UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 1, 2018November 30, 2019
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 0-6365
_________________________________
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.) |
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4400 West 78th78th Street, – Suite 520 | Minneapolis MN | Minnesota | | 55435 |
(Address of principal executive offices) | | | | (Zip Code) |
Registrant’s telephone number, including area code: (952) (952) 835-1874
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:
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| | | | |
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.
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Large accelerated filer | | x | | Accelerated filer | | o |
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Non-accelerated filer | | o | | Smaller reporting company | | o☐ |
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Emerging growth company | | o☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | o☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes x No
As of January 9, 2019, 27,175,8007, 2020, 26,507,935 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
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PART I | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION
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Item 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
(unaudited)
| | In thousands, except stock data | | December 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 |
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Receivables, net of allowance for doubtful accounts | | 201,498 |
| | 211,852 |
| | 197,976 |
| | 192,767 |
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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 |
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Other current assets | | 16,247 |
| | 20,039 |
| | 40,335 |
| | 16,451 |
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Total current assets | | 372,775 |
| | 336,278 |
| | 396,916 |
| | 371,898 |
|
Property, plant and equipment, net | | 302,209 |
| | 304,063 |
| | 326,418 |
| | 315,823 |
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Restricted cash | | 26,354 |
| | — |
| |
Operating lease right-of-use assets | | | 56,315 |
| | — |
|
Goodwill | | 185,788 |
| | 180,956 |
| | 185,776 |
| | 185,832 |
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Intangible assets | | 153,605 |
| | 167,349 |
| | 142,779 |
| | 148,235 |
|
Other non-current assets | | 40,249 |
| | 33,674 |
| | 41,587 |
| | 46,380 |
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Total assets | | $ | 1,080,980 |
| | $ | 1,022,320 |
| | $ | 1,149,791 |
| | $ | 1,068,168 |
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Liabilities and Shareholders’ Equity | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 79,072 |
| | $ | 68,416 |
| | $ | 66,557 |
| | $ | 72,219 |
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Accrued payroll and related benefits | | 39,323 |
| | 36,646 |
| | 33,339 |
| | 41,119 |
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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 |
| | — |
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Current portion of debt | | | 155,400 |
| | — |
|
Other current liabilities | | 59,230 |
| | 79,696 |
| | 108,481 |
| | 92,696 |
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Total current liabilities | | 212,646 |
| | 208,152 |
| | 399,542 |
| | 227,512 |
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Long-term debt | | 232,726 |
| | 215,860 |
| | 95,856 |
| | 245,724 |
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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 |
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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 |
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Common stock held in trust | | (745 | ) | | (922 | ) | | (675 | ) | | (755 | ) |
Deferred compensation obligations | | 745 |
| | 922 |
| | 675 |
| | 755 |
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Accumulated other comprehensive loss | | (32,729 | ) | | (24,053 | ) | | (32,092 | ) | | (32,127 | ) |
Total shareholders’ equity | | 530,874 |
| | 511,355 |
| | 514,979 |
| | 496,317 |
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Total liabilities and shareholders’ equity | | $ | 1,080,980 |
| | $ | 1,022,320 |
| | $ | 1,149,791 |
| | $ | 1,068,168 |
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See accompanying notes to consolidated financial statements.
