<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 1, 1997
[ ] 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. X
---
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1997 was $479,832,590. The number of shares outstanding
of the Registrant's Common Stock at March 31, 1997 was 27,921,388.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Proxy Statement for
the Annual Meeting of Shareholders to be held June 17, 1997.
<PAGE>
APOGEE ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
For the year ended March 1, 1997
<TABLE>
<CAPTION>
PART I Description Page
- ------ ----------- ----
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
Executive Officers of the Registrant 8
PART II
- -------
Item 5. Market for the Registrant's
Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 12
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
</TABLE>
2
<PAGE>
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 operating
subsidiaries, is primarily engaged in the fabrication, distribution and
installation of value-added glass products and window and curtainwall systems.
Almost two-thirds of the Company's revenues are generated from the architectural
and nonresidential construction markets, with the other one-third coming from
operations serving the auto glass market. Three business segments comprise
Apogee's operations: Glass Technologies (GT) serves the construction and imaging
and display markets. Auto Glass (AG) serves the automotive glass replacement and
repair market. Building Products & Services (BPS) serves certain sectors of the
commercial and institutional, detention and security building markets. Financial
information about the Company's segments can be found at Note 17 to the
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.
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, Tru Vue, a picture
framing glass unit and Viratec Thin Films (Viratec), a producer of coated glass
for computer anti-glare screens and other optical devices.
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 process 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.
The Viracon unit is able to fabricate all types of architectural glass
(insulating, laminated and combinations of both) at its Owatonna, Minnesota
complex. Combined with its glass coating capabilities, the segment is able to
provide a full range of products from one central location. Viracon markets its
products nationally and overseas to glass distributors, contractors (including
BPS) 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'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.
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.
3
<PAGE>
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.
Auto Glass
- ----------
The Auto Glass (AG) segment is engaged in the auto glass replacement and
repair business through its Harmon AutoGlass service centers (retail), Glass
Depot wholesale centers (wholesale) and Curvlite fabrication center.
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
third-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
or an affiliated shop member of the Center's network 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 an essential requirement to become one of the few choice providers
for insurance companies.
The AG wholesale centers, known as "Glass Depot", supply the Harmon AutoGlass
service centers with auto and flat glass and related products, as well as
selling wholesale to other glass installers. Due to the variety of makes and
models of automobiles, auto glass service centers typically stock only
windshields for the most popular models. As a result, there is a demand for
distributors to maintain inventories of auto glass and to provide prompt
delivery. Through the segment's National Distribution Center (NDC), a mega-
distribution center offering other manufacturers' products as well as its own
for both domestic and foreign vehicles, the segment is able to maintain a broad
selection of automotive glass. The NDC also offers AutoGlass Express, a
delivery system which 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.
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. Curvlite seeks to offer a broad selection of windshields by promptly
adding new windshields as new models are introduced.
On March 1, 1997, the AG segment had 66 wholesale locations and 319 service
centers. The segment evaluates opportunities to expand both its retail and
wholesale auto glass locations, while closely monitoring existing units'
profitability.
Under a franchise agreement with Midas International Corporation, the
segment operates eight Midas Muffler locations in Minnesota, South Dakota, North
Dakota and Wisconsin.
Building Products & Services
- ----------------------------
The Company's Building Products & Services (BPS) segment operates
principally in the design, engineering and installation of custom and standard
curtainwall and window systems for commercial, institutional as well as
specialized detention and security building products and services. BPS'
operating units include Detention & Security units (Norment and affiliates),
Full Service units (Harmon, Inc.), New Construction curtainwall contractor
(Harmon, Ltd.) and metal fabricating and finishing businesses (Architectural
Products).
BPS' Detention & Security unit designs, manufactures and installs complex
windows, doors and monitoring systems for high-security buildings such as
prisons, jails, convenience stores, hospitals, schools and other governmental
facilities.
4
<PAGE>
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 in
the United States.
BPS also has seven Full Service operations located around the country. The
units offer complete design, engineering, installation and replacement or
glazing services for commercial, institutional and other buildings. In addition,
the units offer 24-hour replacement service for storm or vandalism damage. In-
house engineering capabilities allow the units to duplicate the original design
or create a completely new appearance for renovated buildings.
BPS' Harmon, Ltd. unit is one of the world's largest designers and
installers of curtainwall and window systems for nonresidential construction. It
has eight offices throughout the United States, as well as five in Europe and
Asia. In fiscal 1994, BPS acquired a majority interest in Harmon Europe S.A., a
French company engaged in both the manufacture and installation of curtainwall.
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' architectural metals units and Glass
Technology's architectural glass unit. Harmon, Ltd. also serves as a stone
subcontractor, setting stone on both the exterior and interior of buildings.
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.
The Architectural Products unit of BPS designs and manufactures high-
quality, thermally-efficient aluminum window and curtainwall systems under the
"Wausau Metals" (Wausau) trade name. These products meet high standards of wind
load capacity and resistance to air and moisture seepage. 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, including BPS' New
Construction unit, and to building owners for retrofitting older buildings.
Wausau maintains design and product engineering staffs to prepare aluminum
window and curtainwall system designs to fit customers' needs and to originate
new product designs. Wausau occasionally joins the New Construction unit 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 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 Metals), as well as other companies' metal, plastic, wood or glass
products.
Competition
- -----------
All segments of the Company's business are fairly mature and are 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.
The Auto Glass segment competes with other auto glass shops, glass warehouses,
car dealers, body shops and fabrication facilities on the basis of pricing and
customer service. Its competition consists of national and regional chains as
well as significant local competition. The curtainwall subcontractor business is
primarily price competitive, although BPS' New Construction's reputation for
quality engineering and service is an important factor in receiving invitations
to bid on large complex projects. BPS' 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.
5
<PAGE>
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 possess the world's largest
coating capacity for glass and is a leading global fabricator of high-
performance architectural glass. Its one location capabilities allows the
segment to meet customer needs and react quickly to market demands while
improving margins and developing new products.
AG 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. 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 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.
BPS serves the domestic and international nonresidential construction
market, which tends to be cyclical and has been on a slow to moderate recovery,
both in terms of dollars and square feet of new contract awards. This market was
hard hit due to the overbuilding in past years, tax law changes, tightening
credit standards, business restructuring 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
these circumstances, BPS 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, detention and security markets.
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), Harmon Contract(R), Norment(R), Airteq(R), Viratec(R), Tru
Vue(R), Glass Depot(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 $120,318,000, $114,305,000, and $66,580,000 for the years ended
March 1, 1997, March 2, 1996, and February 25, 1995, respectively. Operating
losses for 1997, 1996, and 1995, were $5,716,000, $1,983,000, and $6,575,000,
respectively. At March 1, 1997, March 2, 1996, and February 25, 1995, the
identifiable assets of foreign operations totaled $86,866,000, $58,753,000 and
$41,880,000, respectively. At March 1, 1997, the backlog of work for European
and Asian projects was $160 million. In addition, during the years ended March
1, 1997, March 2, 1996, and February 25, 1995, the Company's export sales,
principally from GT operations, amounted to approximately $61,855,000,
$38,348,000, and $30,241,000, respectively.
Employees
- ---------
The Company employed 6,553 persons at March 1, 1997, of whom 1,010 were
represented by labor unions. The Company is a party to 118 collective bargaining
agreements with several different unions. Thirty-five of the collective
bargaining agreements will expire during fiscal 1998. 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.
6
<PAGE>
Backlog
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The backlog of orders is significant in the Company's construction-related
BPS segment. At March 1, 1997, the Company's total backlog of orders considered
to be firm was $358,000,000, compared with $405,000,000 at March 2, 1996.
Approximately $20,000,000 is not expected to be reflected as revenue in fiscal
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.
<TABLE>
<CAPTION>
Facility Location Owned/Leased Function
- -------- -------- ------------ --------
<S> <C> <C> <C>
Glass Technologies
- ------------------
Viracon Owatonna, MN Owned Mfg./Admin.
Tru Vue Chicago, IL Owned Mfg./Admin.
Viracon - Coatings Bldg. Owatonna, MN Owned Mfg./Admin.
Viratec Thin Films, Inc. Faribault, MN Owned Mfg./Admin.
Auto Glass
- ----------
Curvlite Owatonna, MN Owned Mfg./Admin.
National Distribution Center Owatonna, MN Owned Warehouse/Admin.
Harmon AutoGlass and Glass
Depot headquarters Minneapolis, MN Leased Administrative
Call Center Orlando, FL Owned Administrative
Call Center Eau Claire, WI Leased Administrative
Building Products & Services
- ----------------------------
New Construction headquarters Minneapolis, MN Leased Administrative
Norment Montgomery, AL Owned Mfg./Admin.
Harmon CFEM -- Sitraco Pinon, France Owned Mfg.
Harmon CFEM -- Facalu Epernon, France Owned Mfg.
Architectural Products Wausau, WI Owned Mfg./Admin.
Architectural Products - Plant II Wausau, WI Owned Mfg.
Linetec (Painting) Wausau, WI Owned Mfg./Admin.
Linetec (Anodizing) Wausau, WI Owned Mfg.
Other
- -----
Apogee Corporate Office Minneapolis, MN Leased Administrative
</TABLE>
The Building Products & Services segment's 12 sales offices, 7 Full Service
locations and 8 fabrication facilities are generally located in major
metropolitan areas in the United States, Europe and Asia. Virtually all such
locations are leased.
The Glass Technologies segment has four fabrication facilities located in
the Midwest.
The Automotive Glass segment has 387 retail and distribution locations
nationally and eight Midas Muffler franchises located in the Midwest. The
majority of such locations are leased.
The Curvlite plant, an Architectural Products 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.
7
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ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company believes that it is not party to any legal proceedings pending
which, if determined adversely to the interests of the Company, would have a
material adverse effect on our consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter ended March 1, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald W. Goldfus 63 Chairman of the Board of Directors,
Chief Executive Officer and President
James L. Martineau 56 Executive Vice President
Richard Gould 57 Senior Vice President
Terry L. Hall 43 Vice President Finance and
Chief Financial Officer
Percy C. Tomlinson 34 Treasurer
Martha L. Richards 34 Secretary
</TABLE>
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.
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. Hall joined the Company in April 1995. 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. Mr. Tomlinson joined the Company in August 1995.
Prior to joining the Company, Mr. Tomlinson was Managing Director of AMR
Corporation from 1994 to 1995, President of Airmotive Capital Group from 1993 to
1994 and Vice President of Marketing for Credit Lyonnais/PK Airfrance from 1990
to 1993. Ms. Richards joined the Company in March 1997. Prior to joining the
Company, Ms. Richards was a Partner with the legal firm, Jenner & Block,
Chicago, Illinois. Mr. Goldfus and Mr. Martineau have been employees of the
Company for more than the last five years.
