UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission File Number: 0-6365
_________________________________
(Exact name of registrant as specified in its charter)
_________________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
(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 | ||
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.
x | Accelerated filer | o | ||||
Non-accelerated filer | o | 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 1, 2019, 26,554,597 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 | August 31, 2019 | March 2, 2019 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Receivables, net of allowance for doubtful accounts | ||||||||
Inventories | ||||||||
Costs and earnings on contracts in excess of billings | ||||||||
Other current assets | ||||||||
Total current assets | ||||||||
Property, plant and equipment, net | ||||||||
Operating lease right-of-use assets | ||||||||
Goodwill | ||||||||
Intangible assets | ||||||||
Other non-current assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued payroll and related benefits | ||||||||
Billings on contracts in excess of costs and earnings | ||||||||
Operating lease liabilities | ||||||||
Current portion of debt | ||||||||
Other current liabilities | ||||||||
Total current liabilities | ||||||||
Long-term debt | ||||||||
Non-current operating lease liabilities | ||||||||
Non-current self-insurance reserves | ||||||||
Other non-current liabilities | ||||||||
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 26,554,597 and 27,015,127 respectively | ||||||||
Additional paid-in capital | ||||||||
Retained earnings | ||||||||
Common stock held in trust | ( | ) | ( | ) | ||||
Deferred compensation obligations | ||||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total shareholders’ equity | ||||||||
Total liabilities and shareholders’ equity | $ | $ | ||||||
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 31, 2019 | September 1, 2018 | August 31, 2019 | September 1, 2018 | ||||||||||||
Net sales | $ | $ | $ | $ | ||||||||||||
Cost of sales | ||||||||||||||||
Gross profit | ||||||||||||||||
Selling, general and administrative expenses | ||||||||||||||||
Operating income | ||||||||||||||||
Interest and other expense, net | ||||||||||||||||
Earnings before income taxes | ||||||||||||||||
Income tax expense | ||||||||||||||||
Net earnings | $ | $ | $ | $ | ||||||||||||
Earnings per share - basic | $ | $ | $ | $ | ||||||||||||
Earnings per share - diluted | $ | $ | $ | $ | ||||||||||||
Weighted average basic shares outstanding | ||||||||||||||||
Weighted average diluted shares outstanding | ||||||||||||||||
See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
In thousands | August 31, 2019 | September 1, 2018 | August 31, 2019 | September 1, 2018 | ||||||||||||
Net earnings | $ | $ | $ | $ | ||||||||||||
Other comprehensive earnings (loss): | ||||||||||||||||
Unrealized gain (loss) on marketable securities, net of $2, ($11), $49 and ($9) of tax expense (benefit), respectively | ( | ) | ( | ) | ||||||||||||
Unrealized gain (loss) on derivative instruments, net of $25, ($17), $27 and ($109) of tax expense (benefit), respectively | ( | ) | ( | ) | ||||||||||||
Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
Other comprehensive earnings (loss) | ( | ) | ( | ) | ||||||||||||
Total comprehensive earnings | $ | $ | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended | ||||||||
In thousands | August 31, 2019 | September 1, 2018 | ||||||
Operating Activities | ||||||||
Net earnings | $ | $ | ||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
Share-based compensation | ||||||||
Deferred income taxes | ||||||||
Proceeds from New Markets Tax Credit transaction, net of deferred costs | ||||||||
Noncash lease expense | ||||||||
Other, net | ( | ) | ( | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Receivables | ( | ) | ||||||
Inventories | ||||||||
Costs and earnings on contracts in excess of billings | ( | ) | ( | ) | ||||
Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
Billings on contracts in excess of costs and earnings | ( | ) | ||||||
Refundable and accrued income taxes | ( | ) | ||||||
Other | ( | ) | ( | ) | ||||
Net cash provided by operating activities | ||||||||
Investing Activities | ||||||||
Capital expenditures | ( | ) | ( | ) | ||||
Purchases of marketable securities | ( | ) | ( | ) | ||||
Sales/maturities of marketable securities | ||||||||
Other | ( | ) | ( | ) | ||||
Net cash used by investing activities | ( | ) | ( | ) | ||||
Financing Activities | ||||||||
Borrowings on line of credit | ||||||||
Proceeds from issuance of term debt | ||||||||
Payments on line of credit | ( | ) | ( | ) | ||||
Repurchase and retirement of common stock | ( | ) | ||||||
Dividends paid | ( | ) | ( | ) | ||||
Other | ( | ) | ( | ) | ||||
Net cash used by financing activities | ( | ) | ( | ) | ||||
(Decrease) increase in cash and cash equivalents | ( | ) | ||||||
Effect of exchange rates on cash | ( | ) | ||||||
Cash, cash equivalents and restricted cash at beginning of year | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
Noncash Activity | ||||||||
Capital expenditures in accounts payable | $ | $ | ||||||
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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
Net earnings | — | — | — | — | — | — | |||||||||||||||||||||
Unrealized gain on marketable securities, net of $47 tax expense | — | — | — | — | — | — | |||||||||||||||||||||
Unrealized gain on foreign currency hedge, net of $2 tax expense | — | ||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | ( | ) | ||||||||||||||||||||
Issuance of stock, net of cancellations | — | ( | ) | — | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||
Share repurchases | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
Other share retirements | ( | ) | ( | ) | ( | ) | ( | ) | — | — | — | ||||||||||||||||
Cash dividends | — | — | — | ( | ) | — | — | — | |||||||||||||||||||
Balance at June 1, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
Net earnings | — | — | — | — | — | — | |||||||||||||||||||||
Unrealized gain on marketable securities, net of $2 tax expense | — | — | — | — | — | — | |||||||||||||||||||||
Unrealized gain on foreign currency hedge, net of $25 tax expense | — | ||||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | ||||||||||||||||||||||
Issuance of stock, net of cancellations | — | ( | ) | — | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||
Other share retirements | ( | ) | ( | ) | ( | ) | ( | ) | — | — | — | ||||||||||||||||
Cash dividends | — | — | — | ( | ) | — | — | — | |||||||||||||||||||
Balance at August 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
Balance at March 3, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
Cumulative effect adjustment | — | — | — | — | — | — | |||||||||||||||||||||
Reclassification of tax effects | — | — | — | — | — | ( | ) | ||||||||||||||||||||
Net earnings | — | — | — | — | — | — | |||||||||||||||||||||
Unrealized gain on marketable securities, net of $2 tax expense | — | — | — | — | — | — | |||||||||||||||||||||
Unrealized loss on foreign currency hedge, net of $92 tax benefit | — | ( | ) | ||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | ( | ) | ||||||||||||||||||||
Issuance of stock, net of cancellations | — | ( | ) | — | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||
Exercise of stock options | — | — | — | — | |||||||||||||||||||||||
Other share retirements | ( | ) | ( | ) | ( | ) | ( | ) | — | — | — | ||||||||||||||||
Cash dividends | — | — | — | ( | ) | — | — | — | |||||||||||||||||||
Balance at June 2, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
Net earnings | — | — | — | — | — | — | |||||||||||||||||||||
Unrealized loss on marketable securities, net of $11 tax benefit | — | ( | ) | ||||||||||||||||||||||||
Unrealized loss on foreign currency hedge, net of $17 tax benefit | — | ( | ) | ||||||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | ( | ) | ||||||||||||||||||||
Issuance of stock, net of cancellations | — | ( | ) | — | |||||||||||||||||||||||
Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||
Other share retirements | ( | ) | ( | ) | ( | ) | — | — | — | — | |||||||||||||||||
Cash dividends | — | — | — | ( | ) | — | — | — | |||||||||||||||||||
Balance at September 1, 2018 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
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 six-month period ended August 31, 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.
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
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 | Six Months Ended | |||||||||||||||
In thousands | August 31, 2019 | September 1, 2018 | August 31, 2019 | September 1, 2018 | ||||||||||||
Recognized at shipment | $ | 164,336 | $ | 166,534 | $ | $ | ||||||||||
Recognized over time | 192,722 | 195,599 | ||||||||||||||
Total | $ | 357,058 | $ | 362,133 | $ | $ | ||||||||||
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 | August 31, 2019 | March 2, 2019 | ||||||
Trade accounts | $ | $ | ||||||
Construction contracts | ||||||||
Contract retainage | ||||||||
Total receivables | ||||||||
Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
Net receivables | $ | $ | ||||||
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 | August 31, 2019 | March 2, 2019 | ||||||
Contract assets | $ | $ | ||||||
Contract liabilities | ||||||||
The increase in contract assets was due to timing of costs incurred in advance of billings, primarily on a legacy EFCO project. The change in contract liabilities was due to timing of project activity within our businesses that operate under long-term contracts.
Other contract-related disclosures | Three Months Ended | Six Months Ended | ||||||||||||||
In thousands | August 31, 2019 | September 1, 2018 | August 31, 2019 | September 1, 2018 | ||||||||||||
Revenue recognized related to contract liabilities from prior year-end | $ | $ | $ | $ | ||||||||||||
Revenue recognized related to prior satisfaction of performance obligations | ||||||||||||||||
Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally these contracts are in our businesses with long-term contracts which recognize revenue over time. As of August 31, 2019, the transaction price associated with unsatisfied performance obligations was approximately $775.7 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 31, 2019 | |||
Within one year | $ | |||
Within two years | ||||
Beyond | ||||
Total | $ | |||
3. | Supplemental Balance Sheet Information |
Inventories
In thousands | August 31, 2019 | March 2, 2019 | ||||||
Raw materials | $ | $ | ||||||
Work-in-process | ||||||||
Finished goods | ||||||||
Total inventories | $ | $ | ||||||
Other current liabilities
In thousands | August 31, 2019 | March 2, 2019 | ||||||
Warranties | $ | $ | ||||||
Accrued project losses | ||||||||
Taxes | ||||||||
Accrued self-insurance reserves | ||||||||
Other | ||||||||
Total other current liabilities | $ | $ | ||||||
10
Other non-current liabilities
In thousands | August 31, 2019 | March 2, 2019 | ||||||
Deferred benefit from New Market Tax Credit transactions | $ | $ | ||||||
Retirement plan obligations | ||||||||
Deferred compensation plan | ||||||||
Other | ||||||||
Total other non-current liabilities | $ | $ | ||||||
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 | ||||||||||||
August 31, 2019 | $ | $ | $ | $ | 11,985 | |||||||||||
March 2, 2019 | 12,432 | |||||||||||||||
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 31, 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 | $ | $ | ||||||
Due after one year through five years | ||||||||
Due after five years through 10 years | ||||||||
Due after 10 years through 15 years | ||||||||
Due beyond 15 years | ||||||||
Total | $ | $ | ||||||
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 31, 2019, the interest rate swap contract had a notional value of $85 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 31, 2019, we held foreign exchange forward contracts with a U.S. dollar notional value of $27.8 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.
11
In thousands | Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Total Fair Value | |||||||||
August 31, 2019 | ||||||||||||
Assets: | ||||||||||||
Money market funds | $ | 3,589 | $ | — | $ | 3,589 | ||||||
Commercial paper | — | 1,250 | 1,250 | |||||||||
Municipal and corporate bonds | — | 11,985 | 11,985 | |||||||||
Liabilities: | ||||||||||||
Foreign currency forward/option contract | — | |||||||||||
Interest rate swap contract | — | |||||||||||
March 2, 2019 | ||||||||||||
Assets: | ||||||||||||
Money market funds | $ | 2,015 | $ | — | $ | 2,015 | ||||||
Commercial paper | — | 300 | 300 | |||||||||
Municipal and corporate bonds | — | 12,432 | 12,432 | |||||||||
Liabilities: | ||||||||||||
Foreign currency forward/option contract | — | |||||||||||
Money market funds and commercial paper
Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets. These assets are included within cash and cash equivalents on our consolidated balance sheets.
