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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 26, 1994
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[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-6365
APOGEE ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0919654
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(State or other jurisdiction of IRS Employer Identification Number
incorporation or organization)
7900 Xerxes Avenue South - Suite 1800
Minneapolis, Minnesota 55431
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 835-1874
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.33-1/3 Par Value
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Title of Class
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. Yes X No .
----- -----
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1994 was $142,600,864. The number of shares outstanding
of the Registrant's Common Stock at March 31, 1994 was 13,313,131.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Proxy Statement for
the Annual Meeting of Shareholders to be held June 21, 1994.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
APOGEE ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
For the year ended February 26, 1994
Description Page
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PART I
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Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
Executive Officers of the Registrant 8
PART II
- - -------
Item 5. Market for the Registrant's
Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 11
Item 8. Financial Statements and
Supplementary Data 16
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 16
PART III
- - --------
Item 10. Directors and Executive Officers
of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain
Beneficial Owners and Management 16
Item 13. Certain Relationships and
Related Transactions 16
PART IV
- - -------
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 16
Index of Financial Statements and Schedules F-1
2
PART I
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ITEM 1. BUSINESS
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The Company
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Apogee Enterprises, Inc. is a holding company incorporated under the laws of
the State of Minnesota in 1949. The Company, through its operating
subsidiaries, is primarily engaged in the fabrication, distribution and
installation of curtainwall, aluminum windows and glass products. Four
divisions comprise Apogee's operations: Commercial Construction (CCD), Window
Fabrication (WFD), Glass Fabrication (GFD), and Installation and Distribution
(IDD). These divisions serve the commercial and institutional building markets,
detention/security, as well as the automotive glass replacement, consumer and
industrial markets. Financial information about the Company's divisions can be
found at Note 17 - Business Segments of the Notes to consolidated financial
statements of Apogee Enterprises, Inc. contained in a separate section of this
report. See "Index of Financial Statements and Schedules"
Unless the context otherwise requires, the terms "Company" and "Apogee" as used
herein refer to Apogee Enterprises, Inc. and its subsidiaries.
Commercial Construction
- - -----------------------
The Company's Commercial Construction Division, operating principally under the
name "Harmon Contract", is engaged in the design, engineering, procurement and
installation of custom and standard curtainwall and window systems for
commercial, institutional and detention/security buildings. The Company is the
nation's largest curtainwall and glazing contractor with bidding offices
throughout the United States as well as in Europe and Asia. CCD performs a
subcontractor role at the building site for the purpose of erecting the
building's exterior enclosure. This enclosure typically consists of a metal
framing system which is glazed (filled) with glass in the vision areas and with
opaque glass or panels in the non-vision (spandrel) areas. Panels are usually
made from aluminum, precast concrete or natural stone. The division procures
its materials from a number of independent fabricators, including the Company's
Window Fabrication and Glass Fabrication Divisions. CCD also serves as a stone
subcontractor, setting stone on both the exterior and interior of buildings,
including floors, benches and lavatories.
CCD also has seven replacement glazing operations located around the country.
These centers offer complete replacement or remodeling glass services for
residential and commercial buildings. CCD's engineering capabilities have been
used to duplicate the original design or create a completely new appearance
while updating costly old window systems with inexpensive energy efficient
systems.
CCD competes in the detention/security market through its Norment operating
unit. Norment, based in Montgomery, Alabama, is a leader in the design,
manufacture and installation of institutional and governmental security and
detention systems. CCD also operates two other detention related companies
including Airteq, located in Portland, Oregon, and EMSS, located in San
Francisco, California. Airteq holds patents on the manufacture of pneumatic
locks used in Norment's and other detention/security systems. EMSS is a
detention equipment contractor in the prison/security industry, which operates
primarily on the West Coast.
In July 1993, CCD acquired an 80% interest in CFEM Facades (CFEM) a French
company engaged in both the manufacture and installation of curtainwall. This
office, in addition to the other European and Asian offices, has given the
division a stronger presence in overseas markets.
CCD is subject to normal subcontractor's risks, including material and wage
increases, construction and transportation work stoppages and contractor credit
worthiness. In addition, office vacancy rates, tax laws concerning real estate
and interest rates are important factors which affect nonresidential
construction markets. Reduced competition on larger projects, custom designing
capability and a trend toward the use of more sophisticated materials for energy
conservation and design flexibility, have helped CCD increase its market share
over the past several years.
Window Fabrication
- - ------------------
The Window Fabrication Division's principal business is the design and
manufacture of high-quality, thermally-efficient aluminum window and curtainwall
systems. WFD also provides aluminum anodizing and painting services and
3
manufactures and markets miscellaneous architectural metal products and interior
window covering products. The division currently operates six businesses, based
in Wausau, Wisconsin.
WFD markets aluminum windows and curtainwall systems (an exterior multi-story
wall consisting of an aluminum framing system anchored to steel or concrete,
glazed with glass in the vision area and with panels in the non-vision areas)
under the "Wausau Metals" name. These products meet high standards of wind load
capacity and resistance to air and moisture seepage. WFD aluminum window frame
designs are engineered to be thermally efficient, utilizing high-strength
polyurethane to limit the transfer of heat or cold through the window frame.
Wausau Metals' products are marketed through a nationwide network of
distributors and a direct sales staff. Sales are made to building contractors,
including Harmon Contract, for new construction and to building owners for
retrofitting older buildings. Wausau Metals maintains design and product
engineering staffs to prepare aluminum window and curtainwall system designs to
fit customers' needs and to originate new product designs. Wausau Metals
occasionally joins Harmon Contract in pursuing certain projects, as many
architects and general contractors prefer to work with an experienced
curtainwall subcontractor and manufacturer team.
Wausau Metals' curtainwall and aluminum window systems are often glazed at the
building site. Wausau Metals fabricates much of its own insulating glass for
factory glazing requirements. When a customer specifies safety glazing
materials, such as tempered or laminated glass, these materials are occasionally
purchased from the Company's Glass Fabrication Division. Extruded aluminum is
purchased from several principal suppliers and window system hardware is
obtained from several sources.
Operating under the "Linetec" name, WFD also operates a metal coating facility
which provides anodized and fluoropolymer coatings to metal. Anodizing is the
electrolytic process of putting a protective, often colored, oxide film on light
metal, typically aluminum. Fluoropolymer coatings are high quality paints
which are sometimes preferred over anodizing because of the wide color
selection. Coatings are applied to window and curtainwall components for the
Company, as well as other companies' architectural and industrial aluminum
products.
The division also offers several types of window coverings for residential,
commercial and institutional markets, under the "Nanik" and "Shuttery" names.
Nanik manufactures various types of custom aluminum, wood and polycarbonate
venetian blinds, and markets them primarily to interior designers through
independent distributors. The Shuttery is a manufacturer of custom wooden and
vinyl interior shutters. Nanik Wood Products was formed in 1991 to provide a
reliable source of wood mouldings for both Nanik and The Shuttery, while
allowing both units to improve inventory control and production efficiency. All
three companies operate manufacturing facilities in Wausau, Wisconsin.
Glass Fabrication
- - -----------------
The Glass Fabrication Division fabricates finished glass products and provides
glass coating services, primarily under the "Viracon", "Marcon" and "Tru Vue"
names, for the architectural, automotive, consumer and industrial markets. The
Company's glass fabrication and coating activities are conducted at four
facilities, three in Owatonna, Minnesota and one in Chicago, Illinois.
GFD purchases flat, unprocessed glass in bulk quantities from which it
fabricates a variety of glass products, including insulating, tempered and
laminated architectural glass; security glass; laminated and tempered automotive
and industrial glass; anti-reflection and UV-light blocking picture framing
glass; and provides reflective and low-emissivity coatings on glass.
Tempered glass is a heat-processed safety glass which is four to five times
stronger than ordinary glass, breaks into "pebbles" rather than sharp pieces and
has architectural, automotive and industrial applications. Laminated glass
consists of two or more pieces of glass fused with a plastic interlayer and is
used primarily for strength and safety in automobile windshields and skylights
and in security applications. Sales of laminated and tempered safety glass
products have increased with the adoption of federal and state safety glazing
standards. Insulating glass, comprised of two or more pieces of glass separated
by a sealed air space, is used in architectural and residential applications for
thermal control.
GFD's Viracon unit is able to fabricate all types of architectural glass
(insulating, laminated, tempered and combinations of all three) at its Owatonna
complex. Combined with the adjacent Marcon's glass coating capabilities, GFD is
able to
4
provide a full range of products from a central location. GFD markets its
products nationally and overseas to glass distributors, glazing contractors
(including CCD) and industrial glass fabricators. A substantial portion of its
glass products is delivered to customers by GFD's fleet of company-owned trucks,
providing "backhaul" capability for its raw materials, thereby reducing shipping
time, transportation costs and breakage expense. The Company believes Viracon
is the largest architectural glass fabricator in the United States.
The primary products of the division's automotive unit, known as
Viracon/Curvlite, are replacement windshields for foreign and domestic
automobiles and tempered and laminated parts for the transportation industry.
It fabricates approximately 800 types of replacement windshields which are
marketed nationally to distributors and glass shops, including the Company's
Installation and Distribution Division.
Tru Vue, located in Chicago, Illinois, is one of the largest domestic
manufacturers of picture framing glass. Tru Vue provides its customers with a
full array of picture framing glass products, including clear, reflection
control, which diminishes reflection, and conservation glass, which blocks
ultraviolet rays. The products are distributed primarily through independent
distributors who, in turn, supply the local picture framing market. During
1993, Tru Vue acquired Miller Cardboard Corp. (Miller). Miller, located in New
York City, is a manufacturer of conservation picture framing matboard, which
complements Tru Vue's glass product offerings.
Viracon is a 50% owner of Marcon Coatings, Inc., (Marcon) a joint venture glass
coating facility with Marvin Windows ("Marvin"). Marcon provides glass coating
services from its Owatonna, Minnesota facility to Marvin and Viracon, as well as
outside customers. Marcon's reflective and low-emissivity coatings reduce
energy costs and provide innovative design features for window and curtainwall
systems. Low-emissivity coatings are an invisible, metallic film deposited on
glass which selectively limits the transfer of heat through the glass. Low-
emissivity coated glass represents a fast-growing segment of both residential
and non-residential glass markets.
Installation and Distribution
- - -----------------------------
The Installation and Distribution Division (IDD) is engaged in the automotive
and flat glass replacement business through its auto glass service centers
(retail) and distribution centers (wholesale) located throughout the country.
IDD operates 231 auto glass service centers and 45 distribution centers in 35
states, primarily in the Midwest, Great Lakes, and Southeast regions. The glass
service centers replace auto glass on the premises and also provide mobile
installation service. Primary customers include insurance companies (on behalf
of their insured clients), fleet owners and car owners. The glass service
centers also carry limited inventories of flat glass, which are sold at retail
for such purposes as home window repair and table tops. Some automotive
accessories are also sold and installed at the service centers. Quality service
is stressed in the service centers, most of which operate under the name "Harmon
Glass/TM/." The Company believes Harmon Glass is the second-largest auto glass
retailer in the United States.
The auto glass distribution centers, known as "Glass Depot/TM/", supply the
Company-owned glass service centers with auto and flat glass, as well as selling
wholesale to other glass installers. Purchases of fabricated automotive glass
are made from several primary glass manufacturers and fabricators, including the
Company's Glass Fabrication Division.
In fiscal 1994, the division acquired or opened 5 new wholesale distribution
centers, while closing 12 retail auto glass units. The division continues to
evaluate opportunities to expand both its retail and wholesale auto glass
segments, while closely monitoring existing units' profitability.
IDD also operates a centralized service for handling auto glass claims under
the name Harmon Glass Network/TM/ (Network). This service subcontracts auto
claims with nearly 3,000 auto glass stores nationwide. The Network seeks to
maximize the electronic exchange of information, which reduces claim costs and
eliminates errors. This type of service is a fast -growing segment for the
division.
Under a franchise agreement with Midas International Corporation in 1980, the
division operates seven Midas Muffler locations in Minnesota, South Dakota,
North Dakota and Wisconsin.
5
Viratec Thin Films
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In addition to its four divisions, Apogee owns 50% of Viratec Thin Films, Inc.
(Viratec), a optical-quality coating joint venture with Marvin Windows, which
was organized in fiscal 1989 in Faribault, Minnesota and began production in
early 1990. Viratec develops advanced, optical-display and imaging coatings for
glass and other surfaces. These products are used in computer screens, liquid
crystal displays, high-quality optical components and high performance mirror
products for the imaging industry. Viratec markets optical display and imaging
products to both domestic and overseas customers. These customers provide
further assembly, marketing and distribution to end users. The Company accounts
for its investment in Viratec using the equity method.
Competition
- - -----------
All segments of the Company's business, other than Viratec, are generally
fairly mature and are highly competitive. The curtainwall installation business
is primarily price competitive, although the Commercial Construction Division's
reputation for quality engineering and service is an important factor in
receiving invitations to bid on large projects. In addition to the above
factors, CCD has the advantage of having the financial strength and long-term
viability of Apogee, which allows CCD to be bonded on even the largest, most
complex jobs. This is an important competitive advantage in the bidding of
larger contracts. The Window Fabrication Division competes against several
major aluminum window manufacturers. WFD primarily serves the custom portion of
this market in which the primary competitive factors are product quality,
reliable service and the ability to provide technical engineering and design
services. The Company's Glass Fabrication Division competes with several large
integrated glass manufacturers and numerous smaller specialty fabricators.
Product pricing and service are the primary competitive factors in this market.
The Installation and Distribution Division competes with other auto glass shops
and repair/replacement chains, car dealers and body shops on the basis of
pricing and customer service. Its competition consists of national and regional
chains as well as significant local competition. Viratec Thin Films has both
domestic and foreign competitors, several of whom are older and more
established.
CCD, WFD and GFD serve the nonresidential construction market, which tends to
be cyclical and which in recent years has been in decline, both in terms of
dollars and square feet of new contract awards. Nonresidential construction,
particularly the office building segment, has been hard hit due to the
overbuilding in past years, tax law changes, recession, tightening credit
standards, business restructurings and other factors. The resulting contraction
in demand for building materials and construction services has intensified
competition, squeezed profit margins and contributed to some business failures
in the market sectors served by the Company. In response to weak markets, the
Company's operating divisions have consolidated manufacturing facilities, closed
bidding offices and reduced personnel and discretionary expenses. They have
also redirected their marketing focus to sectors with relative strength,
including remodeling, institutional (including detention/security) and certain
international markets such as Asia and Europe. GFD and IDD service the
automotive aftermarket which is influenced by a variety of factors, including
new car sales, gasoline prices, speed limits, road conditions, the economy,
weather and average number of miles driven. A transformation of the industry's
pricing structure has intensified competition. In recent years, major
purchasers of auto glass, such as insurance companies, have increasingly
requested volume pricing and awarded regions to glass providers at significant
discounts from historical levels. As a result, margins have narrowed at the
retail level and, to a lesser extent, at wholesale and manufacturing levels.
Sources and Availability of Raw Materials
- - -----------------------------------------
None of the Company's operating units are significantly dependent upon any one
supplier. The Company believes a majority of its raw materials (bulk flat
glass, aluminum extrusions, automotive glass and related materials) are
available from a variety of domestic sources.
Trademarks and Patents
- - ----------------------
The Company has several nationally recognized trademarks and trade names which
it believes have significant value in the marketing of its products. Viratec
Thin Films has obtained several patents pertaining to its glass coating methods.
However, no single patent is considered to be materially important to the
Company.
Foreign Operations and Export Sales
- - -----------------------------------
CCD has sales offices in Europe and Asia. Sales for those offices were
approximately $65,021,000, $6,490,000 and
6
$22,085,000 for the years ended February 26, 1994, February 27, 1993 and
February 29, 1992, respectively. During fiscal 1994, such operations had a
$887,000 operating loss. At February 26, 1994, the indentifiable assets of
foreign operations totaled $31,786,000. At February 26, 1994, the backlog of
work for European and Asian projects was $121 million, $65,000,000 of which is
not expected to be reflected as revenue in fiscal 1995. In addition, during the
years ended February 26, 1994, February 27, 1993 and February 29, 1992, the
Company's export sales, principally from GFD operations, amounted to
approximately $27,643,000, $22,808,000 and $18,671,000, respectively.
Employees
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The Company employed 5,863 persons at February 26, 1994, of whom 1,156 were
represented by labor unions. The Company is a party to 94 collective bargaining
agreements with several different unions. Seventy-six (76) of the collective
bargaining agreements will expire during fiscal 1995. The number of collective
bargaining agreements to which the Company is a party will vary with the number
of cities with active window and curtainwall installation contracts. The
Company considers its employee relations to be very good and has not recently
experienced any significant loss of work days due to strike.
Backlog
- - -------
The backlog of orders is significant in the Company's three construction-
related activities: window fabrication, glass fabrication and contract
installation. At February 26, 1994, the Company's total backlog of orders
considered to be firm was $405,000,000, compared with $322,000,000 at February
27, 1993. Approximately $115,000,000 is not expected to be reflected as revenue
in fiscal 1995.
ITEM 2. PROPERTIES
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The following table lists, by division, the Company's major facilities, the
general use of the facility and whether it is owned or leased by the Company.
Division/Facility Location Owned/Leased Function
- - ----------------- -------- ------------ --------
Commercial Construction
- - -----------------------
CCD headquarters Minneapolis, MN Leased Administrative
United Kingdom facility Milton Keynes,
United Kingdom Owned Fabrication/Admin.
Norment Montgomery, AL Owned Mfg./Admin.
Harmon CFEM -- Sitraco Pinon, France Owned Mfg.
Harmon CFEM -- Facalu Epernon, France Owned Mfg.
Window Fabrication
- - ------------------
Wausau Metals Wausau, WI Owned Mfg./Admin.
Wausau Metals - Plant II Wausau, WI Owned Mfg.
Wausau Metals - Plant III Wausau, WI Owned Mfg.
Nanik Wausau, WI Owned Mfg./Admin.
Nanik Wood Products Wausau, WI Owned Mfg./Admin.
Linetec Paint Wausau, WI Owned Mfg./Admin.
Shuttery Wausau, WI Leased Mfg./Admin.
Linetec Anodize Wausau, WI Owned Mfg.
Glass Fabrication
- - -----------------
Viracon Owatonna, MN Owned Mfg./Admin.
Curvlite Owatonna, MN Owned Mfg./Admin.
7
Division/Facility Location Owned/Leased Function
- - ----------------- -------- ------------ --------
Tru Vue Chicago, IL Owned Mfg./Admin.
Marcon Coatings, Inc. Owatonna, MN Owned Mfg./Admin.
Installation and Distribution
- - -----------------------------
IDD headquarters Minneapolis, MN Leased Administrative
Harmon Glass Network Orlando, FL Owned Administrative
Other
- - -----
Viratec Thin Films Faribault, MN Owned Mfg./Admin.
Apogee Corporate Office Minneapolis, MN Leased Administrative
The Commercial Construction Division has fifteen sales offices, five glazing
service centers and five fabriacation facilities generally located in major
metropolitan areas in the United States, Europe and Asia, virtually all of which
are leased.
The Installation and Distribution Division has 276 retail service centers and
warehouses located nationally and seven Midas Muffler franchises located in the
Midwest, the majority of which are leased.
The GFD Curvlite plant; a Wausau Metals facility; the Linetec paint facility;
an addition to one of the Wausau Metals plants; a glass warehouse in
Minneapolis; and the Orlando administrative center were constructed with the use
of proceeds from industrial revenue bonds issued by those cities. These
properties are considered owned, since at the end of the bond term, title
reverts to the Company.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
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NAME AGE POSITION
- - ---- --- --------
Donald W. Goldfus 60 Chairman of the Board of Directors
and Chief Executive Officer
Gerald K. Anderson 62 President
James L. Martineau 53 Vice President
William G. Gardner 48 Treasurer, Chief Financial
Officer and Secretary
Executive officers are elected annually by the Board of Directors and serve for
a one-year period. With the exception of Gerald K. Anderson, who has a post-
employment consulting agreement, no officers have employment contracts with the
Company. None of the executive officers or directors of the Company are
related.
All of the above named executive officers have been employees of the Company
for more than the last five years.
8
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
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Apogee common stock is traded in the National Market System of the NASDAQ over-
the-counter market, under the ticker symbol APOG. Stock price quotations are
printed daily in major newspapers. During the fiscal year ended February 26,
1994, the average trading volume of Apogee common stock was 259,450 shares per
month, according to NASDAQ.
As of March 31, 1994, there were 13,313,132 shares of common stock outstanding,
of which about 6.8 percent were owned by officers and directors of Apogee. At
that date, there were approximately 2,322 shareholders of record and 2,953
shareholders for whom securities firms acted as nominees.
The following chart shows the quarterly range and year-end close of the
company's common stock over the past five fiscal years.
QUARTER QUARTER QUARTER QUARTER YEAR
I II III IV END
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1990 $ 13-15 5/8 $ 15-18 3/4 $14 3/4-18 1/2 $13 5/8-18 1/8 $14 3/4
1991 14 1/4-18 1/4 15 3/4-20 1/8 14 1/4-18 1/4 13 1/4-19 1/4 18
1992 12 3/4-18 12 3/4-14 1/2 10 3/4-14 3/8 9 1/2-14 12 1/4
1993 10 1/4-12 3/4 8 1/4-10 3/4 9 3/4-12 1/4 9 3/4-12 1/4 11 5/8
1994 10 1/4-12 1/2 11 1/2-14 1/4 11 1/4-14 1/2 13 1/2-17 3/4 14 1/2
It is Apogee's policy to pay quarterly cash dividends in May, August, November
and February. Cash dividends have been paid each quarter since 1974 and have
been increased each year since then. The chart below shows quarterly cash
dividends per share for the past five years.
QUARTER QUARTER QUARTER QUARTER
I II III IV YEAR
--------------------------------------------
1990 $0.050 $0.050 $0.050 $0.050 $0.200
1991 0.060 0.060 0.060 0.060 0.240
1992 0.065 0.065 0.065 0.065 0.260
1993 0.065 0.065 0.070 0.070 0.270
1994 0.070 0.070 0.075 0.075 0.290
9
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following information should be read in conjunction with Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Financial Statements and Supplementary Data.
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
OPERATING DATA
Net sales $ 688.2 572.5 596.3 599.5 589.7 433.7 312.1 279.1 249.6 219.6 181.1
Cost of sales $ 604.3 494.2 494.7 499.4 495.9 361.5 254.7 230.8 207.4 186.6 153
% of net sales 87.8 86.3 83 83.3 84.1 83.4 81.6 82.7 83.1 85 84.5
Operating income $ 9.4 8.2 16.7 30.2 30.4 24.3 20.6 17.7 17.4 11.9 9.6
% of net sales 1.4 1.4 2.8 5 5.2 5.6 6.6 6.3 7 5.4 5.3
Interest expense, net $ 2.7 1.8 1 1.1 3.8 2.9 0.9 1.2 1.1 1.2 0.4
% of net sales 0.4 0.3 0.2 0.2 0.6 0.7 0.3 0.4 0.5 0.5 0.2
Earnings before income taxes $ 6.6 6.5 15.8 28.8 23.4 21.6 19.7 16.1 15.7 11.1 9.3
and other items
% of net sales 1 1.1 2.6 4.8 4 5 6.3 5.8 6.3 5 5.1
Income taxes $ 2.6 1.9 7.2 11.8 9.3 8.2 8.1 7.6 7.4 5.2 4.2
% of net sales 0.4 0.3 1.2 2 1.6 1.9 2.6 2.7 3 2.3 2.3
Effective tax rate - % 39.8 30 46 41 39.7 38 41 47.2 47.5 47.3 44.5
Net earnings* $ 3.8 4.5 8.5 17 14.1 13.4 11.6 8.5 8.2 5.8 5.2
% of net sales 0.6 0.8 1.4 2.8 2.4 3.1 3.7 3.1 3.3 2.7 2.9
Dividends $ 3.8 3.6 3.5 3.2 2.7 2.1 1.8 1.5 1.3 1.2 1.1
% of prior year net earnings 85.1 42.1 20.6 22.7 20.1 18.4 21.2 18.4 23.1 23 14.4
INVESTMENT DATA
Total assets $ 306.2 251.5 249.5 250.3 244.1 207.7 143.5 115.7 102.6 91 78.1
Working capital $ 80.4 69.2 65.4 60.2 59.9 58 38.4 32.1 41.6 37.9 31.2
Current ratio 1.6 1.7 1.6 1.6 1.6 1.8 1.8 1.9 2.4 2.5 2.3
Property, plant & equipment, net $ 64.9 66.1 70.6 71.5 69.9 64.7 47.6 39.4 28 24.2 21.6
Depreciation expense $ 13.4 13 14.2 11.5 10.4 7.7 6.2 4 3.5 2.8 2.3
Capital expenditures $ 14 9.2 13 12.8 17 23.7 11.3 14.9 7.4 7.2 7.4
Intangible assets, net $ 2 4.9 5.6 5.1 5.2 6 4.5 3.3 1.8 1.7 1.3
Amortization expense $ 2.3 2.1 2.1 1.8 1.8 1.3 0.4 0.3 0.1 0.1 -
Long-term debt $ 35.7 28.4 25.3 29.4 41.4 46.3 17.9 12.1 14.2 15.4 10.2
% of invested capital 21.6 18.7 17 19.9 27.7 33.3 18.7 15.3 19.6 23.4 18.7
Shareholders' equity $ 114.1 112.3 113.8 109.1 95.8 83.9 72.1 62.6 55.4 48.4 43.5
% of invested capital 69 74.1 76.6 73.8 64.2 60.4 75.2 78.7 76.6 73.5 79.2
RETURN ON INVESTMENT*
On beginning total assets - % 1.5 1.8 3.4 7 6.8 9.4 10 8.3 9 7.5 7.7
On beginning shareholders' equity - % 3.4 4 7.8 17.8 16.8 18.6 18.6 15.4 17 13.4 13.1
On beginning invested capital - % 2.5 3 5.8 11.4 10.2 14 14.6 11.7 12.5 10.6 10.9
TURNOVER RATIOS
Sales/beginning total assets 2.7 2.3 2.4 2.5 2.8 3 2.7 2.7 2.7 2.8 2.7
Sales/average receivables 5.5 5.7 6.3 6 6.2 5.9 5.9 5.9 5.3 5.1 4.9
Cost of sales/average inventories 13 12.4 12.5 13 13.9 12.6 12.5 13.1 13.7 14.4 14
EMPLOYEE DATA
Number at year end 5,863 5,358 5,136 5,377 5,258 4,612 3,534 2,908 2,737 2,340 2,185
Total direct compensation - $ 194.9 154.7 160.6 155.9 139.5 105.1 78.1 75.9 63.4 58.7 47.8
000,000
Sales per employee (average) - $ 117.4 109.1 113.4 112.7 119.5 106.5 96.9 98.9 98.3 97 87.7
000
PER SHARE DATA (ADJUSTED FOR STOCK
DIVIDENDS)
Average shares outstanding - 13.3 13.3 13.5 13.6 13.6 13.4 13.4 13.4 13.3 13.2 13.2
000,000
Net earnings* $ 0.29 0.34 0.63 1.25 1.04 1 0.87 0.64 0.62 0.44 0.39
Dividends $ 0.29 0.27 0.26 0.24 0.2 0.16 0.14 0.11 0.1 0.09 0.08
Shareholders' equity $ 8.57 8.53 8.45 8.09 7.11 6.25 5.40 4.68 4.17 3.65 3.29
Price range during year:
High $17 3/4 12 3/4 18 20 1/8 18 3/4 14 1/4 12 1/4 15 1/8 10 3/4 8 1/2 11
Low $10 1/4 8 1/4 9 1/2 13 1/4 13 10 7 1/2 7 5/8 6 1/8 5 1/8 7 1/4
* Fiscal 1994 figures reflect the cumulative effect of a change in accounting
for income taxes, which increased net earnings by $525,000, or 4 cents per
share.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FINANCIAL GOALS
- - ---------------
Last year, we reported that weak demand and highly competitive pricing had
caused flat sales levels and lower net earnings. In an effort to resume our
historical growth rate, we cited short-term measures to more properly size our
profit centers to better fit available business. Longer term, we indicated our
focus would be to improve quality, reduce costs and become more responsive to
customer needs. During fiscal 1994, this focus allowed Apogee to achieve
significant sales and earnings growth in our replacement auto glass and
fabricated architectural glass businesses. Meanwhile, in our nonresidential
construction businesses, we saw further margin erosion and took some false steps
as we struggled to achieve the goals noted above.
As we pointed out last year, it is our intention to delay setting specific
financial goals until we resumed steady earnings growth. Although we believe
important strides were made during the past year, holding off on setting new
targets is warranted in light of the difficulties still faced by our
construction-related units.
PERFORMANCE
- - -----------
FISCAL 1994 COMPARED TO FISCAL 1993
The following table illustrates the relationship between various components of
operations, stated as a percent of net sales, for the three years ended February
26, 1994.
PERCENT OF NET SALES
-----------------------------------
1994 1993 1992
---- ---- ----
Net sales............................. 100.0 100.0 100.0
Cost of sales......................... 87.8 86.3 83.0
Gross profit.......................... 12.2 13.7 17.0
Selling, general and administrative
expenses............................. 10.4 12.5 12.8
Equity in net (earnings) loss of
affiliated companies................. (0.3) (0.3) 0.4
Provision for business restructuring
and asset valuation.................. 0.8 - 1.0
Operating income...................... 1.4 1.4 2.8
Interest expense, net................. 0.4 0.3 0.2
Earnings before income taxes and other
items................................ 1.0 1.1 2.6
Income taxes.......................... 0.4 0.3 1.2
Minority interest..................... 0.1 - -
Net earnings before cumulative effect
of change in accounting principle.... 0.5 0.8 1.4
Cumulative effect of change in
accounting principle................. 0.1 - -
Net earnings.......................... 0.6 0.8 1.4
Consolidated net sales rose 20% to $688 million in fiscal 1994 due to strong
replacement auto glass markets, higher overseas nonresidential construction
activity and improved demand for architectural glass products. Our window
coverings and nonglare picture framing glass units also reported improved sales.
Low margins in construction markets, ineffective project management and poor
factory utilization by our window fabrication division's architectural units
caused Apogee's gross profit, as a percent of sales, to fall for the second
straight year. Replacement auto glass and architectural glass markets continued
to be very competitive, but strong demand for such products allowed for firmer
pricing, partially offsetting the negative impact of the factors noted above.
Selling, general and administrative expenses decreased slightly from a year
earlier, as we benefited from cost containment
11
efforts throughout the company. This represented a sharp decline as a percent of
sales. Higher information systems costsand expanded marketing expenditures were
offset by improvements made in other areas.
Our equity in net earnings of affiliated companies rose 22% in fiscal 1994.
Significant earnings improvement at Viratec Thin Films (Viratec) was somewhat
offset by lower earnings at Marcon Coatings (Marcon) and the taxability of a
portion of Marcon's and Viratec's earnings as their net operating loss
carryforwards became fully utilized.
During the fourth quarter of fiscal 1994, Apogee recorded a provision of $5.6
million ($4.5 million after tax, or 34 cents per share), for business
restructuring and asset valuation to reflect the costs of consolidating or
closing 10 commercial construction division offices and facilities, of writing
down certain assets and of reorganizing the window fabrication division's
architectural products group. The provision consisted of asset write-downs of
$2.5 million plus projected cash outlays of $3.1 million. Most of the $3.1
million will be expended in fiscal 1995 for equipment relocation, employee
severance and facility closing costs.
The asset valuation component of the provision included a $1,600,000 write-off
of certain intangible assets, principally patents and non-compete agreements.
Based on our review of expected results for the related operations, we
determined that the intangibles assets held no future value and, therefore, were
written off. We also wrote down to estimated net realizable value a facility
scheduled for closure in the amount of $850,000. We believe that our
restructuring plan has resulted in cost reductions which will benefit future
periods. However, we expect the greatest benefits will derive from improved
project selection, bidding and project management resulting from selective
centralization of certain functions.
The charge described immediately above was the primary factor leading to
Apogee's first-ever reported quarterly loss: $3.0 million, or 22 cents per
share, for the thirteen weeks ended February 26, 1994.
Despite relatively low interest rates, net interest expense jumped 52% to $2.7
million in fiscal 1994, as borrowing levels increased to meet significant
working capital needs.
We recorded a first quarter gain of $525,000, or 4 cents a share, due to the
adoption of Statement of Financial Accounting Standards No. 109-Accounting for
Income Taxes (SFAS 109). Under SFAS 109, our deferred tax liabilities declined,
primarily reflecting the fact that deferred taxes on depreciation were
originally booked at higher tax rates than current tax rates. Other deferred tax
assets and liabilities were essentially unchanged due to implementation of SFAS
109.
The effective tax rate for fiscal 1994 was 39.8%, up from 30.0% a year ago. The
rise was primarily due to the increase in our deferred tax asset valuation
allowance related to a capital loss carryforward.
The provision for business restructuring and asset valuation and the poor
performance of our nonresidential construction units combined to offset the
strong results of Apogee's architectural glass and replacement auto glass
operations, leading consolidated net earnings, including the SFAS 109 accounting
change, to fall 15 % to $3.8 million, or 29 cents per share, from $4.5 million,
or 34 cents per share, in 1993. Return on beginning shareholders' equity was
3.4% compared with 4.0% a year ago.
SEGMENT ANALYSIS
- - ----------------
Apogee is organized into four operating divisions, plus the Viratec Thin Films
joint venture. Each segment is discussed below.
Commercial Construction
The Commercial Construction Division (CCD), the nation's largest designer and
installer of curtainwall and window systems, continued to encounter extremely
tough nonresidential construction market conditions. While growth in overseas
markets pushed up revenues by 24%, highly competitive pricing took its toll,
eroding already very thin margins. In addition, the complexity of many projects
stretched the division's ability to effectively manage its book of work. Along
with the high costs of international marketing and setting up overseas offices,
the aforementioned factors caused CCD to record a $19.0 million operating
loss, compared to a $5.1 million operating loss in fiscal 1993. CCD took several
steps to lower overhead during fiscal 1994, including closing or consolidating
several domestic sales offices. The division's loss included $4.7 million of the
provision for business restructuring and asset valuation described above.
12
During the year, CCD acquired majority ownership of one of Europe's leading
curtainwall contracting firms, CFEM Facades (CFEM). The acquisition provided
CCD with substantial backlog, a medium-sized manufacturing facility and
expertise in European construction techniques. CFEM generated significant sales
and operating income during fiscal 1994.
CCD achieved sharp backlog growth in 1994, finishing the year with $365 million
in backlog, up 26% from a year ago. The growth came from European and Asian
markets, primarily the addition of the $80 million Petronas Towers project in
Kuala Lumpur, Malaysia. While the growth in overseas contracts has bolstered the
division's backlog, approximately $115 million will not be reflected as revenue
in fiscal 1995.
Window Fabrication
The difficult market conditions of the nonresidential construction industry
contributed to erratic order flow, poor pricing and inconsistent factory
utilization at the window fabrication division (WFD). The division suffered an
operating loss of $3.5 million, after losing $506,000 the previous year. WFD's
architectural units, which serve the commercial and institutional construction
markets with custom aluminum windows and curtainwalls, had a 10% rise in
revenues, to $83 million, but narrow margins and costs of re-work and rush
shipping orders more than offset the sales gain. The division's results included
$850,000 of the restructuring and asset valuation provision.
The window coverings group of WFD produced strong revenues and earnings,
partially offsetting the architectural units' loss. Sales volume was good, but a
change in sales mix toward lower margin products kept the group from reporting
improved margins. Substantial operating improvements at The Shuttery also helped
the group strengthen earnings. The group continues to improve operations and
shorten lead times, which should help to produce continued good results in
fiscal 1995.
Glass Fabrication
The glass fabrication division (GFD) leveraged sales growth across all product
lines into a 73% improvement in operating income, to $13.6 million. Sales rose
21% to $135 million. Strong demand for replacement auto glass required Curvlite,
the division's auto glass fabricating unit, to operate at near-capacity levels
throughout the year. The resulting efficiency led to sharp unit cost reduction,
offsetting price weakness.
GFD's architectural glass unit, Viracon, also experienced strong product demand,
as key competitors left the business due to market weakness. Pricing also
improved slightly as industry demand temporarily exceeded capacity. High demand,
a healthy year-end backlog and selected increases in production capacity should
allow for further earnings improvements in fiscal 1995.
The division's picture framing glass unit, Tru Vue, reported stellar results for
the year. Tru Vue's sales rose 7%, which combined with productivity gains to
improve operating income by 34%. Tru Vue also acquired the assets of Miller
Artboard, a manufacturer of picture framing matboard, which complements Tru
Vue's product offerings.
Viracon's 50%-owned joint venture, Marcon Coatings, placed its second coater in
service during fiscal 1994. The unit was able to boost shipments to both joint
venture partners and produced a solid profit for the year. However, earnings
were lower than last year due to higher depreciation, debugging costs and
training expenses.
Installation and Distribution
The installation and distribution division (IDD), the nation's second largest
retail chain of automotive glass stores, grew sales 19% and earnings 138%. In
fiscal 1993, IDD realigned its structure from a regional to a national focus,
and split its lines of business into retail and wholesale. This realignment
helped the division capitalize on increased unit movement and firmer pricing in
the replacement auto glass market. Same-store revenues rose 15%, reflecting
industry growth and increased market penetration. The Harmon Glass Network,
which subcontracts with more than 3,000 auto glass stores nationwide, reported a
53% jump in sales, about two-thirds of which were handled by company-owned
stores.
The division also increased its market penetration by adding 5 wholesale
distribution centers during the year, for a year-end total of 45 locations. At
February 26, 1994, IDD also had 231 retail glass stores and 7 Midas Muffler
franchises in 38 states.
The division plans to speed up its development of information systems and
communications technology during the upcoming year. Additional retail store and
warehouse expansion also is anticipated.
13
Viratec Thin Films
Viratec Thin Films (Viratec), a joint venture with Marvin Windows, develops and
applies optical-grade coatings to glass and other substrates. For the third
consecutive year, Viratec achieved both sales and earnings growth, reporting a
71% sales jump and a seven-fold increase in pretax earnings. Strong demand,
particularly in overseas markets, combined with healthy margins to produce the
outstanding results. To meet demand and proceed with new product development,
the unit is currently expanding its facility, nearly doubling square footage.
Viratec's backlog increased 22% from a year ago, to $13 million at year end.
FISCAL 1993 COMPARED TO FISCAL 1992
For the year ended February 27, 1993, Apogee reported a 4% decrease in sales and
a 47% decrease in earnings. Limited demand and severe competitive pricing
pressures were experienced by most of our business segments. Sales gains
achieved by architectural fabricated glass and installed auto glass were more
than offset by declines in curtainwall contracting and aluminum window
fabrication. Gross margin fell to its lowest level in over a decade, as
decreased volume and falling sales prices took their toll. Selling, general and
administrative expenses were reduced through cost containment programs at GFD,
restructuring efforts at IDD and lower bad debt expense. CCD experienced higher
selling costs as the division furthered its efforts to penetrate foreign and
security markets. A sharp turnaround in equity in net earnings of affiliates was
due to substantial improvements at Viratec and the absence of the Marcon West
coating unit. Net interest expense increased 85%, as bank borrowings rose and
less interest income was earned on invested funds. Lower consolidated profits
led to a decrease in the tax rate.
CCD encountered very rugged industry conditions during fiscal 1993, leading to a
10% reduction in division revenues, to $249 million. Narrowing margins and
higher marketing costs related to the pursuit of international and
detention/security sales resulted in a $5.1 million operating loss for the year,
compared with $15.0 million operating income in fiscal 1992. The division's
backlog grew 45% and finished the year at $289 million. This was achieved
largely by obtaining a $42 million order for the Getty Museum curtainwall in Los
Angeles. Detention/security and international segments of CCD also reported
backlog growth.
WFD reported a 15% decline in revenues, to $75 million, and a $506,000 operating
loss in fiscal 1993. Architectural sales fell 23% from fiscal 1992. Tight
margins and erratic productivity were the main factors behind the division's
results. The window coverings group, however, reported a 22% increase in sales
and strong profits, nearly offsetting the architectural group's loss. The
absence of Window Works, sold a year earlier, and operational improvements made
by The Shuttery played a major role in the group's results.
GFD produced a dramatic earnings turnaround in fiscal 1993. Total revenues
gained only 3%, but operating income grew to $7.8 million, compared with a $2.3
million loss in fiscal 1992. The consolidation of architectural glass
production to its Minnesota facilities and the cumulative effect of several
years of continuous cost reduction efforts throughout the division were
significant factors leading to the reported gains. Marcon, a 50%-owned glass
coating joint venture, reported modest growth in both revenues and operating
income due to rising popularity of coated glass for both homes and businesses.
IDD was able to achieve sales growth and a return to profitability in fiscal
1993 despite continued unfavorable pricing. The division began the process of
transformation from a regional to a national company with a line-of-business
concept. Strong demand also helped the recovery. The Harmon Glass Network
reported 26% revenue growth. The division closed 31 stores while adding only 10.
Viratec Thin Films made substantial improvements in fiscal 1993, closing the
year with a modest profit. Viratec's backlog grew to $10.7 million at year end.
14
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
FINANCIAL CONDITION Major balance sheet items as a percentage of total assets
at February 26, 1994 and February 27, 1993 are presented below:
1994 1993
---- ----
Current assets 72% 67%
Current liabilities 46 40
Long-term debt 12 11
Deferred taxes and other liabilities 5 4
Shareholders' equity 37 45
Working capital increased 16% to $80.4 million at February 26, 1994. Total
receivables grew 36% due to increased sales and extended collection periods. The
competitiveness of the construction industry and a greater proportion of
institutional, versus commercial, sales have slowed the payment cycle, resulting
in extended collection periods. Inventories rose 31% due to higher costs in
excess of billings on uncompleted construction contracts, the addition of Miller
Artboard's inventory and higher IDD inventories, resulting from the addition of
5 wholesale distribution centers and growth in the number of auto glass parts.
Bank debt increased to fund working capital growth and to pay down other higher-
priced debt. Total bank borrowing, including $25 million classified as long-
term, rose from $10.9 million to $48.9 million. Long-term debt stood at $35.7
million, but was only 12% of assets and 22% of total invested capital at year
end. In fiscal 1995, we expect operating cash flow, after working capital
adjustments, to exceed our requirements for debt service and dividends.
However, we may continue to rely on bank credit or other sources of financing to
support expansion and acquisition activity. We believe that existing and
reasonably available sources of financing will enable us to maintain liquidity
and achieve improved results.
CAPITAL INVESTMENT
New capital investment for the year totaled $19.4 million, versus $13.6 million
and $18.5 million in fiscal 1993 and 1992, respectively. New property, plant and
equipment totaled $14.0 million, and we invested $3.2 million to fund CCD's
acquisition of CFEM Facades and GFD's acquisition of Miller.
Capital investment for fiscal 1995 is estimated at $26 million. Upgrading of
information and communication systems at IDD and facility expansions at our
joint ventures and GFD are the major components of next year's spending plans.
SHAREHOLDERS' EQUITY
Apogee's quarterly dividend rose 7% to 7 1/2 cents per share during fiscal 1994,
our 19th consecutive year of increase. Total cash dividends slightly exceeded
net earnings for the year. The issuance of common stock in connection with the
1987 Stock Option Plan and the 1987 Partnership Plan accounted for the marginal
increase in book value, to $8.57 per share.
IMPACT OF INFLATION
Apogee's financial statements are prepared on an historical cost basis, which
does not completely account for the effects of inflation. However, since the
cost of most of our inventories is determined using the last-in, first-out
(LIFO) method of accounting, cost of sales, except for depreciation expense
included therein, generally reflects current costs.
The cost of glass, one of Apogee's primary raw materials, modestly increased as
both residential building and auto sales were strong in 1993. While our supply
and construction contracts are at a fixed price, material cost is usually based
on firm quotes obtained from suppliers. Through new production efficiencies and
cost containment programs set up at most operating units, selling, general and
administrative expenses were held relatively constant. Our divisions continue to
improve efficiencies and cost containment programs to offset inflation wherever
possible.
OUTLOOK
- - -------
Apogee's backlog grew 26% and stood at $405.0 million at February 26, 1994, our
second straight year of double-digit growth. However, a substantial portion of
CCD's backlog will not be realized in fiscal 1995. Also, while U.S.
nonresidential
15
construction activity is expected to gradually strengthen, a firmer pricing
stance may result in fewer orders. Improved project management, the expected
benefit of closing and consolidating CCD offices and facilities, will also be
essential in fiscal 1995. The demand in auto replacement glass has slowed
somewhat, but remains positive. Overall, improved industry conditions and better
management of our businesses should result in improved profitability and,
possibly, higher revenues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information called for by this Item is contained in a separate section of
this report. See "Index of Financial Statements and Schedules".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
--------
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
---------------------------------------------------
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
-----------------------------------------------------
BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN
---------------------------------------------
RELATIONSHIPS AND RELATED TRANSACTIONS.
---------------------------------------
The information required by these Items, other than the information set forth
above in "Executive Officers of the Registrant," is included on pages 1 to 10 of
the Proxy Statement for the Annual Meeting of Shareholders to be held June 21,
1994, which is incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) and (d) Financial Statements and Financial Statement Schedules -
The consolidated financial statements and schedules of the Registrant listed
on the accompanying "Index to Financial Statements and Schedules" together with
the report of KPMG Peat Marwick, independent auditors, are filed as part of this
report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February 26, 1994.
(c) Exhibits -
Exhibit (3A) Restated Articles of Incorporation
Filed in Registrant's Annual Report on Form 10-K for year
ended February 27, 1988.
Exhibit (3B) Restated By Laws of Apogee Enterprises, Inc., as amended to
date. Filed in Registrant's Annual Report on Form 10-K for
year ended February 29, 1992.
Exhibit (4A) Specimen certificate for shares of common stock of Apogee
Enterprises, Inc. Filed in Registrant's Annual Report on
Form 10-K for year ended February 29, 1992.
Exhibit (10A) Deferred Incentive Compensation Plan dated February 27, 1986
between Registrant and certain executive officers. Filed in
Registrant's Annual Report on Form 10-K for year ended
March 1, 1986.
16
Exhibit (10B) Amended and Restated 1987 Apogee Enterprises, Inc.
Partnership Plan is incorporated by reference to
Registrant's S-8 registration statement (File No. 33-60400)
Exhibit (10C) 1987 Apogee Enterprises, Inc. Stock Option Plan is
incorporated by reference to Registrant's S-8 registration
statement (File No. 33-35944)
Exhibit (10D) Note Agreement dated June 1, 1988 between the registrant and
Teachers Insurance and Annuity Association of America
($25,000,000). Filed in Registrant's Quarterly Report on
Form 10-Q for quarter ended August 27, 1988.
Exhibit (10E) Incentive Compensation Agreement between Registrant and
Gerald K. Anderson dated February 23, 1987. Filed with
Registrant's Annual Report on Form 10-K for year ended
March 2, 1991.
Exhibit (10F) Consulting Agreement between Registrant and Gerald K.
Anderson dated March 1, 1989. Filed with Registrant's
Annual Report on Form 10-K for year ended March 2, 1991.
Exhibit (10G) Rights Agreement between Registrant and American Stock
Transfer Co. dated October 19, 1990. Filed with
Registrant's Form 8-K on October 19, 1990.
Exhibit (10H) $25 million Credit Facilities agreements between Apogee
Enterprises, Inc., First Bank National Association and NBD
Bank, N.A. Filed with Registrant's Annual Report on Form
10-K for year ended February 27, 1993.
Exhibit (10I) Consulting Agreement between Registrant and Laurence J.
Niederhofer dated November 1, 1993.
Exhibit (11) Statement of Determination of Common Shares and Common Share
Equivalents
Exhibit (21) Subsidiaries of the Registrant
17
- SIGNATURES -
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 20, 1994
APOGEE ENTERPRISES, INC.
By: /s/ Donald W. Goldfus
----------------------------------------
Donald W. Goldfus
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- - --------- ----- ----
Chairman of the Board
of Directors and
/s/ Donald W. Goldfus Chief Executive Officer May 20, 1994
- - ---------------------- ----------------------- ------------
Donald W. Goldfus
/s/ Gerald K. Anderson President and Director May 20, 1994
- - ----------------------- ---------------------- ------------
Gerald K. Anderson
/s/ Laurence J. Niederhofer Director May 20, 1994
- - ---------------------------- -------- ------------
Laurence J. Niederhofer
/s/ James L. Martineau Vice President and Director May 20, 1994
- - ----------------------- --------------------------- ------------
James L. Martineau
/s/ D. Eugene Nugent Director May 20, 1994
- - --------------------- -------- ------------
D. Eugene Nugent
Treasurer, Chief Financial
/s/ William G. Gardner Officer and Secretary May 20, 1994
- - ----------------------- -------------------------- ------------
William G. Gardner
18
APOGEE ENTERPRISES, INC.
FORM 10-K
ITEMS 8, 14(A) AND 14(D)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
Report of Independent Auditors.................................... F-2
Consolidated Balance Sheets....................................... F-3
Consolidated Results of Operations and Quarterly Data (Unaudited). F-4
Consolidated Statements of Cash Flows............................. F-5
Notes to Consolidated Financial Statements........................ F-6
Financial Statements Schedules
Schedule V - Property, Plant and Equipment....................... F-15
Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment...................... F-16
Schedule IX - Valuation and Qualifyng Accounts.................... F-17
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Apogee Enterprises, Inc.:
We have audited the consolidated financial statements of Apogee
Enterprises, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Apogee
Enterprises, Inc. and subsidiaries as of February 26, 1994 and
February 27, 1993 and the results of their operations and their cash flows
for each of the years in the three-year period ended February 26, 1994 in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in notes 1 and 9, the company changed its method of
accounting for income taxes in fiscal 1994 to adopt the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick
Minneapolis, Minnesota
April 22, 1994
F-2
CONSOLIDATED BALANCE SHEETS
Apogee Enterprises, Inc. and Subsidiaries
February 26, February 27,
(Dollar amounts in thousands) 1994 1993
- - ----------------------------- ------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 10,824 $ 8,908
Receivables, net of allowance for
doubtful accounts 144,597 106,421
Inventories 52,732 40,189
Deferred income taxes 8,454 8,481
Other current assets 4,679 5,030
------------ ------------
Total current assets $221,286 $169,029
------------ ------------
Property, plant and equipment, net 64,917 66,128
Other assets
Intangible assets, at cost less accumulated
amortization of $10,999 and $8,101,
respectively 1,972 4,917
Investments in and advances to
affiliated companies 11,826 10,179
Deferred income taxes 3,526 -
Other 2,661 1,203
------------ ------------
19,985 16,299
------------ ------------
Total assets $306,188 $251,456
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 51,488 $ 37,200
Accrued expenses 40,916 36,414
Billings in excess of costs and earnings
on uncompleted contracts 15,911 17,440
Accrued income taxes 4,524 4,556
Notes payable 23,850 -
Current installments of long-term debt 4,157 4,177
------------ ------------
Total current liabilities $140,846 $ 99,787
------------ ------------
Long-term debt 35,688 28,419
Other long-term liabilities 14,260 10,915
Minority interest 1,331 -
Commitments and contingent liabilities
(Notes 14 and 15)
Shareholders' equity
Common stock of $.33-1/3 par value;
authorized 50,000,000 shares; issued and
outstanding, 13,312,000 and 13,177,000
shares, respectively 4,437 4,392
Additional paid-in capital 17,718 15,845
Retained earnings 91,908 92,098
------------ ------------
Total shareholders' equity 114,063 112,335
------------ ------------
Total liabilities and shareholders' equity $306,188 $251,456
============ ============
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED RESULTS OF OPERATIONS
Apogee Enterprises, Inc. and Subsidiaries
Year Ended Year Ended Year Ended
February 26, February 27, February 29,
1994 1993 1992
(Dollar amounts in thousands, except per share data) ------------ ------------ ------------
Net sales $688,233 $572,450 $596,281
Cost of sales 604,338 494,249 494,701
------------ ------------ ------------
Gross profit 83,895 78,201 101,580
Selling, general and administrative expenses 71,659 71,832 76,531
Equity in net (earnings) loss of
affiliated companies (2,294) (1,875) 2,529
Provisions for business restructuring and
asset valuation 5,178 - 5,800
------------ ------------ ------------
Operating income 9,352 8,244 16,720
Interest expense, net 2,735 1,794 970
------------ ------------ ------------
Earnings before income taxes and
other items below 6,617 6,450 15,750
Income taxes 2,634 1,936 7,245
Minority interest 675 - -
Net earnings before cumulative effect of change
in accounting for income taxes 3,308 4,514 8,505
------------ ------------ ------------
Cumulative effect of change in accounting
for income taxes 525 - -
------------ ------------ ------------
Net earnings $ 3,833 $ 4,514 $ 8,505
============ ============ ============
Earnings per share:
Earnings per share before cumulative
effect of change in accounting
for income taxes $ 0.25 $ 0.34 $ 0.63
Cumulative effect of change in accounting
for income taxes 0.04 - -
------------ ------------ ------------
Earnings per share $ 0.29 $ 0.34 $ 0.63
============ ============ ============
See accompanying notes to consolidated financial statements.
QUARTERLY DATA (UNAUDITED)
(Dollar amounts in thousands, except per share data)
NET SALES GROSS PROFIT
Quarter 1994 1993 1992 Quarter 1994 1993 1992
- - ------- ---------- ---------- ---------- ------- ---------- ---------- ----------
First $148,752 $130,878 $133,755 First $19,947 $19,236 $ 23,138
Second 175,568 145,802 158,798 Second 22,093 20,855 25,841
Third 184,529 146,723 161,374 Third 23,917 19,859 26,248
Fourth 179,384 149,047 142,354 Fourth 17,938 18,251 26,353
---------- ---------- ---------- ----------- ---------- ----------
Total $688,233 $572,450 $596,281 Total $83,895 $78,201 $101,580
========== ========== ========== =========== ========== ==========
NET EARNINGS (LOSS)* EARNINGS (LOSS) PER SHARE*
Quarter 1994 1993 1992 Quarter 1994 1993 1992
- - ------- ---------- ---------- ---------- ------- ---------- ---------- ----------
First $1,443 $ 319 $2,705 First $ 0.11 $0.02 $0.20
Second 2,441 1,949 3,933 Second 0.18 0.15 0.29
Third 2,902 2,020 260 Third 0.22 0.15 0.02
Fourth (2,953) 226 1,607 Fourth (0.22) 0.02 0.12
---------- ---------- ---------- ----------- ---------- ----------
Total $3,833 $4,514 $8,505 Total $ 0.29 $0.34 $0.63
========== ========== ========== =========== ========== ==========
[FN]
*During the first quarter of 1994, we adopted Statement of Accounting Standards
No. 109, Accounting for Income Taxes. The cumulative effect of the change in
accounting for income taxes increased net earnings by $525,000, or 4 cents per
share, and is included in fiscal 1994 figures.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Apogee Enterprises, Inc. and Subsidiaries
Year Ended Year Ended Year Ended
(Dollar amounts in thousands) February 26, 1994 February 27, 1993 February 29, 1992
- - ----------------------------- ----------------- ----------------- -----------------
OPERATING ACTIVITIES
Net earnings $ 3,833 $ 4,541 $ 8,505
Adjustments to reconcile net earnings to net cash
(used by) provided by operating activities:
Cumulative effect of change in accounting for
income taxes (525) - -
Depreciation and amortization 15,724 15,110 16,305
Provision for losses on accounts receivable 2,388 2,061 6,261
Nocurrent deferred income tax expense (3,124) (1,992) (1,357)
Provision for business restructuring and asset
valuation 5,178 - 5,800
Equity in net (earnings) loss of affiliated
companies (2,294) (1,875) 2,529
Minority interest in net earnings 675 - -
Other, net (1,580) 176 371
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (40,205) (14,692) 7,179
Inventories (10,255) (131) 2,081
Other current assets 351 421 (696)
Accounts payable and acquired expenses 17,003 2,255 (5,393)
Billings in excess of costs and earnings on
on uncompleted contracts (1,529) 968 (18,826)
Accrued and current deferred income taxes 164 (3,333) (2,376)
Other long-term liabilities 3,299 3,457 1,404
-------- -------- --------
Net cash (used by) provided by operating
activities (10,897) 6,939 21,787
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (14,046) (9,166) (12,974)
Acquisition of businesses, net of cash acquired (3,154) (1,696) (5,398)
Investment in and advances to affiliated companies 1,527 (2,502) 127
Proceeds from sale of property, plant and equipment 832 818 376
Other, net (1,340) (1,434) (1,234)
-------- -------- --------
Net cash used by investing activities (16,181) (13,980) (19,103)
-------- -------- --------
FINANCING ACTIVITIES
Increase in notes payable 23,850 - -
Payments on long-term debt (6,851) (7,733) (636)
Proceeds from issuance of long-term debt 14,100 10,900 -
Proceeds from issuance of common stock 1,945 1,508 579
Repurchase and retirement of common stock (209) (3,834) (848)
Dividends paid (3,841) (3,584) (3,505)
-------- -------- --------
Net cash provided by (used by) financing
activities 28,994 (2,793) (4,410)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,916 (9,834) (1,726)
Cash and cash equivalents at beginning of year 8,908 18,742 20,468
-------- -------- --------
Cash and cash equivalents at end of year $ 10,824 $ 8,908 $ 18,742
======== ======== ========
See accompanying notes to consolidated financial statements
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Apogee Enterprises, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA
PRINCIPLES OF CONSOLIDATION Our consolidated financial statements include
the accounts of Apogee and all majority-owned subsidiaries. We use the equity
method to account for our 50%-owned joint ventures. All significant intercompany
transactions are eliminated. Certain amounts from prior-year financial
statements have been reclassified to be consistent with this year's
presentation.
CASH AND CASH EQUIVALENTS Investments with an original maturity of three
months or less are included in cash and cash equivalents.
INVENTORIES Inventories, which consist primarily of purchased glass and
aluminum, are valued at cost, principally by using the last-in, first-out (LIFO)
method, which does not exceed market. If the first-in, first-out (FIFO) method
had been used, our inventories would have been $1,825,000 and $1,900,000 higher
than reported at February 26, 1994 and February 27, 1993, respectively.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including
improvements to existing facilities, are carried at cost. Repairs and
maintenance are charged to expense as incurred. Apogee computes depreciation on
a straight-line basis, based on estimated useful lives of 20 to 40 years for
buildings and 2 to 15 years for equipment. When property is retired or otherwise
disposed of, the cost and related depreciation are removed from the amounts and
any related gains or losses are included in income.
INTANGIBLE ASSETS AND AMORTIZATION Intangible assets consist principally of
goodwill and non-compete agreements. We review the ongoing future value of
intangibles on an annual basis. The continuing benefit of such assets is
evaluated based upon an assessment of relevant economic and other criteria,
including projections of future results.
Goodwill is the excess of cost over the fair value of acquired assets of
purchased businesses. Goodwill is amortized over periods ranging from 10 to 40
years, except for $923,000, which is not being amortized. In our opinion, there
has been no diminution of its value.
Non-compete agreements are contracts with the previous management of
purchased businesses not to enter into competition with us for a certain period
of time. Non-compete agreements are amortized ratably over the term of the
agreements. Amortization expense amounted to $2,328,000, $2,123,000 and
$2,106,000 in 1994, 1993 and 1992, respectively.
OTHER LONG-TERM LIABILITIES Our long-term liabilities include the long-term
portion of accrued insurance costs and deferred compensation.
REVENUE RECOGNITION We recognize revenue from construction contracts on a
percentage-of-completion basis, measured by the percentage of costs incurred to
date to estimated total costs for each contract. Contract costs include
materials, labor and other direct costs related to contract performance. We
establish provisions for estimated losses, if any, on uncompleted contracts in
the period in which such losses are determined. Revenue from the sale of
products and the related cost of sales are recorded upon shipment. All selling,
general and administrative costs are expensed in the period incurred.
INCOME TAXES Apogee files a consolidated income tax return. Effective
February 28, 1993, Apogee adopted the provisions of Statement of Financial
Accounting Standards No. 109 (SFAS 109). SFAS 109 requires the asset and
liability method be used to account for income taxes. This method recognizes
deferred tax assets and liabilities based upon the future tax consequences of
temporary differences between financial and tax reporting. Previously Apogee
followed the provisions of Accounting Principles Board Opinion No. 11. The
cumulative effect of the change in accounting for income taxes is included in
the fiscal 1994 Consolidated Results of Operations.
EARNINGS PER SHARE Apogee computes earnings per share by dividing net
earnings by the weighted average number of common shares and common share
equivalents outstanding during the year. Our average common shares and common
share equivalents outstanding during 1994, 1993 and 1992 were 13,289,000,
13,293,000 and 13,512,000, respectively.
TRANSLATION OF FOREIGN CURRENCIES The financial statements of our foreign
operations have been translated to U.S. dollars, using the rules of Statement of
Financial Accounting No. 52. Balance sheet accounts are stated in U.S. dollars
at either the year-end or historical exchange rate. Results of operations
statement items are translated at average exchange rates for the period.
ACCOUNTING PERIOD Apogee's fiscal year ends on the Saturday closest to
February 28. Interim quarters end on the Saturday closest to the end of the
months of May, August and November.
F-6
2. RECEIVABLES
(In thousands) 1994 1993
-------------- -------- --------
Trade accounts $ 58,474 $ 43,172
Construction contracts 59,747 43,090
Contract retainage 30,507 23,730
Other receivables 3,748 2,768
-------- --------
Total receivables 152,476 112,760
Less allowance for doubtful accounts (7,879) (6,339)
-------- --------
Net receivables $144,597 $106,421
======== ========
Apogee provides products and services to the commercial and institutional new
construction and remodeling markets, the automotive replacement glass market
(wholesale and retail) and selected consumer markets at the distribution level.
We do not believe a concentration of credit risk exists, due to the diversity of
our markets and channels of distribution, and the geographic location of our
customers. We perform ongoing credit evaluations of our customers' financial
condition and limit the amount of credit extended when deemed necessary.
We also routinely file liens to protect our interest whenever possible. We
generally require no collateral. Allowances are maintained for potential credit
losses and such losses have been within management's expectations. The provision
for bad debt expense was $2,388,000, $2,061,000 and $6,261,000 in 1994, 1993 and
1992, respectively.
3. INVENTORIES
(In thousands) 1994 1993
-------------- ------- -------
Raw materials $ 9,994 $ 8,819
In process 3,413 2,315
Finished 29,565 23,148
Costs in excess of billings 9,760 5,907
------- -------
Total inventories $52,732 $40,189
======= =======
4. PROPERTY, PLANT AND EQUIPMENT
(In thousands) 1994 1993
-------------- -------- --------
Land $ 2,308 $ 2,202
Buildings 37,283 35,454
Machinery and equipment 60,117 55,960
Office furniture and equipment 23,232 20,694
Leasehold improvements 6,682 8,216
Construction in progress 4,019 2,031
Other 7,769 7,704
-------- --------
Total property, plant and equipment 141,410 132,261
Less allowance for depreciation (76,493) (66,133)
-------- --------
Net property, plant and equipment $ 64,917 $ 66,128
======== ========
Depreciation expense was $13,397,000, $12,987,000 and $14,199,000 in 1994,
1993 and 1992, respectively.
5. ACCRUED EXPENSES
(In thousands) 1994 1993
-------------- ------- -------
Payroll and related benefits $15,331 $ 9,823
Insurance 10,023 12,419
Taxes, other than income taxes 1,888 2,656
Pension 2,929 2,804
Interest 994 806
Other 9,751 7,906
------- -------
Total accrued expenses $40,916 $36,414
======= =======
F-7
6. LONG-TERM DEBT
(In thousands) 1994 1993
-------------- ------- -------
Promissory note, 9.65%, due in annual
installments through 1998 $11,607 $17,857
Borrowings under revolving credit agreements 25,000 10,900
Floating rate industrial development bond,
2.6% at year end, due in annual
installments through 1999 2,000 2,400
Industrial development bonds, interest
ranging from 3.60% to 6.30%, due
in annual installments through 2003 1,177 1,330
Other 61 109
------- -------
Total long-term debt 39,845 32,596
Less current installments (4,157) (4,177)
------- -------
Net long-term debt $35,688 $28,419
======= =======
Long-term debt maturities are as follows:
Fiscal Year (In thousands)
-------------------------------------------------
1995 $ 4,157
1996 4,172
1997 12,430
1998 9,761
1999 8,878
Thereafter 447
-------
Total $39,845
=======
In fiscal 1992, we entered into three interest rate swap agreements with a
notional amount of $25 million that effectively converted a portion of our fixed
rate, long-term borrowings into variable rate obligations. The swap agreements
are accounted for as hedges, with the net interest paid or received included in
interest expense. During fiscal 1993, we sold two of the swap agreements at net
gains. The gains are being recognized as reductions in interest expense over the
original term of the swap agreements.
The terms of the promissory note include certain dividend and debt level
restrictions and requirements to maintain minimum levels of tangible net worth
and certain financial ratios. Retained earnings available for dividends under
the terms of the promissory note were approximately $27 million at February 26,
1994.
The net book value of property, plant and equipment pledged as collateral,
principally under industrial development bonds, was approximately $2 million at
February 26, 1994.
In February 1993, we entered into new revolving credit agreements with two
banks. The agreements allow us to borrow up to $25 million at various
alternative rates. The revolving credit term is three years, with an additional
three-year term-loan option. At any time through the revolving period, we can
convert any outstanding loans into a long-term note. The agreements require us
to maintain minimum levels of tangible net worth and certain financial ratios.
We also had access to $60 million via committed and uncommitted credit
facilities with several major lending institutions. We may elect to have
borrowings under the agreements bear interest at fixed or floating rates. At
February 26, 1994, $23.9 million in borrowings were outstanding under these
agreements. Interest rates on the year-end borrowings ranged from 3.50% to
3.81%.
Selected information related to bank borrowings under credit agreements is
as follows:
(Dollar amounts in thousands) 1994 1993
- - ----------------------------- ------- -------
Average daily borrowings during the year $34,203 $ 3,992
Maximum borrowings outstanding during the year $53,800 $12,100
Weighted average interest rate during the year 3.67% 4.00%
F-8
7. SHAREHOLDERS' EQUITY
Common Additional
Shares Common Paid-in Retained
(In thousands) Outstanding Stock Capital Earnings
-------------- ----------- ------ ---------- --------
Balance at March 2, 1991 13,477 $4,492 $14,422 $90,136
Net earnings - - - 8,505
Common stock issued 53 18 561 -
Common stock repurchased
or retired (69) (23) (75) (750)
Cash dividends - - - (3,505)
------- ------ ------- -------
Balance at February 29, 1992 13,461 4,487 14,908 94,386
Net earnings - - - 4,514
Common stock issued 150 50 1,458 -
Common stock repurchased
or retired (434) (145) (521) (3,218)
Cash dividends - - - (3,584)
------- ------ ------- -------
Balance at February 27, 1993 13,177 4,392 15,845 92,098
Net earnings - - - 3,833
Common stock issued 152 51 1,894 -
Common stock repurchased
or retired (17) (6) (21) (182)
Cash dividends - - - (3,841)
------- ------ ------- -------
Balance at February 26, 1994 $13,312 $4,437 $17,718 $91,908
======= ====== ======= =======
A class of 200,000 shares of junior preferred stock with a par value of
$1.00 is authorized, but unissued.
Apogee has a Shareholders' Rights Plan, under which each share of our
outstanding common stock has an associated preferred share purchase right. The
rights are exercisable only under certain circumstances and allow holders of
such rights to purchase common stock of Apogee or an acquiring company at a
discounted price, which generally would be 50% of the respective stock's current
fair market value.
8. INTEREST EXPENSE, NET
(In thousands) 1994 1993 1992
-------------- ------ ------- -------
Interest on debt $3,008 $ 2,709 $ 2,832
Other interest 620 278 91
------ ------- -------
Total interest expense 3,628 2,987 2,923
Less interest income (893) (1,193) (1,953)
------ ------- -------
Interest expense, net $2,735 $ 1,794 $ 970
====== ======= =======
Interest payments were $3,714,000, $2,556,000 and $2,959,000 in 1994, 1993
and 1992 respectively.
F-9
9. INCOME TAXES
As discussed in Note 1, we adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109) in 1994. The cumulative effect of this change in
accounting for income taxes is reported separately in the accompanying Results
of Operations for the year ended February 26, 1994. Prior years' financial
statements have not been restated to apply the provisions of SFAS 109.
The components of income tax expense for each of the last three fiscal years
are as follows:
(In thousan ds) 1994 1993 1992
- - -------------- ------- ------- -------
CURRENT:
Federal $ 3,342 $ 2,525 $10,430
State and local 701 639 2,127
Foreign 1,520 (429) 3,203
------- ------- -------
Total current 5,563 2,735 15,760
DEFERRED:
Federal (2,794) (1,494) (5,903)
State and local (485) (310) (1,237)
Foreign 350 1,005 (1,375)
------- ------- -------
Total deferred (2,929) (799) (8,515)
------- ------- -------
Total income tax expense $ 2,634 $ 1,936 $ 7,245
======= ======= =======
Income tax payments, net of refunds, were $5,934,000, $7,371,000 and
$11,337,000 in 1994, 1993 and 1992, respectively.
The differences between statutory federal tax rates and our consolidated
effective tax rates are as follows:
1994 1993 1992
----- ----- ----
Statutory federal tax rate 35.0% 34.0% 34.0%
State and local income taxes, net
of federal tax benefit 2.1 3.4 4.4
Equity in (earnings) affiliates (12.3) (11.0) 8.8
Tax credits (2.2) - -
Foreign items with no tax benefit 7.7 - -
Other, net 0.4 3.6 (1.2)
Valuation allowance 9.1 - -
----- ----- ----
Consolidated effective tax rate 39.8% 30.0% 46.0%
===== ===== ====
The components of deferred income tax expense (benefit) for 1993 and 1992
are as follows:
(In thousands) 1993 1992
- - -------------- ------- -------
Completed contract accounting $ (172) $(2,668)
Accelerated depreciation 394 (1,659)
Allowance for doubtful accounts 1,862 (2,095)
Accrued insurance (1,499) (601)
Other accrued expenses (170) 35
Deferred compensation (215) (511)
Inventory 384 (510)
Business restructuring reserve (863) (464)
Other, net (520) (42)
------- -------
Deferred income taxes $ (799) $(8,515)
======= =======
F-10
Deferred tax assets and deferred tax liabilities at February 26, 1994 and
February 28, 1993 are as follows:
(In thousands) 1994 1993
-------- -------
Deferred tax assets:
Allowance for doubtful accounts $ 3,035 $ 2,400
Accrued insurance 8,701 7,358
Deferred compensation 3,143 2,900
Business restructuring reserve 2,127 1,017
Inventory capitalization 1,591 1,348
Other 2,260 2,191
------- -------
Gross deferred tax assets 20,857 17,214
Less valuation allowance (1,035) (435)
------- -------
Net deferred tax assets 19,822 16,779
------- -------
Deferred tax liabilities:
Accelerated depreciation 5,006 5,100
Employee benefit plans 1,307 1,385
Other 1,529 1,243
------- -------
Net deferred tax liabilities 7,842 7,728
------- -------
Net deferred tax assets $11,980 $ 9,051
======= =======
Apogee's valuation allowance increased by $600,000, which relates primarily
to a capital loss carryforward. The valuation allowance at February 26, 1994
also included amounts for foreign tax credits.
10. INVESTMENT IN AFFILIATED COMPANIES
Apogee, through its glass fabrication division, is party to a joint venture
agreement with Marvin Windows of Warroad, Minnesota, forming Marcon Coatings,
Inc. and its subsidiary, Viratec Thin Films, Inc. (Marcon/Viratec).
Marcon/Viratec operates two glass coating facilities. Our 50% ownership
investment in Marcon/Viratec is accounted for using the equity method.
Apogee and Marvin have leased certain glass coating equipment, to Marcon and
made cash advances to Marcon/Viratec. Our net investment in Marcon/Viratec as of
February 26, 1994 and February 27, 1993 was $10,652,000 and $8,858,000,
respectively. Our equity in Marcon/Viratec's net (earnings) loss is included in
the accompanying Consolidated Results of Operations. Marcon/Viratec's net
earnings for 1994 and 1993 included tax benefits from net operating loss
carryforwards in the amounts of $437,000 and $1,200,000, respectively.
A summary of assets, liabilities and results of operations for
Marcon/Viratec is presented below:
(In thousands) 1994 1993 1992
------------ ------- ------- -------
Current assets $10,248 $ 5,402 $ 3,483
Noncurrent assets 15,704 11,997 14,752
Current liabilities 7,214 4,577 6,842
Noncurrent liabilities 14,066 12,716 14,473
Net sales 34,497 24,150 15,944
Gross profit (loss) 10,967 6,929 (1,302)
Net earnings (loss) $ 4,566 $ 3,188 $(6,615)
11. EMPLOYEE BENEFIT AND STOCK OPTION PLANS
We maintain a qualified defined contribution pension plan that covers
substantially all full-time, non-union employees. Contributions to the plan are
based on a percentage of employees' base earnings. Benefits for each employee
vary based on total contributions and earnings on invested funds. We deposit
pension costs with the trustee annually. All pension costs were fully funded or
accrued as of year end. Contributions to the plan were $3,014,000, $2,848,000
and $2,651,000 in 1994, 1993 and 1992, respectively.
F-11
We also maintain a 401(k) Savings Plan, designed to encourage eligible
employees to develop a long-term savings program. The plan allows employees to
contribute 1% to 10% of their pretax compensation. Apogee matches 30% of the
first 6% of the employee contributions. Amounts contributed by us to the plan
were $1,206,000, $1,069,000 and $1,035,000 in 1994, 1993 and 1992, respectively.
The 1987 Stock Option Plan provides for the issuance of up to 1,250,000
options to purchase company stock. Options awarded under this plan, either in
the form of incentive stock options or nonstatutory options, are exercisable at
an option price equal to the fair market value at date of award. Changes in
stock options outstanding for each of the last three fiscal years are as
follows:
1994 1993 1992
------------- ------------ ------------
Options outstanding at beginning
of the year 481,000 381,000 467,000
Granted 148,000 165,000 25,000
Exercised (4,000) (31,000) (54,000)
Forfeited (148,000) (34,000) (57,000)
------------- ------------ ------------
Options outstanding at end
of year 477,000 481,000 381,000
============= ============ ============
Options exercisable at end of year 129,000 150,000 167,000
============= ============ ============
Price range of outstanding options $8.95-$18.91 $8.95-$18.91 $8.38-$18.91
============= ============ ============
Price range of exercised options $10.75-$12.00 $9.38 $6.75-$15.25
The 1987 Partnership Plan, a plan which is designed to increase the
ownership of Apogee stock by key employees, allows participants selected by the
Compensation Committee of the Board of Directors to use earned incentive
compensation to purchase Apogee stock. The purchased stock is then matched by an
equal award of restricted stock, which vests over a predetermined period. There
are 1,100,000 shares of common stock authorized for issuance or repurchase under
the plan. As of February 26, 1994, 500,000 shares have been issued under the
plan. We expensed $478,000, $287,000, and $450,000 in conjunction with the
Partnership Plan in 1994, 1993, and 1992, respectively.
12. ACQUISITIONS AND DIVESTITURES
In April 1993, our commercial construction division purchased certain assets
of CFEM Facades, a French curtainwall company. Also in 1994, our glass
fabrication division's Tru-Vue unit purchased the assets of a company serving
another segment of the picture framing market.
During 1993 and 1992, our installation and distribution division purchased
the assets of several auto glass service and distribution centers. In 1992, our
commercial construction division purchased the assets of three companies in the
detention/security sector of the nonresidential construction market.
All of the above transactions were accounted for by the purchase method.
Accordingly, Apogee's consolidated financial statements include the net assets
and results of operations from the dates of acquisition. In connection with the
above acquisitions, the fair market value of assets purchased and liabilities
assumed were as follows:
(In thousands) 1994 1993 1992
------------ ------ ------ -------
Fair value of assets acquired $3,154 $1,696 $17,392
Liabilities assumed - - 11,994
------ ------ -------
Net cash paid $3,154 $1,696 $ 5,398
====== ====== =======
13. PROVISION FOR BUSINESS RESTRUCTURING AND ASSET VALUATION
During 1994, we recorded business restructuring and asset provision of $5.6
million. ($4.5 million pre-tax). The charge was principally related to the
consolidation or closing of 10 commercial construction division offices and
facilities, the write-down of certain assets and the reorganization of the
window fabrication division's architectural products operation. The provision
consisted of asset writedowns of $2.5 million and projected cash outlays of $3.1
million, most of which will take place in fiscal 1995.
During 1992, we recorded a business restructuring provision of $5.8 million
($4.1 million after tax). The charge was principally related to the
consolidation of our glass fabrication division's fabricating and coating
capabilities, which involved the closing of its West Coast facilities and
merging them with the division's Minnesota operations. We settled all
outstanding matters related to the consolidation during fiscal 1994 and recorded
a $405,000 recovery of the fiscal 1992 provision.
F-12
14. LEASES
As of February 26, 1994, we were obligated under noncancelable operating
leases for buildings and equipment. Certain leases provide for increased rentals
based upon increases in real estate taxes or operating costs. Future minimum
rental payments under noncancelable operating leases are:
Fiscal Year (In thousands)
-------------------------------------------------------------
1995 $8,170
1996 5,574
1997 3,838
1998 2,418
1999 1,604
Thereafter 1,729
--------------
Total minimum payments $23,333
==============
Total rental expense was $17,129,000, $15,653,000 and $16,889,000 in 1994,
1993 and 1992, respectively.
15. COMMITMENTS AND CONTINGENT LIABILITIES
Apogee has entered into a number of non-compete agreements. Non-compete
agreements represent contractual agreements with the previous management of
purchased businesses not to enter into competition with us for a certain period
of time. As of February 26, 1994, we were committed to make future payments of
$1,716,000 under such agreements.
Apogee has ongoing letters of credit related to risk management programs,
construction contracts and certain industrial development bonds. The total value
of letters of credit under which the company is obligated as of February 26,
1994 was approximately $38,923,000.
Apogee, like other participants in the construction business, is routinely
involved in disputes and claims arising out of construction projects, sometimes
involving significant monetary damages. Although it is impossible to predict the
outcome of such disputes, we believe, based on facts currently available to us,
that none of such claims will result in losses that would have a material
adverse effect on our financial condition.
16. FAIR VALUE DISCLOSURES
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107.
Estimated fair value amounts have been determined using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in developing the estimates of fair value. Accordingly,
these estimates are not necessarily indicative of the amounts that could be
realized in a current market exchange. The use of different market assumptions
and/or estimating methodologies may have a material effect on the estimated fair
value amounts.
Estimated fair values of our financial instruments at February 26, 1994 are
as follows:
Carrying Estimated
(In thousands) Amount Fair Value
-------------- -------- ----------
Long-term debt $39,845 $40,259
Interest rate swap agreement in a
net payable position - $182
For cash and cash equivalents, receivables, and accounts payable, carrying
value is a reasonable estimate of fair value.
The carrying values (face amounts) of our long-term debt that have variable
interest rates are reasonable estimates of fair value. For borrowings that have
fixed interest rates, fair value is estimated by discounting the projected cash
flows using the rate at which similar borrowings could currently be made.
The fair value of interest rate swaps is the difference between the present
value of our future interest obligation at a fixed rate and the counterparty's
obligation at a floating rate.
F-13
17. BUSINESS SEGMENTS
Sales, operating income, identifiable assets and other related data for our
operations in different business segments, appearing in this report, are an
integral part of these financial statements. Fiscal 1990 and 1991 segment data
are not covered by the Independent Auditors' Report.
1994 1993 1992 1991 1990
Dollar amounts in thousands Amount % Amount % Amount % Amount % Amount %
- - --------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
SALES
Commercial construction $307,036 44.6 $248,532 43.4 $274,863 46.1 $272,215 45.4 $283,720 48.1
Window fabrication 83,228 12.1 75,325 13.2 89,101 14.9 84,600 14.1 85,763 14.5
Glass fabrication 135,208 19.6 111,933 19.6 108,530 18.2 122,692 20.5 118,662 20.1
Installation and distribution 197,471 28.7 165,842 29.0 153,561 25.8 149,893 25.0 136,639 23.2
---------------- ---------------- ---------------- ---------------- ----------------
Total 722,943 105.0 601,632 105.1 626,055 105.0 629,400 105.0 624,784 106.0
Intersegment elimination (34,710) (5.0) (29,182) (5.1) (29,774) (5.0) (29,875) (5.0) (35,127) (6.0)
---------------- ---------------- ---------------- ---------------- ----------------
Net sales $688,233 100.0 $572,450 100.0 $596,281 100.0 $599,525 100.0 $589,657 100.0
================ ================ ================ ================ ================
OPERATING PROFIT (Loss)
Commericial construction $(18,959) (376.5) $ (5,092) (62.9) $ 14,972 74.6 $ 15,527 45.5 $ 12,775 39.8
Window fabrication (3,484) (69.2) (506) (6.3) 7,426 37.0 8,508 25.4 3,676 11.4
Glass fabrication 13,650 269.3 7,845 96.9 (2,292) (11.4) 670 2.0 4,483 14.0
Installation and distribution 13,918 276.4 5,845 72.2 (43) (0.2) 9,121 27.2 11,173 34.8
---------------- ---------------- ---------------- ---------------- ----------------
Total 5,035 100.0 8,092 100.0 20,063 100.0 33,556 100.0 32,107 100.0
Interest expense, net (2,735) (1,794) (970) (1,059) (3,824)
Other income (expense) 4,317 152 (3,343) (3,655) (4,908)
---------------- ---------------- ---------------- ---------------- ----------------
Earnings before income taxes
and other items $ 6,617 $ 6,450 $ 15,750 $ 28,842 $ 23,375
================ ================ ================ ================ ================
Identifiable Assets Capital Expenditures Depreciation & Amortization
1994 1993 1992 1994 1993 1992 1994 1993 1992
-------- -------- -------- ------- ------ ------- ------- ------- -------
Commercial construction $114,060 $ 86,911 $ 66,596 $ 2,600 $2,774 $ 3,131 $ 3,508 $ 2,920 $ 2,314
Window fabrication 43,928 39,084 41,290 2,332 3,120 2,657 2,927 2,706 2,825
Glass fabrication 59,470 52,976 58,567 4,611 1,360 3,753 4,452 4,701 6,411
Installation and distribution 62,564 55,177 54,404 4,451 1,668 3,377 4,696 4,651 4,651
Corporate and other 29,413 20,679 36,096 52 244 56 141 132 104
Intersegment elimination (3,247) (3,371) (7,444) - - - - - -
-------- -------- -------- ------- ------ ------- ------- ------- -------
Total $306,188 $251,456 $249,509 $14,046 $9,166 $12,974 $15,724 $15,110 $16,305
======== ======== ======== ======= ====== ======= ======= ======= =======
Notes: Apogee's commercial construction division has subsidiaries in Europe
and Asia. During 1994, such operations had net sales and an operating loss of
$65,021,000 and $887,000 respectively. At February 26, 1994, identifiable assets
of the subsidiaries totaled $31,786,000. In 1993 and 1992, net sales and
identifiable assets of these units were less than 10% of Apogee's consolidated
figures. Foreign currency transaction gains or losses included in net earnings
for 1994, 1993 and 1992 were immaterial.
Apogee's export sales are less than 10% of consolidated net sales. No single
customer, including government agencies, accounts for 10% or more of
consolidated net sales. Intersegment sales are arms-length transactions. Segment
operating profit (loss) is net sales less cost of sales and operating expenses.
Operating income does not include provision for interest expense or income
taxes. Other income (expense) includes miscellaneous corporate activity not
allocable to business segments.
F-14
SCHEDULE V
----------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Property, Plant and Equipment
(In thousands)
Balance at Retirements, Balance at
beginning of Additions sales or end of
period at cost(1) adjustments period
------------ ------------ ------------- ----------
For the year ended
February 26, 1994:
Land $ 2,202 $ 44 $ (62) $ 2,308
Buildings 35,454 1,892 63 37,283
Machinery and equipment 55,960 6,409 2,252 60,117
Office furniture and
equipment 20,694 3,468 930 23,232
Leasehold improvements 8,216 (813) 721 6,682
Construction in progress 2,031 2,432 444 4,019
Other 7,704 1,723 1,658 7,769
-------- ------- ------ --------
$132,261 $15,155 $6,006 $141,410
======== ======= ====== ========
For the year ended
February 27, 1993:
Land $ 2,306 $ - $ 104 $ 2,202
Buildings 35,695 199 440 35,454
Machinery and equipment 53,277 2,433 (250) 55,960
Office furniture and
equipment 18,273 3,177 756 20,694
Leasehold improvements 8,530 944 1,258 8,216
Construction in progress 657 1,813 439 2,031
Other 8,184 764 1,244 7,704
-------- ------- ------ --------
$126,922 $ 9,330 $3,991 $132,261
======== ======= ====== ========
For the year ended
February 29, 1992:
Land $ 2,124 $ 182 $ - $ 2,306
Buildings 32,362 3,335 2 35,695
Machinery and equipment 52,633 2,328 1,684 53,277
Office furniture and
equipment 14,194 6,615 2,536 18,273
Leasehold improvements 7,874 1,199 543 8,530
Construction in progress 1,269 568 1,180 657
Other 7,505 1,722 1,043 8,184
-------- ------- ------ --------
$117,961 $15,949 $6,988 $126,922
======== ======= ====== ========
[FN]
(1) The amounts listed include property purchased through acquisitions of $986,
$164 and $2,975 for the years 1994, 1993 and 1992, respectively, consisting
entirely of machinery and equipment and office furniture and equipment, with
the exception of $1,435 for a building in 1992.
F-15
SCHEDULE VI
-----------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Accumulated Depreciation and Amortization
of Property, Plant and Equipment
(In thousands)
Additions
Balance at charged to Retirements, Balance at
beginning costs and sales or end of
of period expenses adjustments period
---------- ---------- ------------- ----------
For the year ended
February 26, 1994:
Buildings $10,576 $ 1,547 $(1,773) $13,896
Machinery and equipment 33,399 5,907 2,022 37,284
Office furniture and
equipment 11,767 3,788 732 14,823
Other 10,391 2,154 2,055 10,490
------- ------- ------- -------
$66,133 $13,396 $ 3,036 $76,493
======= ======= ======= =======
For the year ended
February 27, 1993:
Buildings $ 9,134 $ 1,532 $ 90 $10,576
Machinery and equipment 27,969 5,667 237 33,399
Office furniture and
equipment 9,235 3,465 933 11,767
Other 10,003 2,323 1,935 10,391
------- ------- ------- -------
$56,341 $12,987 $ 3,195 $66,133
======= ======= ======= =======
For the year ended
February 29, 1992:
Buildings $ 7,610 $ 1,526 $ 2 $ 9,134
Machinery and equipment 22,893 6,517 1,441 27,969
Office furniture and
equipment 7,796 3,255 1,816 9,235
Other 8,170 2,901 1,068 10,003
------- ------- ------- -------
$46,469 $14,199 $ 4,327 $56,341
======= ======= ======= =======
F-16
SCHEDULE VIII
-------------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands)
Balance at Charged to Deductions Balance at
beginning costs and from end of
of period expenses reserves (1) period
---------- ---------- ------------ ----------
For the year ended
February 26, 1994:
Allowance for
doubtful receivables $6,339 $2,388 $ 848 $7,879
====== ====== ====== ======
For the year ended
February 27, 1993:
Allowance for
doubtful receivables $9,049 $2,061 $4,771 $6,339
====== ====== ====== ======
For the year ended
February 29, 1992:
Allowance for
doubtful receivables $5,070 $6,261 $2,282 $9,049
====== ====== ====== ======
[FN]
(1) Net of recoveries
F-17