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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 August 28, 2021
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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
_________________________________
APOGEE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
_________________________________
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Minnesota | | | | 41-0919654 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
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4400 West 78th Street, Suite 520 | Minneapolis | Minnesota | | 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:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $0.33 1/3 per share | | APOG | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | o | | Accelerated filer | | x |
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Non-accelerated filer | | o | | Smaller reporting company | | ☐ |
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Emerging growth company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No
As of September 27, 2021, 25,334,664 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
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PART I | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II | | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | | | | |
(In thousands, except stock data) | | August 28, 2021 | | February 27, 2021 |
Assets | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 61,821 | | | $ | 47,277 | |
| | | | |
Receivables, net | | 160,858 | | | 175,917 | |
Inventories | | 76,601 | | | 72,823 | |
Costs and earnings on contracts in excess of billings | | 26,303 | | | 29,497 | |
Other current assets | | 18,311 | | | 25,160 | |
Total current assets | | 343,894 | | | 350,674 | |
Property, plant and equipment, net | | 272,994 | | | 298,443 | |
Operating lease right-of-use assets | | 52,087 | | | 58,864 | |
Goodwill | | 130,388 | | | 130,098 | |
Intangible assets | | 126,642 | | | 130,053 | |
Other non-current assets | | 50,448 | | | 46,967 | |
Total assets | | $ | 976,453 | | | $ | 1,015,099 | |
Liabilities and Shareholders’ Equity | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 79,166 | | | $ | 76,204 | |
Accrued payroll and related benefits | | 38,492 | | | 50,125 | |
| | | | |
Billings on contracts in excess of costs and earnings | | 20,825 | | | 22,789 | |
Operating lease liabilities | | 11,466 | | | 13,251 | |
Current portion of debt | | 1,000 | | | 2,000 | |
Other current liabilities | | 48,700 | | | 53,183 | |
Total current liabilities | | 199,649 | | | 217,552 | |
Long-term debt | | 162,000 | | | 163,000 | |
Non-current operating lease liabilities | | 45,387 | | | 48,439 | |
Non-current self-insurance reserves | | 26,194 | | | 24,880 | |
Other non-current liabilities | | 66,662 | | | 68,483 | |
Commitments and contingent liabilities (Note 8) | | | | |
Shareholders’ equity | | | | |
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 25,394,275 and 25,713,688 respectively | | 8,465 | | | 8,571 | |
Additional paid-in capital | | 158,115 | | | 154,958 | |
Retained earnings | | 336,398 | | | 357,243 | |
| | | | |
| | | | |
Accumulated other comprehensive loss | | (26,417) | | | (28,027) | |
Total shareholders’ equity | | 476,561 | | | 492,745 | |
Total liabilities and shareholders’ equity | | $ | 976,453 | | | $ | 1,015,099 | |
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(In thousands, except per share data) | | August 28, 2021 | | August 29, 2020 | | August 28, 2021 | | August 29, 2020 |
Net sales | | $ | 325,797 | | | $ | 319,483 | | | $ | 651,803 | | | $ | 608,578 | |
Cost of sales | | 277,795 | | | 243,296 | | | 536,091 | | | 472,141 | |
Gross profit | | 48,002 | | | 76,187 | | | 115,712 | | | 136,437 | |
Selling, general and administrative expenses | | 51,070 | | | 52,972 | | | 102,739 | | | 106,754 | |
Operating (loss) income | | (3,068) | | | 23,215 | | | 12,973 | | | 29,683 | |
| | | | | | | | |
Interest expense, net | | 1,072 | | | 1,324 | | | 2,310 | | | 2,739 | |
Other income (expense), net | | 105 | | | 1,260 | | | (209) | | | 213 | |
(Loss) earnings before income taxes | | (4,035) | | | 23,151 | | | 10,454 | | | 27,157 | |
Income tax (benefit) expense | | (1,919) | | | 5,493 | | | 1,753 | | | 6,623 | |
Net (loss) earnings | | $ | (2,116) | | | $ | 17,658 | | | $ | 8,701 | | | $ | 20,534 | |
(Loss) earnings per share - basic | | $ | (0.08) | | | $ | 0.68 | | | $ | 0.34 | | | $ | 0.78 | |
(Loss) earnings per share - diluted | | $ | (0.08) | | | $ | 0.67 | | | $ | 0.34 | | | $ | 0.77 | |
Weighted average basic shares outstanding | | 25,140 | | | 26,156 | | | 25,271 | | | 26,162 | |
Weighted average diluted shares outstanding | | 25,140 | | | 26,525 | | | 25,637 | | | 26,507 | |
See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(In thousands) | | August 28, 2021 | | August 29, 2020 | | August 28, 2021 | | August 29, 2020 |
Net (loss) earnings | | $ | (2,116) | | | $ | 17,658 | | | $ | 8,701 | | | $ | 20,534 | |
Other comprehensive earnings (loss): | | | | | | | | |
Unrealized gain on marketable securities, net of $2, $13, $1 and $39 of tax expense, respectively | | 4 | | | 50 | | | 4 | | | 147 | |
Unrealized (loss) gain on derivative instruments, net of $(203), $404, $8 and $215 of tax (benefit) expense, respectively | | (666) | | | 1,319 | | | 26 | | | 703 | |
Foreign currency translation adjustments | | (4,300) | | | 6,139 | | | 1,580 | | | (12) | |
Other comprehensive (loss) earnings | | (4,962) | | | 7,508 | | | 1,610 | | | 838 | |
Total comprehensive (loss) earnings | | $ | (7,078) | | | $ | 25,166 | | | $ | 10,311 | | | $ | 21,372 | |
See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| | Six Months Ended |
(In thousands) | | August 28, 2021 | | August 29, 2020 |
Operating Activities | | | | |
Net earnings | | $ | 8,701 | | | $ | 20,534 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 25,808 | | | 25,284 | |
Share-based compensation | | 3,261 | | | 3,662 | |
Deferred income taxes | | (4,560) | | | 7,966 | |
Asset impairment | | 15,403 | | | — | |
(Gain) loss on disposal of assets | | (1,355) | | | 18 | |
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Noncash lease expense | | 6,216 | | | 6,032 | |
Other, net | | 578 | | | — | |
Changes in operating assets and liabilities: | | | | |
Receivables | | 15,520 | | | 31,212 | |
Inventories | | (3,607) | | | 846 | |
Costs and earnings on contracts in excess of billings | | 3,212 | | | 43,091 | |
Accounts payable and accrued expenses | | (10,895) | | | (36,922) | |
Billings on contracts in excess of costs and earnings | | (2,144) | | | (9,105) | |
Refundable and accrued income taxes | | 1,981 | | | (1,793) | |
Operating lease liability | | (6,240) | | | (5,857) | |
Other | | 3,028 | | | 362 | |
Net cash provided by operating activities | | 54,907 | | | 85,330 | |
Investing Activities | | | | |
Capital expenditures | | (10,121) | | | (14,224) | |
Proceeds from sales of property, plant and equipment | | 1,292 | | | — | |
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Other | | 66 | | | (993) | |
Net cash used by investing activities | | (8,763) | | | (15,217) | |
Financing Activities | | | | |
Borrowings on line of credit | | — | | | 192,581 | |
Repayments on debt | | (2,000) | | | (5,400) | |
Payments on line of credit | | — | | | (237,500) | |
Proceeds from exercise of stock options | | 4,115 | | | — | |
Repurchase and retirement of common stock | | (22,419) | | | (4,731) | |
Dividends paid | | (10,060) | | | (9,751) | |
Other | | (1,853) | | | (1,261) | |
Net cash used by financing activities | | (32,217) | | | (66,062) | |
Increase in cash and cash equivalents | | 13,927 | | | 4,051 | |
Effect of exchange rates on cash | | 617 | | | (2) | |
Cash, cash equivalents and restricted cash at beginning of year | | 47,277 | | | 14,952 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 61,821 | | | $ | 19,001 | |
Noncash Activity | | | | |
Capital expenditures in accounts payable | | $ | 374 | | | $ | 657 | |
See accompanying notes to consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
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(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 | | Total Shareholders' Equity |
Balance at February 27, 2021 | | 25,714 | | | $ | 8,571 | | | $ | 154,958 | | | $ | 357,243 | | | $ | (186) | | | $ | 186 | | | $ | (28,027) | | | $ | 492,745 | |
Net earnings | | — | | | — | | | — | | | 10,817 | | | — | | | — | | | — | | | 10,817 | |
Unrealized gain on marketable securities, net of $— tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Unrealized gain on foreign currency hedge, net of $211 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 692 | | | 692 | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | 5,880 | | | 5,880 | |
Issuance of stock, net of cancellations | | 90 | | | 30 | | | (7) | | | — | | | (3) | | | 3 | | | — | | | 23 | |
Share-based compensation | | — | | | — | | | 1,674 | | | — | | | — | | | — | | | — | | | 1,674 | |
Exercise of stock options | | 179 | | | 60 | | | 4,055 | | | — | | | — | | | — | | | — | | | 4,115 | |
Share repurchases | | (357) | | | (119) | | | (2,218) | | | (10,288) | | | — | | | — | | | — | | | (12,625) | |
Other share retirements | | (20) | | | (7) | | | (121) | | | (607) | | | — | | | — | | | — | | | (735) | |
Cash dividends | | — | | | — | | | — | | | (5,035) | | | — | | | — | | | — | | | (5,035) | |
Balance at May 29, 2021 | | 25,606 | | | $ | 8,535 | | | $ | 158,341 | | | $ | 352,130 | | | $ | (189) | | | $ | 189 | | | $ | (21,455) | | | $ | 497,551 | |
Net loss | | — | | | — | | | — | | | (2,116) | | | — | | | — | | | — | | | (2,116) | |
Unrealized gain on marketable securities, net of $2 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | 4 | |
Unrealized loss on foreign currency hedge, net of $203 tax benefit | | — | | | — | | | — | | | — | | | — | | | — | | | (666) | | | (666) | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (4,300) | | | (4,300) | |
Issuance of stock, net of cancellations | | 67 | | | 22 | | | — | | | — | | | (3) | | | 3 | | | — | | | 22 | |
Share-based compensation | | — | | | — | | | 1,587 | | | — | | | — | | | — | | | — | | | 1,587 | |
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Share repurchases | | (249) | | | (83) | | | (1,616) | | | (8,095) | | | — | | | — | | | — | | | (9,794) | |
Other share retirements | | (30) | | | (9) | | | (197) | | | (496) | | | — | | | — | | | — | | | (702) | |
Cash dividends | | — | | | — | | | — | | | (5,025) | | | — | | | — | | | — | | | (5,025) | |
Balance at August 28, 2021 | | 25,394 | | | $ | 8,465 | | | $ | 158,115 | | | $ | 336,398 | | | $ | (192) | | | $ | 192 | | | $ | (26,417) | | | $ | 476,561 | |
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See accompanying notes to consolidated financial statements.
8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
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(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 | | Total Shareholders' Equity |
Balance at February 29, 2020 | | 26,443 | | | $ | 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 cancellations | | 183 | | | 62 | | | (39) | | | — | | | (11) | | | 11 | | | — | | | 23 | |
Share-based compensation | | — | | | — | | | 1,406 | | | — | | | — | | | — | | | — | | | 1,406 | |
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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, 2020 | | 26,369 | | | $ | 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 cancellations | | 121 | | | 41 | | | (23) | | | — | | | (11) | | | 11 | | | — | | | 18 | |
Share-based compensation | | — | | | — | | | 2,256 | | | — | | | — | | | — | | | — | | | 2,256 | |
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Other share retirements | | (23) | | | (8) | | | (139) | | | (390) | | | — | | | — | | | — | | | (537) | |
Cash dividends | | — | | | — | | | — | | | (4,879) | | | — | | | — | | | — | | | (4,879) | |
Balance at August 29, 2020 | | 26,467 | | | $ | 8,823 | | | $ | 155,956 | | | $ | 394,614 | | | $ | (707) | | | $ | 707 | | | $ | (33,225) | | | $ | 526,168 | |
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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 27, 2021. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and six-month periods ended August 28, 2021 are not necessarily indicative of the results to be expected for the full year.
COVID-19 update
During fiscal 2021, as a result of the global COVID-19 pandemic, we experienced some delays in commercial construction projects and orders and other disruptions to our business, including various physical distancing and health-related precautions, and we were required to close operations at two facilities in our Large-Scale Optical (LSO) segment for a portion of fiscal 2021 due to governmental orders. We were also impacted by quarantine-related absenteeism among our production workforce, resulting in labor constraints at some of our facilities. In the first two quarters of fiscal 2022, the negative impacts on our business directly due to the COVID-19 pandemic have moderated. The extent to which COVID-19 will continue to impact our businesses in the future will depend on numerous evolving factors including, but not limited to, the emergence of new variants of the coronavirus, such as the Delta variant, and the effectiveness of ongoing public health initiatives, which have been boosted by vaccine production and distribution.
Adoption of new accounting standards
At the beginning of fiscal 2022, we adopted the guidance in ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU removed exceptions on intra-period tax allocations and reporting and provided simplification on accounting for franchise taxes, tax basis goodwill and tax law changes. The adoption of this ASU did not have a significant impact on the consolidated financial statements.
At the beginning of fiscal 2022, we adopted the guidance in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The adoption of this ASU did not have a significant impact on the consolidated financial statements.
Subsequent events
We have evaluated subsequent events for potential recognition and disclosure through the date of this filing and determined that there were no subsequent events that required recognition or disclosure in the consolidated financial statements.
2.Revenue, Receivables and Contract Assets and Liabilities
Revenue
The following table disaggregates total revenue by timing of recognition (see Note 12 for disclosure of revenue by segment):
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| | Three Months Ended | | Six Months Ended |
(In thousands) | | August 28, 2021 | | August 29, 2020 | | August 28, 2021 | | August 29, 2020 |
Recognized at shipment | | $ | 137,783 | | | $ | 133,997 | | | $ | 278,066 | | | $ | 250,160 | |
Recognized over time | | 188,014 | | | 185,486 | | | 373,737 | | | 358,418 | |
Total | | $ | 325,797 | | | $ | 319,483 | | | $ | 651,803 | | | $ | 608,578 | |
Receivables
Receivables reflected in the financial statements represent the net amount expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecast economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible. Retainage on construction contracts represents amounts withheld by our customers on long-term projects until the project reaches a level of completion where amounts are released.
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(In thousands) | | August 28, 2021 | | February 27, 2021 |
Trade accounts | | $ | 123,658 | | | $ | 120,534 | |
Construction contracts | | 5,584 | | | 12,163 | |
Contract retainage | | 33,719 | | | 45,167 | |
Total receivables | | 162,961 | | | 177,864 | |
Less: allowance for credit losses | | 2,103 | | | 1,947 | |
Net receivables | | $ | 160,858 | | | $ | 175,917 | |
The following table summarizes the activity in the allowance for credit losses:
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(In thousands) | | August 28, 2021 | | February 27, 2021 |
Beginning balance | | $ | 1,947 | | | $ | 2,469 | |
Additions charged to costs and expenses | | 239 | | | 389 | |
Deductions from allowance, net of recoveries | | (75) | | | (887) | |
Other changes (1) | | (8) | | | (24) | |
Ending balance | | $ | 2,103 | | | $ | 1,947 | |
(1) Result of foreign currency effects | | | | |
Contract assets and liabilities
Contract assets consist of retainage, costs and earnings in excess of billings and other unbilled amounts typically generated when revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts. Retainage is classified within receivables and deferred revenue is classified within other current liabilities on our consolidated balance sheets.
The time period between when performance obligations are complete and when payment is due is not significant. In certain of our businesses that recognize revenue over time, progress billings follow an agreed-upon schedule of values, and retainage is withheld by the customer until the project reaches a level of completion where amounts are released.
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(In thousands) | | August 28, 2021 | | February 27, 2021 |
Contract assets | | $ | 60,022 | | | $ | 74,664 | |
Contract liabilities | | 24,096 | | | 25,000 | |
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The change in contract assets and contract liabilities was mainly due to timing of project activity within our businesses that operate under long-term contracts.
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Other contract-related disclosures | | Three Months Ended | | Six Months Ended |
(In thousands) | | August 28, 2021 | | August 29, 2020 | | August 28, 2021 | | August 29, 2020 |
Revenue recognized related to contract liabilities from prior year-end | | $ | 2,479 | | | $ | 1,184 | | | $ | 16,579 | | | $ | 14,195 | |
Revenue recognized related to prior satisfaction of performance obligations | | 5,354 | | | 3,652 | | | 7,518 | | | 6,529 | |
Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally, these contracts are in our businesses with long-term contracts which recognize revenue over time. As of August 28, 2021, the transaction price associated with unsatisfied performance obligations was approximately $857.2 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
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(In thousands) | | August 28, 2021 |
Within one year | | $ | 500,758 | |
Within two years | | 341,749 | |
Beyond | | 14,674 | |
Total | | $ | 857,181 | |
3.Supplemental Balance Sheet Information
Inventories
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(In thousands) | | August 28, 2021 | | February 27, 2021 |
Raw materials | | $ | 41,730 | | | $ | 36,681 | |
Work-in-process | | 18,314 | | | 18,932 | |
Finished goods | | 16,557 | | | 17,210 | |
Total inventories | | $ | 76,601 | | | $ | 72,823 | |
Other current liabilities
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(In thousands) | | August 28, 2021 | | February 27, 2021 |
Warranties | | $ | 11,234 | | | $ | 12,298 | |
Accrued project losses | | 1,260 | | | 4,572 | |
Property and other taxes | | 7,388 | | | 7,459 | |
Accrued self-insurance reserves | | 5,500 | | | 6,482 | |
Accrued freight | | 1,837 | | | 1,477 | |
Other | | 21,481 | | | 20,895 | |
Total other current liabilities | | $ | 48,700 | | | $ | 53,183 | |
Other non-current liabilities
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(In thousands) | | August 28, 2021 | | February 27, 2021 |
Deferred benefit from New Market Tax Credit transactions | | $ | 15,717 | | | $ | 15,717 | |
Retirement plan obligations | | 7,640 | | | 7,730 | |
Deferred compensation plan | | 13,811 | | | 13,507 | |
Deferred tax liabilities | | 5,850 | | | 8,310 | |
Deferred payroll taxes | | 6,789 | | | 6,789 | |
Other | | 16,855 | | | 16,430 | |
Total other non-current liabilities | | $ | 66,662 | | | $ | 68,483 | |
4.Financial Instruments
Marketable securities
Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), we hold the following available-for-sale marketable securities, made up of municipal and corporate bonds:
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(In thousands) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
August 28, 2021 | | $ | 12,399 | | | $ | 385 | | | $ | 2 | | | $ | 12,782 | |
February 27, 2021 | | 12,517 | | | 386 | | | 10 | | | 12,893 | |
Prism insures a portion of our general liability, workers’ compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements.
The amortized cost and estimated fair values of these bonds at August 28, 2021, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without penalty.
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(In thousands) | | Amortized Cost | | Estimated Fair Value |
Due within one year | | $ | 889 | | | $ | 896 | |
Due after one year through five years | | 8,614 | | | 8,908 | |
Due after five years through 10 years | | 2,096 | | | 2,149 | |
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Due beyond 15 years | | 800 | | | 829 | |
Total | | $ | 12,399 | | | $ | 12,782 | |
Derivative instruments
We use interest rate swaps, foreign exchange forward contracts, commodity swaps and forward purchase contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments we use, how such instruments are accounted for, and how such instruments impact our financial position and performance.
In fiscal 2020, we entered into an interest rate swap to hedge exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility and term loan. As of August 28, 2021, the interest rate swap contract had a notional value of $37.5 million.
We periodically enter into forward purchase contracts and/or fixed/floating swaps to manage the risk associated with fluctuations in aluminum prices and fluctuations in foreign exchange rates (primarily related to the Canadian dollar). These contracts generally have an original maturity date of less than one year. As of August 28, 2021, we held foreign exchange forward contracts and aluminum fixed/floating swaps with U.S. dollar notional values of $9.0 million and $6.9 million, respectively.
These derivative instruments are recorded within our consolidated balance sheets within other current assets and liabilities. Gains or losses associated with these instruments are recorded as a component of accumulated other comprehensive income.
Fair value measurements
Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 financial assets or liabilities.
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(In thousands) | | Quoted Prices in Active Markets (Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
August 28, 2021 | | | | | | |
Assets: | | | | | | |
Money market funds | | $ | 42,003 | | | $ | — | | | $ | 42,003 | |
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Municipal and corporate bonds | | — | | | 12,782 | | | 12,782 | |
Cash surrender value of life insurance | | — | | | 18,750 | | | 18,750 | |
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Aluminum hedge contracts | | — | | | 1,200 | | | 1,200 | |
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Liabilities: | | | | | | |
Deferred compensation | | — | | | 13,811 | | | 13,811 | |
Foreign currency forward/option contracts | | — | | | 269 | | | 269 | |
Interest rate swap contract | | — | | | 319 | | | 319 | |
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February 27, 2021 | | | | | | |
Assets: | | | | | | |
Money market funds | | $ | 26,034 | | | $ | — | | | $ | 26,034 | |
Municipal and corporate bonds | | — | | | 12,893 | | | 12,893 | |
Cash surrender value of life insurance | | — | | | 18,632 | | | 18,632 | |
Foreign currency forward/option contracts | | — | | | 606 | | | 606 | |
Aluminum hedge contracts | | — | | | 363 | | | 363 | |
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Liabilities: | | | | | | |
Deferred compensation | | — | | | 13,507 | | | 13,507 | |
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Interest rate swap contract | | — | | | 504 | | | 504 | |
Money market funds and commercial paper
Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets. These assets are included within cash and cash equivalents on our consolidated balance sheets.
Municipal and corporate bonds
Municipal and corporate bonds were measured at fair value based on market prices from recent trades of similar securities and are classified within our consolidated balance sheets as other current or other non-current assets based on maturity date.
Cash surrender value of life insurance and deferred compensation
Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. Changes in cash surrender value are recorded in other expense. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.
Derivative instruments
The interest rate swap is measured at fair value using other observable market inputs, based off of benchmark interest rates. Forward foreign exchange and fixed/floating aluminum contracts are measured at fair value using other observable market inputs, such as quotations on forward foreign exchange points, foreign currency exchange rates, and forward purchase aluminum prices. Derivative positions are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for both interest and currency rates and aluminum prices.
Nonrecurring fair value measurements
We measure certain financial instruments at fair value on a nonrecurring basis including goodwill, intangible assets, property and equipment and right-of-use lease assets. These assets were initially measured and recognized at amounts equal to the fair value determined as of the date of acquisition or purchase subject to changes in value only for foreign currency translation. Periodically, these assets are tested for impairment, by comparing their respective carrying values to the estimated fair value of the reporting unit or asset group in which they reside. In the event any of these assets were to become impaired, we would recognize an impairment expense equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value. Fair value measurements of reporting units are estimated using an income approach involving discounted cash flow models that contain certain Level 3 inputs requiring significant management judgment, including projections of economic conditions, customer demand and changes in competition, revenue growth rates, gross profit margins, operating margins, capital expenditures, working capital requirements, terminal growth rates and discount rates. Fair value measurements of the reporting units associated with our goodwill balances and our indefinite-lived intangible assets are estimated at least annually in the fourth quarter of each fiscal year for purposes of impairment testing if a quantitative analysis is performed.
See Note 13 for additional information on the impairment charges recorded to fixed assets and right-of-use lease assets during the second quarter of fiscal 2022.
5.Goodwill and Other Intangible Assets
Goodwill
Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. We evaluate goodwill for impairment annually as of the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
Based on the impairment analysis performed in the fourth quarter of fiscal 2021, estimated fair value was in excess of carrying value at six of our eight reporting units. However, estimated fair value did not exceed carrying value for two reporting units within the Architectural Framing Systems segment, EFCO and Sotawall. As a result, as of February 27, 2021, we incurred goodwill impairment expense of $46.7 million and $17.1 million in our EFCO and Sotawall reporting units, respectively. The goodwill impairment expense recorded during the year ended February 27, 2021, as reflected in the table below, represents the total accumulated goodwill impairment expenses recorded.
The carrying amount of goodwill attributable to each reporting segment was:
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(In thousands) | | Architectural Framing Systems | | Architectural Glass | | Architectural Services | | Large-Scale Optical | | Total |
Balance at February 29, 2020 | | $ | 148,183 | | | $ | 25,656 | | | $ | 1,120 | | | $ | 10,557 | | | $ | 185,516 | |
Adjustment (1) | | 6,315 | | | — | | | — | | | — | | | 6,315 | |
Impairment expense | | (63,769) | | | — | | | — | | | — | | | (63,769) | |
Foreign currency translation | | 2,370 | | | (334) | | | — | | | — | | | 2,036 | |
Balance at February 27, 2021 | | 93,099 | | | 25,322 | | | 1,120 | | | 10,557 | | | 130,098 | |
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Foreign currency translation | | 248 | | | 42 | | | — | | | — | | | 290 | |
Balance at August 28, 2021 | | $ | 93,347 | | | $ | 25,364 | | | $ | 1,120 | | | $ | 10,557 | | | $ | 130,388 | |
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(1) During the first quarter of fiscal 2021, we recorded a $6.3 million increase to goodwill and corresponding increase to deferred tax liabilities to correct an immaterial error related to prior periods. The error was not material to any previously reported annual or interim consolidated financial statements. |
Other intangible assets
We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Based on our analysis, the fair value of each of our trade names and trademarks exceeded carrying amount, except for the EFCO tradename, within our Architectural Framing Systems segment. The fair value determined for the EFCO tradename was less than its carrying value by $6.3 million; this amount was recognized as impairment expense in the fourth quarter ended February 27, 2021, as reflected in the table below.
The gross carrying amount of other intangible assets and related accumulated amortization was:
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(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Impairment Expense | | Foreign Currency Translation | | Net |
August 28, 2021 | | | | | | | | | | |
Definite-lived intangible assets: | | | | | | | | | | |
Customer relationships | | $ | 122,961 | | | $ | (44,042) | | | $ | — | | | $ | 742 | | | $ | 79,661 | |
Other intangibles | | 41,838 | | | (35,068) | | | — | | | 222 | | | 6,992 | |
Total definite-lived intangible assets | | 164,799 | | | (79,110) | | | — | | | 964 | | | 86,653 | |
Indefinite-lived intangible assets: | | | | | | | | | | |
Trademarks | | 39,832 | | | — | | | — | | | 157 | | | 39,989 | |
Total intangible assets | | $ | 204,631 | | | $ | (79,110) | | | $ | — | | | $ | 1,121 | | | $ | 126,642 | |
February 27, 2021 | | | | | | | | | | |
Definite-lived intangible assets: | | | | | | | | | | |
Customer relationships | | $ | 119,647 | | | $ | (40,443) | | | $ | — | | | $ | 3,315 | | | $ | 82,519 | |
Other intangibles | | 41,293 | | | (34,234) | | | |