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-----------------------------------------------------------------
MATTERS
-------
Market Information
- ------------------
Apogee common stock is traded in the NASDAQ National Market System, under
the ticker symbol APOG. Stock price quotations are printed daily in major
newspapers. During the fiscal year ended March 1, 1997, the average trading
volume of Apogee common stock was 4,795,244 shares per month, according to
NASDAQ.
8
<PAGE>
As of March 31, 1997, there were 27,921,388 shares of common stock
outstanding, of which about 7.0 percent were owned by officers and directors of
Apogee. At that date, there were approximately 1,944 shareholders of record and
6,400 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, as
adjusted to reflect the two-for-one stock split effected in the form of a stock
dividend paid on February 14, 1997 (the February Stock Dividend).
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter Year
I II III IV End
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 5 1/8-6 3/8 4 1/8-5 3/8 4 7/8-6 1/8 4 7/8-6 1/8 5 13/16
1994 5 1/8-6 1/4 5 3/4-7 1/8 5 5/8-7 1/4 6 3/4-8 7/8 7 1/4
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 1/2-8 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
</TABLE>
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, as adjusted to reflect the February Stock Dividend.
<TABLE>
<CAPTION>
Quarter Quarter Quarter Quarter
I II III IV Year
-----------------------------------------
<S> <C> <C> <C> <C> <C>
1993 0.033 0.033 0.035 0.035 0.135
1994 0.035 0.035 0.038 0.038 0.140
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
</TABLE>
Sales of Unregistered Securities
- --------------------------------
On January 3, 1997, the Company issued 215,121 shares (the "Shares") of its
Common Stock, par value $0.33 1/3 per share, in a transaction that was not
registered under the Securities Act of 1933, as amended (the "Securities Act").
The Shares were issued to The Gene R. Cohen Revocable Trust (the "Trust")
pursuant to an agreement dated November 23, 1996, between the Company and the
Trust in which the Trust exchanged all outstanding shares of American Management
Group (AMG), a Maine corporation, for the shares and the Company thereby
acquired AMG. The transaction between the Company and the Trust closed January
3, 1997, and the Shares were issued in February 1997.
No underwriter or placement agent was involved in the issuance of the
Shares to the Trust, and the Company did not receive any cash consideration for
the Shares. The Shares were issued to the Trust in a transaction exempt from
registration pursuant to Section 4 (2) of the Securities Act.
9
<PAGE>
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.
<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data** 1997 1996 1995 1994* 1993
<S> <C> <C> <C> <C> <C>
Operating Results
Net sales $ 950,777 871,147 756,549 688,233 572,450
Gross profit $ 151,801 118,523 105,889 83,895 78,201
Operating income $ 46,496 32,457 24,262 7,058 6,369
Net earnings $ 26,220 17,835 13,050 3,833 4,514
Earnings per share $ 0.93 0.65 0.48 0.14 0.17
Effective tax rate - % 34.9 36.9 40.2 60.9 42.3
Operating Ratios
Gross margin - % 16.0 13.6 14.0 12.2 13.7
Operating margin - % 4.9 3.7 3.2 1.0 1.1
Net margin - % 2.8 2.0 1.7 0.6 0.8
Return on Average shareholders' equity - % 16.9 13.5 10.9 3.4 4.0
Average invested capital - % 9.2 7.6 6.7 2.4 3.0
Average total assets - % 5.9 4.8 3.9 1.4 1.8
Funds Flow Data
Cash flow before changes in operating assets and liabilities $ 57,997 31,514 27,192 20,470 19,187
Depreciation and amortization $ 20,458 16,528 15,131 15,724 15,110
Capital expenditures $ 35,613 22,615 24,957 14,046 9,166
Dividends $ 4,806 4,453 4,155 3,841 3,584
Year-End Data
Total assets $ 500,964 386,136 361,928 306,188 251,456
Current assets $ 305,194 258,559 256,820 221,286 169,029
Current liabilities $ 176,621 142,477 135,719 140,846 99,787
Working capital $ 128,573 116,082 121,101 80,440 69,242
Current ratio 1.7 1.8 1.9 1.6 1.7
Long-term debt $ 127,640 79,102 80,566 35,688 28,419
% of invested capital 39.4 32.5 35.6 21.6 18.7
Shareholders' equity $ 172,149 138,921 124,629 114,063 112,335
% of invested capital 53.1 57.0 55.1 69.0 74.1
Backlog $ 358,169 404,737 363,751 405,223 322,323
Investment Information
Dividends per share $ 0.175 0.165 0.155 0.145 0.135
Book value per share $ 6.17 5.14 4.64 4.28 4.26
Price range during year:
High $ 23 3/4 9 7/8 9 1/4 8 7/8 6 3/8
Low $ 9 5/8 6 1/2 5 3/4 5 1/8 4 1/8
Close $ 19 7/8 9 13/16 8 5/8 7 1/4 5 13/16
Price/earnings ratio at year-end 21 15 18 50 34
Dividend yield at year-end - % 0.9 1.7 1.9 2.0 2.3
Shares outstanding 27,882,000 27,034,000 26,886,000 26,624,000 26,354,000
Average monthly trading volume 4,795,244 1,775,74 1,613,012 518,900 644,294
</TABLE>
* Fiscal 1994 figures reflect the cumulative effect of a change in accounting
for income taxes, which increased net earnings by $525,000, or 4 cents per
share.
** Share and per share data have been adjusted for the fiscal 1997 stock
dividend.
10
<PAGE>
<TABLE>
<CAPTION>
Dollar amounts in thousands, except per share data 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C>
Operating Results
Net sales $ 596,281 599,525 589,657 433,740 312,051 279,097
Gross profit $ 101,580 100,097 93,718 72,214 57,350 48,300
Operating income $ 19,249 33,267 32,033 24,134 20,211 17,867
Net earnings $ 8,505 17,017 14,095 13,421 11,615 8,523
Earnings per share $ 0.31 0.62 0.52 0.50 0.43 0.32
Effective tax rate - % 39.6 37.1 37.1 38.2 41.8 46.6
Operating Ratios
Gross margin - % 17.0 16.7 15.9 16.6 18.4 17.3
Operating margin - % 3.2 5.5 5.4 5.6 6.5 6.4
Net margin - % 1.4 2.8 2.4 3.1 3.7 3.1
Return on Average shareholders' equity 7.6 16.6 15.7 17.2 17.3 14.5
- %
Average invested capital - % 5.7 11.5 9.8 11.4 13.2 11.2
Average total assets - % 3.4 6.9 6.2 7.6 9.0 7.8
Funds Flow Data
Cash flow before changes in operating
assets and liabilities $ 31,256 34,284 31,030 23,145 18,167 13,200
Depreciation and amortization $ 16,305 13,309 12,141 8,987 6,586 4,339
Capital expenditures $ 12,974 12,798 16,985 23,680 11,311 15,773
Dividends $ 3,505 3,248 2,693 2,140 1,807 1,516
Year-End Data
Total assets $ 49,509 250,343 244,103 207,686 143,487 115,738
Current assets $ 166,376 162,676 154,845 126,881 86,026 68,250
Current liabilities $ 101,011 102,492 94,948 68,921 47,652 36,199
Working capital $ 65,365 60,184 59,897 57,960 38,374 32,051
Current ratio 1.6 1.6 1.6 1.8 1.8 1.9
Long-term debt $ 25,267 29,398 41,366 46,277 17,899 12,136
% of invested capital 17.0 19.9 27.7 33.3 18.7 15.3
Shareholders' equity $ 113,781 109,050 95,754 83,871 72,062 62,561
% of invested capital 76.6 73.8 64.2 60.4 75.2 78.7
Backlog $ 231,949 245,000 299,810 333,240 228,532 124,161
Investment Information
Dividends per share $ 0.130 0.120 0.100 0.080 0.068 0.056
Book value per share $ 4.23 4.05 3.56 3.13 2.70 2.34
Price range during year: High $ 9 10 1/16 9 3/8 7 1/8 6 1/8 7 9/16
Low $ 4 3/4 6 5/8 6 1/2 5 3 3/4 3 13/16
Close $ 6 1/8 9 7 3/8 6 13/16 5 1/2 5 13/16
Price/earnings ratio at year-end 19 14 14 14 13 16
Dividend yield at year-end - % 2.1 1.3 1.4 1.2 1.2 1.1
Shares outstanding 26,922,000 26,954,000 26,934,000 26,828,000 26,698,000 26,724,000
Average monthly trading volume 1,386,058 1,212,682 1,722,972 1,440,082 1,266,986 1,760,916
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Fiscal 1997 was a record year for Apogee. We achieved sharply improved
profitability on a moderate sales increase. As stated last year, we had
undertaken companywide efforts to improve margins, productivity, working capital
usage and, in particular, capital allocation. The success of these efforts in
fiscal 1997 allowed us to easily exceed the earnings per share growth goal of
15% noted in this space a year ago. Our efforts and performance are further
detailed in this financial review. We continue to believe that with reasonably
stable competitive and economic conditions, Apogee can produce improved earnings
at a compounded annual rate of 15% or greater.
Performance
Fiscal 1997 Compared To Fiscal 1996
The following table illustrates the relationship between various components of
operations, stated as a percent of net sales, for each of the three years in the
three-year period ended March 1, 1997.
<TABLE>
<CAPTION>
Percent of Net Sales
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of sales 84.0 86.4 86.0
Gross profit 16.0 13.6 14.0
Selling, general and
administrative expenses 11.1 9.9 10.8
Operating income 4.9 3.7 3.2
Interest and other expense, net 0.7 0.7 0.5
Earnings before income
taxes and other items 4.2 3.1 2.7
Income taxes 1.5 1.1 1.1
Equity in net loss (earnings)
of affiliated companies -- (0.1) (0.1)
Minority interest (0.1) (0.1) --
Net earnings 2.8 2.0 1.7
</TABLE>
Led by our Glass Technologies (GT) and Auto Glass (AG) segments, consolidated
net sales grew 9% to $951 million in fiscal 1997. GT's sales grew primarily due
to continued strong demand and firm pricing for its fabricated architectural
glass products and the addition of sales from the acquired Viratec Thin Films
(Viratec) unit. Despite a very challenging industry environment, our AG segment
increased sales by combining same-store sales growth of 10% with additional
retail and wholesale locations and strong sales growth at Curvlite. Building
Products & Services' (BPS) revenues were essentially unchanged from a year ago
and represented the lowest percent of Apogee's total sales in over 16 years.
Fiscal 1996 comprised 53 weeks, the additional week accounting for approximately
2% of the consolidated net sales that year, while fiscal 1997 comprised 52
weeks.
Overall, cost of sales, as a percent of sales, fell 2.4%. Slight productivity
gains at most of our operations, sharply lower insurance costs due to reserve
reductions and a significant change in sales mix away from the low-margin
curtainwall construction activity of BPS' New Construction unit combined to
produce this positive variance.
Selling, general and administrative (SG&A) expenses grew 22%, reflecting
increased information systems and marketing costs, particularly at our AG
segment, and higher profit-sharing and commission expense related to higher
sales and improved profitability. As a result, SG&A costs as a percent of sales
rose, despite the moderate sales gain and productivity measures undertaken by
our operating segments.
Net interest expense rose 22%, primarily due to the impact of interest paid
associated with the settlement of outstanding tax matters.
12
<PAGE>
Our effective tax rate dropped to 34.9% from 36.9% in fiscal 1996. The decrease
was primarily due to the tax benefits related to higher export sales levels and
the resolution of prior years' tax examinations. These items were partially
offset by foreign operating losses for which no tax benefit was recognized.
As explained below, the inclusion of 100% of the results of Marcon Coatings
(Marcon) and Viratec in our consolidated financial statements means that equity
in net earnings of affiliates in 1997 no longer included a 50% interest in those
units. The $337,000 charge to earnings in fiscal 1997 reflected our share of net
losses recorded by various affiliated companies in which we have a 50% or less
equity stake. Minority interest rose due to a larger loss at Harmon Europe S.A.,
our 70%-owned French subsidiary.
Consolidated net earnings advanced 47% in fiscal 1997 to $26.2 million, or $0.93
a share, from $17.8 million, or $0.65 a share, a year ago. Return on
shareholders' equity rose to 16.9% from 13.5% a year earlier. The above per
share figures reflect the two-for-one stock split, effected in the form of a
100% stock dividend, paid to shareholders on February 14, 1997.
Segment Analysis
The following information provides a more detailed look at each of our three
segments. Also see Business Segment Information on page 20 for a five-year
history of each segment's sales and operating earnings.
Glass Technologies (GT) includes Viracon, our architectural glass fabricator,
Tru Vue, our picture framing glass and matboard fabricator, and Viratec which
applies optical-grade coatings to glass and other substrates. As described
below, Viratec was acquired along with Marcon, which applies coatings to
architectural and residential building glass and has since been merged into
Viracon's operations. Beginning in March 1996, Marcon and Viratec were
consolidated with our other majority-owned business units. Through fiscal 1996,
our 50% equity in Marcon's and Viratec's net earnings was included in the
Consolidated Results of Operations under the caption "Equity in net earnings of
affiliated companies."
GT improved sales and earnings for the fifth consecutive year, exceeding last
year's record results. Sales rose by 28%, while operating earnings improved 21%
to $19.9 million. The sales increase was due to continued strong demand and firm
pricing for its fabricated architectural glass products and the addition of
sales from the acquired Viratec unit. While the segment contributed just 20% of
consolidated revenues, it provided 43% of our consolidated operating income.
Viracon experienced continued strong demand for its architectural glass
products. This unit ran at or near full capacity for most of the year. Viracon's
operating income grew by 21%. Production capacity was added in 1997 and
additional increases are planned for 1998.
Tru Vue posted marginally improved sales and operating income in 1997. These
results occurred against a backdrop of soft industry sales. The unit was
successful in controlling costs and made progress toward integrating its
matboard operations with its picture-framing glass business.
On a pro forma basis, Viratec saw its sales fall 9%, although year-end order
activity reflected higher incoming order rates. In fiscal 1997, industry pricing
pressure for its flat glass coated products and Viratec's inability to reach
operating profitability for its direct-coat business combined to reduce
operating income when compared to a year ago. At March 1, 1997, Viratec's
backlog of $17 million was more than double last year's $8 million year-end
backlog.
In January 1997, we agreed to pay our 50% joint venture partner (JV Partner) $41
million for its interest in Marcon/Viratec and certain leased assets. This
agreement also included the irrevocable release of both parties from all
outstanding claims related to the litigation described in the Glass Technologies
section of this financial review comparing fiscal 1996 to fiscal 1995. As a
result of the March 1996 Court order requiring the JV Partner to sell its
interest in Marcon/Viratec to Apogee, Marcon/Viratec was consolidated in our
financial statements beginning in the first quarter of fiscal 1997.
Based on current order rates and industry conditions for the segment's Viracon
and Viratec units, we anticipate that GT will report improved sales and earnings
in fiscal 1998. GT will continue to invest in expanded production capacity,
particularly at its Viracon unit.
13
<PAGE>
Auto Glass (AG) reported modestly improved results in fiscal 1997. The segment
sales grew 13% during the year despite intense competition and lower unit
movement in the replacement auto glass industry. Operating income increased 12%.
This increase resulted mainly from the above mentioned increase in sales, which
more than offset the increase in information systems and marketing expense
associated with the segment's drive to expand market coverage and develop new
services to meet customers' needs.
AG, which operates retail stores under the Harmon AutoGlass (Harmon) name and
distribution centers under the Glass Depot name, possesses the third-largest
market share in the auto glass repair and replacement industry.
Insurance companies continue to prefer vendors who can expedite claims
processing and other administrative efforts related to auto glass replacement
and repair. The segment's significant investment in information systems provides
Harmon the means to offer comprehensive claims processing and management
services to these customers on a nationwide basis.
Curvlite, AG's auto glass fabricator, increased sales in fiscal 1997 by over
32%. The unit's National Distribution Center, which in fiscal 1996 began to
offer other manufacturers' products as well as its own for both domestic and
foreign vehicles, and AutoGlass Express, a new delivery system which allows
Curvlite to fill customer orders more quickly and completely, accounted for much
of the unit's sales growth. About 63% of Curvlite's sales are made to Glass
Depot units.
In January 1997, Harmon completed its acquisition of Portland Glass, a 46-
location auto glass replacement chain operating in the Northeast U.S. This
acquisition, combined with other locations added during the year, increased the
number of locations to 319 Harmon retail locations and 66 Glass Depot
distribution centers. At March 1, 1997, AG also had 8 Midas Muffler franchises.
With the addition of locations acquired in the Portland Glass acquisition and
further unit growth from other start-up or acquired locations and market
penetration, AG expects to increase sales in fiscal 1998 as the segment begins
to better leverage its significant investment in information and delivery
systems. However, the uncertainty of industry unit sales and pricing makes it
difficult to project operating earnings.
Building Products & Services (BPS) posted its first operating profit in five
years in fiscal 1997, recording earnings of $5.6 million. Overall revenues were
flat compared to a year ago. Higher sales by our Detention & Security, Full
Service and Architectural Products units were offset by lower domestic New
Construction revenues and the absence of sales from the Nanik Window Coverings
businesses sold last year. Overseas revenues grew marginally for the year. Other
than the segment's European operations, each of BPS' operating units recorded
solid operating earnings improvement compared to a year ago. Harmon, Ltd., BPS'
domestic and international New Construction unit, experienced flat results as
the domestic and Asian operations' improved earnings were offset by a large
operating loss in Europe. The European loss reflected high-risk projects taken
and executed at unacceptably low margins. The improvement in operating earnings
by our domestic and Asian New Construction units was achieved through overhead
and operating cost reductions and by a newly implemented monitoring system which
allows money-saving decisions to be made earlier in a project's completion
cycle.
The segment's Full Service unit had another solid year, generating 6% higher
sales and healthy operating income. The Detention & Security unit reported 38%
higher revenues and significantly greater income in fiscal 1997. However, its
year-end backlog was down 19% from a year earlier. The Architectural Products
unit leveraged its higher sales into sharply higher profitability as the unit
improved its engineering and fabrication productivity.
We ended the fiscal year with a $358 million backlog, down 12% from $405 million
at the end of fiscal 1996. BPS' backlog is almost 88% of the total.
Based upon analysis of its backlog, BPS anticipates lower sales in fiscal 1998.
Although better project margins are expected, the smaller revenue base makes
prospects for improved operating earnings next year dependent upon BPS' ability
to control costs, effectively manage projects, maintain margins inherent in the
segment's backlog and book additional contracts, both domestically and
internationally. Approximately $20 million of the February 1997 backlog will not
be reflected as revenue in fiscal 1998.
14
<PAGE>
Fiscal 1996 Compared To Fiscal 1995
Consolidated net sales grew 15% to $871 million in fiscal 1996 as all three
segments reported double-digit gains. Our GT segment benefited from improved
volume and firm pricing for its fabricated architectural glass products, while
our AG segment experienced higher unit volumes at a greater number of locations.
AG's sales improvement was somewhat dampened by the continuation of industry
pricing pressure. BPS' sales grew mainly due to higher overseas building
activity. Approximately 2% of the consolidated net sales came from an additional
week in the 53-week fiscal 1996 compared to a 52-week fiscal 1995.
Overall, cost of sales, as a percent of sales, grew slightly as productivity
gains at GT were offset by narrowing margins at our AG segment.
SG&A costs grew 5%, reflecting increased information systems and marketing costs
at our AG segment as it worked to expand market coverage and develop new
services to meet customers' needs. However, SG&A costs as a percentage of sales
fell sharply, due to strong sales gains and cost cutting measures undertaken by
all of our operating segments. Net interest expense rose 38% due to a
combination of higher interest rates and higher borrowing levels in the first
half of the year necessitated by our working capital needs.
Our effective tax rate dropped to 36.9% from 40.2% in fiscal 1995. The decrease
was primarily due to the tax benefits related to higher export sales levels and
a decrease in our deferred tax asset valuation allowance.
Equity in net earnings of affiliates dropped slightly as pricing for certain
coated products became more competitive in the latter half of the year, and
continuing development costs at Viratec offset solid earnings from its main
product line. Minority interest rose due to a larger loss at Harmon Europe S.A.,
our 70%-owned French subsidiary.
Consolidated net earnings advanced 37% in fiscal 1996 to $17.8 million, or $1.31
a share, from $13.1 million, or $0.97 a share, a year earlier. Return on
shareholders' equity rose to 13.5% from 10.9% a year earlier.
Glass Technologies (GT) included Viracon, our architectural glass fabricator,
and Tru Vue, our picture framing glass manufacturer, in fiscal 1996, both
previously part of BPS.
In fiscal 1996, our equity in Marcon/Viratec was reported in the Consolidated
Results of Operations under the caption "Equity in net earnings of affiliated
companies."
GT had outstanding results in fiscal 1996, increasing revenues and operating
income by 24% and 57%, respectively. While the segment contributed just 17% of
consolidated revenues, it provided 51% of consolidated operating income.
Much of the segment's success was due to our Viracon operation, which ran at or
near full capacity for most of the year. In fiscal 1996, Viracon grew revenues
and operating income by 27% and 67%, respectively. Additional capacity was
planned to be on-line in fiscal 1997. Viracon's cost structure, along with the
expansion, was expected to allow the unit to begin to penetrate the medium-
performance architectural glass market, a market which is approximately two
times the size of the high-performance architectural glass market, Viracon's
traditional market. Tru Vue had similar results, increasing revenue and earnings
by 12% and 27%, respectively. The unit was able to achieve the growth through
efforts to streamline operations and integrate the two-year-old matboard
acquisition.
Both Marcon and Viratec increased revenues over the prior year. Marcon had a
decline in operating income, as start-up expenses related to a new coater
negatively affected earnings. Viratec was able to grow operating income despite
pricing pressures for its flat glass operations and developmental costs related
to the CaRT line. At March 2, 1996, Viratec's backlog of $8 million was down 43%
from the prior year-end.
In November 1995, our 50% JV Partner in Marcon/Viratec commenced litigation
against us, alleging claims for damages and seeking to have the Court order us
to sell our 50% interest to the JV Partner. We filed counterclaims seeking to
have the JV Partner's 50% interest sold to us and in March 1996, the Court
ordered the JV Partner to sell the shares of stock representing its 50% interest
in Marcon/Viratec to us upon payment of fair value for those shares as
determined by the Court. The JV Partner's rights and status as shareholder and
directors were terminated as of the
15
<PAGE>
effective date of the order and the fair value for the shares was to be
determined by the Court after further proceedings. At March 2, 1996, the Court
had not yet scheduled a trial or hearing to determine fair value.
At a hearing on April 23, 1996, the Court ordered us to post a bond or letter of
credit in the amount of $50 million, or to pay the JV Partner $25 million and
agree to set aside an additional $25 million, as security for the ultimate
payment of the purchase price for the JV Partner's shares. The amount of such a
bond or other means was intended as security and was not intended to reflect the
Court's view on what was the fair value for the shares. The JV Partner's claims
against us for damages were still pending and the Court also was considering a
motion brought by the JV Partner to add a claim for punitive damages.
We anticipated GT would report sales and earnings gains in fiscal 1997 through
expanded production capacity and streamlined operations for Viracon and Tru Vue.
We believed full control of Marcon and Viratec would allow us more strategic and
operating flexibility.
Auto Glass (AG) had mixed results in fiscal 1996. The segment grew sales 10%
during the year despite pricing pressures and lower unit movement in the auto
glass industry. Operating income declined 5% due to lower margins and expenses
related to investment in improved information systems and marketing programs.
The segment increased market penetration in fiscal 1996 as Harmon Glass grew by
8 retail locations while Glass Depot added 7 distribution centers. At March 2,
1996, AG had 264 Harmon retail glass stores, 60 Glass Depot locations and 8
Midas Muffler franchises in 36 states.
Increasingly, insurance companies were relying on auto glass vendors with
sophisticated information systems to expedite claims processing and other
administrative efforts related to auto glass replacement and repair. This
outsourcing allowed insurance companies to improve customer satisfaction and
lower costs. The segment's significant investment in information systems
provided Harmon the means to offer comprehensive claims processing and
management services to these customers on a nationwide basis. Harmon was able to
use this competitive edge to gain market share in fiscal 1996. This market share
gain was reflected in Harmon's 7.5% jump in retail same-store sales as
contrasted with a 10% drop in overall industry unit movement.
Curvlite, AG's auto glass fabricator, reported increased sales and unit volume
in a declining sales price market. However, weaker pricing and costs related to
setting up its new product and delivery systems negatively affected operating
income. Through the unit's National Distribution Center, a mega-distribution
center offering other manufacturers' products as well as its own for both
domestic and foreign vehicles, Curvlite was able to offer a more complete
product line to its customers. Another program introduced in fiscal 1996 was
AutoGlass Express, a delivery system which allowed Curvlite to fill customers'
orders on an individual basis more completely and faster than many of its
competitors. The unit believed the two new initiatives would give it a
competitive edge and help to gain market share.
AG anticipated sales growth to continue as it started to leverage its
information and delivery systems in fiscal 1997. Even with higher sales, it was
difficult to project if operating earnings would improve as the full costs of
the information systems would be realized in fiscal 1997 and industry pricing
pressures were expected to continue.
Building Products & Services (BPS) made substantial progress in fiscal 1996.
Revenues grew 16%, primarily due to progress on the Kuala Lumpur City Centre
project in Malaysia and higher European revenues. The segment's operating loss
fell from prior year's $6.1 million to $2.1 million. Harmon, Ltd., BPS' domestic
and international curtainwall construction unit, reduced its loss approximately
60%, while the segment's Architectural Products unit reported modest operating
income compared to a loss a year earlier and 17% revenue growth. Both units'
improvements were achieved through overhead and operating cost reductions and by
newly implemented monitoring systems which allowed money-saving decisions to be
made earlier in a project's completion cycle.
The segment's Full Service unit had another solid year generating strong
revenues and healthy operating income. BPS' Detention & Security unit reported
lower revenues, but produced a small profit, though notably less than a year
earlier. However, the unit's year-end backlog was up 53% over a year ago.
16
<PAGE>
In July 1995, BPS sold the Nanik Window Coverings unit for $17.6 million. A $4.2
million gain on the sale was included under the caption, "Other expense, net" in
the Consolidated Results of Operations. In fiscal 1996, the Nanik Window
Coverings unit contributed 3% of segment sales and a small operating profit
compared to 7% of sales and a $1.4 million operating profit in fiscal 1995.
Apogee ended the fiscal year with a $405 million backlog, up 11% from $364
million at the end of fiscal 1995. BPS' backlog was about 98% of the total.
Based upon analysis of its backlog, BPS anticipated nominal sales growth in
fiscal 1997 due to the increased selectivity of projects taken over the prior
year. In addition, better margins were expected as the segment completed its
remaining older, lower-margin projects and progressed further with healthier
margin projects. Approximately $73 million of the February 1996 backlog was not
expected to be reflected as revenue in fiscal 1997.
Liquidity and Capital Resources
Financial Condition Major balance sheet items as a percentage of total assets at
March 1, 1997 and March 2, 1996 are presented in the following table:
<TABLE>
<CAPTION>
Percent of Total Assets
1997 1996
----------- ----------
<S> <C> <C>
Current assets 61 67
Current liabilities 35 37
Long-term debt 25 20
Other liabilities 5 7
Shareholders' equity 34 36
</TABLE>
Net receivables rose $46.4 million, or 29%, primarily due to increased sales
activity and higher contract receivable billings, the latter of which is offset
by the $20.7 million increase in billings in excess of costs and earnings on
uncompleted contracts. All but a nominal amount of the $3.8 million growth in
inventories reflected acquired businesses, while costs and earnings in excess of
billings on uncompleted contracts were essentially unchanged. Accounts payable
and accrued expenses increased $24.7 million, reflecting higher levels of
operating activity and the assumed liabilities of acquired units.
Total long-term debt stood at $129.3 million at March 1, 1997, up $45 million
from a year earlier. Despite the $41.6 million of cash flow provided by
operating activities, additional borrowing was required to finance capital
expenditures and the acquisition of Marcon/Viratec. In May 1996, we obtained a
new five-year, multi-currency, committed credit facility of $150 million. For
fiscal 1998, we believe our continued efforts to reduce working capital relative
to sales growth plus our currently available credit facilities will enable us to
maintain liquidity while achieving improved results.
Capital Investment New capital investment in fiscal 1997 totaled $86.2 million,
versus $29.0 million and $39.6 million in fiscal 1996 and 1995, respectively.
Expenditures for new property, plant and equipment totaled $35.6 million, and
consisted of information systems, facility expansions and manufacturing
equipment additions and upgrades. As previously mentioned, we paid $41 million
to complete the acquisition of Marcon/Viratec. We also invested $10.5 million to
fund AG's acquisition of retail stores and wholesale depots, $9.1 million of
which was funded by the issuance of our common stock.
Capital investment for fiscal 1998 is estimated at $50 million. Further
upgrading of information and communication systems is a primary component for
all the segments. GT's plans also include expenditures for capacity expansion
and productivity improvements.
Shareholders' Equity Our book value per share rose 20% in fiscal 1997 from
$5.14 to $6.17, with outstanding common shares increasing by three percent. Net
earnings less dividends, along with common stock issued in connection with
stock-based compensation plans and the Portland Glass acquisition, essentially
accounted for the increase in book value per share. During fiscal 1997, we
increased our quarterly dividend by 6%, to 4.5 cents per share, our 22nd
consecutive year of increase. The above figures all reflect the two-for-one
stock split, effected in the form of a 100% stock dividend paid to shareholders
on February 14, 1997.
17
<PAGE>
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.
Year-end prices were essentially unchanged from a year ago for the cost of
glass, one of our primary raw materials. We expect the cost of glass to rise
moderately in fiscal 1998. 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 1997 and a moderate increase also can be reasonably anticipated for the
new year. Other costs are actively managed to minimize the inflationary
pressures that exist in the markets for goods and services our businesses
require for operation.
Outlook
We believe that improving market conditions for nonresidential construction,
flat demand for automotive replacement glass and continued strong demand for
architectural glass and coated glass products will allow us to improve earnings
in fiscal 1998. Better project selection and management, continued cost
containment programs and efficiencies, and competitive advantages from
information management technology should contribute to earnings growth.
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, 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 Form 10-
K filed with the Securities and Exchange Commission.
18
<PAGE>
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. 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 in Part I above in "Executive Officers of the Registrant," is included on
pages 1 to 5 and 9 to 10 of the Proxy Statement for the Annual Meeting of
Shareholders to be held June 17, 1997, 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 March 1, 1997, two reports on Form 8-K dated
January 13, 1997 were filed.
(c) Exhibits -
The information called for by this Item is contained in a separate section
of this report. See "Exhibit Index".
19
<PAGE>
- 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 29, 1997
APOGEE ENTERPRISES, INC.
By: /s/ Donald W. Goldfus
---------------------
Donald W. Goldfus
Chairman of the Board of Directors,
Chief Executive Officer and President
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------------------------------
<S> <C> <C>
Chairman of the Board of
Directors, Chief Executive
/s/ Donald W. Goldfus Officer and President 5-29-97
- --------------------------- ---------------------------------- -------
Donald W. Goldfus
/s/ Harry A. Hammerly Director 5-29-97
- --------------------------- ---------------------------------- -------
Harry A. Hammerly
/s/ Laurence J. Niederhofer Director 5-29-97
- --------------------------- ---------------------------------- -------
Laurence J. Niederhofer
/s/ James L. Martineau Executive Vice President, Director 5-29-97
- --------------------------- ---------------------------------- -------
James L. Martineau
/s/ D. Eugene Nugent Director 5-29-97
- --------------------------- ---------------------------------- -------
D. Eugene Nugent
/s/ Paul B. Burke Director 5-29-97
- --------------------------- ---------------------------------- -------
Paul B. Burke
/s/ Percy C. Tomlinson, Jr. Treasurer 5-29-97
- --------------------------- ---------------------------------- -------
Percy C. Tomlinson, Jr.
/s/ Terry L. Hall Chief Financial Officer 5-29-97
- --------------------------- ---------------------------------- -------
Terry L. Hall
</TABLE>
20
<PAGE>
Apogee Enterprises, Inc.
Form 10-K
Items 8, 14 (a) and 14 (d)
Index of Financial Statements and Schedules
<TABLE>
<CAPTION>
<S> <C>
Financial Statements
Independent Auditors' Report.......................................................................... F-2
Consolidated Balance Sheets........................................................................... F-3
Consolidated Results of Operations and Consolidated Statements of Shareholders' Equity................ F-4
Consolidated Statements of Cash Flows................................................................. F-5
Notes to Consolidated Financial Statements............................................................ F-6
Financial Schedules
Schedule II - Valuation and Qualifying Accounts....................................................... F-18
</TABLE>
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
<PAGE>
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. These
consolidated financial statements and 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 March 1, 1997 and March 2, 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 1, 1997 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 9, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
March 1, March 2,
(Dollar amounts in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents (including restricted
funds of $-0- and $208, respectively) $ 4,065 $ 7,389
Receivables, net of allowance for doubtful accounts 204,259 158,368
Inventories 58,261 54,484
Costs and earnings in excess of billins on uncompleted contracts 25,653 26,276
Refundable income taxes 1,004 ---
Deferred tax assets 4,486 6,689
Other current assets 7,466 5,353
-------- --------
Total current assets 305,194 258,559
-------- --------
Property, plant and equipment, net 118,799 78,485
Other assets
Marketable securities available for sale 19,656 12,231
Investments in and advances to affiliated companies 738 16,433
Intangible assets, at cost less accumulated
amortization of $9,480 and $8,044, respectively 52,451 10,332
Deferred tax assets 1,090 6,970
Other 3,036 3,126
-------- --------
76,971 49,092
-------- --------
Total assets $500,964 $386,136
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $ 73,325 $ 57,678
Accrued expense 61,435 52,430
Billings in excess of costs and earnings on uncompleted contracts 40,154 19,470
Accrued income taxes -- 7,634
Current installments of long-term debt 1,707 5,265
-------- --------
Total current liabilities 176,621 142,477
-------- --------
Long-term debt, less current installments 127,640 79,102
Other long-term liabilities 24,554 24,180
Minority interest -- 1,456
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, 27,882,000 and 27,034,000, respectively 9,294 4,506
Additional paid-in capital 34,686 20,445
Retained earnings 129,424 113,970
Cumulative translation adjustment (1,255) --
-------- --------
Total shareholders' equity 172,149 138,921
-------- --------
Total liabilities and shareholders' equity $500,964 $386,136
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED RESULTS OF OPERATIONS
Year Ended Year Ended Year Ended
(Dollar amounts in thousands except per share data) March 1, 1997 March 2, 1996 February 25, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $950,777 $871,147 $756,549
Cost of sales 798,976 752,624 650,660
-------- -------- --------
Gross profit 151,801 118,523 105,889
Selling, general and administrative expenses 105,305 86,066 81,627
Operating income 46,496 32,457 24,262
Interest expense, net 6,964 5,697 4,135
Other expense, net -- 149 --
-------- -------- --------
Earnings before income taxes and other items below 39,532 26,611 20,127
Income taxes 13,802 9,820 8,101
Equity in net loss (earnings) of affiliated companies 327 (528) (762)
Minority interest (827) (516) (262)
Net earnings $ 26,220 17,835 $ 13,050
======== ======== ========
Earnings per share $ 0.93 $ 0.65 $ 0.48
======== ======== ========
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Additional Cumulative
Shares Common Paid-In Retained Translation
(Amounts in thousands) Outstanding Stock Capital Earnings Adjustment
- ------------------------------------------------------------------------------------------------------------------------------
Balance at February 26, 1994 13,312 $4,437 $17,718 $ 91,908 $ --
Net earnings -- -- -- 13,050 --
Common stock issued 131 44 1,627 -- --
Cash dividends -- -- -- (4,155) --
------ ------ ------- -------- ---------
Balance at February 25, 1995 13,443 4,481 19,345 100,803 --
Net earnings -- -- -- 17,835 --
Common stock issued 88 30 1,120 -- --
Common stock repurchased and retired (14) (5) (20) (215) --
Cash dividends -- -- -- (4,453) --
------ ------ ------- -------- ---------
Balance at March 2, 1996 13,517 4,506 20,445 113,970 --
Net earnings -- -- -- 26,220 --
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) --
Translation adjustments -- -- -- -- (1,255)
------ ------ ------- -------- ---------
Balance at March 1, 1997 27,882 $9,294 $34,686 $129,424 $ (1,255)
====== ====== ============ ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
(Dollar amounts in thousands) March 1, 1997 March 2, 1996 February 25, 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net earnings $ 26,220 $ 17,835 $ 13,050
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 20,458 16,528 15,131
Provision for losses on accounts receivable 2,917 1,983 3,817
Deferred income tax expense (benefit) 9,452 1,807 (3,486)
Gain on sale of Nanik Window Coverings -- (4,166) --
Equity in net loss (earnings) of affiliated companies 337 (528) (762)
Minority interest (827) (516) (262)
Other, net (560) (1,429) (296)
-------- -------- --------
Cash flow before changes in operating assets and liabilities 57,997 31,514 27,192
Changes in operating assets and liabilities, net of effect of
acquisitions:
Receivables (46,461) 2,134 (23,080)
Inventories 55 (3,286) (11,356)
Cost and earnings in excess of billings on uncompleted contracts (202) (6,670) (9,846)
Other current assets (960) (1,220) 483
Accounts payable and accrued expenses 16,606 14,494 2,557
Billings in excess of costs and earnings on uncompleted contracts 20,684 1,753 1,806
Refundable income taxes and accrued income taxes (7,061) (2,820) 5,930
Other long-term liabilities 959 4,593 5,327
-------- -------- --------
Net cash provided by (used in) operating activities 41,617 40,492 (987)
-------- -------- --------
Investing Activities
Capital expenditures (35,613) (22,615) (24,957)
Acquisition of Marcon Coatings, net of cash acquired (40,161) --
Acquisition of businesses, net of cash acquired (1,365) (3,793) (8,823)
Increase in marketable securities (7,555) (12,231) --
Investment in and advances to affiliated companies (464) (889) (2,070)
Proceeds from sales of property, plant and equipment 3,146 301 1,004
Proceeds from sale of Nanik Window Coverings -- 17,550 --
Other, net (277) (1,991) 929
-------- -------- --------
Net cash used in investing activities (82,289) (23,668) (33,917)
-------- -------- --------
Financing Activities
Payments on notes payable (5,350) (7,065) (16,785)
Payments on long-term debt (6,120) (5,576) (4,182)
Proceeds from issuance of long-term debt 51,100 3,855 50,425
Proceeds from issuance of common stock 3,930 1,150 1,671
Repurchase and retirement of common stock (1,406) (240) --
Dividends paid (4,806) (4,453) (4,155)
-------- -------- --------
Net cash provided by (used in) financing activities 37,348 (12,329) 26,974
-------- -------- --------
(Decrease) increase in cash and cash equivalents (3,324) 4,495 (7,930)
Cash and cash equivalents at beginning of year 7,389 2,894 10,824
-------- -------- --------
Cash and cash equivalents at end of year $ 4,065 $ 7,389 $ 2,894
======== ======== ========
Supplemental Disclosure of Non cash Investing and Financing Activities
Common stock issued in acquisition of business $ 9,100 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 required by certain construction contracts' terms.
Inventories Inventories, which consist primarily of purchased glass and
aluminum, are valued at the lower of cost or market. Approximately 45% 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 $2,615,000 and $2,550,000
higher than reported at March 1, 1997, and March 2, 1996, 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, except for
$923,000, which is not being amortized. 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 $1,503,000, $665,000 and $288,000 in 1997,
1996 and 1995, 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 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, project management 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 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.
Earnings Per Share We compute earnings per share by dividing net earnings by
the weighted average number of common share and common share equivalents
outstanding during the year. Our average common shares and common share
equivalents outstanding during 1997, 1996 and 1995 were 28,057,000, 27,258,000
and 27,002,000, respectively. The share numbers have been adjusted to reflect a
two-for-one stock split effective February 1997.
F-6
<PAGE>
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
and receivables denominated in foreign currencies. As of March 1, 1997, we had
forward contracts maturing in 1998 with a value of approximately $7 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.
Accounting Period Our fiscal year ends on the Saturday closest to February 28.
Fiscal years 1997 and 1995 consisted of fifty-two weeks, while 1996 was fifty-
three weeks.
Accounting Estimates The preparation of our consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Amounts subject to significant estimates
and assumptions include, but are not limited to, insurance reserves and revenue
recognition for construction contracts, including the status of outstanding
disputes and claims. Actual results could differ from those estimates.
New Accounting Standards Effective for 1997, we adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply
the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and provide certain pro forma information. APB Opinion No. 25 requires that
compensation expense be recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. We have elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS NO. 123.
We also adopted the provisions of SFAS NO. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in 1997. This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Adoption of this
statement did not have a material impact on the Company's financial position or
results of operations.
<TABLE>
<CAPTION>
2. Receivables
<S> <C> <C>
(In thousands) 1997 1996
- -----------------------------------------------------------
Trade accounts $ 78,991 $ 67,839
Construction contracts 86,709 59,014
Contract retainage 32,609 29,519
Other receivables 13,247 8,768
-------- --------
Total receivables 211,556 165,140
Less allowance for doubtful accounts (7,297) (6,772)
-------- --------
Net Receivables $204,259 $158,368
======== ========
</TABLE>
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 $2,917,000, $1,983,000 and
$3,817,000 in 1997, 1996 and 1995, respectively.
F-7
<PAGE>
<TABLE>
<CAPTION>
3. Inventories
<S> <C> <C>
(In thousands) 1997 1996
----------------------------------------------------------
Raw materials $ 14,760 $ 10,402
Work-in process 3,863 3,964
Finished 39,638 40,118
--------- --------
Total inventories $ 58,261 $ 54,484
========= ========
4. Property, Plant and Equipment
(In thousands) 1997 1996
----------------------------------------------------------
Land $ 2,511 $ 2,392
Buildings and improvements 60,590 50,097
Machinery and equipment 114,617 77,709
Office equipment and furniture 42,555 35,383
Construction in progress 23,005 8,646
--------- --------
Total property, plant and equipment 243,278 174,227
Less accumulated depreciation (124,479) (95,742)
--------- --------
Net property, plant and equipment $ 118,799 $ 78,485
========= ========
Depreciation expense was $18,955,000,$15,863,000 and $14,903,000 in 1997,
1996,1995 respectively.
5. Accrued Expenses
(In thousands) 1997 1996
----------------------------------------------------------
Payroll and related benefits $ 25,263 $ 17,675
Insurance 10,956 13,983
Taxes, other than income taxes 8,643 7,120
Pension 4,192 3,598
Interest 2,091 530
Other 10,290 9,524
--------- --------
Total accrued expenses $ 61,435 $ 52,430
========= ========
6. Long-Term Debt
(In thousands) 1996 1997
----------------------------------------------------------
Borrowings under revolving credit and
other bank agreements, interest
ranging from 5.74% to 6.30% $ 124,500 $ 73,400
Promissory note, 9.65%, due in annual
installments through 1998 -- 4,464
Promissory notes, 7.5%, due in
quarterly installments through 2000 2,915 3,975
Other 1,932 2,528
--------- --------
Total long-term debt 129,347 84,367
Less current installments (1,707) (5,265)
--------- --------
Net long-term debt $ 127,640 $ 79,102
========= ========
</TABLE>
F-8
<PAGE>
Long-term debt maturities are as follows:
<TABLE>
<CAPTION>
Fiscal Year (In thousands)
- ----------------------------
<S> <C>
1998 $ 1,707
1999 1,722
2000 1,036
2001 182
2002 124,600
Thereafter 100
--------
Total $129,347
========
</TABLE>
We also had access to short-term credit on an uncommitted basis with several
major banks. At March 1, 1997 and March 1, 1996, respectively, $10.0 million and
$73.4 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, our short-term bank borrowings,
which were not expected to be paid within one year, were classified as long-term
debt. The interest rate on the year-end bank borrowings under uncommitted credit
facilities was 5.80%.
Selected information related to bank borrowings is as follows:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) 1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Average daily borrowings during the year $ 79,420 $ 84,173
Maximum borrowings outstanding during $126,400 $106,650
the year
Weighted average interest rate during
the year 6.1% 6.7%
</TABLE>
In 1996, we entered into an interest rate swap agreement that effectively
converted $20 million of our variable rate borrowings into a fixed rate
obligation. Under this agreement, which expires in 1999, we receive payments at
variable rates while we make payments at 6.3%. The net interest paid or received
is included in interest expense.
In 1992, we entered into three interest rate swap agreements that effectively
converted $25 million of our fixed rate, long-term borrowings into variable rate
obligations. During 1993, we sold two of the swap agreements at net gains. The
gains were recognized as reductions in interest expense through 1997. The third
agreement expired in 1995.
The net book value of property and plant pledged as collateral under
industrial development bonds was approximately $1.2 million at March 1, 1997.
7. Interest and Other Expense, Net
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ----------------------------------------------------
<S> <C> <C> <C>
Interest on debt $ 6,713 $ 6,747 $4,381
Other interest 1,367 273 595
------- ------- ------
Total interest expense 8,080 7,020 4,976
Less interest income (1,116) (1,323) (841)
------- ------- ------
Interest expense, net $ 6,964 $ 5,697 $4,135
======= ======= ======
</TABLE>
Interest payments were $6,180,000, $7,095,000 and $4,778,000 in 1997, 1996 and
1995, respectively.
In 1996, other expense, net, consisted of charges totaling $4.3 million
primarily related to write-off of a minority investment in a research and
development venture and an adjustment to our insurance reserves, offset by the
$4.2 million gain from the sale of the Nanik Window Coverings unit discussed in
Note 12.
F-9
<PAGE>
8. Income Taxes
The components of income tax expense (benefit) for each of the last three fiscal
years are as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- --------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ 1,866 $6,559 $ 9,663
State and local 955 910 1,608
Foreign 1,529 544 316
------- ------ -------
Total current 4,350 8,013 11,587
------- ------ -------
Deferred:
Federal 8,547 1,503 (3,233)
State and local 1,605 304 (653)
Foreign (700) -- 400
Total deferred 9,452 1,807 (3,486)
------- ------ -------
Total income tax expense $13,802 $9,820 $ 8,101
======= ====== =======
</TABLE>
Income tax payments, net of refunds, were $11,520,000, $10,878,000 and
$5,790,000 in 1997, 1996 and 1995, respectively.
The differences between statutory federal tax rates and our consolidated
effective tax rates are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal tax benefit 5.1 3.0 3.0
Tax credits (2.2) (0.5) (1.1)
Foreign items with no tax benefit 8.3 0.8 2.1
Valuation allowance -- (0.6) 1.6
Resolution of Revenue Agent Exams (10.8) -- --
Other, net (0.5) (0.8) (0.4)
----- ---- ----
Consolidated effective tax rate 34.9% 36.9% 40.2%
===== ==== ====
</TABLE>
In 1997, we recognized $1,445,000 of tax benefits for deductions associated
with the 1987 Stock Option Plan and the 1987 Partnership Plan. These benefits
were added directly to additional paid-in capital and were not reflected in the
determination of income tax expense.
Deferred tax assets and deferred tax liabilities at March 1, 1997 and March 2,
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
(In thousands) Current Noncurrent Current Noncurrent
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable $ 2,660 $ -- $ 2,304 $ --
Accrued insurance -- 2,991 2,575 8,054
Deferred compensation 191 4,447 -- 3,492
Restructuring reserve -- 26 -- 631
Inventory 1,505 320 1,569 --
Depreciation 147 (6,522) 226 (4,722)
Employee benefit plans (1,451) -- (1,434) --
Other 1,434 3,700 1,449 703
------- -------- ------- -------
4,486 4,962 6,689 8,158
Less valuation allowance -- (3,872) -- (1,188)
------- -------- ------- -------
Deferred tax assets $ 4,486 $ 1,090 $ 6,689 $ 6,970
======= ======== ======= =======
</TABLE>
Our valuation allowance increased by $2,684,000 in 1997 and related primarily
to a foreign net operating loss carryforward. The valuation allowances at March
1, 1997 and March 2, 1996 reflect amounts for foreign tax credits, general
business tax credits, net operating loss carryforwards and a capital loss
carryforward.
F-10
<PAGE>
9. Investment in Affiliated Companies
In January 1997, we agreed to a comprehensive settlement of all claims with
respect to the Marcon Coatings, Inc. and Viratec Thin Films, Inc.
(Marcon/Viratec) litigation described below. The settlement completed our
purchase of the joint venture businesses from our 50% partner (JV Partner). We
paid $41 million to the JV Partner for its 50% interest in the businesses and
certain leased assets. Both parties agreed to irrevocably release each other
from all outstanding claims related to the litigation, other than certain trade
accounts payable in the ordinary course of business.
We were party to a 1985 joint venture agreement with the JV Partner,
forming Marcon Coatings, Inc. and its subsidiary, Viratec Thin Films, Inc.
Marcon/Viratec operates glass coating facilities. Apogee and the JV Partner
leased certain glass coating equipment and made cash advances to Marcon.
In November 1995, the JV Partner commenced litigation against us alleging
claims for damages and seeking to have the Court order us to sell our 50%
interest in the joint venture to the JV Partner. We filed counterclaims seeking
to have the JV Partner's 50% interest sold to us and in March 1996, the Court
ordered the JV Partner to sell the shares of stock representing its 50% interest
in Marcon/Viratec to us upon payment of fair value for the shares as determined
by the Court, or as agreed to by us and the JV Partner.
Reflecting the March 1996 Court order, which terminated the JV Partner's
rights and status as shareholder and director as of the date of the order,
Marcon/Viratec's assets, liabilities and results of operations were included in
Apogee's consolidated financial statements beginning in 1997. Through 1996, our
50% ownership investment in Marcon/Viratec was accounted for using the equity
method. Our net investment in Marcon/Viratec as of March 2, 1996 and February
25, 1995 was $15,821,000, and $14,278,000, respectively. Our equity in
Marcon/Viratec's net earnings for 1996 and 1995 is included in the accompanying
Consolidated Results of Operations. A summary of assets, liabilities and results
of operations for Marcon/Viratec for 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
- -------------------------------------------
<S> <C> <C>
Current assets $11,950 $ 8,620
Noncurrent assets 23,444 16,716
Current liabilities 19,098 6,153
Noncurrent liabilities 8,602 12,673
Net sales 46,297 38,299
Gross profit 8,981 9,205
Net earnings 1,183 1,838
</TABLE>
F-11
<PAGE>
10. Shareholders' Equity and Stock Option Plans
During 1997, the Board of Directors approved a two-for-one stock split, in
the form of a 100% stock dividend, payable to shareholders in February
1997. All share and per share data have been restated accordingly.
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 1987 Stock Option Plan provides for the issuance of up to
2,500,000 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. The 1987 Plan expired by its terms on April 25, 1997.
Therefore, no new grants of stock options may be made under the 1987 Plan
after that date. On April 18, 1997, the Board of Directors adopted, subject
to shareholder approval, the 1997 Omnibus Stock Incentive Plan (the "1997
Plan"). The 1997 Plan provides for the issuance of options and other stock-
based awards of up to 2,500,000 shares.
A summary of option transactions under the 1987 Stock Option Plan for
1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------
Number of Average
Shares Exercise Price Option Price Range
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance February 26, 1994 954,000 $5.88 $ 4.48-$ 9.46
Options granted 336,000 6.49 6.21- 7.94
Options exercised (50,000) 5.90 4.48- 8.13
Options canceled (84,000) 6.57 5.38- 9.46
Balances, February 25, 1995 1,156,000 6.00 4.48- 9.46
Options granted 490,000 8.64 7.25- 8.80
Options exercised (174,000) 6.52 5.38- 8.13
Options canceled (68,000) 5.94 5.38- 7.94
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
========= ====== =============
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at March 1, 1997.
<TABLE>
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------------
Remaining
Range of Number Contractual Weighted-Ave Number Weighted-Ave
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$ 4.48-$ 7.50 571,000 2.0 years $ 6.09 400,000 $ 5.95
$ 7.51-$12.50 541,000 3.8 years 8.74 440,000 8.71
$12.51-$17.75 579,000 6.8 years 15.15 29,000 14.58
----------------------------------------------- --------------------------
1,601,000 4.3 years $10.11 869,000 $ 7.63
=============================================== ==========================
</TABLE>
F-12
<PAGE>
We have adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation cost has
been recognized with respect to our 1987 Stock Option Plan. Had compensation
cost for the Plan been determined based on the fair value methodology prescribed
by SFAS 123, our net earnings and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except
per share data) 1997 1996
- -----------------------------------------------------------
<S> <C> <C>
Net earnings - as reported $26,220 $17,835
Net earnings - pro forma 25,221 17,493
Earnings per share - as reported 0.93 0.65
Earnings per share - pro forma 0.90 0.64
</TABLE>
The above pro forma amounts may not be representative of the effects
on reported net earnings 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 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Dividend yield 1.1% 1.5%
Expected volatility 60% 60%
Risk-free interest rate 7.0% 6.0%
Expected lives 7.5 years 5 years
</TABLE>
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 March 1, 1997, 1,520,000 shares have been issued under the Plan. We expensed
$2,145,000, $666,000 and $708,000 in conjunction with the Partnership Plan in
1997, 1996 and 1995, respectively.
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 $4,023,000, $3,687,000 and $3,394,000 in
1997, 1996 and 1995, 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 $1,805,000,
$1,495,000 and $1,242,000 in 1997, 1996 and 1995, respectively.
12. Acquisitions and Divestitures
In 1997, as indicated in Note 9, we purchased our joint venture partner's
50% interest in Marcon Coatings, Inc. and its subsidiary, Viratec Thin Films,
Inc. and certain leased assets. 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 Auto Glass 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 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 Auto Glass segment also made two smaller acquisitions
of retail auto glass stores in 1997, purchasing assets for $0.1 million.
F-13
<PAGE>
The following unaided pro forma information presents a summary of our
consolidated results of operations as if the 1997 acquisitions had occurred at
the beginning of 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------
<S> <C> <C>
Net sales $972,444 $930,339
Net earnings $ 24,056 $ 16,017
Earnings per share $ 0.85 $ 0.58
</TABLE>
In 1996, our Auto Glass segment purchased the assets of 12 retail auto
glass stores and one distribution center in five separate transactions. The
aggregate purchase price of the acquisitions was $3.8 million, including $0.7
million recorded as goodwill. Promissory notes of $0.5 million were issued in
connection with the transactions.
In 1995, our Auto 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. The purchase
price exceeded the fair value of net assets acquired by $4.6 million, which was
recorded as goodwill. Promissory notes of $5.3 million were issued in connection
with the transactions.
No liabilities were assumed in the 1996 and 1995 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.
In 1996, we sold selected assets and liabilities of the Nanik Window
Coverings unit (Nanik) for $17.6 million, realizing a $4.2 million gain included
in "Other expense, net" in the accompanying Consolidated Results of Operations.
Nanik accounted for less than 4% of consolidated net sales in 1996 and 1995.
13. Leases
As of March 1, 1997, 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:
<TABLE>
<CAPTION>
Fiscal Year (In thousands)
- -----------------------------------------
<S> <C>
1998 $11,686
1999 10,012
2000 7,952
2001 5,099
2002 3,311
Thereafter 6,960
-------
Total minimum payments $45,020
=======
</TABLE>
Total rental expense was $23,551,000, $22,155,000 and $18,242,000 in
1997, 1996 and 1995, respectively.
F-14
<PAGE>
14. Commitments and Contingent Liabilities
We have 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 March 1,
1997 was approximately $43,959,000. We have entered into a number of noncompete
agreements. As of March 1, 1997, we were committed to make future payments of
$2,122,000 under such agreements.
We have been a party to various legal proceedings incidental to our
normal operating activities. In particular, like others in the construction
industry, our 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
Estimated fair values of our financial instruments at March 1, 1997 and
March 2, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Amount Estimated Fair Value
(In thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term debt including current
installments $129,347 $84,367 $129,305 $84,429
Interest rate swap agreement in a net
payable position -- -- 93 347
</TABLE>
Estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. However, 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.
For cash and cash equivalents, receivables, marketable securities and
accounts payable, carrying value is a reasonable estimate of fair value. The
carrying value of long-term debt that has variable interest rates is a
reasonable estimate of fair value. For long-term debt with fixed interest rates,
fair value is based on discounted projected cash flows using the rate at which
similar borrowings could currently be made. 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.
F-15
<PAGE>
16. Quarterly Data (Unaided)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
First $228,608 $219,032 $178,927
Second 253,154 222,186 185,971
Third 228,781 215,487 186,253
Fourth 240,234 214,442 205,398
-------- -------- --------
Total $950,777 $871,147 $756,549
======== ======== ========
Gross Profit
First $ 36,387 $ 31,925 $ 25,388
Second 42,316 31,824 29,240
Third 40,117 28,264 26,204
Fourth 32,981 26,510 25,057
-------- -------- --------
Total $151,801 $118,523 $105,889
======== ======== ========
Net Earnings
First $ 4,976 $ 3,481 $ 2,600
Second 7,980 5,646 4,294
Third 7,602 5,172 3,763
Fourth 5,662 3,536 2,393
-------- -------- --------
Total $ 26,220 $ 17,835 $ 13,050
======== ======== ========
Earnings Per Share*
First $ 0.18 $ 0.13 $ 0.10
Second 0.28 0.21 0.16
Third 0.27 0.19 0.14
Fourth 0.20 0.13 0.09
-------- -------- --------
Total $ 0.93 $ 0.65 $ 0.48
======== ======== ========
</TABLE>
*Per share data adjusted to reflect the fiscal 1997 stock dividend.
F-16
<PAGE>
17. Business Segments
Sales, operating income, identifiable assets and other data related to our
business segments, are listed below and are an integral part of the financial
statements. Fiscal 1994 and 1993 segment data are not covered by the Independent
Auditors' Report.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
(Dollar amounts in Amount % Amount % Amount % Amount % Amount %
thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales
Glass technologies $192,827 20.3 $150,457 17.3 $120,890 16.0 $101,166 14.7 $ 83,893 14.7
Auto glass 307,935 32.4 273,133 31.4 248,904 32.9 223,209 32.4 187,642 32.8
Building products & 460,714 48.4 462,102 53.0 399,540 52.8 377,916 54.9 312,311 54.6
services
Intersegment elimination (10,699) (1.1) (14,545) (1.7) (12,785) (1.7) (14,058) (2.0) (11,396) (2.0)
------------------------------------------------------------------------------------------------------
Net sales $950,777 100.0 $871,147 100.0 $756,549 100.0 $688,233 100.0 $572,450 100.0
======================================================================================================
Operating income (loss)
Glass technologies $ 19,908 42.8 $ 16,431 50.6 $ 10,475 43.2 $ 7,931 112.4 $ 3,247 51.0
Auto glass 20,149 43.3 18,069 55.7 19,067 78.6 18,961 268.6 8,869 139.3
Building products & 5,557 12.0 (2,073) (6.4) (6,081) (25.1) (22,443) (318.0) (5,598) (87.9)
services
------------------------------------------------------------------------------------------------------
Operating income 46,496 100.0 32,457 100.0 24,262 100.0 7,058 100.0 6,369 100.0
Corporate and Other 882 1.9 30 0.1 801 3.3 2,609 37.0 (149) (2.3)
Interest expense, net (6,964) (5,697) (4,135) (2,735) (1,794)
Other expense, net -- (149) -- -- --
------------------------------------------------------------------------------------------------------
Earning before income
taxes and other items $ 39,532 $ 26,611 $ 20,127 $ 4,323 $ 4,575
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets Capital Expenditures Depreciation & Amortization
1997 1996 1995 1997 1996 1995 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Glass technologies $132,005 $ 67,606 $ 62,643 $16,972 $ 4,171 $ 8,286 $ 7,810 $ 3,700 $ 3,425
Auto glass 123,804 108,342 92,346 15,340 12,954 12,201 7,036 6,522 5,116
Building products & 199,050 172,019 182,931 3,194 5,096 4,429 5,406 6,146 6,443
services
Corporate and other 46,105 38,169 24,008 107 394 41 206 160 147
----------------------------------------------------------------------------------------------
Total $500,964 $386,136 $361,928 $35,613 $ 22,615 $24,957 $ 20,458 $16,528 $ 15,131
==============================================================================================
</TABLE>
Notes: Apogee's Building Products & Services segment has subsidiaries in Europe
and Asia. During 1997, 1996 and 1995, these foreign operations had net sales of
$120,318,000, $114,305,000 and $66,580,000, respectively. Foreign operating
losses for 1997, 1996 and 1995 were $5,716,000, $1,983,000 and $6,575,000,
respectively. At March 1, 1997, March 2, 1996 and February 25, 1995,
identifiable assets of the foreign subsidiaries totaled $86,866,000,
$58,753,000, and $41,880,000, respectively. Foreign currency transaction gains
or losses included in net earnings for 1997, 1996 and 1995 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.
F-17
<PAGE>
SCHEDULE II
-----------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
Valuation and Quantifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at beginning of Charged to costs and Deductions from reserves Balance at end of
period expenses (1) period
----------------------- -------------------- ------------------------ -----------------
<S> <C> <C> <C> <C>
For the year ended March
1, 1997:
Allowance for
doubtful receivables $6,772 $2,917 $2,392 $7,297
======================= ==================== ======================== =================
For the year ended March
2, 1996:
Allowance for
doubtful receivables $8,658 $1,983 $3,869 $6,772
======================= ==================== ======================== =================
For the year ended
February 25, 1995:
Allowance for
doubtful receivables $7,879 $3,817 $3,038 $8,658
======================= ==================== ======================== =================
</TABLE>
(1) Net of recoveries
F-18
<PAGE>
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., as amended to
date. Incorporated by reference to Exhibit 3C to
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. Incorporated by reference to Exhibit 4A
to 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.
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 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) 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 (10E) Consulting Agreement between Registrant and Laurence J.
Niederhofer dated November 1, 1993. Incorporated by
reference to Exhibit 10I to Registrant's Annual Report on
Form 10-K for year ended February 26, 1994.
Exhibit (10F) 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 (10G) $150 million Multi-currency Credit Agreement between Apogee
Enterprises, Inc. and banks party to the agreement, ABN
AMRO Bank N.V., Administrative Agent and First Bank
National Association, Co-Agent dated April 29, 1996.
Incorporated by reference to Exhibit 10J to Registrant's
Annual Report on Form 10K for year ended March 2, 1996.
Exhibit (11) Statement of Determination of Common Shares and Common
Share Equivalents
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
<PAGE>
Exhibit (11)
Statement of Determination of Common Shares and Common Share Equivalents
------------------------------------------------------------------------
Average number of common shares and common share equivalents assumed
outstanding during the three fiscal years ended:
<TABLE>
<CAPTION>
March 1, March 2, February 25,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> C>
Primary:
Weighted average of common
shares outstanding (a) 27,383,996 26,975,831 26,771,607
Common share equivalents resulting
from the assumed exercise of stock options (b) 673,065 281,868 229,542
----------- ----------- ------------
Total primary common shares and
common share equivalents 28,057,061 27,257,699 27,001,149
----------- ----------- ------------
Net earnings $26,220,000 $17,835,000 $13,050,000
=========== =========== ============
Per share amount $ 0.93 $ 0.65 $ 0.48
=========== =========== ===========
Assuming full dilution:
Total common shares and common share
equivalents as determined for primary computation 28,057,061 27,257,699 27,001,149
Additional dilutive effect resulting
from the assumed exercise of stock options (c) 42,473 10,589 32,013
----------- ----------- -----------
Total fully diluted common shares
and common share equivalents 28,099,534 27,268,288 27,033,162
----------- ----------- -----------
Per share amount $ 0.93 $ 0.65 $ 0.48
=========== =========== ===========
</TABLE>
Notes:
(a) Beginning balance of common stock adjusted for February, 1997 two-for-one
stock split and changes in amount outstanding, weighted by the elapsed
portion of the period during which the shares were outstanding.
(b) Common share equivalents computed by the "treasury" method. Share amounts
represent the dilutive effect of outstanding stock options which have an
option value below the average market value for the current period.
(c) Share amounts represent the additional dilutive effect of outstanding
stock options where the underlying market value of the stock at the end
of the period is in excess of the average market value for the period.
<PAGE>
Exhibit (21)
SUBSIDIARIES OF THE REGISTRANT
------------------------------
The Company is the owner of all of the issued and outstanding stock of the
following corporations, except as noted below.
<TABLE>
<CAPTION>
State or Country of
Name of Subsidiary Incorporation
------------------ -------------------
<S> <C>
Apogee Enterprises International, Inc. Barbados
Prism Assurance, Ltd. Vermont
W.S.A., Inc. Minnesota
Harmon, Inc. Minnesota
Norment Industries, Inc. Delaware
Harmon Contract, Inc. (1) Minnesota
Norshield Corporation Alabama
Harmon Contract Asia, Ltd. (2) Minnesota
Harmon Contract Asia Sdn Bhd (3) Malaysia
Harmon Contract U.K., Limited (4) United Kingdom
Harmon Europe S.A. (5) France
Harmon CFEM Facades (UK) Ltd. (6) United Kingdom
Harmon LTS (7) France
Harmon/CFEM Facades S.A. (8) France
Harmon Facalu S.A. (8) France
Harmon Sitraco S.A. (8) France
Harmon Voisin S. A. (8) France
Milco Contracting, Inc. (9) Wisconsin
Viracon, Inc. Minnesota
Viratec Thin Films, Inc. (10) Minnesota
Viratec International, Inc. (11) Barbados
Viracon/Curvlite, Inc. Minnesota
Tru Vue, Inc. Illinois
Harmon Glass Company Minnesota
First Call, Inc. Florida
American Management Group (12) Maine
Apogee Sales Corporation (12) South Dakota
Harmon Glass of Canada Ltd. (12) (13) Canada
The Glass Depot, Inc. Minnesota
The Glass Depot of New York, Inc. (14) Minnesota
Apogee Wausau Group, Inc. Wisconsin
Dover Glass Co. (15) Maine
Adams Glass Co. (13) (15) Maine
Glass Distributors, Inc. (13) (15) Maine
Berlin Glass Co. (13) (15) Maine
</TABLE>
(1) Owned by W.S.A., Inc.
(2) Owned by Harmon Contract, Inc.
(3) Owned by Harmon Contract Asia, Ltd.
(4) 99.99% owned by Harmon Contract, Inc. and
.01% by Apogee Enterprises, Inc.
(5) 70% owned by various Apogee entities
(6) 99.99% owned by Harmon Europe S.A. and
.01% by Apogee Enterprises, Inc.
(7) 99.5% owned by Harmon Europe S.A.
(8) Owned by Harmon Europe S.A.
(9) Owned by Apogee Wausau Group, Inc.
(10) Owned by Viracon, Inc.
(11) Owned by Viratec Thin Films, Inc.
(12) Owned by Harmon Glass Company
(13) Inactive
(14) Owned by The Glass Depot, Inc.
(15) Owned by American Management Group
<PAGE>
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Apogee Enterprises, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-60400 and 33-35944) on Form S-8 of Apogee Enterprises, Inc. of our report
dated April 9, 1997, relating to the consolidated balance sheets of Apogee
Enterprises, Inc. and subsidiaries as of March 1, 1997 and March 2, 1996, and
the related consolidated results of operations and cash flows for each of the
years in the three-year period ended March 1, 1997, which report appears in the
March 1, 1997 annual report on Form 10-K of Apogee Enterprises, Inc.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-01-1997
<PERIOD-START> MAR-03-1996
<PERIOD-END> MAR-01-1997
<CASH> 4,065
<SECURITIES> 0
<RECEIVABLES> 211,556
<ALLOWANCES> 7,297
<INVENTORY> 58,261
<CURRENT-ASSETS> 305,194
<PP&E> 243,278
<DEPRECIATION> 124,479
<TOTAL-ASSETS> 500,964
<CURRENT-LIABILITIES> 176,621
<BONDS> 0
0
0
<COMMON> 9,294
<OTHER-SE> 162,855
<TOTAL-LIABILITY-AND-EQUITY> 500,964
<SALES> 950,777
<TOTAL-REVENUES> 950,777
<CGS> 798,976
<TOTAL-COSTS> 102,388
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,917
<INTEREST-EXPENSE> 6,964
<INCOME-PRETAX> 39,532
<INCOME-TAX> 13,802
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,220
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
<PAGE>
Exhibit 99
LITIGATION REFORM ACT OF 1995
CAUTIONARY STATEMENTS
---------------------
The following discussion contains certain cautionary statements regarding
Apogee's business and results of operations which should be considered by
investors and others. These statements discuss matters which may in part be
discussed elsewhere in this Form 10-K and which may have been discussed in other
documents prepared by the Company pursuant to federal securities laws. This
discussion is intended to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The following factors should
be considered in conjunction with any discussion of operations or results by the
Company or its representatives, including any forward-looking discussion, as
well as comments contained in press releases, presentations to securities
analysts or investors, or other communications by the Company.
In making these statements, the Company is not undertaking to address or
update each factor in future fillings or communications regarding the Company's
business or results, and is not undertaking to address how any of these factors
may have caused changes to discussions or information contained in previous
filings or communications. In addition, any of the matters discussed below may
have affected Apogee's past results and may affect future results, so that the
Company's actual results for first quarter fiscal 1998 and beyond may differ
materially from those expressed in prior communications. Though the Company has
attempted to list comprehensively these important cautionary factors, the
Company wishes to caution investors and others that other factors may in the
future prove to be important in affecting the Company's business or results of
operations.
Industry Conditions
The Company is divided into three segments, each serving different markets.
The Building Products and Services segment (BPS) serves certain sectors of the
United States and international nonresidential construction, institutional,
detention and security building markets, which tend to be cyclical in nature and
sensitive to changes in general economic conditions. Nonresidential
construction, particularly the domestic office building segment, declined
significantly in the early to mid-1990's. As a result of the declining market,
the Company experienced reduced margins and operating losses for the segment in
recent years. In fiscal 1997, industry conditions for the domestic
nonresidential construction market modestly improved, though there can be no
assurance regarding future market conditions. 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.
The Auto Glass segment (AG) serves the repair and replacement auto glass
market which tends to be cyclical in nature and is influenced by a variety of
factors, including new car sales, speed limits, road conditions, the economy,
weather and average annual number of miles driven. The autoglass repair and
replacement industry is undergoing significant changes. Insurance companies are
increasingly referring work to companies that are able to provide low-priced
service and claims processing functions on a national scale. AG has made
significant investments in its information technology and processing systems in
order to compete for such business. There can be no assurance, however, that
AG's systems will achieve the desired efficiencies necessary to obtain an
increase in insurance company referrals business on a profitable basis. Also,
AG's market share growth is dependent, in part, on its integration of additional
retail repair and replacement shops through start-up operations and/or
acquisitions of existing shops. There can be no assurance that AG will be able
to find suitable acquisition targets at acceptable prices or, if so located,
that such targets will be successfully integrated into AG. The inability of AG
to integrate additional shops successfully could have an adverse effect on its
growth prospects and on its relationships with its insurance company customers.
Insurance companies also seek volume pricing at discounted rates from historical
levels and attempt to enter into preferred or exclusive provider arrangements
with a limited number of providers. As a result, margins have narrowed at the
retail level and, to a lesser extent, at wholesale and manufacturing levels.
There can be no assurance that the Company will be able to improve or maintain
its margins or that it will be selected by insurance companies as a provider of
replacement and repair auto glass on a regional or national basis.
The Glass Technologies segment (GT) serves the high-performance
architectural glass, computer, optical imaging and picture framing glass
industries, which are very competitive, highly responsive to new products and
price sensitive. This segment have been solidly profitable with rapidly growing
revenues, especially in the international markets. There can be no assurance the
current growth experience by the segment will continue or that the introduction
of new products or competitors will not significantly change market conditions.
Competitive Environment
The Company's business segments operate in industries that are highly
competitive and that, other than the industry in which GT's Viratec Thin Films
unit competes, are fairly mature. The competitive factors, as well as difficult
or changing industry conditions, have caused declines in sales volumes in BPS'
New Construction unit and pricing pressures in the Company's markets, resulting
in over-capacity and consolidation in these markets. The
<PAGE>
Company expects its markets to remain highly competitive. The Company faces
competition from other major contractors, subcontractors, manufacturers,
fabricators, wholesalers, retailers and installers in each of its markets,
certain of which may have greater financial or other resources than the Company.
The curtainwall subcontractor business, a portion of BPS' business, is
primarily price competitive. The Architectural Products unit competes against
several major aluminum window manufacturers. The unit primarily services 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 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. The Auto Glass units compete with other auto glass shops, glass
distributors, 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.
International Operations
The Company has made significant efforts to develop business in
international markets, including Asia and Europe. In order to enter
international markets effectively, the Company faces certain challenges,
including establishing the acceptance of the Company in the local market,
adapting its business practices to local patterns and developing commercial
relationships with local market participants. In addition, the Company's
international businesses are subject to the general risks of doing business
abroad, including that it has less experience in international sales and markets
than in its domestic markets and it is subject to the risk of adverse
fluctuations in currency exchange rates. These factors have contributed to
operating losses by the Building Products and Services segment for its
international operations. The Company's international operations may be
adversely affected by governmental, political, economic and competitive
conditions in other countries in which it does business.
