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 operating subsidiaries, is primarily engaged in the fabrication, distribution and installation of curtainwall (exterior wall panels), aluminum windows systems, glass panels, and related glass products and services for the nonresidential construction, replacement automotive glass and selected consumer products markets. Two business segments comprise Apogee's operations: Building Products & Services (BPS) serves certain sectors of the commercial and institutional, detention and security building and consumer products markets. Automotive Glass (AG) serves the automotive glass replacement market. Financial information about the Company's segments can be found at Note 17 - Business Segments of the notes to consolidated financial statements of Apogee Enterprises, Inc. contained in a separate section of this report. See "Index of Financial Statements and Schedules"
Unless the context otherwise requires, the terms "Company" and "Apogee" as used herein refer to Apogee Enterprises, Inc. and its subsidiaries.
Building Products & Services - ----------------------------
The Company's Building Products & Services segment operates principally in the design, engineering, manufacturing and installation of custom and standard curtainwall and window systems for commercial, institutional and detention and security buildings, as well as some specialized consumer products. BPS operating units are organized under four groups: Nonresidential Construction, Architectural Metals, Architectural Glass and Consumer.
Nonresidential Construction
BPS's Harmon Contract unit is one of the world's largest designers and installers of curtainwall and window systems for nonresidential construction. It has six offices throughout the United States as well as five in Europe and Asia. BPS acquired an 80% interest in CFEM Facades (CFEM), in fiscal 1994, a French company engaged in both the manufacture and installation of curtainwall. This office, in addition to the other European and Asian offices, has given the division a stronger presence in overseas markets. All of the offices typically design, assemble and install a building's exterior skin. The enclosure usually consists of a metal framing system which is glazed (filled) with glass in the vision areas and opaque glass or panels in the non-vision (spandrel) areas. Panels are usually made from aluminum, precast concrete or natural stone. The segment procures its materials from a number of independent fabricators, including the BPS's architectural metals and architectural glass units. Harmon Contract also serves as a stone subcontractor, setting stone on both the exterior and interior of buildings, including floors, benches and lavatories.
BPS also has seven Harmon full service operations located around the country. These centers offer complete replacement or remodeling glass services for residential and commercial buildings. In addition, the full service units offer 24-hour replacement service for storm or vandalism damage. Superior engineering capabilities allow the units to duplicate the original design or create a completely new appearance for renovated buildings.
The Harmon detention and security units manufacture and install windows, doors, guard booths and monitoring systems, primarily for prisons and jails. The units' products are also sold to convenience stores, hospitals, schools and other governmental facilities. BPS competes in the detention and security market through its Norment operating unit which is a leader in the design, manufacture and installation of institutional and governmental security and detention systems. BPS also includes Airteq, which assembles pneumatic locks used in Norment's and other detention and security systems, and EMSS, a detention equipment contractor.
BPS is subject to normal subcontractor's risks, including material and wage increases, construction and transportation work stoppages and contractor credit worthiness. In addition, office vacancy rates, tax laws concerning real estate and interest rates are important factors which affect nonresidential construction markets. Reduced competition on larger projects, custom designing capability and a trend toward the use of more sophisticated materials for energy conservation and design flexibility have helped BPS increase its market share over the past several years.
Architectural Metals
The Architectural Metals unit of BPS designs and manufactures high-quality, thermally-efficient aluminum window and curtainwall systems under the "Wausau Metals and Milco" trade names. These products meet high standards of wind load capacity and resistance to air and moisture seepage. Architectural Metals' 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, including Harmon Contract, for new construction and to building owners for retrofitting older buildings. Wausau Metals maintains design and product engineering staffs to prepare aluminum window and curtainwall system designs to fit customers' needs and to originate new product designs. Wausau Metals occasionally joins Harmon Contract in pursuing certain projects, as many architects and general contractors prefer to work with an experienced curtainwall subcontractor and manufacturer team.
Operating under the "Linetec" name, the architectural metals 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 the Company, as well as other companies' architectural and industrial aluminum products.
Architectural Glass
BPS's Architectural Glass unit fabricates finished glass products and provides glass coating services, primarily under the "Viracon" and "Marcon Coatings" names. These operating units purchase flat, unprocessed glass in bulk quantities from which a variety of glass products are fabricated, including insulating, tempered and laminated architectural glass; security glass; laminated and tempered industrial glass; anti-reflection and UV-light blocking picture framing glass; and provide reflective and low-emissivity coatings on glass.
Tempered glass is a heat-processed safety glass which is four to five times stronger than ordinary glass, breaks into "pebbles" rather than sharp pieces and has architectural, automotive and industrial applications. Laminated glass consists of two or more pieces of glass fused with a plastic interlayer and is used primarily for strength and safety in skylights and in security applications. Sales of laminated and tempered safety glass products have increased with the adoption of federal and state safety glazing standards. Insulating glass, comprised of two or more pieces of glass separated by a sealed air space, is used in architectural and residential applications for thermal control.
The Viracon unit is able to fabricate all types of architectural glass (insulating, laminated, tempered and combinations of all three) at its Owatonna complex. Combined with the adjacent Marcon Coatings' glass coating capabilities, the segment is able to provide a full range of products from a central location. It markets its products nationally and overseas to glass distributors, glazing contractors (including Harmon Contract) 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.
Viracon is a 50% owner of Marcon Coatings, Inc., (Marcon) a joint venture glass coating facility with Marvin Windows ("Marvin"). Marcon provides glass coating services from its Owatonna, Minnesota facility to Marvin and Viracon, as well as outside customers. Marcon's reflective and low-emissivity coatings reduce energy costs and provide innovative design features for window and curtainwall systems. Low-emissivity coatings are an invisible, metallic film deposited on glass which selectively limits the transfer of heat through the glass. Low-emissivity coated glass represents a fast-growing segment of both residential and nonresidential glass markets.
Consumer
Tru Vue, located in Chicago, Illinois, is one of the largest domestic manufacturers of picture framing glass. Tru Vue provides its customers with a full array of picture framing glass products, including clear, reflection control, which diminishes reflection, and conservation glass, which blocks ultraviolet rays. The products are distributed primarily through independent distributors who, in turn, supply local picture framing markets. During 1993, Tru Vue acquired the assets of Miller Artboard (Miller). Miller is a manufacturer of conservation picture framing matboard, which complements Tru Vue's glass product offerings.
The segment also offers several types of window coverings for residential, commercial and institutional markets, under the "Nanik" and "The Shuttery" names. Nanik manufactures various types of custom aluminum, wood and polycarbonate venetian blinds, and markets them primarily to interior designers through independent distributors. The Shuttery is a
manufacturer of custom wooden and vinyl interior shutters. Nanik Wood Products was formed in 1991 to provide a reliable source of wood mouldings for both Nanik and The Shuttery, while allowing both units to improve inventory control and production efficiency. All three units operate manufacturing facilities in Wausau, Wisconsin.
Automotive Glass - ----------------
The Automotive Glass (AG) segment is engaged in the automotive replacement glass business through its Harmon Glass service centers (retail), Glass Depot distribution centers (wholesale) and Curvlite fabrication center.
Harmon Glass operates automotive glass service centers in 36 states. The centers replace auto glass on the premises and also provide mobile installation service. Primary customers include insurance companies (on behalf of their insured clients), fleet owners and car owners. The 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 Glass is the second-largest auto glass retailer in the United States. The unit also operates a centralized service for handling auto glass claims under the name "National Call Center" (Center). The Center, on behalf of its insurance company and fleet customers, handles replacement glass claims made by policyholders or fleet owners. Calls are placed through a toll-free number to the Center located in Orlando, Florida. Customer service agents arrange for the prompt replacement or repair of auto glass by either a Harmon Glass service center or an affiliated shop member of the Center's network and begins 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 a fast-growing segment for the segment.
The auto glass distribution centers, known as "Glass Depot", supply the Harmon Glass 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, automotive 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 automotive glass and to provide prompt delivery. The Glass Depot distribution centers maintain a broad selection of automotive glass. Purchases of fabricated automotive glass are made from several primary glass manufacturers and fabricators, including the segment's Curvlite unit.
Curvlite fabricates replacement windshields for foreign and domestic automobiles and tempered 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 distribution centers. Curvlite seeks to offer a broad selection of windshields by promptly adding new windshields as new models are introduced.
In fiscal 1995, the AG segment acquired or opened 9 new distribution centers and 33 service centers, while closing 1 distribution and 7 service centers, bringing its year-end total to 53 and 256 respectively. This includes a chain of 13 retail stores and one warehouse in the Washington, D.C. area, acquired in January, 1995. The segment continues to evaluate opportunities to expand both its retail and wholesale auto glass segments, while closely monitoring existing units' profitability.
Under a franchise agreement with Midas International Corporation in 1980, the segment operates seven Midas Muffler locations in Minnesota, South Dakota, North Dakota and Wisconsin.
Viratec Thin Films - ------------------
In addition to its two primary segments, Apogee owns 50% of Viratec Thin Films, Inc. (Viratec), an optical-quality glass coating joint venture with Marvin Windows, which was organized in fiscal 1989 in Faribault, Minnesota and began production in early 1990. Viratec develops advanced, optical-display and imaging coatings for glass and other surfaces. These products are used in aftermarket 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 Company accounts for its investment in Viratec using the equity method.
Competition - -----------
All segments of the Company's business, other than Viratec, are fairly mature and are highly competitive. The curtainwall subcontractor business is primarily price competitive, although the Harmon Contract's reputation for quality engineering
and service is an important factor in receiving invitations to bid on large complex projects. In addition to the above factors, Harmon Contract has the advantage of having the financial strength and long-term viability of Apogee, which allows Harmon Contract to be bonded on even the largest, most complex jobs. This is an important competitive advantage in the bidding of larger contracts. The Architectural Metals group competes against several major aluminum window manufacturers. Wausau Metals primarily serves the custom portion of this market in which the primary competitive factors are product quality, reliable service and the ability to provide technical engineering and design services. The Architectural Glass unit competes with several large integrated glass manufacturers and numerous smaller specialty fabricators. Product pricing and service are the primary competitive factors in this market. AG competes with other auto glass shops, glass distributor 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. Viratec Thin Films has both domestic and foreign competitors, several of whom are older and more established.
Markets - -------
BPS serves the domestic nonresidential construction market, which tends to be cyclical and has been on a slow comeback, both in terms of dollars and square feet of new contract awards. This market has been hard hit due to the overbuilding in past years, tax law changes, recession, tightening credit standards, business restructurings and other factors. The resulting contraction in demand for building materials and construction services has intensified competition, squeezed profit margins and contributed to some business failures in the market sectors served by the Company. In response to weak markets, the BPS segment has consolidated manufacturing facilities, closed offices and reduced personnel and discretionary expenses. It has also redirected its marketing focus to sectors with relative strength, including remodeling, institutional (including detention and security) and certain international markets such as Asia and Europe. These international markets have recently been an important source of growth for BPS. See "Foreign Operational Export Sales," below.
AG services the automotive glass aftermarket which is influenced by a variety of factors, including new car sales, gasoline prices, speed limits, road conditions, the economy, weather and average number of miles driven. A transformation of the industry's pricing structure has intensified competition. In recent years, major purchasers of auto glass, such as insurance companies, have increasingly requested volume pricing and awarded regions to glass providers at significant discounts from historical levels. As a result, margins have narrowed at the retail level and, to a lesser extent, at wholesale and manufacturing levels.
Sources and Availability of Raw Materials - -----------------------------------------
None of the Company's operating units are significantly dependent upon any one supplier. The Company believes a majority of its raw materials (bulk flat glass, aluminum extrusions, automotive glass and related materials) are available from a variety of domestic sources.
Trademarks and Patents - ----------------------
The Company has several nationally recognized trademarks and trade names which it believes have significant value in the marketing of its products. Harmon Glass(R), Harmon Contract(R), Norment(R), Airteq(R), EMSS(R), Viratec(R), Tru Vue(R), The Glass Depot(R), Nanik(R), The Shuttery(R), and Linetec(R) are registered 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.
Foreign Operations and Export Sales - -----------------------------------
BPS has sales offices in Europe and Asia. Sales for those offices were approximately $66,580,000, $65,021,000 and $6,490,000 for the years ended February 25, 1995, February 26, 1994 and February 27, 1993, respectively. Operating losses for 1995, 1994 and 1993, were $6,575,000, $887,000 and $1,328,000, respectively. At February 25, 1995 and February 26, 1994, the identifiable assets of foreign operations totaled $41,880,000 and $31,786,000, respectively. At February 25, 1995, the backlog of work for European and Asian projects was $100 million, $60,000,000 of which is not expected to be reflected as revenue in fiscal 1996. In addition, during the years ended February 25, 1995, February 26, 1994 and February 27, 1993, the Company's export sales, principally from BPS operations, amounted to approximately $30,241,000, $27,643,000 and $22,808,000, respectively.
Employees - ---------
The Company employed 6,184 persons at February 25, 1995, of whom 1,079 were represented by labor unions. The Company is a party to 108 collective bargaining agreements with several different unions. Seventy (70) of the collective bargaining agreements will expire during fiscal 1996. 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 - -------
The backlog of orders is significant in the Company's construction-related BPS segment. At February 25, 1995, the Company's total backlog of orders considered to be firm was $364,000,000, compared with $405,000,000 at February 26, 1994. Approximately $84,000,000 is not expected to be reflected as revenue in fiscal 1996.
ITEM 2.
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.
(1) 50% owned joint ventures.
The Harmon Contract operating unit has 12 sales offices, 7 glazing service centers and 11 fabrication facilities generally located in major metropolitan areas in the United States, Europe and Asia, virtually all of which are leased.
The Automotive Glass segment has 309 retail service and distribution centers located nationally and seven Midas Muffler franchises located in the Midwest, the majority of which are leased.
The Curvlite plant, a Wausau Metals facility, the Linetec paint facility, an addition to one of the Wausau Metals plants and the National Call Center administrative center were constructed with the use of proceeds from industrial revenue bonds issued by those cities. These properties are considered owned, since at the end of the bond term, title reverts to the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
There are no material pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
None.
EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------
Executive officers are elected annually by the Board of Directors and serve for a one-year period. With the exception of Gerald K. Anderson, has a post- employment consulting agreement with the Company. Richard Gould 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.
All of the above named executive officers have been employees of the Company for more than the last five years with the exception of Mr. Gould joined the company in May 1994 and Mr. Hall who joined the Company in April, 1995. Prior to joining the Company, Mr. Gould was president of Gould Associates, a strategic management consulting firm to a wide range of companies. Prior to joining the Company, Mr. Hall was Chief Financial Officer of Tyco International from 1993 to 1995 and Vice President and Treasurer of United Airlines from 1990 to 1993.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ----------------------------------------------------------------- MATTERS -------
Apogee common stock is traded in the National Market System of the NASDAQ over-the-counter market, under the ticker symbol APOG. Stock price quotations are printed daily in major newspapers. During the fiscal year ended February 25, 1995, the average trading volume of Apogee common stock was 806,506 shares per month, according to NASDAQ.
As of March 31, 1995, there were 13,443,163 shares of common stock outstanding, of which about 6.9 percent were owned by officers and directors of Apogee. At that date, there were approximately 2,187 shareholders of record and 2,942 shareholders for whom securities firms acted as nominees.
The following chart shows the quarterly range and year-end close of the company's common stock over the past five fiscal years.
It is Apogee's policy to pay quarterly cash dividends in May, August, November and February. Cash dividends have been paid each quarter since 1974 and have been increased each year since then. The chart below shows quarterly cash dividends per share for the past five years.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA -----------------------
The following information should be read in conjunction with Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
FINANCIAL GOALS - ---------------
The strategies undertaken by Apogee in fiscal 1995 to improve quality, reduce costs, resize our profit centers to better fit available business and become more responsive to customer needs has brought us closer to our goal of resuming historical growth rates in sales and earnings. Further improvements were made by our auto glass and architectural glass businesses during the past year. Our nonresidential construction businesses significantly cut their operating losses, while implementing strengthened bidding and project management practices. However, the ongoing review of our varied operations continues to warrant a delay in the setting of new financial targets. In fiscal 1995, we are again reporting record sales. Nonetheless, earnings still lag our fiscal 1991 record by more than 20%. Our primary goal is to overcome that lag. We have a reasonable basis to believe we can do so in fiscal 1996. Our optimism is based in part on the positive developments detailed in this financial review.
PERFORMANCE - ----------- FISCAL 1995 COMPARED TO FISCAL 1994 The following table illustrates the relationship between various components of operations, stated as a percent of net sales, for the three years ended February 25, 1995.
Consolidated net sales rose 10% to $757 million in fiscal 1995, primarily due to strong replacement auto glass markets, robust demand for architectural glass products, and higher detention and security contracting revenues. Our gross margin increased nearly two percentage points as pricing improved slightly for replacement auto glass and architectural glass products. Productivity improved as sales outpaced moderate increases in wages and benefits, including lower medical plan costs. In addition, the margin gains reflected operating improvements by our nonresidential construction and architectural metals operations, despite the continuation of depressed margins for those units' markets.
As a percentage of net sales, selling, general and administrative expenses (SG&A) crept slightly higher, but grew substantially in absolute dollars. The majority of the increase resulted from expenditures by our auto glass retail and wholesale businesses for the development of improved information systems to better meet customer needs, as well as for expanded marketing programs related to windshield repair and claims administration.
Net interest expense rose 51% , due to the combination of higher interest rates and increased borrowing levels required to meet working capital and capital investment needs.
Our effective income tax rate fell substantially, from 60.9% in fiscal 1994, to 40.2% in 1995, as increased domestic earnings were taxed at essentially the statutory rate. The fiscal 1994 rate was unusually high due to an increase in our deferred tax asset valuation.
Equity in net earnings of affiliated companies dropped 67%, to $800,000 in fiscal 1995. New product and process development costs at Viratec Thin Films substantially offset strong earnings of the unit's anti-glare screen business. Minority interest differed from a year ago as Harmon/CFEM Facades, our French curtainwall unit, reported a loss in fiscal 1995 compared to net earnings in the prior year.
Fiscal 1995 consolidated net earnings grew 240%, to $13.1 million, or $.97 per share, up from $3.8 million or 29 cents per share a year ago, which includes the $525,000 or 4 cents per share cumulative effect of the change in accounting for income taxes reported last year. Return on average shareholders' equity grew to 10.9%, up from 3.4% a year earlier.
At year end, our consolidated backlog was $364 million, down 10% from $405 million a year ago. Decreases in our domestic and Asian construction backlogs exceeded the combined increases in other areas. While our backlog declined, we believe that recently recorded orders will provide margin improvement over that realized in the past couple of years. Approximately $84 million of the February 1995 backlog will not be reflected as revenue in fiscal 1996.
In order to better inform shareholders and readers, Apogee has redefined its business segments information and discussion. We believe the changes will provide more effective communication concerning our business units and the markets we serve. Apogee consists of two segments, Building Products & Services (BPS) and Automotive Glass (AG). These segments, plus the Viratec Thin Films joint venture, are discussed below.
Building Products & Services
BPS made significant strides in fiscal 1995, increasing revenues 9% to $508 million, and reporting a modest $4.4 million operating profit. Within the segment, 19% revenue growth was achieved at the detention and security unit, largely due to fast-track projects entered into at the beginning of the year. Also, high demand and firmer pricing for Viracon's architectural glass products boosted its sales 22%. These factors led to margin gains and strong profit growth for both units.
Marcon Coatings, our building glass coating joint venture, reported healthy sales and earnings growth, as the company benefitted from rapidly growing Viracon sales.
Harmon Contract, our curtainwall subcontractor, reported a 2% decline in domestic revenues, but slashed its operating loss by 85%. With a lower cost structure and improved project management, Harmon worked through much of its narrow-margin backlog, obtained in the intensely competitive pricing environment of 1991-1993.
Harmon Contract's overseas operations recorded flat revenues compared to a year ago, with higher Asian revenues offset by less activity in Europe. Operating results suffered from low-margin projects and overhead growth related to brisk bidding activity in both Europe and Asia.
The segment's architectural metals group also rebounded sharply. Sales grew 9%, with firmer pricing, beefed-up engineering and better factory utilization nearly eliminating last year's significant operating loss.
BPS's picture framing products and window coverings units recorded steady sales gains and solid earnings although behind historical levels.
Overall, BPS made progress in controlling its costs, with a $500,000 reduction in SG&A expenses, the result of restructuring measures taken late last year, as well as ongoing cost control this year. The segment believes the aggressive steps taken to strengthen margins and reduce overhead, along with the elevated demand for architectural glass products and the slow recovery of U.S. nonresidential construction, should help it make improvements in profitability next year.
Automotive Glass
The Automotive Glass (AG) segment achieved net sales of $249 million, up 12% over a year ago, while reporting operating income of $19.1 million, modestly ahead of the prior year's strong performance. High demand for replacement auto glass, along with share gains in selected markets, helped to boost revenues. Price increases early in the year were somewhat eroded by volume discounts to major customers. Despite the sales increase, operating income for the segment was flat with a year ago, as costs to expand marketing programs and develop state-of-the-art information systems offset gross profit gains.
Both Harmon Glass (retail) and Glass Depot (wholesale) advanced same-location sales by 7% reflecting overall market growth. The higher volume contributed to gross margin growth, but higher SG&A costs limited the units' operating income gain to 4%.
The National Call Center, (formerly the Harmon Glass Network), which arranges auto glass repair and replacement orders received from insurance and fleet customers, reported 9% unit growth over fiscal 1994. About two-thirds of the Call Center's volume is handled by company-owned stores.
Viracon/Curvlite, our windshield fabricator, maintained high factory utilization throughout the year, producing record sales and strong earnings. Windshield unit shipments grew 8%. Also, Curvlite invested in equipment to expand capacity and lower production costs.
During the year, the AG segment acquired or started up 33 retail stores and nine wholesale depots, including a chain of 13 retail stores and one warehouse in the Washington, D.C. area, acquired in January, 1995. This acquisition gives AG a significant position in this attractive East Coast market. The group closed seven retail and one distribution locations during the year, to end the year with 256 retail stores, 53 wholesale depots and 7 Midas Muffler locations.
Increased demand for new and better auto glass products and services, combined with sophisticated information systems, should enable AG to expand internally and through acquisitions, and to improve results.
Viratec Thin Films
Viratec Thin Films (Viratec) is Apogee's second joint venture with Marvin Windows. The unit develops and applies optical-grade coatings to glass and other substrates. Revenues rose 8%, while pre-tax earnings were down 74% from last year. Demand for Viratec's coated glass for anti-glare computer screens remained strong, especially in overseas markets, as the European Community has adopted stricter safety regulations for limiting computer emissions. Viratec invested heavily in research and development costs during fiscal 1995 to begin limited direct-coating of cathode ray tubes (CRTs), thus reducing bottom-line results. At February 25, 1995, Viratec's backlog stood at $14.5 million, up 11% from a year ago. Accordingly, the unit is anticipating improved revenues in the upcoming year. However, operating results will be highly dependent upon Viratec's ability to ramp up production of CRT coatings within a reasonable cost structure.
FISCAL 1994 COMPARED TO FISCAL 1993
Consolidated net sales rose 20%, to $688 million, in fiscal 1994, primarily due to strong replacement auto glass sales, higher overseas nonresidential construction activity and improved demand for architectural glass products.
Apogee's gross profit, as a percent of sales, fell for the second straight year. Stronger auto and architectural glass markets allowed for firmer pricing, but were more than offset by very low gross margins in curtainwall contracting, ineffective project management and poor factory utilization at some units within the Building Products & Services segment.
Selling, general and administrative expenses decreased slightly from a year earlier, due to cost containment efforts throughout the company. Greater expenditure levels for improved information systems and expanded marketing programs, primarily in the Automotive Glass segment, were offset by reductions elsewhere in the company.
During the fourth quarter of fiscal 1994, Apogee recorded a $5.6 million ($4.5 million after tax, or 34 cents per share) provision for business restructuring and asset valuation. The charge reflected the costs of consolidating or closing certain Harmon Contract offices and facilities, writing down particular assets and reorganizing the architectural metals group. The provision consisted of $2.5 million of asset write-downs plus projected cash outlays of $3.1 million. Most of the $3.1 million was planned for equipment relocation, employee severance and facility closing costs. The asset valuation component included a $1.6 million write-off of intangible assets, principally patents and non-compete agreements, which were
determined to hold no future value. A facility scheduled for closure was written down by $850,000 to its estimated net realizable value.
Despite lower interest rates, net interest expense jumped 52% to $2.7 million in fiscal 1994, as borrowing levels increased to meet significant working capital needs.
In the first quarter of fiscal 1994, a $525,000 gain, or 4 cents a share, was recorded to reflect the adoption of Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes (FAS 109). Under FAS 109, deferred tax liabilities declined, primarily reflecting the fact that deferred taxes on depreciation were originally booked at higher tax rates than those currently prevailing. Other deferred tax assets and liabilities were essentially unchanged.
The effective tax rate for fiscal 1994 was 60.9%, up from 42.3% in fiscal 1993. The rise was primarily due to low earnings relative to permanent tax-to-book differences and the increase in our deferred tax asset valuation allowance related to a capital loss carryforward.
Equity in net earnings of affiliated companies rose 22% in fiscal 1994. Significant earnings improvement at Viratec Thin Films was somewhat offset by lower earnings at Marcon Coatings and the taxability of a portion of Marcon's and Viratec's earnings as their net operating loss carryforwards were fully utilized.
The provision for business restructuring and asset valuation and the poor performance of the Building Products & Services segment combined to offset the strong results of the Automotive Glass segment. Consolidated net earnings, including the FAS 109 accounting change, fell 15% to $3.8 million, or 29 cents per share, from $4.5 million, or 34 cents per share, in 1993. Return on average shareholders' equity was 3.4% compared with 4.0% in 1993.
Building Products & Services Growth in overseas and domestic institutional construction coupled with high demand for architectural glass caused revenues to rise 21% for BPS. A slight improvement in architectural glass pricing was not enough to offset the highly competitive pricing of curtainwall projects. In addition, the complexity of many projects stretched the architectural metals group's ability to effectively manage its book of work and these difficult conditions contributed to erratic order flow, poor pricing and inconsistent factory utilization. Along with the high costs of international marketing and setting up overseas offices, the aforementioned factors caused the segment to record a $14.5 million operating loss, compared to a $2.4 million operating loss in fiscal 1993.
During the year, BPS's Harmon Contract unit acquired majority ownership of one of Europe's leading curtainwall contracting firms, CFEM Facades (CFEM). The acquisition provided BPS with substantial backlog, manufacturing facilities and expertise in European construction techniques. CFEM generated significant sales and operating income during fiscal 1994.
BPS achieved sharp backlog growth in 1994, finishing the year with $403 million in backlog, up 26% from 1993. The growth came from the European and Asian markets, primarily the addition of the $80 million Kuala Lumpur City Centre project in Kuala Lumpur, Malaysia. At February 26,1994, it was estimated that approximately $115 million of backlog would not be reflected as revenue in fiscal 1995.
Automotive Glass AG grew sales by 19% and operating income 114% in fiscal 1994. Strong demand for replacement auto glass required Curvlite, the segment's auto glass fabricating unit, to operate at near-capacity levels throughout the year. The increased volume led to sharp unit cost reduction, offsetting price weakness.
In fiscal 1993, the segment changed the structure of its installation and distribution businesses from a regional alignment to a national retail and wholesale business unit arrangement. This realignment helped the division capitalize on increased unit movement and firmer pricing in the auto glass market. Same-store retail sales rose 15%, reflecting industry growth and increased market penetration. The National Call Center reported a 53% jump in sales.
The division also increased its market penetration by adding 5 wholesale depots during the year, for a year-end total of 45 locations. At February 26, 1994, the segment also had 231 retail glass stores and 7 Midas Muffler franchises in 37 states.
Viratec Thin Films Viratec achieved both sales and earnings growth for the third consecutive year, reporting a 71% sales jump and a seven-fold increase in pre-tax earnings. Strong demand for computer anti-glare screens, particularly in overseas markets, combined with healthy margins to produce the outstanding results. Viratec's backlog increased 22% from a year earlier, to $13 million at year end.
LIQUIDITY AND CAPITAL RESOURCES - -------------------------------
Financial Condition Major balance sheet items as a percentage of total assets at February 25, 1995 and February 26, 1994 are presented below:
Net receivables rose 14% in fiscal 1995, due to BPS's fourth quarter, 17% revenue gain. Inventories rose 27% due mainly to higher AG inventories, fueled by more wholesale depots and the proliferation in the number of auto glass parts. Costs in excess of billings more than doubled, reflecting volume growth, contract complexity and variation in stages of completion on contracts.
Total long-term debt, at February 25, 1995, stood at $80.6 million, up from $35.7 million a year earlier. The increase reflected working capital growth and record capital spending. During the year, Apogee expanded its revolving credit facilities to $70 million. Ten million dollars outstanding under these facilities, as well as $60 million of our short-term bank borrowings, are classified as long-term debt based on the terms of the revolving credit agreements. In fiscal 1996, we believe cash flow from operations, along with existing and reasonably available sources of financing, will enable us to maintain liquidity and continue our growth strategy.
Capital Investment
New capital investment in fiscal 1995 totaled $39.6 million, versus $19.4 million and $13.6 million in fiscal 1994 and 1993, respectively. Expenditures for new property, plant and equipment totaled $25.0 million, and consisted of information systems, facility additions and manufacturing equipment additions and upgrades. We also invested $8.8 million to fund AG's acquisition of retail stores and wholesale depots.
Capital investment for fiscal 1996 is estimated at $36 million. Further upgrading of information and communication systems and construction of a major distribution center are the primary components of AG's plan, while BPS's plans primarily consist of expenditures for capacity expansion and productivity improvements.
Shareholders' Equity
Apogee's book value rose 9% in fiscal 1995 to $124.6 million, or $9.27 per share. Net earnings less dividends, along with common stock issued in connection with long-term compensation plans, accounted for the increase. During fiscal 1995, we increased our quarterly dividend by 7%, to 8 cents per share, our 20th consecutive year of increase.
Impact of Inflation
Apogee's financial statements are prepared on a historical cost basis, which does not completely account for the effects of inflation. However, since the cost of most of our inventories is determined using the last-in, first-out (LIFO) method of accounting, cost of sales, except for depreciation expense included therein, generally reflects current costs.
The cost of glass, one of Apogee's primary raw materials, increased slightly in fiscal 1995 due to strong demand from both U.S. residential construction and new car sales. We expect the cost of glass to rise moderately in fiscal 1996. Aluminum prices were volatile and rose sharply in 1995. 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, can be reasonably anticipated. Through new efficiencies and cost containment programs set up at most operating units, many selling, general and administrative expenses were reduced or held relatively constant.
OUTLOOK - -------
We believe that improving market conditions for nonresidential construction and steady demand for automotive replacement glass will allow Apogee to improve earnings in fiscal 1996. Better project selection and management, continued cost containment programs and efficiencies and competitive advantages from information management technology should also contribute to earnings growth.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA -------------------------------------------
The information called for by this Item is contained in a separate section of this report. See "Index of Financial Statements and Schedules".
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------
None.
PART III --------
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; --------------------------------------------------- EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL ---------------------------------------------------------------- OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED ------------------------------------------------------------ TRANSACTIONS. ------------
The information required by these Items, other than the information set forth above in "Executive Officers of the Registrant," is included on pages 1 to 10 of the Proxy Statement for the Annual Meeting of Shareholders to be held June 20, 1995, which is incorporated herein by reference.
PART IV -------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ----------------------------------------------------------------
(a) and (d) Financial Statements and Financial Statement Schedules -
The consolidated financial statements and schedules of the Registrant listed on the accompanying "Index to Financial Statements and Schedules" together with the report of KPMG Peat Marwick LLP, independent auditors, are filed as part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February 25, 1995.
(c) Exhibits -
The information called for by this Item is contained in a separate section of this report. See "Exhibit Index".
- 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 24, 1995 APOGEE ENTERPRISES, INC.
By: /s/ Donald W. Goldfus ------------------------------ Donald W. Goldfus Chairman of the Board of Directors and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - -------------------------------------------------------------
Chairman of the Board of Directors and /s/ Donald W. Goldfus Chief Executive Officer May 24, 1995 - ---------------------------- ----------------------------- ---------------- Donald W. Goldfus
/s/ Gerald K. Anderson President and Director May 24, 1995 - ---------------------------- ----------------------------- ---------------- Gerald K. Anderson
/s/ Laurence J. Niederhofer Director May 24, 1995 - ---------------------------- ------------------------------ ----------------- Laurence J. Niederhofer
/s/ James L. Martineau Vice President and Director May 24, 1995 - ---------------------------- ------------------------------ ---------------- James L. Martineau
/s/ D. Eugene Nugent Director May 24, 1995 - ---------------------------- ------------------------------ ---------------- D. Eugene Nugent
/s/ Richard Gould Senior Vice President May 24, 1995 - --------------------------- ------------------------------ ----------------
/s/ William G. Gardner Treasurer and Secretary May 24, 1995 - ---------------------------- ------------------------------- ---------------- William G. Gardner
/s/ Terry L. Hall Chief Financial Officer May 24, 1995 - ---------------------------- -------------------------------- ---------------- Terry L. Hall
APOGEE ENTERPRISES, INC. FORM 10-K ITEMS 8, 14(A) AND 14(D)
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
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.
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 financial statement schedule are the responsibility or 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 25, 1995 and February 26, 1994 and the results of their operations and their cash flows for each of the years in the three-year period ended February 25, 1995 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, present fairly, in all material respects, the information set forth therein.
As discussed in notes 1 and 9, the company changed its method of accounting for income taxes in fiscal 1994 to adopt the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes.
KPMG Peat Marwick LLP
Minneapolis, Minnesota April 21, 1995
CONSOLIDATED BALANCE SHEETS APOGEE ENTERPRISES, INC.
See accompanying notes to consolidated financial statements.
CONSOLIDATED RESULTS OF OPERATIONS APOGEE ENTERPRISES, INC.
See accompanying notes to consolidated financial statements.
QUARTERLY DATA (UNAUDITED) (Dollar amounts in thousands, except per share data)
NET SALES GROSS PROFIT
NET EARNINGS (LOSS) EARNINGS (LOSS) PER SHARE
*During the first quarter of 1994, Apogee adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. The cumulative effect of the change in accounting for income taxes increased net earnings by $525,000, or 4 cents per share, and is included in fiscal 1994 figures.
CONSOLIDATED STATEMENTS OF CASH FLOWS Apogee Enterprises, Inc.
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Apogee Enterprises, Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA
PRINCIPLES OF CONSOLIDATION Our consolidated financial statements include the accounts of Apogee and all majority-owned subsidiaries. We use the equity method to account for our 50%-owned joint ventures. 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. Restricted funds represent collateral for outstanding bank guarantees required by certain construction contracts' terms.
INVENTORIES Inventories, which consist primarily of purchased glass and aluminum, are valued at cost, principally by using the last-in, first-out (LIFO) method, which does not exceed market. If the first-in, first-out (FIFO) method had been used, our inventories would have been $2,700,000 and $1,825,000 higher than reported at February 25, 1995 and February 26, 1994, 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. Apogee computes depreciation on a straight-line basis, based on estimated useful lives of 20 to 40 years for buildings and 2 to 15 years for equipment. When property is retired or otherwise disposed of, the cost and related depreciation are removed from the accounts and related gains or losses are included in income.
INTANGIBLE ASSETS AND AMORTIZATION Intangible assets consist principally of goodwill and non-compete agreements. We review the ongoing value of intangibles on an annual basis. The continuing benefit of such assets is evaluated based upon an assessment of relevant economic and other criteria, including projections of future results. Goodwill is the excess of cost over the fair value of acquired assets of purchased businesses. Goodwill is amortized over periods ranging from 10 to 40 years, except for $923,000, which is not being amortized. In our opinion, there has been no diminution of its value. Non-compete agreements are contracts with the previous management of purchased businesses not to enter into competition with us for a certain period of time. Non-compete agreements are amortized ratably over the term of the agreements. Amortization expense amounted to $288,000, $2,328,000 and $2,123,000 in 1995, 1994 and 1993, respectively.
OTHER LONG-TERM LIABILITIES Other long-term liabilities include deferred compensation and the long-term portion of accrued insurance costs.
REVENUE RECOGNITION We recognize revenue from construction contracts on a percentage-of-completion basis, measured by the percentage of costs incurred to date to estimated total costs for each contract. Contract costs include materials, labor and other direct costs related to contract performance. We establish provisions for estimated losses, if any, on uncompleted contracts in the period in which such losses are determined. Revenue from the sale of products and the related cost of sales are recorded upon shipment.
INCOME TAXES Apogee files a consolidated federal income tax return. Effective February 28, 1993, Apogee adopted the provisions of Statement of Financial Accounting Standards No. 109 (FAS 109). FAS 109 requires the asset and liability method be used to account for income taxes. This method recognizes deferred tax assets and liabilities based upon the future tax consequences of temporary differences between financial and tax reporting. Previously, Apogee followed the provisions of Accounting Principles Board Opinion No. 11. The cumulative effect of the change in accounting for income taxes is included in the fiscal 1994 Consolidated Results of Operations.
EARNINGS PER SHARE Apogee computes earnings per share by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during the year. Our average common shares and common share equivalents outstanding during 1995, 1994 and 1993 were 13,501,000, 13,289,000 and 13,293,000, respectively.
TRANSLATION OF FOREIGN CURRENCIES The financial statements of our foreign operations have been translated to U.S. dollars, using the rules of Statement of Financial Accounting Standard No. 52. Balance sheet accounts are stated in U.S. dollars at either the year- end or historical exchange rate. Results of operations are translated at average exchange rates for the respective period.
ACCOUNTING PERIOD Apogee's fiscal year ends on the Saturday closest to February 28. Interim quarters end on the Saturday closest to the end of the months of May, August and November.
Apogee provides 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. We perform ongoing credit evaluations of our customers' financial condition and limit the amount of credit extended when deemed necessary. We also routinely file liens to protect our interest whenever possible. We generally require no collateral. Allowances are maintained for potential credit losses and such losses have been within management's expectations. The provision for bad debt expense was $3,817,000, $2,388,000 and $2,061,000 in 1995, 1994 and 1993, respectively.
Depreciation expense was $14,903,000, $13,397,000 and $12,987,000 in 1995, 1994 and 1993, respectively.
Long-term debt maturities are as follows:
The terms of the 9.65% promissory note include certain dividend and debt level restrictions and requirements to maintain minimum levels of tangible net worth and certain financial ratios. Retained earnings available for dividends under the terms of the promissory note were approximately $35 million at February 25, 1995.
At February 25, 1995, we were party to revolving credit agreements with four banks. The agreements allow us to borrow up to $70 million at fixed or floating rates tied to the banks' cost of funds. The revolving credit terms will expire in March 1996 and March 1997. Through March 1996, we can convert $50 million of the outstanding loans into a three-year term loan. The agreements require us to maintain minimum levels of tangible net worth and certain financial ratios. At February 25, 1995, there were $10 million of borrowings outstanding under the committed credit facilities.
We also had access to short-term credit on an uncomitted basis with several major banks. At February 25, 1995, $67.1 million in bank borrowings were outstanding under these agreements. We may refinance these short-term borrowings on a long-term basis under the revolving credit agreements discussed above. Accordingly, $60 million of our short-term bank borrowings, which were not expected to be paid within one year, is classified as long-term debt, and the debt maturity schedule above is based on the terms of the revolving credit agreements. The remaining $7.1 million of short-term bank borrowings was classified as notes payable at February 25, 1995.
Interest rates on the year-end bank under committed and uncommitted credit facilities, borrowings ranged from 6.38 % to 6.75 %.
Selected information related to bank borrowings under credit agreements is as follows:
In 1992, we entered into three interest rate swap agreements with a notional amount of $25 million that effectively converted a portion of our fixed rate, long-term borrowings into variabvle rate obligations. During 1993, we sold two of the swap agreements at net gains. The gains are being recognized as reductions in interest expense through 1997. The third agreement expired in 1995.
The net book value of property, plant and equipment pledged as collateral under industrial development bonds was approximately $1 million at February 25, 1995.
A class of 200,000 shares of junior preferred stock with a par value of $1.00 is authorized, but unissued.
Apogee has a Shareholders' Rights Plan, under which each share of our outstanding common stock has an associated preferred share purchase right. The rights are exercisable only under certain circumstances, 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.
Interest payments were $4,778,000, $3,714,000 and $2,556,000 in 1995, 1994 and 1993, respectively.
9. INCOME TAXES
As discussed in Note 1, Apogee adopted Statement of Financial Accounting Standards No. 109 (FAS 109) in 1994. The cumulative effect of this change in accounting for income taxes is reported separately in the accompanying Consolidated Results of Operations. Financial statements for 1993 were not restated to apply the provisions of FAS 109.
The components of income tax expense for each of the last three fiscal years are as follows:
Income tax payments, net of refunds, were $5,790,000, $5,934,000 and $7,371,000 in 1995, 1994 and 1993, respectively.
The components of deferred income tax expense (benefit) for 1993 are as follows:
The differences between statutory federal tax rates and our consolidated effective tax rates are as follows:
Deferred tax assets and deferred tax liabilities at February 25, 1995 and February 26, 1994 are as follows:
Apogee's valuation allowance increased by $318,000 in 1995 and related primarily to foreign tax credits. The valuation allowance at February 25, 1995 also included prior year amounts for foreign tax credits and a capital loss carryforward.
10. INVESTMENT IN AFFILIATED COMPANIES
Apogee, through its Building Products and Services segment, is party to a joint venture agreement with Marvin Windows of Warroad, Minnesota, forming Marcon Coatings, Inc. and its subsidiary, Viratec Thin Films, Inc. (Marcon/Viratec). Marcon/Viratec operates two glass coating facilities. Our 50% ownership investment in Marcon/Viratec is accounted for using the equity method. Apogee and Marvin have leased certain glass coating equipment to Marcon and made cash advances to Marcon/Viratec. Our net investment in Marcon/Viratec as of February 25, 1995, February 26, 1994 and February 27, 1993 was $14,278,000, $10,652,000 and $8,858,000, respectively. Our equity in Marcon/Viratec's net earnings is included in the accompanying Consolidated Results of Operations. Marcon/Viratec's net earnings for 1994 and 1993 included tax benefits from net operating loss carryforwards in the amounts of $437,000 and $1,200,000, respectively.
A summary of assets, liabilities and results of operations for Marcon/Viratec is presented below:
11. EMPLOYEE BENEFIT AND STOCK OPTION PLANS
We maintain a qualified defined contribution pension plan that covers substantially all full-time, non-union employees. Contributions to the plan are based on a percentage of employees' base earnings. Benefits for each employee vary based on total contributions and earnings on invested funds. We deposit pension costs with the trustee annually. All pension costs were fully funded or accrued as of year end. Contributions to the plan were $3,394,000, $3,014,000 and $2,848,000 in 1995, 1994 and 1993, respectively.
We also maintain a 401(k) Savings Plan, which allows employees to contribute 1% to 13% of their pretax compensation. Apogee matches 30% of the first 6% of the employee contributions. Amounts contributed by us to the plan were $1,242,000, $1,206,000 and $1,069,000 in 1995, 1994 and 1993, respectively.
The 1987 Stock Option Plan provides for the issuance of up to 1,250,000 options to purchase company stock. Options awarded under this plan, either in the form of incentive stock options or nonstatutory options, are exercisable at an option price equal to the fair market value at the date of award. Changes in stock options outstanding for each of the last three fiscal years are as follows:
The 1987 Partnership Plan, a plan which is designed to increase the ownership of Apogee stock by key employees, allows participants selected by the Compensation Committee of the Board of Directors to use earned incentive compensation to purchase Apogee stock. The purchased stock is then matched by an equal award of restricted stock, which vests over a predetermined period. There are 1,100,000 shares of common stock authorized for issuance or repurchase under the plan. As of February 25, 1995, 575,000 shares have been issued under the plan. We expensed $708,000, $478,000 and $287,000 in conjunction with the Partnership Plan in 1995, 1994 and 1993, respectively.
12. ACQUISITIONS
In 1995, our Automotive Glass segment purchased the assets of 16 retail auto glass stores and one distribution center in four separate transactions. The aggregate purchase price of the acquisitions was $8.8 million, including $4.6 million of cost in excess of the fair value of acquired assets. Promissory notes of $5.3 million were issued in connection with the transactions.
In 1994, the Building Products & Service segment's Tru Vue unit purchased the assets of a company serving another sector of the picture framing market. Also in 1994, the segment purchased certain assets of CFEM Facades, a curtainwall company based in France. In 1993, the Automotive Glass segment purchased the assets of three retail auto glass stores and two distribution centers in four separate transactions. The value of the assets acquired in 1994 and 1993 was $3.2 million and $1.7 million, respectively.
No liabilities were assumed in any of the transactions. All of the above transactions were accounted for by the purchase method. Accordingly, Apogee's consolidated financial statements include the net assets and results of operations from the dates of acquisition.
13. PROVISION FOR BUSINESS RESTRUCTURING AND ASSET VALUATION
During 1994, we recorded a business restructuring and asset valuation provision of $5.6 million ($4.5 million after tax) in our Building Products and Services segment. The charge was principally related to the consolidation or closing of 10 Harmon Contract offices and facilities, the write-down of certain assets and the reorganization of the architectural metals operations. The provision consisted of asset writedowns of $2.5 million and projected cash outlays of $3.1 million. At February 25, 1995, the remaining reserve for projected expenditures stood at approximately $700,000.
14. LEASES
As of February 25, 1995, 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:
Total rental expense was $18,242,000, $17,129,000 and 15,653,000 in 1995, 1994 and 1993, respectively.
15. COMMITMENTS AND CONTINGENT LIABILITIES
Apogee has entered into a number of non-compete agreements. Non-compete agreements represent contractual agreements with the previous management of purchased businesses not to enter into competition with us for a certain period of time. As of February 25, 1995, we were committed to make future payments of $658,000 under such agreements.
Apogee has ongoing letters of credit related to risk management programs, construction contracts and certain industrial development bonds. The total value of letters of credit under which the company is obligated as of February 25, 1995 was approximately $53,922,000.
Apogee, like other participants in the construction business, is routinely involved in disputes and claims arising out of construction projects, sometimes involving significant monetary damages. Although it is impossible to predict the outcome of such disputes, we believe, based on facts currently available to us, that none of such claims will result in losses that would have a material adverse effect on our financial condition.
16. FAIR VALUE DISCLOSURES
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107.
Estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required in developing the estimates of fair value. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimating methodologies may have a material effect on the estimated fair value amounts.
Estimated fair values of our financial instruments at February 25, 1995 are as follows:
For cash and cash equivalents, receivables, accounts payable and notes payable, carrying value is a reasonable estimate of fair value.
The carrying values (face amounts) of our long-term debt that have variable interest rates are reasonable estimates of fair value. For borrowings that have fixed interest rates, fair value is estimated by discounting the projected cash flows using the rate at which similar borrowings could currently be made.
17. BUSINESS SEGMENTS
Sales, operating income, identifiable assets and other related data for our operations in different business segments, are listed below and are an integral part of these financial statements. Fiscal 1991 and 1992 segment data are not covered by the Independent Auditors' Report.
BUSINESS SEGMENTS INFORMATION Apogee Enterprises, Inc.
Notes: Apogee's Building Products & Servieces segment has subsidiaries in Europe and Asia. During 1995 and 1994, such operations had net sales of $66,580,000 and $65,021,000, respectively. Operating losses for 1995 and 1994 were $6,575,000 and $887,000 respectively. At February 25, 1995, identifiable assets of the subsidiaries totaled $41,880,000 and $31,786,000, respectively. In 1993, net sales and identifiable assets of these units were less than 10% of Apogee's consolidated figures. Foreign currency transaction gains or losses included in net earnings for 1995, 1994 and 1993 were immaterial.
Apogee's export sales are less than 10% of consolidated net sales. No single customer, including government agencies, accounts for 10% or more of consolidated net sales. 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.
SCHEDULE II -----------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts (In thousands)
(1) Net of recoveries
EXHIBIT INDEX
Exhibit (3A) Restated Articles of Incorporation Filed in Registrant's Annual Report on Form 10-K for year ended February 27, 1988.
Exhibit (3B) Restated By Laws of Apogee Enterprises, Inc., as amended to date. Filed in Registrant's Annual Report on Form 10-K for year ended February 29, 1992.
Exhibit (4A) Specimen certificate for shares of common stock of Apogee Enterprises, Inc. Filed in Registrant's Annual Report on Form 10- K for year ended February 29, 1992.
Exhibit (10A) Deferred Incentive Compensation Plan dated February 27, 1986 between Registrant and certain executive officers. Filed in Registrant's Annual Report on Form 10-K for year ended March 1, 1986.
Exhibit (10B) Amended and Restated 1987 Apogee Enterprises, Inc. Partnership Plan is incorporated by reference to Registrant's S-8 registration statement (File No. 33-60400)
Exhibit (10C) 1987 Apogee Enterprises, Inc. Stock Option Plan is incorporated by reference to Registrant's S-8 registration statement (File No. 33-35944)
Exhibit (10D) Note Agreement dated June 1, 1988 between the registrant and Teachers Insurance and Annuity Association of America ($25,000,000). Filed in Registrant's Quarterly Report on Form 10- Q for quarter ended August 27, 1988.
Exhibit (10E) Incentive Compensation Agreement between Registrant and Gerald K. Anderson dated February 23, 1987. Filed with Registrant's Annual Report on Form 10-K for year ended March 2, 1991.
Exhibit (10F) Consulting Agreement between Registrant and Gerald K. Anderson dated March 1, 1989. Filed with Registrant's Annual Report on Form 10-K for year ended March 2, 1991.
Exhibit (10G) Rights Agreement between Registrant and American Stock Transfer Co. dated October 19, 1990. Filed with Registrant's Form 8-A on October 19, 1990.
Exhibit (10H) $25 million Credit Facilities agreements between Apogee Enterprises, Inc., First Bank National Association and NBD Bank, N.A. Filed with Registrant's Annual Report on Form 10-K for year ended February 27, 1993.
Exhibit (10I) Consulting Agreement between Registrant and Laurence J. Niederhofer dated November 1, 1993. Filed with Registrant's Annual Report on Form 10-K for year ended February 26, 1994.
Exhibit (10J) Credit Agreement between Apogee Enterprises, Inc. and Credit Lyonnais Chicago Branch and Credit Lyonnais Cayman Island Branch. Filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended August 27, 1994.
Exhibit (10K) Credit Agreement between Apogee Enterprises, Inc. and The Mitsubishi Bank, Limited, Chicago Branch. Filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended November 26, 1994.
Exhibit (10I) Employment Agreement between Registrant and Richard Gould dated May 23, 1994.
Exhibit (11) Statement of Determination of Common Shares and Common Share Equivalents
Exhibit (21) Subsidiaries of the Registrant