UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________

FORM 10-Q

_________________________________



x☒	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 1, 2018~~August 31, 2019



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

_________________________________

APOGEE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

_________________________________



Minnesota			41-0919654
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

4400 West 78^th78th Street, – Suite 520	Minneapolis MN	Minnesota	55435
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: ~~(952)~~ (952) 835-1874

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

_________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.33 1/3 per share	APOG	NASDAQ Global Select Market

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 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 growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	o☐

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 October ~~8, 2018, 28,182,387~~1, 2019, 26,554,597 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.

Table of Contents

APOGEE ENTERPRISES, INC. AND SUBSIDIARIES

Table of Contents

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

CONSOLIDATED BALANCE SHEETS

(unaudited)


In thousands, except stock data	September 1, 2018			March 3, 2018			August 31, 2019			March 2, 2019
Assets
Current assets
Cash and cash equivalents	$	18,113		$	19,359		$	13,812		$	17,087
Restricted cash							5,633			12,154
Receivables, net of allowance for doubtful accounts	200,770			211,852			201,913			192,767
Inventories	81,933			80,908			74,284			78,344
Costs and earnings on contracts in excess of billings	44,585			4,120			74,971			55,095
Other current assets	15,792			20,039			20,721			16,451
Total current assets	361,193			336,278			391,334			371,898
Property, plant and equipment, net	308,314			304,063			319,234			315,823
Restricted cash	17,852			—
Operating lease right-of-use assets							52,846			—
Goodwill	186,522			180,956			185,803			185,832
Intangible assets	157,991			167,349			144,605			148,235
Other non-current assets	41,745			33,674			45,004			46,380
Total assets	$	1,073,617		$	1,022,320		$	1,138,826		$	1,068,168
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	75,630		$	68,416		$	68,456		$	72,219
Accrued payroll and related benefits	32,254			36,646			30,285			41,119
Accrued self-insurance reserves	6,718			10,933
Billings on contracts in excess of costs and earnings	24,907			12,461			19,459			21,478
Operating lease liabilities							10,488			—
Current portion of debt							155,400			—
Other current liabilities	69,707			79,696			87,174			92,696
Total current liabilities	209,216			208,152			371,262			227,512
Long-term debt	224,881			215,860			117,385			245,724
Long-term self-insurance reserves	18,918			16,307
Non-current operating lease liabilities							43,650			—
Non-current self-insurance reserves							24,320			21,433
Other non-current liabilities	81,746			70,646			79,128			77,182
Commitments and contingent liabilities (Note 8)
Shareholders’ equity
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
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 26,554,597 and 27,015,127 respectively							8,851			9,005
Additional paid-in capital	155,898			152,763			151,735			151,842
Retained earnings	402,619			373,259			374,439			367,597
Common stock held in trust	(842		)	(922		)	(778		)	(755		)
Deferred compensation obligations	842			922			778			755
Accumulated other comprehensive loss	(29,081		)	(24,053		)	(31,944		)	(32,127		)
Total shareholders’ equity	538,856			511,355			503,081			496,317
Total liabilities and shareholders’ equity	$	1,073,617		$	1,022,320		$	1,138,826		$	1,068,168

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED RESULTS OF OPERATIONS

(unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
In thousands, except per share data	September 1, 2018		September 2, 2017		September 1, 2018		September 2, 2017		August 31, 2019		September 1, 2018		August 31, 2019		September 1, 2018
Net sales	$	362,133	$	343,907	$	698,664	$	616,214	$	357,058	$	362,133	$	712,424	$	698,664
Cost of sales	277,667		257,906		533,468		459,919		270,851		277,667		545,250		533,468
Gross profit	84,466		86,001		165,196		156,295		86,207		84,466		167,174		165,196
Selling, general and administrative expenses	55,806		58,227		114,542		104,415		58,631		55,806		116,558		114,542
Operating income	28,660		27,774		50,654		51,880		27,576		28,660		50,616		50,654
Interest income	680		117		910		284
Interest expense	2,624		1,650		4,573		2,095
Other income, net	217		77		196		256
Interest and other expense, net									2,203		1,727		4,813		3,467
Earnings before income taxes	26,933		26,318		47,187		50,325		25,373		26,933		45,803		47,187
Income tax expense	6,420		8,909		11,300		16,813		6,094		6,420		11,081		11,300
Net earnings	$	20,513	$	17,409	$	35,887	$	33,512	$	19,279	$	20,513	$	34,722	$	35,887
Earnings per share - basic	$	0.73	$	0.60	$	1.28	$	1.16	$	0.73	$	0.73	$	1.31	$	1.28
Earnings per share - diluted	$	0.72	$	0.60	$	1.26	$	1.16	$	0.72	$	0.72	$	1.30	$	1.26
Weighted average basic shares outstanding	28,128		28,850		28,127		28,850		26,413		28,128		26,505		28,127
Weighted average diluted shares outstanding	28,379		28,908		28,377		28,885		26,736		28,379		26,789		28,377

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(unaudited)


	Three Months Ended					Six Months Ended					Three Months Ended					Six Months Ended
In thousands	September 1, 2018			September 2, 2017		September 1, 2018			September 2, 2017		August 31, 2019		September 1, 2018			August 31, 2019			September 1, 2018
Net earnings	$	20,513		$	17,409	$	35,887		$	33,512	$	19,279	$	20,513		$	34,722		$	35,887
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
Unrealized loss on foreign currency hedge, net of $17, $-, $109 and $- of tax benefit, respectively	(55		)	—		(359		)	—
Other comprehensive earnings (loss):
Unrealized gain (loss) on marketable securities, net of $2, ($11), $49 and ($9) of tax expense (benefit), respectively											8		(42		)	189			(32		)
Unrealized gain (loss) on derivative instruments, net of $25, ($17), $27 and ($109) of tax expense (benefit), respectively											84		(55		)	89			(359		)
Foreign currency translation adjustments	(3,383		)	15,207		(3,900		)	14,490		2,465		(3,383		)	(95		)	(3,900		)
Other comprehensive (loss) earnings	(3,480		)	15,237		(4,291		)	14,582
Other comprehensive earnings (loss)											2,557		(3,480		)	183			(4,291		)
Total comprehensive earnings	$	17,033		$	32,646	$	31,596		$	48,094	$	21,836	$	17,033		$	34,905		$	31,596

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended						Six Months Ended
In thousands	September 1, 2018			September 2, 2017			August 31, 2019			September 1, 2018
Operating Activities
Net earnings	$	35,887		$	33,512		$	34,722		$	35,887
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	26,457			25,062			22,759			26,457
Share-based compensation	3,119			3,063			3,200			3,119
Deferred income taxes	6,061			(751		)	9,861			6,061
Gain on disposal of assets	(815		)	(37		)
Proceeds from New Markets Tax Credit transaction, net of deferred costs	6,052			—			—			6,052
Noncash lease expense							2,714			—
Other, net	(682		)	(1,168		)	(2,023		)	(1,497		)
Changes in operating assets and liabilities:
Receivables	10,598			8,683			(9,215		)	10,598
Inventories	2,747			(7,072		)	4,054			2,747
Costs and earnings on contracts in excess of billings	(39,191		)	235			(19,865		)	(39,191		)
Accounts payable and accrued expenses	(15,409		)	(33,982		)	(19,044		)	(15,409		)
Billings on contracts in excess of costs and earnings	12,449			4,819			(2,001		)	12,449
Refundable and accrued income taxes	2,130			7,079			(5,641		)	2,130
Other, net	(1,474		)	1,366
Other							(1,719		)	(1,474		)
Net cash provided by operating activities	47,929			40,809			17,802			47,929
Investing Activities
Capital expenditures	(24,241		)	(26,825		)	(22,559		)	(24,241		)
Proceeds from sales of property, plant and equipment	774			64
Acquisition of business, net of cash acquired	—			(184,826		)
Purchases of marketable securities	(9,066		)	(5,436		)	(3,852		)	(9,066		)
Sales/maturities of marketable securities	4,943			4,271			4,522			4,943
Other, net	(2,209		)	1,099
Net cash used in investing activities	(29,799		)	(211,653		)
Other							(1,121		)	(1,435		)
Net cash used by investing activities							(23,010		)	(29,799		)
Financing Activities
Borrowings on line of credit	205,000			284,200			184,500			205,000
Proceeds from issuance of term debt							150,000			—
Payments on line of credit	(196,500		)	(94,000		)	(307,500		)	(196,500		)
Shares withheld for taxes, net of stock issued to employees	(1,431		)	(1,612		)
Repurchase and retirement of common stock	—			(10,833		)	(20,010		)	—
Dividends paid	(8,823		)	(7,994		)	(9,203		)	(8,823		)
Other	496			1,759			(2,493		)	(935		)
Net cash (used in) provided by financing activities	(1,258		)	171,520
Increase in cash and cash equivalents	16,872			676
Net cash used by financing activities							(4,706		)	(1,258		)
(Decrease) increase in cash and cash equivalents							(9,914		)	16,872
Effect of exchange rates on cash	(266		)	1,555			118			(266		)
Cash, cash equivalents and restricted cash at beginning of year	19,359			27,297			29,241			19,359
Cash, cash equivalents and restricted cash at end of period	$	35,965		$	29,528		$	19,445		$	35,965
Noncash Activity
Capital expenditures in accounts payable	$	1,756		$	1,196		$	1,583		$	1,756

See accompanying notes to consolidated financial statements.