Municipal and corporate bonds
Municipal and corporate bonds were measured at fair value based on market prices from recent trades of similar securities and are classified within our consolidated balance sheets as other current or other non-current assets based on maturity date.
Derivative instruments
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 | $ | $ | $ | $ | $ | |||||||||||||||
Goodwill adjustments for purchase accounting | ||||||||||||||||||||
Foreign currency translation | ( | ) | ( | ) | ( | ) | ||||||||||||||
Balance at March 2, 2019 | ||||||||||||||||||||
Foreign currency translation | ( | ) | ( | ) | ||||||||||||||||
Balance at August 31, 2019 | $ | $ | $ | $ | $ | |||||||||||||||
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 | |||||||||||||||
August 31, 2019 | ||||||||||||||||||||
Definite-lived intangible assets: | ||||||||||||||||||||
Customer relationships | $ | $ | ( | ) | $ | — | $ | ( | ) | $ | ||||||||||
Other intangibles | ( | ) | — | ( | ) | |||||||||||||||
Total definite-lived intangible assets | ( | ) | — | ( | ) | |||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||
Trademarks | — | — | ( | ) | ||||||||||||||||
Total intangible assets | $ | $ | ( | ) | $ | — | $ | ( | ) | $ | ||||||||||
March 2, 2019 | ||||||||||||||||||||
Definite-lived intangible assets: | ||||||||||||||||||||
Customer relationships | $ | $ | ( | ) | $ | — | $ | ( | ) | $ | ||||||||||
Other intangibles | ( | ) | — | ( | ) | |||||||||||||||
Total definite-lived intangible assets | ( | ) | — | ( | ) | |||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||
Trademarks | — | ( | ) | ( | ) | |||||||||||||||
Total intangible assets | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | |||||||||
Amortization expense on definite-lived intangible assets was $3.8 million and $7.9 million for the six-month periods ended August 31, 2019 and September 1, 2018, respectively. Amortization expense is included in selling, general and administrative expenses in the consolidated results of operations, other than amortization on debt issue costs, which is included in interest expense. At August 31, 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 | $ | $ | $ | $ | $ | |||||||||||||||
6. | Debt |
As of August 31, 2019, our total debt outstanding was $272.8 million, compared to $245.8 million as of March 2, 2019. During the second quarter ended August 31, 2019, we amended the borrowing capacity of our prior credit facility to be $235 million with a maturity of June 2024 and we established a $150 million term loan with a maturity of June 2020. Outstanding borrowings under the revolving credit facility were $102.0 million, as of August 31, 2019, and $225.0 million, as of March 2, 2019.
Consistent with our prior facility, our amended revolving credit facility and term loan contains 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 August 31, 2019, we were in compliance with both financial covenants. Additionally, at August 31, 2019, we had a total of $24.7 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2021 to 2032 and reduce borrowing capacity under the revolving credit facility.
At August 31, 2019, debt 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 August 31, 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 August 31, 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 $5.3 million and $4.3 million for the six months ended August 31, 2019 and September 1, 2018, respectively.
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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 ten years, some of which include renewal options that can extend the lease for up to an additional ten years at our sole discretion. We have made an accounting policy election not to record leases with an original term of 12 months or less on our consolidated balance sheet 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.
Three Months Ended | Six Months Ended | |||||||
In thousands | August 31, 2019 | August 31, 2019 | ||||||
Operating lease cost | $ | $ | ||||||
Short-term lease cost | ||||||||
Variable lease cost | ||||||||