APOGEE ENTERPRISES, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Management's Annual Report on Internal Control over Financial Reporting Management of Apogee Enterprises, Inc. and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) of the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of February 25, 2023, using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013) . The Company's management believes that, as of February 25, 2023, the Company's internal control over financial reporting was effective based on those criteria. Following this report are reports from the Company's independent registered public accounting firm, Deloitte & Touche LLP, on the Company's consolidated financial statements and on the effectiveness of the Company's internal control over financial reporting as of February 25, 2023. 29 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Apogee Enterprises, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Apogee Enterprises, Inc. and subsidiaries (the "Company") as of February 25, 2023 and February 26, 2022, and the related consolidated results of operations, statements of comprehensive earnings, cash flows, and shareholders' equity, for each of the three years in the period ended February 25, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 25, 2023 and February 26, 2022, and the results of its operations and its cash flows for each of the three years in the period ended February 25, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 25, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 21, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Net Sales — Revenue Recognition for Long-Term Contracts in the Architectural Services Segment — Refer to Notes 1, 2, and 15 to the consolidated financial statements The Architectural Services segment, which provides building glass and curtainwall installation services and operates under long-term, fixed-price contracts, accounted for approximately $410.6 million, or 29 percent of total net sales for the year ended February 25, 2023. The contracts for this business typically have a single, bundled performance obligation, as the business generally provides interrelated services and integrates these services into a combined output specified by the customer. The customer obtains control of this combined output, generally installed window and curtainwall systems, over time. The Company measures progress on these contracts following an input method, by comparing total costs incurred to-date to the total estimated costs for the contract and recording that proportion of the total contract price as revenue. Given the judgments necessary to estimate total costs and profit for the contract performance obligations used to recognize revenue for long-term, fixed-price contracts in the Architectural Services segment, auditing such estimates required extensive audit effort due to the complexity of long-term contracts and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures. 30 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimates of total costs and profit for the contract performance obligations used to recognize revenue for certain long-term contracts in the Architectural Services segment included, but were not limited to the following: • We tested the effectiveness of controls over long-term contract revenue in the Architectural Services segment, including those over the estimates of total costs and profit for performance obligations. • We developed an expectation of the amount of total long-term contract revenue in the Architectural Services segment based on prior year margins applied to cost of sales in the current year and compared our expectation to the amount of long-term contract revenue ultimately recorded by management. • We evaluated management’s ability to estimate total costs and profit by comparing actual costs and profit to management’s historical estimates for performance obligations that have been fulfilled. • We selected a sample of long-term contracts from the Architectural Services segment contract portfolio and performed the following procedures: • Evaluated whether the long-term contracts were properly included in management’s calculation of long-term contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfillment of the performance obligations. • Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the long-term contracts and any modifications that were agreed upon with the customers. • Tested management’s identification of distinct performance obligations by evaluating whether the underlying services are highly interdependent and interrelated. • Tested the accuracy and completeness of the costs incurred to date for the performance obligations. • We tested the mathematical accuracy of management’s calculation of long-term contract revenue for the performance obligation. • Evaluated the estimates of total cost and profit for the performance obligations by: • Comparing costs incurred to date to the costs management estimated to be incurred to date. • Evaluating management’s ability to achieve the estimates of total cost and profit by performing corroborating inquiries with the Company’s project managers and engineers, and comparing the estimates to management’s work plans, engineering specifications, and supplier contracts. • Comparing management’s estimates for the selected contracts to costs and profit of similar performance obligations, when applicable. Goodwill and Intangible Assets — Window and Wall Systems Reporting Unit and EFCO Trade Name Indefinite-Lived Intangible Asset — Refer to Notes 1 and 6 to the consolidated financial statements The Company’s evaluation of goodwill and indefinite-lived intangible assets for impairment involves the comparison of the fair value of each reporting unit or indefinite-lived intangible asset to its carrying value. The Company estimates the fair value of its reporting units using both the income approach and the market approach and estimates the fair value of its indefinite-lived trade name intangible assets using the relief-from-royalty method. The determination of fair value involves significant judgment and projections of future performance, including future revenues, future operating expenses, discount rates, and royalty rates. Changes in these assumptions could have a significant impact on either the fair value, the amount of any impairment charge, or both. The Company’s goodwill balance was $129.0 million as of February 25, 2023, of which $54.5 million relates to the Window and Wall Systems reporting unit. The Company’s indefinite-lived intangible assets balance was $26.9 million as of February 25, 2023, of which $23.0 million relates to the EFCO trade name indefinite-lived intangible asset. The fair values exceeded their carrying values as of the measurement date and, therefore, no impairment was identified. Given the significant judgments made by management to estimate the fair values of the Window and Wall Systems reporting unit and the EFCO trade name indefinite-lived intangible asset, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions related to selection of future revenues, future operating expenses, discount rates, and royalty rates required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to future revenues, future operating expenses, discount rates, and royalty rates used by management to estimate the fair values included the following, among others: • We tested the effectiveness of controls over management’s goodwill and indefinite-lived intangible assets impairment evaluation, including those over the determination of the fair value, such as controls related to management's selection of future revenues, future operating expenses, discount rates, and royalty rates. • With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology, (2) discount rates, and (3) royalty rates, including testing the source information underlying the determination of the valuation assumptions, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and 31 Table of Contents comparing those to the valuation assumptions selected by management. • We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) industry information, and (4) forecasted information included in Company press releases, as well as in analyst and industry reports of the Company. • We evaluated management’s ability to accurately forecast future revenue and future operating expenses by comparing actual results to management’s historical forecasts. • We evaluated the allocation of the Company’s estimated fair value to its reporting units and the comparison of the Company’s estimated fair value to its market capitalization. /s/ Deloitte & Touche LLP Minneapolis, MN April 21, 2023 We have served as the Company's auditor since fiscal 2003. 32 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Apogee Enterprises, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Apogee Enterprises, Inc. and subsidiaries (the “Company”) as of February 25, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 25, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended February 25, 2023, of the Company and our report dated April 21, 2023, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Minneapolis, MN April 21, 2023 33 Table of Contents CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) February 25, 2023 February 26, 2022 Assets Current assets Cash and cash equivalents $ 19,924 $ 37,583 Restricted cash 1,549 — Receivables, net 223,101 168,592 Inventories 78,441 80,494 Costs and earnings on contracts in excess of billings 33,569 30,403 Other current assets 26,517 20,820 Total current assets 383,101 337,892 Property, plant and equipment, net 248,867 249,995 Operating lease right-of-use assets 41,354 47,912 Goodwill 129,026 130,102 Intangible assets 67,375 72,481 Other non-current assets 45,642 49,481 Total assets $ 915,365 $ 887,863 Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 86,549 $ 92,104 Accrued payroll and related benefits 51,651 50,977 Billings in excess of costs and earnings on uncompleted contracts 25,595 8,659 Operating lease liabilities 11,806 12,744 Current portion long-term debt — 1,000 Other current liabilities 66,948 67,462 Total current liabilities 242,549 232,946 Long-term debt 169,837 162,000 Non-current operating lease liabilities 33,072 39,591 Non-current self-insurance reserves 29,316 22,544 Other non-current liabilities 44,183 44,583 Commitments and contingent liabilities (Note 10) Shareholders’ equity Common stock of $ 0.33 -1/3 par value; authorized 50,000,000 shares; issued and outstanding 22,224,299 and 23,701,491 shares, respectively 7,408 7,901 Additional paid-in capital 146,816 149,713 Retained earnings 273,740 254,825 Accumulated other comprehensive loss ( 31,556 ) ( 26,240 ) Total shareholders’ equity 396,408 386,199 Total liabilities and shareholders’ equity $ 915,365 $ 887,863 See accompanying notes to consolidated financial statements. 34 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS Year-Ended (In thousands, except per share data) February 25, 2023 February 26, 2022 February 27, 2021 Net sales $ 1,440,696 $ 1,313,977 $ 1,230,774 Cost of sales 1,105,423 1,039,816 955,084 Gross profit 335,273 274,161 275,690 Selling, general and administrative expenses 209,485 202,643 180,094 Impairment expense on goodwill and intangible assets — 49,473 70,069 Operating income 125,788 22,045 25,527 Interest expense, net 7,660 3,767 4,408 Other expense (income), net 1,507 4,409 ( 1,492 ) Earnings before income taxes 116,621 13,869 22,611 Income tax expense 12,514 10,383 7,175 Net earnings $ 104,107 $ 3,486 $ 15,436 Earnings per share - basic $ 4.73 $ 0.14 $ 0.59 Earnings per share - diluted $ 4.64 $ 0.14 $ 0.59 Weighted average basic shares outstanding 22,007 24,920 25,955 Weighted average diluted shares outstanding 22,416 25,292 26,304 See accompanying notes to consolidated financial statements. 35 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS Year-Ended (In thousands) February 25, 2023 February 26, 2022 February 27, 2021 Net earnings $ 104,107 $ 3,486 $ 15,436 Other comprehensive (loss) earnings: Unrealized (loss) gain on marketable securities, net of $( 131 ), $( 96 ) and $ 22 of tax (benefit) expense, respectively ( 492 ) ( 360 ) 80 Unrealized (loss) gain on derivative instruments, net of $( 672 ), $ 633 and $ 450 of tax (benefit) expense, respectively ( 2,205 ) 2,074 1,475 Unrealized gain on pension obligation, net of $ 222 , $ 117 and $ 32 of tax expense, respectively 726 382 105 Foreign currency translation adjustments ( 3,345 ) ( 309 ) 4,375 Other comprehensive (loss) earnings ( 5,316 ) 1,787 6,035 Total comprehensive earnings $ 98,791 $ 5,273 $ 21,471 See accompanying notes to consolidated financial statements. 36 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS Year-Ended (In thousands) February 25, 2023 February 26, 2022 February 27, 2021 Operating Activities Net earnings $ 104,107 $ 3,486 $ 15,436 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 42,403 49,993 51,440 Share-based compensation 8,656 6,293 8,573 Deferred income taxes ( 7,185 ) ( 7,956 ) ( 6,460 ) Asset impairment — 21,497 1,400 Gain on disposal of assets ( 3,815 ) ( 20,987 ) ( 20,044 ) Impairment expense on goodwill and intangible assets — 49,473 70,069 Proceeds from New Markets Tax Credit transaction, net of deferred costs 18,390 — — Settlement of New Markets Tax Credit transaction ( 19,523 ) — — Noncash lease expense 11,878 12,418 12,235 Other, net 5,399 ( 1,272 ) ( 2,088 ) Changes in operating assets and liabilities: Receivables ( 58,839 ) 7,521 21,630 Inventories 1,731 ( 7,706 ) ( 1,440 ) Costs and earnings on contracts in excess of billings ( 3,212 ) ( 897 ) 44,183 Accounts payable and accrued expenses 10,206 3,348 ( 32,591 ) Billings in excess of costs and earnings on uncompleted contracts 17,467 ( 14,288 ) ( 10,351 ) Refundable and accrued income taxes ( 6,976 ) 11,017 2,652 Operating lease liability ( 12,149 ) ( 12,720 ) ( 11,513 ) Other, net ( 5,842 ) 1,251 ( 1,268 ) Net cash provided by operating activities 102,696 100,471 141,863 Investing Activities Capital expenditures ( 45,177 ) ( 21,841 ) ( 26,165 ) Proceeds from sales of property, plant and equipment 7,755 30,599 25,108 Purchases of marketable securities — ( 1,038 ) ( 3,747 ) Sales/maturities of marketable securities 9,712 1,563 2,657 Net cash (used) provided by investing activities ( 27,710 ) 9,283 ( 2,147 ) Financing Activities Borrowings on line of credit 485,879 — 198,601 Repayment on debt ( 151,000 ) ( 2,000 ) ( 5,400 ) Payments on line of credit ( 327,865 ) — ( 246,340 ) Proceeds from exercise of stock options — 4,115 1,456 Repurchase and retirement of common stock ( 74,312 ) ( 100,414 ) ( 32,878 ) Dividends paid ( 19,670 ) ( 20,266 ) ( 19,601 ) Other, net ( 4,055 ) ( 2,007 ) ( 3,714 ) Net cash used by financing activities ( 91,023 ) ( 120,572 ) ( 107,876 ) (Decrease) increase in cash, cash equivalents and restricted cash ( 16,037 ) ( 10,818 ) 31,840 Effect of exchange rates on cash ( 73 ) 1,124 485 Cash, cash equivalents and restricted cash at beginning of year 37,583 47,277 14,952 Cash, cash equivalents and restricted cash at end of period $ 21,473 $ 37,583 $ 47,277 Noncash Activity Capital expenditures in accounts payable $ 2,909 $ 2,326 $ 1,101 See accompanying notes to consolidated financial statements. 37 Table of Contents Consolidated Statements of Shareholders' Equity (In thousands, except per share data) Common Shares Outstanding Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders' Equity Balance at February 29, 2020 26,443 $ 8,814 $ 154,016 $ 388,010 $ ( 34,062 ) $ 516,778 Net earnings — — — 15,436 — 15,436 Unrealized gain on marketable securities, net of $ 22 tax expense — — — — 80 80 Unrealized gain on derivative instruments, net of $ 450 tax expense — — — — 1,475 1,475 Unrealized gain on pension obligation, net of $ 32 tax expense — — — — 105 105 Foreign currency translation adjustments — — — — 4,375 4,375 Issuance of stock, net of cancellations 432 145 ( 1,212 ) 1,174 — 107 Share-based compensation — — 8,573 — — 8,573 Share repurchases ( 1,177 ) ( 393 ) ( 7,144 ) ( 25,341 ) — ( 32,878 ) Other share retirements ( 111 ) ( 37 ) ( 689 ) ( 2,435 ) — ( 3,161 ) Cash dividends ($ 0.7625 per share) — — — ( 19,601 ) — ( 19,601 ) Balance at February 27, 2021 25,714 $ 8,571 $ 154,958 $ 357,243 $ ( 28,027 ) $ 492,745 Net earnings — — — 3,486 — 3,486 Unrealized loss on marketable securities, net of $ 96 tax benefit — — — — ( 360 ) ( 360 ) Unrealized gain on derivative instruments, net of $ 633 tax expense — — — — 2,074 2,074 Unrealized gain on pension obligation, net of $ 117 tax expense — — — — 382 382 Foreign currency translation adjustments — — — — ( 309 ) ( 309 ) Issuance of stock, net of cancellations 172 57 ( 190 ) 221 — 88 Share-based compensation — — 6,293 — — 6,293 Exercise of stock options 179 60 4,055 — — 4,115 Share repurchases ( 2,309 ) ( 769 ) ( 15,055 ) ( 84,590 ) — ( 100,414 ) Other share retirements ( 55 ) ( 18 ) ( 348 ) ( 1,269 ) — ( 1,635 ) Cash dividends ($ 0.8200 per share) — — — ( 20,266 ) — ( 20,266 ) Balance at February 26, 2022 23,701 $ 7,901 $ 149,713 $ 254,825 $ ( 26,240 ) $ 386,199 Net earnings — — — 104,107 — 104,107 Unrealized loss on marketable securities, net of $ 131 tax benefit — — — — ( 492 ) ( 492 ) Unrealized loss on derivative instruments, net of $ 672 tax benefit — — — — ( 2,205 ) ( 2,205 ) Unrealized gain on pension obligation, net of $ 222 tax expense — — — — 726 726 Foreign currency translation adjustments — — — — ( 3,345 ) ( 3,345 ) Issuance of stock, net of cancellations 113 37 153 35 — 225 Share-based compensation — — 8,656 — — 8,656 Exercise of stock options 36 12 ( 954 ) — — ( 942 ) Share repurchases ( 1,571 ) ( 524 ) ( 10,350 ) ( 63,438 ) — ( 74,312 ) Other share retirements ( 55 ) ( 18 ) ( 402 ) ( 2,119 ) — ( 2,539 ) Cash dividends ($ 0.9000 per share) — — — ( 19,670 ) — ( 19,670 ) Balance at February 25, 2023 22,224 $ 7,408 $ 146,816 $ 273,740 $ ( 31,556 ) $ 396,408 See accompanying notes to consolidated financial statements. 38 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies and Related Data Basis of consolidation The consolidated financial statements include the balances of Apogee Enterprises, Inc. and its subsidiaries (Apogee, we, us, our or the Company) after elimination of intercompany balances and transactions. We consolidate variable interest entities related to our New Market Tax Credit transactions as it has been determined that the Company is the primary beneficiary of those entities' operations (refer to Note 10 for more information). Fiscal year Our fiscal year ends on the Saturday closest to the last day of February, or as determined by the Board of Directors. Fiscal 2023, 2022 and 2021 each consisted of 52 weeks. Accounting estimates The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates. Reclassifications Certain reclassifications of amounts previously reported have been made to the accompanying consolidated statements of cash flows and notes to consolidated financial statements to conform to current year presentation. These reclassifications had no impact on reported net income, cash flows, total assets and liabilities. Cash equivalents Highly liquid investments with an original maturity of three months or less are included in cash equivalents and are stated at cost, which approximates fair value. Restricted Cash Cash held that is specifically dedicated to fund each capital project related to our New Markets Tax Credit transactions. Marketable securities To the extent the amortized cost basis of the available-for-sale securities exceeds the fair value, the Company assesses the debt securities for credit loss. When assessing the risk of credit loss, the Company considers factors such as the severity and the reason of the decline in value, such as any changes to the rating of the security by a rating agency or other adverse conditions specifically related to the security, and management's intended holding period and time horizon for selling. During fiscal 2023, 2022, and 2021, the Company did not recognize any credit losses related to its available-for-sale securities. Further, as of February 25, 2023 and February 26, 2022, the Company did not record an allowance for credit losses related to its available-for-sale securities. Marketable securities are included in other current and non-current assets on the consolidated balance sheets and gross realized gains and losses are included in other expense (income), net in our consolidated results of operations. Inventories Inventories, which consist primarily of purchased glass and aluminum, are valued at lower of cost or market using the first-in, first-out (FIFO) method. Property, plant and equipment Property, plant and equipment (PP&E) is recorded at cost. Significant improvements and renewals that extend the useful life of the asset are capitalized. Repairs and maintenance are charged to expense as incurred. When an asset is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included in selling, general and administrative expenses. Long-lived assets to be held and used, such as PP&E, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Depreciation is computed on a straight-line basis, based on estimated useful lives of 10 to 25 years for buildings and improvements; 3 to 10 years for machinery and equipment; and 3 to 7 years for office equipment and furniture. Impairment of long-lived assets Long-lived assets or asset groups, including finite-lived intangible assets subject to amortization and property and equipment, are reviewed for impairment whenever events or changes in circumstances such as asset utilization, physical change, legal factors or other matters indicate that the carrying value of those assets may not be recoverable. When this review indicates the 39 Table of Contents carrying value of an asset or asset group exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group, an asset impairment expense is recognized in earnings in the period such a determination is made. The amount of the impairment expense recorded is the amount by which the carrying value of the impaired asset or asset group exceeds its fair value based on discounted cash flows. During the third quarter of fiscal 2022, an impairment of $ 3.0 million was recognized within other (expense) income within the consolidated results of operations related to a minority equity investment held by the Company. This represents a write-down of the entire investment in the other company. During the fourth quarter of fiscal 2022, based on the finalization of our plans for integrating the Sotawall business into the Architectural Services segment, which was effective 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. As a result of restructuring plans announced during the second quarter of fiscal 2022, asset impairments on property plant and equipment and leases in the amount of $ 21.5 million were recorded for the year ended February 26, 2022. Goodwill and intangible assets Goodwill Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. 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. 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. In connection with the transition, leadership of our Sotawall and Harmon businesses was 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 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. We estimate the fair value of a reporting unit using both the income approach and the market approach. The income approach uses a discounted cash flow methodology that involves significant judgment and projections of future performance. Assumptions about future revenues and future operating expenses, capital expenditures and changes in working capital are based on the annual operating plan and other business plans for each reporting unit. These plans take into consideration numerous factors, including historical experience, current and future operational plans, anticipated future economic conditions and growth expectations for the industries and end markets in which we participate. These projections are discounted using a weighted-average cost of capital, which considers the risk inherent in our projections of future cash flows. We determine the weighted-average cost of capital for this analysis by weighting the required returns on interest bearing debt and common equity capital in proportion to their estimated percentages in an expected capital structure, using published data where possible. 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. Intangible assets We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment expense is recognized in an amount equal to that excess. If an impairment expense is recognized, the adjusted carrying amount becomes the asset's new accounting basis. 40 Table of Contents Fair value of indefinite-lived intangible assets is measured using the relief-from-royalty method. This method assumes the trade name or trademark has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from the asset. This method requires estimation of future revenue from the related asset, the appropriate royalty rate, and the weighted average cost of capital. The assessment of fair value involves significant judgment and projections about future performance. Finite-lived intangible assets are amortized based on estimated useful lives ranging from 18 months to 30 years and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The estimated useful lives of all intangible assets are reviewed annually, and we have determined that the remaining lives were appropriate. Leases We have commercially negotiated leases where we recognize a right-of-use asset and lease liability on our consolidated balance sheet at lease commencement for leases with terms greater than twelve months. The initial lease liability is recognized at the present value of remaining lease payments over the lease term. Leases with an initial term of twelve months or less are not recorded on our consolidated balance sheet. We recognize lease expense for operating leases on a straight-line basis over the lease term. We combine lease and non-lease components, such as common area maintenance costs, in calculating the related asset and lease liabilities for all underlying asset groups. Refer to additional information in Note 8. Self-Insurance We obtain commercial insurance to provide coverage for potential losses in areas such as employment practices, workers' compensation, directors and officers, automobile, architect's and engineer's errors and omissions, product rework and general liability. A substantial portion of this risk is retained on a self-insured basis through our wholly-owned insurance subsidiary. We establish a reserve for estimated ultimate losses on reported claims and those incurred but not yet reported utilizing actuarial projections. Reserves are classified within other current liabilities or non-current self-insurance reserves based on expectations of when the estimated loss will be paid. Additionally, we maintain a self-insurance reserve for health insurance programs offered to eligible employees, included within other current liabilities on the consolidated balance sheets. The reserve includes an estimate for losses on reported claims as well as for amounts incurred but not yet reported, based on historical trends. Warranty and project-related contingencies We are subject to claims associated with our products and services, principally as a result of disputes with our customers involving the performance or aesthetics of our architectural products and services. We reserve estimated exposures on known claims, as well as on a portion of anticipated claims for product warranty and rework costs, based on historical product liability claims as a ratio of sales. We also reserve for estimated exposures on other claims as they are known and reasonably estimable. Reserves are included in other current and non-current liabilities based on the estimated timing of dispute resolution. Foreign currency Local currencies are considered the functional currencies for our subsidiaries outside of the United States. Assets and liabilities of these subsidiaries are translated at the exchange rates at the balance sheet date. Income and expense items are translated using average monthly exchange rates. Translation adjustments are included in accumulated other comprehensive loss in the consolidated balance sheets. Derivatives and hedging activities We are exposed to, among other risks, the impact of changes in aluminum prices, foreign currency exchange rates, and interest rates in the normal course of business. In order to manage the exposure and volatility arising from these risks, we utilize derivative financial instruments to offset a portion of these risks. We use derivative financial instruments only to the extent necessary to hedge identified business risks, and do not hold or issue derivative financial instruments for trading purposes and are not a party to leveraged derivatives. All derivative instruments within the scope of ASC 815, Derivatives and Hedging , are recorded as either assets or liabilities at fair value on the consolidated balance sheets. All hedging instruments that qualify for hedge accounting are designated and effective as hedges with changes recognized in other comprehensive earnings (loss). Instruments that do not qualify for hedge accounting are marked to market with changes recognized in current earnings. Cash flows from derivative instruments are classified in the statements of cash flows in the same category as the cash flows from the items subject to designated hedge or undesignated (economic) hedge relationships. Please refer to Note 4 for further disclosure on derivatives. 41 Table of Contents Revenue recognition Our significant accounting policy for revenue recognition follows ASC 606, Revenue from Contracts with Customers . We generate revenue from the design, engineering and fabrication of architectural glass, curtainwall, window, storefront and entrance systems, and from installing those products on commercial buildings. We also manufacture value-added glass and acrylic products. Due to the diverse nature of our operations and various types of contracts with customers, we have businesses that recognize revenue over time and businesses that recognize revenue at a point in time. During fiscal 2023 , approximately 45 percent of our total revenue is recognized at the time products are shipped from our manufacturing facilities, which is when control is transferred to our customer, consistent with past practices. These businesses do not generate contract-related assets or liabilities. Variable consideration associated with these contracts and orders, generally related to early pay discounts or volume rebates, is not considered significant. We also have three businesses which operate under long-term, fixed-price contracts, representing approximately 36 percent of our total revenue in the current year. The contracts for these businesses have a single, bundled performance obligation, as these businesses generally provide interrelated products and services and integrate these products and services into a combined output specified by the customer. The customer obtains control of this combined output, generally integrated window systems or installed window and curtainwall systems, over time. We measure progress on these contracts following an input method, by comparing total costs incurred to-date to the total estimated costs for the contract, and record that proport ion of the total contract price as revenue in the period. Contract costs include materials, labor and other direct costs related to contract performance. 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 total revenue and costs incurred throughout 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 these can be based on customer discretion. We estimate variable consideration at the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on our assessments of anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. 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. In most 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. Therefore, these modifications are accounted for as part of the existing contract. 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. Typically, under these fixed-price contracts, we bill our customers following an agreed-upon schedule based on work performed. Because the progress billings do not generally correspond to our measurement of revenue on a contract, we generate contract assets when we have recognized revenue in excess of the amount billed to the customer. We generate contract liabilities when we have billed the customer in excess of revenue recognized on a contract. Finally, we h ave one business, making up approximately 19 percent of our to tal revenue in the current year, that recognizes revenue following an over-time output method based upon units produced. The customer is considered to have control over the products at the time of production, as the products are highly customized with no alternative use, and we have an enforceable right to payment for performance completed over the production p eriod. We believe this over-time output method of recognizing revenue reasonably depicts the fulfillment of our performance obligations under our contracts. Billings still occur upon shipment. Therefore, contract assets are generated for the unbilled amounts on contracts when production is complete. Variable consideration associated with these orders, generally related to early pay discounts, is not considered significant. Additionally, we have made the following policy elections associated with revenue recognition: • We account for shipping and handling activities that occur after control of the related goods transfers to the customer as fulfillment activities, instead of assessing such activities as performance obligations. 42 Table of Contents • We exclude from the transaction price all sales taxes related to revenue-producing transactions that are collected from the customer for a government authority. We are considered a pass-through conduit for collecting and remitting sales taxes. • We generally expense incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs primarily relate to sales commissions and are included in selling, general and administrative expenses. • We do not adjust contract price for a significant financing component, as we expect the period between when our goods and services are transferred to the customer and when the customer pays for those goods and services to be less than a year. Shipping and handling Amounts billed to a customer in a sales transaction related to shipping and handling are reported as revenue. Costs we incur for shipping and handling are reported as cost of sales. Restructuring 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 concentrate this segment on premium, high-performance products. Additionally, employee termination costs were incurred related to these facility closures, realignment of the Architectural Framing Systems segment, and within the Corporate office. During the first quarter of fiscal 2023, we completed the execution of these plans with the sale of the remaining manufacturing assets at our Architectural Glass location, in Dallas, Texas. Refer to additional information in Note 16. Research and development Research and development activities include the development of new products, the modification of existing product designs, and research related to process improvements. Our research and development expenses were $ 25.5 million, $ 17.3 million and $ 15.3 million for fiscal 2023, 2022 and 2021, respectively. These costs are expensed as incurred. Advertising Advertising costs are expensed as incurred within selling, general and administrative expenses, and were $ 1.2 million in fiscal 2023, $ 1.2 million in fiscal 2022 and $ 1.1 million in fiscal 2021. Income taxes The Company recognizes deferred tax assets and liabilities based upon the future tax consequences of temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. See Note 13 for additional information regarding income taxes. Subsequent events We have evaluated subsequent events for potential recognition and disclosure through the date of this filing and determined that there were no subsequent events that required recognition or disclosure in the consolidated financial statements. Adoption of new accounting standards At the beginning of fiscal 2022, we adopted the guidance in ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The amendments in this ASU removed exceptions on intra-period tax allocations and reporting and provided simplification on accounting for franchise taxes, tax basis goodwill and tax law changes. The adoption of this ASU did not have a significant impact on the consolidated financial statements. At the beginning of fiscal 2022, we adopted the guidance in ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The adoption of this ASU did not have a significant impact on the consolidated financial statements. 43 Table of Contents 2. Revenue, Receivables and Contract Assets and Liabilities Revenue The following table disaggregates total revenue by timing of recognition (see Note 15 for disclosure of revenue by segment): (In thousands) February 25, 2023 February 26, 2022 February 27, 2021 Recognized at shipment $ 649,792 $ 551,783 $ 504,583 Recognized over time 790,904 762,194 726,191 Total $ 1,440,696 $ 1,313,977 $ 1,230,774 Receivables Receivables reflected in the financial statements represent the net amount expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecast economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible. Retainage on construction contracts represents amounts withheld by our customers on long-term projects until the project reaches a level of completion where amounts are released. (In thousands) 2023 2022 Trade accounts $ 140,732 $ 129,085 Construction contracts 58,331 12,857 Contract retainage 25,834 28,782 Total receivables 224,897 170,724 Less: allowance for credit losses 1,796 2,132 Receivables, net $ 223,101 $ 168,592 The following table summarizes the activity in the allowance for credit losses: (In thousands) 2023 2022 Beginning balance $ 2,132 $ 1,947 Additions charged to costs and expenses 394 729 Deductions from allowance, net of recoveries ( 686 ) ( 514 ) Other deductions ( 44 ) ( 30 ) Ending balance $ 1,796 $ 2,132 Contract assets and liabilities Contract assets consist of retainage, costs and earnings in excess of billings and other unbilled amounts typically generated when revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts. Retainage is classified within receivables and deferred revenue is classified within other current liabilities on our consolidated balance sheets. The time period between when performance obligations are complete and when payment is due is not significant. In certain of our businesses that recognize revenue over time, progress billings follow an agreed-upon schedule of values, and retainage is withheld by the customer until the project reaches a level of completion where amounts are released. (In thousands) February 25, 2023 February 26, 2022 Contract assets $ 59,403 $ 59,185 Contract liabilities 28,011 11,373 The change in contract assets and contract liabilities was due to timing of project activity from businesses that operate under long-term contracts. 44 Table of Contents Other contract-related disclosures (In thousands) February 25, 2023 February 26, 2022 Revenue recognized related to contract liabilities from prior year-end $ 37,594 $ 19,747 Revenue recognized related to prior satisfaction of performance obligations 16,612 22,461 Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally these contracts are in our businesses with long-term contracts which recognize revenue over time. As of February 25, 2023, the transaction price associated with unsatisfied performance obligations was approximately $ 835.8 million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods: (In thousands) February 25, 2023 Within one year $ 487,217 Within two years 263,609 Beyond two years 84,990 Total $ 835,816 3. Supplemental Balance Sheet Information Inventories (In thousands) 2023 2022 Raw materials $ 36,869 $ 42,541 Work-in-process 18,024 18,144 Finished goods 23,548 19,809 Total inventories $ 78,441 $ 80,494 Other current liabilities (In thousands) 2023 2022 Warranties $ 14,872 $ 11,786 Income and other taxes 7,129 15,770 Accrued self-insurance reserves 14,447 8,796 Deferred revenue 2,416 2,714 Other 28,084 28,396 Total other current liabilities $ 66,948 $ 67,462 Other non-current liabilities (In thousands) 2023 2022 Deferred benefit from New Markets Tax Credit transactions $ 9,250 $ 9,165 Retirement plan obligations 5,749 7,041 Deferred compensation plan 5,577 9,483 Deferred tax liabilities 1,417 2,296 Other 22,190 16,598 Total other non-current liabilities $ 44,183 $ 44,583 45 Table of Contents 4. Financial Instruments Marketable Securities Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), we hold the following available-for-sale marketable securities, made up of municipal and corporate bonds: (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value February 25, 2023 $ 10,647 $ — $ 702 $ 9,945 February 26, 2022 11,862 45 123 11,784 Prism insures a portion of our general liability, workers' compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments, for the purpose of providing collateral for Prism's obligations under the reinsurance agreements. The amortized cost and estimated fair values of our municipal and corporate bonds at February 25, 2023, 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 penalty. Gross realized gains and losses were insignificant for all periods presented. (In thousands) Amortized Cost Estimated Fair Value Due within one year $ 2,205 $ 2,173 Due after one year through five years 8,442 7,772 Total $ 10,647 $ 9,945 Derivative instruments We use interest rate swaps, currency swaps, and forward purchase contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments we use, how such instruments are accounted for, and how such instruments impact our financial position and performance. In fiscal 2020, we entered into an interest rate swap to hedge a portion of our exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility. As of February 25, 2023, the interest rate swap contract had a notional value of $ 30 million. We periodically enter into forward purchase contracts to manage the risk associated with fluctuations in foreign currency rates (primarily related to the Canadian dollar and Euro) and aluminum prices, generally with an original maturity date of less than one year. As of February 25, 2023, we held foreign exchange forward contracts and aluminum purchase contracts with U.S. dollar notional values of $ 2.9 million and $ 15.9 million, respectively. These derivative instruments are recorded within our consolidated balance sheets within other current assets and liabilities. Gains or losses associated with these instruments are recorded as a component of accumulated other comprehensive loss until which time the hedged transaction is settled and gains or losses are reclassified to earnings. Fair value measurements Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 assets or liabilities. 46 Table of Contents Financial assets and liabilities measured at fair value on a recurring basis were: (In thousands) Quoted Prices in Active Markets (Level 1) Other Observable Inputs (Level 2) Total Fair Value February 25, 2023 Assets: Money market funds $ 8,062 $ — $ 8,062 Municipal and corporate bonds — 9,945 9,945 Cash surrender value of life insurance — 8,282 8,282 Interest rate swap contract — 1,817 1,817 Liabilities: Deferred compensation — 9,515 9,515 Foreign currency forward/option contract — 206 206 Aluminum hedging contract — 1,075 1,075 February 26, 2022 Assets: Money market funds $ 19,288 $ — $ 19,288 Municipal and corporate bonds — 11,784 11,784 Cash surrender value of life insurance — 17,831 17,831 Aluminum hedging contract — 2,133 2,133 Interest rate swap contract — 718 718 Liabilities: Deferred compensation — 12,491 12,491 Foreign currency forward/option contract — 161 161 Money market funds and commercial paper Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets. These assets are included within cash and cash equivalents on our consolidated balance sheets. Municipal and corporate bonds Municipal and corporate bonds were measured at fair value based on market prices from recent trades of similar securities and are classified within our consolidated balance sheets as other current or other non-current assets based on maturity date. Cash surrender value of life insurance and deferred compensation Contracts insuring the lives of certain employees who are eligible to participate in non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by these participants. Changes in cash surrender value are recorded in other expense. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds. Derivative instruments The interest rate swap is measured at fair value using unobservable market inputs, based off benchmark interest rates. Forward foreign exchange and forward purchase aluminum contracts are measured at fair value using unobservable market inputs, such as quotations on forward foreign exchange points, foreign currency exchange rates and forward purchase aluminum prices. Derivative positions are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for interest and currency rates and aluminum prices. Nonrecurring fair value measurements We measure certain financial instruments at fair value on a nonrecurring basis including goodwill, intangible assets, property and equipment and right-of-use lease assets. These assets were initially measured and recognized at amounts equal to the fair value determined as of the date of acquisition or purchase subject to changes in value only for foreign currency translation. Periodically, these assets are tested for impairment, by comparing their respective carrying values to the estimated fair value of the reporting unit or asset group in which they reside. In the event any of these assets were to become impaired, we would recognize an impairment expense equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value. 47 Table of Contents Fair value measurements of reporting units are estimated using an income approach involving discounted cash flow models that contain certain Level 3 inputs requiring significant management judgment, including projections of economic conditions, customer demand and changes in competition, revenue growth rates, gross profit margins, operating margins, capital expenditures, working capital requirements, terminal growth rates and discount rates. Fair value measurements of the reporting units associated with our goodwill balances and our indefinite-lived intangible assets are estimated at least annually in the fourth quarter of each fiscal year for purposes of impairment testing if a quantitative analysis is performed. Fair value measurements for long-lived assets or asset groups, including intangible assets subject to amortization, property and equipment and right-of-use lease assets, are valued using 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. See Note 1 and Note 6 for additional information on the impairment charges recorded to indefinite- and finite-lived intangible assets during the fourth quarter of fiscal 2022. See Note 16 for additional information on the impairment charges recorded to property, plant and equipment during fiscal 2022. 5. Property, Plant and Equipment (In thousands) 2023 2022 Land $ 3,600 $ 3,579 Buildings and improvements 188,949 185,774 Machinery and equipment 376,721 381,116 Office equipment and furniture 69,465 69,017 Construction in progress 41,842 15,080 Total property, plant and equipment 680,577 654,566 Less: accumulated depreciation 431,710 404,571 Net property, plant and equipment $ 248,867 $ 249,995 Depreciation expense was $ 38.2 million, $ 42.2 million, and $ 43.9 million in fiscal 2023, 2022, and 2021, respectively. 6. Goodwill and Other Intangible Assets Goodwill Refer to Note 1 to the consolidated financial statements for a description of the Accounting Policy related to Goodwill. Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. We evaluate goodwill for impairment annually as of the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Based on the impairment analysis performed in the fourth quarter, estimated fair value was in excess of carrying value at all of our reporting units. The carrying amount of goodwill attributable to each reporting segment was: (In thousands) Architectural Framing Systems Architectural Services Architectural Glass Large-Scale Optical Total Balance at February 27, 2021 $ 93,099 $ 1,120 $ 25,322 $ 10,557 $ 130,098 Foreign currency translation 82 — ( 78 ) — 4 Balance at February 26, 2022 93,181 1,120 25,244 10,557 130,102 Reallocation among reporting units (1) ( 2,048 ) 2,048 — — — Foreign currency translation ( 996 ) ( 137 ) 57 — ( 1,076 ) Balance at February 25, 2023 $ 90,137 $ 3,031 $ 25,301 $ 10,557 $ 129,026 (1) Represents the reallocation of goodwill as a result of transitioning Sotawall from the Architectural Framing Systems segment to the Architectural Services segment as of the start of the first quarter of fiscal 2023. Indefinite-lived intangible assets We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. Based on our annual analysis, the fair value of each of our trade names and trademarks exceeded the carrying amount. During fiscal 2022, as a result of triggering events resulting from the finalization of our plans for integrating the 48 Table of Contents 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, resulting in the trade name being fully impaired as of fiscal 2022 year end. This amount was recognized as impairment expense in the fourth quarter ended February 26, 2022. Finite-lived intangible 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. The gross carrying amount of other intangible assets and related accumulated amortization was: (In thousands) Gross Carrying Amount Accumulated Amortization Impairment Expense Foreign Currency Translation Net February 25, 2023 Finite-lived intangible assets: Customer relationships $ 89,495 $ ( 49,404 ) $ — $ ( 2,697 ) $ 37,394 Other intangibles 39,404 ( 35,229 ) — ( 1,045 ) 3,130 Total finite-lived intangible assets 128,899 ( 84,633 ) — ( 3,742 ) 40,524 Indefinite-lived intangible assets: Trade names and trademarks 27,129 — — ( 278 ) 26,851 Total intangible assets $ 156,028 $ ( 84,633 ) $ — $ ( 4,020 ) $ 67,375 February 26, 2022 Finite-lived intangible assets: Customer relationships $ 122,961 $ ( 47,226 ) $ ( 33,608 ) $ 141 $ 42,268 Other intangibles 41,838 ( 35,613 ) ( 3,127 ) ( 14 ) 3,084 Total finite-lived intangible assets 164,799 ( 82,839 ) ( 36,735 ) 127 45,352 Indefinite-lived intangible assets: Trade names and trademarks 39,832 — ( 12,738 ) 35 27,129 Total intangible assets $ 204,631 $ ( 82,839 ) $ ( 49,473 ) $ 162 $ 72,481 Amortization expense on finite-lived intangible assets was $ 4.2 million, $ 7.8 million and $ 7.6 million in fiscal 2023, 2022 and 2021, respectively. Amortization expense is included within selling, general and administrative expenses for all intangible assets other than that of debt issuance costs, which is included in interest expense. Estimated future amortization expense for finite-lived intangible assets is: (In thousands) 2024 2025 2026 2027 2028 Estimated amortization expense $ 4,364 $ 4,333 $ 4,317 $ 4,297 $ 3,939 7. Debt During the second quarter ended August 27, 2022, we amended and extended our committed revolving credit facility to include maximum borrowings of up to $ 385 million with a maturity of August 2027. As part of the amendment, we repaid the $150 million term loan with borrowings under the revolving credit facility. As of February 25, 2023, outstanding borrowings under our revolving credit facility were $ 156 million, while there were no outstanding borrowings under the revolving credit facility and $ 150 million of borrowings outstanding under the term loan as of February 26, 2022. 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. 49 Table of Contents Debt at February 25, 2023 also included $ 12.0 million of industrial revenue bonds that mature in fiscal years 2036 through 2043. The fair value of the industrial revenue bonds approximated carrying value at February 25, 2023, due to the variable interest rates on these instruments. The bonds would be classified as Level 2 within the fair value hierarchy described in Note 4. We also maintain two Canadian committed, revolving credit facilities totaling $ 25.0 million (USD). At February 25, 2023, outstanding borrowings under our Canadian committed, revolving credit facilities were $ 1.8 million, while there were no outstanding borrowings under the facilities in place as of as of February 26, 2022. Debt maturities and other selected information follows: (In thousands) 2024 2025 2026 2027 2028 Thereafter Total Maturities $ — $ — $ — $ — $ 157,837 $ 12,000 $ 169,837 (In thousands, except percentages) 2023 2022 Average daily borrowings during the year $ 225,773 $ 167,542 Maximum borrowings outstanding during the year 285,329 168,669 Weighted average interest rate during the year 3.54 % 1.45 % (In thousands) February 25, 2023 February 26, 2022 February 27, 2021 Interest on debt $ 8,140 $ 3,695 $ 4,981 Other interest expense 294 866 604 Interest expense $ 8,434 $ 4,561 $ 5,585 Interest payments were $ 8.2 million in fiscal February 25, 2023, $ 3.5 million in fiscal February 26, 2022 and $ 4.6 million in fiscal February 27, 2021. 8. Leases We have operating leases for certain of the buildings and equipment used in our operations. We determine if an arrangement contains a lease at inception. Under ASU 2016-20, Leases , we have elected the package of practical expedients permitted under the transition guidance in adopting ASC 842, which among other things, allowed us to carry forward our historical lease classification. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease expense is recognized on a straight-line basis over the lease term. Our leases have remaining lease terms of one to ten years, some of which include renewal options that can extend the lease for up to an additional ten years at our sole discretion. We have made an accounting policy election not to record leases with an original term of 12 months or less on our consolidated balance sheet and such leases are expensed on a straight-line basis over the lease term. In determining lease asset value, we consider fixed or variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. We use a discount rate for each lease based upon an estimated incremental borrowing rate over a similar term. We have elected the practical expedient to account for lease and non-lease components (e.g., common-area maintenance costs) as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We are not a lessor in any transactions. The components of lease expense were as follows: (In thousands) February 25, 2023 February 26, 2022 Operating lease cost $ 12,336 $ 13,509 Short-term lease cost 908 1,024 Variable lease cost 3,487 2,991 Total lease cost $ 16,731 $ 17,524 50 Table of Contents Other supplemental information related to leases for the year ended February 25, 2023 was as follows: (In thousands) February 25, 2023 February 26, 2022 Cash paid for amounts included in the measurement of operating lease liabilities $ 14,086 $ 14,301 Lease assets obtained in exchange for new operating lease liabilities $ 11,359 $ 3,259 Weighted-average remaining lease term - operating leases 4.5 years 5.3 years Weighted-average discount rate - operating leases 3.1 % 2.9 % Future maturities of lease liabilities are as follows: (In thousands) 2023 Fiscal 2024 $ 12,537 Fiscal 2025 11,449 Fiscal 2026 9,211 Fiscal 2027 7,792 Fiscal 2028 4,145 Thereafter 3,684 Total lease payments 48,818 Less: Amounts representing interest 3,940 Present value of lease liabilities $ 44,878 9. Employee Benefit Plans 401(k) Retirement Plan We sponsor a single 401(k) retirement plan covering substantially all full-time, non-union employees, as well as union employees at two of our manufacturing facilities. Under the plan, employees are allowed to contribute up to 60 percent of eligible earnings to the plan, up to statutory limits. On January 1, 2023, we began matching 100 percent of the first two percent contributed and 50 percent of the next four percent contributed on eligible compensation that non-union employees contribute and according to contract terms for union employees. Previously, we matched 100 percent of the first one percent contributed and 50 percent of the next five percent contributed on eligible compensation that non-union employees contribute. In response to the effects of COVID-19 on our business, we suspended the matching contribution from June 1, 2020 until December 31, 2020. In total, our matching contributions were $ 8.6 million in fiscal 2023, $ 7.7 million in fiscal 2022 and $ 3.5 million in fiscal 2021. Deferred Compensation Plan We maintain a plan that allows participants to defer compensation. The deferred compensation liability was $ 9.5 million and $ 12.5 million at February 25, 2023 and February 26, 2022, respectively. We have investments in corporate-owned life insurance policies (COLI) of $ 8.3 million and money market funds (classified as cash equivalents) of $ 0.3 million with the intention of utilizing them as long-term funding sources for this plan. The COLI assets are recorded at their net cash surrender values and are included in other non-current assets in the consolidated balance sheets. Plans under Collective Bargaining Agreements We contribute to a number of multi-employer union retirement plans, which provide retirement benefits to the majority of our union-represented employees; none of the plans are considered significant. However, the risks of participating in these multi-employer plans are different from single-employer plans in the following aspects: • Assets contributed to these plans by one employer may be used to provide benefits to employees of other participating employers • If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers • If we choose to stop participating in some of these plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability Our participation in these plans is outlined in the following table. The most recent Pension Protection Act zone status available in 2023 and 2022 relates to the plan years ending December 31, 2022 and December 31, 2021, respectively. 51 Table of Contents The zone status is based on information that we have received from each plan, certified by an actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are between 65 percent and 80 percent funded, and plans in the green zone are at least 80 percent funded. Pension Protection Act Zone Status Contributions (In thousands) Pension Fund EIN/Pension Plan Number 2023 2022 2023 2022 2021 FIP/RP Status Pending/Implemented Minimum Contribution Surcharge Imposed Expiration Date of Collective Bargaining Agreement (1) Iron Workers Local Union No. 5 and Iron Workers Employers Association Employees Pension Trust Fund 521075473 Green Green $ 1,359 $ 1,454 $ 940 No No No 5/31/2017 International Painters and Allied Trades Industry Pension Fund 526073909 Red Red 869 932 525 Implemented No No 11/30/2017 Western Glaziers Retirement Plan (Washington) 916123685 Green Green 815 160 526 No No No 6/30/2017 Ironworkers Local 580 Shop Pension Fund 136178514 Green Green 596 31 26 Implemented No Yes 6/30/2023 Western Glaziers Retirement Fund (Oregon and Southwest Washington) 936074376 Green Green 441 — 51 No No No 11/30/2017 Iron Workers Mid-America Pension Fund 366488227 Green Green 429 431 767 No No No 5/31/2017 Glazier's Union Local 27 Pension and Retirement Plan 366034076 Green Green 174 290 165 No No No 5/31/2017 Atlanta Ironworkers Local Union 387 Pension Plan 586051152 Green Green 125 209 35 No No No 1/31/2017 Other funds 442 422 423 Total contributions $ 5,250 $ 3,929 $ 3,458 (1) Plans include contributions required by collective bargaining agreements which have expired, but contain provisions automatically renewing their terms in the absence of a subsequent negotiated agreement. The Company was listed in the plans' Forms 5500 as providing more than 5 percent of the total contributions for the following plans and plan years: Pension Fund Year contributions to Plan Exceeded More Than 5 Percent of Total Contributions Iron Workers Local Union No. 5 and Iron Workers Employers Association Employees Pension Trust Fund 2022, 2021 and 2020 Western Glaziers Retirement Plan (Washington) 2022 Iron Workers Mid-America Pension Fund 2022 and 2021 Iron Workers St. Louis District Council Pension Trust Fund 2021 Atlanta Ironworkers Local Union 387 Pension Plan 2022 Amounts contributed in fiscal 2023, 2022, and 2021 to defined contribution multiemployer plans were $ 2.2 million, $ 1.6 million and $ 1.1 million, respectively. Obligations and Funded Status of Defined-Benefit Pension Plans We sponsor the Tubelite Inc. Hourly Employees' Pension Plan, a defined-benefit pension plan that was frozen to new entrants in fiscal 2004, with no additional benefits accruing to plan participants after such time. We also sponsor an unfunded SERP, a defined-benefit pension plan that was frozen to new entrants in fiscal 2009, with no additional benefits accruing to plan participants after such time. The following tables present reconciliations of the benefit obligation and the funded status of these plans. The Tubelite plan uses a measurement date as of the calendar month-end closest to our fiscal year-end, while the SERP uses a measurement date aligned with our fiscal year-end. 52 Table of Contents (In thousands) 2023 2022 Change in projected benefit obligation Benefit obligation beginning of period $ 12,405 $ 13,541 Interest cost 380 339 Actuarial gain ( 1,484 ) ( 475 ) Benefits paid ( 1,041 ) ( 1,000 ) Benefit obligation at measurement date 10,260 12,405 Change in plan assets Fair value of plan assets beginning of period $ 5,044 $ 5,551 Actual return on plan assets ( 706 ) ( 161 ) Company contributions 695 654 Benefits paid ( 1,041 ) ( 1,000 ) Fair value of plan assets at measurement date 3,992 5,044 Underfunded status $ ( 6,268 ) $ ( 7,361 ) The funded status was recognized in the consolidated balance sheets as follows: (In thousands) 2023 2022 Other non-current assets $ 161 $ 361 Current liabilities ( 680 ) ( 681 ) Other non-current liabilities ( 5,749 ) ( 7,041 ) Total $ ( 6,268 ) $ ( 7,361 ) The following was included in accumulated other comprehensive loss and has not yet been recognized as a component of net periodic benefit cost: (In thousands) 2023 2022 Net actuarial loss $ 3,968 $ 4,916 The net actuarial gain recognized in comprehensive earnings, net of tax expense, was $ 0.7 million in fiscal 2023, and $ 0.4 million in fiscal 2022. Components of the defined-benefit pension plans' net periodic benefit cost: (In thousands) 2023 2022 2021 Interest cost $ 380 $ 339 $ 346 Expected return on assets ( 84 ) ( 85 ) ( 211 ) Amortization of unrecognized net loss 254 270 260 Net periodic benefit cost $ 550 $ 524 $ 395 Total net periodic pension benefit cost is expected to be approximately $ 0.6 million in fiscal 2024. The estimated net actuarial gain for the defined-benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost for fiscal 2024 is $ 0.3 million, net of tax expense. Additional Information Assumptions Benefit Obligation Weighted-Average Assumptions 2023 2022 2021 Discount rate 5.10 % 3.20 % 2.60 % 53 Table of Contents Net Periodic Benefit Expense Weighted-Average Assumptions 2023 2022 2021 Discount rate 3.20 % 2.60 % 2.50 % Expected long-term rate of return on assets 2.75 % 2.50 % 4.50 % Discount rate. The discount rate reflects the current rate at which the defined-benefit plans' pension liabilities could be effectively settled at the end of the year based on the measurement date. The discount rate was determined by matching the expected benefit payments to payments from the Principal Discount Yield Curve. There are no known or anticipated changes in the discount rate assumption that will have a significant impact on pension expense in fiscal 2024. Expected return on assets. To develop the expected long-term rate of return on assets, we considered historical long-term rates of return achieved by the plan investments, the plan's investment strategy, and current and projected market conditions. During fiscal 2019, the assets of the Tubelite plan were moved from investment in a short-term bond fund to various duration fixed income funds. The investments are carried at fair value based on prices from recent trades of similar securities, which would be classified as Level 2 in the valuation hierarchy. We do not maintain assets intended for the future use of the SERP. Contributions Company contributions to the plans for fiscal 2023 and fiscal 2022 were $ 0.7 million in each year, which equaled or exceeded the minimum funding requirements. Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, are expected to be paid by the plans: (In thousands) 2024 2025 2026 2027 2028 2029-2033 Estimated future benefit payments $ 1,050 $ 998 $ 967 $ 927 $ 898 $ 3,912 10. Commitments and Contingent Liabilities Bond commitments In the ordinary course of business, predominantly in the Architectural Services and Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At February 25, 2023, $ 1.4 billion of these types of bonds were outstanding, of which, $ 523.0 million is on our backlog. These bonds do not have stated expiration dates, as we are released from the bonds upon completion of the contract. We have never been required to make payments under surety or performance bonds with respect to our existing businesses. Warranty and project-related contingencies We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework costs based on historical product liability claims as a ratio of sales. 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: changes in manufacturing quality, changes in product mix and any significant changes in sales volume. A warranty rollforward follows: (In thousands) 2023 2022 Balance at beginning of period $ 13,923 $ 14,999 Additional accruals 13,621 10,138 Claims paid ( 9,651 ) ( 11,214 ) Balance at end of period $ 17,893 $ 13,923 Additionally, we 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. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages. Letters of credit At February 25, 2023, we had $ 12.3 million of ongoing letters of credit, all of which have been issued under our revolving credit facility, as discussed in Note 7. We also have a $3.4 million letter of credit which has been issued outside our committed revolving credit facility, with no impact on our borrowing capacity and debt covenants. 54 Table of Contents Purchase obligations Purchase obligations, primarily for raw material commitments and capital expenditures totaled $ 241.7 million as of February 25, 2023. Environmental liability In fiscal 2008, we acquired one manufacturing facility which has certain historical environmental conditions. Remediation of these conditions is ongoing without significant disruption to our operations. The estimated remaining liability for these remediation activities was $ 0.4 million and $ 0.5 million at February 25, 2023 and February 26, 2022, respectively. New Markets Tax Credit (NMTC) transactions We have three outstanding NMTC arrangements which help to support operational expansion. Proceeds received from investors on these transactions are included within other current and non-current liabilities on our consolidated balance sheets. The NMTC arrangements are subject to 100 percent tax credit recapture for a period of seven years from the date of each respective transaction. Upon the termination of each arrangement, these proceeds will be recognized in earnings in exchange for the transfer of tax credits. The direct and incremental costs incurred in structuring these arrangements have been deferred and are included in other current and non-current assets on our consolidated balance sheets. These costs will be recognized in conjunction with the recognition of the related proceeds on each arrangement. During the construction phase for each project, we are required to hold cash dedicated to fund each capital project which is classified as restricted cash on our consolidated balance sheets. Variable-interest entities, which have been included within our consolidated financial statements, have been created as a result of the structure of these transactions, as investors in the programs do not have a material interest in their underlying economics. During the first quarter of fiscal 2023, one NMTC transaction was terminated, and a new NMTC transaction was established as a replacement. As a result of these transactions, $19.5 million in previous proceeds received were repaid and $19.5 million was contributed back to the Company as part of the newly established NMTC transaction. This NMTC transaction will be held for the remainder of the original seven-year term. The table below provides a summary of our outstanding NMTC transactions (in millions): Inception date Termination date Proceeds received Deferred costs Net benefit June 2016 June 2023 $ 6.0 $ 1.2 $ 4.8 May 2022 (1) August 2025 6.1 1.6 4.5 September 2018 September 2025 3.2 1.0 2.2 Total $ 15.3 $ 3.8 $ 11.5 (1) Continuation of the August 2018 NMTC financing transaction 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 is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. 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. In December 2022, the claimant in an arbitration of one such claim was awarded $20 million. The Company intends to appeal the award and believes, after taking into account all currently available information, including the advice of counsel and the likelihood of available insurance coverage, that this award will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no matters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company. 55 Table of Contents 11. Shareholders' Equity A class of 200,000 shares of junior preferred stock with a par value of $ 1.00 is authorized, but unissued. Share Repurchases During fiscal 2004, the Board of Directors authorized a share repurchase program, with subsequent increases in authorization. We repurchased 1,571,139 shares under the program during fiscal 2023, for a total cost of $ 74.3 million. We repurchased 2,292,846 shares under the program, for a total cost of $ 100.0 million, in fiscal 2022, and 1,177,704 shares under the program, for a total cost of $ 32.9 million, in fiscal 2021. The Company has repurchased a total of 10,996,601 shares, at a total cost of $ 381.6 million, since the inception of this program. We have remaining authority to repurchase 1,253,399 shares under this program, which has no expiration date. In addition to the shares repurchased under this repurchase plan, during fiscal 2023, 2022 and 2021, the Company also withheld $ 2.3 million, $ 2.1 million and $ 3.0 million, respectively, of Company stock from employees in order to satisfy stock-for-stock option exercises or tax obligations related to stock-based compensation, pursuant to terms of board and shareholder-approved compensation plans. Accumulated Other Comprehensive Loss The following summarizes the accumulated other comprehensive loss, net of tax, at February 25, 2023 and February 26, 2022: (In thousands) 2023 2022 Net unrealized loss on marketable securities $ ( 550 ) $ ( 58 ) Net unrealized gain on derivative instruments 512 2,717 Pension liability adjustments ( 3,044 ) ( 3,770 ) Foreign currency translation adjustments ( 28,474 ) ( 25,129 ) Total accumulated other comprehensive loss $ ( 31,556 ) $ ( 26,240 ) 12. Share-Based Compensation We have a 2019 Stock Incentive Plan and a 2019 Non-Employee Director Stock Plan (the Plans) that provide for the issuance of 1,150,000 and 150,000 shares, respectively, for various forms of stock-based compensation to employees and non-employee directors. We also have a 2009 Stock Incentive Plan and 2009 Non-Employee Director Stock Incentive Plan with shares reserved for issuance for outstanding unvested awards. Awards under these Plans may be in the form of incentive stock options (to employees only), nonstatutory options, stock-settled stock appreciation rights (SARs), or nonvested share awards and units, all of which are granted at a price or with an exercise price equal to the fair market value of the Company’s stock at the date of award. No additional awards can be made under the 2009 Stock Incentive Plan or the 2009 Non-Employee Director Stock Incentive Plan. Nonvested share awards and units generally vest over a two , three or four -year period. Total stock-based compensation expense was $ 8.7 million in fiscal 2023, $ 6.3 million in fiscal 2022 and $ 8.6 million in fiscal 2021. We account for any forfeitures as they occur. Stock Options In June 2020, we granted 660,600 stock options which had a weighted average fair value per option at the date of grant of $5.01. The fair value of each award grant is estimated on the date of grant using the binomial lattice option-pricing model with the following weighted-average assumptions used for grants issued in fiscal 2021. 2021 Dividend yield 3.3 % Expected volatility 40.0 % Risk-free interest rate 0.7 % Maximum price $ 35.70 The expected stock price volatility is based on historical experience. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant. 56 Table of Contents Stock option and SAR activity for the current fiscal year is summarized below: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value at Year-End Outstanding at February 26, 2022 370,800 $ 23.04 Awards exercised ( 145,060 ) 23.04 Awards canceled ( 67,740 ) 23.04 Outstanding at February 25, 2023 158,000 $ 23.04 0.5 years $ 2,000,280 Vested or expected to vest at February 25, 2023 158,000 $ 23.04 0.5 years $ 2,000,280 For the fiscal year ended February 25, 2023, there were no cash proceeds from the exercise of stock options as all stock options were exercised on a stock-for-stock basis. The aggregate intrinsic value of securities exercised (the amount by which the stock price on the date of exercise exceeded the stock price of the award on the date of grant) was $ 2.7 million. For the fiscal year ended February 26, 2022, cash proceeds from the exercise of stock options were $ 4.1 million. The aggregate intrinsic value of the securities exercised was $ 2.3 million. Executive compensation program In fiscal 2022, the Compensation Committee of the Board of Directors implemented an executive compensation program for certain key employees. In each of the first quarters of fiscal 2023 and fiscal 2022, we issued performance shares in the form of nonvested share unit awards, which give the recipient the right to receive shares earned at the end of the respective three-fiscal-year performance periods. The number of share units issued at grant is equal to the target number of performance shares and allows for the right to receive a variable number of shares dependent on achieving a defined performance goal of return on invested capital and being employed at the end of the performance period. Nonvested Share Awards and Units The following table summarizes nonvested share activity for fiscal February 25, 2023: Number of Shares and Units Weighted Average Grant Date Fair Value February 26, 2022 (1) 488,944 $ 30.14 Granted (2) 183,793 46.08 Vested ( 171,485 ) 28.08 Canceled (3) ( 46,473 ) 36.13 February 25, 2023 (4) 454,779 $ 36.75 (1) Includes a total of 50,825 nonvested share units granted and outstanding at target level for the fiscal 2022-2024 performance period. (2)Includes a total of 38,654 nonvested share units granted and outstanding at target level for the 2023-2025 performance period. (3) Includes a total of 9,690 nonvested share units cancelled for the fiscal 2022-2024 and fiscal 2023-2025 performance periods. (4)Includes a total of 45,207 and 34,492 nonvested share units granted and outstanding at target level for the 2022-2024 and 2023-2025 performance periods, respectively. At February 25, 2023, there was $ 9.7 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 23 months. The total fair value of shares vested during fiscal February 25, 2023 was $ 4.5 million. 13. Income Taxes Earnings before income taxes consisted of the following: (In thousands) 2023 2022 2021 United States $ 126,859 $ 70,039 $ 45,651 International ( 10,238 ) ( 56,170 ) ( 23,040 ) Earnings before income taxes $ 116,621 $ 13,869 $ 22,611 57 Table of Contents The components of income tax expense for each of the last three fiscal years are as follows: (In thousands) 2023 2022 2021 Current Federal $ 9,621 $ 13,806 $ 11,495 State and local 7,670 4,823 702 International 231 39 1,642 Total current 17,522 18,668 13,839 Deferred Federal ( 5,120 ) ( 1,528 ) ( 2,860 ) State and local ( 2,487 ) ( 4,270 ) 538 International 422 ( 2,158 ) ( 4,138 ) Total deferred ( 7,185 ) ( 7,956 ) ( 6,460 ) Total non-current tax (benefit) expense 2,177 ( 329 ) ( 204 ) Total income tax expense $ 12,514 $ 10,383 $ 7,175 Income tax payments, net of refunds, were $ 27.4 million, $ 8.2 million and $ 14.1 million in fiscal 2023, 2022 and 2021, respectively. The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates: 2023 2022 2021 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of federal tax benefit 3.5 16.4 ( 2.5 ) Foreign tax rate differential ( 0.2 ) ( 15.4 ) ( 3.4 ) Nondeductible goodwill impairment expense — — 5.6 Valuation allowance ( 4.7 ) 63.2 11.4 Nontaxable gain (loss) on life insurance policies 0.2 1.2 ( 1.8 ) Deduction for foreign derived intangible income ( 0.2 ) ( 2.6 ) ( 0.8 ) Research & development tax credit ( 1.5 ) ( 9.4 ) ( 5.3 ) §162(m) Executive Compensation Limitation 0.8 3.5 3.6 Tax benefit of share based awards ( 0.8 ) ( 5.2 ) 0.2 Worthless stock deduction ( 6.0 ) — — Other, net ( 1.4 ) 2.2 3.7 Consolidated effective income tax rate 10.7 % 74.9 % 31.7 % The estimated effective tax rate for fiscal 2023 decreased 64.2 percentage points from fiscal 2022, primarily due to the non-deductible intangible impairment charge in Canada in fiscal 2022 as well as the tax benefits claimed in fiscal 2023 related to a worthless stock loss deduction related to the Company's investment in Sotawall Limited, a Canadian subsidiary. Deferred tax assets and deferred tax liabilities at February 25, 2023 and February 26, 2022 were: (In thousands) 2023 2022 Deferred tax assets Accrued expenses $ 1,862 $ 3,515 Deferred compensation 9,666 8,602 Section 174 capitalized costs 12,222 — Goodwill and other intangibles 4,316 13,237 Liability for unrecognized tax benefits 1,884 1,965 Unearned income 11,007 9,802 Operating lease liabilities 13,639 13,769 58 Table of Contents (In thousands) 2023 2022 Net operating losses and tax credits 11,459 8,580 Other 3,656 4,986 Total deferred tax assets 69,711 64,456 Less: valuation allowance ( 9,048 ) ( 15,370 ) Deferred tax assets, net of valuation allowance 60,663 49,086 Deferred tax liabilities Depreciation 21,965 26,095 Operating lease, right-of-use assets 12,660 12,768 Bad debt 8,262 — Prepaid expenses 2,467 3,015 Other 3,546 3,074 Total deferred tax liabilities 48,900 44,952 Net deferred tax assets (liabilities) $ 11,763 $ 4,134 The Company has state and foreign net operating loss carryforwards with a tax effect of $ 11.5 million. A valuation allowance of $ 8.4 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods. The Tax Cuts and Jobs Act of 2017 ("TCJA") requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code ("IRC") Section 174. Although Congress may consider legislation that would defer capitalization and amortization requirements to later years, we have no assurance that the requirement will be repealed or otherwise modified. The requirement was effective for the company beginning 2/27/2022. For the tax year ended 2/25/2023, the Company recorded an increase to income tax payable as well as deferred tax assets of approximately $ 12.2 million due to Section 174 capitalization. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing Deferred Tax Assets ("DTAs"). This has resulted in valuation allowances being recorded against DTAs in prior years in Brazil, Canada and various states. During the second quarter of fiscal 2023, the Company recorded a worthless stock deduction related to the Sotawall business. Additionally, the Company concluded that a portion of the Canadian DTAs were more likely than not to be realized. The related valuation allowance was reduced by $ 8.3 million, as we expect to realize this amount in the future. The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2020, or state and local income tax examinations for years prior to fiscal 2013. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2019, and there is very limited audit activity of the Company’s income tax returns in U.S. state jurisdictions or international jurisdictions. The Company considers the earnings of its non-U.S. subsidiaries to be indefinitely invested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to increase the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the U.S. If we were to prevail on all unrecognized tax benefits recorded, $ 3.8 million, $ 1.7 million and $ 2.2 million for fiscal 2023, 2022 and 2021, respectively, would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2023, 2022 and 2021 are $ 1.5 million, $ 1.7 million, and $ 1.6 million, respectively, of tax benefits that, if recognized, would result in decreases to deferred taxes. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. For fiscal 2023, 2022 and 2021, we accrued penalties and interest related to unrecognized tax benefits of $ 0.4 million, $ 0.3 million, and $ 0.3 million, respectively. 59 Table of Contents The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits: (In thousands) 2023 2022 2021 Gross unrecognized tax benefits at beginning of year $ 3,321 $ 3,755 $ 4,071 Gross increases in tax positions for prior years 2,298 108 106 Gross decreases in tax positions for prior years ( 255 ) ( 145 ) ( 351 ) Gross increases based on tax positions related to the current year 291 420 429 Gross decreases based on tax positions related to the current year ( 27 ) — — Settlements — ( 147 ) ( 96 ) Statute of limitations expiration ( 316 ) ( 670 ) ( 404 ) Gross unrecognized tax benefits at end of year $ 5,312 $ 3,321 $ 3,755 14. Earnings per Share Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding, including the dilutive effects of stock options, SARs and nonvested shares. The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share: (In thousands) 2023 2022 2021 Basic earnings per share - weighted average common shares outstanding 22,007 24,920 25,955 Weighted average effect of nonvested share grants and assumed exercise of stock options 409 372 349 Diluted earnings per share - weighted average common shares and potential common shares outstanding 22,416 25,292 26,304 Stock awards excluded from the calculation of earnings per share because the award price was greater than the average market price of the common shares 97 1 111 15. Business Segment Data We have four reporting segments: • The Architectural Framing Systems segment designs, engineers, fabricates and finishes the aluminum window, curtainwall, storefront and entrance systems for the exterior of buildings. • The Architectural Services segment integrates technical services, project management, and field installation services to design, engineer, fabricate, and install building glass and curtainwall systems. • The Architectural Glass segment coats and fabricates high-performance glass used in custom window and wall systems on commercial buildings. • The Large-Scale Optical (LSO) segment manufactures high-performance glazing products for the custom framing, fine art, and engineered optics markets. 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 segment results for fiscal 2022 and 2021 were recast for comparability. (In thousands) 2023 2022 2021 Net Sales Architectural Framing Systems $ 649,778 $ 546,557 $ 508,770 Architectural Services 410,627 407,421 358,685 Architectural Glass 316,554 309,241 330,256 Large-Scale Optical 104,215 101,673 70,050 Intersegment elimination ( 40,478 ) ( 50,915 ) ( 36,987 ) Total $ 1,440,696 $ 1,313,977 $ 1,230,774 60 Table of Contents (In thousands) 2023 2022 2021 Operating Income (Loss) Architectural Framing Systems $ 81,875 $ 38,088 $ ( 29,030 ) Architectural Services 18,140 ( 22,071 ) 15,451 Architectural Glass 28,610 1,785 18,678 Large-Scale Optical 25,348 23,618 31,203 Corporate and other ( 28,185 ) ( 19,375 ) ( 10,775 ) Total $ 125,788 $ 22,045 $ 25,527 Depreciation and Amortization Architectural Framing Systems $ 19,386 $ 20,361 $ 21,532 Architectural Services 3,953 7,495 7,196 Architectural Glass 11,964 14,564 15,102 Large-Scale Optical 3,088 3,185 3,338 Corporate and other 4,012 4,388 4,272 Total $ 42,403 $ 49,993 $ 51,440 Capital Expenditures Architectural Framing Systems $ 11,432 $ 7,344 $ 9,871 Architectural Services 3,683 3,449 1,516 Architectural Glass 5,613 5,865 9,574 Large-Scale Optical 13,474 2,250 869 Corporate and other 10,975 2,933 4,335 Total $ 45,177 $ 21,841 $ 26,165 Identifiable Assets Architectural Framing Systems $ 426,946 $ 414,012 $ 396,664 Architectural Services 141,840 114,120 194,409 Architectural Glass 207,730 225,362 271,520 Large-Scale Optical 69,035 56,926 64,474 Corporate and other 69,814 77,443 88,032 Total $ 915,365 $ 887,863 $ 1,015,099 Due to the varying combinations and integration of individual window, storefront and curtainwall systems, it is impractical to report product revenues generated by class of product beyond the segment revenues currently reported. Segment operating income is equal to net sales less cost of sales and operating expenses. Operating income does not include interest expense or a provision for income taxes. Architectural Services segment results include $ 49.5 million and $ 17.1 million of impairment charges in fiscal 2022 and fiscal 2021, respectively. Architectural Framing Systems segment results include $ 53.0 million of impairment charges in fiscal 2021 and $ 1.7 million of restructuring charges in fiscal 2022, with no impairment or restructuring charges included in fiscal 2023. Architectural Glass segment results include $ 0.1 million and $ 27.1 million of restructuring charges in fiscal 2023 and fiscal 2022, respectively. Corporate and other includes miscellaneous corporate activity, including certain legal, consulting and advisory costs and certain employee benefit costs not allocable to our segments, as well as $ 1.7 million of restructuring charges in fiscal 2022. Identifiable assets for Corporate and other include all short- and long-term available-for-sale securities. The following table presents net sales, based on the location in which the sale originated, and long-lived assets, representing property, plant and equipment, net of related depreciation, by geographic region. (In thousands) 2023 2022 2021 Net Sales United States $ 1,301,168 $ 1,194,141 $ 1,115,872 Canada 120,565 102,027 102,721 Brazil 18,963 17,809 12,181 Total $ 1,440,696 $ 1,313,977 $ 1,230,774 61 Table of Contents (In thousands) 2023 2022 2021 Long-Lived Assets United States $ 239,847 $ 239,264 $ 285,007 Canada 6,330 7,742 9,707 Brazil 2,690 2,989 3,729 Total $ 248,867 $ 249,995 $ 298,443 Apogee's export net sales from U.S. operations were $ 56.2 million, $ 59.5 million, and $ 33.1 million in fiscal 2023, 2022, and 2021, respectively, representing approximately 4 percent of consolidated net sales in each of these fiscal years. 16. Restructuring 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 concentrate this segment on premium, high-performance products. Additionally, employee termination costs were incurred related to these facility closures, realignment of the Architectural Framing Systems segment, and within the Corporate office. During the fourth quarter of fiscal 2022, as a result of the announced restructuring plan, we sold a building in Statesboro, Georgia within our Architectural Glass segment for $ 29.1 million. The carrying value of the building was $ 9.4 million, and we recognized a gain on this sale of approximately $ 19.5 million, net of associated transaction costs, which is included as a reduction of cost of sales within our consolidated statements of operations. During the first quarter of fiscal 2023, we completed the execution of these plans with the sale of the remaining manufacturing assets at our Architectural Glass location, in Dallas, Texas, for $ 4.1 million. The remaining assets had a carrying value of $ 3.4 million, and we recognized a gain on the sale of approximately $ 0.6 million, net of associated transaction costs, which is included as a reduction of cost of sales within our consolidated statements of operations. For the year ended February 25, 2023, we incurred $ 0.1 million of additional pre-tax costs associated with the finalization of these restructuring plans. For the year ended February 26, 2022, we incurred $ 30.5 million of pre-tax costs associated with the execution of these restructuring plans, of which $ 28.2 million is included within cost of sales and $ 2.3 million is included within selling, general and administrative expenses, excluding the gain on sale mentioned above, within our consolidated statements of operations. (In thousands) Architectural Framing Architectural Glass Corporate & Other Total February 25, 2023 Termination benefits — 116 — 116 Total restructuring charges $ — $ 116 $ — $ 116 February 26, 2022 Asset impairment on property, plant and equipment $ 54 $ 21,443 $ — $ 21,497 Termination benefits 1,435 3,718 1,039 6,192 Other restructuring charges 244 1,935 644 2,823 Total restructuring charges $ 1,733 $ 27,096 $ 1,683 $ 30,512 62 Table of Contents The following table summarizes our restructuring related accrual balances included within accrued payroll and related benefits and other current liabilities in the consolidated balance sheets. All remaining balances are expected to be paid within fiscal 2024. (In thousands) Architectural Framing Architectural Glass Corporate & Other Total Balance at February 27, 2021 $ 2,872 $ 230 $ 161 $ 3,263 Restructuring expense 2,000 1,036 1,039 4,075 Payments ( 3,567 ) ( 529 ) ( 972 ) ( 5,068 ) Other adjustments ( 865 ) — — ( 865 ) Balance at February 26, 2022 $ 440 $ 737 $ 228 $ 1,405 Restructuring expense — 116 — 116 Payments ( 227 ) ( 813 ) ( 214 ) ( 1,254 ) Other adjustments ( 151 ) ( 17 ) ( 14 ) ( 182 ) Balance at February 25, 2023 62 23 — 85 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.