NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) included herein have been prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements and notes are presented as permitted by the regulations of the Securities and Exchange Commission (Form 10-Q) and do not contain certain information included in the Company’s annual financial statements and notes. The information included in this Form 10-Q should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and financial statements and notes thereto included in the Company’s Form 10-K for the year ended
March 2, 2013
. The results of operations for the
three
-month period ended
June 1, 2013
are not necessarily indicative of the results to be expected for the full year.
In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of
June 1, 2013
and
March 2, 2013
, and the results of operations, comprehensive earnings and cash flows for the
three
-month periods ended
June 1, 2013
and
June 2, 2012
.
The Company’s fiscal year ends on the Saturday closest to the last day of February. Each interim quarter ends on the Saturday closest to the end of the months of May, August and November.
The results of the Company's Brazilian subsidiary within the Architectural Glass segment are reported on a two-month lag. There were no significant intervening events which would have materially affected our consolidated financial statements had they been recorded during the
three
months ended
June 1, 2013
.
In connection with preparing the unaudited consolidated financial statements for the
three
months ended
June 1, 2013
, the Company has evaluated subsequent events for potential recognition and disclosure through the date of this filing and determined that there were no subsequent events which required recognition or disclosure in the consolidated financial statements.
|
|
2.
|
New Accounting Standards
|
In February 2013, the FASB issued authoritative guidance surrounding the presentation of items reclassified from other comprehensive income to net income. This guidance requires entities to disclose, either in the notes to the consolidated financial statements or parenthetically on the face of the statement that reports comprehensive income, items reclassified out of accumulated other comprehensive income and into net income in their entirety and the effect of the reclassification on each affected net income line item. This guidance is effective for fiscal years and interim periods beginning after December 15, 2012, Apogee's fiscal 2014. The adoption of this new standard in the first quarter of fiscal 2014 did not impact Apogee's consolidated financial condition, results of operations or cash flows. The reclassifications out of accumulated other comprehensive income and into net income were not material for the three months ended June 1, 2013.
No other new accounting pronouncements issued or effective during the first
three
months of fiscal
2014
have had or are expected to have a material impact on the consolidated financial statements.
|
|
3.
|
Stock-Based Compensation
|
Total stock-based compensation expense included in the results of operations for the
three
months ended
June 1, 2013
and
June 2, 2012
, was
$1.1 million
and
$1.0 million
, respectively.
Stock Options and SARs
There were no options or SARs issued in the first
three
months of fiscal
2014
or 2013. The following table summarizes the award transactions for the
three
months ended
June 1, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/SARs Outstanding
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
Outstanding at March 2, 2013
|
1,362,373
|
|
|
$
|
15.89
|
|
|
|
|
|
Awards exercised
|
(249,923
|
)
|
|
21.98
|
|
|
|
|
|
Awards canceled
|
(7,376
|
)
|
|
21.17
|
|
|
|
|
|
Outstanding at June 1, 2013
|
1,105,074
|
|
|
$
|
14.49
|
|
|
5.4 Years
|
|
$
|
13,545,626
|
|
Vested or expected to vest at June 1, 2013
|
1,105,074
|
|
|
$
|
14.49
|
|
|
5.4 Years
|
|
$
|
13,545,626
|
|
Exercisable at June 1, 2013
|
804,733
|
|
|
$
|
16.79
|
|
|
4.3 Years
|
|
$
|
8,037,372
|
|
At
June 1, 2013
, there was
$0.5 million
of total unrecognized compensation cost related to stock option awards, which is expected to be recognized over a weighted average period of approximately
14
months. Cash proceeds from the exercise of stock options were
$1.4 million
and
$0.2 million
for the
three
months ended
June 1, 2013
and
June 2, 2012
, respectively. The amount by which the stock price on the date of exercise exceeded the stock price of the award on the date of grant for options exercised was
$1.6 million
during the
three
months ended
June 1, 2013
and was
immaterial
during the prior-year period.
