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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________ 
FORM 10-Q
 _________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 29, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission File Number: 0-6365
_________________________________ 
APOGEE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
 _________________________________
Minnesota41-0919654
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4400 West 78th Street, Suite 520MinneapolisMinnesota55435
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (952835-1874
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
_________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.33 1/3 per shareAPOGNASDAQ 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 filero  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes    x  No
As of October 6, 2020, 26,385,698 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.


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

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except stock data)August 29, 2020February 29, 2020
Assets
Current assets
Cash and cash equivalents$19,001 $14,952 
Receivables, net of allowance for doubtful accounts165,682 196,806 
Inventories70,191 71,089 
Costs and earnings on contracts in excess of billings30,534 73,582 
Other current assets26,324 25,481 
Total current assets311,732 381,910 
Property, plant and equipment, net314,323 324,386 
Operating lease right-of-use assets53,592 52,892 
Goodwill192,566 185,516 
Intangible assets137,772 140,191 
Other non-current assets44,513 44,096 
Total assets$1,054,498 $1,128,991 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable$66,172 $69,056 
Accrued payroll and related benefits35,872 40,119 
Billings on contracts in excess of costs and earnings23,745 32,696 
Operating lease liabilities10,684 11,272 
Current portion of debt152,000 5,400 
Other current liabilities73,313 118,314 
Total current liabilities361,786 276,857 
Long-term debt15,672 212,500 
Non-current operating lease liabilities44,913 43,163 
Non-current self-insurance reserves25,276 22,831 
Other non-current liabilities80,683 56,862 
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 26,467,450 and 26,443,166 respectively
8,823 8,814 
Additional paid-in capital155,956 154,016 
Retained earnings394,614 388,010 
Common stock held in trust(707)(685)
Deferred compensation obligations707 685 
Accumulated other comprehensive loss(33,225)(34,062)
Total shareholders’ equity526,168 516,778 
Total liabilities and shareholders’ equity$1,054,498 $1,128,991 
See accompanying notes to consolidated financial statements.

4

Table of Contents
CONSOLIDATED RESULTS OF OPERATIONS
(unaudited)
Three Months EndedSix Months Ended
(In thousands, except per share data)August 29, 2020August 31, 2019August 29, 2020August 31, 2019
Net sales$319,483 $357,058 $608,578 $712,424 
Cost of sales243,296 270,851 472,141 545,250 
Gross profit76,187 86,207 136,437 167,174 
Selling, general and administrative expenses52,972 58,631 106,754 116,558 
Operating income23,215 27,576 29,683 50,616 
Interest expense, net1,324 2,566 2,739 5,181 
Other income, net1,260 363 213 368 
Earnings before income taxes23,151 25,373 27,157 45,803 
Income tax expense5,493 6,094 6,623 11,081 
Net earnings$17,658 $19,279 $20,534 $34,722 
Earnings per share - basic $0.68 $0.73 $0.78 $1.31 
Earnings per share - diluted$0.67 $0.72 $0.77 $1.30 
Weighted average basic shares outstanding26,156 26,413 26,162 26,505 
Weighted average diluted shares outstanding26,525 26,736 26,507 26,789 
See accompanying notes to consolidated financial statements.

5

Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)
Three Months EndedSix Months Ended
(In thousands)August 29, 2020August 31, 2019August 29, 2020August 31, 2019
Net earnings$17,658 $19,279 $20,534 $34,722 
Other comprehensive earnings (loss):
Unrealized gain on marketable securities, net of $13, $2, $39 and $49 of tax expense, respectively
50 8 147 189 
Unrealized gain on derivative instruments, net of $404, $25, $215 and $27 of tax expense, respectively
1,319 84 703 89 
Foreign currency translation adjustments6,139 2,465 (12)(95)
Other comprehensive earnings7,508 2,557 838 183 
Total comprehensive earnings$25,166 $21,836 $21,372 $34,905 

See accompanying notes to consolidated financial statements.

6

Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
(In thousands)August 29, 2020August 31, 2019
Operating Activities
Net earnings$20,534 $34,722 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization25,284 22,759 
Share-based compensation3,662 3,200 
Deferred income taxes7,966 9,861 
Noncash lease expense6,032 5,526 
Other, net18 (2,023)
Changes in operating assets and liabilities:
Receivables31,212 (9,215)
Inventories846 4,054 
Costs and earnings on contracts in excess of billings43,091 (19,865)
Accounts payable and accrued expenses(36,922)(19,044)
Billings on contracts in excess of costs and earnings(9,105)(2,001)
Refundable and accrued income taxes(1,793)(5,641)
Operating lease liability(5,857)(2,812)
Other362 (1,719)
Net cash provided by operating activities85,330 17,802 
Investing Activities
Capital expenditures(14,224)(22,559)
Other(993)(451)
Net cash used by investing activities(15,217)(23,010)
Financing Activities
Borrowings on line of credit192,581 184,500 
(Repayment) borrowings on debt(5,400)150,000 
Payments on line of credit(237,500)(307,500)
Repurchase and retirement of common stock(4,731)(20,010)
Dividends paid(9,751)(9,203)
Other (1,261)(2,493)
Net cash used by financing activities(66,062)(4,706)
Increase (decrease) in cash and cash equivalents4,051 (9,914)
Effect of exchange rates on cash(2)118 
Cash, cash equivalents and restricted cash at beginning of year14,952 29,241 
Cash, cash equivalents and restricted cash at end of period$19,001 $19,445 
Noncash Activity
Capital expenditures in accounts payable$657 $1,583 
See accompanying notes to consolidated financial statements.

7

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


















See accompanying notes to consolidated financial statements.

8

Table of Contents
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(In thousands)Common Shares OutstandingCommon StockAdditional Paid-In CapitalRetained EarningsCommon Stock Held in TrustDeferred Compensation ObligationAccumulated Other Comprehensive (Loss) IncomeTotal Shareholders' Equity
Balance at March 2, 201927,015 $9,005 $151,842 $367,597 $(755)$755 $(32,127)$496,317 
Net earnings— — — 15,443 — — — 15,443 
Unrealized gain on marketable securities, net of $47 tax expense
— — — — — — 181 181 
Unrealized gain on foreign currency hedge, net of $2 tax expense
— — — — — — 5 5 
Foreign currency translation adjustments— — — — — — (2,560)(2,560)
Issuance of stock, net of cancellations79 26 14 — (12)12 — 40 
Share-based compensation— — 1,618 — — — — 1,618 
Share repurchases(532)(177)(3,051)(16,782)— — — (20,010)
Other share retirements(32)(11)(183)(1,266)— — — (1,460)
Cash dividends— — — (4,598)— — — (4,598)
Balance at June 1, 201926,530 $8,843 $150,240 $360,394 $(767)$767 $(34,501)$484,976 
Net earnings— — — 19,279 — — — 19,279 
Unrealized gain on marketable securities, net of $2 tax expense
— — — — — — 8 8 
Unrealized gain on foreign currency hedge, net of $25 tax expense
— — — — — — 84 84 
Foreign currency translation adjustments— — — — — — 2,465 2,465 
Issuance of stock, net of cancellations44 15 27 — (11)11 — 42 
Share-based compensation— — 1,582 — — — — 1,582 
Other share retirements(20)(7)(114)(629)— — — (750)
Cash dividends— — — (4,605)— — — (4,605)
Balance at August 31, 201926,554 $8,851 $151,735 $374,439 $(778)$778 $(31,944)$503,081 



See accompanying notes to consolidated financial statements.

9

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.Summary of Significant Accounting Policies

Basis of presentation
The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States. The information included in this Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended February 29, 2020. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and six-month periods ended August 29, 2020 are not necessarily indicative of the results to be expected for the full year.

COVID-19 considerations
The ongoing COVID-19 pandemic continues to cause volatility and uncertainty in global markets impacting worldwide economic activity. We have experienced some delays in commercial construction projects and orders as a result of COVID-19. In our Architectural Glass and Architectural Framing segments, orders have been delayed or have slowed, as customers and end markets face some uncertainty and delays in timing of work. In our Architectural Services segment, some construction site closures or project delays have occurred, and job sites have had to adjust to increased physical distancing and health-related precautions. Within our Large-Scale Optical (LSO) segment, many customers reopened and the segment's two manufacturing locations resumed normal operations during the second quarter, after being shutdown for most of the first and second quarters, in response to governmental “stay at home” directives. We have also been impacted by quarantine-related absenteeism among our workforce, resulting in labor and capacity constraints at some of our facilities. The extent to which COVID-19 will continue to impact our business will depend on future developments and public health advancements, which are highly uncertain and cannot be predicted with confidence. However, by the end of the second quarter, we have continued to see signs of improvement, including the reopening of retailers, moderating project delays and fewer workforce absences.

Furthermore, in response to COVID-19, we have implemented a variety of countermeasures to promote the health and safety of our employees during this pandemic, including health screening, physical distancing practices, enhanced cleaning, use of personal protective equipment, business travel restrictions, and remote work capabilities, in addition to quarantine-related paid leave and other employee assistance programs.

Adoption of new accounting standards
At the beginning of fiscal 2021, we adopted the guidance in ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance provides for a new impairment model on financial instruments which is based on expected credit losses, which was applied following a modified retrospective approach. Additionally, the new guidance makes targeted improvements to the impairment model for certain available-for-sale debt securities, including eliminating the concept of "other than temporary" from that model. The portion of the guidance related to available-for-sale debt securities was adopted following a prospective approach. The adoption of this ASU did not have a significant impact on earnings or financial condition. Refer to additional disclosures in Notes 2 and 4.

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, in September 2020, we sold our McCook, IL building within our LSO segment for $25.1 million. The carrying value of the building was $4.3 million, and we recognized a gain on this sale of approximately $14.8 million, net of taxes and associated transaction costs. We also entered into a separate lease agreement for this facility, which was determined to be an operating lease, and we will have approximately $8.2 million of additional future lease commitments upon commencement of this lease in September 2020. Additionally, in September 2020, we announced the retirement of our Chief Executive Officer, effective February 27, 2021, the end of our current fiscal year, and entered into a transition agreement with him.








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2.Revenue, Receivables and Contract Assets and Liabilities

Revenue
The following table disaggregates total revenue by timing of recognition (see Note 12 for disclosure of revenue by segment):
Three Months EndedSix Months Ended
(In thousands)August 29, 2020August 31, 2019August 29, 2020August 31, 2019
Recognized at shipment$133,997 $164,336 $250,160 $319,602 
Recognized over time185,486 192,722 358,418 392,822 
Total$319,483 $357,058 $608,578 $712,424 

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.
(In thousands)August 29, 2020February 29, 2020
Trade accounts$122,870 $141,126 
Construction contracts3,611 20,808 
Contract retainage41,168 37,341 
Total receivables167,649 199,275 
Less: allowance for credit losses(1,967)(2,469)
Net receivables$165,682 $196,806 

The following table summarizes the activity in the allowance for credit losses:
(In thousands)August 29, 2020
Beginning balance$2,469 
Additions charged to costs and expenses115 
Deductions from allowance, net of recoveries(541)
Other changes (1)
(76)
Ending balance$1,967 
      (1) Result of foreign currency effects

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

The time period between when performance obligations are complete and when payment is due is not significant. In certain of our businesses that recognize revenue over time, progress billings follow an agreed-upon schedule of values, and retainage is withheld by the customer until the project reaches a level of completion where amounts are released.
(In thousands)August 29, 2020February 29, 2020
Contract assets$71,701 $110,923 
Contract liabilities26,105 35,954 

The decrease in contract assets was mainly due to a reduction in costs and earnings in excess of billings, which is driven by the settlement of matters related to a legacy EFCO project, as well as the timing of projects. The change in contract liabilities was due to timing of project activity within our businesses that operate under long-term contracts.
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Other contract-related disclosuresThree Months EndedSix Months Ended
(In thousands)August 29, 2020August 31, 2019August 29, 2020August 31, 2019
Revenue recognized related to contract liabilities from prior year-end$1,184 $3,361 $14,195 $17,455 
Revenue recognized related to prior satisfaction of performance obligations3,652 4,481 6,529 6,430 

Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally, these contracts are in our businesses with long-term contracts which recognize revenue over time. As of August 29, 2020, the transaction price associated with unsatisfied performance obligations was approximately $958.8 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
(In thousands)August 29, 2020
Within one year$471,295 
Within two years363,735 
Beyond123,764 
Total$958,794 

3.Supplemental Balance Sheet Information

Inventories
(In thousands)August 29, 2020February 29, 2020
Raw materials$39,006 $36,611 
Work-in-process16,804 17,520 
Finished goods14,381 16,958 
Total inventories$70,191 $71,089 

Other current liabilities
(In thousands)August 29, 2020February 29, 2020
Warranties$13,648 $12,822 
Accrued project losses8,684 48,962 
Property and other taxes7,334 5,952 
Accrued self-insurance reserves10,218 8,307 
Other33,429 42,271 
Total other current liabilities$73,313 $118,314 

Other non-current liabilities
(In thousands)August 29, 2020February 29, 2020
Deferred benefit from New Market Tax Credit transactions$15,717 $15,717 
Retirement plan obligations8,245 8,294 
Deferred compensation plan9,564 8,452 
Deferred tax liabilities22,407 7,940 
Other24,750 16,459 
Total other non-current liabilities$80,683 $56,862 

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4.Financial Instruments

Marketable securities
Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), we hold the following available-for-sale marketable securities, made up of municipal and corporate bonds: 
(In thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated
Fair Value
August 29, 2020$12,497 $462 $1 $12,958 
February 29, 202011,692 275  11,967 

Prism insures a portion of our general liability, workers’ compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements.

The amortized cost and estimated fair values of these bonds at August 29, 2020, 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 CostEstimated Fair Value
Due within one year$1,122 $1,132 
Due after one year through five years7,221 7,497 
Due after five years through 10 years3,354 3,509 
Due beyond 15 years800 820 
Total$12,497 $12,958 

Derivative instruments
In August 2019, we entered into an interest rate swap to hedge exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility. As of August 29, 2020, the interest rate swap contract had a notional value of $60 million.

We periodically enter into forward purchase foreign currency cash flow hedge contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk. As of August 29, 2020, we held foreign exchange forward contracts with a U.S. dollar notional value of $28.4 million, with the objective of reducing the exposure to fluctuations in the Canadian dollar and the Euro.

These derivative instruments are recorded within our consolidated balance sheets within other current assets and liabilities. Gains or losses associated with these instruments are recorded as a component of accumulated other comprehensive income.

Fair value measurements
Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 financial assets or liabilities.
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(In thousands)Quoted Prices in
Active Markets
(Level 1)
Other Observable Inputs (Level 2)Total Fair Value
August 29, 2020
Assets:
Money market funds$2,178 $ $2,178 
Commercial paper— 1,000