Company Quick10K Filing
Quick10K
Apogee Enterprises
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$39.50 27 $1,050
10-Q 2019-06-01 Quarter: 2019-06-01
10-K 2019-03-02 Annual: 2019-03-02
10-Q 2018-12-01 Quarter: 2018-12-01
10-Q 2018-09-01 Quarter: 2018-09-01
10-Q 2018-06-02 Quarter: 2018-06-02
10-K 2018-03-03 Annual: 2018-03-03
10-Q 2017-12-02 Quarter: 2017-12-02
10-Q 2017-09-02 Quarter: 2017-09-02
10-Q 2017-06-03 Quarter: 2017-06-03
10-K 2017-03-04 Annual: 2017-03-04
10-Q 2016-11-26 Quarter: 2016-11-26
10-Q 2016-08-27 Quarter: 2016-08-27
10-Q 2016-05-28 Quarter: 2016-05-28
10-K 2016-02-27 Annual: 2016-02-27
10-Q 2015-11-28 Quarter: 2015-11-28
10-Q 2015-08-29 Quarter: 2015-08-29
10-Q 2015-05-30 Quarter: 2015-05-30
10-K 2015-02-28 Annual: 2015-02-28
10-Q 2014-11-29 Quarter: 2014-11-29
10-Q 2014-08-30 Quarter: 2014-08-30
10-Q 2014-05-31 Quarter: 2014-05-31
10-K 2014-03-01 Annual: 2014-03-01
10-Q 2013-11-30 Quarter: 2013-11-30
8-K 2019-08-05 Officers, Exhibits
8-K 2019-08-05 Enter Agreement, Exhibits
8-K 2019-06-27 Earnings, Exhibits
8-K 2019-06-26 Officers, Exhibits
8-K 2019-06-25 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-25 Exhibits
8-K 2019-04-11 Earnings, Exhibits
8-K 2019-02-08 Enter Agreement, Exhibits
8-K 2018-12-20 Earnings, Exhibits
8-K 2018-10-02 Officers, Exhibits
8-K 2018-09-18 Earnings, Exhibits
8-K 2018-06-28 Earnings, Exhibits
8-K 2018-06-27 Officers, Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-04-26 Officers, Regulation FD, Exhibits
8-K 2018-04-12 Earnings, Exhibits
8-K 2018-01-05 Regulation FD, Other Events, Exhibits
FR First Industrial Realty Trust 4,360
PRTY Party City Holdco 755
FFIC Flushing Financial 641
MAXR Maxar Technologies 400
DEST Destination Maternity 31
LCA Landcadia 0
DREM Dream Homes & Development 0
KANP Kaanapali Land 0
CHFN Charter Financial 0
PSN Parsons 0
APOG 2019-06-01
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.1 apog-ex311_20190601.htm
EX-31.2 apog-ex312_20190601.htm
EX-32.1 apog-ex321_20190601.htm
EX-32.2 apog-ex322_20190601.htm

Apogee Enterprises Earnings 2019-06-01

APOG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 apog-2019060110xq.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________ 
FORM 10-Q
 _________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 1, 2019
o
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 0-6365
_________________________________ 
APOGEE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
 _________________________________
Minnesota
 
41-0919654
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
4400 West 78th Street – Suite 520,
Minneapolis, MN
 
55435
(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
Common stock, par value $0.33 1/3 per share
 
APOG
 
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
 
 
 
Non-accelerated filer
 
o
  
Smaller reporting company
 
o
 
 
 
 
 
 
 
Emerging growth company
 
o
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  Yes    x  No
As of July 10, 2019, 26,518,842 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.
 



APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
 
  
 
Page
PART I
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

3


PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

CONSOLIDATED BALANCE SHEETS
(unaudited)
In thousands, except stock data
 
June 1, 2019
 
March 2, 2019
Assets
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
20,619

 
$
17,087

Restricted cash
 
8,337

 
12,154

Receivables, net of allowance for doubtful accounts
 
209,338

 
192,767

Inventories
 
77,345

 
78,344

Costs and earnings on contracts in excess of billings
 
61,069

 
55,095

Other current assets
 
16,081

 
16,451

Total current assets
 
392,789

 
371,898

Property, plant and equipment, net
 
317,522

 
315,823

Operating lease right-of-use assets
 
46,780

 

Goodwill
 
185,237

 
185,832

Intangible assets
 
144,908

 
148,235

Other non-current assets
 
45,003

 
46,380

Total assets
 
$
1,132,239

 
$
1,068,168

Liabilities and Shareholders’ Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable
 
$
73,017

 
$
72,219

Accrued payroll and related benefits
 
25,864

 
41,119

Billings on contracts in excess of costs and earnings
 
20,230

 
21,478

Operating lease liabilities
 
10,704

 

Other current liabilities
 
85,090

 
92,696

Total current liabilities
 
214,905

 
227,512

Long-term debt
 
293,309

 
245,724

Non-current operating lease liabilities
 
37,220

 

Non-current self-insurance reserves
 
23,117

 
21,433

Other non-current liabilities
 
78,712

 
77,182

Commitments and contingent liabilities (Note 8)
 
 
 
 
Shareholders’ equity
 
 
 
 
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 26,530,369 and 27,015,127 respectively
 
8,843

 
9,005

Additional paid-in capital
 
150,240

 
151,842

Retained earnings
 
360,394

 
367,597

Common stock held in trust
 
(767
)
 
(755
)
Deferred compensation obligations
 
767

 
755

Accumulated other comprehensive loss
 
(34,501
)
 
(32,127
)
Total shareholders’ equity
 
484,976

 
496,317

Total liabilities and shareholders’ equity
 
$
1,132,239

 
$
1,068,168


See accompanying notes to consolidated financial statements.

4


CONSOLIDATED RESULTS OF OPERATIONS
(unaudited)
 
 
Three Months Ended
In thousands, except per share data
 
June 1, 2019
 
June 2, 2018
Net sales
 
$
355,365

 
$
336,531

Cost of sales
 
274,398

 
255,801

Gross profit
 
80,967

 
80,730

Selling, general and administrative expenses
 
57,926

 
58,735

Operating income
 
23,041

 
21,995

Interest and other expense, net
 
2,611

 
1,741

Earnings before income taxes
 
20,430

 
20,254

Income tax expense
 
4,987

 
4,881

Net earnings
 
$
15,443

 
$
15,373

Earnings per share - basic
 
$
0.58

 
$
0.55

Earnings per share - diluted
 
$
0.58

 
$
0.54

Weighted average basic shares outstanding
 
26,597

 
28,189

Weighted average diluted shares outstanding
 
26,843

 
28,437


See accompanying notes to consolidated financial statements.

5


CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Net earnings
 
$
15,443

 
$
15,373

Other comprehensive (loss) earnings:
 
 
 
 
Unrealized gain on marketable securities, net of $47 and $2 of tax expense, respectively
 
181

 
10

Unrealized gain (loss) on foreign currency hedge, net of $2 and ($92) of tax expense (benefit), respectively
 
5

 
(304
)
Foreign currency translation adjustments
 
(2,560
)
 
(517
)
Other comprehensive loss
 
(2,374
)
 
(811
)
Total comprehensive earnings
 
$
13,069

 
$
14,562



See accompanying notes to consolidated financial statements.

6


CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Operating Activities
 
 
 
 
Net earnings
 
$
15,443

 
$
15,373

Adjustments to reconcile net earnings to net cash (used) provided by operating activities:
 
 
 
 
Depreciation and amortization
 
11,102

 
14,050

Share-based compensation
 
1,618

 
1,514

Deferred income taxes
 
6,438

 
4,094

Noncash lease expense
 
2,902

 

Other, net
 
(1,762
)
 
(440
)
Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
(16,982
)
 
26,183

Inventories
 
835

 
6,578

Costs and earnings on contracts in excess of billings
 
(6,007
)
 
(35,258
)
Accounts payable and accrued expenses
 
(16,834
)
 
(19,715
)
Billings on contracts in excess of costs and earnings
 
(1,198
)
 
11,933

Refundable and accrued income taxes
 
(4,369
)
 
301

Other
 
(928
)
 
730

Net cash (used) provided by operating activities
 
(9,742
)
 
25,343

Investing Activities
 
 
 
 
Capital expenditures
 
(11,198
)
 
(9,327
)
Purchases of marketable securities
 
(880
)
 
(8,619
)
Sales/maturities of marketable securities
 
1,112

 
2,495

Other
 
(1,056
)
 
(779
)
Net cash used in investing activities
 
(12,022
)
 
(16,230
)
Financing Activities
 
 
 
 
Borrowings on line of credit
 
103,000

 
90,000

Payments on line of credit
 
(55,500
)
 
(92,000
)
Repurchase and retirement of common stock
 
(20,010
)
 

Dividends paid
 
(4,598
)
 
(4,410
)
Other
 
(1,270
)
 
(721
)
Net cash provided (used) by financing activities
 
21,622

 
(7,131
)
(Decrease) increase in cash and cash equivalents
 
(142
)
 
1,982

Effect of exchange rates on cash
 
(143
)
 
279

Cash, cash equivalents and restricted cash at beginning of year
 
29,241

 
19,359

Cash, cash equivalents and restricted cash at end of period
 
$
28,956

 
$
21,620

Noncash Activity
 
 
 
 
Capital expenditures in accounts payable
 
$
1,667

 
$
2,162


See accompanying notes to consolidated financial statements.

7


CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
In thousands
 
Common Shares Outstanding
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Common Stock Held in Trust
 
Deferred Compensation Obligation
 
Accumulated Other Comprehensive (Loss) Income
Balance at March 2, 2019
 
27,015

 
$
9,005

 
$
151,842

 
$
367,597

 
$
(755
)
 
$
755

 
$
(32,127
)
Net earnings
 

 

 

 
15,443

 

 

 

Unrealized gain on marketable securities, net of $47 tax expense
 

 

 

 

 

 

 
181

Unrealized gain on foreign currency hedge, net of $2 tax expense
 

 

 

 

 

 

 
5

Foreign currency translation adjustments
 

 

 

 

 

 

 
(2,560
)
Issuance of stock, net of cancellations
 
79

 
26

 
14

 

 
(12
)
 
12

 

Share-based compensation
 

 

 
1,618

 

 

 

 

Share repurchases
 
(532
)
 
(177
)
 
(3,051
)
 
(16,782
)
 

 

 

Other share retirements
 
(32
)
 
(11
)
 
(183
)
 
(1,266
)
 

 

 

Cash dividends
 

 

 

 
(4,598
)
 

 

 

Balance at June 1, 2019
 
26,530

 
$
8,843

 
$
150,240

 
$
360,394

 
$
(767
)
 
$
767

 
$
(34,501
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 3, 2018
 
28,158

 
$
9,386

 
$
152,763

 
$
373,259

 
$
(922
)
 
$
922

 
$
(24,053
)
Cumulative effect adjustment
 

 

 

 
2,999

 

 

 

Reclassification of tax effects
 

 

 

 
737

 

 

 
(737
)
Net earnings
 

 

 

 
15,373

 

 

 

Unrealized gain on marketable securities, net of $2 tax expense
 

 

 

 

 

 

 
10

Unrealized loss on foreign currency hedge, net of $92 tax benefit
 

 

 

 

 

 

 
(304
)
Foreign currency translation adjustments
 

 

 

 

 

 

 
(517
)
Issuance of stock, net of cancellations
 
90

 
30

 
35

 

 
91

 
(91
)
 

Share-based compensation
 

 

 
1,514

 

 

 

 

Exercise of stock options
 
19

 
6

 
177

 

 

 

 

Other share retirements
 
(41
)
 
(13
)
 
(228
)
 
(1,440
)
 

 

 

Cash dividends
 

 

 

 
(4,410
)
 

 

 

Balance at June 2, 2018
 
28,226

 
$
9,409

 
$
154,261

 
$
386,518

 
$
(831
)
 
$
831

 
$
(25,601
)


See accompanying notes to consolidated financial statements.

8


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.
Summary of Significant Accounting Policies

Basis of presentation
The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States. The information included in this Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended March 2, 2019. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three-month period ended June 1, 2019 are not necessarily indicative of the results to be expected for the full year.

Adoption of new accounting standards
At the beginning of fiscal 2020, we adopted the guidance in ASC 842, Leases, following a modified retrospective approach and elected not to restate prior periods. Adoption of the new standard resulted in recording operating lease assets and liabilities of approximately $50 million as of March 3, 2019 and did not materially impact our consolidated net earnings and cash flows. Refer to additional information in Note 7.

Accounting standards not yet adopted
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope. The new standard introduces an approach based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. This ASU is effective for our fiscal year 2021. Entities are required to apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently assessing this ASU's impact on our consolidated financial statements.

Subsequent events
We have evaluated subsequent events for potential recognition and disclosure through the date of this filing. Subsequent to the end of the quarter, we amended and extended our revolving line of credit facility. Refer to additional information in Note 6.

2.
Revenue, Receivables and Contract Assets and Liabilities

Revenue
The following table disaggregates total revenue by timing of recognition (see Note 13 for disclosure of revenue by segment):
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Recognized at shipment
 
$
155,265

 
$
156,867

Recognized over time
 
200,100

 
179,664

Total
 
$
355,365

 
$
336,531


Receivables
Trade and construction accounts receivable consist of amounts billed and due from customers. The amounts due are stated at their estimated net realizable value. We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. This allowance is based on an assessment of customer creditworthiness, historical payment experience and the age of outstanding receivables. Retainage on construction contracts represents amounts withheld by our customers on long-term projects until the project reaches a level of completion where amounts are released.
In thousands
 
June 1, 2019
 
March 2, 2019
Trade accounts
 
$
160,135

 
$
145,693

Construction contracts
 
19,626

 
19,050

Contract retainage
 
34,287

 
32,396

Total receivables
 
214,048

 
197,139

Less: allowance for doubtful accounts
 
(4,710
)
 
(4,372
)
Net receivables
 
$
209,338

 
$
192,767


9



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

The time period between when performance obligations are complete and when payment is due is not significant. In certain of our businesses that recognize revenue over time, progress billings follow an agreed-upon schedule of values, and retainage is withheld by the customer until the project reaches a level of completion where amounts are released.
In thousands
 
June 1, 2019
 
March 2, 2019
Contract assets
 
$
95,356

 
$
87,491

Contract liabilities
 
23,081

 
24,083


The increase in contract assets was due to timing of costs incurred in advance of billings. The change in contract liabilities was due to timing of project activity within our businesses that operate under long-term contracts.

In the first three months of fiscal 2020, we recognized revenue of $14.2 million related to contract liabilities at March 2, 2019, and revenue of $1.9 million related to performance obligations satisfied in previous periods due to changes in contract estimates. In the first quarter of fiscal 2019, we recognized revenue of $9.1 million related to contract liabilities at March 4, 2018, and recognized revenue of $2.3 million related to performance obligations satisfied in previous periods due to changes in contract estimates.

Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally these contracts are in our businesses with long-term contracts which recognize revenue over time. As of June 1, 2019, the transaction price associated with unsatisfied performance obligations was approximately $766.1 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
In thousands
 
June 1, 2019
Within one year
 
$
394,690

Within two years
 
267,140

Beyond
 
104,250

Total
 
$
766,080


3.
Supplemental Balance Sheet Information

Inventories
In thousands
 
June 1, 2019
 
March 2, 2019
Raw materials
 
$
43,921

 
$
43,890

Work-in-process
 
16,535

 
15,533

Finished goods
 
16,889

 
18,921

Total inventories
 
$
77,345

 
$
78,344


Other current liabilities
In thousands
 
June 1, 2019
 
March 2, 2019
Warranties
 
$
11,411

 
$
12,475

Accrued project losses
 
32,263

 
37,085

Taxes
 
6,696

 
8,026

Accrued self-insurance reserves
 
6,658

 
9,537

Other
 
28,062

 
25,573

Total other current liabilities
 
$
85,090

 
$
92,696


10



Other non-current liabilities
In thousands
 
June 1, 2019
 
March 2, 2019
Deferred benefit from New Market Tax Credit transactions
 
$
26,458

 
$
26,458

Retirement plan obligations
 
7,633

 
7,633

Deferred compensation plan
 
10,892

 
10,408

Other
 
33,729

 
32,683

Total other non-current liabilities
 
$
78,712

 
$
77,182


4.
Financial Instruments

Marketable securities
We hold the following available-for-sale marketable securities, made up of municipal and corporate bonds: 
In thousands
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated
Fair Value
June 1, 2019
 
$
12,121

 
$
181

 
$
(2
)
 
$
12,300

March 2, 2019
 
12,481

 
59

 
(108
)
 
12,432


We have a wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), which holds these municipal and corporate bonds. Prism insures a portion of our general liability, workers’ compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments, which are generally high-quality municipal and corporate bonds, for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements.

The amortized cost and estimated fair values of these bonds at June 1, 2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without penalty. 
In thousands
 
Amortized Cost
 
Estimated Fair Value
Due within one year
 
$
600

 
$
601

Due after one year through five years
 
9,293

 
9,429

Due after five years through 10 years
 
1,822

 
1,863

Due after 10 years through 15 years
 

 

Due beyond 15 years
 
406

 
407

Total
 
$
12,121

 
$
12,300


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.

11


In thousands
 
Quoted Prices in
Active Markets
(Level 1)
 
Other Observable Inputs (Level 2)
 
Total Fair Value
June 1, 2019
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
Money market funds
 
$
2,611

 
$

 
$
2,611

Commercial paper
 

 
4,500

 
4,500

Total cash equivalents
 
2,611

 
4,500

 
7,111

Short-term securities
 
 
 
 
 
 
Municipal and corporate bonds
 

 
601

 
601

Long-term securities
 
 
 
 
 
 
Municipal and corporate bonds
 

 
11,699

 
11,699

Total assets at fair value
 
$
2,611

 
$
16,800

 
$
19,411

March 2, 2019
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
Money market funds
 
$
2,015

 
$

 
$
2,015

Commercial paper
 

 
300

 
300

Total cash equivalents
 
2,015

 
300

 
2,315

Short-term securities
 
 
 
 
 
 
Municipal and corporate bonds
 

 
402

 
402

Long-term securities
 
 
 
 
 
 
Municipal and corporate bonds
 

 
12,030

 
12,030

Total assets at fair value
 
$
2,015

 
$
12,732

 
$
14,747


Cash equivalents
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.

Short- and long-term securities
Mutual funds were measured at fair value based on quoted prices for identical assets in active markets. Municipal and corporate bonds were measured at fair value based on market prices from recent trades of similar securities and are classified as short-term or long-term based on maturity date.

Foreign currency instruments
We periodically enter into forward purchase foreign currency contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk. As of June 1, 2019, we held foreign exchange forward contracts with a U.S. dollar notional value of $29.8 million, with the objective of reducing the exposure to fluctuations in the Canadian dollar and the Euro. The fair value of these contracts was a liability of $0.7 million as of June 1, 2019. These forward contracts are measured at fair value using unobservable market inputs, such as quotations on forward foreign exchange points and foreign currency exchange rates, and would be classified as Level 2 within the fair value hierarchy above.

5.
Goodwill and Other Identifiable Intangible Assets

The carrying amount of goodwill attributable to each reporting segment was:  
In thousands
 
Architectural Framing Systems
 
Architectural Glass
 
Architectural Services
 
Large-Scale
Optical
 
Total
Balance at March 3, 2018
 
$
143,308

 
$
25,971

 
$
1,120

 
$
10,557

 
$
180,956

Goodwill adjustments for purchase accounting

 
6,267

 

 

 

 
6,267

Foreign currency translation
 
(1,129
)
 
(262
)
 

 

 
(1,391
)
Balance at March 2, 2019
 
148,446

 
25,709

 
1,120

 
10,557

 
185,832

Foreign currency translation
 
(578
)
 
(17
)
 

 

 
(595
)
Balance at June 1, 2019
 
$
147,868

 
$
25,692

 
$
1,120

 
$
10,557

 
$
185,237




12


The gross carrying amount of other intangible assets and related accumulated amortization was:
In thousands
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Impairment
 
Foreign
Currency
Translation
 
Net
June 1, 2019
 
 
 
 
 
 
 
 
 
 
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
120,238

 
$
(28,094
)
 
$

 
$
(1,190
)
 
$
90,954

Other intangibles
 
40,847

 
(31,727
)
 

 
(322
)
 
8,798

Total definite-lived intangible assets
 
161,085

 
(59,821
)
 

 
(1,512
)
 
99,752

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
Trademarks
 
45,421

 

 

 
(265
)
 
45,156

Total intangible assets
 
$
206,506

 
$
(59,821
)
 
$

 
$
(1,777
)
 
$
144,908

March 2, 2019
 
 
 
 
 
 
 
 
 
 
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
Customer relationships
 
$
122,816

 
$
(26,637
)
 
$

 
$
(2,578
)
 
$
93,601

Other intangibles
 
41,697

 
(31,634
)
 

 
(850
)
 
9,213

Total definite-lived intangible assets
 
164,513

 
(58,271
)
 

 
(3,428
)
 
102,814

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
Trademarks
 
49,078

 

 
(3,141
)
 
(516
)
 
45,421

Total intangible assets
 
$
213,591

 
$
(58,271
)
 
$
(3,141
)
 
$
(3,944
)
 
$
148,235


Amortization expense on definite-lived intangible assets was $1.9 million and $4.8 million for the three-month periods ended June 1, 2019 and June 2, 2018, respectively. The amortization expense associated with debt issue costs is included in interest expense, while the remainder is in selling, general and administrative expenses in the consolidated results of operations. At June 1, 2019, the estimated future amortization expense for definite-lived intangible assets was:
In thousands
 
Remainder of Fiscal 2020
 
Fiscal 2021
 
Fiscal 2022
 
Fiscal 2023
 
Fiscal 2024
Estimated amortization expense
 
$
5,930

 
$
7,900

 
$
7,797

 
$
7,438

 
$
7,358


6.
Debt

As of June 1, 2019, we had a committed revolving credit facility with maximum borrowings of up to $335.0 million, maturing in November 2021. Outstanding borrowings under our committed revolving credit facility were $272.5 million, as of June 1, 2019, and $225.0 million, as of March 2, 2019.

We are subject to two financial covenants that require us to stay below a maximum debt-to-EBITDA ratio and maintain a minimum ratio of interest expense-to-EBITDA. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At June 1, 2019, we were in compliance with both financial covenants. Additionally, at June 1, 2019, we had a total of $25.1 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2020 to 2032 and reduce availability of funds under our credit facility.

Subsequent to the end of the quarter, we amended and extended this financing arrangement, consisting of a $235 million revolving credit facility, with a maturity of June 2024, and a $150 million term loan, with a maturity of June 2020. The amended and extended facility contains the same two financial covenants as described above.

At June 1, 2019, our debt also included $20.4 million of industrial revenue bonds that mature in fiscal years 2021 through 2043 and $0.4 million of long-term debt in Canada. The fair value of the industrial revenue bonds approximated carrying value at June 1, 2019, due to the variable interest rates on these instruments. All debt would be classified as Level 2 within the fair value hierarchy described in Note 4.

We also maintain two Canadian demand credit facilities totaling $12.0 million Canadian dollars. As of June 1, 2019 and March 2, 2019, no borrowings were outstanding under the facilities. Borrowings under these facilities are made available at the sole discretion of the lenders and are payable on demand.

Interest payments were $2.4 million and $1.8 million for the three months ended June 1, 2019 and June 2, 2018, respectively.

13



7. Leases

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

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

The components of lease expense were as follows:
 
 
Three Months Ended
In thousands
 
June 1, 2019
Operating lease cost
 
$
3,373

Short-term lease cost
 
682

Variable lease cost
 
713

Total lease cost
 
$
4,768


Other supplemental information related to leases was as follows:
 
 
Three Months Ended
In thousands except weighted-average data
 
June 1, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
3,300

Lease assets obtained in exchange for new operating lease liabilities
 
$
706

Weighted-average remaining lease term - operating leases
 
5.5 years

Weighted-average discount rate - operating leases
 
3.74
%

Future maturities of lease liabilities are as follows:
In thousands
 
June 1, 2019
Remainder of Fiscal 2020
 
$
9,782

Fiscal 2021
 
10,346

Fiscal 2022
 
8,716

Fiscal 2023
 
7,920

Fiscal 2024
 
6,007

Fiscal 2025
 
4,298

Thereafter
 
6,369

Total lease payments
 
53,438

Less: Amounts representing interest
 
(5,514
)
Present value of lease liabilities
 
$
47,924


We have two operating leases with a related party; total rent paid for these facilities was approximately $0.5 million for the three months ended June 1, 2019, and the future minimum lease commitment is $12.5 million. As of June 1, 2019, we have additional future operating lease commitments of $15.5 million for leases that have not yet commenced, with terms ranging from one to ten years.


14


Aggregate annual future rental commitments under operating leases with noncancellable terms of more than one year at March 2, 2019 were reported under previous lease accounting standards as follows:
In thousands
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
Total
Total minimum payments
 
$
14,888

 
11,787

 
9,669

 
8,772

 
6,735

 
16,806

 
$
68,657


8.
Commitments and Contingent Liabilities

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 June 1, 2019, $306.3 million of our backlog was bonded by these types of bonds with a face value of $638.9 million. These bonds do not have stated expiration dates, as we are generally released from the bonds upon completion of the contract. We have not been required to make any payments under these bonds with respect to our existing businesses.

Warranty and project-related contingencies
We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims as a ratio of sales. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product mix and any significant changes in sales volume. A warranty rollforward follows:  
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Balance at beginning of period
 
$
16,737

 
$
22,517

Additional accruals
 
1,787

 
1,062

Claims paid
 
(2,771
)
 
(1,193
)
Balance at end of period
 
$
15,753

 
$
22,386


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 actively manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages. We have recorded an estimated liability related to legacy EFCO projects of $38.0 million and $42.8 million as of June 1, 2019 and March 2, 2019, respectively.

Letters of credit
At June 1, 2019, we had $25.1 million of ongoing letters of credit, all of which have been issued under our committed revolving credit facility, as discussed in Note 6.

Purchase obligations
Purchase obligations for raw material commitments and capital expenditures totaled $132.7 million as of June 1, 2019.

New Markets Tax Credit transactions
We have entered into four separate NMTC programs to support our operational expansion, including two transactions completed in fiscal 2019. Proceeds received from investors on these transactions are included within other non-current liabilities on our consolidated balance sheets. The NMTC arrangements are subject to 100 percent tax recapture for a period of seven years from the date of each respective transaction. Therefore, 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 on 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, we are required to hold cash dedicated to fund each capital project which is classified as restricted cash on our consolidated balance sheets. Variable-interest entities, which have been included within our consolidated financial statements, have been created as a result of the structure of these transactions, as investors in the programs do not have a material interest in their underlying economics.






15


The table below provides a summary of our outstanding NMTC transactions (in millions):
Inception date
 
Termination date
 
Proceeds received
 
Deferred costs
Net benefit
November 2013
 
October 2020
 
$
10.7

 
$
3.0

$
7.7

June 2016
 
May 2023
 
6.0

 
0.9

5.1

August 2018
 
July 2025
 
6.6

 
0.9

5.7

September 2018
 
August 2025
 
3.2

 
0.8

2.4

Total
 
 
 
$
26.5

 
$
5.6

$
20.9


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

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

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

9.
Share-Based Compensation

Total share-based compensation expense included in the results of operations was $1.6 million for the three-month period ended June 1, 2019 and $1.5 million for the three-month period ended June 2, 2018.

Stock options and SARs
Stock option and SAR activity for the current three-month period is summarized as follows:
Stock options and SARs
 
Number of Shares
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
 
Aggregate Intrinsic Value
Outstanding at March 2, 2019
 
100,341

 
$
8.34

 
 
 
 
Awards exercised
 

 

 
 
 
 
Outstanding and exercisable at June 1, 2019
 
100,341

 
8.34

 
2.3 years
 
$
2,800,517


No awards were exercised for the three-months ended June 1, 2019. For the three-months ended June 2, 2018, cash proceeds from the exercise of stock options were $0.2 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 $0.6 million.


16


Nonvested shares and share units
Nonvested share activity for the current three-month period is summarized as follows:
Nonvested shares and units
 
Number of Shares and Units
 
Weighted Average Grant Date Fair Value
Nonvested at March 2, 2019
 
286,613

 
$
47.00

Granted
 
80,571

 
39.50

Vested
 
(73,771
)
 
45.09

Canceled
 
(1,500
)
 
47.35

Nonvested at June 1, 2019
 
291,913

 
45.41


At June 1, 2019, there was $8.2 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 24 months. The total fair value of shares vested during the three months ended June 1, 2019 was $3.0 million.

10.
Employee Benefit Plans

The Company sponsors two frozen defined-benefit pension plans: an unfunded Officers’ Supplemental Executive Retirement Plan and the Tubelite Inc. Hourly Employees’ Pension Plan. Components of net periodic benefit cost were:
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Interest cost
 
$
123

 
$
127

Expected return on assets
 
(46
)
 
(10
)
Amortization of unrecognized net loss
 
55

 
57

Net periodic benefit cost
 
$
132

 
$
174


11.
Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2016, 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 2015, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.

The total liability for unrecognized tax benefits was approximately $5.3 million at June 1, 2019 and $5.1 million at March 2, 2019. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. The total liability for unrecognized tax benefits is expected to decrease by approximately $0.5 million during the next 12 months due to lapsing of statutes.

12.
Earnings per Share

The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Basic earnings per share – weighted average common shares outstanding
 
26,597

 
28,189

Weighted average effect of nonvested share grants and assumed exercise of stock options
 
246

 
248

Diluted earnings per share – weighted average common shares and potential common shares outstanding
 
26,843

 
28,437

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)

 
104

 
147






17


13.
Segment Information

The Company has four reporting segments: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).
The Architectural Framing Systems segment designs, engineers, fabricates and finishes the aluminum frames used in customized aluminum and glass window, curtainwall, storefront and entrance systems comprising the outside skin and entrances of commercial, institutional and high-end multi-family residential buildings. The Company has aggregated six operating segments into this reporting segment based on their similar products, customers, distribution methods, production processes and economic characteristics.
The Architectural Glass segment fabricates coated, high-performance glass used in customized window and wall systems comprising the outside skin of commercial, institutional and high-end multi-family residential buildings.
The Architectural Services segment designs, engineers, fabricates and installs the walls of glass, windows and other curtainwall products making up the outside skin of commercial and institutional buildings.
The LSO segment manufactures value-added glass and acrylic products primarily for framing and display applications.
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Net sales from operations
 
 
 
 
Architectural Framing Systems
 
$
180,522

 
$
179,037

Architectural Glass
 
100,291

 
76,925

Architectural Services
 
65,147

 
70,727

Large-Scale Optical
 
21,259

 
20,761

Intersegment eliminations
 
(11,854
)
 
(10,919
)
Net sales
 
$
355,365

 
$
336,531

Operating income (loss) from operations
 
 
 
 
Architectural Framing Systems
 
$
12,273

 
$
12,339

Architectural Glass
 
6,399

 
1,579

Architectural Services
 
4,573

 
5,155

Large-Scale Optical
 
4,177

 
4,981

Corporate and other
 
(4,381
)
 
(2,059
)
Operating income
 
$
23,041

 
$
21,995


Due to the varying combinations and integration of individual window, storefront and curtainwall systems, it is impractical to report product revenues generated by class of product, beyond the segment revenues currently reported.

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

Forward-looking statements
This discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should” and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this document are “forward-looking statements,” and are based on management’s current expectations or beliefs of the Company’s near-term results, based on current information available pertaining to the Company, including the risk factors noted under Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2019. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.

Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other risk factors include, but are not limited to, the risks and uncertainties set forth under Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended March 2, 2019.


18


We wish to caution investors that other factors might in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview
We are a world leader in certain technologies involving the design and development of value-added glass and metal products and services for enclosing commercial buildings and framing and displays. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).

The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended March 2, 2019 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.

Highlights of First Quarter of Fiscal 2020 Compared to First Quarter of Fiscal 2019

Net sales
Consolidated net sales increased 5.6 percent, or $18.8 million, for the first quarter ended June 1, 2019, compared to the prior year period, driven by improved volume in the Architectural Glass segment, partially offset by a decline in the Architectural Services segment, as expected, based on timing of project activity.

The relationship between various components of operations, as a percentage of net sales, is presented below: 
 
Three Months Ended
 
June 1, 2019
 
June 2, 2018
Net sales
100.0
 %
 
100.0
 %
Cost of sales
77.2

 
76.0

Gross profit
22.8

 
24.0

Selling, general and administrative expenses
16.3

 
17.5

Operating income
6.5

 
6.5

Interest and other expense, net
(0.7
)
 
(0.5
)
Earnings before income taxes
5.7

 
6.0

Income tax expense
1.4

 
1.5

Net earnings
4.3
 %
 
4.5
 %
Effective tax rate
24.4
 %
 
24.1
 %

Gross profit
Gross profit as a percent of sales was 22.8 percent for the three-month period ended June 1, 2019, compared to 24.0 percent the three-month period ended June 2, 2018. The decline was driven by less favorable project mix in the Architectural Framing segment, somewhat offset by improved volume leverage in the Architectural Glass segment.
Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales declined to 16.3 percent in the three-month period ended June 1, 2019, compared to 17.5 percent in the prior year three-month period primarily due to reduced amortization on short-lived intangibles.
Income tax expense
The effective tax rate in the first quarter of fiscal 2020 was 24.4 percent, compared to 24.1 percent in the same period last year. The slight rate increase was driven by many factors, including increased foreign income and the ongoing impacts of tax reform.






19



Segment Analysis

Architectural Framing Systems
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
 
% Change
Net sales
 
$
180,522

 
$
179,037

 
0.8
 %
Operating income
 
12,273

 
12,339

 
(0.5
)%
Operating margin
 
6.8
%
 
6.9
%
 
 
Architectural Framing Systems net sales increased $1.5 million, or 0.8 percent, for the three-month period ended June 1, 2019, compared to the prior year period. Operating margin decreased 10 basis points for the current quarter compared to the prior year due to less favorable project mix, offset by lower amortization.
As of June 1, 2019, segment backlog was approximately $402 million, compared to approximately $400 million at fiscal 2019 year-end.

Architectural Glass
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
 
% Change
Net sales
 
$
100,291

 
$
76,925

 
30.4
%
Operating income
 
6,399

 
1,579

 
305.3
%
Operating margin
 
6.4
%
 
2.1
%
 
 
Net sales increased $23.4 million, or 30.4 percent, for the three-month period ended June 1, 2019, compared to the same period in the prior year. The increase in the current-year first quarter was the result of increased volume, price and mix driven by strong customer demand.
Operating margin increased 430 basis points for the three-month period of the current year, compared to the same period in the prior year, primarily driven by improved operating leverage on higher volume and improved price and mix compared to the prior year. Additionally, margin in the current year quarter includes a 60 basis point impact from start-up costs related to a new growth initiative in this segment.

Architectural Services
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
 
% Change
Net sales
 
$
65,147

 
$
70,727

 
(7.9
)%
Operating income
 
4,573

 
5,155

 
(11.3
)%
Operating margin
 
7.0
%
 
7.3
%
 
 
Architectural Services net sales declined $5.6 million, or 7.9 percent, for the three-month period ended June 1, 2019, over the same period in the prior year, due to timing of project activity.
Operating margin decreased 30 basis points for the three-month period of the current year, compared to the same period in the prior year, due to reduced leverage on the lower project volume.
As of June 1, 2019, segment backlog was approximately $483 million, compared to approximately $444 million at fiscal 2019 year-end.

Large-Scale Optical (LSO)
 
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
 
% Change
Net sales
 
$
21,259

 
$
20,761

 
2.4
 %
Operating income
 
4,177

 
4,981

 
(16.1
)%
Operating margin
 
19.6
%
 
24.0
%
 
 

20


LSO net sales increased $0.5 million, or 2.4 percent, for the three-month period ended June 1, 2019, over the same period in the prior year due to improved mix. Operating margin decreased 440 basis points for the three months ended June 1, 2019, compared to the first quarter of last year, driven by reduced cost leverage from changes in production schedules.

Liquidity and Capital Resources
Selected cash flow data
 
Three Months Ended
In thousands
 
June 1, 2019
 
June 2, 2018
Operating Activities
 
 
 
 
Net cash (used) provided by operating activities
 
$
(9,742
)
 
$
25,343

Investing Activities
 
 
 
 
Capital expenditures
 
(11,198
)
 
(9,327
)
Net purchases (sales) of marketable securities
 
232

 
(6,124
)
Financing Activities
 
 
 
 
Net borrowings (payments) on line of credit
 
47,500

 
(2,000
)
Repurchase and retirement of common stock
 
(20,010
)
 

Dividends paid
 
(4,598
)
 
(4,410
)

Operating Activities. Cash used by operating activities was $9.7 million for the first three months of fiscal 2020, decreasing $35.1 million compared to the prior-year period, primarily due to increased working capital related to legacy EFCO projects, as well as typical seasonal working capital needs.

Investing Activities. Net cash used in investing activities was $12.0 million for the first three months of fiscal 2020, primarily due to capital expenditures, while in the first three months of the prior year, net cash used by investing activities was $16.2 million, due to capital expenditures and net purchases of marketable securities. We estimate fiscal 2020 capital expenditures to be $60 to $65 million, as we continue to make investments to drive growth and productivity improvements.

Financing Activities. At June 1, 2019, we had outstanding borrowings under our credit facility of $272.5 million and $25.1 million of ongoing letters of credit that reduce availability of funds under our $335.0 million committed credit facility. As defined within our amended committed revolving credit facility, we are required to comply with two financial covenants. These financial covenants require us to stay below a maximum leverage ratio and to maintain a minimum interest coverage ratio. At June 1, 2019, we were in compliance with both financial covenants. Subsequent to the end of the quarter, we amended and extended this financing arrangement, consisting of a $235 million revolving credit facility, with a maturity of June 2024, and a $150 million term loan, with a maturity of June 2020. The amended and extended facility contains the same two financial covenants.

We paid dividends totaling $4.6 million ($0.175 per share) in the first three months of fiscal 2020. In the first quarter, we repurchased 531,997 shares under our authorized share repurchase program, for a total cost of $20.0 million. In the first three months of fiscal 2019, we did not repurchase any shares under our authorized share repurchase program. We have purchased a total of 5,799,912 shares, at a total cost of $169.3 million, since the fiscal 2004 inception of this program. We currently have remaining authority to repurchase an additional 1,450,088 shares under this program.

Other Financing Activities. The following summarizes our significant contractual obligations that impact our liquidity as of June 1, 2019:
 
 
Payments Due by Fiscal Period
In thousands
 
Remainder of Fiscal 2020
 
Fiscal 2021
 
Fiscal 2022
 
Fiscal 2023
 
Fiscal 2024
 
Thereafter
 
Total
Debt obligations
 
$
110

 
$
5,521

 
$
274,620

 
$
1,058

 
$

 
$
12,000

 
$
293,309

Operating leases (undiscounted)
 
9,782

 
10,346

 
8,716

 
7,920

 
6,007

 
10,667

 
53,438

Purchase obligations
 
95,864

 
27,514

 
9,321

 

 

 

 
132,699

Total cash obligations
 
$
105,756

 
$
43,381

 
$
292,657

 
$
8,978

 
$
6,007

 
$
22,667

 
$
479,446


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

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

21



As of June 1, 2019, we had reserves of $5.3 million and $1.1 million for unrecognized tax benefits and environmental liabilities, respectively. We currently expect approximately $0.5 million of the unrecognized tax benefits to lapse during the next 12 months. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits and environmental liabilities will ultimately be settled.

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 June 1, 2019, $306.3 million of our backlog was bonded by these types of bonds with a face value of $638.9 million. These bonds do not have stated expiration dates, as we are generally released from the bonds upon completion of the contract. We have not been required to make any payments under these bonds with respect to our existing businesses.

Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facility, we believe that our sources of liquidity will continue to be adequate to fund our working capital requirements, planned capital expenditures and dividend payments for at least the next 12 months.

Outlook
The following statements reflect our expectations for full-year fiscal 2020 results. These statements are forward-looking, and actual results may differ materially.
Revenue growth of 1 to 3 percent over fiscal 2019.
Operating margin of 8.2 to 8.6 percent.
Earnings per diluted share in the range of $3.00 to $3.20.
Capital expenditures of $60 to $65 million.

Related Party Transactions
No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended March 2, 2019.

Critical Accounting Policies
Refer to an update to our critical accounting policies included within Item 1, Notes to the Consolidated Financial Statements (Note 1). No other changes have occurred to the critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended March 2, 2019.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

No material changes have occurred to the disclosures of quantitative and qualitative market risk set forth in our Annual Report on Form 10-K for the fiscal year ended March 2, 2019.

Item 4.
Controls and Procedures
a)
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
b)
Changes in internal controls: There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended June 1, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.




PART II. OTHER INFORMATION

Item 1.
Legal Proceedings

Murray Mayer v. Apogee Enterprises, Inc., et al
On November 5, 2018, Murray Mayer, individually and on behalf of all others similarly situated, filed a purported securities class action lawsuit against the Company and our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the District of Minnesota. On February 26, 2019, the Court appointed as lead plaintiffs the City of Cape Coral Municipal Firefighters’ Retirement Plan and the City of Cape Coral Municipal Police Officers’ Retirement Plan. On April 26, 2019, the lead plaintiffs filed an amended complaint. The amended complaint alleges that, during the purported class period of May 1, 2017 to April 10, 2019, the Company and the named executive officers made materially false and/or misleading statements or omissions about the Company's acquisition of EFCO Corporation on June 12, 2017, and about the Company's Architectural Glass business segment in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The amended complaint seeks an unspecified amount of damages, attorney's fees and costs. We intend to vigorously defend this matter.
Justin Buley v. Apogee Enterprises, Inc. et al
On December 17, 2018, Justin Buley filed a derivative lawsuit, purportedly on behalf of the Company, against our Chief Executive Officer, our Chief Financial Officer and eight of the nine non-executive members of our Board of Directors, in the Fourth Judicial District of the State of Minnesota. The complaint alleges claims for breach of fiduciary duty, waste of corporate assets and unjust enrichment, due to the named executive officers and board members allegedly making materially false and/or misleading statements or omissions about the Company's business, operations, and prospects, particularly with respect to our Architectural Glass business segment, during the period between June 28, 2018 and September 17, 2018. The complaint seeks an unspecified amount of damages and equitable relief, including requiring the Company to offer our shareholders the opportunity to vote for certain amendments to our Bylaws or Articles of Incorporation purporting to improve identified corporate governance practices. This matter has been stayed pending resolution of a Motion to Dismiss in the Mayer action described above. We intend to vigorously defend this matter.
Other Matters
In addition to the foregoing, the Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no matters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.

Item 1A.
Risk Factors

There have been no material changes or additions to our risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended March 2, 2019.

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

The following table provides information with respect to purchases made by the Company of its own stock during the first quarter of fiscal 2020:
Period
 
Total Number of Shares Purchased (a)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
 
Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (b)
March 3, 2019 to March 30, 2019
 
216,000

 
$
35.72

 
216,000

 
1,766,085

March 31, 2019 to April 27, 2019
 
221,671

 
38.31

 
221,671

 
1,544,414

April 28, 2019 to June 1, 2019
 
126,158

 
40.05

 
94,326

 
1,450,088

Total
 
563,829

 
$
37.83

 
531,997

 
1,450,088



22


(a)
The shares in this column represent the total number of shares that were repurchased by us pursuant to our publicly announced repurchase program, plus the shares surrendered to us by plan participants to satisfy withholding tax obligations related to share-based compensation.
(b)
In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. The Board increased the authorization by 750,000 shares, announced on January 24, 2008; by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016 and January 9, 2018; and by 2,000,000 shares, announced on October 3, 2018. The repurchase program does not have an expiration date.

Item 5.     Other Information

The company's 2019 Annual Meeting of Shareholders ("2019 Meeting") will not be held prior to July 28, 2019, or 30 days after the anniversary of the 2018 Annual Meeting of Shareholders. The Board of Directors has not set a date for the 2019 Meeting, but expects it to be held during the fourth calendar quarter of 2019. The company will announce the date and time of the 2019 Meeting, together with the deadline for the submission of shareholder proposals for the 2019 Meeting pursuant to SEC Rule 14a-8, after the Board of Directors has determined the date of the 2019 Meeting.

Item 6.
Exhibits
101
The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 1, 2019 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 1, 2019 and March 2, 2019, (ii) the Consolidated Results of Operations for the three-months ended June 1, 2019 and June 2, 2018, (iii) the Consolidated Statements of Comprehensive Earnings for the three-months ended June 1, 2019 and June 2, 2018, (iv) the Consolidated Statements of Cash Flows for the three-months ended June 2, 2019 and June 2, 2018, (v) the Consolidated Statements of Shareholders' Equity for the three-months ended June 1, 2019 and June 2, 2018, and (vi) Notes to Consolidated Financial Statements.

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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: July 11, 2019
 
By: /s/ Joseph F. Puishys
 
 
 
Joseph F. Puishys
President and Chief
Executive Officer
(Principal Executive Officer)

Date: July 11, 2019
 
By: /s/ James S. Porter
 
 
 
James S. Porter
Executive Vice President and
Chief Financial Officer (Principal Financial and
Accounting Officer)



24