APOGEE ENTERPRISES, INC. 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except stock data) August 31, 2024 March 2, 2024 Assets Current assets Cash and cash equivalents $ 51,024 $ 37,216 Receivables, net 177,146 173,557 Inventories, net 79,591 69,240 Contract assets 49,285 49,502 Other current assets 36,742 29,124 Total current assets 393,788 358,639 Property, plant and equipment, net of accumulated depreciation of $ 460,167 and $ 445,017 240,627 244,216 Operating lease right-of-use assets 41,886 40,221 Goodwill 129,119 129,182 Intangible assets, net 64,547 66,114 Other non-current assets 47,125 45,692 Total assets $ 917,092 $ 884,064 Liabilities and Shareholders’ Equity Current liabilities Accounts payable $ 86,035 $ 84,755 Accrued compensation and benefits 40,901 53,801 Contract liabilities 41,655 34,755 Operating lease liabilities 12,661 12,286 Other current liabilities 57,597 59,108 Total current liabilities 238,849 244,705 Long-term debt 62,000 62,000 Non-current operating lease liabilities 33,323 31,907 Non-current self-insurance reserves 32,055 30,552 Other non-current liabilities 44,443 43,875 Commitments and contingent liabilities (Note 6) Shareholders’ equity Junior preferred stock of $ 1.00 par value; authorized 200,000 shares; zero issued and outstanding — — Common stock of $ 0.33 -1/3 par value; authorized 50,000,000 shares; issued and outstanding 21,945,986 and 22,089,265 , respectively 7,315 7,363 Additional paid-in capital 155,883 152,818 Retained earnings 373,458 340,375 Accumulated other comprehensive loss ( 30,234 ) ( 29,531 ) Total shareholders’ equity 506,422 471,025 Total liabilities and shareholders’ equity $ 917,092 $ 884,064 See accompanying notes to consolidated financial statements. 4 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended (In thousands, except per share data) August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Net sales $ 342,440 $ 353,675 $ 673,956 $ 715,388 Cost of sales 245,119 258,304 477,780 527,031 Gross profit 97,321 95,371 196,176 188,357 Selling, general and administrative expenses 55,356 54,818 112,830 114,037 Operating income 41,965 40,553 83,346 74,320 Interest expense, net 1,140 2,230 1,590 4,266 Other income, net 290 4,900 433 4,612 Earnings before income taxes 41,115 43,223 82,189 74,666 Income tax expense 10,549 9,896 20,612 17,763 Net earnings $ 30,566 $ 33,327 $ 61,577 $ 56,903 Basic earnings per share $ 1.40 $ 1.54 $ 2.83 $ 2.61 Diluted earnings per share $ 1.40 $ 1.52 $ 2.80 $ 2.57 Weighted average basic shares outstanding 21,762 21,708 21,793 21,813 Weighted average diluted shares outstanding 21,875 21,962 21,985 22,105 See accompanying notes to consolidated financial statements. 5 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Unaudited) Three Months Ended Six Months Ended (In thousands) August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Net earnings $ 30,566 $ 33,327 $ 61,577 $ 56,903 Other comprehensive earnings (loss): Unrealized gain (loss) on marketable securities, net of $ 30 , $( 8 ), $ 29 and $ 25 of tax expense (benefit), respectively 114 ( 28 ) 108 93 Unrealized (loss) gain on derivative instruments, net of $( 257 ), $ 66 , $ 107 and $( 55 ) of tax (benefit) expense, respectively ( 846 ) 217 350 ( 180 ) Foreign currency translation adjustments ( 492 ) 508 ( 1,161 ) 943 Other comprehensive (loss) earnings ( 1,224 ) 697 ( 703 ) 856 Total comprehensive earnings $ 29,342 $ 34,024 $ 60,874 $ 57,759 See accompanying notes to consolidated financial statements. 6 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended (In thousands) August 31, 2024 August 26, 2023 Operating Activities Net earnings $ 61,577 $ 56,903 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 19,664 20,661 Share-based compensation 5,642 4,483 Deferred income taxes 2,016 ( 4,281 ) Loss (gain) on disposal of property, plant and equipment 291 ( 62 ) Settlement of New Markets Tax Credit transaction — ( 4,687 ) Non-cash lease expense 5,844 6,153 Other, net 1,002 ( 1,121 ) Changes in operating assets and liabilities: Receivables ( 3,698 ) ( 8,238 ) Inventories ( 10,509 ) 5,841 Contract assets 238 8,992 Accounts payable 1,335 ( 3,529 ) Accrued compensation and benefits ( 12,823 ) ( 17,567 ) Contract liabilities 6,987 4,244 Operating lease liability ( 5,748 ) ( 6,608 ) Accrued income taxes ( 224 ) 4,292 Other current assets and liabilities ( 7,462 ) ( 2,912 ) Net cash provided by operating activities 64,132 62,564 Investing Activities Capital expenditures ( 15,662 ) ( 15,018 ) Proceeds from sales of property, plant and equipment 608 143 Purchases of marketable securities ( 2,246 ) ( 969 ) Sales/maturities of marketable securities 1,850 775 Net cash used by investing activities ( 15,450 ) ( 15,069 ) Financing Activities Proceeds from revolving credit facilities 95,201 174,853 Repayments on revolving credit facilities ( 95,201 ) ( 199,000 ) Payments of debt issuance costs ( 3,485 ) — Repurchase of common stock ( 15,061 ) ( 11,821 ) Dividends paid ( 10,821 ) ( 10,467 ) Other, net ( 5,266 ) ( 3,705 ) Net cash used by financing activities ( 34,633 ) ( 50,140 ) Effect of exchange rates on cash ( 241 ) ( 405 ) Increase (decrease) in cash and cash equivalents 13,808 ( 3,050 ) Cash and cash equivalents at beginning of period 37,216 21,473 Cash and cash equivalents at end of period $ 51,024 $ 18,423 Non-cash Activity Capital expenditures in accounts payable $ 1,426 $ 2,493 See accompanying notes to consolidated financial statements. 7 Table of Contents CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (In thousands) Common Shares Outstanding Common Stock at Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders' Equity Balance at March 2, 2024 22,089 $ 7,363 $ 152,818 $ 340,375 $ ( 29,531 ) $ 471,025 Net earnings — — — 31,011 — 31,011 Other comprehensive income, net of tax — — — — 521 521 Issuance of stock, net of cancellations 170 57 ( 57 ) — — — Share-based compensation — — 2,704 — — 2,704 Share repurchases ( 242 ) ( 81 ) ( 1,860 ) ( 13,120 ) — ( 15,061 ) Other share retirements ( 80 ) ( 27 ) ( 603 ) ( 4,206 ) — ( 4,836 ) Declared dividends — — — ( 5,409 ) — ( 5,409 ) Balance at June 1, 2024 21,937 $ 7,312 $ 153,002 $ 348,651 $ ( 29,010 ) $ 479,955 Net earnings — — — 30,566 — 30,566 Other comprehensive loss, net of tax — — — — ( 1,224 ) ( 1,224 ) Issuance of stock, net of cancellations 16 5 ( 5 ) — — — Share-based compensation — — 2,938 — — 2,938 Other share retirements ( 7 ) ( 2 ) ( 52 ) ( 347 ) — ( 401 ) Cash dividends — — — ( 5,412 ) — ( 5,412 ) Balance at August 31, 2024 21,946 $ 7,315 $ 155,883 $ 373,458 $ ( 30,234 ) $ 506,422 (In thousands) Common Shares Outstanding Common Stock at Par Value Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Shareholders' Equity Balance at February 25, 2023 22,224 $ 7,408 $ 146,816 $ 273,740 $ ( 31,556 ) $ 396,408 Net earnings — — — 23,576 — 23,576 Other comprehensive income, net of tax — — — — 159 159 Issuance of stock, net of cancellations 155 52 13 ( 9 ) — 56 Share-based compensation — — 2,178 — — 2,178 Share repurchases ( 120 ) ( 40 ) ( 829 ) ( 4,324 ) — ( 5,193 ) Other share retirements ( 40 ) ( 14 ) ( 281 ) ( 1,438 ) — ( 1,733 ) Cash dividends — — — ( 5,245 ) — ( 5,245 ) Balance at May 27, 2023 22,219 $ 7,406 $ 147,897 $ 286,300 $ ( 31,397 ) $ 410,206 Net earnings — — — 33,327 — 33,327 Other comprehensive income, net of tax — — — — 697 697 Issuance of stock, net of cancellations ( 3 ) ( 1 ) 7 ( 195 ) — ( 189 ) Share-based compensation — — 2,305 — — 2,305 Exercise of stock options 25 8 ( 1,192 ) — — ( 1,184 ) Share repurchases ( 160 ) ( 53 ) ( 1,160 ) ( 5,415 ) — ( 6,628 ) Other share retirements ( 9 ) ( 3 ) ( 444 ) ( 547 ) — ( 994 ) Cash dividends — — — ( 5,222 ) — ( 5,222 ) Balance at August 26, 2023 22,072 $ 7,357 $ 147,413 $ 308,248 $ ( 30,700 ) $ 432,318 See accompanying notes to consolidated financial statements. 8 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Significant Accounting Policies Basis of presentation The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The information included in this Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended March 2, 2024. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and six-month periods ended August 31, 2024 are not necessarily indicative of the results to be expected for the full year. New accounting standards In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which expands the required disclosure for reportable segments. This guidance requires entities to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all segment disclosures which are currently required annually. This ASU additionally requires entities to disclose the title and position of the individual or the name of the group or committee identified as its chief operating decision-maker. Such guidance, which is required to be applied retrospectively, is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, although early adoption is permitted. While the adoption of this ASU will not have an impact on our financial position and/or results of operations, we are currently evaluating the impact to our segment disclosures for the year ended March 1, 2025 and future interim periods. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, intended to enhance the transparency and decision-usefulness of income tax disclosures. Such guidance requires entities to provide additional information within their income tax rate reconciliation, including further disclosure of federal, state, and foreign income taxes and to provide more details about these reconciling items if a quantitative threshold is met. This guidance additionally requires expanded disclosure of income taxes paid, including amounts paid for federal, state, and foreign taxes. This ASU, which is required to be applied prospectively, is effective for fiscal years beginning after December 15, 2024, although early adoption and retrospective application is permitted. While the adoption of this ASU will not have an impact on our financial position and/or results of operations, we are currently evaluating the impact on our income tax disclosures, including the processes and controls around the collection of this information. 2. Revenue, Receivables and Contract Assets and Liabilities Revenue The following table disaggregates total revenue by timing of recognition (see Note 12 for disclosure of revenue by segment): Three Months Ended Six Months Ended (In thousands) August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Recognized at shipment $ 140,518 $ 152,241 $ 277,240 $ 304,895 Recognized over time (input method) 118,683 118,270 235,364 241,651 Recognized over time (output method) 83,239 83,164 161,352 168,842 Total $ 342,440 $ 353,675 $ 673,956 $ 715,388 Receivables Receivables reflected in the financial statements represent the net amount expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecasted economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible. 9 Table of Contents (In thousands) August 31, 2024 March 2, 2024 Trade accounts $ 108,449 $ 115,061 Construction contracts 70,672 61,879 Total receivables 179,121 176,940 Less: allowance for credit losses 1,975 3,383 Receivables, net $ 177,146 $ 173,557 The following table summarizes the activity in the allowance for credit losses for the six-month period ended: (In thousands) August 31, 2024 Beginning balance $ 3,383 Credits charged to costs and expenses ( 1,414 ) Deductions from allowance, net of recoveries 13 Other adjustments ( 7 ) Ending balance $ 1,975 Contract assets and liabilities Contract assets consist of retainage, costs and earnings in excess of billings and other unbilled amounts typically generated when revenue recognized exceeds the amount billed to the customer. Retainage on construction contracts represents amounts withheld by our customers on long-term projects until the project reaches a level of completion where amounts are released to us from the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts. The time period between when performance obligations are complete and payment is due is not significant. In certain parts of our business that recognize revenue over time, progress billings follow an agreed-upon schedule of values. The changes in contract assets and contract liabilities were mainly due to timing of project activity within our businesses that operate under long-term contracts. Other contract-related disclosures Three Months Ended Six Months Ended (In thousands) August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Revenue recognized related to contract liabilities from prior year-end $ 3,451 $ 2,249 $ 30,361 $ 24,956 Revenue recognized related to prior satisfaction of performance obligations 4,867 4,477 8,166 4,904 Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that time frame. Generally, these contracts are found in our businesses that typically operate with long-term contracts, which recognize revenue over time. The transaction prices associated with unsatisfied performance obligations at August 31, 2024 are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods: (In thousands) August 31, 2024 Within one year $ 535,538 Between one and two years 305,493 Beyond two years 111,600 Total $ 952,631 10 Table of Contents 3. Inventories Inventories (In thousands) August 31, 2024 March 2, 2024 Raw materials $ 31,952 $ 31,363 Work-in-process 16,656 12,291 Finished goods 30,983 25,586 Total inventories, net $ 79,591 $ 69,240 4. Financial Instruments Marketable securities Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), we hold the following available-for-sale marketable securities, made up of fixed-maturity investments: (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value August 31, 2024 $ 11,708 $ 37 $ 323 $ 11,422 March 2, 2024 11,327 15 437 10,905 Prism insures a portion of our general liability, workers’ compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements. The amortized cost and estimated fair values of these investments at August 31, 2024, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without penalty. (In thousands) Amortized Cost Estimated Fair Value Due within one year $ 3,119 $ 3,092 Due after one year through five years 8,589 8,330 Total $ 11,708 $ 11,422 Derivative instruments We periodically use interest rate swaps, currency put options, and forward purchase contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments we use, how such instruments are accounted for, and how such instruments impact our financial position and performance. In fiscal 2020, we entered into an interest rate swap to hedge exposure to variability in cash flows from interest payments on floating-rate borrowings under our credit facility. As of August 31, 2024, the interest rate swap contract had a notional value of $ 30.0 million and has a maturity date of February 5, 2026. We periodically enter into forward purchase contracts and/or fixed/floating swaps to manage the risk associated with fluctuations in aluminum prices and fluctuations in foreign exchange rates. These contracts generally have an original maturity date of less than one year. As of August 31, 2024, we held aluminum purchase contracts and foreign exchange option contracts with U.S. dollar notional values of $ 2.0 million and $ 1.5 million, respectively. The mark to market adjustments on these derivative instruments are recorded within our consolidated balance sheets within other current assets and other current liabilities. Gains or losses associated with these instruments are recorded as a component of accumulated other comprehensive loss until which time the hedged transaction is settled and gains or losses are reclassified to net earnings. 11 Table of Contents Fair value measurements Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 financial assets or liabilities. (In thousands) Quoted Prices in Active Markets (Level 1) Other Observable Inputs (Level 2) Total Fair Value August 31, 2024 Assets: Money market funds $ 42,400 $ — $ 42,400 Municipal and corporate bonds — 11,422 11,422 Foreign currency option contract — 28 28 Interest rate swap contract — 781 781 Liabilities: Aluminum hedging contract — 20 20 March 2, 2024 Assets: Money market funds $ 26,529 $ — $ 26,529 Municipal and corporate bonds — 10,905 10,905 Foreign currency forward/option contract — 3 3 Interest rate swap contract — 1,292 1,292 Liabilities: Aluminum hedging contract — 529 529 5. Debt On July 19, 2024, we entered into a Credit Agreement (the Credit Agreement) with Bank of America, N.A., as administrative agent, and other lenders. The Credit Agreement provides for an unsecured senior credit facility in an aggregate principal amount of up to $ 700.0 million, in which commitments are available through a $ 450.0 million, five-year revolving credit facility and a committed $ 250.0 million delayed draw term loan facility. Borrowings under the revolving credit facility can be in Canadian dollars (CAD) limited to $ 25.0 million USD. The term loan facility may be borrowed in up to two drawdowns, which are available to be made within one year after the closing date. The senior credit facility has a term of five years with a maturity date of July 19, 2029. Outstanding borrowings under the revolving credit facility were $ 50.0 million as of August 31, 2024. As of August 31, 2024, the term loan facility had not been drawn. The Credit Agreement replaces the previous revolving credit facility with Wells Fargo Bank, N.A., as administrative agent, and other lenders, with maximum borrowings up to $ 385.0 million, and the two Canadian credit facilities with Bank of Montreal totaling $ 25.0 million USD. Outstanding borrowings under the previous revolving credit facility were $ 50.0 million as of March 2, 2024. We had no outstanding borrowings under the Canadian facilities as of March 2, 2024. As a result of the transaction, in the second quarter of fiscal 2025, we recognized a loss on extinguishment of debt within interest expense of $ 0.5 million for the write-off of unamortized financing fees related to the previous revolving credit facility. Additionally, we capitalized $ 3.0 million of lender fees and $ 0.6 million of third-party fees incurred in connection with the Credit Agreement, which were recorded as other non-current assets and will be amortized over the term of the credit facility as interest expense. The Credit Agreement contains two maintenance financial covenants that require our Consolidated Leverage Ratio (as defined in the Credit Agreement) to be less than 3.50 and our Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) to exceed 3.00 . At August 31, 2024, we were in compliance with all covenants as defined under the terms of the Credit Agreement. The Credit Agreement also contains 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 Consolidated Leverage Ratio (as defined in the Credit Agreement) to 4.00 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 Credit Agreement, and at least two fiscal quarters must separate qualifying acquisitions. 12 Table of Contents Borrowings under the Credit Agreement bear floating interest at either the Base Rate or Term Secured Overnight Financing Rate (SOFR), or, for CAD borrowings, Canadian Overnight Repo Rate Average (CORRA) plus, in each a margin based on the Consolidated Leverage Ratio (as defined in the Credit Agreement). For Base Rate borrowings, the margin ranges from 0.25 % to 0.75 %. For Term SOFR and CORRA borrowings, the margin ranges from 1.25 % to 1.75 %, with an incremental Term SOFR and CORRA adjustment of 0.10 % and 0.29547 % respectively. The Credit Agreement also contains an “accordion” provision. Under this provision, we can request that the senior credit facility be increased by unlimited additional amounts. Any lender may elect or decline to participate in the requested increase at their sole discretion. At August 31, 2024, we had a total of $ 42.5 million of ongoing letters of credit related to the senior credit facility and industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal years 2026 through 2032 and reduce borrowing capacity under the revolving credit facility. As of August 31, 2024, the amount available for revolving borrowings was $ 357.5 million. At August 31, 2024, debt included $ 12.0 million of industrial revenue bonds that mature in fiscal years 2036 through 2043. The fair value of our senior credit facility and industrial revenue bonds approximated carrying values at August 31, 2024, and would be classified as Level 2 within the fair value hierarchy described in Note 4, due to the variable interest rates on these instruments. Three Months Ended Six Months Ended (In thousands) August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Interest on debt $ 1,339 $ 2,661 $ 2,513 $ 5,171 Interest rate swap gain ( 236 ) ( 153 ) ( 472 ) ( 420 ) Other interest expense 594 50 615 78 Interest income $ ( 557 ) $ ( 328 ) $ ( 1,066 ) $ ( 563 ) Interest expense, net $ 1,140 $ 2,230 $ 1,590 $ 4,266 Interest payments under the credit facilities were $ 2.6 million and $ 5.4 million for the six months ended August 31, 2024 and August 26, 2023, respectively. 6. Commitments and Contingent Liabilities Bond commitments In the ordinary course of business, predominantly in our Architectural Services and Architectural Framing Systems Segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At August 31, 2024, $ 1.2 billion of these types of bonds were outstanding, of which $ 366.0 million is in our backlog. These bonds have expiration dates that align with completion of the sales order or contract. We have never been required to make payments under surety or performance bonds with respect to our existing businesses. Warranty and project-related contingencies We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims as a ratio of sales. Claim costs are deducted from the accrual when paid. Factors that could have an impact on these accruals in any given period include changes in manufacturing quality, changes in product mix, and any significant changes in sales volume. Six Months Ended (In thousands) August 31, 2024 Balance at beginning of period $ 21,362 Additions charged to costs and expenses 5,967 Deductions from reserve, net of recoveries ( 6,585 ) Balance at end of period $ 20,744 13 Table of Contents Additionally, we are subject to project management and installation-related contingencies as a result of our fixed-price material supply and installation service contracts, primarily in our Architectural Services Segment and in certain parts of our Architectural Framing Systems Segment. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages. Letters of credit At August 31, 2024, we had $ 42.5 million of ongoing letters of credit as discussed in Note 5. Purchase obligations Purchase obligations for raw material commitments and capital expenditures totaled $ 14.2 million as of August 31, 2024. New Markets Tax Credit (NMTC) transactions We have two outstanding NMTC arrangements which help to support operational expansion. Proceeds received from investors on these transactions are included within other non-current liabilities in our consolidated balance sheets. The NMTC arrangements are subject to 100 percent tax credit recapture for a period of seven years from the date of each respective transaction. Upon the termination of each arrangement, these proceeds will be recognized in earnings in exchange for the transfer of tax credits. The direct and incremental costs incurred in structuring these arrangements have been deferred and are included in other non-current assets in our consolidated balance sheets. These costs will be recognized in conjunction with the recognition of the related proceeds on each arrangement. During the construction phase or for working capital purposes for each project, we are required to hold cash dedicated to fund each project, which is classified as restricted cash in our consolidated balance sheets. As a result of the structure of these transactions, variable-interest entities were created. As the other investors in these programs do not have a material interest in the entities' underlying economics, we include 100% of the results of the variable-interest entities in our consolidated financial statements. The table below provides a summary of estimated benefits related to our outstanding NMTC transactions (in thousands): Inception date Termination date Deferred Benefit Deferred costs Net benefit May 2022 (1) August 2025 $ 6,052 $ 1,604 $ 4,448 September 2018 September 2025 $ 3,198 $ 1,031 $ 2,167 Total $ 9,250 $ 2,635 $ 6,615 (1) Continuation of the August 2018 NMTC financing transaction Litigation The Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. In December 2022, the claimant in an arbitration of one such claim was awarded $ 20 million. The Company has appealed the award and believes, after taking into account all currently available information, including the advice of counsel and the likelihood of available insurance coverage, that this award will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no matters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company. 7. Supplier Finance Program Obligations In the first quarter of fiscal 2024, we implemented a supplier financing arrangement that enables select suppliers, at their sole discretion, to sell our receivables (i.e., our payment obligations to the suppliers) on a non-recourse basis in order to be paid earlier than our payment terms provide. These suppliers’ voluntary inclusion of invoices in the supplier financing arrangement has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in the supplier’s decision to participate in the supplier financing program, and we do not provide any guarantees in connection with it. The balances owed are reflected in accounts payable in the consolidated balance sheets and are reflected in net cash provided by operating activities in our consolidated statements of cash flows when settled. 14 Table of Contents The following table summarizes the obligation activity and outstanding balance as of August 31, 2024 that we have confirmed as valid to the administrators of our program: (In thousands) August 31, 2024 Balance at beginning of period $ 6,527 Obligations added to the program 22,411 Obligations settled ( 20,503 ) Balance at end of period $ 8,435 8. Shareholders' Equity We paid dividends totaling $ 10.8 million ($ 0.50 per share) in the first six months of fiscal 2025, compared to dividends paid of $ 10.5 million ($ 0.48 per share) in the comparable prior year period. During fiscal 2004, the Board of Directors authorized a share repurchase program allowing us to repurchase shares of our outstanding common stock, with subsequent increases in authorization. During the six-months ended August 31, 2024, we repurchased 241,573 shares under the program, for a total cost of $ 15.1 million, inclusive of the applicable excise tax. During the six-months ended August 26, 2023, we repurchased 279,916 shares under the program, for a total cost of $ 11.8 million. We have repurchased a total of 11,518,090 shares, at a total cost of $ 408.5 million, since the inception of this program in fiscal 2004. We have remaining authority to repurchase 2,731,910 shares under this program, which has no expiration date. 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. Additionally, shares withheld from the vesting of restricted awards, or the settlement of performance-based awards, are treated as purchases and retirements, and are included within other, net in the financing activities section in the consolidated statement of cash flows. 9. Share-Based Compensation As part of our compensation structure, we grant stock-based compensation awards to certain employees and non-employee directors during the fiscal year. These awards may be in the form of incentive stock options (to employees only), nonstatutory options, or nonvested share awards and units, all of which are granted at a price or with an exercise price equal to the fair market value of the Company’s stock at the date of award, unless the date of the award is on a day the Nasdaq Stock Market is not open for trading, then the exercise price shall equal the fair market value on the most recent preceding date when such market is open. The table below sets forth the number of stock-based compensation awards granted during the six-months ended August 31, 2024, along with the weighted average grant date fair value: Awards Number of Awards Weighted Average Grant Date Fair Value Restricted stock awards and restricted stock units (1) 118,092 $ 62.54 Performance share units (2) 37,151 $ 62.78 (1) Represent service condition awards which generally vest over a two - or three -year period. (2) Represent performance condition awards with the grant equal to the target number of performance shares based on the share price at grant date. These grants allow for the right to receive a variable number of shares, between 0 % and 200 % of target, dependent on being employed at the end of the performance period and achieving defined performance goals for average return on invested capital and cumulative earnings per share. Total share-based compensation expense included in the results of operations was $ 2.9 million and $ 2.3 million for the three-month periods ended August 31, 2024 and August 26, 2023, respectively and $ 5.6 million and $ 4.5 million for the six-month periods ended August 31, 2024 and August 26, 2023, respectively. 15 Table of Contents At August 31, 2024, there was $ 17.3 million of total unrecognized compensation cost related to nonvested share and nonvested share unit awards, which is expected to be recognized over a weighted average period of approximately 24 months. The total fair value of shares vested during the six-months ended August 31, 2024 was $ 8.6 million. 10. Income Taxes We file income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, Canada, Brazil and other international jurisdictions. We are not subject to U.S. federal tax examinations for years prior to fiscal 2021, or state and local income tax examinations for years prior to fiscal 2015. We are not currently under U.S. federal examination for years subsequent to fiscal 2020, and there is very limited audit activity of our income tax returns in U.S. state jurisdictions or international jurisdictions. For interim periods, our income tax expense and resulting effective tax rate are based upon an estimated annual effective tax rate adjusted for the effects of items required to be treated as discrete to the period, including changes in tax laws, changes in estimated exposures for uncertain tax positions and other items. For the three-months ended August 31, 2024, income tax expense as a percentage of earnings before income tax was 25.7 %, compared to 22.9 % for the same period last year. For the six-months ended August 31, 2024, income tax expense as a percentage of earnings before income tax was 25.1 %, compared to 23.8 % for the same period last year. The change in the effective tax rate for both the three- and six-month periods was primarily due to an increase in tax expense on discrete items. The total liability for unrecognized tax benefits was $ 5.6 million at August 31, 2024 compared to $ 5.1 million at March 2, 2024, respectively. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. 11. Earnings per Share The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share (diluted EPS): Three Months Ended Six Months Ended (In thousands) August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Basic earnings per share – weighted average common shares outstanding 21,762 21,708 21,793 21,813 Weighted average effect of nonvested share grants and assumed exercise of stock options 113 254 192 292 Diluted earnings per share – weighted average common shares and potential common shares outstanding 21,875 21,962 21,985 22,105 Stock awards excluded from the calculation of earnings per share because the effect was anti-dilutive (award price greater than average market price of the shares) 11 51 65 73 12. Business Segment Data We have four reporting segments: • The Architectural Framing Systems Segment designs, engineers, fabricates and finishes aluminum window, curtainwall, storefront and entrance systems for the exterior of buildings. • The Architectural Glass Segment coats and fabricates, high-performance glass used in custom window and wall systems on non-residential buildings. • The Architectural Services Segment integrates technical services, project management, and field installation services to design, engineer, fabricate, and install building glass and curtainwall systems. • The Large-Scale Optical (LSO) Segment manufactures high-performance glass and acrylic products for the custom framing, fine art, and engineered optics markets. 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, selling, general and administrative expenses, 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 in Corporate and Other. Operating income does not include other income or expense, interest expense or income tax expense. 16 Table of Contents Three Months Ended Six Months Ended (In thousands) August 31, 2024 August 26, 2023 August 31, 2024 August 26, 2023 Segment net sales Architectural Framing Systems $ 141,350 $ 158,801 $ 274,522 $ 322,963 Architectural Glass 90,101 94,096 176,804 191,298 Architectural Services 98,018 88,064 197,045 177,482 Large-Scale Optical 19,832 23,645 41,036 46,101 Intersegment eliminations ( 6,861 ) ( 10,931 ) ( 15,451 ) ( 22,456 ) Net sales $ 342,440 $ 353,675 $ 673,956 $ 715,388 Segment operating income (loss) Architectural Framing Systems $ 17,141 $ 21,060 $ 35,477 $ 41,005 Architectural Glass 21,068 17,434 38,159 33,955 Architectural Services 6,130 3,519 11,753 2,923 Large-Scale Optical 3,793 4,663 8,639 10,188 Corporate and Other ( 6,167 ) ( 6,123 ) ( 10,682 ) ( 13,751 ) Operating income $ 41,965 $ 40,553 $ 83,346 $ 74,320 Due to the varying combinations and integration of individual window, storefront and curtainwall systems, it is impractical to report product revenues generated by class of product, beyond the segment revenues currently reported. 13. Restructuring During the fourth quarter of fiscal 2024, we announced strategic actions to further streamline our business operations, enable a more efficient cost model, and better position the Company for profitable growth (referred to as “Project Fortify”). Project Fortify primarily impacts the Architectural Framing Systems Segment and includes: • Eliminating certain lower-margin product and service offerings, enabling consolidation into a single operating entity. • Transferring production operations from the Company’s facility in Walker, Michigan, to the Company’s facilities in Monett, Missouri and Wausau, Wisconsin. • Simplifying the segment’s brand portfolio and commercial model to improve flexibility, better leverage the Company’s capabilities, and enhance customer service. Additionally, the Company has implemented actions to optimize processes and streamline resources in its Architectural Services Segment and Corporate. During the second quarter of fiscal 2025, we incurred $ 1.2 million of pre-tax costs associated with Project Fortify, of which $ 0.9 million was included within cost of sales and $ 0.3 million was included within selling, general and administrative expenses. During the first six-months of fiscal 2025, we incurred $ 2.3 million of pre-tax costs associated with Project Fortify, of which $ 1.5 million was included within cost of sales and $ 0.8 million was included within selling, general and administrative expenses. Since announcing Project Fortify, we have incurred $ 14.7 million of pre-tax costs. The Company expects these restructuring actions to be substantially complete by the end of the third quarter of fiscal 2025 and expects to incur total pre-tax charges of approximately $ 15.0 million to $ 16.0 million. Total Project Fortify restructuring charges are expected to include: • $ 6.5 million to $ 7.0 million of severance and employee related costs; • Approximately $ 1.7 million of contract termination costs; and • $ 6.5 million to $ 7.5 million of other expenses. The Company expects that these actions will lead to annualized cost savings of $ 13 million to $ 14 million. Three Months Ended August 31, 2024 (In thousands) Architectural Framing Architectural Services Corporate & Other Total Termination benefits $ 271 $ 172 $ 5 $ 448 Contract termination costs 108 — — 108 Other restructuring charges 537 86 — 623 Total restructuring charges $ 916 $ 258 $ 5 $ 1,179 17 Table of Contents Six Months Ended August 31, 2024 (In thousands) Architectural Framing Architectural Services Corporate & Other Total Termination benefits $ 573 $ 172 $ 129 $ 874 Contract termination costs 108 — — 108 Other restructuring charges 1,233 86 — 1,319 Total restructuring charges $ 1,914 $ 258 $ 129 $ 2,301 The following table summarizes our restructuring related accrual balances included within accrued payroll and related benefits and other current liabilities in the consolidated balance sheets. All remaining accrual balances are expected to be paid within fiscal 2025. (In thousands) Architectural Framing Architectural Services Corporate & Other Total Balance at March 2, 2024 $ 2,814 $ 2,067 $ 56 $ 4,937 Restructuring expense 736 — 124 860 Payments ( 3,195 ) ( 348 ) ( 117 ) ( 3,660 ) Other adjustments 778 — — 778 Balance at August 31, 2024 $ 1,133 $ 1,719 $ 63 $ 2,915 The charges presented in the rollforward of our restructuring accruals do not include items charged directly to expense as incurred, as those items are not reflected in accrued payroll and related benefits and other current liabilities in the consolidated balance sheets. 14. Subsequent Events On September 23, 2024, we entered into a purchase agreement for the acquisition of UW Interco, LLC (UW Solutions), a leading developer and manufacturer of high-performance coated materials. The total initial purchase price was $ 240.0 million, which is subject to customary closing adjustments. We intend to fund the acquisition with cash on hand and borrowings under our existing credit facility. 18 Table of Contents