SEC Filing | Apogee Enterprises, Inc.

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apog-20201128

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________

FORM 10-Q

_________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 28, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-6365

_________________________________

APOGEE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

_________________________________

Minnesota

41-0919654

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

4400 West 78th Street, Suite 520

Minneapolis

Minnesota

55435

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (952) 835-1874

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

_________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.33 1/3 per share

APOG

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

As of January 5, 2021, 26,007,703 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.

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APOGEE ENTERPRISES, INC. AND SUBSIDIARIES


		Page
PART I	Financial Information

Item 1.	Financial Statements (Unaudited):

	Consolidated Balance Sheets	4

	Consolidated Results of Operations	5

	Consolidated Statements of Comprehensive Earnings	6

	Consolidated Statements of Cash Flows	7

	Consolidated Statements of Shareholders' Equity	8

	Notes to Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II	Other Information

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 6.	Exhibits	28

Signatures		29

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PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS

(unaudited)


(In thousands, except stock data)	November 28, 2020		February 29, 2020
Assets
Current assets
Cash and cash equivalents	$	55,413	$	14,952

Receivables, net	172,877		196,806
Inventories	73,815		71,089
Costs and earnings on contracts in excess of billings	29,141		73,582
Other current assets	14,389		25,481
Total current assets	345,635		381,910
Property, plant and equipment, net	302,082		324,386
Operating lease right-of-use assets	62,950		52,892
Goodwill	192,883		185,516
Intangible assets	136,843		140,191
Other non-current assets	45,589		44,096
Total assets	$	1,085,982	$	1,128,991
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	69,719	$	69,056
Accrued payroll and related benefits	40,170		40,119

Billings on contracts in excess of costs and earnings	25,945		32,696
Operating lease liabilities	12,098		11,272
Current portion of debt	2,000		5,400
Other current liabilities	61,768		118,314
Total current liabilities	211,700		276,857
Long-term debt	166,463		212,500
Non-current operating lease liabilities	53,122		43,163
Non-current self-insurance reserves	26,085		22,831
Other non-current liabilities	81,269		56,862
Commitments and contingent liabilities (Note 8)
Shareholders’ equity
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 25,962,041 and 26,443,166 respectively	8,654		8,814
Additional paid-in capital	155,974		154,016
Retained earnings	414,749		388,010
Common stock held in trust	(183)		(685)
Deferred compensation obligations	183		685
Accumulated other comprehensive loss	(32,034)		(34,062)
Total shareholders’ equity	547,343		516,778
Total liabilities and shareholders’ equity	$	1,085,982	$	1,128,991

See accompanying notes to consolidated financial statements.

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CONSOLIDATED RESULTS OF OPERATIONS

(unaudited)


	Three Months Ended				Nine Months Ended
(In thousands, except per share data)	November 28, 2020		November 30, 2019		November 28, 2020		November 30, 2019
Net sales	$	313,583	$	337,916	$	922,162	$	1,050,340
Cost of sales	243,998		263,606		716,139		808,856
Gross profit	69,585		74,310		206,023		241,484
Selling, general and administrative expenses	19,835		52,716		126,590		169,274
Operating income	49,750		21,594		79,433		72,210

Interest expense, net	1,502		1,995		4,240		7,176
Other income, net	472		231		684		599
Earnings before income taxes	48,720		19,830		75,877		65,633
Income tax expense	11,447		4,596		18,070		15,677
Net earnings	$	37,273	$	15,234	$	57,807	$	49,956
Earnings per share - basic	$	1.44	$	0.58	$	2.22	$	1.89
Earnings per share - diluted	$	1.42	$	0.57	$	2.19	$	1.87
Weighted average basic shares outstanding	25,883		26,432		26,068		26,481
Weighted average diluted shares outstanding	26,225		26,750		26,350		26,776

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(unaudited)


	Three Months Ended				Nine Months Ended
(In thousands)	November 28, 2020		November 30, 2019		November 28, 2020		November 30, 2019
Net earnings	$	37,273	$	15,234	$	57,807	$	49,956
Other comprehensive earnings (loss):
Unrealized (loss) gain on marketable securities, net of $—, $(11), $39 and $38 of tax (benefit) expense, respectively	(2)		(44)		145		145
Unrealized gain on derivative instruments, net of $90, $119, $305 and $146 of tax expense, respectively	294		387		997		476
Foreign currency translation adjustments	899		(491)		887		(586)
Other comprehensive earnings (loss)	1,191		(148)		2,029		35
Total comprehensive earnings	$	38,464	$	15,086	$	59,836	$	49,991

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended
(In thousands)	November 28, 2020		November 30, 2019
Operating Activities
Net earnings	$	57,807	$	49,956
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	38,000		34,681
Share-based compensation	6,163		4,617
Deferred income taxes	5,012		10,088
Gain on disposal of assets	(19,346)		(623)

Noncash lease expense	9,531		8,993
Other, net	(69)		(2,007)
Changes in operating assets and liabilities:
Receivables	24,153		(5,288)
Inventories	(2,722)		2,474
Costs and earnings on contracts in excess of billings	44,501		(17,156)
Accounts payable and accrued expenses	(43,915)		(22,457)
Billings on contracts in excess of costs and earnings	(6,981)		4,901
Refundable and accrued income taxes	12,424		(6,159)
Operating lease liability	(9,168)		(7,468)
Other	5,122		(951)
Net cash provided by operating activities	120,512		53,601
Investing Activities
Capital expenditures	(17,116)		(41,176)
Proceeds from sales of property, plant and equipment	23,724		591


Other	(1,090)		(857)
Net cash provided (used) by investing activities	5,518		(41,442)
Financing Activities
Borrowings on line of credit	193,332		108,000
(Repayment) borrowings on debt	(5,400)		150,000
Payments on line of credit	(237,500)		(252,500)
Repurchase and retirement of common stock	(20,731)		(20,010)
Dividends paid	(14,546)		(13,808)
Other	(853)		(2,584)
Net cash used by financing activities	(85,698)		(30,902)
Increase (decrease) in cash and cash equivalents	40,332		(18,743)
Effect of exchange rates on cash	129		32
Cash, cash equivalents and restricted cash at beginning of year	14,952		29,241
Cash, cash equivalents and restricted cash at end of period	$	55,413	$	10,530
Noncash Activity
Capital expenditures in accounts payable	$	684	$	1,205

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)


(In thousands)	Common Shares Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Common Stock Held in Trust		Deferred Compensation Obligation		Accumulated Other Comprehensive (Loss) Income		Total Shareholders' Equity
Balance at February 29, 2020	26,443	$	8,814	$	154,016	$	388,010	$	(685)	$	685	$	(34,062)	$	516,778
Net earnings	—	—		—		2,876		—		—		—		2,876
Unrealized gain on marketable securities, net of $26 tax expense	—	—		—		—		—		—		97		97
Unrealized loss on foreign currency hedge, net of $189 tax benefit	—	—		—		—		—		—		(617)		(617)
Foreign currency translation adjustments	—	—		—		—		—		—		(6,151)		(6,151)
Issuance of stock, net of cancellations	183	62		(39)		—		(11)		11		—		23
Share-based compensation	—	—		1,406		—		—		—		—		1,406

Share repurchases	(231)	(77)		(1,370)		(3,284)		—		—		—		(4,731)
Other share retirements	(26)	(9)		(151)		(505)		—		—		—		(665)
Cash dividends	—	—		—		(4,872)		—		—		—		(4,872)
Balance at May 30, 2020	26,369	$	8,790	$	153,862	$	382,225	$	(696)	$	696	$	(40,733)	$	504,144
Net earnings	—	—		—		17,658		—		—		—		17,658
Unrealized gain on marketable securities, net of $13 tax expense	—	—		—		—		—		—		50		50
Unrealized gain on foreign currency hedge, net of $404 tax expense	—	—		—		—		—		—		1,319		1,319
Foreign currency translation adjustments	—	—		—		—		—		—		6,139		6,139
Issuance of stock, net of cancellations	121	41		(23)		—		(11)		11		—		18
Share-based compensation	—	—		2,256		—		—		—		—		2,256


Other share retirements	(23)	(8)		(139)		(390)		—		—		—		(537)
Cash dividends	—	—		—		(4,879)		—		—		—		(4,879)
Balance at August 29, 2020	26,467	$	8,823	$	155,956	$	394,614	$	(707)	$	707	$	(33,225)	$	526,168
Net earnings	—	—		—		37,273		—		—		—		37,273
Unrealized loss on marketable securities, net of $— tax benefit	—	—		—		—		—		—		(2)		(2)
Unrealized gain on foreign currency hedge, net of $90 tax expense	—	—		—		—		—		—		294		294
Foreign currency translation adjustments	—	—		—		—		—		—		899		899
Issuance of stock, net of cancellations	10	3		15		—		524		(524)		—		18
Share-based compensation	—	—		2,501		—		—		—		—		2,501
Exercise of stock options	127	42		1,414		—		—		—		—		1,456
Share repurchases	(620)	(207)		(3,781)		(12,012)		—		—		—		(16,000)
Other share retirements	(22)	(7)		(131)		(331)		—		—		—		(469)
Cash dividends	—	—		—		(4,795)		—		—		—		(4,795)
Balance at November 28, 2020	25,962	$	8,654	$	155,974	$	414,749	$	(183)	$	183	$	(32,034)	$	547,343

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)


(In thousands)	Common Shares Outstanding	Common Stock		Additional Paid-In Capital		Retained Earnings		Common Stock Held in Trust		Deferred Compensation Obligation		Accumulated Other Comprehensive (Loss) Income		Total Shareholders' Equity
Balance at March 2, 2019	27,015	$	9,005	$	151,842	$	367,597	$	(755)	$	755	$	(32,127)	$	496,317


Net earnings	—	—		—		15,443		—		—		—		15,443
Unrealized gain on marketable securities, net of $47 tax expense	—	—		—		—		—		—		181		181
Unrealized gain on foreign currency hedge, net of $2 tax expense	—	—		—		—		—		—		5		5
Foreign currency translation adjustments	—	—		—		—		—		—		(2,560)		(2,560)
Issuance of stock, net of cancellations	79	26		14		—		(12)		12		—		40
Share-based compensation	—	—		1,618		—		—		—		—		1,618

Share repurchases	(532)	(177)		(3,051)		(16,782)		—		—		—		(20,010)
Other share retirements	(32)	(11)		(183)		(1,266)		—		—		—		(1,460)
Cash dividends	—	—		—		(4,598)		—		—		—		(4,598)
Balance at June 1, 2019	26,530	$	8,843	$	150,240	$	360,394	$	(767)	$	767	$	(34,501)	$	484,976


Net earnings	—	—		—		19,279		—		—		—		19,279
Unrealized gain on marketable securities, net of $2 tax expense	—	—		—		—		—		—		8		8
Unrealized gain on foreign currency hedge, net of $25 tax expense	—	—		—		—		—		—		84		84
Foreign currency translation adjustments	—	—		—		—		—		—		2,465		2,465
Issuance of stock, net of cancellations	44	15		27		—		(11)		11		—		42
Share-based compensation	—	—		1,582		—		—		—		—		1,582


Other share retirements	(20)	(7)		(114)		(629)		—		—		—		(750)
Cash dividends	—	—		—		(4,605)		—		—		—		(4,605)
Balance at August 31, 2019	26,554	$	8,851	$	151,735	$	374,439	$	(778)	$	778	$	(31,944)	$	503,081


Net earnings	—	—		—		15,234		—		—		—		15,234
Unrealized loss on marketable securities, net of $11 tax benefit	—	—		—		—		—		—		(44)		(44)
Unrealized gain on foreign currency hedge, net of $119 tax expense	—	—		—		—		—		—		387		387
Foreign currency translation adjustments	—	—		—		—		—		—		(491)		(491)
Issuance of stock, net of cancellations	(1)	1		43		—		103		(103)		—		44
Share-based compensation	—	—		1,417		—		—		—		—		1,417


Other share retirements	—	(1)		(7)		(36)		—		—		—		(44)
Cash dividends	—	—		—		(4,605)		—		—		—		(4,605)
Balance at November 30, 2019	26,553	$	8,851	$	153,188	$	385,032	$	(675)	$	675	$	(32,092)	$	514,979

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.Summary of Significant Accounting Policies

Basis of presentation

The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States. The information included in this Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended February 29, 2020. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and nine-month periods ended November 28, 2020 are not necessarily indicative of the results to be expected for the full year.

COVID-19 considerations

The ongoing COVID-19 pandemic continues to cause volatility and uncertainty in global markets impacting worldwide economic activity. We have experienced some delays in commercial construction projects and orders as a result of COVID-19. In our Architectural Glass and Architectural Framing segments, orders have been delayed or have slowed, as customers and end markets face some uncertainty and delays in timing of work. In our Architectural Services segment, some construction site closures or project delays have occurred, and job sites have had to adjust to increased physical distancing and health-related precautions. Within our Large-Scale Optical (LSO) segment, most customers reopened and the segment's two manufacturing locations resumed normal operations during the latter part of the second quarter, after being shutdown for most of the first and second quarters due to governmental orders. We have also been impacted by quarantine-related absenteeism among our workforce, resulting in labor and capacity constraints at some of our facilities. The extent to which COVID-19 will continue to impact our business will depend on future developments and public health advancements, which have been buoyed recently by the commencement of vaccine production and distribution.

In response to COVID-19, we have implemented a variety of countermeasures to promote the health and safety of our employees during this pandemic, including health screening, physical distancing practices, enhanced cleaning, use of personal protective equipment, business travel restrictions, and remote work capabilities, in addition to quarantine-related paid leave and other employee assistance programs.

Adoption of new accounting standards

At the beginning of fiscal 2021, we adopted the guidance in ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance provides for a new impairment model on financial instruments which is based on expected credit losses, which was applied following a modified retrospective approach. Additionally, the new guidance makes targeted improvements to the impairment model for certain available-for-sale debt securities, including eliminating the concept of "other than temporary" from that model. The portion of the guidance related to available-for-sale debt securities was adopted following a prospective approach. The adoption of this ASU did not have a significant impact on earnings or financial condition. Refer to additional disclosures in Notes 2 and 4.

Subsequent events

We have evaluated subsequent events for potential recognition and disclosure through the date of this filing. Subsequent to the end of the quarter, we announced the election of our new Chief Executive Officer, Ty R. Silberhorn, and entered into an employment agreement with him, effective January 4, 2021. Mr. Silberhorn replaces, Joseph F. Puishys, who announced his retirement, as an employee of the Company, in September 2020, effective January 4, 2021.

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				Nine Months Ended
(In thousands)	November 28, 2020		November 30, 2019		November 28, 2020		November 30, 2019
Recognized at shipment	$	129,132	$	153,093	$	379,292	$	472,695
Recognized over time	184,451		184,823		542,870		577,645
Total	$	313,583	$	337,916	$	922,162	$	1,050,340

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Receivables

Receivables reflected in the financial statements represent the net amount expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecast economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible. Retainage on construction contracts represents amounts withheld by our customers on long-term projects until the project reaches a level of completion where amounts are released.


(In thousands)	November 28, 2020		February 29, 2020
Trade accounts	$	122,959	$	141,126
Construction contracts	9,727		20,808
Contract retainage	42,053		37,341
Total receivables	174,739		199,275
Less: allowance for credit losses	(1,862)		(2,469)
Net receivables	$	172,877	$	196,806

The following table summarizes the activity in the allowance for credit losses:


(In thousands)	November 28, 2020
Beginning balance	$	2,469
Additions charged to costs and expenses	325
Deductions from allowance, net of recoveries	(884)
Other changes (1)	(48)
Ending balance	$	1,862
(1) Result of foreign currency effects

Contract assets and liabilities

Contract assets consist of retainage, costs and earnings in excess of billings and other unbilled amounts typically generated when revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of billings in excess of costs and earnings and other deferred revenue on contracts. Retainage is classified within receivables and deferred revenue is classified within other current liabilities on our consolidated balance sheets.

The time period between when performance obligations are complete and when payment is due is not significant. In certain of our businesses that recognize revenue over time, progress billings follow an agreed-upon schedule of values, and retainage is withheld by the customer until the project reaches a level of completion where amounts are released.


(In thousands)	November 28, 2020		February 29, 2020
Contract assets	$	71,194	$	110,923
Contract liabilities	27,965		35,954

The decrease in contract assets was mainly due to a reduction in costs and earnings in excess of billings, which is driven by the settlement of matters related to a legacy EFCO project, as well as the timing of projects. The change in contract liabilities was due to timing of project activity within our businesses that operate under long-term contracts.


Other contract-related disclosures	Three Months Ended				Nine Months Ended
(In thousands)	November 28, 2020		November 30, 2019		November 28, 2020		November 30, 2019
Revenue recognized related to contract liabilities from prior year-end	$	2,044	$	4,589	$	16,239	$	22,044
Revenue recognized related to prior satisfaction of performance obligations	4,016		1,776		10,545		5,298

Some of our contracts have an expected duration of longer than a year, with performance obligations extending over that timeframe. Generally, these contracts are in our businesses with long-term contracts which recognize revenue over time. As of November 28, 2020, the transaction price associated with unsatisfied performance obligations was approximately $901.6

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million. The performance obligations are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:


(In thousands)	November 28, 2020
Within one year	$	498,623
Within two years	331,219
Beyond	71,786
Total	$	901,628

3.Supplemental Balance Sheet Information

Inventories


(In thousands)	November 28, 2020		February 29, 2020
Raw materials	$	43,292	$	36,611
Work-in-process	16,337		17,520
Finished goods	14,186		16,958
Total inventories	$	73,815	$	71,089

Other current liabilities


(In thousands)	November 28, 2020		February 29, 2020
Warranties	$	13,281	$	12,822
Accrued project losses	3,297		48,962
Property and other taxes	13,078		5,952
Accrued self-insurance reserves	9,912		8,307
Other	22,200		42,271
Total other current liabilities	$	61,768	$	118,314

Other non-current liabilities


(In thousands)	November 28, 2020		February 29, 2020
Deferred benefit from New Market Tax Credit transactions	$	15,717	$	15,717
Retirement plan obligations	8,138		8,294
Deferred compensation plan	8,437		8,452
Deferred tax liabilities	20,014		7,940
Other	28,963		16,459
Total other non-current liabilities	$	81,269	$	56,862

4.Financial Instruments

Marketable securities

Through our wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), we hold the following available-for-sale marketable securities, made up of municipal and corporate bonds:


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
November 28, 2020	$	12,556	$	459	$	—	$	13,015
February 29, 2020	11,692		275		—		11,967

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.

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The amortized cost and estimated fair values of these bonds at November 28, 2020, 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	$	771	$	779
Due after one year through five years	7,682		7,978
Due after five years through 10 years	3,303		3,428

Due beyond 15 years	800		830
Total	$	12,556	$	13,015

Derivative instruments

In August 2019, we entered into an interest rate swap to hedge exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility. As of November 28, 2020, the interest rate swap contract had a notional value of $55 million.

We periodically enter into forward purchase foreign currency cash flow hedge contracts and forward purchase aluminum hedge contracts, generally with an original maturity date of less than one year, to hedge foreign currency exchange rate risk and future purchases of aluminum in certain of our architectural businesses. As of November 28, 2020, we held foreign exchange forward contracts and aluminum forward contracts with U.S. dollar notional values of $18.7 million and $1.9 million, respectively, with the objective of reducing the exposure to fluctuations in the Canadian dollar, the Euro and the price of aluminum.

These derivative instruments are recorded within our consolidated balance sheets within other current assets and liabilities. Gains or losses associated with these instruments are recorded as a component of accumulated other comprehensive income.

Fair value measurements

Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 financial assets or liabilities.


(In thousands)	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Total Fair Value
November 28, 2020
Assets:
Money market funds	$	27,000	$	—	$	27,000
Commercial paper	—		4,300		4,300
Municipal and corporate bonds	—		13,015		13,015
Cash surrender value of life insurance	—		17,704		17,704
Foreign currency and aluminum forward/option contracts	—		896		896

Liabilities:
Deferred compensation	—		14,027		14,027

Interest rate swap contract	—		676		676

February 29, 2020
Assets:
Money market funds	$	2,689	$	—	$	2,689
Commercial paper	—		1,500		1,500
Municipal and corporate bonds	—		11,967		11,967
Cash surrender value of life insurance	—		16,560		16,560
Liabilities:
Deferred compensation	—		14,042		14,042
Foreign currency forward/option contract	—		340		340
Interest rate swap contract	—		561		561

Table of Contents

Money market funds and commercial paper

Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets. These assets are included within cash and cash equivalents on our consolidated balance sheets.

Municipal and corporate bonds

Municipal and corporate bonds were measured at fair value based on market prices from recent trades of similar securities and are classified within our consolidated balance sheets as other current or other non-current assets based on maturity date.

Cash surrender value of life insurance and deferred compensation

Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. Changes in cash surrender value are recorded in other expense. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.

Derivative instruments

The interest rate swap is measured at fair value using other observable market inputs, based off of benchmark interest rates. Forward foreign exchange and forward purchase aluminum contracts are measured at fair value using other observable market inputs, such as quotations on forward foreign exchange points, foreign currency exchange rates, and forward purchase aluminum prices. Derivative positions are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are our primary source for forward and spot rate information for both interest and currency rates and aluminum prices.

5.Goodwill and Other Identifiable Intangible Assets

Goodwill

Goodwill represents the excess of the cost over the net tangible and identified intangible assets of acquired businesses. We evaluate goodwill for impairment annually at our year-end, or more frequently if events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. Evaluating goodwill for impairment involves the determination of the fair value of each reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. A reporting unit is an operating segment or a component of an operating segment for which discrete financial information is available and reviewed by management on a regular basis.

In the third quarter of fiscal 2021, we changed the date of our annual goodwill impairment testing from our year-end to the first day in our fiscal fourth quarter. This change results in better alignment of the annual impairment testing with our strategic and annual planning processes. This change was determined to not be material and had no impact on our current or historical consolidated financial statements.

During the first quarter of fiscal 2021, we identified qualitative indicators of impairment, including a significant decline in our stock price and market capitalization, along with concerns resulting from the COVID-19 pandemic at four of our nine identified reporting units. Therefore, we performed an interim goodwill impairment evaluation as of May 30, 2020. Based on the results of the interim quantitative goodwill impairment analysis, the estimated fair value of each reporting unit exceeded its carrying value and, therefore, goodwill impairment was not indicated as of May 30, 2020. However, the estimated fair value did not exceed carrying value by a significant margin at two reporting units within the Architectural Framing Systems segment, EFCO and Sotawall, which had goodwill balances of $90.4 million and $26.7 million, respectively, at May 30, 2020. We utilized a discount rate of