QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 27, 2023
☐
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. xYeso 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). xYeso No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
☐
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 June 26, 2023, 22,077,600 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.
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 25, 2023. 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-month period ended May 27, 2023 are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Certain reclassifications of amounts previously reported have been made to the accompanying consolidated balance sheets, consolidated statements of cash flows and notes to consolidated financial statements to conform to current year presentation of contract assets and liabilities. These reclassifications had no impact on reported cash flows or total assets and liabilities.
Adoption of new accounting standards
In the current quarter, we adopted the guidance in ASU 2022-04, Liabilities – Supplier Finance Programs, Disclosure of Supplier Finance Program Obligations. The guidance requires that entities that use supplier finance programs disclose information about the nature and potential magnitude of the programs, activity during the period, and changes from period to period. Beginning in the current quarter, we implemented a supplier financing arrangement with U.S. Bank that enables our suppliers, at their sole discretion, to sell their Apogee receivables (i.e., our payment obligations to the suppliers) to U.S. Bank on a non-recourse basis in order to be paid earlier than our payment terms provide. Our suppliers’ voluntary inclusion of invoices in the supplier financing arrangement has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the supplier financing program, and we do not provide any guarantees in connection with it. As of May 27, 2023, the amount outstanding that remains unpaid to the bank totaled $2.1 million, and is reflected in accounts payable in the consolidated balance sheets.
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
(In thousands)
May 27, 2023
May 28, 2022
Recognized at shipment
$
152,655
$
161,164
Recognized over time
209,058
195,471
Total
$
361,713
$
356,635
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.
The following table summarizes the activity in the allowance for credit losses for the three-month period ended:
(In thousands)
May 27, 2023
Beginning balance
$
1,796
Additions charged to costs and expenses
1,376
Deductions from allowance, net of recoveries
(82)
Foreign currency effects
3
Ending balance
$
3,093
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. 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 to us from the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts.
The time period between when performance obligations are complete and when payment is due is not significant. In certain parts of our business 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 at which point amounts are released to us from the customer.
The changes in contract assets and contract liabilities were mainly due to timing of project activity within our businesses that operate under long-term contracts.
Other contract-related disclosures
Three Months Ended
(In thousands)
May 27, 2023
May 28, 2022
Revenue recognized related to contract liabilities from prior year-end
$
22,745
$
35,926
Revenue recognized related to prior satisfaction of performance obligations
427
175
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. The transaction prices associated with unsatisfied performance obligations at May 27, 2023 are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
Deferred benefit from New Markets Tax Credit transactions
$
9,250
$
9,250
Deferred compensation plan
6,266
5,577
Retirement plan obligations
5,691
5,749
Deferred tax liabilities
1,433
1,417
Other
20,434
22,190
Total other non-current liabilities
$
43,074
$
44,183
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
May 27, 2023
$
10,225
$
—
$
550
$
9,675
February 25, 2023
10,647
—
702
9,945
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 May 27, 2023, 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
$
2,906
$
2,850
Due after one year through five years
7,319
6,825
Total
$
10,225
$
9,675
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. As of May 27, 2023, the interest rate swap contract had a notional value of $30.0 million and has a maturity date of February 5, 2026.
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 May 27, 2023, we held foreign exchange forward contracts and aluminum fixed/floating swaps with U.S. dollar notional values of $5.1 million and $12.8 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.
(In thousands)
Quoted Prices in Active Markets (Level 1)
Other Observable Inputs (Level 2)
Total Fair Value
May 27, 2023
Assets:
Money market funds
$
11,901
$
—
$
11,901
Municipal and corporate bonds
—
9,675
9,675
Cash surrender value of life insurance
—
8,188
8,188
Interest rate swap contract
—
1,522
1,522
Liabilities:
Deferred compensation
—
10,204
10,204
Foreign currency forward/option contract
—
147
147
Aluminum hedging contract
—
881
881
February 25, 2023
Assets:
Money market funds
$
8,062
$
—
$
8,062
Municipal and corporate bonds
—
9,945
9,945
Cash surrender value of life insurance
—
8,282
8,282
Interest rate swap contract
—
1,817
1,817
Liabilities:
Deferred compensation
—
9,515
9,515
Foreign currency forward/option contract
—
206
206
Aluminum hedging contract
—
1,075
1,075
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.
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.
5.Goodwill and Other Intangible Assets
Goodwill
Goodwill represents the excess of the cost over the value of 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.
At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects, which resulted in the combination of the Sotawall and Harmon reporting units into a single reporting unit. We evaluated goodwill on a qualitative basis prior to and subsequent to this change for these reporting units and concluded that no adjustment to the carrying value of goodwill was necessary. Concurrent with the move of Sotawall from the Architectural Framing Systems segment to the Architectural Services segment effective at the start of our first quarter of fiscal 2023, goodwill was reallocated to the affected reporting units within each segment, using a relative fair value approach as outlined in ASC 350, Intangibles - Goodwill and Other.
During the first quarter of fiscal 2024, we did not identify any qualitative indicators of impairment at any of our reporting units, and therefore, no interim quantitative goodwill impairment evaluation was performed.
The following table presents the carrying amount of goodwill attributable to each reporting segment including the amount of goodwill that was reallocated from the Architectural Framing Systems segment to the Architectural Services segment using the relative fair value approach during the first quarter of fiscal 2023:
(In thousands)
Architectural Framing Systems
Architectural Services
Architectural Glass
Large-Scale Optical
Total
Balance at February 26, 2022
$
93,181
$
1,120
$
25,244
$
10,557
$
130,102
Reallocation among reporting units (1)
(2,048)
2,048
—
—
—
Foreign currency translation
(996)
(137)
57
—
(1,076)
Balance at February 25, 2023
90,137
3,031
25,301
10,557
129,026
Foreign currency translation
(18)
(2)
48
—
28
Balance at May 27, 2023
$
90,119
$
3,029
$
25,349
$
10,557
$
129,054
(1) Represents the reallocation of goodwill as a result of transitioning Sotawall from the Architectural Framing Systems segment to the Architectural Services segment as of the start of the first quarter of fiscal 2023.
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. During the first quarter of fiscal 2024, we did not identify any qualitative indicators of impairment at any of our reporting units, and therefore, no interim quantitative goodwill impairment evaluation was performed.
Finite-lived intangible assets
Long-lived assets or asset groups, including intangible assets subject to amortization and property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. We use undiscounted cash flows to determine whether impairment exists and measure any impairment loss using discounted cash flows to determine the fair value of long-lived assets.
The gross carrying amount of other intangible assets and related accumulated amortization was:
(In thousands)
Gross Carrying Amount
Accumulated Amortization
Foreign Currency Translation
Net
May 27, 2023
Definite-lived intangible assets:
Customer relationships
$
86,798
$
(50,319)
$
19
$
36,498
Other intangibles
38,360
(35,409)
13
2,964
Total
125,158
(85,728)
32
39,462
Indefinite-lived intangible assets:
Trademarks
26,851
—
(5)
26,846
Total intangible assets
$
152,009
$
(85,728)
$
27
$
66,308
February 25, 2023
Definite-lived intangible assets:
Customer relationships
$
89,495
$
(49,404)
$
(2,697)
$
37,394
Other intangibles
39,404
(35,229)
(1,045)
3,130
Total
128,899
(84,633)
(3,742)
40,524
Indefinite-lived intangible assets:
Trademarks
27,129
—
(278)
26,851
Total intangible assets
$
156,028
$
(84,633)
$
(4,020)
$
67,375
Amortization expense on definite-lived intangible assets was $1.0 million and $4.2 million for the three-month periods ended May 27, 2023 and May 28, 2022, respectively. Amortization expense of other identifiable intangible assets is included in selling, general and administrative expenses. At May 27, 2023, the estimated future amortization expense for definite-lived intangible assets was:
(In thousands)
2024
2025
2026
2027
2028
Estimated amortization expense
$
3,195
$
4,239
$
4,223
$
4,392
$
3,892
6.Debt
As of May 27, 2023, we had a committed revolving credit facility with Wells Fargo Bank, N.A. as administrative agent, and other lenders with maximum borrowings of up to $385 million and a maturity date of August 5, 2027. Outstanding borrowings under the revolving credit facility were $155.0 million and $156.0 million as of May 27, 2023 and February 25, 2023, respectively.
Our revolving credit facility contains two maintenance financial covenants that require us to stay below a maximum debt-to-EBITDA ratio of 3.25 and maintain a minimum ratio of EBITDA-to-interest expense of 3.00. In the event we make an acquisition for which the purchase price is greater than $75 million, we can elect to increase the maximum debt-to-EBITDA ratio to 3.75 for a period of four consecutive fiscal quarters, commencing with the fiscal quarter in which a qualifying acquisition occurs. No more than two acquisition "holidays" can occur during the term of the facility, and at least two fiscal
quarters must separate qualifying acquisitions. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At May 27, 2023, we were in compliance with both financial covenants.
Borrowings under the credit facility bear floating interest at either the Base Rate or Term SOFR, plus a margin based on the Leverage Ratio (as defined in the Credit Agreement). For Base Rate borrowings, the margin ranges from 0.125% to 0.75%. For Term SOFR borrowings, the margin ranges from 1.135% to 1.85%.
The facility also contains an "accordion" provision. Under this provision, we can request that the facility be increased by as much $200.0 million. Any Lender may elect or decline to participate in the requested increase at the Lender’s sole discretion.
At May 27, 2023, we had a total of $12.3 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2024 to 2032 and reduce borrowing capacity under the revolving credit facility. As of May 27, 2023, the amount available for revolving borrowings under the Wells Fargo credit facility was $217.7 million.
At May 27, 2023, debt included $12.0 million of industrial revenue bonds that mature in fiscal years 2036 through 2043. The fair value of all industrial revenue bonds approximated carrying value at May 27, 2023, due to the variable interest rates on these instruments.
We also maintain two Canadian committed, revolving credit facilities with the Bank of Montreal totaling $25.0 million (USD). The Canadian committed revolving credit facilities expire annually in February, but can be renewed each year solely at our discretion until August 2027, therefore, we have classified all outstanding amounts under these facilities as long-term debt within our consolidated balance sheets. At May 27, 2023 and February 25, 2023, outstanding borrowings under these Canadian committed, revolving credit facilities were $3.7 million and $1.8 million, respectively. At May 27, 2023, the total amount available for revolving borrowings under the Bank of Montreal credit facilities was $21.3 million. The Bank of Montreal credit facilities have two maintenance financial covenants that are identical to those contained in the Wells Fargo credit facility. At May 27, 2023, we were in compliance with both financial covenants.
Our Wells Fargo credit facility, Bank of Montreal credit facilities and industrial revenue bonds would be classified as Level 2 within the fair value hierarchy described in Note 4.
Interest payments under the Wells Fargo and Bank of Montreal facilities were $2.4 million and $1.1 million for the three months ended May 27, 2023 and May 28, 2022, respectively.
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. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. 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; 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 non lease 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.
Other supplemental information related to leases was as follows:
Three Months Ended
(In thousands except weighted-average data)
May 27, 2023
May 28, 2022
Cash paid for amounts included in the measurement of operating lease liabilities
$
3,742
$
3,537
Lease assets obtained in exchange for new operating lease liabilities
$
1,580
$
168
Weighted-average remaining lease term - operating leases
4.4 years
5.2 years
Weighted-average discount rate - operating leases
3.27
%
2.86
%
Future maturities of lease liabilities are as follows:
(In thousands)
May 27, 2023
Remainder of Fiscal 2024
$
9,477
Fiscal 2025
11,785
Fiscal 2026
9,379
Fiscal 2027
7,960
Fiscal 2028
4,324
Fiscal 2029
1,547
Thereafter
2,226
Total lease payments
46,698
Less: Amounts representing interest
3,355
Present value of lease liabilities
$
43,343
8.Commitments and Contingent Liabilities
Bond commitments
In the ordinary course of business, predominantly in our Architectural Services and Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At May 27, 2023, $1.3 billion of these types of bonds were outstanding, of which $503.4 million is in our backlog. These bonds do not have stated expiration dates. We have never been required to make payments under surety or performance bonds with respect to our existing businesses.
Warranty and project-related contingencies
We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims as a ratio of sales. Claim costs are deducted from the accrual when paid. Factors that could have an impact on these accruals in any given period include the following: changes in manufacturing quality, changes in product mix and any significant changes in sales volume.
Three Months Ended
(In thousands)
May 27, 2023
May 28, 2022
Balance at beginning of period
$
17,893
$
13,923
Additional accruals
4,353
4,069
Claims paid
(2,148)
(2,525)
Balance at end of period
$
20,098
$
15,467
Additionally, we are subject to project management and installation-related contingencies as a result of our fixed-price material supply and installation service contracts, primarily in our Architectural Services segment and certain of our Architectural Framing Systems businesses. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages.
Letters of credit
At May 27, 2023, we had $12.3 million of ongoing letters of credit, all of which have been issued under our committed revolving credit facility, as discussed in Note 6. We also have a $3.4 million letter of credit which has been issued outside our committed revolving credit facility, with no impact on our borrowing capacity and debt covenants.
Purchase obligations
Purchase obligations for raw material commitments and capital expenditures totaled $31.6 million as of May 27, 2023.
We have three outstanding NMTC arrangements which help to support operational expansion. Proceeds received from investors on these transactions are included within other current and other non-current liabilities in our consolidated balance sheets. The NMTC arrangements are subject to 100 percent tax credit recapture for a period of seven years from the date of each respective transaction. Upon the termination of each arrangement, these proceeds will be recognized in earnings in exchange for the transfer of tax credits. The direct and incremental costs incurred in structuring these arrangements have been deferred and are included in other current and other non-current assets in our consolidated balance sheets. These costs will be recognized in conjunction with the recognition of the related proceeds on each arrangement. During the construction phase or for working capital purposes for each project, we are required to hold cash dedicated to fund each project which is classified as restricted cash in our consolidated balance sheets. Variable-interest entities, which have been included within our consolidated financial statements, have been created as a result of the structure of these transactions, as investors in the programs do not have a material interest in their underlying economics.
During the first quarter of fiscal 2023, one NMTC transaction was terminated, and a new NMTC transaction was established as a replacement. As a result of these transactions, $19.5 million in previous proceeds received were repaid and $19.5 million was contributed back to the Company as part of the newly established NMTC transaction. This NMTC transaction will be held for the remainder of the original seven-year term.
The table below provides a summary of our outstanding NMTC transactions (in millions):
Inception date
Termination date
Deferred Benefit
Deferred costs
Net benefit
June 2016
June 2023
$
6.0
$
1.2
$
4.8
September 2018
September 2025
3.2
1.0
2.2
May 2022(1)
August 2025
6.1
1.6
4.5
Total
$
15.3
$
3.8
$
11.5
(1) Continuation of the August 2018 NMTC financing transaction
Litigation
The Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. In December 2022, the claimant in an arbitration of one such claim was awarded $20 million. The Company has appealed the award and believes, after taking into account all currently available information, including the advice of counsel and the likelihood of available insurance coverage, that this award will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no matters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.
9.Share-Based Compensation
As part of our compensation structure, we grant stock-based compensation awards to certain employees and non-employee directors during the fiscal year. These awards may be in the form of incentive stock options (to employees only), nonstatutory options, or nonvested share awards and units, all of which are granted at a price or with an exercise price equal to the fair market value of the Company’s stock at the date of award. Refer to our Form 10-K for further information on our share-based compensation plans.
The table below sets forth the number of stock-based compensation awards granted during the three-months ended May 27, 2023, along with the weighted average grant date fair value:
Awards
Number of Awards
Weighted Average Exercise Price
Restricted stock awards and restricted stock units(1)
159,286
$
42.77
Performance share units ("PSUs")(2)
47,402
$
43.59
(1) Represent service condition awards which generally vest over a two- or three-year period.
(2) Represent performance condition awards with the grant equal to the target number of performance shares based on the share price at grant date. These grants allow for the right to receive a variable number of shares, between 0% and 200% of target, dependent on achieving a defined performance goal of return on invested capital and being employed at the end of the performance period.
Total share-based compensation expense included in the results of operations was $2.2 million for the three-month period ended May 27, 2023, and $1.6 million for the three-month period ended May 28, 2022.
At May 27, 2023, there was $10.3 million of total unrecognized compensation cost related to nonvested share and nonvested share unit awards, which is expected to be recognized over a weighted average period of approximately 20 months. The total fair value of shares vested during the three months ended May 27, 2023 was $5.5 million.
As of May 27, 2023, we had remaining stock options outstanding and expense to vest of 158,000, with a weighted average exercise price of $23.04 and an aggregate intrinsic value of $2.0 million.
10.Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2020, or state and local income tax examinations for years prior to fiscal 2015. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2019, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions.
The total liability for unrecognized tax benefits was $5.2 million at May 27, 2023, compared to $5.3 million at February 25, 2023. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense.
11.Earnings per Share
The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:
Three Months Ended
(In thousands)
May 27, 2023
May 28, 2022
Basic earnings per share – weighted average common shares outstanding
21,883
22,399
Weighted average effect of nonvested share grants and assumed exercise of stock options
503
252
Diluted earnings per share – weighted average common shares and potential common shares outstanding
22,386
22,651
Stock awards excluded from the calculation of earnings per share because the effect was anti-dilutive (award price greater than average market price of the shares)
229
106
12.Business Segment Data
We have four reporting segments:
•The Architectural Framing Systems segment designs, engineers, fabricates and finishes aluminum window, curtainwall, storefront and entrance systems for the exterior of buildings.
•The Architectural Services segment integrates technical services, project management, and field installation services to design, engineer, fabricate, and install building glass and curtainwall systems.
•The Architectural Glass segment coats and fabricates, high-performance glass used in custom window and wall systems on commercial buildings.
•The Large-Scale Optical (LSO) segment manufactures high-performance glass and acrylic products for custom framing, museum, and technical glass markets.
Due to the varying combinations and integration of individual window, storefront and curtainwall systems, it is impractical to report product revenues generated by class of product, beyond the segment revenues currently reported.
13. Restructuring
During the second quarter of fiscal 2022, we announced plans to realign and simplify our business structure. The execution of these plans was completed during the first quarter of fiscal 2023, with the sale of the remaining manufacturing assets at our Architectural Glass location, in Dallas, Texas, for $4.1 million. The remaining assets had a carrying value of $3.4 million, and we recognized a gain on the sale of approximately $0.6 million, net of associated transaction costs, which is included as a reduction of cost of sales within our consolidated statements of operations for the prior-year period.
The following table summarizes our restructuring related accrual balances included within accrued payroll and related costs and other current liabilities in the consolidated balance sheets. All balances have been paid as of the end of the first quarter of fiscal 2024.
(In thousands)
Architectural Framing
Architectural Glass
Corporate & Other
Total
Balance at February 26, 2022
$
440
$
737
$
228
$
1,405
Payments
(124)
(378)
(68)
(570)
Other adjustments
(14)
(17)
—
(31)
Balance at May 28, 2022
302
342
160
804
Balance at February 25, 2023
$
62
$
23
$
—
$
85
Payments
(62)
(23)
—
(85)
Balance at May 27, 2023
$
—
$
—
$
—
$
—
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements
This Quarterly Report on Form 10-Q, including the section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this document are “forward-looking statements,” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or
other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.
Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Information about factors that could materially affect our results can be found in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended February 25, 2023 and in subsequent filings with the U.S. Securities and Exchange Commission, including this Quarterly Report on Form 10-Q.
We also wish to caution investors that other factors might in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a leader in the design and development of value-added glass and metal products and services. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).
In fiscal 2022, we conducted a strategic review of our business and the markets we serve in order to establish a new enterprise strategy with three key elements, as discussed below:
1.Become the economic leader in our target markets. We will achieve this by developing a deep understanding of our target markets and aligning our businesses with clear go-to-market strategies to drive value for our customers through differentiated product and service offerings. We will also build a relentless focus on operational execution, driving productivity improvements, and maintaining a competitive cost structure, so that we may bring more value to our customers and improve our own profitability.
2.Actively manage our portfolio to drive higher margins and returns. We intend to shift our business mix toward higher operating margin offerings and improve our return on invested capital performance. We will accomplish this by allocating resources to grow our top performing businesses, actively addressing underperforming businesses, and investing to add new differentiated product and service offerings to accelerate our growth.
3.Strengthen our core capabilities. We are shifting from our historical, decentralized operating model, to one with center-led functional expertise that enables us to leverage the scale of the enterprise to better support the needs of the business. We are establishing a Company-wide operating system with common tools and processes that are based on the foundation of Lean and Continuous Improvement, which we are calling "Apogee Management System or AMS". This will be supported by a robust talent management program and a commitment to strong governance to ensure compliance and drive sustainable performance.
We have made significant progress toward these financial targets through the execution of our strategy. We advanced our AMS initiatives, which have resulted in meaningful productivity improvements, particularly in Architectural Glass. We increased our focus on differentiated products and services, and effectively managed pricing to share in the value we delivered for our customers. We have focused on sustainable cost improvements and improvements to quality, service and delivery, while shifting mix toward more differentiated offerings. We integrated the Sotawall business into the Architectural Services segment, in order to create a single, unified offering for larger custom curtainwall projects. We advanced several initiatives to strengthen our core capabilities, driving the standardization of key business processes and systems. We also relaunched our talent development and leadership training programs and added key talent across the organization.
The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended February 25, 2023 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.
Highlights of First Quarter of Fiscal 2024 Compared to First Quarter of Fiscal 2023
Net sales
Consolidated net sales increased 1.4%, or $5.1 million, for the three-month period ended May 27, 2023, compared to the same period in the prior year, primarily driven by strong growth in the Architectural Glass segment, partially offset by a decline in the Architectural Services segment.
The relationship between various components of operations, as a percentage of net sales, is presented below:
Three Months Ended
May 27, 2023
May 28, 2022
Net sales
100.0
%
100.0
%
Cost of sales
74.3
76.0
Gross profit
25.7
24.0
Selling, general and administrative expenses
16.4
14.7
Operating income
9.3
9.3
Interest expense, net
0.6
0.3
Other expense, net
0.1
0.4
Earnings before income taxes
8.7
8.6
Income tax expense
2.2
2.2
Net earnings
6.5
%
6.4
%
Effective tax rate
25.0
%
26.0
%
Gross profit
Gross profit as a percent of sales (gross margin) was 25.7% for the three-month period ended May 27, 2023, compared to 24.0% for the three-month period ended May 28, 2022. The improvement was driven primarily by strong performance in the Architectural Glass segment, partially offset primarily by lower margins in the Architectural Services and Architectural Framing segment.
Selling, general and administrative (SG&A) expenses
SG&A expenses as a percent of sales was 16.4% for the three-month period ended May 27, 2023, compared to 14.7% for the prior year three-month period. SG&A increased as a percent of sales compared to the three-month period in the prior year primarily due to an increase in compensation related expenses, higher consulting costs, and higher allowance for credit losses.
Interest expense
Interest expense as a percent of sales was 0.6% for the three-month period ended May 27, 2023, compared to 0.3% for the prior year three-month period, primarily due to an increase in interest rates for the current year period.
Income tax expense
The effective income tax rate in the first quarter of fiscal 2024 was 25.0%, compared to 26.0% in the same period last year, primarily due to an increase to the valuation allowance related to foreign net operating loss carryforwards in the prior year.
The following table summarizes net sales, operating income (loss) and operating margin by segment and consolidated total.
Three Months Ended
(In thousands, except percentages)
May 27, 2023
May 28, 2022
Segment net sales
Architectural Framing Systems
$
164,162
$
163,292
Architectural Glass
97,202
76,265
Architectural Services
89,418
103,388
Large-Scale Optical
22,456
25,162
Intersegment eliminations
(11,525)
(11,472)
Net sales
$
361,713
$
356,635
Segment operating income (loss)
Architectural Framing Systems
$
19,945
$
23,665
Architectural Glass
16,521
5,169
Architectural Services
(596)
2,927
Large-Scale Optical
5,525
6,498
Corporate and other
(7,628)
(5,043)
Operating income
$
33,767
$
33,216
Segment operating margin
Architectural Framing Systems
12.1
%
14.5
%
Architectural Glass
17.0
6.8
Architectural Services
(0.7)
2.8
Large-Scale Optical
24.6
25.8
Corporate and other
N/M
N/M
Operating income
9.3
%
9.3
%
N/M Indicates calculation not meaningful.
Architectural Framing Systems
Three Months Ended
(In thousands)
May 27, 2023
May 28, 2022
% Change
Net sales
$
164,162
$
163,292
0.5
%
Operating income
19,945
23,665
(15.7)
%
Operating margin
12.1
%
14.5
%
Architectural Framing Systems net sales increased $0.9 million, or 0.5%, for the three-month period ended May 27, 2023, compared to the prior year period, driven by improved pricing and mix, which offset lower volume, as the segment continues to increase focus on target markets where it can provide differentiated offerings.
Operating margin decreased 240 basis points for the three-month period of the current year, compared to the same period in the prior year, primarily reflecting favorable timing of inventory flows and aluminum prices in the prior year, which did not repeat in this year's first quarter.
As of May 27, 2023, segment backlog was approximately $221 million, compared to approximately $243 million at the end of the prior quarter, and to approximately $310 million at the end of the first quarter of fiscal 2023. Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. We view backlog as one indicator of future revenues, particularly in our longer-lead time businesses. In addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog. We have visibility into future business commitments beyond backlog, as projects awarded, verbal commitments and bidding activities are not included in backlog.
Net sales increased $20.9 million, or 27.5%, for the three-month period ended May 27, 2023, compared to the same period in the prior year, driven by improved pricing, higher volume, and a more favorable sales mix, reflecting the segment's strategic shift to emphasize premium, high-performance products.
Operating margin increased by 10.2 percentage points primarily driven by improved pricing, favorable mix, and increased volume, partially offset by cost inflation.
Architectural Services
Three Months Ended
(In thousands)
May 27, 2023
May 28, 2022
% Change
Net sales
$
89,418
$
103,388
(13.5)
%
Operating (loss) income
(596)
2,927
N/M
Operating margin
(0.7)
%
2.8
%
N/M Indicates calculation not meaningful.
Architectural Services net sales decreased $14.0 million, or 13.5% for the three-month period ended May 27, 2023, compared to the same period in the prior year, primarily reflecting lower volume.
In the current quarter, the segment had negative operating margin of 0.7%, compared to operating margin of 2.8% in the same period of the prior year, primarily due to the impact of lower estimated profitability levels on certain projects, the unfavorable leverage impact of lower net sales, and severance costs related to a facility closure.
As of May 27, 2023, segment backlog was approximately $709 million, compared to approximately $727 million at the end of the prior quarter, and to approximately $681 million at the end of the first quarter of fiscal 2023. Backlog, a non-GAAP financial measure, and the implications thereof, are described within the Architectural Framing Systems discussion above.
Large-Scale Optical (LSO)
Three Months Ended
(In thousands)
May 27, 2023
May 28, 2022
% Change
Net sales
$
22,456
$
25,162
(10.8)
%
Operating income
5,525
6,498
(15.0)
%
Operating margin
24.6
%
25.8
%
LSO net sales decreased $2.7 million, or 10.8%, for the three-month period ended May 27, 2023 compared to the same period in the prior year, primarily reflecting lower volume due to timing of customer orders and customer inventory destocking.
Operating margin decreased 120 basis points in the three-month period of the current year, compared to the same period in the prior year, primarily reflecting the unfavorable leverage impact of lower net sales.
Corporate and other
Our corporate and other expenses increased $2.6 million for the three-month period ended May 27, 2023 compared to the same period in the prior year, primarily due to an increase in compensation expense and higher consulting costs.
Proceeds from sales of property, plant and equipment
66
4,087
Net cash used by investing activities
(6,932)
(938)
Financing Activities
Borrowings on line of credit
105,852
161,000
Payments on line of credit
(105,000)
(62,000)
Repurchase and retirement of common stock
(5,193)
(74,312)
Dividends paid
(5,245)
(4,793)
Net cash (used) provided by financing activities
(11,263)
17,624
We rely on cash provided by operations for the Company’s material cash requirements, including working capital needs, capital expenditures, satisfaction of contractual commitments (including principal and interest payments on our outstanding indebtedness) and shareholder return through dividend payments and share repurchases.
Operating Activities. Net cash provided by operating activities was $21.3 million for the first three months of fiscal 2024, compared to $30.5 million of net cash used by operating activities in the prior year period, primarily reflecting lower working capital requirements for the current year period.
Investing Activities. Net cash used by investing activities was $6.9 million for the first three months of fiscal 2024, driven primarily by capital expenditures of $7.4 million. In the first three months of the prior year, net cash used by investing activities was $0.9 million, primarily driven by capital expenditures of $5.1 million, partially offset by proceeds from sales of property, plant and equipment of $4.1 million. The majority of our capital expenditures in the current year and prior year periods are to support future growth and cost reduction initiatives.
Financing Activities. Net cash used by financing activities was $11.3 million for the first three months of fiscal 2024, compared to net cash provided by financing activities of $17.6 million in the prior year period. The usage in the current year period was primarily driven by share repurchases and dividend payments totaling $10.4 million, while the prior year period included $99.0 million of net debt borrowings, partially offset by $79.1 million of share repurchases and dividend payments.
We paid dividends totaling $5.2 million ($0.24 per share) in the first three months of fiscal 2024, compared to $4.8 million ($0.22 per share) in the comparable prior year period. During the first three months of fiscal 2024, we repurchased 119,916 shares under our authorized share repurchase program, for a total cost of $5.2 million. In the first three months of fiscal 2023, we repurchased 1,571,139 shares under the share repurchase program, for a total cost of $74.3 million. In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. The Board increased the authorization by 750,000 shares, announced on January 24, 2008; by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016, January 9, 2018, January 14, 2020, October 7, 2021, and June 22, 2022; and by 2,000,000 shares, on each of the announcement dates of October 3, 2018 and January 14, 2022. The repurchase program does not have an expiration date. Since the inception of the share repurchase program in 2004, we have purchased a total of 11,116,517 shares, at a total cost of $386.8 million. As of May 27, 2023, we had remaining authority to repurchase an additional 1,133,483 shares under this program. We may also elect to repurchase additional shares of common stock under our authorization, subject to limitations contained in our debt agreements and based upon our assessment of a number of factors, including share price, trading volume and general market conditions, working capital requirements, general business conditions, financial conditions, any applicable contractual limitations, and other factors, including alternative investment opportunities. We may finance share repurchases with available cash, additional debt or other sources of financing.
Additional Liquidity Considerations. We periodically evaluate our liquidity requirements, cash needs and availability of debt resources relative to acquisition plans, significant capital plans, and other working capital needs.
As of the end of the first quarter of fiscal 2024, we had a committed revolving credit facility with maximum borrowings of up to $385 million, with a maturity date of August 5, 2027, and two Canadian committed, revolving credit facilities totaling $25 million (USD). At May 27, 2023, we had outstanding borrowings under our committed, revolving credit facility of $155.0 million, and $3.7 million outstanding under the Canadian committed, revolving credit facility. We are required to make periodic interest payments on our outstanding indebtedness, and future interest payments will be determined based on the amount of outstanding borrowings and prevailing interest rates during that time.
Our revolving credit facility contains two maintenance financial covenants that require us to stay below a maximum debt-to-EBITDA ratio of 3.25 and maintain a minimum ratio of EBITDA-to-interest expense of 3.00. In the event we make an acquisition for which the purchase price is greater than $75 million, we can elect to increase the maximum debt-to-EBITDA ratio to 3.75 for a period of four consecutive fiscal quarters, commencing with the fiscal quarter in which a qualifying acquisition occurs. No more than two acquisition "holidays" can occur during the term of the facility, and at least two fiscal quarters must separate qualifying acquisitions. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At May 27, 2023, we were in compliance with both financial covenants (which are identical in both of our revolving credit facilities).
Borrowings under the credit facility bear floating interest at either the Base Rate or Term SOFR, plus a margin based on the Leverage Ratio (as defined in the Credit Agreement). For Base Rate borrowings the margin ranges from 0.125% to 0.75%. For Term SOFR borrowings the margin ranges from 1.135% to 1.85%.
The facility also contains an "accordion" provision. Under this provision, we can request that the facility be increased by as much $200.0 million. Any Lender may elect or decline to participate in the requested increase at the Lender’s sole discretion.
Additionally, at May 27, 2023, we had a total of $12.3 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2024 to 2032 and reduce borrowing capacity under the revolving credit facility. As of May 27, 2023, the amount available for revolving borrowings under the Wells Fargo credit facility was $217.7 million.
We acquire the use of certain assets through operating leases, such as property, manufacturing equipment, vehicles and other equipment. Future payments for such leases, excluding leases with initial terms of one year or less, were $46.7 million at May 27, 2023, with $9.5 million payable during the remainder of fiscal 2024.
As of May 27, 2023, we had $31.6 million of open purchase obligations, of which payments totaling $22.4 million are expected to become due during the remainder of fiscal 2024. These purchase obligations primarily relate to raw material commitments and capital expenditures and are not expected to impact future liquidity, as amounts should be recovered through customer billings.
We expect to make contributions of $0.7 million to our defined-benefit pension plans in fiscal 2024, which will equal or exceed our minimum funding requirements.
As of May 27, 2023, we had reserves of $5.2 million for unrecognized tax benefits. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled.
We are required, in the ordinary course of business, to provide surety or performance bonds that commit payments to our customers for any non-performance. At May 27, 2023, $1.3 billion of these types of bonds were outstanding, of which $503.4 million is in our backlog. These bonds do not have stated expiration dates. We have never been required to make payments under surety or performance bonds with respect to our existing businesses.
We continue to evaluate acquisition opportunities on a regular basis. We may finance acquisition activity with available cash, the issuance of shares of common stock, additional debt, or other sources of financing, depending upon the size and nature of any such transaction and the status of the capital markets at the time of such acquisition.
Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facilities, we believe that our sources of liquidity will be adequate to meet our short-term and long-term liquidity and capital expenditure needs. In addition, we believe that we have the ability currently to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future. We also believe that we will be able to operate our business so as to continue to be in compliance with our existing debt covenants over the next fiscal year.
No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023.
Critical Accounting Policies
There have been no material changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended February 25, 2023 for a discussion of the Company’s market risk. There have been no material changes in market risk since February 25, 2023.
Item 4.Controls and Procedures
a)Evaluation of disclosure controls and procedures: As of the end of the period covered by this report (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Interim Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosure.
b)Changes in internal controls: There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended May 27, 2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
The Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. In December 2022, the claimant in an arbitration of one such claim was awarded $20 million. The Company has appealed the award and believes, after taking into account all currently available information, including the advice of counsel and the likelihood of available insurance coverage, that this award will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no matters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.
There have been no material changes or additions to our risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases made by the Company of its own stock during the first quarter of fiscal 2024:
Period
Total Number of Shares Purchased (a)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (b)
February 26, 2023 to March 25, 2023
1,432
$
45.73
—
1,253,399
March 26, 2023 to April 22, 2023
45,000
43.65
45,000
1,208,399
April 23, 2023 to May 27, 2023
114,084
42.92
74,916
1,133,483
Total
160,516
$
43.37
119,916
1,133,483
(a)The shares in this column represent the total number of shares that were repurchased by us pursuant to our publicly announced repurchase program, plus the shares surrendered to us by plan participants to satisfy withholding tax obligations related to share-based compensation.
(b)In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. The Board increased the authorization by 750,000 shares, announced on January 24, 2008; by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016, January 9, 2018, January 14, 2020, October 7, 2021, and June 22, 2022; and by 2,000,000 shares, on each of the announcement dates of October 3, 2018 and January 14, 2022. The repurchase program does not have an expiration date.
The following materials from Apogee Enterprises, Inc.’s Quarterly Report on Form 10-Q for the quarter ended May 27, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of May 27, 2023 and February 25, 2023, (ii) the Consolidated Results of Operations for the three-months ended May 27, 2023 and May 28, 2022, (iii) the Consolidated Statements of Comprehensive Earnings for the three-months ended May 27, 2023 and May 28, 2022, (iv) the Consolidated Statements of Cash Flows for the three-months ended May 27, 2023 and May 28, 2022, (v) the Consolidated Statements of Shareholders' Equity for the three-months ended May 27, 2023 and May 28, 2022, and (vi) Notes to Consolidated Financial Statements.
104#
Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)
Exhibits marked with a (#) sign are filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
APOGEE ENTERPRISES, INC.
Date: June 28, 2023
By: /s/ Ty R. Silberhorn
Ty R. Silberhorn President and Chief Executive Officer (Principal Executive Officer)
Date: June 28, 2023
By: /s/ Matthew J. Osberg
Matthew J. Osberg Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