Nonvested Shares and Share Units
The following table summarizes the nonvested share award transactions, including nonvested share units, for the
three
months ended
June 1, 2013
:
|
|
|
|
|
|
|
|
|
Nonvested Shares and Units
|
|
Number of
Shares and
Units
|
|
Weighted
Average
Grant Date
Fair Value
|
Nonvested at March 2, 2013
|
831,573
|
|
|
$
|
13.17
|
|
Granted
|
114,123
|
|
|
26.35
|
|
Vested
|
(223,225
|
)
|
|
13.89
|
|
Canceled
(1)
|
(75,547
|
)
|
|
13.55
|
|
Nonvested at June 1, 2013
(2)
|
646,924
|
|
|
$
|
15.21
|
|
|
|
(1)
|
Includes
75,547
of nonvested share units canceled
under the fiscal 2011-2013 performance period because Apogee performed below target level for that performance period. Nonvested share units of
174,353
(at target) were previously granted in fiscal 2011 for this performance period.
|
|
|
(2)
|
Includes a total of
117,765
nonvested share units granted and outstanding at target level for the fiscal 2012-2014 performance period.
|
At
June 1, 2013
, there was
$7.0 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
26
months. The total fair value of shares vested during the
three
-month period of fiscal
2014
was
$5.0 million
.
The following table presents a reconciliation of the denominators used in the computation of basic and diluted earnings per share.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In thousands, except per share data)
|
June 1,
2013
|
|
June 2,
2012
|
Basic earnings per share – weighted common shares outstanding
|
28,441
|
|
|
27,788
|
|
Weighted average effect of nonvested share grants and assumed exercise of stock options
|
896
|
|
|
435
|
|
Diluted earnings per share – weighted common shares and potential common shares outstanding
|
29,337
|
|
|
28,223
|
|
Earnings per share – basic
|
$
|
0.15
|
|
|
$
|
0.06
|
|
Earnings per share – diluted
|
0.14
|
|
|
0.06
|
|
Stock options excluded from the calculation of earnings per share because the exercise price was greater than the average market price of the common shares
|
56
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
June 1,
2013
|
|
March 2,
2013
|
Raw materials
|
$
|
12,184
|
|
|
$
|
11,834
|
|
Work-in-process
|
8,133
|
|
|
7,754
|
|
Finished goods
|
13,347
|
|
|
13,397
|
|
Costs and earnings in excess of billings on uncompleted contracts
|
6,830
|
|
|
3,067
|
|
Total inventories
|
$
|
40,494
|
|
|
$
|
36,052
|
|
At
June 1, 2013
, the Company has investments in municipal bonds of
$41.7 million
;
$29.8 million
is current and
$11.9 million
is non-current. The Company’s wholly owned insurance subsidiary, Prism Assurance, Ltd. (Prism), holds
$12.3 million
of the municipal bonds. Prism insures a portion of the Company’s workers’ compensation, general liability and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments, which are generally high-quality municipal bonds, for the purpose of providing collateral for Prism’s obligations under the reinsurance agreement. All of the Company’s fixed maturity investments are classified as “available-for-sale,” are carried at fair value and are reported as short-term available for sale securities or available for sale securities in the consolidated balance sheet.
The amortized cost, gross unrealized gains and losses, and estimated fair values of investments available for sale at
June 1, 2013
and
March 2, 2013
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Estimated
Fair
Value
|
June 1, 2013
|
|
|
|
|
|
|
|
Municipal bonds
|
$
|
41,852
|
|
|
$
|
91
|
|
|
$
|
(286
|
)
|
|
$
|
41,657
|
|
Total investments
|
$
|
41,852
|
|
|
$
|
91
|
|
|
$
|
(286
|
)
|
|
$
|
41,657
|
|
March 2, 2013
|
|
|
|
|
|
|
|
Municipal bonds
|
$
|
38,927
|
|
|
$
|
127
|
|
|
$
|
(240
|
)
|
|
$
|
38,814
|
|
Total investments
|
$
|
38,927
|
|
|
$
|
127
|
|
|
$
|
(240
|
)
|
|
$
|
38,814
|
|
The Company tests for other than temporary losses on a quarterly basis and considers the unrealized losses indicated above to be temporary in nature. The Company intends to hold the investments until it can recover the full principal amount, and has the ability to do so based on other sources of liquidity. The Company expects such recoveries to occur prior to the contractual maturities.
