Apogee Enterprises, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended February 29, 2020 (52 weeks). The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing. Dollar amounts below are in millions unless otherwise noted.
Business context
Apogee designs, fabricates, and installs architectural glass and aluminum systems, and manufactures coated glass and acrylic for framing and display markets. Its four segments are Architectural Framing Systems, Architectural Glass, Architectural Services, and Large-Scale Optical Technologies (LSO). The first three serve commercial construction; LSO primarily serves custom picture framing and related markets.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $1,387.4 | $1,402.6 |
| Gross profit / margin | $319.0 / 23.0% | $293.6 / 20.9% |
| Operating income / margin | $87.8 / 6.3% | $67.3 / 4.8% |
| Net earnings | $61.9 | $45.7 |
| Diluted EPS | $2.32 | $1.63 |
| Operating cash flow | $107.3 | $96.4 |
| Capital expenditures | $51.4 | $60.7 |
| Cash dividends per share | $0.7125 | $0.6475 |
- Management’s non-GAAP adjusted operating income was $90.0 million, down 22.6%; adjusted diluted EPS was $2.38, down 22.3%. These measures exclude items management considers outside core results.
- Cash and short-term marketable securities totaled $15.0 million at year-end. Debt was $217.9 million; $162.8 million remained available under the revolving facility. The company reported compliance with its debt covenants and said liquidity should cover working capital and necessary capital spending for at least 12 months.
- The $150 million term loan, initially due June 2020, was extended after year-end to April 2021. The revolving facility had a $235 million borrowing capacity and maturity in June 2024.
Segments and changes versus prior year
| Segment | FY2020 sales | FY2020 operating income | Year-over-year change |
|---|---|---|---|
| Architectural Framing Systems | $686.6 | $36.1 | Sales down 4.7%; operating income down 27.3% |
| Architectural Glass | $387.2 | $20.8 | Sales up 5.4%; operating income up 25.8% |
| Architectural Services | $269.1 | $23.6 | Sales down 6.0%; operating income down 22.7% |
| LSO | $87.9 | $22.6 | Sales down 0.7%; operating income down 1.6% |
- Consolidated sales declined 1.1%, reflecting project timing and lower volumes in Framing and Services, partly offset by Glass growth.
- GAAP operating income increased 31% and diluted EPS increased 42%. The comparison benefited substantially from $40.9 million of EFCO acquired-contract charges recorded in FY2019. Adjusted operating income and adjusted EPS, by contrast, declined.
- Gross margin improved by 210 basis points, reflecting the prior-year EFCO charges and improvements in Architectural Glass, partly offset by Framing operational difficulties and lower Services project leverage. FY2020 SG&A rose to 16.7% of sales from 16.1%, including higher advisory, legal, and compensation costs.
- Fourth-quarter FY2020 sales were $337.1 million and net earnings were $12.0 million, compared with sales of $346.3 million and a net loss of $12.1 million in fourth-quarter FY2019. The prior-year quarter included $42.6 million of EFCO project-related charges.
Outlook, risks, and unusual items
- Apogee did not provide FY2021 annual guidance because of uncertainty from COVID-19. Management said the pandemic’s effects on sales and results could not be reliably estimated; it did not then expect a significant liquidity effect and was reducing discretionary operating costs and capital spending.
- COVID-19 had caused construction project delays, extra health and safety requirements at job sites, temporary LSO customer-store closures, and temporary LSO factory shutdowns. The filing warns of potential further demand declines, supply interruptions, delayed customer payments, added costs, and project postponements.
- Year-end backlog increased to $429.6 million in Framing and $659.7 million in Services, but the filing warns that COVID-19 could delay fulfillment. Glass backlog fell to $31.0 million from $71.3 million, with all expected to be filled in FY2021.
- Goodwill impairment was not indicated at year-end, but Sotawall and Alumicor had limited valuation headroom and goodwill balances of $21.0 million and $14.1 million. Management stated that a 20-basis-point increase in the discount rate would indicate impairment for those reporting units; subsequent COVID-19 effects could also prompt impairment testing.
- Project-related contingency liabilities were approximately $49.0 million at year-end. The company also reported $15.0 million of insurance proceeds related to a project matter. A significant fixed-price construction project had experienced delays, additional costs, and ongoing customer negotiations.
- Other material exposures include commercial-construction cyclicality, competition and imports, aluminum and glass supply and pricing, labor availability, project execution and warranty claims, and self-insured liability risk. The company had $913.9 million of performance bonds outstanding; it reported no payments on these bonds for its existing businesses.
- The securities class action was dismissed without prejudice in March 2020. A related derivative action remained stayed; the company said it intended to defend it. Management reported effective internal control over financial reporting, and the auditor issued unqualified opinions on the financial statements and controls.
Important facts for investors to verify
- Whether COVID-19-related project delays, LSO closures, and customer or supplier disruption materially affected subsequent-quarter revenue, cash flow, and liquidity.
- Whether Framing and Services margins recover, and whether the large project with added costs is resolved without further losses.
- Whether Sotawall or Alumicor, or other reporting units, require goodwill or intangible-asset impairment charges.
- The timing and repayment or refinancing of the $150 million term loan, and ongoing compliance with credit-facility covenants.
- How backlog converts to revenue, especially given disclosed COVID-19 timing risks and the decline in Architectural Glass backlog.
- The eventual outcome and financial consequences, if any, of the derivative action and project-related claims.