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APOG Apogee Enterprises

Filed: 30 Sep 21, 1:01pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________ 
FORM 10-Q
 _________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 28, 2021
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)
 _________________________________
Minnesota41-0919654
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4400 West 78th Street, Suite 520MinneapolisMinnesota55435
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (952) 835-1874
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
_________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.33 1/3 per shareAPOGThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filero  Accelerated filerx
Non-accelerated filero  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes    x  No
As of September 27, 2021, 25,334,664 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.


APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
 
3

PART I. FINANCIAL INFORMATION
Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except stock data)August 28, 2021February 27, 2021
Assets
Current assets
Cash and cash equivalents$61,821 $47,277 
Receivables, net160,858 175,917 
Inventories76,601 72,823 
Costs and earnings on contracts in excess of billings26,303 29,497 
Other current assets18,311 25,160 
Total current assets343,894 350,674 
Property, plant and equipment, net272,994 298,443 
Operating lease right-of-use assets52,087 58,864 
Goodwill130,388 130,098 
Intangible assets126,642 130,053 
Other non-current assets50,448 46,967 
Total assets$976,453 $1,015,099 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable$79,166 $76,204 
Accrued payroll and related benefits38,492 50,125 
Billings on contracts in excess of costs and earnings20,825 22,789 
Operating lease liabilities11,466 13,251 
Current portion of debt1,000 2,000 
Other current liabilities48,700 53,183 
Total current liabilities199,649 217,552 
Long-term debt162,000 163,000 
Non-current operating lease liabilities45,387 48,439 
Non-current self-insurance reserves26,194 24,880 
Other non-current liabilities66,662 68,483 
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 25,394,275 and 25,713,688 respectively8,465 8,571 
Additional paid-in capital158,115 154,958 
Retained earnings336,398 357,243 
Accumulated other comprehensive loss(26,417)(28,027)
Total shareholders’ equity476,561 492,745 
Total liabilities and shareholders’ equity$976,453 $1,015,099 
See accompanying notes to consolidated financial statements.

4

CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
Three Months EndedSix Months Ended
(In thousands, except per share data)August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Net sales$325,797 $319,483 $651,803 $608,578 
Cost of sales277,795 243,296 536,091 472,141 
Gross profit48,002 76,187 115,712 136,437 
Selling, general and administrative expenses51,070 52,972 102,739 106,754 
Operating (loss) income(3,068)23,215 12,973 29,683 
Interest expense, net1,072 1,324 2,310 2,739 
Other income (expense), net105 1,260 (209)213 
(Loss) earnings before income taxes(4,035)23,151 10,454 27,157 
Income tax (benefit) expense(1,919)5,493 1,753 6,623 
Net (loss) earnings$(2,116)$17,658 $8,701 $20,534 
(Loss) earnings per share - basic$(0.08)$0.68 $0.34 $0.78 
(Loss) earnings per share - diluted$(0.08)$0.67 $0.34 $0.77 
Weighted average basic shares outstanding25,140 26,156 25,271 26,162 
Weighted average diluted shares outstanding25,140 26,525 25,637 26,507 
See accompanying notes to consolidated financial statements.

5

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited)
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Net (loss) earnings$(2,116)$17,658 $8,701 $20,534 
Other comprehensive earnings (loss):
Unrealized gain on marketable securities, net of $2, $13, $1 and $39 of tax expense, respectively50 147 
Unrealized (loss) gain on derivative instruments, net of $(203), $404, $8 and $215 of tax (benefit) expense, respectively(666)1,319 26 703 
Foreign currency translation adjustments(4,300)6,139 1,580 (12)
Other comprehensive (loss) earnings(4,962)7,508 1,610 838 
Total comprehensive (loss) earnings$(7,078)$25,166 $10,311 $21,372 

See accompanying notes to consolidated financial statements.

6

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(In thousands)August 28, 2021August 29, 2020
Operating Activities
Net earnings$8,701 $20,534 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization25,808 25,284 
Share-based compensation3,261 3,662 
Deferred income taxes(4,560)7,966 
Asset impairment15,403 — 
(Gain) loss on disposal of assets(1,355)18 
Noncash lease expense6,216 6,032 
Other, net578 — 
Changes in operating assets and liabilities:
Receivables15,520 31,212 
Inventories(3,607)846 
Costs and earnings on contracts in excess of billings3,212 43,091 
Accounts payable and accrued expenses(10,895)(36,922)
Billings on contracts in excess of costs and earnings(2,144)(9,105)
Refundable and accrued income taxes1,981 (1,793)
Operating lease liability(6,240)(5,857)
Other3,028 362 
Net cash provided by operating activities54,907 85,330 
Investing Activities
Capital expenditures(10,121)(14,224)
Proceeds from sales of property, plant and equipment1,292 — 
Other66 (993)
Net cash used by investing activities(8,763)(15,217)
Financing Activities
Borrowings on line of credit— 192,581 
Repayments on debt(2,000)(5,400)
Payments on line of credit— (237,500)
Proceeds from exercise of stock options4,115 — 
Repurchase and retirement of common stock(22,419)(4,731)
Dividends paid(10,060)(9,751)
Other(1,853)(1,261)
Net cash used by financing activities(32,217)(66,062)
Increase in cash and cash equivalents13,927 4,051 
Effect of exchange rates on cash617 (2)
Cash, cash equivalents and restricted cash at beginning of year47,277 14,952 
Cash, cash equivalents and restricted cash at end of period$61,821 $19,001 
Noncash Activity
Capital expenditures in accounts payable$374 $657 
See accompanying notes to consolidated financial statements.

7

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)Common Shares OutstandingCommon StockAdditional Paid-In CapitalRetained EarningsCommon Stock Held in TrustDeferred Compensation ObligationAccumulated Other Comprehensive (Loss) IncomeTotal Shareholders' Equity
Balance at February 27, 202125,714 $8,571 $154,958 $357,243 $(186)$186 $(28,027)$492,745 
Net earnings— — — 10,817 — — — 10,817 
Unrealized gain on marketable securities, net of $— tax expense— — — — — — — — 
Unrealized gain on foreign currency hedge, net of $211 tax expense— — — — — — 692 692 
Foreign currency translation adjustments— — — — — — 5,880 5,880 
Issuance of stock, net of cancellations90 30 (7)— (3)— 23 
Share-based compensation— — 1,674 — — — — 1,674 
Exercise of stock options179 60 4,055 — — — — 4,115 
Share repurchases(357)(119)(2,218)(10,288)— — — (12,625)
Other share retirements(20)(7)(121)(607)— — — (735)
Cash dividends— — — (5,035)— — — (5,035)
Balance at May 29, 202125,606 $8,535 $158,341 $352,130 $(189)$189 $(21,455)$497,551 
Net loss— — — (2,116)— — — (2,116)
Unrealized gain on marketable securities, net of $2 tax expense— — — — — — 
Unrealized loss on foreign currency hedge, net of $203 tax benefit— — — — — — (666)(666)
Foreign currency translation adjustments— — — — — — (4,300)(4,300)
Issuance of stock, net of cancellations67 22 — — (3)— 22 
Share-based compensation— — 1,587 — — — — 1,587 
Share repurchases(249)(83)(1,616)(8,095)— — — (9,794)
Other share retirements(30)(9)(197)(496)— — — (702)
Cash dividends— — — (5,025)— — — (5,025)
Balance at August 28, 202125,394 $8,465 $158,115 $336,398 $(192)$192 $(26,417)$476,561 
















See accompanying notes to consolidated financial statements.

8

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)

(In thousands)Common Shares OutstandingCommon StockAdditional Paid-In CapitalRetained EarningsCommon Stock Held in TrustDeferred Compensation ObligationAccumulated Other Comprehensive (Loss) IncomeTotal Shareholders' Equity
Balance at February 29, 202026,443 $8,814 $154,016 $388,010 $(685)$685 $(34,062)$516,778 
Net earnings— — — 2,876 — — — 2,876 
Unrealized gain on marketable securities, net of $26 tax expense— — — — — — 97 97 
Unrealized loss on foreign currency hedge, net of $189 tax benefit— — — — — — (617)(617)
Foreign currency translation adjustments— — — — — — (6,151)(6,151)
Issuance of stock, net of cancellations183 62 (39)— (11)11 — 23 
Share-based compensation— — 1,406 — — — — 1,406 
Share repurchases(231)(77)(1,370)(3,284)— — — (4,731)
Other share retirements(26)(9)(151)(505)— — — (665)
Cash dividends— — — (4,872)— — — (4,872)
Balance at May 30, 202026,369 $8,790 $153,862 $382,225 $(696)$696 $(40,733)$504,144 
Net earnings— — — 17,658 — — — 17,658 
Unrealized gain on marketable securities, net of $13 tax expense— — — — — — 50 50 
Unrealized gain on foreign currency hedge, net of $404 tax expense— — — — — — 1,319 1,319 
Foreign currency translation adjustments— — — — — — 6,139 6,139 
Issuance of stock, net of cancellations121 41 (23)— (11)11 — 18 
Share-based compensation— — 2,256 — — — — 2,256 
Other share retirements(23)(8)(139)(390)— — — (537)
Cash dividends— — — (4,879)— — — (4,879)
Balance at August 29, 202026,467 $8,823 $155,956 $394,614 $(707)$707 $(33,225)$526,168 



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 February 27, 2021. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and six-month periods ended August 28, 2021 are not necessarily indicative of the results to be expected for the full year.

COVID-19 update
During fiscal 2021, as a result of the global COVID-19 pandemic, we experienced some delays in commercial construction projects and orders and other disruptions to our business, including various physical distancing and health-related precautions, and we were required to close operations at two facilities in our Large-Scale Optical (LSO) segment for a portion of fiscal 2021 due to governmental orders. We were also impacted by quarantine-related absenteeism among our production workforce, resulting in labor constraints at some of our facilities. In the first two quarters of fiscal 2022, the negative impacts on our business directly due to the COVID-19 pandemic have moderated. The extent to which COVID-19 will continue to impact our businesses in the future will depend on numerous evolving factors including, but not limited to, the emergence of new variants of the coronavirus, such as the Delta variant, and the effectiveness of ongoing public health initiatives, which have been boosted by vaccine production and distribution.

Adoption of new accounting standards
At the beginning of fiscal 2022, we adopted the guidance in ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU removed exceptions on intra-period tax allocations and reporting and provided simplification on accounting for franchise taxes, tax basis goodwill and tax law changes. The adoption of this ASU did not have a significant impact on the consolidated financial statements.

At the beginning of fiscal 2022, we adopted the guidance in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The adoption of this ASU did not have a significant impact on the consolidated financial statements.

Subsequent events
We have evaluated subsequent events for potential recognition and disclosure through the date of this filing and determined that there were no subsequent events that required recognition or disclosure in the consolidated financial statements.

2.Revenue, Receivables and Contract Assets and Liabilities

Revenue
The following table disaggregates total revenue by timing of recognition (see Note 12 for disclosure of revenue by segment):
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Recognized at shipment$137,783 $133,997 $278,066 $250,160 
Recognized over time188,014 185,486 373,737 358,418 
Total$325,797 $319,483 $651,803 $608,578 

Receivables
Receivables reflected in the financial statements represent the net amount expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecast economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible. 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.
10

(In thousands)August 28, 2021February 27, 2021
Trade accounts$123,658 $120,534 
Construction contracts5,584 12,163 
Contract retainage33,719 45,167 
Total receivables162,961 177,864 
Less: allowance for credit losses2,103 1,947 
Net receivables$160,858 $175,917 

The following table summarizes the activity in the allowance for credit losses:
(In thousands)August 28, 2021February 27, 2021
Beginning balance$1,947 $2,469 
Additions charged to costs and expenses239 389 
Deductions from allowance, net of recoveries(75)(887)
Other changes (1)
(8)(24)
Ending balance$2,103 $1,947 
      (1) Result of foreign currency effects

Contract assets and liabilities
Contract assets consist of retainage, costs and earnings in excess of billings and other unbilled amounts typically generated when revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts. Retainage is classified within receivables and deferred revenue is classified within other current liabilities on our consolidated balance sheets.