The following table presents the length of time that available-for-sale securities were in continuous unrealized loss positions, but were not deemed to be other than temporarily impaired, as of
June 1, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
Greater Than or Equal to
12 Months
|
|
Total
|
(In thousands)
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
|
Fair Value
|
|
Unrealized Losses
|
Municipal bonds
|
$
|
18,506
|
|
|
$
|
(94
|
)
|
|
$
|
1,058
|
|
|
$
|
(192
|
)
|
|
$
|
19,564
|
|
|
$
|
(286
|
)
|
Total investments
|
$
|
18,506
|
|
|
$
|
(94
|
)
|
|
$
|
1,058
|
|
|
$
|
(192
|
)
|
|
$
|
19,564
|
|
|
$
|
(286
|
)
|
The amortized cost and estimated fair values of investments at
June 1, 2013
, 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 call or prepayment penalties.
|
|
|
|
|
|
|
|
|
(In thousands)
|
Amortized Cost
|
|
Estimated Market Value
|
Due within one year
|
$
|
29,777
|
|
|
$
|
29,775
|
|
Due after one year through five years
|
3,915
|
|
|
3,945
|
|
Due after five years through 10 years
|
6,539
|
|
|
6,504
|
|
Due after 10 years through 15 years
|
1,530
|
|
|
1,339
|
|
Due beyond 15 years
|
91
|
|
|
94
|
|
Total
|
$
|
41,852
|
|
|
$
|
41,657
|
|
Gross realized gains and losses were
not material
during the
three
-month periods of fiscal
2014
and 2013.
|
|
7.
|
Fair Value Measurements
|
The Company accounts for financial assets and liabilities in accordance with accounting standards that define fair value and establish a framework for measuring fair value. The hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Financial assets and liabilities measured at fair value as of
June 1, 2013
and
March 2, 2013
, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
|
June 1, 2013
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
$
|
16,224
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,224
|
|
Total cash equivalents
|
16,224
|
|
|
—
|
|
|
—
|
|
|
16,224
|
|
Available for sale securities
|
|
|
|
|
|
|
|
Municipal bonds
|
$
|
—
|
|
|
$
|
41,657
|
|
|
$
|
—
|
|
|
$
|
41,657
|
|
Total available for sale securities
|
—
|
|
|
41,657
|
|
|
—
|
|
|
41,657
|
|
Restricted investments
|
|
|
|
|
|
|
|
Money market funds
|
$
|
7,193
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,193
|
|
Total restricted investments
|
7,193
|
|
|
—
|
|
|
—
|
|
|
7,193
|
|
Mutual fund investments
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
641
|
|
Total mutual fund investments
|
641
|
|
|
—
|
|
|
—
|
|
|
641
|
|
Total assets at fair value
|
$
|
24,058
|
|
|
$
|
41,657
|
|
|
$
|
—
|
|
|
$
|
65,715
|
|
Foreign currency instruments
|
|
|
|
|
|
|
|
Foreign currency instruments
|
$
|
—
|
|
|
$
|
470
|
|
|
$
|
—
|
|
|
$
|
470
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
470
|
|
|
$
|
—
|
|
|
$
|
470
|
|
March 2, 2013
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
$
|
17,639
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,639
|
|
Total cash equivalents
|
17,639
|
|
|
—
|
|
|
—
|
|
|
17,639
|
|
Available for sale securities
|
|
|
|
|
|
|
|
Municipal bonds
|
$
|
—
|
|
|
$
|
38,814
|
|
|
$
|
—
|
|
|
$
|
38,814
|
|
Total available for sale securities
|
—
|
|
|
38,814
|
|
|
—
|
|
|
38,814
|
|
Restricted investments
|
|
|
|
|
|
|
|
Money market funds
|
$
|
26,443
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,443
|
|
Total restricted investments
|
26,443
|
|
|
—
|
|
|
—
|
|
|
26,443
|
|
Mutual fund investments
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
251
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
251
|
|
Total mutual fund investments
|
251
|
|
|
—
|
|
|
—
|
|
|
251
|
|
Total assets at fair value
|
$
|
44,333
|
|
|
$
|
38,814
|
|
|
$
|
—
|
|
|
$
|
83,147
|
|
Foreign currency instruments
|
|
|
|
|
|
|
|
Foreign currency instruments
|
$
|
—
|
|
|
$
|
405
|
|
|
$
|
—
|
|
|
$
|
405
|
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
405
|
|
|
$
|
—
|
|
|
$
|
405
|
|
Cash equivalents
Cash equivalents include highly liquid investments with an original maturity of three months or less, and consist primarily of money market funds. The cash equivalents are held at fair value based on quoted market prices, which approximate stated cost.
Available for sale securities
The Company has short-term available for sale securities of
$29.8 million
and long-term available for sale securities of
$11.9 million
as of
June 1, 2013
, consisting of municipal bonds. All of the Company’s fixed maturity investments are classified as “available-for-sale,” and are carried at fair market value based on market prices from recent trades of similar securities.
Restricted investments
The Company has
$2.8 million
of current restricted investments consisting of money market funds held in escrow for use in the Company's planned capital investments in the Architectural Glass segment business. The Company has
$4.4 million
of long-term restricted investments consisting of money market funds, which are short-term in nature but are restricted for future investment in the Company’s storefront and entrance business in Michigan, and are, therefore, classified as long-term. The restricted investments are held at fair value based on quoted market prices, which approximate stated cost.
Mutual fund investments
The Company has
$0.6 million
of mutual fund investments as a long-term funding source for the deferred compensation plan. The mutual fund investments are recorded at estimated fair value, based on quoted market prices, and are included in other non-current assets in the consolidated balance sheet.
Foreign Currency Instruments
The Company has a foreign exchange forward contract in place to hedge against the effect of exchange rate fluctuations on certain forecasted purchases. The forward contract is measured at fair value using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates.
|
|
8.
|
Goodwill and Other Identifiable Intangible Assets
|
The carrying amount of goodwill attributable to each business segment as of the
three
months ended
June 1, 2013
is detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Architectural Glass
|
|
Architectural Services
|
|
Architectural Framing Systems
|
|
Large-Scale
Optical
|
|
Total
|
Balance at March 3, 2012
|
$
|
27,277
|
|
|
$
|
1,120
|
|
|
$
|
22,663
|
|
|
$
|
10,557
|
|
|
$
|
61,617
|
|
Foreign currency translation
|
(275
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(275
|
)
|
Balance at March 2, 2013
|
27,002
|
|
|
1,120
|
|
|
22,663
|
|
|
10,557
|
|
|
61,342
|
|
Foreign currency translation
|
38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Balance at June 1, 2013
|
$
|
27,040
|
|
|
$
|
1,120
|
|
|
$
|
22,663
|
|
|
$
|
10,557
|
|
|
$
|
61,380
|
|
The Company’s identifiable intangible assets with finite lives are being amortized over their estimated useful lives and were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2013
|
(In thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign
Currency
Translation
|
|
Net
|
Debt issue costs
|
$
|
3,288
|
|
|
$
|
(2,226
|
)
|
|
$
|
—
|
|
|
$
|
1,062
|
|
Non-compete agreements
|
6,767
|
|
|
(6,148
|
)
|
|
6
|
|
|
625
|
|
Customer relationships
|
15,309
|
|
|
(9,745
|
)
|
|
38
|
|
|
5,602
|
|
Purchased intellectual property
|
7,996
|
|
|
(2,245
|
)
|
|
28
|
|
|
5,779
|
|
Total
|
$
|
33,360
|
|
|
$
|
(20,364
|
)
|
|
$
|
72
|
|
|
$
|
13,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2, 2013
|
(In thousands)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Foreign
Currency
Translation
|
|
Net
|
Debt issue costs
|
$
|
3,556
|
|
|
$
|
(2,209
|
)
|
|
$
|
—
|
|
|
$
|
1,347
|
|
Non-compete agreements
|
6,824
|
|
|
(6,124
|
)
|
|
(38
|
)
|
|
662
|
|
Customer relationships
|
15,628
|
|
|
(9,541
|
)
|
|
(266
|
)
|
|
5,821
|
|
Purchased intellectual property
|
8,210
|
|
|
(2,169
|
)
|
|
(196
|
)
|
|
5,845
|
|
Total
|
$
|
34,218
|
|
|
$
|
(20,043
|
)
|
|
$
|
(500
|
)
|
|
$
|
13,675
|
|
Amortization expense on these identifiable intangible assets was
$0.4 million
and
$0.7 million
for
three
-month periods ended
June 1, 2013
and
June 2, 2012
, respectively. In addition to the amortization expense noted above, in the first quarter of fiscal 2014, the Company expensed
$0.2 million
of debt issue costs that had previously been deferred and were being amortized over the term of the debt previously issued for future investment in the Company's Architectural Glass fabrication facility in Utah. The amortization expense associated with the debt issue costs is included in interest expense while the remainder is in selling, general
and administrative expenses in the consolidated results of operations. At
June 1, 2013
, the estimated future amortization expense for identifiable intangible assets for the remainder of fiscal
2014
and all of the following four fiscal years is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Remainder
of Fiscal
2014
|
|
Fiscal
2015
|
|
Fiscal
2016
|
|
Fiscal
2017
|
|
Fiscal
2018
|
Estimated amortization expense
|
$
|
1,367
|
|
|
$
|
1,643
|
|
|
$
|
1,296
|
|
|
$
|
1,147
|
|
|
$
|
1,050
|
|
The company maintains a
$100.0 million
revolving credit facility that expires in
October 2017
.
No
borrowings were outstanding under the facility as of
June 1, 2013
or
March 2, 2013
. The credit facility requires the Company to maintain a minimum level of net worth as defined in the credit facility based on certain quarterly financial calculations. The minimum required net worth computed in accordance with the credit agreement at
June 1, 2013
was
$268.1 million
, whereas the Company’s net worth as defined in the credit facility was
$335.8 million
. The credit facility also requires that the Company maintain an adjusted debt-to-EBITDA ratio of not more than
3.00
. This ratio is computed quarterly, with EBITDA computed on a rolling four-quarter basis. For purposes of calculating the adjusted debt in the adjusted debt-to-EBITDA ratio, the Company reduces non-credit facility debt for up to
$25 million
to the extent of unrestricted cash balances, cash equivalents and short-term marketable securities available for sale in excess of
$15 million
. The Company’s ratio was
0.00
at
June 1, 2013
. If the Company is not in compliance with either of these covenants, the lenders may terminate the commitment and/or declare any loan then outstanding to be immediately due and payable. At
June 1, 2013
, the Company was in compliance with the financial covenants of the credit facility.
During the first quarter of fiscal 2014,
$10.0 million
of recovery zone facility bonds that had previously been issued for future investment in the Company's Architectural Glass fabrication facility in Utah were redeemed at par. In connection with redeeming this debt in the first quarter of fiscal 2014, the Company expensed
$0.2 million
of debt issue costs that had previously been deferred and were being amortized over the term of the debt.
Debt at
June 1, 2013
consists of
$20.4 million
of industrial revenue bonds, and
$0.4 million
of other debt. The industrial revenue bonds mature in fiscal years 2021 through 2043, and the other debt matures in fiscal years
2014
through 2021. The fair value of the industrial revenue bonds approximates carrying value at
June 1, 2013
due to the variable interest rates on these instruments. The bonds are classified as level 2 within the fair value hierarchy.
Interest payments were
$0.2 million
for each of the
three
-month periods ended
June 1, 2013
and
June 2, 2012
, and primarily relate to fees associated with our revolving credit facility.
|
|
10.
|
Employee Benefit Plans
|
Pension Plans
The Company sponsors an unfunded Officers’ Supplemental Executive Retirement Plan for the benefit of certain executives and a defined-benefit pension plan, the Tubelite, Inc. Hourly Employees’ Pension Plan. Components of net periodic benefit cost for the plans for the
three
-month periods ended
June 1, 2013
and
June 2, 2012
, were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
June 1,
2013
|
|
June 2,
2012
|
Interest cost
|
$
|
134
|
|
|
$
|
142
|
|
Expected return on assets
|
(46
|
)
|
|
(44
|
)
|
Amortization of unrecognized net loss
|
59
|
|
|
53
|
|
Net periodic benefit cost
|
$
|
147
|
|
|
$
|
151
|
|
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2009, or state and local income tax examinations for years prior to fiscal 2005. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2008, 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 at
June 1, 2013
and
March 2, 2013
, was approximately
$6.5 million
and
$6.8 million
, respectively. The Company records the impact of penalties and interest related to unrecognized tax benefits in income tax
expense, which is consistent with past practices. The total liability for unrecognized tax benefits is expected to decrease by approximately
$1.0 million
during the next 12 months due to lapsing of statutes.
|
|
12.
|
Commitments and Contingent Liabilities
|
Operating lease commitments.
As of
June 1, 2013
, the Company was obligated under non-cancelable operating leases for buildings and equipment. Certain leases provide for increased rentals based upon increases in real estate taxes or operating costs. Future minimum rental payments under non-cancelable operating leases are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Remainder
of Fiscal
2014
|
|
Fiscal
2015
|
|
Fiscal
2016
|
|
Fiscal
2017
|
|
Fiscal
2018
|
|
Thereafter
|
|
Total
|
Total minimum payments
|
$
|
6,106
|
|
|
$
|
7,240
|
|
|
$
|
7,097
|
|
|
$
|
5,287
|
|
|
$
|
3,943
|
|
|
$
|
5,493
|
|
|
$
|
35,166
|
|
Bond commitments.
In the ordinary course of business, predominantly in the Company’s Architectural Services business, the Company is required to provide surety or performance bonds that commit payments to its customers for any non-performance by the Company. At
June 1, 2013
,
$117.1 million
of the Company’s backlog was bonded by performance bonds with a face value of
$313.3 million
. Performance bonds do not have stated expiration dates, as the Company is released from the bonds upon completion of the contract. The Company has never been required to make any payments related to these performance bonds with respect to any of the current portfolio of businesses.
Guarantees and warranties.
The Company accrues for warranty and claim costs as a percentage of sales based on historical trends and for specific sales credits as they become known and estimable. Actual warranty and claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: improved manufacturing quality, shifts in product mix and any significant changes in sales volume. The Company’s warranty and claim accruals are detailed below.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
June 1,
2013
|
|
June 2,
2012
|
Balance at beginning of period
|
$
|
8,323
|
|
|
$
|
7,210
|
|
Additional accruals
|
1,323
|
|
|
766
|
|
Claims paid
|
(857
|
)
|
|
(823
|
)
|
Balance at end of period
|
$
|
8,789
|
|
|
$
|
7,153
|
|
Letters of credit.