4
CONSOLIDATED RESULTS OF OPERATIONS
(unaudited)
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | 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 |
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Cost of sales | | 273,628 |
| | 264,947 |
| | 807,096 |
| | 724,868 |
| | 263,606 |
| | 273,628 |
| | 808,856 |
| | 807,096 |
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Gross profit | | 84,090 |
| | 91,559 |
| | 249,286 |
| | 247,853 |
| | 74,310 |
| | 84,090 |
| | 241,484 |
| | 249,286 |
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Selling, general and administrative expenses | | 52,682 |
| | 57,024 |
| | 167,224 |
| | 161,438 |
| | 52,716 |
| | 52,682 |
| | 169,274 |
| | 167,224 |
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Operating income | | 31,408 |
| | 34,535 |
| | 82,062 |
| | 86,415 |
| | 21,594 |
| | 31,408 |
| | 72,210 |
| | 82,062 |
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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 |
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Earnings before income taxes | | 28,621 |
| | 33,350 |
| | 75,808 |
| | 83,676 |
| | 19,830 |
| | 28,621 |
| | 65,633 |
| | 75,808 |
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Income tax expense | | 6,730 |
| | 9,704 |
| | 18,030 |
| | 26,517 |
| | 4,596 |
| | 6,730 |
| | 15,677 |
| | 18,030 |
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Net earnings | | $ | 21,891 |
| | $ | 23,646 |
| | $ | 57,778 |
| | $ | 57,159 |
| | $ | 15,234 |
| | $ | 21,891 |
| | $ | 49,956 |
| | $ | 57,778 |
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Earnings per share - basic | | $ | 0.79 |
| | $ | 0.82 |
| | $ | 2.06 |
| | $ | 1.98 |
| | $ | 0.58 |
| | $ | 0.79 |
| | $ | 1.89 |
| | $ | 2.06 |
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Earnings per share - diluted | | $ | 0.78 |
| | $ | 0.82 |
| | $ | 2.04 |
| | $ | 1.98 |
| | $ | 0.57 |
| | $ | 0.78 |
| | $ | 1.87 |
| | $ | 2.04 |
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Weighted average basic shares outstanding | | 27,836 |
| | 28,736 |
| | 28,030 |
| | 28,812 |
| | 26,432 |
| | 27,836 |
| | 26,481 |
| | 28,030 |
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Weighted average diluted shares outstanding | | 28,156 |
| | 28,818 |
| | 28,304 |
| | 28,862 |
| | 26,750 |
| | 28,156 |
| | 26,776 |
| | 28,304 |
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See accompanying notes to consolidated financial statements.
5
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.
6
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.
7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
| | In thousands | | Common Shares Outstanding | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Common Stock Held in Trust | | Deferred Compensation Obligation | | Accumulated Other Comprehensive (Loss) Income | | 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.
8
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.
9
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, 20182, 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, 2018November 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.
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 total revenue in the current year, that recognizes revenue following an over-time output method based upon units produced. The customer is considered to have control over the products at the time of production, as the products are highly customized with no alternative use, and we have an enforceable right to payment for performance completed over the production period. We believe this over-time output method of recognizing revenue reasonably depicts the fulfillment of our performance obligations under our contracts. Previously, this business recognized revenue at the time of shipment. Billings still occur upon shipment. Therefore, contract assets are generated for the unbilled amounts on contracts when production is complete. Variable consideration associated with these orders, generally related to early pay discounts, is not considered significant.
As outlined within the new accounting guidance, we elected several practical expedients in our transition to ASC 606:
We have made an accounting policy election to account for shipping and handling activities that 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 the842, Leases, following a modified retrospective transition method appliedapproach and elected not to those contracts which were not completerestate 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 were3, 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 followingmaterially 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 |
|
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 FebruaryJune 2016, the FASB issued ASU 2016-02, Leases2016-13, Measurement of Credit Losses on Financial Instruments, which providesrevises guidance for comprehensive changes to lease accounting. The standard requires that a lessee recognize a lease obligation liability and a right-to-use assetthe 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 updatestandard'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 tofiling 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.
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 |
|
|
| | | | | | | | |
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 billingbillings, primarily on a largelegacy EFCO project. The increasechange 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 |
|
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 |
|
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 municipalthese bonds at December 1, 2018November 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 |
|
|
| | | | | | | | | | | | |
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 equivalentsMoney market funds and commercial paper
Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets. These assets are included within cash and cash equivalents on our consolidated balance sheets.
Short-Municipal and long-term securitiescorporate 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-termother current or long-termother non-current assets based on maturity date.
