Apogee(APOG) - 2021 Q4 - Annual Report

Part I Business Apogee Enterprises, Inc. is a leader in architectural building products and services, diversifying revenue and improving margins through operational efficiencies, while managing human capital - The company's strategy involves diversifying revenue streams within commercial construction, expanding into small- and mid-sized projects, growing its North American geographic reach, and improving margins through productivity and cost management[14][15] - In response to the COVID-19 pandemic, the company implemented temporary cost-saving measures, including a merit/hiring freeze, pay reductions, and suspension of the 401(k) match, most of which were lifted in Q4 FY2021[51] - The company's employee count decreased from approximately 7,200 in February 2020 to 6,100 in February 2021[52] FY 2021 Net Sales Contribution by Segment | Segment | FY 2021 Net Sales Contribution | | :--- | :--- | | Architectural Framing Systems | ~46% | | Architectural Glass | ~24% | | Architectural Services | ~24% | | Large-Scale Optical Technologies (LSO) | ~6% | FY 2021 Year-End Backlog by Segment (in millions) | Segment | FY 2021 Year-End Backlog (in millions) | Change from Prior Year | | :--- | :--- | :--- | | Architectural Framing Systems | $411.3 | Decreased from $429.6 | | Architectural Glass | $43.5 | Increased from $31.0 | | Architectural Services | $570.9 | Decreased from $659.7 | Risk Factors The company faces significant risks from the COVID-19 pandemic, cyclical North American commercial construction, customer dependence, supply chain issues, and potential goodwill impairment - The COVID-19 pandemic has caused project delays, temporary factory shutdowns in the LSO segment, and could impact customer financing and material availability, with the full extent of future impact remaining uncertain[64][65][66] - The company's architectural segments are highly dependent on the cyclical North American commercial construction industry, influenced by macroeconomic factors like credit availability, employment levels, and interest rates[68] - The LSO segment's high dependence on a small number of customers in the retail custom picture framing industry creates significant demand risk if a key customer is lost or reduces orders[74] - The company faces supply chain risks related to the price and availability of key raw materials, including aluminum for Architectural Framing Systems and raw glass for Architectural Glass and LSO segments[77][78] - The company recorded goodwill and intangible asset impairment charges of $63.8 million and $6.3 million, respectively, in fiscal 2021, with further impairment possible if future performance falls below forecasts[92][93] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[94] Properties The company operates a mix of owned and leased manufacturing, administrative, and warehouse facilities primarily in the U.S. and Canada, with one in Brazil - The company's major properties consist of owned and leased manufacturing and administrative facilities located in the U.S., Canada, and Brazil to support its various business segments[95][96][97] Legal Proceedings The company is involved in various legal proceedings incidental to its business, not expected to materially affect its financial condition or operations - The company is party to various legal proceedings incidental to its business, including product liability and warranty claims, but does not expect them to have a material adverse effect on its financial condition[98] Mine Safety Disclosures This section is not applicable to the company - Not applicable[99] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Apogee's common stock trades on NASDAQ, consistently pays dividends, and repurchased shares in FY2021, though its stock performance has underperformed relevant indices - As of the end of Q4 FY2021, the company has authorization to repurchase an additional 1,117,384 shares under its program, which has no expiration date[105][106] Total Dividend per Share | Fiscal Year | Total Dividend per Share | | :--- | :--- | | 2021 | $0.7625 | | 2020 | $0.7125 | | 2019 | $0.6475 | Q4 FY2021 Share Repurchases | Period (Q4 FY2021) | Total Shares Purchased (Public Plan) | Average Price Paid per Share | | :--- | :--- | :--- | | Dec 27, 2020 - Jan 23, 2021 | 160,139 | $37.44 | | Jan 24, 2021 - Feb 27, 2021 | 165,536 | $37.08 | | Total Q4 | 325,675 | $37.22 (weighted avg) | Selected Financial Data This section provides a five-year summary of key financial data, showing a decline in net sales, operating income, and diluted EPS in fiscal 2021 compared to fiscal 2020 Selected Financial Data (in thousands, except per share data) | (In thousands, except per share data) | Fiscal Year 2021 | Fiscal Year 2020 | | :--- | :--- | :--- | | Results of Operations | | | | Net sales | $1,230,774 | $1,387,439 | | Operating income | $25,527 | $87,848 | | Net earnings | $15,436 | $61,914 | | Earnings per share - diluted | $0.59 | $2.32 | | Balance Sheet Data (Year-End) | | | | Total assets | $1,015,099 | $1,128,991 | | Long-term debt | $165,000 | $217,900 | | Shareholders' equity | $492,745 | $516,778 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses fiscal 2021 financial performance, highlighting an 11.3% net sales decrease, a significant GAAP operating income drop due to impairment, and strong operating cash flow from debt reduction and working capital management Results of Operations For fiscal 2021, net sales decreased 11.3% to $1.23 billion, gross margin declined 60 basis points, and operating income fell to 2.1% of sales due to a $70.1 million impairment charge - The significant drop in operating income was primarily driven by a $70.1 million impairment expense on goodwill and intangible assets within the Architectural Framing Systems segment[125] - The effective tax rate rose to 31.7% in FY2021 from 22.4% in FY2020, mainly due to nondeductible goodwill impairment in Canada and the impact of unfavorable permanent items on lower earnings[126] Key Financial Metrics | Metric | FY 2021 | FY 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,230.8M | $1,387.4M | (11.3)% | | Gross Margin | 22.4% | 23.0% | (60 bps) | | Operating Margin | 2.1% | 6.3% | (420 bps) | | Diluted EPS | $0.59 | $2.32 | (75)% | Segment Analysis In fiscal 2021, most segments experienced sales declines, with Architectural Framing Systems incurring a significant operating loss due to impairment, while Architectural Services saw sales and margin growth Segment Performance | Segment | FY 2021 Net Sales (M) | % Change YoY | FY 2021 Operating Income (M) | FY 2021 Operating Margin | | :--- | :--- | :--- | :--- | :--- | | Architectural Framing Systems | $570.9 | (16.9)% | $(44.8) | (7.8)% | | Architectural Glass | $330.3 | (14.7)% | $18.7 | 5.7% | | Architectural Services | $295.8 | 9.9% | $31.2 | 10.5% | | Large-Scale Optical (LSO) | $70.1 | (20.3)% | $31.2 | 44.5% | Liquidity and Capital Resources The company demonstrated strong liquidity in fiscal 2021, with operating cash flow increasing to $141.9 million, enabling debt repayments, dividends, and share repurchases - The company deferred $13.6 million in employer Social Security tax payments under the CARES Act, which will be repaid in calendar years 2021 and 2022[150] - At fiscal year-end, the company had $47.3 million in cash and $216.3 million available under its revolving credit facility, and was in compliance with all debt covenants[151][144] Cash Flow and Capital Allocation (in millions) | (In millions) | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $141.9 | $107.3 | | Capital expenditures | $(26.2) | $(51.4) | | Net repayments on debt | $(53.1) | $ (27.5) | | Repurchase of common stock | $(32.9) | $(25.1) | | Dividends paid | $(19.6) | $(18.7) | Critical Accounting Policies Management identifies revenue recognition for long-term contracts and goodwill/intangible asset impairment as critical accounting policies, with a $63.8 million goodwill and $6.3 million intangible asset impairment charge in fiscal 2021 - Revenue on long-term, fixed-price contracts, representing about 36% of total revenue, is recognized over time using a cost-to-cost input method, requiring significant judgment in estimating total project costs[159] - The company changed its annual goodwill impairment test date from fiscal year-end to the first day of the fiscal fourth quarter to better align with its planning processes[162] - In fiscal 2021, a quantitative impairment test led to a goodwill impairment charge of $46.7 million for the EFCO reporting unit and $17.1 million for the Sotawall reporting unit[166] - An impairment test of indefinite-lived intangible assets resulted in a $6.3 million impairment charge for the EFCO tradename[170] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates, affecting net earnings, and foreign currency exchange rates, impacting reported financial results from Canadian and Brazilian operations - A hypothetical 200 basis point change in interest rates over 12 months would impact net earnings by approximately $0.5 million[176] - The company is subject to foreign currency risk from its operations in Canada and Brazil, where changes in the Canadian dollar and Brazilian real exchange rates versus the U.S. dollar affect reported financial results[178] Financial Statements and Supplementary Data This section presents the company's consolidated financial statements for fiscal year 2021, including balance sheets, income statements, cash flows, and notes, along with management's effective internal control report and auditor's opinion Consolidated Financial Statements The consolidated financial statements show total assets of $1.02 billion and net earnings of $15.4 million for fiscal 2021, with $141.9 million in operating cash flow Consolidated Balance Sheets (in thousands) | (In thousands) | Feb 27, 2021 | Feb 29, 2020 | | :--- | :--- | :--- | | Assets | | | | Total current assets | $350,674 | $381,910 | | Goodwill | $130,098 | $185,516 | | Total assets | $1,015,099 | $1,128,991 | | Liabilities & Equity | | | | Total current liabilities | $217,552 | $276,857 | | Long-term debt | $163,000 | $212,500 | | Total shareholders' equity | $492,745 | $516,778 | Consolidated Statements of Operations (in thousands, except per share data) | (In thousands, except per share data) | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net sales | $1,230,774 | $1,387,439 | $1,402,637 | | Operating income | $25,527 | $87,848 | $67,284 | | Net earnings | $15,436 | $61,914 | $45,694 | | Earnings per share - diluted | $0.59 | $2.32 | $1.63 | Notes to Consolidated Financial Statements The notes detail a $70.1 million impairment charge in fiscal 2021, the company's debt structure including a $150 million term loan, and segment data, highlighting Architectural Framing Systems as the largest segment by assets and sales - In Q4 FY2021, the company recorded goodwill impairment of $46.7 million for the EFCO reporting unit and $17.1 million for the Sotawall reporting unit, plus an additional $6.3 million impairment for the EFCO tradename[293][295] - In September 2020, the company sold a building in its LSO segment for $25.1 million, recognizing a gain of approximately $19.3 million[288] - As of February 27, 2021, the company had a $150 million term loan and a $235 million revolving credit facility (with no outstanding borrowings), both maturing in June 2024[298] - The company repurchased 1,177,704 shares for $32.9 million in fiscal 2021 and has remaining authority to repurchase 1,117,384 shares[334] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[362] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of fiscal year-end, with no material changes to internal controls during the most recent quarter - Management concluded that the company's disclosure controls and procedures were effective as of February 27, 2021[363] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[364] Other Information The company reports no other information - None[365] Part III Directors, Executive Officers, Code of Ethics and Corporate Governance Information regarding directors, executive officers, code of ethics, and corporate governance is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement, to be filed within 120 days of the fiscal year-end[368] Executive and Director Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[369] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[370] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[371] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the company's 2021 Proxy Statement[372] Part IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements, a financial statement schedule, and various exhibits filed as part of the Form 10-K report - This item lists the financial statements, financial statement schedules, and exhibits filed with the Form 10-K[374] Form 10-K Summary The company did not provide a Form 10-K summary - None[380]