Table of Contents

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			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 2, 2019																					27,015		$	9,005		$	151,842		$	367,597		$	(755	)	$	755		$	(32,127	)
Net earnings																					—		—			—			15,443			—			—			—
Unrealized gain on marketable securities, net of $47 tax expense																					—		—			—			—			—			—			181
Unrealized gain on foreign currency hedge, net of $2 tax expense																					—		—			—			—			—			—			5
Foreign currency translation adjustments																					—		—			—			—			—			—			(2,560		)
Issuance of stock, net of cancellations																					79		26			14			—			(12		)	12			—
Share-based compensation																					—		—			1,618			—			—			—			—
Share repurchases																					(532	)	(177		)	(3,051		)	(16,782		)	—			—			—
Other share retirements																					(32	)	(11		)	(183		)	(1,266		)	—			—			—
Cash dividends																					—		—			—			(4,598		)	—			—			—
Balance at June 1, 2019																					26,530		$	8,843		$	150,240		$	360,394		$	(767	)	$	767		$	(34,501	)
Net earnings																					—		—			—			19,279			—			—			—
Unrealized gain on marketable securities, net of $2 tax expense																					—		—			—			—			—			—			8
Unrealized gain on foreign currency hedge, net of $25 tax expense																					—		—			—			—			—			—			84
Foreign currency translation adjustments																					—		—			—			—			—			—			2,465
Issuance of stock, net of cancellations																					44		15			27			—			(11		)	11			—
Share-based compensation																					—		—			1,582			—			—			—			—
Other share retirements																					(20	)	(7		)	(114		)	(629		)	—			—			—
Cash dividends																					—		—			—			(4,605		)	—			—			—
Balance at August 31, 2019																					26,554		$	8,851		$	151,735		$	374,439		$	(778	)	$	778		$	(31,944	)

Balance at March 3, 2018	28,158		$	9,386		$	152,763		$	373,259		$	(922	)	$	922		$	(24,053	)	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		)
Cumulative effect adjustment																					—		—			—			2,999			—			—			—
Reclassification of tax effects																					—		—			—			737			—			—			(737		)
Net earnings	—		—			—			35,887			—			—			—			—		—			—			15,373			—			—			—
Unrealized loss on marketable securities, net of $9 tax benefit	—		—			—			—			—			—			(32		)
Unrealized loss on foreign currency hedge, net of $109 tax benefit	—		—			—			—			—			—			(359		)
Unrealized gain on marketable securities, net of $2 tax expense																					—		—			—			—			—			—			10
Unrealized loss on foreign currency hedge, net of $92 tax benefit																					—		—			—			—			—			—			(304		)
Foreign currency translation adjustments	—		—			—			—			—			—			(3,900		)	—		—			—			—			—			—			(517		)
Issuance of stock, net of cancellations	125		42			72			—			80			(80		)	—			90		30			35			—			91			(91		)	—
Share-based compensation	—		—			3,119			—			—			—			—			—		—			1,514			—			—			—			—
Exercise of stock options	19		6			177			—			—			—			—			19		6			177			—			—			—			—
Other share retirements	(42	)	(14		)	(233		)	(1,440		)	—			—			—			(41	)	(13		)	(228		)	(1,440		)	—			—			—
Cash dividends	—		—			—			(8,823		)	—			—			—			—		—			—			(4,410		)	—			—			—
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	)
Balance at June 2, 2018																					28,226		$	9,409		$	154,261		$	386,518		$	(831	)	$	831		$	(25,601	)
Net earnings	—		—			—			33,512			—			—			—			—		—			—			20,514			—			—			—
Unrealized gain on marketable securities, net of $50 tax expense	—		—			—			—			—			—			92
Unrealized loss on marketable securities, net of $11 tax benefit																					—		—			—			—			—			—			(42		)
Unrealized loss on foreign currency hedge, net of $17 tax benefit																					—		—			—			—			—			—			(55		)
Foreign currency translation adjustments	—		—			—			—			—			—			14,490			—		—			—			—			—			—			(3,383		)
Issuance of stock, net of cancellations	107		36			83			—			(22		)	22			—			35		12			37			—			(11		)	11			—
Share-based compensation	—		—			3,063			—			—			—			—			—		—			1,605			—			—			—			—
Exercise of stock options	100		34			801			—			—			—			—
Share repurchases	(200	)	(67		)	(1,091		)	(9,675		)	—			—			—
Other share retirements	(45	)	(15		)	(256		)	(2,216		)	—			—			—			(1	)	(1		)	(5		)	—			—			—			—
Cash dividends	—		—			—			(7,994		)	—			—			—			—		—			—			(4,413		)	—			—			—
Balance at September 2, 2017	28,642		$	9,548		$	152,711		$	355,623		$	(897	)	$	897		$	(16,508	)
Balance at September 1, 2018																					28,260		$	9,420		$	155,898		$	402,619		$	(842	)	$	842		$	(29,081	)

See accompanying notes to consolidated financial statements.

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


1.	Summary of Significant 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 ~~3, 2018~~2, 2019. 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 six-month period ended ~~September 1, 2018~~August 31, 2019 are not necessarily indicative of the results to be expected for the full year.

~~Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the consolidated results of operations.~~

~~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 year ended March 3, 2018. On March 4, 2018, we adopted ASC 606, ~~Revenue from Contracts with Customers, and as a result, made updates to our significant accounting policy for revenue recognition.~~

We generate revenue from the design, engineering and fabrication of architectural glass, curtainwall, window, storefront and entrance systems, and from installing those products on commercial buildings. We also manufacture value-added glass and acrylic products. Due to the diverse nature of our operations and various types of contracts with customers, we have businesses that recognize revenue over time and businesses that recognize revenue at a point in time.

~~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 practices due to the adoption of the new guidance, moving from recognizing revenue at shipment to an over-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 the total estimated costs for the contract, and record that proportion of the total contract price as revenue in the period. Contract costs include materials, labor and other direct costs related to contract performance. We believe 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 to~~tal revenue in the current year, that recognizes revenue following an over-time output method based upon units produced. The customer is considered to have control over the products at the time of production, as the products are highly customized with no alternative use, and we have an enforceable right to payment for performance completed over the production p~~eriod. We believe this over-time output method of recognizing revenue reasonably depicts the fulfillment of our performance obligations under our contracts. Previo~~usly, this business recognized revenue at the time of shipment. Billings still occur upon shipment. Therefore, contract assets are generated for the unbilled amounts on contracts when production is complete. Variable consideration associated with these orders, generally related to early pay discounts, is not considered significant.

~~As outlined within the new accounting guidance, we elected several practical expedients in our transition to ASC 606:~~

We have made an accounting policy election to account for shipping and handling activities that occur after control of the related goods transfers to the customer as fulfillment activities, instead of assessing such activities as performance obligations.

We have made an accounting policy election to exclude from the transaction price all sales taxes related to revenue-producing transactions that are collected from the customer for a government authority.

We generally expense incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs primarily relate to sales commissions and are included in selling, 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 and services to be less than a year.

Adoption of new accounting standards

WeAt the beginning of fiscal 2020, we adopted the ~~new~~ guidance in ASC ~~606 using the~~842, Leases, following a modified retrospective ~~transition method applied~~approach and elected not to ~~those contracts which were not complete~~restate prior periods. Adoption of the new standard resulted in recording operating lease assets and liabilities of approximately $50 million as of March ~~4, 2018. Prior period amounts were~~3, 2019 and did not ~~adjusted and therefore continue to be reported in accordance with the accounting guidance and our accounting policies in effect for those 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 endingSeptember 1, 2018, the application of the new accounting guidance had the following~~materially impact on our consolidated ~~financial statements:~~net earnings and cash flows. Refer to additional information in Note 7.

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 from recognizing revenue at the time of shipment to over-time methods of revenue recognition.~~

~~In the first quarter of fiscal 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~~June 2016, the FASB issued ASU ~~2016-02,~~ ~~Leases~~2016-13, Measurement of Credit Losses on Financial Instruments, which ~~provides~~revises guidance for ~~comprehensive changes to lease accounting. The standard requires that a lessee recognize a lease obligation liability and a right-to-use asset~~the accounting for ~~virtually all leases of property, plant and equipment, subsequently amortized over the lease term.~~credit losses on financial instruments within its scope. The new standard introduces an approach based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. This ASU is effective for ~~fiscal years beginning after December 15, 2018,~~ our fiscal year ~~2020. In July 2018,~~2021. Entities are required to apply the ~~FASB issued an additional update~~standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which ~~allows an entity the option to adopt~~ the guidance on a modified retrospective basis. 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.

is adopted. 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 undercurrently assessing this new standard. We expect that the adoption of this standard will result in reflecting a material right-of-use asset and lease liability on our consolidated balance sheet. We do not currently expect this standard to have a significantASU's impact on our consolidated ~~results of operations.~~financial statements.

Subsequent events

We have evaluated subsequent events for potential recognition and disclosure through the date of this ~~filing. Subsequent to~~filing and determined that there were no subsequent events that required recognition or disclosure in the end of the quarter, in October 2018, we purchased 200,000 shares of stock under our 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.consolidated financial statements.


2.	~~Acquisition~~

~~EFCO~~

On June 12, 2017, we acquired 100 percent of the stock of EFCO Corporation, a privately held U.S. manufacturer of architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects, for $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 subsequent 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.

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 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 the estimated fair values of assets acquired and liabilities assumed, 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

~~Other intangible assets reflect the following:~~

In thousands Estimated fair value Estimated useful life (in years)
Customer relationships $ 34,800
16
Tradename 32,400
Indefinite
Backlog 4,300
1.5
$ 71,500

The following table sets forth certain unaudited pro forma consolidated data for the second quarter and six-month periods of fiscal 2019 and 2018, as if the EFCO acquisition had been consummated pursuant to its same terms at the beginning of the fiscal year preceding the acquisition date.

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 sales $ 362,133
$ 351,988
$ 698,664
$ 696,039
Net earnings 21,069
20,312
36,639
37,528
Earnings per share
Basic 0.75
0.70
1.30
1.30
Diluted 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 we expect to result from the 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	August 31, 2019		September 1, 2018		August 31, 2019		September 1, 2018
Recognized at shipment	$	164,336	$	166,534	$	319,602	$	323,401
Recognized over time	192,722		195,599		392,822		375,263
Total	$	357,058	$	362,133	$	712,424	$	698,664

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	August 31, 2019			March 2, 2019
Trade accounts	$	153,765		$	145,693
Construction contracts	17,822			19,050
Contract retainage	35,047			32,396
Total receivables	206,634			197,139
Less: allowance for doubtful accounts	(4,721		)	(4,372		)
Net receivables	$	201,913		$	192,767

Table of Contents

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	August 31, 2019		March 2, 2019
Contract assets	$	110,018	$	87,491
Contract liabilities	22,980		24,083

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~~timing of costs incurred in advance of billings, asprimarily on a ~~result of changing accounting policies for revenue recognition upon adoption of ASC 606.~~legacy EFCO project. The ~~increase~~change 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.



Other contract-related disclosures	Three Months Ended				Six Months Ended
In thousands	August 31, 2019		September 1, 2018		August 31, 2019		September 1, 2018
Revenue recognized related to contract liabilities from prior year-end	$	3,361	$	1,262	$	17,455	$	10,380
Revenue recognized related to prior satisfaction of performance obligations	4,481		1,470		6,430		3,798

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,~~August 31, 2019, the transaction price associated with unsatisfied performance obligations was approximately ~~$695.1~~$775.7 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:



In thousands	August 31, 2019
Within one year	$	442,666
Within two years	286,223
Beyond	46,800
Total	$	775,689


3.	Supplemental Balance Sheet Information

Inventories



In thousands	August 31, 2019		March 2, 2019
Raw materials	$	40,810	$	43,890
Work-in-process	17,071		15,533
Finished goods	16,403		18,921
Total inventories	$	74,284	$	78,344

Other current liabilities



In thousands	August 31, 2019		March 2, 2019
Warranties	$	10,857	$	12,475
Accrued project losses	29,221		37,085
Taxes	7,604		8,026
Accrued self-insurance reserves	8,433		9,537
Other	31,059		25,573
Total other current liabilities	$	87,174	$	92,696

Table of Contents

In thousands September 1, 2018
Within one year $ 462,097
Within two years 222,677
Beyond 10,313
Total $ 695,087

Other non-current liabilities



In thousands	August 31, 2019		March 2, 2019
Deferred benefit from New Market Tax Credit transactions	$	26,458	$	26,458
Retirement plan obligations	7,633		7,633
Deferred compensation plan	10,979		10,408
Other	34,058		32,683
Total other non-current liabilities	$	79,128	$	77,182


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


5.	Financial Instruments

Marketable securities

WeThrough our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), 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
August 31, 2019	$	11,796	$	192	$	3	$	11,985
March 2, 2019	12,481		59		108		12,432

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~~these bonds at ~~September 1, 2018~~August 31, 2019, 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	$	251	$	251
Due after one year through five years	9,124		9,289
Due after five years through 10 years	2,015		2,037
Due after 10 years through 15 years	—		—
Due beyond 15 years	406		408
Total	$	11,796	$	11,985

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

Derivative instruments

In August 2019, we entered into an interest rate swap to hedge exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility. As of August 31, 2019, the interest rate swap contract had a notional value of $85 million.

We periodically enter into forward purchase foreign currency cash flow hedge contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk. As of August 31, 2019, we held foreign exchange forward contracts with a U.S. dollar notional value of $27.8 million, with the objective of reducing the exposure to fluctuations in the Canadian dollar and the Euro.

These derivative instruments are recorded within our consolidated balance sheets within other current assets and liabilities. Gains or losses associated with these instruments are recorded as a component of accumulated other comprehensive income.

Fair value measurements

Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 financial assets or liabilities.

Table of Contents

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



In thousands	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Total Fair Value
August 31, 2019
Assets:
Money market funds	$	3,589	$	—	$	3,589
Commercial paper	—		1,250		1,250
Municipal and corporate bonds	—		11,985		11,985
Liabilities:
Foreign currency forward/option contract	—		299		299
Interest rate swap contract	—		179		179

March 2, 2019
Assets:
Money market funds	$	2,015	$	—	$	2,015
Commercial paper	—		300		300
Municipal and corporate bonds	—		12,432		12,432
Liabilities:
Foreign currency forward/option contract	—		470		470

~~Cash equivalents~~

Money market funds and commercial paper

Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets. These assets are included within cash and cash equivalents on our consolidated balance sheets.

~~Short-~~Municipal and ~~long-term securities~~corporate bonds

~~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 within our consolidated balance sheets as ~~short-term~~other current or ~~long-term~~other non-current assets based on maturity date.

~~Foreign currency~~Derivative 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~~The interest 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. Theswap is measured at fair value using unobservable market inputs, based off of ~~these contracts was a liability of $0.2 million as of September 1, 2018. These forward~~benchmark interest rates. Forward foreign exchange contracts are measured at fair value using unobservable market inputs, such as quotations on forward foreign exchange points and foreign currency exchange ~~rates,~~rates. Derivative positions are primarily valued using standard calculations and ~~would be classified~~models that use as ~~Level 2 within the fair value hierarchy above.~~their basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for both interest and currency rates.


6.5.	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 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	(1,129		)	(262		)	—		—		(1,391		)
Balance at March 2, 2019	148,446			25,709			1,120		10,557		185,832
Foreign currency translation	(42		)	13			—		—		(29		)
Balance at August 31, 2019	$	148,404		$	25,722		$	1,120	$	10,557	$	185,803

Table of Contents

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 84,162
—
—
—
84,162
Goodwill adjustments for purchase accounting

(5,859 ) —
—
—
(5,859 )
Foreign currency translation 1,304
15
—
—
1,319
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 (442 ) (259 ) —
—
(701 )
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		Gross Carrying Amount		Accumulated Amortization			Impairment			Foreign Currency Translation			Net
September 1, 2018
August 31, 2019
Definite-lived intangible assets:
Customer relationships	$	122,816	$	(23,472	)	$	(1,184	)	$	98,160	$	120,238	$	(29,939	)	$	—		$	(71	)	$	90,228
Other intangibles	41,697		(30,258		)	(483		)	10,956		40,974		(31,989		)	—			(10		)	8,975
Total definite-lived intangible assets	164,513		(53,730		)	(1,667		)	109,116		161,212		(61,928		)	—			(81		)	99,203
Indefinite-lived intangible assets:
Trademarks	49,077		—			(202		)	48,875		45,421		—			—			(19		)	45,402
Total intangible assets	$	213,590	$	(53,730	)	$	(1,869	)	$	157,991	$	206,633	$	(61,928	)	$	—		$	(100	)	$	144,605
March 3, 2018
March 2, 2019
Definite-lived intangible assets:
Customer relationships	$	122,816	$	(20,277	)	$	(56	)	$	102,483	$	122,816	$	(26,637	)	$	—		$	(2,578	)	$	93,601
Other intangibles	41,697		(25,879		)	(30		)	15,788		41,697		(31,634		)	—			(850		)	9,213
Total definite-lived intangible assets	164,513		(46,156		)	(86		)	118,271		164,513		(58,271		)	—			(3,428		)	102,814
Indefinite-lived intangible assets:
Trademarks	48,461		—			617			49,078		49,078		—			(3,141		)	(516		)	45,421
Total intangible assets	$	212,974	$	(46,156	)	$	531		$	167,349	$	213,591	$	(58,271	)	$	(3,141	)	$	(3,944	)	$	148,235

Amortization expense on definite-lived intangible assets was $3.8 million and $7.9 million ~~in each of~~for the six-month periods ended August 31, 2019 and September 1, 2018 ~~and~~ ~~September 2, 2017. The amortization~~, respectively. 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.~~operations, other than amortization on debt issue costs, which is included in interest expense. At ~~September 1, 2018~~August 31, 2019, the estimated future amortization expense for definite-lived intangible assets was:



In thousands	Remainder of Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024
Estimated amortization expense	$	3,961	$	7,916	$	7,911	$	7,746	$	7,665

In thousands Remainder of Fiscal 2019 Fiscal 2020 Fiscal 2021 Fiscal 2022 Fiscal 2023
Estimated amortization expense $ 5,028
$ 8,111
$ 8,104
$ 7,948
$ 7,560


7.6.	Debt

~~We maintain a committed revolving~~As of August 31, 2019, our total debt outstanding was $272.8 million, compared to $245.8 million as of March 2, 2019. During the second quarter ended August 31, 2019, we amended the borrowing capacity of our prior credit facility to be $235 million with ~~maximum borrowings~~a maturity of ~~up to $335.0~~June 2024 and we established a $150 million ~~maturing in November 2021.~~term loan with a maturity of June 2020. Outstanding borrowings under ~~our committed~~the revolving credit facility were ~~$203.5 million, as of~~ ~~September 1, 2018, and $195.0~~$102.0 million, as of August 31, 2019, and $225.0 million, as of March ~~3, 2018. Under this~~2, 2019.

Consistent with our prior facility, ~~we are subject to~~our amended revolving credit facility and term loan contains 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 ~~September 1, 2018,~~August 31, 2019, we were in compliance with both financial covenants. Additionally, at ~~September 1, 2018,~~August 31, 2019, we had a total of ~~$23.5~~$24.7 million of ongoing letters of credit related to industrial revenue bonds, ~~and~~ construction contracts and insurance collateral that expire in fiscal ~~2020~~years 2021 to 2032 and reduce ~~availability of funds~~borrowing capacity under ~~our committed~~the revolving credit facility.

At ~~September 1, 2018, our~~August 31, 2019, debt ~~also~~ included $20.4 million of industrial revenue bonds that mature in fiscal years 2021 through 2043 and ~~$0.5~~$0.4 million of long-term debt in Canada. The fair value of the industrial revenue bonds approximated carrying value at ~~September 1, 2018,~~August 31, 2019, 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 5.4.

We also maintain two Canadian ~~revolving~~ demand credit facilities totaling $12.0 million Canadian dollars. As of ~~September 1, 2018, $0.5 million was outstanding under these facilities,~~August 31, 2019 and noMarch 2, 2019, 0 borrowings were outstanding ~~as of March 3, 2018.~~under the facilities. 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 these demand facilities as long-term debt, as outstanding amounts can be refinanced through our committed revolving credit facility.~~

Interest payments were $~~4.3~~5.3 million and ~~$1.9~~$4.3 million for the six months ended August 31, 2019 and September 1, 2018, respectively.

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7. Leases

We lease certain of the buildings and ~~September~~equipment used in our operations. We determine if an arrangement contains a lease at inception. Currently, all of our lease arrangements are classified as operating leases. We elected the package of practical expedients permitted under the transition guidance in adopting ASC 842, which among other things, allowed us to carry forward our historical lease classification. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term and lease expense is recognized on a straight-line basis over the lease term. Our leases have remaining lease terms of one to ten years, some of which include renewal options that can extend the lease for up to an additional ten years at our sole discretion. We have made an accounting policy election not to record leases with an original term of 12 months or less on our consolidated balance sheet and such leases are expensed on a straight-line basis over the lease term.

In determining lease asset value, we consider fixed or variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. We use a discount rate for each lease based upon an estimated incremental borrowing rate over a similar term. We have elected the practical expedient to account for lease and nonlease components (e.g., common-area maintenance costs) as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We are not a lessor in any transactions.

The components of lease expense were as follows:



	Three Months Ended		Six Months Ended
In thousands	August 31, 2019		August 31, 2019
Operating lease cost	$	3,490	$	6,863
Short-term lease cost	496		1,179
Variable lease cost	667		1,380
Total lease cost	$	4,653	$	9,422

Other supplemental information related to leases was as follows:



	Six Months Ended
In thousands except weighted-average data	August 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	6,791
Lease assets obtained in exchange for new operating lease liabilities	$	8,970
Weighted-average remaining lease term - operating leases	6.0 years
Weighted-average discount rate - operating leases	3.70		%

Future maturities of lease liabilities are as follows:



In thousands	August 31, 2019
Remainder of Fiscal 2020	$	8,481
Fiscal 2021	11,256
Fiscal 2022	9,891
Fiscal 2023	8,989
Fiscal 2024	7,067
Fiscal 2025	5,331
Thereafter	10,659
Total lease payments	61,674
Less: Amounts representing interest	(7,536		)
Present value of lease liabilities	$	54,138

We have two operating leases with a related party; total rent paid for these facilities was approximately $1.0 million for the six months ended August 31, 2019, and the future minimum lease commitment is $12.2 million. As of August 31, 2019, we have additional future operating lease commitments of $6.0 million for leases that have not yet commenced, with terms ranging from one to seven years.

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Aggregate annual future rental commitments under operating leases with noncancellable terms of more than one year at March 2, ~~2017, respectively.~~2019 were reported under previous lease accounting standards as follows:



In thousands	2020		2021	2022	2023	2024	Thereafter	Total
Total minimum payments	$	14,888	11,787	9,669	8,772	6,735	16,806	$	68,657


8.	Commitments and Contingent Liabilities

~~Operating lease commitments~~

~~As of~~ ~~September 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 2019 Fiscal 2020 Fiscal 2021 Fiscal 2022 Fiscal 2023 Thereafter Total
Total minimum payments $ 7,497
$ 13,182
$ 9,990
$ 7,802
$ 6,886
$ 17,630
$ 62,987

Bond 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 ~~September 1, 2018, $246.2~~August 31, 2019, $695.7 million of ~~our backlog was bonded by~~ these types of bonds ~~with a face value of $538.4 million.~~were outstanding on our backlog and recently completed projects. These bonds do not have stated expiration ~~dates, as we are generally released from the bonds upon completion of the contract.~~dates. We have not been required to make any payments under these bonds with respect to our existing businesses.

~~Warranties~~Warranty and project-related contingencies

We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework 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:



	Six Months Ended
In thousands	August 31, 2019			September 1, 2018
Balance at beginning of period	$	16,737		$	22,517
Additional accruals	3,606			2,087
Claims paid	(5,481		)	(4,580		)
Balance at end of period	$	14,862		$	20,024

Six Months Ended
In thousands September 1, 2018 September 2, 2017
Balance at beginning of period $ 22,517
$ 21,933
Additional accruals 2,087
2,588
Claims paid (4,580 ) (6,800 )
Acquired reserves —
5,571
Balance at end of period $ 20,024
$ 23,292

Additionally, we are subject to project management and installation-related contingencies as a result of our fixed-price material supply and installation service contracts, primarily in our Architectural Services segment and certain of our Architectural Framing Systems businesses. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages. We have recorded an estimated liability related to legacy EFCO projects of $34.2 million and $42.8 million as of August 31, 2019 and March 2, 2019, respectively. We are actively pursuing available options to recover costs related to these exposures.

Letters of credit

At ~~September 1, 2018,~~August 31, 2019, we had ~~$23.5~~$24.7 million of ongoing letters of credit, all of which have been issued under our committed revolving credit facility, as discussed in Note 7.6.

Purchase obligations

Purchase obligations for raw material commitments and capital expenditures totaled ~~$183.1~~$124.2 million as of ~~September 1, 2018.~~August 31, 2019.

New Markets Tax Credit ~~transaction~~(NMTC) transactions

~~In August 2018, we~~We have entered into ~~a transaction with a subsidiary of Wells Fargo (WF) under a qualified New Markets Tax Credit (NMTC) program related~~four separate NMTC programs to ~~an investment~~support our operational expansion, including two transactions completed in ~~plant and equipment~~fiscal 2019. Proceeds received from investors on these transactions are included within other non-current liabilities on our ~~Architectural Glass segment (the Project).~~consolidated balance sheets. The NMTC

~~transaction is~~ arrangements are subject to 100 percent tax ~~credit~~ recapture for a period of seven ~~years.~~years from the date of each respective transaction. Therefore, upon the termination of ~~our~~each arrangement, ~~at the end of the seven year period (our fiscal 2026),~~these 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~~ The direct and incremental costs incurred in structuring ~~the arrangement~~these arrangements 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~~These costs will be recognized in conjunction with the recognition of the ~~transaction structure,~~related proceeds on each arrangement. During the construction phase, we are required to hold cash dedicated to fund each capital project which is classified as restricted cash on our consolidated balance sheets. Variable-interest entities, which have been included within our consolidated financial statements, have been created as ~~WF does~~a result of the structure of these transactions, as investors in the programs do not have a material interest in their underlying economics.

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The table below provides a summary of our outstanding NMTC transactions (in millions):



Inception date	Termination date	Proceeds received		Deferred costs		Net benefit
November 2013	October 2020	$	10.7	$	3.0	$	7.7
June 2016	May 2023	6.0		0.9		5.1
August 2018	July 2025	6.6		0.9		5.7
September 2018	August 2025	3.2		0.8		2.4
Total		$	26.5	$	5.6	$	20.9

Litigation

On November 5, 2018, a shareholder filed a purported securities class action against the ~~underlying economics~~Company and certain named executive officers. On April 26, 2019, the new lead plaintiff filed an amended complaint, alleging that, during the purported class period of May 1, 2017 to April 10, 2019, the Company and the named executive officers made materially false or misleading statements or omissions about the Company's acquisition of EFCO Corporation on June 12, 2017, and about the Company's Architectural Glass business segment, in violation of the ~~Project.~~federal securities laws. We intend to vigorously defend this matter.

~~Litigation~~On December 17, 2018, a different shareholder filed a derivative lawsuit, purportedly on behalf of the Company, against certain of our executive officers and directors claiming breaches of fiduciary duty, waste of corporate assets and unjust enrichment. This complaint alleges that the officers and directors allegedly made materially false or misleading statements or omissions about the Company's business, operations and prospects, particularly with respect to our Architectural Glass business segment, during the period between June 28, 2018 and September 17, 2018. This matter has been stayed, pending resolution of a motion to dismiss the foregoing matter. We intend to vigorously defend this matter.

~~We are~~

In addition to the foregoing, the Company is a party to various legal proceedings incidental to ~~our~~its normal operating activities. In particular, like others in the construction supply and services industry, ~~our businesses are~~the Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. ~~We are~~The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability ~~employment practices, workers' compensation and automobile claims.~~matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no ~~such claims~~matters will result in losses that would have a material adverse effect on ~~our~~the results of operations, cash flows or financial ~~condition.~~condition of the Company.


9.	Share-Based Compensation

Total share-based compensation expense included in the results of operations was $3.2 million for the six-month period ended August 31, 2019 and $3.1 million for ~~each of~~ the ~~six-month periods~~six-month period 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 2, 2019	100,341	$	8.34
Awards exercised	—	—
Outstanding and exercisable at August 31, 2019	100,341	8.34		2.0 years	$	2,868,749

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~~No awards were exercised for the six-months ended August 31, 2019. For the six-months ended September 1, 2018, cash proceeds from the exercise of stock options were ~~$0.2~~$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.~~$0.6 million.

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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		Number of Shares and Units		Weighted Average Grant Date Fair Value
Nonvested at March 3, 2018	266,180		$	49.22
Nonvested at March 2, 2019					286,613		$	47.00
Granted	148,219		43.54		125,571		39.53
Vested	(116,266	)	46.57		(124,533	)	49.21
Canceled	(15,359	)	48.12		(1,500	)	47.35
Nonvested at September 1, 2018	282,774		47.36
Nonvested at August 31, 2019					286,151		42.76

At ~~September 1, 2018~~August 31, 2019, there was $~~9.5~~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 22 months. The total fair value of shares vested during the six months ended ~~September 1, 2018~~August 31, 2019 was $4.9 million.


10.	Employee Benefit Plans

The Company sponsors ~~two~~2 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	August 31, 2019			September 1, 2018			August 31, 2019			September 1, 2018
Interest cost	$	123		$	127		$	246		$	254
Expected return on assets	(46		)	(10		)	(92		)	(20		)
Amortization of unrecognized net loss	55			57			110			114
Net periodic benefit cost	$	132		$	174		$	264		$	348

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


11.	Income Taxes

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,~~2016, 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,~~2015, 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 $5.5 million at August 31, 2019 and $5.1 million ~~in both periods.~~at March 2, 2019. 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~~$0.5 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.


12.	Earnings per Share

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	August 31, 2019	September 1, 2018	August 31, 2019	September 1, 2018
Basic earnings per share – weighted average common shares outstanding	26,413	28,128	26,505	28,127
Weighted average effect of nonvested share grants and assumed exercise of stock options	323	251	284	250
Diluted earnings per share – weighted average common shares and potential common shares outstanding	26,736	28,379	26,789	28,377
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)	186	106	186	108

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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
—


13.	Segment Information

The Company has ~~four~~4 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~~6 operating segments into this reporting segment based on their similar products, customers, distribution methods, production processes and economic characteristics.

The Architectural Glass segment fabricates coated, high-performance glass used 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						Six Months Ended
In thousands	August 31, 2019			September 1, 2018			August 31, 2019			September 1, 2018
Net sales from operations
Architectural Framing Systems	$	187,394		$	189,850		$	367,916		$	368,887
Architectural Glass	99,138			88,084			199,429			165,009
Architectural Services	61,597			76,496			126,744			147,223
Large-Scale Optical	20,785			20,383			42,045			41,145
Intersegment eliminations	(11,856		)	(12,680		)	(23,710		)	(23,600		)
Net sales	$	357,058		$	362,133		$	712,424		$	698,664
Operating income (loss) from operations
Architectural Framing Systems	$	15,523		$	18,312		$	27,796		$	30,650
Architectural Glass	6,460			1,739			12,859			3,317
Architectural Services	3,976			7,621			8,549			12,775
Large-Scale Optical	4,630			4,236			8,807			9,218
Corporate and other	(3,013		)	(3,248		)	(7,395		)	(5,306		)
Operating income	$	27,576		$	28,660		$	50,616		$	50,654

Three Months Ended Six Months Ended
In thousands September 1, 2018 September 2, 2017 September 1, 2018 September 2, 2017
Net sales from operations
Architectural Framing Systems $ 189,850
$ 189,023
$ 368,887
$ 299,515
Architectural Glass 88,084
97,351
165,009
195,086
Architectural Services 76,496
46,829
147,223
96,979
Large-Scale Optical 20,383
20,291
41,145
38,894
Intersegment eliminations (12,680 ) (9,587 ) (23,600 ) (14,260 )
Net sales $ 362,133
$ 343,907
$ 698,664
$ 616,214
Operating income (loss) from operations
Architectural Framing Systems $ 18,312
$ 16,542
$ 30,650
$ 28,506
Architectural Glass 1,739
10,258
3,317
19,581
Architectural Services 7,621
774
12,775
1,555
Large-Scale Optical 4,236
4,248
9,218
8,298
Corporate and other (3,248 ) (4,048 ) (5,306 ) (6,060 )
Operating income $ 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 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 ~~3, 2018~~2, 2019. 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 ~~3, 2018~~2, 2019.

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We also 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 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 ~~3, 2018~~2, 2019 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.

Highlights of Second Quarter ~~and~~ First Six Months of Fiscal ~~2019~~2020 Compared to Second Quarter and First Six Months of Fiscal ~~2018~~2019

Net sales

Consolidated net sales ~~increased 5.3~~decreased 1.4 percent, or ~~$18.2~~$5.1 million, for the second quarter ended ~~September 1, 2018,~~August 31, 2019, and ~~13.4~~increased 2.0 percent, or ~~$82.5~~$13.8 million, for the six-month period, compared to the same periods in the prior year. In the quarter, the decrease in sales ~~growth~~ was driven by an expected decline based on project schedules in the Architectural Services segment, partially offset by ~~a volume-related decline~~improved volume in the Architectural Glass segment. In the six-month period, ~~the increase in~~ sales growth was ~~primarily~~ driven by improved volume in the ~~addition of EFCO (acquired on June 12, 2017) to our~~ Architectural ~~Framing systems~~Glass segment, ~~and growth in Architectural Services,~~ partially offset by ~~lower sales~~a decline in the Architectural ~~Glass.~~Services segment, as expected, based on timing of project activity.

The relationship between various components of operations, as a percentage of net sales, is presented below:


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	September 1, 2018		September 2, 2017		September 1, 2018		September 2, 2017		August 31, 2019		September 1, 2018		August 31, 2019		September 1, 2018
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	76.7		75.0		76.4		74.6		75.9		76.7		76.5		76.4
Gross profit	23.3		25.0		23.6		25.4		24.1		23.3		23.5		23.6
Selling, general and administrative expenses	15.4		16.9		16.4		16.9		16.4		15.4		16.4		16.4
Operating income	7.9		8.1		7.2		8.5		7.7		7.9		7.1		7.2
Interest and other (expense) income, net	(0.5	)	(0.4	)	(0.5	)	(0.3	)
Interest and other expense, net									(0.6	)	(0.5	)	(0.7	)	(0.5	)
Earnings before income taxes	7.4		7.7		6.7		8.2		7.1		7.4		6.4		6.7
Income tax expense	1.8		2.6		1.6		2.7		1.7		1.8		1.6		1.6
Net earnings	5.7	%	5.1	%	5.1	%	5.5	%	5.4	%	5.6	%	4.8	%	5.1	%
Effective tax rate	23.8	%	33.9	%	23.9	%	33.4	%	24.0	%	23.8	%	24.2	%	23.9	%

Gross profit

Gross profit as a percent of sales was 24.1 percent and 23.5 percent for the three and six-month periods ended August 31, 2019, compared to 23.3 percent and 23.6 percent for the ~~three- and six-month periods, respectively, ended September 1, 2018, compared to 25.0 percent and 25.4 percent for each of the three-~~three and six-month periods ended September ~~2, 2017. Gross profit as a percent of sales declined from~~1, 2018. The increase in the ~~prior-year periods primarily due to higher operating costs~~current quarter was largely driven by improved volume leverage in the Architectural Glass ~~segment, as further discussed below within~~segment. In the ~~Segment Analysis for~~six-month period, gross profit improvements in Architectural Glass were offset by a less favorable project mix in the Architectural ~~Glass~~Framing segment, and timing of project activity in the Architectural Services segment.

Selling, general and administrative (SG&A) expenses

SG&A expenses as a percent of sales ~~declined~~were 16.4 percent in each of the three and six-month periods ended August 31, 2019, compared to 15.4 percent and 16.4 percent ~~for~~in the ~~three-~~prior year three and six-month periods, ~~respectively, ended September 1, 2018,~~respectively. SG&A increased 100 basis points in the second quarter of fiscal 2020 compared to ~~16.9 percent in each~~fiscal 2019 due to increased compensation and benefits and costs related to cost-savings initiatives.

Table of ~~the prior year comparative periods. The decline was primarily the result of acquisition-related costs incurred in the prior year.~~Contents

Income tax expense

The effective tax rate in the second quarter of fiscal ~~2019~~2020 was ~~23.8~~24.0 percent, compared to ~~33.9~~23.8 percent in the same period last year, and ~~23.9~~24.2 percent for the first six months of fiscal ~~2019,~~2020, compared to ~~33.4~~23.9 percent in the prior-year period. The ~~reduction in the effective tax~~slight rate ~~in both periods~~increase was ~~primarily~~ driven by several factors, including increased foreign income and the ~~provisions~~impact of ~~the Tax Cuts and Jobs Act, enacted in December 2017.~~state taxes.

Segment Analysis

Architectural Framing Systems


	Three Months Ended								Six Months Ended						Three Months Ended								Six Months Ended
In thousands	September 1, 2018			September 2, 2017			% Change		September 1, 2018		September 2, 2017		% Change		August 31, 2019			September 1, 2018			% Change		August 31, 2019			September 1, 2018			% Change
Net sales	$	189,850		$	189,023		0.4	%	368,887		299,515		23.2	%	$	187,394		$	189,850		(1.3	)%	$	367,916		$	368,887		(0.3	)%
Operating income	18,312			16,542			10.7	%	30,650		28,506		7.5	%	15,523			18,312			(15.2	)%	27,796			30,650			(9.3	)%
Operating margin	9.6		%	8.8		%			8.3	%	9.5	%			8.3		%	9.6		%			7.6		%	8.3		%

Architectural Framing Systems net sales ~~increased $0.8~~declined $2.5 million, or ~~0.4~~1.3 percent, and ~~$69.4~~$1.0 million, or ~~23.2~~0.3 percent, for the ~~three-~~three and six-month periods ~~respectively,~~ ended ~~September 1, 2018,~~August 31, 2019, compared to the prior-year periods. ~~The addition~~Operating margin decreased 130 and 70 basis points, respectively, for the three and six-month periods of the ~~net sales of EFCO provided the 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,~~current year, compared to the ~~second quarter of~~same periods in the ~~last fiscal~~prior year, primarily due to ~~completing~~less favorable project mix. Last year's second quarter included $1.1 million of expense for the amortization of short-lived acquired 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.assets.

As of ~~September 1, 2018,~~August 31, 2019, segment backlog was approximately ~~$406~~$385 million, compared to approximately ~~$400~~$402 million last quarter.

Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which is expected to be recognized as revenue primarily in the near-term. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. Backlog should not be used as the sole indicator of future segment revenue because we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog. We have strong visibility beyond backlog, as projects awarded, verbal commitments and bidding activities are monitored separately and not included in backlog. We use backlog as one of the metrics to evaluate sales trends in our long lead-time segments.

Architectural Glass


	Three Months Ended								Six Months Ended								Three Months Ended								Six Months Ended
In thousands	September 1, 2018			September 2, 2017			% Change		September 1, 2018			September 2, 2017			% Change		August 31, 2019			September 1, 2018			% Change		August 31, 2019			September 1, 2018			% Change
Net sales	$	88,084		$	97,351		(9.5	)%	$	165,009		$	195,086		(15.4	)%	$	99,138		$	88,084		12.5	%	$	199,429		$	165,009		20.9	%
Operating income	1,739			10,258			(83.0	)%	3,317			19,581			(83.1	)%	6,460			1,739			271.5	%	12,859			3,317			287.7	%
Operating margin	2.0		%	10.5		%			2.0		%	10.0		%			6.5		%	2.0		%			6.4		%	2.0		%

Net sales ~~declined $9.3~~increased $11.1 million, or ~~9.5~~12.5 percent, and ~~$30.1~~$34.4 million, or ~~15.4~~20.9 percent, for the ~~three-~~three and six-month periods ~~respectively,~~ ended ~~September 1, 2018,~~August 31, 2019, compared to the same periods in the prior year. InThe increase in both ~~current year~~ periods ~~changes in the timing of customer orders drove the decline in sales. Additionally, in the second quarter~~ of fiscal 2020 compared to fiscal 2019 was the result of increased volume ~~declines stemming from operational challenges within the segment (described in the next paragraph) also contributed to the sales decrease.~~and improved mix driven by strong customer demand.

Operating margin ~~declined 850~~increased 450 and ~~800~~440 basis points ~~respectively,~~ for the ~~three-~~three and six-month periods of the current year, compared to the same periods in the prior year, primarily driven by ~~significantly increased labor costs, lower~~improved productivity and operating leverage on higher ~~cost of quality, as~~volume and improved price and mix in the ~~segment was challenged~~current year compared to ~~efficiently ramp-up production~~the prior year. Additionally, margins in the three- and six-month periods ended August 31, 2019 included an approximately 100 basis point impact from start-up costs related to ~~meet higher than expected order intake and customer demand.~~a new growth initiative in this segment.

Architectural Services


	Three Months Ended								Six Months Ended								Three Months Ended								Six Months Ended
In thousands	September 1, 2018			September 2, 2017			% Change		September 1, 2018			September 2, 2017			% Change		August 31, 2019			September 1, 2018			% Change		August 31, 2019			September 1, 2018			% Change
Net sales	$	76,496		$	46,829		63.4	%	$	147,223		$	96,979		51.8	%	$	61,597		$	76,496		(19.5	)%	$	126,744		$	147,223		(13.9	)%
Operating income	7,621			774			884.6	%	12,775			1,555			721.5	%	3,976			7,621			(47.8	)%	8,549			12,775			(33.1	)%
Operating margin	10.0		%	1.7		%			8.7		%	1.6		%			6.5		%	10.0		%			6.7		%	8.7		%

Table of Contents

Architectural Services net sales ~~increased $29.7~~declined $14.9 million, or ~~63.4~~19.5 percent, and ~~$50.2~~$20.5 million, or ~~51.8~~13.9 percent, for the ~~three-~~three and ~~six- month~~six-month periods ~~respectively,~~ ended ~~September 1, 2018,~~August 31, 2019, over the same periods in the prior year on lower volume due to timing of project activity, as ~~the business continued to execute on projects booked in the past several quarters.~~expected.

Operating margin ~~increased 830~~decreased 350 and ~~710~~200 basis points ~~respectively,~~ for the ~~three-~~three and six-month periods of the current year, compared to the same periods in the prior year, due to ~~volume~~reduced leverage ~~and strong~~on the lower project ~~execution.~~volume.

As of ~~September 1, 2018,~~August 31, 2019, segment backlog was approximately ~~$405~~$502 million, compared to approximately ~~$439~~$483 million last quarter. Backlog is defined within the Architectural Framing Systems discussion above.

Large-Scale Optical (LSO)


	Three Months Ended								Six Months Ended								Three Months Ended								Six Months Ended
In thousands	September 1, 2018			September 2, 2017			% Change		September 1, 2018			September 2, 2017			% Change		August 31, 2019			September 1, 2018			% Change		August 31, 2019			September 1, 2018			% Change
Net sales	$	20,383		$	20,291		0.5	%	$	41,145		$	38,894		5.8	%	$	20,785		$	20,383		2.0	%	$	42,045		$	41,145		2.2	%
Operating income	4,236			4,248			(0.3	)%	9,218			8,298			11.1	%	4,630			4,236			9.3	%	8,807			9,218			(4.5	)%
Operating margin	20.8		%	20.9		%			22.4		%	21.3		%			22.3		%	20.8		%			20.9		%	22.4		%

LSO net sales increased ~~$0.1 million, or 0.5 percent, and $2.3 million, or 5.8 percent,~~slightly for the ~~three-~~three and six-month periods ended ~~September 1, 2018,~~August 31, 2019, over the same periods in the prior year ~~as a result of~~due to improved ~~core picture framing demand,~~ product ~~mix and growth in new markets.~~

mix. Operating margin ~~declined 10~~increased 150 basis points for the ~~three months~~quarter ended ~~September 1, 2018,~~August 31, 2019, compared to the second quarter of last ~~year.~~year, driven by the favorable product mix. Operating margin ~~increased 110~~decreased 150 basis points for the six-month period of the current year compared to the same period in the prior year, driven by ~~volume~~reduced cost leverage ~~and favorable product mix.~~from changes in production schedules.

Liquidity and Capital Resources


Selected cash flow data	Six Months Ended						Six Months Ended
In thousands	September 1, 2018			September 2, 2017			August 31, 2019			September 1, 2018
Operating Activities
Net cash provided by operating activities	$	47,929		$	40,809		$	17,802		$	47,929
Investing Activities
Capital expenditures	(24,241		)	(26,825		)	(22,559		)	(24,241		)
Acquisition of business, net of cash acquired	—			(184,826		)
Net purchases of marketable securities	(4,123		)	(1,165		)
Financing Activities
Proceeds from issuance of debt	205,000			284,200
Payments on debt	(196,500		)	(94,000		)
Borrowings on line of credit							184,500			205,000
Proceeds from issuance of term debt							150,000			—
Payments on line of credit							(307,500		)	(196,500		)
Repurchase and retirement of common stock	—			(10,833		)	(20,010		)	—
Dividends paid	(8,823		)	(7,994		)	(9,203		)	(8,823		)

Operating Activities. Cash provided by operating activities was ~~$47.9~~$17.8 million for the first six months of fiscal ~~2019, increasing $7.1~~2020, a decrease of $30.1 million compared to the prior-year period, primarily due to ~~proceeds received on the New Market Tax Credit transaction.~~increased working capital requirements related to legacy EFCO projects, as well as timing of other working capital needs.

Investing Activities. Net cash used in investing activities was ~~$29.8~~$23.0 million for the first six months of fiscal ~~2019,~~2020, primarily due to capital expenditures, ~~and net purchases of marketable securities,~~ while in the first six months of the prior year, net cash used by investing activities was ~~$211.7~~$29.8 million, ~~driven by the EFCO acquisition.~~due to capital expenditures and net purchases of marketable securities. We estimate fiscal ~~2019~~2020 capital expenditures to be $60 to $65 million, as we continue to make investments ~~in projects that will add capabilities~~to drive growth and ~~improve productivity.~~productivity improvements.

We continue to review our portfolio of businesses and their assets in comparison to our internal strategic and performance objectives. As part of this review, we may take actions to adjust capacity, pursue geographic expansion, further invest in, fully divest or sell parts of our current businesses and/or acquire other businesses.

Financing Activities. Net cash used in financing activities was $4.7 million for the first six months of fiscal 2020, compared to $1.3 million for the prior-year period. During the second quarter ended August 31, 2019, we amended our credit facility to consist of a $235 million revolving credit facility with a maturity of June 2024, and a $150 million term loan with a maturity of June 2020. At ~~September 1, 2018,~~August 31, 2019, we had outstanding borrowings of $102.0 million and $24.7 million of ongoing letters of credit that reduce availability of funds under our ~~credit facility of $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.~~facility. At ~~September 1, 2018,~~August 31, 2019, we were in compliance with ~~both~~ financial ~~covenants.~~covenants as defined in this credit facility.

We paid dividends totaling ~~$8.8~~$9.2 million ($~~0.315~~0.35 per share) in the first six months of fiscal ~~2019. We did not repurchase~~2020 compared to $8.8 million ($0.315 per share) in the comparable prior-year period. In the first six months of fiscal 2020, we repurchased 531,997 shares under our authorized share repurchase program, all during the first quarter, for a total cost of $20.0 million. In the first six months of fiscal ~~2019. In the second quarter~~

Table of ~~fiscal 2018,~~Contents

2019, we ~~repurchased 200,000~~did not repurchase any shares under our authorized share repurchase ~~program for~~program. We have purchased a total of 5,799,912 shares, at a total cost of ~~$10.8 million.~~

Subsequent to the end of the quarter, in October 2018, we purchased 200,000 shares under the program for 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. Including this recent repurchase, we have repurchased a total of 4,209,932 shares, at a cost of $114.3$169.3 million, since the fiscal 2004 inception of this program. We currently have remaining authority to repurchase an additional 1,450,088 shares under this program.

Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of ~~September 1, 2018~~August 31, 2019:


	Payments Due by Fiscal Period														Payments Due by Fiscal Period
In thousands	Remainder of Fiscal 2019		Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Thereafter		Total		Remainder of Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		Thereafter		Total
Long-term debt obligations	$	61	$	121	$	5,521	$	206,335	$	1,089	$	12,000	$	225,127
Debt obligations															$	—	$	155,580	$	104,121	$	1,084	$	—	$	12,000	$	272,785
Operating leases (undiscounted)	7,497		13,182		9,990		7,802		6,886		17,630		62,987		8,481		11,256		9,891		8,989		7,067		15,990		61,674
Purchase obligations	133,733		46,886		1,230		1,230		—		—		183,079		87,242		35,828		1,179		—		—		—		124,249
Total cash obligations	$	141,291	$	60,189	$	16,741	$	215,367	$	7,975	$	29,630	$	471,193	$	95,723	$	202,664	$	115,191	$	10,073	$	7,067	$	27,990	$	458,708

We acquire the use of certain assets through operating leases, such as ~~warehouses,~~property, manufacturing equipment, vehicles ~~forklifts, office equipment, hardware, software~~ and ~~some manufacturing~~other equipment. ~~While many of these operating leases have termination penalties, we consider the risk related to termination penalties to be minimal.~~

Purchase obligations in the table above relate to raw material commitments and capital expenditures.

We expect to make contributions of ~~$1.0~~$0.7 million to our defined-benefit pension plans in fiscal ~~2019,~~2020, which will equal or exceed our minimum funding requirements.

As of ~~September 1, 2018~~August 31, 2019, we had reserves of ~~$5.1~~$5.5 million and ~~$1.3~~$1.0 million for unrecognized tax benefits and environmental liabilities, respectively. We currently expect approximately ~~$0.6~~$0.5 million of the unrecognized tax benefits to lapse during the next 12 months. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits and environmental liabilities will ultimately be settled.

At ~~September 1, 2018~~, we had a total of $23.5 million of ongoing letters of credit related to industrial revenue bonds and construction contracts that expire in fiscal 2020 and reduce availability of funds under our committed credit facility.

~~In addition to the above standby letters of credit, we~~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. At ~~September 1, 2018, $246.2~~August 31, 2019, $695.7 million of ~~our backlog was bonded by~~ these types of bonds ~~with a face value of $538.4 million.~~were outstanding on our backlog and recently completed projects. These bonds do not have stated expiration ~~dates, as we are generally released from the bonds upon completion of the contract.~~dates. We have not been required to make any payments under these bonds with respect to our existing businesses.

Due to our ability to generate strong cash from operations and our 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 measures~~

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 Company 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 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
Amortization of short-lived acquired intangibles 1,068
2,630
3,938
4,684
Acquisition-related costs —
3,737
—
4,417
Income tax impact on above adjustments⁽¹⁾
(254 ) (2,158 ) (953 ) (3,040 )
Adjusted net earnings $ 21,327
$ 21,618
$ 38,872
$ 39,573

Earnings per diluted common share $ 0.72
$ 0.60
$ 1.26
$ 1.16
Amortization of short-lived acquired intangibles 0.04
$ 0.09
0.14
0.16
Acquisition-related costs —
$ 0.13
—
0.15
Income tax impact on above adjustments⁽¹⁾
(0.01 ) (0.07 ) (0.03 ) (0.11 )
Adjusted earnings per diluted common share $ 0.75
$ 0.75
$ 1.37
$ 1.37
⁽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 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~~reflect our ~~current~~ expectations for full-year fiscal ~~2019~~2020 results. These statements are forward-looking, and actual results may differ materially. ~~We are currently expecting:~~

Revenue growth of 81 to ~~10 percent.~~3 percent over fiscal 2019.

Operating margin of ~~8.3~~8.2 to ~~8.8~~8.6 percent.

Earnings per diluted share in the range of $3.00 to $3.20.


•	~~Adjusted operating margin of 8.6 to 9.1 percent and adjusted earnings per diluted share of $3.13 to 3.33~~⁽¹⁾.

Capital expenditures of $60 to $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 $3.8 million (after tax, $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 ~~3, 2018.~~2, 2019.

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 other changes have occurred to the critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended March ~~3, 2018.~~2, 2019.


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 ~~3, 2018.~~2, 2019.

Table of Contents


Item 4.	Controls and Procedures

Evaluation of ~~Disclosure Controls~~disclosure controls and ~~Procedures.~~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.


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 ~~September 1, 2018~~August 31, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

Murray Mayer v. Apogee Enterprises, Inc., et al

On November 5, 2018, Murray Mayer, individually and on behalf of all others similarly situated, filed a purported securities class action lawsuit against the Company and our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the District of Minnesota. On February 26, 2019, the Court appointed as lead plaintiffs the City of Cape Coral Municipal Firefighters’ Retirement Plan and the City of Cape Coral Municipal Police Officers’ Retirement Plan. On April 26, 2019, the lead plaintiffs filed an amended complaint. The amended complaint alleges that, during the purported class period of May 1, 2017 to April 10, 2019, the Company and the named executive officers made materially false and/or misleading statements or omissions about the Company's acquisition of EFCO Corporation on June 12, 2017, and about the Company's Architectural Glass business segment in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The amended complaint seeks an unspecified amount of damages, attorney's fees and costs. We intend to vigorously defend this matter.

Justin Buley v. Apogee Enterprises, Inc. et al

On December 17, 2018, Justin Buley filed a derivative lawsuit, purportedly on behalf of the Company, against our Chief Executive Officer, our Chief Financial Officer and eight of the nine non-executive members of our Board of Directors, in the Fourth Judicial District of the State of Minnesota. The complaint alleges claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment, due to the named executive officers and board members allegedly making materially false and/or misleading statements or omissions about the Company's business, operations, and prospects, particularly with respect to our Architectural Glass business segment, during the period between June 28, 2018 and September 17, 2018. The complaint seeks an unspecified amount of damages and equitable relief, including requiring the Company to offer our shareholders the opportunity to vote for certain amendments to our Bylaws or Articles of Incorporation purporting to improve identified corporate governance practices. This matter has been stayed pending resolution of a Motion to Dismiss in the Mayer action described above. We intend to vigorously defend this matter.

Other Matters

In addition to the foregoing, the Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the ~~Company’s construction supply and services businesses are~~Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability ~~and automobile claims.~~matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no ~~such claims~~matters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.

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Item 1A.	Risk Factors

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 ~~3, 2018~~2, 2019.


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 second quarter of fiscal ~~2019:~~2020:

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



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 2, 2019 to June 29, 2019	14,527	$	38.27	—	1,450,088
June 30, 2019 to July 27, 2019	1,044	43.50		—	1,450,088
July 28, 2019 to August 31, 2019	3,951	38.75		—	1,450,088
Total	19,522	$	39.30	—	1,450,088


(a)	The shares in this column represent the total number of shares that were 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.

(b)

In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. The Board increased the authorization by 750,000 shares, announced on January 24, 2008; ~~and~~ by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016 and January 9, ~~2018. Subsequent to the end of the quarter,~~2018; and by 2,000,000 shares, announced on October 3, ~~2018, the Board increased the authorization by 2,000,000 shares.~~2018. The repurchase program does not have an expiration date.

Item 5. Other Information

The Board of Directors has not set a date for the Annual Meeting of Shareholders ("Annual Meeting"), but expects it to be held during the fourth quarter of our fiscal year 2020. The company will announce the date and time of the Annual Meeting, together with the deadline for the submission of shareholder proposals for the Annual Meeting pursuant to SEC Rule 14a-8, after the Board of Directors has determined the date of the Annual Meeting.

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Item 6.	Exhibits



~~31.1~~10.1	Amendment to the Confidentiality Agreement, dated August 5, 2019, by and among Apogee Enterprises, Inc., and Engaged Capital LLC, Engaged Capital Flagship Master Fund, LP, Engaged Capital Co-Invest VIII, LP, Engaged Capital Flagship Fund, LP, Engaged Capital Flagship Fund, Ltd., Engaged Capital Holdings, LLC and Glenn W. Welling. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on August 6, 2019.
10.2	Employee Noncompetition and Confidentiality Agreement, dated August 5, 2019, between Apogee Enterprises, Inc. and Brent Jewell. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on August 9, 2019.
10.3	Amendment, dated September 12, 2019, to the Confidentiality Agreement, by and among Apogee Enterprises, Inc., and Engaged Capital LLC, Engaged Capital Flagship Master Fund, LP, Engaged Capital Co-Invest VIII, LP, Engaged Capital Flagship Fund, LP, Engaged Capital Flagship Fund, Ltd., Engaged Capital Holdings, LLC and Glenn W. Welling. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on September 13, 2019.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

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.

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.

101	The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 1, 2018~~August 31, 2019 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of ~~September 1, 2018~~August 31, 2019 and March ~~3, 2018,~~2, 2019, (ii) the Consolidated Results of Operations for the three- and six-months ended August 31, 2019 and September 1, 2018, ~~and September 2, 2017,~~ (iii) the Consolidated Statements of Comprehensive Earnings for the three- and six-months ended August 31, 2019 and September 1, 2018, ~~and September 2, 2017,~~ (iv) the Consolidated Statements of Cash Flows for the ~~six months~~six-months ended August 31, 2019 and September 1, 2018, ~~and September 2, 2017,~~ (v) the Consolidated Statements of Shareholders' Equity for the ~~six months~~six-months ended August 31, 2019 and September 1, 2018, ~~and September 2, 2017,~~ and (vi) Notes to Consolidated Financial Statements.
104	Cover Page, formatted Inline Extensible Business Reporting Language and contained in Exhibit 101.

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ming 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.



	APOGEE ENTERPRISES, INC.

Date: October ~~9, 2018~~3, 2019	By: /s/ Joseph F. Puishys
		Joseph F. Puishys President and Chief Executive Officer (Principal Executive Officer)



Date: October ~~9, 2018~~3, 2019	By: /s/ James S. Porter
		James S. Porter Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

2926



		Page
PART I	Financial Information

Item 1.	Financial Statements (Unaudited):

	Consolidated Balance Sheets	4

	Consolidated Results of Operations	5

	Consolidated Statements of Comprehensive Earnings	6

	Consolidated Statements of Cash Flows	7

	Consolidated Statements of Shareholders' Equity	8

	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2018

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2722

Item 4.	Controls and Procedures	2723

PART II	Other Information

Item 1.	Legal Proceedings	2723

Item 1A.	Risk Factors	2724

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2724

Item 5.	Other Information	24

Item 6.	Exhibits	2825

Signatures		2926



	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



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	Estimated fair value		Estimated useful life (in years)
Customer relationships	$	34,800	16
Tradename	32,400		Indefinite
Backlog	4,300		1.5
	$	71,500



	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	%



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