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 February 27, 201629, 2020
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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) | | | | | (I.R.S. Employer Identification No.) |
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4400 West 78th78th Street – | Suite 520 | Minneapolis MN | Minnesota | | 55435 |
| (Address of principal executive offices) | | | | (Zip Code) |
Registrant’s telephone number, including area code: (952) (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.
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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. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filerAccelerated Filer | | x☒ | | Accelerated filerFiler | | ¨☐ |
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Non-accelerated filerFiler | | ¨ (Do not check if a smaller reporting company)☐
| | Smaller reporting companyReporting 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨☐ Yes x☒ No
As of August 29, 201531, 2019, 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 $1,486,000,000$981,000,000 (based on the closing price of $50.8236.93 per share as reported on the NASDAQ Stock Market LLC as of that date).
As of April 25, 2016, 28,686,03522, 2020, 26,149,688 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required in Part III hereof is incorporated by reference to the Proxy Statement for the registrant's 2016 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.
APOGEE ENTERPRISES, INC.
Annual Report on Form 10-K
For the fiscal year ended February 27, 201629, 2020
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 certain technologies involving the design and development of architectural products and services, providing architectural glass, aluminum framing systems and installation services for buildings, as well as value-added glass solutionsglazing products for enclosing commercial buildings and framing art.custom picture framing.
Our Company has four reporting segments:segments, with three of the segments serving the commercial construction market:
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| • | The Architectural Framing Systems segment designs, engineers, fabricates and finishes aluminum window, curtainwall, storefront and entrance systems comprising the exterior of buildings. For fiscal 2020, this segment accounted for approximately 49 percent of our net sales. |
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| • | The Architectural Glass segment fabricates coated, high-performance glass used in custom window and wall systems. For fiscal 2020, this segment accounted for approximately 25 percent of our net sales. |
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| • | The Architectural Services segment integrates technical services, project management, and field installation services to design, engineer, fabricate, and install building glass and curtainwall systems. For fiscal 2020, this segment accounted for approximately 20 percent of our net sales. |
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| • | The Large-Scale Optical Technologies (LSO) segment manufactures value-added coated glass and acrylic products for custom framing, museum, and technical glass markets. For fiscal 2020, this segment accounted for approximately 6 percent of our net sales. |
The Architectural Glass segment fabricates coated, high-performance glass used in customized window and wall systems comprisingOn June 12, 2017, we acquired the outside skinstock of commercial, institutional and high-end multi-family residential buildings. For fiscal 2016EFCO Corporation (EFCO), our Architectural Glass segment accounted for approximately 35 percenta privately-held U.S. manufacturer of our net sales.
The Architectural Services segment designs, engineers, fabricates and installs the walls of glass, windows and other curtainwall products making up the outside skin of commercial and institutional buildings. For fiscal 2016, our Architectural Services segment accounted for approximately 25 percent of our net sales.
The Architectural Framing Systems segment designs, engineers, fabricates and finishes thearchitectural aluminum frames used in customized aluminum and glass window, curtainwall, storefront and entrance systems comprisingfor commercial construction projects, for approximately $190 million. Results of operations for this business have been included in the outside skinconsolidated financial statements and entrances of commercial, institutional and high-end multi-family residential buildings. For fiscal 2016, ourwithin the Architectural Framing Systems segment accounted for approximately 31 percentsince the date of our net sales.
acquisition.The Large-Scale Optical Technologies (LSO) segment manufactures value-added glass and acrylic products for the custom picture framing and fine art markets. For fiscal 2016, this segment accounted for approximately 9 percent of our net sales.
In fiscal 2014, we acquired all of the shares of Alumicor Limited (Alumicor), a storefront, entrance and window systems company in Canada, for $52.9 million. Alumicor's results of operations are included in our Architectural Framing Systems segment.
Strategy
Our overall strategy is to diversify revenue streams within the commercial construction industry and structure the business to provide more stable revenue growth and profit generation over an economic cycle. Our strategies are focused on diversification of end sectors served through growth from new geographies, new products and new markets, while improving margins through productivity, integration, project selection initiatives and rigorous cost management.
In an effort to reduce our exposure to the cyclical nature of the large-building segment of the commercial construction industry and to drive growth, we have expanded our capabilities to be able to serve small- and mid-sized projects in the Architectural Glass andsegment, have grown our North American geographic reach in the Architectural Framing Systems segments is to deliver growth faster than our defined commercial construction markets. We accomplish this through geographicsegment, and market segment expansion and new product offerings, while differentiating ourselves through superior service and lead times, remaining focused on distinctive solutions for enclosing commercial buildings. In recent years, we have increased our focus on the window and curtainwall retrofit and renovation of existing commercial buildings. We have seen increased interest fromwindows and curtainwall within our Architectural Framing and Architectural Glass segments.
Specifically over the non-residential and high-end multi-family building sectors in upgrading the façades and improving the energy efficiency of their buildings. We consider this to be a significant opportunity for Apogeepast fiscal year, in the coming years.
Architectural Framing Systems segment, our focus was to drive margin improvement through increased productivity, cost management and integration/synergy activities, supply chain optimization, and new product development. In the Architectural Glass segment, we completed construction and began operation of our new fabrication facility designed to serve small-sized and quick-turn projects. In the Architectural Services segment, our emphasis is on improvingmaintaining consistent margins through focused project selection and execution, while continuing to deliver long-term organic growth through geographic expansion in line with our available project management capacity.
Within ourthe LSO segment, our strategy is to grow by continuingcontinue to convert the domestic and international custom picture framingpicture-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, both within the United States (U.S.) and internationally. Additionally, we have begun identifying newto grow in newer display markets that desire the value-added properties that our glass and acrylicacrylics products provide.
Each ofAcross all our segments, has the ability to grow organically through geographic expansion and product line extension, and we also regularly evaluate business development opportunities in complementary sectors. These strategies can also be executed by acquisition or strategic alliances.
adjacent sectors that will complement our existing portfolio. Finally, we are constantly working to improve the efficiency and productivity of our manufacturing and installation operations by implementing continuous improvement, lean manufacturing disciplines and automation throughout our business. We expect this initiative to continue to deliver gross margin expansion into the foreseeable future.automation.
Products and Services
Architectural Framing Systems, Architectural Glass and Architectural Services and Architectural Framing Systems segments
All of theseThese three segments serve the commercial construction industry and participate in various phases of the value chain to design, engineer, fabricate and install customizedcustom glass and aluminum and glass window, curtainwall, and storefront and entrance systems forcomprising the exterior of buildings 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. We also extrude aluminum and provide finishing services for metal components used in a variety of building materials applications, as well as for plastic components for other products.
In our Architectural Glass segment, we add ultra-thin,fabricate coated glass and apply 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, aligned with the
industry trend of increasingly energy-efficient buildings.energy-efficiency. We also laminate layers of glass and vinyl to protectfor protection against hurricaneshazards such as severe weather and other severe impacts,blasts, and we temper, or heat strengthen, glass to provide additional strength. OurMuch of our high-performance glass is custom made-to-order and is typically fabricated into insulating and/or laminated glass units to allow for installation into window, curtainwall, storefront or entrance systems.
By integrating technical capabilities, project management skills and field installation services, we provideour Architectural Services segment provides design, engineering, fabrication and installation expertiseservices for the building envelope within our Architectural Services segment. The services we provide allow our customersexterior of commercial buildings. Our ability to meet the timing and cost requirements of their jobs by providing efficiently designed anddesign high-quality window and curtainwall systems and effectively managingmanage the installation of building façades enables our customers to meet the façade onschedule and cost requirements of their building projects.jobs.
Within our Architectural Framing segment, we design and fabricate window, curtainwall, storefront and entrance systems using our customized aluminum and glass, or glass supplied by others. We also provide finishing services for the metal and plastic components used to frame windows, curtainwall and other products.
Our product and service offerings allow architects to create distinctive looks for commercial building such as office towers, hotels, education facilities and dormitories,athletic facilities, health care facilities, government buildings, retail centers and multi-family residential buildings, while meeting functional requirements such as energy efficiency, hurricane, blast and other impact resistance and/or sound control.
LSO segment
The LSO segment provides coated glass and acrylic primarily for use in custom picture framing, museum framing, wall decor and fine art markets.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 and Architectural Framing Systems Segmentssegments
Demand for the products and services offered by our Architectural segments is affected by changes in the North American commercial construction industries,industry, as well as by changes in general economic conditions. AsAdditionally, the Architectural Glass segment also has an operationoperations in Brazil itand is also impacted by theBrazil's commercial construction industry and general economic conditions in that region.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, construction starts, credit and interest rates available for commercial construction projects, architectural billing statistics and material costs. We also utilize data on U.S. non-residential construction market activity from Dodge Data & Analytics, a leading independent provider of construction industry analysis, forecasts and trends. We reference this information as independent data points specific to the building types that we typically serve, adjusted to align with our fiscal year and the lag that is required to account for when our products and services typically are initiated in a construction project, which is approximately eight months after project start.
We also rely on our own internal indicators to analyze demand. This includesdemand, including our sales pipeline, which is made up of contracts in review, projects awarded or committed, and bidding and quoting 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 a subsetsubsets of the construction industry that is differentiated by building type, levelthe following types of customization required, customers, geographic location and project size.factors:
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| • | Building type - Our products and services are primarily used in commercial buildings (office buildings, hotels and retail centers) and institutional buildings (education facilities, health care facilities and government buildings), as well as in high-end multi-family residential buildings (a subset of residential construction). |
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, hotels and retail centers) and institutional buildings (education facilities and dormitories, health care facilities and government buildings), as well as in high-end multi-family residential buildings (a subset of residential construction).
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| • | Level of customization - Many of our projects involve a high degree of customization, as the product or service is designed to meet customer-specified requirements for aesthetics, performance and size, and local building codes. |
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| • | 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. Our 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. |
Level of customization - The large majority of our projects involve a high degree of customization, as the product or service is based on customer-specified requirements for aesthetics, performance and size, and is designed to satisfy local building codes.
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| • | Geographic location - We primarily 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 distribution channels - Our customers are mainly general contractors and glazing subcontractors, with project design being influenced by architects and building owners. Our high-performance architectural glass is primarily sold using a direct sales force and independent sales representatives. Installation services are marketed by a direct sales force, primarily in the metropolitan areas in the U.S. where we have a physical presence. We also have the ability to provide remote installation |
project management throughout the U.S. We market 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 the U.S., 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 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 to be in the range of $8 to $15 billion over a non-residential construction cycle of eight to ten years. Our aluminum framing systems, including windows, curtainwall, storefront and entrances, are marketed in the U.S. and Canada, and we estimate demand to be in excess of $3 billion annually.locations.
Project size - Our Architectural Glass segment primarily serves mid-size to monumental high-profile projects. Architectural Services primarily serves mid-size projects and Architectural Framing Systems primarily targets small and mid-size projects.
LSO Segmentsegment
In our LSO segment, we have the largest domestically manufactureda leading brand of value-added coated glass and acrylic forused in the custom picture framing.picture-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 other products to museums, and public and private galleries and collections worldwide through independent distributors. In addition to the U.S., the LSO segment sells its glass and acrylic productsother organizations in Europe and other international geographies usinglocations through independent distributors.
Competitive Conditions
Architectural Framing Systems, Architectural Glass and Architectural Services and Architectural Framing Systems 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, architects, who influence the selection of products and services on a project, and with general contractors, who initiate projects and develop specifications.
There is a great deal of competition in the North America commercial window and storefront manufacturing industry, 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, innovation, reliable on-time delivery and short lead 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 products equivalent to and larger size capabilities than our own. This international competition has been exacerbated recently bybenefited from the relative strength of the U.S. dollar.dollar and lower fabrication costs in recent years. We differentiate ourselves by providing high-quality, innovative and customizable products, short lead times, and strong customer service.
When providing installation services, ourOur Architectural Services segment primarily competes against regionalnational and localregional glass installation companies, and periodically against other larger national companies. The commercial window and storefront manufacturing industry is highly fragmented,We distinguish ourselves from these competitors through our strong project management 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 companies.track record of regularly meeting each project's unique execution requirements.
LSO Segmentsegment
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. There is competition in North America and Europe fromWe compete with certain European and U.S. valued-added products for picture framing.glass and acrylic 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 installation services.
Sources and Availability of Raw Materials
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. Our Architectural Framing Systems segment's materials include aluminum billetpanels and extrusions, fabricated glass, plastic extrusions, hardware, paint and chemicals. Thehardware. Materials used in the LSO segment mainly usesare primarily glass and acrylics. A majorityacrylic. Most of our raw materials isare 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 Glass segment, VIRACON®, VIRACON VUE-50®, DIGITALDISTINCTIONS®, ROOMSIDE®, EXTREMEDGE®, BUILDING DESIGN®,GLASS IS EVERYTHING®, CLEAR POINT®, CYBERSHIELD®, MORE POSSIBILITIES FROM THE LEADER IN GLASS FABRICATION® and STORMGUARD® are registered trademarks. VIRASPAN™ is an unregistered trademark. In addition, GLASSEC®, INSULATTO® and BLINDATTO® are registered trademarks in Brazil. GLASSECVIRACON™ is an unregistered trademark in Brazil.
Within the Architectural Services segment, HARMON®, HARMON GLASS®, HI-7000® and INNOVATIVE FACADE SOLUTIONS® are registered trademarks. UCW-8000™, HI-8500™, HI-9000™, SMU-6000™ and HPW-250™ are unregistered trademarks.
Within the Architectural Framing Systems segment, LINETEC®LINETEC®, WAUSAU WINDOW AND WALL SYSTEMS®SYSTEMS®, TUBELITE®TUBELITE®, ADVANTAGE BY WAUSAU®WAUSAU®, 300ES®, FINISHER OF CHOICE®CHOICE®, THERML=BLOCK®BLOCK®, MAXBLOCK®MAXBLOCK®, DFG®DFG®, ECOLUMINUM®ECOLUMINUM®, ALUMINATE®ALUMINATE®, GET THE POINT!®, FORCEFRONT®, SOTAWALL®, SOTA®, HYBRID-WALL®,
EFCO®, TERRASTILE®, THERMASTILE®, TRIPLE SET®, ULTRADIZE®, ULTRAFLUR®, ULTRALINE®, ULTRAPON® and FORCEFRONT®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 SUPERWALL™X Force™ are unregistered trademarks. ALUMICOR™, BUILDING EXCELLENCE™, TerraPorte 7600 Out-Swing accessABLE™, ThermaSlide™ 7000, Integra 6000™ and BUILDING EXCELLENCETMThermaSlide™ are unregistered trademarks in Canada.
Within the Architectural Glass segment, VIRACON®, DIGITALDISTINCTIONS®, ROOMSIDE®, EXTREMEDGE®, BUILDING DESIGN®, GLASS IS EVERYTHING®, CLEARPOINT®, CYBERSHIELD®, STORMGUARD®, ACCELERATING YOUR ARCHITECTURAL GLASS®,VELOCITY, AN APOGEE COMPANY® and VTS® are registered trademarks. VIRASPAN™ is an unregistered trademark. In addition, GLASSECVIRACON®, GLASSEC®, INSULATTO® and BLINDATTO® are registered trademarks in Brazil.
Within the Architectural Services segment, HARMON®, H DESIGN®, HARMON GLASS®, HI-7000®, 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®, CONSERVATION MASTERPIECE ACRYLIC®CLEAR®, CONSERVATION REFLECTION CONTROL®CONTROL®, ULTRAVUE®ULTRAVUE®, MUSEUM GLASS®GLASS®, OPTIUM®OPTIUM®, PREMIUM CLEAN®CLEAN®, REFLECTION CONTROL®CONTROL®, AR REFLECTION-FREEREFLECTION-FREE®, OPTIUM ACRYLIC®, OPTIUM MUSEUM ACRYLIC®, CONSERVATION MASTERPIECE®, CONSERVATION MASTERPIECE ACRYLIC®, TRU VUE AR®, OPTIUM ACRYLIC®STATICSHIELD®, OPTIUM MUSEUM ACRYLIC®TRULIFE®, CONSERVATION MASTERPIECE®, STATICSHIELD®, TRULIFE® and VISTA AR®AR® are registered trademarks. TRULIFE INFINITY FRAMEFRAME™, PREMIUM CLEARTM™ is an, THE DIFFERENCE IS CLEAR™ and TRU FRAMEABLE MOMENTS™ are unregistered trademark.trademarks.
We have several patents pertaining to our glass coating methods and products, includingfor 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. A bigger impact to net sales is the fact that the construction industry is highly cyclical in nature and can be influenced differentlyimpacted by the effectsseasonal impact of local economies.weather and weather events in our operating locations, with activity in some markets reduced in winter due to inclement weather.
Within the LSO segment, picture framing glass and acrylic sales tend to increase in the September-to-December timeframe. However, the timing of customer promotional activities may offset some of this seasonal impact.
Working Capital Requirements
Trade accounts receivable isand contract-related receivables and other contract assets are the largest componentcomponents of our working capital forcapital. Inventory requirements, mainly related to raw materials, are most significant in our Architectural Framing Systems and Architectural Glass segments.
Backlog
Backlog represents the Company, including receivables relatingdollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to contractual retention amountsbe recognized as revenue in the future. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. In addition to backlog, we have a substantial amount of projects with short lead times that canbook-and-bill within the same reporting period and are not included in backlog. We have strong visibility beyond backlog, as projects awarded, verbal commitments and bidding activities are not included in backlog.
Architectural Framing Systems segment backlog, net of intersegment eliminations, grew to $429.6 million at year-end, compared to $399.5 million at the end of the prior year, due primarily to strong order activity, particularly of longer lead-time contracts. We expect approximately 60 percent of the backlog in this segment to be outstanding throughoutfulfilled in fiscal 2021, with the remainder expected to be filled in fiscal 2022 and beyond; however, the timing of backlog may be impacted by project duration withindelays resulting from the COVID-19 pandemic.
Architectural Glass segment backlog as of year-end was $31.0 million, net of intersegment eliminations, compared to $71.3 million at the end of the prior year, due to reduced lead times, fulfillment of orders at year-end and lower order activity. We expect all of the backlog to be fulfilled in fiscal 2021.
Backlog in the Architectural Services segment. Inventory requirements are not significantsegment as of year-end was $659.7 million, compared to $444.0 million at the end of the prior year, due to strong contract activity during fiscal 2020. We expect approximately 40 percent of the backlog in anythis segment to be filled during fiscal 2021, with the remainder expected to be filled in fiscal 2022 and beyond; however, the timing of our Architectural segments, because these businesses make-to-order rather than build-to-stock forbacklog may be impacted by project delays resulting from the majority of their products.COVID-19 pandemic.
SinceBacklog is not a significant metric for the LSO segment, builds to stock for the majority of its products, it requires greater inventory levels to meet the demands of its customers.as orders are typically booked and billed within a short time-frame.
Backlog
A discussion of our consolidated backlog is included at page 18 within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and is incorporated herein by reference.
Research and Development
The amount spent on research and development activities was $8.0 million, $6.5 million and $7.8 million in fiscal 2016, 2015 and 2014, respectively. Of this amount, $2.4 million, $2.4 million and $2.1 million, respectively, was focused primarily upon design of custom window and curtainwall systems in accordance with customer specifications and is included in cost of sales in the accompanying consolidated financial statements.
Environment
We use hazardous materials in our manufacturing operations, and have air and water emissions that require controls. As a result, we are subject to stringent federal, state and local regulations governing the storage and use of these materials and disposal of wastes. 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, and we have implemented a program to monitor our compliance with environmental laws and regulations. Although weprocesses. We believe we are currently in material compliance with such laws and regulations, current or future laws and regulations could require us to make substantial expenditures for compliance with chemical storage and use, waste treatment or disposal regulations. Spending to reduce wastewater solids and hazardous air emissions at our facilities is not significant. We expectWhile we will continue to incur environmental compliance costs to continue to comply with laws and regulations in the future for our ongoing manufacturing operations, butwe do not expect these to be material to our consolidated financial statements.
In fiscal 2008, we acquired At one manufacturing facility that has certainin our Architectural Framing Systems segment, we are continuing to work to remediate historical environmental conditions. We are working to remediate these conditions, and theimpacts. These remediation activities are being conducted without significant disruption to our operations.
Employees
The Company employed 4,614had approximately 7,200 and 4,802 persons7,000 employees on February 27, 201629, 2020 and February 28, 2015March 2, 2019, respectively. At February 27, 2016, 35529, 2020, 669 of these employees were represented by U.S. labor unions and 256 of these employees were represented by labor unions in Brazil.unions.
International Sales
Information regarding export and international sales is included in Item 8, Financial Statements and Supplementary Data, within Note 1516 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
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| | | | |
| Name | | Age | | Positions with Apogee Enterprises and Employment HistoryPast Experience |
| Joseph F. Puishys | | 5761 | | Chief Executive Officer and President of the Company since 2011. President of Honeywell's Environmental 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 2005.2008. |
| James S. Porter | | 5559 | | Chief Financial Officer since 2005 and Executive Vice President since 2015. Vice President of Strategy and Planning from 2002 through 2005. Various management positions within the Company |
| Curtis Dobler | | 55 | | Executive Vice President and Chief Human Resources Officer since 1997.April 2019. Executive Vice President and Chief Human Resources Officer at Associated Materials, Inc. from 2015 through 2019. |
| Patricia A. Beithon | | 6266 | | General Counsel and Corporate Secretary since 1999. |
Gary R. JohnsonBrent C. Jewell | | 5445 | | Vice President Treasurerof Architectural Framing Systems Segment since 2001. Various management positions within the Company since 1995. |
John A. Klein | | 60 | | August 2019. Senior Vice President, OperationsBusiness Development and Supply Chain Management of the Company since 2012. Director of OperationsStrategy from May 2018 to August 2019. Senior leadership positions at Cooper Industries' Power Systems DivisionValspar's General Industrial Americas and North America Wood Coatings divisions from 2008 through 2012, and Vice President of Operations at Rexnord Industries' Bearing Division from 2005 through 2007.2010 to 2017. |
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.
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 the last quarter of our fiscal 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
Generalwork 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 our customers, will adversely impact our sales and operating results and has resulted in some project delays. In addition, the pandemic has resulted in an economic downturn that could affect the ability of our customers to obtain financing for projects and therefore impact demand for our products and services. Order lead times could be extended or delayed and our pricing or pricing of 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. Accordingly, we are considering alternative product sourcing in the event that material supply becomes problematic.
To date, we have experienced some 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 and we temporarily shut down our factories in this segment to comply with government "stay in place" orders. We expect this global pandemic to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict. The global outbreak of COVID-19 continues to rapidly evolve. 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 duration of the outbreak, 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 and treat 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 results of operations, liquidity or financial position. To the extent that our customers and suppliers are adversely impacted by the coronavirus 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 liquidity.
Global instability and uncertainty arising from events outside of our control, such as significant natural disasters, political crises, public health crises and pandemics, and/or other catastrophic events
Natural disasters, political crises, public health crises, such as the current COVID-19 pandemic, and other catastrophic events or other events outside of our control may damage our facilities or the facilities of third parties on which we depend, have broader adverse impacts on the commercial construction market, consumer confidence and spending, and/or impact the well-being of our employees and ability to operate our facilities. These types of disruptions or other events outside of our control could affect our business negatively, cause delays or cancellation of commercial construction projects or cause us to temporarily close our facilities, harming our operating results. In addition, if any of our facilities, including our manufacturing, finishing or distribution facilities, or the facilities of our suppliers, third-party service providers, or customers, is affected by natural disasters, political crises, public health crises, and other catastrophic events or events outside of our control, our business and operating results could suffer.
North American and global economic and industry-related business conditions could negatively affect our results.
Our Architectural Framing Systems, Architectural Glass and Architectural Services and Architectural Framing Systems segments are dependent on globalNorth American economic conditions and the somewhat cyclical nature of the North American commercial construction industry. The commercial construction industry is impacted by global macroeconomic trends including, among other things,such as availability of credit, unemployment rates,employment levels, consumer confidence, interest rates and commodity prices. 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 region. We cannot predict how changing economic conditions in this region will impact our financial results; however, our Brazilian operation makes up less than five percent of our net sales annually.
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.
Fluctuation inForeign currency impacts
When the U.S. dollar strengthens against foreign currency exchange ratescurrencies, 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 impactimpacted. Additionally, our results and financial position.
Ourinternational subsidiaries in Canada and Brazil report their results of operations and financial position in their relevant functional currencies (local country currency), which are then translated into U.S. dollars. This translated financial information is included in our consolidated financial statements. The strength ofAs the relationship between these currencies and the U.S. dollar in comparison to these functional currencies has had andchanges, there could continue to havebe a negative impact on our reported results and financial position.
In addition, as the U.S. dollar strengthens against foreign currencies, imports of products into the U.S. produced by international competitors have become more price competitive and exports of our U.S.-fabricated products have become less price competitive. If we are not able to counteract these price pressures through superior quality and service, our net sales and operating income could be negatively impacted.
New competitors or specific actions of our existing competitors could adversely impact our industry position and future results.
All of our operating segmentsWe operate in competitive industries where 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 GlassFraming Systems and Architectural Framing SystemsGlass 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 could be negatively impacted.
Our LSO segment competes with several international specialty glass manufacturers that have traditionally been less focused onand international and domestic acrylic suppliers. If these competitors are able to successfully increase their product attributes, service capabilities and production capacity and/or increase their sales and marketing focus in the U.S. custom picture framing industry. Although these LSO competitors generallymarket, this segment's net sales and margins could be negatively impacted.
Acquisitions and related integration activities
We have not been ablecompleted and may complete additional acquisitions in the future to meetaccelerate the specification levelexecution 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;
difficulties or delays in integrating and assimilating information and financial systems, operations and products upgradesof an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings and synergies;
potential 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
with respect to the acquired assets and liabilities, 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 were to arise in a material manner, our competitor's products, and/operating results could be negatively impacted.
Goodwill and indefinite-lived intangible asset impairment
Our assets include a significant amount of goodwill and indefinite-lived intangible assets. We evaluate goodwill and indefinite-lived intangibles for impairment annually at our year-end, or their increased interestmore frequently if events or changes in U.S. sales couldcircumstances indicate that the carrying value of a reporting unit may not be recoverable. The assessment of impairment requires determination of estimated fair value, generally using a discounted cash flow analysis, which involves significant judgment and projections about future performance.
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 management on a regular basis. Each of our nine business units represents a reporting unit for the goodwill impairment analysis. Based on our analysis, the estimated fair value of each reporting unit and indefinite-lived intangible asset exceeded its carrying value and, therefore, impairment was not indicated. However, the estimated fair value did not exceed carrying value by a significant margin for two of our reporting units within the Architectural Framing Systems segment, Sotawall and Alumicor, which had goodwill balances of $21.0 million and $14.1 million, respectively, at February 29, 2020. We utilized a discount rate of 9.4 percent in determining the discounted cash flows in our fair value analysis and a long-term growth rate of 3.0 percent. If our discount rate were to increase by 20 basis points, the fair value of these reporting units would fall below carrying value, which would indicate impairment of the goodwill. Additionally, this discounted cash flow analysis is 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, impairment would be indicated at these reporting units, and potentially at our other reporting units. Subsequent to year-end, we have begun to see impacts from COVID-19 that will likely have a negative impact on net salesour forecasted revenue and profitability and this, along with the decline in our stock price and other market conditions, could result in an indication of impairment of goodwill in our first quarter of 2021.
Fair value of our indefinite-lived intangible assets is measured using the relief-from-royalty method. This method assumes the trade name or margins.trademark has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from the asset. This method requires estimation of the future revenue from the related asset, the appropriate royalty rate, and the weighted average cost of capital. Based on our analysis, the estimated fair value of each indefinite-lived intangible asset exceeded its carrying value and, therefore, impairment was not indicated. In determining the discounted future revenue in our fair value
Our abilityanalysis, we assumed a discount rate of 9.4 percent, a royalty rate of 1.0 percent, and a long-term growth rate of 3.0 percent. If future revenue were to effectively utilizefall below forecasted levels or if market conditions were to decline in a material or sustained manner, due to COVID-19 or otherwise, we could incur a non-cash impairment charge that would negatively impact our net earnings for the fiscal period in which the charge was recorded.
Effective utilization and management of our manufacturing capacity could adversely impact future results.
Near-term performance depends, to a significant degree, on our ability to increaseprovide sufficient available capacity and appropriately utilize availableexisting production capacity. The failure to successfully maintain existing capacity, utilizeor manage unanticipated interruptions in production, successfully implement planned capacity expansions, and investand/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 impact our future results.
Our success depends on the skills and experience of our current management team,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 may experience 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.
InterruptionsSupply chain management, including availability and price of materials used in glassour products
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 our pricing to offset potential impacts, operating results could be negatively impacted by price movements in the market for raw aluminum. In recent years, we have seen increased volatility in the price of aluminum that we purchase from both domestic and international sources. Due 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 U.S. trade policy with Canada could therefore have an adverse impact on our futurenet sales and operating results.
The
Our Architectural Glass and LSO segments use raw glass as a significant input to their products. We periodically experience a tighter supply of raw glass has become tighter due to several years ofwhen there is growth in automotive manufacturing and residential construction and non-residential construction. Although we have secured supply commitments from multiple suppliers that allow us to reach our near-
termnear-term growth targets, 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, and 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 a supplier may cause us to alter our business terms or to cease doing business with a particular supplier, or change our sourcing practices generally, which could in turn adversely affect our business and financial condition. Further, the potential impact of COVID-19 could adversely impact our suppliers and result in our inability to purchase needed materials in a timely manner or to achieve our targeted procurement cost reductions.
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 system, 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 could negatively impact demand for our products and future profitability.
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 and quality standards required by our customers. 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; diminished pricing power; higher manufacturing or installation costs; or delays in the collection of accounts receivable. Additionally, performance, reliability or quality claims from our customers with or without merit, 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 financialoperating results.
Project management and installation issues could negatively impact future results.
The Architectural Services segment is typicallySome of our segments are awarded fixed-price contracts forthat 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; difficulties or errors in execution; use of incompatible glazing materials; 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.
A shiftSpecifically, we have a large construction project that is nearing completion but continues to experience certain project delays that have resulted in architectural trends, building codessignificant additional costs and ongoing negotiations with our customer. These and any further delays or consumer preferencesproject difficulties could negativelyhave additional negative impact the demand foron our products.operating results.
Any change in commercial construction customer preference, architectural trends or building codes that reduce window-to-wall ratios in non-residential construction would negatively impact net sales 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 income
Customer dependence in the LSO segment.
The loss of a significant customer in the LSO segment could adversely affect our results.
The LSO segment is highly dependent on a relatively small number of customers for its sales, while working to grow in new markets and we expect this to continue in the future.with new customers. Accordingly, loss of a significant customer, a significant reduction in pricing, or a shift to a less favorable mix of value-added picture framing glass or acrylic products for one or more of those customers could materially reduce LSO net sales and operating results. Recently, many customers in this segment temporarily closed retail outlets as a result of "stay in place" orders within the United States, resulting in reduced demand for our product. In response to this changing retail environment, the LSO segment has temporarily reduced production and labor, and furloughed employees. We expect this situation to result in a significant reduction in sales in our first quarter of fiscal 2021, however, we are unable to estimate the severity or longer-term impact resulting from this COVID-19 pandemic on our business in this segment. If demand continues to remain depressed, it could have a material adverse effect on the operating results of this segment.
Our resultsResults can differ significantly from our expectations and the expectations of analysts.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 significant market intelligence throughFurther, there is additional risk in our contact with real estate developers, building ownersability to accurately forecast and architects, and continually monitor micro- and macro-economic indicators of future performanceprovide guidance in the current environment, given the rapidly evolving conditions as a result of the commercial construction market, we are unable to precisely predict events that can significantly change market cycles.COVID-19 pandemic. 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.
We retain significantSignificant risk retention through self-insurance programs.programs
We obtain third-party insurance to provide coverage for potential losses from general liability,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, risk.as well as medical insurance and various other coverages. However, a high amount of risk is retained on a self-insured basis, partially through our wholly-owned insurance subsidiary. Therefore, a material architectural product liability event could have a material adverse effect on our operating results.
Dependence on information technology systems and potential security threats could adversely affect our results.
We have manyOur operations are dependent upon various information technology systems that are important to the operation of our business. These systems 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 developing newmaintaining our existing systems, and maintaining existingdeveloping 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. 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, potential liability, project delay claims, and increased costs and operational consequences of implementing further data protection systems.
We use hazardous chemicals in the production of our products and are thus subjected to changes in environmental legislation.
We use hazardous chemicals in producing some of our products. One of our facilities has certain historical environmental conditions that are in the process of being remediated. Our inability to remediate the historical environmental conditions at the facility at or below the amounts reserved could have an adverse impact on future financial results. Additionally, 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. Our financial results could also be adversely impacted by rising energy and material costs associated with environmental regulations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The following table lists, by segment, the Company's major properties as of February 27, 201629, 2020.
|
| | | | |
| 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 |
| 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, UTDallas, TX | | OwnedLeased | | Manufacturing/Warehouse |
| Nazaré Paulista, Brazil | | Owned(1) | | Manufacturing/Administrative |
| Architectural Services segment | | | | |
| Minneapolis, MN | | Leased | | Administrative |
| West Chester, OH | | Leased | | Manufacturing |
Garland,Mesquite, TX | | Leased | | Manufacturing |
| Glen Burnie, MD | | Leased | | Manufacturing |
| Orlando, FL | | Leased | | Manufacturing |
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 |
| LSO segment | | | | |
| McCook, IL | | Owned | | 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
Murray Mayer v. Apogee Enterprises, Inc., et al
On November 5, 2018, Murray Mayer, individually and on behalf of all others similarly situated, filed a purported securities class action lawsuit against the Company and our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the District of Minnesota. On February 26, 2019, the Court appointed as lead plaintiffs the City of Cape Coral Municipal Firefighters’ Retirement Plan and the City of Cape Coral Municipal Police Officers’ Retirement Plan. On April 26, 2019, the lead plaintiffs filed an amended complaint. The amended complaint seeks an unspecified amount of damages, attorney's fees and costs. On March 25, 2020, the District Court granted the Company's motion to dismiss without prejudice this matter.
Justin Buley v. Apogee Enterprises, Inc. et al
On December 17, 2018, Justin Buley filed a derivative lawsuit, purportedly on behalf of the Company, against our Chief Executive Officer, our Chief Financial Officer and certain of our non-executive members of our Board of Directors, in the Fourth Judicial District of the State of Minnesota. The complaint alleges claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment. The complaint seeks an unspecified amount of damages and equitable relief, including requiring the Company to offer our shareholders the opportunity to vote for certain amendments to our Bylaws or Articles of Incorporation purporting to improve identified corporate governance practices. This matter has been stayed pending resolution of a motion to dismiss in the Mayer action described above. We intend to vigorously defend this matter.
In addition to the foregoing, the Company has been 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 are routinely involved in various disputes and claims arising out of construction projects, sometimes involving demands for significant monetary damages or product replacement. The Company has also been subject to litigation arising out of general liability, employment practices, workers' compensation and automobile claims. Although it is very difficult to accurately predict
the outcome of such proceedings, facts
currently available indicate that no such claims 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 7, 2016,2020, there were approximately 1,2491,126 shareholders of record and 9,9039,877 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.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | First | | Second | | Third | | Fourth | | Year-end |
| | | Low | High | | Low | High | | Low | High | | Low | High | | Close |
| 2016 | | $ | 42.35 |
| $ | 56.27 |
| | $ | 49.60 |
| $ | 60.16 |
| | $ | 43.90 |
| $ | 57.86 |
| | $ | 34.52 |
| $ | 50.53 |
| | $ | 39.41 |
|
| 2015 | | 28.28 |
| 35.64 |
| | 29.21 |
| 36.68 |
| | 35.07 |
| 47.02 |
| | 37.83 |
| 48.03 |
| | 45.85 |
|
| 2014 | | 23.06 |
| 30.26 |
| | 22.20 |
| 29.41 |
| | 27.25 |
| 36.09 |
| | 30.97 |
| 37.73 |
| | 34.23 |
|
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.
|
| | | | | | | | | | | | | | | | | | | | |
| | | First | | Second | | Third | | Fourth | | Total |
| 2016 | | $ | 0.1100 |
| | $ | 0.1100 |
| | $ | 0.1100 |
| | $ | 0.1250 |
| | $ | 0.4550 |
|
| 2015 | | 0.1000 |
| | 0.1000 |
| | 0.1000 |
| | 0.1100 |
| | 0.4100 |
|
| 2014 | | 0.0900 |
| | 0.0900 |
| | 0.0900 |
| | 0.1000 |
| | 0.3700 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| Fiscal Year | | First | | Second | | Third | | Fourth | | Total |
| 2020 | | $ | 0.1750 |
| | $ | 0.1750 |
| | $ | 0.1750 |
| | $ | 0.1875 |
| | $ | 0.7125 |
|
| 2019 | | 0.1575 |
| | 0.1575 |
| | 0.1575 |
| | 0.1750 |
| | 0.6475 |
|
| 2018 | | 0.1400 |
| | 0.1400 |
| | 0.1400 |
| | 0.1575 |
| | 0.5775 |
|
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 20162020:
|
| | | | | | | | | | | | |
| 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, 2015 through December 26, 2015 | 226,225 |
| | $ | 46.28 |
| | 225,000 |
| | 392,368 |
|
| December 27, 2015 through January 23, 2016 | 201,122 |
| | 38.63 |
| | 200,000 |
| | 1,192,368 |
|
| January 24, 2016 through February 27, 2016 | — |
| | — |
| | — |
| | 1,192,368 |
|
| Total | 427,347 |
| | $ | 42.45 |
| | 425,000 |
| | 1,192,368 |
|
|
| | | | | | | | | | | | | |
| 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 1, 2019 through December 28, 2019 | | 15,000 |
| | $ | 31.77 |
| | 15,000 |
| | 1,435,088 |
|
| December 29, 2019 through January 25, 2020 | | 90,000 |
| | 33.13 |
| | 90,000 |
| | 2,345,088 |
|
| January 26, 2020 through February 29, 2020 | | 57,177 |
| | 32.82 |
| | 50,000 |
| | 2,295,088 |
|
| Total | | 162,177 |
| | $ | 32.95 |
| | 155,000 |
| | 2,295,088 |
|
(a)2,347 of the The shares in this column represent the total number of shares that were repurchased by us pursuant to our publicly announced repurchase program, plus the shares surrendered to us by plan participants 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, which was announced on January 24, 2008; by 1,000,000 shares which wason 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; and by 1,000,000 shares, which was announced on January 13, 2016.3, 2018. The Company's repurchase program does not have an expiration date.
Comparative Stock Performance
The line 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 Standard & Poor's Small Cap 600 Growth Index and the Russell 2000 Index. The graph assumes an investment at the close of trading on February 26, 2011,27, 2015, and also assumes the reinvestment of all dividends.
| | | | Fiscal 2011 | Fiscal 2012 | Fiscal 2013 | Fiscal 2014 | Fiscal 2015 | Fiscal 2016 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| Apogee | $ | 100.00 |
| $ | 92.90 |
| $ | 197.04 |
| $ | 260.61 |
| $ | 353.02 |
| $ | 306.39 |
| | $ | 100.00 |
| | $ | 86.79 |
| | $ | 129.59 |
| | $ | 99.06 |
| | $ | 82.45 |
| | $ | 70.43 |
|
| S&P Small Cap 600 Growth Index | 100.00 |
| 104.85 |
| 119.73 |
| 157.10 |
| 168.53 |
| 154.64 |
| | 100.00 |
| | 91.76 |
| | 120.34 |
| | 135.21 |
| | 145.19 |
| | 135.65 |
|
| Russell 2000 Index | 100.00 |
| 99.00 |
| 114.52 |
| 150.07 |
| 158.52 |
| 135.20 |
| | 100.00 |
| | 85.29 |
| | 116.43 |
| | 129.60 |
| | 136.18 |
| | 128.31 |
|
We are not aware of any competitors, public or private, that are similar to us in size and scope of business activities. Most of our direct competitors 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 Report, and our consolidated financial statements and related notes, included in Item 8 of this Report.
|
| | | | | | | | | | | | | | | | | | |
| (In thousands, except per share data and percentages) | 2016 | 2015 | 2014(1) | 2013 | 2012(2) | 2011(3) |
| Results of Operations Data | | | | | | |
| Net sales | $ | 981,189 |
| $ | 933,936 |
| $ | 771,445 |
| $ | 700,224 |
| $ | 662,463 |
| $ | 582,777 |
|
| Gross profit | 243,570 |
| 208,544 |
| 165,252 |
| 145,733 |
| 117,120 |
| 83,120 |
|
| Operating income (loss) | 97,393 |
| 63,585 |
| 40,285 |
| 27,419 |
| 3,816 |
| (20,972 | ) |
| Net earnings (loss) | 65,342 |
| 50,516 |
| 27,986 |
| 19,111 |
| 4,645 |
| (10,332 | ) |
| Earnings (loss) per share - basic | 2.25 |
| 1.76 |
| 0.98 |
| 0.68 |
| 0.17 |
| (0.37 | ) |
| Earnings (loss) per share - diluted | 2.22 |
| 1.72 |
| 0.95 |
| 0.67 |
| 0.17 |
| (0.37 | ) |
| Cash dividends per share | 0.455 |
| 0.410 |
| 0.370 |
| 0.360 |
| 0.326 |
| 0.326 |
|
| | | | | | | |
| Balance Sheet Data | | | | | | |
| Current assets | $ | 336,793 |
| $ | 298,975 |
| $ | 247,430 |
| $ | 256,479 |
| $ | 234,077 |
| $ | 213,923 |
|
| Total assets | 657,440 |
| 612,057 |
| 569,995 |
| 524,779 |
| 497,742 |
| 511,098 |
|
| Current liabilities | 177,381 |
| 149,028 |
| 136,834 |
| 122,167 |
| 105,771 |
| 113,946 |
|
| Long-term debt | 20,400 |
| 20,587 |
| 20,659 |
| 20,756 |
| 20,916 |
| 21,442 |
|
| Shareholders' equity | 406,195 |
| 382,476 |
| 356,104 |
| 336,792 |
| 324,672 |
| 327,677 |
|
| | | | | | | |
| Cash Flow Data | | | | | | |
| Depreciation and amortization | $ | 31,248 |
| $ | 29,423 |
| $ | 26,550 |
| $ | 26,529 |
| $ | 27,246 |
| $ | 28,218 |
|
| Net cash provided by (used in) operating activities | 123,951 |
| 68,563 |
| 52,921 |
| 40,716 |
| 27,981 |
| (7,985 | ) |
| Net cash used in investing activities | (77,856 | ) | (24,475 | ) | (43,974 | ) | (57,132 | ) | (18,498 | ) | (14,391 | ) |
| Net cash (used in) provided by financing activities | (36,413 | ) | (19,773 | ) | (17,576 | ) | 232 |
| (13,116 | ) | 209 |
|
| Capital expenditures | 42,037 |
| 27,220 |
| 41,852 |
| 34,664 |
| 9,650 |
| 9,126 |
|
| Repurchase and retirement of common stock | 24,911 |
| 6,894 |
| — |
| — |
| 2,392 |
| — |
|
| Dividends | 13,184 |
| 12,071 |
| 10,764 |
| 10,316 |
| 9,153 |
| 9,161 |
|
| | | | | | | |
| Other Data | | | | | | |
| Gross margin - % of sales | 24.8 | % | 22.3 | % | 21.4 | % | 20.8 | % | 17.7 | % | 14.3 | % |
| Operating margin - % of sales | 9.9 | % | 6.8 | % | 5.2 | % | 3.9 | % | 0.6 | % | (3.6 | )% |
| Effective tax rate - % | 32.9 | % | 22.3 | % | 29.6 | % | 29.0 | % | (29.2 | )% | 39.3 | % |
| Non-cash working capital | $ | 68,769 |
| $ | 97,479 |
| $ | 81,976 |
| $ | 58,791 |
| $ | 49,120 |
| $ | 39,426 |
|
| Debt as a % of total capital | 5.0 | % | 5.1 | % | 5.5 | % | 5.9 | % | 6.1 | % | 6.4 | % |
| Return on: | | | | | | |
| Average shareholders' equity - % | 16.6 | % | 13.7 | % | 8.1 | % | 5.8 | % | 1.4 | % | (3.1 | )% |
Average invested capital(4)- % | 12.7 | % | 8.8 | % | 6.0 | % | 4.3 | % | 0.6 | % | (3.4 | )% |
| Dividend yield at year-end - % | 1.2 | % | 0.9 | % | 1.1 | % | 1.4 | % | 2.6 | % | 2.3 | % |
| Book value per share | 14.16 |
| 13.17 |
| 12.30 |
| 11.81 |
| 11.57 |
| 11.66 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal Year |
| (In thousands, except per share data and percentages) | | 2020 | | 2019 | | 2018(1) | | 2017(2)(3) | | 2016 |
| Results of Operations Data | | | | | | | | | | |
| Net sales | | $ | 1,387,439 |
| | $ | 1,402,637 |
| | $ | 1,326,173 |
| | $ | 1,114,533 |
| | $ | 981,189 |
|
| Gross profit | | 318,959 |
| | 293,565 |
| | 333,518 |
| | 292,023 |
| | 243,570 |
|
| Operating income | | 87,848 |
| | 67,284 |
| | 114,284 |
| | 122,225 |
| | 97,393 |
|
| Net earnings | | 61,914 |
| | 45,694 |
| | 79,488 |
| | 85,790 |
| | 65,342 |
|
| Earnings per share - basic | | 2.34 |
| | 1.64 |
| | 2.79 |
| | 2.98 |
| | 2.25 |
|
| Earnings per share - diluted | | 2.32 |
| | 1.63 |
| | 2.76 |
| | 2.97 |
| | 2.22 |
|
| Cash dividends per share | | 0.7125 |
| | 0.6475 |
| | 0.5775 |
| | 0.5150 |
| | 0.4550 |
|
| Balance Sheet Data | | | | | | | | | | |
| Total assets | | 1,128,991 |
| | 1,068,168 |
| | 1,022,320 |
| | 784,658 |
| | 657,440 |
|
| Long-term debt | | 217,900 |
| | 245,724 |
| | 215,860 |
| | 65,400 |
| | 20,400 |
|
| Shareholders' equity | | 516,778 |
| | 496,317 |
| | 511,355 |
| | 470,577 |
| | 406,195 |
|
| Other Data | | | | | | | | | | |
| Gross profit as a percentage of sales | | 23.0 | % | | 20.9 | % | | 25.1 | % | | 26.2 | % | | 24.8 | % |
| Operating income as a percentage of sales | | 6.3 | % | | 4.8 | % | | 8.6 | % | | 11.0 | % | | 9.9 | % |
Return on average invested capital(4) | | 8.4 | % | | 5.6 | % | | 9.3 | % | | 14.3 | % | | 12.7 | % |
| |
(1) | Includes the acquisition of AlumicorEFCO in November 2013.June 2017. |
| |
(2) | Fiscal 2012 included2017 contained 53 weeks. Each of the other periods presented includedcontained 52 weeks. |
| |
(3) | Includes the acquisition of GlassecSotawall in November 2010.December 2016. |
| |
(4) | [OperatingReturn on average invested capital is a non-GAAP measure that we define as [operating income x .65]0.75]/average invested capitalcapital. 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. |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This discussion 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” 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.
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 certain technologies involving the design and development of value-added glass solutions for enclosing commercial buildings and framing art.metal products and services. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services Architectural Framing Systems and Large-Scale Optical Technologies (LSO).
The following items highlightDuring fiscal 2020, we continued to focus on strategies to diversify and strengthen our revenue streams, through geographies, markets and project sizes served, in addition to focusing on good project selection, in order to improve the resultsstability of our business throughout an economic cycle. We also focused on driving productivity, good cost management and integration/synergy activities, throughout our operations. We continue to execute a balanced capital allocation approach to invest in the business for fiscal 2016:growth and margin expansion while also returning capital to shareholders.
Fiscal 2020 summary of results:
Consolidated net sales increased 5were $1.4 billion, a decrease of 1 percent over fiscal 2015, or 7 percent on a constant currency basis, which is a non-GAAP measure. 2019.
Operating income increased 53was $87.8 million, an increase of 31 percent over lastfrom $67.3 million in the prior year. All four segments grew revenue and earnings.
Diluted EPS was $2.22,$2.32, compared to $1.72$1.63 in the prior year, which includedan increase of 42 percent.
Adjusted operating income was $90.0 million, a $0.22 per share positive impact from an energy-efficient tax credit. Excluding this tax credit, fiscal 2016decrease of 22.6 percent compared to the prior year, and adjusted diluted EPS increased 48was $2.38 in fiscal 2020, a decrease of 22.3 percent overcompared to the prior year. Refer to the table below for details of these adjusted amounts.
Consolidated backlog was $508.0 million at February 27, 2016, up 4 percent over fiscal 2015.
Results of Operations
Net Sales
|
| | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | 2016 | | 2015 | | 2014 | | 2016 vs. 2015 | | 2015 vs. 2014 |
| Net sales | $ | 981,189 |
| | $ | 933,936 |
| | $ | 771,445 |
| | 5.1 | % | | 21.1 | % |
Fiscal 2016 ComparedAdjusted operating income and adjusted earnings per diluted share (adjusted diluted EPS) are supplemental non-GAAP measures provided by the Company to Fiscal 2015
Net sales in fiscal 2016 improved by 5.1 percent, or 7.0 percentassess performance on a constant currencymore comparable basis mainly due to pricing and volume growth resulting from strong commercial construction activity in the U.S, partially offsetperiod-to-period by declines in the commercial construction markets in Brazil and Canada. The Architectural Glass segment drove approximately 44 percentexcluding amounts that management does not consider part of the growth this year, and the Architectural Services segment drove approximately 32 percent of the growth, with nearly all of the remainder coming from the domestic Architectural Framing segment businesses.
Constant currency revenue excludes the impact of fluctuations in foreign currency on our international operations. Constant currency percentages are calculated by converting prior-period local currency results using the average monthly exchange rate and comparing the adjusted amount to current period reported results. We believe constant currency information provides valuable supplemental information regarding our core operating results,results. Management uses these non-GAAP measures to evaluate the Company’s historical and prospective financial performance, measure operational profitability on a consistent with how we evaluate our performance. We also referbasis, and provide enhanced transparency to constant currency measures elsewhere in this report.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 measures for comparison with other companies.
|
| | | | | | | | | | | | | | | | |
| 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 29, 2020 | | March 2, 2019 | | February 29, 2020 | | March 2, 2019 |
| Operating income | | $ | 87,848 |
| | $ | 67,284 |
| | $ | 2.32 |
| | $ | 1.63 |
|
| Cooperation agreement advisory costs | | 2,776 |
| | — |
| | 0.10 |
| | — |
|
| Acquired EFCO project matters | | (635 | ) | | 40,948 |
| | (0.02 | ) | | 1.46 |
|
| Amortization of short-lived acquired intangibles | | — |
| | 4,894 |
| | — |
| | 0.17 |
|
| Impairment charge | | — |
| | 3,141 |
| | — |
| | 0.11 |
|
| Income tax impact on above adjustments | | N/A |
| | N/A |
| | (0.02 | ) | | (0.41 | ) |
| Adjusted operating income | | $ | 89,989 |
| | $ | 116,267 |
| | $ | 2.38 |
| | $ | 2.96 |
|
Results of Operations
Net Sales
|
| | | | | | | | | | | | | | | | | | |
| (Dollars in thousands) | | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
| Net sales | | $ | 1,387,439 |
| | $ | 1,402,637 |
| | $ | 1,326,173 |
| | (1.1 | )% | | 5.8 | % |
Fiscal 20152020 Compared to Fiscal 20142019
Sales increased by 21.1 percent over fiscal 2014 primarily from increasedNet sales volume in our architectural-based segments, due to increased commercial construction activity in the U.S. and the inclusion of our Canadian storefront business acquired late in fiscal 2014. The2020 decreased by 1.1 percent compared to fiscal 2019, driven by expected project timing-related decreases within the Architectural GlassServices segment accounted for approximately 32 percent ofand by lower volumes at certain businesses within the growth, and the domestic Architectural Framing Systems segment, provided approximately 29partially offset by improved volume in the Architectural Glass segment.
Fiscal 2019 Compared to Fiscal 2018
Net sales in fiscal 2019 increased by 5.8 percent of the growth, with an additional 21 percent attributablecompared to the inclusion of the Canadian storefront business. The remaining growth came fromfiscal 2018, driven by strong project execution in the Architectural Services segment. Currency fluctuation did not havesegment, as well as growth from our Architectural Framing segment, primarily due to the addition of EFCO (acquired in June 2017) for the full period, partially offset by a significant impact on our sales decline in fiscal 2015.the Architectural Glass segment.
Performance
The relationship between various components of operations, as a percentage of net sales, is illustrated below for the past three fiscal years.
provided below.
| | | (Percentage of net sales) | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 |
| Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | 75.2 |
| | 77.7 |
| | 78.6 |
| | 77.0 |
| | 79.1 |
| | 74.9 |
|
| Gross profit | 24.8 |
| | 22.3 |
| | 21.4 |
| | 23.0 |
| | 20.9 |
| | 25.1 |
|
| Selling, general and administrative expenses | 14.9 |
| | 15.5 |
| | 16.2 |
| | 16.7 |
| | 16.1 |
| | 16.5 |
|
| Operating income | 9.9 |
| | 6.8 |
| | 5.2 |
| | 6.3 |
| | 4.8 |
| | 8.6 |
|
| Other income (expense), net | — |
| | 0.2 |
| | — |
| |
| Interest and other expense, net | | | 0.6 |
| | 0.6 |
| | 0.3 |
|
| Earnings before income taxes | 9.9 |
| | 7.0 |
| | 5.2 |
| | 5.7 |
| | 4.2 |
| | 8.3 |
|
| Income tax expense | 3.3 |
| | 1.6 |
| | 1.6 |
| | 1.3 |
| | 0.9 |
| | 2.3 |
|
| Net earnings | 6.7 | % | | 5.4 | % | | 3.6 | % | | 4.5 | % | | 3.3 | % | | 6.0 | % |
| Effective income tax rate | 32.9 | % | | 22.3 | % | | 29.6 | % | | 22.4 | % | | 22.1 | % | | 27.7 | % |
Fiscal 20162020 Compared to Fiscal 20152019
Gross profit was 24.823.0 percent in fiscal 2016,2020, an improvementincrease of 250210 basis points from fiscal 2015, primarily due to improved pricing2019. 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 mix, as well as productivity and volumereduced operating leverage across all architectural-based segments.in the Architectural Services segment, based on timing of project activity.
Selling, general and administrative (SG&A) expense for fiscal 20162020 was 14.916.7 percent, a decreasean increase of 60 basis points despite an increase of $1.2 million from fiscal 2015, as a result of expense discipline relative2019. This was primarily driven by costs for outside advisors and legal fees, including cooperation agreement advisory costs, in addition to sales growth across our segments.higher compensation and related costs compared to the prior year.
The effective tax rate for fiscal 20162020 was 32.922.4 percent, compared to 22.322.1 percent in fiscal 2015. After excluding the 990 basis point benefit2019, due to an energy-efficient tax credit earnedthe impact of state taxes.
Fiscal 2019 Compared to Fiscal 2018
Gross profit was 20.9 percent in fiscal 2015, however,2019, a decline of 420 basis points from fiscal 2018, driven by $40.9 million of project-related charges on certain contracts acquired with the purchase of EFCO, higher operating costs in the Architectural Glass segment and negative leverage on reduced volumes and mix in the Architectural Framing segment, partially offset by volume leverage and good project performance in the Architectural Services segment.
SG&A expense for fiscal 2019 was 16.1 percent, a decrease of 40 basis points but an increase of $7.0 million from fiscal 2018. This was due to the inclusion of a full year of expense for EFCO (acquired in our tax rate was 70the second quarter of fiscal 2018), partially offset by lower amortization on acquired intangible assets.
Interest and other expenses increased by 30 basis points over the prior year, due to changesan increase in state income tax laws combined withthe average variable interest rate on our debt and a higher percentage of earnings in the U.S., where the tax rate is higher than in foreign jurisdictions.average outstanding debt balance throughout fiscal 2019, compared to fiscal 2018.
Fiscal 2015 Compared to Fiscal 2014
Gross profit improved 90 basis points, due to the impact of operating leverage on increased volume and improved pricing within our Architectural Glass and Architectural Framing Systems segments. This was partially offset by manufacturing cost overruns in the Architectural Services segment, increased aluminum costs impacting the Architectural Framing Systems segment, and costs to restart the Utah facility in the Architectural Glass segment, all of which occurred in fiscal 2015.
SG&A expense increased $20 million, but declined by 70 basis points from fiscal 2014. The main contributor to the increased SG&A spend in fiscal 2015 was the addition of our Canadian acquisition. In addition, we had increased incentive compensation and sales commissions on improved results and write-down of certain assets acquired in our window business in fiscal 2014.
Our effective tax rate for fiscal 20152019 was 22.322.1 percent, which includes a $6.4 million tax benefit from an energy-efficient investment credit. Excluding this credit, our effective taxdecline of 560 basis points compared to a rate would have been 32.2%of 27.7 percent in fiscal 2015, compared to 29.6%2018, driven by a full year of benefits from the U.S. Tax Cuts and Jobs Act (the Act), enacted in December 2017, as well as increased research and development tax credits in fiscal 2014, due to a lesser net benefit from tax reserve adjustments in fiscal 2015.2019.
Segment Analysis
Architectural Framing Systems
|
| | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
| Net sales | | $ | 686,596 |
| | $ | 720,829 |
| | $ | 677,198 |
| | (4.7 | )% | | 6.4 | % |
| Operating income | | 36,110 |
| | 49,660 |
| | 59,031 |
| | (27.3 | )% | | (15.9 | )% |
| Operating margin | | 5.3 | % | | 6.9 | % | | 8.7 | % | | | | |
Fiscal 2020 Compared to Fiscal 2019. Net sales decreased 4.7 percent, or $34.2 million, from fiscal 2019, primarily due to lower volumes as a result of certain customer-driven schedule delays. Operating margin declined 160 basis points from fiscal 2019, reflecting the impact of lower volumes and certain operational difficulties negatively impacting customer deliveries in two of the segment's businesses, which have been addressed.
Fiscal 2019 Compared to Fiscal 2018. Net sales improved 6.4 percent, or $43.6 million, over fiscal 2018. The inclusion of EFCO for the full fiscal year contributed approximately 60 percent of the growth. Remaining growth was driven by increased order activity in our other businesses within this segment. Operating margin declined 180 basis points over fiscal 2018, driven by the inclusion of a full year of EFCO at lower operating margins. In addition, we recorded a $3.1 million impairment charge on an indefinite-lived intangible asset at EFCO during fiscal 2019.
Architectural Glass
| | | (In thousands) | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
| Net sales | $ | 377,713 |
| | $ | 346,471 |
| | $ | 293,810 |
| | $ | 387,191 |
| | $ | 367,203 |
| | $ | 384,137 |
| | 5.4 | % | | (4.4 | )% |
| Operating income | 35,504 |
| | 16,431 |
| | 3,861 |
| | 20,760 |
| | 16,503 |
| | 32,764 |
| | 25.8 | % | | (49.6 | )% |
| Operating margin | 9.4 | % | | 4.7 | % | | 1.3 | % | | 5.4 | % | | 4.5 | % | | 8.5 | % | | | | |
Fiscal 20162020 Compared to Fiscal 2015. 2019. Fiscal 20162020 net sales improved 9.0increased 5.4 percent, or $20.0 million, over the prior year, or 12.2 percent on a constant currency basis, primarily due to improved pricing,volume and mix, and volumewith lower large project revenue due to increased foreign competition, offset by growth in mid-size projects. Operating margin increased 90 basis points for the U.S.fiscal year ended 2020 compared to the prior year period, as a result of the strong U.S. construction market, partially offset by declines in volume and mix in our Brazilian operation and lower export sales.
Operating margin improved 470 basis points, doubling the fiscal 2015 operating margin, with improvement driven by pricing and mix, as well as strong operational performancefactory productivity and volume leverage in the U.S., partially offset by the impact of ongoing challenging Brazilian economic conditions.
Fiscal 2015 Compared to Fiscal 2014. Fiscal 2015 net sales improved 17.9 percent over fiscal 2014 primarily due to increased volume as a result of commercial construction market strength and somecost control. This improvement in pricing. Currency fluctuation did not have a significant impact on our results in fiscal 2015.
Operating margin improved 340 basis points due to operating leverage on volume growth and improved pricing. The segment also demonstrated positive manufacturing productivity that was partially offset by inefficiencies experienced160 basis points of start-up costs related to our new manufacturing facility for the segment's small projects growth initiative. This facility is now fully operational.
Fiscal 2019 Compared to Fiscal 2018. Fiscal 2019 net sales decreased 4.4 percent, or $16.9 million, over fiscal 2018 due to changes in timing of customer orders, as well as volume declines stemming from operational challenges in the segment expanded its workforcesecond and third fiscal quarters. Operating margin declined 400 basis points, largely due to increased labor costs, lower productivity and higher cost of quality due to challenges in ramping-up production in a tight labor market to meet demandhigher than expected order intake and also by costs incurred to restartcustomer demand. In the Utah facility.second half of fiscal 2019, we made progress on improving productivity and controlling costs.
Architectural Services
| | | (In thousands) | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
| Net sales | $ | 245,935 |
| | $ | 230,650 |
| | $ | 203,351 |
| | $ | 269,140 |
| | $ | 286,314 |
| | $ | 213,757 |
| | (6.0 | )% | | 33.9 | % |
| Operating income | 11,687 |
| | 7,442 |
| | 4,479 |
| | 23,582 |
| | 30,509 |
| | 10,420 |
| | (22.7 | )% | | 192.8 | % |
| Operating margin | 4.8 | % | | 3.2 | % | | 2.2 | % | | 8.8 | % | | 10.7 | % | | 4.9 | % | | | | |
Fiscal 20162020 Compared to Fiscal 2015. 2019. Net sales improved 6.6decreased 6.0 percent, over the prior year, driven by volume growth dueor $17.2 million, compared to increased commercial construction activity in the U.S. Operating margin improved 160 basis points over the prior year, as a result of continued focuslower volumes due to timing of project activity. Operating margin decreased 190 basis points over the prior year, due primarily to reduced leverage on the lower project selection, driving improvedvolume and project margins, and good execution.mix.
Fiscal 20152019 Compared to Fiscal 2014. 2018. Net sales improved 13.4increased 33.9 percent, or $72.6 million, over fiscal 20142018, due to volume fromstrong project timing and a general increase in project activityexecution on stronger end markets.maturing projects. Operating margin improved 100 basis points as a result of operating leverage on the increased volume and increasing project margins due to our focus on project selection.
Architectural Framing Systems
|
| | | | | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| Net sales | $ | 308,593 |
| | $ | 298,395 |
| | $ | 216,059 |
|
| Operating income | 31,911 |
| | 21,808 |
| | 14,930 |
|
| Operating margin | 10.3 | % | | 7.3 | % | | 6.9 | % |
Fiscal 2016 Compared to Fiscal 2015. Net sales improved 3.4 percent over fiscal 2015, or 6.0 percent on a constant currency basis, on volume growth from strong U.S. construction markets, and improved pricing and mix in our U.S. businesses, partially offset by volume weakness in our Canadian business.
Operating margin improved 300580 basis points over fiscal 2015, driven by improved pricing and mix, lower raw material costs and volume leverage in the U.S., partially offset by the volume weakness in our Canadian business.
Fiscal 2015 Compared to Fiscal 2014. Fiscal 2015 net sales increased 38.1 percent over fiscal 2014. Approximately two-thirds of this growth was attributable to double-digit volume increases at our U.S. businesses, with the remainder coming from the inclusion of our Canadian storefront business acquired late in fiscal 2014. Currency fluctuation did not have a significant impact on our results in fiscal 2015.
Fiscal 2015 operating margin improved 40 basis pointsprior year, due to volume leverage and good execution in our U.S. businesses, slightly offset by the negative effect of higher aluminum costs and the impact of soft Canadian markets on our Canadian storefront business in the first half of the year.strong project performance.
Large-Scale Optical Technologies (LSO)
| | | (In thousands) | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 | | 2020 vs. 2019 | | 2019 vs. 2018 |
| Net sales | $ | 88,541 |
| | $ | 87,693 |
| | $ | 81,127 |
| | $ | 87,911 |
| | $ | 88,493 |
| | $ | 88,303 |
| | (0.7 | )% | | 0.2 | % |
| Operating income | 22,963 |
| | 21,954 |
| | 21,252 |
| | 22,642 |
| | 23,003 |
| | 22,000 |
| | (1.6 | )% | | 4.6 | % |
| Operating margin | 25.9 | % | | 25.0 | % | | 26.2 | % | | 25.8 | % | | 26.0 | % | | 24.9 | % | | | | |
Fiscal 20162020 Compared to Fiscal 2015. 2019. Net sales in our LSO segment increased 1.0 percent overand operating margin were largely consistent with the prior year, as a result of an improved mix of value-added productswith good cost control and stable demand. Operatingoperational performance.
Fiscal 2019 Compared to Fiscal 2018. Net sales were consistent with the prior year and operating margin improved 90110 basis points over the prior year, asdriven by a result of improved product mix$1.0 million gain from an insurance recovery and stronggood operational performance.
Fiscal 2015 Compared to Fiscal 2014. Fiscal 2015 net sales were up 8.1 percent compared to fiscal 2014 due to a positive mix of higher value-added products on relatively flat volumes. Operating margin declined 120 basis points as the impact of the strong mix of value-added products was offset by increased incentive compensation and investments in new product development.
Consolidated Backlog
Backlog represents the dollar amount of revenues we expect to recognize in the near-term from firm contracts or orders. We use backlog as one of the metrics to evaluate near-term sales trends in our business. Backlog is not a term defined under generally accepted accounting principles and is not a measure of contract profitability. Backlog should not be used as the sole indicator of our future revenue and earnings.
We include a project within our backlog at the time a signed contract or a firm purchase order is received, generally as a result of a competitive bidding process. Backlog by reporting segment was as follows:
|
| | | | | | | |
| (In thousands) | February 27, 2016 | | February 28, 2015 |
| Architectural Glass | $ | 71,798 |
| | $ | 137,432 |
|
| Architectural Services | 320,351 |
| | 287,473 |
|
| Architectural Framing Systems | 123,027 |
| | 77,666 |
|
| Large-Scale Optical | 2,278 |
| | 2,107 |
|
| Intersegment eliminations | (9,438 | ) | | (13,886 | ) |
| Total backlog | $ | 508,016 |
| | $ | 490,792 |
|
In our Architectural Glass segment, additional capacity and improved productivity have driven shorter lead times for customers, resulting in lower backlog. We have seen, and expect to continue to see, an increased portion of our revenues from shorter lead-time work that we book and ship within the same period. These book-and-ship sales are not included in our backlog within the period.
We expect approximately $407 million, or 80 percent, of our February 27, 2016 backlog to be recognized in fiscal 2017, with the balance to be recognized in fiscal 2018.
Liquidity and Capital Resources
| | | (Cash effect, in thousands) | 2016 | | 2015 | | 2014 | |
| (In thousands) | | | 2020 | | 2019 | | 2018 |
| Operating Activities | | | | | | | | | | | |
| Net cash provided by operating activities | $ | 123,951 |
| | $ | 68,563 |
| | $ | 52,921 |
| | $ | 107,262 |
| | $ | 96,423 |
| | $ | 127,463 |
|
| Investing Activities | | | | | | | | | | | |
| Capital expenditures | (42,037 | ) | | (27,220 | ) | | (41,852 | ) | | (51,428 | ) | | (60,717 | ) | | (53,196 | ) |
| Net (purchases) sales of marketable securities | (31,767 | ) | | 804 |
| | 26,458 |
| |
| Change in restricted investments, net | — |
| | 2,532 |
| | 23,915 |
| |
| Acquisition of businesses and intangibles, net of cash acquired | — |
| | — |
| | (53,301 | ) | |
| Proceeds on sale of property | | | 5,307 |
| | 12,333 |
| | 1,394 |
|
| Acquisition of business and intangibles | | | — |
| | — |
| | (182,849 | ) |
| Financing Activities | | | | | | | | | | | |
| (Payments) borrowings on line of credit, net | | | (177,500 | ) | | 30,000 |
| | 149,960 |
|
| Proceeds from issuance of term debt | | | 150,000 |
| | — |
| | — |
|
| Repurchase and retirement of common stock | (24,911 | ) | | (6,894 | ) | | — |
| | (25,140 | ) | | (43,326 | ) | | (33,676 | ) |
| Dividends paid | (13,184 | ) | | (12,071 | ) | | (10,764 | ) | | (18,714 | ) | | (17,864 | ) | | (16,393 | ) |
Operating Activities. Cash provided by operating activities was $124.0$107.3 million in fiscal 2016,2020, an increase of $55.4$10.8 million overfrom fiscal 2015. In all years presented, operating cash flows were positively impacted2019 due to improved earnings, offset by increased income as compared to the respective prior-year period. In fiscal 2016, we also experienced improved cash from operating activities compared to fiscal 2015 as a result of continued focus on working capital management.timing.
Non-cash working capital (current assets, excluding cash and short-term securities, less current liabilities, excluding current portion of long-term debt) was $68.8 million at February 27, 2016, compared to $97.5 million at February 28, 2015, and $82.0 million at March 1, 2014. The decline in fiscal 2016 is a result of our continued efforts regarding working capital management, and timing of activity. The increase in fiscal 2015, compared to fiscal 2014, was due to our investment in working capital necessary to support sales growth.
Investing Activities. Net cash used in investing activities was $77.9$47.0 million in fiscal 2016, $24.52020, compared to $53.7 million in fiscal 20152019, with the year-over-year decline largely due to lower capital expenditures during fiscal 2020. In fiscal 2020, we benefited from the sale of an Architectural Framing manufacturing facility in Toronto, and $44.0 million in fiscal 2014. In2019, we benefited from the current year, we invested excess cash in short-term marketable securities, and made capital expenditures focused primarily on improving manufacturing productivity and on increasing capacity, including adding anodize finishing capacity within our Architectural Framing segment.
In fiscal 2015, capital investments were made mainly to increase productivity and capacity and improve product capabilities.
In fiscal 2014, we made capital investments for productivity and product capabilities, including a new state-of-the-art coater in oursale of an Architectural Glass segment. We reduced our restricted investments by $23.9 million and our investmentsmanufacturing facility in marketable securities by $26.5 million to fund acquisitions as part of our strategy to grow through new products and new geographies. To that end, we made acquisitions in fiscal 2014 of the assets of a window fabrication business and of the outstanding shares of Alumicor Limited in Canada. Both acquisitions are included within the Architectural Framing Systems segment.Utah.
We estimate fiscal 2017 capital expenditures to be $50 to $60 million, which we expect will be focused on increasing product capabilities, in particular on expanding capabilities in the Architectural Glass segment to fabricate oversized glass. Capital expenditures will also be made to continue to increase manufacturing productivity and capacity.
We continue tocontinually review our portfolio of businesses and their assets in comparison toand how they support our internal strategicbusiness 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, fully divest and/or sell parts of our current businesses.
Financing Activities. Cash used in financing activities was $74.5 million in fiscal 2020, compared to $32.3 million in fiscal 2019. We paid dividends totaling $13.2$18.7 million in fiscal 2016. Additionally, we2020 and repurchased 575,000686,997 shares under our authorized share repurchase program, during fiscal 2016, forat a total cost of $24.9 million and we$25.1 million. We repurchased 203,5091,257,983 shares under the program duringin fiscal 2015, for a total cost of $6.9 million.2019 and 702,299 shares under the program in fiscal 2018. We have repurchased a total of 3,057,6325,954,912 shares, at a total cost of $61.5$174.4 million, since the 2004 inception of this program. We have remaining authority to repurchase 1,192,3682,295,088 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 $125.0 million committed revolvingDuring the second quarter of fiscal 2020, we amended the borrowing capacity of our prior credit facility to $235 million with a maturity of June 2024, and we established a $150 million term loan, maturing in June 2020, as further described in Note 78 of the Notes to Consolidated Financial Statements. No borrowings wereSubsequent to the end of the year, the Company extended its $150 million term loan maturity to April 2021. As of February 29, 2020, $47.5 million was outstanding under thisthe revolving credit facility. As defined within the credit facility, as of February 27, 2016 or February 28, 2015.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 February 27, 2016, the Company was29, 2020, we were in compliance with theboth financial covenants of the credit facility. Our debt-to-total-capital ratio was 5.0 percent at February 27, 2016 and 5.1 percent at February 28, 2015.covenants.
Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of February 27, 2016:29, 2020:
| | | | Payments Due by Fiscal Period | | Payments Due by Fiscal Period |
| (In thousands) | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Long-term debt obligations | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,400 |
| | $ | 15,000 |
| | $ | 20,400 |
| |
| Debt obligations | | | $ | 5,400 |
| | $ | 152,000 |
| | $ | 1,000 |
| | $ | — |
| | $ | 47,500 |
| | $ | 12,000 |
| | $ | 217,900 |
|
| Operating leases (undiscounted) | 8,329 |
| | 7,773 |
| | 7,068 |
| | 5,775 |
| | 3,319 |
| | 2,663 |
| | 34,927 |
| | 12,742 |
| | 11,037 |
| | 10,147 |
| | 8,151 |
| | 6,319 |
| | 12,364 |
| | 60,760 |
|
| Purchase obligations | 200,543 |
| | 43,281 |
| | 1,005 |
| | 197 |
| | — |
| | — |
| | 245,026 |
| | 163,791 |
| | 1,718 |
| | 1,709 |
| | 897 |
| | 770 |
| | 1,540 |
| | 170,425 |
|
| Total cash obligations | $ | 208,872 |
| | $ | 51,054 |
| | $ | 8,073 |
| | $ | 5,972 |
| | $ | 8,719 |
| | $ | 17,663 |
| | $ | 300,353 |
| | $ | 181,933 |
| | $ | 164,755 |
| | $ | 12,856 |
| | $ | 9,048 |
| | $ | 54,589 |
| | $ | 25,904 |
| | $ | 449,085 |
|
In addition to the committed revolving credit facility discussed above, we also have industrial revenue bond obligations of $20.4 million that mature in fiscal years 2021 through 2043.
From time to time, weWe acquire the use of certain assets through operating leases, such as warehouses, vehicles, forklifts,manufacturing equipment, office equipment, hardware, software and some manufacturing equipment. Manyvehicles. While many of these operating leases have termination penalties. However, because the assets are used in the conduct of our business operations, it is unlikely that any significant portion of these operating leases would be terminated prior to the normal expiration of their lease terms. Therefore,penalties, we consider the risk related to termination penalties to be minimal.
We have purchasePurchase obligations forin the table above relate to raw material commitments and capital expenditures.
We expect to make contributions of $1.0approximately $0.7 million to our defined-benefit pension plans in fiscal 2017,2021, which will equal or exceed our minimum funding requirements.
��
As of February 27, 2016,29, 2020, we had reserves of $4.4$3.8 million and $1.6$0.7 million for long-term unrecognized tax benefits and environmental liabilities, respectively. We expect approximately $0.9$0.4 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 February 27, 2016,29, 2020, we had ongoing letters of credit of $24.7 million related to industrial revenue bonds, and construction contracts and insurance collateral that expire in fiscal years 2021 to 2032 and that reduce availability of fundsborrowing capacity under our committedthe revolving credit facility. The letters of credit by expiration period are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Commitment Expiration Per Fiscal Period |
| (In thousands) | 2017 | | 2018 | | 2019 | | 2020 | | 2020 | | 2021 | | Total |
| Standby letters of credit | $ | 20,982 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,500 |
| | $ | 23,482 |
|
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 February 27, 2016, $134.529, 2020, $487.5 million of our backlog was bonded by performance bonds with a face value of $328.6 million. Performance$913.9 million. These bonds do not have stated expiration dates, as we are released from the bonds upon completion of the contract. We have nevernot been required to make any payments related tounder these performance bonds with respect to any of our current portfolio ofexisting businesses.
We had total cash and short-term marketable securities of $90.6$15.0 million, and $101.5$162.8 million available under our committed revolving credit facility, at February 27, 2016. We29, 2020. Due to our ability to generate cash from operations and our available sources of borrowing 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 paymentsfor at least the next 12 months. We also believe we will continue to be in compliance with debt covenants over the next fiscal year.
COVID-19 Consideration. While we believe we have adequate sources of liquidity to continue to fund our business for at least the next 12 months.months, the extent to which the evolving COVID-19 situation may impact our results of operations or liquidity is uncertain. To date, we have experienced some 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 and we temporarily shut down our factories in this segment to comply with government "stay in place" orders. We expect this global pandemic to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict. At this time, we do not expect that the impact from the coronavirus outbreak will have a significant effect on our liquidity. We are proactively taking steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses and capital expenditures. 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 results of operations, liquidity or financial position. To the extent that our customers and suppliers are adversely impacted by the coronavirus 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 liquidity.
Off-balance Sheet Arrangements. With the exception of operating leases, we hadWe have no off-balance sheet financing arrangements at February 27, 201629, 2020 or February 28, 2015.March 2, 2019.
Outlook
The following statementsWe are basednot providing annual guidance for fiscal 2021 at this time, given the rapidly evolving COVID-19 pandemic and the uncertain potential impact on our current expectations for fiscal 2017 results. These statements are forward-looking, and actual results may differ materially.business.
Revenue growth of approximately 10 percent over fiscal 2016.
Gross margin of at least 26 percent and operating margin of approximately 11 percent.
Earnings per share of $2.65 to $2.80.
Capital expenditures of approximately $50 to $60 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.
TheWe consider the following items in our consolidated financial statements to require significant estimation or judgment: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 withinover time and 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 operate under long-term, fixed-price contracts, representing approximately 31 percent of our Architectural Services segment, which enters into fixed-price installation contracts.total revenue in fiscal 2020. The contracts clearly specify the enforceable rights of the parties, the consideration and the terms of settlement, and both parties can be expected to satisfy all obligations under the contract. These contracts are typically performed over a 12- to 18-month timeframe, and 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. Recogizing 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 2016, approximately 25 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 impairment -
We evaluate goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. Evaluating goodwill for impairment indicators exist. Step oneinvolves 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 management on a regular basis. We identified that each of our business units represents a reporting unit for the goodwill impairment analysis. This year we elected to bypass the qualitative assessment process comparesand 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. We have seven business units that each representFor our goodwill impairment testing beginning in fiscal 2018, we elected to adopt Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment. As a result of this election, if the carrying amount of a reporting unit for the goodwill impairment analysis. Based on our analysis, thewould be determined to be higher than its estimated fair value, of each reporting unit exceeded its carrying value and, therefore, goodwillan impairment was not indicated.loss is recognized for the excess.
We base our determination of fair value on a discounted cash flow methodology that involves significant judgments aboutjudgment and projections of future performance. Assumptions about future revenues and expenses, capital expenditures and changes in working capital are based on the annual operating plan and long-term business plan 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. Revenues and operating profit beyond our internal planning period are projected to grow at a perpetual growth rate of 3.0%. The discount rate assumption for each reporting unit takesThese plans also take into consideration our assessment of risks inherent in our projections of future cash flows. The discount rate and long-term growth rate assumptions are consistent across reporting units.
Based on our analysis, the estimated fair value of each reporting unit exceeded its carrying value and, therefore, goodwill impairment was not indicated at the end of fiscal 2020. However, the estimated fair value did not exceed carrying value by a significant margin for two reporting units within the Architectural Framing Systems segment, Sotawall and Alumicor, which had goodwill balances of $21.0 million and $14.1 million, respectively, at February 29, 2020. We utilized a discount rate of 9.4 percent in determining the discounted cash flows in our fair value analysis and a long-term growth rate of 3.0 percent. If our discount rate were to increase by 20 basis points, the fair value of these reporting units would fall below carrying value, which would indicate impairment of the goodwill. Additionally, this discounted cash flow analysis is 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, impairment would be indicated at these reporting units, and potentially at our other reporting units. Subsequent to year-end, we have begun to see impacts from COVID-19 that will likely have a negative impact on our forecasted revenue and profitability and this, along with the decline in our stock price and other market conditions, could result in an indication of impairment of goodwill in our first quarter of 2021.
Indefinite-lived intangible assets
We hold intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We evaluate the reasonableness of the useful life and test indefinite-lived intangible assets for impairment annually at our year-end, 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. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. If an impairment loss 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 trademark has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from the asset. This method requires us to estimate the future cash flows of our businessrevenue from the related asset, the appropriate royalty rate, and our weighted-averagethe weighted average cost of capital. The assessment of fair value involves significant judgment and projections about future performance. In determining the discounted future revenue in our fair value analysis, we assumed a discount rate of 9.4 percent, a royalty rate of 1.0 percent, and a long-term growth rate of 3.0 percent. Based on our analysis, the fair value of each of our trade names and trademarks exceeded its carrying amount and impairment was not indicated. We continue to conclude that the useful life 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, due to COVID-19 or otherwise, impairment could be indicated on one our more of our indefinite-lived intangible assets.
Reserves for disputes and claims regarding product liability, warranties and warranties - other 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 also are subject to project management and services.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.
Self-insurance reserves - We obtain commercial insurance for potential losses for general liability, employment practices, workers' compensation, automobile liability, architect's and engineer's errors and omissions risk, product rework and other miscellaneous coverages. A substantial portion of this risk is retained on a self-insured basis through our wholly-owned insurance subsidiary. We establish aalso reserve for estimated ultimate lossesexposures on reportedother claims as they are known and those incurred but not yet reported utilizing actuarial projections.reasonably estimable.
Income taxes - We record a tax provision for the anticipated tax consequences of the reported results of operations. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those deferred tax assets and liabilities are expected to be realized or settled. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws.
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, managementwe actively monitorsmonitor the interest-sensitive components of our balance sheet, primarily available-for-sale equity investments,securities, fixed income securities and debt obligations, toand 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 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 $0.5$1.4 million. The Company'sOur debt exceeded investments exceeded its debt at February 27, 2016,29, 2020, so as interest rates increase, net earnings increase;decrease; as interest rates decrease, net earnings decrease.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 and this could significantlyadversely 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 currently 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, and thusdollars. 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 may enter into minor short durationforward purchase foreign currency contracts, generally with an original maturity date of less than one year, to hedge foreign currency risk.risk (refer to additional discussion within Note 5 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 February 27, 201629, 2020, using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Control - Integrated Framework (2013). The Company's management believes that, as of February 27, 201629, 2020, the Company's internal control over financial reporting was effective based on those criteria.
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 February 27, 201629, 2020.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Apogee Enterprises, Inc.
Minneapolis, MN
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apogee Enterprises, Inc. and subsidiaries (the “Company”"Company") as of February 27, 201629, 2020 and February 28, 2015,March 2, 2019, and the related consolidated results of operations, statements ofincome, comprehensive earnings, statements ofincome, shareholders' equity, and cash flows, and statements of shareholders’ equity for each of the three years in the period ended February 27, 2016. Our audits also included29, 2020, and the financial statement schedulerelated notes and the schedules listed in the Table of ContentsIndex at Item 15. These consolidated15 (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 February 29, 2020 and March 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 29, 2020, 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 statement schedulereporting as of February 29, 2020, 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 24, 2020, 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 consolidatedCompany's financial statements and financial statement schedule 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 Public Company Accounting Oversight Board (United States).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. An audit includesmisstatement, 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 supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
InThe critical audit matters communicated below are matters arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 such consolidated financial statements present fairly, in all material respects,on the financial position of Apogee Enterprises, Inc. and subsidiaries at February 27, 2016 and February 28, 2015, and the results of their operations and their cash flows for each of the three years in the period ended February 27, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements, taken as a whole, presents fairly,and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Net Sales - Revenue Recognition for Long-Term Contracts in all material respects, the information set forth therein.Architectural Services Segment - Refer to Notes 1, 3, and 16 to the consolidated financial statements
Critical Audit Matter Description
The Architectural Services segment, which provides building glass and curtainwall installation services and operates under long-term, fixed-price contracts, accounted for approximately $269 million, or 19 percent of total net sales for the year ended February 29, 2020. 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 have also audited,tested the effectiveness of controls over long-term contract revenue in accordance with the standardsArchitectural Services segment, including those over the estimates of total costs and profit for performance obligations.
We developed an expectation of the Public Company Accounting Oversight Board (United States),amount of total long-term contract revenue in the Company's internal control over financial reporting asArchitectural Services segment based on prior year margins applied to cost of February 27, 2016,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 tested the mathematical accuracy of management’s calculation of long-term contract revenue for the performance obligation.
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 criteria established in Internal Control - Integrated Framework (2013) issued byterms and conditions of each contract, including whether continuous transfer of control to the Committee of Sponsoring Organizationscustomer occurred as progress was made toward fulfillment of the Treadway Commissionperformance obligations.
Compared the transaction prices to the consideration expected to be received based on current rights and our report dated April 25, 2016, expressed an unqualified opinionobligations 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.
Evaluated the estimates of total cost and profit for the performance obligations by:
Observing the work sites and inspecting the progress to completion.
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 - Sotawall and Alumicor Reporting Units - Refer to Notes 1 and 7 to the financial statements
Critical Audit Matter Description
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 bases its determination of fair value of each reporting unit on a discounted cash flow methodology that involves significant judgment and projections about future performance. The determination of the fair value using the discounted cash flow methodology requires management to make significant estimates and assumptions related to forecasts of future revenues, expenses, operating profit, capital expenditures 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. Based on the Company'sCompany’s analysis, the estimated fair value of each reporting unit exceeded its carrying value. However, the estimated fair value did not exceed carrying value by a significant margin for two of the Company’s reporting units within the Architectural Framing Systems segment, Sotawall and Alumicor, which had goodwill balances of $21.0 million and $14.1 million, respectively, at February 29, 2020.
Given the significant estimates and assumptions management makes to estimate the fair value of Sotawall and Alumicor, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of revenues, expenses and operating profit, and the selection of the discount rates for these reporting units, 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 the forecasts of revenues, expenses, operating profit, and the selection of discount rates for the Sotawall and Alumicor 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 estimated fair value of Sotawall and Alumicor, such as controls related to management’s forecasts and selection of the discount rate.
We evaluated management’s ability to accurately forecast revenue, expenses and operating profit by comparing actual results to management’s historical forecasts.
We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal control over financial reporting.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.
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 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, MinnesotaMN
April 25, 201624, 2020
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.
Minneapolis, MN
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 February 27, 2016,29, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 29, 2020, 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 February 29, 2020, of the Company and our report dated April 24, 2020, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company'sCompany’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’sManagement's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’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 Public Company Accounting Oversight Board (United States).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'scompany’s internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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'scompany’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'scompany’s assets that could have a material effect on the financial statements.
Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the 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.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 27, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule listed in the Table of Contents at Item 15 as of and for the year ended February 27, 2016, of the Company and our report dated April 25, 2016 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Minneapolis, MinnesotaMN
April 25, 201624, 2020
CONSOLIDATED BALANCE SHEETS
| | | (In thousands, except per share data) | | February 27,
2016 | | February 28,
2015 | | February 29, 2020 | | March 2, 2019 |
| Assets | | | | | | | | |
| Current assets | | | | | | | | |
| Cash and cash equivalents | | $ | 60,470 |
| | $ | 52,185 |
| | $ | 14,952 |
| | $ | 17,087 |
|
| Short-term available for sale securities | | 30,173 |
| | 327 |
| |
| Restricted cash | | | — |
| | 12,154 |
|
| Receivables, net of allowance for doubtful accounts | | 172,832 |
| | 171,623 |
| | 196,806 |
| | 192,767 |
|
| Inventories | | 63,386 |
| | 61,408 |
| | 71,089 |
| | 78,344 |
|
| Refundable income taxes | | — |
| | 5,115 |
| |
| Deferred tax assets | | 1,820 |
| | 1,359 |
| |
| Costs and earnings on contracts in excess of billings | | | 73,582 |
| | 55,095 |
|
| Other current assets | | 8,112 |
| | 6,958 |
| | 25,481 |
| | 16,451 |
|
| Total current assets | | 336,793 |
| | 298,975 |
| | 381,910 |
| | 371,898 |
|
| Property, plant and equipment, net | | 202,462 |
| | 193,540 |
| | 324,386 |
| | 315,823 |
|
| Available for sale securities | | 12,519 |
| | 10,655 |
| |
| Operating lease right-of-use assets | | | 52,892 |
| | — |
|
| Goodwill | | 73,996 |
| | 75,857 |
| | 185,516 |
| | 185,832 |
|
| Intangible assets | | 19,862 |
| | 23,280 |
| | 140,191 |
| | 148,235 |
|
| Other non-current assets | | 11,808 |
| | 9,750 |
| | 44,096 |
| | 46,380 |
|
| Total assets | | $ | 657,440 |
| | $ | 612,057 |
| | $ | 1,128,991 |
| | $ | 1,068,168 |
|
| Liabilities and Shareholders’ Equity | | | | | | | | |
| Current liabilities | | | | | | | | |
| Accounts payable | | $ | 64,762 |
| | $ | 56,516 |
| | $ | 69,056 |
| | $ | 72,219 |
|
| Accrued payroll and related benefits | | 39,946 |
| | 36,620 |
| | 40,119 |
| | 41,119 |
|
| Accrued self-insurance reserves | | 7,818 |
| | 8,058 |
| |
| Billings in excess of costs and earnings on uncompleted contracts | | | 32,696 |
| | 21,478 |
|
| Operating lease liabilities | | | 11,272 |
| | — |
|
| Current portion long-term debt | | | 5,400 |
| | — |
|
| Other current liabilities | | 29,339 |
| | 25,601 |
| | 118,314 |
| | 92,696 |
|
| Billings in excess of costs and earnings on uncompleted contracts | | 31,890 |
| | 22,233 |
| |
| Accrued income taxes | | 3,626 |
| | — |
| |
| Total current liabilities | | 177,381 |
| | 149,028 |
| | 276,857 |
| | 227,512 |
|
| Long-term debt | | 20,400 |
| | 20,587 |
| | 212,500 |
| | 245,724 |
|
| Unrecognized tax benefits | | 4,441 |
| | 4,477 |
| |
| Long-term self-insurance reserves | | 7,137 |
| | 6,185 |
| |
| Deferred tax liabilities | | 4,972 |
| | 10,652 |
| |
| Non-current operating lease liabilities | | | 43,163 |
| | — |
|
| Non-current self-insurance reserves | | | 22,831 |
| | 21,433 |
|
| Other non-current liabilities | | 36,914 |
| | 38,652 |
| | 56,862 |
| | 77,182 |
|
| Commitments and contingent liabilities (Note 10) | |
| |
| |
| 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 28,683,948 and 29,049,531 shares, respectively | | 9,561 |
| | 9,683 |
| |
| Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 26,443,166 and 27,015,127 shares, respectively | | | 8,814 |
| | 9,005 |
|
| Additional paid-in capital | | 145,528 |
| | 138,575 |
| | 154,016 |
| | 151,842 |
|
| Retained earnings | | 282,477 |
| | 256,538 |
| | 388,010 |
| | 367,597 |
|
| Common stock held in trust | | (837 | ) | | (801 | ) | | (685 | ) | | (755 | ) |
| Deferred compensation obligations | | 837 |
| | 801 |
| | 685 |
| | 755 |
|
| Accumulated other comprehensive loss | | (31,371 | ) | | (22,320 | ) | | (34,062 | ) | | (32,127 | ) |
| Total shareholders’ equity | | 406,195 |
| | 382,476 |
| | 516,778 |
| | 496,317 |
|
| Total liabilities and shareholders’ equity | | $ | 657,440 |
| | $ | 612,057 |
| | $ | 1,128,991 |
| | $ | 1,068,168 |
|
See accompanying notes to consolidated financial statements.
2630
CONSOLIDATED RESULTS OF OPERATIONS
| | | | | Year-Ended | | Year-Ended |
| (In thousands, except per share data) | | February 27,
2016 | | February 28,
2015 | | March 1,
2014 | | February 29, 2020 | | March 2, 2019 | | March 3, 2018 |
| Net sales | | $ | 981,189 |
| | $ | 933,936 |
| | $ | 771,445 |
| | $ | 1,387,439 |
| | $ | 1,402,637 |
| | $ | 1,326,173 |
|
| Cost of sales | | 737,619 |
| | 725,392 |
| | 606,193 |
| | 1,068,480 |
| | 1,109,072 |
| | 992,655 |
|
| Gross profit | | 243,570 |
| | 208,544 |
| | 165,252 |
| | 318,959 |
| | 293,565 |
| | 333,518 |
|
| Selling, general and administrative expenses | | 146,177 |
| | 144,959 |
| | 124,967 |
| | 231,111 |
| | 226,281 |
| | 219,234 |
|
| Operating income | | 97,393 |
| | 63,585 |
| | 40,285 |
| | 87,848 |
| | 67,284 |
| | 114,284 |
|
| Interest income | | 981 |
| | 954 |
| | 827 |
| |
| Interest expense | | 593 |
| | 924 |
| | 1,259 |
| |
| Other (expense) income, net | | (457 | ) | | 1,384 |
| | (87 | ) | |
| Interest and other expense, net | | | 8,098 |
| | 8,622 |
| | 4,404 |
|
| Earnings before income taxes | | 97,324 |
| | 64,999 |
| | 39,766 |
| | 79,750 |
| | 58,662 |
| | 109,880 |
|
| Income tax expense | | 31,982 |
| | 14,483 |
| | 11,780 |
| | 17,836 |
| | 12,968 |
| | 30,392 |
|
| Net earnings | | $ | 65,342 |
| | $ | 50,516 |
| | $ | 27,986 |
| | $ | 61,914 |
| | $ | 45,694 |
| | $ | 79,488 |
|
| Earnings per share - basic | | $ | 2.25 |
| | $ | 1.76 |
| | $ | 0.98 |
| | $ | 2.34 |
| | $ | 1.64 |
| | $ | 2.79 |
|
| Earnings per share - diluted | | $ | 2.22 |
| | $ | 1.72 |
| | $ | 0.95 |
| | $ | 2.32 |
| | $ | 1.63 |
| | $ | 2.76 |
|
| Weighted average basic shares outstanding | | 29,058 |
| | 28,763 |
| | 28,483 |
| | 26,474 |
| | 27,802 |
| | 28,534 |
|
| Weighted average diluted shares outstanding | | 29,375 |
| | 29,374 |
| | 29,374 |
| | 26,729 |
| | 28,082 |
| | 28,804 |
|
See accompanying notes to consolidated financial statements.
2731
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
| | | | | Year-Ended | | Year-Ended |
| (In thousands) | | February 27,
2016 | | February 28,
2015 | | March 1,
2014 | | February 29,
2020 | | March 2,
2019 | | March 3,
2018 |
| Net earnings | | $ | 65,342 |
| | $ | 50,516 |
| | $ | 27,986 |
| | $ | 61,914 |
| | $ | 45,694 |
| | $ | 79,488 |
|
| Other comprehensive (loss) earnings: | | | | | | | | | | | | |
| Unrealized gain (loss) on marketable securities, net of $38, $88 and $(46) of tax expense (benefit), respectively | | 73 |
| | 163 |
| | (83 | ) | |
| Unrealized (loss) gain on foreign currency hedge, net of $-, $(36) and $183 of tax (benefit) expense, respectively | | — |
| | (62 | ) | | 320 |
| |
| Unrealized gain (loss) on pension obligation, net of $347, $(830) and $10 of tax expense (benefit), respectively | | 610 |
| | (1,458 | ) | | 19 |
| |
| Unrealized gain (loss) on marketable securities, net of $67, $17 and $(29) of tax expense (benefit), respectively | | | 257 |
| | 64 |
| | (95 | ) |
| Unrealized (loss) gain on foreign currency hedge, net of $(129), $(172) and $47 of tax (benefit) expense, respectively | | | (423 | ) | | (565 | ) | | 156 |
|
| Unrealized (loss) gain on pension obligation, net of $(124), $72 and $87 of tax (benefit) expense, respectively | | | (405 | ) | | 229 |
| | 284 |
|
| Foreign currency translation adjustments | | (9,734 | ) | | (8,003 | ) | | (6,135 | ) | | (1,364 | ) | | (7,065 | ) | | 6,692 |
|
| Other comprehensive loss | | (9,051 | ) | | (9,360 | ) | | (5,879 | ) | |
| Other comprehensive (loss) earnings | | | (1,935 | ) | | (7,337 | ) | | 7,037 |
|
| Total comprehensive earnings | | $ | 56,291 |
| | $ | 41,156 |
| | $ | 22,107 |
| | $ | 59,979 |
| | $ | 38,357 |
| | $ | 86,525 |
|
See accompanying notes to consolidated financial statements.
2832
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | Year Ended | | Year-Ended |
| (In thousands) | | February 27,
2016 | | February 28,
2015 | | March 1,
2014 | | February 29,
2020 | | March 2,
2019 | | March 3,
2018 |
| Operating Activities | | | | | | | | | | | | |
| Net earnings | | $ | 65,342 |
| | $ | 50,516 |
| | $ | 27,986 |
| | $ | 61,914 |
| | $ | 45,694 |
| | $ | 79,488 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | 31,248 |
| | 29,423 |
| | 26,550 |
| | 46,795 |
| | 49,798 |
| | 54,843 |
|
| Share-based compensation | | 4,923 |
| | 4,793 |
| | 4,661 |
| | 6,607 |
| | 6,286 |
| | 6,205 |
|
| Deferred income taxes | | (6,139 | ) | | 4,274 |
| | (5,280 | ) | | 10,463 |
| | (5,506 | ) | | 3,195 |
|
| Excess tax benefits from share-based compensation | | (4,992 | ) | | (3,236 | ) | | (2,725 | ) | |
| Gain on disposal of assets | | (198 | ) | | (933 | ) | | (1,629 | ) | |
| (Gain) loss on disposal of assets | | | (2,197 | ) | | (2,475 | ) | | 1,037 |
|
| Impairment on intangible assets | | | — |
| | 3,141 |
| | — |
|
| Proceeds from new markets tax credit transaction, net of deferred costs | | — |
| | — |
| | 7,471 |
| | — |
| | 8,850 |
| | — |
|
| Noncash lease expense | | | 12,420 |
| | — |
| | — |
|
| Other, net | | 1,017 |
| | 229 |
| | 51 |
| | (1,516 | ) | | (2,179 | ) | | (1,431 | ) |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Receivables | | (2,918 | ) | | (18,588 | ) | | (19,229 | ) | | (4,217 | ) | | 18,164 |
| | 18,172 |
|
| Inventories | | (2,798 | ) | | (8,660 | ) | | (6,130 | ) | | 7,142 |
| | 5,114 |
| | 10,387 |
|
| Costs and earnings on contracts in excess of billings | | | (18,468 | ) | | (48,712 | ) | | 1,134 |
|
| Accounts payable and accrued expenses | | 17,265 |
| | 12,871 |
| | 18,282 |
| | (375 | ) | | 7,600 |
| | (25,627 | ) |
| Billings in excess of costs and earnings on uncompleted contracts | | 9,657 |
| | (324 | ) | | 1,202 |
| | 11,314 |
| | 9,026 |
| | (16,541 | ) |
| Refundable and accrued income taxes | | 12,589 |
| | (1,091 | ) | | 3,449 |
| | (8,726 | ) | | 3,680 |
| | 315 |
|
| Operating lease liability | | | (10,829 | ) | | — |
| | — |
|
| Other, net | | (1,045 | ) | | (711 | ) | | (1,738 | ) | | (3,065 | ) | | (2,058 | ) | | (3,714 | ) |
| Net cash provided by operating activities | | 123,951 |
| | 68,563 |
| | 52,921 |
| | 107,262 |
| | 96,423 |
| | 127,463 |
|
| Investing Activities | | | | | | | | | | | | |
| Capital expenditures | | (42,037 | ) | | (27,220 | ) | | (41,852 | ) | | (51,428 | ) | | (60,717 | ) | | (53,196 | ) |
| Proceeds from sales of property, plant and equipment | | | 5,307 |
| | 12,333 |
| | 1,394 |
|
| Purchases of marketable securities | | (35,814 | ) | | (6,142 | ) | | (14,562 | ) | | (7,012 | ) | | (9,213 | ) | | (10,244 | ) |
| Sales/maturities of marketable securities | | 4,047 |
| | 6,946 |
| | 41,020 |
| | 7,768 |
| | 6,110 |
| | 10,476 |
|
| Acquisition of businesses and intangibles, net of cash acquired | | — |
| | — |
| | (53,301 | ) | |
| Purchases of restricted investments | | — |
| | — |
| | (36,200 | ) | |
| Sales/maturities of restricted investments | | — |
| | 2,532 |
| | 60,115 |
| |
| Acquisition of business and intangibles | | | — |
| | — |
| | (182,849 | ) |
| Other, net | | (4,052 | ) | | (591 | ) | | 806 |
| | (1,673 | ) | | (2,209 | ) | | 851 |
|
| Net cash used in investing activities | | (77,856 | ) | | (24,475 | ) | | (43,974 | ) | |
| Net cash used by investing activities | | | (47,038 | ) | | (53,696 | ) | | (233,568 | ) |
| Financing Activities | | | | | | | | | | | | |
| Payments on debt, net | | (56 | ) | | (139 | ) | | (10,247 | ) | |
| Shares withheld for taxes, net of stock issued to employees | | (3,254 | ) | | (3,905 | ) | | 710 |
| |
| Excess tax benefits from share-based compensation | | 4,992 |
| | 3,236 |
| | 2,725 |
| |
| Borrowings on line of credit | | | 229,000 |
| | 363,000 |
| | 385,700 |
|
| Proceeds from issuance of term debt | | | 150,000 |
| | — |
| | — |
|
| Payments on line of credit | | | (406,500 | ) | | (333,000 | ) | | (235,740 | ) |
| Repurchase and retirement of common stock | | (24,911 | ) | | (6,894 | ) | | — |
| | (25,140 | ) | | (43,326 | ) | | (33,676 | ) |
| Dividends paid | | (13,184 | ) | | (12,071 | ) | | (10,764 | ) | | (18,714 | ) | | (17,864 | ) | | (16,393 | ) |
| Net cash used in financing activities | | (36,413 | ) | | (19,773 | ) | | (17,576 | ) | |
| Increase (decrease) in cash and cash equivalents | | 9,682 |
| | 24,315 |
| | (8,629 | ) | |
| Other, net | | | (3,160 | ) | | (1,136 | ) | | (1,557 | ) |
| Net cash (used) provided by financing activities | | | (74,514 | ) | | (32,326 | ) | | 98,334 |
|
| (Decrease) increase in cash, cash equivalents and restricted cash | | | (14,290 | ) | | 10,401 |
| | (7,771 | ) |
| Effect of exchange rates on cash | | (1,397 | ) | | (595 | ) | | (673 | ) | | 1 |
| | (519 | ) | | (167 | ) |
| Cash and cash equivalents at beginning of year | | 52,185 |
| | 28,465 |
| | 37,767 |
| |
| Cash and cash equivalents at end of period | | $ | 60,470 |
| | $ | 52,185 |
| | $ | 28,465 |
| |
| Cash, cash equivalents and restricted cash at beginning of year | | | 29,241 |
| | 19,359 |
| | 27,297 |
|
| Cash, cash equivalents and restricted cash at end of year | | | $ | 14,952 |
| | $ | 29,241 |
| | $ | 19,359 |
|
| Noncash Activity | | | | | | | | | | | | |
| Capital expenditures in accounts payable | | $ | 2,737 |
| | $ | 2,656 |
| | $ | 761 |
| | $ | 2,169 |
| | $ | 1,703 |
| | $ | 1,784 |
|
| Deferred payments on acquisition of business | | | — |
| | — |
| | 7,500 |
|
See accompanying notes to consolidated financial statements.
2933
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 | | 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 2, 2013 | | 28,514 |
| | $ | 9,505 |
| | $ | 119,759 |
| | $ | 214,609 |
| | $ | (761 | ) | | $ | 761 |
| | $ | (7,081 | ) | |
| Balance at March 4, 2017 | | | 28,680 |
| | $ | 9,560 |
| | $ | 150,111 |
| | $ | 341,996 |
| | $ | (875 | ) | | $ | 875 |
| | $ | (31,090 | ) | | $ | 470,577 |
|
| Net earnings | | — |
| | — |
| | — |
| | 27,986 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 79,488 |
| | — |
| | — |
| | — |
| | 79,488 |
|
| Unrealized loss on marketable securities, net of $46 tax benefit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (83 | ) | |
| Unrealized gain on foreign currency hedge, net of $183 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 320 |
| |
| Unrealized gain on pension obligation, net of $10 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19 |
| |
| Unrealized loss on marketable securities, net of $29 tax benefit | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (95 | ) | | (95 | ) |
| Unrealized gain on foreign currency hedge, net of $47 tax expense | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 156 |
| | 156 |
|
| Unrealized gain on pension obligation, net of $87 tax expense | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 284 |
| | 284 |
|
| Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6,135 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,692 |
| | 6,692 |
|
| Issuance of stock, net of cancellations | | 245 |
| | 82 |
| | (54 | ) | | 17 |
| | (30 | ) | | 30 |
| | — |
| | 128 |
| | 43 |
| | (186 | ) | | 208 |
| | (47 | ) | | 47 |
| | — |
| | 65 |
|
| Share-based compensation | | — |
| | — |
| | 4,661 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,205 |
| | — |
| | — |
| | — |
| | — |
| | 6,205 |
|
| Tax benefit associated with stock plans | | — |
| | — |
| | 2,598 |
| | — |
| | — |
| | — |
| | — |
| |
| Exercise of stock options | | 328 |
| | 109 |
| | 4,150 |
| | — |
| | — |
| | — |
| | — |
| | 102 |
| | 34 |
| | 800 |
| | — |
| | — |
| | — |
| | — |
| | 834 |
|
| Share repurchases | | | (702 | ) | | (234 | ) | | (3,886 | ) | | (29,556 | ) | | — |
| | — |
| | — |
| | (33,676 | ) |
| Other share retirements | | (129 | ) | | (43 | ) | | (544 | ) | | (3,007 | ) | | — |
| | — |
| | — |
| | (50 | ) | | (17 | ) | | (281 | ) | | (2,484 | ) | | — |
| | — |
| | — |
| | (2,782 | ) |
| Cash dividends ($0.370 per share) | | — |
| | — |
| | — |
| | (10,764 | ) | | — |
| | — |
| | — |
| |
| Balance at March 1, 2014 | | 28,958 |
| | $ | 9,653 |
| | $ | 130,570 |
| | $ | 228,841 |
| | $ | (791 | ) | | $ | 791 |
| | $ | (12,960 | ) | |
| Cash dividends ($0.5775 per share) | | | — |
| | — |
| | — |
| | (16,393 | ) | | — |
| | — |
| | — |
| | (16,393 | ) |
| Balance at March 3, 2018 | | | 28,158 |
| | $ | 9,386 |
| | $ | 152,763 |
| | $ | 373,259 |
| | $ | (922 | ) | | $ | 922 |
| | $ | (24,053 | ) | | $ | 511,355 |
|
| Net earnings | | — |
| | — |
| | — |
| | 50,516 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 45,694 |
| | — |
| | — |
| | — |
| | 45,694 |
|
| Unrealized gain on marketable securities, net of $88 tax expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 163 |
| |
| Unrealized loss on foreign currency hedge, net of $36 tax benefit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (62 | ) | |
| Unrealized loss on pension obligation, net of $830 tax benefit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,458 | ) | |
| 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 | ) | | — |
|
| 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 | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,003 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,364 | ) | | (1,364 | ) |
| Issuance of stock, net of cancellations | | 304 |
| | 101 |
| | (47 | ) | | 28 |
| | (10 | ) | | 10 |
| | — |
| | 174 |
| | 57 |
| | (124 | ) | | 225 |
| | 70 |
| | (70 | ) | | — |
| | 158 |
|
| Share-based compensation | | — |
| | — |
| | 4,793 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,607 |
| | — |
| | — |
| | — |
| | — |
| | 6,607 |
|
| Tax benefit associated with stock plans | | — |
| | — |
| | 3,293 |
| | — |
| | — |
| | — |
| | — |
| |
| Exercise of stock options | | 146 |
| | 49 |
| | 1,190 |
| | — |
| | — |
| | — |
| | — |
| |
| Share repurchases | | (203 | ) | | (68 | ) | | (965 | ) | | (5,861 | ) | | — |
| | — |
| | — |
| | (687 | ) | | (229 | ) | | (3,963 | ) | | (20,948 | ) | | — |
| | — |
| | — |
| | (25,140 | ) |
| Other share retirements | | (155 | ) | | (52 | ) | | (259 | ) | | (4,915 | ) | | — |
| | — |
| | — |
| | (59 | ) | | (19 | ) | | (346 | ) | | (2,064 | ) | | — |
| | — |
| | — |
| | (2,429 | ) |
| Cash dividends ($0.410 per share) | | — |
| | — |
| | — |
| | (12,071 | ) | | — |
| | — |
| | — |
| |
| 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 | ) | |
| 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 |
|
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 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 11 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 20162020, 20152019 and 20142018 each consisted of 52 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.
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.
Inventories.Marketable securities
Our marketable securities are classified as available for sale, and we test for other-than-temporary losses 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, and we have the ability to do so based on other sources of liquidity. Marketable securities are included in other current and non-current assets on the consolidated balance sheets and gross realized gains and losses are included in interest and other expense in our consolidated results of operations.
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. Our manufacturing operations recognize costs of sales using standard costs with full overhead absorption, which generally approximates actual cost.
Property, Plantplant and Equipment.equipment
Property, plant and equipment are(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 propertyan 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.
|
| |
| Years |
Buildings and improvements | 15 to 25 |
Machinery and equipment | 3 to 15 |
Office equipment and furniture | 3 to 10 |
Goodwill and Other Intangible Assets.intangible assets
Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. We evaluate goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. Evaluating goodwill for impairment indicators exist. Step oneinvolves 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 management on a regular basis. We identified that each of our nine business units represents a reporting unit for the goodwill impairment analysis. This year we elected to bypass the qualitative assessment process comparesand 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. We have seven business units which each represent a reporting unit for the goodwill impairment analysis. Based on our analysis, the estimated fair value of each reporting unit exceeded its carrying value and, therefore, goodwill impairment was not indicated. In all periods presented, we have followed a consistent discounted cash flow methodology in order to evaluate goodwill for impairment.in all periods presented.
We base our determination of fair value on a discounted cash flow methodology that involves significant judgment and projections of future performance. Assumptions about future revenues and expenses, capital expenditures and changes in working capital are
based on the annual operating plan and long-term business plan for each reporting unit. These plans take into consideration numerous factors, including historical experience, anticipated future economic conditions and growth expectations for the industries and end markets in which we participate. The plans also take into consideration our assessment of risks inherent in the future cash flows of each business. The discount rate and long-term growth rate assumptions used in our determination of fair value are consistent across reporting units.
Intangible assets with definedindefinite useful lives are tested for impairment annually at our year-end, 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 loss is recognized in an amount equal to that excess. Fair value is measured using the relief-from-royalty method. This method assumes the trade name or mark has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the 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.
Definite-lived intangible assets are amortized based on estimated useful lives ranging from three18 months to 20 years.years and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The remainingestimated useful lives of all intangible assets are reviewed annually, and we have determined that the remaining lives were appropriate.
Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If impairment indicators are present and the estimated undiscounted future cash flows are less than the carrying value of the assets, the carrying values would be reduced to the estimated fair value. Fair value is measured using discounted cash flows or independent opinions of value, as appropriate.
Self-Insurance
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 upon estimates by specialists and applicable law. Such estimatesForeign currency
Local currencies are based primarily uponconsidered 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 reservefunctional currencies for environmental liabilities is included in other current and non-current liabilities in the consolidated balance sheets.
Foreign Currency. The financial statements ofour subsidiaries located outside of the U.S. are measured in their functional currency, which is local currency.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
We periodically enter into forward purchase foreign currency contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk. We also have an interest rate swap to hedge exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility. All derivative instruments within the scope of ASC 815, Derivatives and Hedging, are recorded on the consolidated balance sheets at fair value. All hedging instruments that qualify for hedge accounting are designated and effective as hedges. 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 statements of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships.We do not hold or issue derivative financial instruments for trading purposes and are not a party to leveraged 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
Revenue Recognition. Wemanufacture 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 2020, approximately 44 percent of our total revenue is recognized at the time products are shipped from our manufacturing facilities, which is when title hascontrol is transferred except withinto our Architectural Services segment,customer, consistent with past practices. These businesses do not generate contract-related assets or liabilities. Variable consideration associated with these contracts and orders, generally related to early pay discounts or volume rebates, is not considered significant.
We also have 3 businesses which enters intooperate under long-term, fixed-price installation contracts. These contracts, are typically performed over a 12- to 18-month timeframe, and we recordrepresenting approximately 31 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 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 transaction 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 the transaction price are based largely on our assessments of anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
Long-term contracts are often 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 many 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, generally 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 in excess of revenue recognized on a contract.
Finally, we have 1 business, making up approximately 25 percent of our total revenue in the 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 we 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. Prior to the adoption of ASC 606, this business recognized revenue at the time of shipment. Billings still occur upon shipment. Therefore, contract assets are generated for the unbilled amounts on contracts when production is complete. Variable consideration associated with these orders, generally related to early pay discounts, is not considered significant.
As outlined within the new accounting guidance, we elected several practical expedients in our transition to ASC 606:
We have made an accounting policy election to 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 have made an accounting policy election to exclude from the transaction price all sales taxes related to revenue-producing transactions that are collected from the customer for a government authority.
We generally expense incremental costs of obtaining a contract when incurred because the amortization period in which such losses are determined. Amounts representing contract change orders, claims or other itemswould be less than one year. These costs primarily relate to sales commissions and are included in contract revenue only upon customer approval. Approximately 25 percent of our consolidated net sales in fiscal 2016selling, general and 2015, and 26 percent in 2014, were recorded on a percentage-of-completion basis.administrative expenses.
We have not adjusted contract price for a significant financing component, as we expect the period between when our goods and services are transferred to the customer and when the customer pays for those goods and services to be less than a year.
Revenue excludes sales taxes as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.
Pricing and Sales Incentives. The Company records estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the later of the date revenue is recognized or the incentive is offered. Sales incentives given to customers are recorded as a reduction to net sales unless (1) the Company receives an identifiable benefit for goods or services in exchange for the consideration, and (2) the Company can reasonably estimate the fair value of the benefit received.
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 Company 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 $8.0$16.6 million,, $6.5 $19.5 million and $7.8$14.0 million for fiscal 2016, 20152020, 2019 and 2014,2018, respectively. Of these amounts, $2.4$8.0 million,, $2.4 $6.5 million and $2.1$1.5 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 and were $1.2 million in fiscal 2016, $1.1 million in fiscal 2015, and $1.2 million in fiscal 2014, and they are included inwithin selling, general and administrative expenses.expenses, and were $1.4 million in fiscal 2020, $1.5 million in fiscal 2019 and $1.4 million in fiscal 2018.
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 1314 for additional information regarding income taxes.
Subsequent Events. events
We have evaluated subsequent events for potential recognition and disclosure through the date of this filingfiling. Subsequent to the end of the year, we purchased 231,492 shares of stock under our authorized share repurchase program, at a total cost of $4.7 million.
Subsequent to the end of the year, the Company extended its $150 million term loan maturity from June 2020 to April 2021.
In March 2020, the World Health Organization declared a novel strain of coronavirus, COVID-19, a global pandemic. This contagious disease outbreak, which has continued to spread, and determinedthe related adverse public health developments, 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 suppliers or our customers, will adversely impact our sales and operating results and has resulted in some project delays. In addition, the pandemic has resulted in an economic downturn that therecould affect the ability of our customers to obtain financing for projects and therefore impact demand for our products and services. Order lead times could be extended or delayed and pricing for needed materials could increase. Some products or services may become unavailable if the regional or global spread were no subsequent events that required recognition or disclosuresignificant enough to prevent alternative sourcing. Accordingly, we are considering alternative product sourcing in the consolidatedevent that product supply becomes problematic. In addition, the outbreak of COVID-19 could disrupt our operations due to absenteeism by infected or ill employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness or due to quarantines.
To date, we have experienced some delays in 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 and we temporarily shut down our factories in this segment to comply with government "stay in place" orders. We expect this global pandemic to have an impact on our revenue and our results of operations, the size and duration of which we are currently unable to predict. The global outbreak of COVID-19 continues to rapidly evolve. 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 duration of the outbreak, travel restrictions and social distancing 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 and treat the disease.
The evolving COVID-19 situation subsequent to our year-end is anticipated to impact our estimates of future credit losses on certain of our financial statements.assets, including our trade receivables. To the extent that our customers are adversely impacted by the
coronavirus outbreak, this could impact their ability to pay their obligations on a timely basis, which could in turn materially impact our future estimate of credit losses and ultimate collectibility of our receivables.
New Accounting Standards.In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects
Adoption of thenew accounting for employee share-based payment transactions, including the accounting for income taxes and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016. We are currently evaluating the impact this standard will have on our consolidated financial statements.standards
In February 2016, the FASB issued ASU 2016-02, Leases, which provides for a comprehensive changechanges to lease accounting. The new standard requires that a lessee recognize a lease obligation liability and a right to useright-to-use asset for virtually all leases of property, plant and equipment, subsequently amortized over the lease term. The new
We adopted this standard is effective forat the beginning of fiscal years beginning after December 15, 2018, with a2020, following the modified retrospective transition. We are currently evaluating the impactapplication approach and elected not to restate prior periods. Adoption of this standard will haveresulted in reflecting a right-of-use asset and lease liability on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires all deferred tax assets and liabilities, along with any related valuation allowance, to be classified as noncurrent on the balance sheet. The new standard is effective for fiscal years beginning after December 15, 2016, and may be applied prospectively or retrospectively, with early adoption permitted. We plan to adopt this standardsheet in the first quarter of fiscal 2020 of approximately $50 million. In adopting the new standard, we elected the package of practical expedients, as well as the practical expedient not to separate nonlease components from lease components. Adoption of this standard did not have a significant impact on our consolidated results of operations, consolidated statements of cash flows, our liquidity, or on our debt covenant compliance under our current agreements. Refer to additional information in Note 9.
Accounting standards not yet adopted
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including accounts receivable, and modifies the impairment model for available-for-sale debt securities. This ASU is effective and has been adopted at the beginning of our fiscal 2017year 2021. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are substantially complete with our implementation efforts, which have included identification and analysis of expected credit losses on our financial assets, primarily made up of trade receivables. We do not expect the adoption of this standard to have a significant impact on our consolidated results of operations, consolidated balance sheet.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. Under the new standard, an entity recognizes revenue to depict the transfer of promised goodssheets or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017, Apogee's fiscal 2019. We are currently evaluating the impact this standard will have on our consolidated financial statements. statements of cash flows. We have begun to update existing internal controls and processes to support ongoing monitoring, accounting and disclosure under this new standard, but such changes were not deemed to be material to our overall system of internal controls.
2. Acquisitions
Receivables
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 $190 million. Purchase accounting related to this acquisition was completed during the first quarter of fiscal 2019, with final purchase price allocation as follows:
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Trade accounts | $ | 102,627 |
| | $ | 111,494 |
|
| Construction contracts | 41,631 |
| | 33,582 |
|
| Contract retainage | 28,249 |
| | 24,547 |
|
| Other receivables | 2,822 |
| | 5,242 |
|
| Total receivables | 175,329 |
| | 174,865 |
|
| Less allowance for doubtful accounts | (2,497 | ) | | (3,242 | ) |
| Net receivables | $ | 172,832 |
| | $ | 171,623 |
|
|
| | | | |
| (In thousands) | | |
| Net working capital | | $ | 1,422 |
|
| Property, plant and equipment | | 44,641 |
|
| Goodwill | | 90,429 |
|
| 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 |
| | |
The following table provides certain unaudited pro forma consolidated information for the combined company for the fourth quarter and fiscal year 2018, as if the EFCO acquisition had been consummated pursuant to its same terms at the beginning of the fiscal year preceding the acquisition date.
Inventories |
| | | | | | | | |
| | | Three Months Ended | | Twelve Months Ended |
| (In thousands, except per share data) | | March 3, 2018 | | March 3, 2018 |
| Net sales | | $ | 353,453 |
| | $ | 1,398,733 |
|
| Net earnings | | 23,157 |
| | 81,653 |
|
| Earnings per share | | | | |
| Basic | | 0.82 |
| | 2.86 |
|
| Diluted | | 0.81 |
| | 2.83 |
|
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Raw materials | $ | 21,404 |
| | $ | 19,761 |
|
| Work-in-process | 9,958 |
| | 14,385 |
|
| Finished goods | 25,486 |
| | 23,076 |
|
| Costs and earnings in excess of billings on uncompleted contracts | 6,538 |
| | 4,186 |
|
| Total inventories | $ | 63,386 |
| | $ | 61,408 |
|
Other Current Liabilities
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Warranties | $ | 14,666 |
| | $ | 10,022 |
|
| Taxes, other than income taxes | 5,058 |
| | 5,203 |
|
| Unearned revenue | 533 |
| | 1,266 |
|
| Volume discounts | 837 |
| | 1,145 |
|
| Current portion of deferred gain on sale leaseback | 507 |
| | 1,015 |
|
| Current portion of long-term compensation plans | 840 |
| | 841 |
|
| Other | 6,898 |
| | 6,109 |
|
| Total other current liabilities | $ | 29,339 |
| | $ | 25,601 |
|
| |
| 3. | Marketable SecuritiesRevenue, Receivables and Contract Assets and Liabilities |
We hold theRevenue
The following marketable securities, all classified as availabletable disaggregates total revenue by timing of recognition (see Note 16 for sale:disclosure of revenue by segment):
|
| | | | | | | | |
| (In thousands) | | February 29, 2020 | | March 2, 2019 |
| Recognized at shipment | | $ | 610,049 |
| | $ | 623,357 |
|
| Recognized over time | | 777,390 |
| | 779,280 |
|
| Total | | $ | 1,387,439 |
| | $ | 1,402,637 |
|
|
| | | | | | | | | | | | | | | |
| (In thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| February 27, 2016 | | | | | | | |
| Mutual fund | $ | 30,178 |
| | $ | — |
| | $ | (55 | ) | | $ | 30,123 |
|
| Municipal bonds | 12,393 |
| | 285 |
| | (109 | ) | | 12,569 |
|
| Total marketable securities | $ | 42,571 |
| | $ | 285 |
| | $ | (164 | ) | | $ | 42,692 |
|
| February 28, 2015 | | | | | | | |
| Municipal bonds | $ | 10,973 |
| | $ | 127 |
| | $ | (118 | ) | | $ | 10,982 |
|
| Total marketable securities | $ | 10,973 |
| | $ | 127 |
| | $ | (118 | ) | | $ | 10,982 |
|
Receivables
Trade and construction accounts receivable consist of amounts billed and due from customers. The amounts due are stated at their estimated net realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. This allowance is based on an assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. 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) | | 2020 | | 2019 |
| Trade accounts | | $ | 141,126 |
| | $ | 145,693 |
|
| Construction contracts | | 20,808 |
| | 19,050 |
|
| Contract retainage | | 37,341 |
| | 32,396 |
|
| Total receivables | | 199,275 |
| | 197,139 |
|
| Less: allowance for doubtful accounts | | (2,469 | ) | | (4,372 | ) |
| Receivables, net | | $ | 196,806 |
| | $ | 192,767 |
|
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 29, 2020 | | March 2, 2019 |
| Contract assets | | $ | 110,923 |
| | $ | 87,491 |
|
| Contract liabilities | | 35,954 |
| | 24,083 |
|
WeThe increase in contract assets was due to additional costs and earnings in excess of billings, which is driven by timing of projects. The change in contract liabilities is also due to timing of project activity from businesses that operate under long-term contracts.
Other contract-related disclosures
|
| | | | | | | | |
| (In thousands) | | February 29, 2020 | | March 2, 2019 |
| Revenue recognized related to contract liabilities from prior year-end | | $ | 23,221 |
| | $ | 10,380 |
|
| Revenue recognized related to prior satisfaction of performance obligations | | 15,641 |
| | 5,898 |
|
Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally these contracts are invested in a mutual fund holding short-term government securities as a meansour businesses with long-term contracts which recognize revenue over time. As of deploying excess cash generated from operations while preserving liquidity.February 29, 2020, the transaction price associated with unsatisfied performance obligations was approximately $987.4 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
|
| | | | |
| (In thousands) | | February 29, 2020 |
| Within one year | | $ | 437,000 |
|
| Within two years | | 394,500 |
|
| Beyond | | 155,900 |
|
| Total | | $ | 987,400 |
|
| |
| 4. | Supplemental Balance Sheet Information |
Inventories
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Raw materials | | $ | 36,611 |
| | $ | 43,890 |
|
| Work-in-process | | 17,520 |
| | 15,533 |
|
| Finished goods | | 16,958 |
| | 18,921 |
|
| Total inventories | | $ | 71,089 |
| | $ | 78,344 |
|
Other current liabilities
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Warranties | | $ | 12,822 |
| | $ | 12,475 |
|
| Accrued project losses | | 48,962 |
| | 37,085 |
|
| Income and other taxes | | 5,952 |
| | 8,026 |
|
| Accrued self-insurance reserves | | 8,307 |
| | 9,537 |
|
| Other | | 42,271 |
| | 25,573 |
|
| Total other current liabilities | | $ | 118,314 |
| | $ | 92,696 |
|
Other non-current liabilities
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Deferred benefit from New Markets Tax Credit transactions | | $ | 15,717 |
| | $ | 26,458 |
|
| Retirement plan obligations | | 8,294 |
| | 7,633 |
|
| Deferred compensation plan | | 8,452 |
| | 10,408 |
|
| Other | | 24,399 |
| | 32,683 |
|
| Total other non-current liabilities | | $ | 56,862 |
| | $ | 77,182 |
|
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 29, 2020 | | $ | 11,692 |
| | $ | 275 |
| | $ | — |
| | $ | 11,967 |
|
| March 2, 2019 | | 12,481 |
| | 59 |
| | 108 |
| | 12,432 |
|
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 and corporate bonds, for the purpose of providing collateral for Prism's obligations under the reinsurance agreement.agreements.
We test for other-than-temporary losses on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable. We consider the unrealized losses indicated above to be temporary in nature. We intend to hold our investments until the full principal amount can be recovered, and we have the ability to do so based on other sources of liquidity.
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 February 27, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | $ | — |
| | $ | — |
| | $ | 1,345 |
| | $ | (109 | ) | | $ | 1,345 |
| | $ | (109 | ) |
The amortized cost and estimated fair values of our municipal and corporate bonds at February 27, 2016,29, 2020, 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.
|
| | | | | | | |
| (In thousands) | Amortized Cost | | Estimated Market Value |
| Due within one year | $ | 50 |
| | $ | 50 |
|
| Due after one year through five years | 3,853 |
| | 3,903 |
|
| Due after five years through 10 years | 7,198 |
| | 7,428 |
|
| Due after 10 years through 15 years | 1,292 |
| | 1,188 |
|
| Total | $ | 12,393 |
| | $ | 12,569 |
|
Gross realized gains and losses were insignificant for all periods presentedpresented.
|
| | | | | | | | |
| (In thousands) | | Amortized Cost | | Estimated Fair Value |
| Due within one year | | $ | 807 |
| | $ | 809 |
|
| Due after one year through five years | | 6,825 |
| | 6,998 |
|
| Due after five years through 10 years | | 4,060 |
| | 4,160 |
|
| Total | | $ | 11,692 |
| | $ | 11,967 |
|
Derivative instruments
In August 2019, 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 29, 2020, the interest rate swap contract had a notional value of $70 million.
We periodically enter into forward purchase foreign currency cash flow hedge contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk. As of February 29, 2020, we held foreign exchange forward contracts with a U.S. dollar notional value of $28.1 million, with the objective of reducing the exposure to fluctuations in the Canadian dollar and the Euro.
These derivative instruments are included in other income (expense), net inrecorded within our consolidated resultsbalance sheets within other current assets and liabilities. Gains or losses associated with these instruments are recorded as a component of operations.accumulated other comprehensive income.
| |
4. | Fair Value Measurements |
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 are summarized below:on a recurring basis were:
|
| | | | | | | | | | | | |
| (In thousands) | | Quoted Prices in
Active Markets
(Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
| February 29, 2020 | | | | | | |
| Assets: | | | | | | |
| Money market funds | | $ | 2,689 |
| | $ | — |
| | $ | 2,689 |
|
| Commercial paper | | — |
| | 1,500 |
| | 1,500 |
|
| Municipal and corporate bonds | | — |
| | 11,967 |
| | 11,967 |
|
| Liabilities: | | | | | | |
| Foreign currency forward/option contract | | — |
| | 340 |
| | 340 |
|
| Interest rate swap contract | | — |
| | 561 |
| | 561 |
|
| March 2, 2019 | | | | | | |
| Assets: | | | | | | |
| Money market funds | | $ | 2,015 |
| | $ | — |
| | $ | 2,015 |
|
| Commercial paper | | — |
| | 300 |
| | 300 |
|
| Municipal and corporate bonds | | — |
| | 12,432 |
| | 12,432 |
|
| Liabilities: | | | | | | |
| Foreign currency forward/option contract | | — |
| | 470 |
| | 470 |
|
|
| | | | | | | | | | | |
| (In thousands) | Quoted Prices in Active Markets (Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
| February 27, 2016 | | | | | |
| Cash equivalents | | | | | |
| Money market funds | $ | 23,199 |
| | $ | — |
| | $ | 23,199 |
|
| Commercial paper | — |
| | 29,774 |
| | 29,774 |
|
| Total cash equivalents | 23,199 |
| | 29,774 |
| | 52,973 |
|
| Short-term securities | | | | |
|
|
| Mutual fund | 30,123 |
| | — |
| | 30,123 |
|
| Municipal bonds | — |
| | 50 |
| | 50 |
|
| Total short-term securities | 30,123 |
| | 50 |
| | 30,173 |
|
| Long-term securities | | | | | |
| Municipal bonds | — |
| | $ | 12,519 |
| | 12,519 |
|
| Total assets at fair value | $ | 53,322 |
| | $ | 42,343 |
| | $ | 95,665 |
|
|
| | | | | | | | | | | |
| (In thousands) | Quoted Prices in Active Markets (Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
| February 28, 2015 | | | | | |
| Cash equivalents | | | | | |
| Money market funds | $ | 34,386 |
| | $ | — |
| | $ | 34,386 |
|
| Short-term securities | | | | | |
| Municipal bonds | — |
| | 327 |
| | 327 |
|
| Long-term securities | | | | | |
| Mutual funds | 305 |
| | — |
| | 305 |
|
| Municipal bonds | — |
| | 10,655 |
| | 10,655 |
|
| Total assets at fair value | $ | 34,691 |
| | $ | 10,982 |
| | $ | 45,673 |
|
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-Municipal and long-term securities
Mutual funds were measured at fair value based on quoted prices for identical assets in active markets.
corporate bonds
Municipal 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.
Derivative instruments
The interest rate swap is measured at fair value using unobservable market inputs, based off of benchmark interest rates. Forward foreign exchange contracts are measured at fair value using unobservable market inputs, such as quotations on forward foreign exchange points and foreign currency exchange rates. Derivative positions are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for both interest and currency rates.
Nonrecurring fair value measurements
Certain assets are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances. These include certain long-lived assets that are written down to estimated fair value when they are determined to be impaired, utilizing a valuation approach incorporating Level 3 inputs. See Note 7 for information regarding the impairment during fiscal 2019.
| |
| 6. | Property, Plant and Equipment |
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Land | | $ | 5,381 |
| | $ | 7,101 |
|
| Buildings and improvements | | 210,171 |
| | 196,057 |
|
| Machinery and equipment | | 418,240 |
| | 375,700 |
|
| Office equipment and furniture | | 60,409 |
| | 56,366 |
|
| Construction in progress | | 17,496 |
| | 40,846 |
|
| Total property, plant and equipment | | 711,697 |
| | 676,070 |
|
| Less accumulated depreciation | | (387,311 | ) | | (360,247 | ) |
| Net property, plant and equipment | | $ | 324,386 |
| | $ | 315,823 |
|
Depreciation expense was $36.1 million in 2020 and $37.1 million in each of fiscal 2019 and 2018.
| |
5. | Property, Plant and Equipment |
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Land | $ | 8,827 |
| | $ | 9,054 |
|
| Buildings and improvements | 149,685 |
| | 142,833 |
|
| Machinery and equipment | 296,388 |
| | 279,172 |
|
| Office equipment and furniture | 48,805 |
| | 49,849 |
|
| Construction in progress | 18,384 |
| | 11,695 |
|
| Total property, plant and equipment | 522,089 |
| | 492,603 |
|
| Less accumulated depreciation | (319,627 | ) | | (299,063 | ) |
| Net property, plant and equipment | $ | 202,462 |
| | $ | 193,540 |
|
Depreciation expense was $29.8 million, $27.5 million and $24.8 million in fiscal 2016, 2015 and 2014, respectively.
| |
6.7. | Goodwill and Other Intangible Assets |
The carrying amount of goodwill attributable to each reporting segment is as follows: was:
| | | (In thousands) | Architectural Glass | | Architectural Services | | Architectural Framing Systems | | Large-Scale Optical | | Total | | Architectural Framing Systems | | Architectural Glass | | Architectural Services | | Large-Scale Optical | | Total |
| Balance at March 1, 2014 | $ | 26,628 |
| | $ | 1,120 |
| | $ | 39,716 |
| | $ | 10,557 |
| | $ | 78,021 |
| |
| Balance at March 3, 2018 | | | $ | 143,308 |
| | $ | 25,971 |
| | $ | 1,120 |
| | $ | 10,557 |
| | $ | 180,956 |
|
| Goodwill adjustments for purchase accounting | | | 6,267 |
| | — |
| | — |
| | — |
| | 6,267 |
|
| Foreign currency translation | (273 | ) | | — |
| | (1,891 | ) | | — |
| | (2,164 | ) | | (1,129 | ) | | (262 | ) | | — |
| | — |
| | (1,391 | ) |
| Balance at February 28, 2015 | 26,355 |
| | 1,120 |
| | 37,825 |
| | 10,557 |
| | 75,857 |
| |
| Balance at March 2, 2019 | | | 148,446 |
| | 25,709 |
| | 1,120 |
| | 10,557 |
| | 185,832 |
|
| Foreign currency translation | (716 | ) | | — |
| | (1,145 | ) | | — |
| | (1,861 | ) | | (263 | ) | | (53 | ) | | — |
| | — |
| | (316 | ) |
| Balance at February 27, 2016 | $ | 25,639 |
| | 1,120 |
| | 36,680 |
| | $ | 10,557 |
| | $ | 73,996 |
| |
| Balance at February 29, 2020 | | | $ | 148,183 |
| | $ | 25,656 |
| | $ | 1,120 |
| | $ | 10,557 |
| | $ | 185,516 |
|
NoNaN goodwill impairment has been recorded in fiscal 2016, 2015 or 2014.any period presented.
The following tables provide the gross carrying amount of other intangible assets and related accumulated amortization:amortization was:
| | | | February 27, 2016 | | | | | | | | | | | |
| (In thousands) | Gross Carrying Amount | | Accumulated Amortization | | Foreign Currency Translation | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Impairment | | Foreign Currency Translation | | Net |
| February 29, 2020 | | | | | | | | | | | |
| Definite-lived intangible assets: | | | | | | | | | | | | | | | | | |
| Debt issue costs | $ | 3,677 |
| | $ | (2,758 | ) | | $ | — |
| | $ | 919 |
| |
| Non-compete agreements | 6,673 |
| | (6,419 | ) | | (16 | ) | | 238 |
| |
| Customer relationships | 24,174 |
| | (12,737 | ) | | (1,162 | ) | | 10,275 |
| | $ | 120,239 |
| | $ | (33,121 | ) | | $ | — |
| | $ | (592 | ) | | $ | 86,526 |
|
| Trademarks and other intangibles | 8,213 |
| | (3,271 | ) | | (431 | ) | | 4,511 |
| |
| Other intangibles | | | 41,069 |
| | (32,516 | ) | | — |
| | (189 | ) | | 8,364 |
|
| Total definite-lived intangible assets | $ | 42,737 |
| | $ | (25,185 | ) | | $ | (1,609 | ) | | $ | 15,943 |
| | 161,308 |
| | (65,637 | ) | | — |
| | (781 | ) | | 94,890 |
|
| Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | | |
| Trademarks | $ | 4,239 |
| | $ | — |
| | $ | (320 | ) | | $ | 3,919 |
| | 45,421 |
| | — |
| | — |
| | (120 | ) | | 45,301 |
|
| Total intangible assets | $ | 46,976 |
| | $ | (25,185 | ) | | $ | (1,929 | ) | | $ | 19,862 |
| | $ | 206,729 |
| | $ | (65,637 | ) | | $ | — |
| | $ | (901 | ) | | $ | 140,191 |
|
| March 2, 2019 | | | | | | | | | | | |
| Definite-lived intangible assets: | | | | | | | | | | | |
| Customer relationships | | | $ | 122,816 |
| | $ | (26,637 | ) | | $ | — |
| | $ | (2,578 | ) | | $ | 93,601 |
|
| Other intangibles | | | 41,697 |
| | (31,634 | ) | | — |
| | (850 | ) | | 9,213 |
|
| Total definite-lived intangible assets | | | 164,513 |
| | (58,271 | ) | | — |
| | (3,428 | ) | | 102,814 |
|
| Indefinite-lived intangible assets: | | | | | | | | | | | |
| Trademarks | | | 49,078 |
| | — |
| | (3,141 | ) | | (516 | ) | | 45,421 |
|
| Total intangible assets | | | $ | 213,591 |
| | $ | (58,271 | ) | | $ | (3,141 | ) | | $ | (3,944 | ) | | $ | 148,235 |
|
As a result of testing indefinite-lived intangible assets for impairment in fiscal 2019, the fair value of one of our tradenames, with a carrying value of $32.4 million, was below its carrying amount by $3.1 million and this impairment charge was recorded within
selling, general and administrative expenses. We continue to conclude that the useful life of our indefinite-lived intangible assets is appropriate. |
| | | | | | | | | | | | | | | |
| | February 28, 2015 |
| (In thousands) | Gross Carrying Amount | | Accumulated Amortization | | Foreign Currency Translation | | Net |
| Definite-lived intangible assets: | | | | | | | |
| Debt issue costs | $ | 3,668 |
| | $ | (2,560 | ) | | $ | — |
| | $ | 1,108 |
|
| Non-compete agreements | 6,690 |
| | (6,364 | ) | | (10 | ) | | 316 |
|
| Customer relationships | 25,677 |
| | (11,932 | ) | | (1,315 | ) | | 12,430 |
|
| Trademarks and other intangibles | 8,275 |
| | (2,920 | ) | | (168 | ) | | 5,187 |
|
| Total definite-lived intangible assets | $ | 44,310 |
| | $ | (23,776 | ) | | $ | (1,493 | ) | | $ | 19,041 |
|
| Indefinite-lived intangible assets: | | | | | | | |
| Trademarks | $ | 4,768 |
| | $ | — |
| | $ | (529 | ) | | $ | 4,239 |
|
| Total intangible assets | $ | 49,078 |
| | $ | (23,776 | ) | | $ | (2,022 | ) | | $ | 23,280 |
|
Amortization expense on definite-lived intangible assets was $1.67.7 million, $2.1$12.7 million and $1.917.8 million in fiscal 2016, 20152020, 2019 and 20142018, 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 as follows:is:
|
| | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 |
| Estimated amortization expense | | $ | 7,935 |
| | $ | 7,930 |
| | $ | 7,765 |
| | $ | 7,590 |
| | $ | 7,376 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (In thousands) | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Estimated amortization expense | $ | 1,589 |
| | $ | 1,525 |
| | $ | 1,465 |
| | $ | 1,354 |
| | $ | 1,168 |
|
Debt consistsDuring the second quarter of $20.4fiscal 2020, we amended the borrowing capacity of our prior credit facility to $235 million with a maturity of industrial revenue bonds, which mature in fiscal years 2021 through 2043. The fair valueJune 2024 and we established a $150 million term loan with a maturity of June 2020. Subsequent to the end of the industrial revenue bonds approximates carrying value at February 27, 2016, duefiscal year, the Company extended its $150 million term loan maturity to April 2021. Outstanding borrowings under the variable interest rates on these instruments. The bonds would be considered classified as Level 2 within the fair value hierarchy described in Note 4.
We maintain a $125.0 million committed revolving credit facility that expires in December 2019. No borrowings were outstanding under the credit facility$47.5 million, as of February 27, 2016 or February 28, 2015. At February 27, 2016, the Company was in compliance with all29, 2020 and $225.0 million as of March 2, 2019. Our revolving credit facility and term loan contain two financial covenants as provided below:
|
| | | | | | | |
| Debt covenant financial ratios | | Maximum | | Company's ratio |
| Debt-to-EBITDA ratio | | 3.00 |
| | 0.16 |
|
| | | Minimum | | Company's net worth |
| Net worth calculation (in millions) | | $ | 356.7 |
| | 406.2 |
|
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 February 29, 2020, we were in compliance with both financial covenants. We have the ability to issue letters of credit of up to $40.0$80.0 million under this credit facility, the outstanding amounts of which decrease the available commitment. At both February 27, 2016 and February 28, 2015, $101.529, 2020, $162.8 million was available under this revolving credit facility.
WeDebt at February 29, 2020 also maintain a $4.0included $20.4 million Canadian dollar revolving demand facility availableof industrial revenue bonds that mature in fiscal years 2021 through 2043. The fair value of the industrial revenue bonds approximated carrying value at February 29, 2020, 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.
During the fourth quarter of fiscal 2020, we replaced our Canadian operation. Nodemand credit facilities with two committed, revolving credit facilities with a limit of up to $25.0 million (USD) with a maturity of February 2021. NaN borrowings were outstanding under the facilityfacilities in place as of February 27, 201629, 2020 or February 28, 2015. Borrowings under the facility are made available at the sole discretionas of the lender and are payable on demand, with interest at rates specified in the credit agreement for the demand facility.March 2, 2019.
Debt maturities and other selected information are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Maturities | | $ | 5,400 |
| | $ | 152,000 |
| | $ | 1,000 |
| | $ | — |
| | $ | 47,500 |
| | $ | 12,000 |
| | $ | 217,900 |
|
|
| | | | | | | | | | | | | | | |
| (In thousands) | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total |
| Maturities | $— | | $— | | $— | | $— | | $5,400 | | $15,000 | | $ | 20,400 |
|
|
| | | | | | | | |
| (In thousands, except percentages) | | 2020 | | 2019 |
| Average daily borrowings during the year | | $ | 241,036 |
| | $ | 207,358 |
|
| Maximum borrowings outstanding during the year | | 282,000 |
| | 249,000 |
|
| Weighted average interest rate during the year | | 2.91 | % | | 3.61 | % |
|
| | | | | | | |
| (In thousands, except percentages) | 2016 | | 2015 |
| Average daily borrowings during the year | $ | 21,730 |
| | $ | 21,260 |
|
| Maximum borrowings outstanding during the year | 22,480 |
| | 22,600 |
|
| Weighted average interest rate during the year | 0.29 | % | | 0.30 | % |
|
| | | | | | | | | | | | |
| (In thousands) | | February 29, 2020 | | March 2, 2019 | | March 3, 2018 |
| Interest on debt | | $ | 8,891 |
| | $ | 8,114 |
| | $ | 5,208 |
|
| Other interest expense | | 326 |
| | 335 |
| | 300 |
|
| Interest expense | | $ | 9,217 |
| | $ | 8,449 |
| | $ | 5,508 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| Interest on debt | $ | 544 |
| | $ | 581 |
| | $ | 895 |
|
| Other interest expense | 49 |
| | 343 |
| | 364 |
|
| Interest expense | $ | 593 |
| | $ | 924 |
| | $ | 1,259 |
|
Interest payments were $0.59.1 million in fiscal 20162020, $0.8$8.1 million in fiscal 20152019 and $0.75.3 million in fiscal 20142018.
| |
8. | Other Non-Current Liabilities |
|
| | | | | | | |
| (In thousands) | February 27, 2016 | | February 28, 2015 |
| Retirement plan obligations | $ | 9,992 |
| | $ | 11,186 |
|
| Deferred benefit from New Markets Tax Credit | 10,741 |
| | 10,741 |
|
| Deferred compensation plan | 4,814 |
| | 4,052 |
|
| Deferred gain on sale leaseback arrangements | 1,818 |
| | 1,818 |
|
| Other | 9,549 |
| | 10,855 |
|
| Total other non-current liabilities | $ | 36,914 |
| | $ | 38,652 |
|
We lease certain of the buildings and equipment used in our operations. We determine if an arrangement contains a lease at inception. All of our lease arrangements are classified as operating leases. 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 29, 2020 |
| Operating lease cost | | $ | 13,671 |
|
| Short-term lease cost | | 2,121 |
|
| Variable lease cost | | 2,969 |
|
| Total lease cost | | $ | 18,761 |
|
Other supplemental information related to leases for the year ended February 29, 2020 was as follows:
|
| | | | |
| (In thousands) | | February 29, 2020 |
| Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 13,614 |
|
| Lease assets obtained in exchange for new operating lease liabilities | | $ | 15,948 |
|
| Weighted-average remaining lease term - operating leases | | 5.8 years |
|
| Weighted-average discount rate - operating leases | | 3.6 | % |
Future maturities of lease liabilities are as follows:
|
| | | | |
| (In thousands) | | February 29, 2020 |
| Fiscal 2021 | | $ | 12,742 |
|
| Fiscal 2022 | | 11,037 |
|
| Fiscal 2023 | | 10,147 |
|
| Fiscal 2024 | | 8,151 |
|
| Fiscal 2025 | | 6,319 |
|
| Thereafter | | 12,364 |
|
| Total lease payments | | 60,760 |
|
| Less: Amounts representing interest | | (6,325 | ) |
| Present value of lease liabilities | | $ | 54,435 |
|
As of February 29, 2020, we have $5.5 million additional future operating lease commitments for leases that have not yet commenced.
Aggregate annual future rental commitments under operating leases with noncancellable terms of more than one year at March 2, 2019 were reported under previous lease accounting standards as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| In thousands | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
| Total minimum payments | | $ | 14,888 |
| | 11,787 |
| | 9,669 |
| | 8,772 |
| | 6,735 |
| | 16,806 |
| | $ | 68,657 |
|
| |
| 10. | 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 CompanyWe contributes a 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 $5.4$9.0 million in fiscal 20162020, $4.78.0 million in fiscal 20152019 and $4.2$7.5 million in fiscal 20142018.
Deferred Compensation Plan
The Company maintainsWe maintain a plan that allows participants to defer compensation. The deferred compensation liability was $5.014.0 million and $4.2$12.1 million at February 27, 201629, 2020 and February 28, 2015,March 2, 2019, respectively. The Company hasWe have investments in corporate-owned life insurance policies (COLI) of $4.816.6 million and mutualmoney market funds (classified as cash equivalents) of $0.30.4 million with the intention of utilizing them as a long-term funding sourcesources 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 various multi-employer union retirement plans, which provide retirement benefits to the majority of our union employees; none of the plans are considered significant. The total contribution to these plans in fiscal 2016, 20152020, 2019 and 20142018 was $3.6$6.2 million, $4.3$4.9 million and $3.7$2.9 million,, respectively.
Pension Plan
The Company sponsorsWe sponsor the Tubelite Inc. Hourly Employees' Pension Plan, (Tubelite 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 sponsorsWe 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 pension 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) | | 2020 | | 2019 |
| Change in projected benefit obligation | | | | |
| Benefit obligation beginning of period | | $ | 13,310 |
| | $ | 13,834 |
|
| Interest cost | | 492 |
| | 506 |
|
| Actuarial loss (gain) | | 1,567 |
| | (19 | ) |
| Benefits paid | | (998 | ) | | (1,011 | ) |
| Benefit obligation at measurement date | | 14,371 |
| | 13,310 |
|
| Change in plan assets | | | | |
| Fair value of plan assets beginning of period | | $ | 5,330 |
| | $ | 4,169 |
|
| Actual return on plan assets | | 1,002 |
| | 97 |
|
| Company contributions | | 652 |
| | 2,075 |
|
| Benefits paid | | (998 | ) | | (1,011 | ) |
| Fair value of plan assets at measurement date | | 5,986 |
| | 5,330 |
|
| Underfunded status | | $ | (8,385 | ) | | $ | (7,980 | ) |
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Change in projected benefit obligation | | | |
| Benefit obligation beginning of period | $ | 16,253 |
| | $ | 14,274 |
|
| Interest cost | 566 |
| | 550 |
|
| Actuarial (gain) loss | (907 | ) | | 2,424 |
|
| Benefits paid | (1,012 | ) | | (995 | ) |
| Benefit obligation at measurement date | $ | 14,900 |
| | $ | 16,253 |
|
| Change in plan assets | | | |
| Fair value of plan assets beginning of period | $ | 4,419 |
| | $ | 4,430 |
|
| Actual return on plan assets | (62 | ) | | 134 |
|
| Company contributions | 916 |
| | 850 |
|
| Benefits paid | (1,012 | ) | | (995 | ) |
| Fair value of plan assets at measurement date | $ | 4,261 |
| | $ | 4,419 |
|
| Underfunded status | $ | (10,639 | ) | | $ | (11,834 | ) |
The underfundedfunded status of our plans iswas recognized in the consolidated balance sheets as:as follows:
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Other non-current assets | | $ | 591 |
| | $ | 337 |
|
| Current liabilities | | (682 | ) | | (684 | ) |
| Other non-current liabilities | | (8,294 | ) | | (7,633 | ) |
| Total | | $ | (8,385 | ) | | $ | (7,980 | ) |
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Current liabilities | $ | (647 | ) | | $ | (648 | ) |
| Other non-current liabilities | (9,992 | ) | | (11,186 | ) |
| Total | $ | (10,639 | ) | | $ | (11,834 | ) |
The following iswas included in accumulated other comprehensive loss and has not yet been recognized as a component of net periodic benefit cost:
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Net actuarial loss | | $ | 5,553 |
| | $ | 5,025 |
|
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Net actuarial loss | $ | 5,899 |
| | $ | 6,857 |
|
| Accumulated other comprehensive loss | $ | 5,899 |
| | $ | 6,857 |
|
The amount recognized in comprehensive earnings, net of tax expense, is as follows:was:
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Net actuarial (loss) gain | | $ | (405 | ) | | $ | 229 |
|
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Net actuarial (gain) loss | $ | (610 | ) | | $ | 1,458 |
|
| Total | $ | (610 | ) | | $ | 1,458 |
|
Components of the defined-benefit pension plans' net periodic benefit cost are as follows:cost:
|
| | | | | | | | | | | | |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| Interest cost | | $ | 492 |
| | $ | 506 |
| | $ | 531 |
|
| Expected return on assets | | (182 | ) | | (40 | ) | | (41 | ) |
| Amortization of unrecognized net loss | | 219 |
| | 226 |
| | 228 |
|
| Net periodic benefit cost | | $ | 529 |
| | $ | 692 |
| | $ | 718 |
|
|
| | | | | | | | | | | | |
| (In thousands) | | 2016 | | 2015 | | 2014 |
| Interest cost | | $ | 566 |
| | $ | 550 |
| | $ | 538 |
|
| Expected return on assets | | (137 | ) | | (171 | ) | | (183 | ) |
| Amortization of unrecognized net loss | | 249 |
| | 172 |
| | 163 |
|
| Net periodic benefit cost | | $ | 678 |
| | $ | 551 |
| | $ | 518 |
|
Total net periodic pension benefit cost is expected to be approximately $0.7$0.5 million in fiscal 2017.2021. 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 20172021 is $0.20.3 million, net of tax benefit.expense.
Additional Information
Assumptions
| | | Benefit Obligation Weighted-Average Assumptions | 2016 | | 2015 | | 2014 | | 2020 | | 2019 | | 2018 |
| Discount rate | 3.85 | % | | 3.60 | % | | 4.00 | % | | 3.80 | % | | 3.80 | % | | 3.80 | % |
|
| | | | | | | | | |
| Net Periodic Benefit Expense Weighted-Average Assumptions | | 2020 | | 2019 | | 2018 |
| Discount rate | | 2.50 | % | | 3.85 | % | | 3.80 | % |
| Expected long-term rate of return on assets | | 4.50 | % | | 4.50 | % | | 2.00 | % |
|
| | | | | | | | |
| Net Periodic Benefit Expense Weighted-Average Assumptions | 2016 | | 2015 | | 2014 |
| Discount rate | 3.60 | % | | 4.00 | % | | 3.75 | % |
| Expected long-term rate of return on assets | 2.00 | % | | 4.50 | % | | 4.50 | % |
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 20172021.
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 During fiscal 2016,2019, the assets of the Tubelite plan were investedmoved 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. Prior to this strategy change, the assets were invested in a long-term bond fund.
We do not maintain assets intended for the future use of the SERP.
Contributions
PensionCompany contributions to the plans for each of fiscal 20162020 were $0.7 million and 2015 totaled for fiscal 2019 were $0.92.1 million, which equaled or exceeded the minimum funding requirement.requirements.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026-2030 |
| Estimated future benefit payments | | $ | 1,052 |
| | $ | 1,012 |
| | $ | 979 |
| | $ | 955 |
| | $ | 921 |
| | $ | 4,260 |
|
|
| | | |
| (In thousands) | |
| Fiscal 2017 | $ | 1,017 |
|
| Fiscal 2018 | 1,004 |
|
| Fiscal 2019 | 1,031 |
|
| Fiscal 2020 | 1,016 |
|
| Fiscal 2021 | 1,001 |
|
| Fiscal 2022-2026 | 4,676 |
|
Employee Stock Purchase Plan
The Company also sponsors an employee stock purchase plan into which employees may contribute up to $500 per week on an after-tax basis. The Company contributes a match of 15 percent of the employee contribution. Contributions and matching funds are used to purchase shares of Company stock on the open market. The Company match to this plan was $0.1 million in each of fiscal 2016, 2015 and 2014.
10.11. Commitments and Contingent Liabilities
Operating lease commitments. As of February 27, 2016, 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) | Fiscal 2017 | | Fiscal 2018 | | Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | | Thereafter | | Total |
| Total minimum payments | $ | 8,329 |
| | $ | 7,773 |
| | $ | 7,068 |
| | $ | 5,775 |
| | $ | 3,319 |
| | $ | 2,663 |
| | $ | 34,927 |
|
Total rental expense, including operating leases and short-term equipment rentals, was $15.5 million, $18.7 million and $15.4 million in fiscal 2016, 2015 and 2014, respectively.
At February 27, 2016, 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 $2.3 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 February 27, 201629, 2020, $134.5$913.9 million of the Company’s backlog was bonded by performancethese types of bonds with a face valuewere outstanding, of $328.6 million. Performancewhich, $487.5 million is 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. The Company hasWe have never been required to make any payments related to these performance-basedunder surety or performance bonds with respect to anyour existing businesses.
Warranty and project-related contingencies
We reserve estimated exposures on known claims, as well as on a portion of its current portfolio of businesses.
Warranties. We accrueanticipated claims, for product warranty and claimrework costs as a percentage of sales based on historical trends and for specific sales creditsproduct liability claims as they become known and estimable. Actual warranty and claima ratio of sales. Claim 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 is provided below:follows:
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Balance at beginning of period | | $ | 16,737 |
| | $ | 22,517 |
|
| Additional accruals | | 8,224 |
| | 5,552 |
|
| Claims paid | | (9,332 | ) | | (11,332 | ) |
| Balance at end of period | | $ | 15,629 |
| | $ | 16,737 |
|
|
| | | | | | | |
| (In thousands) | 2016 | | 2015 |
| Balance at beginning of period | $ | 11,275 |
| | $ | 11,978 |
|
| Additional accruals | 8,214 |
| | 6,482 |
|
| Claims paid | (3,149 | ) | | (7,185 | ) |
| Balance at end of period | $ | 16,340 |
| | $ | 11,275 |
|
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 $49.0 million and $42.1 million as of February 29, 2020 and March 2, 2019, respectively. During fiscal 2020, we received $15.0 million of insurance proceeds related to a project matter, which was included within cost of sales on our consolidated results of operations.
Letters of credit.credit
At February 27, 201629, 2020, we had $24.7 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 February 27, 2016 was approximately $23.5 million, all of which have been issued under our credit facility. Our total availability under our $125.0 millionrevolving credit facility, is reduced by borrowings under the credit facility and also by letters of credit issued under the credit facility.as discussed in Note 8.
Purchase obligations.obligations
Purchase obligations for raw material commitments and capital expenditures totaled $245.0$170.4 million as of February 27, 2016.29, 2020.
Environmental liability.
In fiscal 2008, we acquired one1 manufacturing facility which has certain historical environmental conditions. We are working to remediateRemediation of these conditions which are being conductedis ongoing without significant disruption to our operations. OurThe estimated remaining liability for these remediation activities was $1.6$0.7 million and $1.8$1.2 million at February 27, 201629, 2020 and February 28, 2015,March 2, 2019, respectively.
New Markets Tax Credit transaction. In fiscal 2014, we(NMTC) transactions
We have entered into a transaction with JP Morgan Chase (JPM) relatedfour separate NMTC programs to an investmentsupport our operational expansion, including two transactions completed in plantfiscal 2019. Proceeds received from investors on these transactions are included within other current and equipment within the Architectural Glass segment (the Project) whereby we received $7.8 million of cash from a qualified New Markets Tax Credit transaction (NMTC).non-current liabilities on our consolidated balance sheets. The NMTC is intendedarrangements are subject to induce investment100 percent tax credit recapture for a period of seven years from the date of each respective transaction. Therefore, upon the termination of each arrangement, these proceeds will be recognized in underservedearnings in exchange for the transfer of tax credits. The direct and impoverished areasincremental costs incurred in structuring these arrangements have been deferred and are included in other current and non-current assets on our consolidated balance sheets. These costs will be recognized in conjunction with the recognition of the U.S.related proceeds on each arrangement. During the
In exchange for substantially allconstruction phase, 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, which have been included within our consolidated financial statements, have been created as a result of the benefits derived fromstructure of these transactions, as investors in the tax credits, JPM contributed $10.7 million into the Project. JPM doesprograms do not have a material interest in their underlying economics.
The table below provides a summary of our outstanding NMTC transactions (in millions):
|
| | | | | | | | | | | | | | |
| Inception date | | Termination date | | Proceeds received | | Deferred costs | | Net benefit |
| November 2013 | | November 2020 | | $ | 10.7 |
| | $ | 3.3 |
| | $ | 7.4 |
|
| June 2016 | | May 2023 | | 6.0 |
| | 1.2 |
| | 4.8 |
|
| August 2018 | | July 2025 | | 6.6 |
| | 1.3 |
| | 5.3 |
|
| September 2018 | | August 2025 | | 3.2 |
| | 1.0 |
| | 2.2 |
|
| Total | | | | $ | 26.5 |
| | $ | 6.8 |
| | $ | 19.7 |
|
Litigation
On November 5, 2018, a shareholder filed a purported securities class action against the underlying economicsCompany and certain named executive officers. On April 26, 2019, the new lead plaintiff filed an amended complaint, alleging that, during the purported class period of May 1, 2017 to April 10, 2019, the Company and the named executive officers made materially false or misleading statements or omissions about the Company's acquisition of EFCO Corporation on June 12, 2017, and about the Company's Architectural Glass business segment, in violation of the Project. Asfederal securities laws. On March 25, 2020, the District Court granted the Company's motion to dismiss without prejudice this matter.
On December 17, 2018, a resultdifferent shareholder filed a derivative lawsuit, purportedly on behalf of the transaction structure,Company, against certain of our executive officers and directors claiming breaches of fiduciary duty, waste of corporate assets and unjust enrichment. This complaint alleges that the entities created underofficers and directors allegedly made materially false or misleading statements or omissions about the Company's business, operations and prospects, particularly with respect to our Architectural Glass business segment, during the period between June 28, 2018 and September 17, 2018. This matter has been stayed, pending resolution of a motion to dismiss the foregoing matter. We intend to vigorously defend this transaction were determined to be variable-interest entities and have been consolidated.matter.
Based on our contractual obligation to deliver tax benefits to JPM, we have included the value of JPM’s contribution in other non-current liabilities within our consolidated balance sheets. The NMTC is subject to 100 percent recapture for a period of seven years. Proceeds received in exchange for the transfer of the tax credits are expected to be recognized as earnings in fiscal 2021, if the expected tax benefits are delivered without risk of recapture to JPM and our performance obligation is relieved.
Direct and incremental costs incurred in structuring the arrangement have been deferred and will be recognized in proportionIn addition to the recognition offoregoing, the related profits. These costs amounted to $3.3 million and are included in other non-current assets on our consolidated balance sheet.
Litigation. 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. 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.
| |
11.12. | Shareholders' Equity |
A class of 200,000 shares of junior preferred stock with a par value of $1.00 is authorized, but unissued.
Share Repurchases
During fiscal 2004, the Board of Directors authorized a share repurchase program, of 1,500,000 shares of common stock. The Board of Directors subsequently increased thiswith subsequent increases in authorization, including an increase in authorization by 750,0001,000,000 shares in fiscal 2008; by 1,000,000 shares in fiscal 2009; and by another 1,000,000 shares in fiscal 2016. The Company2020. We repurchased 575,000686,997 shares under the program during fiscal 2016,2020, for a total cost of $24.9$25.1 million. During fiscal 2015, the CompanyWe repurchased 203,5091,257,983 shares under the program, for a total cost of $6.9 million. There were no share repurchases during$43.3 million, in fiscal 2014.2019, and 702,299 shares under the program, for a total cost of $33.7 million, in fiscal 2018. The Company has repurchased a total of 3,057,6325,954,912 shares, at a total cost of $61.5$174.4 million,, since the inception of this program and hasprogram. We have remaining authority to repurchase 1,192,3682,295,088 shares under this program, which has no expiration date.
In addition to the shares repurchased according tounder this repurchase plan, during fiscal 20162020, 20152019 and 20142018, the Company also withheld $5.12.3 million, $5.22.0 million and $3.63.0 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 February 27, 201629, 2020 and February 28, 2015March 2, 2019:
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Net unrealized gain (loss) on marketable securities | | $ | 222 |
| | $ | (35 | ) |
| Foreign currency hedge | | (832 | ) | | (409 | ) |
| Pension liability adjustments | | (4,257 | ) | | (3,852 | ) |
| Foreign currency translation adjustments | | (29,195 | ) | | (27,831 | ) |
| Total accumulated other comprehensive loss | | $ | (34,062 | ) | | $ | (32,127 | ) |
|
| | | | | | | | |
| (In thousands) | | 2016 | | 2015 |
| Net unrealized gain on marketable securities | | $ | 79 |
| | $ | 6 |
|
| Pension liability adjustments | | (3,758 | ) | | (4,368 | ) |
| Foreign currency translation adjustments | | (27,692 | ) | | (17,958 | ) |
| Total accumulated other comprehensive loss | | $ | (31,371 | ) | | $ | (22,320 | ) |
| |
12.13. | Share-Based Compensation |
We have a 20092019 Stock Incentive Plan and a 20092019 Non-Employee Director Stock Incentive Plan (the Plans) whichthat 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 also 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-yearfour-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 included in the results of operations was $4.96.6 million for fiscal 20162020, $4.8$6.3 million for fiscal 2019 and $6.2 million for fiscal 2015 and $4.7 million2018. We elect to account for 2014.any forfeitures as they occur.
Stock Options and SARs
There were no stock options or SARs issued in any fiscal year presented. The following table summarizespresented, nor was there any activity forduring the current fiscal year, ended February 27, 2016:
summarized below:
|
| | | | | | | | | | | | | |
| | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value at Year-End |
| Outstanding at March 2, 2019 | | 100,341 |
| | $ | 8.34 |
| | | | |
| Awards exercised | | — |
| | — |
| | | | |
| Outstanding and exercisable at February 29, 2020 | | 100,341 |
| | $ | 8.34 |
| | 1.5 Years | | $ | 2,192,451 |
|
|
| | | | | | | | | | | | |
| | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| Outstanding at February 28, 2015 | 624,095 |
| | $ | 11.92 |
| | | | |
| Awards exercised | (220,381 | ) | | 12.10 |
| | | | |
| Outstanding and exercisable at February 27, 2016 | 403,714 |
| | $ | 11.81 |
| | 4.5 Years | | $ | 11,140,783 |
|
Cash proceeds from the exercise of stock options were $1.60.2 million, $1.2 million and $4.20.8 million for fiscal 2016, 20152019 and 20142018, respectively. 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 $7.5$0.6 million in fiscal 2016, $4.6 million in fiscal 2015 and $6.2$4.8 million in fiscal 2014. The tax benefit realized for tax deductions from option exercises totaled $3.9 million, $3.3 million2019 and $2.6 million for fiscal 2016, 2015 and 20142018, respectively.
Nonvested Share Awards and Units
The following table summarizes nonvested share activity for fiscal 20162020:
|
| | | | | | | |
| | | Number of Shares and Units | | Weighted Average Grant Date Fair Value |
| March 2, 2019 | | 286,613 |
| | $ | 47.00 |
|
| Granted | | 196,453 |
| | 37.14 |
|
| Vested | | (151,973 | ) | | 48.02 |
|
| Canceled | | (21,834 | ) | | 42.43 |
|
| February 29, 2020 | | 309,259 |
| | $ | 40.58 |
|
|
| | | | | | |
| | Number of Shares and Units | | Weighted Average Grant Date Fair Value |
| February 28, 2015 | 400,708 |
| | $ | 23.49 |
|
| Granted | 118,563 |
| | 52.80 |
|
| Vested | (237,457 | ) | | 21.49 |
|
| Canceled | (6,357 | ) | | 38.94 |
|
| February 27, 2016 | 275,457 |
| | $ | 37.48 |
|
At February 27, 201629, 2020, there was $6.37.3 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 2122 months. The total fair value of shares vested during fiscal 20162020 was $12.35.8 million.
Earnings before income taxes consisted of the following:
|
| | | | | | | | | | | | |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| United States | | $ | 97,297 |
| | $ | 60,042 |
| | $ | 111,980 |
|
| International | | (17,547 | ) | | (1,380 | ) | | (2,100 | ) |
| Earnings before income taxes | | $ | 79,750 |
| | $ | 58,662 |
| | $ | 109,880 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| U.S. | $ | 100,859 |
| | $ | 59,898 |
| | $ | 36,700 |
|
| International | (3,535 | ) | | 5,101 |
| | 3,066 |
|
| Earnings before income taxes | $ | 97,324 |
| | $ | 64,999 |
| | $ | 39,766 |
|
The components of income tax expense (benefit) for each of the last three fiscal years are as follows:was:
|
| | | | | | | | | | | | |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| Current | | | | | | |
| Federal | | $ | 8,493 |
| | $ | 22,746 |
| | $ | 22,074 |
|
| State and local | | 2,064 |
| | (4,437 | ) | | 3,106 |
|
| International | | (2,720 | ) | | (459 | ) | | 1,578 |
|
| Total current | | 7,837 |
| | 17,850 |
| | 26,758 |
|
| Deferred | | | | | | |
| Federal | | 9,513 |
| | (12,409 | ) | | 4,049 |
|
| State and local | | 2,152 |
| | 6,275 |
| | 351 |
|
| International | | (1,202 | ) | | 628 |
| | (1,205 | ) |
| Total deferred | | 10,463 |
| | (5,506 | ) | | 3,195 |
|
| Total non-current tax (benefit) expense | | (464 | ) | | 624 |
| | 439 |
|
| Total income tax expense | | $ | 17,836 |
| | $ | 12,968 |
| | $ | 30,392 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| Current: | | | | | |
| Federal | $ | 35,888 |
| | $ | 7,328 |
| | $ | 15,711 |
|
| State and local | 2,866 |
| | 1,198 |
| | 1,440 |
|
| International | (636 | ) | | 1,790 |
| | 1,437 |
|
| Total current | $ | 38,118 |
| | $ | 10,316 |
| | $ | 18,588 |
|
| Deferred: | | | | | |
| Federal | $ | (5,403 | ) | | $ | 4,738 |
| | $ | (4,549 | ) |
| State and local | (512 | ) | | (363 | ) | | (378 | ) |
| International | (224 | ) | | (101 | ) | | (353 | ) |
| Total deferred | $ | (6,139 | ) | | $ | 4,274 |
| | $ | (5,280 | ) |
| Total non-current tax benefit | $ | 3 |
| | $ | (107 | ) | | $ | (1,528 | ) |
| Total income tax expense | $ | 31,982 |
| | $ | 14,483 |
| | $ | 11,780 |
|
Income tax payments, net of refunds, were $25.917.8 million, $11.316.5 million and $12.925.7 million in fiscal 20162020, 20152019 and 20142018, respectively.
The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates:
|
| | | | | | | | | |
| | | 2020 | | 2019 | | 2018 |
| Statutory federal income tax rate | | 21.0 | % | | 21.0 | % | | 32.7 | % |
| Tax rate change revaluation | | — |
| | — |
| | (3.7 | ) |
| Manufacturing deduction | | — |
| | — |
| | (2.2 | ) |
| State and local income taxes, net of federal tax benefit | | 4.0 |
| | 2.7 |
| | 1.8 |
|
| Foreign tax rate differential | | (0.3 | ) | | 0.8 |
| | (0.7 | ) |
| Tax credits - research & development | | (1.6 | ) | | (2.7 | ) | | (0.9 | ) |
| Other, net | | (0.7 | ) | | 0.3 |
| | 0.7 |
|
| Consolidated effective income tax rate | | 22.4 | % | | 22.1 | % | | 27.7 | % |
|
| | | | | |
| | 2016 | | 2015 | | 2014 |
| Federal income tax expense at statutory rate | 35.0% | | 35.0% | | 35.0% |
| Manufacturing deduction | (3.4) | | (2.3) | | (3.5) |
| State and local income taxes, net of federal tax benefit | 1.6 | | 1.2 | | 0.9 |
| Tax credits - research & development | (0.8) | | (1.1) | | (1.6) |
| Tax credits - 48C | — | | (9.9) | | — |
| Nondeductible acquisition costs | — | | — | | 0.3 |
| Tax reserve adjustments - statute expirations and benefits recognized | — | | (0.2) | | (2.2) |
| Change in valuation allowance | — | | 0.1 | | 0.4 |
| Other, net | 0.5 | | (0.5) | | 0.3 |
| Income tax expense | 32.9% | | 22.3% | | 29.6% |
The estimated effective tax rate for fiscal 2019 declined 5.6 percentage points from fiscal 2018 primarily due to the reduced Federal rate under the U.S. Tax Cuts and Jobs Act ("the Act"), which was enacted in December 2017.
In fiscal 2015, the Company recognized approximately $6.4 million of tax benefit from an energy-efficient investment credit under Section 48C of the U.S. Internal Revenue Code, upon successful start-up and commercial production of coatings on our new architectural glass coater. The tax credit was awarded in 2011 by the U.S. Internal Revenue Service (IRS) in cooperation with the Department of Energy as part of the American Reinvestment and Recovery Act to incent energy-efficient investments throughout the U.S.
In fiscal 2016, 2015 and 2014, tax benefits associated with stock-based incentive plans were $3.9 million, $3.3 million and $2.6 million, respectively. These benefits impacted additional paid-in capital directly and were not reflected in the determination of income tax expense or benefit.
Deferred tax assets and deferred tax liabilities at February 27, 201629, 2020 and February 28, 2015 are as follows:March 2, 2019 were:
|
| | | | | | | | |
| (In thousands) | | 2020 | | 2019 |
| Deferred tax assets | | | | |
| Accrued expenses | | $ | 15,832 |
| | $ | 13,530 |
|
| Deferred compensation | | 7,934 |
| | 9,007 |
|
| Liability for unrecognized tax benefits | | 1,941 |
| | 2,547 |
|
| Unearned income | | 5,238 |
| | 4,557 |
|
| Operating lease liabilities | | 6,640 |
| | — |
|
| Net operating losses and tax credits | | 11,093 |
| | 9,913 |
|
| Other | | 1,502 |
| | 1,550 |
|
| Total deferred tax assets | | 50,180 |
| | 41,104 |
|
| Less: valuation allowance | | (8,727 | ) | | (8,546 | ) |
| Deferred tax assets, net of valuation allowance | | 41,453 |
| | 32,558 |
|
| Deferred tax liabilities | | | | |
| Goodwill and other intangibles | | 8,166 |
| | 5,151 |
|
| Depreciation | | 32,296 |
| | 24,289 |
|
| Operating lease, right-of-use assets | | 6,666 |
| | — |
|
| Total deferred tax liabilities | | 47,128 |
| | 29,440 |
|
| Net deferred tax (liabilities) assets | | $ | (5,675 | ) | | $ | 3,118 |
|
|
| | | | | | | | | | | | | | | |
| | 2016 | | 2015 |
| (In thousands) | Current | | Noncurrent | | Current | | Noncurrent |
| Accounts receivable | $ | 825 |
| | $ | — |
| | $ | 1,022 |
| | $ | — |
|
| Other accruals | 2,968 |
| | 1,281 |
| | 2,872 |
| | 1,212 |
|
| Deferred compensation | 554 |
| | 12,594 |
| | 419 |
| | 11,250 |
|
| Goodwill and other intangibles | 18 |
| | (7,615 | ) | | 21 |
| | (7,994 | ) |
| Depreciation | — |
| | (17,354 | ) | | (853 | ) | | (20,544 | ) |
| Liability for unrecognized tax benefits | — |
| | 2,797 |
| | — |
| | 2,784 |
|
| Net operating losses | — |
| | 2,945 |
| | — |
| | 3,084 |
|
| Valuation allowance on net operating losses | (2,194 | ) | | (306 | ) | | (2,149 | ) | | (442 | ) |
| Other | (351 | ) | | 686 |
| | 27 |
| | (2 | ) |
| Deferred tax assets (liabilities) | $ | 1,820 |
| | $ | (4,972 | ) | | $ | 1,359 |
| | $ | (10,652 | ) |
The Company has U.S. federal tax credits as well as state net operating loss carryforwards in certain U.S. state jurisdictions with a tax effect of $3.5 million.$11.1 million. A valuation allowance of $2.5$8.7 million has been established for these net operating loss carryforwards due to the uncertainty of our ability tothe 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 2013,2017, or state and local income tax examinations for years prior to fiscal 2009.2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal 2012,year 2016, 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 during which 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, $2.7$2.6 million, $3.1 million and $2.4 million for fiscal 20162020, 2019 and $2.6 million for each of fiscal 2015 and fiscal 20142018, respectively, would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2016, 20152020, 2019 and 2014,2018, are $1.8$1.5 million,, $1.9 $2.0 million and $1.8$2.3 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. DuringFor fiscal 2016, our accrual of $0.5 million for2020 and 2019, we accrued penalties and interest related to unrecognized tax benefits of $0.3 million. For fiscal 2018, the accrual was consistent with the prior year. During fiscal 2015 and 2014, respectively, we reduced our accrual for penalties and interest by $0.3 million and $0.5 million, resulting in reserve balances of $0.5 million and $0.8 million at the end of fiscal 2015 and fiscal 2014, respectively.$0.4 million.
The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits:
|
| | | | | | | | | | | | |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| Gross unrecognized tax benefits at beginning of year | | $ | 5,111 |
| | $ | 4,705 |
| | $ | 4,075 |
|
| Gross increases in tax positions for prior years | | 82 |
| | 500 |
| | 614 |
|
| Gross decreases in tax positions for prior years | | (1,100 | ) | | (377 | ) | | (122 | ) |
| Gross increases based on tax positions related to the current year | | 425 |
| | 1,067 |
| | 639 |
|
| Settlements | | (15 | ) | | (303 | ) | | — |
|
| Statute of limitations expiration | | (432 | ) | | (481 | ) | | (519 | ) |
| Revaluation impact | | — |
| | — |
| | 18 |
|
| Gross unrecognized tax benefits at end of year | | $ | 4,071 |
| | $ | 5,111 |
| | $ | 4,705 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| Gross unrecognized tax benefits at beginning of year | $ | 4,491 |
| | $ | 4,431 |
| | $ | 5,516 |
|
| Gross increases in tax positions for prior years | 60 |
| | 261 |
| | 44 |
|
| Gross decreases in tax positions for prior years | (158 | ) | | (276 | ) | | (616 | ) |
| Gross increases based on tax positions related to the current year | 526 |
| | 508 |
| | 326 |
|
| Gross decreases based on tax positions related to the current year | (33 | ) | | (21 | ) | | (40 | ) |
| Settlements | — |
| | (93 | ) | | (84 | ) |
| Statute of limitations expiration | (374 | ) | | (319 | ) | | (809 | ) |
| Unrecognized tax benefits acquired | — |
| | — |
| | 94 |
|
| Gross unrecognized tax benefits at end of year | $ | 4,512 |
| | $ | 4,491 |
| | $ | 4,431 |
|
The total liability for unrecognized tax benefits is expected to decrease by approximately $0.90.4 million during fiscal 20172021 due to audit settlements and 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) | | 2020 | | 2019 | | 2018 |
| Basic earnings per share - weighted average common shares outstanding | | 26,474 |
| | 27,802 |
| | 28,534 |
|
| Weighted average effect of nonvested share grants and assumed exercise of stock options | | 255 |
| | 280 |
| | 270 |
|
| Diluted earnings per share - weighted average common shares and potential common shares outstanding | | 26,729 |
| | 28,082 |
| | 28,804 |
|
| 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 | | 99 |
| | 134 |
| | 141 |
|
|
| | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| Basic earnings per share - weighted average common shares outstanding | 29,058 |
| | 28,763 |
| | 28,483 |
|
| Weighted average effect of nonvested share grants and assumed exercise of stock options | 317 |
| | 611 |
| | 891 |
|
| Diluted earnings per share - weighted average common shares and potential common shares outstanding | 29,375 |
| | 29,374 |
| | 29,374 |
|
| Stock options excluded from the calculation of earnings per share because the exercise price was greater than the average market price of the common shares | — |
| | — |
| | — |
|
15.16.Business Segment Data
We have four4 reporting segments:
The Architectural Glass segment fabricates coated, high-performance glass used in customized window and wall systems comprising the outside skin of commercial, institutional and high-end multi-family residential buildings.
The Architectural Services segment designs, engineers, fabricates and installs the walls of glass, windows and other curtainwall products making up the outside skin of commercial and institutional buildings.
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 four operating segments into this reporting segment based on their similar products, customers, distribution methods, production processes and economic characteristics.
| |
| • | 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 6 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. |
The Large-Scale Optical Technologies (LSO) segment manufactures value-added glass and acrylic products for the custom picture framing and fine art markets. |
| | | | | | | | | | | | |
| (In thousands) | | 2020 | | 2019 | | 2018 |
| Net Sales | | | | | | |
| Architectural Framing Systems | | $ | 686,596 |
| | $ | 720,829 |
| | $ | 677,198 |
|
| Architectural Glass | | 387,191 |
| | 367,203 |
| | 384,137 |
|
| Architectural Services | | 269,140 |
| | 286,314 |
| | 213,757 |
|
| Large-Scale Optical | | 87,911 |
| | 88,493 |
| | 88,303 |
|
| Intersegment elimination | | (43,399 | ) | | (60,202 | ) | | (37,222 | ) |
| Total | | $ | 1,387,439 |
| | $ | 1,402,637 |
| | $ | 1,326,173 |
|
| Operating Income (Loss) | | | | | | |
| Architectural Framing Systems | | $ | 36,110 |
| | $ | 49,660 |
| | $ | 59,031 |
|
| Architectural Glass | | 20,760 |
| | 16,503 |
| | 32,764 |
|
| Architectural Services | | 23,582 |
| | 30,509 |
| | 10,420 |
|
| Large-Scale Optical | | 22,642 |
| | 23,003 |
| | 22,000 |
|
| Corporate and other | | (15,246 | ) | | (52,391 | ) | | (9,931 | ) |
| Total | | $ | 87,848 |
| | $ | 67,284 |
| | $ | 114,284 |
|
| Depreciation and Amortization | | | | | | |
| Architectural Framing Systems | | $ | 25,432 |
| | $ | 28,937 |
| | $ | 31,764 |
|
| Architectural Glass | | 13,570 |
| | 13,009 |
| | 14,525 |
|
| Architectural Services | | 1,305 |
| | 1,234 |
| | 1,325 |
|
| Large-Scale Optical | | 3,256 |
| | 3,692 |
| | 4,556 |
|
| Corporate and other | | 3,232 |
| | 2,926 |
| | 2,673 |
|
| Total | | $ | 46,795 |
| | $ | 49,798 |
| | $ | 54,843 |
|
| Capital Expenditures | | | | | | |
| Architectural Framing Systems | | $ | 22,744 |
| | $ | 19,098 |
| | $ | 15,273 |
|
| Architectural Glass | | 19,862 |
| | 27,722 |
| | 26,228 |
|
| Architectural Services | | 1,749 |
| | 1,433 |
| | 2,510 |
|
| Large-Scale Optical | | 3,153 |
| | 6,989 |
| | 3,307 |
|
| Corporate and other | | 3,920 |
| | 5,475 |
| | 5,878 |
|
| Total | | $ | 51,428 |
| | $ | 60,717 |
| | $ | 53,196 |
|
| Identifiable Assets | | | | | | |
| Architectural Framing Systems | | $ | 604,870 |
| | $ | 617,001 |
| | $ | 618,455 |
|
| Architectural Glass | | 291,104 |
| | 281,817 |
| | 250,407 |
|
| Architectural Services | | 107,538 |
| | 59,227 |
| | 53,424 |
|
| Large-Scale Optical | | 62,831 |
| | 61,031 |
| | 58,523 |
|
| Corporate and other | | 62,648 |
| | 49,092 |
| | 41,511 |
|
| Total | | $ | 1,128,991 |
| | $ | 1,068,168 |
| | $ | 1,022,320 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| Net Sales | | | | | |
| Architectural glass | $ | 377,713 |
| | $ | 346,471 |
| | $ | 293,810 |
|
| Architectural services | 245,935 |
| | 230,650 |
| | 203,351 |
|
| Architectural framing systems | 308,593 |
| | 298,395 |
| | 216,059 |
|
| Large-scale optical | 88,541 |
| | 87,693 |
| | 81,127 |
|
| Intersegment elimination | (39,593 | ) | | (29,273 | ) | | (22,902 | ) |
| Total | $ | 981,189 |
| | $ | 933,936 |
| | $ | 771,445 |
|
| Operating Income (Loss) | | | | | |
| Architectural glass | $ | 35,504 |
| | $ | 16,431 |
| | $ | 3,861 |
|
| Architectural services | 11,687 |
| | 7,442 |
| | 4,479 |
|
| Architectural framing systems | 31,911 |
| | 21,808 |
| | 14,930 |
|
| Large-scale optical | 22,963 |
| | 21,954 |
| | 21,252 |
|
| Corporate and other | (4,672 | ) | | (4,050 | ) | | (4,237 | ) |
| Total | $ | 97,393 |
| | $ | 63,585 |
| | $ | 40,285 |
|
| Depreciation and Amortization | | | | | |
| Architectural glass | $ | 14,397 |
| | $ | 12,897 |
| | $ | 11,624 |
|
| Architectural services | 1,274 |
| | 1,375 |
| | 1,421 |
|
| Architectural framing systems | 8,019 |
| | 8,001 |
| | 6,436 |
|
| Large-scale optical | 4,998 |
| | 4,817 |
| | 4,861 |
|
| Corporate and other | 2,560 |
| | 2,333 |
| | 2,208 |
|
| Total | $ | 31,248 |
| | $ | 29,423 |
| | $ | 26,550 |
|
| Capital Expenditures | | | | | |
| Architectural glass | $ | 17,701 |
| | $ | 12,307 |
| | $ | 31,568 |
|
| Architectural services | 929 |
| | 595 |
| | 1,195 |
|
| Architectural framing systems | 19,166 |
| | 9,238 |
| | 7,008 |
|
| Large-scale optical | 1,962 |
| | 3,500 |
| | 546 |
|
| Corporate and other | 2,279 |
| | 1,580 |
| | 1,535 |
|
| Total | $ | 42,037 |
| | $ | 27,220 |
| | $ | 41,852 |
|
| Identifiable Assets | | | | | |
| Architectural glass | $ | 215,571 |
| | $ | 223,525 |
| | $ | 209,102 |
|
| Architectural services | 81,574 |
| | 68,930 |
| | 66,567 |
|
| Architectural framing systems | 193,823 |
| | 190,106 |
| | 186,520 |
|
| Large-scale optical | 57,369 |
| | 60,356 |
| | 58,102 |
|
| Corporate and other | 109,103 |
| | 69,140 |
| | 49,704 |
|
| Total | $ | 657,440 |
| | $ | 612,057 |
| | $ | 569,995 |
|
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) | | 2020 | | 2019 | | 2018 |
| Net Sales | | | | | | |
| United States | | $ | 1,254,311 |
| | $ | 1,259,319 |
| | $ | 1,187,922 |
|
| Canada | | 120,498 |
| | 128,735 |
| | 122,981 |
|
| Brazil | | 12,630 |
| | 14,583 |
| | 15,270 |
|
| Total | | $ | 1,387,439 |
| | $ | 1,402,637 |
| | $ | 1,326,173 |
|
| Long-Lived Assets | | | | | | |
| United States | | $ | 307,782 |
| | $ | 297,072 |
| | $ | 283,432 |
|
| Canada | | 11,130 |
| | 12,563 |
| | 13,384 |
|
| Brazil | | 5,474 |
| | 6,188 |
| | 7,247 |
|
| Total | | $ | 324,386 |
| | $ | 315,823 |
| | $ | 304,063 |
|
|
| | | | | | | | | | | |
| (In thousands) | 2016 | | 2015 | | 2014 |
| Net Sales | | | | | |
| United States | $ | 923,018 |
| | $ | 847,887 |
| | $ | 718,881 |
|
| Canada | 39,324 |
| | 50,807 |
| | 15,850 |
|
| Brazil | 18,847 |
| | 35,242 |
| | 36,714 |
|
| Total | $ | 981,189 |
| | $ | 933,936 |
| | $ | 771,445 |
|
| Long-Lived Assets | | | | | |
| United States | $ | 189,624 |
| | $ | 178,048 |
| | $ | 177,378 |
|
| Canada | 7,162 |
| | 8,214 |
| | 9,031 |
|
| Brazil | 5,676 |
| | 7,278 |
| | 7,537 |
|
| Total | $ | 202,462 |
| | $ | 193,540 |
| | $ | 193,946 |
|
Apogee's export net sales from U.S. operations of $79.5were $54.7 million, for $56.3 million, and $49.1 million in fiscal 2016 were2020, 2019, and 2018, respectively, representing approximately 84 percent of consolidated net sales; export net sales in each of $72.7 million forthese fiscal 2015 were approximately 8 percent of consolidated net sales; and export sales of $52.5 million for fiscal 2014 were approximately 7 percent of consolidated net sales. All sales from Canada and Brazil were to customers outside the U.S.years.
| |
16.17. | Quarterly Data (Unaudited) |
|
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter | | |
| (In thousands, except per share data) | | First | | Second | | Third | | Fourth | | Total |
| 2020 | | | | | | | | | | |
| Net sales | | $ | 355,365 |
| | $ | 357,058 |
| | $ | 337,916 |
| | $ | 337,100 |
| | $ | 1,387,439 |
|
| Gross profit | | 80,967 |
| | 86,207 |
| | 74,310 |
| | 77,475 |
| | 318,959 |
|
| Net earnings | | 15,443 |
| | 19,279 |
| | 15,234 |
| | 11,958 |
| | 61,914 |
|
| Earnings per share - basic | | 0.58 |
| | 0.73 |
| | 0.58 |
| | 0.45 |
| | 2.34 |
|
| Earnings per share - diluted | | 0.58 |
| | 0.72 |
| | 0.57 |
| | 0.45 |
| | 2.32 |
|
| 2019 | | | | | | | | | | |
| Net sales | | $ | 336,531 |
| | $ | 362,133 |
| | $ | 357,718 |
| | $ | 346,255 |
| | $ | 1,402,637 |
|
| Gross profit | | 80,730 |
| | 84,466 |
| | 84,090 |
| | 44,279 |
| | 293,565 |
|
| Net earnings (loss) | | 15,373 |
| | 20,513 |
| | 21,891 |
| | (12,083 | ) | (1) | 45,694 |
|
| Earnings (loss) per share - basic | | 0.55 |
| | 0.73 |
| | 0.79 |
| | (0.45 | ) | | 1.64 |
|
| Earnings (loss) per share - diluted | | 0.54 |
| | 0.72 |
| | 0.78 |
| | (0.45 | ) | | 1.63 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Quarter | | |
| (In thousands, except per share data) | First | | Second | | Third | | Fourth | | Total |
| Fiscal 2016 | | | | | | | | | |
| Net sales | $ | 239,962 |
| | $ | 240,754 |
| | $ | 238,324 |
| | $ | 262,149 |
| | $ | 981,189 |
|
| Gross profit | 55,588 |
| | 56,699 |
| | 62,426 |
| | 68,857 |
| | 243,570 |
|
| Net earnings | 12,126 |
| | 14,760 |
| | 18,521 |
| | 19,935 |
| | 65,342 |
|
| Earnings per share - basic | 0.42 |
| | 0.51 |
| | 0.64 |
| | 0.69 |
| | 2.25 |
|
| Earnings per share - diluted | 0.41 |
| | 0.50 |
| | 0.63 |
| | 0.69 |
| | 2.22 |
|
| Fiscal 2015 | | | | | | | | | |
| Net sales | $ | 210,883 |
| | $ | 231,945 |
| | $ | 244,410 |
| | $ | 246,698 |
| | $ | 933,936 |
|
| Gross profit | 41,438 |
| | 49,321 |
| | 56,653 |
| | 61,132 |
| | 208,544 |
|
| Net earnings | 6,102 |
| | 16,791 |
| | 13,736 |
| | 13,887 |
| | 50,516 |
|
| Earnings per share - basic | 0.21 |
| | 0.59 |
| | 0.47 |
| | 0.49 |
| | 1.76 |
|
| Earnings per share - diluted | 0.21 |
| | 0.57 |
| | 0.47 |
| | 0.47 |
| | 1.72 |
|
Note: Per share amounts are computed independently for 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.
(1) Fiscal 2019 fourth quarter net loss includes $42.6 million of project-related charges on contracts that were acquired with the purchase of EFCO.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| |
| 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 2324 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 25 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, CODE OF ETHICS AND CORPORATE GOVERNANCE |
We have adopted a Code of Business Ethics and Conduct whichthat applies to all of our employees and Board of Directors. The Code of Business Ethics and Conduct is published on 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 Officers of the Registrant,” is set forth under the headings “Proposal 1: Election of Directors,” “Frequently Asked Questions - How Can A Shareholder Recommend or Nominate a Director Candidate?”, “Corporate Governance - Board Meetings and 20152019 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 23, 2016,24, 2020, which will be filed with the Securities and Exchange Commission within 120 days after our fiscal year-end (our 20162020 Proxy Statement). This information is incorporated herein by reference.
| |
| ITEM 11. | EXECUTIVE AND DIRECTOR COMPENSATION |
The information required by this item is set forth under the headings “Executive Compensation,”Compensation” and “Non-Employee Director Compensation, Historical Awards Under the Stock Incentive Plan” and "Equity Compensation Plan Information"Compensation" in our 20162020 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 to our equity compensation plans, the number of shares of our common stock to be issued upon exercise of outstanding options, warrants and other rights to acquire shares, the weighted-average exercise price of these outstanding options, warrants and rights, and the number of shares remaining available for future issuance under our equity compensation plans as of February 29, 2020, the last day of fiscal 2020.
|
| | | | | | | | | | | |
| 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 | | 182,543 |
| (1) (2) | N/A |
| (3) | 1,316,134 |
| (4) |
| Equity compensation plans not approved by security holders | | 100,341 |
| (5) | 8.34 |
| | None |
| |
| Total | | 282,884 |
| | $ | 8.34 |
| | 1,316,134 |
| |
(1) Includes restricted stock unit awards granted under our 2009 Stock Incentive Plan, 2019 Stock Incentive Plan, 2009 Non-Employee Director Stock Plan, and 2019 Non-Employee Director Stock Plan and phantom shares under our Non-Employee Director Deferred Compensation Plan. 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 263,127 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, 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, 53,346 are available for issuance under our Legacy Partnership Plan; 1,105,000 are available for grant under our 2019 Stock Incentive Plan; 126,318 are available for grant under our 2019 Non-Employee Director Stock Plan; and 31,470 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 information required by this item is set forth under the headings “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Management”options vested in our 2016 Proxy Statement. This information is incorporated herein by reference.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 “Certain“Corporate Governance - Director Independence” and "Corporate Governance - Certain Relationships and Related Transactions” and “Corporate Governance - Board Independence”Transactions" in our 20162020 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 Report and Payment of Fees 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” in our 20162020 Proxy Statement. This information is incorporated herein by reference.
PART IV
| |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| |
| 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 February 27, 201629, 2020 and February 28, 2015March 2, 2019
Consolidated Results of Operations for the Years Ended February 27, 201629, 2020, February 28, 2015March 2, 2019 and March 1, 20143, 2018
Consolidated Statements of Comprehensive Earnings for the Years Ended February 27, 2016, February 28, 201529, 2020, March 2, 2019 and March 1, 20143, 2018
Consolidated Statements of Cash Flows for the Years Ended February 27, 201629, 2020, February 28, 2015March 2, 2019 and March 1, 20143, 2018
Consolidated Statements of Shareholders' Equity for the Years Ended February 27, 201629, 2020, February 28, 2015March 2, 2019 and March 1, 20143, 2018
Notes to Consolidated Financial Statements
| |
| 2. | Financial Statement Schedules - Valuation and Qualifying Accounts |
|
| | | | | | | | | | | | | | | | | | | |
| (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 February 27, 2016 | | $ | 3,242 |
| $ | — |
| $ | (197 | ) | $ | 493 |
| $ | (55 | ) | $ | 2,497 |
|
| For the year ended February 28, 2015 | | 2,934 |
| — |
| 1,322 |
| 969 |
| (45 | ) | 3,242 |
|
| For the year ended March 1, 2014 | | 2,493 |
| 832 |
| 408 |
| 721 |
| (78 | ) | 2,934 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| (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 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 |
|
| For the year ended March 3, 2018 | | 1,495 |
| | 252 |
| | 1,345 |
| | 1,559 |
| | (3 | ) | | 1,530 |
|
(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. |
|
| | |
| | |
| | Amended and |
4.1 | | |
| | |
10.1* | | 1997 Omnibus Stock Incentive Plan. Incorporated by reference to Exhibit A |
10.2* | | |
10.3* | | |
|
| | |
10.4* | | |
10.5* | | Apogee Enterprises, Inc. Amended and Restated 2002 Omnibus Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on June 30, 2006. |
10.6* | | |
10.7* | | |
10.8* | | Form of Stock Appreciation Rights Agreement under the Apogee Enterprises, Inc. 2002 Omnibus Stock Incentive Plan. Incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K filed on April 19, 2005. |
10.9* | | |
10.10* | | Form of Non-Employee Director Stock Option Agreement under the Apogee Enterprises, Inc. 2002 Omnibus Stock Incentive Plan. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on June 16, 2005. |
10.11* | | |
10.12* | | |
10.13* | | |
10.14* | | |
10.15* | | |
10.16* | | |
10.17* | | |
|
10.18* | | |
| | |
10.19* | | |
10.20* | | |
10.21* | | |
10.22* | | |
10.23* | | |
10.24* | | |
10.25* | | |
10.26* | | |
|
| | |
10.27* | | |
10.28* | | |
10.29* | | |
| | |
10.30* | | Employment Agreement between Apogee Enterprises, Inc. and Joseph F. Puishys, made and entered into as of August 5, 2011, to be effective as of August 22, 2011. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on August 8, 2011. |
10.31* | | |
10.32* | | Form of Option Agreement to be entered into by Apogee Enterprises, Inc. and Joseph F. Puishys on August 22, 2011. Incorporated by reference to Exhibit 10.3 to Registrant's Current Report on Form 8-K filed on August 8, 2011. |
10.33* | | Form |
10.34* | | Form of Performance Award Agreement under the Apogee Enterprises, Inc. 2009 Stock Incentive Plan, as amended and restated (2011). Incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K filed on May 2, 2012.2017. |
10.35* | | |
| | |
| | |
10.36* | | |
10.37* | | Form of Evaluation-Based Retention Agreement under |
10.38* | | |
| | |
| | |
10.39 | | Amended and Restated Credit Agreement, dated as of October 19, 2012, by and among Apogee Enterprises, Inc., as the Borrower, the Lenders referred to herein, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender, and Comerica Bank, as Documentation Agent and Issuing Lender. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on October 25, 2012. |
10.40 | | Amendment No. 1 to Amended and Restated Credit Agreement, dated as of November 20, 2013, by and among Apogee Enterprises, Inc., as the Borrower, the Lenders (as defined therein), and Wells Fargo Bank, National Association, as Administrative Agent. Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on November 25, 2013.January 16, 2020. |
10.41 | | Amendment No. |
| | |
|
| | |
| | |
| | |
| | Third Amended and Restated Credit Agreement, dated as of December 17, 2014,June 25, 2019, by and among Apogee Enterprises, Inc., as the Borrower, the Lenders referred to therein, Wells Fargo Bank, National Association, as Administrative Agent.Agent, Swingline 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'sRegistrant’s Current Report on Form 8-K filed on December 23, 2014.June 28, 2019. |
10.42 | | Share PurchaseAmendment No. 1 to Third Amended and Restated Credit Agreement dated November 5, 2013, between 2393514 Ontario Inc.,as of June 25, 2019, by and among Apogee Enterprises, Inc., PEF 2005 Alumicor Investment Limited Partnership, on behalf of itselfas 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 Sellers’Syndication Agent Andre Belanger, Ken Rowson, John Castelhano, Anthony Kerwin, Lawrence Maker, Paul Antoniadis, and Alumicor Limited.Issuing Lender. Incorporated by reference to Exhibit 2.110.1 to Registrant’s Current Report on Form 8-K filed on April 10, 2020. |
| | Cooperation Agreement dated November 10, 2019, by and among Apogee Enterprises, Inc., Engaged Capital, LLC, Engaged Capital Flagship Master Fund, LP, Engaged Capital Flagship Fund, LP, Engaged Capital Flagship Fund, Ltd., Engaged Capital Holdings, LLC and Glenn W. Welling. Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on November 5, 2013.12, 2019. |
10.43* | | Apogee Enterprises, Inc. 401(k) Retirement Plan, effective January 1, 2015. Incorporated by reference to Exhibit 4.4 to Registrant's Registration Statement on Form S-8 filed October 9, 2015. |
21# | | |
| | |
31.1# | | |
| | |
| | |
| | |
|
| | |
| | |
| 101 | | The following materials from Apogee Enterprises, Inc.'s Annual Report on Form 10-K for the year ended February 27, 2016Ferbuary 29, 2020 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of February 27, 201629, 2020 and February 28, 2015,March 2, 2019, (ii) the Consolidated Results of Operations for the three years ended February 27, 2016, February 28, 201529, 2020, March 2, 2019 and March 1, 2014,3, 2018, (iii) the Consolidated Statements of Comprehensive Earnings for the three years ended February 27, 2016, February 28, 201529, 2020, March 2, 2019 and March 1, 2014,3, 2018, (iv) the Consolidated Statements of Cash Flows for the three years ended February 27, 2016, February 28, 201529, 2020, March 2, 2019 and March 1, 2104,3, 2018, (v) the Consolidated Statements of Shareholders' Equity for the years ended February 27, 2016, February 28, 201529, 2020, March 2, 2019 and March 1, 20143, 2018 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 25, 2016.24, 2020.
|
| |
| APOGEE ENTERPRISES, INC. | |
| | |
| /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 25, 2016.24, 2020.
|
| | | | | | | | |
| 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) |
| | | | | | | | | |
/s/ Bernard P. Aldrich* | | | | | * | | | |
| Donald A. Nolan | | | Chairman | | /s/ Robert J. MarzecElizabeth M. Lilly | | | Director |
Bernard P. Aldrich | | | | | Robert J. Marzec | | | |
| | | | | | | | | |
/s/ Jerome L. Davis* | | | | | * | | | |
| Bernard P. Aldrich | | | Director | | /s/ Donald A. NolanHerbert K. Parker | | | Director |
Jerome L. Davis | | | | | Donald A. Nolan | | | |
| | | | | | | | | |
/s/ Sara L. Hays* | | | | | * | | | |
| Christina M. Alvord | | | Director | | /s/ Richard V. ReynoldsMark A. Pompa | | | Director |
Sara L. Hays | | | | | Richard V. Reynolds | | | |
| | | | | | | | | |
/s/ John T. Manning* | | | | | * | | | |
| Frank G. Heard | | | Director | | /s/ Patricia K. Wagner | | | Director |
John T. Manning | | | | | Patricia K. Wagner | | | |
| * | | | | | /s/ Patricia A. Beithon | | | |
| Lloyd E. Johnson | | | Director | | Patricia A. Beithon | | | Attorney-in-Fact |
| | | | | | | | | |
| | | | | | /s/ David E. Weiss | | | Director |
| | | | |
| David E. Weiss | | | * Patricia A. Beithon, by signing her name hereto, does hereby sign this report on behalf of the directors of the registrant after whose typed names asterisks appear, pursuant to powers of attorney executed by such directors and filed with the Securities and Exchange Commission. |
