UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 2, 2017September 1, 2018
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o | 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 78th Street – Suite 520, Minneapolis, MN | | 55435 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (952) 835-1874
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
_________________________________
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 o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,website, 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 o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | x | | Accelerated filer | | o |
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Non-accelerated filer | | o (Do not check if a smaller reporting company) | | Smaller reporting company | | o |
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Emerging growth company | | o | | | | |
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. | | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of January 10,October 8, 2018, 28,417,36628,182,387 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
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PART I | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION
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Item 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
(unaudited)
| | (In thousands, except stock data) | | December 2, 2017 | | March 4, 2017 | |
In thousands, except stock data | | | September 1, 2018 | | March 3, 2018 |
Assets | | | | | | | | |
Current assets | | | | | | | | |
Cash and cash equivalents | | $ | 12,845 |
| | $ | 19,463 |
| | $ | 18,113 |
| | $ | 19,359 |
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Short-term available for sale securities | | 482 |
| | 548 |
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Restricted cash | | — |
| | 7,834 |
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Receivables, net of allowance for doubtful accounts | | 246,863 |
| | 185,740 |
| | 200,770 |
| | 211,852 |
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Inventories | | 98,062 |
| | 73,409 |
| | 81,933 |
| | 80,908 |
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Refundable income taxes | | — |
| | 1,743 |
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Costs and earnings on contracts in excess of billings | | | 44,585 |
| | 4,120 |
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Other current assets | | 16,536 |
| | 8,724 |
| | 15,792 |
| | 20,039 |
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Total current assets | | 374,788 |
| | 297,461 |
| | 361,193 |
| | 336,278 |
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Property, plant and equipment, net | | 302,904 |
| | 246,748 |
| | 308,314 |
| | 304,063 |
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Available for sale securities | | 9,766 |
| | 9,041 |
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Deferred tax assets | | 6,128 |
| | 4,025 |
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Restricted cash | | | 17,852 |
| | — |
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Goodwill | | 152,881 |
| | 101,334 |
| | 186,522 |
| | 180,956 |
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Intangible assets | | 173,856 |
| | 106,686 |
| | 157,991 |
| | 167,349 |
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Other non-current assets | | 23,445 |
| | 19,363 |
| | 41,745 |
| | 33,674 |
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Total assets | | $ | 1,043,768 |
| | $ | 784,658 |
| | $ | 1,073,617 |
| | $ | 1,022,320 |
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Liabilities and Shareholders’ Equity | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 62,655 |
| | $ | 63,182 |
| | $ | 75,630 |
| | $ | 68,416 |
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Accrued payroll and related benefits | | 33,769 |
| | 51,244 |
| | 32,254 |
| | 36,646 |
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Accrued self-insurance reserves | | 8,834 |
| | 8,575 |
| | 6,718 |
| | 10,933 |
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Billings on contracts in excess of costs and earnings | | | 24,907 |
| | 12,461 |
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Other current liabilities | | 60,923 |
| | 34,200 |
| | 69,707 |
| | 79,696 |
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Billings in excess of costs and earnings on uncompleted contracts | | 38,830 |
| | 28,857 |
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Accrued income taxes | | 4,520 |
| | — |
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Total current liabilities | | 209,531 |
| | 186,058 |
| | 209,216 |
| | 208,152 |
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Long-term debt | | 231,276 |
| | 65,400 |
| | 224,881 |
| | 215,860 |
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Unrecognized tax benefits | | 4,837 |
| | 3,980 |
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Long-term self-insurance reserves | | 17,038 |
| | 8,831 |
| | 18,918 |
| | 16,307 |
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Deferred tax liabilities | | 2,910 |
| | 4,025 |
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Other non-current liabilities | | 59,481 |
| | 45,787 |
| | 81,746 |
| | 70,646 |
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Commitments and contingent liabilities (Note 14) | |
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Commitments and contingent liabilities (Note 8) | | |
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Shareholders’ equity | | | | | | | | |
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 28,641,445 and 28,680,841 respectively | | 9,547 |
| | 9,560 |
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Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 28,260,214 and 28,158,042 respectively | | | 9,420 |
| | 9,386 |
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Additional paid-in capital | | 154,357 |
| | 150,111 |
| | 155,898 |
| | 152,763 |
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Retained earnings | | 375,280 |
| | 341,996 |
| | 402,619 |
| | 373,259 |
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Common stock held in trust | | (908 | ) | | (875 | ) | | (842 | ) | | (922 | ) |
Deferred compensation obligations | | 908 |
| | 875 |
| | 842 |
| | 922 |
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Accumulated other comprehensive loss | | (20,489 | ) | | (31,090 | ) | | (29,081 | ) | | (24,053 | ) |
Total shareholders’ equity | | 518,695 |
| | 470,577 |
| | 538,856 |
| | 511,355 |
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Total liabilities and shareholders’ equity | | $ | 1,043,768 |
| | $ | 784,658 |
| | $ | 1,073,617 |
| | $ | 1,022,320 |
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See accompanying notes to consolidated financial statements.
4
CONSOLIDATED RESULTS OF OPERATIONS
(unaudited)
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(In thousands, except per share data) | | December 2, 2017 | | November 26, 2016 | | December 2, 2017 | | November 26, 2016 | |
In thousands, except per share data | | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Net sales | | $ | 356,506 |
| | $ | 274,072 |
| | $ | 972,721 |
| | $ | 800,407 |
| | $ | 362,133 |
| | $ | 343,907 |
| | $ | 698,664 |
| | $ | 616,214 |
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Cost of sales | | 264,947 |
| | 201,204 |
| | 724,868 |
| | 590,581 |
| | 277,667 |
| | 257,906 |
| | 533,468 |
| | 459,919 |
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Gross profit | | 91,559 |
| | 72,868 |
| | 247,853 |
| | 209,826 |
| | 84,466 |
| | 86,001 |
| | 165,196 |
| | 156,295 |
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Selling, general and administrative expenses | | 57,024 |
| | 39,609 |
| | 161,438 |
| | 117,269 |
| | 55,806 |
| | 58,227 |
| | 114,542 |
| | 104,415 |
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Operating income | | 34,535 |
| | 33,259 |
| | 86,415 |
| | 92,557 |
| | 28,660 |
| | 27,774 |
| | 50,654 |
| | 51,880 |
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Interest income | | 106 |
| | 271 |
| | 390 |
| | 799 |
| | 680 |
| | 117 |
| | 910 |
| | 284 |
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Interest expense | | 1,594 |
| | 150 |
| | 3,689 |
| | 495 |
| | 2,624 |
| | 1,650 |
| | 4,573 |
| | 2,095 |
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Other income (expense), net | | 303 |
| | (158 | ) | | 560 |
| | 350 |
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Other income, net | | | 217 |
| | 77 |
| | 196 |
| | 256 |
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Earnings before income taxes | | 33,350 |
| | 33,222 |
| | 83,676 |
| | 93,211 |
| | 26,933 |
| | 26,318 |
| | 47,187 |
| | 50,325 |
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Income tax expense | | 9,704 |
| | 10,670 |
| | 26,517 |
| | 30,540 |
| | 6,420 |
| | 8,909 |
| | 11,300 |
| | 16,813 |
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Net earnings | | $ | 23,646 |
| | $ | 22,552 |
| | $ | 57,159 |
| | $ | 62,671 |
| | $ | 20,513 |
| | $ | 17,409 |
| | $ | 35,887 |
| | $ | 33,512 |
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Earnings per share - basic | | $ | 0.82 |
| | $ | 0.78 |
| | $ | 1.98 |
| | $ | 2.18 |
| | $ | 0.73 |
| | $ | 0.60 |
| | $ | 1.28 |
| | $ | 1.16 |
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Earnings per share - diluted | | $ | 0.82 |
| | $ | 0.78 |
| | $ | 1.98 |
| | $ | 2.17 |
| | $ | 0.72 |
| | $ | 0.60 |
| | $ | 1.26 |
| | $ | 1.16 |
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Weighted average basic shares outstanding | | 28,736 |
| | 28,828 |
| | 28,812 |
| | 28,807 |
| | 28,128 |
| | 28,850 |
| | 28,127 |
| | 28,850 |
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Weighted average diluted shares outstanding | | 28,818 |
| | 28,892 |
| | 28,862 |
| | 28,916 |
| | 28,379 |
| | 28,908 |
| | 28,377 |
| | 28,885 |
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See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)
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| | Three Months Ended | | Nine Months Ended |
(In thousands) | | December 2, 2017 | | November 26, 2016 | | December 2, 2017 | | November 26, 2016 |
Net earnings | | $ | 23,646 |
| | $ | 22,552 |
| | $ | 57,159 |
| | $ | 62,671 |
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Other comprehensive earnings: | | | | | | | | |
Unrealized loss on marketable securities, net of $78, $139, $28 and $105 of tax benefit, respectively | | (143 | ) | | (258 | ) | | (51 | ) | | (192 | ) |
Foreign currency translation adjustments | | (3,838 | ) | | (1,783 | ) | | 10,652 |
| | 2,742 |
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Other comprehensive earnings | | (3,981 | ) | | (2,041 | ) | | 10,601 |
| | 2,550 |
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Total comprehensive earnings | | $ | 19,665 |
| | $ | 20,511 |
| | $ | 67,760 |
| | $ | 65,221 |
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| | Three Months Ended | | Six Months Ended |
In thousands | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Net earnings | | $ | 20,513 |
| | $ | 17,409 |
| | $ | 35,887 |
| | $ | 33,512 |
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Other comprehensive (loss) earnings: | | | | | | | | |
Unrealized (loss) gain on marketable securities, net of ($11), $17, ($9) and $50 of tax (benefit) expense, respectively | | (42 | ) | | 30 |
| | (32 | ) | | 92 |
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Unrealized loss on foreign currency hedge, net of $17, $-, $109 and $- of tax benefit, respectively | | (55 | ) | | — |
| | (359 | ) | | — |
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Foreign currency translation adjustments | | (3,383 | ) | | 15,207 |
| | (3,900 | ) | | 14,490 |
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Other comprehensive (loss) earnings | | (3,480 | ) | | 15,237 |
| | (4,291 | ) | | 14,582 |
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Total comprehensive earnings | | $ | 17,033 |
| | $ | 32,646 |
| | $ | 31,596 |
| | $ | 48,094 |
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See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | | Nine Months Ended | | Six Months Ended |
(In thousands) | | December 2, 2017 | | November 26, 2016 | |
In thousands | | | September 1, 2018 | | September 2, 2017 |
Operating Activities | | | | | | | | |
Net earnings | | $ | 57,159 |
| | $ | 62,671 |
| | $ | 35,887 |
| | $ | 33,512 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | 39,774 |
| | 24,270 |
| | 26,457 |
| | 25,062 |
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Share-based compensation | | 4,645 |
| | 4,403 |
| | 3,119 |
| | 3,063 |
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Deferred income taxes | | (3,339 | ) | | (3,335 | ) | | 6,061 |
| | (751 | ) |
Gain on disposal of assets | | (78 | ) | | (287 | ) | | (815 | ) | | (37 | ) |
Proceeds from New Markets Tax Credit transaction, net of deferred costs | | — |
| | 5,109 |
| | 6,052 |
| | — |
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Other, net | | (1,286 | ) | | (1,281 | ) | | (682 | ) | | (1,168 | ) |
Changes in operating assets and liabilities: | | | | | | | | |
Receivables | | (16,131 | ) | | (15,235 | ) | | 10,598 |
| | 8,683 |
|
Inventories | | (1,348 | ) | | (9,555 | ) | | 2,747 |
| | (7,072 | ) |
Costs and earnings on contracts in excess of billings | | | (39,191 | ) | | 235 |
|
Accounts payable and accrued expenses | | (27,449 | ) | | 1,897 |
| | (15,409 | ) | | (33,982 | ) |
Billings in excess of costs and earnings on uncompleted contracts | | 9,869 |
| | 4,896 |
| |
Billings on contracts in excess of costs and earnings | | | 12,449 |
| | 4,819 |
|
Refundable and accrued income taxes | | 7,108 |
| | (1,073 | ) | | 2,130 |
| | 7,079 |
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Other, net | | (2,685 | ) | | 335 |
| | (1,474 | ) | | 1,366 |
|
Net cash provided by operating activities | | 66,239 |
| | 72,815 |
| | 47,929 |
| | 40,809 |
|
Investing Activities | | | | | | | | |
Capital expenditures | | (38,946 | ) | | (44,548 | ) | | (24,241 | ) | | (26,825 | ) |
Proceeds from sales of property, plant and equipment | | 253 |
| | 1,716 |
| | 774 |
| | 64 |
|
Acquisition of business, net of cash acquired | | (184,826 | ) | | — |
| | — |
| | (184,826 | ) |
Change in restricted cash | | 7,834 |
| | (14,884 | ) | |
Purchases of marketable securities | | (10,154 | ) | | (3,021 | ) | | (9,066 | ) | | (5,436 | ) |
Sales/maturities of marketable securities | | 9,288 |
| | 3,703 |
| | 4,943 |
| | 4,271 |
|
Other, net | | 941 |
| | (2,168 | ) | | (2,209 | ) | | 1,099 |
|
Net cash used in investing activities | | (215,610 | ) | | (59,202 | ) | | (29,799 | ) | | (211,653 | ) |
Financing Activities | | | | | | | | |
Borrowings on line of credit | | 314,700 |
| | — |
| | 205,000 |
| | 284,200 |
|
Payments on line of credit | | (150,700 | ) | | — |
| | (196,500 | ) | | (94,000 | ) |
Shares withheld for taxes, net of stock issued to employees | | (1,561 | ) | | (910 | ) | | (1,431 | ) | | (1,612 | ) |
Repurchase and retirement of common stock | | (10,833 | ) | | (10,817 | ) | | — |
| | (10,833 | ) |
Dividends paid | | (11,971 | ) | | (10,687 | ) | | (8,823 | ) | | (7,994 | ) |
Other | | 2,039 |
| | (408 | ) | | 496 |
| | 1,759 |
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Net cash provided by (used in) financing activities | | 141,674 |
| | (22,822 | ) | |
Decrease in cash and cash equivalents | | (7,697 | ) | | (9,209 | ) | |
Net cash (used in) provided by financing activities | | | (1,258 | ) | | 171,520 |
|
Increase in cash and cash equivalents | | | 16,872 |
| | 676 |
|
Effect of exchange rates on cash | | 1,079 |
| | 338 |
| | (266 | ) | | 1,555 |
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Cash and cash equivalents at beginning of year | | 19,463 |
| | 60,470 |
| |
Cash and cash equivalents at end of period | | $ | 12,845 |
| | $ | 51,599 |
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Cash, cash equivalents and restricted cash at beginning of year | | | 19,359 |
| | 27,297 |
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Cash, cash equivalents and restricted cash at end of period | | | $ | 35,965 |
| | $ | 29,528 |
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Noncash Activity | | | | | | | | |
Capital expenditures in accounts payable | | $ | 1,859 |
| | $ | 6,683 |
| | $ | 1,756 |
| | $ | 1,196 |
|
Deferred payments on acquisition of business | | 7,500 |
| | — |
| |
See accompanying notes to consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
| | (In thousands) | | Common Shares Outstanding | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Common Stock Held in Trust | | Deferred Compensation Obligation | | Accumulated Other Comprehensive (Loss) Income | |
In thousands | | | Common Shares Outstanding | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Common Stock Held in Trust | | Deferred Compensation Obligation | | Accumulated Other Comprehensive (Loss) Income |
Balance at March 3, 2018 | | | 28,158 |
| | $ | 9,386 |
| | $ | 152,763 |
| | $ | 373,259 |
| | $ | (922 | ) | | $ | 922 |
| | $ | (24,053 | ) |
Cumulative effect adjustment (see Note 1) | | | — |
| | — |
| | — |
| | 2,999 |
| | — |
| | — |
| | — |
|
Reclassification of tax effects (see Note 1) | | | — |
| | — |
| | — |
| | 737 |
| | — |
| | — |
| | (737 | ) |
Net earnings | | | — |
| | — |
| | — |
| | 35,887 |
| | — |
| | — |
| | — |
|
Unrealized loss on marketable securities, net of $9 tax benefit | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (32 | ) |
Unrealized loss on foreign currency hedge, net of $109 tax benefit | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (359 | ) |
Foreign currency translation adjustments | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,900 | ) |
Issuance of stock, net of cancellations | | | 125 |
| | 42 |
| | 72 |
| | — |
| | 80 |
| | (80 | ) | | — |
|
Share-based compensation | | | — |
| | — |
| | 3,119 |
| | — |
| | — |
| | — |
| | — |
|
Exercise of stock options | | | 19 |
| | 6 |
| | 177 |
| | — |
| | — |
| | — |
| | — |
|
Other share retirements | | | (42 | ) | | (14 | ) | | (233 | ) | | (1,440 | ) | | — |
| | — |
| | — |
|
Cash dividends | | | — |
| | — |
| | — |
| | (8,823 | ) | | — |
| | — |
| | — |
|
Balance at September 1, 2018 | | | 28,260 |
| | $ | 9,420 |
| | $ | 155,898 |
| | $ | 402,619 |
| | $ | (842 | ) | | $ | 842 |
| | $ | (29,081 | ) |
| | | | | | | | | | | | | | | |
Balance at March 4, 2017 | | 28,680 |
| | $ | 9,560 |
| | $ | 150,111 |
| | $ | 341,996 |
| | $ | (875 | ) | | $ | 875 |
| | $ | (31,090 | ) | | 28,680 |
| | $ | 9,560 |
| | $ | 150,111 |
| | $ | 341,996 |
| | $ | (875 | ) | | $ | 875 |
| | $ | (31,090 | ) |
Net earnings | | — |
| | — |
| | — |
| | 57,159 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33,512 |
| | — |
| | — |
| | — |
|
Unrealized loss on marketable securities, net of $28 tax benefit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (51 | ) | |
Unrealized gain on marketable securities, net of $50 tax expense | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 92 |
|
Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10,652 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,490 |
|
Issuance of stock, net of cancellations | | 106 |
| | 36 |
| | 147 |
| | — |
| | (33 | ) | | 33 |
| | — |
| | 107 |
| | 36 |
| | 83 |
| | — |
| | (22 | ) | | 22 |
| | — |
|
Share-based compensation | | — |
| | — |
| | 4,645 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,063 |
| | — |
| | — |
| | — |
| | — |
|
Exercise of stock options | | 100 |
| | 33 |
| | 801 |
| | — |
| | — |
| | — |
| | — |
| | 100 |
| | 34 |
| | 801 |
| | — |
| | — |
| | — |
| | — |
|
Share repurchases | | (200 | ) | | (67 | ) | | (1,091 | ) | | (9,675 | ) | | — |
| | — |
| | — |
| | (200 | ) | | (67 | ) | | (1,091 | ) | | (9,675 | ) | | — |
| | — |
| | — |
|
Other share retirements | | (45 | ) | | (15 | ) | | (256 | ) | | (2,229 | ) | | — |
| | — |
| | — |
| | (45 | ) | | (15 | ) | | (256 | ) | | (2,216 | ) | | — |
| | — |
| | — |
|
Cash dividends | | — |
| | — |
| | — |
| | (11,971 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7,994 | ) | | — |
| | — |
| | — |
|
Balance at December 2, 2017 | | 28,641 |
| | $ | 9,547 |
| | $ | 154,357 |
| | $ | 375,280 |
| | $ | (908 | ) | | $ | 908 |
| | $ | (20,489 | ) | |
| | | | | | | | | | | | | | | |
Balance at February 27, 2016 | | 28,684 |
| | $ | 9,561 |
| | $ | 145,528 |
| | $ | 282,477 |
| | $ | (837 | ) | | $ | 837 |
| | $ | (31,371 | ) | |
Net earnings | | — |
| | — |
| | — |
| | 62,671 |
| | — |
| | — |
| | — |
| |
Unrealized loss on marketable securities, net of $105 tax benefit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (192 | ) | |
Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,742 |
| |
Issuance of stock, net of cancellations | | 139 |
| | 46 |
| | 94 |
| | — |
| | (26 | ) | | 26 |
| | — |
| |
Share-based compensation | | — |
| | — |
| | 4,403 |
| | — |
| | — |
| | — |
| | — |
| |
Tax deficit associated with stock plans | | — |
| | — |
| | (1,229 | ) | | — |
| | — |
| | — |
| | — |
| |
Exercise of stock options | | 125 |
| | 42 |
| | 1,211 |
| | — |
| | — |
| | — |
| | — |
| |
Share repurchases | | (250 | ) | | (83 | ) | | (1,357 | ) | | (9,376 | ) | | — |
| | — |
| | — |
| |
Other share retirements | | (52 | ) | | (17 | ) | | (271 | ) | | (2,015 | ) | | — |
| | — |
| | — |
| |
Cash dividends | | — |
| | — |
| | — |
| | (10,687 | ) | | — |
| | — |
| | — |
| |
Balance at November 26, 2016 | | 28,646 |
| | $ | 9,549 |
| | $ | 148,379 |
| | $ | 323,070 |
| | $ | (863 | ) | | $ | 863 |
| | $ | (28,821 | ) | |
Balance at September 2, 2017 | | | 28,642 |
| | $ | 9,548 |
| | $ | 152,711 |
| | $ | 355,623 |
| | $ | (897 | ) | | $ | 897 |
| | $ | (16,508 | ) |
See accompanying notes to consolidated financial statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| |
1. | BasisSummary of PresentationSignificant Accounting Policies |
Basis of presentation
The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States. The information included in this Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended March 4, 20173, 2018. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. The results of operations for the ninesix-month period ended December 2, 2017September 1, 2018 are not necessarily indicative of the results to be expected for the full year.
Subsequent eventsCertain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the consolidated results of operations.
In connection with preparing the unaudited consolidated financial statements
Significant accounting policies update
Our significant accounting policies are included in Note 1 "Summary of Significant Accounting Policies and Related Data" of our Annual Report on Form 10-K for the nine monthsyear ended December 2, 2017, we evaluated subsequent events for potential recognition and disclosure through the date of this filing.March 3, 2018. On December 20, 2017, the Tax Cuts and Jobs Act (the "2017 Act") was signed into law. We are in the process of preparing and analyzing information to determine the impact of the 2017 Act on our accounting for income taxes, including the remeasurement of our deferred tax assets and liabilities. The consolidated financial statements presented herein do not reflect any impact that may result from completing the accounting for the income tax effects of the 2017 Act.
Subsequent to the end of the quarter, in late December 2017 and early JanuaryMarch 4, 2018, we purchased 246,299 shares of stock under our authorized share repurchase program, at a total cost of $11.1 million.
On January 5, 2018, we announced a restructuring plan that involves the closure of our St. George, UT architectural glass manufacturing facility in March 2018, enabled by our investments in productivity and increased capabilities, which have led to an increase in capacity. This and other restructuring activities are expected to have an approximately $4.5 million pre-tax impact in our fiscal fourth quarter.
| |
2. | New Accounting Standards |
In May 2014, the FASB issued ASU 2014-09,adopted ASC 606, Revenue from Contracts with Customers, which outlinesand as a single comprehensive modelresult, made updates to use inour significant accounting policy for revenue arisingrecognition.
We generate revenue from the design, engineering and fabrication of architectural glass, curtainwall, window, storefront and entrance systems, and from installing those products on commercial buildings. We also manufacture value-added glass and acrylic products. Due to the diverse nature of our operations and various types of contracts with customers, we have businesses that recognize revenue over time and supersedes mostbusinesses that recognize revenue at a point in time.
In the current year-to-date period, approximately 46 percent of our total revenue is recognized at the time products are shipped from our manufacturing facilities, which is when control is transferred to our customer, consistent with past practices. These businesses do not 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 three businesses which operate under long-term, fixed-price contracts, representing approximately 34 percent of our total revenue in the current year. This includes one business which changed revenue recognition guidance. Underpractices due to the adoption of the new standard,guidance, moving from recognizing revenue at shipment to an entity recognizesover-time method of revenue recognition. 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 following an input method, by comparing total costs incurred to-date to depict the transfertotal estimated costs for the contract, and record that proportion of promisedthe total contract price as revenue in the period. Contract costs include materials, labor and other direct costs related to contract performance. We believe this method of recognizing revenue is consistent with our progress in satisfying our contract obligations.
Due to the nature 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 these 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 most likely amount to which we expect to be entitled. We include estimated amounts 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 one business, making up approximately 20 percent of our total revenue in the current year, that recognizes revenue following an amountover-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. Previously, 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 reflectsoccur after control of the considerationrelated goods transfers to which the entity expectscustomer 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 would be entitledless than one year. These costs primarily relate to sales commissions and are included in exchangeselling, general and 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 or services. Thisand services to be less than a year.
Adoption of new accounting standards
We adopted the new guidance is effectivein ASC 606 using the modified retrospective transition method applied to those contracts which were not complete as of March 4, 2018. Prior period amounts were not adjusted and therefore continue to be reported in accordance with the accounting guidance and our accounting policies in effect for annual reportingthose periods.
Representing the cumulative effect of adopting ASC 606, we recorded a $3.0 million increase to the opening balance of retained earnings as of March 4, 2018. For the quarter and six month periods beginning after December 15, 2017, our fiscal 2019. We have undertaken a comprehensive assessment process at each of our businesses and have concluded onendingSeptember 1, 2018, the application of the new accounting guidance at nearly allhad the following impact on our consolidated financial statements:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 1, 2018 | | Six Months Ended September 1, 2018 |
In thousands | | As reported | | Without adoption of ASC 606 | | As reported | | Without adoption of ASC 606 |
Net sales | | $ | 362,133 |
| | $ | 359,584 |
| | $ | 698,664 |
| | $ | 686,835 |
|
Cost of sales | | 277,667 |
| | 276,058 |
| | 533,468 |
| | 524,715 |
|
Gross profit | | 84,466 |
| | 83,526 |
| | 165,196 |
| | 162,120 |
|
Selling, general and administrative expenses | | 55,806 |
| | 55,481 |
| | 114,542 |
| | 113,868 |
|
Operating income | | $ | 28,660 |
| | $ | 28,045 |
| | $ | 50,654 |
| | $ | 48,252 |
|
| | | | | | | | |
Income tax expense | | $ | 6,420 |
| | $ | 6,274 |
| | $ | 11,300 |
| | $ | 10,726 |
|
Net earnings | | 20,513 |
| | 20,044 |
| | 35,887 |
| | 34,059 |
|
| | | | | | | | |
| | | | September 1, 2018 |
| | | | | | As reported | | Without adoption of ASC 606 |
Inventories | | | | | | $ | 81,933 |
| | $ | 90,006 |
|
Costs and earnings on contracts in excess of billings | | | | | | 44,585 |
| | 16,943 |
|
Billings on contracts in excess of costs and earnings | | | | | | 24,907 |
| | 23,657 |
|
Other current liabilities | | | | | | 69,707 |
| | 68,373 |
|
Retained earnings | | | | | | 402,619 |
| | 407,446 |
|
These changes are primarily a result of the transition of certain of our businesses. We are in the process of quantifying the impact that this standard will have on our financial statements upon adoption. At this time:
We plan to adopt the guidance following a modified retrospective transition method, with a cumulative effect adjustment to opening retained earnings in fiscal 2019. We are in the process of determining this retained earnings adjustment.
We have determined that some of our business units will continue to recognize revenue at the point in time when goods are shipped, as that represents when control is transferred to the customer. We also have business units that continue to recognize revenue over time, following a cost-to-cost percentage of completion method of revenue recognition.
We expect that two of our business units will changebusinesses from recognizing revenue at a point inthe time of shipment to recognizingover-time methods of revenue over time, to better reflect transfer of control torecognition.
In the customer in line with the new guidance. We are continuing to assess the appropriate measure of progress toward completion, based on the facts and circumstances specific to the performance obligations and terms of sale of each business.
We are in the process of evaluating how the revenue recognition guidance applies to EFCO, the business acquired in the secondfirst quarter of fiscal 2018.2019, we elected to early adopt ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This standard permits a company to reclassify the disproportionate income tax effects of the 2017 Tax Cuts and Jobs Act on items within accumulated other comprehensive income ("AOCI") to retained earnings. The FASB refers to these amounts as “stranded tax effects.” As a result of this adoption, we reclassified income tax effects of $0.7 million resulting from tax reform from AOCI to retained earnings following a portfolio approach. These stranded tax effects are derived from the deferred tax balances on our pension obligations as a result of the lower U.S. federal corporate tax rate.
Accounting standards not yet adopted
In February 2016, the FASB issued ASU 2016-02, Leases, which provides for comprehensive changes 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 standard is effective for fiscal years beginning after December 15, 2018, our fiscal year 2020, with2020. In July 2018, the FASB issued an additional update which allows an entity the option to adopt the guidance on a modified retrospective transition. Thebasis. Under the modified retrospective approach, which we plan to adopt in implementing the new guidance, an entity would recognize a cumulative effect adjustment of initially applying the guidance to the opening balance of retained earnings in the period of adoption. Prior period amounts will not be adjusted.
We are in the process of analyzing our lease arrangements and we have begun evaluating potential changes to our business processes, systems and controls that are needed to support recognition and disclosure under this new standard. We expect that the adoption of this standard will result in reflecting assetsa material right-of-use asset and liabilities for the value of our leased property and equipmentlease liability on our consolidated balance sheet, but wesheet. We do not currently expect this guidancestandard to have a significant impact on our consolidated results of operations.
In August 2016,Subsequent events
We have evaluated subsequent events for potential recognition and disclosure through the FASB issued ASU 2016-15, Statement of Cash Flows, and in November 2016, it issued 2016-18, Restricted Cash. Both standards provide guidance for presentation of certain topics within the statement of cash flows, including presenting
restricted cash within cash and cash equivalents, and are intended to improve consistency in presentation. The new classification guidance is effective for fiscal years beginning after December 15, 2017, our fiscal year 2019, and is to be applied retrospectively for comparability across all periods. We do not expect this guidance to have a significant impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment by requiring impairment charges to be based on the first step in the current two-step impairment test process. The new guidance eliminates the current requirement to calculate a goodwill impairment charge using step 2. The standard is applicable to impairment tests performed in periods beginning after December 15, 2019, our fiscal 2021, with early adoption permitted. We are currently evaluating early adoptiondate of this guidance forfiling. Subsequent to the end of the quarter, in October 2018, we purchased 200,000 shares of stock under our future annual goodwill impairment review process.authorized share repurchase program, at a total cost of $8.3 million. Also in October 2018, the Board of Directors increased our repurchase authorization by 2,000,000 shares, bringing the total remaining repurchase authority under this program to 3,040,068 shares.
| |
3.2. | Share-Based Compensation |
Total share-based compensation expense included in the results of operations was $4.6 million for the nine-month period ended December 2, 2017 and $4.4 million for the nine-month period ended November 26, 2016.
Stock Options and SARs
Stock option and SAR activity for the current nine-month period is summarized as follows:
|
| | | | | | | | | | | | | |
Stock Options and SARs | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at March 4, 2017 | | 229,901 |
| | $ | 9.90 |
| | | | |
Awards exercised | | (100,000 | ) | | 8.34 |
| | | | |
Outstanding and exercisable at December 2, 2017 | | 129,901 |
| | $ | 11.10 |
| | 3.0 Years | | $ | 4,878,738 |
|
Cash proceeds from the exercise of stock options were $0.8 million and $1.3 million for the nine months ended December 2, 2017 and November 26, 2016, 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 $4.8 million during the nine months ended December 2, 2017 and $4.5 million during the prior-year period.
Nonvested Shares and Share Units
Nonvested share activity for the current nine-month period is summarized as follows:
|
| | | | | | | |
Nonvested Shares and Units | | Number of Shares and Units | | Weighted Average Grant Date Fair Value |
Nonvested at March 4, 2017 | | 279,204 |
| | $ | 44.79 |
|
Granted | | 124,416 |
| | 55.40 |
|
Vested | | (130,093 | ) | | 45.31 |
|
Canceled | | (7,000 | ) | | 55.89 |
|
Nonvested at December 2, 2017 | | 266,527 |
| | $ | 49.20 |
|
At December 2, 2017, there was $8.5 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 21 months. The total fair value of shares vested during the nine months ended December 2, 2017 was $7.0 million.
The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | | December 2, 2017 | | November 26, 2016 |
Basic earnings per share – weighted average common shares outstanding | 28,736 |
| | 28,828 |
| | 28,812 |
| | 28,807 |
|
Weighted average effect of nonvested share grants and assumed exercise of stock options | 82 |
| | 64 |
| | 50 |
| | 109 |
|
Diluted earnings per share – weighted average common shares and potential common shares outstanding | 28,818 |
| | 28,892 |
| | 28,862 |
| | 28,916 |
|
There were no anti-dilutive stock options excluded from the calculation of earnings per share for any of the periods presented, as the average market price exceeded the exercise price of options outstanding.
|
| | | | | | | |
(In thousands) | December 2, 2017 | | March 4, 2017 |
Raw materials | $ | 35,565 |
| | $ | 22,761 |
|
Work-in-process | 24,919 |
| | 16,154 |
|
Finished goods | 34,951 |
| | 29,372 |
|
Costs and earnings in excess of billings on uncompleted contracts | 2,627 |
| | 5,122 |
|
Total inventories | $ | 98,062 |
| | $ | 73,409 |
|
Marketable securities are classified as available for sale:
|
| | | | | | | | | | | |
(In thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
December 2, 2017 | | | | | | | |
Municipal bonds | 10,334 |
| | 17 |
| | (103 | ) | | 10,248 |
|
March 4, 2017 | | | | | | | |
Municipal bonds | 9,595 |
| | 91 |
| | (97 | ) | | 9,589 |
|
We have a wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), which holds municipal bonds. Prism insures a portion of our general liability, workers’ compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments, which are generally high-quality municipal bonds, for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements.
The amortized cost and estimated fair values of municipal bonds at December 2, 2017, 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 Fair Value |
Due within one year | $ | 482 |
| | $ | 482 |
|
Due after one year through five years | 4,418 |
| | 4,385 |
|
Due after five years through 10 years | 4,627 |
| | 4,578 |
|
Due after 10 years through 15 years | 141 |
| | 141 |
|
Due beyond 15 years | 666 |
| | 662 |
|
Total | $ | 10,334 |
| | $ | 10,248 |
|
| |
7. | 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 financial assets or liabilities.
|
| | | | | | | | | | | |
(In thousands) | Quoted Prices in Active Markets (Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
December 2, 2017 | | | | | |
Cash equivalents | | | | | |
Money market funds | $ | 1,696 |
| | $ | — |
| | $ | 1,696 |
|
Commercial paper | — |
| | — |
| | — |
|
Total cash equivalents | 1,696 |
| | — |
| | 1,696 |
|
Short-term securities | | | | | |
Municipal bonds | — |
| | 482 |
| | 482 |
|
Long-term securities | | | | | |
Municipal bonds | — |
| | 9,766 |
| | 9,766 |
|
Total assets at fair value | $ | 1,696 |
| | $ | 10,248 |
| | $ | 11,944 |
|
March 4, 2017 | | | | | |
Cash equivalents | | | | | |
Money market funds | $ | 4,423 |
| | $ | — |
| | $ | 4,423 |
|
Commercial paper | — |
| | 5,500 |
| | 5,500 |
|
Total cash equivalents | 4,423 |
| | 5,500 |
| | 9,923 |
|
Short-term securities | | | | | |
Municipal bonds | — |
| | 548 |
| | 548 |
|
Long-term securities | | | | | |
Municipal bonds | — |
| | 9,041 |
| | 9,041 |
|
Total assets at fair value | $ | 4,423 |
| | $ | 15,089 |
| | $ | 19,512 |
|
Cash equivalents
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.
Short- and long-term securities
Municipal bonds were measured at fair value based on market prices from recent trades of similar securities and are classified as short-term or long-term based on maturity date.
| |
8. | AcquisitionsAcquisition |
EFCO
In line with our strategic objectives, onOn 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 $192 million in cash. The acquisition was funded through our committed revolving credit facility, with $7.5 million of the purchase price payable in equal installments over the nextsubsequent three years. EFCO's results of operations have been included in our consolidated financial statements and within the Architectural Framing Systems segment since the date of acquisition. Those results include $135.3 million of sales and $6.1 million of operating income since the date of acquisition.
The assets and liabilities of EFCO were recorded in our consolidated balance sheet as of the acquisition date, at their respective fair values. Fair value is estimated based on one or a combination of income, cost and/or market approaches, as determined based on the nature of the asset or liability, and the level of inputs available. With respect to assets and liabilities, the determination of fair value requires management to make subjective judgments as to projections of future operating performance, the appropriate discount rate to apply, long-term growth rates, etc. (i.e. - unobservable inputs classified as Level 3 inputs under the fair value hierarchy described in Note 7)5), which affect the amounts recorded in the purchase price allocation. The excess of the consideration transferred over the fair value of the identifiable assets, net of liabilities, is recorded as goodwill, which is indicative of the expected continued growth and development of EFCO. The purchase price allocation that follows is based on thesethe estimated fair values of assets acquired and liabilities assumed, as follows:which was finalized in the first quarter of fiscal 2019:
|
| | | |
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 |
|
|
| | | |
(In thousands) | |
Net working capital | $ | 34,156 |
|
Property, plant and equipment | 43,815 |
|
Goodwill | 57,460 |
|
Other intangible assets | 71,500 |
|
Less: Long-term liabilities acquired, net | 14,605 |
|
Net assets acquired | $ | 192,326 |
|
Other intangible assets reflect the following:
|
| | | | | | |
(In thousands) | | Estimated fair value | | Estimated useful life (in years) |
Customer relationships | | $ | 34,800 |
| | 16 |
Tradename | | 32,400 |
| | Indefinite |
Backlog | | 4,300 |
| | 1.5 |
| | $ | 71,500 |
| | |
These fair values are based on preliminary estimates and are subject to change based on finalization of net working capital items included in the purchase price allocation.
Sotawall
On December 14, 2016, we acquired substantially all the assets of Sotawall, Inc., now operating under the name Sotawall Limited ("Sotawall"). Sotawall specializes in the design, engineering, fabrication, assembly and installation of unitized curtainwall systems for industrial, commercial and institutional buildings, primarily serving the Canadian and northeastern U.S. geographic regions. Sotawall's results of operations have been included in our consolidated financial statements and within the Architectural Framing Systems segment since the date of acquisition. Purchase accounting related to the acquisition of Sotawall was finalized during the the first quarter of fiscal 2018. |
| | | | | | |
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 sets forth certain unaudited pro forma consolidated data for the combined company for the third quarterssecond quarter and first nine-monthsix-month periods of fiscal 20182019 and 2017,2018, as if the EFCO and Sotawall acquisitions wereacquisition had been consummated pursuant to each of their respectiveits same terms at the beginning of the fiscal year preceding their respectivethe acquisition dates.date.
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
In thousands, except per share data | | December 2, 2017 | | November 26, 2016 | | December 2, 2017 | | November 26, 2016 | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Net sales | | $ | 356,506 |
| | $ | 368,387 |
| | $ | 1,044,465 |
| | $ | 1,083,352 |
| | $ | 362,133 |
| | $ | 351,988 |
| | $ | 698,664 |
| | $ | 696,039 |
|
Net earnings | | 24,453 |
| | 25,971 |
| | 59,564 |
| | 72,171 |
| | 21,069 |
| | 20,312 |
| | 36,639 |
| | 37,528 |
|
Earnings per share | | | | | | | | | | | | | | | | |
Basic | | 0.85 |
| | 0.90 |
| | 2.07 |
| | 2.50 |
| | 0.75 |
| | 0.70 |
| | 1.30 |
| | 1.30 |
|
Diluted | | 0.85 |
| | 0.90 |
| | 2.06 |
| | 2.50 |
| | 0.74 |
| | 0.70 |
| | 1.29 |
| | 1.30 |
|
We have provided this unaudited pro forma information for comparative purposes only. This information does not necessarily reflect what the combined results of operations actually would have been had the acquisitions occurred at the beginning of fiscal year 2017. The information does not reflect the effect of any synergies or integration costs that willwe expect to result from the acquisitions.acquisition.
| |
3. | Revenue, Receivables and Contract Assets and Liabilities |
Revenue
The following table disaggregates total revenue by timing of recognition (see Note 13 for disclosure of revenue by segment):
|
| | | | | | | | |
| | Three Months Ended | | Six Months Ended |
In thousands | | September 1, 2018 | | September 1, 2018 |
Recognized at shipment | | $ | 166,534 |
| | $ | 323,401 |
|
Recognized over time | | 195,599 |
| | 375,263 |
|
Total | | $ | 362,133 |
| | $ | 698,664 |
|
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 | | September 1, 2018 | | March 3, 2018 |
Trade accounts | | $ | 153,220 |
| | $ | 157,562 |
|
Construction contracts | | 17,462 |
| | 26,545 |
|
Construction contracts - retainage | | 31,819 |
| | 26,388 |
|
Other receivables | | — |
| | 2,887 |
|
Total receivables | | 202,501 |
| | 213,382 |
|
Less: allowance for doubtful accounts | | (1,731 | ) | | (1,530 | ) |
Net receivables | | $ | 200,770 |
| | $ | 211,852 |
|
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 | | September 1, 2018 | | March 3, 2018 |
Contract assets | | $ | 76,404 |
| | $ | 30,508 |
|
Contract liabilities | | 31,623 |
| | 20,120 |
|
The increase in contract assets was due to additional businesses recognizing revenue in advance of billings, as a result of changing accounting policies for revenue recognition upon adoption of ASC 606. The increase in contract liabilities was due to timing of project activity within our businesses that operate under long-term contracts.
In the first six months of fiscal 2019, we recognized revenue of $10.4 million related to contract liabilities at March 4, 2018, and revenue of $3.8 million related to performance obligations satisfied in previous periods due to changes in contract estimates. For the second quarter of fiscal 2019, we recognized revenue of $1.3 million related to contract liabilities at March 4, 2018, and revenue of $1.5 million related to performance obligations satisfied in previous periods due to changes in contract estimates.
Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally these contracts are in our businesses with long-term contracts which recognize revenue over time. As of September 1, 2018, the transaction price associated with unsatisfied performance obligations was approximately $695.1 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
|
| | | | |
In thousands | | September 1, 2018 |
Within one year | | $ | 462,097 |
|
Within two years | | 222,677 |
|
Beyond | | 10,313 |
|
Total | | $ | 695,087 |
|
| |
4. | Supplemental Balance Sheet Information |
Inventories
|
| | | | | | | | |
In thousands | | September 1, 2018 | | March 3, 2018 |
Raw materials | | $ | 42,629 |
| | $ | 35,049 |
|
Work-in-process | | 18,263 |
| | 17,406 |
|
Finished goods | | 21,041 |
| | 28,453 |
|
Total inventories | | $ | 81,933 |
| | $ | 80,908 |
|
Other current liabilities
|
| | | | | | | | |
In thousands | | September 1, 2018 | | March 3, 2018 |
Warranties | | $ | 15,058 |
| | $ | 18,110 |
|
Acquired contract liabilities | | 21,269 |
| | 26,422 |
|
Deferred revenue | | 7,310 |
| | 7,659 |
|
Other | | 26,070 |
| | 27,505 |
|
Total other current liabilities | | $ | 69,707 |
| | $ | 79,696 |
|
Other non-current liabilities
|
| | | | | | | | |
In thousands | | September 1, 2018 | | March 3, 2018 |
Deferred benefit from New Market Tax Credit transactions | | $ | 23,260 |
| | $ | 16,708 |
|
Retirement plan obligations | | 8,997 |
| | 8,997 |
|
Deferred compensation plan | | 12,003 |
| | 10,730 |
|
Other | | 37,486 |
| | 34,211 |
|
Total other non-current liabilities | | $ | 81,746 |
| | $ | 70,646 |
|
Marketable securities
We hold the following available-for-sale marketable securities, made up of municipal and corporate bonds:
|
| | | | | | | | | | | | |
In thousands | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
September 1, 2018 | | 13,368 |
| | 15 |
| | (186 | ) | | 13,197 |
|
March 3, 2018 | | 9,183 |
| | 8 |
| | (138 | ) | | 9,053 |
|
We have a wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), which holds these municipal and corporate bonds. 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 agreements.
The amortized cost and estimated fair values of municipal bonds at September 1, 2018, 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 Fair Value |
Due within one year | | $ | 543 |
| | $ | 539 |
|
Due after one year through five years | | 7,897 |
| | 7,797 |
|
Due after five years through 10 years | | 3,811 |
| | 3,751 |
|
Due after 10 years through 15 years | | 200 |
| | 200 |
|
Due beyond 15 years | | 917 |
| | 910 |
|
Total | | $ | 13,368 |
| | $ | 13,197 |
|
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 financial assets or liabilities.
|
| | | | | | | | | | | | |
In thousands | | Quoted Prices in Active Markets (Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
September 1, 2018 | | | | | | |
Cash equivalents | | | | | | |
Money market funds | | $ | 3,168 |
| | $ | — |
| | $ | 3,168 |
|
Commercial paper | | — |
| | 800 |
| | 800 |
|
Total cash equivalents | | 3,168 |
| | 800 |
| | 3,968 |
|
Short-term securities | | | | | | |
Municipal and corporate bonds | | — |
| | 539 |
| | 539 |
|
Long-term securities | | | | | | |
Municipal and corporate bonds | | — |
| | 12,658 |
| | 12,658 |
|
Total assets at fair value | | $ | 3,168 |
| | $ | 13,997 |
| | $ | 17,165 |
|
March 3, 2018 | | | | | | |
Cash equivalents | | | | | | |
Money market funds | | $ | 2,901 |
| | $ | — |
| | $ | 2,901 |
|
Commercial paper | | — |
| | 400 |
| | 400 |
|
Total cash equivalents | | 2,901 |
| | 400 |
| | 3,301 |
|
Short-term securities | | | | | | |
Municipal and corporate bonds | | — |
| | 423 |
| | 423 |
|
Long-term securities | | | | | | |
Municipal and corporate bonds | | — |
| | 8,630 |
| | 8,630 |
|
Total assets at fair value | | $ | 2,901 |
| | $ | 9,453 |
| | $ | 12,354 |
|
Cash equivalents
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.
Short- and long-term securities
Mutual funds were measured at fair value based on quoted prices for identical assets in active markets. Municipal and corporate bonds were measured at fair value based on market prices from recent trades of similar securities and are classified as short-term or long-term based on maturity date.
Foreign currency instruments
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. As of September 1, 2018, we held foreign exchange forward contracts with a U.S. dollar notional value of $25.0 million, with the objective of reducing the exposure to fluctuations in the Canadian dollar and the Euro. The fair value of these contracts was a liability of $0.2 million as of September 1, 2018. These forward contracts are measured at fair value using unobservable market inputs, such as quotations on forward foreign exchange points and foreign currency exchange rates, and would be classified as Level 2 within the fair value hierarchy above.
| |
9.6. | Goodwill and Other Identifiable Intangible Assets |
The carrying amount of goodwill attributable to each reporting segment was:
| | (In thousands) | Architectural Framing Systems | | Architectural Glass | | Architectural Services | | Large-Scale Optical | | Total | |
Balance at February 27, 2016 | $ | 36,680 |
| | $ | 25,639 |
| | $ | 1,120 |
| | $ | 10,557 |
| | $ | 73,996 |
| |
In thousands | | | Architectural Framing Systems | | Architectural Glass | | Architectural Services | | Large-Scale Optical | | Total |
Balance at March 4, 2017 | | | $ | 63,701 |
| | $ | 25,956 |
| | $ | 1,120 |
| | $ | 10,557 |
| | $ | 101,334 |
|
Goodwill acquired | 27,444 |
| | — |
| | — |
| | — |
| | 27,444 |
| | 84,162 |
| | — |
| | — |
| | — |
| | 84,162 |
|
Goodwill adjustments for purchase accounting
| | | (5,859 | ) | | — |
| | — |
| | — |
| | (5,859 | ) |
Foreign currency translation | (423 | ) | | 317 |
| | — |
| | — |
| | (106 | ) | | 1,304 |
| | 15 |
| | — |
| | — |
| | 1,319 |
|
Balance at March 4, 2017 | 63,701 |
| | 25,956 |
| | 1,120 |
| | 10,557 |
| | 101,334 |
| |
Goodwill acquired, net | 49,256 |
| | — |
| | — |
| | — |
| | 49,256 |
| |
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 | 2,241 |
| | 50 |
| | — |
| | — |
| | 2,291 |
| | (442 | ) | | (259 | ) | | — |
| | — |
| | (701 | ) |
Balance at December 2, 2017 | 115,198 |
| | $ | 26,006 |
| | $ | 1,120 |
| | $ | 10,557 |
| | $ | 152,881 |
| |
Balance at September 1, 2018 | | | $ | 149,133 |
| | $ | 25,712 |
| | $ | 1,120 |
| | $ | 10,557 |
| | $ | 186,522 |
|
The gross carrying amount of other intangible assets and related accumulated amortization was:
| | (In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Foreign Currency Translation | | Net | |
December 2, 2017 | | | | | | | | | |
In thousands | | | Gross Carrying Amount | | Accumulated Amortization | | Foreign Currency Translation | | Net |
September 1, 2018 | | | | | | | | | |
Definite-lived intangible assets: | | | | | | | | | | | | | | | | |
Debt issue costs | | $ | 4,516 |
| | $ | (3,169 | ) | | $ | — |
| | $ | 1,347 |
| |
Non-compete agreements | | 6,286 |
| | (6,122 | ) | | 10 |
| | 174 |
| |
Customer relationships | | 120,273 |
| | (18,753 | ) | | 3,788 |
| | 105,308 |
| | $ | 122,816 |
| | $ | (23,472 | ) | | $ | (1,184 | ) | | $ | 98,160 |
|
Trademarks and other intangibles | | 30,250 |
| | (13,616 | ) | | 1,055 |
| | 17,689 |
| |
Other intangibles | | | 41,697 |
| | (30,258 | ) | | (483 | ) | | 10,956 |
|
Total definite-lived intangible assets | | $ | 161,325 |
| | $ | (41,660 | ) | | $ | 4,853 |
| | $ | 124,518 |
| | 164,513 |
| | (53,730 | ) | | (1,667 | ) | | 109,116 |
|
Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | |
Trademarks | | 48,461 |
| | — |
| | 877 |
| | 49,338 |
| | 49,077 |
| | — |
| | (202 | ) | | 48,875 |
|
Total intangible assets | | $ | 209,786 |
| | $ | (41,660 | ) | | $ | 5,730 |
| | $ | 173,856 |
| | $ | 213,590 |
| | $ | (53,730 | ) | | $ | (1,869 | ) | | $ | 157,991 |
|
March 4, 2017 | | | | | | | | | |
March 3, 2018 | | | | | | | | | |
Definite-lived intangible assets: | | | | | | | | | | | | | | | | |
Debt issue costs | | $ | 4,066 |
| | $ | (2,960 | ) | | $ | — |
| | $ | 1,106 |
| |
Non-compete agreements | | 6,286 |
| | (6,025 | ) | | (65 | ) | | 196 |
| |
Customer relationships | | 82,479 |
| | (14,013 | ) | | (145 | ) | | 68,321 |
| | $ | 122,816 |
| | $ | (20,277 | ) | | $ | (56 | ) | | $ | 102,483 |
|
Trademarks and other intangibles | | 25,950 |
| | (4,917 | ) | | (31 | ) | | 21,002 |
| |
Other intangibles | | | 41,697 |
| | (25,879 | ) | | (30 | ) | | 15,788 |
|
Total definite-lived intangible assets | | $ | 118,781 |
| | $ | (27,915 | ) | | $ | (241 | ) | | $ | 90,625 |
| | 164,513 |
| | (46,156 | ) | | (86 | ) | | 118,271 |
|
Indefinite-lived intangible assets: | | | | | | | | | | | | | | | | |
Trademarks | | 16,022 |
| | — |
| | 39 |
| | 16,061 |
| | 48,461 |
| | — |
| | 617 |
| | 49,078 |
|
Total intangible assets | | $ | 134,803 |
| | $ | (27,915 | ) | | $ | (202 | ) | | $ | 106,686 |
| | $ | 212,974 |
| | $ | (46,156 | ) | | $ | 531 |
| | $ | 167,349 |
|
Amortization expense on definite-lived intangible assets was $12.8$7.9 million and $1.2 million forin each of the ninesix-month periods ended December 2, 2017September 1, 2018 and November 26, 2016September 2, 2017, respectively.. The amortization expense associated with debt issue costs is included in interest expense while the remainder is in selling, general and administrative expenses in the consolidated results of operations. At December 2, 2017September 1, 2018, the estimated future amortization expense for definite-lived intangible assets was:
| | (In thousands) | Remainder of Fiscal 2018 | | Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | | Fiscal 2022 | |
In thousands | | | Remainder of Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | | Fiscal 2022 | | Fiscal 2023 |
Estimated amortization expense | $ | 4,922 |
| | $ | 13,235 |
| | $ | 8,219 |
| | $ | 8,213 |
| | $ | 7,904 |
| | $ | 5,028 |
| | $ | 8,111 |
| | $ | 8,104 |
| | $ | 7,948 |
| | $ | 7,560 |
|
We maintain a committed revolving credit facility with maximum borrowings of up to $335.0 million, maturing in November 2021. Outstanding borrowings under our committed revolving credit facility were $209.0203.5 million, as of December 2, 2017September 1, 2018, and $45.0$195.0 million, as of March 4, 20173, 2018. Under this facility, we are subject to two financial covenants that require us to stay below a
maximum debt-to-EBITDA ratio and maintain a minimum ratio of interest expense-to-EBITDA. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At December 2, 2017,September 1, 2018, we were in compliance with both financial covenants. Additionally, at December 2, 2017,September 1, 2018, we had a total of $26.3$23.5 million of ongoing letters of credit related to industrial revenue bonds and construction contracts that expire in fiscal 20182020 and reduce availability of funds under our committed credit facility.
At December 2, 2017,September 1, 2018, our debt also included $20.4 million of industrial revenue bonds that mature in fiscal years 2021 through 2043 and $0.4$0.5 million of long-term debt in Canada. The fair value of the industrial revenue bonds approximated carrying value at December 2, 2017,September 1, 2018, due to the variable interest rates on these instruments. All debt would be classified as Level 2 within the fair value hierarchy described in Note 7.5.
We also maintain two Canadian revolving demand credit facilities totaling $12.0 million Canadian dollars. As of December 2, 2017, $1.5September 1, 2018, $0.5 million was outstanding under these facilities, and no borrowings were outstanding as of March 4, 2017.3, 2018. Borrowings under these facilities are made available at the sole discretion of the lenders and are payable on demand. The Company classifies any outstanding balances under thisthese demand facilityfacilities as long-term debt, as outstanding amounts can be refinanced through our committed revolving credit facility.
Interest payments were $3.64.3 million and $0.5$1.9 million for the ninesix months ended December 2, 2017September 1, 2018 and November 26, 2016September 2, 2017, respectively.
| |
11.8. | Employee Benefit PlansCommitments and Contingent Liabilities |
The Company sponsors two frozen defined-benefit pension plans: an unfunded Officers’ Supplemental Executive Retirement Plan and the Tubelite Inc. Hourly Employees’ Pension Plan. Components of net periodic benefit cost were:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | | December 2, 2017 | | November 26, 2016 |
Interest cost | $ | 133 |
| | $ | 139 |
| | $ | 399 |
| | $ | 417 |
|
Expected return on assets | (10 | ) | | (10 | ) | | (30 | ) | | (30 | ) |
Amortization of unrecognized net loss | 57 |
| | 56 |
| | 171 |
| | 168 |
|
Net periodic benefit cost | $ | 180 |
| | $ | 185 |
| | $ | 540 |
| | $ | 555 |
|
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2015, or U.S. state and local income tax examinations for years prior to fiscal 2011. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2014, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.
The total liability for unrecognized tax benefits at December 2, 2017 and March 4, 2017 was approximately $5.4 million and $4.5 million, respectively. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. The total liability for unrecognized tax benefits is expected to decrease by approximately $0.3 million during the next 12 months due to lapsing of statutes.
13. Other Non-Current Liabilities
|
| | | | | | | |
(In thousands) | December 2, 2017 | | March 4, 2017 |
Deferred benefit from New Market Tax Credit transactions | $ | 16,708 |
| | $ | 16,708 |
|
Retirement plan obligations | 9,635 |
| | 9,635 |
|
Deferred compensation plan | 10,104 |
| | 7,463 |
|
Other | 23,034 |
| | 11,981 |
|
Total other non-current liabilities | $ | 59,481 |
| | $ | 45,787 |
|
14.Commitments and Contingent Liabilities
Operating lease commitments.commitments
As of December 2, 2017September 1, 2018, the Company was obligated under non-cancelable operating leases for buildings and equipment. Certain leases provide for increased rental payments based upon increases in real estate taxes or operating costs. Future minimum rental payments under non-cancelable operating leases are:
| | (In thousands) | Remainder of Fiscal 2018 | | Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | | Fiscal 2022 | | Thereafter | | Total | |
In thousands | | | Remainder of Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | | Fiscal 2022 | | Fiscal 2023 | | Thereafter | | Total |
Total minimum payments | $ | 3,615 |
| | $ | 13,546 |
| | $ | 11,493 |
| | $ | 8,477 |
| | $ | 7,626 |
| | $ | 21,232 |
| | $ | 65,989 |
| | $ | 7,497 |
| | $ | 13,182 |
| | $ | 9,990 |
| | $ | 7,802 |
| | $ | 6,886 |
| | $ | 17,630 |
| | $ | 62,987 |
|
Bond commitments.commitments
In the ordinary course of business, predominantly in our Architectural Services and Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At December 2, 2017, $86.4September 1, 2018, $246.2 million of our backlog was bonded by performancethese types of bonds with a face value of $310.0$538.4 million. PerformanceThese bonds do not have stated expiration dates, as we are generally 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.
Warranties
Warranties.We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims as a 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, changes in product mix and any significant changes in sales volume. A warranty rollforward follows:
| | | Nine Months Ended | | Six Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | |
In thousands | | | September 1, 2018 | | September 2, 2017 |
Balance at beginning of period | $ | 21,933 |
| | $ | 16,340 |
| | $ | 22,517 |
| | $ | 21,933 |
|
Additional accruals | 3,443 |
| | 6,082 |
| | 2,087 |
| | 2,588 |
|
Claims paid | (8,254 | ) | | (4,878 | ) | | (4,580 | ) | | (6,800 | ) |
Acquired reserves | 5,571 |
| | — |
| | — |
| | 5,571 |
|
Balance at end of period | $ | 22,693 |
| | $ | 17,544 |
| | $ | 20,024 |
| | $ | 23,292 |
|
Letters of credit.credit
At December 2, 2017,September 1, 2018, we had $23.5 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 December 2, 2017 was approximately $26.3 million, all of which have been issued under our committed revolving credit facility. Availability under this credit facility, is reduced by borrowings under the facility and also by letters of credit issued under the facility.as discussed in Note 7.
Purchase obligations.obligations
Purchase obligations for raw material commitments and capital expenditures totaled $120.9$183.1 million as of December 2, 2017.September 1, 2018.
Litigation.New Markets Tax Credit transaction
In August 2018, we entered into a transaction with a subsidiary of Wells Fargo (WF) under a qualified New Markets Tax Credit (NMTC) program related to an investment in plant and equipment within our Architectural Glass segment (the Project). The NMTC
transaction is subject to 100 percent tax credit recapture for a period of seven years. Therefore, upon the termination of our arrangement at the end of the seven year period (our fiscal 2026), proceeds received from WF will be recognized in earnings in exchange for the transfer of the tax credits.
WF contributed $6.6 million to the Project, which is included in other non-current liabilities on our consolidated balance sheets. Direct and incremental costs incurred in structuring the arrangement have been deferred and will be recognized in conjunction with the recognition of the related profits. These costs amount to $0.5 million and are included in other non-current assets on our consolidated balance sheets. Variable-interest entities have been created as a result of the transaction structure, which have been included within our consolidated financial statements as WF does not have a material interest in the underlying economics of the Project.
Litigation
We are a party to various legal proceedings incidental to our normal operating activities. In particular, like others in the construction supply and services industry, our businesses are routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We are also 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 our results of operations, cash flows or financial condition.
| |
9. | Share-Based Compensation |
Total share-based compensation expense included in the results of operations was $3.1 million for each of the six-month periods ended September 1, 2018 and September 2, 2017.
Stock options and SARs
Stock option and SAR activity for the current six-month period is summarized as follows:
|
| | | | | | | | | | | | | |
Stock options and SARs | | Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
Outstanding at March 3, 2018 | | 129,901 |
| | $ | 11.10 |
| | | | |
Awards exercised | | (29,560 | ) | | 20.43 |
| | | | |
Outstanding and exercisable at September 1, 2018 | | 100,341 |
| | 8.34 |
| | 3.0 years | | $ | 4,101,940 |
|
Cash proceeds from the exercise of stock options were $0.2 million and $0.8 million for the six months ended September 1, 2018 and September 2, 2017, 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 $0.6 million during the six months ended September 1, 2018 and $4.8 million during the prior-year period.
Nonvested shares and share units
Nonvested share activity for the current six-month period is summarized as follows:
|
| | | | | | | |
Nonvested shares and units | | Number of Shares and Units | | Weighted Average Grant Date Fair Value |
Nonvested at March 3, 2018 | | 266,180 |
| | $ | 49.22 |
|
Granted | | 148,219 |
| | 43.54 |
|
Vested | | (116,266 | ) | | 46.57 |
|
Canceled | | (15,359 | ) | | 48.12 |
|
Nonvested at September 1, 2018 | | 282,774 |
| | 47.36 |
|
At September 1, 2018, there was $9.5 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 22 months. The total fair value of shares vested during the six months ended September 1, 2018 was $4.9 million.
| |
15.10. | Employee Benefit Plans |
The Company sponsors two frozen defined-benefit pension plans: an unfunded Officers’ Supplemental Executive Retirement Plan and the Tubelite Inc. Hourly Employees’ Pension Plan. Components of net periodic benefit cost were:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
In thousands | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Interest cost | | $ | 127 |
| | $ | 133 |
| | $ | 254 |
| | $ | 266 |
|
Expected return on assets | | (10 | ) | | (10 | ) | | (20 | ) | | (20 | ) |
Amortization of unrecognized net loss | | 57 |
| | 57 |
| | 114 |
| | 114 |
|
Net periodic benefit cost | | $ | 174 |
| | $ | 180 |
| | $ | 348 |
| | $ | 360 |
|
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2015, or state and local income tax examinations for years prior to fiscal 2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2014, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.
The total liability for unrecognized tax benefits at September 1, 2018 and March 3, 2018 was approximately $5.1 million in both periods. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. The total liability for unrecognized tax benefits is expected to decrease by approximately $0.6 million during the next 12 months due to lapsing of statutes.
The Tax Cuts and Jobs Act (the Act) was enacted in December 2017. Among other provisions, the Act created a new tax on certain foreign sourced earnings under the Global Intangible Low-Taxed Income (“GILTI”) provision. Companies are allowed to make an accounting policy election of either treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred or factoring such amounts into the measurement of deferred taxes. We have completed our analysis of the GILTI provisions and are making an accounting policy election to recognize the tax expense on future U.S. inclusions of GILTI income, if any, as a current period expense when incurred.
The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
|
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
In thousands | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Basic earnings per share – weighted average common shares outstanding | | 28,128 |
| | 28,850 |
| | 28,127 |
| | 28,850 |
|
Weighted average effect of nonvested share grants and assumed exercise of stock options | | 251 |
| | 58 |
| | 250 |
| | 35 |
|
Diluted earnings per share – weighted average common shares and potential common shares outstanding | | 28,379 |
| | 28,908 |
| | 28,377 |
| | 28,885 |
|
Stock awards excluded from the calculation of earnings per share because the effect was anti-dilutive (award price greater than average market price of the shares)
| | 106 |
| | — |
| | 108 |
| | — |
|
The Company has four reporting segments: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).
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. The Company has aggregated six operating segments into this reporting segment based on their similar products, customers, distribution methods, production processes and economic characteristics.
The Architectural Glass segment fabricates coated, high-performance glass used 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 LSO segment manufactures value-added glass and acrylic products primarily for framing and display applications.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | | December 2, 2017 | | November 26, 2016 | |
In thousands | | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Net sales from operations | | | | | | | | | | | | | | | |
Architectural Framing Systems | $ | 194,157 |
| | $ | 90,850 |
| | $ | 493,672 |
| | $ | 264,212 |
| | $ | 189,850 |
| | $ | 189,023 |
| | $ | 368,887 |
| | $ | 299,515 |
|
Architectural Glass | 96,940 |
| | 107,002 |
| | 292,026 |
| | 299,567 |
| | 88,084 |
| | 97,351 |
| | 165,009 |
| | 195,086 |
|
Architectural Services | 49,077 |
| | 64,380 |
| | 146,056 |
| | 204,934 |
| | 76,496 |
| | 46,829 |
| | 147,223 |
| | 96,979 |
|
Large-Scale Optical | 26,003 |
| | 22,084 |
| | 64,897 |
| | 63,382 |
| | 20,383 |
| | 20,291 |
| | 41,145 |
| | 38,894 |
|
Intersegment eliminations | (9,671 | ) | | (10,244 | ) | | (23,930 | ) | | (31,688 | ) | | (12,680 | ) | | (9,587 | ) | | (23,600 | ) | | (14,260 | ) |
Net sales | $ | 356,506 |
| | $ | 274,072 |
| | $ | 972,721 |
| | $ | 800,407 |
| | $ | 362,133 |
| | $ | 343,907 |
| | $ | 698,664 |
| | $ | 616,214 |
|
Operating income (loss) from operations | | | | | | | | | | | | | | | |
Architectural Framing Systems | $ | 18,452 |
| | $ | 11,838 |
| | $ | 46,958 |
| | $ | 35,070 |
| | $ | 18,312 |
| | $ | 16,542 |
| | $ | 30,650 |
| | $ | 28,506 |
|
Architectural Glass | 9,107 |
| | 11,708 |
| | 28,687 |
| | 30,855 |
| | 1,739 |
| | 10,258 |
| | 3,317 |
| | 19,581 |
|
Architectural Services | 2,547 |
| | 4,918 |
| | 4,102 |
| | 14,336 |
| | 7,621 |
| | 774 |
| | 12,775 |
| | 1,555 |
|
Large-Scale Optical | 6,724 |
| | 5,910 |
| | 15,022 |
| | 15,613 |
| | 4,236 |
| | 4,248 |
| | 9,218 |
| | 8,298 |
|
Corporate and other | (2,295 | ) | | (1,115 | ) | | (8,354 | ) | | (3,317 | ) | | (3,248 | ) | | (4,048 | ) | | (5,306 | ) | | (6,060 | ) |
Operating income | $ | 34,535 |
| | $ | 33,259 |
| | $ | 86,415 |
| | $ | 92,557 |
| | $ | 28,660 |
| | $ | 27,774 |
| | $ | 50,654 |
| | $ | 51,880 |
|
Due to the varying combinations and integration of individual window, storefront and curtainwall systems, it is impractical to report product revenues generated by class of product, beyond the segment revenues currently reported.
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking StatementsForward-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 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 4, 20173, 2018. From time to time, we may also 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 of the Company’s Annual Report on Form 10-K for the fiscal year ended March 4, 20173, 2018.
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 and metal products and services.services for enclosing commercial buildings and framing and displays. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).
The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended March 4, 20173, 2018 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.
Highlights of ThirdSecond Quarter and First NineSix Months of Fiscal 20182019 Compared to ThirdSecond Quarter and First NineSix Months of Fiscal 20172018
Net sales
Consolidated net sales increased 30.15.3 percent, or $82.4$18.2 million, for the thirdsecond quarter ended December 2, 2017,September 1, 2018, and 21.513.4 percent, or $172.3$82.5 million, for the nine-monthsix-month period, ended December 2, 2017, compared to the same periods in the prior year. SalesIn the quarter, sales growth was driven by the Architectural Services segment, partially offset by a volume-related decline in the Architectural Glass segment. In the six-month period, the increase in sales was primarily due todriven by the addition of EFCO in(acquired on June 2017 and Sotawall in December 2016 within the12, 2017) to our Architectural Framing Systemssystems segment, and growth in Architectural Services, partially offset by the declinelower sales in our Architectural Services segment. Foreign currency did not have a meaningful impact on sales results in the current-year period or the prior-year period.Glass.
The relationship between various components of operations, as a percentage of net sales, is illustratedpresented below:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
(Percent of net sales) | December 2, 2017 | | November 26, 2016 | | December 2, 2017 | | November 26, 2016 | |
| | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales | 74.3 |
| | 73.4 |
| | 74.5 |
| | 73.8 |
| 76.7 |
| | 75.0 |
| | 76.4 |
| | 74.6 |
|
Gross profit | 25.7 |
| | 26.6 |
| | 25.5 |
| | 26.2 |
| 23.3 |
| | 25.0 |
| | 23.6 |
| | 25.4 |
|
Selling, general and administrative expenses | 16.0 |
| | 14.5 |
| | 16.6 |
| | 14.7 |
| 15.4 |
| | 16.9 |
| | 16.4 |
| | 16.9 |
|
Operating income | 9.7 |
| | 12.1 |
| | 8.9 |
| | 11.5 |
| 7.9 |
| | 8.1 |
| | 7.2 |
| | 8.5 |
|
Interest and other (expense) income, net | (0.3 | ) | | — |
| | (0.3 | ) | | — |
| (0.5 | ) | | (0.4 | ) | | (0.5 | ) | | (0.3 | ) |
Earnings before income taxes | 9.4 |
| | 12.1 |
| | 8.6 |
| | 11.5 |
| 7.4 |
| | 7.7 |
| | 6.7 |
| | 8.2 |
|
Income tax expense | 2.7 |
| | 3.9 |
| | 2.7 |
| | 3.8 |
| 1.8 |
| | 2.6 |
| | 1.6 |
| | 2.7 |
|
Net earnings | 6.6 | % | | 8.2 | % | | 5.9 | % | | 7.7 | % | 5.7 | % | | 5.1 | % | | 5.1 | % | | 5.5 | % |
Effective tax rate | 29.1 | % | | 32.1 | % | | 31.7 | % | | 32.8 | % | 23.8 | % | | 33.9 | % | | 23.9 | % | | 33.4 | % |
Gross profit
Gross profit as a percent of sales was 25.723.3 percent and 25.523.6 percent for the three- and nine-monthsix-month periods, respectively, ended December 2, 2017,September 1, 2018, compared to 26.625.0 percent and 26.225.4 percent for each of the three- and nine-monthsix-month periods ended November 26, 2016.September 2, 2017. Gross profit as a percent of sales declined from the prior-year periods primarily due to the inclusion of the lower gross margin EFCO business in the three-month period ended December 2, 2017, and reduced volume leveragehigher operating costs in the Architectural ServicesGlass segment, in bothas further discussed below within the three- and nine-month periods ended December 2, 2017.Segment Analysis for the Architectural Glass segment.
Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales were 16.0declined to 15.4 percent and 16.616.4 percent infor the three- and nine-monthsix-month periods, respectively, ended December 2, 2017,September 1, 2018, compared to 14.516.9 percent of sales and 14.7 percent of sales in the three- and nine-month periods, respectively, last year. The increases in the current year periods were primarily due to amortization of the intangible assets acquired in the Sotawall and EFCO transactions and EFCO acquisition-related costs. These two factors combined made up approximately 170 basis points of the increase in each of the three- and nine-month periodsprior year comparative periods. The decline was primarily the result of fiscal 2018, compared toacquisition-related costs incurred in the prior-year periods.prior year.
Income tax expense
The effective tax rate in the thirdsecond quarter of fiscal 20182019 was 29.123.8 percent, compared to 32.133.9 percent in the same period last year, and 31.723.9 percent for the first ninesix months of fiscal 2018,2019, compared to 32.833.4 percent in the prior-year period. The declinereduction in the effective tax rate in both periods was due mainly to a tax benefit onprimarily driven by the recognitionprovisions of a foreign currency loss.the Tax Cuts and Jobs Act, enacted in December 2017.
Segment Analysis
Architectural Framing Systems
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | | % Change | | December 2, 2017 | | November 26, 2016 | | % Change | |
In thousands | | | September 1, 2018 | | September 2, 2017 | | % Change | | September 1, 2018 | | September 2, 2017 | | % Change |
Net sales | $ | 194,157 |
| | $ | 90,850 |
| | 113.7 | % | | 493,672 |
| | 264,212 |
| | 86.8 | % | | $ | 189,850 |
| | $ | 189,023 |
| | 0.4 | % | | 368,887 |
| | 299,515 |
| | 23.2 | % |
Operating income | 18,452 |
| | 11,838 |
| | 55.9 | % | | 46,958 |
| | 35,070 |
| | 33.9 | % | | 18,312 |
| | 16,542 |
| | 10.7 | % | | 30,650 |
| | 28,506 |
| | 7.5 | % |
Operating margin | 9.5 | % | | 13.0 | % | | | | 9.5 | % | | 13.3 | % | | | | 9.6 | % | | 8.8 | % | | | | 8.3 | % | | 9.5 | % | | |
Architectural Framing Systems net sales increased $103.3$0.8 million, or 113.70.4 percent, and $229.5$69.4 million, or 86.823.2 percent, for the three- and nine-monthsix-month periods, respectively, ended December 2, 2017, overSeptember 1, 2018, compared to the same periods in the prior year.prior-year periods. The addition of the net sales of EFCO and Sotawall provided over 80 percentthe large majority of the growth in the six-month period ended September 1, 2018, with additional growth
driven by geographic expansion and new product sales by businesses existing prior to our recent Sotawall and EFCO acquisitions. This was partially offset by a year-over-year decline in Canadian curtainwall sales, due to timing of project activity.
Operating margin increased 80 basis points for the three-months ended September 1, 2018, compared to the second quarter of the last fiscal year, primarily due to completing amortization of short-lived intangible assets at Sotawall early in the current-year quarter. In the six-month period of the current year, operating margin declined 120 basis points compared to the prior year, driven by the inclusion of EFCO at lower operating margins and reduced operating leverage on lower Canadian curtainwall sales, partially offset by operating improvements in our businesses existing prior to our recent Sotawall and EFCO acquisitions.
As of September 1, 2018, segment backlog was approximately $406 million, compared to approximately $400 million last quarter.
Architectural Glass
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
In thousands | | September 1, 2018 | | September 2, 2017 | | % Change | | September 1, 2018 | | September 2, 2017 | | % Change |
Net sales | | $ | 88,084 |
| | $ | 97,351 |
| | (9.5 | )% | | $ | 165,009 |
| | $ | 195,086 |
| | (15.4 | )% |
Operating income | | 1,739 |
| | 10,258 |
| | (83.0 | )% | | 3,317 |
| | 19,581 |
| | (83.1 | )% |
Operating margin | | 2.0 | % | | 10.5 | % | | | | 2.0 | % | | 10.0 | % | | |
Net sales declined $9.3 million, or 9.5 percent, and $30.1 million, or 15.4 percent, for the three- and six-month periods, respectively, ended September 1, 2018, compared to the same periods in the prior year. In both periods. The remaining growth wascurrent year periods, changes in the timing of customer orders drove the decline in sales. Additionally, in the second quarter of fiscal 2019, volume declines stemming from share gains and geographic growthoperational challenges within the segment (described in North America within our legacy businesses.the next paragraph) also contributed to the sales decrease.
Operating margin declined 350850 and 800 basis points, and 380 basis pointsrespectively, for the three- and nine-monthsix-month periods respectively, of the current year, compared to the same periods in the prior year. The decline inyear, primarily driven by significantly increased labor costs, lower productivity and higher cost of quality, as the three-month period resulted from 280 basis points of amortization of acquired intangible assetssegment was challenged to efficiently ramp-up production to meet higher than expected order intake and for the nine-month period, the amortization of acquired intangible assets resulted in 240 basis points of the decline. Additionally, operating margin in both periods was impacted by the inclusion of EFCO at lower operating margins.
Backlog in this segment, as of December 2, 2017, was approximately $449 million, compared to approximately $245 million at fiscal year-end, with the addition of EFCO contributing over 90 percent of the increase.customer demand.
Architectural GlassServices
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | | % Change | | December 2, 2017 | | November 26, 2016 | | % Change | |
In thousands | | | September 1, 2018 | | September 2, 2017 | | % Change | | September 1, 2018 | | September 2, 2017 | | % Change |
Net sales | $ | 96,940 |
| | $ | 107,002 |
| | (9.4 | )% | | $ | 292,026 |
| | $ | 299,567 |
| | (2.5 | )% | | $ | 76,496 |
| | $ | 46,829 |
| | 63.4 | % | | $ | 147,223 |
| | $ | 96,979 |
| | 51.8 | % |
Operating income | 9,107 |
| | 11,708 |
| | (22.2 | )% | | 28,687 |
| | 30,855 |
| | (7.0 | )% | | 7,621 |
| | 774 |
| | 884.6 | % | | 12,775 |
| | 1,555 |
| | 721.5 | % |
Operating margin | 9.4 | % | | 10.9 | % | | | | 9.8 | % | | 10.3 | % | | | | 10.0 | % | | 1.7 | % | | | | 8.7 | % | | 1.6 | % | | |
NetArchitectural Services net sales declined $10.1increased $29.7 million, or 9.463.4 percent, and $50.2 million, or 51.8 percent, for the quarter-ended December 2, 2017,three- and six- month periods, respectively, ended September 1, 2018, over the same periodperiods in the prior year, dueas the business continued to delaysexecute on projects booked in the timing of certain larger projects in the United States, partially as a result of hurricane-related project delays in Florida. Sales for the nine-month period ended December 2, 2017 decreased $7.5 million, or 2.5 percent, over the prior-year period due to delays in timing of larger projects, partly offset by share gains in mid-size projects. Foreign currency impact on sales was nominal in the current-year periods compared to the respective prior-year periods.past several quarters.
Operating margin declined 150increased 830 and 710 basis points, and 50 basis pointsrespectively, for the three- and nine-monthsix-month periods respectively, of the current year, compared to the same periods in the prior year. The declines in both periods were driven by reduced operatingyear, due to volume leverage on lower volume, and pricing and mix declines. These negative factors were partially offset by improved manufacturing productivity.strong project execution.
Given the short lead times in thisAs of September 1, 2018, segment we do not consider backlog was approximately $405 million, compared to be a significant metric.approximately $439 million last quarter.
Architectural ServicesLarge-Scale Optical (LSO)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | | % Change | | December 2, 2017 | | November 26, 2016 | | % Change | |
In thousands | | | September 1, 2018 | | September 2, 2017 | | % Change | | September 1, 2018 | | September 2, 2017 | | % Change |
Net sales | $ | 49,077 |
| | $ | 64,380 |
| | (23.8 | )% | | $ | 146,056 |
| | $ | 204,934 |
| | (28.7 | )% | | $ | 20,383 |
| | $ | 20,291 |
| | 0.5 | % | | $ | 41,145 |
| | $ | 38,894 |
| | 5.8 | % |
Operating income | 2,547 |
| | 4,918 |
| | (48.2 | )% | | 4,102 |
| | 14,336 |
| | (71.4 | )% | | 4,236 |
| | 4,248 |
| | (0.3 | )% | | 9,218 |
| | 8,298 |
| | 11.1 | % |
Operating margin | 5.2 | % | | 7.6 | % | | | | 2.8 | % | | 7.0 | % | | | | 20.8 | % | | 20.9 | % | | | | 22.4 | % | | 21.3 | % | | |
Architectural ServicesLSO net sales decreased $15.3increased $0.1 million, or 23.80.5 percent, and $58.9$2.3 million, or 28.75.8 percent, for the three- and nine-monthsix-month periods respectively, ended December 2, 2017,September 1, 2018, over the same periods in the prior year, primarily due to year-on-year timingas a result of project activity.improved core picture framing demand, product mix and growth in new markets.
Operating margin declined 240 basis points and 42010 basis points for the three- and nine-month periods, respectively,three months ended September 1, 2018, compared to the second quarter of last year. Operating margin increased 110 basis points for the six-month period of the current year overcompared to the same periodsperiod in the prior year, due to lowerdriven by volume leverage on fixed project management, engineering and manufacturing costs.
As of December 2, 2017, backlog in this segment grew to approximately $346 million, compared to approximately $255 million at fiscal year-end.
Large-Scale Optical (LSO)
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | | % Change | | December 2, 2017 | | November 26, 2016 | | % Change |
Net sales | $ | 26,003 |
| | $ | 22,084 |
| | 17.7 | % | | $ | 64,897 |
| | $ | 63,382 |
| | 2.4 | % |
Operating income | 6,724 |
| | 5,910 |
| | 13.8 | % | | 15,022 |
| | 15,613 |
| | (3.8 | )% |
Operating margin | 25.9 | % | | 26.8 | % | | | | 23.1 | % | | 24.6 | % | | |
LSO net sales increased $3.9 million, or 17.7 percent, and $1.5 million, or 2.4 percent, for the three- and nine-month periods ended December 2, 2017, respectively, over the comparable prior-year periods, as a result of strong customer orders, partly due to timing, and success in new display markets.
Operating margin declined 90 basis points and 150 basis points for the three- and nine-month periods of the current year, respectively, over the same periods in the prior year, due to accrual of additional incentive compensation on stronger current-year performance. In the current quarter, this was partially offset by improved operating leverage on increased volume.
Given the short lead times in this segment, we do not consider backlog to be a significant metric.favorable product mix.
Liquidity and Capital Resources
| | Selected cash flow data | Nine Months Ended | | Six Months Ended |
(In thousands) | December 2, 2017 | | November 26, 2016 | |
In thousands | | | September 1, 2018 | | September 2, 2017 |
Operating Activities | | | | | | | |
Net cash provided by operating activities | $ | 66,239 |
| | $ | 72,815 |
| | $ | 47,929 |
| | $ | 40,809 |
|
Investing Activities | | | | | | | |
Capital expenditures | (38,946 | ) | | (44,548 | ) | | (24,241 | ) | | (26,825 | ) |
Acquisition of business, net of cash acquired | (184,826 | ) | | — |
| | — |
| | (184,826 | ) |
Change in restricted cash | 7,834 |
| | (14,884 | ) | |
Net purchases of marketable securities | | | (4,123 | ) | | (1,165 | ) |
Financing Activities | | | | | | | |
Proceeds from issuance of debt | 314,700 |
| | — |
| | 205,000 |
| | 284,200 |
|
Payments on debt | (150,700 | ) | | — |
| | (196,500 | ) | | (94,000 | ) |
Repurchase and retirement of common stock | (10,833 | ) | | (10,817 | ) | | — |
| | (10,833 | ) |
Dividends paid | (11,971 | ) | | (10,687 | ) | | (8,823 | ) | | (7,994 | ) |
Operating Activities. Cash provided by operating activities was $66.2$47.9 million for the first ninesix months of fiscal 2018, decreasing $6.62019, increasing $7.1 million compared to the prior-year period, as a result of increased working capital investmentprimarily due to reduced accrued expenses.proceeds received on the New Market Tax Credit transaction.
Investing Activities. Net cash used in investing activities was $215.6$29.8 million the first ninesix months of fiscal 2018,2019, primarily due to the cash paid for the acquisitioncapital expenditures and net purchases of EFCO,marketable securities, while in the first ninesix months of the prior year, net cash used by investing activities of $59.2was $211.7 million, was driven by capital expenditures. Additionally, in fiscal 2018, we released the remaining $7.8 million of cash that was restricted for investment in our oversized glass fabrication project within our Architectural Glass segment.EFCO acquisition. We estimate fiscal 20182019 capital expenditures to be $55$60 to $60$65 million, as we continue to investmake investments in productivityprojects that will add capabilities and capabilities.improve productivity.
We continuallycontinue to review our portfolio of businesses and their assets in comparison to our internal strategic and performance objectives. As part of this review, we may acquire other businesses,take actions to adjust capacity, pursue geographic expansion, take actions to manage capacity and/or further invest in, fully divest and/or sell parts of our current businesses and/or acquire other businesses. As a result, on January 5, 2018 we announced a plan to close the St. George, UT architectural glass manufacturing facility in March 2018, enabled by our investments in productivity and increased capabilities, which have led to an increase in capacity.
Financing Activities. At December 2, 2017,September 1, 2018, we had outstanding borrowings under our credit facility of $209.0$203.5 million. As defined within our amended committed revolving credit facility, we are required to comply with two financial covenants. These financial covenants require us to stay below a maximum leverage ratio and to maintain a minimum interest coverage ratio. At December 2, 2017,September 1, 2018, we were in compliance with both financial covenants.
We paid dividends totaling $12.0$8.8 million ($0.420.315 per share) in the first ninesix months of fiscal 2018. As2019. We did not repurchase shares under our authorized share repurchase program during the first six months of December 2, 2017,fiscal 2019. In the second quarter of fiscal 2018, we repurchased 200,000 shares under our authorized share repurchase program for a total cost of $10.8 million; all such repurchases were made in the second quarter. In fiscal 2017, we repurchased 250,001 shares under this program, for a total cost of $10.8 million; all such repurchases were made in the third quarter. million.
Subsequent to the end of the quarter, in October 2018, we purchased 246,299200,000 shares under the program atfor a total cost of $11.1$8.3 million. Also in October 2018, the Board of Directors increased our repurchase authorization by 2,000,000 shares, bringing the total remaining repurchase authority under this program to 3,040,068 shares. Including these shares,this recent repurchase, we have purchasedrepurchased a total of 3,753,9324,209,932 shares, at a cost of $94.2$114.3 million, since the fiscal 2004 inception of this program. In January 2018, our repurchase authority under this program increased by 1,000,000 shares. As a result
Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of December 2, 2017September 1, 2018:
| | | Payments Due by Fiscal Period | | Payments Due by Fiscal Period |
(In thousands) | Remainder of Fiscal 2018 | | Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | | Fiscal 2022 | | Thereafter | | Total | |
In thousands | | | Remainder of Fiscal 2019 | | Fiscal 2020 | | Fiscal 2021 | | Fiscal 2022 | | Fiscal 2023 | | Thereafter | | Total |
Long-term debt obligations | $ | 597 |
| | $ | 1,583 |
| | $ | 108 |
| | $ | 5,508 |
| | $ | 211,108 |
| | $ | 13,022 |
| | $ | 231,926 |
| | $ | 61 |
| | $ | 121 |
| | $ | 5,521 |
| | $ | 206,335 |
| | $ | 1,089 |
| | $ | 12,000 |
| | $ | 225,127 |
|
Operating leases (undiscounted) | 3,615 |
| | 13,546 |
| | 11,493 |
| | 8,477 |
| | 7,626 |
| | 21,232 |
| | 65,989 |
| | 7,497 |
| | 13,182 |
| | 9,990 |
| | 7,802 |
| | 6,886 |
| | 17,630 |
| | 62,987 |
|
Purchase obligations | 48,572 |
| | 67,615 |
| | 2,247 |
| | 1,230 |
| | 1,230 |
| | — |
| | 120,894 |
| | 133,733 |
| | 46,886 |
| | 1,230 |
| | 1,230 |
| | — |
| | — |
| | 183,079 |
|
Total cash obligations | $ | 52,784 |
| | $ | 82,744 |
| | $ | 13,848 |
| | $ | 15,215 |
| | $ | 219,964 |
| | $ | 34,254 |
| | $ | 418,809 |
| | $ | 141,291 |
| | $ | 60,189 |
| | $ | 16,741 |
| | $ | 215,367 |
| | $ | 7,975 |
| | $ | 29,630 |
| | $ | 471,193 |
|
The long-term debt obligations due in fiscal 2022 relate primarily to borrowings under our committed revolving credit facility. From time to time, weWe acquire the use of certain assets through operating leases, such as warehouses, vehicles, forklifts, office equipment, hardware, software and some manufacturing equipment. ManyWhile 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.
Purchase obligations in the table above relate to raw material commitments and capital expenditures.
We expect to make contributions of $1.0 million to our defined-benefit pension plans in fiscal 2018,2019, which will equal or exceed our minimum funding requirements.
As of December 2, 2017September 1, 2018, we had reserves of $5.4$5.1 million and $1.4$1.3 million for unrecognized tax benefits and environmental liabilities, respectively. We currently expect approximately $0.3$0.6 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. We are currently in the process of evaluating information to determine the impact the recently enacted Tax Cuts and Jobs Act will have on our accounting for income taxes.
At December 2, 2017September 1, 2018, we had a total of $26.3$23.5 million of ongoing letters of credit related to industrial revenue bonds and construction contracts that expire in fiscal 20182020 and reduce availability of funds under our committed credit facility.
In addition to the above standby letters of credit, we are required, in the ordinary course of business, to provide surety or performance bonds that commit payments to our customers for any non-performance by us.non-performance. At December 2, 2017, $86.4September 1, 2018, $246.2 million of our backlog was bonded by performancethese types of bonds with a face value of $310.0$538.4 million. PerformanceThese bonds do not have stated expiration dates, as we are generally 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.
Due to our ability to generate strong cash from operations and borrowing capability under our committed revolving credit facility, we believe that our sources of liquidity will continue to be adequate to fund our working capital requirements, planned capital expenditures and dividend payments for at least the next 12 months.
Non-GAAP Measuresmeasures
We analyze non-GAAP measures for adjusted net earnings, adjusted earnings per diluted common share, adjusted EBITDA and adjusted operating income. These measures are used by management to evaluate the Company's financial performance on a more consistent basis and improve comparability of results from period to period, because they exclude certain amounts that management does not consider to be part of the Company's core operating results. Examples of items excluded to arrive at these adjusted measures may include the impact of acquisition-related costs, amortization of short-lived acquired intangibles associated with backlog and non-recurring restructuring costs. We also monitor and disclose a non-GAAP measure for backlog, which represents the dollar amount of signed contracts or firm orders which we expect to recognize as revenue in the future. Backlog is used as one of the metrics to evaluate sales trends in our longer lead time operating segments. These non-GAAP measures should be viewed in addition to, and not as an alternative to, the reported financial results of the companyCompany prepared in accordance with GAAP. The non-GAAP measures presented below may differ from similar measures used by other companies.
The following table reconciles net earnings to adjusted net earnings and earnings per diluted common share to adjusted earnings per diluted common share.
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
(In thousands, except per share data) | | December 2, 2017 | | November 26, 2016 | | % Change | | December 2, 2017 | | November 26, 2016 | | % Change | |
In thousands, except per share data | | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Net earnings | | $ | 23,646 |
| | $ | 22,552 |
| | 5 | % | | $ | 57,159 |
| | $ | 62,671 |
| | (9 | )% | | $ | 20,513 |
| | $ | 17,409 |
| | $ | 35,887 |
| | $ | 33,512 |
|
Amortization of short-lived acquired intangibles | | 2,924 |
| | — |
| | N/M |
| | 7,608 |
| | — |
| | N/M |
| | 1,068 |
| | 2,630 |
| | 3,938 |
| | 4,684 |
|
Acquisition-related costs | | 423 |
| | — |
| | N/M |
| | 4,840 |
| | — |
| | N/M |
| | — |
| | 3,737 |
| | — |
| | 4,417 |
|
Income tax impact on above adjustments (1) | | (974 | ) | | — |
| | N/M |
| | (4,120 | ) | | — |
| | N/M |
| | (254 | ) | | (2,158 | ) | | (953 | ) | | (3,040 | ) |
Adjusted net earnings | | $ | 26,019 |
| | $ | 22,552 |
| | 15 | % | | $ | 65,487 |
| | $ | 62,671 |
| | 4 | % | | $ | 21,327 |
| | $ | 21,618 |
| | $ | 38,872 |
| | $ | 39,573 |
|
| | | | | | | | | | | | | | | | | | | | |
Earnings per diluted common share | | $ | 0.82 |
| | $ | 0.78 |
| | 5 | % | | $ | 1.98 |
| | $ | 2.17 |
| | (9 | )% | | $ | 0.72 |
| | $ | 0.60 |
| | $ | 1.26 |
| | $ | 1.16 |
|
Amortization of short-lived acquired intangibles | | 0.10 |
| | — |
| | N/M |
| | 0.26 |
| | — |
| | N/M |
| | 0.04 |
| | $ | 0.09 |
| | 0.14 |
| | 0.16 |
|
Acquisition-related costs | | 0.01 |
| | — |
| | N/M |
| | 0.17 |
| | — |
| | N/M |
| | — |
| | $ | 0.13 |
| | — |
| | 0.15 |
|
Income tax impact on above adjustments (1) | | (0.03 | ) | | — |
| | N/M |
| | (0.14 | ) | | — |
| | N/M |
| | (0.01 | ) | | (0.07 | ) | | (0.03 | ) | | (0.11 | ) |
Adjusted earnings per diluted common share | | $ | 0.90 |
| | $ | 0.78 |
| | 15 | % | | $ | 2.27 |
| | $ | 2.17 |
| | 5 | % | | $ | 0.75 |
| | $ | 0.75 |
| | $ | 1.37 |
| | $ | 1.37 |
|
(1) Income tax impact on adjustments was calculated using the quarterly effective income tax rate of 29.1% and the nine-month period effective income tax rate of 33.1%. | |
(1) Income tax impact on adjustments was calculated using our effective income tax rates of 23.8% and 33.9% for the quarters ended September 1, 2018 and September 2, 2017, respectively, and 24.2% and 33.4% for the six-month periods ended September 1, 2018 and September 2, 2017, respectively. | | (1) Income tax impact on adjustments was calculated using our effective income tax rates of 23.8% and 33.9% for the quarters ended September 1, 2018 and September 2, 2017, respectively, and 24.2% and 33.4% for the six-month periods ended September 1, 2018 and September 2, 2017, respectively. |
The following table reconciles earnings before interest, income taxes and depreciation and amortization, or EBITDA, to adjusted EBITDA.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
In thousands, except per share data | | September 1, 2018 | | September 2, 2017 | | September 1, 2018 | | September 2, 2017 |
Net earnings | | $ | 20,513 |
| | $ | 17,409 |
| | $ | 35,887 |
| | $ | 33,512 |
|
Income tax expense | | 6,420 |
| | 8,909 |
| | 11,300 |
| | 16,813 |
|
Other income, net | | (217 | ) | | (77 | ) | | (196 | ) | | (256 | ) |
Interest expense, net | | 1,944 |
| | 1,533 |
| | 3,663 |
| | 1,811 |
|
Depreciation and amortization | | 12,407 |
| | 13,639 |
| | 26,457 |
| | 25,062 |
|
EBITDA | | 41,067 |
| | 41,413 |
| | 77,111 |
| | 76,942 |
|
Amortization of short-lived acquired intangibles | | 1,068 |
| | 2,630 |
| | 3,938 |
| | 4,684 |
|
Acquisition-related costs | | — |
| | 3,737 |
| | — |
| | 4,417 |
|
Adjusted EBITDA | | $ | 42,135 |
| | $ | 47,780 |
| | $ | 81,049 |
| | $ | 86,043 |
|
The following table reconciles operating income (loss) to adjusted operating income (loss).
|
| | | | | | | | | | | | | | | | | | |
| | Framing Systems Segment | | Corporate | | Consolidated |
(In thousands) | | Operating income | | Operating margin | | Operating income (loss) | | Operating income | | Operating margin |
Three Months Ended December 2, 2017 | | | | | | | | | | |
Operating income (loss) | | $ | 18,452 |
| | 9.5 | % | | $ | (2,295 | ) | | $ | 34,535 |
| | 9.7 | % |
Amortization of short-lived acquired intangibles | | 2,924 |
| | 1.5 |
| | — |
| | 2,924 |
| | 0.8 |
|
Acquisition-related costs | | — |
| | — |
| | 423 |
| | 423 |
| | 0.1 |
|
Adjusted operating income (loss) | | $ | 21,376 |
| | 11.0 | % | | $ | (1,872 | ) | | $ | 37,882 |
| | 10.6 | % |
Three Months Ended November 26, 2016 | | | | | | | | | | |
Operating income (loss) (1) | | $ | 11,838 |
| | 13.0 | % | | $ | (1,115 | ) | | $ | 33,259 |
| | 12.1 | % |
| | | | | | | | | | |
Nine Months Ended December 2, 2017 | | | | | | | | | | |
Operating income (loss) | | $ | 46,958 |
| | 9.5 | % | | $ | (8,354 | ) | | $ | 86,415 |
| | 8.9 | % |
Amortization of short-lived acquired intangibles | | 7,608 |
| | 1.5 |
| | — |
| | 7,608 |
| | 0.8 |
|
Acquisition-related costs | | — |
| | — |
| | 4,840 |
| | 4,840 |
| | 0.5 |
|
Adjusted operating income (loss) | | $ | 54,566 |
| | 11.1 | % | | $ | (3,514 | ) | | $ | 98,863 |
| | 10.2 | % |
Nine Months Ended November 26, 2016 | | | | | | | | | | |
Operating income (loss) (1) | | $ | 35,070 |
| | 13.3 | % | | $ | (3,317 | ) | | $ | 92,557 |
| | 11.5 | % |
(1) Expenses related to amortization of short-lived acquired intangibles and acquisition-related costs are not applicable to the three- and nine-month periods ended November 26, 2016, and therefore no adjustments have been made. |
|
| | | | | | | | | | | | | | | | | | |
| | Framing Systems Segment | | Corporate | | Consolidated |
In thousands | | Operating income | | Operating margin | | Operating income (loss) | | Operating income | | Operating margin |
Three Months Ended September 1, 2018 | | | | | | | | | | |
Operating income (loss) | | $ | 18,312 |
| | 9.6 | % | | $ | (3,248 | ) | | $ | 28,660 |
| | 7.9 | % |
Amortization of short-lived acquired intangibles | | 1,068 |
| | 0.6 |
| | — |
| | 1,068 |
| | 0.3 |
|
Acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted operating income (loss) | | $ | 19,380 |
| | 10.2 | % | | $ | (3,248 | ) | | $ | 29,728 |
| | 8.2 | % |
Three Months Ended September 2, 2017 | | | | | | | | | | |
Operating income (loss) | | $ | 16,542 |
| | 8.8 | % | | $ | (4,048 | ) | | $ | 27,774 |
| | 8.1 | % |
Amortization of short-lived acquired intangibles | | 2,630 |
| | 1.4 | % | | — |
| | 2,630 |
| | 0.8 | % |
Acquisition-related costs | | — |
| | — | % | | 3,737 |
| | 3,737 |
| | 1.1 | % |
Adjusted operating income (loss) | | $ | 19,172 |
| | 10.1 | % | | $ | (311 | ) | | $ | 34,141 |
| | 9.9 | % |
| | | | | | | | | | |
Six Months Ended September 1, 2018 | | | | | | | | | | |
Operating income (loss) | | $ | 30,650 |
| | 8.3 | % | | $ | (5,306 | ) | | $ | 50,654 |
| | 7.3 | % |
Amortization of short-lived acquired intangibles | | 3,938 |
| | 1.1 |
| | — |
| | 3,938 |
| | 0.6 |
|
Acquisition-related costs | | — |
| | — |
| | — |
| | — |
| | — |
|
Adjusted operating income (loss) | | $ | 34,588 |
| | 9.4 | % | | $ | (5,306 | ) | | $ | 54,592 |
| | 7.8 | % |
Six Months Ended September 2, 2017 | | | | | | | | | | |
Operating income (loss) | | $ | 28,506 |
| | 9.5 | % | | $ | (6,060 | ) | | $ | 51,880 |
| | 8.4 | % |
Amortization of short-lived acquired intangibles | | 4,684 |
| | 1.6 | % | | — |
| | 4,684 |
| | 0.8 | % |
Acquisition-related costs | | — |
| | — | % | | 4,417 |
| | 4,417 |
| | 0.7 | % |
Adjusted operating income (loss) | | $ | 33,190 |
| | 11.1 | % | | $ | (1,643 | ) | | $ | 60,981 |
| | 9.9 | % |
Outlook
The following statements are based on our current expectations for full-year fiscal 2018 results, not including any estimated impact from the 2017 Tax Cuts and Jobs Act.2019 results. These statements are forward-looking, and actual results may differ materially. We are currently expecting:
Revenue growth of approximately 20 percent over fiscal 2017.8 to 10 percent.
Operating margin of 8.6 percent8.3 to 8.98.8 percent.
Earnings per diluted share of $2.58$3.00 to $2.68.$3.20.
| |
• | Adjusted operating margin of 10.18.6 to 10.49.1 percentand adjusted earnings per diluted share of $3.04$3.13 to $3.143.33(1). |
Capital expenditures of $55$60 to $60$65 million.
(1)Adjusted operating margin and adjusted earnings per diluted share exclude the impact of amortization of short-lived acquired intangible assets associated with the acquired backlog of Sotawall and EFCO of $7$3.8 million (after tax, $0.24 per diluted share) and acquisition-related costs for EFCO of approximately $3.1 million (after tax, $0.11 per diluted share). These two adjustments have a combined approximate 100 basis point negative impact on operating margin. Adjusted operating margin and adjusted earnings per diluted share also exclude the impact of planned fourth-quarter restructuring charges of approximately $4.5 million (after tax, $0.11$0.13 per diluted share). These non-GAAP measures are used by management to evaluate the Company's historical and prospective financial performance, measure operational profitability on a more consistent basis, and provide enhanced transparency to the investment community. These non-GAAP measures should be viewed in addition to, and not as an alternative to, the financial results of the company prepared in accordance with GAAP.
Related Party Transactions
No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended March 4, 2017.3, 2018.
Critical Accounting Policies
Refer to an update to our critical accounting policies included within Item 1, Notes to the Consolidated Financial Statements (Note 1). No materialother changes have occurred into the disclosure of our critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended March 4, 2017.3, 2018.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
No material changes have occurred to the disclosures of quantitative and qualitative market risk set forth in our Annual Report on Form 10-K for the fiscal year ended March 4, 2017.3, 2018.
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Item 4. | Controls and Procedures |
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a) | 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 Securities Exchange Act of 1934, as amended (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. |
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b) | Changes in internal controls: There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended December 2, 2017September 1, 2018, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. |
PART II. OTHER INFORMATION
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 significant monetary damages or product replacement. The Company is also subject to litigation arising out of employment practices, workers compensation, general liability 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.
There have been no material changes or additions to our risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended March 4, 20173, 2018.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information with respect to purchases made by the Company of its own stock during the thirdsecond quarter of fiscal 2018:2019:
|
| | | | | | | | | | | | | |
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) |
September 3, 2017 to September 30, 2017 | | — |
| | $ | — |
| | — |
| | 742,367 |
|
October 1, 2017 to October 28, 2017 | | — |
| | — |
| | — |
| | 742,367 |
|
October 29, 2017 to December 2, 2017 | | 304 |
| | 46.80 |
| | — |
| | 742,367 |
|
Total | | 304 |
| | $ | 46.80 |
| | — |
| | 742,367 |
|
|
| | | | | | | | | | | | | |
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) |
June 3, 2018 to June 30, 2018 | | 414 |
| | $ | 45.61 |
| | — |
| | 1,240,068 |
|
July 1, 2018 to July 28, 2018 | | — |
| | — |
| | — |
| | 1,240,068 |
|
July 29, 2018 to September 1, 2018 | | 587 |
| | 48.50 |
| | — |
| | 1,240,068 |
|
Total | | 1,001 |
| | $ | 47.54 |
| | — |
| | 1,240,068 |
|
| |
(a) | 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 to satisfy stock-for-stock option exercises or withholding tax obligations related to share-based compensation. We did not purchase any shares pursuant to our publicly announced repurchase program during the fiscal quarter. |
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(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 was announced on October 8, 2008; and by 1,000,000 shares which wason each of the announcement dates of October 8, 2008, January 13, 2016 and January 9, 2018. Subsequent to the end of the quarter, announced on January 13, 2016.October 3, 2018, the Board increased the authorization by 2,000,000 shares. The repurchase program does not have an expiration date. |
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101 | The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 2, 2017September 1, 2018 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of December 2, 2017September 1, 2018 and March 4, 2017,3, 2018, (ii) the Consolidated Results of Operations for the threethree- and nine monthssix-months ended DecemberSeptember 1, 2018 and September 2, 2017, and November 26, 2016, (iii) the Consolidated Statements of Comprehensive Earnings for the threethree- and nine monthssix-months ended DecemberSeptember 1, 2018 and September 2, 2017, and November 26, 2016, (iv) the Consolidated Statements of Cash Flows for the ninesix months ended DecemberSeptember 1, 2018 and September 2, 2017, and November 26, 2016, (v) the Consolidated Statements of Shareholders' Equity for the ninesix months ended DecemberSeptember 1, 2018 and September 2, 2017, and November 26, 2016, and (vi) Notes to Consolidated Financial Statements. |
SIGNATURES
Pursuant to the requirements 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.
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| | | |
| | APOGEE ENTERPRISES, INC. |
| | | |
Date: January 11,October 9, 2018 | | By: /s/ Joseph F. Puishys |
| | | Joseph F. Puishys President and Chief Executive Officer (Principal Executive Officer) |
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Date: January 11,October 9, 2018 | | By: /s/ James S. Porter |
| | | James S. Porter Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit Index to Form 10-Q for the Period Ended December 2, 2017
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10.1 | Third Amendment to the Apogee Enterprises, Inc. 2011 Deferred Compensation Plan, dated October 5, 2017. |
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31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
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31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
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32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101 | The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 2, 2017 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of December 2, 2017 and March 4, 2017, (ii) the Consolidated Results of Operations for the three and nine months ended December 2, 2017 and November 26, 2016, (iii) the Consolidated Statements of Comprehensive Earnings for the three and nine months ended December 2, 2017 and November 26, 2016, (iv) the Consolidated Statements of Cash Flows for the nine months ended December 2, 2017 and November 26, 2016, (v) the Consolidated Statements of Shareholders' Equity for the nine months ended December 2, 2017 and November 26, 2016, and (vi) Notes to Consolidated Financial Statements.
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