SEC Filing | Apogee Enterprises, Inc.

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apog-20211127

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 November 27, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-6365

_________________________________

APOGEE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

_________________________________

Minnesota

41-0919654

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

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:

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

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 January 3, 2022, 24,865,480 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	Financial Information

Item 1.	Financial Statements (Unaudited):

	Consolidated Balance Sheets	4

	Consolidated Results of Operations	5

	Consolidated Statements of Comprehensive Earnings	6

	Consolidated Statements of Cash Flows	7

	Consolidated Statements of Shareholders' Equity	8

	Notes to Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II	Other Information

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 6.	Exhibits	28

Signatures		29

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PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except stock data)	November 27, 2021		February 27, 2021
Assets
Current assets
Cash and cash equivalents	$	78,272	$	47,277

Receivables, net	165,005		175,917
Inventories	75,437		72,823
Costs and earnings on contracts in excess of billings	28,323		29,497
Other current assets	19,837		25,160
Total current assets	366,874		350,674
Property, plant and equipment, net	254,838		298,443
Assets held for sale	9,256		—
Operating lease right-of-use assets	50,845		58,864
Goodwill	129,932		130,098
Intangible assets	123,553		130,053
Other non-current assets	46,793		46,967
Total assets	$	982,091	$	1,015,099
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	80,995	$	76,204
Accrued payroll and related benefits	48,017		50,125

Billings on contracts in excess of costs and earnings	18,458		22,789
Operating lease liabilities	11,834		13,251
Current portion of debt	1,000		2,000
Other current liabilities	57,586		53,183
Total current liabilities	217,890		217,552
Long-term debt	162,000		163,000
Non-current operating lease liabilities	43,608		48,439
Non-current self-insurance reserves	26,628		24,880
Other non-current liabilities	58,112		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 25,227,367 and 25,713,688 respectively	8,409		8,571
Additional paid-in capital	158,579		154,958
Retained earnings	336,816		357,243


Accumulated other comprehensive loss	(29,951)		(28,027)
Total shareholders’ equity	473,853		492,745
Total liabilities and shareholders’ equity	$	982,091	$	1,015,099

See accompanying notes to consolidated financial statements.

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CONSOLIDATED RESULTS OF OPERATIONS

(Unaudited)


	Three Months Ended				Nine Months Ended
(In thousands, except per share data)	November 27, 2021		November 28, 2020		November 27, 2021		November 28, 2020
Net sales	$	334,217	$	313,583	$	986,020	$	922,162
Cost of sales	269,537		243,998		805,627		716,139
Gross profit	64,680		69,585		180,393		206,023
Selling, general and administrative expenses	46,970		19,835		149,709		126,590
Operating income	17,710		49,750		30,684		79,433

Interest expense, net	528		1,502		2,838		4,240
Other (expense) income, net	(3,057)		472		(3,266)		684
Earnings before income taxes	14,125		48,720		24,580		75,877
Income tax expense	3,068		11,447		4,821		18,070
Net earnings	$	11,057	$	37,273	$	19,759	$	57,807
Earnings per share - basic	$	0.44	$	1.44	$	0.79	$	2.22
Earnings per share - diluted	$	0.44	$	1.42	$	0.78	$	2.19
Weighted average basic shares outstanding	24,957		25,883		25,166		26,068
Weighted average diluted shares outstanding	25,309		26,225		25,459		26,350

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Unaudited)


	Three Months Ended				Nine Months Ended
(In thousands)	November 27, 2021		November 28, 2020		November 27, 2021		November 28, 2020
Net earnings	$	11,057	$	37,273	$	19,759	$	57,807
Other comprehensive earnings (loss):
Unrealized (loss) gain on marketable securities, net of $(40), $0, $(39) and $39 of tax (benefit) expense, respectively	(151)		(2)		(147)		145
Unrealized (loss) gain on derivative instruments, net of $(265), $90, $(257) and $305 of tax (benefit) expense, respectively	(868)		294		(842)		997
Foreign currency translation adjustments	(2,515)		899		(935)		887
Other comprehensive (loss) earnings	(3,534)		1,191		(1,924)		2,029
Total comprehensive earnings	$	7,523	$	38,464	$	17,835	$	59,836