The time period between when performance obligations are complete and when payment is due is not significant. In certain of our businesses that recognize revenue over time, progress billings follow an agreed-upon schedule of values, and retainage is withheld by the customer until the project reaches a level of completion where amounts are released.
(In thousands)August 28, 2021February 27, 2021
Contract assets$60,022 $74,664 
Contract liabilities24,096 25,000 

The change in contract assets and contract liabilities was mainly due to timing of project activity within our businesses that operate under long-term contracts.
Other contract-related disclosuresThree Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Revenue recognized related to contract liabilities from prior year-end$2,479 $1,184 $16,579 $14,195 
Revenue recognized related to prior satisfaction of performance obligations5,354 3,652 7,518 6,529 

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 August 28, 2021, the transaction price associated with unsatisfied performance obligations was approximately $857.2 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
(In thousands)August 28, 2021
Within one year$500,758 
Within two years341,749 
Beyond14,674 
Total$857,181 


11

3.Supplemental Balance Sheet Information

Inventories
(In thousands)August 28, 2021February 27, 2021
Raw materials$41,730 $36,681 
Work-in-process18,314 18,932 
Finished goods16,557 17,210 
Total inventories$76,601 $72,823 

Other current liabilities
(In thousands)August 28, 2021February 27, 2021
Warranties$11,234 $12,298 
Accrued project losses1,260 4,572 
Property and other taxes7,388 7,459 
Accrued self-insurance reserves5,500 6,482 
Accrued freight1,837 1,477 
Other21,481 20,895 
Total other current liabilities$48,700 $53,183 

Other non-current liabilities
(In thousands)August 28, 2021February 27, 2021
Deferred benefit from New Market Tax Credit transactions$15,717 $15,717 
Retirement plan obligations7,640 7,730 
Deferred compensation plan13,811 13,507 
Deferred tax liabilities5,850 8,310 
Deferred payroll taxes6,789 6,789 
Other16,855 16,430 
Total other non-current liabilities$66,662 $68,483 

4.Financial Instruments

Marketable securities
Through 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 CostGross Unrealized GainsGross Unrealized LossesEstimated
Fair Value
August 28, 2021$12,399 $385 $$12,782 
February 27, 202112,517 386 10 12,893 

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 for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements.

The amortized cost and estimated fair values of these bonds at August 28, 2021, 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.
12

(In thousands)Amortized CostEstimated Fair Value
Due within one year$889 $896 
Due after one year through five years8,614 8,908 
Due after five years through 10 years2,096 2,149 
Due beyond 15 years800 829 
Total$12,399 $12,782 

Derivative instruments
We use interest rate swaps, foreign exchange forward contracts, commodity swaps and forward purchase contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments we use, how such instruments are accounted for, and how such instruments impact our financial position and performance.

In fiscal 2020, 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 and term loan. As of August 28, 2021, the interest rate swap contract had a notional value of $37.5 million.

We periodically enter into forward purchase contracts and/or fixed/floating swaps to manage the risk associated with fluctuations in aluminum prices and fluctuations in foreign exchange rates (primarily related to the Canadian dollar). These contracts generally have an original maturity date of less than one year. As of August 28, 2021, we held foreign exchange forward contracts and aluminum fixed/floating swaps with U.S. dollar notional values of $9.0 million and $6.9 million, respectively.

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
August 28, 2021
Assets:
Money market funds$42,003 $— $42,003 
Municipal and corporate bonds— 12,782 12,782 
Cash surrender value of life insurance— 18,750 18,750 
Aluminum hedge contracts— 1,200 1,200 
Liabilities:
Deferred compensation— 13,811 13,811 
Foreign currency forward/option contracts— 269 269 
Interest rate swap contract— 319 319 
February 27, 2021
Assets:
Money market funds$26,034 $— $26,034 
Municipal and corporate bonds— 12,893 12,893 
Cash surrender value of life insurance— 18,632 18,632 
Foreign currency forward/option contracts— 606 606 
Aluminum hedge contracts— 363 363 
Liabilities:
Deferred compensation— 13,507 13,507 
Interest rate swap contract— 504 504 
13


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

Municipal and corporate bonds
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 other current or other non-current assets based on maturity date.

Cash surrender value of life insurance and deferred compensation
Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. Changes in cash surrender value are recorded in other expense. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.

Derivative instruments
The interest rate swap is measured at fair value using other observable market inputs, based off of benchmark interest rates. Forward foreign exchange and fixed/floating aluminum contracts are measured at fair value using other observable market inputs, such as quotations on forward foreign exchange points, foreign currency exchange rates, and forward purchase aluminum prices. Derivative positions are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for both interest and currency rates and aluminum prices.

Nonrecurring fair value measurements
We measure certain financial instruments at fair value on a nonrecurring basis including goodwill, intangible assets, property and equipment and right-of-use lease assets. These assets were initially measured and recognized at amounts equal to the fair value determined as of the date of acquisition or purchase subject to changes in value only for foreign currency translation. Periodically, these assets are tested for impairment, by comparing their respective carrying values to the estimated fair value of the reporting unit or asset group in which they reside. In the event any of these assets were to become impaired, we would recognize an impairment expense equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value. Fair value measurements of reporting units are estimated using an income approach involving discounted cash flow models that contain certain Level 3 inputs requiring significant management judgment, including projections of economic conditions, customer demand and changes in competition, revenue growth rates, gross profit margins, operating margins, capital expenditures, working capital requirements, terminal growth rates and discount rates. Fair value measurements of the reporting units associated with our goodwill balances and our indefinite-lived intangible assets are estimated at least annually in the fourth quarter of each fiscal year for purposes of impairment testing if a quantitative analysis is performed.

See Note 13 for additional information on the impairment charges recorded to fixed assets and right-of-use lease assets during the second quarter of fiscal 2022.

5.Goodwill and Other Intangible Assets

Goodwill
Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. We evaluate goodwill for impairment annually as of the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

Based on the impairment analysis performed in the fourth quarter of fiscal 2021, estimated fair value was in excess of carrying value at six of our eight reporting units. However, estimated fair value did not exceed carrying value for two reporting units within the Architectural Framing Systems segment, EFCO and Sotawall. As a result, as of February 27, 2021, we incurred goodwill impairment expense of $46.7 million and $17.1 million in our EFCO and Sotawall reporting units, respectively. The goodwill impairment expense recorded during the year ended February 27, 2021, as reflected in the table below, represents the total accumulated goodwill impairment expenses recorded.

14

The carrying amount of goodwill attributable to each reporting segment was:  
(In thousands)Architectural Framing SystemsArchitectural GlassArchitectural ServicesLarge-Scale
Optical
Total
Balance at February 29, 2020$148,183 $25,656 $1,120 $10,557 $185,516 
Adjustment (1)
6,315 — — — 6,315 
Impairment expense(63,769)— — — (63,769)
Foreign currency translation2,370 (334)— — 2,036 
Balance at February 27, 202193,099 25,322 1,120 10,557 130,098 
Foreign currency translation248 42 — — 290 
Balance at August 28, 2021$93,347 $25,364 $1,120 $10,557 $130,388 
(1) During the first quarter of fiscal 2021, we recorded a $6.3 million increase to goodwill and corresponding increase to deferred tax liabilities to correct an immaterial error related to prior periods. The error was not material to any previously reported annual or interim consolidated financial statements.

Other intangible assets
We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Based on our analysis, the fair value of each of our trade names and trademarks exceeded carrying amount, except for the EFCO tradename, within our Architectural Framing Systems segment. The fair value determined for the EFCO tradename was less than its carrying value by $6.3 million; this amount was recognized as impairment expense in the fourth quarter ended February 27, 2021, as reflected in the table below.

The gross carrying amount of other intangible assets and related accumulated amortization was:

(In thousands)Gross
Carrying
Amount
Accumulated
Amortization
Impairment ExpenseForeign
Currency
Translation
Net
August 28, 2021
Definite-lived intangible assets:
Customer relationships$122,961 $(44,042)$— $742 $79,661 
Other intangibles41,838 (35,068)— 222 6,992 
Total definite-lived intangible assets164,799 (79,110)— 964 86,653 
Indefinite-lived intangible assets:
Trademarks39,832 — — 157 39,989 
Total intangible assets$204,631 $(79,110)$— $1,121 $126,642 
February 27, 2021
Definite-lived intangible assets:
Customer relationships$119,647 $(40,443)$— $3,315 $82,519 
Other intangibles41,293 (34,234)— 643 7,702 
Total definite-lived intangible assets160,940 (74,677)— 3,958 90,221 
Indefinite-lived intangible assets:
Trademarks45,300 — (6,300)832 39,832 
Total intangible assets$206,240 $(74,677)$(6,300)$4,790 $130,053 

Amortization expense on definite-lived intangible assets was $3.9 million and $3.7 million for the six-month periods ended August 28, 2021 and August 29, 2020, respectively. Amortization expense of other identifiable intangible assets is included in selling, general and administrative expenses. At August 28, 2021, the estimated future amortization expense for definite-lived intangible assets was:
(In thousands)Remainder of Fiscal 2022Fiscal 2023Fiscal 2024Fiscal 2025Fiscal 2026
Estimated amortization expense$4,174 $8,307 $8,047 $7,657 $7,640 

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6.Debt

As of August 28, 2021, we had a committed revolving credit facility with maximum borrowings of up to $235 million with a maturity of June 2024. There were no outstanding borrowings under the revolving credit facility as of August 28, 2021 and February 27, 2021. At August 28, 2021 and February 27, 2021, we also had a $150 million term loan with a maturity date of June 2024.

Our revolving credit facility and term loan contain 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 August 28, 2021, we were in compliance with both financial covenants. Additionally, at August 28, 2021, we had a total of $16.6 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2022 to 2032 and reduce borrowing capacity under the revolving credit facility.

At August 28, 2021, debt included $13.0 million of industrial revenue bonds that mature in fiscal years 2023 through 2043. In July 2021, two $1.0 million industrial revenue bonds matured and were repaid. The fair value of all industrial revenue bonds approximated carrying value at August 28, 2021, 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 4.

We also maintain two Canadian committed, revolving credit facilities totaling $25.0 million (USD). As of August 28, 2021 and February 27, 2021, there were no borrowings outstanding under the facilities.

Interest payments were $1.9 million and $2.5 million for the six months ended August 28, 2021 and August 29, 2020, respectively.

7. Leases

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

In determining lease asset value, we consider fixed or variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. We use a discount rate for each lease based upon an estimated incremental borrowing rate over a similar term. We have elected the practical expedient to account for lease and non lease 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 EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Operating lease cost$3,518 $3,290 $6,899 $6,851 
Short-term lease cost240 442 464 912 
Variable lease cost734 645 1,457 1,392 
Total lease cost$4,492 $4,377 $8,820 $9,155 






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Other supplemental information related to leases was as follows:
Six Months Ended
(In thousands except weighted-average data)August 28, 2021August 29, 2020
Cash paid for amounts included in the measurement of operating lease liabilities$7,186 $6,562 
Lease assets obtained in exchange for new operating lease liabilities$1,281 $6,778 
Weighted-average remaining lease term - operating leases5.7 years4.9 years
Weighted-average discount rate - operating leases2.95 %3.55 %

Future maturities of lease liabilities are as follows:
(In thousands)August 28, 2021
Remainder of Fiscal 2022$6,956 
Fiscal 202312,843 
Fiscal 202410,871 
Fiscal 20259,597 
Fiscal 20267,726 
Fiscal 20276,203 
Thereafter6,720 
Total lease payments60,916 
Less: Amounts representing interest4,063 
Present value of lease liabilities$56,853 

8.Commitments and Contingent Liabilities

Bond commitments
In the ordinary course of business, predominantly in our Architectural Services and Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At August 28, 2021, $1.2 billion of these types of bonds were outstanding, of which $490.1 million is in our backlog. These bonds do not have stated expiration dates. We have never been required to make payments under surety or performance bonds with respect to our existing businesses.

Warranty and project-related contingencies
We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims as a ratio of sales. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product mix and any significant changes in sales volume. A warranty rollforward follows:  
 Six Months Ended
(In thousands)August 28, 2021August 29, 2020
Balance at beginning of period$14,999 $15,629 
Additional accruals4,400 3,083 
Claims paid(5,871)(2,050)
Balance at end of period$13,528 $16,662 

Additionally, we are subject to project management and installation-related contingencies as a result of our fixed-price material supply and installation service contracts, primarily in our Architectural Services segment and certain of our Architectural Framing Systems businesses. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages. The liability for these types of project-related contingencies was $1.3 million and $4.6 million as of August 28, 2021 and February 27, 2021, respectively.

Letters of credit
At August 28, 2021, we had $16.6 million of ongoing letters of credit, all of which have been issued under our committed revolving credit facility, as discussed in Note 6. We also have a $6.9 million letter of credit which has been issued outside our committed revolving credit facility, with no impact on our borrowing capacity and debt covenants.

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Purchase obligations
Purchase obligations for raw material commitments and capital expenditures totaled $203.8 million as of August 28, 2021.

New Markets Tax Credit (NMTC) transactions
We have three outstanding NMTC arrangements which help to support operational expansion. Proceeds received from investors on these transactions are included within other non-current liabilities in 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. Upon the termination of each arrangement, these proceeds will be recognized in earnings in exchange for the transfer of tax credits. The direct and incremental costs incurred in structuring these arrangements have been deferred and are included in other non-current assets in our consolidated balance sheets. These costs will be recognized in conjunction with the recognition of the related proceeds on each arrangement. During the construction phase for each project, we are required to hold cash dedicated to fund each capital project which is classified as restricted cash in our consolidated balance sheets. Variable-interest entities, 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 programs do not have a material interest in their underlying economics.

The table below provides a summary of our outstanding NMTC transactions (in millions):
Inception dateTermination dateProceeds receivedDeferred costsNet benefit
June 2016June 2023$6.0 $1.2 $4.8 
August 2018August 20256.6 1.3 5.3 
September 2018September 20253.2 1.0 2.2 
Total$15.8 $3.5 $12.3 

Litigation
The Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. 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 $3.3 million for the six-month period ended August 28, 2021 and $3.7 million for the six-month period ended August 29, 2020.

Stock options and SARs
Stock option and SAR activity for the current six-month period is summarized as follows:
Stock options and SARsNumber of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual LifeAggregate Intrinsic Value
Outstanding at February 27, 2021633,700 $23.04 
Awards exercised(178,564)23.04 
Awards canceled(84,336)23.04 
Outstanding at August 28, 2021370,800 $23.04 8.8 years$4,694,328 
Vested or expected to vest at August 28, 2021370,800 $23.04 8.8 years$4,694,328 

For the six-months ended August 28, 2021, cash proceeds from the exercise of stock options were $4.1 million and 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 $2.3 million. NaN awards were issued or exercised during the six-months ended August 29, 2020.
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Executive Compensation Program
In fiscal 2022, the Compensation Committee of the Board of Directors implemented an executive compensation program for certain key employees. In the first quarter of fiscal 2022, we issued performance shares in the form of nonvested share unit awards, which give the recipient the right to receive shares earned at the vesting date. The number of share units issued at grant is equal to the target number of performance shares and allows for the right to receive an additional number of shares dependent on achieving a defined performance goal of return on invested capital and being employed at the end of the performance period.

Nonvested share awards and units
Nonvested share activity, including performance share units, for the current six-month period is summarized as follows:
Nonvested shares and unitsNumber of Shares and UnitsWeighted Average Grant Date Fair Value
Nonvested at February 27, 2021475,227 $27.52 
Granted(1)
231,746 35.46 
Vested(166,975)28.55 
Canceled(20,654)30.27 
Nonvested at August 28, 2021(2)
519,344 $30.62 
(1) Includes a total of 54,395 nonvested share units granted and outstanding at target level for the fiscal 2022-2024 performance period.
(2) Includes a total of 50,825 nonvested share units granted and outstanding at target level for the fiscal 2022-2024 performance period.

At August 28, 2021, there was $12.4 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 30 months. The total fair value of shares vested during the six months ended August 28, 2021 was $4.8 million.

10.Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2018, or state and local income tax examinations for years prior to fiscal 2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2017, and there is 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 $3.8 million at August 28, 2021 and February 27, 2021, respectively. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense.

11.Earnings per Share

The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Basic earnings per share – weighted average common shares outstanding25,140 26,156 25,271 26,162 
Weighted average effect of nonvested share grants and assumed exercise of stock options— 369 366 345 
Diluted earnings per share – weighted average common shares and potential common shares outstanding25,140 26,525 25,637 26,507 
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)206 215 






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12.Business Segment Data

We have 4 reporting segments:
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 Architectural Glass segment fabricates coated, high-performance glass used globally in customized window and wall systems comprising the outside skin of commercial, institutional and high-end multi-family residential buildings.
The Architectural Services segment provides full-service installation of the walls of glass, windows and other curtainwall products making up the outside skin of commercial and institutional buildings.
The Large-Scale Optical (LSO) segment manufactures value-added glass and acrylic products primarily for framing and display applications.
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Net sales
Architectural Framing Systems$149,972 $152,927 $301,812 $303,091 
Architectural Glass79,373 86,584 162,404 163,495 
Architectural Services83,031 73,670 158,686 137,221 
Large-Scale Optical23,543 16,860 47,772 23,171 
Intersegment eliminations(10,122)(10,558)(18,871)(18,400)
Net sales$325,797 $319,483 $651,803 $608,578 
Operating income (loss)
Architectural Framing Systems$8,278 $11,697 $16,338 $18,993 
Architectural Glass(16,995)4,976 (14,867)4,482 
Architectural Services7,242 6,569 11,779 11,912 
Large-Scale Optical5,483 2,149 11,330 (984)
Corporate and other(7,076)(2,176)(11,607)(4,720)
Operating (loss) income$(3,068)$23,215 $12,973 $29,683 

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.

13. Restructuring

On August 11, 2021, we announced plans to realign and simplify our business structure. During the second quarter of fiscal 2022, we incurred $20.8 million of pre-tax costs associated with the execution of these plans, of which $18.5 million is included within cost of sales and $2.3 million is included within selling, general and administrative expenses within our consolidated statements of operations. Costs primarily related to asset impairment charges due to the closure of two facilities within the Architectural Glass segment, in Dallas, Texas and Statesboro, Georgia in order to build focus within this segment on premium, high-performance products. Additionally, employee termination costs were incurred related to these facility closures, realignment of the Architectural Framing Systems segment, and within the Corporate office. We expect future pre-tax costs associated with the ongoing execution of these plans to be approximately $5 million, which will be incurred by the end of our fiscal year 2022.

Three months ended August 28, 2021
(In thousands)Architectural FramingArchitectural GlassCorporate and otherTotal
Asset impairment charges$85 $15,318 $— $15,403 
Termination benefits1,824 1,577 939 4,340 
Other restructuring charges139 496 436 1,071 
Total restructuring charges$2,048 $17,391 $1,375 $20,814 

The following table summarizes our restructuring related accrual balances included within accrued payroll and related costs and other current liabilities in the consolidated balance sheets. All balances are expected to be paid within the fiscal year.

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(In thousands)Architectural FramingArchitectural GlassCorporate and otherTotal
Balance at March 1, 2020$— $— $— $— 
Restructuring expense4,020 325 229 4,574 
Payments(1,148)(95)(68)(1,311)
Balance at February 27, 20212,872 230 161 3,263 
Restructuring expense1,963 2,073 1,375 5,411 
Payments(2,384)(205)(100)(2,689)
Other adjustments(98)— — (98)
Balance at August 28, 2021$2,353 $2,098 $1,436 $5,887 

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

Forward-looking statements
This Quarterly Report on Form 10-Q, including the section Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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,” "will," "continue" 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. 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. Information about factors that could materially affect our results can be found in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended February 27, 2021 and in subsequent filings with the U.S. Securities and Exchange Commission, including this Quarterly Report on Form 10-Q.

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 leader in 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 February 27, 2021 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.

Highlights of Second Quarter of Fiscal 2022 Compared to Second Quarter of Fiscal 2021

Net sales
Consolidated net sales increased 2.0 percent, or $6.3 million, and increased 7.1 percent, or $43.2 million, for the three- and six-month periods ended August 28, 2021, compared to the same periods in the prior year, primarily driven by volume growth in the Architectural Services and LSO segments. LSO was closed for most of the first and second quarters of fiscal 2021, due to COVID-19.

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The relationship between various components of operations, as a percentage of net sales, is presented below: 
Three Months EndedSix Months Ended
August 28, 2021August 29, 2020August 28, 2021August 29, 2020
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales85.3 76.2 82.2 77.6 
Gross margin14.7 23.8 17.8 22.4 
Selling, general and administrative expenses15.7 16.6 15.8 17.5 
Operating (loss) income(0.9)7.3 2.0 4.9 
Interest expense, net0.3 0.4 0.4 0.5 
Other income (expense), net— 0.4 — — 
(Loss) earnings before income taxes(1.2)7.2 1.6 4.5 
Income tax (benefit) expense(0.6)1.7 0.3 1.1 
Net (loss) earnings(0.6)%5.5 %1.3 %3.4 %
Effective tax rate47.6 %23.7 %16.8 %24.4 %

Gross profit
Gross profit as a percent of sales (gross margin) was 14.7 percent and 17.8 percent for the three- and six-month periods ended August 28, 2021, compared to 23.8 percent and 22.4 percent for the three- and six-month periods ended August 29, 2020. Gross margin decreased in the current year three- and six-month periods compared to the prior year, primarily due to $18.5 million of restructuring charges included in cost of goods sold incurred during the second quarter of fiscal 2022, as well as inflationary pressure on raw materials and freight within the Architectural Glass and Architectural Framing Systems segments. These costs were partially offset by positive impacts from continued recovery of the LSO segment (which closed for most of the first and second quarters last year, based on COVID-related government directives).

Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales were 15.7 percent and 15.8 percent for the three- and six-month periods ended August 28, 2021, compared to 16.6 percent and 17.5 percent for the prior year three- and six-month periods. SG&A decreased as a percent of sales compared to the same period in the prior year primarily due to ongoing controlling of spending across all segments of the business, partially offset by higher Corporate and other costs related to investments in transformation initiatives and increased health care costs. In addition, we recognized a benefit of $1.8 million and $4.5 million during the three- and six-month periods ended August 28, 2021, respectively, compared to $1.3 million in the prior year three- and six-month periods, from a Canadian wage subsidy program offered to support Canadian businesses due to the ongoing impacts of the COVID-19 pandemic.

Income tax expense
The effective income tax rate in the second quarter of fiscal 2022 was a benefit of 47.6 percent, compared to expense of 23.7 percent in the same period last year. During the second quarter, the tax rate was favorably impacted by the release of a $1.2 million valuation allowance on certain state net operating losses, which is the result of tax planning identified due to the realignment and simplification of our business structure. The effective tax rate was 16.8 percent for the first six months of fiscal 2022, compared to 24.4 percent in the prior year period, with the rate decrease also primarily related to the release of the valuation allowance, as well as lower year-to-date net income.

Segment Analysis

Architectural Framing Systems
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020% ChangeAugust 28, 2021August 29, 2020% Change
Net sales$149,972 $152,927 (1.9)%$301,812 $303,091 (0.4)%
Operating income8,278 11,697 (29.2)%16,338 18,993 (14.0)%
Operating margin5.5 %7.6 %5.4 %6.3 %

Architectural Framing Systems net sales decreased $3.0 million, or 1.9 percent, and decreased $1.3 million, or 0.4 percent for the three- and six-month periods ended August 28, 2021, compared to the prior-year periods, primarily reflecting lower volume, partially offset by improved pricing.

22

Operating margin decreased 210 basis points and 90 basis points for the three- and six-month periods of the current year, compared to the same periods in the prior year, reflecting increased costs for materials and freight, the impact of lower volume, as well as $2.0 million of restructuring costs incurred during the current year second quarter, partially offset by improved pricing and benefits from restructuring actions implemented in fiscal 2021. As previously announced, this segment incurred restructuring-related termination costs in the quarter related to realignment of the segment to increase focus on target markets, better serve customers, improve operational execution, and reduce overall costs. In addition, this segment benefited from a Canadian wage subsidy of $1.8 million and $4.5 million during the three- and six-month periods ended August 28, 2021, respectively, compared to $1.3 million in the prior-year three- and six-month periods, as a result of a program to support Canadian businesses due to the ongoing impacts of the COVID-19 pandemic.

As of August 28, 2021, segment backlog was approximately $406 million, compared to approximately $423 million at the end of the prior quarter, and $404 million at the end of the second quarter of the prior year. Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. We view backlog as one indicator of future revenues, particularly in our longer-lead time businesses. In addition to backlog, 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 not included in backlog.

Architectural Glass
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020% ChangeAugust 28, 2021August 29, 2020% Change
Net sales$79,373 $86,584 (8.3)%$162,404 $163,495 (0.7)%
Operating (loss) income(16,995)4,976 N/M(14,867)4,482 N/M
Operating margin(21.4)%5.7 %(9.2)%2.7 %

Net sales decreased $7.2 million, or 8.3 percent, and $1.1 million, or 0.7 percent, for the three- and six-month periods ended August 28, 2021, compared to the same period in the prior year, primarily reflecting lower volume.

In the current quarter, the segment had operating loss of $17.0 million and negative operating margin of 21.4 percent, compared to operating income of $5.0 million and operating margin of 5.7 percent in the same period of the prior year. These results were primarily driven by $17.4 million of restructuring costs incurred during the current year second quarter, as well as increased costs for materials and freight, and the impact of lower volume and price, partially offset by an improved sales mix and increased factory productivity. As previously announced, this segment incurred restructuring charges related to the closure of two operating facilities and the associated employee termination costs in the quarter. This restructuring will enable the segment to emphasize more premium, high-performance products in its business. For the six months ended August 28, 2021, the segment had an operating loss of $14.9 million and negative operating margin of 9.2 percent, compared to operating income of $4.5 million and operating margin of 2.7 percent in the prior year, primarily due to the restructuring costs incurred during the second quarter of the current year.

Architectural Services
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020% ChangeAugust 28, 2021August 29, 2020% Change
Net sales$83,031 $73,670 12.7 %$158,686 $137,221 15.6 %
Operating income7,242 6,569 10.2 %11,779 11,912 (1.1)%
Operating margin8.7 %8.9 %7.4 %8.7 %


Architectural Services net sales increased $9.4 million, or 12.7 percent, and $21.5 million, or 15.6 percent, for the three- and six-month periods ended August 28, 2021, compared to the same periods in the prior year, driven by increased volume from executing projects in backlog.

Operating margin decreased 20 basis points and 130 basis points for the three- and six-month periods of the current year, compared to the same periods in the prior year, primarily reflecting a less favorable project mix. Additionally, the six-month period was negatively impacted by isolated performance challenges on certain projects experienced during the first quarter of fiscal 2022.
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As of August 28, 2021, segment backlog was approximately $572 million, compared to approximately $559 million as of the end of the prior quarter, and $665 million at the end of the second quarter of the prior year. Backlog is described within the Architectural Framing Systems discussion above.

Large-Scale Optical (LSO)
Three Months EndedSix Months Ended
(In thousands)August 28, 2021August 29, 2020% ChangeAugust 28, 2021August 29, 2020% Change
Net sales$23,543 $16,860 39.6 %$47,772 $23,171 106.2 %
Operating income (loss)5,483 2,149 155.1 %11,330 (984)N/M
Operating margin23.3 %12.7 %23.7 %(4.2)%

LSO net sales increased $6.7 million or 39.6 percent, and $24.6 million or 106.2 percent for the three- and six-month periods ended August 28, 2021, compared to the same periods in the prior year, reflecting favorable mix and increased volume, as demand recovered from the impact of COVID in the prior year. In fiscal 2021, the segment's customers and manufacturing operations were closed for a large part of the first and second quarters to comply with COVID-related government directives.

In the current quarter, the segment had operating income of $5.5 million and operating margin of 23.3 percent, compared to operating income of $2.1 million and operating margin of 12.7 percent in the same period of the prior year, primarily driven by the improved sales mix and increased volume. For the six months ended August 28, 2021, the segment had operating income of $11.3 million and operating margin of 23.7 percent, compared to operating loss of $1.0 million and negative operating margin of 4.2 percent, reflecting the improved mix and volume noted above.

Liquidity and Capital Resources
Selected cash flow dataSix Months Ended
(In thousands)August 28, 2021August 29, 2020
Operating Activities
Net cash provided by operating activities$54,907 $85,330 
Investing Activities
Capital expenditures(10,121)(14,224)
Financing Activities
Borrowings on line of credit— 192,581 
Payments on line of credit— (237,500)
Repurchase and retirement of common stock(22,419)(4,731)
Dividends paid(10,060)(9,751)

Operating Activities. Net cash provided by operating activities was $54.9 million for the first six months of fiscal 2022, a decrease of $30.4 million compared to the prior-year period, reflecting a decline in net earnings of $11.8 million in the current-year period compared to the prior-year period, as well as, the impact of temporary actions related to COVID in the prior-year period.

Investing Activities. Net cash used by investing activities was $8.8 million for the first six months of fiscal 2022, driven primarily by capital expenditures of $10.1 million. In the first six months of the prior year, net cash used by investing activities was $15.2 million, driven by capital expenditures of $14.2 million. Capital expenditures in the current year declined $4.1 million from the prior year due to slower spending within the Architectural Glass segment.

Financing Activities. Net cash used by financing activities was $32.2 million for the first six months of fiscal 2022, compared to $66.1 million in the prior-year period, reflecting net debt repayments of $45 million in the prior year. Additionally, in the first six months of the current year, we made share repurchases totaling $22.4 million, compared to $4.7 million in the prior year six-month period. At August 28, 2021, we were in compliance with the financial covenants under our revolving credit facility and term loan.

We paid dividends totaling $10.1 million ($0.4000 per share) in the first six months of fiscal 2022, compared to $9.8 million ($0.3750 per share) in the comparable prior-year period. During the first six months of fiscal 2022, we repurchased 589,533 shares under our authorized share repurchase program, for a total cost of $22.0 million. In the first six months of fiscal 2021, we repurchased 231,492 shares under the share repurchase program, for a total cost of $4.7 million. Since the inception of the share repurchase program in 2004, we have purchased a total of 7,722,149 shares, at a total cost of $229.3 million. We currently have
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remaining authority to repurchase an additional 527,851 shares under this program. We will continue to evaluate making future share repurchases, considering our cash flow, debt levels and market conditions, in the context of all our capital allocation options, with the goal of maximizing long-term value for our shareholders.

Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of August 28, 2021:
Payments Due by Fiscal Period
(In thousands)Remainder of Fiscal 2022Fiscal 2023Fiscal 2024Fiscal 2025Fiscal 2026ThereafterTotal
Debt obligations$— $1,000 $— $150,000 $— $12,000 $163,000 
Operating leases (undiscounted)6,956 12,843 10,871 9,597 7,726 12,923 60,916 
Purchase obligations116,487 81,122 2,815 1,433 1,433 487 203,777 
Total cash obligations$123,443 $94,965 $13,686 $161,030 $9,159 $25,410 $427,693 

We acquire the use of certain assets through operating leases, such as property, manufacturing equipment, vehicles and other equipment. Purchase obligations in the table above relate to raw material commitments and capital expenditures.

We expect to make contributions of $0.7 million to our defined-benefit pension plans in fiscal 2022, which will equal or exceed our minimum funding requirements.

As of August 28, 2021, we had reserves of $3.8 million for unrecognized tax benefits. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits 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 August 28, 2021, $1.2 billion of these types of bonds were outstanding, of which $490.1 million is in our backlog. These bonds do not have stated expiration dates. We have never been required to make payments under surety or performance bonds with respect to our existing businesses.

During calendar 2020, we took advantage of the option to defer remittance of the employer portion of Social Security tax as provided in the CARES Act. This deferral allowed us to retain cash during calendar year 2020 that would have otherwise been remitted to the federal government. At the end of fiscal 2021, we had deferred tax payments of $13.6 million, which are included within accrued payroll and other benefits and other non-current liabilities on our consolidated balance sheets. The deferred tax payments will be repaid in two equal portions in calendar years 2021 and 2022.

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. While we believe we have adequate sources of liquidity to continue to fund our business for at least the next 12 months, the extent to which the ongoing COVID-19 pandemic may impact our results of operations or liquidity is uncertain. The extent to which COVID-19 will continue to impact our business will depend on numerous evolving factors including, but not limited to, the emergence of new variants of the coronavirus, such as the Delta variant, and the effectiveness of ongoing public health initiatives, which have been buoyed by vaccine production and distribution.

Off-balance sheet arrangements. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Outlook
The company previously provided guidance of full-year GAAP earnings in the range of $2.20 to $2.40 per diluted share. The company is now providing guidance of full-year adjusted earnings in the range of $2.20 to $2.40 per diluted share, which excludes the impact of restructuring costs. This guidance includes $7 to $10 million of expected pre-tax costs related to investments in transformation initiatives. We expect a tax rate of approximately 24.5 percent in the second half of fiscal 2022, and full-year capital expenditures of approximately $35 million.

Related Party Transactions
No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021.
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Critical Accounting Policies
There have been no material changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2021 for a complete discussion on the Company’s market risk. There have been no material changes in market risk from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021, except as noted below.

Raw Material Pricing Risk
We are subject to market risk exposure related to volatility in the prices of aluminum and lumber, among other raw materials and supplies used in our end products. A significant amount of our cost of sales relates to materials costs. The commodities markets, which include the aluminum industry, are highly cyclical in nature. As a result, commodity costs can be volatile, as we have experienced from time to time during recent fiscal quarters, and may become more volatile in the future. Commodity costs are influenced by numerous factors beyond our control, including general economic conditions, the availability of raw materials, competition, labor costs, freight and transportation costs, production costs, import duties and other trade restrictions.

We principally manage our exposures to the market fluctuations in the aluminum industry through fixed/floating rate swaps and forward purchase agreements. Although we have the ability to purchase aluminum from a number of suppliers, a production cutback by one or more of our current suppliers could create challenges in meeting delivery schedules to our customers. The prices we offer to our customers are also impacted by changes in commodity costs. We manage the alignment of the cost of our raw materials and the prices offered to customers, and attempt to pass changes to raw material costs through to our customers. To improve our management of commodity costs, we attempt to maintain inventory levels not in excess of our production requirements.

We cannot accurately calculate the pre-tax impact a one percent change in the commodity costs of aluminum and/or lumber would have on our fiscal 2022 operating results, as the change in commodity costs would both impact the cost to purchase materials and the selling prices we offer our customers. The impact to our operating results would significantly depend on the competitive environment and the costs of other alternative products, which could impact our ability to pass commodities costs to our customers.

Item 4.Controls and Procedures
a)Evaluation of disclosure controls and procedures: As of the end of the period covered by this report (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
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 August 28, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. 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
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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.
Item 1A.Risk Factors

There have been no material changes or additions to our risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended February 27, 2021.

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

The following table provides information with respect to purchases made by the Company of its own stock during the second quarter of fiscal 2022:
PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal 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)
May 30, 2021 to June 26, 202192,246 $38.33 71,333 705,051 
June 27, 2021 to July 24, 202185,041 39.30 77,300 627,751 
July 25, 2021 to August 28, 2021101,506 40.35 99,900 527,851 
Total278,793 $39.37 248,533 527,851 
(a)The shares in this column represent the total number of shares that were repurchased by us pursuant to our publicly announced repurchase program, plus the shares surrendered to us by plan participants to satisfy withholding tax obligations related to share-based compensation.
(b)In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. 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, January 9, 2018, and January 14, 2020; and by 2,000,000 shares, announced on October 3, 2018. The repurchase program does not have an expiration date.


Item 6.Exhibits
101
The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended August 28, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of August 28, 2021 and February 27, 2021, (ii) the Consolidated Results of Operations for the three- and six-months ended August 28, 2021 and August 29, 2020, (iii) the Consolidated Statements of Comprehensive Earnings for the three- and six-months ended August 28, 2021 and August 29, 2020, (iv) the Consolidated Statements of Cash Flows for the six-months ended August 28, 2021 and August 29, 2020, (v) the Consolidated Statements of Shareholders' Equity for the three- and six-months ended August 28, 2021 and August 29, 2020, and (vi) Notes to Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
Exhibits marked with a (#) sign are filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 APOGEE ENTERPRISES, INC.
Date: September 30, 2021 By: /s/ Ty R. Silberhorn
 Ty R. Silberhorn
President and Chief Executive Officer
(Principal Executive Officer)

Date: September 30, 2021 By: /s/ Nisheet Gupta
 Nisheet Gupta
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)


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