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Item 7. Management’s Discussion and Analysis

2023-04-21 compared with 2022-04-22 · 167 added, 137 removed, 167 unchanged (65% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Annual Report on Form 10-K, including Management's Discussion and Analysis, 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 of the Company's near-term results, based on current information available pertaining to the Company, including the risk factors noted under Item 1A in this Form 10-K.

From time to time, we also may 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.

These uncertainties and other risk factors include, but are not limited to, the risks and uncertainties set forth under Item 1A in this Form 10-K, all of which are incorporated by reference into this Item 7.

We 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.

We are a leader in the design and development of value-added glass and metal products and services.

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Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical Technologies (LSO).

During 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 in Item 1 on page 4 of this Form 10-K.

As part of executing our enterprise strategy, during the second quarter of fiscal 2022, we announced plans to realign and simplify our business structure which resulted in the closure of two facilities within the Architectural Glass segment, in Dallas, Texas and Statesboro, Georgia.

These closures were made in order to focus the Architectural Glass segment on premium, high-performance products.

During the fourth quarter of fiscal 2022, we finalized plans for integrating the Sotawall business into the Architectural Services segment, beginning in fiscal 2023, and as a result, we recorded impairment expense of $49.5 million on indefinite- and finite-lived intangible assets.

During fiscal 2022, we saw inflation on raw materials and freight, which we were able to largely offset with pricing actions by the end of our fiscal fourth quarter.

We also have experienced supply chain challenges during fiscal 2022 but are actively working to ensure continued supply of key materials.

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, and during fiscal 2023, we made significant progress on execution of our strategy, as discussed in Item 1 on page 5 of this Form 10-K.

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.

The comparative fiscal 2022 segment results for the Architectural Framing Systems and Architectural Services segments have been recast to reflect the move of the Sotawall business into the Architectural Services segment from the Architectural Framing Systems segment, effective at the start of the first quarter of fiscal 2023.

Fiscal 2023 summary of results:

• Consolidated net sales were $1.4 billion, an increase of 10 percent from $1.3 billion in fiscal 2022.

• Operating income was $22.0 million, a decrease of 14 percent from $25.5 million in the prior year.

• Diluted EPS was $0.14, compared to $0.59 in the prior year, a decrease of 76 percent.

• Adjusted operating income was $82.6 million, a decrease of 5 percent compared to the prior year, and adjusted diluted EPS was $2.48 in fiscal 2022, an increase of 3 percent compared to the prior year.

Refer to the table below for a reconciliation to GAAP of these adjusted amounts.

• Operating income increased to $125.8 million, from $22.0 million in the prior year.

• Diluted EPS was $4.64, compared to $0.14 in the prior year.

• Adjusted operating income was $125.8 million, an increase of 52 percent compared to the prior year, and adjusted diluted EPS was $3.98 in fiscal 2023, an increase of 60 percent compared to the prior year.

Refer to the tables below for a reconciliation to GAAP of these adjusted amounts.

Reconciliation of Non-GAAP Financial Information

Adjusted Operating Income and Adjusted Net Earnings per Diluted Common Share

Adjusted Operating Income

(In thousands) February 25, 2023 February 26, 2022

Operating income $ 125,788 $ 22,045

Impairment expense on goodwill and intangible assets (1)

Restructuring costs (2)

Gain on sale of assets (3)

Adjusted operating income $ 125,788 $ 82,574

(1) Adjustment related to impairment charge recorded during the fourth quarter of the prior year on indefinite- and long-lived intangible assets within the Architectural Framing Systems segment as a result of triggering events during the fourth quarter of prior fiscal year.

In the first quarter of fiscal 2023, the Sotawall business was re-aligned from the Architectural Framing Systems segment into the Architectural Services segment;

the comparative fiscal 2022 results have been recast to reflect the change.

(2) Adjustment related to previously announced decision to exit certain operations in the Architectural Glass segment and reorganize operations within the Architectural Framing Systems segment, including $21.5 million of asset impairment charges, $6.2 million of employee termination costs and $2.8 million of other costs associated with these restructuring plans incurred during fiscal 2022.

(3) Gain on sale of building and related fixed assets within the Architectural Glass segment during the fourth quarter of fiscal 2022.

Reconciliation of Non-GAAP Financial Information

Adjusted Net Earnings and Adjusted Earnings per Diluted Common Share

Diluted per share amounts

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(In thousands) February 25, 2023 February 26, 2022 February 25, 2023 February 26, 2022

Operating income $ 22,045 $ 25,527 $ 0.14 $ 0.59

Impairment expense on intangible assets and goodwill 49,473 70,069 1.96 2.66

Restructuring 30,512 4,884 1.21 0.19

Gain on sale of building (19,456) (19,346) (0.77) (0.74)

Impairment of equity investment N/A N/A 0.12 —

COVID-19 — 4,988 — 0.19

Post-acquisition and acquired project matters — 1,000 — 0.04

Net earnings $ 104,107 $ 3,486 $ 4.64 $ 0.14

Worthless stock deduction and other discrete tax benefits (1)

(14,833) — (0.66) —

Impairment expense on goodwill and intangible assets (2)

— 49,473 — 1.96

Restructuring costs (3)

— 30,512 — 1.21

Impairment of equity investment (4)

— 3,000 — 0.12

Gain on sale of assets (5)

— (19,456) — (0.77)

Income tax impact on above adjustments (6)

N/A N/A (0.17) (0.53)

Adjusted operating income $ 82,574 $ 87,122 $ 2.48 $ 2.40

(1) Income tax impact calculated using an estimated statutory tax rate of 25%, which reflects the estimated blended statutory tax rate for the jurisdiction

in which the charge or income occurred.

