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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 November 28, 2020
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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.) |
| | | | |
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 | | NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | x | | Accelerated filer | | o |
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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 January 5, 2021, 26,007,703 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) | | November 28, 2020 | | February 29, 2020 |
Assets | | | | |
Current assets | | | | |
Cash and cash equivalents | | $ | 55,413 | | | $ | 14,952 | |
| | | | |
Receivables, net | | 172,877 | | | 196,806 | |
Inventories | | 73,815 | | | 71,089 | |
Costs and earnings on contracts in excess of billings | | 29,141 | | | 73,582 | |
Other current assets | | 14,389 | | | 25,481 | |
Total current assets | | 345,635 | | | 381,910 | |
Property, plant and equipment, net | | 302,082 | | | 324,386 | |
Operating lease right-of-use assets | | 62,950 | | | 52,892 | |
Goodwill | | 192,883 | | | 185,516 | |
Intangible assets | | 136,843 | | | 140,191 | |
Other non-current assets | | 45,589 | | | 44,096 | |
Total assets | | $ | 1,085,982 | | | $ | 1,128,991 | |
Liabilities and Shareholders’ Equity | | | | |
Current liabilities | | | | |
Accounts payable | | $ | 69,719 | | | $ | 69,056 | |
Accrued payroll and related benefits | | 40,170 | | | 40,119 | |
| | | | |
Billings on contracts in excess of costs and earnings | | 25,945 | | | 32,696 | |
Operating lease liabilities | | 12,098 | | | 11,272 | |
Current portion of debt | | 2,000 | | | 5,400 | |
Other current liabilities | | 61,768 | | | 118,314 | |
Total current liabilities | | 211,700 | | | 276,857 | |
Long-term debt | | 166,463 | | | 212,500 | |
Non-current operating lease liabilities | | 53,122 | | | 43,163 | |
Non-current self-insurance reserves | | 26,085 | | | 22,831 | |
Other non-current liabilities | | 81,269 | | | 56,862 | |
Commitments and contingent liabilities (Note 8) | | | | |
Shareholders’ equity | | | | |
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 25,962,041 and 26,443,166 respectively | | 8,654 | | | 8,814 | |
Additional paid-in capital | | 155,974 | | | 154,016 | |
Retained earnings | | 414,749 | | | 388,010 | |
Common stock held in trust | | (183) | | | (685) | |
Deferred compensation obligations | | 183 | | | 685 | |
Accumulated other comprehensive loss | | (32,034) | | | (34,062) | |
Total shareholders’ equity | | 547,343 | | | 516,778 | |
Total liabilities and shareholders’ equity | | $ | 1,085,982 | | | $ | 1,128,991 | |
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED RESULTS OF OPERATIONS
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(In thousands, except per share data) | | November 28, 2020 | | November 30, 2019 | | November 28, 2020 | | November 30, 2019 |
Net sales | | $ | 313,583 | | | $ | 337,916 | | | $ | 922,162 | | | $ | 1,050,340 | |
Cost of sales | | 243,998 | | | 263,606 | | | 716,139 | | | 808,856 | |
Gross profit | | 69,585 | | | 74,310 | | | 206,023 | | | 241,484 | |
Selling, general and administrative expenses | | 19,835 | | | 52,716 | | | 126,590 | | | 169,274 | |
Operating income | | 49,750 | | | 21,594 | | | 79,433 | | | 72,210 | |
| | | | | | | | |
Interest expense, net | | 1,502 | | | 1,995 | | | 4,240 | | | 7,176 | |
Other income, net | | 472 | | | 231 | | | 684 | | | 599 | |
Earnings before income taxes | | 48,720 | | | 19,830 | | | 75,877 | | | 65,633 | |
Income tax expense | | 11,447 | | | 4,596 | | | 18,070 | | | 15,677 | |
Net earnings | | $ | 37,273 | | | $ | 15,234 | | | $ | 57,807 | | | $ | 49,956 | |