Foreign currencyDerivative 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 exchangeThe 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 forwardbenchmark 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 classifiedmodels that use as Level 2 within the fair value hierarchy above.their basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for both interest and currency rates.
| |
6.5. | Goodwill and Other Identifiable Intangible Assets |
The carrying amount of goodwill attributable to each reporting segment was:
|
| | | | | | | | | | | | | | | | | | | | |
In thousands | | Architectural Framing Systems | | Architectural Glass | | Architectural Services | | Large-Scale Optical | | Total |
Balance at March 3, 2018 | | $ | 143,308 |
| | $ | 25,971 |
| | $ | 1,120 |
| | $ | 10,557 |
| | $ | 180,956 |
|
Goodwill adjustments for purchase accounting
| | 6,267 |
| | — |
| | — |
| | — |
| | 6,267 |
|
Foreign currency translation | | (1,129 | ) | | (262 | ) | | — |
| | — |
| | (1,391 | ) |
Balance at March 2, 2019 | | 148,446 |
| | 25,709 |
| | 1,120 |
| | 10,557 |
| | 185,832 |
|
Foreign currency translation | | 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 costsof 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, 2018November 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 |
|
We maintain a committed revolvingAs 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 borrowingsa maturity of up to $335.0June 2024 and we established a $150 million maturing in November 2021.term loan with a maturity of June 2020. Outstanding borrowings under our committedthe 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 this2, 2019.
Our revolving credit facility we are subject toand 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 contractsinsurance collateral that expire in fiscal 2020years 2021 to 2032 and reduce availability of fundsborrowing capacity under our committedthe revolving credit facility.
At December 1, 2018, ourNovember 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 $7.27.3 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 Decemberequipment 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, $224.0November 30, 2019, $833.9 million of our backlog was bonded by these types of bonds with a face valuewere 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 notnever been required to make any payments under thesesurety or performance bonds with respect to our existing businesses.
Additionally, we also are subject to project managementWarranty and installation-relatedproject-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.
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. DirectThe 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 programprograms do not have a material interest in thetheir underlying economicseconomics.
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 claimingagainst 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 factsor omissions about the Company’sCompany's acquisition of EFCO Corporation on June 12, 2017, and about the Company's Architectural Glass business and operations duringsegment, 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 filedpurportedly on behalf of the Company, against certain of our executive officers and directors claiming breachbreaches 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, 2018November 30, 2019 and $4.6$4.7 million for the nine-month period ended December 2, 20171, 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 thenine 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.
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, 2018November 30, 2019, there was $7.96.9 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, 2018November 30, 2019 was $4.9$5.1 million.
| |
10. | Employee Benefit Plans |
The Company sponsors two2 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 |
|
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, 2018November 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.
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 |
| | — |
|
The Company has four4 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 six6 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, 20182, 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, 20182, 2019.
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, 20182, 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 20192020 Compared to Third Quarter and First Nine Months of Fiscal 20182019
Net sales
Consolidated net sales increased 0.3decreased 5.5 percent, or $1.2$19.8 million, for the third quarter ended December 1, 2018,November 30, 2019, and 8.6decreased 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 offsetand by volume-related declines inlower 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 FramingSystems segment, partially offset by lower salesimproved 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 percentrespectively. The decrease in the current quarter was largely driven by higher manufacturing costs and 25.5 percent for eachoperational 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 volumeas well as reduced operating leverage and good project performanceon 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 14.7were 15.6 percent and 15.816.1 percent for the three- and nine-month periods respectively, ended December 1, 2018,November 30, 2019, respectively, compared to 16.014.7 percent and 16.615.8 percent in the prior year three- and nine-month periods, respectively, last year. The declinerespectively. In both current year periods, SG&A increased as a percent of sales compared to the same period in both periods wasthe prior year, primarily due to reduced amortization on short-lived intangiblescosts for outside advisors and a gain onlegal 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 20192020 was 23.523.2 percent, compared to 29.123.5 percent in the same period last year, and 23.823.9 percent for the first nine months of fiscal 2019,2020, compared to 31.723.8 percent in the prior-year period. The reductionsmall changes in the effective tax rate in both periods was primarilywere driven by the provisionsmix of foreign income and the Tax Cuts and Jobs Act, enacted in December 2017.
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, forboth 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 GlassFraming 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 | % | | |
NetArchitectural Framing Systems net sales increased $1.6declined $15.8 million, or 1.68.7 percent, and declined $28.5$16.8 million, or 9.83.0 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 declinedecrease in the year-to-date period wasthird quarter of fiscal 2020 compared to the third quarter of fiscal 2019 is primarily due to lower volumes as a result of changesincreased 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 timingfirst half of customer ordersour 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 (describeddecreased volumes, somewhat offset by improved factory productivity. The margin increase in the next paragraph).
Operatingnine-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 630of 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 $23.8declined $3.8 million, or 48.45.2 percent, and $74.0$24.3 million, or 50.711.0 percent, for the three- and nine- monthnine-month periods respectively, ended December 1, 2018,November 30, 2019, over the same periods in the prior year as the business continuedon lower volume due to experience strong execution on projects.
project activity.
Operating margin increased 670decreased 240 and 690200 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 volumereduced leverage and strongon 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 10.1increased 4.4 percent and $0.4 million, or 0.63.0 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 250decreased 70 and 120 basis points for the three monthsthree- 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 yearNovember 30, 2019, compared to the same periodperiods 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 $4.42020, 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, drivenprimarily 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 20192020 capital expenditures to be approximately $60$55 million, as we continue to make investments in projects that will add capabilities, improveto 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 boththe financial covenants.covenants in our credit facility.
We paid dividends totaling $13.2$13.8 million ($0.47250.525 per share) in the first nine months of fiscal 2019. As2020 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 induring the third quarter. In the first nine months of fiscal 2018, we repurchased 200,000 shares under our authorized share repurchase program, forWe have purchased a total cost of $10.8 million. Subsequent to the end of the quarter, we purchased 504,0045,799,912 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 2,136,0641,450,088 shares under this program.
Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of December 1, 2018November 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 manufacturingother 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, $224.0November 30, 2019, $833.9 million of our backlog was bonded by these types of bonds with a face valuewere 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 notnever been required to make any payments under thesesurety 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.
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 |
|
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 onreflect our current expectations for full-year fiscal 20192020 results. These statements are forward-looking, and actual results may differ materially. We are currently expecting:
Revenue growth of 6flat 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 marginAdditionally, we are implementing an integration and adjusted earnings per diluted share excludecost 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 SotawallCompany, 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 materialother 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.
| |
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 |
| |
a) | Evaluation of Disclosure Controlsdisclosure 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, 2018November 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
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, throughoutduring the purported class period of June 28, 2018May 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 factsor omissions about the Company’s business, operations,Company's acquisition of EFCO Corporation on June 12, 2017, and prospects, particularly with respect to ourabout the Company's Architectural Glass business segment and alleges that the defendants violatedin violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The amended complaint seeks an unspecified sumsamount of damages, award of counselattorney'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, wecosts. 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 sumamount 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
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.
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, 20182, 2019.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table provides information with respect to purchases made by the Company of its own stock during the third quarter of fiscal 2019:2020:
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Period | | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (b) |
September 2, 2018 to September 30, 2018 | | 4,327 |
| | $ | 49.22 |
| | — |
| | 1,240,068 |
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October 1, 2018 to October 28, 2018 | | — |
| | — |
| | 500,000 |
| | 2,740,068 |
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October 29, 2018 to December 1, 2018 | | — |
| | — |
| | 100,000 |
| | 2,640,068 |
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Total | | 4,327 |
| | $ | 49.22 |
| | 600,000 |
| | 2,640,068 |
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Period | | Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | | Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (b) |
September 1, 2019 to September 28, 2019 | | — |
| | $ | — |
| | — |
| | 1,450,088 |
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September 29, 2019 to October 26, 2019 | | 1,162 |
| | 37.65 |
| | — |
| | 1,450,088 |
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October 27, 2019 to November 30, 2019 | | — |
| | — |
| | — |
| | 1,450,088 |
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Total | | 1,162 |
| | $ | 37.65 |
| | — |
| | 1,450,088 |
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(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. |
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(b) | In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. 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. |
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101 | The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 1, 2018November 30, 2019 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of December 1, 2018November 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 monthsnine-months ended November 30, 2019 and December 1, 2018, and December 2, 2017, (v) the Consolidated Statements of Shareholders' Equity for the nine monthsthree- 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. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | APOGEE ENTERPRISES, INC. |
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Date: January 10, 20199, 2020 | | By: /s/ Joseph F. Puishys |
| | | Joseph F. Puishys President and Chief Executive Officer (Principal Executive Officer) |
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Date: January 10, 20199, 2020 | | By: /s/ James S. Porter |
| | | James S. Porter Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |