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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 27, 1999
[ ] 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: (612) 835-1874
__________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.33-1/3 Par Value
Title of Class
__________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______.
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1999 was $303,903,278. The number of shares outstanding
of the Registrant's Common Stock at March 31, 1999 was 27,624,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part II, Item 9 and Part III hereof incorporate information by reference
from the Proxy Statement for the Annual Meeting of Shareholders to be held June
22, 1999.
APOGEE ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
For the year ended February 27, 1999
Description Page
----------- ----
PART I
- ------
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 7
Executive Officers of the Registrant 7
PART II
- -------
Item 5. Market for the Registrant's
Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 11
Item 7a. Quantitative and Qualitative Disclosures
About Market Risk 19
Item 8. Financial Statements and
Supplementary Data 19
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 19
PART III
- --------
Item 10. Directors and Executive Officers
of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain
Beneficial Owners and Management 19
Item 13. Certain Relationships and
Related Transactions 19
PART IV
- -------
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 19
Index of Financial Statements and Schedules F-1
2
PART I
------
ITEM 1. BUSINESS
--------
The Company
- -----------
Apogee Enterprises, Inc. is a holding company incorporated under the laws
of the State of Minnesota in 1949. The Company, through its subsidiaries, is a
leader in the design and development of value-added glass products, services and
systems for the non-residential building, automotive and commercial markets.
Unless the context otherwise requires, the terms "Company" and "Apogee" as used
herein refer to Apogee Enterprises, Inc. and its subsidiaries.
Until recently Apogee's business was organized into three operating segments:
Glass Technologies, Auto Glass and Building Products and Services ("BPS").
However, during fiscal 1999, the Company divested two business units: its
detention/security systems contracting and domestic curtainwall businesses.
Combined with Apogee's fiscal 1998 decision to exit its international
curtainwall operations, the sale of its detention/security and domestic
curtainwall businesses effectively removed the Company from large-scale
construction activities. Accordingly, the detention/security and curtainwall
contracting businesses were reported as discontinued operations. In connection
therewith, Apogee modified its business segment structure, with the Company now
operating as two segments - Glass Technologies and Glass Services. A more
detailed description of our results and financial position is provided in Part
II, item 7.
Glass Technologies (GT) serves the construction and imaging and display markets.
Glass Services (GS) serves the automotive glass replacement and repair market
and provides building glass installation and replacement services. Financial
information about the Company's segments can be found at Note 18 to the
consolidated financial statements of Apogee Enterprises, Inc. contained
elsewhere in this report. See "Index of Financial Statements and Schedules".
Glass Technologies
- ------------------
The businesses of the Glass Technologies segment add value to ordinary
glass through fabrication of high-technology coatings products which provide
strength, energy efficiency in high-rise structures and optical clarity for
mirrors, glare filter screens and picture frame glass. The operating units in
this segment include Viracon, an architectural glass unit, Viratec Thin Films
(Viratec), a producer of coated glass for computer anti-glare screens and other
optical devices, Tru Vue, a picture framing glass unit and Wausau Architectural
Products, a manufacturer of commercial and institutional window systems which
also provides painting and anodizing services.
Viracon fabricates finished glass products and provides glass coating
services. The operating unit purchases flat, unprocessed glass in bulk
quantities from which a variety of glass products are fabricated, including
insulated, heat processed and laminated architectural glass; security glass and
laminated industrial glass.
Laminated glass consists of two or more pieces of glass fused with a
plastic interlayer and is used primarily for strength and safety in skylights
and in security applications. Sales of laminated safety glass products have
increased with the adoption of federal and state safety glazing standards. Glass
is heated to its softening point then cooled very quickly to create heat-
processed glass. The heating and cooling strengthen the glass to withstand
impact and wind or snow loads. This product is used in architectural glass.
Insulating glass, comprised of two or more pieces of glass separated by a sealed
air space, is used in architectural and residential applications for thermal
control. Viracon's reflective and low-emissivity coatings reduce energy costs
and provide innovative design features for window and curtainwall systems. Low-
emissivity coatings are an invisible, metallic film deposited on glass which
selectively limits the transfer of heat through the glass. Low-emissivity coated
glass represents a fast-growing segment of both residential and nonresidential
glass markets.
The Viracon unit is able to fabricate all types of architectural glass
(insulating, laminated and combinations of both) at its Owatonna, Minnesota
facility. Combined with its glass coating capabilities, the unit is able to
provide a full range of products from these facilities. During fiscal 1999,
Viracon began and largely completed construction of a new architectural glass
fabrication complex in Statesboro, Georgia. The Statesboro facility began
production in March 1999. Together with capacity improvements at the unit's
Minnesota facility, Viracon's capacity over the next two fiscal years will
increase by over 60%.
Viracon markets its products nationally and overseas to glass distributors,
contractors and industrial glass fabricators. A substantial portion of its
glass products 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.
3
Viratec develops advanced, optical-display and imaging coatings for glass
and other surfaces. These products are used in anti-glare computer screens,
high-quality optical components and high performance mirror products for the
imaging industry. Viratec markets optical display and imaging products to both
domestic and overseas customers. These customers provide further assembly,
marketing and distribution to end users. The Optium(TM) coating line was
relocated in fiscal 1999 from Minnesota to southern California, a location
closer to the flow of customers' computer monitor supply chains. The Optium line
resumed production in September 1998 and began ramping up production levels to
meet sales orders/commitments received from customers. Viratec is also a new,
large-scale flat glass coating line in its Minnesota facility, which is expected
to go on-line in the summer of 1999.
Tru Vue is one of the largest domestic manufacturers of picture framing
glass. Tru Vue provides its customers with a full array of picture framing glass
products, including clear, reflection control, which diminishes reflection, and
conservation glass, which blocks ultraviolet rays. Tru Vue is also a
manufacturer of conservation picture framing matboard, which complements the
unit's glass product offerings. The products are distributed primarily through
independent distributors which, in turn, supply local picture framing markets.
During the first quarter of fiscal 1999, Tru Vue broke ground for a new facility
in the Chicago area. The new facility was completed in the spring of 1999 and
will allow greater production capacity and efficiency.
The segment designs and manufactures high-quality, thermally-efficient
aluminum window and curtainwall systems under the "Wausau Window and Wall
Systems" (Wausau) trade name. These products meet high standards of wind load
capacity and resistance to air and moisture infiltration. Wausau's aluminum
window frame designs are engineered to be thermally efficient, utilizing high-
strength polyurethane to limit the transfer of heat or cold through the window
frame. Products are marketed through a nationwide network of distributors and a
direct sales staff. Sales are made to building contractors and to building
owners for retrofitting older buildings. Wausau maintains design and product
engineering staffs to prepare aluminum window and curtainwall system designs to
fit customers' needs and to originate new product designs.
Operating under the "Linetec" name, the Architectural Products unit also
has two metal coating facilities which provide anodized and fluoropolymer
coatings to metal. Anodizing is the electrolytic process of putting a
protective, often colored, oxide film on light metal, typically aluminum.
Fluoropolymer coatings are high quality paints which are sometimes preferred
over anodizing because of the wide color selection. Coatings are applied to
window and curtainwall components for industrial metal fabricators (including
Wausau), as well as other companies' metal, plastic, wood or glass products.
Glass Services
- --------------
The Glass Services (GS) segment is engaged in the auto glass replacement
and repair business through its Harmon AutoGlass service centers (retail), Glass
Depot wholesale centers (wholesale) and Viracon/Curvlite fabrication center. In
addition, GS includes Harmon, Inc., a provider of building glass installation
and replacement services in several metropolitan areas.
Harmon AutoGlass operates auto glass service centers in 43 states. The
centers replace and repair auto glass on the premises and also provide mobile
installation service. Primary customers include insurance companies (on behalf
of their insured clients), fleet owners and car owners. The service centers
also carry limited inventories of flat glass, which are sold at retail for such
purposes as home window repair and table tops. Some automotive accessories are
also sold and installed at certain service centers. Quality service is
emphasized in all service centers. The Company believes Harmon AutoGlass is the
second-largest auto glass retailer in the United States. The unit also operates
two call centers (Centers) for handling auto glass claims. The Centers, on
behalf of their insurance company and fleet customers, handle replacement glass
claims made by policyholders or fleet owners. Calls are placed through a toll-
free number and then routed to one of the Centers located in Orlando, Florida or
Eau Claire, Wisconsin. Customer service agents arrange for the prompt
replacement or repair of auto glass by either a Harmon AutoGlass service center,
an affiliated shop member of the Center's network or an unrelated shop as
directed by the insured, and begin the process of filing the claim
electronically with the applicable insurance company. The Center subcontracts
for replacement and repair services with over 3,300 auto glass stores
nationwide. The unit seeks to maximize the electronic exchange of information,
which reduces claim costs and eliminates errors. This type of service is
becoming an essential requirement to being one of the few choice providers for
insurance companies.
The GS wholesale centers, known as "Glass Depot", supply the Harmon
AutoGlass service centers with auto and flat glass and related products, as well
as selling wholesale to other glass installers. Due to the variety of makes and
models of automobiles, auto glass service centers typically stock only
windshields for the most popular models. As a result, there is a demand for
distributors to maintain inventories of auto glass and to provide prompt
delivery. Through the segment's National Distribution Center (NDC), a mega-
distribution center offering other manufacturers' products as well as its own
for both domestic and foreign vehicles, the segment is able to maintain a broad
selection of automotive glass. The NDC also offers "AutoGlass Express," a
delivery system
4
which allows the unit to fill customers' orders on an individual basis versus
the industry norm of truckload orders. Purchases of fabricated automotive glass
are made from several primary glass manufacturers and fabricators, including the
segment's Curvlite unit.
Viracon/Curvlite fabricates replacement windshields for foreign and
domestic automobiles and laminated glass parts for the transportation industry.
It fabricates approximately 800 types of replacement windshields which are
marketed nationally to distributors and glass shops, including the Glass Depot
wholesale centers. Viracon/Curvlite seeks to offer a broad selection of
windshields by promptly adding new windshields as new models are introduced.
On February 27, 1999, the GS segment had 76 wholesale locations and 341
service centers. The segment evaluates opportunities to expand both its retail
and wholesale auto glass locations, while closely monitoring existing units'
profitability.
GS' Harmon, Inc. group has 12 locations located in major metropolitan
areas. The locations offer complete design, engineering, installation and
replacement or glazing services for commercial, institutional and other
buildings. In addition, 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.
Competition
- -----------
The Company's businesses are in industries that are, in general, fairly
mature and highly competitive. The Glass Technologies segment competes with
several large integrated glass manufacturers and numerous smaller specialty
fabricators. Product pricing and service are the primary competitive factors in
this market. GT's Architectural Products unit competes against several major
aluminum window manufacturers and primarily serves the custom portion of the
construction market in which the primary competitive factors are product
quality, reliable service and the ability to provide technical engineering and
design services. The Glass Services segment competes with other auto glass
shops, glass warehouses, car dealers, body shops and fabrication facilities on
the basis of pricing and customer service. Its competition consists of national
and regional chains as well as significant local competition.
Markets
- -------
GT services the architectural glass, computer, optical imaging and picture
framing glass markets in which coated glass is becoming the industry standard.
These markets are very competitive, highly responsive to new products and can be
price sensitive. The Company believes that GT possesses one of the world's
largest coating capacities for glass and is a leading fabricator and global
distributor of high-performance architectural glass. Its fully integrated,
glass fabrication and coating capabilities allow the segment to meet customer
needs and react quickly to market demands while developing new products.
GS services the automotive glass aftermarket, which is influenced by a
variety of factors, including new car sales, speed limits, road conditions, the
economy, weather and average number of miles driven. In recent years,
transformation of the industry's pricing structure has intensified competition.
Major purchasers of auto glass, such as insurance companies, have increasingly
requested volume pricing and insurance claims processing on a national scale. As
a result, margins have narrowed at the retail level and, to a lesser extent, at
wholesale and manufacturing levels.
Sources and Availability of Raw Materials
- -----------------------------------------
None of the Company's operating units are significantly dependent upon any
one supplier. The Company believes a majority of its raw materials (bulk flat
glass, aluminum extrusions, automotive glass and related materials) are
available from a variety of domestic sources.
Trademarks and Patents
- ----------------------
The Company has several nationally recognized trademarks and trade names
which it believes have significant value in the marketing of its products.
Harmon AutoGlass(R), Viratec(R), Tru Vue(R), and Linetec(R) are registered
trademarks and Glass Depot(R) and Optium(R) are listed trademarks of the
Company. Viratec Thin Films has obtained several patents pertaining to its glass
coating methods. However, no single patent is considered to be materially
important to the Company.
5
Foreign Operations and Export Sales
- -----------------------------------
During the years ended February 27, 1999, February 28, 1998 and March 1,
1997, the Company's export sales, principally from GT operations, amounted to
approximately $40,316,000, $61,321,000 and $54,946,000, respectively.
Employees
- ---------
The Company employed 6,367 persons at February 27, 1999, of whom
approximately 580 were represented by labor unions. The Company is a party to 36
collective bargaining agreements with several different unions. Approximately
15% of the collective bargaining agreements will expire during fiscal 1999. The
number of collective bargaining agreements to which the Company is a party will
vary with the number of cities with active nonresidential construction
contracts. The Company considers its employee relations to be very good and has
not recently experienced any significant loss of work days due to strike.
Backlog
- -------
At February 27, 1999, the Company's total backlog of orders considered to
be firm was $148,432,000 compared with $134,361,000 at February 28, 1998.
ITEM 2. PROPERTIES
----------
The following table lists, by division, the Company's major facilities, the
general use of the facility and whether it is owned or leased by the Company.
Facility Location Owned/Leased Function
- -------- -------- ------------ --------
Glass Technologies
- ------------------
Viracon Owatonna, MN Owned Mfg./Admin.
Viracon Statesboro, GA Owned Mfg.
Viracon - Temp II Bldg. Owatonna, MN Owned Mfg.
Viratec Thin Films, Inc. Faribault, MN Owned Mfg./Admin.
Viratec Thin Films, Inc. San Diego, CA Leased Mfg.
Tru Vue Chicago, IL Owned Mfg./Admin.
Wausau Window and Wall Systems Wausau, WI Owned Mfg./Admin.
Wausau Window and Wall Systems - Plant II Wausau, WI Owned Mfg.
Wausau Window and Wall Systems - Plant III Wausau, WI Owned Mfg.
Linetec (Painting) Wausau, WI Owned Mfg./Admin.
Linetec (Anodizing) Wausau, WI Owned Mfg.
Glass Services
- --------------
Viracon/Curvlite Owatonna, MN Owned Mfg./Admin.
National Distribution Center Owatonna, MN Owned Warehouse/Admin.
Harmon AutoGlass and Glass
Depot headquarters Minneapolis, MN Leased Administrative
Harmon Solutions-Call Center Orlando, FL Owned Administrative
Harmon Solutions-Call Center Eau Claire, WI Leased Administrative
Other
- -----
Apogee Corporate Office Minneapolis, MN Leased Administrative
In addition to the locations indicated above, the Glass Services segment
has 341 retail, 76 distribution and 12 building glass installation and repair
locations nationally. The majority of such locations are leased.
The Viracon/Curvlite plant, a Wausau Window and Wall Systems facility, the
Linetec paint facility, and the Call Center in Florida were constructed with the
use of proceeds from industrial revenue bonds issued by those cities. These
properties are considered owned, since at the end of the bond term, title
reverts to the Company.
6
ITEM 3. LEGAL PROCEEDINGS
-----------------
Apogee has been a party to various legal proceedings incidental to its
normal operating activities. In particular, like others in the construction
industry, the Company's discontinued construction business is routinely involved
in various disputes and claims arising out of construction projects, sometimes
involving significant monetary damages. Although it is impossible to predict the
outcome of such proceedings, the Company believes, based on facts currently
available to us, that none of such claims will result in losses that would have
a material adverse effect on its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter ended February 27, 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
NAME AGE POSITION
---- --- --------
Donald W. Goldfus 65 Chairman of the Board of Directors
Russell Huffer 49 President and Chief Executive
Officer
Richard Gould 59 Senior Vice President
Robert G. Barbieri 43 Vice President - Finance and
Chief Financial Officer
Michael A. Bevilacqua 42 Treasurer/Senior Director
Business Development
Martha L. Richards 36 General Counsel and Secretary
James S. Porter 39 Corporate Controller
Executive officers are elected annually by the Board of Directors and serve
for a one-year period. With the exception of Richard Gould, who has an
employment contract with the Company that covers the period through 2000, no
other officers have employment contracts with the Company. None of the
executive officers or directors of the Company are related.
Messrs. Goldfus and Huffer have been employees of the Company for more than
the last five years. Mr. Gould joined the Company in May 1994. Prior to joining
the Company, Mr. Gould was president of Gould Associates, a strategic management
consulting firm to a wide range of companies. Mr. Barbieri joined the Company in
1997. Prior to joining the Company, Mr. Barbieri held several financial
management positions at Air Products and Chemicals, Inc. in Allentown,
Pennsylvania. Mr. Bevilacqua joined the Company in April 1998. Prior to
joining the Company, Mr. Bevilacqua held several financial management positions
at Air Products and Chemicals, Inc. in Allentown, Pennsylvania. Ms. Richards
joined the Company in March 1997. Prior to joining the Company, Ms. Richards was
a partner with the law firm of Jenner & Block, Chicago, Illinois. Mr. Porter
joined the Company in August 1997. Prior to joining the Company, Mr. Porter held
financial management positions at Rollerblade, Inc. in Minneapolis, Minnesota.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
Market Information
- ------------------
Apogee common stock is traded on the Nasdaq National Market, under
the ticker symbol APOG. Stock price quotations are printed daily in major
newspapers. During the fiscal year ended February 27, 1999, the average trading
volume of Apogee common stock was 1,962,000 shares per month, according to
NASDAQ.
7
As of March 31, 1999, there were 27,624,000 shares of common stock
outstanding, of which about 7.3 percent were owned by officers and directors of
Apogee. At that date, there were approximately 1,965 shareholders of record and
5,292 shareholders for whom securities firms acted as nominees.
The following chart shows the quarterly range and year-end close of the
Company's common stock price per share over the past five fiscal years.
Quarter Quarter Quarter Quarter Year
I II III IV End
-------------------- ------------------ ------------------ ------------------ -----------
1995 5 3/4 - 7 5/8 5 7/8 - 7 7/8 7 3/8 - 9 1/8 7 3/8 - 9 1/4 8 5/8
1996 8 1/4 - 9 7 1/4 - 9 1/8 7 1/8 - 7 7/8 6 1/2 - 9 7/8 9 13/16
1997 9 5/8 - 14 1/4 13 1/4 - 18 1/4 15 1/4 - 22 5/8 17 1/4 - 23 3/4 19 7/8
1998 14 - 21 1/4 17 3/4 - 22 5/8 21 1/8 - 25 10 3/8 - 23 1/4 12 15/16
1999 11 13/16 - 15 1/4 11 1/8 - 15 1/2 8 1/8 - 12 7/8 8 3/4 - 12 3/8 8 3/4
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, and have been increased each year since
then. The chart below shows quarterly cash dividends per share for the past five
years.
Quarter Quarter Quarter Quarter
I II III IV Year
--------------------------------------------------------
1995 0.038 0.038 0.040 0.040 0.155
1996 0.040 0.040 0.043 0.043 0.165
1997 0.043 0.043 0.045 0.045 0.175
1998 0.045 0.045 0.050 0.050 0.190
1999 0.050 0.050 0.053 0.053 0.205
8
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following information should be read in conjunction with Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Financial Statements and Supplementary Data.
Dollar amounts in thousands, except per share data** 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 792,552 731,094 642,226 567,823 516,022
Gross profit $ 170,176 165,139 143,761 116,426 102,400
Operating income (loss) $ 42,143 45,659 44,628 34,729 31,535
Earnings from continuing operations $ 19,687 24,114 26,827 20,656 19,160
Earnings from discontinued operations $ 5,546 (75,169) (607) (2,820) (6,110)
Net earnings (loss) $ 25,233 (51,055) 26,220 17,836 13,050
Earnings (loss) per share - basic
From continuing operations $ 0.71 0.87 0.98 0.76 0.72
From discontinued operations $ 0.20 (2.70) (0.02) (0.10) (0.23)
Net earnings $ 0.91 (1.84) 0.96 0.66 0.49
Earnings (loss) per share - diluted
From continuing operations $ 0.71 0.85 0.96 0.76 0.71
From discontinued operations $ 0.20 (2.65) (0.02) (0.10) (0.23)
Net earnings $ 0.91 (1.80) 0.93 0.65 0.48
Effective tax rate - % 36.0 36.5 31.3 36.0 36.0
Operating Ratios
Gross margin - % 21.5 22.6 22.4 20.5 19.8
Operating margin - % 5.3 6.2 6.9 6.1 6.1
Net margin - continuing operations - % 2.5 3.3 4.2 3.6 3.7
Net margin - % 3.2 (7.0) 4.1 3.1 2.5
Return on
Average shareholders' equity - % 21.0 (36.2) 16.9 13.5 10.9
Average invested capital - % 8.3 (16.7) 9.2 7.6 6.7
Average total assets - % 5.8 (12.5) 7.1 5.5 4.5
Funds Flow Data
Depreciation and amortization $ 25,938 22,463 17,860 13,122 11,972
Capital expenditures $ 77,710 37,892 34,203 20,038 22,603
Dividends $ 5,666 5,251 4,806 4,453 4,154
Year-End Data
Total assets $ 471,191 405,526 410,522 327,233 317,085
Current assets $ 205,345 206,858 159,095 149,414 155,608
Current liabilities $ 115,211 97,750 86,178 83,574 90,876
Working capital $ 90,134 109,108 72,916 65,840 64,732
Current ratio 1.8 2.1 1.8 1.8 1.7
Long-term debt $ 165,097 151,967 127,640 79,102 80,566
% of invested capital 51.0 51.3 39.4 32.5 35.6
Shareholders' equity $ 130,664 109,600 172,150 138,922 124,628
% of invested capital 40.4 38.3 53.1 57.0 55.1
Investment Information
Dividends per share $ 0.210 0.190 0.175 0.165 0.155
Book value per share $ 4.73 3.99 6.17 5.14 4.64
Price range during year:
High $ 15 1/2 25 23 3/4 9 7/8 9 1/4
Low $ 8 1/8 10 3/8 9 5/8 6 1/2 5 3/4
Close $ 8 3/4 12 15/16 19 7/8 9 13/16 8 5/8
Price/earnings ratio at year-end 9.6 NM 21 15 18
Dividend yield at year-end - % 2.4 1.5 0.9 1.7 1.9
Shares outstanding at year end 27,623,000 27,453,000 27,882,000 27,034,000 26,886,000
Average monthly trading volume 1,962,000 4,065,092 4,795,244 1,775,740 1,613,012
** Share and per share data have been adjusted for the fiscal 1997 stock
dividend.
9
Dollar amounts in thousands,
except per share data 1994* 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------------------------------
Operating Results
Net sales $ 426,400 367,878 364,578 368,094 349,483 277,560
Gross profit $ 84,184 71,141 67,193 74,816 71,629 57,446
Operating income (loss) $ 23,803 8,779 2,730 17,629 18,968 15,643
Earnings from continuing operations $ 16,279 6,657 (1,300) 7,391 6,314 8,696
Earnings from discontinued operations $ (12,446) (2,143) 9,805 9,626 7,781 4,725
Net earnings (loss) $ 3,833 4,514 8,505 17,017 14,095 13,421
Earnings (loss) per share - basic
From continuing operations $ 0.62 0.25 (0.05) 0.27 0.23 0.32
From discontinued operations $ (0.47) (0.08) 0.36 0.36 0.29 0.18
Net earnings $ 0.14 0.17 0.32 0.63 0.52 0.50
Earnings (loss) per share - diluted
From continuing operations $ 0.61 0.25 (0.05) 0.27 0.23 0.32
From discontinued operations $ (0.47) (0.08) 0.36 0.35 0.29 0.18
Net earnings $ 0.14 0.17 0.31 0.62 0.52 0.50
Effective tax rate - % 36.0 36.0 36.0 36.0 36.0 36.0
Operating Ratios
Gross margin - % 19.7 19.3 18.4 20.3 20.5 20.7
Operating margin - % 5.6 2.4 0.7 4.8 5.4 5.6
Net margin - continuing operations - % 3.8 1.8 (0.4) 2.0 1.8 3.1
Net margin - % 0.9 1.2 2.3 4.6 4.0 4.8
Return on
Average shareholders' equity - % 3.4 4.0 7.6 16.6 15.7 17.2
Average invested capital - % 2.4 3.0 5.7 11.5 9.9 11.6
Average total assets - % 1.6 2.1 4.2 8.8 7.6 8.6
Funds Flow Data
Depreciation and amortization $ 12,423 12,344 14,407 12,000 11,008 8,378
Capital expenditures $ 11,447 6,393 9,985 11,988 15,353 16,362
Dividends $ 3,841 3,584 3,505 3,248 2,693 2,140
Year-End Data
Total assets $ 257,877 213,372 212,282 196,292 192,572 177,792
Current assets $ 123,301 102,869 112,847 106,614 89,942 71,307
Current liabilities $ 92,536 61,702 63,786 48,441 43,418 41,873
Working capital $ 30,765 41,167 49,061 58,173 46,524 29,433
Current ratio 1.3 1.7 1.8 2.2 2.1 1.7
Long-term debt $ 35,688 28,419 25,267 29,398 41,366 46,277
% of invested capital 21.6 18.7 17.0 19.9 27.7 34.0
Shareholders' equity $ 114,062 112,336 113,780 109,050 95,753 83,871
% of invested capital 69.0 74.1 76.6 73.8 64.2 61.7
Investment Information
Dividends per share $ 0.145 0.135 0.130 0.120 0.100 0.080
Book value per share $ 4.28 4.26 4.23 4.05 3.56 3.13
Price range during year:
High $ 8 7/8 6 3/8 9 10 1/16 9 3/8 7 1/8
Low $ 5 1/8 4 1/8 4 3/4 6 5/8 6 1/2 5
Close $ 7 1/4 5 13/16 6 1/8 9 7 3/8 6 13/16
Price/earnings ratio at year-end 50 34 19 14 14 14
Dividend yield at year-end - % 2.0 2.3 2.1 1.3 1.4 1.2
Shares outstanding at year end 26,624,000 26,354,000 26,922,000 26,954,000 26,934,000 26,828,000
Average monthly trading volume 518,900 644,294 1,386,058 1,212,682 1,722,972 1,440,082
. Fiscal 1994 figures reflect the cumulative effect of a change in
accounting for income taxes, which increased net earnings by $525,000, or 4
cents per share.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
In fiscal 1999, Apogee continued its focus on Company-wide efforts to
improve margins, productivity, working capital usage and capital
allocation. The two most significant outcomes of these initiatives in
fiscal 1999 were the substantial capacity expansion of the Company's Glass
Technologies' operations and the divestitures of two of Apogee's business
units: detention/security systems contracting and domestic curtainwall.
Combined with Apogee's prior year decision to exit its international
curtainwall operations, the sale of its detention/security and domestic
curtainwall businesses effectively removes the Company from large-scale
construction activities. Accordingly, the detention/security and
curtainwall contracting businesses are reported as discontinued operations.
In connection therewith, Apogee modified its business segment structure,
with the Company now operating as two segments - Glass Technologies and
Glass Services. A more detailed description of our results and financial
position is provided in this financial review.
Performance
Fiscal 1999 Compared To Fiscal 1998
The following table illustrates the relationship between various components
of operations, stated as a percent of net sales, for each of the fiscal
years in the three-year period ended February 27, 1999.
Percent of Net Sales 1999 1998 1997
-------------------------------------------------------------------------
Net sales 100.0 100.0 100.0
Cost of sales 78.5 77.4 77.6
Gross profit 21.5 22.6 22.4
Selling, general and
administrative expenses 16.2 16.3 15.4
Operating income (loss) 5.3 6.2 6.9
Interest and other expense, net 1.2 0.9 0.8
Earnings from continuing operations
before income taxes and other items 4.1 5.4 6.2
Income taxes 1.5 2.0 1.9
Equity in net loss of affiliated companies 0.2 0.1 0.1
Earnings from continuing operations 2.5 3.3 4.2
Earnings (loss) from discontinued operations 0.7 (10.3) (0.1)
Net earnings (loss) 3.2 (7.0) 4.1
-------------------------------------------------------------------------
Consolidated net sales increased 8% to $793 million in fiscal 1999. The
Glass Services (GS) segment reported a net sales gain of 15%, while the
Glass Technologies (GT) segment's net sales were essentially unchanged with
those of a year ago. Net sales of GS's replacement auto glass businesses
increased 11%, while net sales of its building glass services unit grew by
more than one-third. The replacement auto glass operations increased net
sales by combining retail same-store net sales growth with the addition of
retail and wholesale locations. GT net sales were flat primarily due to the
effects of capacity limitations and the relocation of a product line.
On a consolidated basis, cost of sales, as a percentage of net sales, rose
slightly to 78.5%, up from 77.4% in fiscal 1998. The primary factors
underlying the resulting decline in gross profit were the effect of the
planned suspension and relocation of a GT product line, temporary
productivity issues related to capacity limitations at Viracon and a small
decline in margin in the replacement auto glass businesses. These factors
were partly offset by margin improvements at GS's Harmon, Inc. and GT's
Architectural Products units.
Selling, general and administrative (SG&A) expenses grew by $8.6 million,
or 7%, but declined slightly as a percent of net sales. The primary factors
for the growth were higher salaries, outside services and charitable
contributions, as well as increased information systems and marketing
costs, particularly at our GS segment.
Net interest expense rose 52% to $9.5 million in fiscal 1999. The increase
reflected higher interest rates and borrowing levels under our revolving
credit agreement. We expect higher interest expense for fiscal 2000 due to
an increase in borrowing levels, particularly during the first half of the
fiscal year.
Apogee's effective income tax rate was 36.0% of pre-tax earnings from
continuing operations, down marginally from the 36.5% rate recorded in
fiscal 1998.
11
Apogee's equity in the net loss of affiliated companies was $1.4 million in
fiscal 1999 compared to $879,000 a year ago.
Apogee's fiscal 1999 earnings from continuing operations declined to $19.7
million, or $0.71 diluted earnings per share. This compared to earnings
from continuing operations of $24.1 million, or $0.85 diluted earnings per
share, a year earlier.
Earnings from operations of discontinued businesses was $5.5 million after
tax, or $0.20 diluted earnings per share, compared to an after-tax net loss
from operation of discontinued businesses of $75.2 million, or $2.65
diluted loss per share.
Apogee's fiscal 1999 net earnings were $25.2 million, or $0.91 diluted
earnings per share. This compared to a net loss of $51.1 million, or $1.80
diluted loss per share, a year ago. The return on average shareholders'
equity was 21.0% in fiscal 1999 versus a negative return of 36.2% for
fiscal 1998.
Segment Analysis
The following information provides a more detailed look at each of our two
business segments. See also Note 18-Business Segment Data on page 29 for a
three-year history of each segment's net sales, operating income (loss),
identifiable assets, capital expenditures, and depreciation and
amortization.
(Dollar amounts in thousands) 1999 1998 1997
-------------------------------------------------------------------------
Glass Technologies
Net sales $324,456 $324,195 $276,872
Operating income 21,691 30,746 22,328
Glass Services
Net sales 468,797 407,985 367,097
Operating income 21,478 16,123 21,417
-------------------------------------------------------------------------
Glass Technologies (GT) After five consecutive years of record results, GT
reported net sales level with last year's $324 million, while operating
income fell 29% to $21.7 million. The segment's results were primarily
affected by the suspension and relocation of Viratec Thin Films' (Viratec)
Optium cathode ray tube (CRT) coating line, and the start-up costs and
disruptions associated with the segment's other capital projects. The
segment's results were also affected by significantly lower demand for
Viratec's anti-glare filter and front-surface mirror products due to the
economic slowdown in Asia and temporary issues related to capacity
limitations at Viracon that slowed production and caused additional costs
during the second quarter.
Viracon's net sales were slightly lower than a year ago. The architectural
glass fabrication unit's operating earnings fell 37%, reflecting the second
quarter operational difficulties noted above and start-up costs associated
with the construction of a new facility. Viracon ran near full capacity for
much of the year, even as expanded production capacity was added. Viracon's
production outpaced its shipments by a considerable margin during the year,
which also adversely affected operating earnings and resulted in increased
finished goods inventory. During the year, Viracon began and largely
completed construction of a new architectural glass fabrication complex in
Statesboro, Georgia. The Statesboro facility began production in March
1999. Together with capacity improvements at the unit's Minnesota facility,
Viracon's capacity over the next two fiscal years will increase by over
60%.
Viratec, which applies optical-grade coatings to glass and other
substrates, reported a net sales decline. Viratec recorded an operating
loss in fiscal 1999 compared to solid operating earnings a year earlier. As
noted, the unit was adversely affected by the suspension of the Optium CRT
coating line and significantly lower demand for its anti-glare filter and
front-surface mirror products due to the economic slowdown in Asia. The CRT
coating line was suspended in connection with its relocation from Minnesota
to southern California, a location closer to the flow of customers'
computer monitor supply chains. The Optium line resumed production in
September 1998 and began ramping up production levels to meet sales
orders/commitments received from customers. Viratec also continued to
proceed with the addition of a new large-scale flat glass coating line in
its Minnesota facility, which is expected to go on-line in the summer of
1999.
Tru Vue, the segment's custom art frame glass and matboard fabrication
unit, posted a 12% improvement in sales, while earnings rose by 23%. These
results reflected increased penetration of the unit's value-added products
and success in the control of production costs. During the first quarter of
fiscal 1999, Tru Vue broke ground for a new facility in the Chicago area.
The new facility was completed in the spring of 1999 and will allow greater
production capacity and efficiency.
12
Wausau Architectural Products (Wausau), which manufactures commercial
windows and provides painting and anodizing services, leveraged marginally
higher net sales into a 50% operating income gain. Wausau continued to
benefit from improvements in its engineering and fabrication capabilities.
Based on its year-end backlog, continued evidence of strong demand for
architectural glass products and the full-year operation of Viratec's
Optium CRT coating line, GT expects to report higher net sales and
operating earnings in fiscal 2000. Net sales and operating income
improvements will depend partly on the ramp-up of the productive capacity
added in fiscal 1999 or coming online in fiscal 2000. The segment's
expansions also will result in significantly higher depreciation expense in
fiscal 2000.
Glass Services (GS) operates auto glass businesses under the Harmon
AutoGlass (Harmon), Harmon Solutions Group (Solutions), Glass Depot and
Viracon/Curvlite names. Due to an industry merger in 1997, GS became the
second largest company in the auto glass repair and replacement industry.
In addition, GS includes Harmon, Inc., a provider of building glass
installation and replacement services in several major metropolitan areas.
GS reported a 15% net sales improvement in fiscal 1999, while operating
earnings rose by 33%.
Net sales of the unit increased 11%, reflecting increased market share and
manufactured windshield sales, and the addition of retail and distribution
locations. Operating income for the auto glass businesses increased 27%.
Sales growth continued to outpace the industry. Market data indicates that
unit demand for replacement auto glass in the U.S. fell nominally in 1998.
Same-location retail net sales rose by 4.8%, while unit net sales increased
6.4%. During the year, Harmon increased sales to insurance companies
through Solutions. The segment also continued to proceed with efforts to
improve productivity for its auto glass repair and replacement operations.
The segment's manufacturing operation, Viracon/Curvlite, fabricates auto
glass for the replacement auto glass aftermarket. Viracon/Curvlite
increased net sales in fiscal 1999 by about 13%. The unit's National
Distribution Center, which offers other manufacturers' products as well as
its own for both domestic and foreign vehicles, and the AutoGlass Express
program, a delivery system to fill customer orders more quickly and
completely, accounted for much of the unit's net sales growth. About 69% of
Viracon/Curvlite's net sales were made to the Glass Depot unit in fiscal
1999.
On May 29, 1998, the segment acquired an 80% interest in VIS'N Service
Corporation (VIS'N), an insurance claims and policy processing outsource
company headquartered in Red Wing, Minnesota. This acquisition will expand
the segment's capabilities to outsource insurance claims and policy
processing beyond its traditional auto glass market. During the year, the
segment sold its 8 Midas Muffler franchises to better focus on its auto
glass operations.
The Harmon, Inc. business had another solid year. Net sales grew by more
than 30%, while operating income rose by more than 50%. Continuing
operating improvements and a shift in net sales mix towards higher-margin
business helped the unit's profitability.
During the year, GS completed several small acquisitions of retail glass
shops. These acquisitions, combined with other locations added during the
year, increased the number of locations to 341 Harmon retail stores and 76
Glass Depot distribution centers.
The segment expects to report higher net sales in fiscal 2000 with unit
growth from market penetration, and the start-up or acquisition of
locations. Meanwhile, the segment is taking actions to reduce its cost
structure and improve productivity, particularly in its retail operations.
However, the unpredictability of industry unit sales and pricing makes it
difficult to project operating earnings for fiscal 2000.
Discontinued Operations In fiscal 1999, Apogee's Board of Directors
authorized the divestiture of our detention/security and domestic
curtainwall operations. On December 3, 1998, the segment executed the sale
of its detention/security business, effective November 28, 1998. On April
9, 1999, the Company announced that it had entered into an agreement to
sell its domestic curtainwall operations. Combined with last year's exit
from international curtainwall operations, these transactions effectively
remove Apogee from the large-scale construction business. Accordingly,
these businesses are presented as discontinued operations in the
accompanying financial statements.
Operating results from the businesses reported as discontinued operations
improved dramatically over those recorded a year ago. For fiscal 1999,
earnings from discontinued operations amounted to $5.5 million after-tax
compared to an after-tax net loss from discontinued operations of $75.2
million in fiscal 1998. Domestic curtainwall operations reported solid
13
earnings, while the detention/security business reported nominal income
prior to its sale. The exit from European curtainwall operations remained
on track, and the Asian curtainwall unit had essentially completed the
remaining projects in its backlog.
Fiscal 1998 Compared To Fiscal 1997
The following discussion restates the prior year's discussion of fiscal
1998 compared to fiscal 1997 to reflect the effect of reporting certain
businesses as discontinued operations in fiscal 1999.
Consolidated net sales increased 14 % to $731 million in fiscal 1998. The
Company's Glass Technologies (GT) and Glass Services (GS) segments reported
net sales gains of 17% and 11%, respectively. GT's net sales grew primarily
due to continued strong demand for its fabricated glass products,
particularly the Viracon unit's high-performance architectural glass. GS
increased net sales by combining nominal retail same-store net sales
growth, the addition of retail and wholesale locations, and the full-year
inclusion of Portland Glass, which the segment acquired in the fourth
quarter of fiscal 1997.
On a consolidated basis, cost of sales, as a percentage of net sales, fell
to 77.4%, its lowest figure this decade. Productivity gains at most of our
fabrication operations, most notably Viracon and Viratec Thin Films
(Viratec), combined to produce most of this positive variance. These
factors were partly offset by higher material costs experienced by the GS
segment's Retail and Distribution operations.
Selling, general and administrative (SG&A) expenses grew by $20.3 million,
or 21%, and increased as a percent of net sales. The primary factors were
higher salaries, increased outside services, and information systems and
marketing costs, particularly at our GS segment. SG&A expenses in fiscal
1998 also included a $3.0 million write-off of certain information systems
assets, primarily in GS, and severance costs associated with certain
management changes.
Net interest expense rose 23% to $6.3 million in fiscal 1998. Increased
interest income from investments held by the Company's captive insurance
subsidiary and lower interest rates partly offset the effect of higher
borrowings under our revolver and uncommitted credit lines.
Apogee's effective income tax rate was 36.5% compared to 31.3% in fiscal
1997. The increase mainly reflected the unusually low effective rate in
fiscal 1997 associated with the resolution of prior years' tax
examinations.
Our share of net losses recorded by various affiliated companies in which
we have a 50% or less equity interest amounted to $879,000 in fiscal 1998
compared to $337,000 in fiscal 1997.
Apogee's fiscal 1998 earnings from continuing operations dropped to $24.1
million, or $0.85 diluted earnings per share. This compared to earnings
from continuing operations of $26.8 million, or $0.96 diluted earnings per
share a year earlier.
In fiscal 1998, the net loss from operations of discontinued businesses,
net of income tax benefit, totaled $75.2 million, or $2.65 diluted loss per
share. The loss from operations of discontinued businesses, net of tax
effect, amounted to $607,000, or $0.02 diluted loss per share, in fiscal
1997. The significant net loss in fiscal 1998 related primarily to
international curtainwall operations, which included two nonrecurring pre-
tax charges totaling $61.9 million.
Apogee's fiscal 1998 net loss was $51.1 million, or $1.80 diluted loss per
share, versus net earnings of $26.2 million, or $0.93 diluted earnings per
share, in fiscal 1997. The negative return on average shareholders' equity
was 36.2% in fiscal 1998 versus a positive return of 16.9% for fiscal 1997.
Segment Analysis
The following information provides a more detailed look at our two business
segments. Also see Note 18-Business Segment Data on page 29 for a three-
year history of each segment's net sales, operating income, identifiable
assets, capital expenditures, and depreciation and amortization.
Glass Technologies (GT) posted record net sales and operating income for
the fifth consecutive year. Net sales rose by 17%, while operating income
improved 38% to $30.7 million. The net sales increase reflected
improvements by each of the segment's units.
Most of the segment's earnings improvement came from Viracon, our high-
performance architectural glass fabrication unit. Viracon posted net sales
and operating income growth of 14% and 28%, respectively. The gains were
due to strong
14
demand for its architectural glass products, improved product mix, and
improved productivity. Viracon ran near full capacity during the year. In
response to continued strong demand for the segment's high-performance
architectural glass products, Viracon planned to begin construction of a
new architectural glass fabrication complex in Statesboro, Georgia. This
facility, expected to be operational in fiscal 2000, together with
enhancements at Viracon's existing facility, was expected eventually to
increase Viracon's capacity by over 60%.
Viratec reported improved results in fiscal 1998. Viratec, which applies
optical-grade coatings to glass and other substrates, saw its net sales
grow by 33%, while operating earnings nearly quadrupled. Both improvements
were primarily due to Viratec's Optium cathode ray tube coating operation
(formerly known as CaRT). Optium net sales more than doubled for the year
and the unit reported a small operating profit versus a sizable loss in the
prior year. Viratec's flat glass operations had a double-digit net sales
gain, but industry pricing pressure and production downtime related to an
ongoing capacity expansion caused that operation to report lower earnings.
At February 28, 1998, Viratec's backlog was 43% lower than last year's
year-end backlog, primarily due to the planned suspension of the Optium
business related to its expected relocation. During fiscal 1999, Viratec's
Optium line is expected to be relocated closer to the flow of customers'
computer monitor supply chains, reducing shipping costs and breakage risks.
The segment's Tru Vue unit, our custom art frame glass and matboard
fabricator, also posted improved net sales and operating earnings for the
year. These results occurred despite somewhat soft industry sales, as the
unit again successfully controlled its production costs. Tru Vue planned to
construct a new facility in fiscal 1999. This would allow for increased
capacity and improved productivity for both its art frame glass and
matboard operations.
The Wausau Architectural Products unit leveraged higher net sales into
greater profitability as the unit improved its engineering and fabrication
productivity. This business entered fiscal 1999 with backlog nearly 30%
higher than a year earlier.
Glass Services (GS) operates retail stores under the Harmon AutoGlass
(Harmon) name and distribution centers under the Glass Depot name. Due to
an industry merger in 1997, GS became the second largest company in the
auto glass repair and replacement industry. In addition, GS includes
Harmon, Inc., which provides building installation and replacement glass
services in several major metropolitan areas.
GS reported an 11% net sales improvement in fiscal 1998 despite lower unit
sales demand in the auto glass replacement industry. Approximately one-
third of the net sales growth was due to the fourth quarter fiscal 1997
acquisition of Portland Glass. The segment's net sales growth continued to
outpace the industry. Market data indicated that unit demand for
replacement auto glass in the U.S. fell from the prior year.
Despite the net sales increase, GS's operating income fell to $16.1
million, a 25% decline. Margin pressures intensified throughout the year
due to intense competition, particularly at the retail level. Lower margins
and higher selling and administrative costs were the primary factors behind
the decline. The segment also recorded a $2.4 million write-off of certain
information systems assets. Same-location retail net sales rose by 1.5%,
while unit net sales declined 1.2%.
The Viracon/Curvlite auto glass fabrication operation increased net sales
by about 25%. The unit's National Distribution Center, which offers other
manufacturers' products as well as its own for both domestic and foreign
vehicles, and the AutoGlass Express program, a delivery system to fill
customer orders more quickly and completely, accounted for much of the
unit's net sales growth. About 68% of Curvlite's net sales were made to
Glass Depot units in fiscal 1998.
The segment's Harmon, Inc. business had another solid year, generating
slightly higher net sales. A favorable shift in net sales mix towards
higher-margin business helped the unit to report another year of solid
operating results.
During the year, GS completed four small acquisitions. These acquisitions,
combined with other locations added during the year, increased the number
of locations to 340 Harmon retail locations and 73 Glass Depot distribution
centers. The segment continued to explore opportunities to expand the reach
of its businesses.
The merger of the industry's two largest companies provided GS with an
enhanced position as insurance companies adjust their allocations of
business to maintain their own flexibility and access to competitive
pricing. Insurance companies, which make up about 50% of the replacement
auto glass market, prefer vendors who can expedite claims processing and
other administrative efforts related to auto glass replacement and repair.
The segment has the ability to offer comprehensive claims processing
services to these customers on a nationwide basis.
15
Discontinued Operations Businesses reported as discontinued operations
reported a net loss, net of income tax benefit, of $75.2 million in fiscal
1998 compared to a net loss, net of tax effect, of $607,000 in fiscal 1997.
The significant net loss in fiscal 1998 related primarily to international
curtainwall operations, which included two nonrecurring pre-tax charges
totaling $61.9 million. The domestic curtainwall and detention/security
contracting businesses reported solid results for the year, slightly
offsetting the losses suffered by the international operations. Domestic
and international curtainwall net sales fell by 30% and 40%, respectively,
due primarily to the decision to focus more selectively on higher margin
domestic curtainwall business and the closure of our Asian curtainwall
business.
The two nonrecurring pre-tax charges amounting to $61.9 million related to
exit activities and other unusual items. A $26.0 million pre-tax provision
for restructuring and other unusual items was recorded in the third
quarter. The provision also included amounts for the estimated loss
associated with certain disputed construction contract receivables in
Europe, including the accrual of certain penalty amounts, and the accrual
of costs associated with the resolution of legal proceedings related to
organizational changes in its European curtainwall unit. In the fourth
quarter, Apogee recorded a $35.9 million pre-tax provision for exiting all
European curtainwall and related operations, including the completion of
certain remaining projects.
In addition to the nonrecurring charges, international curtainwall
operations posted an operating loss in excess of $50 million, reflecting
significant cost overruns at certain projects in Europe and Asia. The
operations also sustained sizable foreign currency translation losses on
Asian assets, particularly those held in Malaysia. Despite a decline in net
sales, our domestic curtainwall unit produced sharply higher profits, aided
by the completion of the Getty Museum project as well as by reductions in
overhead and operating costs. The detention/security unit also reported
slightly higher net sales. However, operating income for the unit fell as
improved earnings from security systems contracting were offset by losses
from a related start-up operation.
In March 1998, the five operating companies comprising our European
curtainwall operations filed for bankruptcy or commenced liquidation,
effectively relinquishing the Company's control over these entities.
Liquidity and Capital Resources
Financial Condition
Net cash provided by financing activities In May 1998, the Company obtained
a five-year, committed credit facility in the amount of $275 million. This
credit facility requires Apogee to maintain minimum levels of net worth and
certain financial ratios, and was initially secured by the Company's
receivables, inventory, equipment and intangibles. This facility replaced a
$150 million five-year, multi-currency, committed credit facility obtained
in May 1996, which also required the maintenance of minimum levels of net
worth and certain financial ratios. The total commitment of the new credit
facility was reduced by the sales price, net of taxes, of the sale of the
detention/security business, resulting in a committed credit facility of
$253 million as of February 27, 1999. The lenders' security interest in
Apogee's assets was released during the year upon the achievement of
certain financial ratios.
Long-term debt, including current installments of $1.3 million, stood at
$166.4 million at February 27, 1999, up $12.8 million from a year earlier.
Virtually all of the Company's long-term debt consisted of bank borrowings.
The additional borrowings were primarily required to fund capital spending
and dividends in excess of cash flow from operations, which included
proceeds of $22.5 million from the sale of the Company's detention/security
business unit.
In December 1998, Apogee entered into an interest rate swap agreement,
which expires in fiscal 2004, which effectively converted $25 million of
its variable rate borrowings into a fixed rate obligation.
For fiscal 2000, we expect that outstanding borrowings will increase during
the first half of the year to fund working capital variations, capital
spending and dividends in excess of the anticipated cash flow from
operations. Debt levels are expected to decline during the latter half of
the year. Apogee believes that cash from operating activities and the
available credit facility provides the Company adequate liquidity for the
next twelve months.
Net cash provided by operating activities Cash provided by continuing
operating activities in fiscal 1999 rose to $62.1 million, up from $19.8
million in fiscal 1998. The increase primarily reflected a net favorable
change in working capital, which included the receipt of refundable income
taxes associated with the Company's fiscal 1998 net loss. Net receivables
increased $18.7 million, which essentially tracked sales growth in the last
quarter of the fiscal year. Most of our $7.1 million increase in
inventories was at GT, reflecting the segment's higher activity level and
increased level of finished goods. Nominal changes in accounts payable,
accrued expenses and billings in excess of costs and earnings on
uncompleted contracts all produced favorable changes to working capital.
16
Net cash used in investing activities New capital investment in fiscal 1999
totaled $80.9 million, versus $38.7 million and $75.6 million in fiscal
1998 and 1997, respectively. Additions to property, plant and equipment
totaled $77.7 million. Major expenditures included the construction of an
architectural glass fabrication facility in Statesboro, Georgia, and the
relocation of Viratec's Optium cathode ray tube coating line to San Diego,
California. Other expenditures included additions of manufacturing
equipment and the upgrading of information systems throughout the Company.
The GS segment purchased an 80% interest in an insurance claims and policy
processing company for $2.8 million and completed several small
acquisitions of retail auto glass replacement stores for $0.4 million.
In fiscal 2000, the Company expects capital spending of approximately $50
million. Plans include expenditures for the completion of the new Tru Vue
facility near Chicago, Illinois, as well as additions of manufacturing
equipment and information systems throughout the Company.
Shareholders' Equity
At February 27, 1999, Apogee's shareholders' equity stood at $130.7
million, up 19% from a year ago. Book value per share also rose to $4.73,
up from $3.99 per share a year ago, as outstanding common shares increased
only nominally during the year. Net earnings and the proceeds from the
issuance of 306,000 shares of common stock under our stock-based
compensation plans accounted for the increases, which were partly offset by
dividends paid and the repurchase of 136,000 shares of common stock. During
the year, Apogee increased its quarterly dividend by 5% to 5 1/4 cents per
share.
Market Risks
The Company's principal market risk is sensitivity to interest rates, which
is the risk that changes in interest rates will reduce net earnings of the
Company. To manage the Company's direct risk from changes in market
interest rates, management actively monitors the interest sensitive
components of the Company's balance sheet, primarily debt obligations, as
well as market interest rates in order to minimize the impact of changes in
interest rates on net earnings and cash flow.
The primary measure of interest rate risk is the simulation of net income
under different interest rate environments. The approach used to quantify
interest rate risk is a sensitivity analysis. This approach calculates the
impact on net earnings, relative to a base case scenario, of rates
increasing or decreasing gradually over the next 12 months by 200 basis
points. The aforementioned changes in interest rates affecting the
Company's financial instruments would result in approximately a $2.0
million impact to net earnings. As interest rates increase, net earnings
decrease; as interest rates decrease, net earnings increase.
The Company also routinely uses forward exchange contracts to hedge its net
exposures, by currency, related to the foreign currency-donominated
monetary assets and liabilities, and future firm commitments of its
operations. Forward exchange contracts are also used from time to time to
manage near-term foreign currency cash requirements. The primary objective
of these hedging activities is to maintain an approximately balanced
position in foreign currencies so that exchange gains and losses resulting
from exchange rate changes, net of related tax effects, are minimized.
Given the Company's balanced foreign exchange position shown above, a 10%
adverse change in foreign exchange rates upon which these contracts are
based would result in exchange losses from these contracts that would, in
all material respects, be fully offset by exchange gains on the underlying
net monetary exposures for which the contracts are designated as hedges.
Impact of Inflation
Our financial statements are prepared on a historical cost basis, which
does not completely account for the effects of inflation. However, since
the cost of many of our inventories is determined using the last-in, first-
out (LIFO) method of accounting, cost of sales, except for depreciation
expense included therein, generally reflects current costs.
The cost of glass, one of our primary raw materials, was essentially
unchanged from a year ago. We expect the cost of glass to remain
essentially unchanged in fiscal 2000. Aluminum prices at year end were
slightly lower than a year ago. While our construction and supply contracts
are at fixed prices, the material components are usually based on firm
quotes obtained from suppliers. Labor cost increases, including taxes and
fringe benefits, rose moderately in fiscal 1999 and a moderate increase
also can be reasonably anticipated for fiscal 2000. Other costs are managed
to minimize the inflationary pressures that exist in markets for goods and
services that Apogee's business operations require.
17
Impact of Year 2000
The Company has been evaluating, with the assistance of independent
software consultants, its Information Technology (IT) systems, non-IT
systems, and third-party readiness for compliance with Year 2000
requirements. For these purposes, the Company defines its "IT systems" as
those hardware and software systems which comprise its central management
information systems and its telephone systems. All other systems, including
those involved in local, on-site product design or manufacturing, are
considered "non-IT systems." "Third parties" include all the Company's key
suppliers and customers.
The assessment phase for the Company's IT systems is approximately 90%
complete. Remediation and implementation of the core operating and
application programs within the IT systems are approximately 50% complete,
and the intention is to be completed by October 1999. The costs related to
Year 2000 to complete this activity should not exceed $9 million of both
capital and expense, of which approximately $2 million has been incurred to
date. Of this projected cost, approximately $3 million is related to
accelerated replacement due to Year 2000 concerns.
The Company's businesses are approximately 90% complete in the assessment
phase regarding embedded operating and applications software and hardware
within its non-IT systems. The Company expects to complete that assessment
by June 1999. Although the Company is still in the assessment phase, based
on currently known data about its non-IT systems, the Company believes that
the requirements for Year 2000 remediation of its non-IT systems will be
limited in nature. While some issues have been identified, the Company
believes it can remediate all equipment to become Year 2000 compliant and
is in the process of doing so with the intent to be complete by August
1999.
The Company's businesses have contacted key customers and suppliers to
assess Year 2000 compliance within their organizations to assure no
material interruption in these important third party relationships. This
dialogue and process will be ongoing throughout 1999. Non-compliant
customers and suppliers will be evaluated in terms of the degree of risk
posed to the Company's business. The Company plans to develop third party
contingency plans as it identifies critical partners with evidence of non-
compliance. The Company's contingency plans may include plans, where
necessary, to establish additional or alternative sources of supply and
channels of distribution. If there were significant non-compliance by key
customers and suppliers, the Company might experience a material adverse
effect on the businesses with those specific third-party relationships.
Most of the Company's businesses will remediate or replace portions of
their software and hardware within the Company's IT systems and non-IT
systems that are identified as requiring Year 2000 remediation. The Company
intends to address contingency planning with respect to its IT systems, its
non-IT systems and its third-party relationships with key customers and
suppliers.
Based on the Company's assessments completed to date, the Company's total
cost of addressing Year 2000 issues is currently estimated to be in the
range of $10 to $14 million, of which approximately $4 million has already
been incurred.
Cautionary Statement
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. A number of factors
should be considered in conjunction with the report's forward-looking
statements, including changes in economic and market conditions, factors
related to competitive pricing, commercial building market conditions,
management of growth of business units, costs or difficulties related to
the operation of the businesses are greater than expected, the impact of
foreign currency markets, the integration of acquisitions, the realization
of expected economies gained through expansion and information systems
technology and other factors as set forth in the cautionary statements
included in Exhibit 99 to our 10-K filed with the Securities and Exchange
Commission. The Company wishes to caution investors and others to review
the statements set forth in Exhibit 99 and that other factors may prove to
be important in affecting the Company's business or results of operations.
These cautionary statements are intended to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
18
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
--------------------
The information required by this Item is included on pages 15 and 16 of the
Proxy Statement for the Annual Meeting of Shareholders to be held June 22, 1999,
which is incorporated herein by reference.
PART III
--------
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
---------------------------------------------------
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN
-----------------------------------------------------
BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND
---------------------------------------------------------------
RELATED TRANSACTIONS.
--------------------
The information required by these Items, other than the information set
forth in Part I above in "Executive Officers of the Registrant," is included on
pages 1 to 6 and 10 to 13 of the Proxy Statement for the Annual Meeting of
Shareholders to be held June 22, 1999, which is incorporated herein by
reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) and (d) Financial Statements and Financial Statement Schedules -
The consolidated financial statements and schedules of the Registrant
listed in the accompanying "Index of Financial Statements and Schedules"
together with the report of KPMG Peat Marwick LLP, independent auditors, are
filed as part of this report.
(b) Reports on Form 8-K
During the quarter ended February 27, 1999, the Company filed two reports
on Form 8-K. The Company filed a Current Report on Form 8-K, dated
December 3, 1998, updating the information on the purchase agreement
between the Company and CompuDyne Corporation announced November 10, 1998
and announcing the closing of the sale of the Detention/Security business
unit. The Company filed a Current Report on Form 8-K, dated February 22,
1999, disclosing the second amendment of the Rights Agreement between
Registrant and American Stock Transfer Co. dated October 19, 1990 and
announcing the Board of Directors' authorization for the Company to enter
into severance agreements with certain senior executive officers of the
Company.
(c) Exhibits -
The information called for by this Item is contained in a separate section
of this report. See "Exhibit Index".
19
- SIGNATURES -
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 28, 1999
APOGEE ENTERPRISES, INC.
By: /s/ Donald W. Goldfus
----------------------------------
Donald W. Goldfus
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -----------------------------------------------------------------------------------------------------------------
/s/ Donald W. Goldfus Chairman of the Board of Directors May 28, 1999
- ------------------------------------- ----------------------------------------- -------------------
Donald W. Goldfus
/s/ Russell Huffer President and CEO, Director May 28, 1999
- ------------------------------------- ----------------------------------------- -------------------
Russell Huffer
/s/ Harry A. Hammerly Director May 28, 1999
- ------------------------------------- ----------------------------------------- -------------------
Harry A. Hammerly
/s/ Laurence J. Niederhofer Director May 28, 1999
- ------------------------------------- ----------------------------------------- -------------------
Laurence J. Niederhofer
/s/ James L. Martineau Director May 28, 1999
- ------------------------------------- ----------------------------------------- -------------------
James L. Martineau
/s/ D. Eugene Nugent Director May 28, 1999
- ------------------------------------- ----------------------------------------- -------------------
D. Eugene Nugent
/s/ Barbara B. Grogan Director May 28, 1999
- ------------------------------------- ----------------------------------------- -------------------
Barbara B. Grogan
20
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------
/s/ Stephen C. Mitchell Director May 28, 1999
- ------------------------------------- -------------------- -------------------
Stephen C. Mitchell
/s/ Jerome B. Cohen Director May 28, 1999
- ------------------------------------- -------------------- -------------------
Jerome B. Cohen
/s/ J. Patrick Horner Director May 28, 1999
- ------------------------------------- -------------------- -------------------
J. Patrick Horner
/s/ Michael E. Shannon Director May 28, 1999
- ------------------------------------- -------------------- -------------------
Michael E. Shannon
21
Apogee Enterprises, Inc.
Form 10-K
Items 8, 14 (a) and 14 (d)
Index of Financial Statements and Schedules
Financial Statements
Independent Auditors' Report.................................... 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
Independent Auditors' Report
The Board of Directors and Shareholders
Apogee Enterprises, Inc.:
We have audited the consolidated financial statements of Apogee
Enterprises, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Apogee
Enterprises, Inc. and subsidiaries as of February 27, 1999 and February 28, 1998
and the results of their operations and their cash flows for each of the years
in the three-year period ended February 27, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 12, 1999
F-2
CONSOLIDATED BALANCE SHEETS
February 27, February 28,
(Dollar amounts in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 1,318 $ 7,853
Receivables, net of allowance for doubtful accounts 118,216 100,389
Inventories 68,171 61,001
Refundable income taxes -- 16,533
Deferred tax assets 11,622 14,218
Other current assets 6,018 6,864
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 205,345 206,858
- ----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 180,428 126,729
Other assets
Marketable securities available for sale 27,239 18,706
Investments 570 709
Intangible assets, at cost less accumulated
amortization of $9,446 and $10,547, respectively 55,077 50,500
Other 2,532 2,025
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 471,191 $405,527
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 43,166 $ 37,750
Accrued expenses 51,738 51,379
Billings in excess of costs and earnings on uncompleted contracts 11,622 6,942
Accrued income taxes 7,385 --
Current installments of long-term debt 1,300 1,679
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 115,211 97,750
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt, less current installments 165,097 151,967
Other long-term liabilities 27,845 24,785
Net liabilities of discontinued operations 32,374 21,424
Commitments and contingent liabilities (Notes 6, 13 and 14)
Shareholders' equity
Common stock of $.33-1/3 par value; authorized 50,000,000 shares;
issued and outstanding, 27,623,000 and 27,453,000, respectively 9,208 9,151
Additional paid-in capital 41,903 38,983
Retained earnings 80,194 61,899
Unearned compensation (721) (686)
Net unrealized gain on marketable securities 80 254
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 130,664 109,601
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 471,191 $405,527
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
CONSOLIDATED RESULTS OF OPERATIONS
Year Ended Year Ended Year Ended
(Dollar amounts in thousands except per share data) February 27, 1999 February 28, 1998 March 1, 1997
- -----------------------------------------------------------------------------------------------------------------
Net sales $792,552 $731,094 $642,226
Cost of sales 622,376 565,955 498,465
- -----------------------------------------------------------------------------------------------------------------
Gross profit 170,176 165,139 143,761
Selling, general and administrative expenses 128,033 119,480 99,133
- -----------------------------------------------------------------------------------------------------------------
Operating income 42,143 45,659 44,628
Interest expense, net 9,524 6,276 5,111
- -----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes and other items below 32,619 39,383 39,517
Income taxes 11,743 14,390 12,353
Equity in net loss of affiliated companies 1,424 879 337
Minority interest (235) -- --
- -----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 19,687 24,114 26,827
Earnings (loss) from operations of
discontinued businesses, net of income taxes 5,546 (75,169) (607)
- -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 25,233 $(51,055) $ 26,220
- -----------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - basic
Continuing operations $ 0.71 $ 0.87 $ 0.98
Discontinued operations 0.20 (2.70) (0.02)
- -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 0.91 $ (1.84) $ 0.96
- -----------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - diluted
Continuing operations $ 0.71 $ 0.85 $ 0.96
Discontinued operations 0.20 (2.65) (0.02)
- -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 0.91 $ (1.80) $ 0.93
- -----------------------------------------------------------------------------------------------------------------
F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Additional Cumulative Unrealized
Shares Common Paid-In Retained Unearned Translation Gain on
(Amounts in thousands) Outstanding Stock Capital Earnings Compensation Adjustment Investments
- --------------------------------------------------------------------------------------------------------------------------------
Balance at March 2, 1996 13,517 $4,506 $20,445 $113,970
Net earnings 26,220
Cumulative translation
adjustment $(1,277)
Change in unrealized gains on
marketable securities, net
of $11 tax expense $ 22
Comprehensive earnings
Common stock issued 478 159 12,871
Tax benefit associated with
stock plans 1,445
Common stock
repurchased and retired (85) (28) (75) (1,303)
Cash dividends (4,806)
100% stock dividend,
at par 13,972 4,657 (4,657)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at March 1, 1997 27,882 9,294 34,686 129,424 -- (1,277) 22
Net loss (51,055)
Cumulative translation
adjustment 1,277
Change in unrealized gains
on marketable securities,
net of $125 tax expense 232
Comprehensive loss
Unearned compensation $(686)
Common stock issued 504 168 4,754
Tax benefit associated with
stock plans 1,503
Common stock
repurchased and retired (933) (311) (1,960) (11,219)
Cash dividends (5,251)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at February 27, 1998 27,453 9,151 38,983 61,899 (686) -- 254
Net earnings 25,233
Change in unrealized gains
on marketable securities,
net of $93 tax benefit (174)
Comprehensive earnings
Unearned compensation (35)
Common stock issued 306 102 2,994
Common stock
repurchased and retired (136) (45) (74) (1,272)
Cash dividends (5,666)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at February 27, 1999 27,623 $9,208 $41,903 $ 80,194 $(721) $ -- $ 80
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive
Earnings
(Amounts in thousands) (Loss)
- ---------------------------------------------------------
Balance at March 2, 1996
Net earnings $ 26,220
Cumulative translation
adjustment (1,277)
Change in unrealized gains on
marketable securities, net
of $11 tax expense $ 22
---------------
Comprehensive earnings $ 24,965
===============
Common stock issued
Tax benefit associated with
stock plans
Common stock
repurchased and retired
Cash dividends
100% stock dividend,
at par
Balance at March 1, 1997
Net loss $(51,005)
Cumulative translation
adjustment 1,277
Change in unrealized gains
on marketable securities,
net of $125 tax expense 232
---------------
Comprehensive loss $(49,546)
===============
Unearned compensation
Common stock issued
Tax benefit associated with
stock plans
Common stock
repurchased and retired
Cash dividends
Balance at February 27, 1998
Net earnings $ 25,233
Change in unrealized gains
on marketable securities,
net of $93 tax benefit (174)
---------------
Comprehensive earnings $ 25,059
===============
Unearned compensation
Common stock issued
Common stock
repurchased and retired
Cash dividends
Balance at February 27, 1999
See accompanying notes to consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
(Dollar amounts in thousands) February 27, 1999 February 28, 1998 March 1, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings (loss) $ 25,233 $(51,055) $ 26,220
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net (earnings) loss from discontinued operations (5,546) 75,169 607
Depreciation and amortization 25,938 22,463 17,860
Provision for losses on accounts receivable 1,408 508 1,692
Deferred income tax (benefit) expense 4,844 (7,849) 9,452
Equity in net loss of affiliated companies 1,424 879 337
Minority interest (235) -- --
Other, net (27) 2,294 870
- --------------------------------------------------------------------------------------------------------------------------------
Cash flow before changes in operating assets and liabilities 53,039 42,409 57,038
Changes in operating assets and liabilities, net of effect of acquisitions:
Receivables (18,682) (13,684) (3,113)
Inventories (7,128) (5,196) 1,005
Other current assets 917 107 (1,477)
Accounts payable and accrued expenses 4,395 8,933 181
Billings in excess of costs and earnings on uncompleted contracts 4,680 2,663 1,505
Refundable income taxes and accrued income taxes 24,135 (13,338) (6,955)
Other long-term liabilities 778 (2,062) 374
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 62,134 19,832 48,558
- --------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Capital expenditures (77,710) (37,891) (34,203)
Acquisition of Marcon Coatings, net of cash acquired -- -- (40,161)
Acquisition of businesses, net of cash acquired (3,181) (810) (1,365)
Decrease (increase) in marketable securities (8,800) 1,306 (7,555)
Investment in and advances to affiliated companies (1,285) (850) (464)
Proceeds from sales of property, plant and equipment 310 575 1,091
Other, net (58) (503) (358)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (90,724) (38,173) (83,015)
- --------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Payments on notes payable -- -- (5,350)
Payments on long-term debt (1,446) (1,704) (6,120)
Proceeds from issuance of long-term debt 14,197 26,003 51,100
Increase in deferred debt expense (3,107) -- --
Proceeds from issuance of common stock 3,096 4,922 3,930
Repurchase and retirement of common stock (1,515) (13,490) (1,406)
Dividends paid (5,666) (5,251) (4,806)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,559 10,480 37,348
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Flow from Discontinued Operations 16,496 11,649 (6,215)
- --------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (6,535) 3,788 (3,324)
Cash and cash equivalents at beginning of year 7,853 4,065 7,389
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,318 $ 7,853 $ 4,065
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Noncash Investing and Financing Activities
Common stock issued in acquisition of business $ -- $ -- $ 9,100
- --------------------------------------------------------------------------------------------------------------------------------
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 Our consolidated financial statements include the
accounts of Apogee and all majority-owned subsidiaries. As explained in
Note 10, the Company's curtainwall contracting and detention/security
contracting businesses are reported as discontinued operations. We use the
equity method to account for 50%-owned joint ventures. Intercompany
transactions have been eliminated. Certain amounts from prior-years'
financial statements have been reclassified to conform with this year's
presentation.
Cash and Cash Equivalents Investments with an original maturity of three
months or less are included in cash and cash equivalents.
Inventories Inventories, which consist primarily of purchased glass and
aluminum, are valued at the lower of cost or market. Approximately 40% of
the inventories are valued by use of the last-in, first-out (LIFO) method,
which does not exceed market. If the first-in, first-out (FIFO) method had
been used for all inventories, our inventories would have been $3,000,000
and $3,000,000 higher than reported at February 27, 1999, and February 28,
1998, 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. The
carrying value of intangible assets is reviewed when circumstances suggest
that it has been impaired. If this review indicates that intangible assets
will not be recoverable based on the estimated undiscounted cash flows over
the remaining amortization period, the carrying value of intangible assets
must be reduced to estimated fair value. Amortization expense amounted to
$2,124,000, $1,761,000 and $669,000 in 1999, 1998 and 1997, respectively.
Insurance Subsidiary We established a wholly-owned insurance subsidiary,
Prism Assurance, Inc. (Prism), in 1996 to insure our workers' compensation,
general liability and automobile liability risks. Prism invests in fixed
maturity investments which we classify as "available-for-sale" and are
carried at market value as prescribed by Statement of Financial Accounting
Standards (SFAS) No. 115. Reserve requirements are established based on
actuarial projections of ultimate losses. Apogee also has accruals for
losses incurred prior to Prism's formation. Losses estimated to be paid
within twelve months are classified as accrued expenses, while losses
expected to be payable in later periods are included in other long-term
liabilities.
Revenue Recognition We recognize net sales from the sale of products and
the related cost of sales upon shipment.
Income Taxes We account for income taxes as prescribed by SFAS No. 109,
which requires use of the asset and liability method. This method
recognizes deferred tax assets and liabilities based upon the future tax
consequences of temporary differences between financial and tax reporting.
Foreign Operations The financial statements of foreign operations have been
translated to U.S. dollars, using the rules of SFAS No. 52. Balance sheet
accounts are stated in U.S. dollars, generally at the year-end exchange
rate. Results of operations are translated at average exchange rates for
the respective period.
We periodically enter into forward currency exchange contracts to
manage specific foreign currency exposures related to foreign construction
contracts, receivables, and bank borrowings denominated in foreign
currencies. As of February 27, 1999, we had forward contracts maturing in
2000 with a value of approximately $11 million. 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.
F-7
Accounting Period Our fiscal year ends on the Saturday closest to February 28.
Accounting Estimates The preparation of our consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of net sales and
expenses during the reporting period. Amounts subject to significant estimates
and assumptions include, but are not limited to, insurance reserves and net
sales recognition for construction contracts, including the status of
outstanding disputes and claims. Actual results could differ from those
estimates.
New Accounting Standards In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and display of
comprehensive income and its components (net sales, expenses, gains, and losses)
in a full set of general-purpose financial statements. We adopted SFAS No. 130
in 1999. The disclosures required by SFAS No. 130 are presented in the
Consolidated Statement of Shareholders' Equity on page F-6.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on
the management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds assets and reports net sales. We adopted SFAS No. 131 in
1999.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued and is effective for fiscal years beginning after
June 15, 1999, although earlier application if permitted. SFAS No. 133 requires
all derivatives to be measured at fair value and recognized as assets or
liabilities on the balance sheet. Changes in the fair value of derivatives
should be recognized in either net earnings or other comprehensive earnings,
depending on the designated purpose of the derivative. SFAS No. 133 is not
expected to have a material impact on the Company's financial position or
results of operations.
2 Receivables
(In thousands) 1999 1998
- ------------------------------------------------------------------------
Trade accounts $104,813 $ 91,179
Construction contracts 13,431 9,994
Contract retainage 4,379 3,207
Other receivables 2,754 1,380
- ------------------------------------------------------------------------
Total receivables 125,377 105,760
Less allowance for doubtful accounts (7,161) (5,371)
- ------------------------------------------------------------------------
Net receivables $118,216 $100,389
- ------------------------------------------------------------------------
We provide products and services to the commercial and institutional new
construction and remodeling markets, the automotive replacement glass market and
selected consumer markets. We do not believe a concentration of credit risk
exists, due to the diversity of our markets and channels of distribution, and
the geographic location of our customers. Allowances are maintained for
potential credit losses and such losses have been within management's
expectations. The provision for bad debt expense was $1,408,000, $508,000 and
$1,692,000 in 1999, 1998 and 1997, respectively.
F-8
3 Inventories
(In thousands) 1999 1998
- ----------------------------------------------------------------------
Raw materials $16,324 $16,705
Work-in process 3,157 4,748
Finished 48,330 39,417
Costs and earnings in excess of
billings on uncompleted contracts 360 131
- ----------------------------------------------------------------------
Total inventories $68,171 $61,001
- ----------------------------------------------------------------------
4 Property, Plant and Equipment
(In thousands) 1999 1998
- ---------------------------------------------------------------------------
Land $ 2,780 $ 2,686
Buildings and improvements 69,601 63,428
Machinery and equipment 137,638 127,257
Office equipment and furniture 54,205 49,368
Construction in progress 57,663 9,319
- ---------------------------------------------------------------------------
Total property, plant and equipment 321,887 252,058
Less accumulated depreciation (141,459) (125,329)
- ---------------------------------------------------------------------------
Net property, plant and equipment $ 180,428 $ 126,729
- ---------------------------------------------------------------------------
Depreciation expense was $23,814,000, $20,702,000 and $17,191,000 in 1999,
1998 and 1997, respectively.
5 Accrued Expenses
(In thousands) 1999 1998
- ----------------------------------------------------------------------
Payroll and related benefits $24,591 $19,000
Insurance 11,824 13,677
Taxes, other than income taxes 4,459 4,582
Pension 4,651 5,371
Interest 902 1,205
Other 5,311 7,544
- ----------------------------------------------------------------------
Total accrued expenses $51,738 $51,379
- ----------------------------------------------------------------------
6 Long-Term Debt
(In thousands) 1999 1998
- -------------------------------------------------------------------------
Borrowings under revolving credit and
other bank agreements, interest
ranging from 5.63% to 7.75% $164,700 $150,503
Other 1,697 3,143
- -------------------------------------------------------------------------
Total long-term debt 166,397 153,646
Less current installments (1,300) (1,679)
- -------------------------------------------------------------------------
Net long-term debt $165,097 $151,967
- -------------------------------------------------------------------------
F-9
Long-term debt maturities are as follows:
FISCAL YEAR (In thousands)
- -----------------------------------------------------
2000 $ 1,300
2001 197
2002 100
2003 164,800
2004 --
Thereafter --
- -----------------------------------------------------
Total $166,397
- -----------------------------------------------------
In May 1998, we obtained a five-year, committed, secured credit facility in
the amount of $275 million. This new credit facility requires us to maintain
minimum levels of net worth and certain financial ratios. This facility
replaced a $150 million five-year, multi-currency, committed credit facility
which had been obtained in May 1996. This previous credit facility also
required us to maintain minimum levels of net worth and certain financial
ratios. The total commitment of the new credit facility was reduced by the
sales price, net of taxes, of the sale of the detention/security business,
resulting in a committed credit facility of $253 million as of February 27,
1999. The lenders' security interest in Apogee's assets was released during the
year upon the achievement of certain financial ratios. At February 27, 1999, we
were in compliance with all of the financial covenants of the new credit
facility.
At February 28, 1998, we also had access to short-term credit on an
uncommitted basis with several major banks. At February 28, 1998, $24.9 million
in bank borrowings were outstanding under these agreements. These short-term
borrowings could have been refinanced on a long-term basis under the revolving
credit agreement described above. Accordingly, our short-term bank borrowings
at February 28, 1998, which were not expected to be paid within one year, were
classified as long-term debt.
Selected information related to bank borrowings is as follows:
(Dollar amounts in thousands) 1999 1998
- -----------------------------------------------------------------------------
Average daily borrowings during the year $160,437 $133,158
Maximum borrowings outstanding during the year 172,200 158,294
Weighted average interest rate during the year 6.8% 5.6%
- -----------------------------------------------------------------------------
In 1999, we entered into a interest rate swap agreement that effectively
converted $25 million of our variable rate borrowings into a fixed rate
obligation. Under this agreement, which expires in 2001, we receive payments at
variable rates while we make payments at a fixed rate of 7.125%. The net
interest paid or received is included in interest expense.
In 1998 and 1996, we entered into interest rate swap agreements that
effectively converted a portion of our variable rate borrowings into fixed rate
obligations. During 1999, we sold these swap agreements. The net realized gains
or losses were recognized as increases/reductions in interest expense.
The net book value of property and plant pledged as collateral under
industrial development bonds was approximately $290,000 at February 27, 1999.
F-10
7 INTEREST, NET
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------
Interest on debt $10,898 $ 7,928 $ 4,859
Other interest expense 649 460 1,368
- ---------------------------------------------------------------------
Total interest expense 11,547 8,388 6,227
Less interest income (2,023) (2,112) (1,116)
- ---------------------------------------------------------------------
Interest expense, net 9,524 $ 6,276 $ 5,111
- ---------------------------------------------------------------------
Interest payments, including interest expense allocated to discontinued
operations, were $ 12,067,000, $8,223,000 and $6,180,000 in 1999, 1998 and 1997,
respectively.
8 SHAREHOLDERS' EQUITY AND STOCK OPTION PLANS
A class of 200,000 shares of junior preferred stock with a par value of $1.00
is authorized, but unissued.
We have a Shareholders' Rights Plan, under which each share of our outstanding
common stock has an associated preferred share purchase right. The rights are
exercisable only under certain circumstances, including the acquisition by a
person or group of 10% of the outstanding shares of the Company's common stock.
Upon exercise, the rights would allow holders of such rights to purchase common
stock of Apogee or an acquiring company at a discounted price, which generally
would be 50% of the respective stock's current fair market value.
The 1997 Stock Option Plan and 1987 Stock Option Plan (the "Plans") each
provide for the issuance of up to 2,500,000 options to purchase Company stock.
Options awarded under these Plans, either in the form of incentive stock options
or nonstatutory options, are exercisable at an option price equal to the fair
market value at the date of award. The 1987 Plan has expired and no new grants
of stock options may be made under this Plan.
The 1987 Partnership Plan, a Plan designed to increase the ownership of Apogee
stock by key employees, allows participants selected by the Compensation
Committee of the Board of Directors to use earned incentive compensation to
purchase Apogee common stock. The purchased stock is then matched by an equal
award of restricted stock, which vests over a predetermined period. 2,200,000
common shares are authorized for issuance under the Plan. As of February 27,
1999, 2,051,000 shares have been issued or committed under the Plan. We expensed
$1,926,000, $1,613,000 and $2,145,000 in conjunction with the Partnership Plan
in 1999, 1998 and 1997, respectively.
F - 11
A summary of option transactions under the Plans for 1999, 1998 and 1997
follows:
Options Outstanding
---------------------------------------------------------------
Number of Average Option Price
Shares Exercise Price Range
- ----------------------------------------------------------------------------------------------------
Balances, March 2, 1996 1,404,000 $ 6.87 $4.48- $ 9.46
Options granted 587,000 15.08 10.50- 17.75
Options exercised (368,000) 5.83 5.38- 8.69
Options canceled (22,000) 7.53 5.38- 15.06
- ----------------------------------------------------------------------------------------------------
Balances, March 1, 1997 1,601,000 10.11 4.48- 17.75
Options granted 485,000 16.09 11.31- 25.00
Options exercised (372,000) 6.86 5.38- 16.50
Options canceled (230,000) 12.38 5.38- 16.75
- ----------------------------------------------------------------------------------------------------
Balances, February 28, 1998 1,484,000 12.53 4.48- 25.00
Options granted 443,000 13.94 10.63- 15.25
Options exercised (160,946) 6.92 5.88- 8.69
Options canceled (184,540) 14.33 5.88- 16.75
- ----------------------------------------------------------------------------------------------------
Balances, February 27, 1999 1,581,514 $13.27 $4.48- $25.00
- ----------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding and
exercisable at February 27, 1999.
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------------
Range of Remaining Weighted- Weighted-
Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------------
$ 4.48- 12.50 451,219 3.2 years $ 8.31 339,594 $ 7.61
12.51- 15.00 462,670 9.1 years 13.97 104,420 14.35
15.01- 25.00 667,625 6.0 years 16.15 286,500 16.26
- ---------------------------------------------------------------------------------------------------------------
1,581,514 6.1 years $13.27 730,514 $11.96
- ---------------------------------------------------------------------------------------------------------------
In accordance with the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, no compensation cost has been recognized with
respect to the Plans. Had compensation cost for the Plans been determined based
on the fair value of the awards, our net earnings (loss) and earnings (loss) per
share would have been reduced to the pro forma amounts indicated below:
F - 12
(In thousands, except per
share data) 1999 1998 1997
- ---------------------------------------------------------------------------
Reported:
Net earnings (loss)
Continuing Operations $19,687 $ 24,114 $26,827
Discontinuing Operations 5,546 (75,169) (607)
- ---------------------------------------------------------------------------
$25,233 $(51,055) $26,220
- ---------------------------------------------------------------------------
Earnings (loss) per share diluted
Continuing Operations $ 0.71 $ 0.85 $ 0.96
Discontinuing Operations 0.20 (2.65) (0.02)
- ---------------------------------------------------------------------------
$ 0.91 $ (1.80) $ 0.93
- ---------------------------------------------------------------------------
Pro forma:
Net earnings (loss)
Continuing Operations $17,049 $ 22,168 $25,828
Discontinuing Operations 5,546 (75,169) (607)
- ---------------------------------------------------------------------------
$22,595 $(53,001) $25,221
- ---------------------------------------------------------------------------
Earnings (loss) per share diluted
Continuing Operations $ 0.61 $ 0.78 $ 0.92
Discontinuing Operations 0.20 (2.65) (0.02)
- ---------------------------------------------------------------------------
$ 0.81 $ (1.87) $ 0.90
- ---------------------------------------------------------------------------
The above pro forma amounts may not be representative of the effects on
reported net earnings (loss) for future years. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in 1999,
1998 and 1997:
1999 1998 1997
- --------------------------------------------------------------------------
Dividend yield 1.5% 1.2% 1.1%
Expected volatility 38.0% 60.0% 60%
Risk-free interest rate 6.0% 7.0% 7.0%
Expected lives 10 years 10 years 7.5 years
- --------------------------------------------------------------------------
9 INCOME TAXES
The components of income tax expense (benefit) for each of the last three
fiscal years are as follows:
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Current:
Federal $ 7,875 $ 10,966 $ 1,886
State and local 1,122 1,554 1,081
- -------------------------------------------------------------------------------
Total current $ 8,997 $ 12,520 $ 2,967
- -------------------------------------------------------------------------------
Deferred:
Federal $ 2,414 $ 1,645 $ 7,883
State and local 332 225 1,503
- -------------------------------------------------------------------------------
Total deferred $ 2,746 $ 1,870 $ 9,386
- -------------------------------------------------------------------------------
Provision for income taxes:
Continuing operations $11,743 $ 14,390 $12,353
Discontinuing operations 3,283 (26,815) 1,449
- -------------------------------------------------------------------------------
Total income tax expense $15,026 $(12,425) $13,802
- -------------------------------------------------------------------------------
Income tax payments, net of refunds, were $2,090,000, $12,000,000 and
$11,520,000 in 1999, 1998 and 1997, respectively.
The differences between statutory federal tax rates and our consolidated
effective tax rates are as follows:
F - 13
1999 1998 1997
- -----------------------------------------------------------------------------
Statutory federal tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax benefit 2.9 2.9 4.2
Tax credits (1.5) (1.8) (2.4)
Foreign sales corporation (1.0) (1.4) (1.3)
Resolution of Revenue Agent Exams --- --- (2.5)
Other, net 0.6 1.8 (1.7)
- -----------------------------------------------------------------------------
Consolidated effective tax rate 36.0% 36.5% 31.3%
- -----------------------------------------------------------------------------
Tax benefits for deductions associated with the 1987 Stock Option Plan and the
1987 Partnership Plan amounted to $1,503,000 and $1,445,000 in 1998 and 1997,
respectively. These benefits were added directly to additional paid-in capital
and were not reflected in the determination of income tax expense.
Deferred tax assets and deferred tax liabilities at February 27, 1999 and
February 28, 1998 are as follows:
1999 1998
----------------------------------------------------------------------
(In thousands) Current Noncurrent Current Noncurrent
- ---------------------------------------------------------------------------------------------------------
Accounts receivable $ 5,702 $(1,378) $ 2,393 $ ---
Accrued insurance --- 4,641 --- 3,715
Deferred compensation (140) 4,165 (140) 4,071
Restructuring reserve 16,670 --- 22,982 6
Inventory 1,477 203 1,383 128
Depreciation (194) (6,444) 143 (6,235)
Employee benefit plans (1,840) --- (1,451) ---
Other 2,147 (5,040) 1,108 (3,291)
- ---------------------------------------------------------------------------------------------------------
23,822 (3,853) 26,418 (1,606)
Less valuation allowance (12,200) --- (12,200) ---
- ---------------------------------------------------------------------------------------------------------
Deferred tax assets (liability) $ 11,622 $(3,853) $ 14,218 $(1,606)
- ---------------------------------------------------------------------------------------------------------
At February 27, 1999, future tax deductions from the reversal of temporary
differences comprise the deferred tax asset, which has been reduced by a
valuation allowance. This valuation allowance reduces the deferred tax asset to
a net amount which we believe we more likely than not will realize, based on our
estimates of future earnings and the expected timing of temporary difference
reversals. The valuation allowance did not change during they year ended
February 27, 1999 and reflects amounts for foreign tax credits, general business
tax credits, net operating loss carryforwards and capital loss carryforwards.
10 DISCONTINUED OPERATIONS
In 1999, our Board of Directors' authorized the divestiture of our
detention/security and domestic curtainwall operations. On December 3, 1998,
the segment executed the sale of its detention/security business, effective
November 28, 1998. On April 9, 1999, we announced that we had entered into an
agreement to sell our domestic curtainwall operations. Combined with last year's
exit from international curtainwall operations, the above transactions
effectively remove us from the large-scale construction business. Accordingly,
these businesses are presented as discontinued operations in the consolidated
financial statements and notes. Prior periods have been restated.
F - 14
Earnings (Loss) from Operations of Discontinued Businesses
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Net sales $164,249 $ 191,311 $319,711
Earnings (loss) before income
taxes and minority interest* 8,830 (101,984) 14
Income tax expense (benefit) 3,283 (26,815) 1,449
Minority interest --- --- (827)
Earnings (loss) from operations,
net of income taxes 5,546 (75,169) (607)
- -------------------------------------------------------------------------------
* Includes net interest expense allocations (based on the ratio of net operating
assets of discontinued operations to consolidated net assets) of $414,000,
$1,058,000 and $1,854,000 for 1999, 1998 and 1997, respectively.
The 1999 effective income tax rate of 37.2% on discontinued operations was
significantly lower than the 1998 and 1997 rates due to increases in our
valuation allowance in 1998 and 1997. It is expected that there will be a gain
on ultimate disposal of our domestic curtainwall business, taking into account
its estimated results in 2000.
Net Liabilities of Discontinued Operations
(In thousands) 1999 1998
- -------------------------------------------------------------------------
Current assets $ 20,430 $ 56,381
Property, plant and equipment -- net 2,050 3,209
Current liabilities (54,854) (81,014)
- -------------------------------------------------------------------------
Net liabilities of discontinued operations $(32,374) $(21,424)
- -------------------------------------------------------------------------
During 1998, we recorded pre-tax charges of $96.1 million for unusual items in
discontinued operations. The amount included nonrecurring charges of $26.0
million and $35.9 million recorded in the third and fourth quarter,
respectively, related to international curtainwall operations. In addition,
unusual items included operating losses totaling $34.2 million, representing the
net operating results for European curtainwall operations.
The $26.0 million charge included amounts for the estimated loss on a disputed
construction contracts in Europe, including the accrual of certain penalty
amounts, and a provision for the accrual of legal and related costs associated
with the resolution of legal proceedings related to organizational changes in
our majority-owned European curtainwall unit. The charge for restructuring
included amounts for severance and termination benefits for employees in France,
Asia and the US., the write-down of property and equipment and other long-term
assets to their estimated net salable value and other items such as lease
termination costs. The $35.9 million charge reflected the estimated costs
associated with exiting our European operations, including the completion of
certain remaining projects. In March 1998, the five operating companies
comprising our European curtainwall operations filed for bankruptcy or commenced
liquidation, effectively relinquishing control over those entities.
At February 1999, accruals totaling $27.5 million represented the remaining
future cash outflows associated with the exit from our international curtainwall
operations. The majority of these cash expenditures are expected to be made
within the next one to three years. The primary components of the accrual
relate to the completion of certain construction projects, legal costs and other
costs associated with the proceedings noted above.
11 EMPLOYEE BENEFIT PLANS
We maintain a qualified defined contribution pension plan that covers
substantially all full-time, non-union employees. Contributions to the Plan are
based on a percentage of employees' base earnings. We deposit pension costs with
the trustee annually. All pension costs were fully funded or accrued as of year
end. Contributions to the Plan were $4,267,000, $3,884,000 and $3,361,000 in
1999, 1998 and 1997, respectively.
We also maintain a 401(k) savings plan, which allows employees to contribute
1% to 13% of their compensation. Apogee matches 30% of the first 6% of the
employee contributions. Our contributions to the Plan were $2,031,000,
$1,817,000 and $1,541,000 in 1999, 1998 and 1997, respectively.
F - 15
12 ACQUISITIONS
In 1999, our Glass Services segment purchased the assets of three retail auto
glass stores in three separate transactions. The aggregate purchase price of
the acquisitions was $400,000, including $200,000 recorded as goodwill. During
1999, the segment also purchased an 80% interest in an insurance claims and
policy processing outsource company. The aggregate purchase price of the
acquisition was $2.8 million. Goodwill of $3.4 million was recorded and
liabilities of $1.4 million were assumed.
In 1998, our Glass Services segment purchased the assets of ten retail auto
glass stores in four separate transactions. The aggregate purchase price of the
acquisitions was $800,000, including $200,000 recorded as goodwill.
In 1997, we purchased a joint venture partner's 50% interest in Marcon
Coatings, Inc., which was subsequently merged into our Viracon subsidiary, its
subsidiary, Viratec Thin Films, Inc. and certain leased assets. Both businesses
operate glass coating facilities. The aggregate purchase price, net of cash
acquired, was $40.2 million. Liabilities of $11.8 million were assumed. The
purchase price exceeded the fair value of net assets acquired by $34.5 million,
which was recorded as goodwill and is being amortized over 40 years.
In 1997, our Glass Services segment purchased the common stock of a 46-
location retail auto glass replacement and repair company. The aggregate
purchase price, net of cash acquired, was $10.4 million, consisting of $1.3
million in acquisition related expenditures and 215,000 shares of Apogee common
stock valued at $9.1 million. Liabilities of $5.9 million were assumed. The
purchase price exceeded the fair value of net assets acquired by $9.4 million,
which was recorded as goodwill. The Glass Services segment also made two smaller
acquisitions of retail auto glass stores in 1997, purchasing assets for
$100,000.
Unless noted, no liabilities were assumed in the above transactions. All of
the above transactions were accounted for by the purchase method. Accordingly,
our consolidated financial statements include the net assets and results of
operations from the dates of acquisition.
13 LEASES
As of February 27, 1999, we were obligated under noncancelable operating
leases for buildings and equipment. Certain leases provide for increased rentals
based upon increases in real estate taxes or operating costs. Future minimum
rental payments under noncancelable operating leases are:
FISCAL YEAR (In thousands)
- --------------------------------------------------------
2000 $12,283
2001 9,475
2002 6,905
2003 5,115
2004 3,519
Thereafter 3,499
- --------------------------------------------------------
Total minimum payments $40,796
- --------------------------------------------------------
Total rental expense was $24,918,000, $20,690,000 and $16,184,000 in 1999,
1998 and 1997, respectively.
14 COMMITMENTS AND CONTINGENT LIABILITIES
At February 27, 1999, we had ongoing letters of credit related to our risk
management programs, construction contracts and certain industrial development
bonds. The total value of letters of credit under which we are obligated as of
February 27, 1999 was approximately $9,500,000. We have entered into a number of
noncompete agreements. As of February 27, 1999, we were committed to make future
payments of $3,527,000 under such agreements.
F - 16
We have been a party to various legal proceedings incidental to our normal
operating activities. In particular, like others in the construction industry,
our discontinued construction business is routinely involved in various disputes
and claims arising out of construction projects, sometimes involving significant
monetary damages. Although it is impossible to predict the outcome of such
proceedings, we believe, based on facts currently available to us, that none of
such claims will result in losses that would have a material adverse effect on
our financial condition.
15 FAIR VALUE DISCLOSURES
In preparing disclosures about the fair value of financial instruments, we
determined that for cash and cash equivalents, receivables, marketable
securities, accounts payable and long-term debt, carrying value is a reasonable
estimate of fair value. The fair value of interest rate swaps is the difference
between the present value of our future interest obligation at a fixed rate and
the counterparty's obligation at a floating rate. The estimated fair value of
interest rate swap agreements in a net payable position was $1.6 million and
$648,000 at February 27, 1999 and February 28, 1998, respectively.
16 EARNINGS PER SHARE
The following table presents a reconciliation of the denominators used in the
computation of basic and diluted earnings per share.
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------
Basic earnings per share -
Weighted common shares
outstanding 27,586 27,795 27,384
Weighted common shares assumed
upon exercise of stock options 176 564 673
- ----------------------------------------------------------------------------
Diluted earnings per share -
Weighted common shares and
potential common shares
outstanding 27,762 28,359 28,057
- ----------------------------------------------------------------------------
F - 17
17 QUARTERLY DATA (UNAUDITED)
(Dollar amounts in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------------
Fiscal 1999
Net sales $190,377 $208,167 $192,665 $201,343
Gross profit 40,439 45,879 42,300 41,558
Earnings from continuing operations 4,188 7,632 5,668 2,199
Earnings (loss) from discontinued operations (310) 1,523 1,582 2,752
Net earnings 3,878 9,155 7,250 4,951
Earnings (loss) per share -- basic
From continuing operations 0.15 0.28 0.21 0.08
From discontinued operations (0.01) 0.06 0.06 0.10
Net earnings 0.14 0.33 0.26 0.18
Earnings (loss) per share -- diluted
From continuing operations 0.15 0.27 0.20 0.08
From discontinued operations (0.01) 0.05 0.06 0.10
Net earnings 0.14 0.33 0.26 0.18
- -------------------------------------------------------------------------------------------------------------------
FISCAL 1998
Net sales $176,698 $194,314 $188,439 $171,643
Gross profit 40,960 51,320 43,087 29,771
Earnings from continuing operations 6,360 13,069 7,145 (2,460)
Earnings (loss) from discontinued operations 414 (3,412) (17,580) (54,591)
Net earnings 6,774 9,657 (10,435) (57,051)
Earnings (loss) per share -- basic
From continuing operations 0.23 0.47 0.26 (0.09)
From discontinued operations 0.01 (0.12) (0.63) (1.97)
Net earnings (loss) 0.24 0.35 (0.37) (2.06)
Earnings (loss) per share -- diluted
From continuing operations 0.22 0.46 0.25 (0.09)
From discontinued operations 0.01 (0.12) (0.62) (1.97)
Net earnings (loss) 0.24 0.34 (0.37) (2.06)
- -------------------------------------------------------------------------------------------------------------------
FISCAL 1997
Net sales $156,156 $170,920 $159,810 $155,340
Gross profit 34,633 37,789 36,627 34,712
Earnings from continuing operations 5,328 7,172 6,754 7,573
Earnings (loss) from discontinued operations (352) 808 848 (1,911)
Net earnings 4,976 7,980 7,602 5,662
Earnings (loss) per share -- basic*
From continuing operations 0.20 0.26 0.25 0.27
From discontinued operations (0.01) 0.03 0.03 (0.07)
Net earnings 0.18 0.29 0.28 0.20
Earnings (loss) per share -- diluted*
From continuing operations 0.19 0.26 0.24 0.27
From discontinued operations (0.01) 0.03 0.03 (0.07)
Net earnings 0.18 0.28 0.27 0.20
- -------------------------------------------------------------------------------------------------------------------
*Per share data adjusted to reflect the fiscal 1997 stock dividend.
F - 18
18 BUSINESS SEGMENTS DATA
(In thousands)
Net Sales 1999 1998 1997
- --------------------------------------------------------------------------------------
Glass technologies $324,456 $324,195 $276,872
Glass services 468,797 407,985 367,097
Intersegment elimination (701) (1,086) (1,743)
Net sales $792,552 $731,094 $642,226
- --------------------------------------------------------------------------------------
Operating Income (Loss) 1999 1998 1997
- --------------------------------------------------------------------------------------
Glass technologies $ 21,691 $ 30,746 $ 22,328
Glass services 21,478 16,123 21,417
Corporate and other (1,026) (1,210) 883
Operating income (loss) $ 42,143 $ 45,659 $ 44,628
- --------------------------------------------------------------------------------------
Identifiable Assets 1999 1998 1997
- --------------------------------------------------------------------------------------
Glass technologies $250,391 $188,363 $166,102
Glass services 155,516 142,430 135,018
Corporate and other 65,284 74,734 109,402
Total $471,191 $405,527 $410,522
- --------------------------------------------------------------------------------------
Capital Expenditures 1999 1998 1997
- --------------------------------------------------------------------------------------
Glass technologies $ 70,034 $ 23,871 $ 18,579
Glass services 6,084 12,268 15,517
Corporate and other 1,592 1,752 107
- --------------------------------------------------------------------------------------
Total $ 77,710 $ 37,891 $ 34,203
- --------------------------------------------------------------------------------------
Depreciation & Amortization 1999 1998 1997
- --------------------------------------------------------------------------------------
Glass technologies $ 13,997 $ 12,853 $ 10,283
Glass services 11,218 9,360 7,371
Corporate and other 723 250 206
- --------------------------------------------------------------------------------------
Total $ 25,938 $ 22,463 $ 17,860
- --------------------------------------------------------------------------------------
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 (loss) is net sales less cost
of sales and operating expenses. Operating income does not include provision
for interest expense or income taxes. "Corporate and other" includes
miscellaneous corporate activity not allocable to business segments.
F - 19
SCHEDULE II
-----------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Valuation and Quantifying Accounts
(In thousands)
Balance at Charged to Deductions from Balance at end
beginning of costs and reserves (1) of
period expenses period
-------------- --------------- ---------------- ---------------
For the year ended
February 27, 1999:
Allowance for
doubtful receivables $5,372 $1,408 $ (381) $7,161
============== =============== ================ ===============
Inventory reserves $4,281 $1,031 $ 200 $5,112
============== =============== ================ ===============
For the year ended
February 28, 1998:
Allowance for
doubtful receivables $6,085 $ 508 $1,221 $5,372
============== =============== ================ ===============
Inventory reserves $4,790 $ 991 $1,500 $4,281
============== =============== ================ ===============
For the year ended
March 1, 1997:
Allowance for
doubtful receivables $5,710 $1,963 $1,588 $6,085
============== =============== ================ ===============
Inventory reserves $3,390 $1,900 $ 500 $4,790
============== =============== ================ ===============
(1) Net of recoveries
F - 20
EXHIBIT INDEX
Exhibit (3A) Restated Articles of Incorporation.
Incorporated by reference to Exhibit 3A to Registrant's
Annual Report on Form 10-K for year ended February 27,
1988.
Exhibit (3B) Restated By Laws of Apogee Enterprises, Inc. Incorporated
by reference to Exhibit 3B to Registrant's Quarterly Report
on Form 10-Q for the quarter ended May 30, 1998.
Exhibit (4A) Specimen certificate for shares of common stock of Apogee
Enterprises, Inc. Incorporated by reference to Exhibit 4A
to Registrant's Annual Report on Form 10-K for year ended
February 29, 1992.
Exhibit (4B) Rights Agreement between Registrant and American Stock
Transfer Co. dated October 19, 1990. Incorporated by
reference to Registrant's Form 8-A on October 19, 1990.
Exhibit (4C) Amendment No. 1 to Rights Agreement, dated June 28, 1995,
to the Rights Agreement between Registrant and American
Stock Transfer Co. dated October 19, 1990. Incorporated by
reference to Registrant's Form 8-A/A on June 28, 1995.
Exhibit (4D) Amendment No. 2 to Rights Agreement, dated February 22,
1999, to the Rights Agreement between Registrant and
American Stock Transfer Co. dated October 19, 1990.
Incorporated by reference to Registrant's Form 8-A/A on
February 22, 1999.
Exhibit (10A) Deferred Incentive Compensation Plan dated February 27,
1986 between Registrant and certain executive officers.
Incorporated by reference to Exhibit 10N to Registrant's
Annual Report on Form 10-K for year ended March 1, 1986.
Exhibit (10B) Amended and Restated 1987 Apogee Enterprises, Inc.
Partnership Plan. Incorporated by reference to Registrant's
S-8 registration statement dated March 30, 1993
Exhibit (10C) Employment Agreement between Registrant and Richard Gould
dated May 23, 1994. Incorporated by reference to Exhibit
10I to Registrant's Annual Report on Form 10-K for year
ended February 25, 1995.
Exhibit (10D) Amendment to Apogee Enterprises, Inc. Employment Agreement
with Richard Gould dated July 7, 1998. Incorporated by
reference to Exhibit 10.4 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended November 28, 1998.
Exhibit (10E) 1987 Apogee Enterprises, Inc. Stock Option Plan.
Incorporated by reference to Registrant's S-8 registration
statement dated July 18, 1990.
Exhibit (10F) Multi-Currency Credit Agreement dated as of May 21, 1998
between Apogee Enterprises, Inc. and banks party to the
agreement, including related security, pledge, contribution
and subsidiary guaranty agreements. Incorporated by
reference to Exhibit 10-G to Registrant's Annual Report on
Form 10-K for year ended February 28, 1998.
Exhibit (10G) 1997 Omnibus Stock Incentive Plan. Incorporated by
reference to Exhibit A Registrant's proxy statement for the
1997 Annual Meeting of Shareholders, filed May 16, 1997
Exhibit (10H) Resignation Agreement between Apogee Enterprises, Inc. and
James L. Martineau. Incorporated by reference to Exhibit
10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 28, 1998.
Exhibit (10I) Apogee Enterprises, Inc. Officers' Supplemental Executive
Retirement Plan. Incorporated by reference to Exhibit 10.2
to Registrant's Quarterly Report on Form 10-Q for the
quarter ended November 28, 1998.
Exhibit (10J) First Amendment of Apogee Enterprises, Inc. Officers'
Supplemental Executive Retirement Plan, dated May 11,
1999.
Exhibit (10K) Apogee Enterprises, Inc. Executive Supplemental Plan.
Incorporated by reference to Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
November 28, 1998.
Exhibit (10L) Form of Severance Agreement between the Company and
certain senior executive officers of the Company.
Incorporated by reference to Exhibit 2 to Registrant's
Current Report on Form 8-K filed February 22, 1999.
Exhibit (10M) Stock Purchase Agreement dated November 10, 1998 between
Apogee Enterprises, Inc. and CompuDyne Corporation.
Incorporated by reference to Registrant's Current Report of
Form 8-K filed November 10, 1998.
Exhibit (21) Subsidiaries of the Registrant
Exhibit (23) Consent of KPMG Peat Marwick LLP
Exhibit (27) Financial Data Schedule (EDGAR filing only)
Exhibit (99) Litigation Reform Act of 1995 - Cautionary Statement