APOGEE ENTERPRISES, INC.APOG

APOGEE ENTERPRISES, INC. Income Taxes Disclosure

10-KFiled Apr 24, 20255 min read
Income Taxes
Earnings before income taxes consisted of the following:
(In thousands)202520242023
United States$111,029 $133,185 $126,859 
International1,545 (3,932)(10,238)
Earnings before income taxes$112,574 $129,253 $116,621 
The components of income tax (benefit) expense for each of the last three fiscal years are as follows:
(In thousands)202520242023
Current
Federal$19,979 $32,900 $9,621 
State and local3,546 6,172 7,670 
International(586)286 231 
Total current22,939 39,358 17,522 
Deferred
Federal3,190 (8,361)(5,120)
State and local691 (1,387)(2,487)
International(45)— 422 
Total deferred3,836 (9,748)(7,185)
Total non-current tax expense
747 30 2,177 
Total income tax expense$27,522 $29,640 $12,514 

Income tax payments, net of refunds, were $29.6 million, $33.0 million and $27.4 million in fiscal 2025, 2024 and 2023, respectively.

The following table provides a reconciliation of the statutory federal income tax rate to our consolidated effective tax rates:
202520242023
Statutory federal income tax rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal tax benefit2.9 2.4 3.5 
Foreign tax rate differential(0.8)(0.2)(0.2)
Valuation allowance(0.3)1.0 (4.7)
Nontaxable (loss) gain on life insurance policies(0.2)— 0.2 
Deduction for foreign derived intangible income(0.4)(0.3)(0.2)
Research & development tax credit(1.5)(1.3)(1.5)
§162(m) Executive Compensation Limitation3.4 0.8 0.8 
Tax benefit of share based awards(1.0)(0.6)(0.8)
Worthless stock deduction— — (6.0)
Other, net1.3 0.1 (1.4)
Consolidated effective income tax rate24.4 %22.9 %10.7 %

The effective tax rate for fiscal 2025 increased 1.5 percentage points from fiscal 2024, primarily due to an increase in taxes for nondeductible executive compensation in fiscal 2025. The effective tax rate for fiscal 2024 increased 12.2 percentage points from fiscal 2023, primarily due to the impact of discrete items in fiscal 2023.
Deferred tax assets and deferred tax liabilities at March 1, 2025 and March 2, 2024 were:

(In thousands)20252024
Deferred tax assets
Accrued expenses$3,743 $4,565 
Deferred compensation9,794 11,138 
Section 174 capitalized costs15,675 12,450 
Goodwill and other intangibles3,127 2,342 
Liability for unrecognized tax benefits2,651 2,122 
Unearned income— 7,467 
Operating lease liabilities14,898 13,064 
Net operating losses and tax credits11,679 12,332 
Other4,665 4,773 
Total deferred tax assets66,232 70,253 
Less: valuation allowance(9,582)(10,803)
Deferred tax assets, net of valuation allowance56,650 59,450 
Deferred tax liabilities
Depreciation22,401 20,510 
Operating lease, right-of-use assets13,605 11,955 
Bad debt7,785 8,291 
Prepaid expenses1,697 2,131 
Other3,923 2,520 
Total deferred tax liabilities49,411 45,407 
Net deferred tax assets (liabilities)$7,239 $14,043 

The Company has state and foreign net operating loss carryforwards with a tax effect of $11.7 million. A valuation allowance of $8.7 million has been established for these net operating loss carryforwards due to the uncertainty of the use of the tax benefits in future periods.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing Deferred Tax Assets. This has resulted in valuation allowances being recorded against Deferred Tax Assets in prior years in Brazil, Canada and various states.

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations or state and local tax examinations for years prior to fiscal 2022, or state and local tax examinations for years prior to fiscal 2021. The Company is not currently under U.S. federal examination for years subsequent to fiscal 2021.

The Company considers the earnings of its non-U.S. subsidiaries to be indefinitely invested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and specific plans for reinvestment of those subsidiary earnings. Should the Company decide to repatriate the foreign earnings, it would need to adjust the income tax provision in the period it was determined that the earnings will no longer be indefinitely invested outside the U.S.

If we were to prevail on all unrecognized tax benefits recorded, $3.8 million, $3.3 million and $3.8 million for fiscal 2025, 2024 and 2023, respectively, would benefit the effective tax rate. Also included in the balance of unrecognized tax benefits for fiscal 2025, 2024 and 2023 are $2.2 million, $1.8 million, and $1.5 million, respectively, of tax benefits that, if recognized, would result in decreases to deferred taxes.

Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. For fiscal 2025, 2024 and 2023, we accrued penalties and interest related to unrecognized tax benefits of $1.0 million, $0.6 million, and $0.4 million, respectively.
The following table provides a reconciliation of the total amounts of gross unrecognized tax benefits:
(In thousands)202520242023
Gross unrecognized tax benefits at beginning of year$5,053 $5,312 $3,321 
Gross increases in tax positions for prior years347 91 2,298 
Gross decreases in tax positions for prior years(11)(65)(255)
Gross increases based on tax positions related to the current year886 579 291 
Gross decreases based on tax positions related to the current year— — (27)
Settlements— (354)— 
Statute of limitations expiration(308)(510)(316)
Gross unrecognized tax benefits at end of year$5,967 $5,053 $5,312 

In December 2021, the OECD issued model rules for a new global minimum tax framework (“Pillar Two”), and various governments around the world have issued, or are in the process of issuing, legislation to implement these rules. The Company is within the scope of the OECD Pillar Two model rules and has assessed the impact thereof. Based on available legislation, we concluded there was no material impact on income taxes with respect to Pillar Two for the year ended March 1, 2025. We will continue to evaluate the potential future impacts and will monitor and review the issuance of additional guidance.
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Historical Timeline

Fiscal YearFiled
2025Apr 24, 2025Showing above
2018Apr 30, 2018

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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