APOGEE ENTERPRISES, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements This Quarterly Report on Form 10-Q, including the section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this document are “forward-looking statements,” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Information about factors that could materially affect our results can be found in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended February 25, 2023 and in subsequent filings with the U.S. Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. We also wish to caution investors that other factors might in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Non-GAAP Measures We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors, and include these measures in other communications to investors. For each of these non-GAAP financial measures, we are providing a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe the non-GAAP measure provides useful information to investors, and any additional material purposes for which our management or Board of Directors uses the non-GAAP measure. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure. Adjusted net earnings and adjusted earnings per diluted share (adjusted diluted EPS) are supplemental non-GAAP financial measures provided by the Company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results. Management uses these non-GAAP 18 Table of Contents measures to evaluate the Company’s historical and prospective financial performance, measure operational profitability on a consistent basis, as a factor in determining executive compensation, and to provide enhanced transparency to the investment community. Overview We are a leader in the design and development of value-added glass and metal products and services. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO). The three key elements of our enterprise strategy are discussed below: 1. Become the economic leader in our target markets. We will attempt to achieve this by developing a deep understanding of our target markets and aligning our businesses with clear go-to-market strategies to drive value for our customers through differentiated product and service offerings. We will also strive to build a relentless focus on operational execution, driving productivity improvements, and maintaining a competitive cost structure, so that we may bring more value to our customers and improve our own profitability. 2. Actively manage our portfolio to drive higher margins and returns. We intend to shift our business mix toward higher operating margin offerings and improve our return on invested capital performance. We plan to accomplish this by allocating resources to grow our top performing businesses, actively addressing underperforming businesses, and investing to add new differentiated product and service offerings to accelerate our growth. 3. Strengthen our core capabilities. We are working to shift from our historical, decentralized operating model, to one with center-led functional expertise that enables us to leverage the scale of the enterprise to better support the needs of the business. We are establishing a Company-wide operating system with common tools and processes that are based on the foundation of Lean and Continuous Improvement, which we are calling "Apogee Management System" or "AMS". We plan to support this through a robust talent management program and a commitment to strong governance to ensure compliance and drive sustainable performance. We have made significant progress toward executing our enterprise strategy and underlying financial targets. We advanced our AMS initiatives, which have resulted in meaningful productivity improvements, particularly in Architectural Glass. We increased our focus on differentiated products and services, and effectively managed pricing to share in the value we delivered for our customers. We have focused on sustainable cost improvements and improvements to quality, service and delivery, while shifting mix toward more differentiated offerings. We integrated the Sotawall business into the Architectural Services segment, in order to create a single, unified offering for larger custom curtainwall projects. We advanced several initiatives to strengthen our core capabilities, driving the standardization of key business processes and systems. We also relaunched our talent development and leadership training programs and added key talent across the organization. The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended February 25, 2023 and the consolidated financial statements, including the notes to consolidated financial statements, included therein. 19 Table of Contents Results of Operations The following tables provide various components of operations as year over year U.S. dollar and percentage change, as well as a percentage of net sales. Three Months Ended % of Net Sales (in thousands, except percentages) November 25, 2023 November 26, 2022 $ Change % Change November 25, 2023 November 26, 2022 Net sales $ 339,714 $ 367,847 $ (28,133) (7.6) % 100.0 % 100.0 % Cost of sales 249,409 281,239 (31,830) (11.3) 73.4 76.5 Gross profit 90,305 86,608 3,697 4.3 26.6 23.5 Selling, general and administrative expenses 52,658 51,847 811 1.6 15.5 14.1 Operating income 37,647 34,761 2,886 8.3 11.1 9.4 Interest expense, net 1,454 2,590 (1,136) (43.9) 0.4 0.7 Other expense, net 890 552 338 61.2 0.3 0.2 Earnings before income taxes 35,303 31,619 3,684 11.7 10.4 8.6 Income tax expense 8,329 7,854 475 6.0 2.5 2.1 Net earnings $ 26,974 $ 23,765 $ 3,209 13.5 % 7.9 % 6.5 % Effective tax rate 23.6 % 24.8 % Nine Months Ended % of Net Sales (in thousands, except percentages) November 25, 2023 November 26, 2022 $ Change % Change November 25, 2023 November 26, 2022 Net sales $ 1,055,102 $ 1,096,591 $ (41,489) (3.8) % 100.0 % 100.0 % Cost of sales 776,440 839,430 (62,990) (7.5) 73.6 76.5 Gross profit 278,662 257,161 21,501 8.4 26.4 23.5 Selling, general and administrative expenses 166,695 157,112 9,583 6.1 15.8 14.3 Operating income 111,967 100,049 11,918 11.9 10.6 9.1 Interest expense, net 5,720 5,494 226 4.1 0.5 0.5 Other (income) expense, net (3,722) 2,035 (5,757) N/M (0.4) 0.2 Earnings before income taxes 109,969 92,520 17,449 18.9 10.4 8.4 Income tax expense 26,092 8,635 17,457 202.2 2.5 0.8 Net earnings $ 83,877 $ 83,885 $ (8) — % 7.9 % 7.6 % Effective tax rate 23.7 % 9.3 % Comparison of Third Quarter Fiscal 2024 to Third Quarter Fiscal 2023 • Consolidated net sales decreased 7.6%, or $28.1 million, to $339.7 million, primarily reflecting lower volumes, partially offset by improved mix and pricing. • Gross profit increased 4.3%, or $3.7 million, and gross margin increased to 26.6%, compared to 23.5%. The improvement in gross margin was primarily driven by higher pricing, improved product mix, lower short-term incentive compensation expense, and lower insurance-related expense, partially offset by the impact of lower volume and a less favorable mix of projects in Architectural Services. • Selling, general and administrative expenses increased $0.8 million to 15.5% of net sales, compared to 14.1%, primarily due to higher salaries and benefits costs, partially offset by lower short-term incentive compensation expense. • Operating income grew 8.3% to $37.6 million, and operating margin increased 170 basis points to 11.1%, primarily driven by improved segment operating margin in Architectural Glass as well as the Architectural Glass segment comprising a higher mix of the consolidated results, partially offset by lower segment operating margin in Architectural Framing Systems. 20 Table of Contents • Interest expense, net was $1.5 million, compared to $2.6 million, reflecting a lower average debt level, partially offset by higher average interest rates. • Income tax expense was $8.3 million, compared to $7.9 million. Comparison of First Nine Months of Fiscal 2024 to First Nine Months of Fiscal 2023 • Consolidated net sales decreased 3.8%, or $41.5 million, to $1.1 billion, primarily reflecting lower volumes in Architectural Framing Systems, Architectural Services and Large-Scale Optical, partially offset by improved mix in the Architectural Glass and Architectural Framing Systems segments, as well as improved pricing in the Architectural Glass segment. • Gross profit increased 8.4%, or $21.5 million, to 26.4% of net sales, compared to 23.5%. The gross margin improvement was primarily driven by higher margins in Architectural Glass, due to increased pricing and mix, as well as lower short-term incentive compensation expense, primarily in Architectural Framing and Architectural Services, and lower insurance-related expense. This was partially offset by the impact of lower volume and a less favorable mix of projects in Architectural Services. • Selling, general and administrative expenses increased $9.6 million to 15.8% of net sales, compared to 14.3%. The increase in expenses was primarily due to increased salaries and benefits and consulting costs, partially offset by lower short-term incentive compensation expense. • Operating income grew 11.9% to $112.0 million, and operating margin increased 150 basis points to 10.6%, primarily driven by improved operating margin in Architectural Glass as well as the Architectural Glass segment comprising a higher mix of the consolidated results. • Interest expense, net was $5.7 million, compared to $5.5 million, reflecting a higher average interest rate, partially offset by a lower average debt level. • Other (income) expense, net included a $4.7 million pre-tax gain related to finalization of a New Markets Tax Credit transaction realized during the second quarter of fiscal 2024. • Income tax expense was $26.1 million, compared to $8.6 million. The prior year period included a $13.7 million tax deduction for a worthless stock loss and related discrete tax benefits. 21 Table of Contents Segment Analysis The following table presents net sales, operating income (loss) and operating margin by segment and consolidated total. Three Months Ended Nine Months Ended (In thousands, except percentages) November 25, 2023 November 26, 2022 % Change November 25, 2023 November 26, 2022 % Change Segment net sales Architectural Framing Systems $ 139,585 $ 165,013 (15.4) % $ 462,548 $ 501,172 (7.7) % Architectural Glass 90,964 81,541 11.6 282,262 235,158 20.0 Architectural Services 94,662 102,031 (7.2) 272,144 312,151 (12.8) Large-Scale Optical 26,009 26,660 (2.4) 72,110 76,988 (6.3) Intersegment eliminations (11,506) (7,398) 55.5 (33,962) (28,878) 17.6 Net sales $ 339,714 $ 367,847 (7.6) % $ 1,055,102 $ 1,096,591 (3.8) % Segment operating income (loss) Architectural Framing Systems $ 16,981 $ 22,089 (23.1) % $ 57,986 $ 66,266 (12.5) % Architectural Glass 15,164 7,461 103.2 49,119 19,087 157.3 Architectural Services 5,288 6,032 (12.3) 8,211 14,449 (43.2) Large-Scale Optical 7,100 7,109 (0.1) 17,288 19,598 (11.8) Corporate and other* (6,886) (7,930) (13.2) (20,637) (19,351) 6.6 Operating income $ 37,647 $ 34,761 8.3 % $ 111,967 $ 100,049 11.9 % Segment operating margin Architectural Framing Systems 12.2 % 13.4 % 12.5 % 13.2 % Architectural Glass 16.7 9.1 17.4 8.1 Architectural Services 5.6 5.9 3.0 4.6 Large-Scale Optical 27.3 26.7 24.0 25.5 Corporate and other N/M N/M N/M N/M Operating income 11.1 % 9.4 % 10.6 % 9.1 % N/M Indicates calculation not meaningful. Architectural Framing Systems Comparison of Third Quarter Fiscal 2024 to Third Quarter Fiscal 2023 • Net sales were $139.6 million, compared to $165.0 million, primarily reflecting lower volume due to slowing demand in our short-cycle business, partially offset by a more favorable sales mix. • Operating income was $17.0 million, or 12.2% of net sales, compared to $22.1 million, or 13.4% of net sales, primarily reflecting the impact of lower volume. This result was partially offset by improved sales mix, improved productivity, and lower short-term incentive compensation-related expenses. Comparison of First Nine Months of Fiscal 2024 to First Nine Months of Fiscal 2023 • Net sales were $462.5 million, compared to $501.2 million, primarily reflecting lower volume, partially offset by more favorable sales mix and improved pricing. • Operating income was $58.0 million, or 12.5% of net sales, compared to $66.3 million, or 13.2% of net sales, primarily driven by the impact of lower volume. This result was partially offset by improved sales mix and lower short-term incentive compensation-related expenses. Architectural Glass Comparison of Third Quarter Fiscal 2024 to Third Quarter Fiscal 2023 • Net sales increased $9.4 million, or 11.6%, primarily driven by improved mix and pricing, reflecting the strategic shift to emphasize premium, high performance products, partially offset by lower volume. 22 Table of Contents • Operating income increased to $15.2 million, or 16.7% of net sales, compared to $7.5 million, or 9.1% of net sales. The higher operating margin improvement was primarily driven by the impact of improved mix and pricing, partially offset by the impact of lower volume and cost inflation. Comparison of First Nine Months of Fiscal 2024 to First Nine Months of Fiscal 2023 • Net sales increased $47.1 million, or 20.0%, driven by improved pricing, a more favorable sales mix, and higher volume, reflecting the segment's strategic shift to emphasize premium, high-performance products. • Operating income increased to $49.1 million, or 17.4% of net sales, compared to $19.1 million, or 8.1% of net sales. The operating margin improvement was primarily driven by improved pricing and mix, partially offset by cost inflation. Architectural Services Comparison of Third Quarter Fiscal 2024 to Third Quarter Fiscal 2023 • Net sales were $94.7 million, compared to $102.0 million, primarily reflecting a less favorable mix of projects in the quarter. • Operating income was $5.3 million, or 5.6% of net sales, compared to $6.0 million, or 5.9% of net sales. The change in operating margin was primarily driven by a less favorable mix of projects, partially offset by lower short-term incentive compensation expense. Comparison of First Nine Months of Fiscal 2024 to First Nine Months of Fiscal 2023 • Net sales were $272.1 million, compared to $312.2 million, primarily reflecting lower project volume due to a higher mix of projects in earlier stages of completion and a less favorable mix of projects. • Operating income was $8.2 million, or 3.0% of net sales, compared to $14.4 million, or 4.6% of net sales. The decline in operating margin was primarily driven by lower project volume due to a higher mix of projects in earlier stages of completion and a less favorable mix of project, partially offset by lower short-term incentive compensation expense . Large-Scale Optical (LSO) Comparison of Third Quarter Fiscal 2024 to Third Quarter Fiscal 2023 • LSO net sales were $26.0 million, compared to $26.7 million, primarily reflecting lower volume from slower retail demand, partially offset by a more favorable mix and pricing. • Operating income was $7.1 million, with operating margin improving to 27.3% of net sales, compared to 26.7% due to favorable mix and pricing. Comparison of First Nine Months of Fiscal 2024 to First Nine Months of Fiscal 2023 • LSO net sales were $72.1 million, compared to $77.0 million, primarily reflecting lower volume due to customer destocking and slower demand in the retail markets, partially offset by a more favorable mix and pricing. • Operating income was $17.3 million, or 24.0% of net sales, compared to $19.6 million, or 25.5% of net sales, primarily driven by the impact of lower volume, partially offset by more favorable mix and pricing. Corporate and other Comparison of Third Quarter Fiscal 2024 to Third Quarter Fiscal 2023 • Corporate and other expense was $6.9 million, compared to $7.9 million, primarily reflecting lower insurance-related costs. Comparison of First Nine Months of Fiscal 2024 to First Nine Months of Fiscal 2023 • Corporate and other expense was $20.6 million, compared to $19.4 million primarily due to an increase in compensation expense and higher consulting costs, partially offset by lower insurance-related costs. Backlog Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. We view backlog as one indicator of future revenues, particularly in our longer-lead time 23 Table of Contents businesses. In addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog. Architectural Framing Systems As of November 25, 2023, segment backlog was approximately $183.9 million, compared to approximately $197.5 million at the end of the prior quarter, and to approximately $246.2 million at the end of the third quarter of fiscal 2023. The reduction in backlog compared to both periods was primarily driven by a decline in our longer-cycle business, reflecting delays in award activity, and a continued strategic shift in this business toward projects that allow for more attractive margins. Architectural Services As of November 25, 2023, segment backlog was approximately $776.5 million, compared to approximately $674.4 million at the end of the prior quarter, and to approximately $740.9 million at the end of the third quarter of fiscal 2023. The increase in backlog compared to the prior quarter was primarily driven by several large project awards in the current quarter. Net earnings, diluted EPS, adjusted net earnings (non-GAAP), and adjusted diluted EPS (non-GAAP) In order to provide a better understanding of the impact of certain items on our net earnings and diluted EPS, the tables that follow report the comparative impact of certain items on net earnings and diluted EPS for the periods presented below. Adjusted net earnings and adjusted diluted EPS are considered non-GAAP financial measures as contemplated by SEC Regulation G. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Three Months Ended Nine Months Ended (In thousands) November 25, 2023 November 26, 2022 % change November 25, 2023 November 26, 2022 % change Net earnings $ 26,974 $ 23,765 13.5 % $ 83,877 $ 83,885 — % NMTC settlement gain (1) — — (4,687) — Worthless stock deduction and related discrete tax benefits (2) — — — (13,702) Income tax impact on above adjustments — — 1,148 — Adjusted net earnings $ 26,974 $ 23,765 13.5 % $ 80,338 $ 70,183 14.5 % Three Months Ended Nine Months Ended November 25, 2023 November 26, 2022 % change November 25, 2023 November 26, 2022 % change Diluted EPS $ 1.23 $ 1.07 15.0 % $ 3.80 $ 3.74 1.6 % NMTC settlement gain (1) — (0.21) — Worthless stock deduction and related discrete tax benefits (2) — — — (0.61) Income tax impact on above adjustments — — 0.05 — Adjusted diluted EPS $ 1.23 $ 1.07 15.0 % $ 3.64 $ 3.13 16.3 % Weighted average diluted shares outstanding 22,013 22,278 22,093 22,456 (1) Realization of a New Market Tax Credit (NMTC) benefit during the second quarter of fiscal 2024, which was recorded in other (income) expense, net. (2) Worthless stock deduction and related discrete income tax benefits from the impairment of the Sotawall business in fiscal 2023, which were recorded in income tax expense (benefit). Comparison of Third Quarter Fiscal 2024 to Third Quarter Fiscal 2023 • Net earnings were $27.0 million, compared to $23.8 million, driven by higher operating income, lower interest expense and a lower effective tax rate. • Diluted EPS was $1.23, compared to $1.07, due to higher net earnings and lower weighted average diluted shares outstanding. • Adjusted net earnings increased 13.5% to $27.0 million, compared to $23.8 million. Adjusted diluted EPS increased 15.0% to $1.23, compared to $1.07. Comparison of First Nine Months of Fiscal 2024 to First Nine Months of Fiscal 2023 • Net earnings were essentially flat at $83.9 million for both periods driven by higher earnings before taxes, offset by a higher effective tax rate. • Diluted EPS was $3.80, compared to $3.74, due to lower weighted average diluted shares outstanding. 24 Table of Contents • Adjusted net earnings increased 14.5% to $80.3 million, compared to $70.2 million. Adjusted diluted EPS increased 16.3% to $3.64, compared to $3.13. Liquidity and Capital Resources We rely on cash provided by operations for our material cash requirements, including working capital needs, capital expenditures, satisfaction of contractual commitments (including principal and interest payments on our outstanding indebtedness) and shareholder return through dividend payments and share repurchases. Operating Activities. Net cash provided by operating activities was $129.3 million for the first nine months of fiscal 2024, compared to $51.1 million of net cash used by operating activities in the prior year period, primarily driven by favorable working capital changes compared to the prior year. Investing Activities. Net cash used by investing activities was $26.3 million for the first nine months of fiscal 2024, compared to $12.0 million in the prior year, driven primarily by increased capital expenditures primarily to fund strategic investments. Financing Activities. Net cash used by financing activities was $100.4 million for the first nine months of fiscal 2024, compared to net cash used by financing activities of $51.6 million in the prior year period. The increase in cash used for financing activities was primarily driven by higher net debt payments in the current year period. We paid dividends totaling $15.7 million ($0.72 per share) in the first nine months of fiscal 2024, compared to $14.4 million ($0.66 per share) in the comparable prior year period. During the first nine months of fiscal 2024, we repurchased 279,916 shares under our authorized share repurchase program, for a total cost of $11.8 million. In the first nine months of fiscal 2023, we repurchased 1,571,139 shares under the share repurchase program, for a total cost of $74.3 million. The repurchase program does not have an expiration date. Since the inception of the share repurchase program in 2004, we have purchased a total of 11,276,517 shares, at a total cost of $393.5 million. As of November 25, 2023, we had remaining authority to repurchase 2,973,483 shares under this program. We may also elect to repurchase additional shares of common stock under our authorization, subject to limitations contained in our debt agreements and based upon our assessment of a number of factors, including share price, trading volume and general market conditions, working capital requirements, general business conditions, financial conditions, any applicable contractual limitations, and other factors, including alternative investment opportunities. We may finance share repurchases with available cash, additional debt or other sources of financing. Additional Liquidity Considerations. We periodically evaluate our liquidity requirements, cash needs and availability of debt resources relative to acquisition plans, significant capital plans, and other working capital needs. As of the end of the third quarter of fiscal 2024, we had a committed revolving credit facility in the U.S. with maximum borrowings of up to $385 million, with a maturity date of August 5, 2027, and two Canadian committed, revolving credit facilities totaling $25 million (USD). At November 25, 2023, we had outstanding borrowings under our committed, revolving credit facility of $85.0 million, and $3.7 million outstanding under the Canadian committed, revolving credit facilities. We are required to make periodic interest payments on our outstanding indebtedness, and future interest payments will be determined based on the amount of outstanding borrowings and prevailing interest rates during that time. Our revolving credit 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 (which are identical in all three of our revolving credit facilities). 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. facility also contains an "accordion" provision. Under this provision, we can request that the facility be increased by as much $200.0 million. Any Lender may elect or decline to participate in the requested increase at the Lender’s sole discretion. 25 Table of Contents Additionally, 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 U.S. revolving credit facility. As of November 25, 2023, the amount available for revolving borrowings under the U.S credit facility was $285.0 million. We acquire the use of certain assets through operating leases, such as property, manufacturing equipment, vehicles and other equipment. Future payments for such leases, excluding leases with initial terms of one year or less, were $42.7 million at November 25, 2023, with $3.5 million payable during the remainder of fiscal 2024. As of November 25, 2023, we had $45.0 million of open purchase obligations, of which payments totaling $12.2 million are expected to become due during the remainder of fiscal 2024. These purchase obligations primarily relate to raw material commitments and capital expenditures and are not expected to impact future liquidity, as amounts should be recovered through customer billings. We expect to make contributions of $0.7 million to our defined-benefit pension plans in fiscal 2024, which will equal or exceed our minimum funding requirements. As of November 25, 2023, we had reserves of $5.3 million for unrecognized tax benefits. We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled. We are required, in the ordinary course of business, 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. We continue to evaluate acquisition opportunities on a regular basis. We may finance acquisition activity with available cash, the issuance of shares of common stock, additional debt, or other sources of financing, depending upon the size and nature of any such transaction and the status of the capital markets at the time of such acquisition. Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facilities, we believe that our sources of liquidity will be adequate to meet our short-term and long-term liquidity and capital expenditure needs. In addition, we believe that we have the ability currently to obtain both short-term and long-term debt to meet our financing needs for the foreseeable future. We also believe that we will be able to operate our business so as to continue to be in compliance with our existing debt covenants over the next fiscal year. Related Party Transactions No material changes have occurred in the disclosure with respect to our related party transactions set forth in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023. Critical Accounting Policies There have been no material changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended February 25, 2023. Item 3. Quantitative and Qualitative Disclosures About Market Risk Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended February 25, 2023 for a discussion of the Company’s market risk. There have been no material changes in market risk since February 25, 2023.