Commitments and Contingent Liabilities

3 Months Ended

May 30, 2020

Commitments and Contingencies Disclosure [Abstract]

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 May 30, 2020, $1.0 billion of these types of bonds were outstanding, of which $582.3 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 the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product mix and any significant changes in sales volume. A warranty rollforward follows:



	Three Months Ended
(In thousands)	May 30, 2020			June 1, 2019
Balance at beginning of period	$	15,629		$	16,737
Additional accruals	511			1,787
Claims paid	(939		)	(2,771		)
Balance at end of period	$	15,201		$	15,753

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. The liability for these types of project-related contingencies was $48.1 million and $49.0 million as of May 30, 2020 and February 29, 2020, respectively. Subsequent to the end of the quarter, in June 2020, we settled contract claims related to a majority of these project-related contingencies on a legacy EFCO project for an amount equal to the contingency recorded at May 30, 2020.

Letters of credit

At May 30, 2020, we had $24.7 million of ongoing letters of credit, all of which have been issued under our committed revolving credit facility, as discussed in Note 6. Subsequent to the end of the quarter, in connection with the settlement of contract claims related to a legacy EFCO project referenced above, the original project performance and payment bond was replaced, which required a $25.0 million letter of credit. The letter of credit for the replacement bond was issued outside of 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 $177.2 million as of May 30, 2020.

New Markets Tax Credit (NMTC) transactions

We have entered into four separate NMTC programs to support our operational expansion. Proceeds received from investors on these transactions are included within other current and non-current liabilities on our consolidated balance sheets. The NMTC arrangements are subject to 100 percent tax recapture for a period of seven years from the date of each respective transaction. Therefore, 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 current and non-current assets on 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, we are required to hold cash dedicated to fund each capital project which is classified as restricted cash on 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.

The table below provides a summary of our outstanding NMTC transactions (in millions):



Inception date	Termination date	Proceeds received		Deferred costs		Net benefit
November 2013	October 2020	$	10.7	$	3.3	$	7.4
June 2016	May 2023	6.0		1.2		4.8
August 2018	July 2025	6.6		1.3		5.3
September 2018	August 2025	3.2		1.0		2.2
Total		$	26.5	$	6.8	$	19.7

Litigation

On November 5, 2018, a shareholder filed a purported securities class action against the Company and certain named executive officers. On March 25, 2020, the District Court granted the Company's motion to dismiss without prejudice this matter. On May 5, 2020, the District Court entered final judgment. Plaintiffs’ have waived their right to appeal. The Company views this matter as closed.

On December 17, 2018, a different shareholder filed a derivative lawsuit, purportedly on behalf of the Company, against certain of our executive officers and directors claiming breaches of fiduciary duty, waste of corporate assets and unjust enrichment. On May 29, 2020, the parties filed a joint stipulation and order dismissing this matter without prejudice. The Company views this matter as closed.

In addition to the foregoing, 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. 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.