APOGEE ENTERPRISES, INC. 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except stock data) November 25, 2023 February 25, 2023 Assets Current assets Cash and cash equivalents $ 23,407 $ 19,924 Restricted cash — 1,549 Receivables, net 198,249 197,267 Inventories 70,267 78,441 Contract assets 48,146 59,403 Other current assets 32,390 26,517 Total current assets 372,459 383,101 Property, plant and equipment, net of accumulated depreciation of $ 454,659 and $ 431,710 246,206 248,867 Operating lease right-of-use assets 38,849 41,354 Goodwill 129,053 129,026 Intangible assets, net 64,174 67,375 Other non-current assets 44,114 45,642 Total assets $ 894,855 $ 915,365 Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 83,107 $ 86,549 Accrued compensation and benefits 42,768 51,651 Contract liabilities 35,770 28,011 Operating lease liabilities 12,358 11,806 Other current liabilities 62,572 64,532 Total current liabilities 236,575 242,549 Long-term debt 100,666 169,837 Non-current operating lease liabilities 29,547 33,072 Non-current self-insurance reserves 31,830 29,316 Other non-current liabilities 40,506 44,183 Commitments and contingent liabilities (Note 7) Shareholders’ equity Common stock of $ 0.33 -1/3 par value; authorized 50,000,000 shares; issued and outstanding 22,085,098 and 22,224,299 , respectively 7,362 7,408 Additional paid-in capital 149,557 146,816 Retained earnings 329,936 273,740 Accumulated other comprehensive loss ( 31,124 ) ( 31,556 ) Total shareholders’ equity 455,731 396,408 Total liabilities and shareholders’ equity $ 894,855 $ 915,365 See accompanying notes to consolidated financial statements. 4 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended (In thousands, except per share data) November 25, 2023 November 26, 2022 November 25, 2023 November 26, 2022 Net sales $ 339,714 $ 367,847 $ 1,055,102 $ 1,096,591 Cost of sales 249,409 281,239 776,440 839,430 Gross profit 90,305 86,608 278,662 257,161 Selling, general and administrative expenses 52,658 51,847 166,695 157,112 Operating income 37,647 34,761 111,967 100,049 Interest expense, net 1,454 2,590 5,720 5,494 Other expense (income), net 890 552 ( 3,722 ) 2,035 Earnings before income taxes 35,303 31,619 109,969 92,520 Income tax expense 8,329 7,854 26,092 8,635 Net earnings $ 26,974 $ 23,765 $ 83,877 $ 83,885 Basic earnings per share $ 1.24 $ 1.09 $ 3.83 $ 3.81 Diluted earnings per share $ 1.23 $ 1.07 $ 3.80 $ 3.74 Weighted average basic shares outstanding 21,819 21,870 21,889 22,043 Weighted average diluted shares outstanding 22,013 22,278 22,093 22,456 See accompanying notes to consolidated financial statements. 5 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited) Three Months Ended Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 November 25, 2023 November 26, 2022 Net earnings $ 26,974 $ 23,765 $ 83,877 $ 83,885 Other comprehensive (loss) earnings: Unrealized (loss) gain on marketable securities, net of $( 2 ), $( 24 ), $ 23 and $( 127 ) of tax (benefit) expense, respectively ( 7 ) ( 88 ) 86 ( 470 ) Unrealized gain (loss) on derivative instruments, net of $ 56 , $ 277 , $ 1 and $( 1,192 ) of tax expense (benefit), respectively 186 905 6 ( 3,911 ) Foreign currency translation adjustments ( 604 ) ( 1,295 ) 340 ( 2,340 ) Other comprehensive (loss) earnings ( 425 ) ( 478 ) 432 ( 6,721 ) Total comprehensive earnings $ 26,549 $ 23,287 $ 84,309 $ 77,164 See accompanying notes to consolidated financial statements. 6 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 Operating Activities Net earnings $ 83,877 $ 83,885 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 31,185 31,925 Share-based compensation 6,644 5,961 Deferred income taxes 1,296 2,341 Gain on disposal of assets ( 50 ) ( 1,484 ) Proceeds from New Markets Tax Credit transaction, net of deferred costs — 18,390 Settlement of New Markets Tax Credit transaction ( 4,687 ) ( 19,523 ) Noncash lease expense 8,742 8,924 Other, net 10 4,700 Changes in operating assets and liabilities: Receivables ( 846 ) ( 55,791 ) Inventories 8,256 ( 5,822 ) Contract assets 11,194 ( 8,314 ) Accounts payable ( 1,902 ) ( 19,780 ) Accrued expenses ( 7,015 ) 7,281 Contract liabilities 7,635 24,702 Refundable and accrued income taxes ( 7,587 ) ( 14,391 ) Operating lease liability ( 9,214 ) ( 9,168 ) Prepaid expenses and other current assets 1,714 ( 2,724 ) Net cash provided by operating activities 129,252 51,112 Investing Activities Capital expenditures ( 26,956 ) ( 18,119 ) Proceeds from sales of property, plant and equipment 247 5,212 Purchases of marketable securities ( 969 ) — Sales/maturities of marketable securities 1,370 923 Net cash used by investing activities ( 26,308 ) ( 11,984 ) Financing Activities Borrowings on line of credit 195,851 430,879 Repayment on debt — ( 151,000 ) Payments on line of credit ( 265,000 ) ( 239,000 ) Payments on debt issuance costs — ( 790 ) Repurchase and retirement of common stock ( 11,821 ) ( 74,312 ) Dividends paid ( 15,690 ) ( 14,415 ) Other, net ( 3,781 ) ( 2,959 ) Net cash used by financing activities ( 100,441 ) ( 51,597 ) Increase (decrease) in cash, cash equivalents and restricted cash 2,503 ( 12,469 ) Effect of exchange rates on cash ( 569 ) 350 Cash, cash equivalents and restricted cash at beginning of year 21,473 37,583 Cash and cash equivalents at end of period $ 23,407 $ 25,464 Noncash Activity Capital expenditures in accounts payable $ 1,231 $ 1,557 See accompanying notes to consolidated financial statements. 7 Table of Contents CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (In thousands) Common Shares Outstanding Common Stock at Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders' Equity Balance at February 25, 2023 22,224 $ 7,408 $ 146,816 $ 273,740 $ ( 31,556 ) $ 396,408 Net earnings — — — 23,576 — 23,576 Other comprehensive income, net of tax — — — — 159 159 Issuance of stock, net of cancellations 155 52 13 ( 9 ) — 56 Share-based compensation — — 2,178 — — 2,178 Share repurchases ( 120 ) ( 40 ) ( 829 ) ( 4,324 ) — ( 5,193 ) Other share retirements ( 40 ) ( 14 ) ( 281 ) ( 1,438 ) — ( 1,733 ) Cash dividends — — — ( 5,245 ) — ( 5,245 ) Balance at May 27, 2023 22,219 $ 7,406 $ 147,897 $ 286,300 $ ( 31,397 ) $ 410,206 Net earnings — — — 33,327 — 33,327 Other comprehensive income, net of tax — — — — 697 697 Issuance of stock, net of cancellations ( 3 ) ( 1 ) 7 ( 195 ) — ( 189 ) Share-based compensation — — 2,305 — — 2,305 Exercise of stock options 25 8 ( 1,192 ) — — ( 1,184 ) Share repurchases ( 160 ) ( 53 ) ( 1,160 ) ( 5,415 ) — ( 6,628 ) Other share retirements ( 9 ) ( 3 ) ( 444 ) ( 547 ) — ( 994 ) Cash dividends — — — ( 5,222 ) — ( 5,222 ) Balance at August 26, 2023 22,072 $ 7,357 $ 147,413 $ 308,248 $ ( 30,700 ) $ 432,318 Net earnings — — — 26,974 — 26,974 Other comprehensive income, net of tax — — — — ( 424 ) ( 424 ) Issuance of stock, net of cancellations 15 6 ( 5 ) — — 1 Share-based compensation — — 2,161 — — 2,161 Other share retirements ( 2 ) ( 1 ) ( 12 ) ( 64 ) — ( 77 ) Cash dividends — — — ( 5,222 ) — ( 5,222 ) Balance at November 25, 2023 22,085 $ 7,362 $ 149,557 $ 329,936 $ ( 31,124 ) $ 455,731 See accompanying notes to consolidated financial statements. 8 Table of Contents CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (In thousands) Common Shares Outstanding Common Stock at Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders' Equity Balance at February 26, 2022 23,701 $ 7,901 $ 149,713 $ 254,825 $ ( 26,240 ) $ 386,199 Net earnings — — — 22,731 — 22,731 Other comprehensive loss, net of tax — — — — ( 2,860 ) ( 2,860 ) Issuance of stock, net of cancellations 100 33 23 — — 56 Share-based compensation — — 1,597 — — 1,597 Share repurchases ( 1,571 ) ( 524 ) ( 10,350 ) ( 63,438 ) — ( 74,312 ) Other share retirements ( 30 ) ( 10 ) ( 198 ) ( 1,120 ) — ( 1,328 ) Cash dividends — — — ( 4,793 ) — ( 4,793 ) Balance at May 28, 2022 22,200 $ 7,400 $ 140,785 $ 208,205 $ ( 29,100 ) $ 327,290 Net earnings — — — 37,389 — 37,389 Other comprehensive loss, net of tax — — — — ( 3,383 ) ( 3,383 ) Issuance of stock, net of cancellations ( 14 ) ( 5 ) 61 — — 56 Share-based compensation — — 1,797 — — 1,797 Exercise of stock options 36 12 ( 954 ) — — ( 942 ) Other share retirements ( 13 ) ( 4 ) ( 114 ) ( 540 ) — ( 658 ) Cash dividends — — — ( 4,809 ) — ( 4,809 ) Balance at August 27, 2022 22,209 $ 7,403 $ 141,575 $ 240,245 $ ( 32,483 ) $ 356,740 Net earnings — — — 23,765 — 23,765 Other comprehensive loss, net of tax — — — — ( 478 ) ( 478 ) Issuance of stock, net of cancellations 9 3 250 ( 196 ) — 57 Share-based compensation — — 2,567 — — 2,567 Other share retirements ( 4 ) ( 1 ) ( 34 ) ( 165 ) — ( 200 ) Cash dividends — — — ( 4,813 ) — ( 4,813 ) Balance at November 26, 2022 22,214 $ 7,405 $ 144,358 $ 258,836 $ ( 32,961 ) $ 377,638 See accompanying notes to consolidated financial statements. 9 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies Basis of presentation The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States. The information included in this Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended February 25, 2023. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and nine-month periods ended November 25, 2023 are not necessarily indicative of the results to be expected for the full year. Reclassifications Certain reclassifications of amounts previously reported have been made to the accompanying consolidated balance sheets, consolidated statements of cash flows and notes to consolidated financial statements to conform to current year presentation of contract assets and liabilities. These reclassifications had no impact on reported cash flows or total assets and liabilities. Adoption of new accounting standards In the first quarter, we adopted the guidance in ASU 2022-04, Liabilities – Supplier Finance Programs, Disclosure of Supplier Finance Program Obligations. The guidance requires that entities that use supplier finance programs disclose information about the nature and potential magnitude of the programs, activity during the period, and changes from period to period. Beginning in the first quarter, we implemented a supplier financing arrangement with U.S. Bank that enables our suppliers, at their sole discretion, to sell the Company's receivables (i.e., our payment obligations to the suppliers) to U.S. Bank on a non-recourse basis in order to be paid earlier than our payment terms provide. Our suppliers’ voluntary inclusion of invoices in the supplier financing arrangement has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the supplier financing program, and we do not provide any guarantees in connection with it. As of November 25, 2023, $ 7.8 million of obligations remained outstanding that we have confirmed as valid to the administrators of our program with U.S. Bank. These balances are reflected in accounts payable in the consolidated balance sheets and are reflected in net cash provided (used by) operating activities in our consolidated statements of cash flows when settled. 2. Revenue, Receivables and Contract Assets and Liabilities Revenue The following table disaggregates total revenue by timing of recognition (see Note 11 for disclosure of revenue by segment): Three Months Ended Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 November 25, 2023 November 26, 2022 Recognized at shipment $ 144,910 $ 168,593 $ 449,805 $ 504,450 Recognized over time 194,804 199,254 605,297 592,141 Total $ 339,714 $ 367,847 $ 1,055,102 $ 1,096,591 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. (In thousands) November 25, 2023 February 25, 2023 Trade accounts $ 113,016 $ 140,732 Construction contracts 88,007 58,331 Total receivables 201,023 199,063 Less: allowance for credit losses 2,774 1,796 Receivables, net $ 198,249 $ 197,267 10 Table of Contents The following table summarizes the activity in the allowance for credit losses for the nine-month period ended: (In thousands) November 25, 2023 Beginning balance $ 1,796 Additions charged to costs and expenses 1,256 Deductions from allowance, net of recoveries ( 281 ) Foreign currency effects 3 Ending balance $ 2,774 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. 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 to us from the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts. The time period between when performance obligations are complete and payment is due is not significant. In certain parts of our business that recognize revenue over time, progress billings follow an agreed-upon schedule of values. The changes in contract assets and contract liabilities were mainly due to timing of project activity within our businesses that operate under long-term contracts. Other contract-related disclosures Three Months Ended Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 November 25, 2023 November 26, 2022 Revenue recognized related to contract liabilities from prior year-end $ 191 $ 3,473 $ 25,147 $ 36,630 Revenue recognized related to prior satisfaction of performance obligations 730 4,640 5,634 9,586 Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that time frame. Generally, these contracts are found in our businesses that typically operate with long-term contracts, which recognize revenue over time. The transaction prices associated with unsatisfied performance obligations at November 25, 2023 are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods: (In thousands) November 25, 2023 Within one year $ 456,880 Between one and two years 315,667 Beyond two years 75,170 Total $ 847,717 3. Inventories Inventories (In thousands) November 25, 2023 February 25, 2023 Raw materials $ 34,535 $ 36,869 Work-in-process 17,256 18,024 Finished goods 18,476 23,548 Total inventories $ 70,267 $ 78,441 11 Table of Contents 4. Financial Instruments Marketable securities Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), w e hold the following available-for-sale marketable securities, made up of fixed-maturity investments: (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value November 25, 2023 $ 10,168 $ 3 $ 597 $ 9,574 February 25, 2023 10,647 — 702 9,945 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 these investments at November 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. (In thousands) Amortized Cost Estimated Fair Value Due within one year $ 2,439 $ 2,406 Due after one year through five years 7,729 7,168 Total $ 10,168 $ 9,574 Derivative instruments We use interest rate swaps, foreign exchange contracts, commodity 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 exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility. As of November 25, 2023, the interest rate swap contract had a notional value of $ 30.0 million and has a maturity date of February 5, 2026. We periodically enter into forward purchase contracts and/or fixed/floating swaps to manage the risk associated with fluctuations in aluminum prices and fluctuations in foreign exchange rates. These contracts generally have an original maturity date of less than one year. As of November 25, 2023, we held aluminum fixed/floating swaps and foreign exchange contracts with U.S. dollar notional values of $ 14.9 million and $ 0.8 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 income. 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 financial assets or liabilities. 12 Table of Contents (In thousands) Quoted Prices in Active Markets (Level 1) Other Observable Inputs (Level 2) Total Fair Value November 25, 2023 Assets: Money market funds $ 13,262 $ — $ 13,262 Municipal and corporate bonds — 9,574 9,574 Foreign currency option contract — 3 3 Interest rate swap contract — 1,550 1,550 Liabilities: Aluminum hedging contract — 724 724 February 25, 2023 Assets: Money market funds $ 8,062 $ — $ 8,062 Municipal and corporate bonds — 9,945 9,945 Interest rate swap contract — 1,817 1,817 Liabilities: Foreign currency option contract — 206 206 Aluminum hedging contract — 1,075 1,075 5. Goodwill and Other Intangible Assets Goodwill Goodwill represents the excess of the cost over the value of 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 that the carrying value of goodwill may not be recoverable. 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, which resulted in the combination of the Sotawall and Harmon reporting units into a single reporting unit. We evaluated goodwill on a qualitative basis prior to and subsequent to this change for these reporting units and concluded that no adjustment to the carrying value of goodwill was necessary. Concurrent with the move of Sotawall from the Architectural Framing Systems segment to the Architectural Services segment effective at the start of our first quarter of fiscal 2023, goodwill was reallocated to the affected reporting units within each segment, using a relative fair value approach as outlined in ASC 350, Intangibles - Goodwill and Other . During the third quarter of fiscal 2024, we did not identify any qualitative indicators of impairment at any of our reporting units, and therefore, no interim quantitative goodwill impairment evaluation was performed. The following table presents the carrying amount of goodwill attributable to each reporting segment including the amount of goodwill that was reallocated from the Architectural Framing Systems segment to the Architectural Services segment using the relative fair value approach during the first quarter of fiscal 2023: (In thousands) Architectural Framing Systems Architectural Glass Architectural Services Large-Scale Optical Total Balance at February 26, 2022 $ 93,181 $ 25,244 $ 1,120 $ 10,557 $ 130,102 Reallocation among reporting units (1) ( 2,048 ) — 2,048 — — Foreign currency translation ( 996 ) 57 ( 137 ) — ( 1,076 ) Balance at February 25, 2023 90,137 25,301 3,031 10,557 129,026 Foreign currency translation ( 28 ) 59 ( 4 ) — 27 Balance at November 25, 2023 $ 90,109 $ 25,360 $ 3,027 $ 10,557 $ 129,053 (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. 13 Table of Contents Other intangible assets 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. During the third quarter of fiscal 2024, we did not identify any qualitative indicators of impairment at any of our reporting units, and therefore, no interim quantitative intangible impairment evaluation was performed. Definite-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. The gross carrying amount of other intangible assets and related accumulated amortization was: (In thousands) Gross Carrying Amount Accumulated Amortization Foreign Currency Translation Net November 25, 2023 Definite-lived intangible assets: Customer relationships $ 86,798 $ ( 52,130 ) $ ( 15 ) $ 34,653 Other intangibles 38,360 ( 35,706 ) 25 2,679 Total 125,158 ( 87,836 ) 10 37,332 Indefinite-lived intangible assets: Trademarks 26,851 — ( 9 ) 26,842 Total intangible assets $ 152,009 $ ( 87,836 ) $ 1 $ 64,174 February 25, 2023 Definite-lived intangible assets: Customer relationships $ 89,495 $ ( 49,404 ) $ ( 2,697 ) $ 37,394 Other intangibles 39,404 ( 35,229 ) ( 1,045 ) 3,130 Total 128,899 ( 84,633 ) ( 3,742 ) 40,524 Indefinite-lived intangible assets: Trademarks 27,129 — ( 278 ) 26,851 Total intangible assets $ 156,028 $ ( 84,633 ) $ ( 4,020 ) $ 67,375 Amortization expense on definite-lived intangible assets was $ 3.0 million and $ 3.1 million for the nine-month periods ended November 25, 2023 and November 26, 2022, respectively. Amortization expense of other identifiable intangible assets is included in selling, general and administrative expenses. At November 25, 2023, the estimated future amortization expense for definite-lived intangible assets was: (In thousands) Remainder of 2024 2025 2026 2027 2028 Estimated amortization expense $ 1,058 $ 4,240 $ 4,223 $ 4,391 $ 3,936 6. Debt As of November 25, 2023, we had a committed revolving credit facility with Wells Fargo Bank, N.A. as administrative agent, and other lenders (U.S. credit facility) with maximum borrowings of up to $ 385 million and a maturity date of August 5, 2027. Outstanding borrowings under the revolving credit facility were $ 85.0 million and $ 156.0 million as of November 25, 2023 and February 25, 2023, respectively. We also maintain two Canadian committed, revolving credit facilities with the Bank of Montreal totaling $ 25.0 million USD (Canadian facilities). The Canadian facilities expire annually in February, but can be renewed each year solely at our discretion until August 2027. Therefore, we have classified all outstanding amounts under these facilities as long-term debt within our consolidated balance sheets. At November 25, 2023 and February 25, 2023, outstanding borrowings under these Canadian facilities were $ 3.7 million and $ 1.8 million, respectively. 14 Table of Contents Our revolving credit facilities contain two maintenance financial covenants that require us to stay below a maximum debt-to-EBITDA ratio of 3.25 and maintain a minimum ratio of EBITDA-to-interest expense of 3.00. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At November 25, 2023, we were in compliance with both financial covenants. The revolving credit facilities also contain an acquisition holiday. In the event we make an acquisition for which the purchase price is greater than $75 million, we can elect to increase the maximum debt-to-EBITDA ratio to 3.75 for a period of four consecutive fiscal quarters, commencing with the fiscal quarter in which a qualifying acquisition occurs. No more than two acquisition "holidays" can occur during the term of the facility, and at least two fiscal quarters must separate qualifying acquisitions. Borrowings under the credit facilities bear floating interest at either the Base Rate or Term SOFR, plus a margin based on the Leverage Ratio (as defined in the Credit Agreements). For Base Rate borrowings, the margin ranges from 0.125% to 0.75%. For Term SOFR borrowings, the margin ranges from 1.125% to 1.75% and an incremental Term SOFR adjustment of 0.10%. The U.S. credit facility also contains an "accordion" provision. Under this provision, we can request that the facility be increased by as much as $200.0 million. Any Lender may elect or decline to participate in the requested increase at the Lender’s sole discretion. At November 25, 2023, we had a total of $ 15.0 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal year 2025 and reduce borrowing capacity under the revolving credit facility. As of November 25, 2023, the amount available for revolving borrowings was $ 285.0 million and $ 21.3 million under the U.S. credit facility and Canadian facilities, respectively. At November 25, 2023, debt included $ 12.0 million of industrial revenue bonds that mature in fiscal years 2036 through 2043. The fair value of our U.S. credit facility, Canadian credit facilities and industrial revenue bonds approximated carrying value at November 25, 2023, and would be classified as Level 2 within the fair value hierarchy described in Note 4, due to the variable interest rates on these instruments.. Interest payments under the U.S. and Canadian credit facilities were $ 7.5 million and $ 5.3 million for the nine months ended November 25, 2023 and November 26, 2022, respectively. 7. Commitments and Contingent Liabilities Bond commitments In the ordinary course of business, predominantly in our 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 November 25, 2023, $ 1.3 billion of these types of bonds were outstanding, of which $ 398.4 million is in our backlog. These bonds do not have stated expiration dates. 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 cost, 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 these accruals in any given period include the following: changes in manufacturing quality, changes in product mix, and any significant changes in sales volume. Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 Balance at beginning of period $ 17,893 $ 13,923 Additional accruals 12,743 11,201 Claims paid ( 7,644 ) ( 7,755 ) Balance at end of period $ 22,992 $ 17,369 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 in certain parts of our Architectural Framing Systems businesses. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages. 15 Table of Contents Letters of credit At November 25, 2023, we had $ 15.0 million of ongoing letters of credit, all of which have been issued under our committed revolving credit facility, as discussed in Note 6. Purchase obligations Purchase obligations for raw material commitments and capital expenditures totaled $ 45.0 million as of November 25, 2023. New Markets Tax Credit (NMTC) transactions We have two outstanding NMTC arrangements which help to support operational expansion. Proceeds received from investors on these transactions are included within other non-current liabilities in 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 non-current assets in 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 or for working capital purposes for each project, we are required to hold cash dedicated to fund each project which is classified as restricted cash in 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 second quarter of fiscal 2024, one NMTC transaction was settled as expected and as a result, a $4.7 million benefit was recorded in other (income) expense, net. The table below provides a summary of estimated benefits related to our outstanding NMTC transactions (in thousands): Inception date Termination date Deferred Benefit Deferred costs Net benefit May 2022 (1) August 2025 $ 6,052 $ 1,604 $ 4,448 September 2018 September 2025 $ 3,198 $ 1,031 $ 2,167 Total $ 9,250 $ 2,635 $ 6,615 (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 has appealed 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. 8. Share-Based Compensation As part of our compensation structure, we grant stock-based compensation awards to certain employees and non-employee directors during the fiscal year. These awards may be in the form of incentive stock options (to employees only), nonstatutory options, 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 unless the date of the award is on a day the Nasdaq Global Select market is not open for trading, then the exercise price shall equal the fair market value on the most recent preceding date when such market is open. Refer to our Form 10-K for further information on our share-based compensation plans. 16 Table of Contents The table below sets forth the number of stock-based compensation awards granted during the nine-months ended November 25, 2023, along with the weighted average grant date fair value: Awards Number of Awards Weighted Average Exercise Price Restricted stock awards and restricted stock units (1) 195,013 $ 43.16 Performance share units ("PSUs") (2) 48,483 $ 43.59 (1) Represent service condition awards which generally vest over a two- or three-year period. (2) Represent performance condition awards with the grant equal to the target number of performance shares based on the share price at grant date. These grants allow for the right to receive a variable number of shares, between 0% and 200% of target, dependent on achieving a defined performance goal of return on invested capital and being employed at the end of the performance period. Total share-based compensation expense included in the results of operations was $ 6.6 million for the nine-month period ended November 25, 2023, and $ 6.0 million for the nine-month period ended November 26, 2022. At November 25, 2023, there was $ 11.6 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 21 months. The total fair value of shares vested during the nine months ended November 25, 2023 was $ 5.8 million. 9. Income Taxes We file income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, Canada, Brazil and other international jurisdictions. We are 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 2015. We are not currently under U.S. federal examination for years subsequent to fiscal year 2019, and there is very limited examination activity of our income tax returns in U.S. state jurisdictions or international jurisdictions. The total liability for unrecognized tax benefits was $ 5.3 million at November 25, 2023 and February 25, 2023, respectively. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. 10. Earnings per Share The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share (diluted EPS): Three Months Ended Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 November 25, 2023 November 26, 2022 Basic earnings per share – weighted average common shares outstanding 21,819 21,870 21,889 22,043 Weighted average effect of nonvested share grants and assumed exercise of stock options 194 408 204 413 Diluted earnings per share – weighted average common shares and potential common shares outstanding 22,013 22,278 22,093 22,456 Stock awards excluded from the calculation of earnings per share because the effect was anti-dilutive (award price greater than average market price of the shares) 37 109 56 109 11. Business Segment Data We have four reporting segments: • The Architectural Framing Systems segment designs, engineers, fabricates and finishes aluminum window, curtainwall, storefront and entrance systems for the exterior of buildings. • The Architectural Glass segment coats and fabricates, high-performance glass used in custom window and wall systems on commercial 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 Large-Scale Optical (LSO) segment manufactures high-performance glass and acrylic products for custom framing, museum, and technical glass markets. 17 Table of Contents Three Months Ended Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 November 25, 2023 November 26, 2022 Segment net sales Architectural Framing Systems $ 139,585 $ 165,013 $ 462,548 $ 501,172 Architectural Glass 90,964 81,541 282,262 235,158 Architectural Services 94,662 102,031 272,144 312,151 Large-Scale Optical 26,009 26,660 72,110 76,988 Intersegment eliminations ( 11,506 ) ( 7,398 ) ( 33,962 ) ( 28,878 ) Net sales $ 339,714 $ 367,847 $ 1,055,102 $ 1,096,591 Segment operating income (loss) Architectural Framing Systems $ 16,981 $ 22,089 $ 57,986 $ 66,266 Architectural Glass 15,164 7,461 49,119 19,087 Architectural Services 5,288 6,032 8,211 14,449 Large-Scale Optical 7,100 7,109 17,288 19,598 Corporate and other* ( 6,886 ) ( 7,930 ) ( 20,637 ) ( 19,351 ) Operating income $ 37,647 $ 34,761 $ 111,967 $ 100,049 *Corporate and other includes certain corporate expenses that are not allocated at a segment level. 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.