APOGEE ENTERPRISES, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM
10-Q
_________________________________
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended
November 26, 2022
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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
_________________________________
(Exact name of registrant as specified in its charter)
_________________________________
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
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| (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 class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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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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x
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Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | o | Smaller reporting company |
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| Emerging growth company |
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| 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 December 26, 2022,
22,213,890
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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Page | |||||||
| PART I | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
3
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (In thousands, except stock data) | November 26, 2022 | February 26, 2022 | ||||||||||||
| Assets | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Restricted cash |
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| Receivables, net |
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| Inventories |
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| Costs and earnings on contracts in excess of billings |
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| Other current assets |
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| Total current assets |
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| Property, plant and equipment, net |
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| Operating lease right-of-use assets |
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| Goodwill |
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| Intangible assets |
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| Other non-current assets |
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| Total assets | $ |
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$ |
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| Liabilities and Shareholders’ Equity | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable | $ |
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$ |
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| Accrued payroll and related benefits |
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| Billings in excess of costs and earnings on uncompleted contracts |
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| Operating lease liabilities |
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| Current portion long-term debt |
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| Other current liabilities |
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| Total current liabilities |
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| Long-term debt |
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| Non-current operating lease liabilities |
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| Non-current self-insurance reserves |
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| Other non-current liabilities |
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| Commitments and contingent liabilities (Note 8) | ||||||||||||||
| Shareholders’ equity | ||||||||||||||
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Common stock of $
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| Additional paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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| Total shareholders’ equity |
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| Total liabilities and shareholders’ equity | $ |
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$ |
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See accompanying notes to consolidated financial statements.
4
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands, except per share data) | November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||||
| Net sales | $ |
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$ |
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$ |
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$ |
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| Cost of sales |
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| Gross profit |
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| Selling, general and administrative expenses |
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| Operating income |
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| Interest expense, net |
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| Other expense, net |
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| Earnings before income taxes |
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| Income tax expense |
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| Net earnings | $ |
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$ |
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$ |
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$ |
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| Earnings per share - basic | $ |
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$ |
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$ |
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$ |
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| Earnings per share - diluted | $ |
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$ |
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$ |
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$ |
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| Weighted average basic shares outstanding |
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| Weighted average diluted shares outstanding |
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See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||||
| Net earnings | $ |
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$ |
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$ |
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$ |
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| Other comprehensive (losses) earnings: | ||||||||||||||||||||||||||
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Unrealized loss on marketable securities, net of $(
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(
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(
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(
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(
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Unrealized gain (loss) on derivative instruments, net of $
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| Foreign currency translation adjustments |
(
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(
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(
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(
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| Other comprehensive losses |
(
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(
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(
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(
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| Total comprehensive earnings | $ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | ||||||||||||
| Operating Activities | ||||||||||||||
| Net earnings | $ |
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$ |
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| Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization |
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| Share-based compensation |
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| Deferred income taxes |
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| Asset impairment |
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| Gain on disposal of assets |
(
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(
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| Proceeds from New Markets Tax Credit transaction, net of deferred costs |
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| Settlement of New Markets Tax Credit transaction |
(
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| Noncash lease expense |
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| Other, net |
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| Changes in operating assets and liabilities: | ||||||||||||||
| Receivables |
(
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| Inventories |
(
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(
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| Costs and earnings on contracts in excess of billings |
(
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| Accounts payable and accrued expenses |
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| Billings in excess of costs and earnings on uncompleted contracts |
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(
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| Refundable and accrued income taxes |
(
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| Operating lease liability |
(
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(
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| Other, net |
(
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(
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| Net cash provided by operating activities |
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| Investing Activities | ||||||||||||||
| Capital expenditures |
(
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(
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| Proceeds from sales of property, plant and equipment |
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| Other, net |
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| Net cash used by investing activities |
(
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(
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| Financing Activities | ||||||||||||||
| Borrowings on line of credit |
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| Repayment on debt |
(
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(
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| Payments on line of credit |
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| Payments on debt issue costs |
(
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| Proceeds from exercise of stock options |
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| Repurchase and retirement of common stock |
(
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(
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| Dividends paid |
(
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(
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| Other, net |
(
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(
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| Net cash used by financing activities |
(
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(
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| (Decrease) increase in cash, cash equivalents and restricted cash |
(
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| Effect of exchange rates on cash |
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| Cash, cash equivalents and restricted cash at beginning of year |
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| Cash, cash equivalents and restricted cash at end of period | $ |
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$ |
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| Noncash Activity | ||||||||||||||
| Capital expenditures in accounts payable | $ |
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$ |
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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 | Accumulated Other Comprehensive (Loss) Income | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||
| Balance at February 26, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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Unrealized loss on marketable securities, net of $
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— | — | — | — |
(
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(
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Unrealized loss on derivative instruments, net of $
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— | — | — | — |
(
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(
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| Foreign currency translation adjustments | — | — | — | — |
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| Issuance of stock, net of cancellations |
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— | — |
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| Share-based compensation | — | — |
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— | — |
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| Share repurchases |
(
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(
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(
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(
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— |
(
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| Other share retirements |
(
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(
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(
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(
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— |
(
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| Cash dividends | — | — | — |
(
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— |
(
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| Balance at May 28, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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Unrealized loss on marketable securities, net of $
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— | — | — | — |
(
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(
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Unrealized loss on derivative instruments, net of $
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— | — | — | — |
(
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(
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| Foreign currency translation adjustments | — | — | — | — |
(
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(
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| Issuance of stock, net of cancellations |
(
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(
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— | — |
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| Share-based compensation | — | — |
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— | — |
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| Exercise of stock options |
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(
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— | — |
(
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| Other share retirements |
(
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(
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(
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(
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— |
(
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| Cash dividends | — | — | — |
(
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— |
(
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| Balance at August 27, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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Unrealized loss on marketable securities, net of $
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— | — | — | — |
(
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(
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Unrealized gain on derivative instruments, net of $
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— | — | — | — |
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| Foreign currency translation adjustments | — | — | — | — |
(
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(
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| Issuance of stock, net of cancellations |
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(
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— |
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| Share-based compensation | — | — |
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— | — |
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| Other share retirements |
(
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(
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(
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(
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— |
(
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| Cash dividends | — | — | — |
(
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— |
(
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| Balance at November 26, 2022 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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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 | Accumulated Other Comprehensive (Loss) Income | Total Shareholders' Equity | ||||||||||||||||||||||||||||||||
| Balance at February 27, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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Unrealized gain on marketable securities, net of $
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— | — | — | — |
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Unrealized gain on derivative instruments, net of $
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— | — | — | — |
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| Foreign currency translation adjustments | — | — | — | — |
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| Issuance of stock, net of cancellations |
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(
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— | — |
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| Share-based compensation | — | — |
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— | — |
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| Exercise of stock options |
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— | — |
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| Share repurchases |
(
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(
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(
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(
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— |
(
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| Other share retirements |
(
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(
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(
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(
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— |
(
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| Cash dividends | — | — | — |
(
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— |
(
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| Balance at May 29, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net loss | — | — | — |
(
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— |
(
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Unrealized gain on marketable securities, net of $
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— | — | — | — |
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Unrealized loss on derivative instruments, net of $
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— | — | — | — |
(
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(
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| Foreign currency translation adjustments | — | — | — | — |
(
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(
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| Issuance of stock, net of cancellations |
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— | — | — |
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| Share-based compensation | — | — |
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— | — |
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| Share repurchases |
(
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(
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(
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(
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— |
(
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| Other share retirements |
(
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(
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(
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(
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— |
(
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| Cash dividends | — | — | — |
(
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— |
(
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| Balance at August 28, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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Unrealized loss on marketable securities, net of $
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— | — | — | — |
(
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(
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Unrealized loss on derivative instruments, net of $
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— | — | — | — |
(
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(
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| Foreign currency translation adjustments | — | — | — | — |
(
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(
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| Issuance of stock, net of cancellations |
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— |
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— | — |
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| Share-based compensation | — | — |
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— | — |
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| Share repurchases |
(
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(
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(
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(
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— |
(
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| Other share retirements |
(
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(
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(
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(
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— |
(
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| Cash dividends | — | — | — |
(
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— |
(
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| Balance at November 27, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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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 26, 2022. 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 nine-month periods ended November 26, 2022 are not necessarily indicative of the results to be expected for the full year.
At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects. The comparative fiscal 2022 segment results for the Architectural Framing Systems and Architectural Services segments have been recast to reflect the move of the Sotawall business into the Architectural Services segment from the Architectural Framing Systems segment, effective at the start of the first quarter of fiscal 2023.
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 Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||||
| Recognized at shipment | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Recognized over time |
|
|
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
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 to us from the customer.
| (In thousands) | November 26, 2022 | February 26, 2022 | ||||||||||||
| Trade accounts | $ |
|
$ |
|
||||||||||
| Construction contracts |
|
|
||||||||||||
| Contract retainage |
|
|
||||||||||||
| Total receivables |
|
|
||||||||||||
| Less: allowance for credit losses |
|
|
||||||||||||
| Receivables, net | $ |
|
$ |
|
||||||||||
The following table summarizes the activity in the allowance for credit losses:
| (In thousands) | November 26, 2022 | February 26, 2022 | ||||||||||||
| Beginning balance | $ |
|
$ |
|
||||||||||
| Additions charged to costs and expenses |
|
|
||||||||||||
| Deductions from allowance, net of recoveries |
(
|
(
|
||||||||||||
|
Other changes
(1)
|
(
|
(
|
||||||||||||
| Ending balance | $ |
|
$ |
|
||||||||||
|
(1)
Result of foreign currency effects
|
||||||||||||||
10
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 at which point amounts are released to us from the customer.
| (In thousands) | November 26, 2022 | February 26, 2022 | ||||||||||||
| Contract assets | $ |
|
$ |
|
||||||||||
| Contract liabilities |
|
|
||||||||||||
The changes in contract assets and contract liabilities were mainly due to timing of project activity within our businesses that operate under long-term contracts.
| Other contract-related disclosures | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||||
| Revenue recognized related to contract liabilities from prior year-end | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Revenue recognized related to prior satisfaction of performance obligations |
|
|
|
|
||||||||||||||||||||||
Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that time frame. Generally, these contracts are found in our businesses that typically operate with long-term contracts, which recognize revenue over time. The transaction prices associated with unsatisfied performance obligations at November 26, 2022 are
expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
| (In thousands) | November 26, 2022 | |||||||
|
Within
|
$ |
|
||||||
|
Within
|
|
|||||||
|
Beyond
|
|
|||||||
| Total | $ |
|
||||||
3.
Supplemental Balance Sheet Information
Inventories
| (In thousands) | November 26, 2022 | February 26, 2022 | ||||||||||||
| Raw materials | $ |
|
$ |
|
||||||||||
| Work-in-process |
|
|
||||||||||||
| Finished goods |
|
|
||||||||||||
| Total inventories | $ |
|
$ |
|
||||||||||
11
Other current liabilities
| (In thousands) | November 26, 2022 | February 26, 2022 | ||||||||||||
| Warranties | $ |
|
$ |
|
||||||||||
| Income and other taxes |
|
|
||||||||||||
| Accrued self-insurance reserves |
|
|
||||||||||||
| Accrued freight |
|
|
||||||||||||
| Deferred revenue |
|
|
||||||||||||
| Other |
|
|
||||||||||||
| Total other current liabilities | $ |
|
$ |
|
||||||||||
Other non-current liabilities
| (In thousands) | November 26, 2022 | February 26, 2022 | ||||||||||||
| Deferred benefit from New Markets Tax Credit transactions | $ |
|
$ |
|
||||||||||
| Retirement plan obligations |
|
|
||||||||||||
| Deferred compensation plan |
|
|
||||||||||||
| Deferred tax liabilities |
|
|
||||||||||||
| Other |
|
|
||||||||||||
| Total other non-current liabilities | $ |
|
$ |
|
||||||||||
4.
Financial Instruments
Marketable securities
Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), w
e 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 26, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| February 26, 2022 |
|
|
|
|
||||||||||||||||||||||
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 November 26, 2022, 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 | $ |
|
$ |
|
||||||||||
| Due after one year through five years |
|
|
||||||||||||
| Total | $ |
|
$ |
|
||||||||||
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 November 26, 2022, the interest rate swap contract had a notional value of $
30.0
million.