At
June 1, 2013
, the Company had ongoing letters of credit related to its construction contracts and certain industrial revenue bonds. The total value of letters of credit under which the Company was obligated as of
June 1, 2013
, was approximately
$25.5 million
, all of which have been issued under the credit facility. The Company’s total availability under its
$100.0 million
credit facility is reduced by borrowings under the facility and also by letters of credit issued under the facility.
Purchase obligations.
The Company has purchase obligations for raw material commitments and capital expenditures. As of
June 1, 2013
, these obligations totaled
$113.6 million
.
Non-compete agreements.
The Company has entered into non-compete and consulting agreements associated with current and former employees. As of
June 1, 2013
, future payments of
$0.1 million
were committed under such agreements.
Foreign Currency Instruments.
The Company has a foreign exchange forward contract with a U.S. dollar notional value of
$24.3 million
with the objective of reducing the exposure to fluctuations in the euro related to a planned capital equipment purchase. The fair value of this contract was a liability of
$0.5 million
at
June 1, 2013
and is included in the balance sheet caption as other current liabilities. The Company reports the effective portion of the gain or loss on a cash flow hedge as a component of other comprehensive income, and any gain or loss is included in the value of the capital asset and will be recognized in earnings over the life of the asset.
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’s construction supply and services businesses are routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. The Company is subject to litigation arising out of employment practices, workers compensation, general liability and automobile claims. Although it is very difficult to accurately predict the outcome of such proceedings, facts currently
available indicate that no such claims will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.
In the fourth quarter of fiscal 2013, the Company expanded the number of reporting segments to
four
: Architectural Glass, Architectural Services, Architectural Framing Systems and Large-Scale Optical (LSO). Prior year comparative information has been recast to conform to the current reporting segment presentation. The Architectural Glass segment fabricates glass used in customized window and wall systems comprising the outside skin of commercial and institutional buildings. The Architectural Services segment designs, engineers, fabricates and installs the walls of glass and windows comprising the outside skin of commercial and institutional buildings for new construction and renovation. The Architectural Framing Systems segment designs, engineers, fabricates and finishes the aluminum frames used in customized aluminum and glass window, curtainwall, storefront and entrance systems comprising the outside skin and entrances of commercial and institutional buildings. The Company has aggregated
three
operating segments into the Architectural Framing Systems reporting segment based upon their similar products, customers, distribution methods, production processes and economic characteristics. The LSO segment manufactures value-added glass and acrylic products for the custom picture framing market.
The following table presents sales and operating income data for the Company’s
four
reporting segments, and on a consolidated basis, for the
three
months ended
June 1, 2013
, as compared to the corresponding period a year ago.
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
June 1,
2013
|
|
June 2,
2012
|
Net Sales from operations
|
|
|
|
Architectural Glass
|
$
|
74,803
|
|
|
$
|
59,066
|
|
Architectural Services
|
46,476
|
|
|
38,918
|
|
Architectural Framing Systems
|
44,446
|
|
|
42,407
|
|
Large-Scale Optical
|
19,473
|
|
|
19,258
|
|
Intersegment eliminations
|
(5,887
|
)
|
|
(5,515
|
)
|
Net sales
|
$
|
179,311
|
|
|
$
|
154,134
|
|
Operating Income (Loss) from operations
|
|
|
|
Architectural Glass
|
$
|
1,371
|
|
|
$
|
(2,406
|
)
|
Architectural Services
|
(965
|
)
|
|
(2,579
|
)
|
Architectural Framing Systems
|
2,064
|
|
|
3,096
|
|
Large-Scale Optical
|
4,698
|
|
|
5,268
|
|
Corporate and other
|
(1,053
|
)
|
|
(1,061
|
)
|
Operating income
|
$
|
6,115
|
|
|
$
|
2,318
|
|
Due to the varying combinations and integration of individual window, storefront and curtainwall systems, the Company has determined that it is impractical to report product revenues generated by class of product, beyond the segment revenues currently reported.