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Item 7. Management’s Discussion and Analysis

2024-04-26 compared with 2023-04-21 · 253 added, 214 removed, 120 unchanged (80% of the section changed)

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

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 Technologies (LSO).

In fiscal 2022, we conducted a strategic review of our business and the markets we serve in order to establish a new enterprise strategy with three key elements, and during fiscal 2023, we made significant progress on execution of our strategy, as discussed in Item 1 on page 5 of this Form 10-K.

At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects.

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

Fiscal 2023 summary of results:

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

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

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

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

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

Reconciliation of Non-GAAP Financial Information

Adjusted Operating Income

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

Operating income $ 125,788 $ 22,045

Impairment expense on goodwill and intangible assets (1)

Restructuring costs (2)

Gain on sale of assets (3)

Adjusted operating income $ 125,788 $ 82,574

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

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

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

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

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

Reconciliation of Non-GAAP Financial Information

Adjusted Net Earnings and Adjusted Earnings per Diluted Common Share

Diluted per share amounts

Year-ended Year-ended

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

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

Worthless stock deduction and other discrete tax benefits (1)

(14,833) — (0.66) —

Impairment expense on goodwill and intangible assets (2)

— 49,473 — 1.96

Restructuring costs (3)

— 30,512 — 1.21

Impairment of equity investment (4)

— 3,000 — 0.12

Gain on sale of assets (5)

— (19,456) — (0.77)

Income tax impact on above adjustments (6)

— (4,414) — (0.17)

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

Shares outstanding for EPS 22,416 25,292

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

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

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

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

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

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

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

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

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

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

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist the reader in understanding our financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources, and is provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes in Item 8.

Financial Statements and Supplementary Data in this Form 10-K.

Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended February 25, 2023, for discussion of the results of operations for the year ended February 25, 2023, compared to the year ended February 26, 2022, which is incorporated by reference herein.

We have included in this report measures of financial performance that are not defined by GAAP.

We believe that these measures provide useful information and include these measures in other communications to investors.

For each of these non-GAAP financial measures, we provide a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, (see "Reconciliation of Non-GAAP Financial Measures" in this Item 7 below), and an explanation of why we believe the non-GAAP measure provides useful information to management and investors.

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

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

We believe this measure is useful in understanding operational performance and capital allocation over time.

This measure is not calculated in accordance with GAAP.

Certain information necessary to calculate this measure on a GAAP basis is dependent on future events, some of which are beyond our control, and cannot be predicted without unreasonable efforts.

It is important to note that these factors could be material to Apogee’s results computed in accordance with GAAP.

These non-GAAP measures should be viewed in addition to, and not as an alternative to, the reported financial results of the Company prepared in accordance with GAAP.

Other companies may calculate these measures differently, thereby limiting the usefulness of the measures for comparison with other companies.

We are a leading provider of architectural products and services for enclosing buildings, and high-performance glass and acrylic products used for preservation, energy conservation, and enhanced viewing.

Our four reporting segments are:

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

In fiscal 2024, we made further progress toward our strategic goals and financial targets we established in fiscal 2021.

We continued the deployment of the Apogee Management System across our business, supporting sustainable cost and productivity improvements.

We invested in organic growth initiatives, including capacity expansion in the Large-Scale Optical Segment and geographic growth in Architectural Services.

We increased our focus on differentiated products and services, and continued to diversify the mix of architectural projects that we serve while leaning more heavily into higher, value-added products.

We also advanced several initiatives to strengthen our core capabilities, driving the standardization of key business processes and systems, and strengthening talent management and leadership development programs.

On January 30, 2024, the Company announced strategic actions to further streamline its business operations, enable a more efficient cost model, and better position the Company for profitable growth (referred to as “Project Fortify”).

During the fourth quarter, the Company incurred $12.4 million of pre-tax charges related to Project Fortify, of which $5.5 million is included in cost of sales and $6.9 million is included in selling, general, and administrative (SG&A) expenses.

The Company expects a total of $16 million to $18 million of pre-tax charges in connection with Project Fortify, leading to annualized cost savings of $12 million to $14 million.

We expect that approximately 60% of these savings will be realized in fiscal 2025, with the remainder in fiscal 2026.

We expect that approximately 70% of the savings will be realized in the Architectural Framing Systems segment, 20% in the Architectural Services Segment, and 10% in Corporate and other, with the plan to be substantially complete in the third quarter of fiscal 2025.

Results of Operations

The following tables provide various components of our operations for fiscal years 2024, 2023 and 2022, in U.S.

dollar amounts and percentages reflecting annual changes in such amounts and as a percentage of net sales in each fiscal year.

Our fiscal year ends on the Saturday closest to the last day of February, or as otherwise determined by the Board of Directors.

Fiscal 2024 consisted of 53 weeks, while fiscal 2023 and fiscal 2022 each consisted of 52 weeks.

(Dollars in thousands) 2024 2023 2022 2024 vs.

Net sales $ 1,416,942 $ 1,440,696 $ 1,313,977 (1.6) % 9.6 %

Fiscal 2023 Compared to Fiscal 2022

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

Fiscal 2022 Compared to Fiscal 2021

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

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

Cost of sales 1,049,814 1,105,423 1,039,816 (5.0) % 6.3 %

Gross profit 367,128 335,273 274,161 9.5 % 22.3 %

Selling, general and administrative expenses 233,295 209,485 202,643 11.4 % 3.4 %

Impairment expense on goodwill and intangible assets — — 49,473 N/M (100.0) %

Operating income 133,833 125,788 22,045 6.4 % 470.6 %

Interest expense, net 6,669 7,660 3,767 (12.9) % 103.3 %

Other (income) expense, net

(2,089) 1,507 4,409 N/M (65.8) %

Earnings before income taxes 129,253 116,621 13,869 10.8 % 740.9 %

Income tax expense 29,640 12,514 10,383 136.9 % 20.5 %

Net earnings $ 99,613 $ 104,107 $ 3,486 (4.3) % 2,886.4 %

Diluted earnings per share

$ 4.51 $ 4.64 $ 0.14 (2.8) % 3,214.3 %

N/M - Indicates calculation is not meaningful

(Percentage of net sales)

2024 2023 2022

Net sales 100.0 % 100.0 % 100.0 %

Cost of sales 74.1 76.7 79.1

Gross margin 23.3 20.9 22.4

Gross profit 25.9 23.3 20.9

Selling, general and administrative expenses 16.5 14.5 15.4

Impairment expense on intangible assets and goodwill — 3.8 5.7

Impairment expense on goodwill and intangible assets — — 3.8

Operating income 9.4 8.7 1.7

Interest expense, net 0.5 0.5 0.3

Other expense (income), net 0.1 0.3 (0.1)

Other (income) expense, net

(0.1) 0.1 0.3

Earnings before income taxes 9.1 8.1 1.1

2 unchanged sentences

Effective income tax rate

Fiscal 2023 Compared to Fiscal 2022

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

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

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

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

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

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

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

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

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

22.9 % 10.7 % 74.9 %

Comparison of Fiscal 2024 to Fiscal 2023

• Consolidated net sales were $1.42 billion compared to $1.44 billion, a decrease of 1.6%, primarily reflecting lower volumes, partially offset by improved product mix and higher pricing.

• Gross profit margin improved to 25.9% of net sales, compared to 23.3%.

The gross margin improvement was primarily driven by higher pricing, improved mix and the impact of lower costs from saving initiatives.

These items were partially offset by the impact of lower volume, a less favorable mix of projects in the Architectural Services Segment, $5.5 million of restructuring costs related to Project Fortify, and the inflationary impact of higher costs.

• SG&A expense increased $23.8 million to 16.5% of net sales, compared to 14.5%.

The increase in expense was primarily due to increased salaries and benefits costs as well as $6.9 million in restructuring costs related to Project Fortify.

• Operating income grew 6.4% to $133.8 million, and operating margin increased 70 basis points to 9.4%, driven by higher pricing, improved product mix, and the impact of lower costs from saving initiatives.

These items were partially offset by a less favorable mix of projects in the Architectural Services Segment, increased salaries and benefits costs, $12.4 million of restructuring costs related to Project Fortify, and the inflationary impact of higher costs.

Adjusted operating margin increased by 160 basis points, to 10.3%.

• Other income was $2.1 million, reflecting the impact of a $4.7 million pre-tax gain related to a New Markets Tax Credit, partially offset by an investment valuation adjustment.

• Net interest expense was $6.7 million, compared to $7.7 million driven by a lower average debt level, partially offset by a higher average interest rate.

• The effective tax rate was 22.9%, compared to 10.7%.

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

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

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

Fiscal 2022 Compared to Fiscal 2021

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

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

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

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

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

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

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

• Diluted EPS was $4.51 compared to $4.64 driven by higher operating income, which was more than offset by a higher effective tax rate.

Adjusted diluted EPS grew 19.8% to $4.77.

Segment Analysis

(Dollars in thousands) 2024 2023 2022 2024 vs.

Segment net sales

Architectural Framing Systems $ 601,736 $ 649,778 $ 546,557 (7.4) % 18.9 %

(In thousands) 2023 2022 2021 2023 vs.

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

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

Operating margin 12.6 % 7.0 % (5.7) %

* Indicates calculation not meaningful.

Fiscal 2023 Compared to Fiscal 2022.

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

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

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

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

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

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

Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future.

Backlog is not a term defined under U.S.

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

In addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog.

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

Fiscal 2022 Compared to Fiscal 2021.

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

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

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

Architectural Glass 378,449 316,554 309,241 19.6 % 2.4 %

Architectural Services 378,422 410,627 407,421 (7.8) % 0.8 %

(In thousands) 2023 2022 2021 2023 vs.

Large-Scale Optical 99,223 104,215 101,673 (4.8) % 2.5 %

Intersegment eliminations (40,888) (40,478) (50,915) 1.0 % (20.5) %

Net sales $ 1,416,942 $ 1,440,696 $ 1,313,977 (1.6) % 9.6 %

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

Segment operating income (loss)

Architectural Framing Systems $ 64,833 $ 81,875 $ 38,088 (20.8) % 115.0 %

Architectural Glass 68,046 28,610 1,785 137.8 % 1,502.8 %

Architectural Services 11,840 18,140 (22,071) (34.7) % N/M

Large-Scale Optical 24,233 25,348 23,618 (4.4) % 7.3 %

Corporate and other (35,119) (28,185) (19,375) 24.6 % 45.5 %

Operating income $ 133,833 $ 125,788 $ 22,045 6.4 % 470.6 %

Segment operating margin

Architectural Framing Systems 10.8 % 12.6 % 7.0 %

Architectural Glass 18.0 % 9.0 % 0.6 %

Architectural Services 3.1 % 4.4 % (5.4) %

Large-Scale Optical 24.4 % 24.3 % 23.2 %

Corporate and other

Operating margin

* Indicates calculation not meaningful.

Fiscal 2023 Compared to Fiscal 2022.

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

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

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

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

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

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

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

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

Fiscal 2022 Compared to Fiscal 2021.

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

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

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

9.4 % 8.7 % 1.7 %

Segment net sales is defined as net sales for a certain segment and includes revenue related to intersegment transactions.

We report net sales intersegment eliminations separately to exclude these sales from our consolidated total.

Segment operating income is equal to net sales, less cost of goods sold, SG&A, and any asset impairment charges associated with the segment.

Segment operating income includes operating income related to intersegment sales transactions and excludes certain corporate costs that are not allocated at a segment level.

We report these unallocated corporate costs separately in Corporate and other.

Operating income does not include other income or expense, interest expense or a provision for income taxes.

Architectural Framing Systems

Comparison of Fiscal 2024 to Fiscal 2023

• Net sales were $601.7 million, compared to $649.8 million, primarily reflecting lower volume, partially offset by more favorable sales mix and improved pricing.

• Operating income was $64.8 million and operating margin decreased 180 basis points to 10.8% of net sales, primarily driven by the impact of lower volume, a less favorable mix of projects and $6.0 million of restructuring costs related to Project Fortify.

These items were partially offset by improved sales mix and pricing, as well as the impact of lower costs from saving initiatives.

Adjusted operating income was $70.8 million and adjusted operating margin decreased 80 basis points to 11.8% of net sales.

Architectural Glass

(In thousands) 2023 2022 2021 2023 vs.

Net sales $ 316,554 $ 309,241 $ 330,256 2.4 % (6.4) %

Comparison of Fiscal 2024 to Fiscal 2023

• Net sales were $378.4 million, compared to $316.6 million, primarily driven by improved pricing and a more favorable sales mix.

• Operating income was $68.0 million and operating margin increased 900 basis points to 18.0% of net sales, primarily driven by improved pricing and mix, partially offset by cost inflation.

Architectural Services

Comparison of Fiscal 2024 to Fiscal 2023

• Net sales were $378.4 million, compared to $410.6 million, primarily reflecting lower project volume and a less favorable mix of projects.

• Operating income was $11.8 million and operating margin decreased 130 basis points to 3.1% of net sales primarily driven by lower project volume, a less favorable mix of projects, and $2.5 million of restructuring costs related to Project Fortify, partially offset by lower short-term incentive compensation expense.

Adjusted operating income was $14.4 million and adjusted operating margin decreased 60 basis points to 3.8% of net sales.

Large-Scale Optical (LSO)

Comparison of Fiscal 2024 to Fiscal 2023

• Net sales were $99.2 million, compared to $104.2 million, primarily reflecting lower volume due to slower customer demand in the retail markets, partially offset by favorable mix and pricing.

• Operating income was $24.2 million and operating margin increased 10 basis points to 24.4% of net sales, compared to $25.3 million, or 24.3% of net sales, primarily driven by favorable mix and pricing, partially offset by the impact of lower volume.

Corporate and other

Comparison of Fiscal 2024 to Fiscal 2023

• Corporate and other expense was $35.1 million, compared to $28.2 million, primarily driven by $3.9 million of restructuring costs related to Project Fortify, increased compensation expense and higher consulting costs, partially offset by lower insurance-related costs.

Backlog is an operating measure used by management to assess future potential sales revenue.

Backlog is defined as the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which is expected to be recognized as revenue.

Backlog is not a term defined under U.S.

GAAP and is not a measure of contract profitability.

Backlog should not be used as the sole indicator of future revenue because we have a substantial number of projects with short lead times that book-and-bill within the same reporting period that are not included in backlog.

Architectural Framing Systems

As of fiscal 2024 year-end, segment backlog was $200.7 million, compared to $243.3 million at the end of the prior year, reflecting a decrease in order volume.

As part of the actions of Project Fortify, we expect to phase out this segment's longer-cycle project business over time as the segment eliminates certain lower-margin product and service offerings.

As a result, the majority of projects in this segment will generally be completed in six months or less and backlog as an operating measure will be less effective in assessing future potential sales revenue.

Effective in the first quarter of fiscal 2025, backlog will no longer be reported for this segment.

Architectural Services

As of fiscal 2024 year-end, backlog in the Architectural Services Segment was $807.8 million, compared to $726.7 million at the end of the prior year, primarily driven by several large project awards in the current year.

Reconciliations of Non-GAAP Financial Measures

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

Management uses these non-GAAP measures as noted below:

• We use adjusted operating income, adjusted operating margin, adjusted net earnings, and adjusted diluted EPS to provide meaningful supplemental information about our operating performance by excluding amounts that are not considered part of core operating results to enhance comparability of results from period to period.

• Adjusted EBITDA represents adjusted net earnings before interest, taxes, depreciation, and amortization.

We believe adjusted EBITDA and adjusted EBITDA margin metrics provide useful information to investors and analysts about our core operating performance.

• Adjusted return on invested capital (ROIC) is defined as adjusted operating income net of tax, divided by average invested capital.

We believe this measure is useful in understanding operational performance and capital allocation over time, and it is used as a factor in determining executive compensation.

These non-GAAP measures should be viewed in addition to, and not as an alternative to, the reported financial results of the Company prepared in accordance with GAAP.

Other companies may calculate these measures differently, thereby limiting the usefulness of the measures for comparison with other companies.

Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Income and Adjusted Operating Margin

Year Ended March 2, 2024 (53 weeks)

(In thousands, except percentages)

Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and other

Operating income $ 64,833 $ 68,046 $ 11,840 $ 24,233 $ (35,119) $ 133,833

Restructuring costs (1)

5,970 — 2,526 — 3,907 12,403

Adjusted operating income $ 70,803 $ 68,046 $ 14,366 $ 24,233 $ (31,212) $ 146,236

Operating margin

Fiscal 2023 Compared to Fiscal 2022.

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

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

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

Fiscal 2022 Compared to Fiscal 2021.

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

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

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

Large-Scale Optical Technologies (LSO)

(In thousands) 2023 2022 2021 2023 vs.

Net sales $ 104,215 $ 101,673 $ 70,050 2.5 % 45.1 %

10.8 % 18.0 % 3.1 % 24.4 % N/M 9.4 %

Restructuring costs (1)

1.0 % — % 0.7 % — % N/M 0.9 %

Adjusted operating margin

11.8 % 18.0 % 3.8 % 24.4 % N/M 10.3 %

Year Ended February 25, 2023 (52 weeks)

Architectural Framing Systems Architectural Glass Architectural Services LSO Corporate and other

Operating income (2)

$ 81,875 $ 28,610 $ 18,140 $ 25,348 $ (28,185) $ 125,788

Operating margin (2)

Fiscal 2023 Compared to Fiscal 2022.

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

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

Fiscal 2022 Compared to Fiscal 2021.

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

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

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

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

12.6 % 9.0 % 4.4 % 24.3 % N/M 8.7 %

(1) Restructuring costs related to Project Fortify, including $6.2 million of asset impairment charges, $5.9 million of employee termination costs and $0.3 million of other costs.

For fiscal year 2023, we did not make any adjustments to operating income or operating margin as calculated in accordance with GAAP.

Reconciliation of Non-GAAP Financial Measures

Adjusted Net Earnings and Adjusted Diluted Earnings Per Share

Diluted per share amounts

March 2, 2024 February 25, 2023 March 2, 2024 February 25, 2023

(In thousands, except per share amounts)

(53 weeks) (52 weeks)

Net earnings $ 99,613 $ 104,107 $ 4.51 $ 4.64

Restructuring costs (1)

12,403 — 0.56 —

NMTC Settlement Gain (2)

(4,687) — (0.21) —

Worthless stock deduction and other discrete tax benefits (3)

— (14,833) — (0.66)

Income tax impact on above adjustments (4)

(1,890) — (0.09) —

Adjusted net earnings $ 105,439 $ 89,274 $ 4.77 $ 3.98

Shares outstanding for EPS 22,091 22,416

(1) Restructuring costs related to Project Fortify, including $6.2 million of asset impairment charges, $5.9 million of employee termination costs and $0.3 million of other costs.

(2) Realization of a New Markets Tax Credit (NMTC) benefit during the second quarter of fiscal 2024, which was recorded in other (income) expense, net.

(3) Worthless stock deduction and related discrete income tax benefits from the impairment of the Sotawall business in fiscal 2023, which was recorded in income tax expense.

Income tax impact calculated using an estimated statutory tax rate of 24.5%, which reflects the estimated blended statutory tax rate for the jurisdictions in which the charge or income occurred.

Reconciliation of Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

(Earnings before interest, taxes, depreciation and amortization)

March 2, 2024 February 25, 2023

(In thousands) (53 weeks) (52 weeks)

Net earnings $ 99,613 $ 104,107

Income tax expense 29,640 12,514

Interest expense, net 6,669 7,660

Depreciation and amortization 41,588 42,403

EBITDA $ 177,510 $ 166,684

Restructuring costs (1)

NMTC settlement gain (2)

Adjusted EBITDA $ 185,226 $ 166,684

Adjusted EBITDA Margin 13.1 % 11.6 %

(1) Restructuring costs related to Project Fortify, including $6.2 million of asset impairment charges, $5.9 million of employee termination costs and $0.3 million of other costs.

(2) Realization of a New Markets Tax Credit (NMTC) benefit during the second quarter of fiscal 2024, which was recorded in other income (expense), net.

Reconciliation of Non-GAAP Financial Measures

Adjusted Return on Invested Capital Reconciliation

March 2, 2024 February 25, 2023

(In thousands, except percentages) (53 weeks)

Operating income $ 133,833 $ 125,788

Restructuring costs (1)

Adjusted operating income $ 146,236 $ 125,788

Tax adjustment (2)

35,828 30,818

Adjusted operating income after taxes $ 110,408 $ 94,970

Average invested capital (3)

$ 668,555 $ 686,124

Adjusted return on invested capital (ROIC) (4)

16.5 % 13.8 %

(1) Restructuring costs related to Project Fortify, including $6.2 million of asset impairment charges, $5.9 million of employee termination costs and $0.3 million of other costs.

(2) Income tax impact calculated using an estimated statutory tax rate of 24.5%, which reflects the estimated blended statutory tax rate for the jurisdictions in which the charge or income occurred.

(3) Average invested capital represents a trailing five quarter average of total assets less average current liabilities (excluding current portion long-term debt).

(4) Adjusted ROIC calculated by dividing adjusted operating income after taxes by average invested capital

Liquidity and Capital Resources

(In thousands) 2023 2022 2021

Operating Activities

Net cash provided by operating activities $ 102,696 $ 100,471 $ 141,863

Investing Activities

Capital expenditures (45,177) (21,841) (26,165)

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

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

Financing Activities

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

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

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

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

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

We rely on cash provided by operations for the Company’s material cash requirements, including working capital needs, capital expenditures, satisfaction of contractual commitments (including principal and interest payments on our outstanding indebtedness) and shareholder return through dividend payments and share repurchases.

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.

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

Net cash provided by operating activities was $204.2 million, compared to $102.7 million, primarily driven by favorable changes in working capital.

Investing Activities.

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

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

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

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

Net cash used by investing activities was $43.7 million, compared to $27.7 million.

Capital expenditures were the primary use of cash in fiscal 2024, largely driven by strategic investments to fund a capacity expansion in our Large-Scale Optical Segment and to enhance productivity through automation.

Financing Activities.

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

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

We repurchased 2,292,846 shares under the program in fiscal 2022 and 1,177,704 shares under the program in fiscal 2021.

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

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

Net cash used by financing activities was $144.6 million, compared to $91.0 million, primarily driven by higher net debt repayments in the current year period, partially offset by lower share repurchases.

Additional Liquidity Considerations.

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

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

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

We 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 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 March 2, 2024, we had outstanding borrowings under our revolving credit facility of $50.0 million, while there were no outstanding borrowings under the Canadian committed, revolving credit facilities.

We are required to make periodic interest payments on our outstanding indebtedness, and future interest payments will be determined based on the amount of outstanding borrowings and prevailing interest rates during that time.

Our revolving credit facility contains two maintenance financial covenants that require us to stay below a maximum debt-to-EBITDA ratio and maintain a minimum ratio of interest expense-to-EBITDA.

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

At March 2, 2024, 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 facilities, 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 Secured Overnight Financing Rate (SOFR), or, in the case of the Canadian facilities, Canadian Overnight Repo Rate Average (CORRA) plus, in each, 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 and CORRA borrowings, the margin ranges from 1.125% to 1.75%, with an incremental Term SOFR and CORRA adjustment of 0.10% and 0.29547%, respectively.

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.

Additionally, at March 2, 2024, 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 March 2, 2024, the amount available for revolving borrowings under the U.S credit facility was $320.0 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 $48.8 million at February 25, 2023, with $12.5 million payable within the next 12 months.

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

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

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

Future payments for such leases, excluding leases with initial terms of one year or less, were $44.8 million at March 2, 2024, with $12.5 million payable within the next 12 months.

See Note 8 - Leases of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for further detail surrounding our lease obligations and the timing of expected future payments.

As of March 2, 2024, we had $41.2 million of open purchase obligations, of which payments totaling $33.7 million are expected to become due within the next 12 months.

These purchase obligations primarily relate to raw material commitments.

We expect to make contributions of approximately $0.4 million to our defined-benefit pension plans in fiscal 2025, which will equal or exceed our minimum funding requirements.

As of February 25, 2023, we had reserves of $5.3 million and $0.4 million for long-term unrecognized tax benefits and environmental liabilities, respectively.

As of March 2, 2024, we had reserves of $5.1 million and $0.4 million for long-term unrecognized tax benefits and environmental liabilities, respectively.

We are unable to reasonably estimate in which future periods the remaining unrecognized tax benefits will ultimately be settled.

At February 25, 2023, we had ongoing letters of credit of $12.3 million related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal 2024 and reduce borrowing capacity under the revolving credit facility.

In addition to the above standby letters of credit, 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 February 25, 2023, $523.0 million of our backlog was bonded by performance bonds with a face value of $1.4 billion.

These bonds do not have stated expiration dates, as we are released from the bonds upon completion of the contract.

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 March 2, 2024, $463.3 million of our backlog was bonded by performance bonds with a face value of $1.3 billion.

These bonds have expiration dates that align with completion of the purchase order or contract.

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

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

Due to our ability to generate strong cash from operations and our borrowing capability under our committed revolving credit facility, we believe that our sources of liquidity will be adequate to meet our short-term and long-term liquidity and capital expenditure needs.

In addition, we believe we have the ability to obtain both short-term and long-term debt to meet our financing needs, including additional sources of debt to finance potential

material acquisitions for the foreseeable future.

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 we have the ability to obtain both short-term and long-term debt to meet our financing needs, including additional sources of debt to finance potential material acquisitions for the foreseeable future.

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

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

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

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

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

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

Recently Issued Accounting Pronouncements

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Preparation of these consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent assets and liabilities.

In developing these estimates and assumptions, a collaborative effort is undertaken involving management across the organization, including finance, sales, project management, quality, risk, legal and tax, as well as outside advisors, such as consultants, engineers, lawyers and actuaries.

Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances.

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Revenue recognition

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.

We believe the most significant areas of estimation and judgment relate to over-time revenue recognition on longer-term contracts.

We have three businesses which operate under long-term, fixed-price contracts, representing approximately 36 percent of our total revenue in fiscal February 25, 2023.

We believe the most significant areas of estimation and judgment are related to our businesses that recognize revenue using the over-time input method.

Approximately 34% of our total revenue in fiscal 2024 was from longer-term, fixed-price contracts.

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.

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

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

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

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

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

1 unchanged sentence

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.

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

Due to the significant judgments utilized in our revenue recognition on long-term contracts, if subsequent actual results and/or updated assumptions, estimates, or projections were to change from those utilized at March 2, 2024, it could result in a material impact to our results of operations in the future.

Impairment of goodwill and indefinite-lived intangible assets

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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.

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

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

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

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

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

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

The reporting units for our fiscal 2024 annual impairment test align with our 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 $53.6 million and $35.7 million, of the goodwill balance at March 2, 2024, respectively.

During the fourth quarter of fiscal 2024, as a result of an announced restructuring plan, we reassessed our reporting units, which led to a combination of the Window and Wall Systems and Storefront and Finishing Solutions reporting units into one Architectural Framing Systems reporting unit.

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

In addition, no qualitative indicators of impairment were identified during the fourth quarter of fiscal 2024.

Following this change, we have four reporting units, which align with our reporting segments.

For our fiscal 2024 annual impairment test, we elected to bypass the qualitative assessment process and proceed directly to comparing the fair value of each of our reporting units to carrying value, including goodwill.

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Indefinite-lived intangible assets

We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives.

We have intangible assets for certain acquired trade names and trademarks which we have determined to have indefinite useful lives.

We evaluate the reasonableness of the useful lives and 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.

We bypassed a qualitative assessment and performed a quantitative impairment test to compare the fair value of each indefinite-lived intangible asset with its carrying value.

For our fiscal 2024 annual impairment test, we bypassed a qualitative assessment and performed a quantitative impairment test to compare the fair value of each indefinite-lived intangible asset with its carrying value.

If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment expense is recognized in an amount equal to that excess.

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

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

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

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

In the fair value analysis, we assumed discount rates ranging from 13.5% to 14.0%, a royalty rate of 1.5%, and a long-term growth rate of 3.0%.

Based on our annual analysis, the fair value of each of our trade names and trademarks exceeded the carrying amount.

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

If revenue was to fall below forecasted levels, or if market conditions were to decline in a material or sustained manner, impairment could be indicated for our indefinite-lived intangible assets and we could incur non-cash impairment expense that would negatively impact our net earnings.

For example, keeping all other assumptions constant, a 100 basis point increase in the weighted average cost of capital would cause the estimated fair values of our indefinite-lived intangibles to fall below carrying value, and would indicate impairment of around $0.4 million.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis