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UNITED STATES
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
For the fiscal year ended February 26, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-6365
APOGEE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0919654
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
7900 Xerxes Avenue South - Suite 1800
Minneapolis, Minnesota 55431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (952) 835-1874
--------------------------
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
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 .
--- ---
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. Yes No X .
--- ---
The aggregate market value of voting stock held by non-affiliates of the
registrant on April 30, 2000 was $99,194,250. The number of shares outstanding
of the Registrant's Common Stock at April 30, 2000 was 27,844,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part II, Item 9 and Part III hereof incorporate information by reference
from the Proxy Statement for the Annual Meeting of Shareholders to be held June
20, 2000.
APOGEE ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
For the year ended February 26, 2000
Description Page
----------- ----
PART I
- ------
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 7
Executive Officers of the Registrant 7
PART II
- -------
Item 5. Market for the Registrant's
Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 11
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk 18
Item 8. Financial Statements and
Supplementary Data 18
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 19
PART III
- --------
Item 10. Directors and Executive Officers
of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain
Beneficial Owners and Management 19
Item 13. Certain Relationships and
Related Transactions 19
PART IV
- -------
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 19
Index of Financial Statements and Schedules F-1
2
PART I
------
ITEM 1. BUSINESS
--------
The Company
- -----------
Apogee Enterprises, Inc. is a holding company incorporated under the laws
of the State of Minnesota in 1949. The Company, through its subsidiaries, is a
leader in the design and development of value-added glass products, services and
systems for the non-residential building, automotive and commercial markets.
Unless the context otherwise requires, the terms "Company" and "Apogee" as used
herein refer to Apogee Enterprises, Inc. and its subsidiaries.
Apogee's businesses are organized into two operating segments: Glass
Technologies and Glass Services. Glass Technologies (GT) serves the
architectural and imaging and display markets. Glass Services (GS) serves the
automotive glass replacement and repair market and provides building glass
installation and replacement services. In fiscal 2000, Apogee's Board of
Directors authorized the exit from the Company's interest in VIS'N Service
Corporation, a non-auto glass focused, third party administered claims
processor. Also, in fiscal 2000, the Company completed the sale of 100% of the
stock of its large-scale domestic curtainwall business, Harmon, Ltd. During
fiscal 1999, the Company divested two business units: its detention/security
systems contracting and domestic curtainwall businesses. Combined with the
fiscal 1998 exit from international curtainwall operations, these transactions
effectively removed the Company from large-scale construction, in addition to
the third-party administered claims processing business. Accordingly, these
businesses are reported as discontinued operations. A more detailed description
of our results and financial position is provided in Part II, Item 7. Financial
information about the Company's segments can be found at Note 19 to the
consolidated financial statements of Apogee Enterprises, Inc. contained
elsewhere in this report. See "Index of Financial Statements and Schedules."
Glass Technologies
- ------------------
The businesses of the Glass Technologies segment add value to ordinary
glass through fabrication of high-technology coatings products which provide
strength, energy efficiency in high-rise structures and optical clarity for
mirrors, glare filter screens and picture frame glass. The operating units in
this segment include Viracon, an architectural glass fabricator, Viratec Thin
Films (Viratec), a producer of coated glass for computer anti-glare screens and
other optical devices, Tru Vue, a picture framing glass unit, and Architectural
Products (Wausau Window and Wall Systems and Linetec), a manufacturer of
commercial and institutional window systems and a provider of painting and
anodizing services.
Viracon fabricates finished glass products and provides glass coating
services. The operating unit purchases flat, unprocessed glass in bulk
quantities from which a variety of glass products are fabricated, including
insulated, heat-processed and laminated architectural glass; security glass and
laminated industrial glass.
Laminated glass consists of two or more pieces of glass fused with a
plastic interlayer and is used primarily for strength and safety in skylights
and in security applications. Sales of laminated safety glass products have
increased with the adoption of federal and state safety glazing standards. Glass
is heated to its softening point then cooled very quickly to create
heat-processed glass. The heating and cooling strengthen the glass to withstand
impact and wind or snow loads. This product is used in architectural glass.
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. Viracon'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 nonresidential
glass markets.
The Viracon unit is able to fabricate all types of architectural glass
(insulating, laminated and combinations of both) at its Owatonna, Minnesota and
its new Statesboro, Georgia facilities. The Statesboro facility began production
in March 1999. Combined with its glass coating capabilities, the unit is able to
provide a full range of products from these facilities. Together with capacity
improvements at the Owatonna, Minnesota facility, the Statesboro facility will
cause Viracon's capacity over the next two fiscal years to increase by
approximately 50%.
Viracon markets its products nationally and overseas to glass distributors,
contractors and industrial glass fabricators. A substantial portion of its glass
product is delivered to customers by Viracon's fleet of company-owned trucks,
providing "backhaul" capability for its raw materials, thereby reducing shipping
time, transportation costs and breakage expense.
Viratec develops advanced, optical-display and imaging coatings for glass
and other surfaces. These products are used in anti-glare computer screens,
high-quality optical components and high performance mirror products for the
imaging industry. Viratec
3
markets optical display and imaging products to both domestic and overseas
customers. These customers provide further assembly, marketing and distribution
to end-users. The Optium(TM) coating line was relocated in fiscal 1999 from
Minnesota to southern California, a location closer to the flow of customers'
computer monitor supply chains. Viratec added a new, large-scale flat glass
coating line in its Minnesota facility, which went on line in late fiscal 2000.
Tru Vue is one of the largest domestic manufacturers of value-added 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. Tru Vue is
also a manufacturer of conservation picture framing matboard, which complements
the unit's glass product offerings. The products are distributed primarily
through independent distributors which, in turn, supply local picture framing
markets. During the first quarter of fiscal 1999, Tru Vue broke ground for a new
facility in the Chicago area. The new facility was completed during the first
quarter of fiscal 2000 and will allow greater production capacity and
efficiency.
Wausau Window and Wall Systems (Wausau), an Architectural Products unit,
designs and manufactures high-quality, thermally-efficient aluminum window and
curtainwall systems. These products meet high standards of wind load capacity
and resistance to air and moisture infiltration. Wausau's 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.
Products are marketed through a nationwide network of distributors and a direct
sales staff. Sales are made to building contractors and to building owners for
retrofitting older buildings. Wausau maintains design and product engineering
staffs to prepare aluminum window and curtainwall system designs to fit
customers' needs and to originate new product designs.
Linetec, an Architectural Products unit, has two metal coating facilities
which provide anodized and fluoropolymer coatings to metal. Anodizing is the
electrolytic process of putting a protective, often colored, oxide film on light
metal, typically aluminum. In late fiscal 1999, Linetec added color capability
to anodized coatings. Fluoropolymer coatings are high quality paints which are
sometimes preferred over anodizing because of the wider color selection.
Coatings are applied to window and curtainwall components for industrial metal
fabricators (including Wausau), as well as other companies' metal, plastic, wood
or glass products.
Glass Services
- --------------
The Glass Services (GS) segment is engaged in the auto glass replacement
and repair business through its Harmon AutoGlass service centers (retail), Glass
Depot wholesale centers (wholesale) and Viracon/Curvlite fabrication center. In
addition, GS includes Harmon, Inc., a provider of building glass installation
and replacement services in several metropolitan areas.
Harmon AutoGlass, a Minneapolis-based company, is the second largest auto
glass retailer in the United States. Harmon opened its first shop 51 years ago
in downtown Minneapolis and today has grown to 467 retail service centers in 43
states and 1,300 mobile installation vehicles. In response to changing market
conditions, the business was restructured in fiscal 2000 to reduce fixed cost
overhead. In fiscal 2001, approximately 40 retail auto facility closings are
expected. Retail coverage in closed store markets is being maintained by mobile
vans and service centers operated from facilities shared with businesses outside
of the Company. In addition, Harmon has a network of more than 3,300 affiliated
auto glass retailers across the country.
Harmon has a diverse customer base, including insurance companies,
commercial fleets and consumers. While Harmon's primary business is windshield
repair and replacement, Harmon retail stores also offer an inventory of flat
glass for home window repair and table tops. Harmon's website provides
information on safety and technology and allows customers to locate stores and
conveniently schedule appointments online.
Harmon operates two call centers in Orlando, Florida and Eau Claire,
Wisconsin. The centers, on behalf of the insurance company or fleet customers,
process consumer or fleet owner glass replacement claims electronically.
Harmon is committed to its values of safety, quality, expertise and
customer service. Harmon believes that it has one of the best customer
satisfaction ratings in the industry. And, Harmon is an industry leader in
employee training. All Harmon technicians participate in a rigorous internal
certification program. Harmon also requires technicians to be certified by the
National Auto Glass Association.
The GS wholesale centers, known as Glass Depot, supply the Harmon AutoGlass
service centers with auto and flat glass and related products, as well as
selling wholesale to other glass installers. Due to the variety of makes and
models of automobiles, auto glass service centers typically stock only
windshields for the most popular models. As a result, there is a demand for
distributors to maintain inventories of auto glass and to provide prompt
delivery. Through the segment's National Distribution Center (NDC), a
mega-distribution center offering other manufacturers' products as well as its
own for both domestic and foreign vehicles, the segment is able to maintain a
broad selection of automotive glass. The NDC also offers AutoGlass Express, a
delivery system which
4
allows the unit to fill customers' orders on an individual basis versus the
industry norm of truckload orders. Purchases of fabricated automotive glass are
made from several primary glass manufacturers and fabricators, including the
segment's Curvlite unit.
Viracon/Curvlite fabricates replacement windshields for foreign and
domestic automobiles and laminated glass parts for the transportation industry.
It fabricates approximately 800 types of replacement windshields which are
marketed nationally to distributors and glass shops, including the Glass Depot
wholesale centers. Viracon/Curvlite seeks to offer a broad selection of
windshields by promptly adding new windshields as new models are introduced.
GS' Harmon, Inc. offers complete design, engineering, installation and
replacement or glazing services for commercial, institutional and other
buildings. While the installation of building glass in new construction projects
is the core business, service and retrofit construction of older buildings are
adding to growth. This unit offers 24-hour replacement service for storm or
vandalism damage. In-house engineering capabilities allow Harmon, Inc. to
duplicate the original design or create a completely new appearance for
renovated buildings.
As of February 26, 2000, GS had 324 Harmon AutoGlass retail locations, 143
co-branded retail facilities and 77 Glass Depot distribution centers, and its
Harmon, Inc. unit operated in 12 geographic markets. The segment continues to
explore opportunities to expand the reach of its businesses.
Competition
- -----------
The Company's businesses are in industries that are, in general, fairly
mature and highly competitive. The Glass Technologies segment competes with
several large integrated glass manufacturers and numerous smaller specialty
fabricators. Product pricing and service are the primary competitive factors in
this market. GT's Architectural Products unit competes against several major
aluminum window manufacturers and primarily serves the custom portion of the
construction market in which the primary competitive factors are product
quality, reliable service and the ability to provide technical engineering and
design services. The Glass Services auto glass businesses compete with other
auto glass shops, glass warehouses, car dealers, body shops and fabrication
facilities on the basis of pricing and customer service. Its competition
consists of national and regional chains as well as significant local
competition. GS' Harmon, Inc. competes against local and regional construction
companies where primary competitive factors are quality engineering and service.
Markets
- -------
GT services the architectural glass, computer, optical imaging and picture
framing glass markets in which coated glass is becoming the industry standard.
These markets are very competitive, highly responsive to new products and can be
price-sensitive. The Company believes that GT possesses one of the world's
largest coating capacities for glass and is a leading fabricator and global
distributor of high-performance architectural glass. Its fully integrated glass
fabrication and coating capabilities allow the segment to meet customer needs
and react quickly to market demands while developing new products.
GS services the automotive glass aftermarket, which is influenced by a
variety of factors, including new car sales, speed limits, road conditions, the
economy, weather and average number of miles driven. In recent years, a
transformation of the industry's pricing structure has intensified competition.
Major purchasers of auto glass, such as insurance companies, have increasingly
requested volume pricing and insurance claims processing on a national scale. As
a result, margins have narrowed at the retail level and, to a lesser extent, at
wholesale and manufacturing levels. In addition, the Harmon, Inc. market is
affected by the economy, new construction, retrofits, renovations and industry
pricing.
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.
Harmon AutoGlass(R), Viratec(R), Tru Vue(R), Linetec(R) and Glass Depot(R) are
registered trademarks and Optium(TM) is a listed trademark of the Company.
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.
5
Foreign Operations and Export Sales
- -----------------------------------
During the years ended February 26, 2000, February 27, 1999 and February
28, 1998, the Company's export sales, principally from GT operations, amounted
to approximately $42,096,000, $40,316,000 and $61,321,000, respectively.
Employees
- ---------
The Company employed 6,404 persons at February 26, 2000, of whom
approximately 679 were represented by labor unions. The Company is a party to 40
collective bargaining agreements with several different unions. Approximately
18% of the collective bargaining agreements will expire during fiscal 2001. The
number of collective bargaining agreements to which the Company is a party will
vary with the number of cities with active nonresidential construction
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
- -------
At February 26, 2000, the Company's total backlog of orders considered to
be firm was $175,137,000 compared with $148,432,000 at February 27, 1999.
ITEM 2. PROPERTIES
----------
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.
Facility Location Owned/Leased Function
- -------- -------- ------------ --------
Glass Technologies
- ------------------
Viracon Owatonna, MN Owned Mfg./Admin.
Viracon Statesboro, GA Owned Mfg.
Viracon - Temp II Bldg. Owatonna, MN Owned Mfg.
Viratec Thin Films, Inc. Faribault, MN Owned Mfg./Admin.
Viratec Thin Films, Inc. San Diego, CA Leased Mfg.
Tru Vue McCook, IL Owned Mfg./Admin.
Wausau Window and Wall Systems Wausau, WI Owned Mfg./Admin.
Wausau Window and Wall Systems - Plant II Wausau, WI Owned Mfg.
Wausau Window and Wall Systems - Plant III Wausau, WI Owned Mfg.
Linetec (Painting) Wausau, WI Owned Mfg./Admin.
Linetec (Anodizing) Wausau, WI Owned Mfg.
Glass Services
- --------------
Viracon/Curvlite Owatonna, MN Owned Mfg./Admin.
National Distribution Center Owatonna, MN Owned Warehouse/Admin.
Harmon AutoGlass, Glass
Depot, and Harmon Inc. headquarters Minneapolis, MN Leased Administrative
Harmon Solutions-Call Center Orlando, FL Owned Administrative
Harmon Solutions-Call Center Eau Claire, WI Leased Administrative
Other
- -----
Apogee Corporate Office Minneapolis, MN Leased Administrative
In addition to the locations indicated above, at fiscal year-end, the Glass
Services segment had 324 retail, 77 distribution and 143 co-branded facility
locations nationally. The majority of such locations are leased. Also, Harmon,
Inc. had 13 leased locations.
The Viracon/Curvlite plant, a Wausau Window and Wall Systems facility, the
Linetec paint facility, and the Call Center in Florida 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.
6
ITEM 3. LEGAL PROCEEDINGS
-----------------
Apogee has been a party to various legal proceedings incidental to its
normal operating activities. In particular, like others in the construction
industry, the Company's discontinued construction business is routinely involved
in various disputes and claims arising out of construction projects, sometimes
involving significant monetary damages. Although it is impossible to predict the
outcome of such proceedings, the Company believes, based on facts currently
available to us, that none of such claims will result in losses that would have
a material adverse effect on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter ended February 26, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
NAME AGE POSITION
---- --- --------
Russell Huffer 50 Chairman, President and Chief Executive Officer
Joseph T. Deckman 55 Executive Vice President
Larry D. Stordahl 56 Executive Vice President
Robert G. Barbieri 44 Vice President - Finance and Chief Financial
Officer
Michael A. Bevilacqua 43 Treasurer - Senior Director of Business
Development
Patricia A. Beithon 46 General Counsel and Secretary
James S. Porter 40 Corporate Controller
Executive officers are elected annually by the Board of Directors and serve
for a one-year period. None of the executive officers or directors of the
Company are related.
Mr. Huffer has been an employee of the Company for more than the last five
years. Mr. Barbieri joined the Company in 1997. Prior to joining the Company,
Mr. Barbieri held several financial management positions at Air Products and
Chemicals, Inc. in Allentown, Pennsylvania. Mr. Deckman joined the Company in
May 1995. Prior to joining the Company, Mr. Deckman held several management
positions at Master Builders, Inc. in Cleveland, Ohio. Mr. Stordahl joined the
Company in August 1998. Prior to joining the Company, Mr. Stordahl held several
management positions with SPX Corporation in Owatonna, Minnesota. Mr. Bevilacqua
joined the Company in April 1998. Prior to joining the Company, Mr. Bevilacqua
held several financial management positions at Air Products and Chemicals, Inc.
in Allentown, Pennsylvania. Ms. Beithon joined the Company in September 1999.
Prior to joining the Company, Ms. Beithon held a divisional legal counsel
position with Pfizer, Inc. subsidiaries, American Medical Systems, Inc. and
Schneider (USA), Inc. in Minneapolis, Minnesota. Mr. Porter joined the Company
in August 1997. Prior to joining the Company, Mr. Porter held financial
management positions at Rollerblade, Inc. in Minneapolis, Minnesota.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
----------------------------------------------------------------
MATTERS
-------
Market Information
- ------------------
Apogee common stock is traded on the Nasdaq National Market, under the
ticker symbol APOG. Stock price quotations are printed daily in major
newspapers. During the fiscal year ended February 26, 2000, the average trading
volume of Apogee common stock was 2,666,000 shares per month, according to
NASDAQ.
7
As of April 30, 2000, there were 27,844,000 shares of common stock
outstanding, of which about 8.1 percent were owned by officers and directors of
Apogee. At that date, there were approximately 2,043 shareholders of record and
8,073 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 price per share over the past five fiscal years.
Quarter Quarter Quarter Quarter Year
I II III IV End
------------------------- --------------------- ----------------------- ---------------------- -------
1996 8 1/4 - 9 7 1/4 - 9 1/8 7 1/8 - 7 7/8 6 1/2 - 9 7/8 9 13/16
1997 9 5/8 - 14 1/4 13 1/4 - 18 1/4 15 1/4 - 22 5/8 17 1/4 - 23 3/4 19 7/8
1998 14 - 21 1/4 17 3/4 - 22 5/8 21 1/8 - 25 10 3/8 - 23 1/4 12 15/16
1999 11 13/16 - 15 1/4 11 1/8 - 15 1/2 8 1/8 - 12 7/8 8 3/4 - 12 3/8 8 3/4
2000 8 3/4 - 13 3/4 7 7/8 - 14 5/16 5 11/16 - 8 5/8 4 - 6 5/16 5
Dividends
- ---------
It is Apogee's policy, subject to Board review and approval, to pay
quarterly cash dividends in May, August, November and February. Cash dividends
have been paid each quarter since 1974. The chart below shows quarterly cash
dividends per share for the past five fiscal years.
Quarter Quarter Quarter Quarter
I II III IV Year
--------------------------------------------------
1996 0.040 0.040 0.043 0.043 0.165
1997 0.043 0.043 0.045 0.045 0.175
1998 0.045 0.045 0.050 0.050 0.190
1999 0.050 0.050 0.053 0.053 0.205
2000 0.053 0.053 0.053 0.053 0.210
8
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.
Dollar amounts in thousands, except per share data** 2000 1999 1998 1997 1996
- ----------------------------------------------------- -------------- ------------- ------------- -------------- ---------------
Operating Results
Net sales $ 840,488 788,062 731,094 642,226 567,823
Gross profit $ 167,235 170,415 165,139 143,761 116,426
Operating income $ 19,418 43,352 45,659 44,628 34,729
Earnings (loss) from continuing operations $ 3,071 20,245 24,114 26,827 20,656
Earnings (loss) from discontinued operations $ 9,104 4,988 (75,169) (607) (2,820)
Net earnings (loss) $ 12,175 25,233 (51,055) 26,220 17,836
Earnings (loss) per share - basic
From continuing operations $ 0.11 0.73 0.87 0.98 0.76
From discontinued operations $ 0.33 0.18 (2.70) (0.02) (0.10)
Net earnings (loss) $ 0.44 0.91 (1.84) 0.96 0.66
Earnings (loss) per share - diluted
From continuing operations $ 0.11 0.73 0.85 0.96 0.76
From discontinued operations $ 0.33 0.18 (2.65) (0.02) (0.10)
Net earnings (loss) $ 0.44 0.91 (1.80) 0.93 0.65
Effective tax rate - % 35.0 36.0 36.5 31.3 36.0
Operating Ratios
Gross margin - % 19.9 21.6 22.6 22.4 20.5
Operating margin - % 2.3 5.5 6.2 6.9 6.1
Net margin - continuing operations - % 0.4 2.6 3.3 4.2 3.6
Net margin - % 1.4 3.2 (7.0) 4.1 3.1
Return on
Average shareholders' equity - % 9.1 21.0 (36.2) 16.9 13.5
Average invested capital - % 3.7 8.3 (16.7) 9.2 7.6
Average total assets - % 2.6 5.8 (12.5) 7.1 5.5
Funds Flow Data
Depreciation and amortization $ 33,019 25,798 22,463 17,860 13,122
Capital expenditures $ 44,025 77,392 37,892 34,203 20,038
Dividends $ 5,833 5,666 5,251 4,806 4,453
Year-End Data
Total assets $ 481,154 466,389 405,526 410,522 327,233
Current assets $ 214,422 204,308 206,858 159,095 149,414
Current liabilities $ 135,397 119,796 97,750 86,178 83,574
Working capital $ 79,025 84,512 109,108 72,916 65,840
Current ratio 1.6 1.7 2.1 1.8 1.8
Long-term debt $ 164,371 165,097 151,967 127,640 79,102
% of invested capital 50.2 51.0 53.1 39.4 32.5
Shareholders' equity $ 137,772 130,664 109,600 172,150 138,922
% of invested capital 42.1 40.4 38.3 53.1 57.0
Investment Information
Dividends per share $ 0.210 0.205 0.190 0.175 0.165
Book value per share $ 4.97 4.73 3.99 6.17 5.14
Price range during year:
High $ 14 5/16 15 1/2 25 23 3/4 9 7/8
Low $ 4 8 1/8 10 3/8 9 5/8 6 1/2
Close $ 5 8 3/4 12 15/16 19 7/8 9 13/16
Price/earnings ratio at year-end 11.4 9.6 NM 21 15
Dividend yield at year-end - % 4.2 2.4 1.5 0.9 1.7
Shares outstanding at year end 27,743,000 27,623,000 27,453,000 27,882,000 27,034,000
Average monthly trading volume 2,666,000 1,962,000 4,065,092 4,795,244 1,775,740
- ----------------------------------------------------- -------------- ------------- ------------- -------------- ---------------
9
Dollar amounts in thousands, except per 1995 1994* 1993 1992 1991 1990
share data
- --------------------------------------------- ----------- ------------- -------------- ------------- ------------- -----------
Operating Results
Net sales $ 516,022 426,400 367,878 364,578 368,094 349,483
Gross profit $ 102,400 84,184 71,141 67,193 74,816 71,629
Operating income $ 31,535 23,803 8,779 2,730 17,629 18,968
Earnings (loss) from continuing operations $ 19,160 16,279 6,657 (1,300) 7,391 6,314
Earnings (loss) from discontinued operations $ (6,110) (12,446) (2,143) 9,805 9,626 7,781
Net earnings (loss) $ 13,050 3,833 4,514 8,505 17,017 14,095
Earnings (loss) per share - basic
From continuing operations $ 0.72 0.62 0.25 (0.05) 0.27 0.23
From discontinued operations $ (0.23) (0.47) (0.08) 0.36 0.36 0.29
Net earnings (loss) $ 0.49 0.14 0.17 0.32 0.63 0.52
Earnings (loss) per share - diluted
From continuing operations $ 0.71 0.61 0.25 (0.05) 0.27 0.23
From discontinued operations $ (0.23) (0.47) (0.08) 0.36 0.35 0.29
Net earnings (loss) $ 0.48 0.14 0.17 0.31 0.62 0.52
Effective tax rate - % 36.0 36.0 36.0 36.0 36.0 36.0
Operating Ratios
Gross margin - % 19.8 19.7 19.3 18.4 20.3 20.5
Operating margin - % 6.1 5.6 2.4 0.7 4.8 5.4
Net margin - continuing operations - % 3.7 3.8 1.8 (0.4) 2.0 1.8
Net margin - % 2.5 0.9 1.2 2.3 4.6 4.0
Return on
Average shareholders' equity - % 10.9 3.4 4.0 7.6 16.6 15.7
Average invested capital - % 6.7 2.4 3.0 5.7 11.5 9.9
Average total assets - % 4.5 1.6 2.1 4.2 8.8 7.6
Funds Flow Data
Depreciation and amortization $ 11,972 12,423 12,344 14,407 12,000 11,008
Capital expenditures $ 22,603 11,447 6,393 9,985 11,988 15,353
Dividends $ 4,154 3,841 3,584 3,505 3,248 2,693
Year-Endc Data
Total assets $ 317,085 257,877 213,372 212,282 196,292 192,572
Current assets $ 155,608 123,301 102,869 112,847 106,614 89,942
Current liabilities $ 90,876 92,536 61,702 63,786 48,441 43,418
Working capital $ 64,732 30,765 41,167 49,061 58,173 46,524
Current ratio 1.7 1.3 1.7 1.8 2.2 2.1
Long-term debt $ 80,566 35,688 28,419 25,267 29,398 41,366
% of invested capital 35.6 21.6 18.7 17.0 19.9 27.7
Shareholders' equity $ 124,628 114,062 112,336 113,780 109,050 95,753
% of invested capital 55.1 69.0 74.1 76.6 73.8 64.2
Investment Information
Dividends per share $ 0.155 0.145 0.135 0.130 0.120 0.100
Book value per share $ 4.64 4.28 4.26 4.23 4.05 3.56
Price range during year:
High $ 9 1/4 8 7/8 6 3/8 9 10 1/16 9 3/8
Low $ 5 3/4 5 1/8 4 1/8 4 3/4 6 5/8 6 1/2
Close $ 8 5/8 7 1/4 5 13/16 6 1/8 9 7 3/8
Price/earnings ratio at year-end 18 50 34 19 14 14
Dividend yield at year-end - % 1.9 2.0 2.3 2.1 1.3 1.4
Shares outstanding at year end 26,886,000 26,624,000 26,354,000 26,922,000 26,954,000 26,934,000
Average monthly trading volume 1,613,012 518,900 644,294 1,386,058 1,212,682 1,722,972
- ------------------------------------------- --- ------------- ------------- -------------- ------------- ------------- -------------
* 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.
** Share and per share data have been adjusted for the fiscal 1997 stock
dividend.
NM=Not meaningful
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
In fiscal 2000, Apogee experienced slower than expected production ramp-ups in
Glass Technologies, and weak conditions in our auto glass operations. This
offset record results in the Company's Tru Vue, Architectural Products (Wausau
Windows & Wall Systems and Linetec) and Harmon, Inc. businesses. During fiscal
2000, the Company brought on line significant new capacity in Glass Technologies
with the start-up of Viracon's Statesboro, Georgia facility, Tru Vue's new
facility and the addition of Viratec's new vertical coater.
Performance
Fiscal 2000 Compared To Fiscal 1999
The following table illustrates the relationship between various components of
operations, stated as a percent of net sales, for each of the fiscal years in
the three-year period ended February 26, 2000. Fiscal 1999 results are restated
to reflect the effect of discontinued operations reported for fiscal 2000.
Fiscal 1998 was not impacted by these discontinued operations reported in fiscal
2000.
Percent of Net Sales 2000 1999 1998
- --------------------------------------------- ------- -------- ---------
Net sales 100.0 100.0 100.0
Cost of sales 80.1 78.4 77.4
Gross profit 19.9 21.6 22.6
Selling, general and
administrative expenses 17.6 16.1 16.3
Operating income 2.3 5.5 6.2
Interest and other expense, net 1.2 1.2 0.9
Earnings from continuing operations
before income taxes and other items 1.1 4.3 5.4
Income taxes 0.4 1.5 2.0
Equity in net loss of affiliated companies 0.3 0.2 0.1
Earnings from continuing operations 0.4 2.6 3.3
Earnings (loss) from discontinued operations 1.1 0.6 (10.3)
Net earnings (loss) 1.4 3.2 (7.0)
- --------------------------------------------- ------- -------- ---------
Consolidated net sales increased 7% to $840 million in fiscal 2000. The Glass
Services (GS) segment reported a net sales gain of 5%, while the Glass
Technologies (GT) segment reported a net sales gain of 11%. Net sales of GS's
replacement auto glass businesses were flat with those of a year ago although
unit volume increased slightly, while net sales of its building glass services
unit grew by 29%. GT's net sales increase is due to capacity increases at
Viracon, Inc. (Viracon), Viratec Thin Films (Viratec) and to a lesser extent at
Tru Vue.
On a consolidated basis, cost of sales, as a percentage of net sales, rose to
80.1%, up from 78.4% in fiscal 1999. The primary factors underlying the
resulting decline in gross profit were slower than anticipated production
ramp-ups at Viracon and Viratec, along with increased costs to increase
production velocity at Viracon and a decline in margin in the replacement auto
glass businesses. These factors were partially offset by margin improvements at
GS's Harmon, Inc. and to a lesser extent at GT's Architectural Products units.
Selling, general and administrative (SG&A) expenses grew by $20.8 million, or
16%. The primary factors for the growth were an increase in salaries, bad debts,
marketing costs, outside services, information systems and severance costs,
offset by a decrease in bonuses and incentives. A portion of the increased
personnel costs represented classification variances associated with the
Company's many system conversions; quantification of such classifications is not
considered cost effective. Gross profit benefited as a result of these
classification variances.
Net interest expense rose 9% to $10.4 million in fiscal 2000. The increase
reflected higher weighted average outstanding borrowing levels and to a lesser
extent, slightly higher interest rates under the Company's revolving credit
agreement. The Company expects slightly lower interest expense for fiscal 2001
as decreases in debt are expected to be offset by slightly higher rates.
11
Apogee's effective income tax rate was 35.0% of pre-tax earnings from continuing
operations, down marginally from the 36.0% rate recorded in fiscal 1999.
Apogee's equity in the net loss of affiliated companies was $2.8 million in
fiscal 2000 compared to $1.4 million a year ago, largely associated with the
Company's TerraSun research and development venture.
Apogee's fiscal 2000 earnings from continuing operations declined to $3.1
million, or $0.11 diluted earnings per share. This compared to earnings from
continuing operations of $20.2 million, or $0.73 diluted earnings per share, a
year earlier.
Earnings from operations of discontinued businesses was $9.1 million after tax,
or $0.33 diluted earnings per share, compared to $5.0 million, or $ 0.18 diluted
earnings per share, a year earlier.
Apogee's fiscal 2000 net earnings were $12.2 million, or $0.44 diluted earnings
per share. This compared to $25.2 million, or $0.91 diluted earnings per share,
a year ago. The return on average shareholders' equity was 9.1% in fiscal 2000
versus 21.0% for fiscal 1999.
Segment Analysis
The following information provides a more detailed look at each of the Company's
two business segments. See also Note 19-Business Segment Data in the Notes to
Consolidated Financial Statements for a three-year history of each segment's net
sales, operating income, identifiable assets, capital expenditures, and
depreciation and amortization.
(Dollar amounts in thousands) 2000 1999 1998
- ------------------------------ -------------- ---------- --------------
Glass Technologies
Net sales $ 360,242 $ 324,456 $ 324,195
Operating income 12,450 21,691 30,746
Glass Services
Net sales 485,543 464,307 407,985
Operating income 7,706 22,687 16,123
- ------------------------------ -------------- ---------- --------------
Glass Technologies (GT) GT reported a net sales improvement of 11% in fiscal
2000, reflecting growth at each business unit within the segment. Operating
earnings decreased 43% due to low operating rates and additional costs incurred
to improve production rates at Viracon and Viratec. The segment's results were
also negatively affected by the start-up of Viracon's Statesboro, Georgia plant
and the slower than anticipated ramp-up of Viratec's vertical coater, as well as
a technology change-over related to a new product in its CRT coating operation.
Viracon, the segment's largest operating unit, reported a net sales increase of
8%, while operating earnings decreased significantly compared to last year. The
decrease in profitability was the result of a decrease in earnings at the
Owatonna, Minnesota plant and start-up losses and slower than expected ramp-up
at its new Statesboro, Georgia facility. Operating earnings at the Owatonna
plant were down compared to last year due to reduced operating rates and
additional costs incurred to position the facility for improved production
velocity. The start-up of the Statesboro plant is complete, however the ramp-up
proceeded at a slower pace than expected resulting in an operating loss.
Viratec, which applies optical-grade coatings to glass and other substrates,
reported a net sales increase of 29%, while recording an operating loss. The
operating loss is primarily due to Viratec's flat glass operation which
encountered significant downtime with the start-up of its new vertical coater.
The vertical coater became operational in the third quarter. Also, in mid-year,
Viratec's San Diego CRT coating operation lost significant production time
during a technology changeover to accommodate a new product. The San Diego
operation has returned to its previous technology and is fully operational.
Tru Vue, the segment's value-added art frame glass and matboard fabrication
unit, posted a 9% improvement in sales, while earnings rose by 26%. These
results reflect increased penetration of the unit's value-added products and
increased capacity and efficiency due to the mid-year completion of a new
production facility. During the second quarter of fiscal 2000, Tru Vue moved
into its new facility in the Chicago area.
Architectural Products, which manufactures commercial windows and provides
painting and anodizing services, leveraged higher net sales into a 36% operating
income gain. Architectural Products continued to benefit from improvements in
its engineering and fabrication capabilities at both its Wausau Window and Wall
Systems and Linetec businesses.
12
Based on its year-end backlog, continued evidence of strong demand for
architectural glass products, the full-year operation of Viratec's flat glass
operation and Viracon's Statesboro plant, GT expects to report higher net sales
and operating earnings in fiscal 2001. The Company expects increasing
profitability to build in the second half of the year as the Company moves
further above the breakeven points for production in new operations.
Glass Services (GS) operates auto glass businesses under the Harmon AutoGlass
(Harmon), Harmon Solutions Group (Solutions), Glass Depot and Viracon/Curvlite
names. Due to an industry merger in 1997, GS became the second largest company
in the auto glass repair and replacement industry. In addition, GS includes
Harmon, Inc., a provider of building glass installation and replacement services
in several major metropolitan areas. GS reported a 5% net sales improvement in
fiscal 2000, while operating earnings decreased significantly.
Net sales of the auto glass retail unit decreased slightly compared with those
of a year ago, although unit volume was flat. A significant operating loss was
recorded due to increased competitive pricing pressures in the retail business
and soft retail demand. Market data indicates that unit demand for replacement
auto glass in the U.S. fell nominally in 1999. Same-location retail net sales
decreased by 8%, while unit net sales were flat with last year. To respond to
changing market conditions, the business was restructured during fiscal 2000 to
reduce fixed cost overhead. In fiscal 2000, 17 retail auto facilities were
closed, with a total of approximately 40 closings expected in fiscal 2001. In
addition, employee headcount was reduced at auto glass headquarters and to a
lesser extent in the field workforce. Also, retail coverage in closed store
markets is being maintained by mobile vans and service centers operated from
facilities shared with businesses outside of the Company. Unit sales trends for
the auto glass retail unit continued to outpace the industry.
The segment's manufacturing operation, Viracon/Curvlite, fabricates auto glass
for the replacement auto glass aftermarket. Viracon/Curvlite's net sales in
fiscal 2000 decreased slightly. The unit's National Distribution Center, which
offers other manufacturers' products as well as our own for both domestic and
foreign vehicles, and the AutoGlass Express program, a delivery system to fill
customer orders more quickly and completely, accounted for an increase in unit
sales. This increase was offset by a decrease in unit sales for the broker
program, resulting in a slight decrease in unit sales for fiscal 2000, compared
to last year. About 61% of Viracon/Curvlite's net sales were made to the Glass
Depot unit in fiscal 2000.
The Harmon, Inc. business had another solid year. Net sales grew by 29%, while
operating income rose by 75%. Continuing operating improvements and an emphasis
towards higher-margin business helped the unit's profitability.
At fiscal year-end, GS had 324 Harmon AutoGlass retail locations, 143 co-branded
facilities, 77 Glass Depot distribution centers and Harmon, Inc. operated in 12
geographic markets. The segment continues to explore opportunities to expand the
reach of its businesses.
Auto glass industry conditions continue to be weak, particularly in pricing at
the distribution and retail channels. The segment expects to report higher net
sales in fiscal 2001 with unit growth from market penetration in both the auto
glass business and Harmon, Inc. Meanwhile, the segment continues to take actions
to reduce its cost structure and improve productivity, particularly in its
retail operations. However, the unpredictability of the auto glass industry unit
sales and pricing makes it difficult to project operating earnings for fiscal
2001.
Discontinued Operations In late fiscal 2000, Apogee's Board of Directors
authorized the exit from the Company's interest in VIS'N Service Corporation
(VIS'N), a non-auto glass focused, third party administered claims processor. On
May 13, 1999, the Company completed the sale of 100% of the stock of its
large-scale domestic curtainwall business, Harmon, Ltd. In fiscal 1999, Apogee's
Board of Directors authorized the divestiture of the detention/security and
domestic curtainwall operations. On December 3, 1998, the segment executed the
sale of its detention/security business, effective November 28, 1998. Combined
with the fiscal 1998 exit from international curtainwall operations, these
transactions effectively remove the Company from the large-scale construction
business, in addition to the non-auto glass focused third party administered
claims processing business. Accordingly, these businesses are presented as
discontinued operations in the accompanying financial statements.
Operating results from the businesses reported as discontinued operations
improved significantly over those recorded a year ago. For fiscal 2000, earnings
from discontinued operations were $9.1 million after-tax compared to $5.0 in
fiscal 1999.
Fiscal 1999 Compared To Fiscal 1998
The following discussion restates the prior year's discussion of fiscal 1999
compared with 1998 to reflect the effect of reporting certain businesses as
discontinued operations in fiscal 2000.
13
Consolidated net sales increased 8% to $788 million in fiscal 1999. The Glass
Services (GS) segment reported a net sales gain of 14%, while the Glass
Technologies (GT) segment's net sales were essentially unchanged with those of
fiscal 1998. Net sales of GS's replacement auto glass businesses increased 10%,
while net sales of its building glass services unit grew by more than one-third.
The replacement auto glass operations increased net sales by combining retail
same-store net sales growth with the addition of retail and wholesale locations.
GT net sales were flat primarily due to the effects of capacity limitations and
the relocation of a product line.
On a consolidated basis, cost of sales, as a percentage of net sales, rose
slightly to 78.4%, up from 77.4% in fiscal 1998. The primary factors underlying
the resulting decline in gross profit were the effect of the planned suspension
and relocation of a GT product line, temporary productivity issues related to
capacity limitations at Viracon and a small decline in margin in the replacement
auto glass businesses. These factors were partly offset by margin improvements
at GS's Harmon, Inc. and GT's Architectural Products units.
Selling, general and administrative (SG&A) expenses grew by $7.6 million, or 6%,
but declined slightly as a percent of net sales. The primary factors for the
growth were higher salaries, outside services and charitable contributions, as
well as increased information systems and marketing costs, particularly at our
GS segment.
Net interest expense rose 51% to $9.5 million in fiscal 1999. The increase
reflected higher interest rates and borrowing levels under our revolving credit
agreement.
Apogee's effective income tax rate was 36.0% of pre-tax earnings from continuing
operations, down marginally from the 36.5% rate recorded in fiscal 1998.
Apogee's equity in the net loss of affiliated companies was $1.4 million in
fiscal 1999 compared to $879,000 in fiscal 1998.
Apogee's fiscal 1999 earnings from continuing operations declined to $20.2
million, or $0.73 diluted earnings per share. This compared to earnings from
continuing operations of $24.1 million, or $0.85 diluted earnings per share, in
fiscal 1998.
Earnings from operations of discontinued businesses was $5.0 million after tax,
or $0.18 diluted earnings per share, compared to an after-tax net loss from
operation of discontinued businesses of $75.2 million, or $2.65 diluted loss per
share.
Apogee's fiscal 1999 net earnings were $25.2 million, or $0.91 diluted earnings
per share. This compared to a net loss of $51.1 million, or $1.80 diluted loss
per share, in fiscal 1998. The return on average shareholders' equity was 21% in
fiscal 1999 versus a negative return of 36.2% for fiscal 1998.
Segment Analysis
The following information provides a more detailed look at each of our two
business segments. See also Note 19-Business Segment Data in the Notes to
Consolidated Financial Statements for a three-year history of each segment's net
sales, operating income, identifiable assets, capital expenditures, and
depreciation and amortization.
Glass Technologies (GT) After five consecutive years of record results, GT
reported net sales in fiscal 1999 level with $324 million of net sales in fiscal
1998, while operating income fell 29% to $21.7 million. The segment's results
were primarily affected by the suspension and relocation of Viratec's Optium(TM)
cathode ray tube (CRT) coating line, and the start-up costs and disruptions
associated with the segment's other capital projects. The segment's results were
also affected by significantly lower demand for Viratec's anti-glare filter and
front-surface mirror products due to the economic slowdown in Asia and temporary
issues related to capacity limitations at Viracon that slowed production and
caused additional costs during the second quarter.
Viracon's net sales were slightly lower in fiscal 1999 than the prior year. The
architectural glass fabrication unit's operating earnings fell 37%, reflecting
the second quarter operational difficulties noted above and start-up costs
associated with the construction of a new facility. Viracon ran near full
capacity for much of the year, even as expanded production capacity was added.
Viracon's production outpaced its shipments by a considerable margin during
fiscal 1999, which also adversely affected operating earnings and resulted in
increased finished goods inventory. During fiscal 1999, Viracon began and
largely completed construction of a new architectural glass fabrication complex
in Statesboro, Georgia. The Statesboro facility began production in March 1999.
Together with capacity improvements at the unit's Minnesota facility, Viracon's
capacity over the next two fiscal years will increase by over 44%.
Viratec reported a net sales decline. Viratec recorded an operating loss in
fiscal 1999 compared to solid operating earnings in fiscal 1998. As noted, the
unit was adversely affected by the suspension of the Optium CRT coating line and
significantly
14
lower demand for its anti-glare filter and front-surface mirror products due to
the economic slowdown in Asia. The CRT coating line was suspended in connection
with its relocation from Minnesota to southern California, a location closer to
the flow of customers' computer monitor supply chains. The Optium line resumed
production in September 1998 and began ramping up production levels to meet
sales orders/commitments received from customers. Viratec also continued to
proceed with the addition of a new large-scale flat glass coating line in its
Minnesota facility.
In fiscal 1999, Tru Vue, the segment's value-added art frame glass and matboard
fabrication unit, posted a 12% improvement in sales, while earnings rose by 23%.
These results reflected increased penetration of the unit's value-added products
and success in the control of production costs. During the first quarter of
fiscal 1999, Tru Vue broke ground for a new facility in the Chicago area. The
new facility was completed in the spring of 1999 and will allow greater
production capacity and efficiency.
Architectural Products, which manufactures commercial windows and provides
painting and anodizing services, leveraged marginally higher net sales into a
50% operating income gain. Architectural Products continued to benefit from
improvements in its engineering and fabrication capabilities.
Glass Services (GS) operates auto glass businesses under the Harmon AutoGlass
(Harmon), Harmon Solutions Group (Solutions), Glass Depot and Viracon/Curvlite
names. In addition, GS includes Harmon, Inc., a provider of building glass
installation and replacement services in several major metropolitan areas. GS
reported a 14% net sales improvement in fiscal 1999, while operating earnings
rose by 41%.
Net sales of the retail unit increased 11% during fiscal 1999, reflecting
increased market share and manufactured windshield sales, and the addition of
retail and distribution locations. Operating income for the auto glass
businesses increased 36%. Sales growth continued to outpace the industry. Market
data indicates that unit demand for replacement auto glass in the U.S. fell
nominally in 1998. Same-location retail net sales rose by 5% during fiscal 1999,
while unit net sales increased 6%. During fiscal 1999, Harmon increased sales to
insurance companies through Harmon Solutions Group. The segment also continued
to proceed with efforts to improve productivity for its auto glass repair and
replacement operations.
The segment's manufacturing operation, Viracon/Curvlite, fabricates auto glass
for the replacement auto glass aftermarket. Viracon/Curvlite increased net sales
in fiscal 1999 by about 13%. The unit's National Distribution Center, which
offers other manufacturers' products as well as its own for both domestic and
foreign vehicles, and the AutoGlass Express program, a delivery system to fill
customer orders more quickly and completely, accounted for much of the unit's
net sales growth. About 69% of Viracon/Curvlite's net sales were made to the
Glass Depot unit in fiscal 1999.
On May 29, 1998, the segment acquired an 80% interest in VIS'N Service
Corporation (VIS'N), an insurance claims and policy processing outsource company
headquartered in Red Wing, Minnesota. This acquisition expanded the segment's
capabilities to outsource insurance claims and policy processing beyond its
traditional auto glass market. During the year, the segment sold its eight Midas
Muffler franchises to better focus on its auto glass operations.
The Harmon, Inc. business had another solid year in fiscal 1999. Net sales grew
by more than 30%, while operating income rose by more than 50%. Continuing
operating improvements and a shift in net sales mix towards higher-margin
business helped the unit's profitability.
During fiscal 1999, GS completed several small acquisitions of retail glass
shops. These acquisitions, combined with other locations added during the year,
increased the number of locations to 341 Harmon retail stores, 90 co-branded
facilities and 76 Glass Depot distribution centers at fiscal year-end.
Discontinued Operations Operating results from the businesses reported as
discontinued operations improved dramatically in fiscal 1999 compared to fiscal
1998. For fiscal 1999, earnings from discontinued operations amounted to $5.0
million after-tax compared to an after-tax net loss from discontinued operations
of $75.2 million in fiscal 1998. The exit from European curtainwall operations
remained on track, and the Asian curtainwall unit had essentially completed the
remaining projects in its backlog.
Liquidity and Capital Resources
Financial Condition
Net cash provided by financing activities In May 1998, the Company obtained a
five-year, committed credit facility in the amount of $275 million. This credit
facility requires Apogee to maintain minimum levels of net worth and certain
financial ratios, and was initially secured by the Company's receivables,
inventory, equipment and intangibles. The total commitment
15
of the credit facility was reduced by the sales price, net of taxes, of the
fiscal 1999 sale of the detention/security business, resulting in a committed
credit facility of $253 million as of February 27, 1999.
Long-term debt, including current installments of $0.2 million, stood at $164.6
million at February 26, 2000, down $1.8 million from a year earlier. The
majority of all of the Company's long-term debt consisted of bank borrowings.
During fiscal 2000, $7.7 million of variable rate industrial revenue bonds were
issued and the resulting proceeds were loaned to the Company to finance a
portion of the Company's capital projects in Statesboro, Georgia and San Diego,
California.
In December 1998, the Company entered into an interest rate swap agreement,
which expires in fiscal 2004, which effectively converted $25 million of its
variable rate borrowings into a fixed rate obligation. In February 2000, the
Company entered into an interest rate swap agreement, which expires in fiscal
2003, which effectively converted $10 million of its variable rate borrowings
into a fixed rate obligation. Also in February 2000, the Company entered into a
$13.4 million sale/leaseback associated with miscellaneous operating equipment.
The transaction substantially reduced the Company's long-term floating rate debt
and replaced it with an eight year, fixed rate operating lease.
For fiscal 2001, the Company expects that outstanding borrowings will generally
decline over the course of the year. The Company believes that cash from
operating activities and the available credit facility provide adequate
liquidity for the next twelve months.
Net cash provided by operating activities Cash provided by continuing operating
activities in fiscal 2000 decreased to $43.8 million, down from $53.0 million in
fiscal 1999. The decrease is due primarily to the fiscal 1999 receipt of
refundable income taxes from the Company's fiscal 1998 loss, an increase in
receivables primarily driven by an increase in fourth quarter sales, offset by
an increase in accounts payable and accrued expenses.
Net cash used in investing activities New capital investment in fiscal 2000
totaled $46.0 million, versus $77.8 million and $38.7 million in fiscal 1999 and
1998, respectively. Additions to property, plant and equipment totaled $44.0
million. Major expenditures included the completion of the Statesboro and Tru
Vue facilities and the addition of Viratec's new vertical coater. Also, as noted
above, the Company entered into a sale/leaseback transaction resulting in
proceeds from the sale of equipment of $13.4 million. The Company has
capitalized approximately $10 million associated with a portion of an Enterprise
Resource Planning (ERP) project at Viracon, some of which was in service and
amortized in fiscal 2000. An evaluation of this portion of the project will be
performed in late fiscal 2001 to determine future viability of this investment.
In fiscal 2001, the Company expects to incur capital expenditures as necessary
to maintain existing facilities and information systems. Fiscal 2001
expenditures are expected to be less than fiscal 2000.
Shareholders' Equity
At February 26, 2000, Apogee's shareholders' equity stood at $137.8 million, up
5% from a year ago. Book value per share also rose to $4.97, up from $4.73 per
share a year ago, as outstanding common shares increased only nominally during
the year. Net earnings and the proceeds from the issuance of 309,000 shares of
common stock under our stock-based compensation plans accounted for the
increases, which were partly offset by dividends paid and the repurchase of
189,000 shares of common stock.
Market Risks
The Company's principal market risk is sensitivity to interest rates, which is
the risk that changes in interest rates will reduce net earnings of the Company.
To manage the Company's direct risk from changes in market interest rates,
management actively monitors the interest sensitive components of the Company's
balance sheet, primarily debt obligations, as well as market interest rates in
order to minimize the impact of changes in interest rates on net earnings and
cash flow.
The primary measure of interest rate risk is the simulation of net income under
different interest rate environments. The approach used to quantify interest
rate risk is a sensitivity analysis. This approach calculates the impact on net
earnings, relative to a base case scenario, of rates increasing or decreasing
gradually over the next 12 months by 200 basis points. The aforementioned
changes in interest rates affecting the Company's financial instruments would
result in approximately a $1.5 million impact to net earnings. As interest rates
increase, net earnings decrease; as interest rates decrease, net earnings
increase.
The Company uses interest swaps to fix a portion of its variable rate borrowings
from fluctuations in interest rates. As of February 26, 2000, the Company has
interest swaps covering $35 million of variable rate debt.
16
The Company also routinely uses forward exchange contracts to hedge its net
exposures, by currency, related to the foreign currency-donominated monetary
assets and liabilities, and future firm commitments of its operations. Forward
exchange contracts are also used from time to time to manage near-term foreign
currency cash requirements. The primary objective of these hedging activities is
to maintain an approximately balanced position in foreign currencies so that
exchange gains and losses resulting from exchange rate changes, net of related
tax effects, are minimized.
Given the Company's balanced foreign exchange position described above, a 10%
adverse change in foreign exchange rates upon which these contracts are based
would result in exchange losses from these contracts that would, in all material
respects, be fully offset by exchange gains on the underlying net monetary
exposures for which the contracts are designated as hedges. As of February 26,
2000, the Company did not have any forward contracts outstanding as the Company
had no material foreign exchange exposure.
Impact of Inflation
Our financial statements are prepared on a historical cost basis, which does not
completely account for the effects of inflation. However, since the cost of many
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 our primary raw materials, was essentially flat
compared with last year. We expect the cost of glass to increase slightly in
fiscal 2001. While our construction and supply contracts are at fixed prices,
the material components are usually based on firm quotes obtained from
suppliers. Labor costs, including taxes and fringe benefits, rose moderately in
fiscal 2000 and a moderate increase also can be reasonably anticipated for
fiscal 2001. Other costs are managed to minimize the inflationary pressures that
exist in markets for goods and services that Apogee's business operations
require.
Impact of Year 2000
Each of the Company's businesses had project teams in place to evaluate its
Information Technology (IT) systems, non-IT systems, and third-party readiness
for compliance with Year 2000 requirements. For these purposes, the Company
defines its "IT systems" as those hardware and software systems which comprise
its central management information systems and its telephone systems. All other
systems, including those involved in local, on-site product design or
manufacturing, are considered "non-IT systems." "Third parties" include the
Company's key suppliers and customers.
Across the Company, remediation activities were completed prior to the year
rollover. Each business organized planning, testing and support teams to monitor
systems, equipment and facilities before, during and after New Year's weekend.
As of April 1, no material issues have surfaced in any business operations,
systems or third party relationships. The Company does not expect further Year
2000 issues to arise.
Virtually none of the Company's products are date sensitive.
The Company's total cost of addressing Year 2000 issues was estimated to be
between $6 and 7 million including external and internal expenditures. The IT
related portion of the total Year 2000 costs was estimated to be 90% of total
Year 2000 expenditures.
Cautionary Statement
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," "should"
and similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forecasts and projections in this document are "forward-looking statements," and
are based on management's current expectations of the Company's near-term
results, based on current information available pertaining to the Company,
including the risk factors noted below.
The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other risk factors include, but are not limited to: whether
the cost savings programs implemented at the auto glass businesses will lead to
improved operating results, the continuation of unfavorable industry conditions
in the auto glass businesses, whether strategic alternatives being considered
for the auto glass businesses will be available on terms favorable to the
Company, whether the production ramp-ups of new or expanded plant capacity in
the Glass Technologies
17
(GT) segment will proceed as anticipated and will lead to successful operating
results for those companies now or in the future, whether demand for GT products
and services will continue at present rates and whether generally favorable
economic conditions will continue.
A number of other factors should be considered in conjunction with this report's
forward-looking statements, any discussion of operations or results by the
Company or its representatives and any forward-looking discussion, as well as
comments contained in press releases, presentations to securities analysts or
investors, or other communications by the Company. These other factors are set
forth in the cautionary statement filed as Exhibit 99 to this Annual Report on
Form 10-K, and include, without limitation, cautionary statements regarding
changes in economic and market conditions, factors related to competitive
pricing, commercial building market conditions, management of growth of business
units, greater than expected costs or difficulties related to the operation of
the businesses, the impact of foreign currency markets, the integration of
acquisitions, the realization of expected economies gained through expansion and
information systems technology updates. New factors emerge from time to time and
it is not possible for management to predict all such factors, nor can it assess
the impact of each such factor on the business or the extent to which any
factor, or a combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by this Item is contained in a separate section of
this report. See "Market Risks" included in Item 7 immediately above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this Item is contained in a separate section of
this report. See "Index of Financial Statements and Schedules".
18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
On April 15, 1999, the Company determined not to re-engage its independent
auditors, KPMG Peat Marwick LLP ("KPMG") and appointed Arthur Andersen LLP as
its new independent auditors, effective immediately. This determination followed
the Company's decision to seek proposals from independent accounting firms,
including KPMG, with respect to the engagement of independent accountants to
audit the Company's financial statements for the fiscal year ending February 26,
2000. The decision not to re-engage KPMG and to retain Arthur Andersen was
approved by the Company's Board of Directors upon the recommendation of its
Audit Committee.
The reports of KPMG on the financial statements of the Company for its
fiscal years ended February 27, 1999 and February 28, 1998 did not contain any
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles. During the Company's two
most recent fiscal years and the subsequent interim period through April 15,
1999, (i) there were no disagreements between the Company and KPMG on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which, if not resolved to the satisfaction of KPMG,
would have caused KPMG to make reference to the subject matter of the
disagreement ("Disagreement") in connection with its reports and (ii) there were
no reportable events ("Reportable Event"), as defined in Item 304 (a)(1)(v) of
Regulations S-K of the Securities and Exchange Commission, with the exception of
items related to internal control deficiencies of the Company's Asian
construction operations, including inadequate project accounting and review
procedures. The Company agreed with the characterization of said items as
reportable events and undertook appropriate actions to remedy the internal
control deficiencies.
The Company did not, during the Company's two most recent fiscal years and
the subsequent interim period through April 15, 1999, consult with Arthur
Andersen regarding (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements, and either a written
report was provided to the Company or oral advice was provided that Arthur
Andersen concluded was an important factor considered by the Company in reaching
a decision as to the accounting, auditing or financial reporting issue, or (ii)
any matter that was either the subject of a Disagreement with KPMG or a
Reportable Event.
The Company reported the change in accountants on Form 8-K on April 22,
1999. The Form 8-K contained a letter from KPMG, addressed to the Securities and
Exchange Commission stating that it agreed with the comments in clause (i) of
the second paragraph of the above statements, and was not in a position to agree
or disagree with the comments in the remainder of the above statements.
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 in Part I above in "Executive Officers of the Registrant," is included on
pages 1 to 8 and 11 to 14 of the Proxy Statement for the Annual Meeting of
Shareholders to be held June 20, 2000, 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 in the accompanying "Index of Financial Statements and Schedules"
together with the reports of Arthur Andersen LLP, independent auditors, and KPMG
LLP, independent auditors, are filed as part of this report.
(b) Reports on Form 8-K
During the quarter ended February 26, 2000, the Company did not file any
reports on Form 8-K.
(c) Exhibits -
The information called for by this Item is contained in a separate section
of this report. See "Exhibit Index".
19
- 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 16, 2000
APOGEE ENTERPRISES, INC.
By: /s/ Russell Huffer
-------------------------------------
Russell Huffer
Chairman of the Board of Directors
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
- ------------------------------------------------------------------------------------
/s/ Russell Huffer Chairman, President, CEO and Director May 16, 2000
- ----------------------------
Russell Huffer
VP Finance & CFO (Principal Financial May 16, 2000
/s/ Robert G. Barbieri & Accounting Officer)
- ----------------------------
Robert G. Barbieri
/s/ Donald W. Goldfus Director May 16, 2000
- ----------------------------
Donald W. Goldfus
/s/ Harry A. Hammerly Director May 16, 2000
- ----------------------------
Harry A. Hammerly
/s/ Laurence J. Niederhofer Director May 16, 2000
- ----------------------------
Laurence J. Niederhofer
/s/ James L. Martineau Director May 16, 2000
- ----------------------------
James L. Martineau
/s/ Barbara B. Grogan Director May 16, 2000
- ----------------------------
Barbara B. Grogan
20
SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------
/s/ Stephen C. Mitchell Director May 16, 2000
- ----------------------------
Stephen C. Mitchell
/s/ Bernard P. Aldrich Director May 16, 2000
- ----------------------------
Bernard P. Aldrich
/s/ J. Patrick Horner Director May 16, 2000
- ----------------------------
J. Patrick Horner
/s/ Michael E. Shannon Director May 16, 2000
- ----------------------------
Michael E. Shannon
21
Apogee Enterprises, Inc.
Form 10-K
Items 8, 14 (a) and 14 (d)
Index of Financial Statements and Schedules
Financial Statements
Independent Auditors' Reports............................................F-2
Consolidated Balance Sheets.............................................F-4
Consolidated Results of Operations......................................F-5
Consolidated Statements of Shareholders' Equity..........................F-6
Consolidated Statements of Cash Flows....................................F-7
Notes to Consolidated Financial Statements...............................F-8
Financial Schedules
Schedule II - Valuation and Qualifying Accounts.........................F-21
All other schedules are omitted because they are not required, or because
the required information is included in the consolidated financial
statements or noted thereto.
F-1
Report of Independent Public Accountants
To Apogee Enterprises, Inc.:
We have audited the accompanying consolidated balance sheet of Apogee
Enterprises, Inc. (a Minnesota corporation) and subsidiaries as of February 26,
2000, and the related results of operations, statement of shareholders' equity
and statement of cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Apogee Enterprises, Inc. and
subsidiaries as of February 26, 2000 and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
Minneapolis, MN,
April 13, 2000
F-2
Independent Auditor's Report
The Board of Directors and Shareholders
Apogee Enterprises, Inc.:
We have audited the fiscal 1999 and 1998 consolidated financial statements
of Apogee Enterprises, Inc. and subsidiaries as listed in the accompanying
index. In connection with our audits of the fiscal 1999 and 1998 consolidated
financial statements, we also have audited the financial statement schedule for
fiscal 1999 and 1998 as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule 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 27, 1999 and the results of
their operations and their cash flows for each of the years in the two year
period ended February 27, 1999 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the fiscal 1999 and 1998
information set for the therein.
KPMG LLP
Minneapolis, Minnesota
April 12, 1999, except as to Note 11
which is as of February 14, 2000
F-3
CONSOLIDATED BALANCE SHEETS
February 26, February 27,
(Dollar amounts in thousands) 2000 1999
- ------------------------------------------------------------------------ ---------------- ----------------
Assets
Current assets
Cash and cash equivalents $ 7,192 $ 1,318
Receivables, net of allowance for doubtful accounts 125,064 117,620
Inventories 68,184 68,171
Deferred income taxes 8,435 11,622
Other current assets 5,547 5,577
- ------------------------------------------------------------------------ ---------------- ----------------
Total current assets 214,422 204,308
- ------------------------------------------------------------------------ ---------------- ----------------
Property, plant and equipment, net 186,039 179,996
Other assets
Marketable securities available for sale 24,951 27,239
Investments 418 570
Intangible assets, at cost less accumulated
amortization of $11,668 and $9,381, respectively 50,549 51,744
Other 4,775 2,532
- ------------------------------------------------------------------------ ---------------- ----------------
Total assets $ 481,154 $ 466,389
======================================================================== ================ ================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 57,989 $ 42,971
Accrued expenses 56,624 51,312
Current liabilities of discontinued operations, net 2,907 5,206
Billings in excess of costs and earnings on uncompleted contracts 9,827 11,622
Accrued income taxes 7,868 7,385
Current installments of long-term debt 182 1,300
- ------------------------------------------------------------------------ ---------------- ----------------
Total current liabilities 135,397 119,796
- ------------------------------------------------------------------------ ---------------- ----------------
Long-term debt, less current installments 164,371 165,097
Other long-term liabilities 25,248 27,845
Liabilities of discontinued operations, net 18,366 22,987
Commitments and contingent liabilities (Notes 7, 14 and 15)
Shareholders' equity
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares;
issued and outstanding, 27,743,000 and 27,623,000, respectively 9,248 9,208
Additional paid-in capital 45,106 41,903
Retained earnings 84,608 80,194
Unearned compensation (888) (721)
Net unrealized (loss) gain on marketable securities (302) 80
- ------------------------------------------------------------------------ ---------------- ----------------
Total shareholders' equity 137,772 130,664
- ------------------------------------------------------------------------ ---------------- ----------------
Total liabilities and shareholders' equity $ 481,154 $ 466,389
======================================================================== ================ ================
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED RESULTS OF OPERATIONS
Year Ended Year Ended Year Ended
(Amounts in thousands except per share data) February 26, 2000 February 27, 1999 February 28, 1998
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Net sales $840,488 $788,062 $731,094
Cost of sales 673,253 617,647 565,955
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Gross profit 167,235 170,415 165,139
Selling, general and administrative expenses 147,817 127,063 119,480
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Operating income 19,418 43,352 45,659
Interest expense, net 10,359 9,494 6,276
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Earnings from continuing operations
before income taxes and other items below 9,059 33,858 39,383
Income taxes 3,171 12,189 14,390
Equity in net loss of affiliated companies 2,817 1,424 879
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Earnings from continuing operations 3,071 20,245 24,114
Earnings (loss) from operations of
discontinued businesses, net of income taxes 9,104 4,988 (75,169)
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Net earnings (loss) $12,175 $25,233 $ (51,055)
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Earnings (loss) per share - basic
Continuing operations $0.11 $0.73 $0.87
Discontinued operations 0.33 0.18 (2.70)
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Net earnings (loss) $0.44 $0.91 $(1.84)
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Earnings (loss) per share - diluted
Continuing operations $0.11 $0.73 $0.85
Discontinued operations 0.33 0.18 (2.65)
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Net earnings (loss) $0.44 $0.91 $(1.80)
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
Weighted average basic shares outstanding 27,746 27,586 27,795
Weighted average diluted shares outstanding 27,794 27,762 28,359
- ------------------------------------------------- ---------------------- ---------------------- -----------------------
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Additional Cumulative Unrealized Comprehensive
Shares Common Paid-In Retained Unearned Translation Gain on Earnings
(Amounts in thousands) Outstanding Stock Capital Earnings Compensation Adjustment Investments (Loss)
- ----------------------------- ------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------
Balance at March 1, 1997 27,882 $9,294 $34,686 $129,424 $-- $(1,277) $ 22
Net loss (51,055) $ (51,055)
Cumulative translation
adjustment 1,277 1,277
Change in unrealized
gains on marketable
securities, net of
$125 tax expense 232 232
------------
Comprehensive loss $ (49,546)
============
Unearned compensation (686)
Common stock issued 504 168 4,754
Tax benefit associated
with stock plans 1,503
Common stock repurchased
and retired (933) (311) (1,960) (11,219)
Cash dividends (5,251)
- ----------------------------- --------------- ----------- ------------ ------------ ----------- ----------------------
Balance at February 28, 1998 27,453 9,151 38,983 61,899 (686) -- 254
Net earnings 25,233 $ 25,233
Change in unrealized
gains on marketable
securities, net of
$93 tax benefit (174) (174)
----------
Comprehensive earnings $ 25,059
==========
Unearned compensation (35)
Common stock issued 306 102 2,994
Common stock
repurchased and
retired (136) (45) (74) (1,272)
Cash dividends (5,666)
- ----------------------------- --------------- ----------- ------------ ------------ ----------- ----------------------
Balance at February 27, 1999 27,623 9,208 41,903 80,194 (721) -- 80
Net earnings 12,175 $12,175
Change in unrealized
gains on marketable
securities, net of
$204 tax benefit (382) (382)
----------
Comprehensive earnings $11,793
==========
Unearned compensation (167)
Tax benefit associated
with stock plans 803
Common stock issued 309 103 2,678
Common stock
repurchased and
retired (189) (63) (278) (1,928)
Cash dividends (5,833)
- ----------------------------- --------------- ----------- ------------ ------------ ----------- ----------------------
Balance at February 26, 2000 27,743 $9,248 $45,106 $84,608 $(888) $-- $(302)
- ----------------------------- --------------- ----------- ------------ ------------ ----------- ----------------------
See accompanying notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
February 26, February 27, February 28,
(Dollas amounts in thousands) 2000 1999 1998
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Operating Activities
Net earnings (loss) $12,175 $25,233 $(51,055)
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net (earnings) loss from discontinued operations (9,104) (4,988) 75,169
Depreciation and amortization 33,019 25,798 22,463
Provision for losses on accounts receivable 7,656 1,408 508
Deferred income tax (benefit) expense (3,319) 4,844 (7,849)
Equity in net loss of affiliated companies 2,817 1,424 879
Net cash flow (to) from discontinued operations (534) (13,580) 11,649
Other, net 643 (349) 2,294
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Cash flow before changes in operating assets and liabilities 43,353 39,790 54,058
Changes in operating assets and liabilities, net of effect of
acquisitions:
Receivables (14,484) (18,523) (13,684)
Inventories 637 (7,128) (5,196)
Other current assets 30 1,295 107
Accounts payable and accrued expenses 20,330 5,151 8,933
Billings in excess of costs and earnings on uncompleted
contracts (1,795) 4,680 2,663
Refundable and accrued income taxes 2,004 26,972 (13,338)
Other long-term liabilities (6,239) 778 (2,062)
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Net cash provided by operating activities 43,836 53,015 31,481
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Investing Activities
Capital expenditures (44,025) (77,392) (37,891)
Acquisition of businesses, net of cash acquired (1,983) (380) (810)
Purchases of marketable securities (17,469) (24,315) (40,837)
Sales/Maturities of marketable securities 19,169 15,515 42,143
Investment in and advances to affiliated companies (2,665) (1,285) (850)
Proceeds from sales of property, plant and equipment 14,672 310 575
Net cash flow from discontinued operations 2,000 22,500 --
Other, net (162) (62) (503)
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Net cash used in investing activities (30,463) (65,109) (38,173)
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Financing Activities
Payments on long-term debt (9,494) (1,446) (1,704)
Proceeds from issuance of long-term debt 7,650 14,197 26,003
Increase in deferred debt expense (334) (3,107) --
Proceeds from issuance of common stock 2,781 3,096 4,922
Repurchase and retirement of common stock (2,269) (1,515) (13,490)
Dividends paid (5,833) (5,666) (5,251)
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Net cash (used in) provided by financing activities (7,499) 5,559 10,480
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Increase (decrease) in cash and cash equivalents 5,874 (6,535) 3,788
Cash and cash equivalents at beginning of year 1,318 7,853 4,065
- --------------------------------------------------------------------- ----------------- ------------------ ------------------
Cash and cash equivalents at end of year $7,192 $ 1,318 $ 7,853
===================================================================== ================= ================== ==================
See accompanying notes to consolidated financial statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 Summary of Significant Accounting Policies and Related Data
Basis of Consolidation Our consolidated financial statements include the
accounts of Apogee and all majority-owned subsidiaries (the Company). As
explained in Note 11, the Company's curtainwall contracting and
detention/security contracting businesses are reported as discontinued
operations, along with the Company's interest in VIS'N Service Corporation. We
use the equity method to account for 50%-owned joint ventures. Intercompany
transactions have been eliminated. Certain amounts from prior-years' financial
statements have been reclassified to conform 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 the lower of cost or market. Approximately 59% of the
inventories are valued by use of the last-in, first-out (LIFO) method, which
does not exceed market. If the first-in, first-out (FIFO) method had been used
for all inventories, our inventories would have been $3,127,000 and $3,000,000
higher than reported at February 26, 2000, and February 27, 1999, respectively.
Property, Plant and Equipment Property, plant and equipment are carried at cost.
Significant improvements and renewals are capitalized. Repairs and maintenance
are charged to expense as incurred. Depreciation is computed on a straight-line
basis, based on estimated useful lives of 20 to 40 years for buildings and 2 to
15 years for equipment.
Intangible Assets and Amortization Intangible assets consist principally of the
excess of cost over the fair value of net assets acquired (goodwill) and are
amortized on a straight-line basis, primarily over 40 years. Amortization
expense amounted to $2,287,000, $2,060,000 and $1,761,000 in 2000, 1999 and
1998, respectively.
Long-Lived Assets The carrying value of long-lived assets such as property,
plant and equipment and intangible assets are reviewed when circumstances
suggest that the assets have been impaired. If this review indicates that the
long-lived assets will not be recoverable based on the estimated undiscounted
cash flows over the remaining amortization period, the carrying value of such
assets must be reduced to estimated fair value. The Company has capitalized
approximately $10 million associated with a portion of an Enterprise Resource
Planning (ERP) project at Viracon, some of which was in service and amortized in
fiscal 2000. An evaluation of this portion of the project will be performed in
late fiscal 2001 to determine future viability of this investment.
Insurance Subsidiary Prism Assurance, Inc. (Prism) is a wholly-owned insurance
subsidiary that insures our workers' compensation, general liability and
automobile liability risks. Prism invests in fixed maturity investments which we
classify as "available-for-sale" and are carried at market value as prescribed
by Statement of Financial Accounting Standards (SFAS) No. 115. Reserve
requirements are established based on actuarial projections of ultimate losses.
Apogee also has accruals for losses incurred prior to Prism's formation (1996).
Losses estimated to be paid within twelve months are classified as accrued
expenses, while losses expected to be payable in later periods are included in
other long-term liabilities.
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. Amounts representing contract
change orders, claims or other items are included in sales only when they have
been approved by our customers. Revenue from the sale of products or services
provided and the related cost of sales are recorded upon shipment or as services
are rendered.
Income Taxes We account for income taxes as prescribed by SFAS No. 109, which
requires use of the asset and liability method. This method recognizes deferred
tax assets and liabilities based upon the future tax consequences of temporary
differences between financial and tax reporting.
F-8
Foreign Operations The financial statements of foreign operations have been
translated to U.S. dollars, using the rules of SFAS No. 52. Balance sheet
accounts are stated in U.S. dollars, generally at the year-end exchange rate.
Results of operations are translated at average exchange rates for the
respective period.
We may periodically enter into forward currency exchange contracts to
manage specific foreign currency exposures related to foreign construction
contracts, receivables, and bank borrowings denominated in foreign currencies.
As of February 26, 2000, we did not have any forward contracts outstanding as
the Company had no material foreign currency exchange exposure. Gains and losses
on forward contracts related to receivables are recognized currently, while
gains and losses related to construction projects are deferred and accounted for
as a part of the related transaction.
Accounting Period Our fiscal year ends on the Saturday closest to February 28.
Fiscal years in the three year period ended February 26, 2000, each contain 52
weeks.
Accounting Estimates The preparation of our consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of net sales and
expenses during the reporting period. Amounts subject to significant estimates
and assumptions include, but are not limited to, insurance reserves and net
sales recognition for construction contracts, including the status of
outstanding disputes and claims. Actual results could differ from those
estimates.
New Accounting Standards In June 1998, Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued and, as amended by SFAS No. 137, is effective for fiscal
years beginning after June 15, 2000, although earlier application is permitted.
SFAS No. 133 requires all derivatives to be measured at fair value and
recognized as assets or liabilities on the balance sheet. Changes in the fair
value of derivatives should be recognized in either net earnings or other
comprehensive earnings, depending on the designated purpose of the derivative.
The Company expects to adopt SFAS No. 133 in fiscal 2002. SFAS No. 133 is not
expected to have a material impact on the Company's financial position or
results of operations.
2 Receivables
(In thousands) 2000 1999
- --------------------------------------- ------------ ------------
Trade accounts $ 110,704 $ 104,238
Construction contracts 15,550 13,431
Contract retainage 5,212 4,379
Other receivables 4,138 2,733
- --------------------------------------- ------------ ------------
Total receivables 135,604 124,781
Less allowance for doubtful accounts (10,540) (7,161)
- --------------------------------------- ------------ ------------
Net receivables $ 125,064 $ 117,620
======================================= ============ ============
We provide products and services to the commercial and institutional new
construction and remodeling markets, the automotive replacement glass market and
selected consumer markets. 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. Allowances are maintained for
potential credit losses and such losses have been within management's
expectations. The provision for bad debt expense was $7,656,000, $1,408,000 and
$508,000 in 2000, 1999 and 1998, respectively.
F-9
3 Inventories
(In thousands) 2000 1999
- --------------------------------------- ------------ ------------
Raw materials $ 18,966 $ 16,324
Work-in process 4,995 3,157
Finished 43,439 48,330
Costs and earnings in excess of
billings on uncompleted contracts 784 360
- --------------------------------------- ------------ ------------
Total inventories $ 68,184 $ 68,171
======================================= ============ ============
4 Property, Plant and Equipment
(In thousands) 2000 1999
- ----------------------------------------- ------------- -------------
Land $ 3,964 $ 2,780
Buildings and improvements 91,042 69,570
Machinery and equipment 153,186 137,563
Office equipment and furniture 63,472 53,718
Construction in progress 22,684 57,655
- ----------------------------------------- ------------- -------------
Total property, plant and equipment 334,348 321,286
Less accumulated depreciation (148,309) (141,290)
- ----------------------------------------- ------------- -------------
Net property, plant and equipment $ 186,039 $ 179,996
========================================= ============= =============
Depreciation expense was $30,732,000, $23,738,000 and $20,702,000 in 2000,
1999 and 1998, respectively.
5 Marketable Securities
Prism invests in fixed maturity investments classified as
"available-for-sale" and carried at market value as prescribed by SFAS No. 115.
Unrealized gains and losses are reported in a separate component of
shareholders' equity, net of income taxes, until the investments are sold. The
amortized cost, gross unrealized gains and losses and estimated fair values of
investments available-for-sale at February 26, 2000 and February 27, 1999 are as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ------------------------- ---------------- ------------------ --------------- ----------------
February 26, 2000
U.S. Treasury Notes $ 5,466 $-- $(248) $ 5,218
Municipal bonds 19,947 40 (254) 19,733
- ------------------------- ---------------- ------------------ --------------- ----------------
Total investments $25,413 $ 40 $(502) $24,951
========================= ================ ================== =============== ================
February 27, 1999
U.S. Treasury Notes $ 8,159 $-- $(246) $ 7,913
Municipal bonds 18,956 473 (103) 19,326
- ------------------------- ---------------- ------------------ --------------- ----------------
Total investments $27,115 $473 $(349) $27,239
========================= ================ ================== =============== ================
The amortized cost and estimated fair values of investments at February 26,
2000 by contractual maturity are shown below. Expected maturities may differ
from contractual maturities as borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Estimated
(in thousands) Cost Market Value
- ------------------------------------------ ---------------- -------------------
Due within one year $ 2,450 $ 2,458
Due after one year through five years 7,348 7,094
Due after five years through ten years 7,096 7,020
Due after ten years through fifteen years 3,693 3,601
Due beyond fifteen years 4,826 4,778
- ------------------------------------------ ---------------- -------------------
Total $ 25,413 $ 24,951
========================================== ================ ===================
F-10
Gross realized gains of $14,972, $119,969 and $265,041 and gross realized
losses of $535,860, $158 and $188,838 were recognized in fiscal 2000, 1999 and
1998, respectively, and are included in Investment and Other Income in the
accompanying Consolidated Statement of Operations.
6 Accrued Expenses
(In thousands) 2000 1999
- --------------------------------------- ----------- -----------
Payroll and related benefits $21,770 $24,446
Insurance 10,529 11,758
Taxes, other than income taxes 4,802 4,459
Pension 4,685 4,641
Interest 630 902
Other 14,208 5,106
- --------------------------------------- ----------- -----------
Total accrued expenses $56,624 $51,312
======================================= =========== ===========
7 Long-Term Debt
(In thousands) 2000 1999
- --------------------------------------- ------------ ------------
Borrowings under revolving credit
agreement, interest ranging from
6.62% to 8.75% $156,500 $164,700
Other 8,053 1,697
- --------------------------------------- ------------ ------------
Total long-term debt 164,553 166,397
Less current installments (182) (1,300)
- --------------------------------------- ------------ ------------
Net long-term debt $164,371 $165,097
======================================= ============ ============
Long-term debt maturities are as follows:
Fiscal Year (In thousands)
- -------------------------------- ---------------------
2001 $ 182
2002 121
2003 100
2004 156,500
2005 --
Thereafter 7,650
- -------------------------------- ---------------------
Total $164,553
================================ =====================
In May 1998, we obtained a five-year, committed, secured credit facility in the
amount of $275 million. This new credit facility requires us to maintain minimum
levels of net worth and certain financial ratios. The total commitment of the
new credit facility was reduced by the sales price, net of taxes, of the sale of
the detention/security business, resulting in a committed credit facility of
$253 million as of February 26, 2000. At February 26, 2000, we were in
compliance with all of the financial covenants of the new credit facility.
Selected information related to bank borrowings is as follows:
(Dollar amounts in thousands) 2000 1999
- -------------------------------------------------- ----------- ------------
Average daily borrowings during the year $174,869 $160,437
Maximum borrowings outstanding during the year 195,300 172,200
Weighted average interest rate during the year 6.9% 6.8%
================================================== =========== ============
F-11
In 2000, we entered into an interest rate swap agreement that effectively
converted $10 million of our variable rate borrowings into a fixed rate
obligation. Under this agreement, which expires in 2003, we receive payments at
variable rates while we make payments at a fixed rate of 7.21%. The net interest
paid or received associated with these agreements is included in interest
expense. In 1999, we entered into an interest rate swap agreement that
effectively converted $25 million of our variable rate borrowings into a fixed
rate obligation. Under this agreement, which expires in 2004, we receive
payments at variable rates while we make payments at a fixed rate of 7.125%.
8 Interest, Net
(In thousands) 2000 1999 1998
- ------------------------------- ----------- ----------- ------------
Interest on debt $11,939 $10,898 $7,928
Other interest expense 636 619 460
- ------------------------------- ----------- ----------- ------------
Total interest expense 12,575 11,517 8,388
Less interest income (2,216) (2,023) (2,112)
- ------------------------------- ----------- ----------- ------------
Interest expense, net $10,359 $ 9,494 $6,276
=============================== =========== =========== ============
Interest payments, including interest expense allocated to discontinued
operations, were $12,477,000, $12,067,000 and $8,223,000 in 2000, 1999 and 1998,
respectively.
9 Shareholders' Equity and Stock Option Plans
A class of 200,000 shares of junior preferred stock with a par value of
$1.00 is authorized, but unissued.
We have 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, including the
acquisition by a person or group of 10% of the outstanding shares of the
Company's common stock. Upon exercise, the rights would 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.
The 1997 Stock Option Plan and 1987 Stock Option Plan (the "Plans") each
provide for the issuance of up to 2,500,000 options to purchase Company stock.
Options awarded under these Plans, either in the form of incentive stock options
or nonstatutory options, are exercisable at an option price equal to the fair
market value at the date of award. The 1987 Plan has expired and no new grants
of stock options may be made under this Plan.
The 1987 Partnership Plan, a Plan 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 common stock. The purchased stock is then matched by an equal
award of restricted stock, which vests over a predetermined period. Common
shares of 3,200,000 are authorized for issuance under the Plan. As of February
26, 2000, 2,122,000 shares have been issued or committed under the Plan. We
expensed $786,000, $1,926,000 and $1,613,000 in conjunction with the Partnership
Plan in 2000, 1999 and 1998, respectively.
F-12
A summary of option transactions under the Plans for 2000, 1999 and 1998
follows:
Options Outstanding
- ------------------------------------ -----------------------------------------------
Number of Average Option Price
Shares Exercise Price Range
- ------------------------------------ ------------ ---------------- ----------------
Balances, March 1, 1997 1,601,000 $ 10.11 $ 4.48-17.75
Options granted 485,000 16.09 11.31-25.00
Options exercised (372,000) 6.86 5.38-16.50
Options canceled (230,000) 12.38 5.38-16.75
- ------------------------------------ ------------ ---------------- ----------------
Balances, February 28, 1998 1,484,000 12.53 4.48-25.00
Options granted 443,000 13.94 10.63-15.25
Options exercised (160,946) 6.92 5.88- 8.69
Options canceled (184,540) 14.33 5.88-16.75
- ------------------------------------ ------------ ---------------- ----------------
Balances, February 27, 1999 1,581,514 13.27 4.48-25.00
Options granted 453,500 11.28 6.75-13.44
Options exercised (136,704) 6.66 6.50-8.69
Options canceled (238,875) 14.11 6.50-16.75
- ------------------------------------ ------------ ---------------- ----------------
Balances, February 26, 2000 1,659,435 $ 13.15 $ 4.48-25.00
==================================== ============ ================ ================
The following table summarizes information about stock options outstanding
and exercisable at February 26, 2000.
Options Outstanding Options Exercisable
- ----------------- ---------------------------------------------- ----------------------------
Remaining
Range of Number Contractual Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- ----------------- -------------- --------------- ---------------- ------------- ---------------
$ 4.48- 12.50 664,440 6.8 years $ 10.18 263,090 $8.67
12.51- 15.00 447,995 8.0 years 13.90 234,970 13.98
15.01- 25.00 547,000 5.9 years 16.15 356,375 16.19
- ----------------- -------------- --------------- ---------------- ------------- ---------------
1,659,435 6.8 years $13.15 854,435 $13.27
================= ============== =============== ================ ============= ===============
F-13
In accordance with the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, no compensation cost has been
recognized with respect to the Plans. Had compensation cost for the Plans been
determined based on the fair value of the awards, our net earnings (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts
indicated below:
(In thousands, except per share 2000 1999 1998
data)
- ---------------------------------- ---------- ----------- ------------
Reported:
Net earnings (loss)
Continuing operations $ 3,071 $20,245 $ 24,114
Discontinuing operations 9,104 4,988 (75,169)
- ---------------------------------- ---------- ----------- ------------
$12,175 $25,233 $(51,055)
================================== ========== =========== ============
Earnings (loss) per share diluted
Continuing operations $ 0.11 $ 0.73 $ 0.85
Discontinuing operations 0.33 0.18 (2.65)
- ---------------------------------- ---------- ----------- ------------
$ 0.44 $ 0.91 $ (1.80)
================================== ========== =========== ============
Pro forma:
Net earnings (loss)
Continuing operations $ (250) $17,477 $ 22,168
Discontinuing operations 9,104 4,988 (75,169)
- ---------------------------------- ---------- ----------- ------------
$ 8,854 $22,465 $(53,001)
================================== ========== =========== ============
Earnings (loss) per share diluted
Continuing operations $ (0.01) $ 0.63 $ 0.78
Discontinuing operations 0.32 0.18 (2.65)
- ---------------------------------- ---------- ----------- ------------
$ 0.32 $ 0.81 $ (1.87)
================================== ========== =========== ============
The above pro forma amounts may not be representative of the effects on
reported net earnings (loss) for future years. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in 2000,
1999 and 1998:
2000 1999 1998
- ---------------------------------- ---------- --------- ----------
Dividend yield 1.8% 1.5% 1.2%
Expected volatility 62.4% 38.0% 60.0%
Risk-free interest rate 4.8% 6.0% 7.0%
Expected lives 10 years 10 years 10 years
- ---------------------------------- ---------- --------- ----------
10 Income Taxes
The components of income tax expense (benefit) for each of the last three
fiscal years are as follows:
(In thousands) 2000 1999 1998
- ----------------------------------- ------------ ------------ -------------
Current:
Federal $ 6,229 $ 8,267 $ 10,966
State and local 466 1,175 1,554
- ----------------------------------- ------------ ------------ -------------
Total current $ 6,695 $ 9,442 $ 12,520
- ----------------------------------- ------------ ------------ -------------
Deferred:
Federal $(3,453) $ 2,414 $ 1,645
State and local (71) 333 225
- ----------------------------------- ------------ ------------ -------------
Total deferred $(3,524) $ 2,747 $ 1,870
- ----------------------------------- ------------ ------------ -------------
Provision for income taxes:
Continuing operations $ 3,171 $12,189 $ 14,390
Discontinuing operations 717 2,837 (26,815)
- ----------------------------------- ------------ ------------ -------------
Total income tax expense $ 3,888 $15,026 $(12,425)
=================================== ============ ============ =============
F-14
Income tax payments, net of refunds, were $8,508,000, $2,090,000 and
$12,000,000 in 2000, 1999 and 1998, respectively.
The differences between statutory federal tax rates and our consolidated
effective tax rates are as follows:
2000 1999 1998
- ------------------------------------- ----------- ----------- ------------
Statutory federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net
of federal tax benefit 2.8 2.9 2.9
Tax credits (2.0) (1.4) (1.8)
Foreign sales corporation (5.0) (1.0) (1.4)
Other, net 4.2 0.5 1.8
- ------------------------------------- ----------- ----------- ------------
Consolidated effective tax rate 35.0% 36.0% 36.5%
===================================== =========== =========== ============
Tax benefits for deductions associated with the 1987 Stock Option Plan and
the 1987 Partnership Plan amounted to $800,000 and $1,503,000 in 2000 and 1998,
respectively. These benefits were added directly to additional paid-in capital
and were not reflected in the determination of income tax expense.
Deferred tax assets and deferred tax liabilities at February 26, 2000 and
February 27, 1999 are as follows:
2000 1999
---------------------------- ----------------------------
(In thousands) Current Noncurrent Current Noncurrent
- ------------------------------- -------------- ------------- -------------- -------------
Accounts receivable $ 3,628 $ (369) $ 5,702 $ (1,378)
Accrued insurance -- 2,837 -- 4,641
Deferred compensation 37 7,837 (140) 4,165
Restructuring reserve 12,390 -- 16,670 --
Inventory 1,377 201 1,477 203
Depreciation 143 (6,156) (194) (6,444)
Employee benefit plans (1,899) -- (1,840) --
Other 2,239 (1,492) 2,147 (5,040)
- ------------------------------- -------------- ------------- -------------- -------------
17,915 2,858 23,822 (3,853)
Less valuation allowance (9,480) -- (12,200) --
- ------------------------------- -------------- ------------- -------------- -------------
Deferred tax assets
(liability) $ 8,435 $ 2,858 $ 11,622 $ (3,853)
=============================== ============== ============= ============== ==============
At February 26, 2000, future tax deductions from the reversal of temporary
differences comprise the deferred tax asset, which has been reduced by a
valuation allowance. This valuation allowance reduces the deferred tax asset to
a net amount which we believe we more likely than not will realize, based on our
estimates of future earnings and the expected timing of temporary difference
reversals. The valuation allowance reflects amounts for foreign tax credits,
general business tax credits, net operating loss carryforwards and capital loss
carryforwards.
11 Discontinued Operations
In fiscal 2000, Apogee's Board of Directors authorized the exit from the
Company's interest in VIS'N Service Corporation (VIS'N), a non-auto glass
focused, third party administered claims processor. On May 13, 1999, the Company
completed the sale of 100% of the stock of its large-scale domestic curtainwall
business, Harmon, Ltd. In fiscal 1999, Apogee's Board of Directors authorized
the divestiture of the detention/security and domestic curtainwall operations.
On December 3, 1998, the segment executed the sale of its detention/security
business, effective November 28, 1998. Combined with the fiscal 1998 exit from
international curtainwall operations, these transactions effectively remove the
Company from the large-scale construction business, in addition to the third
party administered claims processing business. Accordingly, these businesses are
presented as discontinued operations in the consolidated financial statements
and notes. Prior periods have been restated.
F-15
(In thousands) 2000 1999 1998
- --------------------------------- ------------- -------------- ---------------
Earnings (Loss) from Operations
of Discontinued Businesses
Net sales $ 28,331 $ 168,739 $ 191,311
Earnings (loss) before income
taxes and minority interest* 9,821 7,590 (101,984)
Income tax expense (benefit) 717 2,837 (26,815)
Minority interest -- (235) --
Earnings (loss) from operations,
net of income taxes $ 9,104 $ 4,988 $ (75,169)
================================= ============= =============== ================
* Includes net interest expense allocations (based on the ratio of net
operating assets of discontinued operations to consolidated net assets) of
$111,000, $444,000 and $1,058,000 for 2000, 1999 and 1998, respectively.
The 2000 effective income tax rate of 7.3% on discontinued operations was
significantly lower than the 1999 rate due to a decrease in the valuation
allowance resulting from the utilization of certain tax assets that were
previously reserved for.
(In thousands) 2000 1999
- --------------------------------------------- ------------- --------------
Net Liabilities of Discontinued Operations
Current assets $ 3,983 $ 21,467
Property, plant and equipment, net 782 2,482
Other 3,248 3,333
Accrued liabilities (29,286) (55,475)
- --------------------------------------------- ------------- --------------
Net liabilities of discontinued operations $(21,273) $(28,193)
Less net current liabilities of discontinued
operations 2,907 5,206
- --------------------------------------------- ------------- --------------
Net long term liabilities of discontinued
operations $(18,366) $(22,987)
============================================= ============= ==============
During 1998, we recorded pre-tax charges of $96.1 million for unusual items
in discontinued operations. The amount included nonrecurring charges of $26.0
million and $35.9 million recorded in the third and fourth quarter,
respectively, related to international curtainwall operations. In addition,
unusual items included operating losses totaling $34.2 million, representing the
net operating results for European curtainwall operations.
The $26.0 million charge included amounts for the estimated loss on
disputed construction contracts in Europe, including the accrual of certain
penalty amounts, and a provision for the accrual of legal and related costs
associated with the resolution of legal proceedings related to organizational
changes in our majority-owned European curtainwall unit. The charge for
restructuring included amounts for severance and termination benefits for
employees in France, Asia and the US., the write-down of property and equipment
and other long-term assets to their estimated net salable value and other items
such as lease termination costs. The $35.9 million charge reflected the
estimated costs associated with exiting our European operations, including the
completion of certain remaining projects. In March 1998, the five operating
companies comprising our European curtainwall operations filed for bankruptcy or
commenced liquidation, effectively relinquishing control over those entities.
At February 26, 2000, accruals totaling $21.3 million represented the
remaining estimated future cash outflows associated with the exit from
discontinued operations. The majority of these cash expenditures are expected to
be made within the next one to two years. The primary components of the accrual
relate to the completion of certain construction projects, costs to exit VIS'N,
legal costs and other costs associated with the proceedings noted above.
12 Employee Benefit 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. 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 $4,920,000, $4,209,000 and $3,884,000 in
2000, 1999 and 1998, respectively.
We also maintain a 401(k) savings plan, which allows employees to
contribute 1% to 13% of their compensation. Apogee matches 30% of the first 6%
of the employee contributions. Our contributions to the Plan were $2,098,000,
$2,009,000 and $1,817,000 in 2000, 1999 and 1998, respectively.
F-16
13 Acquisitions
In fiscal 2000, our Glass Services segment purchased the assets of one
distribution center. The purchase price of the acquisition was $1,983,000,
including $596,000 recorded as goodwill.
During fiscal 1999, our Glass Services segment purchased an 80% interest in
an insurance claims and policy processing outsource company (VIS'N). The
aggregate purchase price of the acquisition was $2.8 million. Goodwill of $3.4
million was recorded and liabilities of $1.4 million were assumed.
In fiscal 1998, our Glass Services segment purchased the assets of ten
retail auto glass stores in four separate transactions. The aggregate purchase
price of the acquisitions was $800,000, including $200,000 recorded as goodwill.
Unless noted, no liabilities were assumed in the above transactions. All of
the above transactions were accounted for by the purchase method. Accordingly,
our consolidated financial statements include the net assets and results of
operations from the dates of acquisition.
14 Leases
As of February 26, 2000, 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)
- ------------------------------------- -------------------
2001 $ 13,724
2002 10,795
2003 8,638
2004 6,962
2005 5,172
Thereafter 8,015
- ------------------------------------- -------------------
Total minimum payments $ 53,306
===================================== ===================
Total rental expense was $23,829,000, $24,470,000 and $20,690,000 in 2000,
1999 and 1998, respectively.
During fiscal 2000, the Company entered into an agreement for the sale and
leaseback of certain production equipment. The sale price of the equipment was
$13.4 million. The Company has a purchase option at projected future fair market
value under the agreement. The lease is classified as an operating lease in
accordance with SFAS No. 13, Accounting for Leases.
As of February 26, 2000, equipment with a net book value of $6,071,000 has
been removed form the balance sheet, and the gain of $7,329,000 has been
deferred and is being credited to rent expense over the lease term. The
unamortized portion of the deferred gain of $7,329,000 is included in the
balance sheet caption other long-term liabilities. The average annual lease
payment, prior to the above mentioned rent adjustment, over the life of the
lease is $2,029,000.
15 Commitments and Contingent Liabilities
At February 26, 2000, we had ongoing letters of credit related to our risk
management programs, construction contracts and certain industrial development
bonds. The total value of letters of credit under which we are obligated as of
February 26, 2000 was approximately $14,787,000. We have entered into a number
of noncompete agreements. As of February 26, 2000, we were committed to make
future payments of $2,934,000 under such agreements.
We have been a party to various legal proceedings incidental to our normal
operating activities. In particular, like others in the construction industry,
our discontinued construction business is routinely involved in various disputes
and
F-17
claims arising out of construction projects, sometimes involving significant
monetary damages. Although it is impossible to predict the outcome of such
proceedings, 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
In preparing disclosures about the fair value of financial instruments, we
determined that for cash and cash equivalents, receivables, accounts payable and
long-term debt, carrying value is a reasonable estimate of fair value. 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. The estimated fair value of interest rate swap agreements in a
net payable position was $198,000 and $1.6 million at February 26, 2000 and
February 27, 1999, respectively.
17 Earnings Per Share
The following table presents a reconciliation of the denominators used in
the computation of basic and diluted earnings per share.
(In thousands) 2000 1999 1998
- ------------------------------------- ----------- ----------- -----------
Basic earnings per share -
Weighted common shares
Outstanding 27,746 27,586 27,795
Weighted common shares assumed
upon exercise of stock options 48 176 564
- ------------------------------------- ----------- ----------- -----------
Diluted earnings per share -
Weighted common shares and
potential common shares
outstanding 27,794 27,762 28,359
===================================== =========== =========== ===========
F-18
18 Quarterly Data (Unaudited)
Quarter
-----------------------------------------------
(Dollar amounts in thousands, except per First Second Third Fourth
share data)
- ----------------------------------------------- ----------- ----------- ------------- ----------
Fiscal 2000
Net sales $ 209,663 $ 216,962 $ 201,127 $212,736
Gross profit 47,063 45,493 30,609 44,071
Earnings (loss) from continuing operations 4,787 5,309 (4,982) (2,043)
Earnings (loss) from discontinued operations (217) 8,732 2,004 (1,415)
Net earnings (loss) 4,570 14,041 (2,978) (3,458)
Earnings (loss) per share - basic
From continuing operations 0.17 0.19 (0.18) (0.07)
From discontinued operations (0.01) 0.31 0.07 (0.05)
Net earnings (loss) 0.17 0.51 (0.11) (0.12)
Earnings (loss) per share - diluted
From continuing operations 0.17 0.19 (0.18) (0.07)
From discontinued operations (0.01) 0.31 0.07 (0.05)
Net earnings (loss) 0.16 0.50 (0.11) (0.12)
- ----------------------------------------------- ----------- ----------- ------------- ----------
Fiscal 1999
Net sales $ 190,377 $ 206,539 $ 191,201 $ 199,944
Gross profit 40,439 45,686 42,356 41,933
Earnings from continuing operations 4,188 7,771 5,946 2,340
Earnings (loss) from discontinued operations (310) 1,384 1,304 2,611
Net earnings 3,878 9,155 7,250 4,951
Earnings (loss) per share - basic
From continuing operations 0.15 0.28 0.22 0.08
From discontinued operations (0.01) 0.05 0.05 0.09
Net earnings 0.14 0.33 0.26 0.18
Earnings (loss) per share - diluted
From continuing operations 0.15 0.28 0.21 0.08
From discontinued operations (0.01) 0.05 0.05 0.09
Net earnings 0.14 0.33 0.26 0.18
- ----------------------------------------------- ----------- ----------- ------------- ----------
Fiscal 1998
Net sales $ 176,698 $ 194,314 $ 188,439 $ 171,643
Gross profit 40,960 51,320 43,087 29,771
Earnings (loss) from continuing operations 6,360 13,069 7,145 (2,460)
Earnings (loss) from discontinued operations 414 (3,412) (17,580) (54,591)
Net earnings (loss) 6,774 9,657 (10,435) (57,051)
Earnings (loss) per share - basic
From continuing operations 0.23 0.47 0.26 (0.09)
From discontinued operations 0.01 (0.12) (0.63) (1.97)
Net earnings (loss) 0.24 0.35 (0.37) (2.06)
Earnings (loss) per share - diluted
From continuing operations 0.22 0.46 0.25 (0.09)
From discontinued operations 0.01 (0.12) (0.62) (1.97)
Net earnings (loss) 0.24 0.34 (0.37) (2.06)
=============================================== =========== =========== ============= ==========
F-19
19 Business Segments Data
(In thousands) 2000 1999 1998
- ------------------------------------------------------------------------
Net Sales
Glass technologies $360,242 $324,456 $324,195
Glass services 485,543 464,307 407,985
Intersegment elimination (5,297) (701) (1,086)
- ------------------------------------------------------------------------
Total $840,488 $788,062 $731,094
=========================================================================
Operating Income
Glass technologies $ 12,450 $ 21,691 $ 30,746
Glass services 7,706 22,687 16,123
Corporate and other (738) (1,026) (1,210)
- ------------------------------------------------------------------------
Total $ 19,418 $ 43,352 $ 45,659
=========================================================================
Identifiable Assets
Glass technologies $277,083 $250,391 $188,363
Glass services 151,285 150,387 142,430
Corporate and other 52,786 65,611 74,734
- ------------------------------------------------------------------------
Total $481,154 $466,389 $405,527
=========================================================================
Capital Expenditures
Glass technologies $ 38,570 $ 70,034 $ 23,871
Glass services 5,984 5,766 12,268
Corporate and other (529) 1,592 1,752
- ------------------------------------------------------------------------
Total $ 44,025 $ 77,392 $ 37,891
=========================================================================
Depreciation & Amortization
Glass technologies $ 20,195 $ 13,997 $ 12,853
Glass services 11,467 11,078 9,360
Corporate and other 1,357 723 250
- ------------------------------------------------------------------------
Total $ 33,019 $ 25,798 $ 22,463
=========================================================================
Apogee's export net sales are less than 12% of consolidated net sales. No
single customer, including government agencies, accounts for 10% or more of
consolidated net sales. Segment operating income is net sales less cost of sales
and operating expenses. Operating income does not include provision for interest
expense or income taxes. "Corporate and other" includes miscellaneous corporate
activity not allocable to business segments.
F-20
SCHEDULE II
-----------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Valuation and Quantifying Accounts
(In thousands)
Balance at Charged to Deductions Balance at
beginning of costs and from reserves end of
period expenses (1) period
-------------- --------------- --------------- --------------
For the year ended
February 26, 2000:
Allowance for
doubtful receivables $7,161 $7,656 $4,277 $10,540
============== =============== =============== ==============
Inventory reserves $5,112 $ 336 $ 270 $ 5,178
============== =============== =============== ==============
For the year ended
February 27, 1999:
Allowance for
doubtful receivables $5,372 $1,408 $(381) $7,161
============== =============== =============== ==============
Inventory reserves $4,281 $1,031 $200 $5,112
============== =============== =============== ==============
For the year ended
February 28, 1998:
Allowance for
doubtful receivables $6,085 $508 $1,221 $5,372
============== =============== =============== ==============
Inventory reserves $4,790 $991 $1,500 $4,281
============== =============== =============== ==============
(1) Net of recoveries
F-21
EXHIBIT INDEX
Exhibit (3A) Restated Articles of Incorporation. Incorporated by reference to
Exhibit 3A to Registrant's Annual Report on Form 10-K for year
ended February 27, 1988.
Exhibit (3B) Restated By Laws of Apogee Enterprises, Inc. Incorporated by
reference to Exhibit 3B to Registrant's Quarterly Report on Form
10-Q for the quarter ended May 30, 1998.
Exhibit (4A) Specimen certificate for shares of common stock of Apogee
Enterprises, Inc. Incorporated by reference to Exhibit 4A to
Registrant's Annual Report on Form 10-K for year ended February
29, 1992.
Exhibit (4B) Rights Agreement between Registrant and American Stock Transfer
Co. dated October 19, 1990. Incorporated by reference to
Registrant's Form 8-A on October 19, 1990.
Exhibit (4C) Amendment No. 1 to Rights Agreement, dated June 28, 1995, to the
Rights Agreement between Registrant and American Stock Transfer
Co. dated October 19, 1990. Incorporated by reference to
Registrant's Form 8-A/A on June 28, 1995.
Exhibit (4D) Amendment No. 2 to Rights Agreement, dated February 22, 1999, to
the Rights Agreement between Registrant and American Stock
Transfer Co. dated October 19, 1990. Incorporated by reference to
Registrant's Form 8-A/A on February 22, 1999.
Exhibit (4E) Amendment No. 3 to Rights Agreement, dated December 7, 1999, to
the Rights Agreement between Registrant and American Stock
Transfer Co. dated October 19, 1990. Incorporated by reference to
Registrant's Form 8-A/A on December 7, 1999.
Exhibit (10A) Deferred Incentive Compensation Plan dated February 27, 1986
between Registrant and certain executive officers. Incorporated by
reference to Exhibit 10N to Registrant's Annual Report on Form
10-K for year ended March 1, 1986.
Exhibit (10B) Amended and Restated 1987 Apogee Enterprises, Inc. Partnership
Plan. Incorporated by reference to Registrant's S-8 registration
statement dated March 30, 1993.
Exhibit (10C) Employment Agreement between Registrant and Richard Gould dated
May 23, 1994. Incorporated by reference to Exhibit 10I to
Registrant's Annual Report on Form 10-K for year ended February
25, 1995.
Exhibit (10D) Amendment to Apogee Enterprises, Inc. Employment Agreement with
Richard Gould dated July 7, 1998. Incorporated by reference to
Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 28, 1998.
Exhibit (10E) 1987 Apogee Enterprises, Inc. Stock Option Plan. Incorporated by
reference to Registrant's S-8 registration statement dated July
18, 1990.
Exhibit (10F) Multi-Currency Credit Agreement dated as of May 21, 1998 between
Apogee Enterprises, Inc. and banks party to the agreement,
including related security, pledge, contribution and subsidiary
guaranty agreements. Incorporated by reference to Exhibit 10G to
Registrant's Annual Report on Form 10-K for year ended February
28, 1998.
Exhibit (10G) 1997 Omnibus Stock Incentive Plan. Incorporated by reference to
Exhibit A of Registrant's proxy statement for the 1997 Annual
Meeting of Shareholders, filed May 16, 1997.
Exhibit (10H) Resignation Agreement between Apogee Enterprises, Inc. and James
L. Martineau. Incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 28, 1998.
Exhibit (10I) Apogee Enterprises, Inc. Officers' Supplemental Executive
Retirement Plan. Incorporated by reference to Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
November 28, 1998.
Exhibit (10J) First Amendment of Apogee Enterprises, Inc. Officers' Supplemental
Executive Retirement Plan, dated May 11, 1999. Incorporated by
reference to Exhibit 10J to Registrant's Annual Report on Form
10-K for the year ended February 27, 1999.
Exhibit (10K) Apogee Enterprises, Inc. Executive Supplemental Plan. Incorporated
by reference to Exhibit 10.3 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended November 28, 1998.
Exhibit (10L) Form of Severance Agreement between the Company and certain senior
executive officers of the Company. Incorporated by reference to
Exhibit 2 to Registrant's Current Report on Form 8-K filed
February 22, 1999.
Exhibit (10M) Stock Purchase Agreement dated November 10, 1998 between Apogee
Enterprises, Inc. and CompuDyne Corporation. Incorporated by
reference to Registrant's Current Report on Form 8-K filed
November 10, 1998.
Exhibit (10N) Stock Purchase Agreement between the Company and CH Holdings, Inc.
Incorporated by reference to Registrant's Current Report on Form
8-K filed on April 23, 1999.
Exhibit (10O) Deferred Compensation Plan for Non-Employee Directors.
Incorporated by reference to Exhibit A of the Registrant's proxy
statement for the 1999 Annual Meeting of Shareholders, filed May
17, 1999.
Exhibit (16) Change in Independent Public Accountants. Incorporated by
reference to Current Report on Form 8-K, filed April 22, 1999.
Exhibit (21) Subsidiaries of the Registrant
Exhibit (23) Consent of Arthur Andersen LLP
Exhibit (23A) Consent of KPMG LLP
Exhibit (27) Financial Data Schedule (EDGAR filing only)
Exhibit (99) Litigation Reform Act of 1995 - Cautionary Statement