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
(In thousands)	November 27, 2021		November 28, 2020
Operating Activities
Net earnings	$	19,759	$	57,807
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	38,353		38,000
Share-based compensation	4,807		6,163
Deferred income taxes	(5,412)		5,012
Asset impairment	16,638		—
Gain on disposal of assets	(1,250)		(19,346)

Noncash lease expense	9,302		9,531
Other, net	3,009		(69)
Changes in operating assets and liabilities:
Receivables	6,443		24,153
Inventories	(2,657)		(2,722)
Costs and earnings on contracts in excess of billings	1,168		44,501
Accounts payable and accrued expenses	5,440		(43,915)
Billings on contracts in excess of costs and earnings	(4,474)		(6,981)
Refundable and accrued income taxes	5,255		12,424
Operating lease liability	(9,387)		(9,168)
Other	(703)		5,122
Net cash provided by operating activities	86,291		120,512
Investing Activities
Capital expenditures	(13,070)		(17,116)
Proceeds from sales of property, plant and equipment	1,347		23,724


Other	76		(1,090)
Net cash (used) provided by investing activities	(11,647)		5,518
Financing Activities
Borrowings on line of credit	—		193,332
Repayments on debt	(2,000)		(5,400)
Payments on line of credit	—		(237,500)
Proceeds from exercise of stock options	4,115		1,456
Repurchase and retirement of common stock	(29,164)		(20,731)
Dividends paid	(15,050)		(14,546)
Other	(1,895)		(2,309)
Net cash used by financing activities	(43,994)		(85,698)
Increase in cash and cash equivalents	30,650		40,332
Effect of exchange rates on cash	345		129
Cash, cash equivalents and restricted cash at beginning of year	47,277		14,952
Cash, cash equivalents and restricted cash at end of period	$	78,272	$	55,413
Noncash Activity
Capital expenditures in accounts payable	$	1,095	$	684

See accompanying notes to consolidated financial statements.

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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		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 $0 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

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
Net earnings	—	—		—		11,057		—		—		—		11,057
Unrealized loss on marketable securities, net of $40 tax benefit	—	—		—		—		—		—		(151)		(151)
Unrealized loss on foreign currency hedge, net of $265 tax benefit	—	—		—		—		—		—		(868)		(868)
Foreign currency translation adjustments	—	—		—		—		—		—		(2,515)		(2,515)
Issuance of stock, net of cancellations	1	—		22		—		(3)		3		—		22
Share-based compensation	—	—		1,546		—		—		—		—		1,546

Share repurchases	(166)	(55)		(1,092)		(5,598)		—		—		—		(6,745)
Other share retirements	(2)	(1)		(12)		(51)		—		—		—		(64)
Cash dividends	—	—		—		(4,990)		—		—		—		(4,990)
Balance at November 27, 2021	25,227	$	8,409	$	158,579	$	336,816	$	(195)	$	195	$	(29,951)	$	473,853

See accompanying notes to consolidated financial statements.

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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		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

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


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
Net earnings	—	—		—		37,273		—		—		—		37,273
Unrealized loss on marketable securities, net of $0 tax benefit	—	—		—		—		—		—		(2)		(2)
Unrealized gain on foreign currency hedge, net of $90 tax expense	—	—		—		—		—		—		294		294
Foreign currency translation adjustments	—	—		—		—		—		—		899		899
Issuance of stock, net of cancellations	10	3		15		—		524		(524)		—		18
Share-based compensation	—	—		2,501		—		—		—		—		2,501
Exercise of stock options	127	42		1,414		—		—		—		—		1,456
Share repurchases	(620)	(207)		(3,781)		(12,012)		—		—		—		(16,000)
Other share retirements	(22)	(7)		(131)		(331)		—		—		—		(469)
Cash dividends	—	—		—		(4,795)		—		—		—		(4,795)
Balance at November 28, 2020	25,962	$	8,654	$	155,974	$	414,749	$	(183)	$	183	$	(32,034)	$	547,343

See accompanying notes to consolidated financial statements.

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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 nine-month periods ended November 27, 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. Through the first three 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 and Omicron variants, 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.

Equity Investment

During the third quarter of fiscal 2022, an impairment of $3.0 million was recognized within other (expense) income within the consolidated results of operations related to a minority equity investment held by the Company which represents a write-down of the entire investment in the company.

2.Revenue, Receivables and Contract Assets and Liabilities

Revenue

The following table disaggregates total revenue by timing of recognition (see Note 12 for disclosure of revenue by segment):


	Three Months Ended				Nine Months Ended
(In thousands)	November 27, 2021		November 28, 2020		November 27, 2021		November 28, 2020
Recognized at shipment	$	141,826	$	129,132	$	419,893	$	379,292
Recognized over time	192,391		184,451		566,127		542,870
Total	$	334,217	$	313,583	$	986,020	$	922,162

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

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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)	November 27, 2021		February 27, 2021
Trade accounts	$	124,890	$	120,534
Construction contracts	16,266		12,163
Contract retainage	26,164		45,167
Total receivables	167,320		177,864
Less: allowance for credit losses	2,315		1,947
Net receivables	$	165,005	$	175,917

The following table summarizes the activity in the allowance for credit losses:


(In thousands)	November 27, 2021		February 27, 2021
Beginning balance	$	1,947	$	2,469
Additions charged to costs and expenses	635		389
Deductions from allowance, net of recoveries	(251)		(887)
Other changes (1)	(16)		(24)
Ending balance	$	2,315	$	1,947
(1) Result of foreign currency effects

Contract assets and liabilities

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

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


(In thousands)	November 27, 2021		February 27, 2021
Contract assets	$	54,487	$	74,664
Contract liabilities	20,689		25,000

The change in contract assets and contract liabilities was mainly due to timing of project activity within our businesses that operate under long-term contracts.


Other contract-related disclosures	Three Months Ended				Nine Months Ended
(In thousands)	November 27, 2021		November 28, 2020		November 27, 2021		November 28, 2020
Revenue recognized related to contract liabilities from prior year-end	$	1,687	$	2,044	$	18,266	$	16,239
Revenue recognized related to prior satisfaction of performance obligations	5,051		4,016		12,568		10,545

Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that time frame. Generally, these contracts are found in our businesses that typically operate with long-term contracts, which recognize revenue over time. As of November 27, 2021, the transaction price associated with unsatisfied performance obligations was approximately $863.1 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:


(In thousands)	November 27, 2021
Within one year	$	547,110
Within two years	247,753
Beyond	68,209
Total	$	863,072

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3.Supplemental Balance Sheet Information

Inventories


(In thousands)	November 27, 2021		February 27, 2021
Raw materials	$	43,436	$	36,681
Work-in-process	17,532		18,932
Finished goods	14,469		17,210
Total inventories	$	75,437	$	72,823

Other current liabilities


(In thousands)	November 27, 2021		February 27, 2021
Warranties	$	10,889	$	12,298
Accrued project losses	904		4,572
Income and other taxes	8,727		7,459
Accrued self-insurance reserves	9,431		6,482
Accrued freight	1,931		1,477
Other	25,704		20,895
Total other current liabilities	$	57,586	$	53,183

Other non-current liabilities


(In thousands)	November 27, 2021		February 27, 2021
Deferred benefit from New Market Tax Credit transactions	$	9,165	$	15,717
Retirement plan obligations	7,575		7,730
Deferred compensation plan	12,682		13,507
Deferred tax liabilities	4,773		8,310
Deferred payroll taxes	6,789		6,789
Other	17,128		16,430
Total other non-current liabilities	$	58,112	$	68,483

4.Financial Instruments

Marketable securities

Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), we hold the following available-for-sale marketable securities, made up of municipal and corporate bonds:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
November 27, 2021	$	12,337	$	223	$	33	$	12,527
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 November 27, 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	$	1,011	$	1,024
Due after one year through five years	9,536