Earnings per share - basic | | $ | 1.44 | | | $ | 0.58 | | | $ | 2.22 | | | $ | 1.89 | |
Earnings per share - diluted | | $ | 1.42 | | | $ | 0.57 | | | $ | 2.19 | | | $ | 1.87 | |
Weighted average basic shares outstanding | | 25,883 | | | 26,432 | | | 26,068 | | | 26,481 | |
Weighted average diluted shares outstanding | | 26,225 | | | 26,750 | | | 26,350 | | | 26,776 | |
See accompanying notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(In thousands) | | November 28, 2020 | | November 30, 2019 | | November 28, 2020 | | November 30, 2019 |
Net earnings | | $ | 37,273 | | | $ | 15,234 | | | $ | 57,807 | | | $ | 49,956 | |
Other comprehensive earnings (loss): | | | | | | | | |
Unrealized (loss) gain on marketable securities, net of $—, $(11), $39 and $38 of tax (benefit) expense, respectively | | (2) | | | (44) | | | 145 | | | 145 | |
Unrealized gain on derivative instruments, net of $90, $119, $305 and $146 of tax expense, respectively | | 294 | | | 387 | | | 997 | | | 476 | |
Foreign currency translation adjustments | | 899 | | | (491) | | | 887 | | | (586) | |
Other comprehensive earnings (loss) | | 1,191 | | | (148) | | | 2,029 | | | 35 | |
Total comprehensive earnings | | $ | 38,464 | | | $ | 15,086 | | | $ | 59,836 | | | $ | 49,991 | |
See accompanying notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended |
(In thousands) | | November 28, 2020 | | November 30, 2019 |
Operating Activities | | | | |
Net earnings | | $ | 57,807 | | | $ | 49,956 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 38,000 | | | 34,681 | |
Share-based compensation | | 6,163 | | | 4,617 | |
Deferred income taxes | | 5,012 | | | 10,088 | |
Gain on disposal of assets | | (19,346) | | | (623) | |
| | | | |
Noncash lease expense | | 9,531 | | | 8,993 | |
Other, net | | (69) | | | (2,007) | |
Changes in operating assets and liabilities: | | | | |
Receivables | | 24,153 | | | (5,288) | |
Inventories | | (2,722) | | | 2,474 | |
Costs and earnings on contracts in excess of billings | | 44,501 | | | (17,156) | |
Accounts payable and accrued expenses | | (43,915) | | | (22,457) | |
Billings on contracts in excess of costs and earnings | | (6,981) | | | 4,901 | |
Refundable and accrued income taxes | | 12,424 | | | (6,159) | |
Operating lease liability | | (9,168) | | | (7,468) | |
Other | | 5,122 | | | (951) | |
Net cash provided by operating activities | | 120,512 | | | 53,601 | |
Investing Activities | | | | |
Capital expenditures | | (17,116) | | | (41,176) | |
Proceeds from sales of property, plant and equipment | | 23,724 | | | 591 | |
| | | | |
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Other | | (1,090) | | | (857) | |
Net cash provided (used) by investing activities | | 5,518 | | | (41,442) | |
Financing Activities | | | | |
Borrowings on line of credit | | 193,332 | | | 108,000 | |
(Repayment) borrowings on debt | | (5,400) | | | 150,000 | |
Payments on line of credit | | (237,500) | | | (252,500) | |
Repurchase and retirement of common stock | | (20,731) | | | (20,010) | |
Dividends paid | | (14,546) | | | (13,808) | |
Other | | (853) | | | (2,584) | |
Net cash used by financing activities | | (85,698) | | | (30,902) | |
Increase (decrease) in cash and cash equivalents | | 40,332 | | | (18,743) | |
Effect of exchange rates on cash | | 129 | | | 32 | |
Cash, cash equivalents and restricted cash at beginning of year | | 14,952 | | | 29,241 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 55,413 | | | $ | 10,530 | |
Noncash Activity | | | | |
Capital expenditures in accounts payable | | $ | 684 | | | $ | 1,205 | |
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 | | 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 $— 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.
8
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 March 2, 2019 | | 27,015 | | | $ | 9,005 | | | $ | 151,842 | | | $ | 367,597 | | | $ | (755) | | | $ | 755 | | | $ | (32,127) | | | $ | 496,317 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net earnings | | — | | | — | | | — | | | 15,443 | | | — | | | — | | | — | | | 15,443 | |
Unrealized gain on marketable securities, net of $47 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 181 | | | 181 | |
Unrealized gain on foreign currency hedge, net of $2 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 5 | | | 5 | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (2,560) | | | (2,560) | |
Issuance of stock, net of cancellations | | 79 | | | 26 | | | 14 | | | — | | | (12) | | | 12 | | | — | | | 40 | |
Share-based compensation | | — | | | — | | | 1,618 | | | — | | | — | | | — | | | — | | | 1,618 | |
| | | | | | | | | | | | | | | | |
Share repurchases | | (532) | | | (177) | | | (3,051) | | | (16,782) | | | — | | | — | | | — | | | (20,010) | |
Other share retirements | | (32) | | | (11) | | | (183) | | | (1,266) | | | — | | | — | | | — | | | (1,460) | |
Cash dividends | | — | | | — | | | — | | | (4,598) | | | — | | | — | | | — | | | (4,598) | |
Balance at June 1, 2019 | | 26,530 | | | $ | 8,843 | | | $ | 150,240 | | | $ | 360,394 | | | $ | (767) | | | $ | 767 | | | $ | (34,501) | | | $ | 484,976 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net earnings | | — | | | — | | | — | | | 19,279 | | | — | | | — | | | — | | | 19,279 | |
Unrealized gain on marketable securities, net of $2 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 8 | | | 8 | |
Unrealized gain on foreign currency hedge, net of $25 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 84 | | | 84 | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | 2,465 | | | 2,465 | |
Issuance of stock, net of cancellations | | 44 | | | 15 | | | 27 | | | — | | | (11) | | | 11 | | | — | | | 42 | |
Share-based compensation | | — | | | — | | | 1,582 | | | — | | | — | | | — | | | — | | | 1,582 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other share retirements | | (20) | | | (7) | | | (114) | | | (629) | | | — | | | — | | | — | | | (750) | |
Cash dividends | | — | | | — | | | — | | | (4,605) | | | — | | | — | | | — | | | (4,605) | |
Balance at August 31, 2019 | | 26,554 | | | $ | 8,851 | | | $ | 151,735 | | | $ | 374,439 | | | $ | (778) | | | $ | 778 | | | $ | (31,944) | | | $ | 503,081 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net earnings | | — | | | — | | | — | | | 15,234 | | | — | | | — | | | — | | | 15,234 | |
Unrealized loss on marketable securities, net of $11 tax benefit | | — | | | — | | | — | | | — | | | — | | | — | | | (44) | | | (44) | |
Unrealized gain on foreign currency hedge, net of $119 tax expense | | — | | | — | | | — | | | — | | | — | | | — | | | 387 | | | 387 | |
Foreign currency translation adjustments | | — | | | — | | | — | | | — | | | — | | | — | | | (491) | | | (491) | |
Issuance of stock, net of cancellations | | (1) | | | 1 | | | 43 | | | — | | | 103 | | | (103) | | | — | | | 44 | |
Share-based compensation | | — | | | — | | | 1,417 | | | — | | | — | | | — | | | — | | | 1,417 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other share retirements | | — | | | (1) | | | (7) | | | (36) | | | — | | | — | | | — | | | (44) | |
Cash dividends | | — | | | — | | | — | | | (4,605) | | | — | | | — | | | — | | | (4,605) | |
Balance at November 30, 2019 | | 26,553 | | | $ | 8,851 | | | $ | 153,188 | | | $ | 385,032 | | | $ | (675) | | | $ | 675 | | | $ | (32,092) | | | $ | 514,979 | |
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 29, 2020. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and nine-month periods ended November 28, 2020 are not necessarily indicative of the results to be expected for the full year.
COVID-19 considerations
The ongoing COVID-19 pandemic continues to cause volatility and uncertainty in global markets impacting worldwide economic activity. We have experienced some delays in commercial construction projects and orders as a result of COVID-19. In our Architectural Glass and Architectural Framing segments, orders have been delayed or have slowed, as customers and end markets face some uncertainty and delays in timing of work. In our Architectural Services segment, some construction site closures or project delays have occurred, and job sites have had to adjust to increased physical distancing and health-related precautions. Within our Large-Scale Optical (LSO) segment, most customers reopened and the segment's two manufacturing locations resumed normal operations during the latter part of the second quarter, after being shutdown for most of the first and second quarters due to governmental orders. We have also been impacted by quarantine-related absenteeism among our workforce, resulting in labor and capacity constraints at some of our facilities. The extent to which COVID-19 will continue to impact our business will depend on future developments and public health advancements, which have been buoyed recently by the commencement of vaccine production and distribution.
In response to COVID-19, we have implemented a variety of countermeasures to promote the health and safety of our employees during this pandemic, including health screening, physical distancing practices, enhanced cleaning, use of personal protective equipment, business travel restrictions, and remote work capabilities, in addition to quarantine-related paid leave and other employee assistance programs.
Adoption of new accounting standards
At the beginning of fiscal 2021, we adopted the guidance in ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance provides for a new impairment model on financial instruments which is based on expected credit losses, which was applied following a modified retrospective approach. Additionally, the new guidance makes targeted improvements to the impairment model for certain available-for-sale debt securities, including eliminating the concept of "other than temporary" from that model. The portion of the guidance related to available-for-sale debt securities was adopted following a prospective approach. The adoption of this ASU did not have a significant impact on earnings or financial condition. Refer to additional disclosures in Notes 2 and 4.
Subsequent events
We have evaluated subsequent events for potential recognition and disclosure through the date of this filing. Subsequent to the end of the quarter, we announced the election of our new Chief Executive Officer, Ty R. Silberhorn, and entered into an employment agreement with him, effective January 4, 2021. Mr. Silberhorn replaces, Joseph F. Puishys, who announced his retirement, as an employee of the Company, in September 2020, effective January 4, 2021.
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 28, 2020 | | November 30, 2019 | | November 28, 2020 | | November 30, 2019 |
Recognized at shipment | | $ | 129,132 | | | $ | 153,093 | | | $ | 379,292 | | | $ | 472,695 | |
Recognized over time | | 184,451 | | | 184,823 | | | 542,870 | | | 577,645 | |
Total | | $ | 313,583 | | | $ | 337,916 | | | $ | 922,162 | | | $ | 1,050,340 | |
Receivables
Receivables reflected in the financial statements represent the net amount expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecast economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible. Retainage on construction contracts represents amounts withheld by our customers on long-term projects until the project reaches a level of completion where amounts are released.
| | | | | | | | | | | | | | |
(In thousands) | | November 28, 2020 | | February 29, 2020 |
Trade accounts | | $ | 122,959 | | | $ | 141,126 | |
Construction contracts | | 9,727 | | | 20,808 | |
Contract retainage | | 42,053 | | | 37,341 | |
Total receivables | | 174,739 | | | 199,275 | |
Less: allowance for credit losses | | (1,862) | | | (2,469) | |
Net receivables | | $ | 172,877 | | | $ | 196,806 | |
The following table summarizes the activity in the allowance for credit losses:
| | | | | | | | |
(In thousands) | | November 28, 2020 |
Beginning balance | | $ | 2,469 | |
Additions charged to costs and expenses | | 325 | |
Deductions from allowance, net of recoveries | | (884) | |
Other changes (1) | | (48) | |
Ending balance | | $ | 1,862 | |
(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 28, 2020 | | February 29, 2020 |
Contract assets | | $ | 71,194 | | | $ | 110,923 | |
Contract liabilities | | 27,965 | | | 35,954 | |
| | | | |
The decrease in contract assets was mainly due to a reduction in costs and earnings in excess of billings, which is driven by the settlement of matters related to a legacy EFCO project, as well as the timing of projects. The change in contract liabilities was due to timing of project activity within our businesses that operate under long-term contracts.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other contract-related disclosures | | Three Months Ended | | Nine Months Ended |
(In thousands) | | November 28, 2020 | | November 30, 2019 | | November 28, 2020 | | November 30, 2019 |
Revenue recognized related to contract liabilities from prior year-end | | $ | 2,044 | | | $ | 4,589 | | | $ | 16,239 | | | $ | 22,044 | |
Revenue recognized related to prior satisfaction of performance obligations | | 4,016 | | | 1,776 | | | 10,545 | | | 5,298 | |
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 November 28, 2020, the transaction price associated with unsatisfied performance obligations was approximately $901.6
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 28, 2020 |
Within one year | | $ | 498,623 | |
Within two years | | 331,219 | |
Beyond | | 71,786 | |
Total | | $ | 901,628 | |
3.Supplemental Balance Sheet Information
Inventories
| | | | | | | | | | | | | | |
(In thousands) | | November 28, 2020 | | February 29, 2020 |
Raw materials | | $ | 43,292 | | | $ | 36,611 | |
Work-in-process | | 16,337 | | | 17,520 | |
Finished goods | | 14,186 | | | 16,958 | |
Total inventories | | $ | 73,815 | | | $ | 71,089 | |
Other current liabilities
| | | | | | | | | | | | | | |
(In thousands) | | November 28, 2020 | | February 29, 2020 |
Warranties | | $ | 13,281 | | | $ | 12,822 | |
Accrued project losses | | 3,297 | | | 48,962 | |
Property and other taxes | | 13,078 | | | 5,952 | |
Accrued self-insurance reserves | | 9,912 | | | 8,307 | |
Other | | 22,200 | | | 42,271 | |
Total other current liabilities | | $ | 61,768 | | | $ | 118,314 | |
Other non-current liabilities
| | | | | | | | | | | | | | |
(In thousands) | | November 28, 2020 | | February 29, 2020 |
Deferred benefit from New Market Tax Credit transactions | | $ | 15,717 | | | $ | 15,717 | |
Retirement plan obligations | | 8,138 | | | 8,294 | |
Deferred compensation plan | | 8,437 | | | 8,452 | |
Deferred tax liabilities | | 20,014 | | | 7,940 | |
Other | | 28,963 | | | 16,459 | |
Total other non-current liabilities | | $ | 81,269 | | | $ | 56,862 | |
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 28, 2020 | | $ | 12,556 | | | $ | 459 | | | $ | — | | | $ | 13,015 | |
February 29, 2020 | | 11,692 | | | 275 | | | — | | | 11,967 | |
Prism insures a portion of our general liability, workers’ compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements.
The amortized cost and estimated fair values of these bonds at November 28, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without penalty.
| | | | | | | | | | | | | | |
(In thousands) | | Amortized Cost | | Estimated Fair Value |
Due within one year | | $ | 771 | | | $ | 779 | |
Due after one year through five years | | 7,682 | | | 7,978 | |
Due after five years through 10 years | | 3,303 | | | 3,428 | |
| | | | |
Due beyond 15 years | | 800 | | | 830 | |
Total | | $ | 12,556 | | | $ | 13,015 | |
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 November 28, 2020, the interest rate swap contract had a notional value of $55 million.
We periodically enter into forward purchase foreign currency cash flow hedge contracts and forward purchase aluminum hedge contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk and future purchases of aluminum in certain of our architectural businesses. As of November 28, 2020, we held foreign exchange forward contracts and aluminum forward contracts with U.S. dollar notional values of $18.7 million and $1.9 million, respectively, with the objective of reducing the exposure to fluctuations in the Canadian dollar, the Euro and the price of aluminum.
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.
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Quoted Prices in Active Markets (Level 1) | | Other Observable Inputs (Level 2) | | Total Fair Value |
November 28, 2020 | | | | | | |
Assets: | | | | | | |
Money market funds | | $ | 27,000 | | | $ | — | | | $ | 27,000 | |
Commercial paper | | — | | | 4,300 | | | 4,300 | |
Municipal and corporate bonds | | — | | | 13,015 | | | 13,015 | |
Cash surrender value of life insurance | | — | | | 17,704 | | | 17,704 | |
Foreign currency and aluminum forward/option contracts | | — | | | 896 | | | 896 | |
| | | | | | |
Liabilities: | | | | | | |
Deferred compensation | | — | | | 14,027 | | | 14,027 | |
| | | | | | |
Interest rate swap contract | | — | | | 676 | | | 676 | |
| | | | | | |
February 29, 2020 | | | | | | |
Assets: | | | | | | |
Money market funds | | $ | 2,689 | | | $ | — | | | $ | 2,689 | |
Commercial paper | | — | | | 1,500 | | | 1,500 | |
Municipal and corporate bonds | | — | | | 11,967 | | | 11,967 | |
Cash surrender value of life insurance | | — | | | 16,560 | | | 16,560 | |
|