12
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 November 26, 2022, we held foreign exchange forward contracts and aluminum fixed/floating swaps with U.S. dollar notional values of $
3.0
million and $
8.1
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 | |||||||||||||||||
| November 26, 2022 | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Money market funds | $ |
|
$ | — | $ |
|
||||||||||||||
| Municipal and corporate bonds | — |
|
|
|||||||||||||||||
| Cash surrender value of life insurance | — |
|
|
|||||||||||||||||
| Interest rate swap contract | — |
|
|
|||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Deferred compensation | — |
|
|
|||||||||||||||||
| Foreign currency forward/option contract | — |
|
|
|||||||||||||||||
| Aluminum hedging contract | — |
|
|
|||||||||||||||||
| February 26, 2022 | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Money market funds | $ |
|
$ | — | $ |
|
||||||||||||||
| Municipal and corporate bonds | — |
|
|
|||||||||||||||||
| Cash surrender value of life insurance | — |
|
|
|||||||||||||||||
| Aluminum hedging contract | — |
|
|
|||||||||||||||||
| Interest rate swap contract | — |
|
|
|||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Deferred compensation | — |
|
|
|||||||||||||||||
| Foreign currency forward/option contract | — |
|
|
|||||||||||||||||
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.
13
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.
5.
Goodwill and Other Intangible Assets
Goodwill
Goodwill represents the excess of the cost over the value of 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.
At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects, which resulted in the combination of the Sotawall and Harmon reporting units into a single reporting unit. We evaluated goodwill on a qualitative basis prior to and subsequent to this change for these reporting units and concluded that no adjustment to the carrying value of goodwill was necessary. Concurrent with the move of Sotawall from the Architectural Framing Systems segment to the Architectural Services segment effective at the start of our first quarter of fiscal 2023, goodwill was reallocated to the affected reporting units within each segment, using a relative fair value approach as outlined in ASC 350,
Intangibles - Goodwill and Other
. In addition, for all reporting units, no qualitative indicators of impairment were identified during the first quarter of fiscal 2023, and therefore, no interim quantitative goodwill impairment evaluation was performed.
The following table presents the carrying amount of goodwill attributable to each reporting segment including the amount of goodwill that was reallocated from the Architectural Framing Systems segment to the Architectural Services segment using the relative fair value approach during the first quarter of fiscal 2023:
| (In thousands) | Architectural Framing Systems | Architectural Services | Architectural Glass |
Large-Scale
Optical |
Total | |||||||||||||||||||||||||||
| Balance at February 27, 2021 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Foreign currency translation |
|
|
(
|
|
|
|||||||||||||||||||||||||||
| Balance at February 26, 2022 |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Reallocation among reporting units
(1)
|
(
|
|
|
|
|
|||||||||||||||||||||||||||
| Foreign currency translation |
(
|
(
|
|
|
(
|
|||||||||||||||||||||||||||
| Balance at November 26, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
|
(1)
Represents the reallocation of goodwill as a result of transitioning Sotawall from the Architectural Framing Systems segment to the Architectural Services segment as of the start of the first quarter of fiscal 2023.
|
||||||||||||||||||||||||||||||||
Other intangible assets
Indefinite-lived 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 the impairment analysis performed in the fourth quarter of fiscal 2022, the fair value of each of our
14
trade names and trademarks exceeded the carrying amount. However, due to triggering events identified in the fourth quarter of fiscal 2022, resulting from the finalization of our plans for integrating the Sotawall business into the Architectural Services segment, beginning in fiscal 2023, we determined that the carrying value of the Sotawall trade name exceeded fair value by $
12.7
million. We determined that Sotawall had an immaterial fair value, resulting in the trade name being fully impaired as of fiscal 2022 year-end. We recognized this amount as impairment expense in the fourth quarter ended February 26, 2022.
Finite-lived intangible assets
Long-lived assets or asset groups, including intangible assets subject to amortization and property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. We use undiscounted cash flows to determine whether impairment exists and measure any impairment loss using discounted cash flows to determine the fair value of long-lived assets. Due to triggering events identified during the fourth quarter of fiscal 2022, as a result of finalization of our plans for integrating the Sotawall business into the Architectural Services segment, beginning in fiscal 2023, we determined that the finite-lived intangible assets of Sotawall were impaired as of February 26, 2022. As such, we recognized a long-lived asset impairment charge of $
36.7
million in finite-lived intangible assets in the fourth quarter of fiscal year 2022, within the Architectural Framing Systems segment.
The gross carrying amount of other intangible assets and related accumulated amortization was:
| (In thousands) |
Gross
Carrying Amount |
Accumulated
Amortization |
Impairment Expense |
Foreign
Currency Translation |
Net | |||||||||||||||||||||||||||
| November 26, 2022 | ||||||||||||||||||||||||||||||||
| Definite-lived intangible assets: | ||||||||||||||||||||||||||||||||
| Customer relationships | $ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||
| Other intangibles |
|
(
|
|
(
|
|
|||||||||||||||||||||||||||
| Total |
|
(
|
|
(
|
|
|||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||||||
| Trademarks |
|
— |
|
(
|
|
|||||||||||||||||||||||||||
| Total intangible assets | $ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||||||
| February 26, 2022 | ||||||||||||||||||||||||||||||||
| Definite-lived intangible assets: | ||||||||||||||||||||||||||||||||
| Customer relationships | $ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||
| Other intangibles |
|
(
|
(
|
(
|
|
|||||||||||||||||||||||||||
| Total |
|
(
|
(
|
|
|
|||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||||||
| Trademarks |
|
— |
(
|
|
|
|||||||||||||||||||||||||||
| Total intangible assets | $ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||
Amortization expense on definite-lived intangible assets was $
3.1
million and $
5.9
million for the nine-month periods ended November 26, 2022 and November 27, 2021, respectively. Amortization expense of other identifiable intangible assets is included in selling, general and administrative expenses.
At November 26, 2022, the estimated future amortization expense for definite-lived intangible assets was:
| (In thousands) | Remainder of 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||||||||||||||
| Estimated amortization expense | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
6.
Debt
During the second quarter ended August 27, 2022, we amended and extended our committed revolving credit facility to include maximum borrowings of up to $
385
million with a maturity of August 2027. As part of the amendment, we repaid the $
150
million term loan with borrowings under the revolving credit facility. As of November 26, 2022, outstanding borrowings under our revolving credit facility were $
188.0
million, while there were
no
outstanding borrowings under the revolving credit facility as of February 26, 2022.
Our revolving credit facility contains two maintenance financial covenants that require us to stay below a maximum debt-to-EBITDA ratio and maintain a minimum ratio of EBITDA-to-interest expense. Both ratios are computed quarterly, with
15
EBITDA calculated on a rolling four-quarter basis. At November 26, 2022, we were in compliance with both financial covenants. Additionally, at November 26, 2022, we had a total of $
12.3
million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2024 to 2032 and reduce borrowing capacity under the revolving credit facility.
At November 26, 2022, debt included $
12.0
million of industrial revenue bonds that mature in fiscal years 2036 through 2043. In March 2022, a $
1.0
million industrial revenue bond matured and was repaid. The fair value of all industrial revenue bonds approximated carrying value at November 26, 2022, due to the variable interest rates on these instruments. Our credit facility, term loan and industrial revenue bonds 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). At November 26, 2022, outstanding borrowings under our Canadian committed, revolving credit facilities were $
3.7
million, while there were
no
outstanding borrowings under the Canadian facilities as of February 26, 2022.
Interest payments were $
5.3
million and $
2.7
million for the nine months ended November 26, 2022 and November 27, 2021, 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. 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; 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 Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||||
| Operating lease cost | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Short-term lease cost |
|
|
|
|
||||||||||||||||||||||
| Variable lease cost |
|
|
|
|
||||||||||||||||||||||
| Total lease cost | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Other supplemental information related to leases was as follows:
| Nine Months Ended | ||||||||||||||
| (In thousands except weighted-average data) | November 26, 2022 | November 27, 2021 | ||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ |
|
$ |
|
||||||||||
| Lease assets obtained in exchange for new operating lease liabilities | $ |
|
$ |
|
||||||||||
| Weighted-average remaining lease term - operating leases |
|
|
||||||||||||
| Weighted-average discount rate - operating leases |
|
% |
|
% | ||||||||||
16
Future maturities of lease liabilities are as follows:
| (In thousands) | November 26, 2022 | |||||||
| Remainder of Fiscal 2023 | $ |
|
||||||
| Fiscal 2024 |
|
|||||||
| Fiscal 2025 |
|
|||||||
| Fiscal 2026 |
|
|||||||
| Fiscal 2027 |
|
|||||||
| Fiscal 2028 |
|
|||||||
| Thereafter |
|
|||||||
| Total lease payments |
|
|||||||
| Less: Amounts representing interest |
|
|||||||
| Present value of lease liabilities | $ |
|
||||||
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 November 26, 2022, $
1.4
billion of these types of bonds were outstanding, of which $
578.7
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 these accruals in any given period include the following: changes in manufacturing quality, changes in product mix and any significant changes in sales volume.
| Nine Months Ended | ||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | ||||||||||||
| Balance at beginning of period | $ |
|
$ |
|
||||||||||
| Additional accruals |
|
|
||||||||||||
| Claims paid |
(
|
(
|
||||||||||||
| Balance at end of period | $ |
|
$ |
|
||||||||||
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.
Letters of credit
At November 26, 2022, we had $
12.3
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 $3.4 million letter of credit which has been issued outside our committed revolving credit facility, with no impact on our borrowing capacity and debt covenants.
Purchase obligations
Purchase obligations for raw material commitments and capital expenditures totaled $
222.2
million as of November 26, 2022.
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 current and 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 or for working capital purposes for each
17
project, we are required to hold cash dedicated to fund each 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.
During the first quarter of fiscal 2023, one NMTC transaction was terminated, and a new NMTC transaction was established as a replacement. As a result of these transactions, $19.5 million in previous proceeds received were repaid and $19.5 million was contributed back to the Company as part of the newly established NMTC transaction. This NMTC transaction will be held for the remainder of the original seven-year term.
The table below provides a summary of our outstanding NMTC transactions (in millions):
| Inception date | Termination date | Deferred Benefit | Deferred costs | Net benefit | ||||||||||||||||||||||
| June 2016 | June 2023 | $ |
|
$ |
|
$ |
|
|||||||||||||||||||
| September 2018 | September 2025 |
|
|
|
||||||||||||||||||||||
|
May 2022
(1)
|
August 2025 |
|
|
|
||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
||||||||||||||||||||
(1) Continuation of the August 2018 NMTC financing transaction
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. In December 2022, the claimant in an arbitration of one such claim was awarded $20 million. The Company intends to appeal the award and believes, after taking into account all currently available information, including the advice of counsel and the likelihood of available insurance coverage, that this award will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. 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 $
6.0
million for the nine-month period ended November 26, 2022 and $
4.8
million for the nine-month period ended November 27, 2021.
Stock options
Stock option activity for the current nine-month period is summarized as follows:
| Stock Options | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | ||||||||||||||||||||||
| Outstanding at beginning of year |
|
$ |
|
|||||||||||||||||||||||
| Awards exercised |
(
|
|
||||||||||||||||||||||||
| Awards canceled/expired |
(
|
|
||||||||||||||||||||||||
| Outstanding and expected to vest at November 26, 2022 |
|
$ |
|
|
$ |
|
||||||||||||||||||||
For the nine-months ended November 26, 2022, there were
no
cash proceeds from the exercise of stock options as all stock options were exercised on a stock-for-stock basis. 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 $
2.7
million. For the nine-months ended November 27, 2021, cash proceeds from the exercise of stock options was $
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.
18
Executive compensation program
In fiscal 2022, the Compensation Committee of the Board of Directors implemented an executive compensation program for certain key employees. In each of the first quarters of fiscal 2023 and 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 end of the respective performance periods. The number of share units issued at grant is equal to the target number of performance shares and allows for the right to receive a variable 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.
