next fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Architectural Framing | | | | | | Other | | Total |
| Balance at February 29, 2020 | | $ | 0 | | | | | | | $ | 0 | | | $ | 0 | |
| Restructuring expense | | 5,281 | | | | | | | 554 | | | 5,835 | |
| Payments | | (716) | | | | | | | (163) | | | (879) | |
| Other adjustments | | (739) | | | | | | | 0 | | | (739) | |
| Balance at February 27, 2021 | | $ | 3,826 | | | | | | | $ | 391 | | | $ | 4,217 | |
6. Goodwill and Other Intangible Assets
Goodwill
Refer to Note 1 to the Consolidated Financial Statements for a description of the Accounting Policy related to Goodwill.
Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. We evaluate goodwill for impairment annually as of the first day of our investmentsfiscal fourth quarter, or more frequently if events or changes in productivitycircumstances indicate the carrying value of goodwill may not be recoverable. Based on the impairment analysis performed in the fourth quarter, estimated fair value was in excess of carrying value at six of our eight reporting units. However, estimated fair value did not exceed carrying value for two reporting units within the Architectural Framing Systems segment, EFCO and increased capabilities which have led to increased capacity,Sotawall. For these reporting units, we closed our St. George, UT architectural glass manufacturing facilityutilized a weighted-average cost of capital of 12.1 percent in March 2018.determining the discounted cash flows in the fair value analysis and a long-term growth rate of 3.0 percent. As a result, as of February 27, 2021, we incurred goodwill impairment expense of $46.7 million and $17.1 million in our EFCO and Sotawall reporting units, respectively. The goodwill impairment expense recorded during the closure, at year-end,year ended February 27, 2021 represents the land and building have been classified as available-for-sale and are carried at estimated fair value within property, plant and equipment on our consolidated balance sheets.total accumulated goodwill impairment expenses recorded.
| |
7. | Goodwill and Other Intangible Assets |
The carrying amount of goodwill attributable to each reporting segment was:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Architectural Framing Systems | | Architectural Glass | | Architectural Services | | Large-Scale
Optical | | Total |
| Balance at March 2, 2019 | | $ | 148,446 | | | $ | 25,709 | | | $ | 1,120 | | | $ | 10,557 | | | $ | 185,832 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Foreign currency translation | | (263) | | | (53) | | | 0 | | | 0 | | | (316) | |
| Balance at February 29, 2020 | | 148,183 | | | 25,656 | | | 1,120 | | | 10,557 | | | 185,516 | |
Adjustment (1) | | 6,315 | | | — | | | — | | | — | | | 6,315 | |
| Impairment expense | | (63,769) | | | — | | | — | | | — | | | (63,769) | |
| Foreign currency translation | | 2,370 | | | (334) | | | 0 | | | 0 | | | 2,036 | |
| Balance at February 27, 2021 | | $ | 93,099 | | | $ | 25,322 | | | $ | 1,120 | | | $ | 10,557 | | | $ | 130,098 | |
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | Architectural Glass | | Architectural Services | | Architectural Framing Systems | | Large-Scale Optical | | Total |
| Balance at February 27, 2016 | $ | 25,639 |
| | $ | 1,120 |
| | $ | 36,680 |
| | $ | 10,557 |
| | $ | 73,996 |
|
| Goodwill acquired | — |
| | — |
| | 27,444 |
| | — |
| | 27,444 |
|
| Foreign currency translation | 317 |
| | — |
| | (423 | ) | | — |
| | (106 | ) |
| Balance at March 4, 2017 | 25,956 |
| | 1,120 |
| | 63,701 |
| | 10,557 |
| | 101,334 |
|
| Goodwill acquired | — |
| | — |
| | 84,162 |
| | — |
| | 84,162 |
|
| Goodwill adjustments for purchase accounting | — |
| | — |
| | (5,859 | ) | | — |
| | (5,859 | ) |
| Foreign currency translation | 15 |
| | — |
| | 1,304 |
| | — |
| | 1,319 |
|
| Balance at March 3, 2018 | $ | 25,971 |
| | $ | 1,120 |
| | $ | 143,308 |
| | $ | 10,557 |
| | $ | 180,956 |
|
NoIndefinite-lived intangible assets
We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Based on our analysis, the fair value of each of our trade names and trademarks exceeded carrying amount, except for the EFCO tradename, within our Architectural Framing Systems segment. The fair value determined for the EFCO tradename exceeded carrying value by $6.3 million and this amount was recognized as impairment has been recordedexpense in any period presented.the fourth quarter ended February 27, 2021.
The gross carrying amount of other intangible assets and related accumulated amortization was:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Gross Carrying Amount | | Accumulated
Amortization | | Impairment Expense | | Foreign
Currency
Translation | | Net |
| February 27, 2021 | | | | | | | | | | |
| Definite-lived intangible assets: | | | | | | | | | | |
| Customer relationships | | $ | 119,647 | | | $ | (40,443) | | | $ | — | | | $ | 3,315 | | | $ | 82,519 | |
| Other intangibles | | 41,293 | | | (34,234) | | | — | | | 643 | | | 7,702 | |
| Total definite-lived intangible assets | | 160,940 | | | (74,677) | | | — | | | 3,958 | | | 90,221 | |
| Indefinite-lived intangible assets: | | | | | | | | | | |
| Trademarks | | 45,300 | | | — | | | (6,300) | | | 832 | | | 39,832 | |
| Total intangible assets | | $ | 206,240 | | | $ | (74,677) | | | $ | (6,300) | | | $ | 4,790 | | | $ | 130,053 | |
| February 29, 2020 | | | | | | | | | | |
| Definite-lived intangible assets: | | | | | | | | | | |
| Customer relationships | | $ | 120,239 | | | $ | (33,121) | | | $ | — | | | $ | (592) | | | $ | 86,526 | |
| Other intangibles | | 41,069 | | | (32,516) | | | — | | | (189) | | | 8,364 | |
| Total definite-lived intangible assets | | 161,308 | | | (65,637) | | | — | | | (781) | | | 94,890 | |
| Indefinite-lived intangible assets: | | | | | | | | | | |
| Trademarks | | 45,421 | | | — | | | 0 | | | (120) | | | 45,301 | |
| Total intangible assets | | $ | 206,729 | | | $ | (65,637) | | | $ | 0 | | | $ | (901) | | | $ | 140,191 | |
|
| | | | | | | | | | | | | | | |
| (In thousands) | Gross Carrying Amount | | Accumulated Amortization | | Foreign Currency Translation | | Net |
| March 3, 2018 | | | | | | | |
| Definite-lived intangible assets | | | | | | | |
| Debt issue costs | $ | 4,516 |
| | $ | (3,248 | ) | | $ | — |
| | $ | 1,268 |
|
| Non-compete agreements | 6,240 |
| | (6,078 | ) | | 6 |
| | 168 |
|
| Customer relationships | 122,816 |
| | (20,277 | ) | | (56 | ) | | 102,483 |
|
| Trademarks and other intangibles | 30,941 |
| | (16,553 | ) | | (36 | ) | | 14,352 |
|
| Total definite-lived intangible assets | 164,513 |
| | (46,156 | ) | | (86 | ) | | 118,271 |
|
| Indefinite-lived intangible assets | | | | | | | |
| Trademarks | 48,461 |
| | — |
| | 617 |
| | 49,078 |
|
| Total intangible assets | $ | 212,974 |
| | $ | (46,156 | ) | | $ | 531 |
| | $ | 167,349 |
|
| March 4, 2017 | | | | | | | |
| Definite-lived intangible assets | | | | | | | |
| Debt issue costs | $ | 4,066 |
| | $ | (2,960 | ) | | $ | — |
| | $ | 1,106 |
|
| Non-compete agreements | 6,286 |
| | (6,025 | ) | | (65 | ) | | 196 |
|
| Customer relationships | 82,479 |
| | (14,013 | ) | | (145 | ) | | 68,321 |
|
| Trademarks and other intangibles | 25,950 |
| | (4,917 | ) | | (31 | ) | | 21,002 |
|
| Total definite-lived intangible assets | 118,781 |
| | (27,915 | ) | | (241 | ) | | 90,625 |
|
| Indefinite-lived intangible assets | | | | | | | |
| Trademarks | 16,022 |
| | — |
| | 39 |
| | 16,061 |
|
| Total intangible assets | $ | 134,803 |
| | $ | (27,915 | ) | | $ | (202 | ) | | $ | 106,686 |
|
Amortization expense on definite-lived intangible assets was $17.8$7.6 million,, $4.0 $7.7 million and $1.6$12.7 million in fiscal 2018, 20172021, 2020 and 2016,2019, respectively. The amortizationAmortization expense associated with the debt issue costs is included in interest expense, while the remainder is inwithin selling, general and administrative expenses for all intangible assets other than that of debt issuance costs, which is included in the consolidated results of operations.interest expense. Estimated future amortization expense for definite-lived intangible assets is:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 |
| Estimated amortization expense | | $ | 8,055 | | | $ | 7,963 | | | $ | 7,662 | | | $ | 7,316 | | | $ | 7,299 | |
7. Debt
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Estimated amortization expense | $ | 13,155 |
| | $ | 8,221 |
| | $ | 8,214 |
| | $ | 7,908 |
| | $ | 7,627 |
|
In June 2017,As of February 27, 2021, we amended and restated the credit agreement governing our credit facility, which hashad a maturity date of November 2021, to increase the amount of thecommitted revolving credit facility with maximum borrowings of up to $335.0 million. We had $195.0$235 million with a maturity of June 2024. There were 0 outstanding on ourborrowings under the revolving credit facility, as of March 3, 2018February 27, 2021 and $45.0borrowings of $47.5 million were outstanding as of March 4, 2017.February 29, 2020. As defined within ourof February 27, 2021 and February 29, 2020, we also had a $150 million term loan. The term loan was amended during the third quarter of fiscal 2021 to extend the maturity date to June 2024.
Our revolving credit facility we haveand term loan contain two financial covenants that require us to stay below a maximum debt-to-EBITDA ratio and maintain a minimum ratio of interest expense-to-EBITDA. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. If the Company is not in compliance with either of these covenants, our credit facility and term loan may be terminated and/or any amounts then outstanding may be declared immediately due and payable. At March 3, 2018,February 27, 2021, we were in compliance with both financial covenants. We have the ability to issue letters of credit of up to $70.0$80.0 million under thisthe credit facility, the outstanding amounts of which decrease the available commitment. At March 3, 2018, $116.5February 27, 2021, $216.3 million was available under this revolving credit facility.
Debt at March 3, 2018February 27, 2021 also included $20.4$15.0 million of industrial revenue bonds that mature in fiscal years 20212022 through 2043 and $0.5 million of long-term debt in Canada that matures in August 2022.2043. The fair value of the industrial revenue bonds approximated carrying value at March 3, 2018,February 27, 2021, due to the variable interest rates on these instruments. The bonds would be classified as Level 2 within the fair value hierarchy described in Note 5.4.
We also maintain two Canadian committed, revolving credit facilities totaling $12.0$25.0 million Canadian dollars. No(USD). NaN borrowings were outstanding under the facilities in place as of March 3, 2018February 27, 2021 or March 4, 2017. Borrowings under the facilities are made available at the sole discretionas of the lender and are payable on demand, with interest at rates specified in the credit agreements for the demand facilities.February 29, 2020.
Debt maturities and other selected information follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
| Maturities | | $ | 2,000 | | | $ | 1,000 | | | $ | 0 | | | $ | 150,000 | | | $ | 0 | | | $ | 12,000 | | | $ | 165,000 | |
|
| | | | | | | | | | | | | | | |
| (In thousands) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| Maturities | $121 | | $121 | | $5,520 | | $197,120 | | $1,098 | | $12,000 | | $ | 215,980 |
|
| | | | | | | | | | | | | | |
| (In thousands, except percentages) | | 2021 | | 2020 |
| Average daily borrowings during the year | | $ | 187,397 | | | $ | 241,036 | |
| Maximum borrowings outstanding during the year | | 235,232 | | | 282,000 | |
| Weighted average interest rate during the year | | 1.89 | % | | 2.91 | % |
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | February 27, 2021 | | February 29, 2020 | | March 2, 2019 |
| Interest on debt | | $ | 4,981 | | | $ | 8,891 | | | $ | 8,114 | |
| Other interest expense | | 604 | | | 326 | | | 335 | |
| Interest expense | | $ | 5,585 | | | $ | 9,217 | | | $ | 8,449 | |
|
| | | | | | | |
| (In thousands, except percentages) | 2018 | | 2017 |
| Average daily borrowings during the year | $ | 195,400 |
| | $ | 34,320 |
|
| Maximum borrowings outstanding during the year | 276,100 |
| | 91,400 |
|
| Weighted average interest rate during the year | 2.61 | % | | 2.22 | % |
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Interest on debt | $ | 5,208 |
| | $ | 971 |
| | $ | 544 |
|
| Other interest expense | 300 |
| | — |
| | 49 |
|
| Interest expense | $ | 5,508 |
| | $ | 971 |
| | $ | 593 |
|
Interest payments were $5.3 million in fiscal 2018, $0.8$4.6 million in fiscal 2017 and $0.5February 27, 2021, $9.1 million in fiscal 2016.February 29, 2020 and $8.1 million in fiscal March 2, 2019.
8. Leases
We have operating leases for certain of the buildings and equipment used in our operations. We determine if an arrangement contains a lease at inception. At the beginning of fiscal 2020, we adopted ASU 2016-20, Leases. We elected the package of practical expedients permitted under the transition guidance in adopting ASC 842, which among other things, allowed us to carry forward our historical lease classification. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over
the lease term. Our leases have remaining lease terms of one to ten years, some of which include renewal options that can extend the lease for up to an additional ten years at our sole discretion. We have made an accounting policy election not to record leases with an original term of 12 months or less on our consolidated balance sheet and such leases are expensed on a straight-line basis over the lease term.
In determining lease asset value, we consider fixed or variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. We use a discount rate for each lease based upon an estimated incremental borrowing rate over a similar term. We have elected the practical expedient to account for lease and nonlease components (e.g., common-area maintenance costs) as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We are not a lessor in any transactions.
The components of lease expense were as follows:
| | | | | | | | | | | | | | |
| (In thousands) | | February 27, 2021 | | February 29, 2020 |
| Operating lease cost | | $ | 13,973 | | | $ | 13,671 | |
| Short-term lease cost | | 1,910 | | | 2,121 | |
| Variable lease cost | | 2,827 | | | 2,969 | |
| | | | |
| Total lease cost | | $ | 18,710 | | | $ | 18,761 | |
Other supplemental information related to leases for the year ended February 27, 2021 was as follows:
| | | | | | | | | | | | | | |
| (In thousands) | | February 27, 2021 | | February 29, 2020 |
| | | | |
| Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 13,952 | | | $ | 13,614 | |
| Lease assets obtained in exchange for new operating lease liabilities | | $ | 23,772 | | | $ | 15,948 | |
| Weighted-average remaining lease term - operating leases | | 6.0 years | | 5.8 years |
| Weighted-average discount rate - operating leases | | 3.0 | % | | 3.6 | % |
Future maturities of lease liabilities are as follows:
| | | | | | | | |
9.(In thousands) | Other Non-Current Liabilities | 2021 |
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Deferred benefit from New Markets Tax Credit transactions | $ | 16,708 |
| | $ | 16,708 |
|
| Retirement plan obligations | 8,997 |
| | 9,635 |
|
| Deferred compensation plan | 10,730 |
| | 7,463 |
|
| Other | 24,986 |
| | 11,981 |
|
| Total other non-current liabilities | $ | 61,421 |
| | $ | 45,787 |
|
| Fiscal 2022 | | $ | 13,731 | |
10.Fiscal 2023 | Employee Benefit Plans | 12,249 | |
| Fiscal 2024 | | 10,558 | |
| Fiscal 2025 | | 9,290 | |
| Fiscal 2026 | | 7,464 | |
| Thereafter | | 12,581 | |
| Total lease payments | | 65,873 | |
| Less: Amounts representing interest | | 4,183 | |
| Present value of lease liabilities | | $ | 61,690 | |
9. Employee Benefit Plans
401(k) Retirement Plan
The Company sponsorsWe sponsor a single 401(k) retirement plan covering substantially all full-time, non-union employees, as well as union employees at two2 of itsour manufacturing facilities. Under the plan, employees are allowed to contribute up to 60 percent of eligible earnings to the plan, up to statutory limits. The Company contributes aWe match of 100 percent of the first one1 percent contributed and 50 percent of the next five5 percent contributed on eligible compensation that non-union employees contribute and according to contract terms for union employees. The Company match was $7.5In response to the effects of COVID-19 on our business, we suspended the matching contribution from June 1, 2020 until December 31, 2020. In total, our matching contributions were $3.5 million in fiscal 2018, $6.2 million in fiscal 2017 and $5.42021, $9.0 million in fiscal 2016.2020 and $8.0 million in fiscal 2019.
Deferred Compensation Plan
The Company maintainsWe maintain a plan that allows participants to defer compensation. The deferred compensation liability was $10.7$15.0 million and $7.7$14.0 million at March 3, 2018February 27, 2021 and March 4, 2017,February 29, 2020, respectively. The Company hasWe have investments in corporate-owned life insurance policies (COLI) of $10.8$18.6 million and money market funds (classified as cash equivalents) of $0.4$0.3 million with the intention of utilizing them as long-term funding sources for this plan. The COLI assets are recorded at their net cash surrender values and are included in other non-current assets in the consolidated balance sheet.
Plans under Collective Bargaining Agreements
We contribute to variousa number of multi-employer union retirement plans, which provide retirement benefits to the majority of our unionunion-represented employees; none of the plans are considered significant. The total contributionHowever, the risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
•Assets contributed to these plans by one employer may be used to provide benefits to employees of other participating employers
•If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers
•If we choose to stop participating in some of these plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability
Our participation in these plans is outlined in the following table. The most recent Pension Protection Act zone status available in 2021 and 2020 relates to the plan years ending December 31, 2020 and December 31, 2019, respectively. The zone status is based on information that we have received from each plan, certified by an actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Pension Protection Act Zone Status | | Contributions (In thousands) | | | | | | | | |
| Pension Fund | | EIN/Pension Plan Number | | 2021 | | 2020 | | 2021 | | 2020 | | 2019 | | FIP/RP Status Pending/Implemented | | Minimum Contribution | | Surcharge Imposed | | Expiration Date of Collective Bargaining Agreement(1) |
| Atlanta Ironworkers Local Union 387 Pension Plan | | 58-6051152 | | Green | | Green | | $ | 209 | | | $ | 35 | | | $ | 61 | | | No | | No | | No | | 1/31/2017 |
| Glazier's Union Local 27 Pension and Retirement Plan | | 36-6034076 | | Green | | Green | | 290 | | | 165 | | | 58 | | | No | | No | | No | | 5/31/2017 |
| International Painters and Allied Trades Industry Pension Fund | | 52-6073909 | | Red | | Red | | 932 | | | 525 | | | 544 | | | Implemented | | No | | No | | 11/30/2017 |
| | | | | | | | | | | | | | | | | | | | |
| Iron Workers Local Union No. 5 and Iron Workers Employers Assocation Employees Pension Trsut Fund | | 52-1075473 | | Green | | Green | | 1,454 | | | 940 | | | 858 | | | No | | No | | No | | 5/31/2017 |
| Iron Workers Mid-America Pension Fund | | 36-6488227 | | Green | | Green | | 431 | | | 767 | | | 446 | | | No | | No | | No | | 5/31/2017 |
| | | | | | | | | | | | | | | | | | | | |
| Iron Workers St. Louis District Council Pension Trust Fund | | 43-6052659 | | Green | | Green | | 63 | | | 217 | | | 225 | | | No | | No | | No | | 0 |
| | | | | | | | | | | | | | | | | | | | |
| Western Glaziers Retirement Plan (Washington) | | 91-6123685 | | Green | | Green | | 160 | | | 526 | | | 532 | | | No | | No | | No | | 6/30/2017 |
| Other funds | | | | | | | | 584 | | | 751 | | | 963 | | | | | | | | | |
| Total contributions | | | | | | | | $ | 4,123 | | | $ | 3,926 | | | $ | 3,687 | | | | | | | | | |
(1) Plans include contributions required by collective bargaining agreements which have expired, but contain provisions automatically renewing their terms in the absence of a subsequent negotiated agreement. |
The Company was listed in the plans' Forms 5500 as providing more than 5 percent of the total contributions for the following plans and plan years:
| | | | | | | | |
| Pension Fund | | Year contributions to Plan Exceeded More Than 5 Percent of Total Contributions |
| Iron Workers Local Union No. 5 and Iron Workers Employers Assocation Employees Pension Trsut Fund | | 2021, 2020 and 2019 |
| Iron Workers Mid-America Pension Fund | | 2021 and 2020 |
| Iron Workers St. Louis District Council Pension Trust Fund | | 2020 |
| Western Glaziers Retirement Plan (Washington) | | 2020 |
Amounts contributed in fiscal 2018, 20172021, 2020, and 2016 was $2.92019 to defined contribution multiemployer plans were $1.5 million, $3.9$0.9 million and $3.6$1.3 million, respectively.
Obligations and Funded Status of Defined-Benefit Pension PlanPlans
The Company sponsorsWe sponsor the Tubelite Inc. Hourly Employees' Pension Plan, a defined-benefit pension plan that was frozen to new entrants in fiscal 2004, with no additional benefits accruing to plan participants after such time.
Officers' Supplemental Executive Retirement Plan (SERP)
The Company sponsors We also sponsor an unfunded SERP, for the benefit of certain executives, a defined-benefit pension plan that was frozen to new entrants in fiscal 2009, with no additional benefits accruing to plan participants after such time.
Obligations and Funded Status of Defined-Benefit Pension Plans
The following tables present reconciliations of the benefit obligation of the defined-benefit pension plans and the funded status of the defined-benefit pensionthese plans. The Tubelite plan uses a measurement date as of the calendar month-end closest to our fiscal year-end, while the SERP uses a measurement date aligned with our fiscal year-end.
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Change in projected benefit obligation | | | | |
| Benefit obligation beginning of period | | $ | 14,371 | | | $ | 13,310 | |
| Interest cost | | 346 | | | 492 | |
| Actuarial (gain) loss | | (175) | | | 1,567 | |
| Benefits paid | | (1,001) | | | (998) | |
| Benefit obligation at measurement date | | 13,541 | | | 14,371 | |
| Change in plan assets | | | | |
| Fair value of plan assets beginning of period | | $ | 5,986 | | | $ | 5,330 | |
| Actual return on plan assets | | (88) | | | 1,002 | |
| Company contributions | | 654 | | | 652 | |
| Benefits paid | | (1,001) | | | (998) | |
| Fair value of plan assets at measurement date | | 5,551 | | | 5,986 | |
| Underfunded status | | $ | (7,990) | | | $ | (8,385) | |
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Change in projected benefit obligation | | | |
| Benefit obligation beginning of period | $ | 14,492 |
| | $ | 14,900 |
|
| Interest cost | 531 |
| | 555 |
|
| Actuarial (gain) loss | (175 | ) | | 54 |
|
| Benefits paid | (1,014 | ) | | (1,017 | ) |
| Benefit obligation at measurement date | 13,834 |
| | 14,492 |
|
| Change in plan assets | | | |
| Fair value of plan assets beginning of period | $ | 4,185 |
| | $ | 4,261 |
|
| Actual return on plan assets | 10 |
| | 73 |
|
| Company contributions | 988 |
| | 868 |
|
| Benefits paid | (1,014 | ) | | (1,017 | ) |
| Fair value of plan assets at measurement date | 4,169 |
| | 4,185 |
|
| Underfunded status | $ | (9,665 | ) | | $ | (10,307 | ) |
The underfundedfunded status of our plans was recognized in the consolidated balance sheets:sheets as follows:
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Other non-current assets | | $ | 423 | | | $ | 591 | |
| Current liabilities | | (683) | | | (682) | |
| Other non-current liabilities | | (7,730) | | | (8,294) | |
| Total | | $ | (7,990) | | | $ | (8,385) | |
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Current liabilities | $ | (668 | ) | | $ | (672 | ) |
| Other non-current liabilities | (8,997 | ) | | (9,635 | ) |
| Total | $ | (9,665 | ) | | $ | (10,307 | ) |
The following was included in accumulated other comprehensive loss and has not yet been recognized as a component of net periodic benefit cost: | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Net actuarial loss | | $ | 5,416 | | | $ | 5,553 | |
| | | | |
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Net actuarial loss | $ | 5,325 |
| | $ | 5,696 |
|
The amountnet actuarial gain recognized in comprehensive earnings, net of tax expense, was:was $0.1 million in fiscal 2021, while the net actuarial loss recognized in comprehensive earnings, net of tax benefit, was $0.4 million in fiscal 2020.
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Net actuarial gain | $ | 284 |
| | $ | 130 |
|
Components of the defined-benefit pension plans' net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Interest cost | | $ | 346 | | | $ | 492 | | | $ | 506 | |
| Expected return on assets | | (211) | | | (182) | | | (40) | |
| Amortization of unrecognized net loss | | 260 | | | 219 | | | 226 | |
| Net periodic benefit cost | | $ | 395 | | | $ | 529 | | | $ | 692 | |
|
| | | | | | | | | | | | |
| (In thousands) | | 2018 | | 2017 | | 2016 |
| Interest cost | | $ | 531 |
| | $ | 555 |
| | $ | 566 |
|
| Expected return on assets | | (41 | ) | | (41 | ) | | (137 | ) |
| Amortization of unrecognized net loss | | 228 |
| | 225 |
| | 249 |
|
| Net periodic benefit cost | | $ | 718 |
| | $ | 739 |
| | $ | 678 |
|
Total net periodic pension benefit cost is expected to be approximately $0.7$0.5 million in fiscal 2019.2022. The estimated net actuarial lossgain for the defined-benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost for fiscal 20192022 is $0.2$0.2 million,, net of tax benefit.expense.
Additional Information
Assumptions
| | | | | | | | | | | | | | | | | | | | |
| Benefit Obligation Weighted-Average Assumptions | | 2021 | | 2020 | | 2019 |
| Discount rate | | 2.60 | % | | 3.80 | % | | 3.80 | % |
| | | | | | | | | | | | | | | | | | | | |
| Net Periodic Benefit Expense Weighted-Average Assumptions | | 2021 | | 2020 | | 2019 |
| Discount rate | | 2.50 | % | | 2.50 | % | | 3.85 | % |
| Expected long-term rate of return on assets | | 4.50 | % | | 4.50 | % | | 4.50 | % |
|
| | | | | | | | |
| Benefit Obligation Weighted-Average Assumptions | 2018 | | 2017 | | 2016 |
| Discount rate | 3.80 | % | | 3.80 | % | | 3.85 | % |
|
| | | | | | | | |
| Net Periodic Benefit Expense Weighted-Average Assumptions | 2018 | | 2017 | | 2016 |
| Discount rate | 3.80 | % | | 3.85 | % | | 3.60 | % |
| Expected long-term rate of return on assets | 2.00 | % | | 2.00 | % | | 2.00 | % |
Discount rate. The discount rate reflects the current rate at which the defined-benefit plans' pension liabilities could be effectively settled at the end of the year based on the measurement date. The discount rate was determined by matching the expected benefit payments to payments from the Principal Discount Yield Curve. There are no known or anticipated changes in the discount rate assumption that will have a significant impact on pension expense in fiscal 2019.2022.
Expected return on assets. To develop the expected long-term rate of return on assets, we considered historical long-term rates of return achieved by the plan investments, the plan's investment strategy, and current and projected market conditions. In accordance with its policy,During fiscal 2019, the assets of the Tubelite plan are investedwere moved from investment in a short-term bond fund andto various duration fixed income funds. The investments are carried at fair value based on prices from recent trades of similar securities, which would be classified as Level 2 in the valuation hierarchy. We do not maintain assets intended for the future use of the SERP.
Contributions
Company contributions to the plans for fiscal 2021 and fiscal 2020 were $0.7 million in each of fiscal 2018 and 2017 totaled $1.0 million,year, which equaled or exceeded the minimum funding requirement.requirements.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, are expected to be paid by the plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027-2031 |
| Estimated future benefit payments | | $ | 1,053 | | | $ | 1,007 | | | $ | 971 | | | $ | 935 | | | $ | 919 | | | $ | 4,136 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | 2024-2028 |
| Estimated future benefit payments | $ | 1,048 |
| | $ | 1,021 |
| | $ | 1,004 |
| | $ | 975 |
| | $ | 945 |
| | $ | 4,387 |
|
11.10. Commitments and Contingent Liabilities
Operating lease commitments. As of March 3, 2018, the Company was obligated under non-cancelable operating leases for buildings and equipment. Certain leases provide for increased rentals based upon increases in real estate taxes or operating costs. Future minimum rental payments under non-cancelable operating leases are:Bond commitments
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| Total minimum payments | $ | 14,385 |
| | $ | 12,440 |
| | $ | 9,095 |
| | $ | 7,090 |
| | $ | 6,199 |
| | $ | 14,110 |
| | $ | 63,319 |
|
Total rental expense, including operating leases and short-term equipment rentals, was $21.8 million, $16.9 million and $15.5 million in fiscal 2018, 2017 and 2016, respectively. We lease the property that holds Sotawall's principal facilities from a company owned by the President of Sotawall. Total rent paid for this facility was approximately $2.6 million in fiscal 2018, and the future minimum lease commitment is $14.9 million.
At March 3, 2018, we had one sale and leaseback agreement for equipment that provides an option to purchase the equipment at projected future fair market value upon expiration of the lease in 2021. The lease is classified as an operating lease in accordance with applicable financial accounting standards. The Company has a deferred gain of $1.3 million under the sale and leaseback transaction, which is included in the balance sheet as other current and non-current liabilities. The average annual lease payment over the remaining life of the lease is $1.0 million.
Bond commitments.In the ordinary course of business, predominantly in the Company’s Architectural Services segment, the Company isand Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to itsour customers for any non-performance. At March 3, 2018, $238.6February 27, 2021, $1.1 billion of these types of bonds were outstanding, of which, $532.4 million of the Company’s backlog was bonded by performance bonds with a face value of $519.3 million. Performanceis on our backlog. These bonds do not have stated expiration dates, as the Company iswe are released from the bonds upon completion of the contract and any related warranty period. The Company hascontract. We have never been required to make any payments related to these performance-basedunder surety or performance bonds with respect to any of its current portfolio ofour existing businesses.
Warranties.Warranty and project-related contingencies
We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework costs based on historical product liability claims as a ratio of sales. ClaimsClaim costs are deducted from the accrual when paid.
Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, shiftschanges in product mix and any significant changes in sales volume. A warranty rollforward follows:
| | | (In thousands) | 2018 | | 2017 | (In thousands) | | 2021 | | 2020 |
| Balance at beginning of period | $ | 21,933 |
| | $ | 16,340 |
| Balance at beginning of period | | $ | 15,629 | | | $ | 16,737 | |
| Additional accruals | 4,643 |
| | 11,499 |
| Additional accruals | | 5,758 | | | 8,224 | |
| Acquired reserves | 5,663 |
| | — |
| |
| | Claims paid | (9,722 | ) | | (5,906 | ) | Claims paid | | (6,388) | | | (9,332) | |
| Balance at end of period | $ | 22,517 |
| | $ | 21,933 |
| Balance at end of period | | $ | 14,999 | | | $ | 15,629 | |
Additionally, we are subject to project management and installation-related contingencies as a result of our fixed-price material supply and installation service contracts, primarily in our Architectural Services segment and certain of our Architectural Framing Systems businesses. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages. The liability for these types of project-related contingencies was $4.6 million and $49.0 million as of February 27, 2021 and February 29, 2020, respectively. In the second quarter of fiscal 2021, we settled contract claims related to a majority of these project-related contingencies on a legacy EFCO project for an amount equal to the recorded contingency. During fiscal 2020, we received $15.0 million of insurance proceeds related to this project matter, which was included within cost of sales on our consolidated results of operations.
Letters of credit.credit
At March 3, 2018,February 27, 2021, we had $18.7 million of ongoing letters of credit, related to construction contracts and certain industrial revenue bonds. The total value of letters of credit under which we were obligated as of March 3, 2018 was approximately $23.5 million, all of which have been issued under our credit facility. Total availability under ourrevolving credit facility, is reduced by borrowingsas discussed in Note 7. In connection with the settlement of contract claims related to a legacy EFCO project referenced above, the original project performance and by letterspayment bond related to the project was replaced, which required a $25.0 million letter of credit. The letter of credit for the replacement bond was issued under the facility.outside of our committed revolving credit facility, with no impact on our borrowing capacity and debt covenants.
Purchase obligations.Purchase obligations
Purchase obligations, primarily for raw material commitments and capital expenditures totaled $183.9$253.5 million as of March 3, 2018.February 27, 2021.
Environmental liability.
In fiscal 2008, we acquired one1 manufacturing facility which has certain historical environmental conditions. We are working to remediateRemediation of these conditions; remediation has been conductedconditions is ongoing without significant disruption to our operations. OurThe estimated remaining liability for these remediation activities was $1.3$0.5 million and $1.4$0.7 million at March 3, 2018February 27, 2021 and March 4, 2017,February 29, 2020, respectively.
New Markets Tax Credit transactions. In June 2016, we entered into a transaction with a subsidiary of Wells Fargo (WF) under a qualified New Markets Tax Credit (NMTC) program relatedtransactions
As of year-end fiscal 2021, we have three outstanding NMTC arrangements which help to an investment in plant and equipmentsupport operational expansion. Proceeds received from investors on these transactions are included within other non-current liabilities on our Architectural Glass segment.consolidated balance sheets. The NMTC transaction isarrangements are subject to 100 percent tax credit recapture for a period of seven years. Therefore,years from the date of each respective transaction. Upon the termination of each arrangement, these proceeds receivedwill be recognized in earnings in exchange for the transfer of the tax credits will be recognized as earnings in fiscal 2024, if the expected tax benefits are delivered without risk of recapture to each bank and our performance obligations are relieved. In exchange for substantially all the benefits derived from tax credits, WF contributed $6.0 million into the project. This is included within other non-current liabilities on our consolidated balance sheets. Directcredits. The direct and incremental costs of $4.5 millionincurred in structuring these arrangements have been deferred and are included in other non-current assets on our consolidated balance sheet andsheets. These costs will be recognized in proportion toconjunction with the recognition of the related profits.proceeds on each arrangement. During the construction phase for each project, we are required to hold cash dedicated to fund each capital project which is classified as restricted cash on our consolidated balance sheets. Variable-interest entities, werewhich have been included within our consolidated financial statements, have been created as a result of the structure of these transactions, which have been included within our consolidated financial statements as investors in the banksprograms do not have a material interest in their underlying economics. During the underlying economicsthird quarter of fiscal 2021, we settled one arrangement at the end of the projects.seven year term and as a result, $7.4 million of operating income was recognized as a reduction to selling, general and administrative expenses within the Architectural Glass segment.
Litigation.The table below provides a summary of our outstanding NMTC transactions (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Inception date | | Termination date | | Proceeds received | | Deferred costs | | Net benefit |
| | | | | | | | | | |
| | June 2016 | | June 2023 | | $ | 6.0 | | | $ | 1.2 | | | $ | 4.8 | |
| | August 2018 | | August 2025 | | 6.6 | | | 1.3 | | | 5.3 | |
| | September 2018 | | September 2025 | | 3.2 | | | 1.0 | | | 2.2 | |
| | Total | | | | $ | 15.8 | | | $ | 3.5 | | | $ | 12.3 | |
Litigation
From time to time, the Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company’s construction supply and services businesses areCompany is routinely involved in various disputes
and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability employment practices, workers' compensation and automobile claims.matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no such claimsmatters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.
11. Shareholders' Equity
A class of 200,000 shares of junior preferred stock with a par value of $1.00$1.00 is authorized, but unissued.
Share Repurchases
During fiscal 2004, the Board of Directors authorized a share repurchase program, with subsequent increases in authorization, including an increase in authorization by 1,000,000 shares in fiscal 2018.authorization. We repurchased 702,2991,177,704 shares under the program during fiscal 2018,2021, for a total cost of $33.7$32.9 million. We repurchased 250,001686,997 shares under the program, for a total cost of $10.8$25.1 million, in fiscal 2017,2020, and 575,0001,257,983 shares under the program, for a total cost of $24.9$43.3 million, in fiscal 2016.2019. The Company has repurchased a total of 4,009,9327,132,616 shares, at a total cost of $106.0$207.3 million, since the inception of this program. We have remaining authority to repurchase 1,240,0681,117,384 shares under this program, which has no expiration date.
In addition to the shares repurchased under this repurchase plan, during fiscal 2018, 20172021, 2020 and 2016,2019, the Company also withheld $3.0$3.0 million,, $2.6 $2.3 million and $5.1$2.0 million,, respectively, of Company stock from employees in order to satisfy stock-for-stock
option exercises or tax obligations related to stock-based compensation, pursuant to terms of board and shareholder-approved compensation plans.
Accumulated Other Comprehensive Loss
The following summarizes the accumulated other comprehensive loss, net of tax, at March 3, 2018February 27, 2021 and March 4, 2017:February 29, 2020:
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Net unrealized gain on marketable securities | | $ | 302 | | | $ | 222 | |
| Foreign currency hedge | | 643 | | | (832) | |
| Pension liability adjustments | | (4,152) | | | (4,257) | |
| Foreign currency translation adjustments | | (24,820) | | | (29,195) | |
| | | | |
| Total accumulated other comprehensive loss | | $ | (28,027) | | | $ | (34,062) | |
12. Share-Based Compensation
|
| | | | | | | | |
| (In thousands) | | 2018 | | 2017 |
| Net unrealized loss on marketable securities | | $ | (99 | ) | | $ | (4 | ) |
| Foreign currency hedge | | 156 |
| | — |
|
| Pension liability adjustments | | (3,344 | ) | | (3,628 | ) |
| Foreign currency translation adjustments | | (20,766 | ) | | (27,458 | ) |
| Total accumulated other comprehensive loss | | $ | (24,053 | ) | | $ | (31,090 | ) |
| |
13. | Share-Based Compensation |
We have a 20092019 Stock Incentive Plan and a 20092019 Non-Employee Director Stock Incentive Plan (the Plans) that provide for the issuance of 1,888,0001,150,000 and 350,000150,000 shares, respectively, for various forms of stock-based compensation to employees and non-employee directors. We also have a 2009 Stock Incentive Plan and 2009 Non-Employee Director Stock Incentive Plan with shares reserved for issuance for outstanding unvested awards. Awards under these Plans may be in the form of incentive stock options (to employees only), nonstatutory options, or stock-settled stock appreciation rights (SARs), or nonvested share awards and units, all of which are granted at a price or with an exercise price equal to the fair market value of the Company’s stock at the date of award. We are also authorized to issue nonvested shareNo additional awards and nonvested share unit awardscan be made under the Plans. Issued SARs vest over a three-year period and options issued to non-employee directors vest at2009 Stock Incentive Plan or the end of six months, both with a 10-year term.2009 Non-Employee Director Stock Incentive Plan. Nonvested share awards and nonvested share unit awardsunits generally vest over a two, three or four-year period.
We had a 2002 Omnibus Stock Incentive Plan, which was terminated in June 2009; no new grants may be made under this plan, although exercises of SARs and options previously granted thereunder will still occur in accordance with the terms of the various grants.
Total stock-based compensation expense under all Plans includedwas $8.6 million in the results of operations was $6.2fiscal 2021, $6.6 million for in fiscal 2018, $6.02020 and $6.3 million forin fiscal 2017 and $4.9 million for 2016.2019. We elect to account for any forfeitures as they occur.
Stock Options and SARs
There were noIn June 2020, we granted 660,600 stock options or SARs issuedwhich had a weighted average fair value per option at the date of grant of $5.01.
The fair value of each award grant is estimated on the date of grant using the binomial lattice option-pricing model with the following weighted-average assumptions used for grants in any fiscal year presented. Activity2021.
| | | | | |
| 2021 |
| Dividend yield | 3.3 | % |
| Expected volatility | 40.0 | % |
| Risk-free interest rate | 0.7 | % |
| Maximum price | $ | 35.70 | |
The expected stock price volatility is based on historical experience. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.
Stock option and SAR activity for the current
fiscal year is summarized
as follows:below: |
| | | | | | | | | | | | |
| | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value at Year-End |
| Outstanding at March 4, 2017 | 229,901 |
| | $ | 9.90 |
| | | | |
| Awards exercised | (100,000 | ) | | 8.34 |
| | | | |
| Outstanding and exercisable at March 3, 2018 | 129,901 |
| | $ | 11.10 |
| | 2.8 Years | | $ | 4,269,503 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | Number of
Shares | | Weighted
Average
Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate
Intrinsic Value at Year-End |
| Outstanding at February 29, 2020 | | 100,341 | | | $ | 8.34 | | | | | |
| Awards granted | | 660,600 | | | 23.04 | | | | | |
| Awards exercised | | (127,241) | | | 11.45 | | | | | |
| | | | | | | | |
| Outstanding at February 27, 2021 | | 633,700 | | | $ | 23.04 | | | 9.3 years | | $ | 9,099,932 | |
| Vested or expected to vest at February 27, 2021 | | 633,700 | | | $ | 23.04 | | | 9.3 years | | $ | 9,099,932 | |
| Exercisable at February 27, 2021 | | 215,600 | | | $ | 23.04 | | | 9.3 years | | $ | 3,096,016 | |
Cash proceeds from the exercise of stock options were $0.8$1.5 million, $1.9 million and $1.6 million for fiscal 2018, 20172021 and 2016, respectively.$0.2 million for fiscal 2019. The aggregate intrinsic value of securities exercised (the amount by which the stock price on the date of exercise exceeded the stock price of the award on the date of grant) was $4.8 million, $6.0 million and $7.5$1.8 million in fiscal 2018, 20172021 and 2016, respectively.$0.6 million in fiscal 2019. NaN awards were issued or exercised during fiscal 2020.
Nonvested Share Awards and Units
The following table summarizes nonvested share activity for fiscal 2018:February 27, 2021:
| | | | | | | | | | | | | | |
| | |
| | | Number of Shares and Units | | Weighted Average Grant Date Fair Value |
| February 29, 2020 | | 309,259 | | | $ | 40.58 | |
| Granted | | 387,858 | | | 21.66 | |
| Vested | | (219,081) | | | 35.51 | |
| Canceled | | (2,809) | | | 34.03 | |
| February 27, 2021 | | 475,227 | | | $ | 27.52 | |
|
| | | | | | |
| | Number of Shares and Units | | Weighted Average Grant Date Fair Value |
| March 4, 2017 | 279,204 |
| | $ | 44.80 |
|
| Granted | 135,416 |
| | 54.61 |
|
| Vested | (130,940 | ) | | 45.29 |
|
| Canceled | (17,500 | ) | | 49.65 |
|
| March 3, 2018 | 266,180 |
| | $ | 49.22 |
|
At March 3, 2018,February 27, 2021, there was $6.9$7.9 million of total unrecognized compensation cost related to nonvested share and nonvested share unit awards, which is expected to be recognized over a weighted average period of approximately 1929 months. The total fair value of shares vested during fiscal 2018February 27, 2021 was $7.1 million.$6.1 million.
13. Income Taxes
Earnings before income taxes consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| United States | | $ | 45,651 | | | $ | 97,297 | | | $ | 60,042 | |
| International | | (23,040) | | | (17,547) | | | (1,380) | |
| Earnings before income taxes | | $ | 22,611 | | | $ | 79,750 | | | $ | 58,662 | |
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| U.S. | $ | 111,980 |
| | $ | 123,229 |
| | $ | 100,859 |
|
| International | (2,100 | ) | | (424 | ) | | (3,535 | ) |
| Earnings before income taxes | $ | 109,880 |
| | $ | 122,805 |
| | $ | 97,324 |
|
The components of income tax expense (benefit) for each of the last three fiscal years was:are as follows:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Current | | | | | | |
| Federal | | $ | 11,495 | | | $ | 8,493 | | | $ | 22,746 | |
| State and local | | 702 | | | 2,064 | | | (4,437) | |
| International | | 1,642 | | | (2,720) | | | (459) | |
| Total current | | 13,839 | | | 7,837 | | | 17,850 | |
| Deferred | | | | | | |
| Federal | | (2,860) | | | 9,513 | | | (12,409) | |
| State and local | | 538 | | | 2,152 | | | 6,275 | |
| International | | (4,138) | | | (1,202) | | | 628 | |
| Total deferred | | (6,460) | | | 10,463 | | | (5,506) | |
| Total non-current tax (benefit) expense | | (204) | | | (464) | | | 624 | |
| Total income tax expense | | $ | 7,175 | | | $ | 17,836 | | | $ | 12,968 | |
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Current | | | | | |
| Federal | $ | 22,074 |
| | $ | 35,610 |
| | $ | 35,888 |
|
| State and local | 3,106 |
| | 2,929 |
| | 2,866 |
|
| International | 1,578 |
| | (147 | ) | | (636 | ) |
| Total current | 26,758 |
| | 38,392 |
| | 38,118 |
|
| Deferred | | | | | |
| Federal | 4,049 |
| | (945 | ) | | (5,403 | ) |
| State and local | 351 |
| | (78 | ) | | (512 | ) |
| International | (1,205 | ) | | (42 | ) | | (224 | ) |
| Total deferred | 3,195 |
| | (1,065 | ) | | (6,139 | ) |
| Total non-current tax (benefit) expense | 439 |
| | (312 | ) | | 3 |
|
| Total income tax expense | $ | 30,392 |
| | $ | 37,015 |
| | $ | 31,982 |
|
Income tax payments, net of refunds, were $25.7$14.1 million,, $47.8 $17.8 million and $25.9$16.5 million in fiscal 2018, 20172021, 2020 and 2016,2019, respectively.
The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Statutory federal income tax rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| | | | | | |
| State and local income taxes, net of federal tax benefit | | 1.0 | | | 4.0 | | | 2.7 | |
| Foreign tax rate differential | | 4.6 | | | (0.3) | | | 0.8 | |
| Nondeductible goodwill impairment expense | | 5.6 | | | 0 | | | 0 | |
| Research & development tax credit | | (5.3) | | | (1.6) | | | (2.7) | |
| §162(m) Executive Compensation Limitation | | 3.6 | | | 0 | | | 0 | |
| Other, net | | 1.2 | | | (0.7) | | | 0.3 | |
| Consolidated effective income tax rate | | 31.7 | % | | 22.4 | % | | 22.1 | % |
|
| | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Federal income tax expense at statutory rate | 32.7 | % | | 35.0 | % | | 35.0 | % |
| Tax rate change revaluation | (3.7 | ) | | — |
| | — |
|
| Manufacturing deduction | (2.2 | ) | | (3.3 | ) | | (3.4 | ) |
| State and local income taxes, net of federal tax benefit | 1.8 |
| | 1.6 |
| | 1.6 |
|
| Foreign tax rate differential | (0.7 | ) | | (1.6 | ) | | — |
|
| Tax credits - research & development | (0.9 | ) | | (0.7 | ) | | (0.8 | ) |
| Other, net | 0.7 |
| | (0.9 | ) | | 0.5 |
|
| Income tax expense | 27.7 | % | | 30.1 | % | �� | 32.9 | % |
The estimated effective tax rate for fiscal 2018 declined 2.42021 increased 9.3 percentage points from fiscal 20172020, primarily due to nondeductible goodwill impairment expense in Canada and the U.S. Tax Cuts and Jobs Act ("the Act"), which was enacted in December 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent beginning January 1, 2018, resulting in a blended tax rate for our fiscal 2018. It also requires the revaluation of deferred taxes, which generated a tax benefit in the quarter of $4.1 million.
Also in December 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effectsimpact of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of the Act for companiesunfavorable permanent items in relation to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be includedreduced earnings in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act. The FASB provided additional guidance to address the accounting for the effects of the provisions related to the taxation of Global Intangible Low-Taxed Income, or GILTI, noting that companies should make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to include the tax expense in the year it is incurred. We have not completed our analysis of the effects of the GILTI provisions and will further consider the accounting policy election within the measurement period as provided for under SEC Staff Accounting Bulletin 118.fiscal 2021.
In fiscal 2017, we recorded a net tax benefit of $1.9 million on a distribution from our Brazilian operation.
Deferred tax assets and deferred tax liabilities at March 3, 2018February 27, 2021 and March 4, 2017February 29, 2020 were:
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Deferred tax assets | | | | |
| Accrued expenses | | $ | 6,309 | | | $ | 15,832 | |
| | | | |
| Deferred compensation | | 9,452 | | | 7,934 | |
| Employment tax accrual | | 1,483 | | | 0 | |
| Goodwill and other intangibles | | 4,215 | | | 0 | |
| Liability for unrecognized tax benefits | | 1,916 | | | 1,941 | |
| Unearned income | | 5,778 | | | 5,238 | |
| Operating lease liabilities | | 16,039 | | | 6,640 | |
| Net operating losses and tax credits | | 9,952 | | | 11,093 | |
| Other | | 1,984 | | | 1,502 | |
| Total deferred tax assets | | 57,128 | | | 50,180 | |
| Less: valuation allowance | | (7,435) | | | (8,727) | |
| Deferred tax assets, net of valuation allowance | | 49,693 | | | 41,453 | |
|
| | | | | | | |
| (In thousands) | 2018 | | 2017 |
| Other accruals | 3,428 |
| | 4,254 |
|
| Deferred compensation | 8,926 |
| | 15,189 |
|
| Goodwill and other intangibles | (4,655 | ) | | (7,601 | ) |
| Depreciation | (19,523 | ) | | (18,714 | ) |
| Liability for unrecognized tax benefits | 2,850 |
| | 2,623 |
|
| Net operating losses and tax credits | 6,272 |
| | 5,790 |
|
| Valuation allowance on net operating losses | (4,296 | ) | | (2,352 | ) |
| Unearned income | 2,628 |
| | — |
|
| Other | 1,067 |
| | 811 |
|
| Deferred tax (liabilities) assets | $ | (3,303 | ) | | $ | — |
|
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Deferred tax liabilities | | | | |
| Accrued expenses | | 1,095 | | | 0 | |
| Goodwill and other intangibles | | 3,263 | | | 8,166 | |
| Depreciation | | 34,573 | | | 32,296 | |
| Operating lease, right-of-use assets | | 15,435 | | | 6,666 | |
| | | | |
| | | | |
| | | | |
| Other | | 820 | | | 0 | |
| Total deferred tax liabilities | | 55,186 | | | 47,128 | |
| Net deferred tax liabilities | | $ | (5,493) | | | $ | (5,675) | |
The Company has U.S. federal tax credits as well as state and foreign net operating loss carryforwards with a tax effect of $6.3$10.0 million. A valuation allowance of $4.3$7.4 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods.
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2015,2018, or state and local income tax examinations for years prior to fiscal 2010.2013. The Company is not currently under U.S. federal examination
for years subsequent to fiscal 2014,year 2017, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.
The Company considers the earnings of its non-U.S. subsidiaries to be indefinitely invested outside of the U.S.United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to adjust the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the U.S.
If we were to prevail on all unrecognized tax benefits recorded, $2.4$2.2 million, $2.1$2.6 million and $2.7$3.1 million for fiscal 2018, 20172021, 2020 and 2016,2019, respectively, would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2018, 20172021, 2020 and 2016,2019, are $2.3$1.6 million, $2.0$1.5 million and $1.8$2.0 million, respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes.
Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. For fiscal 2018,2021, 2020 and 2019, we accrued penalties and interest related to unrecognized tax benefits of $0.4$0.3 million. For fiscal 2017 and 2016, the accrual was $0.4 million and $0.5 million, respectively.
The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Gross unrecognized tax benefits at beginning of year | | $ | 4,071 | | | $ | 5,111 | | | $ | 4,705 | |
| Gross increases in tax positions for prior years | | 106 | | | 82 | | | 500 | |
| Gross decreases in tax positions for prior years | | (351) | | | (1,100) | | | (377) | |
| Gross increases based on tax positions related to the current year | | 429 | | | 425 | | | 1,067 | |
| | | | | | |
| Settlements | | (96) | | | (15) | | | (303) | |
| Statute of limitations expiration | | (404) | | | (432) | | | (481) | |
| | | | | | |
| | | | | | |
| Gross unrecognized tax benefits at end of year | | $ | 3,755 | | | $ | 4,071 | | | $ | 5,111 | |
On March 27, 2020, the U.S. enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the ability to carryback net operating losses arising in taxable years from 2018 through 2020. While these provisions did not impact the Company, a provision related to the temporary deferral of the employer share of payroll taxes allowed us to defer remittance of $13.6 million of payroll taxes in calendar 2020, which will be repaid equally in calendar years 2021 and 2022.
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Gross unrecognized tax benefits at beginning of year | $ | 4,075 |
| | $ | 4,512 |
| | $ | 4,491 |
|
| Gross increases in tax positions for prior years | 614 |
| | 54 |
| | 60 |
|
| Gross decreases in tax positions for prior years | (122 | ) | | (233 | ) | | (158 | ) |
| Gross increases based on tax positions related to the current year | 639 |
| | 508 |
| | 526 |
|
| Gross decreases based on tax positions related to the current year | — |
| | — |
| | (33 | ) |
| Settlements | — |
| | (23 | ) | | — |
|
| Statute of limitations expiration | (519 | ) | | (743 | ) | | (374 | ) |
| Revaluation impact | 18 |
| | — |
| | — |
|
| Gross unrecognized tax benefits at end of year | $ | 4,705 |
| | $ | 4,075 |
| | $ | 4,512 |
|
14.Earnings per Share
The total liability for unrecognized tax benefits is expected to decrease by approximately $0.5 million during fiscal 2019 due to lapsing of statutes.
Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding, including the dilutive effects of stock options, SARs and nonvested shares. The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Basic earnings per share - weighted average common shares outstanding | | 25,955 | | | 26,474 | | | 27,802 | |
| Weighted average effect of nonvested share grants and assumed exercise of stock options | | 349 | | | 255 | | | 280 | |
| Diluted earnings per share - weighted average common shares and potential common shares outstanding | | 26,304 | | | 26,729 | | | 28,082 | |
| Stock awards excluded from the calculation of earnings per share because the award price was greater than the average market price of the common shares | | 111 | | | 99 | | | 134 | |
|
| | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Basic earnings per share - weighted average common shares outstanding | 28,534 |
| | 28,781 |
| | 29,058 |
|
| Weighted average effect of nonvested share grants and assumed exercise of stock options | 270 |
| | 112 |
| | 317 |
|
| Diluted earnings per share - weighted average common shares and potential common shares outstanding | 28,804 |
| | 28,893 |
| | 29,375 |
|
| Stock awards excluded from the calculation of earnings per share because the award price was greater than the average market price of the common shares | 141 |
| | — |
| | — |
|
16.15.Business Segment Data
We have four4 reporting segments:
•The Architectural Framing Systems segment designs, engineers, fabricates and finishes the aluminum frames used in customized aluminum and glass window, curtainwall, storefront and entrance systems comprising the outside skin and entrances of commercial, institutional and high-end multi-family residential buildings. We have aggregated six operating segments into this reporting segment based on their similar products, customers, distribution methods, production processes and economic characteristics.
•The Architectural Glass segment fabricates coated, high-performance glass used globally in customized window and wall systems comprising the outside skin of commercial, institutional and high-end multi-family residential buildings.
•The Architectural Services segment provides full-service installation of the walls of glass, windows and other curtainwall products making up the outside skin of commercial and institutional buildings.
•The Large-Scale Optical Technologies (LSO) segment manufactures value-added glass and acrylic products for framing and display applications.
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Net Sales | | | | | | |
| Architectural Framing Systems | | $ | 570,850 | | | $ | 686,596 | | | $ | 720,829 | |
| Architectural Glass | | 330,256 | | | 387,191 | | | 367,203 | |
| Architectural Services | | 295,807 | | | 269,140 | | | 286,314 | |
| Large-Scale Optical | | 70,050 | | | 87,911 | | | 88,493 | |
| Intersegment elimination | | (36,189) | | | (43,399) | | | (60,202) | |
| Total | | $ | 1,230,774 | | | $ | 1,387,439 | | | $ | 1,402,637 | |
| | | | | | |
| Operating (Loss) Income | | | | | | |
| Architectural Framing Systems | | $ | (44,761) | | | $ | 36,110 | | | $ | 49,660 | |
| Architectural Glass | | 18,678 | | | 20,760 | | | 16,503 | |
| Architectural Services | | 31,182 | | | 23,582 | | | 30,509 | |
| Large-Scale Optical | | 31,203 | | | 22,642 | | | 23,003 | |
| Corporate and other | | (10,775) | | | (15,246) | | | (52,391) | |
| Total | | $ | 25,527 | | | $ | 87,848 | | | $ | 67,284 | |
| Depreciation and Amortization | | | | | | |
| Architectural Framing Systems | | $ | 27,298 | | | $ | 25,432 | | | $ | 28,937 | |
| Architectural Glass | | 15,102 | | | 13,570 | | | 13,009 | |
| Architectural Services | | 1,430 | | | 1,305 | | | 1,234 | |
| Large-Scale Optical | | 3,338 | | | 3,256 | | | 3,692 | |
| Corporate and other | | 4,272 | | | 3,232 | | | 2,926 | |
| Total | | $ | 51,440 | | | $ | 46,795 | | | $ | 49,798 | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Capital Expenditures | | | | | | |
| Architectural Framing Systems | | $ | 9,907 | | | $ | 22,744 | | | $ | 19,098 | |
| Architectural Glass | | 9,574 | | | 19,862 | | | 27,722 | |
| Architectural Services | | 1,480 | | | 1,749 | | | 1,433 | |
| Large-Scale Optical | | 869 | | | 3,153 | | | 6,989 | |
| Corporate and other | | 4,335 | | | 3,920 | | | 5,475 | |
| Total | | $ | 26,165 | | | $ | 51,428 | | | $ | 60,717 | |
| Identifiable Assets | | | | | | |
| Architectural Framing Systems | | $ | 511,608 | | | $ | 604,870 | | | $ | 617,001 | |
| Architectural Glass | | 271,520 | | | 291,104 | | | 281,817 | |
| Architectural Services | | 79,465 | | | 107,538 | | | 59,227 | |
| Large-Scale Optical | | 64,474 | | | 62,831 | | | 61,031 | |
| Corporate and other | | 88,032 | | | 62,648 | | | 49,092 | |
| Total | | $ | 1,015,099 | | | $ | 1,128,991 | | | $ | 1,068,168 | |
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Net Sales | | | | | |
| Architectural Framing Systems | $ | 677,198 |
| | $ | 385,978 |
| | $ | 308,593 |
|
| Architectural Glass | 384,137 |
| | 411,881 |
| | 377,713 |
|
| Architectural Services | 213,757 |
| | 270,937 |
| | 245,935 |
|
| Large-Scale Optical | 88,303 |
| | 89,710 |
| | 88,541 |
|
| Intersegment elimination | (37,222 | ) | | (43,973 | ) | | (39,593 | ) |
| Total | $ | 1,326,173 |
| | $ | 1,114,533 |
| | $ | 981,189 |
|
| Operating Income (Loss) | | | | | |
| Architectural Framing Systems | $ | 59,031 |
| | $ | 44,768 |
| | $ | 31,911 |
|
| Architectural Glass | 32,764 |
| | 44,656 |
| | 35,504 |
|
| Architectural Services | 10,420 |
| | 18,494 |
| | 11,687 |
|
| Large-Scale Optical | 22,000 |
| | 22,467 |
| | 22,963 |
|
| Corporate and other | (9,931 | ) | | (8,160 | ) | | (4,672 | ) |
| Total | $ | 114,284 |
| | $ | 122,225 |
| | $ | 97,393 |
|
| Depreciation and Amortization | | | | | |
| Architectural Framing Systems | $ | 31,764 |
| | $ | 12,404 |
| | $ | 8,019 |
|
| Architectural Glass | 14,525 |
| | 15,912 |
| | 14,397 |
|
| Architectural Services | 1,325 |
| | 1,364 |
| | 1,274 |
|
| Large-Scale Optical | 4,556 |
| | 4,785 |
| | 4,998 |
|
| Corporate and other | 2,673 |
| | 1,142 |
| | 2,560 |
|
| Total | $ | 54,843 |
| | $ | 35,607 |
| | $ | 31,248 |
|
| Capital Expenditures | | | | | |
| Architectural Framing Systems | $ | 15,273 |
| | $ | 14,070 |
| | $ | 19,166 |
|
| Architectural Glass | 26,228 |
| | 44,439 |
| | 17,701 |
|
| Architectural Services | 2,510 |
| | 1,981 |
| | 929 |
|
| Large-Scale Optical | 3,307 |
| | 1,510 |
| | 1,962 |
|
| Corporate and other | 5,878 |
| | 6,061 |
| | 2,279 |
|
| Total | $ | 53,196 |
| | $ | 68,061 |
| | $ | 42,037 |
|
| Identifiable Assets | | | | | |
| Architectural Framing Systems | $ | 618,455 |
| | $ | 359,633 |
| | $ | 193,823 |
|
| Architectural Glass | 250,407 |
| | 254,840 |
| | 215,571 |
|
| Architectural Services | 53,424 |
| | 70,875 |
| | 81,574 |
|
| Large-Scale Optical | 58,523 |
| | 58,198 |
| | 57,369 |
|
| Corporate and other | 41,511 |
| | 41,112 |
| | 109,103 |
|
| Total | $ | 1,022,320 |
| | $ | 784,658 |
| | $ | 657,440 |
|
Due to the varying combinations and integration of individual window, storefront and curtainwall systems, the Company has determined that it is impractical to report product revenues generated by class of product beyond the segment revenues currently reported.
Segment operating income is equal to net sales less cost of sales and operating expenses. Operating income does not include interest expense or a provision for income taxes. Corporate and other includes miscellaneous corporate activity, including certain legal, consulting and advisory costs not allocable to our segments. Corporate and other also includes $16.7 million in fiscal 2020 and $40.9 million in fiscal 2019, of project-related charges on acquired contracts, as well as $15.0 million of insurance proceeds related to a project matter in fiscal 2020. Identifiable assets for Corporate and other include all short- and long-term available-for-sale securities.
The following table presents net sales, based on the location in which the sale originated, and long-lived assets, representing property, plant and equipment, net of related depreciation, by geographic region.
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 | | 2019 |
| Net Sales | | | | | | |
| United States | | $ | 1,115,872 | | | $ | 1,254,311 | | | $ | 1,259,319 | |
| Canada | | 102,721 | | | 120,498 | | | 128,735 | |
| Brazil | | 12,181 | | | 12,630 | | | 14,583 | |
| Total | | $ | 1,230,774 | | | $ | 1,387,439 | | | $ | 1,402,637 | |
| | | | | | |
| Long-Lived Assets | | | | | | |
| United States | | $ | 285,007 | | | $ | 307,782 | | | $ | 297,072 | |
| Canada | | 9,707 | | | 11,130 | | | 12,563 | |
| Brazil | | 3,729 | | | 5,474 | | | 6,188 | |
| Total | | $ | 298,443 | | | $ | 324,386 | | | $ | 315,823 | |
|
| | | | | | | | | | | |
| (In thousands) | 2018 | | 2017 | | 2016 |
| Net Sales | | | | | |
| United States | $ | 1,187,922 |
| | $ | 1,031,214 |
| | $ | 923,018 |
|
| Canada | 122,981 |
| | 65,958 |
| | 39,324 |
|
| Brazil | 15,270 |
| | 17,361 |
| | 18,847 |
|
| Total | $ | 1,326,173 |
| | $ | 1,114,533 |
| | $ | 981,189 |
|
| Long-Lived Assets | | | | | |
| United States | $ | 283,432 |
| | $ | 227,145 |
| | $ | 189,624 |
|
| Canada | 13,384 |
| | 13,303 |
| | 7,162 |
|
| Brazil | 7,247 |
| | 6,300 |
| | 5,676 |
|
| Total | $ | 304,063 |
| | $ | 246,748 |
| | $ | 202,462 |
|
Apogee's export net sales from U.S. operations of $49.1were $33.1 million, for $54.7 million, and $56.3 million in fiscal 2018 were2021, 2020, and 2019, respectively, representing approximately 43 percent of consolidated net sales; export net sales of $76.2 million for fiscal 2017 were approximately 7 percent of consolidated net sales; and export sales of $79.5 million for fiscal 2016 were approximately 8 percent of consolidated net sales.
| |
17. | Quarterly Data (Unaudited) |
|
| | | | | | | | | | | | | | | | | | | |
| | Quarter | | |
| (In thousands, except per share data) | First | | Second (1) | | Third | | Fourth (2) | | Total |
| 2018 | | | | | | | | | |
| Net sales | $ | 272,307 |
| | $ | 343,907 |
| | $ | 356,506 |
| | $ | 353,453 |
| | $ | 1,326,173 |
|
| Gross profit | 70,294 |
| | 86,001 |
| | 91,559 |
| | 85,664 |
| | 333,518 |
|
| Net earnings | 16,104 |
| | 17,409 |
| | 23,646 |
| | 22,329 |
| | 79,488 |
|
| Earnings per share - basic | 0.56 |
| | 0.60 |
| | 0.82 |
| | 0.79 |
| | 2.79 |
|
| Earnings per share - diluted | 0.56 |
| | 0.60 |
| | 0.82 |
| | 0.78 |
| | 2.76 |
|
2017 (3) | | | | | | | | | |
| Net sales | $ | 247,880 |
| | $ | 278,455 |
| | $ | 274,072 |
| | $ | 314,126 |
| | $ | 1,114,533 |
|
| Gross profit | 64,428 |
| | 72,531 |
| | 72,868 |
| | 82,196 |
| | 292,023 |
|
| Net earnings | 17,722 |
| | 22,397 |
| | 22,552 |
| | 23,119 |
| | 85,790 |
|
| Earnings per share - basic | 0.62 |
| | 0.78 |
| | 0.78 |
| | 0.81 |
| | $ | 2.98 |
|
| Earnings per share - diluted | 0.61 |
| | 0.77 |
| | 0.78 |
| | 0.80 |
| | $ | 2.97 |
|
Per share amounts are computed independently forin each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding, and all other quarterly amounts may not equal the total year due to rounding.these fiscal years.
(1) We acquired EFCO in the second quarter of fiscal 2018; refer to Note 2 for additional information.
(2) We acquired Sotawall in the fourth quarter of fiscal 2017; refer to Note 2 for additional information.
(3) Fiscal 2017 contained 53 weeks.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| |
ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial Reporting. The report of management required under this Item 9A is contained on page 2327 in Item 8 of this Annual Report on Form 10-K under the caption “Management's Annual Report on Internal Control Over Financial Reporting.”
Attestation Report of Independent Registered Public Accounting Firm. The attestation report required under this Item 9A is contained on page 2428 in Item 8 of this Annual Report on Form 10-K under the caption “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter covered by this report that would have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B.OTHER INFORMATION
None.
PART III
| |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, CODE OF ETHICS AND CORPORATE GOVERNANCE
We have adopted a Code of Business Ethics and Conduct that applies to all of our employees, including our principal executive officer, president, principal financial officer and principal accounting officer, and Board of Directors. The Code of Business Ethics and Conduct is published on the “Investors-Governance” section of our website at www.apog.com.www.apog.com. Any amendments to the Code of Business Ethics and Conduct and waivers of the Code of Business Ethics and Conduct for our Chief Executive Officer and Chief Financial Officer will be published on our website.
The other information required by this item, other than the information set forth in Part I above under the heading “Executive“Information About Our Executive Officers, of the Registrant,” is set forth under the headings “Proposal 1: Election of Directors,” “Frequently Asked Questions - How Can A ShareholderI Recommend or Nominate a Director Candidate?”, “Corporate Governance - Board Meetings and 20172020 Annual Meeting of Shareholders,” and “Corporate Governance - Board Committee Responsibilities, Meetings and Membership” and “Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement for the Company's Annual Meeting of Shareholders to be held on June 28, 2018,23, 2021, which will be filed with the Securities and Exchange Commission within 120 days after our fiscal year-end (our 20182021 Proxy Statement). This information is incorporated herein by reference.
| |
ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 11.EXECUTIVE AND DIRECTOR COMPENSATION
The information required by this item is set forth under the headings “Executive Compensation” and “Non-Employee Director Compensation" in our 20182021 Proxy Statement. This information is incorporated herein by reference.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table summarizes, with respect toinformation required by this item is set forth under the headings “Equity Compensation Plan Information”, “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Management” in our equity compensation plans, the number2021 Proxy Statement. This information is incorporated herein by reference.
|
| | | | | | | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in the First Column) | |
| Equity compensation plans approved by security holders | | 193,991 |
| (1) (2) | $ | 20.43 |
| (3) | 767,351 |
| (4) |
| Equity compensation plans not approved by security holders | | 100,341 |
| (5) | 8.34 |
| | None |
| |
| Total | | 294,332 |
| | $ | 10.99 |
| | 767,351 |
| |
| |
(1)
| Includes options and SARs granted under our Amended and Restated 2002 Omnibus Stock Incentive Plan, restricted stock unit awards granted under our Stock Incentive Plan and Non-Employee Director Stock Incentive Plan and phantom shares under our Non-Employee Director Deferred Compensation Plan. None of the outstanding stock options or SARs has dividends rights attached, nor are they transferable. Certain outstanding restricted stock units have dividend rights attached, but none of the restricted stock units are transferable. |
| |
(2)
| Pursuant to SEC rules and the reporting requirements for this table, we have not included in this column 234,230 shares of restricted stock that are issued and outstanding. All shares of restricted stock outstanding have dividend rights attached, but none of the shares of restricted stock are transferable. |
| |
(3)
| In calculating the weighted-average exercise price of outstanding options, warrants and rights, only the exercise prices of outstanding options and SARs are included, as the restricted stock units and phantom shares do not have an exercise price. |
| |
(4)
| Pursuant to SEC Rules and the reporting requirements for this table, of these shares, 55,579 are available for issuance under our Legacy Partnership Plan; 578,206 are available for grant under our Stock Incentive Plan;87,432 are available for grant under our Non-Employee Director Stock Incentive Plan; no shares are available for grant under our 2002 Omnibus Stock Incentive Plan; and 46,134 are available for grant under our Deferred Compensation Plan for Non-Employee Directors. |
| |
(5)
| Reflects stock options granted to Mr. Puishys on August 22, 2011 as inducement awards pursuant to the terms of his employment agreement with our Company effective as of August 22, 2011, that became fully vested on August 22, 2014. The options vested in equal annual installments over a three-year period beginning on August 22, 2012. |
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is set forth under the headings “Corporate Governance - BoardDirector Independence” and "Corporate Governance - Certain Relationships and Related Transactions" in our 20182021 Proxy Statement. This information is incorporated herein by reference.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is set forth under the headings “Audit Committee ReportReport" and Payment of Fees"Fees Paid to Independent Registered Public Accounting Firm - Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees” and “Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services Provided by Our Independent Registered Public Accounting Firm”Services” in our 20182021 Proxy Statement. This information is incorporated herein by reference.
PART IV
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ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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a) | List of documents filed as a part of this report: |
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1. | Financial Statements - The consolidated financial statements listed below are set forth in Item 8 of Part II of this report. |
a)List of documents filed as a part of this report:
1.Financial Statements - The consolidated financial statements listed below are set forth in Item 8 of Part II of this report.
Consolidated Balance Sheets as of March 3, 2018February 27, 2021 and March 4, 2017February 29, 2020
Consolidated Results of Operations for the Years Ended March 3, 2018, March 4, 2017 and February 27, 20162021, February 29, 2020 and March 2, 2019
Consolidated Statements of Comprehensive Earnings for the Years Ended March 3, 2018, March 4, 2017 and February 27, 20162021, February 29, 2020 and March 2, 2019
Consolidated Statements of Cash Flows for the Years Ended March 3, 2018, March 4, 2017 and February 27, 20162021, February 29, 2020 and March 2, 2019
Consolidated Statements of Shareholders' Equity for the Years Ended March 3, 2018, March 4, 2017 and February 27, 20162021, February 29, 2020 and March 2, 2019
Notes to Consolidated Financial Statements
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2. | Financial Statement Schedules - Valuation and Qualifying Accounts |
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| (In thousands) | Balance at Beginning of Period | | Acquisitions | | Charged to Costs and Expenses | | Deductions from Reserves(1) | | Other Changes(2) | | Balance at End of Period |
| Allowances for doubtful receivables | | | | | | | | | | | |
| For the year ended March 3, 2018 | $ | 1,495 |
| | $ | 252 |
| | $ | 1,345 |
| | $ | 1,559 |
| | $ | (3 | ) | | $ | 1,530 |
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| For the year ended March 4, 2017 | 2,497 |
| | 25 |
| | (416 | ) | | 579 |
| | (32 | ) | | 1,495 |
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| For the year ended February 27, 2016 | 3,242 |
| | — |
| | (197 | ) | | 493 |
| | (55 | ) | | 2,497 |
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| (In thousands) | | Balance at Beginning of Period | | | | Charged to Costs and Expenses | | Deductions from Reserves(1) | | Other Changes(2) | | Balance at End of
Period |
| Allowances for credit losses | | | | | | | | | | | | |
| For the year ended February 27, 2021 | | $ | 2,469 | | | | | $ | 389 | | | $ | 887 | | | $ | (24) | | | $ | 1,947 | |
| For the year ended February 29, 2020 | | 4,372 | | | | | 1,192 | | | 3,085 | | | (10) | | | 2,469 | |
| For the year ended March 2, 2019 | | 1,530 | | | | | 3,090 | | | 223 | | | (25) | | | 4,372 | |
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(1) Net of recoveries
(2) Result of foreign currency effects
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3.Exhibits - Exhibits marked with an asterisk (*) identify each management contract or compensatory plan or arrangement. Exhibits marked with a pound sign (#) are filed herewith. The remainder of the exhibits have heretofore been filed with the Securities and Exchange Commission and are incorporated herein by reference.
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3. | Exhibits - Exhibits marked with an asterisk (*) identify each management contract or compensatory plan or arrangement. Exhibits marked with a pound sign (#) are filed herewith. The remainder of the exhibits have heretofore been filed with the Securities and Exchange Commission and are incorporated herein by reference.
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| | Description of Securities. Incorporated by reference to Exhibit 4.2 to Registrant's Annual Report on Form 10-K for the year ended February 29, 2020. |
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| | Fourth Amendment No. 1 to the Second Amended and Restated Credit Agreement,Apogee Enterprises, Inc. 2011 Deferred Compensation Plan, dated June 9, 2017, by and among the Company, the Lenders (as defined therein), and Wells Fargo Bank, NA, as administrative agent for the Lenders, swingline lender and (with Commerce Bank) issuer of letters of credit.28, 2018. Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 14, 2017. |
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| | Share Purchase Agreement, dated November 5, 2013, between 2393514 Ontario Inc., Apogee Enterprises, Inc., PEF 2005 Alumicor Investment Limited Partnership, on behalf of itself and as Sellers’ Agent, Andre Belanger, Ken Rowson, John Castelhano, Anthony Kerwin, Lawrence Maker, Paul Antoniadis, and Alumicor Limited. Incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on November 5, 2013. |
| | Second Amended and Restated Credit Agreement, dated November 2, 2016, by and among Apogee Enterprises, Inc., as the Borrower, the Lenders referred to therein, Wells Fargo Bank, National Association, as Administrative Agent, Swing Line Lender and Issuing Lender, and U.S. Bank National Association, as Syndication Agent and Issuing Lender. Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on November 4, 2016. |
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| | Third Amended and Restated Credit Agreement, dated as of June 9, 2017,25, 2019, by and among Apogee Enterprises, Inc., as the Company,Borrower, the Lenders (as defined therein), andreferred to therein, Wells Fargo Bank, National Association, as administrative agent for the Lenders, swingline lenderAdministrative Agent, Swingline Lender and (with Comerica Bank) issuer of letters of credit.Issuing Lender, and U.S. Bank National Association, as Syndication Agent and Issuing Lender. Incorporated by reference to Exhibit 10.310.1 to Registrant’s Current Report on Form 8-K filed on June 14, 2017.28, 2019. |
| | Amendment No. 1 to Third Amendment to theAmended and Restated Credit Agreement dated as of June 25, 2019, by and among Apogee Enterprises, Inc. 2011 Deferred Compensation Plan, dated October 5, 2017., as the Borrower, the Lenders referred to therein, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, and U.S. Bank National Association, as Syndication Agent and Issuing Lender. Incorporated by reference to Exhibit 10.310.1 to Registrant’s Current Report on Form 8-K filed on OctoberApril 10, 2017.2020. |
| | Amendment No. 2 to Third Amended and Restated Credit Agreement dated as of November 6, 2020, by and among Apogee Enterprises, Inc., as the Borrower, the Lenders referred to therein, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, and U.S. Bank National Association, as Syndication Agent and Issuing Lender. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 10, 2020. |
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| 101 | | The following materials from Apogee Enterprises, Inc.'s Annual Report on Form 10-K for the year ended March 3, 2018February 27, 2021 are furnished herewith, formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of March 3, 2018February 27, 2021 and March 4, 2017,February 29, 2020, (ii) the Consolidated Results of Operations for the three years ended March 3, 2018, March 4, 2017 and February 27, 2016,2021, February 29, 2020 and March 2, 2019, (iii) the Consolidated Statements of Comprehensive Earnings for the three years ended March 3, 2018, March 4, 2017 and February 27, 2016,2021, February 29, 2020 and March 2, 2019, (iv) the Consolidated Statements of Cash Flows for the three years ended March 3, 2018, March 4, 2017, and February 27, 2016,2021, February 29, 2020 and March 2, 2019, (v) the Consolidated Statements of Shareholders' Equity for the three years ended March 3, 2018, March 4, 2017 and February 27, 20162021, February 29, 2020 and March 2, 2019 and (vi) the Notes to Consolidated Financial Statements. |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 30, 2018.22, 2021.
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| APOGEE ENTERPRISES, INC. | |
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APOGEE ENTERPRISES, INC./s/ Ty R. Silberhorn | |
| Ty R. Silberhorn | |
/s/ Joseph F. Puishys | |
Joseph F. Puishys | |
President and Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 30, 2018.
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| Signature | | | | Title | | Signature | | | | Title |
| /s/ Ty R. Silberhorn | | | | Chief Executive Officer and | | /s/ Nisheet Gupta | | | | Executive Vice President and |
| Ty R. Silberhorn | | | | Director
(Principal Executive
Officer) | | Nisheet Gupta | | | | Chief Financial Officer (Principal
Financial and
Accounting Officer) |
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| /s/ Donald A. Nolan | | | | | | /s/ Elizabeth M. Lilly | | | | |
| Donald A. Nolan | | | | Chairman | | Elizabeth M. Lilly | | | | Director |
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| /s/ Bernard P. Aldrich | | | | | | /s/ Herbert K. Parker | | | | |
| Bernard P. Aldrich | | | | Director | | Herbert K. Parker | | | | Director |
| | | | | | | | | | |
| /s/ Christina M. Alvord | | | | | | /s/ Mark A. Pompa | | | | |
| Christina M. Alvord | | | | Director | | Mark A. Pompa | | | | Director |
| | | | | | | | | | |
| /s/ Frank G. Heard | | | | | | /s/ Patricia K. Wagner | | | | |
| Frank G. Heard | | | | Director | | Patricia K. Wagner | | | | Director |
| | | | | | | | | | |
| /s/ Lloyd E. Johnson | | | | | | | | | | |
| Lloyd E. Johnson | | | | Director | | | | | | |
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Signature | | | Title | | Signature | | | Title |
/s/ Joseph F. Puishys | | | President, CEO and | | /s/ James S. Porter | | | Executive Vice | | |
Joseph F. Puishys | | | Director
(Principal Executive
Officer)
| | James S. Porter | | | President and CFO (Principal
Financial and
Accounting Officer)
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/s/ Bernard P. Aldrich | | | Chairman | | /s/ Robert J. Marzec | | | Director |
Bernard P. Aldrich | | | | | Robert J. Marzec | | | |
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/s/ Jerome L. Davis | | | Director | | /s/ Donald A. Nolan | | | Director |
Jerome L. Davis | | | | | Donald A. Nolan | | | |
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/s/ Sara L. Hays | | | Director | | Herbert K. Parker | | | Director |
Sara L. Hays | | | | | | | | |
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/s/ Lloyd E. Johnson | | | Director | | /s/ Richard V. Reynolds | | | Director |
Lloyd E. Johnson | | | | | Richard V. Reynolds | | | |
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/s/ John T. Manning | | | Director | | /s/ Patricia K. Wagner | | | Director |
John T. Manning | | | | | Patricia K. Wagner | | | |
