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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 August 26, 2023
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)
 _________________________________
Minnesota41-0919654
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4400 West 78th Street, Suite 520MinneapolisMinnesota55435
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (952835-1874
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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.33 1/3 per shareAPOGThe Nasdaq Stock Market LLC
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
x
  Accelerated filer
Non-accelerated filero  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 September 29, 2023, 22,072,357 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.



APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
 
  
 Page
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
3

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except stock data)August 26, 2023February 25, 2023
Assets
Current assets
Cash and cash equivalents$18,423 $19,924 
Restricted cash 1,549 
Receivables, net
205,720 197,267 
Inventories72,775 78,441 
Contract assets50,360 59,403 
Other current assets29,036 26,517 
Total current assets376,314 383,101 
Property, plant and equipment, net of accumulated depreciation of $449,110 and $431,710
245,541 248,867 
Operating lease right-of-use assets41,049 41,354 
Goodwill129,143 129,026 
Intangible assets, net65,303 67,375 
Other non-current assets51,229 45,642 
Total assets$908,579 $915,365 
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable$78,323 $86,549 
Accrued compensation and benefits34,156 51,651 
Contract liabilities32,498 28,011 
Operating lease liabilities12,168 11,806 
Other current liabilities67,141 64,532 
Total current liabilities224,286 242,549 
Long-term debt145,675 169,837 
Non-current operating lease liabilities31,962 33,072 
Non-current self-insurance reserves32,933 29,316 
Other non-current liabilities41,405 44,183 
Commitments and contingent liabilities (Note 7)
Shareholders’ equity
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares; issued and outstanding 22,072,123 and 22,224,299, respectively
7,357 7,408 
Additional paid-in capital147,413 146,816 
Retained earnings308,248 273,740 
Accumulated other comprehensive loss(30,700)(31,556)
Total shareholders’ equity432,318 396,408 
Total liabilities and shareholders’ equity$908,579 $915,365 
See accompanying notes to consolidated financial statements.

4

Table of Contents
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
Three Months EndedSix Months Ended
(In thousands, except per share data)August 26, 2023August 27, 2022August 26, 2023August 27, 2022
Net sales$353,675 $372,109 $715,388 $728,744 
Cost of sales258,304 287,173 527,031 558,191 
Gross profit95,371 84,936 188,357 170,553 
Selling, general and administrative expenses54,818 52,864 114,037 105,265 
Operating income40,553 32,072 74,320 65,288 
Interest expense, net2,230 1,698 4,266 2,904 
Other (income) expense, net(4,900)173 (4,612)1,483 
Earnings before income taxes43,223 30,201 74,666 60,901 
Income tax expense (benefit)9,896 (7,188)17,763 781 
Net earnings$33,327 $37,389 $56,903 $60,120 
Basic earnings per share$1.54 $1.71 $2.61 $2.72 
Diluted earnings per share$1.52 $1.68 $2.57 $2.66 
Weighted average basic shares outstanding21,708 21,860 21,813 22,129 
Weighted average diluted shares outstanding21,962 22,245 22,105 22,563 
See accompanying notes to consolidated financial statements.

5

Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited)
Three Months EndedSix Months Ended
(In thousands)August 26, 2023August 27, 2022August 26, 2023August 27, 2022
Net earnings$33,327 $37,389 $56,903 $60,120 
Other comprehensive earnings (loss):
Unrealized (loss) gain on marketable securities, net of $(8), $(28), $25 and $(102) of tax (benefit) expense, respectively
(28)(106)93 (382)
Unrealized gain (loss) on derivative instruments, net of $66, $(152), $(55) and $(1,469) of tax expense (benefit), respectively
217 (500)(180)(4,816)
Foreign currency translation adjustments508 (2,777)943 (1,045)
Other comprehensive earnings (loss)697 (3,383)856 (6,243)
Total comprehensive earnings$34,024 $34,006 $57,759 $53,877 

See accompanying notes to consolidated financial statements.

6

Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(In thousands)August 26, 2023August 27, 2022
Operating Activities
Net earnings$56,903 $60,120 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization20,661 21,448 
Share-based compensation4,483 3,394 
Deferred income taxes(4,281)6,858 
Gain on disposal of assets(62)(695)
Proceeds from New Markets Tax Credit transaction, net of deferred costs 18,390 
Settlement of New Markets Tax Credit transaction(4,687)(19,523)
Noncash lease expense6,153 6,160 
Other, net(1,121)3,836 
Changes in operating assets and liabilities:
Receivables(8,238)(71,720)
Inventories5,841 (17,636)
Contract assets8,992 6,754 
Accounts payable and accrued expenses(21,096)(11,793)
Contract liabilities4,244 20,927 
Refundable and accrued income taxes4,292 (20,486)
Operating lease liability(6,608)(6,684)
Prepaid expenses and other current assets(2,912)(1,993)
Net cash provided (used) by operating activities62,564 (2,643)
Investing Activities
Capital expenditures(15,018)(9,255)
Proceeds from sales of property, plant and equipment143 4,122 
Purchases of marketable securities(969) 
Sales/maturities of marketable securities775 450 
Net cash used by investing activities(15,069)(4,683)
Financing Activities
Borrowings on line of credit174,853 409,880 
Repayment on debt (151,000)
Payments on line of credit(199,000)(171,000)
Payments on debt issue costs (687)
Repurchase and retirement of common stock(11,821)(74,312)
Dividends paid(10,467)(9,602)
Other, net(3,705)(2,815)
Net cash (used) provided by financing activities(50,140)464 
Decrease in cash, cash equivalents and restricted cash(2,645)(6,862)
Effect of exchange rates on cash(405)28 
Cash, cash equivalents and restricted cash at beginning of year21,473 37,583 
Cash and cash equivalents at end of period$18,423 $30,749 
Noncash Activity
Capital expenditures in accounts payable$2,493 $2,019 
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 CapitalRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal Shareholders' Equity
Balance at February 25, 202322,224 $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 cancellations155 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, 202322,219 $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 options25 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, 202322,072 $7,357 $147,413 $308,248 $(30,700)$432,318 

(In thousands)Common Shares Outstanding
Common Stock at Par Value
Additional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal Shareholders' Equity
Balance at February 26, 202223,701 7,901 149,713 254,825 (26,240)386,199 
Net earnings— — — 22,731 — 22,731 
Other comprehensive loss, net of tax— — — — (2,860)(2,860)
Issuance of stock, net of cancellations100 33 23 — — 56 
Share-based compensation— — 1,597 — — 1,597 
Share repurchases(1,571)(524)(10,350)(63,438)— (74,312)
Other share retirements(30)(10)(198)(1,120)— (1,328)
Cash dividends— — — (4,793)— (4,793)
Balance at May 28, 202222,200 $7,400 $140,785 $208,205 $(29,100)$327,290 
Net earnings— — — 37,389 — 37,389 
Other comprehensive loss, net of tax— — — — (3,383)(3,383)
Issuance of stock, net of cancellations(14)(5)61 — — 56 
Share-based compensation— — 1,797 — — 1,797 
Exercise of stock options36 12 (954)— — (942)
Other share retirements(13)(4)(114)(540)— (658)
Cash dividends— — — (4,809)— (4,809)
Balance at August 27, 202222,209 $7,403 $141,575 $240,245 $(32,483)$356,740 

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. The information included in this Form 10-Q should be read in conjunction with the Company’s Form 10-K for the year ended February 25, 2023. We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly and year to date operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three- and six-month periods ended August 26, 2023 are not necessarily indicative of the results to be expected for the full year.

Reclassifications
Certain reclassifications of amounts previously reported have been made to the accompanying consolidated balance sheets, consolidated statements of cash flows and notes to consolidated financial statements to conform to current year presentation of contract assets and liabilities. These reclassifications had no impact on reported cash flows or total assets and liabilities.

Adoption of new accounting standards
In the first quarter, we adopted the guidance in ASU 2022-04, Liabilities – Supplier Finance Programs, Disclosure of Supplier Finance Program Obligations. The guidance requires that entities that use supplier finance programs disclose information about the nature and potential magnitude of the programs, activity during the period, and changes from period to period. Beginning in the first quarter, we implemented a supplier financing arrangement with U.S. Bank that enables our suppliers, at their sole discretion, to sell their Apogee receivables (i.e., our payment obligations to the suppliers) to U.S. Bank on a non-recourse basis in order to be paid earlier than our payment terms provide. Our suppliers’ voluntary inclusion of invoices in the supplier financing arrangement has no bearing on our payment terms, the amounts we pay, or our liquidity. We have no economic interest in a supplier’s decision to participate in the supplier financing program, and we do not provide any guarantees in connection with it. As of August 26, 2023, $4.9 million of obligations remained outstanding that we have confirmed as valid to the administrators of our program with U.S. Bank. These balances are reflected in accounts payable in the consolidated balance sheets and are reflected in net cash provided (used by) operating activities in our consolidated statements of cash flows when settled.

2.Revenue, Receivables and Contract Assets and Liabilities

Revenue
The following table disaggregates total revenue by timing of recognition (see Note 11 for disclosure of revenue by segment):
Three Months EndedSix Months Ended
(In thousands)August 26, 2023August 27, 2022August 26, 2023August 27, 2022
Recognized at shipment$152,240 $174,693 $304,895 $335,857 
Recognized over time201,435 197,416 410,493 392,887 
Total$353,675 $372,109 $715,388 $728,744 

Receivables
Receivables reflected in the financial statements represent the net amount expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecast economic conditions and other relevant factors. Upon billing, aging of receivables is monitored until collection. An account is considered current when it is within agreed upon payment terms. An account is written off when it is determined that the asset is no longer collectible.
(In thousands)August 26, 2023February 25, 2023
Trade accounts$138,283 $140,732 
Construction contracts70,742 58,331 
Total receivables209,025 199,063 
Less: allowance for credit losses3,305 1,796 
Receivables, net$205,720 $197,267 
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The following table summarizes the activity in the allowance for credit losses for the six-month period ended:
(In thousands)August 26, 2023
Beginning balance$1,796 
Additions charged to costs and expenses1,594 
Deductions from allowance, net of recoveries(95)
Foreign currency effects10 
Ending balance$3,305 

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 disclosuresThree Months EndedSix Months Ended
(In thousands)August 26, 2023August 27, 2022August 26, 2023August 27, 2022
Revenue recognized related to contract liabilities from prior year-end$2,249 $4,978 $24,956 $33,157 
Revenue recognized related to prior satisfaction of performance obligations4,477 4,770 4,904 4,946 

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 26, 2023 are expected to be satisfied, and the corresponding revenue to be recognized, over the following estimated time periods:
(In thousands)August 26, 2023
Within one year
$444,579 
Within two years
256,248 
Beyond two years
49,970 
Total$750,797 

3.Inventories

Inventories
(In thousands)August 26, 2023February 25, 2023
Raw materials$36,465 $36,869 
Work-in-process15,543 18,024 
Finished goods20,767 23,548 
Total inventories$72,775 $78,441 




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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 CostGross Unrealized GainsGross Unrealized LossesEstimated
Fair Value
August 26, 2023$10,778 $2 $588 $10,192 
February 25, 202310,647  702 9,945 

Prism insures a portion of our general liability, workers’ compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments for the purpose of providing collateral for Prism’s obligations under the reinsurance agreements.

The amortized cost and estimated fair values of these investments at August 26, 2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without penalty.
(In thousands)Amortized CostEstimated Fair Value
Due within one year$2,717 $2,675 
Due after one year through five years8,061 7,517 
Total$10,778 $10,192 

Derivative instruments
We use interest rate swaps, foreign exchange contracts, commodity swaps and forward purchase contracts to manage risks generally associated with foreign exchange rate, interest rate and commodity price fluctuations. The information that follows explains the various types of derivatives and financial instruments we use, how such instruments are accounted for, and how such instruments impact our financial position and performance.

In fiscal 2020, we entered into an interest rate swap to hedge exposure to variability in cash flows from interest payments on our floating-rate revolving credit facility. As of August 26, 2023, the interest rate swap contract had a notional value of $30.0 million and has a maturity date of February 5, 2026.

We periodically enter into forward purchase contracts and/or fixed/floating swaps to manage the risk associated with fluctuations in aluminum prices and fluctuations in foreign exchange rates. These contracts generally have an original maturity date of less than one year. As of August 26, 2023, we held aluminum fixed/floating swaps and foreign exchange contracts with U.S. dollar notional values of $12.9 million and $1.6 million, respectively.

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

Fair value measurements
Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 financial assets or liabilities.
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(In thousands)Quoted Prices in
Active Markets
(Level 1)
Other Observable Inputs (Level 2)Total Fair Value
August 26, 2023
Assets:
Money market funds$9,385 $— $9,385 
Municipal and corporate bonds— 10,192 10,192 
Foreign currency option contract— 9 9 
Interest rate swap contract— 1,748 1,748 
Liabilities:
Aluminum hedging contract— 1,034 1,034 
February 25, 2023
Assets:
Money market funds$8,062 $— $8,062 
Municipal and corporate bonds— 9,945 9,945 
Interest rate swap contract— 1,817 1,817 
Liabilities:
Foreign currency forward/option contract— 206 206 
Aluminum hedging contract— 1,075 1,075 

5.Goodwill and Other Intangible Assets

Goodwill
Goodwill represents the excess of the cost over the value of net tangible and identified intangible assets of acquired businesses. We evaluate goodwill for impairment annually as of the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

At the beginning of the first quarter of fiscal 2023, we began management of the Sotawall and Harmon businesses under the Architectural Services segment in order to create a single, unified offering for larger custom curtainwall projects, which resulted in the combination of the Sotawall and Harmon reporting units into a single reporting unit. We evaluated goodwill on a qualitative basis prior to and subsequent to this change for these reporting units and concluded that no adjustment to the carrying value of goodwill was necessary. Concurrent with the move of Sotawall from the Architectural Framing Systems segment to the Architectural Services segment effective at the start of our first quarter of fiscal 2023, goodwill was reallocated to the affected reporting units within each segment, using a relative fair value approach as outlined in ASC 350, Intangibles - Goodwill and Other.

During the second quarter of fiscal 2024, we did not identify any qualitative indicators of impairment at any of our reporting units, and therefore, no interim quantitative goodwill impairment evaluation was performed.

The following table presents the carrying amount of goodwill attributable to each reporting segment including the amount of goodwill that was reallocated from the Architectural Framing Systems segment to the Architectural Services segment using the relative fair value approach during the first quarter of fiscal 2023:
(In thousands)Architectural Framing SystemsArchitectural GlassArchitectural ServicesLarge-Scale
Optical
Total
Balance at February 26, 2022$93,181 $25,244 $1,120 $10,557 $130,102 
Reallocation among reporting units (1)
(2,048) 2,048   
Foreign currency translation(996)57 (137) (1,076)
Balance at February 25, 202390,137 25,301 3,031 10,557 129,026 
Foreign currency translation6 111   117 
Balance at August 26, 2023$90,143 $25,412 $3,031 $10,557 $129,143 
(1) Represents the reallocation of goodwill as a result of transitioning Sotawall from the Architectural Framing Systems segment to the Architectural Services segment as of the start of the first quarter of fiscal 2023.


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Other intangible assets
Indefinite-lived intangible assets
We have intangible assets for certain acquired trade names and trademarks which are determined to have indefinite useful lives. We test indefinite-lived intangible assets for impairment annually at the same measurement date as goodwill, the first day of our fiscal fourth quarter, or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. During the second quarter of fiscal 2024, we did not identify any qualitative indicators of impairment at any of our reporting units, and therefore, no interim quantitative intangible impairment evaluation was performed.

Finite-lived intangible assets
Long-lived assets or asset groups, including intangible assets subject to amortization and property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. We use undiscounted cash flows to determine whether impairment exists and measure any impairment loss using discounted cash flows to determine the fair value of long-lived assets.

The gross carrying amount of other intangible assets and related accumulated amortization was:

(In thousands)Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Currency
Translation
Net
August 26, 2023
Definite-lived intangible assets:
Customer relationships$86,798 $(51,317)$138 $35,619 
Other intangibles38,360 (35,641)112 2,831 
Total125,158 (86,958)250 38,450 
Indefinite-lived intangible assets:
Trademarks26,851 — 2 26,853 
Total intangible assets$152,009 $(86,958)$252 $65,303 
February 25, 2023
Definite-lived intangible assets:
Customer relationships$89,495 $(49,404)$(2,697)$37,394 
Other intangibles39,404 (35,229)(1,045)3,130 
Total128,899 (84,633)(3,742)40,524 
Indefinite-lived intangible assets:
Trademarks27,129 — (278)26,851 
Total intangible assets$156,028 $(84,633)$(4,020)$67,375 

Amortization expense on definite-lived intangible assets was $2.0 million and $2.1 million for the six-month periods ended August 26, 2023 and August 27, 2022, respectively. Amortization expense of other identifiable intangible assets is included in selling, general and administrative expenses. At August 26, 2023, the estimated future amortization expense for definite-lived intangible assets was:
(In thousands)Remainder of 20242025202620272028
Estimated amortization expense$2,114 $4,228 $4,211 $4,380 $3,913 

6.Debt

As of August 26, 2023, we had a committed revolving credit facility with Wells Fargo Bank, N.A. as administrative agent, and other lenders (U.S. credit facility) with maximum borrowings of up to $385 million and a maturity date of August 5, 2027. Outstanding borrowings under the revolving credit facility were $130.0 million and $156.0 million as of August 26, 2023 and February 25, 2023, respectively.

We also maintain two Canadian committed, revolving credit facilities with the Bank of Montreal totaling $25.0 million USD (Canadian facilities). The Canadian facilities expire annually in February, but can be renewed each year solely at our discretion until August 2027. Therefore, we have classified all outstanding amounts under these facilities as long-term debt within our consolidated balance sheets. At August 26, 2023 and February 25, 2023, outstanding borrowings under these Canadian facilities were $3.7 million and $1.8 million, respectively.

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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 August 26, 2023, we were in compliance with both financial covenants.

The U.S. credit facility 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 debt-to-EBITDA ratio to 3.75 for a period of four consecutive fiscal quarters, commencing with the fiscal quarter in which a qualifying acquisition occurs. No more than two acquisition "holidays" can occur during the term of the facility, and at least two fiscal quarters must separate qualifying acquisitions.

Borrowings under the credit facilities bear floating interest at either the Base Rate or Term SOFR, plus a margin based on the Leverage Ratio (as defined in the Credit Agreement). For Base Rate borrowings, the margin ranges from 0.125% to 0.75%. For Term SOFR borrowings, the margin ranges from 1.135% to 1.85%.

The U.S. credit 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.

At August 26, 2023, we had a total of $15.2 million of ongoing letters of credit related to industrial revenue bonds, construction contracts and insurance collateral that expire in fiscal year 2025 and reduce borrowing capacity under the revolving credit facility. As of August 26, 2023, the amount available for revolving borrowings was $239.8 million and $21.3 million under the Wells Fargo credit facility and Bank of Montreal credit facilities, respectively.

At August 26, 2023, debt included $12.0 million of industrial revenue bonds that mature in fiscal years 2036 through 2043.

The fair value of our U.S. credit facility, Canadian credit facilities and industrial revenue bonds approximated carrying value at August 26, 2023, and would be classified as Level 2 within the fair value hierarchy described in Note 4, due to the variable interest rates on these instruments..

Interest payments under the U.S. and Canadian credit facilities were $5.4 million and $2.8 million for the six months ended August 26, 2023 and August 27, 2022, respectively.

7.Commitments and Contingent Liabilities

Bond commitments
In the ordinary course of business, predominantly in our Architectural Services and Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At August 26, 2023, $1.3 billion of these types of bonds were outstanding, of which $452.4 million is in our backlog. These bonds do not have stated expiration dates. We have never been required to make payments under surety or performance bonds with respect to our existing businesses.

Warranty and project-related contingencies
We reserve estimated exposures on known claims, as well as on a portion of anticipated claims, for product warranty and rework cost, based on historical product liability claims as a ratio of sales. Claim costs are deducted from the accrual when paid. Factors that could have an impact on these accruals in any given period include the following: changes in manufacturing quality, changes in product mix, and any significant changes in sales volume.
 Six Months Ended
(In thousands)August 26, 2023August 27, 2022
Balance at beginning of period$17,893 $13,923 
Additional accruals8,887 6,918 
Claims paid(4,440)(4,201)
Balance at end of period$22,340 $16,640 

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 certain of our Architectural Framing Systems businesses. We manage the risk of these exposures through contract negotiations, proactive project management and insurance coverages.


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Letters of credit
At August 26, 2023, we had $15.2 million of ongoing letters of credit, all of which have been issued under our committed revolving credit facility, as discussed in Note 6. We also have a $3.4 million letter of credit which has been issued outside our committed revolving credit facility, with no impact on our borrowing capacity and debt covenants.

Purchase obligations
Purchase obligations for raw material commitments and capital expenditures totaled $30.4 million as of August 26, 2023.

New Markets Tax Credit (NMTC) transactions
We have two outstanding NMTC arrangements which help to support operational expansion. Proceeds received from investors on these transactions are included within other non-current liabilities in our consolidated balance sheets. The NMTC arrangements are subject to 100 percent tax credit recapture for a period of seven years from the date of each respective transaction. Upon the termination of each arrangement, these proceeds will be recognized in earnings in exchange for the transfer of tax credits. The direct and incremental costs incurred in structuring these arrangements have been deferred and are included in other non-current assets in our consolidated balance sheets. These costs will be recognized in conjunction with the recognition of the related proceeds on each arrangement. During the construction phase or for working capital purposes for each project, we are required to hold cash dedicated to fund each project which is classified as restricted cash in our consolidated balance sheets. Variable-interest entities, which have been included within our consolidated financial statements, have been created as a result of the structure of these transactions, as investors in the programs do not have a material interest in their underlying economics.

During the second quarter ended August 26, 2023, one NMTC transaction was settled as expected and as a result, a $4.7 million benefit was recorded in other (income) expense, net.

The table below provides a summary of estimated benefits related to our outstanding NMTC transactions (in thousands):
Inception dateTermination dateDeferred BenefitDeferred costsNet benefit
May 2022(1)
August 2025$6,052 $1,604 $4,448 
September 2018September 2025$3,198 $1,031 $2,167 
Total$9,250 $2,635 $6,615 
(1) Continuation of the August 2018 NMTC financing transaction

Litigation
The Company is a party to various legal proceedings incidental to its normal operating activities. In particular, like others in the construction supply and services industry, the Company is routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We have in the past and are currently subject to product liability and warranty claims, including certain legal claims related to a commercial sealant product formerly incorporated into our products. In December 2022, the claimant in an arbitration of one such claim was awarded $20 million. The Company has appealed the award and believes, after taking into account all currently available information, including the advice of counsel and the likelihood of available insurance coverage, that this award will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. The Company is also subject to litigation arising out of areas such as employment practices, workers compensation and general liability matters. Although it is very difficult to accurately predict the outcome of any such proceedings, facts currently available indicate that no matters will result in losses that would have a material adverse effect on the results of operations, cash flows or financial condition of the Company.

8.Share-Based Compensation

As part of our compensation structure, we grant stock-based compensation awards to certain employees and non-employee directors during the fiscal year. These awards may be in the form of incentive stock options (to employees only), nonstatutory options, or nonvested share awards and units, all of which are granted at a price or with an exercise price equal to the fair market value of the Company’s stock at the date of award. Refer to our Form 10-K for further information on our share-based compensation plans.

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The table below sets forth the number of stock-based compensation awards granted during the six-months ended August 26, 2023, along with the weighted average grant date fair value:

AwardsNumber of AwardsWeighted Average Exercise Price
Restricted stock awards and restricted stock units(1)
180,450 $42.80 
Performance share units ("PSUs")(2)
48,483 $43.59 
(1) Represent service condition awards which generally vest over a two- or three-year period.
(2) Represent performance condition awards with the grant equal to the target number of performance shares based on the share price at grant date. These grants allow for the right to receive a variable number of shares, between 0% and 200% of target, dependent on achieving a defined performance goal of return on invested capital and being employed at the end of the performance period.

Total share-based compensation expense included in the results of operations was $4.5 million for the six-month period ended August 26, 2023, and $3.4 million for the six-month period ended August 27, 2022.

At August 26, 2023, there was $11.0 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 22 months. The total fair value of shares vested during the six months ended August 26, 2023 was $5.5 million.

9.Income Taxes

We file income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, Canada, Brazil and other international jurisdictions. We are no longer subject to U.S. federal tax examinations for years prior to fiscal 2020, or state and local income tax examinations for years prior to fiscal 2015. We are not currently under U.S. federal examination for years subsequent to fiscal year 2019, and there is very limited audit activity of our income tax returns in U.S. state jurisdictions or international jurisdictions.

The total liability for unrecognized tax benefits was $5.3 million at August 26, 2023 and at February 25, 2023, respectively. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense.

10.Earnings per Share

The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share (diluted EPS):
Three Months EndedSix Months Ended
(In thousands)August 26, 2023August 27, 2022August 26, 2023August 27, 2022
Basic earnings per share – weighted average common shares outstanding
21,708 21,860 21,813 22,129 
Weighted average effect of nonvested share grants and assumed exercise of stock options
254 385 292 434 
Diluted earnings per share – weighted average common shares and potential common shares outstanding
21,962 22,245 22,105 22,563 
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)
51 120 73 120 

11.Business Segment Data

We have four reporting segments:
The Architectural Framing Systems segment designs, engineers, fabricates and finishes aluminum window, curtainwall, storefront and entrance systems for the exterior of buildings.
The Architectural Glass segment coats and fabricates, high-performance glass used in custom window and wall systems on commercial buildings.
The Architectural Services segment integrates technical services, project management, and field installation services to design, engineer, fabricate, and install building glass and curtainwall systems.
The Large-Scale Optical (LSO) segment manufactures high-performance glass and acrylic products for custom framing, museum, and technical glass markets.

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Three Months EndedSix Months Ended
(In thousands)August 26, 2023August 27, 2022August 26, 2023August 27, 2022
Segment net sales
Architectural Framing Systems$158,801 $172,867 $322,963 $336,159 
Architectural Glass94,096 77,352 191,298 153,617 
Architectural Services88,064 106,732 177,482 210,120 
Large-Scale Optical23,645 25,166 46,101 50,328 
Intersegment eliminations(10,931)(10,008)(22,456)(21,480)
Net sales$353,675 $372,109 $715,388 $728,744 
Segment operating income (loss)
Architectural Framing Systems$21,060 $20,512 $41,005 $44,177 
Architectural Glass17,434 6,457 33,955 11,626 
Architectural Services3,519 5,490 2,923 8,417 
Large-Scale Optical4,663 5,991 10,188 12,489 
Corporate and other*(6,123)(6,378)(13,751)(11,421)
Operating income$40,553 $32,072 $74,320 $65,288 
*Corporate and other includes certain corporate expenses that are not allocated at a segment level.

Due to the varying combinations and integration of individual window, storefront and curtainwall systems, it is impractical to report product revenues generated by class of product, beyond the segment revenues currently reported.

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

Forward-looking statements
This Quarterly Report on Form 10-Q, including the section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All forecasts and projections in this document are “forward-looking statements,” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.

Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. Information about factors that could materially affect our results can be found in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended February 25, 2023 and in subsequent filings with the U.S. Securities and Exchange Commission, including this Quarterly Report on Form 10-Q.

We also wish to caution investors that other factors might in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measures
We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors, and include these measures in other communications to investors. For each of these non-GAAP financial measures, we are providing a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why we believe the non-GAAP measure provides useful information to investors, and any additional material purposes for which our management or Board of Directors uses the non-GAAP measure. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measure. Adjusted net earnings and adjusted earnings per diluted share (adjusted diluted EPS) are supplemental non-GAAP financial measures provided by the Company to assess performance on a more comparable basis from period-to-period by excluding amounts that management does not consider part of core operating results. Management uses these non-GAAP
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measures to evaluate the Company’s historical and prospective financial performance, measure operational profitability on a consistent basis, as a factor in determining executive compensation, and to provide enhanced transparency to the investment community.

Overview
We are a leader in the design and development of value-added glass and metal products and services. Our four reporting segments are: Architectural Framing Systems, Architectural Glass, Architectural Services and Large-Scale Optical (LSO).

The three key elements of our enterprise strategy are discussed below:
1.Become the economic leader in our target markets. We will achieve this by developing a deep understanding of our target markets and aligning our businesses with clear go-to-market strategies to drive value for our customers through differentiated product and service offerings. We will also build a relentless focus on operational execution, driving productivity improvements, and maintaining a competitive cost structure, so that we may bring more value to our customers and improve our own profitability.
2.Actively manage our portfolio to drive higher margins and returns. We intend to shift our business mix toward higher operating margin offerings and improve our return on invested capital performance. We will accomplish this by allocating resources to grow our top performing businesses, actively addressing underperforming businesses, and investing to add new differentiated product and service offerings to accelerate our growth.
3.Strengthen our core capabilities. We are shifting from our historical, decentralized operating model, to one with center-led functional expertise that enables us to leverage the scale of the enterprise to better support the needs of the business. We are establishing a Company-wide operating system with common tools and processes that are based on the foundation of Lean and Continuous Improvement, which we are calling "Apogee Management System or AMS". This will be supported by a robust talent management program and a commitment to strong governance to ensure compliance and drive sustainable performance.

We have made significant progress toward executing our enterprise strategy and underlying financial targets. We advanced our AMS initiatives, which have resulted in meaningful productivity improvements, particularly in Architectural Glass. We increased our focus on differentiated products and services, and effectively managed pricing to share in the value we delivered for our customers. We have focused on sustainable cost improvements and improvements to quality, service and delivery, while shifting mix toward more differentiated offerings. We integrated the Sotawall business into the Architectural Services segment, in order to create a single, unified offering for larger custom curtainwall projects. We advanced several initiatives to strengthen our core capabilities, driving the standardization of key business processes and systems. We also relaunched our talent development and leadership training programs and added key talent across the organization.

The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended February 25, 2023 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.

Results of Operations
The following tables provide various components of operations as year over year U.S. dollar and percentage change, as well as a percentage of net sales.
Three Months Ended
% of Net Sales
(in thousands, except percentages)
August 26, 2023August 27, 2022
$ Change
% Change
August 26, 2023August 27, 2022
Net sales$353,675 $372,109 $(18,434)(5.0)%100.0 %100.0 %
Cost of sales258,304 287,173 (28,869)(10.1)73.0 77.2 
Gross profit95,371 84,936 10,435 12.3 27.0 22.8 
Selling, general and administrative expenses54,818 52,864 1,954 3.7 15.5 14.2 
Operating income40,553 32,072 8,481 26.4 11.5 8.6 
Interest expense, net2,230 1,698 532 31.3 0.6 0.5 
Other (income) expense, net(4,900)173 (5,073)N/M(1.4)— 
Earnings before income taxes43,223 30,201 13,022 43.1 12.2 8.1 
Income tax expense (benefit)9,896 (7,188)17,084 N/M2.8 (1.9)
Net earnings$33,327 $37,389 $(4,062)(10.9)%9.4 %10.0 %
Effective tax rate22.9 %(23.8)%

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Six Months Ended
% of Net Sales
(in thousands, except percentages)
August 26, 2023August 27, 2022
$ Change
% Change
August 26, 2023August 27, 2022
Net sales$715,388 $728,744 $(13,356)(1.8)%100.0 %100.0 %
Cost of sales527,031 558,191 (31,160)(5.6)73.7 76.6 
Gross profit188,357 170,553 17,804 10.4 26.3 23.4 
Selling, general and administrative expenses114,037 105,265 8,772 8.3 15.9 14.4 
Operating income74,320 65,288 9,032 13.8 10.4 9.0 
Interest expense, net4,266 2,904 1,362 46.9 0.6 0.4 
Other (income) expense, net(4,612)1,483 (6,095)N/M(0.6)0.2 
Earnings before income taxes74,666 60,901 13,765 22.6 10.4 8.4 
Income tax expense
17,763 781 16,982 2,174.42.5 0.1 
Net earnings$56,903 $60,120 $(3,217)(5.4)%8.0 %8.2 %
Effective tax rate23.8 %1.3 %

Comparison of Second Quarter Fiscal 2024 to Second Quarter Fiscal 2023
Consolidated net sales decreased 5.0%, or $18.4 million, to $353.7 million, primarily reflecting lower volumes in Architectural Framing Systems and Architectural Services, partially offset by strong growth in the Architectural Glass segment.

Gross profit increased 12.3%, or $10.4 million, and gross margin increased to 27.0% compared to 22.8%. The improvement in gross margin was primarily driven by higher gross margins in both Architectural Glass and Architectural Framing Systems and the increased mix of Architectural Glass in the consolidated results. This was partially offset by lower margins in the Large-Scale Optical segment.

Selling, general and administrative expenses increased $2.0 million to 15.5% of net sales compared to 14.2%. The increase was primarily due to increased compensation-related expenses and higher consulting costs.

Operating income grew 26.4% to $40.6 million, and operating margin increased 290 basis points to 11.5%, primarily driven by improved operating margin in Architectural Glass as well as the Architectural Glass segment comprising a higher mix of the consolidated results.

Interest expense, net was $2.2 million compared to $1.7 million, reflecting a higher average interest rate, partially offset by a lower average debt level.

Other (income) expense, net included a $4.7 million pre-tax gain related to finalization of a New Markets Tax Credit transaction realized during the second quarter of fiscal 2024.

Income tax expense was $9.9 million, compared to a tax benefit of $7.2 million. The prior year period included a $13.7 million tax deduction for a worthless stock loss and related discrete tax benefits.

Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
Consolidated net sales decreased 1.8%, or $13.4 million to $715.4 million, primarily reflecting lower volumes in Architectural Framing Systems and Architectural Services, partially offset by improved pricing, mix and volumes in the Architectural Glass segment.

Gross profit increased 10.4%, or $17.8 million, to 26.3% of net sales compared to 23.4%. The gross margin improvement was driven primarily by higher margins in the Architectural Glass segment and the increased mix of that segment in consolidated results. This was partially offset by lower margins in the Architectural Services and Large Scale Optical segments.

Selling, general and administrative expenses increased $8.8 million to 15.9% of net sales compared to 14.4%. The increase in expenses was primarily due to increased compensation-related expenses, commissions and higher consulting costs.

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Operating income grew 13.8% to $74.3 million, and operating margin increased 140 basis points to 10.4%, primarily driven by improved operating margin in Architectural Glass as well as the Architectural Glass segment comprising a higher mix of the consolidated results.

Interest expense, net was $4.3 million compared to $2.9 million, reflecting a higher average interest rate, partially offset by a lower average debt level.

Other (income) expense, net included a $4.7 million pre-tax gain related to finalization of a New Markets Tax Credit transaction realized during the second quarter of fiscal 2024.

Income tax expense was $17.8 million, compared to tax expense of $0.8 million. The prior year period included a $13.7 million tax deduction for a worthless stock loss and related discrete tax benefits.

Segment Analysis
The following table presents net sales, operating income (loss) and operating margin by segment and consolidated total.
Three Months EndedSix Months Ended
(In thousands, except percentages)August 26, 2023August 27, 2022% ChangeAugust 26, 2023August 27, 2022% Change
Segment net sales
Architectural Framing Systems$158,801 $172,867 (8.1)%$322,963 $336,159 (3.9)%
Architectural Glass94,096 77,352 21.6 191,298 153,617 24.5 
Architectural Services88,064 106,732 (17.5)177,482 210,120 (15.5)
Large-Scale Optical23,645 25,166 (6.0)46,101 50,328 (8.4)
Intersegment eliminations(10,931)(10,008)9.2 (22,456)(21,480)4.5 
Net sales$353,675 $372,109 (5.0)%$715,388 $728,744 (1.8)%
Segment operating income (loss)
Architectural Framing Systems$21,060 $20,512 2.7 %$41,005 $44,177 (7.2)%
Architectural Glass17,434 6,457 170.0 33,955 11,626 192.1 
Architectural Services3,519 5,490 (35.9)2,923 8,417 (65.3)
Large-Scale Optical4,663 5,991 (22.2)10,188 12,489 (18.4)
Corporate and other*(6,123)(6,378)(4.0)(13,751)(11,421)20.4 
Operating income$40,553 $32,072 26.4 %$74,320 $65,288 13.8 %
Segment operating margin
Architectural Framing Systems13.3 %11.9 %12.7 %13.1 %
Architectural Glass18.5 8.3 17.7 7.6 
Architectural Services4.0 5.1 1.6 4.0 
Large-Scale Optical19.7 23.8 22.1 24.8 
Corporate and otherN/MN/MN/MN/M
Operating income8.6 %10.4 %9.0 %
N/M Indicates calculation not meaningful.

Architectural Framing Systems
Comparison of Second Quarter Fiscal 2024 to Second Quarter Fiscal 2023
Net sales decreased $14.1 million, or 8.1%, primarily reflecting lower volume, partially offset by a more favorable sales mix.

Operating income increased to $21.1 million, or 13.3% of net sales, compared to $20.5 million, or 11.9% of net sales. The operating margin improvement was primarily driven by improved sales mix and cost efficiencies, partially offset by the impact of lower volume.

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Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
Net sales decreased $13.2 million, or 3.9%, primarily reflecting lower volume, partially offset by more favorable sales mix and improved pricing.

Operating income decreased to $41.0 million, or 12.7% of net sales, compared to $44.2 million, or 13.1% of net sales. The operating margin decline was primarily driven by the impact of lower volume, as well as the unfavorable comparative impact of timing of inventory flows and aluminum prices in the prior year period. These items were partially offset by improved sales mix, favorable pricing and cost efficiencies.

Architectural Glass
Comparison of Second Quarter Fiscal 2024 to Second Quarter Fiscal 2023
Net sales increased $16.7 million, or 21.6%, primarily driven by improved pricing and mix, reflecting the strategic shift to emphasize premium, high performance products, as well as higher volume.

Operating income increased to $17.4 million, or 18.5% of net sales, compared to $6.5 million, or 8.3% of net sales. The operating margin improvement was primarily driven by the impact of improved pricing and mix, as well as higher volume, partially offset by cost inflation.

Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
Net sales increased $37.7 million, or 24.5%, driven by improved pricing, a more favorable sales mix, and higher volume, reflecting the segment's strategic shift to emphasize premium, high-performance products.

Operating income increased to $34.0 million, or 17.7% of net sales, compared to $11.6 million, or 7.6% of net sales. The operating margin improvement was primarily driven by the improved pricing and mix and the impact of higher volume, partially offset by cost inflation.

Architectural Services
Comparison of Second Quarter Fiscal 2024 to Second Quarter Fiscal 2023
Net sales decreased $18.7 million, or 17.5%, primarily reflecting lower project volume due to a higher mix of projects in earlier stages of completion.

Operating income was $3.5 million, or 4.0% of net sales, compared to $5.5 million, or 5.1% of net sales. The decline in operating margin was primarily driven by the impact of lower project volume.

Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
Net sales decreased $32.6 million, or 15.5%, primarily reflecting lower project volume due to a higher mix of projects in earlier stages of completion.

Operating income was $2.9 million, or 1.6% of net sales, compared to $8.4 million, or 4.0% of net sales. The decline in operating margin was primarily due to the impact of lower project volume.

Large-Scale Optical (LSO)
Comparison of Second Quarter Fiscal 2024 to Second Quarter Fiscal 2023
LSO net sales decreased $1.5 million, or 6.0%, primarily reflecting lower volume driven by customer inventory destocking, partially offset by a more favorable mix.

Operating income was $4.7 million, or 19.7% of net sales, compared to $6.0 million, or 23.8% of net sales. The decline in operating margin was primarily driven by the impact of lower volume, partially offset by improved price and mix.

Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
LSO net sales decreased $4.2 million, or 8.4%, primarily reflecting lower volume due to customer inventory destocking, partially offset by a more favorable mix.

Operating income was $10.2 million, or 22.1% of net sales, compared to $12.5 million, or 24.8% of net sales. The decline in operating margin was primarily driven by the impact of lower volume, partially offset by improved price and mix.
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Corporate and other
Comparison of Second Quarter Fiscal 2024 to Second Quarter Fiscal 2023
Our corporate and other expense was $6.1 million, compared to $6.4 million.

Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
Our corporate and other expense increased to $13.8 million, compared to $11.4 million, primarily due to an increase in compensation expense and higher consulting costs.

Backlog
Backlog represents the dollar amount of signed contracts or firm orders, generally as a result of a competitive bidding process, which may be expected to be recognized as revenue in the future. Backlog is not a term defined under U.S. GAAP and is not a measure of contract profitability. We view backlog as one indicator of future revenues, particularly in our longer-lead time businesses. In addition to backlog, we have a substantial amount of projects with short lead times that book-and-bill within the same reporting period and are not included in backlog. We also have visibility into future business commitments beyond backlog, as projects awarded, verbal commitments and bidding activities are not included in backlog.

Architectural Framing Systems
As of August 26, 2023, segment backlog was approximately $197 million, compared to approximately $221 million at the end of the prior quarter, and to approximately $286 million at the end of the second quarter of fiscal 2023. The reduction in backlog was primarily driven by a decline in our longer-cycle business, reflecting delays in award activity, and a continued strategic shift toward projects that allow for more attractive margins.

Architectural Services
As of August 26, 2023, segment backlog was approximately $674 million, compared to approximately $709 million at the end of the prior quarter, and to approximately $785 million at the end of the second quarter of fiscal 2023. The decline was primarily driven by delays in award activity.

Net earnings, diluted EPS, adjusted net earnings (non-GAAP), and adjusted diluted EPS (non-GAAP)

In order to provide a better understanding of the impact of certain items on our net earnings and diluted EPS, the tables that follow report the comparative impact of certain items on net earnings and diluted EPS for the periods presented below. Adjusted net earnings and adjusted diluted EPS are considered non-GAAP financial measures as contemplated by SEC Regulation G, Rule 100. For additional information regarding management’s decision to present this non-GAAP financial information, see the introduction to this Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Three Months EndedSix Months Ended
(In thousands)August 26, 2023August 27, 2022% changeAugust 26, 2023August 27, 2022% change
Net earnings$33,327 $37,389 (10.9)%$56,903 $60,120 (5.4)%
NMTC settlement gain(1)
(4,687)— (4,687)— 
Worthless stock deduction and related discrete tax benefits(2)
— (13,702)— (13,702)
Income tax impact on above adjustments1,148 — 1,148 — 
Adjusted net earnings$29,788 $23,687 25.8 %$53,364 $46,418 15.0 %
Three Months EndedSix Months Ended
August 26, 2023August 27, 2022% changeAugust 26, 2023August 27, 2022% change
Diluted EPS
$1.52 $1.68 (9.5)%$2.57 $2.66 (3.4)%
NMTC settlement gain(1)
(0.21)(0.21)— 
Worthless stock deduction and related discrete tax benefits(2)
— (0.62)— (0.61)
Income tax impact on above adjustments0.05 — 0.05 — 
Adjusted diluted EPS
$1.36 $1.06 28.3 %$2.41 $2.06 17.0 %
Weighted average diluted shares outstanding21,962 22,245 22,105 22,563 
(1)Realization of a New Market Tax Credit (NMTC) benefit during the second quarter of fiscal 2024, which was recorded in other (income) expense, net.
(2)
Worthless stock deduction and related discrete income tax benefits from the impairment of the Sotawall business in fiscal 2023, which were recorded in income tax expense (benefit).
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Comparison of Second Quarter Fiscal 2024 to Second Quarter Fiscal 2023
Net earnings were $33.3 million, compared to $37.4 million. Diluted EPS was $1.52, compared to $1.68.
Adjusted net earnings increased 25.8% to $29.8 million, compared to $23.7 million. Adjusted diluted EPS increased 28.3% to $1.36, compared to $1.06.

Comparison of First Six Months of Fiscal 2024 to First Six Months of Fiscal 2023
Net earnings were $56.9 million, compared to $60.1 million. Diluted EPS was $2.57, compared to $2.66.
Adjusted net earnings increased 15.0% to $53.4 million, compared to $46.4 million. Adjusted diluted EPS increased 17.0% to $2.41, compared to $2.06.

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

Operating Activities. Net cash provided by operating activities was $62.6 million for the first six months of fiscal 2024, compared to $2.6 million of net cash used by operating activities in the prior year period, primarily reflecting improved working capital in the current year period.

Investing Activities. Net cash used by investing activities was $15.1 million for the first six months of fiscal 2024, compared to $4.7 million in the prior year, driven primarily by higher capital expenditures to fund strategic initiatives.

Financing Activities. Net cash used by financing activities was $50.1 million for the first six months of fiscal 2024, compared to net cash provided by financing activities of $0.5 million in the prior year period. The increase in cash used for financing activities was primarily driven by higher net debt payments in the current year period.

We paid dividends totaling $10.5 million ($0.48 per share) in the first six months of fiscal 2024, compared to $9.6 million ($0.44 per share) in the comparable prior year period. During the first six months of fiscal 2024, we repurchased 279,916 shares under our authorized share repurchase program, for a total cost of $11.8 million. In the first six months of fiscal 2023, we repurchased 1,571,139 shares under the share repurchase program, for a total cost of $74.3 million. In fiscal 2004, announced on April 10, 2003, the Board of Directors authorized the repurchase of 1,500,000 shares of Company stock. The Board increased the authorization by 750,000 shares, announced on January 24, 2008; by 1,000,000 shares on each of the announcement dates of October 8, 2008, January 13, 2016, January 9, 2018, January 14, 2020, October 7, 2021, and June 22, 2022; and by 2,000,000 shares, on each of the announcement dates of October 3, 2018 and January 14, 2022. The repurchase program does not have an expiration date. Since the inception of the share repurchase program in 2004, we have purchased a total of 11,276,517 shares, at a total cost of $393.5 million. As of August 26, 2023, we had remaining authority to repurchase an additional 973,483 shares under this program. We may also elect to repurchase additional shares of common stock under our authorization, subject to limitations contained in our debt agreements and based upon our assessment of a number of factors, including share price, trading volume and general market conditions, working capital requirements, general business conditions, financial conditions, any applicable contractual limitations, and other factors, including alternative investment opportunities. We may finance share repurchases with available cash, additional debt or other sources of financing.

Additional Liquidity Considerations. We periodically evaluate our liquidity requirements, cash needs and availability of debt resources relative to acquisition plans, significant capital plans, and other working capital needs.

As of the end of the second quarter of fiscal 2024, we had a committed revolving credit facility in the U.S. with maximum borrowings of up to $385 million, with a maturity date of August 5, 2027, and two Canadian committed, revolving credit facilities totaling $25 million (USD). At August 26, 2023, we had outstanding borrowings under our committed, revolving credit facility of $130.0 million, and $3.7 million outstanding under the Canadian committed, revolving credit facilities. We are required to make periodic interest payments on our outstanding indebtedness, and future interest payments will be determined based on the amount of outstanding borrowings and prevailing interest rates during that time.

Our revolving credit facilities contain two maintenance financial covenants that require us to stay below a maximum debt-to-EBITDA ratio of 3.25 and maintain a minimum ratio of EBITDA-to-interest expense of 3.00. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At August 26, 2023, we were in compliance with both financial covenants (which a