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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 2, 2002
[_] 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. [X].
The aggregate market value of voting and non-voting stock of the registrant
on March 31, 2002 was $345,674,800 (based on closing stock price of $12.20 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 March 31, 2002 was 28,334,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III hereof incorporates information by reference from the Proxy
Statement for the Annual Meeting of Shareholders to be held June 18, 2002.
APOGEE ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
For the fiscal year ended March 2, 2002
Description Page
----------- ----
PART I
- ------
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
Executive Officers of the Registrant 9
PART II
- -------
Item 5. Market for the Registrant's
Common Equity and Related
Shareholder Matters 10
+
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 22
Item 8. Financial Statements and
Supplementary Data 22
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 22
PART III
- --------
Item 10. Directors and Executive Officers
of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain
Beneficial Owners and Management 23
Item 13. Certain Relationships and
Related Transactions 23
PART IV
- -------
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 23
Index of Financial Statements and Schedules F-1
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 world leader
in technologies involving the design and development of value-added glass
products, services and systems. Unless the context otherwise requires, the
terms "Company", "Apogee", "we", "us" and "our" as used herein refer to
Apogee Enterprises, Inc. and its subsidiaries.
The Company is comprised of three reporting segments to match the markets
they serve:
. The Architectural Products and Services segment (Architectural)
designs, engineers, fabricates, installs, services and renovates the
walls of glass and windows comprising the outside skin of commercial
and institutional buildings.
. Large-Scale Optical Technologies segment (LSO) develops and produces
high technology glass that enhances the visual performance of products
for the display, imaging and picture framing industries.
. Automotive Replacement Glass and Services segment (Auto Glass)
fabricates, repairs and replaces automobile windshields and windows.
Financial information about the Company's segments can be found in Note 15
to the Consolidated Financial Statements of the Company contained elsewhere
in this report. See "Index of Financial Statements and Schedules."
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 businesses in the Architectural segment include: Viracon, the leading
fabricator of coated, high-performance architectural glass for global
markets; Harmon, Inc., the largest U.S. full-service building glass
installation, maintenance and renovation company; Wausau Window & Wall
Systems, a manufacturer of custom aluminum windows and curtainwall systems;
and Linetec, a high-performance paint and anodizing finisher.
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-strengthened and laminated architectural glass, and
protective glazing laminated glass products that are blast and hurricane
resistant. These products all incorporate Viracon's high performance
coatings, thereby creating various aesthetic looks along with energy
efficiency. In addition, Viracon is also a world leader in its ability to
silkscreen paint onto glass, creating custom patterns in a wide array of
colors. Viracon's products appear on monumental buildings throughout North
America, South America, Asia and Australia.
The Viracon unit is able to fabricate all types of architectural glass
(insulated, laminated and combinations of both) at its Owatonna, Minnesota
and Statesboro, Georgia facilities. Combined with its glass coating
capabilities, the unit is able to provide a full range of products from
these facilities.
Insulated glass, comprised of two or more pieces of glass separated by a
sealed air space, is used in commercial, institutional and residential
applications for thermal control. Laminated glass consists of two or more
pieces of glass fused with a vinyl 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 metallic film, invisible to the naked eye,
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 internationally 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 in 13 metropolitan areas in the United States. Harmon, Inc.
generally emphasizes projects that are non-complex,
1
small, curtainwall projects 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 of the
outside skin of older commercial and institutional buildings are adding to
future 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 for
commercial and institutional buildings in the United States. 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 primarily in the United States through a nationwide network of
distributors and a direct sales staff. Sales are made to building
contractors for new construction 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. Wausau's AdVantage product line
has been pre-engineered to meet customer's needs for short lead-time while
maintaining product quality.
Linetec has three coating facilities which provide high performance
finishing, including anodizing and flouropolymer paints. 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
to a single customer.
Large-Scale Optical Technologies (LSO)
--------------------------------------
Businesses in the LSO segment include: Tru Vue, a North American value-
added glass and matboard manufacturer for the custom framing and pre-framed
art markets; and Viratec Thin Films, a producer of optical thin film
coatings for the global 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 in North America
through independent distributors which, in turn, supply local picture
framing markets. In fiscal 2001, Tru Vue acquired two pre-framed art
businesses and during fiscal 2002 added to its fiscal 2001 expansion of its
pre-framed art business through the acquisition of Arnold's West Art. Tru
Vue continues to convert the framing industry to its proprietary value-
added glass, TruGuard, which protects pictures and art from deteriorating
in sunlight. For the second consecutive year, Tru Vue has converted more
than 1,000 independent framers to its TruGuard product. In anticipation of
converting additional frame shops and mass merchandisers, Tru Vue began
production on its new UV glass coater in March 2002. The addition of this
new line significantly increases Tru Vue's capacity to produce UV blocking
glass, its primary value-added glass product.
Viratec develops advanced, optical coatings on glass and acrylic for
display and imaging applications. These products are used in anti-glare
computer screens, projection television, first surface mirrors and screens,
picture framing glazing, as well as imaging devices such as scanners and
copiers. Viratec markets optical coatings to both domestic and foreign
customers. These customers provide further assembly, marketing and
distribution to end-users. As a result of its primary customer's plans to
discontinue its computer monitor operations in San Diego, California,
Viratec's Optium coating plant in San Diego, California servicing this
customer was closed, as planned, in the first quarter of fiscal 2002.
Automotive Replacement Glass and Services (Auto Glass)
------------------------------------------------------
Businesses in the Auto Glass segment include: Harmon AutoGlass, a U.S.
chain of retail auto glass replacement and repair stores; and
Viracon/Curvlite, a U.S. fabricator of aftermarket foreign and domestic car
windshields.
In an effort to enhance efficiency, geographic coverage and customer
service in the distribution of auto replacement glass, the Company and PPG
Industries, Inc. (PPG) 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% interest.
Harmon AutoGlass opened its first shop over 50 years ago in downtown
Minneapolis and today has 444 retail service centers, including co-branded
facilities, in over 40 states. In addition to its own shops, Harmon
AutoGlass has a network of more than 4,000 affiliated auto glass retailers
across the country. 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.
2
Harmon AutoGlass is committed to its values of safety, quality work and
customer service. Harmon AutoGlass believes that it has one of the best
customer satisfaction ratings in the industry. Harmon AutoGlass believes
that it is an industry leader in employee training by having all of its
technicians participate in a rigorous internal certification program.
Harmon AutoGlass also requires some of its technicians to obtain
certification by the National Glass Association.
As part of the arrangements with this joint venture, Harmon AutoGlass has
committed, under a multi-year contract, to purchase at least 75% of its
replacement windshield needs from PPG Auto Glass. Harmon AutoGlass has a
long-term contract with APAC Customer Services, Inc. to provide call center
insurance claims processing.
Viracon/Curvlite (Curvlite) fabricates replacement windshields for foreign
and domestic automobiles and laminated glass parts for the RV and bus
industries. Under a multi-year agreement with PPG, Curvlite's automotive
replacement glass production is primarily dedicated to supplying PPG.
Curvlite is now fabricating approximately 600 different parts, about half
the number manufactured previous to the signed agreement.
Sources and Availability of Raw Materials
-----------------------------------------
Materials used within the Architectural segment include raw glass, vinyl,
aluminum extrusions, chemicals, paints and plastic extrusions. All of these
materials are readily available from a number of sources and no supplier
delays or shortages are anticipated. While certain glass products may only
be available at certain times of the year, all standard glass colors are
available throughout the year in abundant quantities. Chemicals purchased
range from commodity to specifically formulated types of chemistries.
Materials used within the LSO segment include glass, acrylic substrates,
coating materials, chemicals, facing paper and coreboard. Currently, the
chemicals used for the UV resistant coating used at Tru Vue are readily
available from only one supplier who meets the Company's specifications for
this proprietary technology. Tru Vue is currently seeking to qualify other
suppliers and alternate technologies.
Within the AutoGlass segment, raw materials consist of flat glass, vinyl
and urethane, which is available from a number of sources, and auto glass,
which Harmon AutoGlass is contractually obligated to buy at least 75% from
PPG Auto Glass.
The Company believes a majority of its raw 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.
Within the Architectural segment, Linetec(R) is a registered trademark of
the Company. AdVantage is a listed trademark of the Company.
Within the LSO segment, Viratec(R), Tru Vue(R), TruGuard(R), Conservation
Clear(R) and Conservation Reflection Control(R) are registered trademarks.
Optium, Museum Glass and Perfect Vue are listed trademarks of the Company.
Viratec Thin Films has obtained several patents pertaining to its glass
coating methods. Tru Vue holds several patents on its proprietary products,
including its UV coating and etch processes for non-reflective glass.
Despite being a point of differentiation from its competitors, no single
patent is considered to be material to the Company.
Within the Auto Glass segment, Harmon AutoGlass(R) and Harmon Glass(R) are
registered trademarks of the Company. PPG Auto Glass is a trademark of PPG
Industries.
The Company has maintained various patents related to Terrasun, the
Company's research and development joint venture which the Company
discontinued funding in fiscal 2002.
Customers
---------
The customers within the Architectural Segment include building owners,
architects, general and sub-contractors and building product manufacturers.
The businesses within this segment primarily serve customers requiring
custom made-to-order products.
The LSO segment serves a customer base consisting of customers with
specific made-to-order requests as well as those needing standard
inventoried products. This segment serves retailers of custom picture
framing services and pre-framed art and original equipment manufacturers
(OEMs).
The customers within the Auto Glass segment are a diverse group that
include consumers, insurance companies, commercial fleets, body shops,
automotive dealers and end-users. No one customer accounts for 10% or more
of the Company's consolidated
3
revenues, although, because of the supply agreement with PPG in the connection
with the formation of the auto glass distribution joint venture with PPG, PPG
has become the primary customer of Curvlite. Between Automotive Replacement
Glass (ARG) and flat glass, PPG accounts for approximately 80% of the total
volume at Curvlite. The Company believes that the amounts received from such
transactions represent the amounts that would normally be received from
unrelated third parties for similar transactions.
Due to the diversity of the markets, channels of distribution and the geographic
location of customers, it is management's opinion that the loss of any single
customer within any of the segments, other than PPG as a purchaser of
windshields from Curvlite, would not have a material, adverse effect on the
Company, as a whole.
Backlog
- -------
At March 2, 2002, the Company's total backlog of orders considered to be firm
was $196.5 million compared with $200.2 million at March 3, 2001. Of this
amount, approximately $192.7 million and $190.0 million of the orders were in
the Architectural segment at March 2, 2002 and March 3, 2001, respectively.
Competition
- -----------
The Company's businesses are in industries that are, in general, fairly mature
and highly competitive.
The companies within the Architectural segment 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. In recent times, there has been a shift in
competition within the Architectural segment's largest business unit, Viracon.
This shift has moved from three glass fabricators with less capacity than
Viracon to include additional competition from regional glass fabricators with
shorter lead times incorporating high performance, post-temperable glass
products into their insulated glass products. The availability of these
products has enabled the regional fabricators to bid on larger projects than in
the past. Harmon, Inc. competes against local and regional construction
companies and glazing contractors where the 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.
Businesses within the LSO segment also compete with several large integrated
glass manufacturers and numerous smaller specialty fabricators. Product pricing,
service and quality are the primary competitive factors in these markets. The
Company's competitive strength includes its excellent relationships with its
customers.
The Auto Glass segment competes with other auto glass shops, glass warehouses,
car dealers, body shops and glass fabrication facilities on the basis of pricing
and customer service. Its competition consists of national and regional chains
as well as significant local competition.
Markets
- -------
The markets that the businesses within the Architectural segment serve are very
competitive, price and lead-time sensitive and affected by changes in the
commercial construction industry as well as in general economic conditions.
Viracon is well positioned as the leader in North America in the supply of high
performance architectural glass products to the commercial building industry and
also sells into international markets. Viracon offers industry standard
warranties on its products and service, priding itself on complete and on-time
performance to customer requests. Viracon also offers a wide range of products
that meet or exceed performance specifications required in its markets.
Harmon, Inc. bids and negotiates curtainwall and window projects that are
generally under $5.3 million due to certain terms to a non-compete agreement
with the buyer of the Company's discontinued large-scale curtainwall operations.
The primary market for Harmon, Inc. is new construction projects. However,
service and renovation of older buildings continue to add to the growth of this
business unit. In-house engineering capabilities allow Harmon, Inc. to duplicate
the original design or create a completely new appearance for renovated
buildings.
Wausau typically provides window or wall quotations to glazing subcontractors,
who in-turn bid more inclusive glass and glazing packages to general contractors
for projects in the United States. At all levels, the low-bid is an advantageous
competitive position, if specified performance, warranty, aesthetic and
operational characteristics are met. On complex work, engineering capability and
ease of installation also become qualifying factors for window and wall
manufacturers. With products at the high end of the performance scale, and one
of the industry's best standard warranties, Wausau effectively leverages a well-
earned reputation for engineering, quality and delivery dependability into a
position as a preferred provider. Wausau markets its products in the United
States through a domestic network of distributors and its direct sales staff.
4
The markets served by Linetec include architectural, industrial and commercial
metal fabricators, as well as building product manufacturers and interior window
covering businesses in the United States.
The markets that the businesses within the LSO segment serve are very
competitive, highly responsive to new products and price sensitive. Tru Vue
competes in the value-added and conservation glass and matboard markets in North
America based on the product performance afforded by its proprietary, patented
processes. It is the only company in the picture framing industry that has been
able to produce its UV products in any meaningful supply and at a consistent,
high level of quality. Tru Vue competes in the pre-framed art markets based in
North America, marketing its pre-framed art products primarily to end consumers
and retailers.
Viratec serves the display, imaging, large-area projection televisions and art
glass products markets with anti-reflective and highly reflective products.
Viratec has been hit hard by the economic slowdown in the consumer electronics
markets, but continues to develop new products through its in-house engineering
team.
The markets that the businesses in the Auto Glass segment serve tend to be
seasonal in nature with first and second quarter revenues at 26% and 29% of
full-year revenues, respectively, followed by third and fourth quarter revenues
at 23% and 22%, respectively. These markets are influenced by a variety of
factors, including weather, new car sales, speed limits, road conditions, the
economy, and average annual number of miles driven. The primary competitive
factors in this segment are convenience of service and price. The pricing
structure in this market 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
and manufacturing levels, in which the Auto Glass segment operates.
The manufacturing business within this segment, Curvlite, serves primarily two
windshield markets, domestic and foreign automotive replacement glass (ARG) and
OEM windshields for recreational vehicles and buses. The ARG business is
extremely price competitive and becoming more service oriented. Product quality
and performance are required for all competitors. Pricing through the entire
supply chain has been affected by overcapacity in the market and imports.
Recently, the anti-dumping petition filed by the Company and two other
petitioners against the Chinese manufacturers of automotive replacement glass
was successful in achieving the goal of additional duties applied to automotive
replacement glass manufactured in China.
Research and Development
- ------------------------
The amount spent on research and development activities over the past three
fiscal years was $2.8 million in fiscal 2002, $3.0 million in fiscal 2001 and
$2.4 million in fiscal 2000.
In fiscal 2002, the Company decided to discontinue funding TerraSun, LLC, its
research and development joint venture of which the Company had a 50% interest.
As a result, TerraSun ceased its operations. TerraSun had been developing
holographic optical technologies for lighting and energy systems applications.
Environment
- -----------
To comply with environmental regulations, Linetec's Wausau, WI 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 and other anodizing chemicals are used in
Linetec's anodizing operation. This is discharged into the local municipal waste
water. During fiscal 2003, Linetec will spend approximately $1.0 million to
install a local waste water filter press to remove solids before discharge into
the local municipal system.
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. The
controlled waste residue from the UV coating process is hauled away and disposed
of by licensed, regulated haulers. Tru Vue also removes acid fumes through a
wet-scrubbing system.
The Company's Viracon and Viratec facilities ship their scrap glass to a company
that recycles glass. Viracon also uses non-lead paint in its silkscreening
process.
Employees
- ---------
The Company employed 5,321 persons at March 2, 2002, of whom approximately 811
were represented by labor unions. The Company is a party to 45 collective
bargaining agreements with several different unions. Approximately 2% of the
collective bargaining agreements will expire during fiscal 2003. The number of
collective bargaining agreements to which the Company is a
5
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 2, 2002, March 3, 2001 and February 26, 2000,
the Company's export sales, principally from Architectural operations,
amounted to approximately $35.0 million, $40.0 million and $42.1 million,
respectively.
ITEM 2. PROPERTIES
----------
The following table lists, by segment, the Company's major facilities as of
March 2, 2002, 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 Administrative
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.
Wausau Window & Wall Systems - Plant V Stratford, WI Leased Mfg.
Linetec (Painting) Wausau, WI Owned Mfg./Admin.
Linetec (Painting) Villa Rica, GA Leased Mfg.
Linetec (Anodizing) Wausau, WI Owned Mfg.
Large-Scale Optical Technologies
--------------------------------
Tru Vue McCook, IL Owned Mfg./Admin.
Tru Vue Orlando, FL Owned Mfg./Admin.
Balangier Designs, Inc. Little Ferry, NJ Leased Mfg./Admin.
Balangier Designs, Inc. Salt Lake City, UT Leased Mfg.
Viratec Thin Films, Inc. Faribault, MN Owned Mfg./Admin.
Viratec Thin Films, Inc. (1) 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 Owatonna, MN Owned Warehouse/Admin.
Other
----
Apogee Corporate Office Minneapolis, MN Leased Administrative
1. Space has been vacated since the shut-down of the facility during the
second quarter of fiscal 2002 and is being marketed for sub-lease.
In addition to the locations indicated above, at fiscal year-end, the
Automotive Replacement Glass and Services segment operated 270 Harmon
AutoGlass retail locations and 174 co-branded facilities nationally. The
majority of such locations are leased. Also, Architectural Products and
Services' Harmon, Inc. unit operates 14 leased locations. The Company owns
four 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 Tru Vue facility 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 other companies in the
construction industry, the Company's businesses in the construction
business, including those that are discontinued, 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, the Company believes, based
6
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.
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 2, 2002.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
NAME AGE POSITION
---- --- --------
Russell Huffer 52 Chairman, President and Chief Executive Officer
Michael B. Clauer 45 Executive Vice President and Chief Financial Officer
Joseph T. Deckman 58 Executive Vice President
Larry D. Stordahl 59 Executive Vice President
Patricia A. Beithon 48 General Counsel and Secretary
Gary R. Johnson 40 Vice President and Treasurer
James S. Porter 41 Vice President of Strategy and Planning
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.
7
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 2, 2002, the average trading volume of Apogee
common stock was 4,043,000 shares per month, according to Nasdaq.
As of March 31, 2002, there were 28,334,000 shares of common stock outstanding,
of which about 9.2% were owned by officers and directors of Apogee. At that
date, there were approximately 1,927 shareholders of record and 6,400
shareholders for whom securities firms acted as nominees.
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
----------------- ----------------- ----------------- ----------------- ------
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
2002 6.281 - 11.990 9.250 - 15.700 6.860 - 17.000 9.990 - 18.650 11.300
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, when and if
declared by its Board of Directors.
Quarter Quarter Quarter Quarter
I II III IV Year
--------------------------------------------------
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
2002 0.053 0.053 0.055 0.055 0.215
8
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following information should be read in conjunction with Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Financial Statements and Supplementary Data.
(In thousands, except per share data and
percentages)* 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 802,315 $ 865,200 $ 840,488 $ 788,062 $ 731,094
Gross profit 187,728 178,997 167,235 170,415 165,139
Operating income 44,127 31,894 19,418 43,352 45,659
Earnings (loss) from continuing operations 26,142 13,361 3,071 20,245 24,114
Earnings (loss) from discontinued operations --- 1,641 9,104 4,988 (75,169)
Net earnings (loss) 26,142 15,002 12,175 25,233 (51,055)
Earnings (loss) per share - basic
From continuing operations 0.94 0.48 0.11 0.73 0.87
From discontinued operations 0.00 0.06 0.33 0.18 (2.70)
Net earnings (loss) 0.94 0.54 0.44 0.91 (1.84)
Earnings (loss) per share - diluted
From continuing operations 0.91 0.48 0.11 0.73 0.85
From discontinued operations 0.00 0.06 0.18 (2.65)
Net earnings (loss) 0.91 0.54 0.44 0.91 (1.80)
Effective tax rate - % 31.0 39.9 50.8 37.6 37.4
Operating Ratios
Gross margin - % 23.4 20.7 19.9 21.6 22.6
Operating margin - % 5.5 3.7 2.3 5.5 6.2
Net margin - continuing operations - % 3.3 1.5 0.4 2.6 3.3
Net margin - % 3.3 1.7 1.4 3.2 (7.0)
Return on:
Average shareholders' equity - % 16.4 10.5 9.1 21.0 (36.2)
Average invested capital - % 9.6 5.0 3.7 8.3 (16.7)
Average total assets - % 6.2 3.3 2.6 5.8 (12.5)
Funds Flow Data
Depreciation and amortization $ 27,034 $ 34,229 $ 33,019 $ 25,798 $ 22,463
Capital expenditures 10,466 14,823 44,025 77,392 37,892
Dividends 6,078 5,834 5,833 5,666 5,251
Year-End Data
Total assets $ 409,116 $ 432,679 $ 481,154 $ 466,389 $ 405,526
Current assets 175,084 175,191 214,422 204,308 206,858
Current liabilities 127,239 137,437 135,397 119,796 97,750
Working capital 47,845 37,754 79,025 84,512 109,108
Current ratio 1.4 1.3 1.6 1.7 2.1
Long-term debt 69,098 104,206 164,371 165,097 151,967
% of invested capital 26.0 37.6 50.2 51.0 53.1
Shareholders' equity 170,934 148,292 137,772 130,664 109,600
% of invested capital 64.3 53.5 42.1 40.4 38.3
Investment Information
Dividends per share $ .215 $ 0.210 $ 0.210 0.205 0.190
Book value per share 6.03 5.33 4.97 4.73 3.99
Price range during year:
High 18.65 9.50 14.31 15.50 25
Low 6.28 3.25 4 8.13 10.38
Close 11.30 9 5 8.75 12.94
Price/earnings ratio at year-end 13 17 11 10 NM
Dividend yield at year-end - % 1.9 2.3 4.2 2.4 1.5
Shares outstanding at year-end (in thousands) 28,334 27,825 27,743 27,623 27,453
Average monthly trading volume (in thousands) 4,043 3,545 2,666 1,962 4,065
- --------------------------------------------------------------------------------------------------------------------------------
9
(In thousands, except per share data and
percentages)* 1997 1996 1995 1994** 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 642,226 $ 567,823 $ 516,022 $ 426,400 $ 367,878 $ 364,578
Gross profit 143,761 116,426 102,400 84,184 71,141 67,193
Operating income 44,628 34,729 31,535 23,803 8,779 2,730
Earnings (loss) from continuing operations 26,827 20,656 19,160 16,279 6,657 (1,300)
Earnings (loss) from discontinued operations (607) (2,820) (6,110) (12,446) (2,143) 9,805
Net earnings (loss) 26,220 17,836 13,050 3,833 4,514 8,505
Earnings (loss) per share - basic
From continuing operations 0.98 0.76 0.72 0.62 0.25 (0.05)
From discontinued operations (0.02) (0.10) (0.23) (0.47) (0.08) 0.36
Net earnings (loss) 0.96 0.66 0.49 0.14 0.17 0.32
Earnings (loss) per share - diluted
From continuing operations 0.96 0.76 0.71 0.61 0.25 (0.05)
From discontinued operations (0.02) (0.10) (0.23) (0.47) (0.08) 0.36
Net earnings (loss) 0.93 0.65 0.48 0.14 0.17 0.31
Effective tax rate - % 31.5 35.4 35.1 32.6 28.8 (113.5)
Operating Ratios
Gross margin - % 22.4 20.5 19.8 19.7 19.3 18.4
Operating margin - % 6.9 6.1 6.1 5.6 2.4 0.7
Net margin - continuing operations - % 4.2 3.6 3.7 3.8 1.8 (0.4)
Net margin - % 4.1 3.1 2.5 0.9 1.2 2.3
Return on:
Average shareholders' equity - % 16.9 13.5 10.9 3.4 4.0 7.6
Average invested capital - % 9.2 7.6 6.7 2.4 3.0 5.7
Average total assets - % 7.1 5.5 4.5 1.6 2.1 4.2
Funds Flow Data
Depreciation and amortization $ 17,860 $ 13,122 $ 11,972 $ 12,423 $ 12,344 $ 14,407
Capital expenditures 34,203 20,038 22,603 11,447 6,393 9,985
Dividends 4,806 4,453 4,154 3,841 3,584 3,505
Year-End Data
Total assets $ 410,522 $ 327,233 $ 317,085 $ 257,877 $ 213,372 $ 212,282
Current assets 159,095 149,414 155,608 123,301 102,869 112,847
Current liabilities 86,178 83,574 90,876 92,536 61,702 63,786
Working capital 72,916 65,840 64,732 30,765 41,167 49,061
Current ratio 1.8 1.8 1.7 1.3 1.7 1.8
Long-term debt 127,640 79,102 80,566 35,688 28,419 25,267
% of invested capital 39.4 32.5 35.6 21.6 18.7 17.0
Shareholders' equity 172,150 138,922 124,628 114,062 112,336 113,780
% of invested capital 53.1 57.0 55.1 69.0 74.1 76.6
Investment Information
Dividends per share $ 0.175 $ 0.165 $ 0.155 $ 0.145 $ 0.135 $ 0.130
Book value per share 6.17 5.14 4.64 4.28 4.26 4.23
Price range during year:
High 23.75 9.88 9.25 8.88 6.38 9
Low 9.63 6.50 5.75 5.13 4.13 4.75
Close 19.88 9.81 8.63 7.25 5.81 6.13
Price/earnings ratio at year-end 21 15 18 50 34 19
Dividend yield at year-end - % 0.9 1.7 1.9 2.0 2.3 2.1
Shares outstanding at year-end (in thousands) 27,882 27,034 26,886 26,624 26,354 26,922
Average monthly trading volume (in thousands) 4,795 1,776 1,613 519 644 1,386
- ----------------------------------------------------------------------------------------------------------------------------------
* 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 $0.5 million, or 2 cents per
share.
NM=Not meaningful
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Introduction
Apogee Enterprises, Inc. is a world leader in technologies involving the design
and development of value-added glass products, services and systems. We are
organized in three segments:
. The Architectural Products and Services segment (Architectural)
designs, engineers, fabricates, installs, services and renovates the
walls of glass and windows comprising the outside skin of commercial
and institutional buildings. The businesses in this segment include:
Viracon, the leading fabricator of coated, high-performance
architectural glass for global markets; Harmon, Inc., the largest U.S.
full-service building and glass installation, maintenance, and
renovation company; Wausau Window & Wall Systems, a manufacturer of
custom, aluminum windows and curtainwall systems; and Linetec, a
high-performance paint and anodizing finisher.
. Large-Scale Optical Technologies segment (LSO) develops and produces
high technology glass that enhances the visual performance of products
for the display, imaging and picture framing industries. The
businesses in this segment include: Tru Vue, a North American
value-added glass and matboard manufacturer for the custom framing and
pre-framed art markets; and Viratec Thin Films, a producer of optical
thin film coatings for the global display and imaging markets.
. Automotive Replacement Glass and Services segment (Auto Glass)
fabricates, repairs and replaces automobile windshields and windows.
The businesses in this segment include: Harmon AutoGlass, a U.S. chain
of retail auto glass replacement and repair stores; and
Viracon/Curvlite, a U.S. fabricator of aftermarket foreign and
domestic car windshields.
Performance
The relationship between various components of operations, stated as a percent
of net sales, is illustrated below for the past three fiscal years.
(Percent of Net Sales) 2002 2001 2000
- -------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 76.6 79.3 80.1
----- ----- -----
Gross profit 23.4 20.7 19.9
Selling, general and
administrative expenses 17.9 17.0 17.6
----- ----- -----
Operating income 5.5 3.7 2.3
Interest expense, net 0.7 1.3 1.3
Equity in (loss) income of affiliated companies (0.1) 0.2 (0.3)
----- ----- -----
Earnings from continuing operations
before income taxes 4.7 2.6 0.7
Income taxes 1.4 1.1 0.4
----- ----- -----
Earnings from continuing operations 3.3 1.5 0.3
Earnings from discontinued operations, net 0.0 0.2 1.1
----- ----- -----
Net earnings 3.3% 1.7% 1.4%
- -------------------------------------------------------------------------------------------
Fiscal 2002 Compared To Fiscal 2001
Consolidated net sales decreased 7% in fiscal 2002 to $802.3 million from $865.2
million in fiscal 2001. Net sales decreased 1% compared to the prior year, after
being adjusted for the July 2000 formation of PPG Auto Glass, LLC (PPG Auto
Glass) joint venture. The results of the Auto Glass distribution unit, which we
contributed to the joint venture, were not included in our continuing operations
in fiscal 2002, as they were through the second quarter of fiscal 2001. The
remaining net decrease is attributable to volume reductions and lower pricing
from competitive pressures in the Auto Glass segment and slowdown in the markets
served by the LSO segment. These reductions were partially offset by increased
revenues in our Architectural segment due to increased volume and more efficient
and effective operations. Additionally, fiscal 2002 comprised of 52 weeks versus
53 weeks in fiscal 2001.
On a consolidated basis, cost of sales, as a percentage of net sales, fell to
76.6% for fiscal 2002, improving from 79.3% in fiscal 2001. The primary factors
were efficiencies gained in our Architectural segment, as well as cost
reductions and sales of higher-margin product mix in that segment. These
improvements impacted margin by 3.2%. The net of the formation of the PPG Auto
Glass joint venture and pricing amendments to the PPG Auto Glass supply
agreements made during the
11
second quarter of fiscal 2002 increased margins by 0.4%. These increases were
offset by significant margin reductions within the LSO segment.
Selling, general and administrative (SG&A) expenses, as a percentage of sales,
increased to 17.9% from 17.0%, but decreased $3.5 million. Key components
attributable to the decline in SG&A expenses were reductions in depreciation,
and salaries and related costs in the Auto Glass segment to reduce its overall
cost structure. These declines were partially offset by increased
performance-based incentive expenses and training costs.
Net interest expense decreased to $5.2 million for fiscal 2002 from $11.1
million in fiscal 2001 reflecting significantly lower borrowing levels and a
lower weighted-average interest rate under the revolving credit agreement. Also
contributing to this decrease were interest components of tax refunds received
during the year.
Our equity in loss from affiliated companies was $1.0 million in fiscal 2002
versus equity in income of $1.5 million in the prior year. The amendments made
to the supply agreements related to the PPG Auto Glass joint venture in the
current year second quarter led to lower earnings during the year for PPG Auto
Glass. This decline was somewhat offset by lower costs at the TerraSun joint
venture, which was shut down during the third quarter of fiscal 2002.
Our effective income tax rate of 31.0% of pre-tax earnings from continuing
operations decreased from the 39.9% of pre-tax earnings from continuing
operations reported in fiscal 2001. This reduction was due to a decrease in tax
reserves as a result of the closure of certain tax periods and due to the
relationship of permanent book and tax differences.
Our fiscal 2002 earnings from continuing operations increased to $26.1 million
or $0.91 diluted earnings per share. This compared to earnings from continuing
operations of $13.4 million, or $0.48 diluted earnings per share, a year
earlier. The increase in earnings is largely attributable to the revenue and
productivity gains within our Architectural segment, a reduced cost structure in
the auto glass related businesses, and lower interest and taxes, offset by
losses in our LSO segment.
We did not report earnings from operations of discontinued businesses in fiscal
2002. In fiscal 2001, we reported earnings from operations of discontinued
businesses of $1.6 million after tax, or $0.06 diluted earnings per share. Our
fiscal 2002 net earnings were $26.1 million, or $0.91 diluted earnings per
share. This compared to $15.0 million, or $0.54 diluted earnings per share, a
year ago.
Segment Analysis
Architectural Products and Services
(In thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------
Net sales $479,364 $ 441,466 $ 394,104
Operating income 34,396 27,393 20,513
Depreciation and amortization 16,617 16,111 15,693
Capital expenditures 5,078 6,257 23,382
Assets 225,038 225,668 226,929
- -------------------------------------------------------------------------------------------
Architectural net sales for fiscal 2002 increased 9% to $479.4 million from
$441.5 million in fiscal 2001. The increase is due to an increase in the number
of curtainwall installation projects, due to the new renovation initiatives and
growth at new and mature shops, and improved operations allowing for more
capacity and shipments at our window systems and curtainwall manufacturing
business.
Operating income for the segment in fiscal 2002 increased 26% to $34.4 million
from $27.4 million in the prior year. The resultant operating margins increased
to 7.2% for fiscal 2002 from 6.2% in fiscal 2001. The majority of the
improvement in operating income was driven by sales mix changes to higher margin
products and efficiencies in manufacturing in glass fabricating, partially
offset by slightly lower margins in installation.
The segment's depreciation and amortization and capital expenditures remained
flat for the period compared to prior year. Total assets at the end of fiscal
2002 were consistent with those at the end of fiscal 2001.
12
Large-Scale Optical Technologies
(In thousands) 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Net sales $67,829 $90,768 $69,934
Operating (loss) income (4,350) 4,571 (540)
Depreciation and amortization 3,292 5,916 5,354
Capital expenditures 2,229 2,677 17,254
Assets 53,781 68,489 77,538
- ----------------------------------------------------------------------------------------------
LSO net sales of $67.8 million decreased 25% over fiscal 2001. The decrease in
net sales and resulting operating loss were a direct result of the severe
downturn in the PC industry and the slowdown in retail framing markets, along
with the closure of the San Diego facility during the first quarter of the year.
LSO reported an operating loss of $4.4 million for fiscal 2002, compared to
operating income of $4.6 million for fiscal 2001.
Depreciation and amortization decreased to $3.3 million for fiscal 2002 from
$5.9 million for the prior year due to sale and leaseback agreements entered
into on certain production equipment during fiscal 2001. The leases are
accounted for as operating leases in accordance with SFAS No. 13, Accounting for
Leases. Capital expenditures for fiscal year 2002 were $2.2 million compared to
$2.7 million in fiscal 2001.
Total assets decreased to $53.8 million at the end of fiscal 2002 from $68.5
million at the end of fiscal 2001. This decrease is attributable to the sale of
assets from the shutdown of the San Diego facility, and an overall reduction in
working capital requirements due to the slowdown.
Automotive Replacement Glass and Services
(In thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------
Net sales $255,133 $333,311 $377,499
Operating income 16,088 1,429 184
Depreciation and amortization 6,527 11,873 10,615
Capital expenditures 3,101 5,922 3,918
Assets 84,508 96,595 123,040
- ---------------------------------------------------------------------------------------------
Auto Glass net sales decreased 23% to $255.1 million in fiscal 2002. Segment
revenues, which declined 9% compared to fiscal 2001 after being adjusted for the
PPG Auto Glass joint venture, decreased due to reduced retail unit volumes from
loss of market share and lower prices as a result of competitive pricing
pressures. Market data indicates that unit demand for replacement auto glass in
the U.S. increased 4% during fiscal 2002.
Auto Glass operating income increased to $16.1 million for fiscal 2002 from
operating income of $1.4 million in fiscal 2001 due to a combination of
improvements in the retail business and changes in PPG Auto Glass supply
agreements. Approximately 70% of the operating income improvement resulted from
amendments made to the supply agreements related to the PPG Auto Glass joint
venture, effective beginning the second quarter of this year. These amendments
permanently adjusted pricing to the joint venture from our windshield
manufacturing business, resulting in higher income for the segment. The
remaining gains were the result of operational improvements and cost reductions
implemented late fiscal 2001 for retail. At the end of fiscal 2002, Auto Glass
had 270 Harmon AutoGlass retail locations and 174 co-branded facilities. The
segment continues to pursue opportunities to increase utilization and improve
efficiencies.
Depreciation and amortization decreased to $6.5 million for fiscal 2002 from
$11.9 million for the prior year. This is the result of certain significant
computer hardware and software applications becoming fully depreciated during
fiscal 2001. Capital expenditures for fiscal year 2002 were $3.1 million
compared to $5.9 million in fiscal 2001.
Total assets decreased to $84.5 million at the end of fiscal 2002 from $96.6
million at the end of fiscal 2001. This decrease is attributable to the
reduction of distribution business assets not included in the contribution to
the PPG Auto Glass joint venture. We sold certain remaining assets and realized
the reduction of working capital assets. In addition, there were reductions in
working capital requirements due to reductions of receivables in the retail
business.
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
13
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.
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,
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 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
Industries, Inc.'s (PPG) U.S. automotive replacement glass distribution
businesses into a newly formed entity, PPG Auto Glass, 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% fiscal
2001versus 9.1% for fiscal 2000.
Segment Analysis
Architectural Products and Services. 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 slowdown 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.
14
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 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% 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 shutdown 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 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.
Related Party Transactions
As a result of our 34% interest in PPG Auto Glass of which PPG has the remaining
interest, various contracts and transactions the Company enters into with PPG
Auto Glass are deemed to be "related party" transactions. Under the terms of
this multi-year agreement, the Company's retail auto glass business is committed
to purchasing at least 75% of its replacement windshield needs from PPG Auto
Glass. The terms are negotiated on an arms length basis. We believe that the
amounts received from or paid for such transactions represent the amounts that
would normally be received, or paid to unrelated third parties for similar
transactions.
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. The sale
of Harmon, Ltd. and the Company's detention/security business in fiscal 1999,
combined with the fiscal 1998 exit from international curtainwall operations
effectively removed the Company from the large-scale construction business. All
of the above-mentioned businesses are presented as discontinued operations in
the accompanying financial statements and notes. Prior periods have been
restated.
At March 2, 2002, accruals totaling $19.7 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 remaining exit costs from the international curtainwall operations
of our large-scale construction business, legal costs and other costs associated
with the proceedings noted above. The long-term elements within the accrual
related to the international curtainwall operations include bonds outstanding of
which the precise degree of liability related to these matters will not be known
until they are settled within the U.K. and French courts, and product liability
issues, consisting of warranty and rework issues on these international
construction projects.
15
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (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 loss/income, unless specific hedge accounting criteria are met.
The Company adopted SFAS No. 133 on March 4, 2001 and determined its derivative
instruments, consisting of interest rate swap agreements, qualify for hedge
accounting treatment. The adoption resulted in the Company recording the fair
value of its interest rate swap agreements as a liability for $1.8 million with
an offsetting adjustment to other comprehensive earnings, net of tax, of $1.1
million. The net present liability associated with these interest rate swap
agreements was $2.5 million at March 2, 2002.
In June 2001, FASB issued SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. Under SFAS No. 142, amortization of goodwill and
indefinite-lived intangible assets will cease and instead the carrying value of
these assets will be evaluated for impairment by applying a fair-value based
test on at least an annual basis. We must adopt SFAS No. 142 on March 3, 2002
and we are currently evaluating the effects adoption will have on our
consolidated financial statements. Goodwill amortization expense recorded
during fiscal 2002 was $1.5 million.
In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement, which addresses financial
accounting and reporting for the impairment and disposal of long-lived assets,
will be adopted on March 3, 2002, with no impact on our financial statements.
Liquidity and Capital Resources
(In thousands, except percentages) 2002 2001
- -----------------------------------------------------------------------
Cash provided by operations $53,284 $62,069
Capital expenditures 10,466 14,823
Proceeds from dispositions of property 5,598 17,834
Payments on long-term debt, net 38,296 60,703
Debt to invested capital 26.0% 37.6%
Operating activities. Cash provided by continuing operating activities of $53.3
million decreased by $8.8 million compared to last year. This is the result of
increasing working capital by $0.6 million versus a reduction of $8.4 million in
fiscal 2001. Net income plus noncash charges was essentially flat compared to
the prior year.
Investing activities. Fiscal 2002 investing activities used cash of $3.2
million as compared to $1.1 million of cash provided in fiscal 2001 as a result
of the receipt of $16.0 million related to a sales and leaseback transaction of
operating equipment in the prior year. New capital investment in fiscal 2002
totaled $10.5 million, versus $14.8 million and $44.0 million in fiscal 2001 and
2000, respectively. The decreases over the past two years are the result of
completing and starting up the significant projects initiated over the preceding
two years.
In fiscal 2003, the Company expects to incur capital expenditures as necessary
to maintain existing facilities and information systems. Fiscal 2003
expenditures are expected to be less than $25.0 million.
In fiscal 2002, the Company had proceeds on the sale of certain land, buildings
and equipment totaling $5.6 million compared to $17.8 million in fiscal 2001.
Included in the fiscal 2002 and fiscal 2001 amounts were sales and leaseback
agreements on miscellaneous equipment totaling $2.1 million and $16.0 million,
respectively. We are not expecting to have any such agreements for fiscal 2003.
Financing activities. Payments on long-term debt decreased to $38.3 million for
fiscal 2002 from $60.7 million for fiscal 2001. We continued to focus on debt
reduction during fiscal 2002, evidenced by the reduction in our debt to invested
capital percentage, which improved to 26.0% at the end of fiscal 2002 from 37.6%
at the end of fiscal 2001. Long-term debt, including current installments of
$0.6 million, stood at $69.7 million at March 2, 2002 compared to $104.5 million
at
16
March 3, 2001. The majority of our long-term debt at the end of the year,
$60.7 million, consisted of bank borrowings under a syndicated revolving credit
facility.
Other financing activities
Future Cash Payments Due by Period
- ----------------------------------------------------------------------------
(In thousands) 2003 2004 After 2004
- ----------------------------------------------------------------------------
Long-Term Debt $ 640 $61,240 $ 7,858
Operating Leases (Undiscounted) 15,317 11,944 27,804
Other Obligations 382 183 25
------- ------- -------
Total Cash Obligations $16,339 $73,367 $35,687
======= ======= =======
For fiscal 2003, we expect that outstanding borrowings will generally decline
over the course of the year. We believe that current cash on hand, cash
generated from operating activities, and the available credit facility should be
adequate to fund our working capital requirements and planned capital
expenditures through fiscal 2003. If we are unable to generate enough cash
through operations to satisfy our working capital requirements and planned
capital expenditures, we have available funds from our syndicated revolving
credit facility.
On March 2, 2002, we had a total of $125.0 million available under the
syndicated revolving credit facility of which $60.7 million was in use. This
facility, which expires in May 2003, permits borrowing at competitive interest
rates and is available for general corporate purposes. During fiscal 2001, we
reduced the credit facility from $275.0 million to $200.0 million. During
fiscal 2002, we reduced the credit facility from $200.0 million to $125.0
million. Our receivables, inventory, equipment and intangibles secure the
credit facility. Based upon our satisfaction of certain financial covenants
during fiscal 2001, we have the right to cause this security interest to be
released upon our request. At March 2, 2002, we were in compliance with all
financial covenants of the credit facility.
In April 2002, we expect to enter into a new, four-year, unsecured, committed
credit facility in the amount of $125.0 million. This credit facility will
require us to maintain levels of net worth and certain financial ratios. These
ratios include maintaining an interest coverage ratio (EBITDA divided by
interest expense) of more than 3.0 and a debt to EBITDA ratio of less than 3.0.
At March 2, 2002, these ratios were 9.8 and 1.0, respectively. If we are not in
compliance with these ratios at the end of any quarter, the debt can be
accelerated. Upon establishment of this new credit facility, the parties to the
previously existing $125.0 million secured credit facility are expected to agree
to terminate the previously existing credit facility.
During fiscal 2002, $2.0 million of variable rate industrial revenue bonds were
issued and the resulting proceeds were loaned to us to finance a portion of our
capital projects in Faribault, MN and McCook, IL. In April 2002, an additional
$1.0 million of variable rate industrial bonds were issued and the resulting
proceeds were loaned to the Company to finance a portion of our capital projects
in Wausau, WI.
In fiscal 1999, we entered into an interest rate swap agreement, which expires
in fiscal 2004, that effectively converted $25.0 million of variable rate
borrowings into a fixed rate obligation. In fiscal 2000, we entered into an
interest rate swap agreement, which expires in fiscal 2003, which effectively
converted $10.0 million of variable rate borrowings into a fixed rate
obligation. During fiscal 2002, we extended each of these swap agreements one
year and modified the fixed rate obligation.
We experienced a material increase in our risk retention for our third-party
product liability coverages effective for fiscal 2003. A material rework event
would have a material adverse effect on our operating results.
From time to time, we acquire the use of certain assets, such as warehouses,
automobiles, forklifts, trucks, office equipment and some manufacturing
equipment through operating leases. Many of these operating leases have
termination penalties. However, because the assets are used in the conduct of
our business operations, it is unlikely that any significant portion of these
operating leases would be terminated prior to the normal expiration of their
lease terms. Therefore, we consider the risk related to termination penalties to
be minimal.
Outlook
Overall revenue growth for fiscal 2003 versus fiscal 2002 is anticipated to be
flat to low single digits, with year-on-year growth occurring in the second
half.
- Architectural segment is expected to have flat to low single digit revenue
growth for the year, with second half growth dependent on an improving
construction industry. The segment's focus on complex, value-added projects
17
results in longer lead times from project approval to production, creating
the temporary softness moving from the fourth quarter of fiscal 2002 into
the first quarter of fiscal 2003.
- LSO segment revenues are expected to grow in the high single digits, driven
by the timing of improvements in retail consumer electronics and framing
markets and the expected success of new product initiatives.
- Automotive replacement glass segment revenues are expected to be
approximately flat, as single digit windshield volume growth is slightly
offset by customer mix and competitive pricing. Volume growth will be
driven by improving industry conditions and retail's ability to gain market
share.
Gross margin percentages are expected to improve slightly, with operating
efficiencies achieved largely through Six Sigma and other process improvement
initiatives, which should offset increases in wages, health care and insurance
costs. At the same time, there is expected to be increased margin pressure in
the Architectural and Auto Glass segments driven by competitive actions in soft
markets. Selling, general and administrative expenses will grow slightly, as
will the amount as a percent of sales, due to investments in marketing and
information technology initiatives.
Earnings per share are expected to grow, with the year-on-year growth
anticipated to begin starting in the third quarter when the improving economy
should positively impact Apogee's value-added architectural and LSO businesses.
Critical Accounting Policies
Management has evaluated the accounting policies used in the preparation of the
accompanying financial statements and related notes and believes those policies
to be reasonable and appropriate. We believe that the most critical accounting
policies applied in the presentation of our financial statements relate to
accounting for contingencies, under which we accrue a loss when it is probable
that a liability has been incurred and the amount can be reasonably estimated.
Contingencies, by their nature, relate to uncertainties that require management
to exercise judgment both in assessing the likelihood that a liability has been
incurred as well as in estimating the amount of potential loss. The most
important contingencies impacting our financial statements are as follows:
- Collectibility of accounts receivable - We establish allowances for doubtful
accounts for specifically identified, as well as anticipated, doubtful
accounts based on credit profiles of our customers, current economic trends,
contractual terms and conditions, and historical payment experience. We feel
that there is no concentration of credit risk due to the diversity of our
markets, channels of distribution, and the geographic location of customers.
- Disputes and claims regarding product liability and warranties -
Occasionally, we are subject to claims associated with our products and
services, principally as a result of disputes with our customers involving
our architectural products. The time period from when a claim is asserted to
when it is resolved either by dismissal, negotiation, settlement, or
litigation can be several years. Additionally, while we maintain product
liability insurance, the arrangements include significant self-retention of
risk in the form of policy deductibles. In addition, certain claims could be
determined to be uninsured. We accrue based on our estimates of known
claims, as well as anticipated claims for possible product warranty and
rework costs.
- Discontinued operations - We accrue for 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 remaining
exit costs from the international curtainwall operations of our large-scale
construction business. These long-term accruals include settlement of the
outstanding bonds, of which the precise degree of liability related to these
matters will not be known until they are settled within the U.K. and French
courts; and product liability issues and legal costs may be incurred, as
they relate to our warranties and possible rework issues on the
international and domestic construction projects.
- Self-insurance reserves - We obtain substantial amounts of commercial
insurance for potential losses for general liability, workers' compensation
and automobile liability risk. However, an amount of risk is retained on a
self-insured basis through a wholly owned insurance subsidiary. Reserve
requirements are established based on actuarial projections of ultimate
losses.
- Taxes - We estimate our income taxes for each of the jurisdictions in which
we operate. We include differences between our deferred tax assets and tax
liabilities in our consolidated balance sheet. We assess the likelihood that
our deferred tax assets will be recovered from future taxable income, and to
the extent we believe that recovery is not likely, we establish a valuation
allowance. Significant judgement is required in determining our provisions
for income taxes, our deferred tax assets and liabilities, and our future
taxable income for purposes of assessing our ability to utilize any future
tax benefit from our deferred tax assets.
As part of our ongoing financial reporting process, a collaborative effort is
undertaken involving Apogee managers with financial responsibility for financial
reporting, credit, product and project management, quality, legal, and tax and
outside advisors such as consultants, engineers, lawyers and actuaries. The
results of this effort provide management with the necessary information on
which to base their judgments on these contingencies and develop the estimates
used to prepare
18
the financial statements. We believe that the amounts recorded in the
accompanying financial statements related to these contingencies are based on
the best estimates and judgments of the appropriate Apogee management. However,
outcomes could differ from our estimates and could materially adversely affect
our future operating results, financial position and cash flows.
Impact of Inflation
Our financial statements are prepared on a historical cost basis, which does not
completely account for the effects of inflation. The cost of uncoated glass,
one of our primary raw materials, was slightly higher as compared to the prior
year as our vendors were able to pass on the impact of higher natural gas costs
for part of the year. In the case of our glass fabrication unit, we were able
to pass a portion of this cost onto our customers so there was relatively no
impact. We expect the cost of glass to be flat or increase slightly in fiscal
2003. 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 2002 and a
moderate increase also can be anticipated for fiscal 2003. While these and other
inflationary and market pressures on costs are expected in fiscal 2003, we
anticipate that ongoing improvements in manufacturing efficiencies and
reductions in overhead will mitigate the negative effect of inflation and
selling prices on fiscal 2003 operating income.
Market Risks
Our 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 our direct risk from changes in market interest rates, management
actively monitors the interest sensitive components of our 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.
We use interest swaps to fix a portion of our variable rate borrowings from
fluctuations in interest rates. As of March 2, 2002, we had interest swaps
covering $35.0 million of variable rate debt. The net present liability
associated with these swaps is $2.5 million at the end of fiscal 2002.
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. This change in interest
rates affecting our financial instruments would result in approximately a $0.1
million impact to net earnings. As interest rates increase, net earnings
decrease; as interest rates decrease, net earnings increase.
We have a policy of using forward exchange contracts to hedge our net exposures,
by currency, related to the foreign currency-denominated monetary assets and
liabilities, and future firm commitments of our 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.
As of March 2, 2002, we had $2.1 million of forward contracts outstanding. A
10% adverse change in foreign exchange rates 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.
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," "intend," "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 uncertainties and other risk factors include, but are not limited to,
those noted below. There can be no assurances given that Harmon AutoGlass will
effectively leverage its operational improvements to recapture market share and
increase sales.
19
There can be no assurances that PPG Auto Glass, Apogee's automotive
replacement glass distribution joint venture with PPG Industries, will
achieve favorable long-term operating results. In addition, there can be no
assurances that Apogee's Architectural segment, which serves high-end
markets with value-added products, will not be further impacted by the
slowing economy. There also can be no assurances that there will not be
additional erosion in the LSO segment revenues due to the severe downturn
in the PC industry and a slowdown in retail markets.
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,
quality, facility utilization, new product introductions, seasonal and
cyclical conditions and customer dependency. Also included are other risks
related to financial risk, self-insurance, environmental risk and
discontinued operations. 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 11, 2002, the Company determined not to re-engage its independent
auditors, Arthur Andersen LLP ("Arthur Andersen") and appointed Deloitte &
Touche LLP (D&T) as its new independent auditors, effective upon completion
of the audit for the fiscal year-ended March 2, 2002. This determination
followed the Company's decision to seek proposals from independent
accounting firms with respect to the engagement of independent accountants
to audit the Company's financial statements for the fiscal year ending
March 1, 2003. The decision not to re-engage Arthur Andersen and to retain
D&T was approved by the Company's Board of Directors on April 11, 2002 upon
the recommendation of its Audit Committee.
The reports of Arthur Andersen on the financial statements of the Company
for the past two fiscal years ended March 2, 2002 and March 3, 2001 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 11, 2002, (i) there were no disagreements between the
Company and Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of Arthur Andersen, would have
caused Arthur Andersen to make reference thereto in their report on the
financial statements for such years. In addition, the Company believes that
during the two most recent fiscal years and through April 11, 2002, there
have been no reportable events. (As defined in Item 304 (a) (1) (v) of
Regulations S-K of the Securities and Exchange Commission.)
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
11, 2002, consult with D&T 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 D&T concluded was an important factor considered
by the Company in reaching a decision as to the accounting, auditing or
financial reporting issue, or (ii) any matter that was either the subject
of a Disagreement with Arthur Andersen or a Reportable Event.
The Company reported the change in accountants on Form 8-K on April 18,
2002. The Form 8-K contained a letter from Arthur Andersen, 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.
20
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item, other than the information set forth
in Part I above under the heading "Executive Officers of the Registrant",
is set forth under the headings "Item 1: Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on
June 18, 2002, which will be filed with the Securities and Exchange
Commission pursuant to Regulation A of the Securities Exchange Act of 1934.
This information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this item is set forth under the headings
"Executive Compensation" and "Item 1: Election of Directors - Compensation
of Directors" in the Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on June 18, 2002, which will be filed with the
Securities and Exchange Commission pursuant to Regulation A of the
Securities Act of 1934. This information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is set forth under the headings
"Security Ownership of Principal Shareholders" and "Security Ownership of
Directors and Executive Officers" in the Proxy Statement for the Company's
Annual Meeting of Shareholders to be held on June 18, 2002, which will be
filed with the Securities and Exchange Commission pursuant to Regulation A
of the Securities Exchange Act of 1934. This information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is set forth under the heading "Item
1: Election of Directors - Compensation of Directors" in the Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on
June 18, 2002, which will be filed with the Securities and Exchange
Commission pursuant to Regulation A of the Securities Exchange Act of 1934.
This information is incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) and (d) Financial Statements and Financial Statement Schedules -
The consolidated financial statements and schedules of the Registrant
listed in the accompanying "Index of Financial Statements and
Schedules" together with the reports of Arthur Andersen LLP,
independent auditors, are filed as part of this report.
(b) Reports on Form 8-K
During the quarter ended March 2, 2002, 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."
21
- 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: April 19, 2002
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) April 19, 2002
- ---------------------------------------- ------------------------------------------ ----------------------
Russell Huffer
Executive VP & CFO (Principal Financial
/s/ Michael B. Clauer and Accounting Officer) April 19, 2002
- ---------------------------------------- ------------------------------------------ ----------------------
Michael B. Clauer
/s/ Donald W. Goldfus Director April 19, 2002
- ---------------------------------------- ------------------------------------------ ----------------------
Donald W. Goldfus
/s/ Harry A. Hammerly Director April 19, 2002
- ---------------------------------------- ------------------------------------------ ----------------------
Harry A. Hammerly
/s/ Laurence J. Niederhofer Director April 19, 2002
- ---------------------------------------- ------------------------------------------ ----------------------
Laurence J. Niederhofer
/s/ James L. Martineau Director April 19, 2002
- ---------------------------------------- ------------------------------------------ ----------------------
James L. Martineau
/s/ Barbara B. Grogan Director April 19, 2002
- ---------------------------------------- ------------------------------------------ ----------------------
Barbara B. Grogan
22
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------------------------
/s/ Stephen C. Mitchell Director April 19, 2002
- --------------------------------------------- ------------------------------------------ ----------------------
Stephen C. Mitchell
/s/ Bernard P. Aldrich Director April 19, 2002
- --------------------------------------------- ------------------------------------------ ----------------------
Bernard P. Aldrich
/s/ J. Patrick Horner Director April 19, 2002
- --------------------------------------------- ------------------------------------------ ----------------------
J. Patrick Horner
/s/ Michael E. Shannon Director April 19, 2002
- --------------------------------------------- ------------------------------------------ ----------------------
Michael E. Shannon
/s/ Ray C. Richelson Director April 19, 2002
- --------------------------------------------- ------------------------------------------ ----------------------
Ray C. Richelsen
23
Apogee Enterprises, Inc.
Form 10-K
Items 8, 14 (a) and 14 (d)
Index of Financial Statements and Schedules
Financial Statements
Report of Independent Public Accountants....................... F-2
Consolidated Balance Sheets.................................... F-3
Consolidated Results of Operations............................. F-4
Consolidated Statements of Shareholders' Equity................ F-5
Consolidated Statements of Cash Flows.......................... F-6
Notes to Consolidated Financial Statements..................... F-7
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 sheets of Apogee
Enterprises, Inc. (a Minnesota corporation) and subsidiaries as of March 2,
2002 and March 3, 2001, and the related consolidated results of operations,
statements of shareholders' equity and cash flows for the three years ended
March 2, 2002. 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 2, 2002 and March 3, 2001, and the results of their
operations and their cash flows for the three years ended March 2, 2002, in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Minneapolis, Minnesota
April 2, 2002
F-2
CONSOLIDATED BALANCE SHEETS
March 2, March 3,
(In thousands, except per share data) 2002 2001
- -------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 15,361 $ 4,689
Receivables, net of allowance for doubtful accounts 115,159 121,461
Inventories 36,022 40,434
Deferred tax assets 4,875 4,854
Other current assets 3,667 3,753
- -------------------------------------------------------------------------------------------------
Total current assets 175,084 175,191
- -------------------------------------------------------------------------------------------------
Property, plant and equipment, net 128,515 147,593
Marketable securities available for sale 22,825 24,451
Investments in affiliated companies 29,361 32,530
Intangible assets, at cost less accumulated
amortization of $13,940 and $12,520, respectively 49,387 50,145
Other assets 3,944 2,769
- ------------------------------------------------------------------------------------------------
Total assets $409,116 $432,679
- --------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 51,887 $ 59,537
Accrued expenses 57,766 57,571
Current liabilities of discontinued operations, net 3,740 2,578
Billings in excess of costs and earnings on uncompleted contracts 6,127 10,330
Accrued income taxes 7,079 7,093
Current installments of long-term debt 640 328
- -------------------------------------------------------------------------------------------------
Total current liabilities 127,239 137,437
- -------------------------------------------------------------------------------------------------
Long-term debt, less current installments 69,098 104,206
Other long-term liabilities 25,867 24,466
Liabilities of discontinued operations, net 15,978 18,278
Commitments and contingent liabilities (Notes 6, 13 and 17)
Shareholders' equity
Common stock of $0.33-1/3 par value; authorized 50,000,000 shares;
issued and outstanding, 28,334,000 and 27,825,000, respectively 9,445 9,275
Additional paid-in capital 50,521 45,773
Retained earnings 113,382 93,543
Unearned compensation (1,547) (757)
Accumulated other comprehensive (loss) income (867) 458
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 170,934 148,292
- -------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $409,116 $432,679
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED RESULTS OF OPERATIONS
Year-Ended Year-Ended Year-Ended
(In thousands, except per share data) March 2, 2002 March 3, 2001 February 26, 2000
- ------------------------------------------------------------------------------------------------------------
Net sales $802,315 $865,200 $840,488
Cost of sales 614,587 686,203 673,253
- --------------------------------------------------------------------------------------------------------------
Gross profit 187,728 178,997 167,235
Selling, general and administrative expenses 143,601 147,103 147,817
- --------------------------------------------------------------------------------------------------------------
Operating income 44,127 31,894 19,418
Interest expense, net 5,215 11,122 10,359
Equity in (loss) income of affiliated companies (1,026) 1,465 (2,817)
- --------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes 37,886 22,237 6,242
Income taxes 11,744 8,876 3,171
- --------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 26,142 13,361 3,071
Earnings from discontinued operations,
net of income taxes --- 1,641 9,104
- --------------------------------------------------------------------------------------------------------------
Net earnings $ 26,142 $ 15,002 $ 12,175
==============================================================================================================
Earnings per share - basic
Continuing operations $ 0.94 $ 0.48 $ 0.11
Discontinued operations --- 0.06 0.33
- --------------------------------------------------------------------------------------------------------------
Net earnings $ 0.94 $ 0.54 $ 0.44
- --------------------------------------------------------------------------------------------------------------
Earnings per share - diluted
Continuing operations $ 0.91 $ 0.48 $ 0.11
Discontinued operations --- 0.06 0.33
- --------------------------------------------------------------------------------------------------------------
Net earnings $ 0.91 $ 0.54 $ 0.44
- --------------------------------------------------------------------------------------------------------------
Weighted average basic shares outstanding 27,910 27,675 27,603
Weighted average diluted shares outstanding 28,817 27,898 27,794
==============================================================================================================
See accompanying notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Additional Accumulated Other
Shares Common Paid-In Retained Unearned Comprehensive Comprehensive
(In thousands) Outstanding Stock Capital Earnings Compensation (Loss) Income Earnings
====================================================================================================================================
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)
Unearned compensation, net --- --- --- --- (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) $11,793
================
Net earnings --- --- --- 15,002 --- --- $15,002
Unrealized gain on
marketable securities,
net of $407 tax expense --- --- --- --- --- 760 760
Unearned compensation, net --- --- --- --- 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 $15,762
================
Net earnings --- --- --- 26,142 --- --- $26,142
Unrealized gain on
marketable securities,
net of $112 tax expense --- --- --- --- --- 207 207
Initial impact of adoption of
SFAS No. 133, net of $672 tax --- --- --- --- --- (1,109) (1,109)
benefit
Unrealized loss on
derivatives, net of $257 tax
benefit --- --- --- --- --- (423) (423)
Unearned compensation, net --- --- --- --- (790) ---
Tax benefit associated with
stock plans --- --- 400 --- --- ---
Common stock issued 542 181 4,396 --- --- ---
Common stock
repurchased and retired (33) (11) (48) (225) --- ---
Cash dividends ($0.215 per share) --- --- --- (6,078) --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 2, 2002 28,334 $9,445 $50,521 $113,382 $(1,547) $ (867) $24,817
====================================================================================================================================
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year-Ended Year-Ended Year-Ended
(In thousands) March 2, 2002 March 3, 2001 February 26, 2000
====================================================================================================================================
Operating Activities
Net earnings $ 26,142 $ 15,002 $ 12,175
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net earnings from discontinued operations --- (1,641) (9,104)
Depreciation and amortization 27,034 34,229 33,019
Deferred income taxes (515) 4,832 (3,524)
Dividends received in excess of (less than) the results
from equity investments 3,437 (4,040) 152
(Gain) loss on disposal of assets (1,935) 2,102 28
Other, net (249) 3,201 316
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables 6,302 4,292 (6,828)
Inventories 4,539 5,394 637
Accounts payable and accrued expenses (6,613) (856) 14,258
Billings in excess of costs and earnings on uncompleted contracts (4,203) 503 (1,795)
Refundable and accrued income taxes (655) (949) 2,209
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 53,284 62,069 41,543
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (10,466) (14,823) (44,025)
Proceeds from sales of property, plant and equipment 5,598 17,834 14,672
Acquisition of businesses, net of cash acquired (247) (3,602) (1,983)
Purchases of marketable securities (8,438) (7,900) (17,469)
Sales/maturities of marketable securities 10,383 9,570 19,169
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (3,170) 1,079 (29,636)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Decrease in net borrowings under revolving credit agreement (35,300) (60,500) (8,200)
Proceeds from issuance of long-term debt 2,000 --- 7,650
Payments on long-term debt (2,996) (203) (1,294)
Increase in deferred debt expense (223) (563) (334)
Proceeds from issuance of common stock 4,577 532 2,781
Repurchase and retirement of common stock (284) (307) (2,269)
Dividends paid (6,078) (5,834) (5,833)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (38,304) (66,875) (7,499)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash (used in) provided by discontinued operations (1,138) 1,224 1,466
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 10,672 (2,503) 5,874
Cash and cash equivalents at beginning of year 4,689 7,192 1,318
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 15,361 $ 4,689 $ 7,192
====================================================================================================================================
Supplemental schedule of non-cash investing activities:
Net assets contributed to PPG Auto Glass, LLC (see Note 5) $ --- $ 30,359 $ ---
Net assets acquired through assumption of debt (see Note 12) 1,500 684 ---
====================================================================================================================================
See accompanying notes to consolidated financial statements.
F-6
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 Enterprises, Inc., a Minnesota corporation, and all majority-
owned subsidiaries (the Company). The equity method is used to account for the
Company's joint ventures. Transactions between Apogee and its subsidiaries have
been eliminated in consolidation. Certain amounts from prior-years' financial
statements have been reclassified to conform with this year's presentation.
Apogee's fiscal year ends on the Saturday closest to February 28. Fiscal year
2002 and 2000 each consisted of 52 weeks, while fiscal 2001 consisted of 53
weeks.
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 96% 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 $3.4 million and $3.1 million higher than reported
at March 2, 2002, and March 3, 2001, 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 $2.3 million, $2.4 million and $2.3 million in 2002, 2001
and 2000, 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
are reduced to estimated fair value.
Financial Instruments. Unless otherwise noted, the Company's financial
instruments approximate fair value.
Self-Insurance. The Company obtains substantial amounts of commercial insurance
for potential losses for general liability, workers' compensation, and
automobile liability risk. However, a reasonable amount of risk is retained on
a self-insured basis through a wholly owned insurance subsidiary, Prism
Assurance, Inc. (Prism). Reserve requirements are established based on
actuarial projections of ultimate losses. 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. In a small number of instances the
Company also recognizes revenue on a bill and hold basis, in which revenue is
recognized at the time of billing, and the product is shipped at a later date,
as agreed upon by the Company and the customer.
Income Taxes. The Company accounts for income taxes as prescribed by Statements
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
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.
Foreign Currency. The financial statements of foreign operations have been
translated to U.S. dollars, using the rules of SFAS No. 52, Foreign Currency
Translation. 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.
F-7
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 2, 2002, the Company had $2.1 million in forward contracts maturing in
2003. 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 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, warranty reserves, reserves related to discontinued operations, net
sales recognition for construction contracts, and 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 loss/income, unless
specific hedge accounting criteria are met. The Company adopted SFAS No. 133 on
March 4, 2001 and determined its derivative instruments, consisting of interest
rate swap agreements, qualify for hedge accounting treatment. The adoption
resulted in the Company recording the fair value of its interest rate swap
agreements as a liability for $1.8 million with an offsetting adjustment to
other comprehensive earnings, net of tax, of $1.1 million. The net present
liability associated with these interest rate swap agreements was $2.5 million
at March 2, 2002.
In June 2001, FASB issued SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting. Under SFAS No. 142, amortization of goodwill and
indefinite-lived intangible assets will cease and instead the carrying value of
these assets will be evaluated for impairment by applying a fair-value based
test on at least an annual basis. The Company must adopt SFAS No. 142 on March
3, 2002. The Company is currently evaluating the effects adoption of SFAS No.
142 will have on its consolidated financial statements. Goodwill amortization
expense recorded during fiscal 2002 was $1.5 million.
In August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses financial accounting
and reporting for the impairment and disposal of long-lived assets. The Company
will adopt this standard on March 3, 2002, with no impact to its consolidated
financial statements.
2 Working Capital
Receivables
(In thousands) 2002 2001
=========================================================================
Trade accounts $ 89,552 $102,171
Construction contracts 22,817 16,819
Contract retainage 6,816 6,334
Other receivables 1,838 5,079
- -------------------------------------------------------------------------
Total receivables 121,023 130,403
Less allowance for doubtful accounts (5,864) (8,942)
- -------------------------------------------------------------------------
Net receivables $115,159 $121,461
=========================================================================
F-8
Inventories
(In thousands) 2002 2001
=========================================================================
Raw materials $16,235 $20,124
Work-in-process 5,807 6,259
Finished goods 9,351 12,406
Costs and earnings in excess of
billings on uncompleted contracts 4,629 1,645
- -------------------------------------------------------------------------
Total inventories $36,022 $40,434
=========================================================================
Accrued Expenses
(In thousands) 2002 2001
=========================================================================
Payroll and related benefits $23,802 $24,077
Insurance 10,908 9,928
Taxes, other than income taxes 3,437 3,927
Pension 4,160 4,777
Interest 525 1,048
Other 14,934 13,814
- -------------------------------------------------------------------------
Total accrued expenses $57,766 $57,571
=========================================================================
3 Property, Plant and Equipment
(In thousands) 2002 2001
==============================================================================
Land $ 4,185 $ 5,408
Buildings and improvements 88,506 89,787
Machinery and equipment 129,006 139,290
Office equipment and furniture 55,463 60,627
Construction-in-progress 4,818 8,656
- ------------------------------------------------------------------------------
Total property, plant and equipment 281,978 303,768
Less accumulated depreciation (153,463) (156,175)
- ------------------------------------------------------------------------------
Net property, plant and equipment $ 128,515 $ 147,593
==============================================================================
Depreciation expense was $24.7 million, $31.9 million and $30.7 million in
2002, 2001 and 2000, respectively.
4 Marketable Securities
The Company's wholly owned insurance subsidiary, Prism, that insures a portion
of the Company's workers' compensation, general liability and automobile
liability risks uses reinsurance agreements to meet statutory requirements. The
reinsurance carrier requires Prism to maintain fixed maturity investments for
the purpose of providing collateral for Prism's obligations under the
reinsurance agreement. Prism's fixed maturity investments are classified as
"available for sale" and are carried at market value as prescribed by SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities.
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 2, 2002 and March 3, 2001 are as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
===========================================================================
March 2, 2002
Municipal bonds $21,801 $1,028 $ (4) $22,825
- ---------------------------------------------------------------------------
Total investments $21,801 $1,028 $ (4) $22,825
- ---------------------------------------------------------------------------
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
===========================================================================
F-9
The amortized cost and estimated fair values of investments at March 2, 2002
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 $ 1,002 $ 1,007
Due after one year through five years 5,159 5,429
Due after five years through ten years 6,399 6,723
Due after ten years through fifteen years 4,851 5,141
Due beyond fifteen years 4,390 4,525
- --------------------------------------------------------------------------------
Total $21,801 $22,825
================================================================================
Gross realized gains of $0.2 million, $0 and $0 and gross realized losses of
$0, $0.1 million and $0.5 million were recognized in fiscal 2002, 2001 and 2000,
respectively, and are included in interest expense, net in the accompanying
Consolidated Results of Operations.
5 Investments
In July 2000, the Company and PPG Industries, Inc. (PPG) combined their U.S.
automotive replacement glass distribution businesses into a joint venture, PPG
Auto Glass, LLC (PPG Auto Glass), of which the Company has a 34 percent
interest. On March 2, 2002, the Company's investment in PPG Auto Glass was
$29.0 million, of which $7.3 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. In connection with the formation of PPG Auto
Glass, the Company agreed to supply the joint venture, through PPG, with most of
the Company's windshield fabrication capacity on market-based terms and
conditions. In addition, the Company's automobile windshield repair and
replacement business agreed to purchase 75% of its windshield needs from PPG
Auto Glass on market-based terms and conditions. Purchases from PPG Auto Glass
were $44.8 million and $29.0 million for fiscal 2002 and 2001, respectively.
Amounts owed to PPG Auto Glass were $5.5 million and $7.3 million at the end of
fiscal 2002 and 2001, respectively.
During the second quarter of fiscal 2002, the Company, PPG and PPG Auto Glass
amended the windshield supply agreements to permanently adjust pricing for the
windshields manufactured and sold to more accurately reflect market pricing. As
a result of these amendments, a portion of earnings that would have previously
been reported in equity in income from affiliated companies was reported in
operating income in the Auto Glass segment for the current year. The impact on
fiscal 2002 results was an increase to operating income of $8.4 million, with an
offset to income from affiliated companies. Additionally, $1.8 million was
recorded as a one-time net increase to operating income as a result of these
changes.
In September 2001, the Company decided to discontinue funding TerraSun, LLC,
its research and development joint venture of which the Company had a 50 percent
interest. As a result, TerraSun discontinued its operations and its tangible
assets have been sold, while retaining its intangible assets.
The Company's share of earnings for its affiliated companies is before income
taxes and includes amortization of the excess cost over the value of the
underlying net tangible assets and expenses retained by the Company.
6 Long-Term Debt
(In thousands) 2002 2001
==========================================================================
Borrowings under revolving credit
agreement, interest ranging
from 3.25% to 5.00% $60,700 $ 96,000
Other, interest ranging from 1.49% 9,038 8,534
to 7.00%
- --------------------------------------------------------------------------
Total long-term debt 69,738 104,534
Less current installments (640) (328)
- --------------------------------------------------------------------------
Net long-term debt $69,098 $104,206
==========================================================================
F-10
Long-term debt maturities are as follows:
Fiscal Year (In thousands)
======================================================
2003 $ 640
2004 61,240
2005 308
2006 150
2007 ---
- ------------------------------------------------------
Thereafter 7,400
- ------------------------------------------------------
Total $69,738
======================================================
The Company maintained a committed, secured credit facility at March 2, 2002
and March 3, 2001 totaling $125.0 million and $200.0 million, respectively. The
credit facility required the Company to maintain minimum levels of net worth and
certain financial ratios. 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, 2002, 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 2, 2002, 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) 2002 2001
============================================================================
Average daily borrowings during the year $ 83,894 $136,284
Maximum borrowings outstanding during the year 108,800 156,800
Weighted average interest rate during the year 6.5% 8.1%
============================================================================
The Company has entered into an interest rate swap agreement that effectively
converts $10.0 million of variable rate borrowings into a fixed rate obligation.
This agreement, which was set to expire in 2003, was extended to 2004. The
Company receives payments at variable rates while making payments at a fixed
rate of 5.955%. Prior to the extension, the fixed rate was 7.21%. The Company
also has entered into an interest rate swap agreement that effectively converts
$25.0 million of variable rate borrowings into a fixed rate obligation. This
agreement, which was set to expire in 2004, was extended to 2005. The Company
receives payments at variable rates while making payments at a fixed rate of
6.665%. Prior to the extension, the fixed rate was 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 $2.5 and $1.8 million at March 2, 2002 and March 3, 2001,
respectively.
7 Interest, Net
(In thousands) 2002 2001 2000
==============================================================================
Interest on debt $ 6,633 $12,610 $11,939
Other interest expense 667 420 636
- ------------------------------------------------------------------------------
Total interest expense 7,300 13,030 12,575
Less interest income (2,085) (1,908) (2,216)
- ------------------------------------------------------------------------------
Interest expense, net $ 5,215 $11,122 $10,359
==============================================================================
Interest payments, including interest expense allocated to discontinued
operations, were $7.5 million, $12.3 million and $12.5 million in 2002, 2001 and
2000, 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 $4.3 million,
$4.7 million and $4.9 million in 2002, 2001 and 2000, respectively.
F-11
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 $1.7 million, $2.0
million and $2.1 million in 2002, 2001 and 2000, respectively.
Effective January 1, 2002, the Company froze the qualified defined
contribution pension plan, and amended the 401(k) savings plan to add a
contribution that will be made by the Company annually, which is based on a
percentage of employee's base earnings. In addition, the Company raised the
maximum amount that employees are allowed to contribute to the plan from 13% to
60%, up to statutory limits. The Apogee match of 30% of the first 6% of the
employee contributions remains unchanged. On or around July 1, 2002, the assets
in the frozen qualified defined contribution pension plan are scheduled to be
merged into the 401(k) savings plan resulting in a single 401(k) retirement
savings plan.
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
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 2,
2002, 2,786,000 shares have been issued or committed under the Plan. The Company
expensed $2.3 million, $1.8 million and $0.8 million in conjunction with the
Partnership Plan in 2002, 2001 and 2000, respectively.
A summary of option transactions under the Plans for 2002, 2001 and 2000
follows:
Options Outstanding
------------------------------------------------------------------
Number of Average Option Price
Shares Exercise Price Range
========================================================================================================
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
Options granted 560,200 8.83 8.60- 14.40
Options exercised (123,509) 8.15 4.19- 16.75
Options canceled (84,090) 8.43 4.81- 16.75
--------------------------------------------------------------------------------------------------------
Balances, March 2, 2002 2,464,379 $ 10.45 $ 3.75- $25.00
========================================================================================================
F-12
The following table summarizes information about stock options outstanding and
exercisable at March 2, 2002:
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- $ 5.00 499,957 7.9 years $ 4.68 150,182 $ 4.49
5.01- 10.00 714,040 7.9 years 8.20 154,190 7.87
10.01- 15.00 738,632 6.3 years 12.63 560,132 12.83
15.01- 25.00 511,750 3.9 years 16.10 501,750 16.08
- -------------------------------------------------------------------------------------------------------------------------
2,464,379 6.6 years $10.45 1,366,254 $12.55
=========================================================================================================================
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:
(In thousands, except per share data) 2002 2001 2000
===================================================================================
As reported:
Net earnings
Continuing operations $26,142 $13,361 $ 3,071
Discontinued operations --- 1,641 9,104
- -----------------------------------------------------------------------------------
$26,142 $15,002 $12,175
===================================================================================
Earnings per share - diluted
Continuing operations $ 0.91 $ 0.48 $ 0.11
Discontinued operations --- 0.06 0.33
- -----------------------------------------------------------------------------------
$ 0.91 $ 0.54 $ 0.44
===================================================================================
Pro forma:
Net earnings (loss)
Continuing operations $25,186 $10,045 $ (250)
Discontinued operations --- 1,641 9,104
- -----------------------------------------------------------------------------------
$25,186 $11,686 $ 8,854
===================================================================================
Earnings (loss) per share -diluted
Continuing operations $ 0.87 $ 0.35 $ (0.01)
Discontinued operations --- 0.06 0.32
- -----------------------------------------------------------------------------------
$ 0.87 $ 0.41 $ 0.32
===================================================================================
The above pro forma amounts may not be representative of the effects on
reported net earnings (loss) for future years. The weighted average fair value
per option at the date of grant for options granted in fiscal 2002, fiscal 2001
and fiscal 2000 was $4.23, $1.86 and $4.89, respectively. 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 2002, 2001 and 2000:
2002 2001 2000
================================================================================
Dividend yield 2.4% 4.4% 1.8%
Expected volatility 67.3% 60.5% 62.4%
Risk-free interest rate 4.4% 7.5% 4.8%
Expected lives 4.6 years 3.9 years 3.8 years
================================================================================
F-13
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) 2002 2001 2000
=========================================================================================
Current:
Federal $10,752 $3,642 $ 6,229
State and local 1,507 402 466
- -----------------------------------------------------------------------------------------
Total current 12,259 4,044 6,695
=========================================================================================
Deferred:
Federal (692) 4,282 (3,453)
State and local 177 550 (71)
- -----------------------------------------------------------------------------------------
Total deferred (515) 4,832 (3,524)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Total income tax expense $11,744 $8,876 $ 3,171
=========================================================================================
Income tax payments, net of refunds, were $13.0 million, $4.5 million and $8.5
million in 2002, 2001 and 2000, respectively.
The differences between statutory federal tax rates and consolidated effective
tax rates are as follows:
2002 2001 2000
=======================================================================================
Statutory federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal tax benefit 2.9 2.8 4.1
Tax credits (1.5) (3.3) (2.0)
Foreign sales corporation (0.5) (0.8) (7.3)
Goodwill amortization 1.2 1.8 6.4
Meals and entertainment 0.7 1.3 5.5
Tax reserves (5.9) 4.9 14.4
Other, net (0.9) (1.8) (5.3)
- ---------------------------------------------------------------------------------------
Consolidated effective tax rate 31.0% 39.9% 50.8%
=======================================================================================
Tax benefits for deductions associated with the 1987 Stock Option Plan and the
1987 Partnership Plan amounted to $0.4 million, $0.2 million and $0.8 million in
2002, 2001 and 2000, 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 2, 2002 and March 3,
2001 are as follows:
2002 2001
---------------------------- --------------------------------
(In thousands) Current Noncurrent Current Noncurrent
======================================================================================================================
Accounts receivable $2,297 --- $3,457 $ (183)
Accrued insurance --- $ 3,031 --- 3,205
Deferred compensation 37 5,747 37 6,208
Inventory 999 --- 559 ---
Depreciation --- (2,822) --- (2,816)
Employee benefit plans (182) --- (372) ---
Mark to market interest rate swaps --- 929 --- ---
Other 1,724 (3,855) 1,173 (4,807)
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax assets $4,875 $ 3,030 $4,854 $ 1,607
======================================================================================================================
F-14
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. These
transactions effectively removed the Company from the third-party administered
claims processing business. This business is presented as discontinued
operations in the consolidated financial statements and notes.
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, the
Company executed the sale of its detention/security business. Combined with the
fiscal 1998 exit from international curtainwall operations, these transactions
effectively removed the Company from the large-scale construction business.
These businesses are presented as discontinued operations in the consolidated
financial statements and notes.
(In thousands) 2002 2001 2000
==============================================================================================
Earnings from Operations
of Discontinued Businesses
Net sales $ -- $2,750 $28,331
Earnings before income* -- 2,525 9,821
Income tax expense -- 884 717
Earnings from operations,
net of income taxes $ -- $1,641 $ 9,104
==============================================================================================
*Includes net interest expense allocations (based on the ratio of net operating
assets of discontinued operations to consolidated net assets) of $0, $0 and
$0.1 million for 2002, 2001 and 2000, respectively.
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) 2002 2001
===================================================================================================
Net Liabilities of Discontinued Operations
Current assets $ -- $ 629
Accrued liabilities (19,718) (21,485)
- ---------------------------------------------------------------------------------------------------
Net liabilities of discontinued operations $(19,718) $(20,856)
Less net current liabilities of discontinued operations 3,740 2,578
- ---------------------------------------------------------------------------------------------------
Net long-term liabilities of discontinued operations $(15,978) $(18,278)
===================================================================================================
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 and closure of bonds. 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 2, 2002, accruals totaling $19.7 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 remaining exit costs from the international curtainwall operations of the
large-scale construction business. These long-term accruals include settlement
of the outstanding bonds, of which the precise degree of liability related to
these matters will not be known until they are settled within the U.K. and
French courts; and product liability issues and legal costs may be incurred, as
they relate to the Company's warranties and possible rework issues on these
international and domestic construction projects.
F-15
12 Acquisitions
In fiscal 2002 and 2001, the Large-Scale Optical Technologies segment expanded
its pre-framed art business by purchasing three high-end pre-framed art
companies. The purchase price of these businesses was $6.0 million, including
the assumption of $2.2 million in debt, and resulted in recording $4.5 million
as 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 $0.6 million recorded as goodwill, with no debt 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 2, 2002, 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:
Fiscal Year (In thousands)
============================================================
2003 $15,317
2004 11,944
2005 9,649
2006 6,675
2007 5,813
Thereafter 5,667
- ------------------------------------------------------------
Total minimum payments $55,065
============================================================
Total rental expense was $22.9 million, $21.8 million and $23.8 million in
2002, 2001 and 2000, respectively.
During fiscal 2002, 2001 and 2000, the Company entered into agreements for the
sale and leaseback of certain production equipment, which are significant to the
operations of the businesses. The sale price of the equipment was $2.1 million,
$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.
Under the aforementioned sale-leaseback transactions, a total gain of $9.7
million has been deferred and is being recognized over the terms of the leases.
The March 2, 2002 and March 3, 2001 unamortized portion of the deferred gain of
$7.5 million and $8.7 million, respectively, is included in the balance sheet
captions accrued expenses and other long-term liabilities. The average annual
lease payment over the life of these leases is $4.8 million.
F-16
14 Quarterly Data (Unaudited)
Quarter
============================================================
(In thousands, except per share data) First Second Third Fourth
====================================================================================================================
Fiscal 2002
Net sales $203,606 $210,233 $200,293 $188,183
Gross profit 45,304 51,400 45,811 45,213
Earnings from continuing operations 5,602 10,341 5,844 4,355
Earnings from discontinued operations --- --- --- ---
Net earnings 5,602 10,341 5,844 4,355
Earnings per share - basic
From continuing operations 0.20 0.37 0.21 0.16
From discontinued operations --- --- --- ---
Net earnings 0.20 0.37 0.21 0.16
Earnings per share - diluted
From continuing operations 0.20 0.36 0.20 0.15
From discontinued operations --- --- --- ---
Net earnings 0.20 0.36 0.20 0.15
- --------------------------------------------------------------------------------------------------------------------
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 --- --- --- 0.06
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 --- --- --- 0.06
Net earnings 0.07 0.15 0.11 0.21
- --------------------------------------------------------------------------------------------------------------------
15 Business Segments Data
The Company's segments are aligned 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, installs, services and renovates 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.
(In thousands) 2002 2001 2000
=====================================================================================
Net Sales
Architectural $479,364 $441,466 $394,104
Large-scale optical 67,829 90,768 69,934
Auto glass 255,133 333,311 377,499
Intersegment elimination (11) (345) (1,049)
- -------------------------------------------------------------------------------------
Total $802,315 $865,200 $840,488
=====================================================================================
F-17
Operating Income
Architectural $ 34,396 $ 27,393 $ 20,513
Large-scale optical (4,350) 4,571 (540)
Auto glass 16,088 1,429 184
Corporate and other (2,007) (1,499) (739)
- -----------------------------------------------------------------------------
Total $ 44,127 $ 31,894 $ 19,418
=============================================================================
Depreciation and Amortization
Architectural $ 16,617 $ 16,111 $ 15,693
Large-scale optical 3,292 5,916 5,354
Auto glass 6,527 11,873 10,615
Corporate and other 598 329 1,357
- -----------------------------------------------------------------------------
Total $ 27,034 $ 34,229 $ 33,019
=============================================================================
Capital Expenditures
Architectural $ 5,078 $ 6,257 $ 23,382
Large-scale optical 2,229 2,677 17,254
Auto glass 3,101 5,922 3,918
Corporate and other 58 (33) (529)
- -----------------------------------------------------------------------------
Total $ 10,466 $ 14,823 $ 44,025
=============================================================================
Identifiable Assets
Architectural $225,038 $225,668 $226,929
Large-scale optical 53,781 68,489 77,538
Auto glass 84,508 96,595 123,040
Corporate and other 45,789 41,927 53,647
- -----------------------------------------------------------------------------
Total $409,116 $432,679 $481,154
=============================================================================
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.
16 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) 2002 2001 2000
================================================================================
Basic earnings per share -
Weighted common shares
outstanding 27,910 27,675 27,603
Weighted common shares assumed
upon exercise of stock options 596 63 48
Unvested shares held in trust for
Deferred compensation plans 311 160 143
- --------------------------------------------------------------------------------
Diluted earnings per share -
Weighted common shares and
Potential common shares
Outstanding 28,817 27,898 27,794
================================================================================
There were 881,000, 1,498,000 and 1,529,000 stock options excluded in
fiscal 2002, 2001 and 2000, respectively, from the computation of diluted
earnings per share due to their anti-dilutive effect.
F-18
17 Commitments and Contingent Liabilities
At March 2, 2002, 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 2, 2002 was approximately $14.4 million.
The Company has entered into a number of noncompete agreements, associated
with acquisitions and former employees. As of March 2, 2002, future payments of
$0.6 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 or product replacement. 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.
F-19
SCHEDULE II
-----------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Valuation and Quantifying Accounts
(In thousands)
Balance at Charged to Deductions Balance at end
beginning of costs and from reserves of
period expenses (1) period
------------ ------------ ------------- --------------
For the year ended
March 2, 2002:
Allowance for
doubtful receivables $ 8,942 $ 871 $3,949 $ 5,864
============ ============ ============= ==============
Inventory reserves $ 2,093 $1,911 $2,002 $ 2,002
============ ============ ============= ==============
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
============ ============ ============= ==============
(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.
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 filed 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 filed 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 filed on December 7, 1999.
Exhibit (4F) Amendment No. 4 to Rights Agreement, dated July 2, 2001, to the
Rights Agreement between Registrant and Bank of New York, dated
October 19, 1990. Incorporated by reference to Registrant's Form
8-A/A filed on July 25, 2001.
Exhibit (4G) Amended and Restated Rights Agreement dated November 12, 2001,
between Registrant and Bank of New York. Incorporated by
reference to Registrant's Form 8-A/A filed on November 30, 2001.
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) Intentionally omitted.
Exhibit (10C) Intentionally omitted.
Exhibit (10D)* Amended and Restated 1987 Apogee Enterprises, Inc. Partnership
Plan. Incorporated by reference to Registrant's Schedule 14A
Information Proxy Statement and attachments filed in connection
with the June 19, 2001 Annual Meeting of Shareholders, filed May
10, 2001.
Exhibit (10E)* 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 (10F)* 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 (10G)* 1987 Apogee Enterprises, Inc. Stock Option Plan. Incorporated by
reference to Registrant's S-8 registration statement dated July
18, 1990.
Exhibit (10H) 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 (10I) Amendment No. 1 to Credit Agreement, dated July 22, 1998.
Incorporated by reference to Exhibit 10G to Registrant's Annual
Report on Form 10-K for the year ended March 3, 2001.
Exhibit (10J) Conditional Waiver and Amendment No. 2 to Credit Agreement and
Amendment to Certain Credit Documents, dated November 10, 1998.
Incorporated by reference to Exhibit 10H to Registrant's Annual
Report on Form 10-K for the year ended March 3, 2001.
Exhibit (10K) 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 (10L) 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 (10M) Conditional Waiver, Amendment No. 5 to Credit Agreement and
Amendment No. 1 to Security Agreement, dated August 22, 2001.
Incorporated by reference to Exhibit 10 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 1, 2001.
Exhibit (10N)* 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 (10O)* 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 (10P)* 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 (10Q)* 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 (10R)* 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 (10S)* Forms of Severance Agreement between the Company and certain
senior executive officers of the Company. Incorporated by
reference to Exhibit 10P to Registrant's Annual Report on Form
10-K for the year ended March 3, 2001.
Exhibit (10T) 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 (10U) 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 (10V)* 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 (10W) 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 (10X) 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 (23) Consent of Arthur Andersen LLP
Exhibit (99) Private Securities Litigation Reform Act of 1995 - Cautionary
Statement
Exhibit (99.1) Letter to Securities and Exchange Commission Pursuant to
Temporary Note 3T. Dated April 19, 2002.
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Form 10-K.