Apogee Enterprises, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended February 27, 2021 (52 weeks). The filing is an annual report, not a standalone fourth-quarter report. Apogee designs, fabricates and installs architectural glass and framing systems, and manufactures specialty glass and acrylic products. Its four segments are Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical Technologies (LSO).
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,230.8 million | $1,387.4 million |
| Gross profit / margin | $275.7 million / 22.4% | $319.0 million / 23.0% |
| Operating income / margin | $25.5 million / 2.1% | $87.8 million / 6.3% |
| Net earnings | $15.4 million | $61.9 million |
| Diluted EPS | $0.59 | $2.32 |
| Operating cash flow | $141.9 million | $107.3 million |
| Capital expenditures | $26.2 million | $51.4 million |
| Cash and short-term marketable securities | $47.3 million | Not stated here on a comparable basis |
| Total debt | $165.0 million | $217.9 million |
Sales declined 11.3%; GAAP operating income fell 71% and diluted EPS fell 75%. Gross margin decreased 60 basis points. FY2021 net margin was 1.3%, versus 4.5% in FY2020. Operating cash flow increased, primarily due to working-capital management. Investing cash use was $2.1 million, reflecting reduced capital spending and proceeds from property sales. The company ended the year with no revolver borrowings and $216.3 million available under its committed facility; it reported compliance with debt covenants and considered liquidity adequate for at least the next 12 months.
Management’s non-GAAP adjusted operating income was $87.1 million versus $90.0 million, and adjusted diluted EPS was $2.40 versus $2.38. These adjustments exclude, among other items, $70.1 million of impairment expense, restructuring costs, COVID-related costs and gains from property and tax-credit transactions; adjusted measures are not GAAP results.
Material changes and segment performance
- Architectural Framing Systems: Sales fell 16.9% to $570.9 million. The segment recorded a $44.8 million operating loss, including $70.1 million of goodwill and intangible impairment, compared with $36.1 million operating income in FY2020.
- Architectural Glass: Sales fell 14.7% to $330.3 million; operating income declined 10.0% to $18.7 million. Results included $7.4 million of income from a New Markets Tax Credit transaction.
- Architectural Services: Sales rose 9.9% to $295.8 million and operating income rose 32.2% to $31.2 million, supported by backlog execution, volume leverage and project performance.
- LSO: Sales fell 20.3% to $70.1 million, as customer and facility closures disrupted activity. Operating income increased to $31.2 million, including a $19.3 million sale-leaseback gain.
- Backlog declined to $411.3 million in Framing Systems from $429.6 million and to $570.9 million in Services from $659.7 million. Architectural Glass backlog increased to $43.5 million from $31.0 million. Backlog is not a measure of profitability and excludes some short-lead-time work.
Outlook, risks and unusual items
For FY2022, management forecast diluted EPS of $2.10–$2.35, including $7–$10 million of pretax transformation-investment costs. It expected a tax rate of approximately 24.5% and capital expenditures of approximately $45 million. The filing provides no specific sales-growth forecast.
COVID-19 caused project delays, lower order volumes, workforce constraints and temporary closures at two LSO facilities. Temporary cost measures were mostly lifted in FY2021’s fourth quarter. The company reduced its workforce to approximately 6,100 from 7,200 a year earlier. Management cautioned that pandemic impacts and their duration remained uncertain.
Other notable items include $63.8 million of goodwill impairment at EFCO and Sotawall and $6.3 million of EFCO tradename impairment, associated with weaker market conditions and uncertain post-pandemic demand. Management warned that further impairment could result if forecasts or market conditions deteriorate. It also cited cyclical commercial-construction demand, competition and imports, aluminum and glass supply and prices, labor availability, fixed-price project execution, warranty/product claims, and customer concentration in LSO as material risks. The company has $1.1 billion of performance bonds outstanding, including $532.4 million related to backlog; it reported no payments under bonds for its existing businesses. Legal proceedings were not expected, based on information available, to materially affect results, cash flows or financial condition.
The company paid $19.6 million in dividends and repurchased $32.9 million of stock during FY2021. The term loan and revolving facility maturities were extended to June 2024. Deloitte issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether commercial-construction demand and segment backlogs recover, and whether project delays alter expected backlog conversion.
- Whether the FY2022 EPS outlook is achieved after transformation costs, and how earnings excluding one-time gains and charges compare with GAAP results.
- Whether EFCO, Sotawall and other reporting units meet the revenue and profitability assumptions underlying impairment tests; assess sensitivity to discount rates and market conditions.
- Execution and cost estimates on long-term fixed-price contracts, especially in Architectural Services and Framing Systems; these estimates were identified as a critical audit matter.
- Liquidity and covenant headroom against debt maturities, purchase commitments, letters of credit, performance bonds and the repayment schedule for $13.6 million of deferred payroll taxes.
- Exposure to COVID-19 disruption, input-cost inflation and availability, labor constraints, warranty claims and LSO’s dependence on a relatively small number of customers.