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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 March 3, 2001
[_] 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 Identification Number
incorporation or organization)
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. [_].
The aggregate market value of voting and non-voting stock of the
registrant on April 30, 2001 was $239,536,860 (based on closing stock price of
$8.490 per share as reported by Nasdaq).
The number of shares outstanding of the registrant's Common Stock,
$0.33 1/3 par value per share, outstanding at April 30, 2001 was 28,214,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III hereof incorporate information by reference from the Proxy
Statement for the Annual Meeting of Shareholders to be held June 19, 2001.
APOGEE ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
For the fiscal year ended March 3, 2001
Description Page
----------- ----
PART I
- ------
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 8
Executive Officers of the Registrant 8
PART II
- -------
Item 5. Market for the Registrant's
Common Equity and Related
Shareholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 19
Item 8. Financial Statements and
Supplementary Data 19
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 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain
Beneficial Owners and Management 20
Item 13. Certain Relationships and
Related Transactions 20
PART IV
- -------
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 20
Index of Financial Statements and Schedules F-1
2
PART I
------
ITEM 1. BUSINESS
The Company
- -----------
Apogee Enterprises, Inc. was incorporated under the laws of the State of
Minnesota in 1949. The Company, through its subsidiaries, is a leader in
technologies involving the design and development of value-added glass products,
services and systems for the non-residential building, commercial and automotive
markets. Unless the context otherwise requires, the terms "Company" and "Apogee"
as used herein refer to Apogee Enterprises, Inc. and its subsidiaries.
During fiscal 2001, the Company realigned its reporting segments to match the
markets they serve in order to underscore the Company's growth potential and to
reflect its changing business mix and focus. The new segments are Architectural
Products and Services (Architectural), Large-Scale Optical Technologies (LSO)
and Automotive Replacement Glass and Services (Auto Glass). The Architectural
segment designs, engineers, fabricates and installs the walls of glass and
windows comprising the outside skin of commercial and institutional buildings.
The LSO segment develops and produces high technology glass that enhances the
visual performance of products for the display, imaging and picture framing
industries. The Auto Glass segment fabricates, repairs and replaces automobile
windshields and windows. Financial information about the Company's segments can
be found in Note 17 to the Consolidated Financial Statements of Apogee
Enterprises, Inc. contained elsewhere in this report. See "Index of Financial
Statements and Schedules." Prior periods have been restated to reflect these new
segments.
During fiscal 2001, the Company completed the sale of substantially all of the
assets of VIS'N Service Corporation (VIS'N), a non-auto glass focused,
third-party administered claims processor, in two separate transactions. In
fiscal 2000, the Company completed the sale of 100% of the stock of its
large-scale domestic curtainwall business, Harmon, Ltd., and the divestiture of
the detention/security operations. Combined with the fiscal 1998 exit from
international curtainwall operations, these transactions effectively removed the
Company from the large-scale construction business and 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.
Architectural Products and Services (Architectural)
- ---------------------------------------------------
The companies within the Architectural segment design, engineer, fabricate and
install the walls of glass and windows comprising the outside skin of commercial
and institutional buildings. The businesses in this segment include: Viracon,
the leading global fabricator of coated, high-performance architectural glass;
Harmon, Inc., the Company's full service building glass installation and
maintenance business; Wausau Window & Wall Systems, a manufacturer of custom,
non-residential aluminum window systems and curtainwall; and Linetec, one of the
largest U.S. architectural paint and anodizing finishers.
Viracon fabricates finished glass products and provides glass-coating services.
This 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.
The Viracon unit is able to fabricate all types of architectural glass
(insulated, laminated and combinations of both) at its Owatonna, Minnesota and
its Statesboro, Georgia facilities. Combined with its glass coating
capabilities, the unit is able to provide a full range of products from these
facilities. Viracon will continue to meet complex requirements and lead in
innovation with an increase in silkscreening capacity and the introduction of a
highly reflective, energy-efficient glass in fiscal 2002.
Insulated 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. 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. 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.
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.
Harmon, Inc. offers complete design, engineering, installation and replacement
or glazing services for commercial, institutional and other buildings. Harmon,
Inc. emphasizes projects that are relatively small in comparison to Apogee's
discontinued large-scale curtainwall operations. While the installation of
building glass in new construction projects is the core business, service and
retrofit
3
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.
Wausau Window & Wall Systems (Wausau) 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 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. 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. A significant portion of Linetec's revenues are generated from
painting home and commercial shutters.
Large-Scale Optical Technologies (LSO)
- --------------------------------------
LSO companies develop and produce high technology glass that enhances the visual
performance of products for the display, imaging and picture framing industries.
Businesses in this segment include: Tru Vue, a leading U.S. value-added glass
and matboard manufacturer for the art and framing industry; and Viratec Thin
Films, a leading global producer of optical thin film coatings for the display
and imaging markets.
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 enhances clarity, and conservation glass, which substantially
blocks ultraviolet rays to protect artwork. Tru Vue compliments its glass
product offering with sales of conservation picture framing matboard. The
products are distributed primarily through independent distributors which, in
turn, supply local picture framing markets. In fiscal 2001, Tru Vue expanded its
pre-framed art business through the acquisitions of Balangier Fine Art and
Designs, and Corporate Art Services, Inc. Also, by demonstrating the financial
benefit of moving to value-added glass, Tru Vue converted three mass
merchandisers and 1,000 frame shops from plain framing glass to TruGuard(TM),
its proprietary glass that protects pictures and art from deteriorating in
sunlight, in fiscal 2001. In anticipation of converting additional frame shops
and mass merchandisers this year, Tru Vue will install a second production line
for this product.
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 markets optical display and imaging products to both
domestic and overseas customers. These customers provide further assembly,
marketing and distribution to end-users. Viratec's 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. This facility
will be closed during fiscal 2002 following notice received in late fiscal 2001
that its primary customer planned to discontinue its computer monitor operations
in southern California, thereby eliminating the need for Viratec's facility in
southern California. The facility closing is not expected to have a significant
impact on the Company's fiscal 2002 operating results.
Automotive Replacement Glass and Services (Auto Glass)
- ------------------------------------------------------
Auto Glass companies fabricate, repair and replace automobile windshields and
windows. Businesses in this segment include: Harmon AutoGlass, the nation's
second largest chain of retail auto glass replacement and repair stores; and
Viracon/Curvlite, a leading U.S. fabricator of aftermarket foreign and domestic
car windshields.
Harmon AutoGlass, a Minneapolis-based company, is the second largest auto glass
retailer in the United States. Harmon AutoGlass opened its first shop over 50
years ago in downtown Minneapolis and today has grown to 454 retail service
centers, including co-branded facilities, in 44 states and 820 mobile
installation vehicles. In addition to its own shops, Harmon AutoGlass has a
network of more than 4,000 affiliated auto glass retailers across the country.
In an effort to enhance efficiency, geographic coverage and customer service in
the distribution of auto replacement glass, the Company and PPG Industries
combined their U.S. automotive replacement glass distribution businesses in July
2000 to create a new entity, PPG Auto Glass, LLC (PPG Auto Glass), of which the
Company has a 34 percent interest. As part of the arrangements with this joint
venture, Harmon has committed, under a long-term contract, to purchase a
majority of its replacement windshield needs from the joint venture. Harmon
AutoGlass also eliminated two layers of field management to bring leadership
closer to the customer
4
and closed 37 under-performing shops, or about 11 percent of total facilities
while maintaining service coverage in all impacted markets. Harmon AutoGlass has
also outsourced to APAC Customer Services, Inc. for call center insurance
claims processing to improve customer service and obtain a technological
advantage.
Harmon AutoGlass has a diverse customer base, including insurance companies,
commercial fleets and consumers. While Harmon AutoGlass' primary business is
windshield repair and replacement, some Harmon AutoGlass retail stores also
offer an inventory of flat glass for home window repair and table tops. Harmon
AutoGlass' Web site provides information on safety and technology, and allows
customers to locate stores and conveniently schedule appointments online.
Harmon AutoGlass is committed to its values of safety, quality, expertise and
customer service. Harmon AutoGlass believes that it has one of the best customer
satisfaction ratings in the industry. Harmon AutoGlass is an industry leader in
employee training by having all of its technicians participate in a rigorous
internal certification program. Harmon AutoGlass also requires technicians to be
certified by the National Auto Glass Association.
Viracon/Curvlite (Curvlite) fabricates replacement windshields for foreign and
domestic automobiles and laminated glass parts for the RV and bus industries.
Under a long-term agreement with PPG Industries, Inc. (PPG), Curvlite's
automotive replacement glass production is dedicated to PPG, and Curvlite is now
fabricating approximately 500 different parts, about half the number
manufactured previously.
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), TruGuard(R), Linetec(R) and Glass Depot(R)
are registered trademarks and Optium(TM) is a listed trademark of the Company.
PPG Auto Glass is a trademark of PPG Industries. Viratec Thin Films has obtained
several patents pertaining to its glass coating methods. However, no single
patent is considered to be material to the Company.
Customers
- ---------
The customer base of the Company is a diverse group which includes retailers,
distribution outlets, general and sub-contractors, OEM manufacturers and
end-users. No one customer accounts for 10% or more of the Company's
consolidated revenues, although, due to the auto glass distribution joint
venture with PPG, PPG Auto Glass has become the primary customer of Curvlite,
the Auto Glass segment's manufacturer of replacement windshields for the
automobiles. In the opinion of management, the loss of any single customer would
not have a material long-term adverse effect on the Company.
Backlog
- -------
At March 3, 2001, the Company's total backlog of orders considered to be firm
was $200,218,000 compared with $175,137,000 at February 26, 2000. Of this
amount, approximately $190,000,000 of orders were in the Architectural segment.
Competition
- -----------
The Company's businesses are in industries that are, in general, fairly mature
and highly competitive. Businesses in the Architectural and LSO segments
(Viracon, Viratec and Tru Vue) compete with several large integrated glass
manufacturers and numerous smaller specialty fabricators. Product pricing and
service are the primary competitive factors in these markets. Harmon, Inc.
competes against local and regional construction companies where primary
competitive factors are quality engineering and service. Wausau competes against
several major aluminum window manufacturers while Linetec competes against
regional paint and anodizing companies. These companies primarily serve 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 Auto Glass segment competes 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.
5
Markets
- -------
The Architectural Products and Services (Architectural) companies design,
engineer, fabricate and install the walls of glass and windows comprising the
outside skin of commercial and institutional buildings. The markets that these
businesses serve are very competitive, price sensitive and affected by changes
in the commercial construction industry as well as, in general, economic
conditions.
The Large-Scale Optical Technologies (LSO) companies develop and produce high
technology glass that enhances the visual performance of products for display,
imaging and picture framing industries. The markets that these businesses serve
are very competitive, highly responsive to new products and price sensitive.
The Automotive Replacement Glass and Services (Auto Glass) companies fabricate,
repair and replace automobile windshields and windows. The market that these
businesses serve tends to be cyclical in nature and is influenced by a variety
of factors, including weather, new car sales, speed limits, road conditions, the
economy, and average annual number of miles driven. This market's pricing
structure has changed significantly in recent years as insurance companies seek
volume pricing at discounted rates from historical levels and attempt to enter
into preferred or exclusive provider arrangements with a limited number of
providers. Consequently, margins have narrowed at the retail, wholesale and
manufacturing levels, in which the Auto Glass segment operates.
Research and Development
- ------------------------
The amount spent on research and development activities over the past three
fiscal years was $3.0 million in fiscal 2001, $2.4 million in fiscal 2000 and
$2.9 million in fiscal 1999. The Company's investment in TerraSun LLC relates to
a research and development venture of which the Company has a 50 percent
ownership. TerraSun is developing holographic optical technologies for lighting
and energy systems applications.
Environment
- -----------
To comply with environmental regulations, Linetec's paint facility utilizes an
oxidizer to remove volatile organic compounds (VOC's) generated from the
spraying of solvent based paints. Linetec also sends excess paint and area
liquids to a certified waste treatment facility for disposal. In addition to
these processes, caustic soda is used in Linetec's anodizing operation. This is
then neutralized prior to discharge into a waste water treatment facility.
The Company's Tru Vue facility also has a process in which caustic soda is
neutralized prior to discharge into a waste water treatment facility. Tru Vue
also removes acid fumes through a wet-scrubbing system.
The Company's Viracon facility ships its scrap glass to a company that recycles
glass.
Employees
- ---------
The Company employed 5,912 persons at March 3, 2001, of whom approximately 696
were represented by labor unions. The Company is a party to 44 collective
bargaining agreements with several different unions. Approximately 18% of the
collective bargaining agreements will expire during fiscal 2002. 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.
Foreign Operations and Export Sales
- -----------------------------------
During the years ended March 3, 2001, February 26, 2000 and February 27, 1999,
the Company's export sales, principally from Architectural operations, amounted
to approximately $40,001,000, $42,096,000 and $40,316,000, respectively.
6
ITEM 2. PROPERTIES
----------
The following table lists, by segment, the Company's major facilities as of
March 3, 2001, the general use of the facility and whether it is owned or leased
by the Company.
Facility Location Owned/Leased Function
- -------- -------- ------------ --------
Architectural Products and Services
- -----------------------------------
Viracon Owatonna, MN Owned Mfg./Admin.
Viracon Statesboro, GA Owned Mfg.
Viracon - Temp II Bldg. Owatonna, MN Owned Mfg.
Harmon Inc. Headquarters Minneapolis, MN Leased Mfg.
Wausau Window & Wall Systems Wausau, WI Owned Mfg./Admin.
Wausau Window & Wall Systems - Plant II Wausau, WI Owned Mfg.
Wausau Window & Wall Systems - Plant III Wausau, WI Owned Mfg.
Linetec (Painting) Wausau, WI Owned Mfg./Admin.
Linetec (Anodizing) Wausau, WI Owned Mfg.
Large-Scale Optical Technologies
- --------------------------------
Tru Vue McCook, IL Owned Mfg./Admin.
Tru Vue Winter Park, FL Leased Mfg./Admin.
Balangier Designs, Inc. Little Ferry, NJ Leased Mfg./Admin.
Viratec Thin Films, Inc. Faribault, MN Owned Mfg./Admin.
Viratec Thin Films, Inc. San Diego, CA Leased Mfg.
Automotive Replacement Glass and Services
- -----------------------------------------
Harmon AutoGlass Headquarters Minneapolis, MN Leased Administrative
Viracon/Curvlite Owatonna, MN Owned Mfg./Admin.
National Distribution Center (1) Owatonna, MN Owned Warehouse/Admin.
Harmon Solutions-Call Center (2) Orlando, FL Owned Administrative
Harmon Solutions-Call Center (2) Eau Claire, WI Leased Administrative
Other
- -----
Apogee Corporate Office Minneapolis, MN Leased Administrative
1. Space has been vacated, due to PPG Auto Glass joint venture, and is
being considered for alternative uses or sale.
2. Space has been vacated since the outsourcing arrangement with APAC and
is being considered for alternative uses or sale.
In addition to the locations indicated above, at fiscal year-end, the Automotive
Replacement Glass and Services segment operated 287 Harmon AutoGlass retail
locations and 167 co-branded facilities nationally. The majority of such
locations are leased. Also, Architectural Products and Services' Harmon, Inc.
unit operated 14 leased locations. The Company owns 4 distribution centers that
are currently leased to PPG Auto Glass.
The Viracon/Curvlite plant, a Wausau Window & 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.
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 management, that none of such claims will result in losses that
would have a material adverse effect on its financial condition.
7
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 March 3, 2001.
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
NAME AGE POSITION
---- --- --------
Russell Huffer 51 Chairman, President and Chief
Executive Officer
Michael B. Clauer 44 Executive Vice President and Chief
Financial Officer
Joseph T. Deckman 57 Executive Vice President
Larry D. Stordahl 58 Executive Vice President
Patricia A. Beithon 47 General Counsel and Secretary
Gary R. Johnson 39 Vice President and Treasurer
James S. Porter 40 Corporate Controller
Executive officers are elected annually by the Board of Directors and serve for
a one-year period. There are no family relationships between the executive
officers or directors of the Company.
Mr. Huffer has been an employee of the Company for more than the last five
years. Mr. Clauer joined the Company in November 2000. Prior to joining the
Company, Mr. Clauer held a management position at Open Port and several
financial management positions at Budget Group, Inc. and PepsiCo, Inc. Mr.
Deckman has been an employee of the Company for more than the last five years.
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. Johnson has been an employee of the Company for more than the
last five years. 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
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
-----------------------------------------------------------------
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 March 3, 2001, the average trading volume of Apogee
common stock was 3,545,000 shares per month, according to Nasdaq.
As of April 30, 2001, there were 28,214,000 shares of common stock outstanding,
of which about 8.6 percent were owned by officers and directors of Apogee. At
that date, there were approximately 2,082 shareholders of record and 7,200
shareholders for whom securities firms acted as nominees.
8
The following chart shows the quarterly range and year-end closing bids for one
share of the Company's common stock over the past five fiscal years.
Quarter Quarter Quarter Quarter Year
I II III IV End
---------------- --------------- --------------- --------------- ------
1997 9.625 - 14.250 13.250 - 18.250 15.250 - 22.625 17.250 - 23.750 19.875
1998 14.000 - 21.250 17.750 - 22.625 21.125 - 25.000 10.375 - 23.250 12.938
1999 11.813 - 15.250 11.125 - 15.500 8.125 - 12.875 8.750 - 12.375 8.750
2000 8.750 - 13.750 7.875 - 14.313 5.688 - 8.625 4.000 - 6.313 5.000
2001 3.313 - 5.500 3.250 - 4.531 4.313 - 6.063 4.625 - 9.500 9.000
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 and annual
cumulative, cash dividends per share for the past five fiscal years. Subject to
future operating results, available funds and the Company's future financial
condition, the Company intends to continue paying cash dividends as, when and if
declared by its Board of Directors.
Quarter Quarter Quarter Quarter
I II III IV Year
--------------------------------------------------
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
2001 0.053 0.053 0.053 0.053 0.210
9
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following information should be read in conjunction with Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Financial Statements and Supplementary Data.
(In thousands, except per share data)* 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 865,200 $ 840,488 $ 788,062 $ 731,094 $ 642,226
Gross profit 178,997 167,235 170,415 165,139 143,761
Operating income 31,894 19,418 43,352 45,659 44,628
Earnings (loss) from continuing operations 13,361 3,071 20,245 24,114 26,827
Earnings (loss) from discontinued operations 1,641 9,104 4,988 (75,169) (607)
Net earnings (loss) 15,002 12,175 25,233 (51,055) 26,220
Earnings (loss) per share - basic
From continuing operations 0.48 0.11 0.73 0.87 0.98
From discontinued operations 0.06 0.33 0.18 (2.70) (0.02)
Net earnings (loss) 0.54 0.44 0.91 (1.84) 0.96
Earnings (loss) per share - diluted
From continuing operations 0.48 0.11 0.73 0.85 0.96
From discontinued operations 0.06 0.33 0.18 (2.65) (0.02)
Net earnings (loss) 0.54 0.44 0.91 (1.80) 0.93
Effective tax rate - % 39.9 50.8 37.6 37.4 31.5
Operating Ratios
Gross margin - % 20.7 19.9 21.6 22.6 22.4
Operating margin - % 3.7 2.3 5.5 6.2 6.9
Net margin - continuing operations - % 1.5 0.4 2.6 3.3 4.2
Net margin - % 1.7 1.4 3.2 (7.0) 4.1
Return on:
Average shareholders' equity - % 10.5 9.1 21.0 (36.2) 16.9
Average invested capital - % 5.0 3.7 8.3 (16.7) 9.2
Average total assets - % 3.3 2.6 5.8 (12.5) 7.1
Funds Flow Data
Depreciation and amortization $ 34,229 $ 33,019 $ 25,798 $ 22,463 $ 17,860
Capital expenditures 14,823 44,025 77,392 37,892 34,203
Dividends 5,834 5,833 5,666 5,251 4,806
Year-End Data
Total assets $ 432,679 $ 481,154 $ 466,389 $ 405,526 $ 410,522
Current assets 175,191 214,422 204,308 206,858 159,095
Current liabilities 137,437 135,397 119,796 97,750 86,178
Working capital 37,754 79,025 84,512 109,108 72,916
Current ratio 1.3 1.6 1.7 2.1 1.8
Long-term debt 104,206 164,371 165,097 151,967 127,640
% of invested capital 37.6 50.2 51.0 53.1 39.4
Shareholders' equity 148,292 137,772 130,664 109,600 172,150
% of invested capital 53.5 42.1 40.4 38.3 53.1
Investment Information
Dividends per share $ 0.210 $ 0.210 $ 0.205 $ 0.190 $ 0.175
Book value per share 5.33 4.97 4.73 3.99 6.17
Price range during year:
High 9 1/2 14 5/16 15 1/2 25 23 3/4
Low 3 1/4 4 8 1/8 10 3/8 9 5/8
Close 9 5 8 3/4 12 15/16 19 7/8
Price/earnings ratio at year-end 17 11 10 NM 21
Dividend yield at year-end - % 2.3 4.2 2.4 1.5 0.9
Shares outstanding at year-end 27,825,000 27,743,000 27,623,000 27,453,000 27,882,000
Average monthly trading volume 3,545,000 2,666,000 1,962,000 4,065,092 4,795,244
- ---------------------------------------------------------------------------------------------------------------------------
*Share and per share data have been adjusted for the fiscal 1997 stock dividend.
**Fiscal 1994 figures reflect the cumulative effect of a change in accounting
for income taxes, which increased net earnings by $525,000, or 4 cents per
share.
10
(In thousands, except per share data)* 1996 1995 1994** 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 567,823 $ 516,022 $ 426,400 $ 367,878 $ 364,578 $ 368,094
Gross profit 116,426 102,400 84,184 71,141 67,193 74,816
Operating income 34,729 31,535 23,803 8,779 2,730 17,629
Earnings (loss) from continuing operations 20,656 19,160 16,279 6,657 (1,300) 7,391
Earnings (loss) from discontinued operations (2,820) (6,110) (12,446) (2,143) 9,805 9,626
Net earnings (loss) 17,836 13,050 3,833 4,514 8,505 17,017
Earnings (loss) per share - basic
From continuing operations 0.76 0.72 0.62 0.25 (0.05) 0.27
From discontinued operations (0.10) (0.23) (0.47) (0.08) 0.36 0.36
Net earnings (loss) 0.66 0.49 0.14 0.17 0.32 0.63
Earnings (loss) per share - diluted
From continuing operations 0.76 0.71 0.61 0.25 (0.05) 0.27
From discontinued operations (0.10) (0.23) (0.47) (0.08) 0.36 0.35
Net earnings (loss) 0.65 0.48 0.14 0.17 0.31 0.62
Effective tax rate - % 35.4 35.1 32.6 28.8 (113.5) 44.2
Operating Ratios
Gross margin - % 20.5 19.8 19.7 19.3 18.4 20.3
Operating margin - % 6.1 6.1 5.6 2.4 0.7 4.8
Net margin - continuing operations - % 3.6 3.7 3.8 1.8 (0.4) 2.0
Net margin - % 3.1 2.5 0.9 1.2 2.3 4.6
Return on:
Average shareholders' equity - % 13.5 10.9 3.4 4.0 7.6 16.6
Average invested capital - % 7.6 6.7 2.4 3.0 5.7 11.5
Average total assets - % 5.5 4.5 1.6 2.1 4.2 8.8
Funds Flow Data
Depreciation and amortization $ 13,122 $ 11,972 $ 12,423 $ 12,344 $ 14,407 $ 12,000
Capital expenditures 20,038 22,603 11,447 6,393 9,985 11,988
Dividends 4,453 4,154 3,841 3,584 3,505 3,248
Year-End Data
Total assets $ 327,233 $ 317,085 $ 257,877 $ 213,372 $ 212,282 $ 196,292
Current assets 149,414 155,608 123,301 102,869 112,847 106,614
Current liabilities 83,574 90,876 92,536 61,702 63,786 48,441
Working capital 65,840 64,732 30,765 41,167 49,061 58,173
Current ratio 1.8 1.7 1.3 1.7 1.8 2.2
Long-term debt 79,102 80,566 35,688 28,419 25,267 29,398
% of invested capital 32.5 35.6 21.6 18.7 17.0 19.9
Shareholders' equity 138,922 124,628 114,062 112,336 113,780 109,050
% of invested capital 57.0 55.1 69.0 74.1 76.6 73.8
Investment Information
Dividends per share $ 0.165 $ 0.155 $ 0.145 $ 0.135 $ 0.130 $ 0.120
Book value per share 5.14 4.64 4.28 4.26 4.23 4.05
Price range during year:
High 9 7/8 9 1/4 8 7/8 6 3/8 9 10 1/16
Low 6 1/2 5 3/4 5 1/8 4 1/8 4 3/4 6 5/8
Close 9 13/16 8 5/8 7 1/4 5 13/16 6 1/8 9
Price/earnings ratio at year-end 15 18 50 34 19 14
Dividend yield at year-end - % 1.7 1.9 2.0 2.3 2.1 1.3
Shares outstanding at year-end 27,034,000 26,886,000 26,624,000 26,354,000 26,922,000 26,954,000
Average monthly trading volume 1,775,740 1,613,012 518,900 644,294 1,386,058 1,212,682
- -------------------------------------------------------------------------------------------------------------------------------
*Share and per share data have been adjusted for the fiscal 1997 stock dividend.
**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.
NM=Not meaningful
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Introduction
In fiscal 2001, Apogee experienced enhanced revenues and earnings primarily
through improved operational efficiencies, as well as through better equipment
utilization and increased market share. Highlights for the year included the
following:
o Realignment of the reporting segments with the markets they serve to
underscore Apogee's growth potential and to reflect Apogee's changing
business mix and focus.
o Completion of the ramp-up of the fiscal 2000 start-up of Apogee's
Statesboro, Georgia plant to support Viracon's continued growth for
high-end manufactured architectural glass.
o Formation of PPG Auto Glass, LLC joint venture to enhance efficiency,
geographic coverage and customer service in the distribution of auto
replacement glass.
o Improved operating efficiencies through cost reduction initiatives at
Apogee's Harmon AutoGlass, which are expected to result in annual
savings of $5 million.
o Acquisition of two manufacturers in the $2 billion pre-framed art
market, which expands the markets for Apogee's Tru Vue products.
o Reduction of long-term debt to $104 million at the end of fiscal 2001
from $164 million at the end of fiscal 2000.
Performance
Fiscal 2001 Compared To Fiscal 2000
Consolidated net sales increased 3% in fiscal 2001 to $865.2 million from $840.5
million in fiscal 2000. The results of the Auto Glass distribution unit, which
Apogee contributed to the PPG Auto Glass joint venture, were not included in
Apogee's continuing operations for the third and fourth quarters of fiscal 2001,
as they were through the second quarter of fiscal 2001. Fiscal 2001 revenues
grew 11% compared to the prior year after being adjusted for the formation of
the joint venture. The majority of the increase is attributable to increased
unit production due to the full-year impact of plant expansions completed during
fiscal 2000, enhanced equipment utilization and the impact of fiscal year 2001
acquisitions. Additionally, fiscal 2001 comprised of 53 weeks while fiscal 2000
comprised of 52 weeks.
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 March 3, 2001. Fiscal 1999 results are restated to
reflect the effect of discontinued operations reported during fiscal 2000.
Percent of Net Sales 2001 2000 1999
- -------------------------------------------------------------------------------
Net sales 100.0 100.0 100.0
Cost of sales 79.3 80.1 78.4
----- ----- -----
Gross profit 20.7 19.9 21.6
Selling, general and
administrative expenses 17.0 17.6 16.1
----- ----- -----
Operating income 3.7 2.3 5.5
Interest expense, net 1.3 1.3 1.2
Equity in income (loss) of affiliated companies 0.2 (0.3) (0.2)
----- ---- -----
Earnings from continuing operations
before income taxes 2.6 0.7 4.1
Income taxes 1.1 0.4 1.5
----- ---- -----
Earnings from continuing operations 1.5 0.3 2.6
Earnings from discontinued operations, net 0.2 1.1 0.6
----- ---- -----
Net earnings 1.7 1.4 3.2
- -------------------------------------------------------------------------------
On a consolidated basis, cost of sales, as a percentage of net sales, fell to
79.3% for fiscal 2001, improving from 80.1% in fiscal 2000. The primary factors
underlying the resulting increase in gross profit percentage were improved
performance attributable to enhanced manufacturing performance within the
Architectural and Large-Scale Optical segments, as well as cost reduction
initiatives within the Automotive Replacement Glass segment. These improvements
were partially offset by higher general liability and health insurance related
expenses across all segments.
Selling, general and administrative (SG&A) expenses, as a percentage of sales,
decreased to 17.0% from 17.6%. After being adjusted for the formation of the PPG
Auto Glass joint venture, SG&A expenses decreased, as a percentage of sales,
12
from 18.5% in fiscal 2000. The primary factor for the decrease was due to the
cost reduction initiatives implemented at the Automotive Replacement Glass
segment, as well as reductions in expenses related to doubtful accounts across
all segments. These were offset by increases in amounts expensed for bonuses and
incentives.
Net interest expense rose slightly to $11.1 million, or 1.3% of sales, in fiscal
2001. The increase reflected higher weighted-average interest rates under the
Company's revolving credit agreement. This was somewhat offset by lower average
borrowing levels during fiscal 2001 as compared to fiscal 2000.
Apogee's equity in income from affiliated companies was $1.5 million in fiscal
2001 compared to an equity in loss from affiliated companies of $2.8 million a
year ago. Income associated with the Company's PPG Auto Glass joint venture,
including rationalization and other transaction related adjustments, was offset
by the Company's TerraSun research and development joint venture. The PPG Auto
Glass joint venture formed on July 29, 2000, combined the Company's and PPG's
U.S. automotive replacement glass distribution businesses into a newly formed
entity, PPG Auto Glass, LLC, with the Company having a 34% ownership interest in
the joint venture. Fiscal 2000 results were largely attributable to TerraSun.
Apogee's effective income tax rate of 39.9% of pre-tax earnings from continuing
operations decreased from the 50.8% of pre-tax earnings from continuing
operations reported in fiscal 2000. This reduction is due to the relationship of
book and tax differences as a percentage of pre-tax income.
Apogee's fiscal 2001 earnings from continuing operations increased to $13.4
million or $0.48 diluted earnings per share. This compared to earnings from
continuing operations of $3.1 million, or $0.11 diluted earnings per share, a
year earlier.
The Company reported earnings from operations of discontinued businesses of $1.6
million after tax, or $0.06 diluted earnings per share for fiscal 2001 as
compared to $9.1 million after tax, or $ 0.33 diluted earnings per share, a year
earlier.
Apogee's fiscal 2001 net earnings were $15.0 million, or $0.54 diluted earnings
per share. This compared to $12.2 million, or $0.44 diluted earnings per share,
a year ago. The return on average shareholders' equity was 10.5% in fiscal 2001
versus 9.1% for fiscal 2000.
Segment Analysis
During fiscal 2001, the Company realigned its operating business units into
three reporting segments. The following is a discussion on the results of
operations of these three business segments. See Note 17 "Business Segments
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.
(In thousands) 2001 2000 1999
- ----------------------------------------------------------------------------
Architectural Products and Services
Net sales $441,466 $394,104 $349,968
Operating income 27,393 20,513 23,501
Large-Scale Optical Technologies
Net sales 90,768 69,934 58,669
Operating income (loss) 4,571 (540) 2,477
Automotive Replacement Glass and Services
Net sales 333,311 377,499 380,524
Operating income 1,429 184 18,399
- ----------------------------------------------------------------------------
Architectural Products and Services (Architectural). Architectural companies
design, engineer, fabricate and install the walls of glass and windows
comprising the outside skin of commercial and institutional buildings. The
businesses in this segment include: Viracon, the leading global fabricator of
coated, high-performance architectural glass; Harmon, Inc., the Company's full
service building glass installation and maintenance business; Wausau Window &
Wall Systems, a manufacturer of custom, non-residential aluminum window systems
and curtainwall; and Linetec, one of the largest U.S. architectural paint and
anodizing finishers.
13
Architectural net sales for fiscal 2001 increased 12% over fiscal 2000. Viracon
reported an increase in net sales of 18%, mostly due to the increased capacity
from the full-year impact associated with the completion of the Statesboro
facility. Additionally, strong customer demand for Viracon's high-performance
architectural glass products significantly improved sales volume. Harmon, Inc.
reported a 19% increase in net sales, primarily due to an increased number of
curtainwall installation projects and Linetec improved sales by 5%. These
increases were offset by a slow-down in shipments at Wausau Window & Wall
Systems due to the facility not being able to fill its available short lead-time
capacity during the second half of the year.
Operating income for the segment of $27.4 million represented an increase of 34%
over prior year. This was the result of increased production capacity and
improved utilization at Viracon as well as increased earnings at Harmon, Inc.
and Linetec. These increases were partially offset by reductions in earnings at
Wausau Window & Wall Systems.
The Architectural segment backlog, at March 3, 2001, remained at record levels
of $190.0 million, compared to $153.6 million at February 26, 2000.
Large-Scale Optical Technologies (LSO). LSO companies develop and produce high
technology glass that enhances the visual performance of products for the
display, imaging and picture framing industries. Businesses in this segment
include: Tru Vue, a leading U.S. value-added glass and matboard manufacturer for
the art and framing industry; and Viratec Thin Films, a leading global producer
of optical thin film coatings for the display and imaging markets.
LSO net sales of $90.8 million represented a 30% increase over fiscal 2000. Tru
Vue reported a 25% improvement in sales due to increased demand for their high
margin, value-added glass products. Additionally, Tru Vue expanded its
pre-framed art business through the acquisitions of Balangier Fine Art and
Designs, and Corporate Art Services, Inc. These acquisitions represent 40
percent of the Tru Vue increase for fiscal 2001 sales. Viratec reported a net
sales increase of 37% over fiscal 2000 levels due to strong operational
improvement that allowed for significant volume growth.
LSO operating income of $4.6 million for fiscal 2001 compared favorably to an
operating loss of $0.5 million for fiscal 2000. The increase was the result of
the increased sales volume at both of the segment's operations as well as the
impact of sales of higher margin products from Tru Vue and improved equipment
utilization at Viratec. These increases were offset by acquisition related
integration costs at Tru Vue and the impact of shut down costs for Viratec's San
Diego facility. The shut down of the San Diego facility will not have a material
impact on next year's financial results.
Automotive Replacement Glass and Services (Auto Glass). Auto Glass companies
fabricate, repair and replace automobile windshields and windows. Businesses in
this segment include: Harmon AutoGlass, the nation's second largest chain of
retail auto glass replacement and repair stores; and Viracon/Curvlite, a leading
U.S. fabricator of aftermarket foreign and domestic car windshields.
Auto Glass net sales decreased 12% to $333.3 million in fiscal 2001. Fiscal 2001
revenues for the segment grew 4% compared to the prior year after being adjusted
for the formation of the PPG Auto Glass joint venture. Net sales of the auto
glass retail unit decreased 2% compared with those of a year ago due, in part,
to soft demand for auto replacement glass services. The retail unit volume
decrease was offset by unit price increases. Market data indicates that unit
demand for replacement auto glass in the U.S. rose 4.2% during fiscal 2001. In
an effort to improve margins, Harmon AutoGlass closed retail facilities and
implemented strategies to reduce low margin business. This resulted in a
reduction in volume of 14.9%.
Auto Glass operating income increased to $1.4 million for fiscal 2001 from
operating income of $0.2 million in fiscal 2000. During fiscal 2001, as part of
the Company's initiative to maintain customer service and reduce costs, Harmon
AutoGlass reduced headcount through position eliminations, closed 37
underperforming stores, or nearly 11% of its retail locations, and transitioned
call center operations to APAC Customer Services, Inc. Harmon AutoGlass
continued to maintain a presence in most markets where shop closings occurred.
Viracon/Curvlite reported slightly increased operating income over the prior
year.
At the end of fiscal 2001, Auto Glass had 287 Harmon AutoGlass retail locations
and 167 co-branded facilities. The segment continues to explore opportunities to
increase utilization and improve efficiencies.
Discontinued Operations. During fiscal 2001, the Company completed the sale of
substantially all of the assets of VIS'N Service Corporation (VIS'N), a non-auto
glass focused, third-party administered claims processor, in two separate
transactions with no impact to net earnings. In fiscal 2000, 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 operations and the Company executed
the sale of the business. The sale of Harmon,
14
Ltd. and the Company's detention/security business combined with the fiscal 1998
exit from international curtainwall operations effectively removed the Company
from the large-scale construction business. Accordingly, these businesses are
presented as discontinued operations in the accompanying financial statements
and notes. Prior periods have been restated.
The Company reported after-tax operating income from the businesses reported as
discontinued operations for fiscal 2001 of $1.6 million. This was primarily the
result of cash collected from our international curtainwall operations during
fiscal 2001 that exceeded the anticipated receipts. For fiscal 2000, after-tax
earnings from discontinued operations were $9.1 million.
Fiscal 2000 Compared To Fiscal 1999
Consolidated net sales increased 7% to $840.5 million in fiscal 2000 compared to
fiscal 1999. Net sales increased 13% in the Architectural Products and Services
(Architectural) segment, and 19% at the Large-Scale Optical Technologies (LSO)
segment. Net sales at the Automotive Replacement Glass and Services (Auto Glass)
segment were flat compared to fiscal 1999.
On a consolidated basis, cost of sales, as a percentage of net sales, rose
slightly 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 within the Architectural and LSO segments along with increased costs to
increase production velocity at Viracon. Additionally, Apogee experienced
increased costs associated with meeting demand in these segments as well as a
decline in margin in the Auto Glass businesses. These factors were offset by
margin improvements at Harmon, Inc.
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, allowance
for doubtful accounts, 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.
Apogee's effective income tax rate was 50.8% of pre-tax earnings from continuing
operations, up substantially from the 37.6% rate recorded in fiscal 1999.
Apogee's equity in 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 joint 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 were $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 is a discussion of the results of operations of the Company's
three business segments. See Note 17 "Business Segments 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.
Architectural Products and Services (Architectural). Net sales for the
Architectural segment for fiscal 2000 increased 13% to $394.1 million, while
operating income decreased 13% to $20.5 million for the year.
Viracon, the segment's architectural glass fabrication unit, reported a net
sales increase of 8%, while operating earnings decreased significantly in fiscal
2000 as compared to the prior 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 Statesboro, Georgia facility. Operating
earnings at the Owatonna plant were down compared to fiscal 1999 due to reduced
operating rates and additional costs incurred to position the facility for
improved production velocity.
15
The Harmon, Inc. business had a solid year. Net sales grew by 29%, while
operating income rose by 75%. Continuing operating improvements and an emphasis
toward higher-margin business helped the unit's profitability.
Wausau Window & Wall Systems, which manufactures commercial windows, had
increased sales of 9% for the year. Operating income decreased for the facility
compared to fiscal 1999.
Linetec, which provides painting and anodizing services, leveraged higher net
sales into a significant operating income increase. This business also continued
to benefit from improvements in its engineering capabilities.
Large-Scale Optical Technologies (LSO). LSO reported a net sales improvement for
fiscal 2000 of 19% to $69.9 million while reporting a significant decrease in
earnings as compared to the prior year.
Tru Vue, the segment's value-added art framing 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 second quarter completion of a new
production facility in Chicago.
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 was 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 but continued to
experience problems during the remainder of the year. Also, in mid-year,
Viratec's San Diego CRT coating operation lost significant production time
during a technology changeover to accommodate a new product.
Automotive Replacement Glass and Services (Auto Glass). During fiscal 2000 and
1999, Auto Glass operated auto glass businesses under the Harmon AutoGlass
(Harmon), Harmon Solutions Group (Solutions), Glass Depot and Viracon/Curvlite
brands. Due to an industry merger in 1997, Harmon became the second largest
company in the auto glass repair and replacement industry. Fiscal 2000 net sales
at Auto Glass remained flat as compared to fiscal 1999 net sales while operating
income decreased significantly.
Net sales of the Auto Glass retail unit decreased slightly compared with those
of fiscal 1999, 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. In addition, employee headcount was reduced at auto glass headquarters
and to a lesser extent in the field workforce. In addition, retail coverage in
closed store markets was being maintained by mobile vans and service centers
operated from facilities shared with businesses outside of the Company. Unit
sales trends for the AutoGlass 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
offered other manufacturers' products as well as Viracon/Curvlite's products 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 fiscal 1999. About 61% of Viracon/Curvlite's net sales
were made to the Glass Depot unit in fiscal 2000.
At fiscal year-end, Auto Glass had 324 Harmon AutoGlass retail locations, 143
co-branded facilities and 77 Glass Depot distribution centers.
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. In
addition, during fiscal 2000, 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.
16
Operating results from the businesses reported as discontinued operations
improved significantly over fiscal 1999. For fiscal 2000, earnings from
discontinued operations were $9.1 million after-tax compared to $5.0 in fiscal
1999.
Liquidity and Capital Resources
Year-ended
March 3, February 26,
(In thousands, except percentages) 2001 2000
- ------------------------------------------------------------------------------
Cash provided by operations $61,610 $43,836
Capital expenditures 14,823 44,025
Acquisition of businesses, net of cash acquired 3,602 1,983
Proceeds from dispositions of property 17,834 14,672
Payments on long-term debt, net 60,703 1,844
Debt to invested capital 37.6% 50.2%
Net cash provided by operating activities. Cash provided by continuing
operating activities was $61.6 million in fiscal 2001, an increase of $17.8
million compared to last year. The increase was due to improved cash flow
generated by the operating companies during the year, primarily from improved
results. The Company reduced working capital by $41.3 million during the year,
primarily related to contribution of inventory to the PPG Auto Glass joint
venture, but also due to continued focus on reducing working capital.
Net cash provided by investing activities. New capital investment in fiscal 2001
totaled $14.8 million, versus $44.0 million and $77.4 million in fiscal 2000 and
1999, respectively. This reduction is the result of focusing on the expenditures
made in the prior years by completing the start-up at Viracon's Statesboro
facility and of the vertical coater at Viratec's Faribault, Minnesota operation.
In addition, in fiscal 2001, the LSO segment expanded its pre-framed art
business by purchasing two high-end pre-framed art businesses. The aggregate
purchase price for these businesses was $3.6 million, including goodwill of $2.9
million.
During fiscal 2001, the Company entered into a $16 million sale/leaseback
associated with miscellaneous operating equipment. In Fiscal 2000, the Company
entered into a $13.4 million sale/leaseback associated with miscellaneous
operating equipment. The Company used the proceeds of these sale/leaseback
transactions to reduce the Company's long-term floating rate debt and replaced
it with eight-year fixed rate operating leases.
In fiscal 2002, the Company expects to incur capital expenditures as necessary
to maintain existing facilities and information systems. Fiscal 2002
expenditures are expected to be approximately $25 million.
Net cash used in 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. The total commitment 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. The total commitment of the credit facility was also reduced
in April 2000, resulting in a committed credit facility of $200 million as of
March 3, 2001. The Company's receivables, inventory, equipment and intangibles
secure the credit facility. Based upon the Company's satisfaction of certain
financial covenants during fiscal 2001, the Company has the right to cause this
security interest to be released upon its request.
Long-term debt, including current installments of $0.3 million, stood at $104.5
million at March 3, 2001, down $60.0 million from a year earlier. The majority
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 and San Diego.
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.
For fiscal 2002, 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 12 months.
17
Shareholders' Equity
At March 3, 2001, Apogee's shareholders' equity stood at $148.3 million, up 8%
from a year ago. Book value per share also rose to $5.33, up from $4.97 per
share a year ago, as outstanding common shares increased only nominally during
the year. Net earnings and the proceeds from the issuance of 118,000 shares of
common stock under our stock-based compensation plans accounted for the
increases, which were partly offset by dividends paid of $0.21 per share and the
repurchase of 36,000 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 $400,000 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 March 3, 2001, the Company has
interest swaps covering $35 million of variable rate debt. The net present
liability associated with these swaps is $1.8 million at the end of fiscal 2001.
The Company has a policy of using forward exchange contracts to hedge its net
exposures, by currency, related to the foreign currency-denominated 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 March 3, 2001,
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 2002. 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 in fiscal 2001
and a moderate increase also can be reasonably anticipated for fiscal 2002.
Other costs are managed to minimize the inflationary pressures that exist in
markets for goods and services that Apogee's business operations require.
Forward Looking Statements
This discussion contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements 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 or beliefs 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
18
uncertainties and other risk factors include, but are not limited to, those
noted below. There can be no assurances given that the ongoing reorganization
and realignment of Harmon AutoGlass will lead to successful operating results
now or in the future. Also, there can be no assurances that the ramp-ups of
plant capacity will lead to successful operating results for those companies now
or in the future. There can be no assurances that the closing of the Viratec San
Diego facility will not result in an additional charge to earnings. There can be
no assurances that PPG Auto Glass, Apogee's automotive replacement glass
distribution joint venture with PPG Industries, will achieve favorable
short-term or long-term operating results. In addition, in recent years, there
has been excess capacity at the distribution level of the automotive replacement
glass industry and margins have narrowed. There is no assurance PPG Auto Glass
will achieve any anticipated efficiencies or be able to improve or maintain
margins.
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 the Company's 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."
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 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 prior to
the auditor change 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 mater that was either the subject of a Disagreement
with KPMG or a Reportable Event.
19
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 19, 2001, 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 and KPMG
LLP, independent auditors, are filed as part of this report.
(b) Reports on Form 8-K
During the quarter ended March 3, 2001, 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."
20
- 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 18, 2001
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
- ----------------------------------------------------------------------------------------------------------------------
Chairman, President, CEO and Director
/s/ Russell Huffer (Principal Executive Officer) May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Russell Huffer
Executive VP & CFO (Principal
/s/ Michael B. Clauer Financial and Accounting Officer) May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Michael B. Clauer
/s/ Donald W. Goldfus Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Donald W. Goldfus
/s/ Harry A. Hammerly Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Harry A. Hammerly
/s/ Laurence J. Niederhofer Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Laurence J. Niederhofer
/s/ James L. Martineau Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
James L. Martineau
/s/ Barbara B. Grogan Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Barbara B. Grogan
21
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------------------------
/s/ Stephen C. Mitchell Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Stephen C. Mitchell
/s/ Bernard P. Aldrich Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Bernard P. Aldrich
/s/ J. Patrick Horner Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
J. Patrick Horner
/s/ Michael E. Shannon Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Michael E. Shannon
/s/ Ray C. Richelson Director May 18, 2001
- ------------------------------------------ ----------------------------------------- --------------------
Ray C. Richelsen
22
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-20
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 March 3, 2001
and February 26, 2000, and the related consolidated results of operations,
statements of shareholders' equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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 March 3, 2001 and February 26, 2000, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
Arthur Andersen LLP
Minneapolis, Minnesota,
April 2, 2001
F-2
Independent Auditor's Report
The Board of Directors and Shareholders
Apogee Enterprises, Inc.:
We have audited the fiscal 1999 consolidated financial statements of Apogee
Enterprises, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audit of the fiscal 1999 consolidated financial statements,
we also have audited the financial statement schedule for fiscal 1999 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Apogee Enterprises, Inc. and subsidiaries for the year ended February 27, 1999
in conformity with accounting principles generally accepted in the United States
of America. 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 information
set forth 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
March 3, February 26,
(In thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 4,689 $ 7,192
Receivables, net of allowance for doubtful accounts 121,461 125,064
Inventories 40,434 68,184
Deferred income taxes 4,854 8,435
Other current assets 3,753 5,547
- -----------------------------------------------------------------------------------------------------
Total current assets 175,191 214,422
- -----------------------------------------------------------------------------------------------------
Property, plant and equipment, net 147,593 186,039
Marketable securities available for sale 24,451 24,951
Investments in affiliated companies 32,530 418
Intangible assets, at cost less accumulated
amortization of $12,520 and $11,668, respectively 50,145 50,549
Other assets 2,769 4,775
- -----------------------------------------------------------------------------------------------------
Total assets $ 432,679 $ 481,154
=====================================================================================================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 59,537 $ 57,989
Accrued expenses 57,571 56,624
Current liabilities of discontinued operations, net 2,578 2,907
Billings in excess of costs and earnings on uncompleted contracts 10,330 9,827
Accrued income taxes 7,093 7,868
Current installments of long-term debt 328 182
- -----------------------------------------------------------------------------------------------------
Total current liabilities 137,437 135,397
- -----------------------------------------------------------------------------------------------------
Long-term debt, less current installments 104,206 164,371
Other long-term liabilities 24,466 25,248
Liabilities of discontinued operations, net 18,278 18,366
Commitments and contingent liabilities (Notes 6, 13 and 14)
Shareholders' equity
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares;
issued and outstanding, 27,825,000 and 27,743,000, respectively 9,275 9,248
Additional paid-in capital 45,773 45,106
Retained earnings 93,543 84,608
Unearned compensation (757) (888)
Net unrealized gain (loss) on marketable securities 458 (302)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 148,292 137,772
- -----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 432,679 $ 481,154
=====================================================================================================
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED RESULTS OF OPERATIONS
Year Ended Year Ended Year Ended
(In thousands, except per share data) March 3, 2001 February 26, 2000 February 27, 1999
- -------------------------------------------------------------------------------------------------------------
Net sales $ 865,200 $ 840,488 $ 788,062
Cost of sales 686,203 673,253 617,647
- -------------------------------------------------------------------------------------------------------------
Gross profit 178,997 167,235 170,415
Selling, general and administrative expenses 147,103 147,817 127,063
- -------------------------------------------------------------------------------------------------------------
Operating income 31,894 19,418 43,352
Interest expense, net 11,122 10,359 9,494
Equity in income (loss) of affiliated companies 1,465 (2,817) (1,424)
- -------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes 22,237 6,242 32,434
Income taxes 8,876 3,171 12,189
- -------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 13,361 3,071 20,245
Earnings from operations of
Discontinued businesses, net of income taxes 1,641 9,104 4,988
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 15,002 $ 12,175 $ 25,233
- -------------------------------------------------------------------------------------------------------------
Earnings per share - basic
Continuing operations $ 0.48 $ 0.11 $ 0.73
Discontinued operations 0.06 0.33 0.18
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 0.54 $ 0.44 $ 0.91
- -------------------------------------------------------------------------------------------------------------
Earnings per share - diluted
Continuing operations $ 0.48 $ 0.11 $ 0.73
Discontinued operations 0.06 0.33 0.18
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 0.54 $ 0.44 $ 0.91
- -------------------------------------------------------------------------------------------------------------
Weighted average basic shares outstanding 27,835 27,746 27,586
Weighted average diluted shares outstanding 27,898 27,794 27,762
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Net Unrealized
Common Additional Gain (Loss) on
Shares Common Paid-In Retained Unearned Marketable Comprehensive
(In thousands) Outstanding Stock Capital Earnings Compensation Securities Earnings
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 1998 27,453 $9,151 $38,983 $61,899 $(686) $ 254
Net earnings 25,233 $ 25,233
Unrealized loss 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 ($0.205
per share) (5,666)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at February 27, 1999 27,623 9,208 41,903 80,194 (721) 80
Net earnings 12,175 $ 12,175
Unrealized loss 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 ($0.21
per share) (5,833)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at February 26, 2000 27,743 9,248 45,106 84,608 (888) (302)
Net earnings 15,002 $ 15,002
Unrealized gain on
marketable securities,
net of $407 tax expense 760 760
-------------
Comprehensive earnings $ 15,762
=============
Unearned compensation 131
Tax benefit associated
with stock plans 236
Common stock issued 118 39 493
Common stock repurchased
and retired (36) (12) (62) (233)
Cash dividends ($0.21
per share) (5,834)
- -----------------------------------------------------------------------------------------------------------------
Balance at March 3, 2001 27,825 $9,275 $45,773 $93,543 $(757) $ 458
=================================================================================================================
See accompanying notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
(In thousands) March 3, 2001 February 26, 2000 February 27, 1999
- ------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net earnings $15,002 $12,175 $25,233
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net earnings from discontinued operations (1,641) (9,104) (4,988)
Depreciation and amortization 34,229 33,019 25,798
Deferred income tax expense (benefit) 4,422 (3,319) 4,844
Equity in (income) loss of affiliated companies (1,465) 2,817 1,424
Net cash flow to discontinued operations (3,151) (534) (13,580)
Other, net 2,857 643 (349)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flow before changes in operating assets and liabilities 50,253 35,697 38,382
Changes in operating assets and liabilities, net of effect of
acquisitions and investment in joint venture:
Receivables 4,292 (6,828) (17,115)
Inventories 5,394 637 (7,128)
Other current assets 1,682 30 1,295
Accounts payable and accrued expenses 998 20,330 5,151
Billings in excess of costs and earnings on uncompleted 503 (1,795) 4,680
contracts
Refundable and accrued income taxes (539) 2,004 26,972
Other (973) (6,239) 778
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 61,610 43,836 53,015
- ------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (14,823) (44,025) (77,392)
Proceeds from sales of property, plant and equipment 17,834 14,672 310
Acquisition of businesses, net of cash acquired (3,602) (1,983) (380)
Purchases of marketable securities (7,900) (17,469) (24,315)
Sales/maturities of marketable securities 9,570 19,169 15,515
Investment in and advances to affiliated companies (3,083) (2,665) (1,285)
Dividends from affiliated companies 1,247 -- --
Net cash flow from discontinued operations 4,375 2,000 22,500
Other, net (856) (162) (62)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,762 (30,463) (65,109)
- ------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Payments on long-term debt (60,703) (9,494) (1,446)
Proceeds from issuance of long-term debt -- 7,650 14,197
Increase in deferred debt expense (563) (334) (3,107)
Proceeds from issuance of common stock 532 2,781 3,096
Repurchase and retirement of common stock (307) (2,269) (1,515)
Dividends paid (5,834) (5,833) (5,666)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (66,875) (7,499) 5,559
- ------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (2,503) 5,874 (6,535)
Cash and cash equivalents at beginning of year 7,192 1,318 7,853
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,689 $ 7,192 $ 1,318
==============================================================================================================================
Supplemental schedule of non-cash investing activities:
Net assets contributed to PPG Auto Glass, LLC (see Note 5) $ 30,359 $ -- $ --
==============================================================================================================================
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. The 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. The
equity method is used to account for the Company's joint ventures. Intercompany
transactions have been eliminated in consolidation. 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 93% 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,
inventories would have been $3,135,000 and $3,127,000 higher than reported at
March 3, 2001, and February 26, 2000, 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 $2,370,000, $2,287,000 and $2,060,000 in 2001, 2000 and
1999, respectively.
Long-Lived Assets. The carrying value of long-lived assets such as property,
plant and equipment and intangible assets is 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 assets at a net book value
of $14 million associated with a portion of an Enterprise Resource Planning
(ERP) project, the majority of which is in service and is being amortized. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 121, the
Company will continue to monitor the viability of this investment.
Insurance Subsidiary. Prism Assurance, Inc. (Prism) is a wholly owned insurance
subsidiary that insures the Company's workers' compensation, general liability
and automobile liability risks. Prism invests in fixed maturity investments
which are classified as "available for sale" and are carried at market value as
prescribed by 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
12 months are classified as accrued expenses, while losses expected to be
payable in later periods are included in other long-term liabilities.
Revenue Recognition. The Company recognizes 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.
Provisions are established 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 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. The Company accounts 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.
The Company 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 March 3, 2001, there were no 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. Apogee's fiscal year ends on the Saturday closest to February
28. Fiscal year 2001 consisted of fifty-three weeks, while fiscal 2000 and 1999
each consisted of fifty-two weeks.
Accounting Estimates. The preparation of the consolidated financial statements
in conformity with accounting principles generally accepted in the U.S. 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, reserves related to discontinued operations, 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. The Financial Accounting Standards Board (FASB) issued
SFAS No. 133 regarding accounting for derivative instruments and hedging
activities. SFAS No. 133, as amended by SFAS No. 137 and No. 138, establishes
accounting and reporting standards requiring that derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet either as an asset or liability measured at fair
value. SFAS No. 133 requires changes in the derivative's fair value to be
recognized in earnings or, for derivatives that hedge market risk related to
future cash flows, in accumulated other comprehensive income, unless specific
hedge accounting criteria are met. The Company adopted SFAS No. 133 on March 4,
2001, which resulted in the Company recording the fair value of the interest
rate swaps described in Note 6 as a liability with an offsetting adjustment to
other comprehensive earnings.
2 Working Capital
Receivables
(In thousands) 2001 2000
- --------------------------------------------------------------
Trade accounts $ 102,171 $ 110,704
Construction contracts 16,819 15,550
Contract retainage 6,334 5,212
Other receivables 5,079 4,138
- --------------------------------------------------------------
Total receivables 130,403 135,604
Less allowance for doubtful accounts (8,942) (10,540)
- --------------------------------------------------------------
Net receivables $ 121,461 $ 125,064
- --------------------------------------------------------------
The Company provides products and services to the commercial and
institutional new construction and remodeling markets, the automotive
replacement glass market and selected consumer markets. There is no
concentration of credit risk due to the diversity of the markets, channels of
distribution, and the geographic location of customers. Allowances are
maintained for potential credit losses and such losses have been within
management's expectations.
F-9
Inventories
(In thousands) 2001 2000
- ----------------------------------------------------------
Raw materials $20,124 $18,966
Work-in-process 6,259 4,995
Finished goods 12,406 43,439
Costs and earnings in excess of
Billings on uncompleted contracts 1,645 784
- ----------------------------------------------------------
Total inventories $40,434 $68,184
- ----------------------------------------------------------
Accrued Expenses
(In thousands) 2001 2000
- ----------------------------------------------------------
Payroll and related benefits $24,077 $21,770
Insurance 9,928 10,529
Taxes, other than income taxes 3,927 4,802
Pension 4,777 4,685
Interest 1,048 630
Other 13,814 14,208
- ----------------------------------------------------------
Total accrued expenses $57,571 $56,624
- ----------------------------------------------------------
3 Property, Plant and Equipment
(In thousands) 2001 2000
- -------------------------------------------------------------------
Land $ 5,408 $ 3,964
Buildings and improvements 89,787 91,042
Machinery and equipment 139,290 153,186
Office equipment and furniture 60,627 63,472
Construction-in-progress 8,656 22,684
- -------------------------------------------------------------------
Total property, plant and equipment 303,768 334,348
Less accumulated depreciation (156,175) (148,309)
- -------------------------------------------------------------------
Net property, plant and equipment $ 147,593 $ 186,039
- -------------------------------------------------------------------
Depreciation expense was $31,859,000, $30,732,000 and $23,738,000 in 2001,
2000 and 1999, respectively.
4 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 March 3, 2001 and February 26, 2000 are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------
March 3, 2001
U.S. Treasury Notes $ 3,464 $ 82 $ -- $ 3,546
Municipal bonds 20,282 675 (52) 20,905
- -------------------------------------------------------------------------
Total investments $ 23,746 $757 $ (52) $ 24,451
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
F-10
The amortized cost and estimated fair values of investments at March 3,
2001 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 $ 1,507 $ 1,514
Due after one year through five years 10,694 10,915
Due after five years through ten years 3,784 4,004
Due after ten years through fifteen years 2,636 2,756
Due beyond fifteen years 5,125 5,262
- -----------------------------------------------------------------------------
Total $23,746 $24,451
- -----------------------------------------------------------------------------
Gross realized gains of $30,000, $15,000 and $120,000 and gross realized
losses of $94,000, $536,000 and $0 were recognized in fiscal 2001, 2000 and
1999, respectively, and are included in interest expense, net in the
accompanying Consolidated Results of Operations.
5 Investments
The Company has acquired through joint venture, investments that are
accounted for by the equity method. The nature and extent of these investments
change over time.
On July 29, 2000, the Company and PPG Industries combined their U.S.
automotive replacement glass distribution businesses in a new entity, PPG Auto
Glass, LLC (PPG Auto Glass) of which the Company has a 34 percent interest. On
March 3, 2001, the Company's investment in PPG Auto Glass was $32.2 million, of
which $7.6 million represents the unamortized excess of the cost of the
investment over the value of the underlying net tangible assets when the joint
venture was formed. This excess is being amortized over a life of 20 years.
The Company's investment in TerraSun LLC relates to a research and
development joint venture of which the Company has a 50 percent interest.
6 Long-Term Debt
(In thousands) 2001 2000
- -----------------------------------------------------------------
Borrowings under revolving credit
agreement, interest ranging from
6.38% to 8.38% $ 96,000 $156,500
Other 8,534 8,053
Total long-term debt 104,534 164,553
Less current installments (328) (182)
- -----------------------------------------------------------------
Net long-term debt $104,206 $164,371
- -----------------------------------------------------------------
Long-term debt maturities are as follows:
Fiscal Year (In thousands)
- ------------------------------------------------------
2002 $ 328
2003 328
2004 96,228
2005 --
2006 --
Thereafter 7,650
- ------------------------------------------------------
Total $104,534
- ------------------------------------------------------
In May 1998, the Company obtained a five-year, committed, secured credit
facility in the amount of $275 million. This credit facility requires the
Company to maintain minimum levels of net worth and certain financial ratios.
The
F-11
total commitment of the 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. The total
commitment of the credit facility was again reduced in April 2000, resulting in
a committed credit facility of $200 million as of March 3, 2001. The majority of
the borrowings under the credit facility are made at a rate equal to three-month
LIBOR (London Interbank Offered Rate) plus an applicable margin. The applicable
margin is calculated based upon the Company's financial ratios. At March 3,
2001, the applicable margin was 1.5%. The Company's receivables, inventory,
equipment and intangibles secure the credit facility. Based upon the Company's
satisfaction of certain financial covenants during fiscal 2001, the Company has
the right to cause this security interest to be released upon its request. At
March 3, 2001, the Company was in compliance with all of the financial covenants
of the credit facility.
Selected information related to bank borrowings is as follows:
(In thousands, except percentages) 2001 2000
- ---------------------------------------------------------------------------
Average daily borrowings during the year $136,284 $174,869
Maximum borrowings outstanding during the year 156,800 195,300
Weighted average interest rate during the year 8.1% 6.9%
- ---------------------------------------------------------------------------
In 2000, the Company entered into an interest rate swap agreement that
effectively converted $10 million of variable rate borrowings into a fixed rate
obligation. Under this agreement, which expires in 2003, the Company receives
payments at variable rates while making payments at a fixed rate of 7.21%. In
1999, the Company entered into an interest rate swap agreement that effectively
converted $25 million of variable rate borrowings into a fixed rate obligation.
Under this agreement, which expires in 2004, the Company receives payments at
variable rates while making payments at a fixed rate of 7.125%. The net interest
paid or received associated with these agreements is included in interest
expense. The net present liability associated with these interest rate swap
agreements was $1.8 million and $198,000 at March 3, 2001 and February 26, 2000,
respectively.
7 Interest, Net
(In thousands) 2001 2000 1999
- --------------------------------------------------------------------
Interest on debt $ 12,610 $11,939 $10,898
Other interest expense 420 636 619
- --------------------------------------------------------------------
Total interest expense 13,030 12,575 11,517
Less interest income (1,908) (2,216) (2,023)
- --------------------------------------------------------------------
Interest expense, net $ 11,122 $10,359 $ 9,494
- --------------------------------------------------------------------
Interest payments, including interest expense allocated to discontinued
operations, were $12,262,000, $12,477,000 and $12,067,000 in 2001, 2000 and
1999, respectively.
8 Employee Benefit Plans
The Company maintains 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. Deposits of the
pension costs with the trustee are made annually. All pension costs were fully
funded or accrued as of year-end. Contributions to the plan were $4,734,000,
$4,920,000 and $4,209,000 in 2001, 2000 and 1999, respectively.
The Company also maintains 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. Contributions to the plan were $1,967,000,
$2,098,000 and $2,009,000 in 2001, 2000 and 1999, 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.
The Company has a Shareholders' Rights Plan, under which each share of
outstanding common stock has an associated preferred share purchase right. The
rights are exercisable only under certain circumstances, including the
F-12
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 March 3,
2001, 2,514,000 shares have been issued or committed under the Plan. The Company
expensed $1,814,000, $786,000 and $1,926,000 in conjunction with the Partnership
Plan in 2001, 2000 and 1999, respectively.
A summary of option transactions under the Plans for 2001, 2000 and 1999
follows:
Options Outstanding
- -------------------------------------------------------------------------------
Number of Average Option Price
Shares Exercise Price Range
- -------------------------------------------------------------------------------
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
Options granted 728,100 4.80 3.75 - 5.81
Options exercised (1,250) 4.19 4.19 - 4.19
Options canceled (274,507) 10.28 3.97 - 17.75
- -------------------------------------------------------------------------------
Balances, March 3, 2001 2,111,778 $ 10.67 $ 3.75 - $25.00
- -------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and
exercisable at March 3, 2001:
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Range of Remaining Weighted- Weighted-
Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------
$ 3.75- $ 5.00 563,370 8.9 years $ 4.69 54,970 $ 4.04
5.01- 12.50 647,288 6.9 years 9.62 322,424 9.50
12.51- 25.00 901,120 5.7 years 15.16 740,520 15.25
- ------------------------------------------------------------------------------------
2,111,778 6.9 years $10.67 1,117,914 $13.04
- ------------------------------------------------------------------------------------
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, the Company's net earnings
(loss) and earnings (loss) per share would have been reduced to the pro forma
amounts indicated below:
F-13
(In thousands, except per share data) 2001 2000 1999
- ----------------------------------------------------------------------
As reported:
Net earnings
Continuing operations $13,361 $ 3,071 $20,245
Discontinued operations 1,641 9,104 4,988
- ----------------------------------------------------------------------
$15,002 $12,175 $25,233
- ----------------------------------------------------------------------
Earnings per share - diluted
Continuing operations $ 0.48 $ 0.11 $ 0.73
Discontinued operations 0.06 0.33 0.18
- ----------------------------------------------------------------------
$ 0.54 $ 0.44 $ 0.91
- ----------------------------------------------------------------------
Pro forma:
Net earnings (loss)
Continuing operations $10,045 $ (250) $17,477
Discontinued operations 1,641 9,104 4,988
- ----------------------------------------------------------------------
$11,686 $ 8,854 $22,465
- ----------------------------------------------------------------------
Earnings (loss) per share-diluted
Continuing operations $ 0.35 $ (0.01) $ 0.63
Discontinued operations 0.06 0.32 0.18
- ----------------------------------------------------------------------
$ 0.41 $ 0.32 $ 0.81
- ----------------------------------------------------------------------
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 2001,
2000 and 1999:
2001 2000 1999
- ------------------------------------------------------------------
Dividend yield 4.4% 1.8% 1.5%
Expected volatility 60.5% 62.4% 38.0%
Risk-free interest rate 7.5% 4.8% 6.0%
Expected lives 10 years 10 years 10 years
- ------------------------------------------------------------------
10 Income Taxes
The components of income tax expense (benefit) related to continuing
operations for each of the last three fiscal years are as follows:
(In thousands) 2001 2000 1999
- ---------------------------------------------------------------------
Current:
Federal $ 3,642 $ 6,229 $ 8,267
State and local 402 466 1,175
- ---------------------------------------------------------------------
Total current $ 4,044 $ 6,695 $ 9,442
- ---------------------------------------------------------------------
Deferred:
Federal $ 4,282 $(3,453) $ 2,414
State and local 550 (71) 333
- ---------------------------------------------------------------------
Total deferred $ 4,832 $(3,524) $ 2,747
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Total income tax expense $ 8,876 $ 3,171 $12,189
- ---------------------------------------------------------------------
Income tax payments, net of refunds, were $4,463,000, $8,508,000, and
$2,090,000 in 2001, 2000, and 1999, respectively.
The differences between statutory federal tax rates and consolidated
effective tax rates are as follows:
F-14
2001 2000 1999
- --------------------------------------------------------------------
Statutory federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net 2.8 4.1
of federal tax benefit 3.0
Tax credits (3.3) (2.0) (1.5)
Foreign sales corporation (0.8) (7.3) (1.1)
Goodwill amortization 1.8 6.4 1.0
Meals and entertainment 1.3 5.5 1.2
Other, net (including changes in
tax reserves and tax-exempt
interest) 3.1 9.1 0.0
- --------------------------------------------------------------------
Consolidated effective tax rate 39.9% 50.8% 37.6%
- --------------------------------------------------------------------
Tax benefits for deductions associated with the 1987 Stock Option Plan and
the 1987 Partnership Plan amounted to $236,000, $803,000 and $0 in 2001, 2000,
and 1999, 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 March 3, 2001 and
February 26, 2000 are as follows:
2001 2000
------------------------ ----------------------
(In thousands) Current Noncurrent Current Noncurrent
- --------------------------------------------------------------------------------
Accounts receivable $ 3,457 $ (183) $ 3,628 $ (369)
Accrued insurance --- 3,205 --- 2,837
Deferred compensation 37 6,208 37 7,837
Restructuring reserve --- --- 2,910 ---
Inventory 559 10 1,377 201
Depreciation --- (2,816) 143 (6,156)
Employee benefit plans (372) --- (1,899) ---
Other 1,173 (4,817) 2,239 (1,492)
- --------------------------------------------------------------------------------
Deferred tax assets $ 4,854 $ 1,607 $ 8,435 $ 2,858
- --------------------------------------------------------------------------------
11 Discontinued Operations
During fiscal 2001, the Company completed the sale of substantially all of
the assets of VIS'N Service Corporation (VIS'N), a non-auto glass focused,
third-party administered claims processor, in two separate transactions. In
fiscal 2000, Apogee's Board of Directors authorized the exit from the Company's
interest in VIS'N. In fiscal 2000, 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 operations and the Company executed the sale the business.
Combined with the fiscal 1998 exit from international curtainwall operations,
these transactions effectively remove the Company from the large-scale
construction business and 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.
(In thousands) 2001 2000 1999
- ------------------------------------------------------------------------------
Earnings from Operations
of Discontinued Businesses
Net sales $ 2,750 $ 28,331 $ 168,739
Earnings before income
Taxes and minority interest* 2,525 9,821 7,590
Income tax expense 884 717 2,837
Minority interest -- -- (235)
Earnings from operations,
Net of income taxes $ 1,641 $ 9,104 $ 4,988
- ------------------------------------------------------------------------------
* Includes net interest expense allocations (based on the ratio of net
operating assets of discontinued operations to consolidated net assets) of
$0, $111,000 and $444,000 for 2001, 2000 and 1999, respectively.
F-15
The 2000 effective income tax rate of 7.3% on discontinued operations was
due to a decrease in the valuation allowance resulting from the utilization of
certain tax assets that were previously reserved for.
(In thousands) 2001 2000
- -----------------------------------------------------------------------------
Net Liabilities of Discontinued Operations
Current assets $ 629 $ 3,983
Property, plant and equipment, net -- 782
Other assets -- 3,248
Accrued liabilities (21,485) (29,286)
- -----------------------------------------------------------------------------
Net liabilities of discontinued operations $ (20,856) $ (21,273)
Less net current liabilities of discontinued
operations 2,578 2,907
- -----------------------------------------------------------------------------
Net long term liabilities of discontinued
operations $ (18,278) $ (18,366)
- -----------------------------------------------------------------------------
In fiscal 1998, the Company recorded pre-tax charges of $96.1 million
related to the international curtainwall operations. The charges included an
amount 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 the majority-owned European
curtainwall unit. The charges also included amounts for severance and
termination benefits for employees in France, Asia and the U.S., 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 charges also
reflected the estimated costs associated with exiting the European operations,
including the completion of certain remaining projects. In March 1998, the five
operating companies comprising the European curtainwall operations filed for
bankruptcy or commenced liquidation, effectively relinquishing control over
those entities.
At March 3, 2001, accruals totaling $20.9 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 two to three 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 Acquisitions
In fiscal 2001, the Large-Scale Optical Technologies segment expanded its
pre-framed art business by purchasing two high-end pre-framed art companies. The
purchase price of these businesses was $3.6 million, including $2.9 million of
goodwill.
In fiscal 2000, the Auto Glass segment purchased the assets of one
distribution center. The purchase price of the acquisition was $2.0 million,
including $596,000 recorded as goodwill.
During fiscal 1999, the Auto Glass 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.
Unless noted, no liabilities were assumed in the above transactions. All of
the above transactions were accounted for by the purchase method. Accordingly,
the consolidated financial statements include the net assets and results of
operations from the dates of acquisition.
13 Leases
As of March 3, 2001, the Company was 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:
F-16
Fiscal Year (In thousands)
- --------------------------------------------------------
2002 $12,747
2003 11,193
2004 10,145
2005 8,678
2006 6,116
Thereafter 10,379
- --------------------------------------------------------
Total minimum payments $59,258
- --------------------------------------------------------
Total rental expense was $21.8 million, $23.8 million and $24.5 million in
2001, 2000 and 1999, respectively.
During fiscal 2001 and 2000, the Company entered into agreements for the
sale and leaseback of certain production equipment. The sale price of the
equipment was $16.0 million and $13.4 million, respectively. The Company has a
purchase option at projected future fair market value under the agreements. The
leases are classified as operating leases in accordance with SFAS No. 13,
Accounting for Leases.
A gain of $9.7 million has been deferred and is being recognized over the
lease term. The unamortized portion of the deferred gain of $8.7 million is
included in the balance sheet captions accrued expenses and other long-term
liabilities. The average annual lease payment over the life of the lease is $4.5
million.
14 Commitments and Contingent Liabilities
At March 3, 2001, the Company had ongoing letters of credit related to its
risk management programs, construction contracts and certain industrial
development bonds. The total value of letters of credit under which the Company
is obligated as of March 3, 2001 was approximately $16.4 million.
The Company has entered into a number of noncompete agreements, largely
associated with acquisitons. As of March 3, 2001, future payment of $4.0 million
were committed under such agreements.
The Company 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 construction businesses are 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, facts currently available indicate that no such
claims will result in losses that would have a material adverse effect on the
financial condition, results of operations, or cash flows of the Company.
15 Earnings Per Share
The following table presents a reconciliation of the share amounts used in
the computation of basic and diluted earnings per share:
(In thousands) 2001 2000 1999
- ---------------------------------------------------------------------
Basic earnings per share -
Weighted common shares
Outstanding 27,835 27,746 27,586
Weighted common shares assumed
Upon exercise of stock options 63 48 176
- ---------------------------------------------------------------------
Diluted earnings per share -
Weighted common shares and
Potential common shares
Outstanding 27,898 27,794 27,762
- ---------------------------------------------------------------------
F-17
16 Quarterly Data (Unaudited)
Quarter
----------------------------------------------
(In thousands, except per share data) First Second Third Fourth
- ----------------------------------------------------------------------------------------------
Fiscal 2001
Net sales $237,253 $236,364 $197,291 $194,292
Gross profit 47,914 47,056 41,322 42,705
Earnings from continuing operations 2,020 4,200 2,962 4,179
Earnings from discontinued operations --- --- --- 1,641
Net earnings 2,020 4,200 2,962 5,820
Earnings per share - basic
From continuing operations 0.07 0.15 0.11 0.15
From discontinued operations 0.00 0.00 0.00 0.06
Net earnings 0.07 0.15 0.11 0.21
Earnings per share - diluted
From continuing operations 0.07 0.15 0.11 0.15
From discontinued operations 0.00 0.00 0.00 0.06
Net earnings 0.07 0.15 0.11 0.21
- ----------------------------------------------------------------------------------------------
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)
- ----------------------------------------------------------------------------------------------
17 Business Segments Data
During fiscal 2001, the Company realigned its reporting segments to match
the markets they serve in order to underscore the Company's growth potential and
to reflect its changing business mix and focus. The segments are Architectural
Products and Services (Architectural), Large-scale Optical Technologies (LSO)
and Automotive Replacement Glass and Services (Auto Glass). The Architectural
segment designs, engineers, fabricates and installs the walls of glass and
windows comprising the outside skin of commercial and institutional buildings.
The LSO segment develops and produces high technology glass that enhances the
visual performance of products for the display, imaging and picture framing
industries. The Auto Glass segment fabricates, repairs and replaces automobile
windshields and windows. Prior periods have been restated to reflect these new
segments.
(In thousands) 2001 2000 1999
- ------------------------------------------------------------------------
Net Sales
Architectural $ 441,466 $ 394,104 $ 349,968
Large-scale optical 90,768 69,934 58,669
Auto glass 333,311 377,499 380,524
Intersegment elimination (345) (1,049) (1,099)
- ------------------------------------------------------------------------
Total $ 865,200 $ 840,488 $ 788,062
- ------------------------------------------------------------------------
Operating Income
Architectural $ 27,393 $ 20,513 $ 23,501
Large-scale optical 4,571 (540) 2,477
Auto glass 1,429 184 18,399
F-18
Corporate and other (1,499) (739) (1,025)
- ------------------------------------------------------------------------
Total $ 31,894 $ 19,418 $ 43,352
- ------------------------------------------------------------------------
Identifiable Assets
Architectural $ 225,668 $ 226,929 $ 201,356
Large-scale optical 68,489 77,538 64,858
Auto glass 96,595 123,040 134,564
Corporate and other 41,927 53,647 65,611
- ------------------------------------------------------------------------
Total $ 432,679 $ 481,154 $ 466,389
- ------------------------------------------------------------------------
Capital Expenditures
Architectural $ 6,257 $ 23,382 $ 54,384
Large-scale optical 2,677 17,254 16,057
Auto glass 5,922 3,918 5,359
Corporate and other (33) (529) 1,592
- ------------------------------------------------------------------------
Total $ 14,823 $ 44,025 $ 77,392
- ------------------------------------------------------------------------
Depreciation and Amortization
Architectural $ 16,111 $ 15,693 $ 10,081
Large-scale optical 5,916 5,354 4,260
Auto glass 11,873 10,615 10,734
Corporate and other 329 1,357 723
- ------------------------------------------------------------------------
Total $ 34,229 $ 33,019 $ 25,798
- ------------------------------------------------------------------------
Apogee's export net sales are less than 10% 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-19
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 March 3, 2001:
Allowance for
doubtful receivables $10,540 $1,638 $3,236 $ 8,942
============== =============== =============== ==============
Inventory reserves $ 5,178 $5,857 $8,942 $ 2,093
============== =============== =============== ==============
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
============== =============== =============== ==============
(1) Net of recoveries
F-20
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) Amendment No. 1 to Credit Agreement, dated July 22, 1998.
Exhibit (10H) Conditional Waiver and Amendment No. 2 to Credit Agreement and
Amendment to Certain Credit Documents, dated November 10, 1998.
Exhibit (10I) Waiver and Amendment No. 3 to Credit Agreement, dated September
14, 1999. Incorporated by reference to Exhibit 10 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended November 27,
1999.
Exhibit (10J) Conditional Waiver and Amendment No. 4 to Credit Agreement, dated
April 12, 2000. Incorporated by reference to Exhibit 10 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 3, 2000.
Exhibit (10K)* 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 (10L)* 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 (10M)* 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 (10N)* 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 (10O)* 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 (10P)* Forms of Severance Agreement between the Company and certain
senior executive officers of the Company.
Exhibit (10Q) 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 (10R) 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 (10S)* 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 (10T) Contribution and Assumption Agreement dated June 13, 2000, among
PPG Industries, the Company, certain subsidiaries of the Company
and PPG Auto Glass. Incorporated by reference to Registrant's
Current Report on Form 8-K filed on August 1, 2000.
Exhibit (10U) Limited Liability Company Agreement dated June 13, 2000, between
PPG Industries and the Company. Incorporated by reference to
Registrant's Current Report on Form 8-K filed on August 1, 2000.
Exhibit (21) Subsidiaries of the Registrant
Exhibit (23A) Consent of Arthur Andersen LLP
Exhibit (23B) Consent of KPMG LLP
Exhibit (99) Private Securities Litigation Reform Act of 1995 - Cautionary
Statement
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.