In fiscal 2022, the Compensation Committee of the Board of Directors implemented an executive compensation program for certain key employees. In each of the first quarters of fiscal 2023 and 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 end of the respective performance periods. The number of share units issued at grant is equal to the target number of performance shares and allows for the right to receive a variable 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 restricted stock awards and performance share units, for the current nine-month period is summarized as follows:
| Nonvested shares and units | Number of Shares and Units | Weighted Average Grant Date Fair Value | ||||||||||||
|
Nonvested at February 26, 2022
(1)
|
|
$ |
|
|||||||||||
|
Granted
(2)
|
|
|
||||||||||||
| Vested |
(
|
|
||||||||||||
|
Canceled
(3)
|
(
|
|
||||||||||||
|
Nonvested at November 26, 2022
(4)
|
|
$ |
|
|||||||||||
(1) Includes a total of 50,825 nonvested share units granted and outstanding at target level for the fiscal 2022-2024 performance period.
(2)Includes a total of 38,654 nonvested share units granted and outstanding at target level for the 2023-2025 performance period.
(3) Includes a total of 9,690 nonvested share units cancelled for the fiscal 2022-2024 and fiscal 2023-2025 performance periods.
(4)Includes a total of 45,207 and 34,492 nonvested share units granted and outstanding at target level for the 2022-2024 and 2023-2025 performance periods, respectively.
At November 26, 2022, there was $
11.4
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
25
months. The total fair value of shares vested during the nine months ended November 26, 2022 was $
6.2
million.
10.
Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2019, 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 2018, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.
In the second quarter of fiscal 2023, the Company claimed certain tax deductions, including a worthless stock loss deduction, related to its investment in Sotawall Limited, a Canadian subsidiary. These deductions generated a net tax benefit of $
13.7
million.
11.
Earnings per Share
19
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||||
|
Basic earnings per share – weighted average common shares outstanding
|
|
|
|
|
||||||||||||||||||||||
|
Weighted average effect of nonvested share grants and assumed exercise of stock options
|
|
|
|
|
||||||||||||||||||||||
|
Diluted earnings per share – weighted average common shares and potential common shares outstanding
|
|
|
|
|
||||||||||||||||||||||
|
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)
|
|
|
|
|
||||||||||||||||||||||
12.
Business Segment Data
We have
four
reporting segments:
•
The
Architectural Framing Systems
segment designs, engineers, fabricates and finishes aluminum window, curtainwall, storefront and entrance systems for the exterior of buildings.
•
The
Architectural Services
segment integrates technical services, project management, and field installation services to design, engineer, fabricate, and install building glass and curtainwall systems.
•
The
Architectural Glass
segment coats and fabricates, high-performance glass used in custom window and wall systems on commercial buildings.
•
The
Large-Scale Optical (LSO)
segment manufactures high-performance glass and acrylic products for custom framing, museum, and technical glass markets.
At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects. The fiscal 2022 segment results were recast for comparability.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||
| Architectural Framing Systems | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Architectural Services |
|
|
|
|
||||||||||||||||||||||
| Architectural Glass |
|
|
|
|
||||||||||||||||||||||
| Large-Scale Optical |
|
|
|
|
||||||||||||||||||||||
| Intersegment eliminations |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Net sales | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Operating income (loss) | ||||||||||||||||||||||||||
| Architectural Framing Systems | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Architectural Services |
|
|
|
|
||||||||||||||||||||||
| Architectural Glass |
|
(
|
|
(
|
||||||||||||||||||||||
| Large-Scale Optical |
|
|
|
|
||||||||||||||||||||||
| Corporate and other |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Operating income | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
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
20
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 current fiscal year.
| (In thousands) | Architectural Framing | Architectural Glass | Corporate & Other | Total | ||||||||||||||||||||||
| Balance at February 27, 2021 | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Restructuring expense |
|
|
|
|
||||||||||||||||||||||
| Payments |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Other adjustments |
(
|
|
|
(
|
||||||||||||||||||||||
| Balance at February 26, 2022 |
|
|
|
|
||||||||||||||||||||||
| Restructuring expense |
|
|
|
|
||||||||||||||||||||||
| Payments |
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Other adjustments |
(
|
(
|
|
(
|
||||||||||||||||||||||
| Balance at November 26, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
14. Subsequent Events
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 26, 2022 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. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).
During fiscal 2022, we conducted a strategic review of our business and the markets we serve in order to establish a new enterprise strategy with three key elements, as discussed below:
1.
Become the economic leader in our target markets.
We will achieve this by developing a deep understanding of our target markets and aligning our businesses with clear go-to-market strategies to drive value for our customers through differentiated product and service offerings. We will also build a relentless focus on operational execution, driving productivity improvements, and maintaining a competitive cost structure, so that we may bring more value to our customers and improve our own profitability.
21
2.
Actively manage our portfolio to drive higher margins and returns.
We intend to shift our business mix toward higher operating margin offerings and improve our return on invested capital performance. We will accomplish this by allocating resources to grow our top performing businesses, actively addressing underperforming businesses, and investing to add new differentiated product and service offerings to accelerate our growth.
3.
Strengthen our core capabilities.
We are shifting from our historical, decentralized operating model, to one with center-led functional expertise that enables us to leverage the scale of the enterprise to better support the needs of the business. We are establishing a Company-wide operating system with common tools and processes that are based on the foundation of Lean and Continuous Improvement. This will be supported by a robust talent management program and a commitment to strong governance to ensure compliance and drive sustainable performance.
At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects. The comparative fiscal 2022 segment results for the Architectural Framing Systems and Architectural Services segments have been recast to reflect the move of the Sotawall business into the Architectural Services segment from the Architectural Framing Systems segment, effective at the start of the first quarter of fiscal 2023.
The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended February 26, 2022 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.
Highlights of Third Quarter of Fiscal 2023 Compared to Third Quarter of Fiscal 2022
Net sales
Consolidated net sales increased 10.1 percent, or $33.6 million, and 11.2 percent, or $110.6 million, for the three- and nine-month periods ended November 26, 2022, compared to the same periods in the prior year, primarily driven by flow-through from pricing actions taken to offset inflation within the Architectural Framing Systems and Architectural Glass segments.
The relationship between various components of operations, as a percentage of net sales, is presented below:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| November 26, 2022 | November 27, 2021 | November 26, 2022 | November 27, 2021 | ||||||||||||||||||||
| Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of sales | 76.5 | 80.6 | 76.5 | 81.7 | |||||||||||||||||||
| Gross profit | 23.5 | 19.4 | 23.5 | 18.3 | |||||||||||||||||||
| Selling, general and administrative expenses | 14.1 | 14.1 | 14.3 | 15.2 | |||||||||||||||||||
| Operating income | 9.4 | 5.3 | 9.1 | 3.1 | |||||||||||||||||||
| Interest expense, net | 0.7 | 0.2 | 0.5 | 0.3 | |||||||||||||||||||
| Other expense, net | 0.2 | 0.9 | 0.2 | 0.3 | |||||||||||||||||||
| Earnings before income taxes | 8.6 | 4.2 | 8.4 | 2.5 | |||||||||||||||||||
| Income tax expense | 2.1 | 0.9 | 0.8 | 0.5 | |||||||||||||||||||
| Net earnings | 6.5 | % | 3.3 | % | 7.6 | % | 2.0 | % | |||||||||||||||
| Effective tax rate | 24.8 | % | 21.7 | % | 9.3 | % | 19.6 | % | |||||||||||||||
Gross profit
Gross profit as a percent of sales (gross margin) was 23.5 percent for each of the three- and nine-month periods ended November 26, 2022, respectively, compared to 19.4 percent and 18.3 percent for the three- and nine-month periods ended November 27, 2021. Both period improvements in gross margin were driven primarily by pricing actions that exceeded the inflation-related cost increases in the Architectural Framing Systems and Architectural Glass segments. The nine-month period ended November 26, 2022, includes the benefits from restructuring actions completed in the second quarter of the prior year in the Architectural Glass and Architectural Framing Systems segments. The prior-year periods included $3.6 million and $22.1 million of restructuring charges which were included in cost of sales and incurred during the three- and nine-month periods ended November 27, 2021.
Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales were 14.1 percent and 14.3 percent for the three- and nine-month periods ended November 26, 2022, respectively, compared to 14.1 percent and 15.2 percent for the prior year three- and nine-month periods. SG&A decreased as a percent of sales compared to the nine-month period in the prior year primarily due to the benefits realized from previously completed restructuring actions.
22
Income tax expense
The effective income tax rate in the third quarter of fiscal 2023 was 24.8 percent, compared to 21.7 percent in the same period last year, and 9.3 percent for the first nine months of fiscal 2023, compared to 19.6 percent in the prior year period. In the second quarter of fiscal 2023, the Company claimed certain tax deductions, including a worthless stock loss deduction, related to its investment in Sotawall Limited, a Canadian subsidiary. These deductions generated a net tax benefit of 13.7 million, and reduced our effective tax rate for the nine-month period of fiscal 2023 by approximately 14.8 percentage points.
Segment Analysis
Architectural Framing Systems
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | % Change | November 26, 2022 | November 27, 2021 | % Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 165,013 | $ | 141,462 | 16.6 | % | $ | 501,172 | $ | 415,203 | 20.7 | % | ||||||||||||||||||||||||||
| Operating income | 22,089 | 12,085 | 82.8 | % | 66,266 | 28,837 | 129.8 | % | ||||||||||||||||||||||||||||||
| Operating margin | 13.4 | % | 8.5 | % | 13.2 | % | 6.9 | % | ||||||||||||||||||||||||||||||
Architectural Framing Systems net sales increased $23.6 million, or 16.6 percent, and $86.0 million, or 20.7 percent, for the three- and nine-month periods ended November 26, 2022, respectively, compared to the prior year periods, primarily driven by inflation-related pricing actions.
Operating margin increased 490 basis points and 630 basis points for the three- and nine-month periods of the current year, compared to the same periods in the prior year, reflecting improved pricing and mix, which more than offset the impact of inflation, and the benefits from restructuring actions completed in the prior year, which further strengthened our competitive position and more than offset the impact of cost inflation.
As of November 26, 2022, segment backlog was approximately $246 million, compared to approximately $286 million at the end of the prior quarter of the current fiscal year, and was approximately $269 million at the end of third quarter fiscal 2022. 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 into future business commitments beyond backlog, as projects awarded, verbal commitments and bidding activities are not included in backlog.
Architectural Services
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | % Change | November 26, 2022 | November 27, 2021 | % Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 102,031 | $ | 105,404 | (3.2) | % | $ | 312,151 | $ | 292,506 | 6.7 | % | ||||||||||||||||||||||||||
| Operating income | 6,032 | 7,807 | (22.7) | % | 14,449 | 19,172 | (24.6) | % | ||||||||||||||||||||||||||||||
| Operating margin | 5.9 | % | 7.4 | % | 4.6 | % | 6.6 | % | ||||||||||||||||||||||||||||||
Architectural Services net sales decreased $3.4 million, or 3.2 percent for the three-month period ended November 26, 2022, respectively, compared to the same period in the prior year, driven by decreased project activity. In the comparative nine-month period ended November 26, 2022 net sales increased $19.6 million, or 6.7 percent compared to the same period in the prior year, driven by increased volume from executing projects in backlog.
Operating margin decreased 150 basis points and 200 basis points in the three- and nine-month periods of the current year, respectively, compared to the same periods in the prior year, primarily reflecting lower profitability on legacy Sotawall projects and costs related to investments to support future growth, partially offset by higher volume.
As of November 26, 2022, segment backlog was approximately $741 million, compared to approximately $785 million at the end of the prior quarter of the current fiscal year, and was approximately $722 million at the end of third quarter of fiscal 2022. Backlog, a non-GAAP financial measure, and the implication thereof is described within the Architectural Framing Systems discussion above.
23
Architectural Glass
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | % Change | November 26, 2022 | November 27, 2021 | % Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 81,541 | $ | 74,289 | 9.8 | % | $ | 235,158 | $ | 236,693 | (0.6) | % | ||||||||||||||||||||||||||
| Operating income (loss) | 7,461 | (1,277) | 684.3 | % | 19,087 | (16,143) | 218.2 | % | ||||||||||||||||||||||||||||||
| Operating margin | 9.1 | % | (1.7) | % | 8.1 | % | (6.8) | % | ||||||||||||||||||||||||||||||
Net sales increased $7.3 million, or 9.8 percent, for the three-month period ended November 26, 2022, compared to the same period in the prior year, primarily reflecting improved pricing and mix. Net sales decreased $1.5 million, or 0.6 percent for the nine-month period ended November 26, 2022, compared to the same period in the prior year, primarily reflecting lower volume, mostly offset by improved pricing and mix.
In the current quarter, the segment had operating income of $7.5 million and operating margin of 9.1 percent, compared to operating loss of $1.3 million and negative operating margin of 1.7 percent in the same period of the prior year. The current year third quarter reflects improved pricing, mix and productivity gains, which combined to offset the impact of inflation, while the prior year period included $3.5 million of restructuring costs. For the nine-months ended November 26, 2022, the segment had operating income of $19.1 million and operating margin of 8.1 percent, compared to operating loss of $16.1 million and negative operating margin of 6.8 percent in the same period of the prior year, primarily related to the restructuring costs of $20.9 million incurred during the prior fiscal year. In addition, while the current-year period reflects improved pricing, productivity gains and the positive impacts of restructuring actions completed during the prior year, all of which offset the impact of inflation.
Large-Scale Optical (LSO)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | % Change | November 26, 2022 | November 27, 2021 | % Change | ||||||||||||||||||||||||||||||||
| Net sales | $ | 26,660 | $ | 27,351 | (2.5) | % | $ | 76,988 | $ | 75,122 | 2.5 | % | ||||||||||||||||||||||||||
| Operating income | 7,109 | 5,996 | 18.6 | % | 19,598 | 17,326 | 13.1 | % | ||||||||||||||||||||||||||||||
| Operating margin | 26.7 | % | 21.9 | % | 25.5 | % | 23.1 | % | ||||||||||||||||||||||||||||||
LSO net sales decreased $0.7 million, or 2.5 percent, for the three-month period ended November 26, 2022 compared to the same period in the prior year driven by lower volume. In the comparative nine-month period ended November 26, 2022, net sales increased $1.9 million, or 2.5 percent, compared to the same period in the prior year, primarily driven by improved pricing.
Operating margin increased 480 basis points and 240 basis points in the three- and nine-month periods of the current year, compared to the same periods in the prior year, primarily driven by lower operating costs. A significant portion of the lower operating costs was a non-recurring property tax adjustment contributing to a 210 basis points and 80 basis points of the margin increase for the three- and nine-month periods of the current year, respectively.
Liquidity and Capital Resources
| Selected cash flow data | Nine Months Ended | |||||||||||||
| (In thousands) | November 26, 2022 | November 27, 2021 | ||||||||||||
| Operating Activities | ||||||||||||||
| Net cash provided by operating activities | $ | 51,112 | $ | 86,291 | ||||||||||
| Investing Activities | ||||||||||||||
| Capital expenditures | (18,119) | (13,070) | ||||||||||||
| Proceeds from sales of property, plant and equipment | 5,212 | 1,347 | ||||||||||||
| Financing Activities | ||||||||||||||
| Borrowings on line of credit | 430,879 | — | ||||||||||||
| Repayment on debt | (151,000) | (2,000) | ||||||||||||
| Payments on line of credit | (239,000) | — | ||||||||||||
| Repurchase and retirement of common stock | (74,312) | (29,164) | ||||||||||||
| Dividends paid | (14,415) | (15,050) | ||||||||||||
24
Operating Activities.
Net cash provided by operating activities was $51.1 million for the first nine months of fiscal 2023, compared to $86.3 million of net cash provided by operating activities in the prior year period, reflecting increased working capital required to support revenue growth and inflation.
Investing Activities.
Net cash used by investing activities was $12.0 million for the first nine months of fiscal 2023, driven primarily by capital expenditures of $18.1 million, partially offset by proceeds received from sales of property, plant and equipment of $5.2 million. In the first nine months of the prior year, net cash used by investing activities was $11.6 million, primarily driven by capital expenditures of $13.1 million. The majority of our capital expenditures in the current year and prior year periods are smaller in nature to support future growth and cost reduction initiatives.
Financing Activities.
Net cash used by financing activities was $51.6 million for the first nine months of fiscal 2023, compared to net cash used by financing activities of $44.0 million in the prior year period. The current year period was primarily driven by share repurchases and dividend payments totaling $88.7 million, partially offset by net debt borrowings of $40.9 million, while the prior year period included $44.2 million of share repurchases and dividend payments.
We paid dividends totaling $14.4 million ($0.6600 per share) in the first nine months of fiscal 2023, compared to $15.1 million ($0.6000 per share) in the comparable prior year period. During the first nine months of fiscal 2023, we repurchased 1,571,139 shares under our authorized share repurchase program, for a total cost of $74.3 million. In the first nine months of fiscal 2022, we repurchased 755,384 shares under the share repurchase program, for a total cost of $28.8 million. Since the inception of the share repurchase program in 2004, we have purchased a total of 10,996,601 shares, at a total cost of $381.6 million. As of November 26, 2022, we had remaining authority to repurchase an additional 1,253,399 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.
Additional Liquidity Considerations.
We periodically evaluate our liquidity requirements, cash needs and availability of debt resources relative to acquisition plans, significant capital plans, and other working capital needs.
During the second quarter ended August 27, 2022, we amended and extended our committed revolving credit facility to include maximum borrowings of up to $385 million with a maturity of August 2027. As part of the amendment, we repaid the $150 million term loan with borrowings under the revolving credit facility. As of November 26, 2022, outstanding borrowings under our revolving credit facility were $188.0 million, while there were no outstanding borrowings under the revolving credit facility as of February 26, 2022. We are required to make periodic interest payments on our outstanding indebtedness, and future interest payments will be determined based on the amount of outstanding borrowings and prevailing interest rates during that time.
Our revolving credit facility contains two maintenance financial covenants that require us to stay below a maximum debt-to-EBITDA ratio and maintain a minimum ratio of EBITDA-to-interest expense. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At November 26, 2022, we were in compliance with both financial covenants. Additionally, at November 26, 2022, we had a total of $12.3 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2024 to 2032 and reduce borrowing capacity under the revolving credit facility.
We acquire the use of certain assets through operating leases, such as property, manufacturing equipment, vehicles and other equipment. Future payments for such leases, excluding leases with initial terms of one year or less, were $51.1 million at November 26, 2022, with $3.2 million payable during the remainder of fiscal 2023.
As of November 26, 2022, we had $222.2 million of open purchase obligations, of which payments totaling $53.4 million are expected to become due within the remainder of fiscal 2023. These purchase obligations primarily relate to raw material commitments and capital expenditures and are not expected to impact future liquidity as amounts should be recovered through customer billings.
We expect to make contributions of $0.7 million to our defined-benefit pension plans in fiscal 2023, which will equal or exceed our minimum funding requirements.
As of November 26, 2022, we had reserves of $5.5 million for unrecognized tax benefits. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled.
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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 November 26, 2022, $1.4 billion of these types of bonds were outstanding, of which $578.7 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 year 2020, we took advantage of the option to defer remittance of the employer portion of Social Security tax as provided in the Coronavirus Aid, Relief, and Economic Security Act. This deferral allowed us to retain cash during calendar year 2020 that would have otherwise been remitted to the federal government. We paid our first installment of these deferred social security taxes, totaling approximately $6.8 million, in the fourth quarter of fiscal 2022, and paid our final installment of approximately $6.8 million at the start of the fourth quarter of fiscal 2023.
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 be adequate to meet our short-term and long-term liquidity and capital expenditure needs. In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future. We also believe we will be able to operate our business so as to continue to be in compliance with our existing debt covenants over the next fiscal year.
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
Based on our year-to-date results and increasing confidence in our outlook, we have narrowed our guidance for full-year adjusted earnings to a range of $3.90 to $4.05 per diluted* share, up from the previously announced range of $3.75 to $4.05. We expect full year revenue growth of approximately 10 percent, primarily driven by growth in our Architectural Framing Systems segment. The company continues to expect full-year capital expenditures of approximately $40 million.
* A reconciliation of non-GAAP guidance on adjusted earnings per diluted share (“Adjusted EPS”) to GAAP guidance is not available on a forward-looking basis without unreasonable effort due to the uncertainty of the magnitude and timing of future adjustments. These adjustments may include the impact of such items as impairment charges, restructuring costs, acquired project-related charges, and gains or losses from significant asset sales. Accordingly, the company is unable to provide a reconciliation of Adjusted EPS to the most directly comparable GAAP financial measure or address the probable significance of the unavailable information, which could be material to the company's future financial results computed in accordance with GAAP.
Related Party Transactions
No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended February 26, 2022.
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 26, 2022, except as noted below.
Impairment of goodwill, indefinite-lived intangible assets and long-lived assets
Goodwill
At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects, which resulted in the combination of the Sotawall and Harmon reporting units into a single reporting unit. We evaluated goodwill on a qualitative basis prior to and subsequent to this change for these reporting units and concluded that no adjustment to the carrying value of goodwill was necessary. Concurrent with the move of Sotawall from the Architectural Framing Systems segment to the Architectural Services segment effective at the start of our first quarter of fiscal 2023, goodwill was reallocated to the affected reporting units within each segment, using a relative fair value approach as outlined in ASC 350,
Intangibles - Goodwill and Other
. In addition, for all reporting units, no qualitative indicators of impairment were identified during the first quarter of fiscal 2023, and therefore, no interim quantitative goodwill impairment evaluation was performed.
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 26, 2022 for a discussion of the Company’s market risk. There have been no material changes in market risk since February 26, 2022.
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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 Interim 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 Interim 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 Interim 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 November 26, 2022, 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. In December 2022, the claimant in an arbitration of one such claim was awarded $20 million. The Company intends to appeal the award and believes, after taking into account all currently available information, including the advice of counsel and the likelihood of available insurance coverage, that this award will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. 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.
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 26, 2022.
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 2023:
| 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) | ||||||||||||||||||||||
| August 28, 2022 to September 24, 2022 | 3,351 | $ | 41.16 | — | 1,253,399 | |||||||||||||||||||||
| September 25, 2022 to October 22, 2022 | 1,639 | 38.22 | — | 1,253,399 | ||||||||||||||||||||||
| October 23, 2022 to November 26, 2022 | — | — | — | 1,253,399 | ||||||||||||||||||||||
| Total | 4,990 | $ | 40.57 | — | 1,253,399 | |||||||||||||||||||||
(a)
The shares in this column represent the total number of shares that were surrendered to us by plan participants to satisfy withholding tax obligations related to share-based compensation. We did not purchase any shares pursuant to our publicly announce repurchase program during the fiscal quarter.
(b)
In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. The Board increased the authorization by 750,000 shares, announced on January 24, 2008; by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016, January 9, 2018, January 14, 2020, October 7, 2021, and June 22, 2022; and by 2,000,000 shares, on each of the announcement dates of October 3, 2018 and January 14, 2022. The repurchase program does not have an expiration date.
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Item 6.
Exhibits
| 101# |
The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended November 26, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of November 26, 2022 and February 26, 2022, (ii) the Consolidated Results of Operations for the three- and nine-months ended November 26, 2022 and November 27, 2021, (iii) the Consolidated Statements of Comprehensive Earnings for the three- and nine-months ended November 26, 2022 and November 27, 2021, (iv) the Consolidated Statements of Cash Flows for the nine-months ended November 26, 2022 and November 27, 2021, (v) the Consolidated Statements of Shareholders' Equity for the three- and nine-months ended November 26, 2022 and November 27, 2021, and (vi) Notes to Consolidated Financial Statements.
|
||||
| 104# | Cover 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: December 29, 2022 | By: /s/ Ty R. Silberhorn | ||||||||||
|
Ty R. Silberhorn
President and Chief Executive Officer (Principal Executive Officer) |
|||||||||||
| Date: December 29, 2022 | By: /s/ Mark R. Augdahl | ||||||||||
|
Mark R. Augdahl
Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
|||||||||||
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TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits