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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 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)
 _________________________________
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 shareAPOGNASDAQ 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
x
  Accelerated filer
o
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 January 5, 2021, 26,007,703 shares of the registrant’s common stock, par value $0.33 1/3 per share, were outstanding.


Table of Contents
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 6.
3

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

CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except stock data)November 28, 2020February 29, 2020
Assets
Current assets
Cash and cash equivalents$55,413 $14,952 
Receivables, net172,877 196,806 
Inventories73,815 71,089 
Costs and earnings on contracts in excess of billings29,141 73,582 
Other current assets14,389 25,481 
Total current assets345,635 381,910 
Property, plant and equipment, net302,082 324,386 
Operating lease right-of-use assets62,950 52,892 
Goodwill192,883 185,516 
Intangible assets136,843 140,191 
Other non-current assets45,589 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 benefits40,170 40,119 
Billings on contracts in excess of costs and earnings25,945 32,696 
Operating lease liabilities12,098 11,272 
Current portion of debt2,000 5,400 
Other current liabilities61,768 118,314 
Total current liabilities211,700 276,857 
Long-term debt166,463 212,500 
Non-current operating lease liabilities53,122 43,163 
Non-current self-insurance reserves26,085 22,831 
Other non-current liabilities81,269 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 capital155,974 154,016 
Retained earnings414,749 388,010 
Common stock held in trust(183)(685)
Deferred compensation obligations183 685 
Accumulated other comprehensive loss(32,034)(34,062)
Total shareholders’ equity547,343 516,778 
Total liabilities and shareholders’ equity$1,085,982 $1,128,991 
See accompanying notes to consolidated financial statements.

4

Table of Contents
CONSOLIDATED RESULTS OF OPERATIONS
(unaudited)
Three Months EndedNine Months Ended
(In thousands, except per share data)November 28, 2020November 30, 2019November 28, 2020November 30, 2019
Net sales$313,583 $337,916 $922,162 $1,050,340 
Cost of sales243,998 263,606 716,139 808,856 
Gross profit69,585 74,310 206,023 241,484 
Selling, general and administrative expenses19,835 52,716 126,590 169,274 
Operating income49,750 21,594 79,433 72,210 
Interest expense, net1,502 1,995 4,240 7,176 
Other income, net472 231 684 599 
Earnings before income taxes48,720 19,830 75,877 65,633 
Income tax expense11,447 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 outstanding25,883 26,432 26,068 26,481 
Weighted average diluted shares outstanding26,225 26,750 26,350 26,776 
See accompanying notes to consolidated financial statements.

5

Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(unaudited)
Three Months EndedNine Months Ended
(In thousands)November 28, 2020November 30, 2019November 28, 2020November 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 adjustments899 (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.

6

Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
(In thousands)November 28, 2020November 30, 2019
Operating Activities
Net earnings$57,807 $49,956 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization38,000 34,681 
Share-based compensation6,163 4,617 
Deferred income taxes5,012 10,088 
Gain on disposal of assets(19,346)(623)
Noncash lease expense9,531 8,993 
Other, net(69)(2,007)
Changes in operating assets and liabilities:
Receivables24,153 (5,288)
Inventories(2,722)2,474 
Costs and earnings on contracts in excess of billings44,501 (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 taxes12,424 (6,159)
Operating lease liability(9,168)(7,468)
Other5,122 (951)
Net cash provided by operating activities120,512 53,601 
Investing Activities
Capital expenditures(17,116)(41,176)
Proceeds from sales of property, plant and equipment23,724 591 
Other(1,090)(857)
Net cash provided (used) by investing activities5,518 (41,442)
Financing Activities
Borrowings on line of credit193,332 108,000 
(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 equivalents40,332 (18,743)
Effect of exchange rates on cash129 32 
Cash, cash equivalents and restricted cash at beginning of year14,952 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.

7

Table of Contents
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(In thousands)Common Shares OutstandingCommon StockAdditional Paid-In CapitalRetained EarningsCommon Stock Held in TrustDeferred Compensation ObligationAccumulated Other Comprehensive (Loss) IncomeTotal Shareholders' Equity
Balance at February 29, 202026,443 $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 cancellations183 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, 202026,369 $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 cancellations121 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, 202026,467 $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 cancellations10 3 15 — 524 (524)— 18 
Share-based compensation— — 2,501 — — — — 2,501 
Exercise of stock options127 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, 202025,962 $8,654 $155,974 $414,749 $(183)$183 $(32,034)$547,343 







See accompanying notes to consolidated financial statements.

8

Table of Contents

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(In thousands)Common Shares OutstandingCommon StockAdditional Paid-In CapitalRetained EarningsCommon Stock Held in TrustDeferred Compensation ObligationAccumulated Other Comprehensive (Loss) IncomeTotal Shareholders' Equity
Balance at March 2, 201927,015 $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 cancellations79 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, 201926,530 $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 cancellations44 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, 201926,554 $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, 201926,553 $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 EndedNine Months Ended
(In thousands)November 28, 2020November 30, 2019November 28, 2020November 30, 2019
Recognized at shipment$129,132 $153,093 $379,292 $472,695 
Recognized over time184,451 184,823 542,870 577,645 
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, 2020February 29, 2020
Trade accounts$122,959 $141,126 
Construction contracts9,727 20,808 
Contract retainage42,053 37,341 
Total receivables174,739 199,275 
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 expenses325 
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, 2020February 29, 2020
Contract assets$71,194 $110,923 
Contract liabilities27,965 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 disclosuresThree Months EndedNine Months Ended
(In thousands)November 28, 2020November 30, 2019November 28, 2020November 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 obligations4,016 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 years331,219 
Beyond71,786 
Total$901,628 

3.Supplemental Balance Sheet Information

Inventories
(In thousands)November 28, 2020February 29, 2020
Raw materials$43,292 $36,611 
Work-in-process16,337 17,520 
Finished goods14,186 16,958 
Total inventories$73,815 $71,089 

Other current liabilities
(In thousands)November 28, 2020February 29, 2020
Warranties$13,281 $12,822 
Accrued project losses3,297 48,962 
Property and other taxes13,078 5,952 
Accrued self-insurance reserves9,912 8,307 
Other22,200 42,271 
Total other current liabilities$61,768 $118,314 

Other non-current liabilities
(In thousands)November 28, 2020February 29, 2020
Deferred benefit from New Market Tax Credit transactions$15,717 $15,717 
Retirement plan obligations8,138 8,294 
Deferred compensation plan8,437 8,452 
Deferred tax liabilities20,014 7,940 
Other28,963 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 CostGross Unrealized GainsGross Unrealized LossesEstimated
Fair Value
November 28, 2020$12,556 $459 $ $13,015 
February 29, 202011,692 275  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 CostEstimated Fair Value
Due within one year$771 $779 
Due after one year through five years7,682 7,978 
Due after five years through 10 years3,303 3,428 
Due beyond 15 years800 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 


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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 11.0 percent in determining the discounted cash flows for EFCO and a discount rate of 10.4 percent in determining the discounted cash flows for Sotawall. We utilized a long-term growth rate of 3.0 percent in our fair value analysis for all reporting units. If our discount rates were to increase by 100 basis points at Sotawall and EFCO, the fair value of these reporting units would fall below carrying value, which would indicate impairment of the goodwill. Additionally, this discounted cash flow analysis is dependent upon achieving forecasted levels of revenue and profitability. If revenue or profitability were to fall below forecasted levels, or if market conditions were to decline in a material or sustained manner, impairment could be indicated at these reporting units, and potentially at other reporting units.

During the third quarter, we combined two reporting units into one reporting unit, following certain structural and leade