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 ~~December 1, 2018~~November 30, 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 every Interactive Data File required to be submitted 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 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 January ~~9, 2019, 27,175,800~~7, 2020, 26,507,935 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	December 1, 2018			March 3, 2018			November 30, 2019			March 2, 2019
Assets
Current assets
Cash and cash equivalents	$	15,043		$	19,359		$	10,129		$	17,087
Restricted cash							401			12,154
Receivables, net of allowance for doubtful accounts	201,498			211,852			197,976			192,767
Inventories	79,847			80,908			75,791			78,344
Costs and earnings on contracts in excess of billings	60,140			4,120			72,284			55,095
Other current assets	16,247			20,039			40,335			16,451
Total current assets	372,775			336,278			396,916			371,898
Property, plant and equipment, net	302,209			304,063			326,418			315,823
Restricted cash	26,354			—
Operating lease right-of-use assets							56,315			—
Goodwill	185,788			180,956			185,776			185,832
Intangible assets	153,605			167,349			142,779			148,235
Other non-current assets	40,249			33,674			41,587			46,380
Total assets	$	1,080,980		$	1,022,320		$	1,149,791		$	1,068,168
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	79,072		$	68,416		$	66,557		$	72,219
Accrued payroll and related benefits	39,323			36,646			33,339			41,119
Accrued self-insurance reserves	8,060			10,933
Billings on contracts in excess of costs and earnings	26,961			12,461			26,366			21,478
Operating lease liabilities							9,399			—
Current portion of debt							155,400			—
Other current liabilities	59,230			79,696			108,481			92,696
Total current liabilities	212,646			208,152			399,542			227,512
Long-term debt	232,726			215,860			95,856			245,724
Long-term self-insurance reserves	19,329			16,307
Non-current operating lease liabilities							48,509			—
Non-current self-insurance reserves							25,260			21,433
Other non-current liabilities	85,405			70,646			65,645			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 27,655,804 and 28,158,042 respectively	9,219			9,386
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 26,552,935 and 27,015,127 respectively							8,851			9,005
Additional paid-in capital	154,095			152,763			153,188			151,842
Retained earnings	400,289			373,259			385,032			367,597
Common stock held in trust	(745		)	(922		)	(675		)	(755		)
Deferred compensation obligations	745			922			675			755
Accumulated other comprehensive loss	(32,729		)	(24,053		)	(32,092		)	(32,127		)
Total shareholders’ equity	530,874			511,355			514,979			496,317
Total liabilities and shareholders’ equity	$	1,080,980		$	1,022,320		$	1,149,791		$	1,068,168

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED RESULTS OF OPERATIONS

(unaudited)


	Three Months Ended					Nine Months Ended					Three Months Ended				Nine Months Ended
In thousands, except per share data	December 1, 2018			December 2, 2017		December 1, 2018			December 2, 2017		November 30, 2019		December 1, 2018		November 30, 2019		December 1, 2018
Net sales	$	357,718		$	356,506	$	1,056,382		$	972,721	$	337,916	$	357,718	$	1,050,340	$	1,056,382
Cost of sales	273,628			264,947		807,096			724,868		263,606		273,628		808,856		807,096
Gross profit	84,090			91,559		249,286			247,853		74,310		84,090		241,484		249,286
Selling, general and administrative expenses	52,682			57,024		167,224			161,438		52,716		52,682		169,274		167,224
Operating income	31,408			34,535		82,062			86,415		21,594		31,408		72,210		82,062
Interest income	809			106		1,719			390
Interest expense	2,941			1,594		7,514			3,689
Other (expense) income, net	(655		)	303		(459		)	560
Interest and other expense, net											1,764		2,787		6,577		6,254
Earnings before income taxes	28,621			33,350		75,808			83,676		19,830		28,621		65,633		75,808
Income tax expense	6,730			9,704		18,030			26,517		4,596		6,730		15,677		18,030
Net earnings	$	21,891		$	23,646	$	57,778		$	57,159	$	15,234	$	21,891	$	49,956	$	57,778
Earnings per share - basic	$	0.79		$	0.82	$	2.06		$	1.98	$	0.58	$	0.79	$	1.89	$	2.06
Earnings per share - diluted	$	0.78		$	0.82	$	2.04		$	1.98	$	0.57	$	0.78	$	1.87	$	2.04
Weighted average basic shares outstanding	27,836			28,736		28,030			28,812		26,432		27,836		26,481		28,030
Weighted average diluted shares outstanding	28,156			28,818		28,304			28,862		26,750		28,156		26,776		28,304

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
In thousands	December 1, 2018			December 2, 2017			December 1, 2018			December 2, 2017			November 30, 2019			December 1, 2018			November 30, 2019			December 1, 2018
Net earnings	$	21,891		$	23,646		$	57,778		$	57,159		$	15,234		$	21,891		$	49,956		$	57,778
Other comprehensive (loss) earnings:
Unrealized loss on marketable securities, net of $16, $78, $25 and $28 of tax benefit, respectively	(58		)	(143		)	(90		)	(51		)
Unrealized gain (loss) on foreign currency hedge, net of $10, $-, ($99) and $- of tax expense (benefit), respectively	32			—			(327		)	—
Unrealized (loss) gain on marketable securities, net of ($11), ($16), $38 and ($25) of tax (benefit) expense, respectively													(44		)	(58		)	145			(90		)
Unrealized gain (loss) on derivative instruments, net of $119, $10, $146 and ($99) of tax expense (benefit), respectively													387			32			476			(327		)
Foreign currency translation adjustments	(3,621		)	(3,838		)	(7,518		)	10,652			(491		)	(3,621		)	(586		)	(7,518		)
Other comprehensive (loss) earnings	(3,647		)	(3,981		)	(7,935		)	10,601			(148		)	(3,647		)	35			(7,935		)
Total comprehensive earnings	$	18,244		$	19,665		$	49,843		$	67,760		$	15,086		$	18,244		$	49,991		$	49,843

See accompanying notes to consolidated financial statements.

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended						Nine Months Ended
In thousands	December 1, 2018			December 2, 2017			November 30, 2019			December 1, 2018
Operating Activities
Net earnings	$	57,778		$	57,159		$	49,956		$	57,778
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	38,378			39,774			34,681			38,378
Share-based compensation	4,724			4,645			4,617			4,724
Deferred income taxes	10,600			(3,339		)	10,088			10,600
Gain on disposal of assets	(2,499		)	(78		)	(623		)	(2,499		)
Proceeds from New Markets Tax Credit transaction, net of deferred costs	8,850			—			—			8,850
Noncash lease expense							1,525			—
Other, net	(799		)	(1,286		)	(2,007		)	(799		)
Changes in operating assets and liabilities:
Receivables	9,291			(16,131		)	(5,288		)	9,291
Inventories	4,398			(1,915		)	2,474			4,398
Costs and earnings on contracts in excess of billings	(54,569		)	567			(17,156		)	(54,569		)
Accounts payable and accrued expenses	(20,072		)	(27,449		)	(22,457		)	(20,072		)
Billings on contracts in excess of costs and earnings	14,558			9,869			4,901			14,558
Refundable and accrued income taxes	1,831			7,108			(6,159		)	1,831
Other	(1,825		)	(2,685		)	(951		)	(1,825		)
Net cash provided by operating activities	70,644			66,239			53,601			70,644
Investing Activities
Capital expenditures	(33,867		)	(38,946		)	(41,176		)	(33,867		)
Proceeds from sales of property, plant and equipment	12,332			253			591			12,332
Acquisition of business, net of cash acquired	—			(184,826		)
Purchases of marketable securities	(9,006		)	(10,154		)	(4,201		)	(9,006		)
Sales/maturities of marketable securities	5,813			9,288			4,867			5,813
Other	(2,209		)	941			(1,523		)	(2,209		)
Net cash used in investing activities	(26,937		)	(223,444		)
Net cash used by investing activities							(41,442		)	(26,937		)
Financing Activities
Borrowings on line of credit	294,500			314,700			108,000			294,500
Proceeds from issuance of term debt							150,000			—
Payments on line of credit	(278,000		)	(150,700		)	(252,500		)	(278,000		)
Shares withheld for taxes, net of stock issued to employees	(1,591		)	(1,561		)
Repurchase and retirement of common stock	(23,313		)	(10,833		)	(20,010		)	(23,313		)
Dividends paid	(13,180		)	(11,971		)	(13,808		)	(13,180		)
Other	413			2,039			(2,584		)	(1,178		)
Net cash (used in) provided by financing activities	(21,171		)	141,674
Increase (decrease) in cash and cash equivalents	22,536			(15,531		)
Net cash used by financing activities							(30,902		)	(21,171		)
(Decrease) increase in cash and cash equivalents							(18,743		)	22,536
Effect of exchange rates on cash	(498		)	1,079			32			(498		)
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	$	41,397		$	12,845		$	10,530		$	41,397
Noncash Activity
Capital expenditures in accounts payable	$	5,771		$	1,859		$	1,205		$	5,771

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 3, 2018	28,158		$	9,386		$	152,763		$	373,259		$	(922	)	$	922		$	(24,053	)
Cumulative effect adjustment (see Note 1)	—		—			—			2,999			—			—			—
Reclassification of tax effects (see Note 1)	—		—			—			737			—			—			(737		)
Balance at March 2, 2019																					27,015		$	9,005		$	151,842		$	367,597		$	(755	)	$	755		$	(32,127	)
Net earnings	—		—			—			57,778			—			—			—			—		—			—			15,443			—			—			—
Unrealized loss on marketable securities, net of $25 tax benefit	—		—			—			—			—			—			(90		)
Unrealized loss on foreign currency hedge, net of $99 tax benefit	—		—			—			—			—			—			(327		)
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	—		—			—			—			—			—			(7,522		)	—		—			—			—			—			—			(2,560		)
Issuance of stock, net of cancellations	125		42			126			—			177			(177		)	—			79		26			14			—			(12		)	12			—
Share-based compensation	—		—			4,724			—			—			—			—			—		—			1,618			—			—			—			—
Exercise of stock options	19		6			177			—			—			—			—
Share repurchases	(600	)	(200		)	(3,436		)	(19,677		)	—			—			—			(532	)	(177		)	(3,051		)	(16,782		)	—			—			—
Other share retirements	(46	)	(15		)	(259		)	(1,627		)	—			—			—			(32	)	(11		)	(183		)	(1,266		)	—			—			—
Cash dividends	—		—			—			(13,180		)	—			—			—			—		—			—			(4,598		)	—			—			—
Balance at December 1, 2018	27,656		$	9,219		$	154,095		$	400,289		$	(745	)	$	745		$	(32,729	)

Balance at March 4, 2017	28,680		$	9,560		$	150,111		$	341,996		$	(875	)	$	875		$	(31,090	)
Balance at June 1, 2019																					26,530		$	8,843		$	150,240		$	360,394		$	(767	)	$	767		$	(34,501	)
Net earnings	—		—			—			57,159			—			—			—			—		—			—			19,279			—			—			—
Unrealized loss on marketable securities, net of $28 tax benefit	—		—			—			—			—			—			(51		)
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	—		—			—			—			—			—			10,652			—		—			—			—			—			—			2,465
Issuance of stock, net of cancellations	106		36			147			—			(33		)	33			—			44		15			27			—			(11		)	11			—
Share-based compensation	—		—			4,645			—			—			—			—			—		—			1,582			—			—			—			—
Exercise of stock options	100		33			801			—			—			—			—
Share repurchases	(200	)	(67		)	(1,091		)	(9,675		)	—			—			—
Other share retirements	(45	)	(15		)	(256		)	(2,229		)	—			—			—			(20	)	(7		)	(114		)	(629		)	—			—			—
Cash dividends	—		—			—			(11,971		)	—			—			—			—		—			—			(4,605		)	—			—			—
Balance at December 2, 2017	28,641		$	9,547		$	154,357		$	375,280		$	(908	)	$	908		$	(20,489	)
Balance at August 31, 2019																					26,554		$	8,851		$	151,735		$	374,439		$	(778	)	$	778		$	(31,944	)
Net earnings																					—		—			—			15,234			—			—			—
Unrealized loss on marketable securities, net of $11 tax benefit																					—		—			—			—			—			—			(44		)
Unrealized gain on foreign currency hedge, net of $119 tax expense																					—		—			—			—			—			—			387
Foreign currency translation adjustments																					—		—			—			—			—			—			(491		)
Issuance of stock, net of cancellations																					(1	)	1			43			—			103			(103		)	—
Share-based compensation																					—		—			1,417			—			—			—			—
Other share retirements																					—		(1		)	(7		)	(36		)	—			—			—
Cash dividends																					—		—			—			(4,605		)	—			—			—
Balance at November 30, 2019																					26,553		$	8,851		$	153,188		$	385,032		$	(675	)	$	675		$	(32,092	)

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
Balance at March 3, 2018	28,158		$	9,386		$	152,763		$	373,259		$	(922	)	$	922		$	(24,053	)
Cumulative effect adjustment	—		—			—			2,999			—			—			—
Reclassification of tax effects	—		—			—			737			—			—			(737		)
Net earnings	—		—			—			15,373			—			—			—
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	—		—			—			—			—			—			(517		)
Issuance of stock, net of cancellations	90		30			35			—			91			(91		)	—
Share-based compensation	—		—			1,514			—			—			—			—
Exercise of stock options	19		6			177			—			—			—			—
Other share retirements	(41	)	(13		)	(228		)	(1,440		)	—			—			—
Cash dividends	—		—			—			(4,410		)	—			—			—
Balance at June 2, 2018	28,226		$	9,409		$	154,261		$	386,518		$	(831	)	$	831		$	(25,601	)
Net earnings	—		—			—			20,514			—			—			—
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	—		—			—			—			—			—			(3,383		)
Issuance of stock, net of cancellations	35		12			37			—			(11		)	11			—
Share-based compensation	—		—			1,605			—			—			—			—
Other share retirements	(1	)	(1		)	(5		)	—			—			—			—
Cash dividends	—		—			—			(4,413		)	—			—			—
Balance at September 1, 2018	28,260		$	9,420		$	155,898		$	402,619		$	(842	)	$	842		$	(29,081	)
Net earnings	—		—			—			21,891			—			—			—
Unrealized loss on marketable securities, net of $16 tax benefit	—		—			—			—			—			—			(58		)
Unrealized gain on foreign currency hedge, net of $10 tax expense	—		—			—			—			—			—			32
Foreign currency translation adjustments	—		—			—			—			—			—			(3,622		)
Issuance of stock, net of cancellations	—		—			54			—			97			(97		)	—
Share-based compensation	—		—			1,605			—			—			—			—
Share repurchases	(600	)	(200		)	(3,436		)	(19,677		)	—			—			—
Other share retirements	(4	)	(1		)	(26		)	(187		)	—			—			—
Cash dividends	—		—			—			(4,357		)	—			—			—
Balance at December 1, 2018	27,656		$	9,219		$	154,095		$	400,289		$	(745	)	$	745		$	(32,729	)

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 nine-month period ended ~~December 1, 2018~~November 30, 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 33 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.

~~Table of Contents~~

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 21 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 three- and~~ ~~nine-month periods ending December 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 December 1, 2018 Nine Months Ended December 1, 2018
In thousands As reported Without adoption of ASC 606 As reported Without adoption of ASC 606
Net sales $ 357,718
$ 355,765
$ 1,056,382
$ 1,042,600
Cost of sales 273,628
272,087
807,096
796,802
Gross profit 84,090
83,678
249,286
245,798
Selling, general and administrative expenses 52,682
52,692
167,224
166,560
Operating income $ 31,408
$ 30,986
$ 82,062
$ 79,238

Income tax expense $ 6,730
$ 6,627
$ 18,030
$ 17,355
Net earnings $ 21,891
$ 21,572
$ 57,778
$ 55,628

December 1, 2018
As reported Without adoption of ASC 606
Inventories $ 79,847
$ 89,250
Costs and earnings on contracts in excess of billings 60,140
30,756
Billings on contracts in excess of costs and earnings 26,961
25,923
Other current liabilities 59,230
57,802
Retained earnings 400,289
398,139

~~Table of Contents~~

~~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 willis adopted. We do not ~~be adjusted.~~

We are in the process of analyzing our lease arrangements and evaluating our initial right-to-use asset and lease liability balances, including determining estimates and assumptions used in the calculation of the lease asset and liability. We are also in the process of determining modifications to our business processes, accounting policies and systems and controls that are needed to support measurement, recognition and disclosure under 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. In adopting the new standard, we plan to elect the package of practical expedients, as well as the practical expedient to not separate nonlease components from lease components. We plan to adopt the new guidance following the modified retrospective application approach. We do not expect this standardASU to have a significant impact on our consolidated ~~results of operations or consolidated statements of cash flows.~~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, we purchased 504,004 shares of stock under our authorized share repurchase program, at a total cost of $14.9 million.~~consolidated financial statements.


2.	~~Acquisition~~

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, funded through our committed revolving credit facility. 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.


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				Nine Months Ended
In thousands	November 30, 2019		December 1, 2018		November 30, 2019		December 1, 2018
Recognized at shipment	$	153,093	$	158,164	$	472,695	$	481,565
Recognized over time	184,823		199,554		577,645		574,817
Total	$	337,916	$	357,718	$	1,050,340	$	1,056,382

Three Months Ended Nine Months Ended
In thousands December 1, 2018 December 1, 2018
Recognized at shipment $ 158,164
$ 481,565
Recognized over time 199,554
574,817
Total $ 357,718
$ 1,056,382

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	November 30, 2019			March 2, 2019
Trade accounts	$	141,448		$	145,693
Construction contracts	23,096			19,050
Contract retainage	35,287			32,396
Total receivables	199,831			197,139
Less: allowance for doubtful accounts	(1,855		)	(4,372		)
Net receivables	$	197,976		$	192,767

~~Table of Contents~~

In thousands December 1, 2018 March 3, 2018
Trade accounts $ 155,651
$ 157,562
Construction contracts 14,229
26,545
Construction contracts - retainage 33,176
26,388
Other receivables —
2,887
Total receivables 203,056
213,382
Less: allowance for doubtful accounts (1,558 ) (1,530 )
Net receivables $ 201,498
$ 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	November 30, 2019		March 2, 2019
Contract assets	$	107,571	$	87,491
Contract liabilities	28,863		24,083

In thousands December 1, 2018 March 3, 2018
Contract assets $ 93,316
$ 30,508
Contract liabilities 30,447
20,120

The increase in contract assets was due to ~~additional businesses recognizing revenue in advance of billings, as a result of changing accounting policies for revenue recognition upon adoption of ASC 606 and the~~ timing of costs incurred in advance of ~~billing~~billings, primarily on a ~~large~~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 nine 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 third quarter of fiscal 2019, we did not recognize any revenue related to contract liabilities at March 4, 2018, and recognized 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				Nine Months Ended
In thousands	November 30, 2019		December 1, 2018		November 30, 2019		December 1, 2018
Revenue recognized related to contract liabilities from prior year-end	$	4,589	$	—	$	22,044	$	10,398
Revenue recognized related to prior satisfaction of performance obligations	1,776		1,470		5,298		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 ~~December 1, 2018,~~November 30, 2019, the transaction price associated with unsatisfied performance obligations was approximately ~~$706.3~~$896.7 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:



In thousands	November 30, 2019
Within one year	$	480,803
Within two years	344,827
Beyond	71,044
Total	$	896,674

In thousands December 1, 2018
Within one year $ 421,778
Within two years 236,037
Beyond 48,493
Total $ 706,308


3.	Supplemental Balance Sheet Information

Inventories



In thousands	November 30, 2019		March 2, 2019
Raw materials	$	39,746	$	43,890
Work-in-process	19,255		15,533
Finished goods	16,790		18,921
Total inventories	$	75,791	$	78,344

Other current assets



In thousands	November 30, 2019		March 2, 2019
Prepaid assets	$	11,662	$	11,682
Insurance receivable	15,000		—
Refundable income taxes	4,278		—
Other	9,395		4,769
Total other current assets	$	40,335	$	16,451

Other current liabilities



In thousands	November 30, 2019		March 2, 2019
Warranties	$	10,601	$	12,475
Accrued project losses	47,562		37,085
Property and other taxes	7,156		8,026
Accrued self-insurance reserves	9,297		9,537
Other	33,865		25,573
Total other current liabilities	$	108,481	$	92,696

Other non-current liabilities



In thousands	November 30, 2019		March 2, 2019
Deferred benefit from New Market Tax Credit transactions	$	15,717	$	26,458
Retirement plan obligations	7,633		7,633
Deferred compensation plan	11,743		10,408
Other	30,552		32,683
Total other non-current liabilities	$	65,645	$	77,182


4.	~~Supplemental Balance Sheet Information~~

~~Inventories~~

In thousands December 1, 2018 March 3, 2018
Raw materials $ 43,821
$ 35,049
Work-in-process 16,426
17,406
Finished goods 19,600
28,453
Total inventories $ 79,847
$ 80,908

~~Table of Contents~~

~~Other current liabilities~~

In thousands December 1, 2018 March 3, 2018
Warranties $ 12,796
$ 18,110
Acquired contract liabilities 15,541
26,422
Deferred revenue 4,080
7,659
Other 26,813
27,505
Total other current liabilities $ 59,230
$ 79,696

~~Other non-current liabilities~~

In thousands December 1, 2018 March 3, 2018
Deferred benefit from New Market Tax Credit transactions $ 26,458
$ 16,708
Retirement plan obligations 8,997
8,997
Deferred compensation plan 10,996
10,730
Other 38,954
34,211
Total other non-current liabilities $ 85,405
$ 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
November 30, 2019	$	11,750	$	152	$	18	$	11,884
March 2, 2019	12,481		59		108		12,432

In thousands Amortized Cost Gross Unrealized Gains Gross Unrealized Losses
Estimated
Fair Value
December 1, 2018 12,534
4
(249 ) 12,289
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 ~~December 1, 2018~~November 30, 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	$	835	$	837
Due after one year through five years	8,581		8,710
Due after five years through 10 years	2,259		2,262
Due after 10 years through 15 years	—		—
Due beyond 15 years	75		75
Total	$	11,750	$	11,884

In thousands Amortized Cost Estimated Fair Value
Due within one year $ 447
$ 441
Due after one year through five years 8,781
8,598
Due after five years through 10 years 2,541
2,493
Due after 10 years through 15 years —
—
Due beyond 15 years 765
757
Total $ 12,534
$ 12,289

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 November 30, 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 November 30, 2019, we held foreign exchange

forward contracts with a U.S. dollar notional value of $24.7 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.



In thousands	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Total Fair Value
November 30, 2019
Assets:
Money market funds	$	2,680	$	—	$	2,680
Commercial paper	—		500		500
Municipal and corporate bonds	—		12,384		12,384
Liabilities:
Foreign currency forward/option contract	—		69		69
Interest rate swap contract	—		16		16

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

~~Table of Contents~~

In thousands
Quoted Prices in
Active Markets
(Level 1)
Other Observable Inputs (Level 2) Total Fair Value
December 1, 2018
Cash equivalents
Money market funds $ 2,145
$ —
$ 2,145
Commercial paper —
400
400
Total cash equivalents 2,145
400
2,545
Short-term securities
Municipal and corporate bonds —
442
442
Long-term securities
Municipal and corporate bonds —
11,847
11,847
Total assets at fair value $ 2,145
$ 12,689
$ 14,834
March 3, 2018
Cash equivalents
Money market funds $ 2,901
$ —
$ 2,901
Commercial paper —
400
400
Total cash equivalents 2,901
400
3,301
Short-term securities
Municipal and corporate bonds —
423
423
Long-term securities
Municipal and corporate bonds —
8,630
8,630
Total assets at fair value $ 2,901
$ 9,453
$ 12,354

~~Cash equivalents~~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 December 1, 2018, we held foreign exchange forward contracts with a U.S. dollar notional value of $16.0 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 $0.4 million as of December 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.

~~Table of Contents~~


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	47			(103		)	—		—		(56		)
Balance at November 30, 2019	$	148,493		$	25,606		$	1,120	$	10,557	$	185,776

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 (1,110 ) (325 ) —
—
(1,435 )
Balance at December 1, 2018 $ 148,465
$ 25,646
$ 1,120
$ 10,557
$ 185,788

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
December 1, 2018
November 30, 2019
Definite-lived intangible assets:
Customer relationships	$	122,816	$	(24,937	)	$	(2,609	)	$	95,270	$	120,238	$	(31,566	)	$	—		$	(20	)	$	88,652
Other intangibles	41,697		(31,033		)	(899		)	9,765		41,033		(32,274		)	—			(74		)	8,685
Total definite-lived intangible assets	164,513		(55,970		)	(3,508		)	105,035		161,271		(63,840		)	—			(94		)	97,337
Indefinite-lived intangible assets:
Trademarks	49,077		—			(507		)	48,570		45,421		—			—			21			45,442
Total intangible assets	$	213,590	$	(55,970	)	$	(4,015	)	$	153,605	$	206,692	$	(63,840	)	$	—		$	(73	)	$	142,779
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 ~~$10.5~~$5.7 million and ~~$12.8~~$10.5 million for the nine-month periods ended November 30, 2019 and December 1, 2018 ~~and~~ ~~December 2, 2017. The amortization~~, respectively. Amortization expense ~~associated with debt issue costs~~of other identifiable intangible assets is included ~~in interest expense while the remainder is~~ in selling, general and administrative ~~expenses in the consolidated results of operations.~~expenses. At ~~December 1, 2018~~November 30, 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	$	1,982	$	7,921	$	7,915	$	7,750	$	7,563

In thousands Remainder of Fiscal 2019 Fiscal 2020 Fiscal 2021 Fiscal 2022 Fiscal 2023
Estimated amortization expense $ 2,266
$ 8,091
$ 8,084
$ 7,928
$ 7,539


7.6.	Debt

~~We maintain a committed revolving~~As of November 30, 2019, our total debt outstanding was $251.3 million, compared to $245.8 million as of March 2, 2019. During the second quarter of fiscal 2020, we amended the borrowing capacity of our prior credit facility to $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 ~~$211.5 million, as of~~ ~~December 1, 2018, and $195.0~~$80.5 million, as of November 30, 2019, and $225.0 million, as of March ~~3, 2018. Under this~~2, 2019.

Our revolving credit facility ~~we are subject to~~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 ~~December 1, 2018,~~November 30, 2019, we were in compliance with both financial covenants. Additionally, at ~~December 1, 2018,~~November 30, 2019, we had a total of ~~$25.1~~$24.7 million of ongoing letters of credit related to industrial revenue bonds,

construction contracts and ~~construction contracts~~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.

~~Table of Contents~~

At ~~December 1, 2018, our~~November 30, 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 ~~December 1, 2018,~~November 30, 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 demand credit facilities totaling $~~12.0~~$12.0 million Canadian dollars. As of ~~December 1, 2018, $0.4 million was outstanding under these facilities,~~November 30, 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 $~~7.2~~7.3 million and ~~$3.6~~$7.2 million for the nine months ended November 30, 2019 and December 1, 2018, respectively.

7. Leases

We lease certain of the buildings and ~~December~~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		Nine Months Ended
In thousands	November 30, 2019		November 30, 2019
Operating lease cost	$	3,445	$	10,308
Short-term lease cost	427		1,606
Variable lease cost	843		2,223
Total lease cost	$	4,715	$	14,137

Other supplemental information related to leases was as follows:



	Nine Months Ended
In thousands except weighted-average data	November 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	10,335
Lease assets obtained in exchange for new operating lease liabilities	$	15,948
Weighted-average remaining lease term - operating leases	5.9 years
Weighted-average discount rate - operating leases	3.57		%

Future maturities of lease liabilities are as follows:



In thousands	November 30, 2019
Remainder of Fiscal 2020	$	3,366
Fiscal 2021	12,880
Fiscal 2022	11,256
Fiscal 2023	10,307
Fiscal 2024	8,147
Fiscal 2025	6,290
Thereafter	12,357
Total lease payments	64,603
Less: Amounts representing interest	(6,695		)
Present value of lease liabilities	$	57,908

As of November 30, 2019, we have no additional future operating lease commitments for leases that have not yet commenced.

Aggregate annual future rental commitments under operating leases with noncancellable terms of more than one year at March 2, ~~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~~ ~~December 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 $ 3,890
$ 14,759
$ 11,522
$ 9,353
$ 8,459
$ 23,308
$ 71,291

Bond commitments ~~and installation project contingencies~~

In the ordinary course of business, predominantly in our Architectural Services and Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At ~~December 1, 2018, $224.0~~November 30, 2019, $833.9 million of ~~our backlog was bonded by~~ these types of bonds ~~with a face value~~were outstanding, of ~~$478.8 million.~~which $432.6 million is on our backlog. 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~~never been required to make ~~any~~ payments under ~~these~~surety or performance bonds with respect to our existing businesses.

~~Additionally, we also are subject to project management~~Warranty and ~~installation-related~~project-related contingencies as a result of our fixed-price material supply and installation service contracts, primarily in our Architectural Services segment and certain of our Architectural Framing Systems businesses, including those taken on with our acquisition of EFCO. We actively manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages.

~~Warranties~~

We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims as a ratio of sales. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product mix and any significant changes in sales volume. A warranty rollforward follows:



	Nine Months Ended
In thousands	November 30, 2019			December 1, 2018
Balance at beginning of period	$	16,737		$	22,517
Additional accruals	5,996			3,437
Claims paid	(7,807		)	(8,398		)
Balance at end of period	$	14,926		$	17,556

Nine Months Ended
In thousands December 1, 2018 December 2, 2017
Balance at beginning of period $ 22,517
$ 21,933
Additional accruals 3,437
3,443
Claims paid (8,398 ) (8,254 )
Acquired reserves —
5,571
Balance at end of period $ 17,556
$ 22,693

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 a legacy EFCO project of $47.6 million and $42.8 million as of November 30, 2019 and March 2, 2019, respectively. This includes approximately $14.7 million recorded in the third quarter for estimated costs associated with project dispute resolution and other additional project costs. In the third quarter, upon confirmation of coverage by an insurer, we also recorded an insurance receivable of $15.0 million, included within other current assets on the consolidated balance sheets and within cost of sales on the consolidated results of operations. We received this payment subsequent to quarter-end.

Letters of credit

At ~~December 1, 2018,~~November 30, 2019, we had ~~$25.1~~$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.

~~Table of Contents~~

Purchase obligations

Purchase obligations for raw material commitments and capital expenditures totaled ~~$163.2~~$146.0 million as of ~~December 1, 2018.~~November 30, 2019.

New Markets Tax Credit (NMTC) transactions

In September 2018, we entered into a transaction with SunTrust Community Capital (STCC) under a qualified New Markets Tax Credit (NMTC) program related to an investment in plant and equipment within our Architectural Framing Systems segment. STCC contributed $3.2 million to this project, which is included in other non-current liabilities on our consolidated balance sheets. We have completed two NMTC transactions this fiscal year. Under the terms of these arrangements, we are required to hold cash dedicated to fund the related capital projects which is classified as restricted cash on our consolidated balance sheets.

~~Since fiscal 2014, we~~ have entered into four separate NMTC programs to support our operational ~~expansion.~~expansion, including two transactions completed in fiscal 2019. Proceeds received from investors on these transactions are included within other current and non-current liabilities on our consolidated balance sheets. The NMTC arrangements are subject to 100 percent tax ~~credit~~ recapture for a period of seven years from the date of each respective transaction. Therefore, upon the termination of each arrangement, ~~at the end of the seven-year period,~~these proceeds ~~received from investors~~ will be recognized in earnings in exchange for the transfer of tax credits. ~~Direct~~The direct and incremental costs incurred in structuring these arrangements have been deferred and are included in other current and non-current assets on our consolidated balance sheets. These costs will be recognized in conjunction with the recognition of the related ~~profits.~~

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, ~~have been created as a result of the transaction structure,~~ which have been included within our consolidated financial statements, have been created as a result of the structure of these transactions, as investors in the ~~program~~programs do not have a material interest in ~~the~~their underlying ~~economics~~economics.

The table below provides a summary of ~~the respective projects.~~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

InOn November 5, 2018, a shareholder filed a purported securities class action ~~lawsuit was filed claiming~~against the 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 ~~and/~~or misleading statements ~~and failed to disclose material adverse facts~~or omissions about the ~~Company’s~~Company's acquisition of EFCO Corporation on June 12, 2017, and about the Company's Architectural Glass business ~~and operations during~~segment, in violation of the ~~period June 28,~~federal securities laws. We intend to vigorously defend this matter.

On December 17, 2018, ~~to September 17, 2018. In December 2018,~~a different shareholder filed a derivative lawsuit, ~~was filed~~purportedly on behalf of the Company, against certain of our executive officers and directors claiming ~~breach~~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 ~~against these matters. Due to the preliminary nature of these matters, we are unable to estimate any potential loss at~~ this ~~time.~~matter.

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 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 matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no 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.


9.	Share-Based Compensation

Total share-based compensation expense included in the results of operations was ~~$4.7~~$4.6 million for the nine-month period ended ~~December 1, 2018~~November 30, 2019 and ~~$4.6~~$4.7 million for the nine-month period ended December ~~2, 2017~~1, 2018.

Stock options and SARs

Stock option and SAR activity for the current nine-month period is summarized as follows:

Stock options and SARs Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value
Outstanding at March 3, 2018 129,901
$ 11.10

Awards exercised (29,560 ) 20.43

Outstanding and exercisable at December 1, 2018 100,341
8.34
2.8 years $ 2,820,586

~~Cash~~



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 November 30, 2019	100,341	8.34		1.8 years	$	3,000,196

No awards were exercised for the nine-months ended November 30, 2019. For the nine-months ended December 1, 2018, cash proceeds from the exercise of stock options were ~~$0.2~~$0.2 million and ~~$0.8 million~~ ~~for~~ the~~nine~~ ~~months ended~~ ~~December 1, 2018~~ ~~and~~ ~~December 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~~ ~~nine~~ ~~months ended~~ ~~December 1, 2018~~ ~~and~~ ~~$4.8 million~~ ~~during the prior-year period.~~$0.6 million.

~~Table of Contents~~

Nonvested shares and share units

Nonvested share activity for the current nine-month period is summarized as follows:


Nonvested shares and units	Number of Shares and Units		Weighted Average Grant Date Fair Value		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	152,487		43.50		125,571		39.53
Vested	(116,266	)	46.57		(128,333	)	49.00
Canceled	(17,942	)	48.65		(3,000	)	43.08
Nonvested at December 1, 2018	284,459		47.24
Nonvested at November 30, 2019					280,851		42.78

At ~~December 1, 2018~~November 30, 2019, there was $~~7.9~~6.9 million of total unrecognized compensation cost related to nonvested share and nonvested share unit awards, which is expected to be recognized over a weighted average period of approximately 20 months. The total fair value of shares vested during the nine months ended ~~December 1, 2018~~November 30, 2019 was ~~$4.9~~$5.1 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						Nine Months Ended
In thousands	November 30, 2019			December 1, 2018			November 30, 2019			December 1, 2018
Interest cost	$	123		$	127		$	369		$	381
Expected return on assets	(46		)	(10		)	(138		)	(30		)
Amortization of unrecognized net loss	55			57			165			171
Net periodic benefit cost	$	132		$	174		$	396		$	522

Three Months Ended Nine Months Ended
In thousands December 1, 2018 December 2, 2017 December 1,
2018 December 2,
2017
Interest cost $ 127
$ 133
$ 381
$ 399
Expected return on assets (10 ) (10 ) (30 ) (30 )
Amortization of unrecognized net loss 57
57
171
171
Net periodic benefit cost $ 174
$ 180
$ 522
$ 540


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 ~~2016,~~2017, or state and local income tax examinations for years prior to fiscal ~~2012.~~2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal year ~~2015,~~2016, 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 was approximately ~~$5.3~~$5.2 million at ~~December 1, 2018~~November 30, 2019 and $5.1 million at March ~~3, 2018.~~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~~$0.4 million during the next 12 months due to lapsing of statutes.


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		Nine Months Ended
In thousands	November 30, 2019	December 1, 2018	November 30, 2019	December 1, 2018
Basic earnings per share – weighted average common shares outstanding	26,432	27,836	26,481	28,030
Weighted average effect of nonvested share grants and assumed exercise of stock options	318	320	295	274
Diluted earnings per share – weighted average common shares and potential common shares outstanding	26,750	28,156	26,776	28,304
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)	152	170	152	92

Three Months Ended Nine Months Ended
In thousands December 1, 2018 December 2, 2017 December 1,
2018 December 2,
2017
Basic earnings per share – weighted average common shares outstanding 27,836
28,736
28,030
28,812
Weighted average effect of nonvested share grants and assumed exercise of stock options 320
82
274
50
Diluted earnings per share – weighted average common shares and potential common shares outstanding 28,156
28,818
28,304
28,862
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)

170
—
92
—

~~Table of Contents~~


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						Nine Months Ended
In thousands	November 30, 2019			December 1, 2018			November 30, 2019			December 1, 2018
Net sales from operations
Architectural Framing Systems	$	165,517		$	181,306		$	533,432		$	550,193
Architectural Glass	89,433			98,524			288,862			263,533
Architectural Services	69,043			72,828			195,787			220,051
Large-Scale Optical	24,405			23,377			66,449			64,522
Intersegment eliminations	(10,482		)	(18,317		)	(34,190		)	(41,917		)
Net sales	$	337,916		$	357,718		$	1,050,340		$	1,056,382
Operating income (loss) from operations
Architectural Framing Systems	$	6,345		$	12,903		$	34,141		$	43,554
Architectural Glass	4,092			5,851			16,951			9,168
Architectural Services	6,533			8,659			15,082			21,435
Large-Scale Optical	6,754			6,628			15,561			15,845
Corporate and other	(2,130		)	(2,633		)	(9,525		)	(7,940		)
Operating income	$	21,594		$	31,408		$	72,210		$	82,062

Three Months Ended Nine Months Ended
In thousands December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Net sales from operations
Architectural Framing Systems $ 181,306
$ 194,157
$ 550,193
$ 493,672
Architectural Glass 98,524
96,940
263,533
292,026
Architectural Services 72,828
49,077
220,051
146,056
Large-Scale Optical 23,377
26,003
64,522
64,897
Intersegment eliminations (18,317 ) (9,671 ) (41,917 ) (23,930 )
Net sales $ 357,718
$ 356,506
$ 1,056,382
$ 972,721
Operating income (loss) from operations
Architectural Framing Systems $ 12,903
$ 18,452
$ 43,554
$ 46,958
Architectural Glass 5,851
9,107
9,168
28,687
Architectural Services 8,659
2,547
21,435
4,102
Large-Scale Optical 6,628
6,724
15,845
15,022
Corporate and other (2,633 ) (2,295 ) (7,940 ) (8,354 )
Operating income $ 31,408
$ 34,535
$ 82,062
$ 86,415

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.

~~Table of Contents~~

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 Third Quarter and First Nine Months of Fiscal ~~2019~~2020 Compared to Third Quarter and First Nine Months of Fiscal ~~2018~~2019

Net sales

Consolidated net sales ~~increased 0.3~~decreased 5.5 percent, or ~~$1.2~~$19.8 million, for the third quarter ended ~~December 1, 2018,~~November 30, 2019, and ~~8.6~~decreased 0.6 percent, or ~~$83.7~~$6.0 million, for the nine-month period, compared to the same periods in the prior year. In the ~~three-month period,~~quarter, the decrease in sales ~~growth~~ was driven by three of our four segments, primarily a result of lower volumes in the Architectural Framing Systems segment, due to customer-driven schedule delays, and in the Architectural Glass segment, resulting from increased foreign competition. The Architectural Services segment also contributed to the decline in sales, as a result of timing of project activity, as expected. For the nine-month period, the decrease in sales was driven by expected project timing-related declines within the Architectural Services segment ~~largely offset~~and by ~~volume-related declines in~~lower volumes as a result of customer-driven schedule delays within the Architectural Framing ~~and Large Scale Optical segments. In the nine-month period, the increase in sales was primarily driven by the Architectural Services segment, as well as growth from our Architectural Framing~~Systems segment, partially offset by ~~lower sales~~improved volume in the Architectural ~~Glass.~~Glass segment.

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	December 1, 2018		December 2, 2017		December 1, 2018		December 2, 2017		November 30, 2019		December 1, 2018		November 30, 2019		December 1, 2018
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	76.5		74.3		76.4		74.5		78.0		76.5		77.0		76.4
Gross profit	23.5		25.7		23.6		25.5		22.0		23.5		23.0		23.6
Selling, general and administrative expenses	14.7		16.0		15.8		16.6		15.6		14.7		16.1		15.8
Operating income	8.8		9.7		7.8		8.9		6.4		8.8		6.9		7.8
Interest and other (expense) income, net	(0.8	)	(0.3	)	(0.6	)	(0.3	)
Interest and other expense, net									0.5		0.8		0.6		0.6
Earnings before income taxes	8.0		9.4		7.2		8.6		5.9		8.0		6.3		7.2
Income tax expense	1.9		2.7		1.7		2.7		1.4		1.9		1.5		1.7
Net earnings	6.1	%	6.6	%	5.5	%	5.9	%	4.5	%	6.1	%	4.8	%	5.5	%
Effective tax rate	23.5	%	29.1	%	23.8	%	31.7	%	23.2	%	23.5	%	23.9	%	23.8	%

Gross profit

Gross profit as a percent of sales was 22.0 percent and 23.0 percent for the three- and nine-month periods ended November 30, 2019, respectively, compared to 23.5 percent and 23.6 percent for the three- and nine-month periods ~~respectively,~~ ended December 1, 2018, ~~compared to 25.7 percent~~respectively. The decrease in the current quarter was largely driven by higher manufacturing costs and ~~25.5 percent for each~~operational difficulties that we are addressing in some of the three- and nine-month periods ended December 2, 2017. Gross profit as a percent of sales declined from the prior-year periods primarily due to higher operating costs in the Architectural Glass segment and negative leverage on reduced volumesbusinesses in the Architectural Framing Systems segment, ~~somewhat offset by volume~~as well as reduced operating leverage ~~and good project performance~~on lower volumes in the Architectural Services segment. In the nine-month period, gross profit improvements in Architectural Glass were offset by the operational difficulties in the Architectural Framing Systems segment, as well as reduced operating leverage in the Architectural Services segment. Additionally, in the current fiscal year, start-up costs related to the new manufacturing facility for the small projects initiative within the Architectural Glass segment negatively impacted margin by 40 basis points in the quarter and 20 basis points in the year-to-date period.

Selling, general and administrative (SG&A) expenses

SG&A expenses as a percent of sales ~~declined to 14.7~~were 15.6 percent and ~~15.8~~16.1 percent for the three- and nine-month periods ~~respectively,~~ ended ~~December 1, 2018,~~November 30, 2019, respectively, compared to ~~16.0~~14.7 percent and ~~16.6~~15.8 percent in the prior year three- and nine-month periods, ~~respectively, last year. The decline~~respectively. In both current year periods, SG&A increased as a percent of sales compared to the same period in ~~both periods was~~the prior year, primarily due to ~~reduced amortization on short-lived intangibles~~costs for outside advisors and ~~a gain on~~legal fees, some of which were offset by net recoveries related to acquired project matters. These matters are included within the ~~sale of a property. In the year-to-date period, SG&A expense as a percent of sales also decreased due to the acquisition-related costs incurred in the prior year.~~Corporate and other category within Note 13, Segment Information.

Income tax expense

The effective tax rate in the third quarter of fiscal ~~2019~~2020 was ~~23.5~~23.2 percent, compared to ~~29.1~~23.5 percent in the same period last year, and ~~23.8~~23.9 percent for the first nine months of fiscal ~~2019,~~2020, compared to ~~31.7~~23.8 percent in the prior-year period. The ~~reduction~~small changes in ~~the effective~~ tax rate ~~in both periods was primarily~~were driven by the ~~provisions~~mix of foreign income and the ~~Tax Cuts and Jobs Act, enacted in December 2017.~~

~~Table~~impact of ~~Contents~~

~~Segment Analysis~~

~~Architectural Framing Systems~~

Three Months Ended Nine Months Ended
In thousands December 1, 2018 December 2, 2017
%
Change
December 1, 2018 December 2, 2017
%
Change
Net sales $ 181,306
$ 194,157
(6.6 )% $ 550,193
$ 493,672
11.4 %
Operating income 12,903
18,452
(30.1 )% 43,554
46,958
(7.2 )%
Operating margin 7.1 % 9.5 % 7.9 % 9.5 %

~~Architectural Framing Systems net sales decreased $12.9 million, or 6.6 percent,~~state taxes for the three-month period ended December 1, 2018, and increased $56.5 million, or 11.4 percent, for the nine-month period this year, compared to the respective prior year periods. The sales decline in the current-year third quarter was primarily due to lower volumes reflecting project timing delays in some of the segment's end markets. For the nine-month period, the sales increase was primarily due to the addition of EFCO (acquired in June 2017) for the full period.

~~Operating margin decreased 240 and 160 basis points, respectively, for~~both the three- and nine-month periods of the current year, compared to the same periods inof the prior year. For the three-month period, the operating margin decline compared to the prior year was primarily driven by negative operating leverage on reduced volume. For the nine-month period, the decline in operating margin was driven by the inclusion in the current year of a full period of EFCO at lower operating margins, partially offset by operating improvements in our businesses existing prior to our acquisitions of Sotawall (in December 2016) and EFCO.

~~As of December 1, 2018, segment backlog was approximately $392 million, compared to approximately $406 million last quarter.~~

Segment Analysis

Architectural ~~Glass~~Framing Systems


	Three Months Ended								Nine Months Ended								Three Months Ended								Nine Months Ended
In thousands	December 1, 2018			December 2, 2017			% Change		December 1, 2018			December 2, 2017			% Change		November 30, 2019			December 1, 2018			% Change		November 30, 2019			December 1, 2018			% Change
Net sales	$	98,524		$	96,940		1.6	%	$	263,533		$	292,026		(9.8	)%	$	165,517		$	181,306		(8.7	)%	$	533,432		$	550,193		(3.0	)%
Operating income	5,851			9,107			(35.8	)%	9,168			28,687			(68.0	)%	6,345			12,903			(50.8	)%	34,141			43,554			(21.6	)%
Operating margin	5.9		%	9.4		%			3.5		%	9.8		%			3.8		%	7.1		%			6.4		%	7.9		%

~~Net~~Architectural Framing Systems net sales ~~increased $1.6~~declined $15.8 million, or ~~1.6~~8.7 percent, and ~~declined $28.5~~$16.8 million, or ~~9.8~~3.0 percent, for the three- and nine-month periods ended November 30, 2019, respectively, compared to the prior-year periods. In both periods, the declines are due to lower volumes as a result of customer-driven schedule delays and operational difficulties.

Operating margin decreased 330 and 150 basis points for the three- and nine-month periods of the current year, respectively, compared to the same periods in the prior year, reflecting the lower volumes due to customer-driven schedule delays, as well as higher manufacturing costs and operational difficulties in two of the segment's businesses, which have been identified and are being addressed. Last year's third quarter and year-to-date periods also included $0.7 million and $4.7 million, respectively, of expense for the amortization of short-lived acquired intangible assets.

As of November 30, 2019, segment backlog was approximately $375 million, compared to approximately $385 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. 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								Nine Months Ended
In thousands	November 30, 2019			December 1, 2018			% Change		November 30, 2019			December 1, 2018			% Change
Net sales	$	89,433		$	98,524		(9.2	)%	$	288,862		$	263,533		9.6	%
Operating income	4,092			5,851			(30.1	)%	16,951			9,168			84.9	%
Operating margin	4.6		%	5.9		%			5.9		%	3.5		%

Net sales decreased $9.1 million, or 9.2 percent, and increased $25.3 million, or 9.6 percent, for the three- and nine-month periods ended ~~December 1, 2018,~~November 30, 2019, respectively, compared to the same periods in the prior year. The ~~decline~~decrease in the ~~year-to-date period was~~third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 is primarily due to lower volumes as a result of ~~changes~~increased foreign competition leveraging the strength of the U.S. dollar. For the nine-month period, the increase in sales compared to the same period last year is due to improved volume and mix on strong customer demand in the ~~timing~~first half of ~~customer orders~~our current fiscal year.

Operating margin decreased 130 basis points for the three-month period of the current year and increased 240 basis points for the nine-month period of the current year, respectively, compared to the same periods in the prior year. The decrease in the current quarter was due to start-up costs related to the new small projects initiative, as well as ~~volume declines stemming from operational challenges within the segment (described~~decreased volumes, somewhat offset by improved factory productivity. The margin increase in the ~~next paragraph).~~

~~Operating~~nine-month of the current year period relates to operating leverage on higher volume and improved price and mix. Start-up costs related to the small projects initiative had a negative impact on margin ~~declined 350 and 630~~of approximately 160 basis points ~~respectively,~~and 100 basis points for the three- and nine-month periods of the current year, compared to the same periods in the prior year, primarily driven by significantly increased labor costs, continued lower productivity and higher cost of quality, as the segment has been challenged to efficiently ramp-up production in a tight labor market to meet higher than expected order intake and customer demand. In the third quarter of fiscal 2019, we made progress toward overcoming these operational challenges, resulting in operating margin improvement compared to the prior quarter and we expect these improvements to continue into early fiscal 2020.respectively.

Architectural Services


	Three Months Ended								Nine Months Ended								Three Months Ended								Nine Months Ended
In thousands	December 1, 2018			December 2, 2017			% Change		December 1, 2018			December 2, 2017			% Change		November 30, 2019			December 1, 2018			% Change		November 30, 2019			December 1, 2018			% Change
Net sales	$	72,828		$	49,077		48.4	%	$	220,051		$	146,056		50.7	%	$	69,043		$	72,828		(5.2	)%	$	195,787		$	220,051		(11.0	)%
Operating income	8,659			2,547			240.0	%	21,435			4,102			422.5	%	6,533			8,659			(24.6	)%	15,082			21,435			(29.6	)%
Operating margin	11.9		%	5.2		%			9.7		%	2.8		%			9.5		%	11.9		%			7.7		%	9.7		%

As expected, Architectural Services net sales ~~increased $23.8~~declined $3.8 million, or ~~48.4~~5.2 percent, and ~~$74.0~~$24.3 million, or ~~50.7~~11.0 percent, for the three- and ~~nine- month~~nine-month periods ~~respectively,~~ ended ~~December 1, 2018,~~November 30, 2019, over the same periods in the prior year ~~as the business continued~~on lower volume due to ~~experience strong execution on projects.~~

~~Table~~timing of ~~Contents~~

project activity.

Operating margin ~~increased 670~~decreased 240 and ~~690~~200 basis points ~~respectively,~~ for the three- and nine-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 ~~December 1, 2018,~~November 30, 2019, segment backlog was approximately ~~$419~~$607 million, compared to approximately ~~$405~~$502 million last quarter. Backlog is defined within the Architectural Framing Systems discussion above.

Large-Scale Optical (LSO)


	Three Months Ended								Nine Months Ended								Three Months Ended								Nine Months Ended
In thousands	December 1, 2018			December 2, 2017			% Change		December 1, 2018			December 2, 2017			% Change		November 30, 2019			December 1, 2018			% Change		November 30, 2019			December 1, 2018			% Change
Net sales	$	23,377		$	26,003		(10.1	)%	$	64,522		$	64,897		(0.6	)%	$	24,405		$	23,377		4.4	%	$	66,449		$	64,522		3.0	%
Operating income	6,628			6,724			(1.4	)%	15,845			15,022			5.5	%	6,754			6,628			1.9	%	15,561			15,845			(1.8	)%
Operating margin	28.4		%	25.9		%			24.6		%	23.1		%			27.7		%	28.4		%			23.4		%	24.6		%

LSO net sales ~~decreased $2.6 million, or 10.1~~increased 4.4 percent and ~~$0.4 million, or 0.6~~3.0 percent for the three- and nine-month periods ended ~~December 1, 2018,~~November 30, 2019, over the same periods in the prior ~~year.~~

year due to improved sales mix. Operating margin ~~increased 250~~decreased 70 and 120 basis points for the ~~three months~~three- and nine-month periods ended ~~December 1, 2018, compared to the third quarter of last year and increased 150 basis points for the nine-month period of the current year~~November 30, 2019, compared to the same ~~period~~periods in the prior year, driven by ~~good operational performance and an insurance recovery.~~reduced operating leverage.

Liquidity and Capital Resources


Selected cash flow data	Nine Months Ended						Nine Months Ended
In thousands	December 1, 2018			December 2, 2017			November 30, 2019			December 1, 2018
Operating Activities
Net cash provided by operating activities	$	70,644		$	66,239		$	53,601		$	70,644
Investing Activities
Capital expenditures	(33,867		)	(38,946		)	(41,176		)	(33,867		)
Acquisition of business, net of cash acquired	—			(184,826		)
Proceeds from sale of property, plant and equipment	12,332			253
Financing Activities
Proceeds from issuance of debt	294,500			314,700
Payments on debt	(278,000		)	(150,700		)
Borrowings on line of credit							108,000			294,500
Proceeds from issuance of term debt							150,000			—
Payments on line of credit							(252,500		)	(278,000		)
Repurchase and retirement of common stock	(23,313		)	(10,833		)	(20,010		)	(23,313		)
Dividends paid	(13,180		)	(11,971		)	(13,808		)	(13,180		)

Operating Activities. Cash provided by operating activities was ~~$70.6~~$53.6 million for the first nine months of fiscal ~~2019, increasing $4.4~~2020, a decrease of $17.0 million compared to the prior-year period, primarily due to ~~proceeds received on our two New Market Tax Credit transactions.~~reduced net earnings and increased working capital requirements related to a legacy EFCO project, as well as timing of other working capital needs.

Investing Activities. Net cash used in investing activities was ~~$26.9~~$41.4 million for the first nine months of fiscal ~~2019,~~2020, primarily due to capital expenditures ~~and net purchases~~ of ~~marketable securities, offset by proceeds received from the sale of property,~~$41.2 million, while in the first nine months of the prior year, net cash used by investing activities was ~~$223.4~~$26.9 million, ~~driven~~primarily due to capital expenditures of $33.9 million and net purchases of marketable securities of $3.2 million, offset by ~~the EFCO acquisition.~~$12.3 million of proceeds from sales of property, plant and equipment. We estimate fiscal ~~2019~~2020 capital expenditures to be approximately ~~$60~~$55 million, as we continue to make investments ~~in projects that will add capabilities, improve~~to drive growth and productivity ~~and expand capacity.~~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 $30.9 million for the first nine months of fiscal 2020, compared to $21.2 million for the prior-year period, primarily due to reduced net borrowings in the current year. At December 1, 2018, we had outstanding borrowings under our credit facility of $211.5 million and $25.1 million of ongoing letters of credit that reduce availability of funds under our $335.0 million committed credit facility. As defined within our amended committed revolving credit facility, we are required to comply with two financial covenants. These financial covenants require us to stay below a maximum leverage ratio and to maintain a minimum interest coverage ratio. At December 1, 2018,November 30, 2019, we were in compliance with ~~both~~the financial ~~covenants.~~covenants in our credit facility.

~~Table of Contents~~

We paid dividends totaling ~~$13.2~~$13.8 million ($~~0.4725~~0.525 per share) in the first nine months of fiscal ~~2019. As~~2020 compared to $13.2 million ($0.4725 per share) in the comparable prior-year period. In the first nine months of ~~December 1, 2018,~~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 nine months of fiscal 2019, we repurchased 600,000 shares under our authorized share repurchase program, for a total cost of $23.3 ~~million;~~million, all ~~such purchases were made in~~during the third quarter. ~~In the first nine months of fiscal 2018, we repurchased 200,000 shares under our authorized share repurchase program, for~~We have purchased a total ~~cost~~ of ~~$10.8 million. Subsequent to the end of the quarter, we purchased 504,004~~5,799,912 shares, ~~under the program,~~ at a total cost of ~~$14.9 million. Including these shares, we have purchased a total of 5,113,936 shares, at a cost of $144.1~~$169.3 million, since the fiscal 2004 inception of this program. We currently have remaining authority to repurchase an additional ~~2,136,064~~1,450,088 shares under this program.

Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of ~~December 1, 2018~~November 30, 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
Debt obligations	$	30	$	120	$	5,520	$	214,091	$	1,084	$	12,000	$	232,845	$	—	$	155,400	$	82,770	$	1,085	$	—	$	12,000	$	251,255
Operating leases (undiscounted)	3,890		14,759		11,522		9,353		8,459		23,308		71,291		3,366		12,880		11,256		10,307		8,147		18,647		64,603
Purchase obligations	54,913		99,393		7,625		1,231		—		—		163,162		59,463		84,960		1,306		127		127		—		145,983
Total cash obligations	$	58,833	$	114,272	$	24,667	$	224,675	$	9,543	$	35,308	$	467,298	$	62,829	$	253,240	$	95,332	$	11,519	$	8,274	$	30,647	$	461,841

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 ~~December 1, 2018~~,November 30, 2019, we had reserves of ~~$5.3~~$5.2 million and ~~$1.2~~$0.9 million for unrecognized tax benefits and environmental liabilities, respectively. We currently expect approximately ~~$0.6~~$0.4 million of the unrecognized tax benefits to lapse during the next 12 months. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits and environmental liabilities will ultimately be settled.

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 ~~December 1, 2018, $224.0~~November 30, 2019, $833.9 million of ~~our backlog was bonded by~~ these types of bonds ~~with a face value~~were outstanding, of ~~$478.8 million.~~which $432.6 million is on our backlog. 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~~never been required to make ~~any~~ payments under ~~these~~surety or performance 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.

~~Table of Contents~~

~~The following table reconciles net earnings to adjusted net earnings and earnings per diluted common share to adjusted earnings per diluted common share.~~

Three Months Ended Nine Months Ended
In thousands, except per share data December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Net earnings $ 21,891
$ 23,646
$ 57,778
$ 57,159
Amortization of short-lived acquired intangibles 717
2,924
4,655
7,608
Acquisition-related costs —
423
—
4,840
Income tax impact on above adjustments⁽¹⁾
(168 ) (974 ) (1,108 ) (4,120 )
Adjusted net earnings $ 22,440
$ 26,019
$ 61,325
$ 65,487

Earnings per diluted common share $ 0.78
$ 0.82
$ 2.04
$ 1.98
Amortization of short-lived acquired intangibles 0.03
0.10
0.16
0.26
Acquisition-related costs —
0.01
—
0.17
Income tax impact on above adjustments⁽¹⁾
(0.01 ) (0.03 ) (0.04 ) (0.14 )
Adjusted earnings per diluted common share $ 0.80
$ 0.90
$ 2.17
$ 2.27
⁽¹⁾ Income tax impact on adjustments was calculated using our effective income tax rates of 23.5% and 29.1% for the quarters ended December 1, 2018 and December 2, 2017, respectively, and 23.8% and 33.1% for the nine-month periods ended December 1, 2018 and December 2, 2017, respectively.

~~The following table reconciles earnings before interest, income taxes and depreciation and amortization, or EBITDA, to adjusted EBITDA.~~

Three Months Ended Nine Months Ended
In thousands December 1, 2018 December 2, 2017 December 1, 2018 December 2, 2017
Net earnings $ 21,891
$ 23,646
$ 57,778
$ 57,159
Income tax expense 6,730
9,704
18,030
26,517
Other expense (income), net 655
(303 ) 459
(560 )
Interest expense, net 2,132
1,488
5,795
3,299
Depreciation and amortization 11,921
14,712
38,378
39,774
EBITDA 43,329
49,247
120,440
126,189
Acquisition-related costs —
423
—
4,840
Adjusted EBITDA $ 43,329
$ 49,670
$ 120,440
$ 131,029

~~Table of Contents~~

~~The following table reconciles operating income (loss) to adjusted operating income (loss).~~

Framing Systems Segment Corporate Consolidated
In thousands Operating income Operating margin Operating income (loss) Operating income Operating margin
Three Months Ended December 1, 2018
Operating income (loss) $ 12,903
7.1 % $ (2,633 ) $ 31,408
8.8 %
Amortization of short-lived acquired intangibles 717
0.4
—
717
0.2
Acquisition-related costs —
—
—
—
—
Adjusted operating income (loss) $ 13,620
7.5 % $ (2,633 ) $ 32,125
9.0 %
Three Months Ended December 2, 2017
Operating income (loss) $ 18,452
9.5 % $ (2,295 ) $ 34,535
9.7 %
Amortization of short-lived acquired intangibles 2,924
1.5
—
2,924
0.8
Acquisition-related costs —
—
423
423
0.1
Adjusted operating income (loss) $ 21,376
11.0 % $ (1,872 ) $ 37,882
10.6 %

Nine Months Ended December 1, 2018
Operating income (loss) $ 43,554
7.9 % $ (7,940 ) $ 82,062
7.8 %
Amortization of short-lived acquired intangibles 4,655
0.8
—
4,655
0.4
Acquisition-related costs —
—
—
—
—
Adjusted operating income (loss) $ 48,209
8.8 % $ (7,940 ) $ 86,717
8.2 %
Nine Months Ended December 2, 2017
Operating income (loss) $ 46,958
9.5 % $ (8,354 ) $ 86,415
8.9 %
Amortization of short-lived acquired intangibles 7,608
1.5
—
7,608
0.8
Acquisition-related costs —
—
4,840
4,840
0.5
Adjusted operating income (loss) $ 54,566
11.1 % $ (3,514 ) $ 98,863
10.2 %

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 6~~flat to ~~7 percent.~~

~~Operating margin of approximately 8.4 percent.~~down 1 percent over fiscal 2019.

Earnings per diluted share in the range of ~~approximately $3.00.~~$2.15 to 2.30.


•	~~Adjusted operating margin of approximately 8.7 percent and adjusted earnings per diluted common share of approximately $3.13~~⁽¹⁾.

Capital expenditures of approximately ~~$60~~$55 million.

⁽¹⁾~~Adjusted operating margin~~Additionally, we are implementing an integration and ~~adjusted earnings per diluted share exclude~~cost reduction plan and are identifying procurement cost savings across the ~~impact of amortization of short-lived acquired intangible assets associated with the acquired backlog of Sotawall~~Company, which are expected to generate savings largely in fiscal 2021 and EFCO of $3.8 million (after tax, $0.13 per diluted common 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.beyond.

Related Party Transactions

In the third quarter of fiscal 2020, Sotawall's principal facility, that had been leased from a company owned by an officer of Sotawall, was sold to an unrelated third party. No ~~material~~other significant changes have occurred ~~in the disclosure~~ with respect to ~~our~~ related party transactions as 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.

~~Table of Contents~~


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.


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 ~~December 1, 2018~~November 30, 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 ~~generally~~ alleges that, ~~throughout~~during the purported class period of ~~June 28, 2018~~May 1, 2017 to ~~September 17, 2018,~~April 10, 2019, the Company and the named executive officers made materially false and/or misleading statements ~~and failed to disclose material adverse facts~~or omissions about the ~~Company’s business, operations,~~Company's acquisition of EFCO Corporation on June 12, 2017, and ~~prospects, particularly with respect to our~~about the Company's Architectural Glass business segment ~~and alleges that the defendants violated~~in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The amended complaint seeks an unspecified ~~sums~~amount of damages, ~~award of counsel~~attorney's fees and ~~costs, and equitable relief. As of the date of filing of this Report, this complaint has not been served on any named defendant. If and when the complaint is served on the Company, we~~costs. We intend to vigorously defend ~~against~~ 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, ~~arising from substantially similar allegations as those described above.~~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 ~~sum~~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 ~~against~~ this matter.

Other Matters

~~Table of Contents~~


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 third 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)
September 2, 2018 to September 30, 2018 4,327
$ 49.22
—
1,240,068
October 1, 2018 to October 28, 2018 —
—
500,000
2,740,068
October 29, 2018 to December 1, 2018 —
—
100,000
2,640,068
Total 4,327
$ 49.22
600,000
2,640,068



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)
September 1, 2019 to September 28, 2019	—	$	—	—	1,450,088
September 29, 2019 to October 26, 2019	1,162	37.65		—	1,450,088
October 27, 2019 to November 30, 2019	—	—		—	1,450,088
Total	1,162	$	37.65	—	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; by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016 and January 9, 2018; and by 2,000,000 shares, announced on October 3, 2018. The repurchase program does not have an expiration date.


Item 6.	Exhibits



~~31.1~~10.1	Cooperation Agreement, dated November 10, 2019, by and among Apogee Enterprises, Inc. and Engaged Group. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on November 12, 2019.
10.2	Engaged Capital Waiver, effective October 31, 2019, by and among Apogee Enterprises, Inc. and Engaged Group. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on October 31, 2019.
10.3	Engaged Capital Waiver, effective October 10, 2019, by and among Apogee Enterprises, Inc. and Engaged Group. Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed on October 11, 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 ~~December 1, 2018~~November 30, 2019 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of ~~December 1, 2018~~November 30, 2019 and March ~~3, 2018,~~2, 2019, (ii) the Consolidated Results of Operations for the three- and nine-months ended November 30, 2019 and December 1, 2018, ~~and December 2, 2017,~~ (iii) the Consolidated Statements of Comprehensive Earnings for the three- and nine-months ended November 30, 2019 and December 1, 2018, ~~and December 2, 2017,~~ (iv) the Consolidated Statements of Cash Flows for the ~~nine months~~nine-months ended November 30, 2019 and December 1, 2018, ~~and December 2, 2017,~~ (v) the Consolidated Statements of Shareholders' Equity for the ~~nine months~~three- and nine-months ended November 30, 2019 and December 1, 2018, ~~and December 2, 2017,~~ and (vi) Notes to Consolidated Financial Statements.
104	Cover Page, formatted as Inline Extensible Business Reporting Language and contained in Exhibit 101.

~~Table of Contents~~

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: January ~~10, 2019~~9, 2020	By: /s/ Joseph F. Puishys
		Joseph F. Puishys President and Chief Executive Officer (Principal Executive Officer)



Date: January ~~10, 2019~~9, 2020	By: /s/ James S. Porter
		James S. Porter Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

2826



		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	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2624

Item 4.	Controls and Procedures	2624

PART II	Other Information

Item 1.	Legal Proceedings	2624

Item 1A.	Risk Factors	2724

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2725

Item 6.	Exhibits	2725

Signatures		2826



	Three Months Ended December 1, 2018				Nine Months Ended December 1, 2018
In thousands	As reported		Without adoption of ASC 606		As reported		Without adoption of ASC 606
Net sales	$	357,718	$	355,765	$	1,056,382	$	1,042,600
Cost of sales	273,628		272,087		807,096		796,802
Gross profit	84,090		83,678		249,286		245,798
Selling, general and administrative expenses	52,682		52,692		167,224		166,560
Operating income	$	31,408	$	30,986	$	82,062	$	79,238

Income tax expense	$	6,730	$	6,627	$	18,030	$	17,355
Net earnings	$	21,891	$	21,572	$	57,778	$	55,628

					December 1, 2018
					As reported		Without adoption of ASC 606
Inventories					$	79,847	$	89,250
Costs and earnings on contracts in excess of billings					60,140		30,756
Billings on contracts in excess of costs and earnings					26,961		25,923
Other current liabilities					59,230		57,802
Retained earnings					400,289		398,139



	Framing Systems Segment				Corporate			Consolidated
In thousands	Operating income		Operating margin		Operating income (loss)			Operating income		Operating margin
Three Months Ended December 1, 2018
Operating income (loss)	$	12,903	7.1	%	$	(2,633	)	$	31,408	8.8	%
Amortization of short-lived acquired intangibles	717		0.4		—			717		0.2
Acquisition-related costs	—		—		—			—		—
Adjusted operating income (loss)	$	13,620	7.5	%	$	(2,633	)	$	32,125	9.0	%
Three Months Ended December 2, 2017
Operating income (loss)	$	18,452	9.5	%	$	(2,295	)	$	34,535	9.7	%
Amortization of short-lived acquired intangibles	2,924		1.5		—			2,924		0.8
Acquisition-related costs	—		—		423			423		0.1
Adjusted operating income (loss)	$	21,376	11.0	%	$	(1,872	)	$	37,882	10.6	%

Nine Months Ended December 1, 2018
Operating income (loss)	$	43,554	7.9	%	$	(7,940	)	$	82,062	7.8	%
Amortization of short-lived acquired intangibles	4,655		0.8		—			4,655		0.4
Acquisition-related costs	—		—		—			—		—
Adjusted operating income (loss)	$	48,209	8.8	%	$	(7,940	)	$	86,717	8.2	%
Nine Months Ended December 2, 2017
Operating income (loss)	$	46,958	9.5	%	$	(8,354	)	$	86,415	8.9	%
Amortization of short-lived acquired intangibles	7,608		1.5		—			7,608		0.8
Acquisition-related costs	—		—		4,840			4,840		0.5
Adjusted operating income (loss)	$	54,566	11.1	%	$	(3,514	)	$	98,863	10.2	%



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)	Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (b)
September 2, 2018 to September 30, 2018	4,327	$	49.22	—	1,240,068
October 1, 2018 to October 28, 2018	—	—		500,000	2,740,068
October 29, 2018 to December 1, 2018	—	—		100,000	2,640,068
Total	4,327	$	49.22	600,000	2,640,068