Income tax impact in the current year excludes the tax benefit related to the impairment expense in certain jurisdictions due to a tax valuation allowance.

In the prior year, income tax impact excludes the amount of impairment expense that is non-deductible in the applicable jurisdiction.

Adjusted operating income and adjusted earnings per diluted share (adjusted diluted EPS) are supplemental non-GAAP financial measures provided by the Company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results.

Management uses these non-GAAP measures to evaluate the Company’s historical and prospective financial performance, measure operational profitability on a consistent basis, and provide enhanced transparency to the investment community.

— (4,414) — (0.17)

Adjusted net earnings $ 89,274 $ 62,601 $ 3.98 $ 2.48

Shares outstanding for EPS 22,416 25,292

Per share amounts are computed independently for each of the items presented so the sum of the items may not equal the total amount

(1) Adjustment related to discrete income tax benefits for the Sotawall business in fiscal 2023, primarily related to a worthless stock deduction and the release of valuation allowance on deferred tax assets.

(2) Adjustment related to impairment charge recorded during the fourth quarter of the prior year on indefinite- and long-lived intangible assets within the Architectural Framing Systems segment as a result of triggering events during the fourth quarter of prior fiscal year.

In the first quarter of fiscal 2023, the Sotawall business was re-aligned from the Architectural Framing Systems segment into the Architectural Services segment;

the comparative fiscal 2022 results have been recast to reflect the change.

(3) Adjustment related to previously announced decision to exit certain operations in the Architectural Glass segment and reorganize operations within the Architectural Framing Systems segment, including $21.5 million of asset impairment charges, $6.2 million of employee termination costs and $2.8 million of other costs associated with these restructuring plans incurred during fiscal 2022.

(4) Adjustment for impairment of minority equity investment is a result of the assignment for the benefit of creditors of all of the assets of a company in which Apogee held a minority interest.

The impairment represents a write-down of Apogee’s entire investment in the company.

(5) Gain on sale of building and related fixed assets within the Architectural Glass segment during the fourth quarter of fiscal 2022.

(6) Income tax impact calculated using an estimated statutory tax rate of 25%, which reflects the estimated blended statutory tax rate for the jurisdiction in which the charge or income occurred.

Adjusted operating income, adjusted net earnings and adjusted earnings per diluted share (adjusted diluted EPS) are supplemental non-GAAP financial measures provided by the Company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results.

Management uses these non-GAAP measures to evaluate the Company’s historical and prospective financial performance, measure operational profitability on a consistent basis, as a factor in determining executive compensation, and to provide enhanced transparency to the investment community.

Return on average invested capital (ROIC) is a non-GAAP financial measure that we define as operating income (adjusted for certain items that are unusual in nature or whose fluctuations from period to period do not necessarily correspond to changes in the operations of the Company) after tax, divided by average invested capital.

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Fiscal 2023 Compared to Fiscal 2022

Net sales in fiscal 2022 increased by 6.8 percent compared to fiscal 2021, driven by record revenue in the LSO and Architectural Services segments and growth in the Architectural Framing Systems segment, partially offset by decreased volume in the Architectural Glass Segment.

Net sales in fiscal 2023 increased by 9.6 percent compared to fiscal 2022, with growth in each of the Company's segments, primarily driven by pricing in the Architectural Framing Systems, Architectural Glass and LSO segments and small volume growth in the Architectural Services segment.

Fiscal 2022 Compared to Fiscal 2021

Net sales in fiscal 2021 decreased by 11.3 percent compared to fiscal 2020, reflecting end market softness and COVID-19 related volume declines in the Architectural Framing Systems, Architectural Glass and LSO segments, partially offset by increased volume in the Architectural Services segment, driven by execution of projects in backlog.

The relationship between various components of operations, as a percentage of net sales, is provided below.

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Fiscal 2023 Compared to Fiscal 2022

Gross margin was 23.3 percent in fiscal 2023, an increase of 240 basis points from fiscal 2022.

The increase was primarily driven by pricing actions that exceeded the inflation-related cost increases within the Architectural Framing Systems and Architectural Glass segments, partially offset by negative performance impacts of certain projects within the Architectural Services segment.

The prior fiscal year included $28.2 million of restructuring costs within cost of sales related to restructuring actions announced in August 2021, as well as inflationary pressure on raw materials and freight within the Architectural Glass and Architectural Framing Systems segments.

These costs were partially offset by $19.5 million of gain on sale of assets related to the sale of a manufacturing facility in the Architectural Glass segment and by positive impacts from continued recovery of the LSO segment (which closed for most of the first and second quarters of fiscal 2021, based on COVID-related government directives).

Total selling, general and administrative (SG&A) expense as a percent of net sales for fiscal 2023 was 14.6 percent, a decrease of 80 basis points from fiscal 2022, excluding impairment expense, driven by benefits realized from previously completed restructuring actions.

This was partially offset by a benefit of $4.9 million, taken within the Architectural Framing Systems and Architectural Services segments, as a result of a Canadian wage subsidy program offered to support Canadian businesses impacted by the COVID-19 pandemic, thereby offsetting cost actions that would have been taken had this subsidy not been secured.

In addition, the prior year included a $49.5 million impairment expense on indefinite and definite-lived intangibles taken within the Architectural Services segment, as a result of triggering events resulting from the finalization of our plans for integrating the Sotawall business into the Architectural Services segment, beginning in fiscal 2023.

Net interest expense increased by 20 basis points compared to the prior year, due to the higher average interest rate and higher average debt balance in fiscal 2023.

The effective tax rate for fiscal 2023 was 10.7 percent, compared to 74.9 percent in fiscal 2022.

During fiscal 2023, we claimed certain tax deductions, including a worthless stock loss deduction and other discrete tax benefits, related to our investment in Sotawall Limited, a Canadian subsidiary.

These deductions generated a net tax benefit of $14.8 million, and reduced our effective tax rate for fiscal 2023 by approximately 13.1 percentage points.

The effective tax rate in the prior year was primarily impacted by the valuation allowance recorded against the tax benefit of the Sotawall impairment and the impact of certain permanent items in relation to reduced earnings in fiscal 2022.

Fiscal 2022 Compared to Fiscal 2021

Gross margin was 20.9 percent in fiscal 2022, a decrease of 150 basis points from fiscal 2021.

This decrease was driven by $28.2 million of restructuring costs included in cost of sales incurred during fiscal 2022 related to restructuring actions announced in August 2021, as well as inflationary pressure on raw materials and freight within the Architectural Glass and Architectural Framing Systems segments.

These costs were partially offset by $19.5 million of gain on sale of assets related to the sale of a manufacturing facility in the Architectural Glass segment and by positive impacts from continued recovery of the LSO segment (which closed for most of the first and second quarters of the prior year, based on COVID-related government directives).

Total selling, general and administrative (SG&A) expense for fiscal 2022, including impairment expense on goodwill and intangible assets noted in the table above, was 19.2 percent, a decrease of 110 basis points from fiscal 2021.

This was driven by a $49.4 million impairment expense taken within the Architectural Framing Systems segment during the current year compared

to a $70.1 million impairment expense taken within the Architectural Framing Systems segment in the prior year.

In addition, we received a benefit of $4.9 million in fiscal 2022 compared to $7.4 million in fiscal 2021, as a result of a Canadian wage subsidy program offered to support Canadian business impacted by the COVID-19 pandemic, thereby offsetting cost actions that would have been taken had this subsidy not been secured.

Net interest expense declined by 10 basis points compared to the prior year, due to the lower average debt balance in fiscal 2022.

SG&A expense, including impairment expense on goodwill and intangible assets noted in the table above, was 19.2 percent for fiscal 2022, a decrease of 110 basis points from fiscal 2021.

This was driven by a $49.5 million impairment expense taken within the Architectural Services segment during fiscal 2022, compared to a $70.1 million impairment expense taken within the Architectural Framing Systems and Architectural Services segments in fiscal 2021.

In addition, we received a benefit of $4.9 million in fiscal 2022, compared to a benefit of $7.4 million in fiscal 2021, as a result of a Canadian wage subsidy program offered to support Canadian business impacted by the COVID-19 pandemic, thereby offsetting cost actions that would have been taken had this subsidy not been secured, in each of these years.

Net interest expense declined by 10 basis points compared to fiscal 2021, due to the lower average debt balance in fiscal 2022.

The effective tax rate for fiscal 2022 was 74.9 percent, compared to 31.7 percent in fiscal 2021, primarily due to the valuation allowance recorded against the tax benefit of the Sotawall impairment and the impact of certain permanent items in relation to reduced earnings in fiscal 2022.

Fiscal 2021 Compared to Fiscal 2020

Gross margin was 22.4 percent in fiscal 2021, a decrease of 60 basis points from fiscal 2020.

This decrease was driven by the impact from lower volumes due to end market softness and COVID-19 related project delays, partially offset by strong project execution in the Architectural Services segment.

SG&A expense for fiscal 2021 including impairment expense on goodwill and intangible assets noted in the table above, was 20.3 percent, an increase of 360 basis points from fiscal 2020.

This was driven by a $70.1 million impairment expense taken within the Architectural Framing Systems segment, partially offset by a $19.3 million gain on the sale-leaseback of a building within the Large-Scale Optical segment and $7.4 million of income related to a New Markets Tax Credit transaction within the Architectural Glass segment.

In addition, we received a benefit of $7.4 million in fiscal 2021, as a result of a Canadian wage subsidy program offered to support Canadian business impacted by the COVID-19 pandemic, thereby offsetting cost actions that would have been taken had this subsidy not been secured.

Net interest expense declined by 30 basis points compared to the prior year, due to the lower average debt balance in fiscal 2021 and a favorable one-time legal settlement impacting interest.

The effective tax rate for fiscal 2021 was 31.7 percent, compared to 22.4 percent in fiscal 2020, primarily due to nondeductible goodwill impairment in Canada and the impact of the unfavorable permanent items in relation to reduced earnings in fiscal 2021.

Segment Analysis

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Net sales $ 649,778 $ 546,557 $ 508,770 18.9 % 7.4 %

Operating loss (16,726) (44,761) 36,110 (62.6) % N/M

Operating income (loss) 81,875 38,088 (29,030) 115.0 % *

Operating margin 12.6 % 7.0 % (5.7) %

* Indicates calculation not meaningful.

Fiscal 2023 Compared to Fiscal 2022.

Net sales increased 4.5 percent, or $25.8 million, from fiscal 2021, primarily reflecting flow through from pricing actions taken to offset inflation, partially offset by lower volume.

The segment had an operating loss of $16.7 million and operating margin of (2.8) percent in fiscal 2022 compared to an operating loss of $44.8 million and operating margin of (7.8) percent in fiscal 2021, reflecting the impact of the $49.5 million and $70.1 million impairment expense and $1.7 million and $4.4 million of restructuring charges in fiscal 2022 and fiscal 2021, respectively, partially offset by the benefit of $4.9 million and $7.4 million in fiscal 2022 and 2021, respectively, from a Canadian wage subsidy program offered to Canadian businesses impacted by the COVID-19 pandemic.

Net sales increased 18.9 percent, or $103.2 million, from fiscal 2022, primarily reflecting inflation-related pricing and improved mix, partially offset by slightly lower volume due to market share losses.

Operating margin increased 560 basis points over the prior year, primarily driven by improved pricing, which more than offset the impact of inflation.

The prior year included a benefit of $2.0 million from a Canadian wage subsidy program offered to Canadian businesses impacted by the COVID-19 pandemic, partially offset by $1.7 million of restructuring charges.

As of fiscal 2023 year-end, segment backlog was $243.3 million, compared to $281.5 million at the end of the prior year, reflecting a decrease in order volume.

We expect approximately 91 percent of the backlog in this segment to be fulfilled in fiscal 2024, with the remainder expected to be filled in fiscal 2025 and beyond;

however, the timing of backlog may be impacted by project delays.

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.

generally accepted accounting principles (GAAP) and is not a measure of contract profitability.

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 good visibility beyond backlog, as projects awarded, verbal commitments and bidding activities are not included in backlog.

Fiscal 2022 Compared to Fiscal 2021.

Net sales decreased 16.9 percent, or $115.7 million, from fiscal 2020, primarily reflecting lower order volume for short lead-time products and market-related project delays.

The segment had an operating loss of $44.8 million and operating margin of (7.8) percent in fiscal 2021, compared to operating income of $36.1 million and operating margin of 5.3 percent in fiscal 2020, reflecting the impact of the $70.1 million impairment expense and leverage on the lower revenue, partially offset by cost reduction actions and the benefit of $7.4 million in fiscal 2021 from a Canadian wage subsidy program offered to Canadian businesses impacted by the COVID-19 pandemic.

Architectural Glass

Net sales increased 7.4 percent, or $37.8 million, from fiscal 2021, primarily reflecting flow-through from pricing actions taken to offset inflation, partially offset by lower volume.

The segment had operating income of $38.1 million and operating margin of 7.0 percent in fiscal 2022, compared to an operating loss of $29.0 million and operating margin of (5.7) percent in fiscal 2021, reflecting the impact of a $53.0 million impairment expense in fiscal 2021, and $1.7 million and $4.4 million of restructuring charges in fiscal 2022 and fiscal 2021, respectively.

These expenses were partially offset by the benefit of $2.0 million and $2.4 million in fiscal 2022 and 2021, respectively, from a Canadian wage subsidy program offered to Canadian businesses impacted by the COVID-19 pandemic.

Architectural Services

(In thousands) 2023 2022 2021 2023 vs.

Net sales $ 410,627 $ 407,421 $ 358,685 0.8 % 13.6 %

Operating income 1,785 18,678 20,760 (90.4) % (10.0) %

Operating income (loss) 18,140 (22,071) 15,451 * *

Operating margin 4.4 % (5.4) % 4.3 %

* Indicates calculation not meaningful.

Fiscal 2023 Compared to Fiscal 2022.

Fiscal 2022 net sales decreased 6.4 percent, or $21.0 million, over the prior year, primarily reflecting lower volume.

Operating margin decreased 510 basis points for the fiscal year ended 2022 compared to the prior year period, as a result of $27.1 million of restructuring costs during the current year, as well as the impact of higher material and freight costs from inflation, partially offset by $19.5 million gain on sale of a manufacturing facility in Georgia.

The prior year period also included $7.4 million of income related to a New Markets Tax Credit transaction.

Net sales increased 0.8 percent, or $3.2 million, compared to the prior year, driven by increased volume from executing projects in backlog.

The segment had operating income of $18.1 million and operating margin of 4.4 percent in fiscal 2023, compared to operating loss of $22.1 million and operating margin of (5.4) percent in fiscal 2022.

The current year reflects higher costs on legacy Sotawall projects, partially offset by higher volume.

The prior year includes the impact of $49.5 million impairment expense, partially offset by benefit of a $2.9 million from a Canadian wage subsidy program offered to Canadian businesses impacted by the COVID-19 pandemic.

As of fiscal 2023 year-end, backlog in the Architectural Services segment was $726.7 million, compared to $664.9 million at the end of the prior year, due to timing of firm orders, signed contracts and a geographic expansion initiative expected to result in revenues in fiscal 2024.

We expect approximately 54 percent of the backlog in this segment to be filled during fiscal 2024, with the remainder expected to be filled in fiscal 2025 and beyond;

however, the timing of backlog may be impacted by project delays.

Backlog, a non-GAAP financial measure, and the implication thereof, is described within the Architectural Framing Systems discussion above.

Fiscal 2022 Compared to Fiscal 2021.

Fiscal 2021 net sales decreased 14.7 percent, or $56.9 million, over fiscal 2020, due to market-related volume declines and project delays.

Operating margin increased 30 basis points for the fiscal year ended 2021 compared to fiscal 2020, as a result of $7.4 million of income related to a New Markets Tax Credit transaction, offset by the impacts of lower volume and increased costs related to the small projects growth initiative.

Architectural Services

Net sales increased 13.6 percent, or $48.7 million, compared to fiscal 2021, driven by increased volume from executing projects in backlog.

The segment had an operating loss of $22.1 million and operating margin of (5.4) percent in fiscal 2022, compared to operating income of $15.5 million and operating margin of 4.3 percent in fiscal 2021, reflecting the impact of the $49.5 million and $17.1 million impairment expense in fiscal 2022 and fiscal 2021, respectively.

These expenses were partially offset by improved volume leverage and strong project execution, and the benefit of $2.9 million and $5.0 million in fiscal 2022 and 2021, respectively, from a Canadian wage subsidy program offered to Canadian businesses impacted by the COVID-19 pandemic.

Architectural Glass

(In thousands) 2023 2022 2021 2023 vs.

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Fiscal 2023 Compared to Fiscal 2022.

Net sales increased 18.1 percent, or $53.6 million, compared to the prior year, driven by increased volume from executing projects in backlog.

Operating margin decreased 110 basis points over the prior year, reflecting the impact of inflation and isolated performance challenges on certain projects experienced during the first quarter of fiscal 2022.

Fiscal 2023 net sales increased 2.4 percent, or $7.3 million, over the prior year, primarily driven by improved pricing and mix, more than offsetting lower volume as a result of a fiscal 2022 strategic initiative to exit from two facilities.

Operating margin increased 840 basis points for the fiscal year ended 2023 compared to the prior year period, primarily driven by improved pricing and productivity gains, which more than offset the impact of inflation.

The prior year included $27.1 million of restructuring costs, partially offset by $19.5 million gain on sale of a manufacturing facility in Georgia.

Fiscal 2022 Compared to Fiscal 2021.

Net sales increased 9.9 percent, or $26.7 million, compared to fiscal 2020, driven by increased volume from executing projects in backlog.

Operating margin increased 170 basis points over fiscal 2020, primarily driven by improved volume leverage and strong project execution.

Fiscal 2022 net sales decreased 6.4 percent, or $21.0 million, over fiscal 2021, primarily reflecting lower volume.

Operating margin decreased 510 basis points for the fiscal year ended 2022 compared to fiscal 2021, as a result of $27.1 million of restructuring costs fiscal 2022, as well as the impact of higher material and freight costs from inflation, partially offset by $19.5 million gain on sale of a manufacturing facility in Georgia.

Fiscal 2021 also included $7.4 million of income related to a New Markets Tax Credit transaction.

Large-Scale Optical Technologies (LSO)

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Fiscal 2023 Compared to Fiscal 2022.

Fiscal 2021 net sales increased 45.1 percent, or $31.6 million, compared to the prior year, reflecting a more favorable sales mix, as demand recovered from the impact of COVID in the prior year period.

In fiscal 2021, most of the segment's customers and the segment's manufacturing operations were closed for a large part of the first and second quarters to comply with COVID-related government directives.

The segment had operating margin of 23.2 percent in fiscal 2022 compared to operating margin of 44.5 percent in fiscal 2021, reflecting the impact of a $19.3 million gain on the sale-leaseback of a building recognized during the third quarter of the prior year, partially offset by the impacts of the temporary shutdown and the related lower volume.

Fiscal 2023 net sales increased 2.5 percent, or $2.5 million, compared to the prior year, reflecting improved pricing.

Operating margin increased 110 basis points over the prior year reflecting improved pricing.

Fiscal 2022 Compared to Fiscal 2021.

Fiscal 2021 net sales decreased 20.3 percent, or $17.9 million, compared to fiscal 2020, as a result of the required COVID-related closure of most of the segment's customers and the segment's manufacturing locations for several months during the first half of fiscal 2021.

The segment had operating margin of 44.5 percent in fiscal 2021 compared to operating margin of 25.8 percent in fiscal 2020, reflecting the impact of a $19.3 million gain on the sale-leaseback of a building recognized during the third quarter of fiscal 2021, partially offset by the impacts of the temporary shutdown and the related lower volume.

Fiscal 2022 net sales increased 45.1 percent, or $31.6 million, compared to fiscal 2021, reflecting a more favorable sales mix, as demand recovered from the impact of COVID in the prior year period.

The segment had operating margin of 23.2 percent in fiscal 2022, compared to operating margin of 44.5 percent in fiscal 2021.

This was primarily due to a $19.3 million gain on the sale-leaseback of a building recognized during the third quarter of fiscal 2021, partially offset by the impacts of the temporary shutdown and the related lower volume.

Liquidity and Capital Resources

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Proceeds on sale of property 7,755 30,599 25,108

Net cash (used) provided by investing activities (27,710) 9,283 (2,147)

Financing Activities

Payments on line of credit, net — (47,739) (177,500)

(Repayment) borrowings on debt (2,000) (5,400) 150,000

Borrowings (payments) on line of credit, net 158,014 — (47,739)

Repayments on debt (151,000) (2,000) (5,400)

Repurchase and retirement of common stock (74,312) (100,414) (32,878)

Dividends paid (19,670) (20,266) (19,601)

Net cash used by financing activities (91,023) (120,572) (107,876)

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.

Cash provided by operating activities was $100.5 million in fiscal 2022, a decrease of $41.4 million from fiscal 2021, primarily reflecting a decline in net earnings during the current fiscal year and the benefit in the prior year from reduced working capital and temporary actions related to the pandemic.

Cash provided by operating activities was $102.7 million in fiscal 2023, an increase of $2.2 million from fiscal 2022, primarily driven by higher net earnings, which more than offset increased working capital related to revenue growth and inflation during the current fiscal year.

Investing Activities.

Net cash provided by investing activities was $9.3 million in fiscal 2022, compared to net cash used by investing activities of $2.1 million in fiscal 2021, due to an increase of $5.5 million of proceeds from property sales in fiscal 2022 compared to fiscal 2021, related to the sale of an Architectural Glass manufacturing facility in Georgia in the fourth quarter of fiscal 2022, and reduced capital expenditures by $4.3 million in fiscal 2022 compared to fiscal 2021.

In fiscal 2021, we sold an LSO manufacturing facility in Illinois, and in fiscal 2020, we sold an Architectural Framing manufacturing facility in Toronto.

Net cash used by investing activities was $27.7 million in fiscal 2023, compared to net cash provided by investing activities of $9.3 million in fiscal 2022.

Capital expenditures for the current fiscal year were $45.2 million, compared to $21.8 million in the prior year, as we increased investments in projects to support our growth strategy.

The current fiscal year included $7.8 million of proceeds from sale of property, while fiscal 2022 included $30.6 million of proceeds from property sales, primarily related to the sale of our Architectural Glass manufacturing facility in Georgia.

Fiscal 2021 included $25.1 million of proceeds from sale of property, primarily related to the sale of an LSO manufacturing facility in Illinois.

Financing Activities.

Cash used by financing activities was $120.6 million in fiscal 2022, compared to $107.9 million in fiscal 2021.

Net cash used by financing activities was $91.0 million in fiscal 2023, compared to $120.6 million in fiscal 2022.

In fiscal 2023, we paid dividends totaling $19.7 million and repurchased 1,571,139 shares under our authorized share repurchase program, at a total cost of $74.3 million.

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We have repurchased a total of 10,996,601 shares, at a total cost of $381.6 million, since the 2004 inception of this program.

We have remaining authority to repurchase 1,824,538 shares under this program, which has no expiration date, and we will continue to evaluate making future share repurchases, depending on our cash flow and debt levels, market conditions, including the continuing effects of the COVID-19 pandemic, and other potential uses of cash.

As of February 26, 2022, no borrowings were outstanding under the revolving credit facility.

As defined within the credit facility, we have two affirmative financial covenants which require us to stay below a maximum leverage ratio and to maintain a minimum interest expense-to-EBITDA ratio.

We have remaining authority to repurchase 1,253,399 shares under this program, which has no expiration date, and we will continue to evaluate making future share repurchases, depending on our cash flow and debt levels, market conditions, and other potential uses of cash.

Additional Liquidity Considerations.

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of inventory levels, expansion plans, and other working capital needs.

As of the end of fiscal 2023, we had a committed revolving credit facility with maximum borrowings of up to $385 million, with a maturity of August 2027, and two Canadian committed, revolving credit facilities totaling $25 million (USD).

At February 25, 2023, we had outstanding borrowings under our revolving credit facility of $156.0 million and $1.8 million outstanding under the Canadian committed, revolving credit facilities.

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 and maintain a minimum ratio of interest expense-to-EBITDA.

Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis.

At February 25, 2023, we were in compliance with both financial covenants.

Other Financing Activities.

The following summarizes our significant contractual obligations that impact our liquidity as of February 26, 2022:

Payments Due by Fiscal Period

(In thousands) 2023 2024 2025 2026 2027 Thereafter Total

Debt obligations $ 1,000 $ — $ 150,000 $ — $ — $ 12,000 $ 163,000

Operating leases (undiscounted) 13,604 11,311 9,950 7,929 6,423 6,735 55,952

Purchase obligations 199,918 5,976 1,433 1,433 487 — 209,247

Total cash obligations $ 214,522 $ 17,287 $ 161,383 $ 9,362 $ 6,910 $ 18,735 $ 428,199

Debt obligations in the table above include a $150.0 million term loan that matures in fiscal 2025 and $13.0 million of industrial revenue bond obligations that mature in fiscal years 2023 through 2043.

We acquire the use of certain assets through operating leases, such as warehouses, manufacturing equipment, office equipment, hardware, software and vehicles.

While many of these operating leases have termination penalties, we consider the risk related to termination penalties to be minimal.

Purchase obligations in the table above relate to raw material commitments and capital expenditures.

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 $48.8 million at February 25, 2023, with $12.5 million payable within the next 12 months.

Refer to Note 8 - Leases of the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data for further detail surrounding our lease obligations and the timing of expected future payments.

As of February 25, 2023, we had $241.7 million of open purchase obligations, of which payments totaling $206.9 million are expected to become due within the next 12 months.

These purchase obligations primarily relate to raw material commitments.

We expect to make contributions of approximately $0.7 million to our defined-benefit pension plans in fiscal 2024, which will equal or exceed our minimum funding requirements.

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We have not been required to make any payments under these bonds with respect to our existing businesses.

During calendar 2020, we took advantage of the option to defer remittance of the employer portion of Social Security tax as provided in the Coronavirus, Aid, Relief and Economic Security Act (CARES Act).

This deferral allowed us to retain cash during calendar year 2020 that would have otherwise been remitted to the federal government.

During the fourth quarter of fiscal 2022, we repaid half of the deferred tax payments in the amount of $6.8 million, with a remaining amount of $6.8 million included within accrued payroll and other benefits on our consolidated balance sheets to be repaid in calendar year 2022.

We had total cash and short-term marketable securities of $37.6 million, and $218.6 million available under our committed revolving credit facility, at February 26, 2022.

We believe that cash flows from operating activities will be adequate to meet our short-term and long-term liquidity and capital expenditure needs.

In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future.

We also believe we will continue to be in compliance with our existing debt covenants over the next fiscal year.

We had total cash and cash equivalents, excluding restricted cash, of $19.9 million, and $216.7 million available under our committed revolving credit facility, at February 25, 2023.

Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facility, 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 we have the ability to obtain both short-term and long-term debt to meet our financing needs, including additional sources of debt to finance potential

material acquisitions for the foreseeable future.

We also believe 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.

We continually review our portfolio of businesses and their assets and how they support our business strategy and performance objectives.

As part of this review, we may acquire other businesses, pursue geographic expansion, take actions to manage capacity and further invest in, divest and/or sell parts of our current businesses.

We had no off-balance sheet arrangements at February 26, 2022 or February 27, 2021 that had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

The Company is providing initial guidance for fiscal year 2023, with full year adjusted earnings expected to be in the range of $2.90 to $3.30 per diluted share.

The Company expects revenue growth in fiscal 2023, led by the flow through of inflation-related pricing actions in Architectural Framing Systems.

The Company forecasts full year capital expenditures of $35 to $40 million.

The Company is providing initial guidance for fiscal year 2024, with earnings per diluted share expected in the range of $3.90 to $4.25.

Fiscal 2024 will be a 53-week year, with an extra week in the fourth quarter.

Including the extra week of operations, the company expects flat to slightly declining revenue compared to fiscal 2023, primarily reflecting expected lower volume in Architectural Services.

The company continues to expect a long-term average tax rate of approximately 24.5 percent, and forecasts capital expenditures in fiscal 2024 between $50 to $60 million.

Recently Issued Accounting Pronouncements

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We believe this method of recognizing revenue is consistent with our progress in satisfying our contract obligations.

Due to the nature of the work required under these long-term contracts, the estimation of costs incurred and remaining to complete on a project is subject to many variables and requires significant judgment.

Due to the nature of the work required under these long-term contracts, the estimation of total revenue and costs incurred and remaining to complete on a project is subject to many variables and requires significant judgment.

It is common for these contracts to contain potential bonuses or penalties which are generally awarded or charged upon certain project milestones or cost or timing targets, and can be based on customer discretion.

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Long-term contracts are often modified to account for changes in contract specifications and requirements of work to be performed.

We consider contract modifications to exist when the modification, generally through a change order, either creates new or changes existing enforceable rights and obligations, and we evaluate these types of modifications to determine whether they may be considered distinct performance obligations.

We consider contract modifications to exist when the modification, generally through a change order, either creates

new or changes existing enforceable rights and obligations, and we evaluate these types of modifications to determine whether they may be considered distinct performance obligations.

In many cases, these contract modifications are for goods or services that are not distinct from the existing contract, due to the significant integration service provided in the context of the contract.

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The effect of a contract modification on the transaction price and our measure of progress is recognized as an adjustment to revenue, generally on a cumulative catch-up basis.

Impairment of goodwill, indefinite-lived intangible assets and long-lived assets

We have historically evaluated goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable.

In the third quarter of fiscal 2021, we changed the date of our annual goodwill impairment test from our fiscal year-end to the first day in our fiscal fourth quarter.

This change results in better alignment of the annual impairment test with our strategic and annual planning processes, and we will follow this new cadence for our annual impairment valuations going forward.

This change was determined not to be material to and had no impact on our current or historical consolidated financial statements.

Due to the significant judgments utilized in our revenue recognition on long-term contracts, if subsequent actual results and/or updated assumptions, estimates, or projections were to change from those utilized at February 25, 2023, it could result in a material impact to our results of operations.

Impairment of goodwill and indefinite-lived intangible assets

We evaluate goodwill for impairment annually on the first day in our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate the carrying value of the goodwill may not be recoverable.

Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis.

A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by segment management on a regular basis.

During the third quarter of fiscal 2022, we combined certain reporting units to form two reporting units, following certain structural and leadership changes at the Company, specifically within the Architectural Framing Systems segment.

Within this segment, as a result of integration efforts that are ongoing, leadership over our Wausau, EFCO and Sotawall reporting units were combined to form the Window and Wall Systems reporting unit, and our Linetec and Tubelite reporting units were combined to form the Storefront and Finishing Solutions reporting unit.

With these organizational changes, Architectural Framing Systems segment management regularly reviews and evaluates the results of the Window and Wall Systems and Storefront and Finishing Solutions reporting units.

Additionally, functional leaders in areas such as operations, sales, marketing and general and administrative areas are responsible for allocating resources and reviewing results of the Window and Wall Systems and Storefront and Finishing Solutions reporting units.

The goodwill of the five individual pre-integration reporting units was aggregated to the respective combined reporting units.

We evaluated goodwill on a qualitative basis prior to and subsequent to this change and concluded no adjustment to the carrying value of goodwill was necessary as a result of this change.

reporting units for our fiscal 2022 annual impairment test align with reporting segments, with the exception of our Architectural Framing Systems segment, which contains two reporting units, Window and Wall Systems and Storefront and Finishing Solutions, which represent $55.6 million and $37.6 million, of the goodwill balance at February 26, 2022, respectively.

For our fiscal 2022 annual impairment test, we elected to bypass the qualitative assessment process and to proceed directly to comparing the fair value of each of our reporting units to carrying value, including goodwill.

In connection with the transition, leadership of our Sotawall and Harmon businesses have been combined to form the Architectural Services reporting unit.

We evaluated goodwill on a qualitative basis prior to and subsequent to this change for these reporting units and concluded no adjustment to the carrying value of goodwill was necessary as a result of this change.

Concurrent with this change in composition of the operating segments, which was effective at the start of our first quarter of fiscal 2023, goodwill was reallocated to the affected reporting units within each operating segment, using a relative fair value approach as outlined in ASC 350, Intangibles - Goodwill and Other .

The reporting units for our fiscal 2023 annual impairment test align with reporting segments, with the exception of our Architectural Framing Systems segment.

This segment contains two reporting units, Window and Wall Systems and Storefront and Finishing Solutions, which represent $54.5 million and $35.7 million, of the goodwill balance at February 25, 2023, respectively.

For our fiscal 2023 annual impairment test, we elected to bypass the qualitative assessment process and proceed directly to comparing the fair value of each of our reporting units to carrying value, including goodwill.

If fair value exceeds the carrying value, goodwill impairment is not indicated.

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We used discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in the internally developed forecasts.

The market approach uses a multiple of earnings and revenue based on guidelines for publicly traded companies.

The market approach uses a multiple of earnings and revenue based on publicly traded companies.

Based on these analyses, estimated fair value exceeded carrying value at all of our reporting units.

The discounted cash flow projections used in these analyses are dependent upon achieving forecasted levels of revenue and profitability.

If revenue or profitability were to fall below forecasted levels, or if market conditions were to decline in a material or sustained manner, impairment could be indicated at these or our other reporting units and we could incur non-cash impairment expense that would negatively impact our net earnings.

If revenue or profitability were to fall below forecasted levels, or if market conditions were to decline in a material or sustained manner, impairment could be indicated at our reporting units and we could incur non-cash impairment expense that would negatively impact our net earnings.

For example, keeping all other assumptions constant, a 100 basis point increase in the weighted average cost of capital would cause the estimated fair values of our reporting units to decrease in the range of $20 million to $45 million.

In addition, keeping all other assumptions constant, a 100 basis point reduction in the long-term growth rate would cause the estimated fair values of our reporting units to decrease in the range of $9 million to $20 million.

Given the amounts by which the fair value exceeds the carrying value for each of our reporting units, the decreases in estimated fair values described above would not have significantly impacted the results of our impairment tests.

Indefinite-lived intangible assets

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The assessment of fair value involves significant judgment and projections about future performance.

In the fair value analysis, we assumed a discount rate of 12.3 percent, a royalty rate of 1.5 percent, and a long-term growth rate of 3.0 percent.

Based on our annual analysis, the fair value of each of our trade names and trademarks exceeded the carrying amount, however, based on the finalization of our plans for integrating the Sotawall business into the Architectural Services segment, beginning in fiscal 2023, it was determined that the carrying value of the Sotawall trade name exceeded fair value by $12.7 million as it was determined to have an immaterial fair value as of fiscal 2022 year end.

This amount was recognized as impairment expense in the fourth quarter ended February 26, 2022.

In the fair value analysis, we assumed discount rates ranging from 13.0 percent to 13.5 percent, a royalty rate of 1.5 percent, and a long-term growth rate of 3.0 percent.

Based on our annual analysis, the fair value of each of our trade names and trademarks exceeded the carrying amount, however, for our EFCO tradename, with a carrying value of $23.0 million, the fair value of the tradename did not exceed carrying value by a significant margin.

If our discount rate were to increase by 50 basis points, the fair value of this tradename could fall below carrying value, which would indicate impairment.

We continue to conclude that the useful lives of our remaining indefinite-lived intangible assets is appropriate.

If future revenue were to fall below forecasted levels or if market conditions were to decline in a material or sustained manner, further impairment could be indicated on these indefinite-lived intangible assets.

Long-lived 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.

Due to triggering events as a result of finalization of our plans for integrating the Sotawall business into the Architectural Services segment, beginning in fiscal 2023, we determined that the finite-lived intangible assets were impaired as of February 26, 2022.

As such, a long-lived asset impairment charge of

$36.7 million in finite-lived intangible assets was recognized in the fourth quarter of fiscal year 2022 within the Architectural Framing Systems segment.

If future revenue were to fall below forecasted levels or if market conditions were to decline in a material or sustained manner, impairment could be indicated on these indefinite-lived intangible assets.

Reserves for disputes and claims regarding product liability, warranties and other project-related contingencies

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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.

We also 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, including those taken on with our acquisition of EFCO.

The time period from when a claim is asserted to when it is resolved, either by negotiation, settlement or litigation, can be several years.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis