Description
Apogee Entrprs. CEO & Pres Joseph F. Puishys bought 18600 shares on 4-18-2012 at $13.42
BUSINESS OVERVIEW
The Company
Apogee Enterprises, Inc. was incorporated under the laws of the State of Minnesota in 1949. The Company believes it is a world leader in certain technologies involving the design and development of value-added glass products, services and systems. Unless the context otherwise requires, the terms “Company,” “Apogee,” “we,” “us” and “our” as used herein refer to Apogee Enterprises, Inc. and its subsidiaries.
The Company is comprised of two reporting segments to match the markets it serves:
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The Architectural Products and Services segment designs, engineers, fabricates, installs, maintains and renovates the walls of glass and windows comprising the outside skin and entrances of commercial and institutional buildings. For fiscal 2011, our Architectural Products and Services segment accounted for approximately 87 percent of our net sales.
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The Large-Scale Optical Technologies segment manufactures value-added glass and acrylic products primarily for the custom picture framing market. For fiscal 2011, our Large-Scale Optical Technologies segment accounted for approximately 13 percent of our net sales.
Financial information about the Company’s segments can be found in Item 8, Note 17 to the Consolidated Financial Statements of the Company contained elsewhere in this report.
On November 19, 2010, the Company acquired 100 percent of the stock of Glassec Vidros de Segurança Ltda. (Glassec). The business operates under the name GlassecViracon and its results of operations were included in our Architectural Products and Services segment from the closing date. For further information, see “Acquisition of Glassec” below.
Products
Apogee provides distinctive value-added glass solutions for enclosing commercial buildings and framing art. We operate in two segments as described in the following paragraphs.
Architectural Products and Services (Architectural) Segment. The Architectural segment primarily fabricates, installs, maintains and renovates the outside skin of commercial buildings. Through complex processes, we add ultra-thin coatings to uncoated architectural glass to create colors and energy efficiency, especially important with the industry trend of “green” buildings. We also laminate layers of glass and vinyl to create glass that helps protect against hurricanes and bomb blasts. Glass can also be tempered to provide additional strength. We have the ability to design, build and install windows, curtainwall, storefront and entrances using our coated glass and metal products or those supplied by others. We also provide finishing services for the metal and plastic components used to frame architectural glass windows and walls and other products.
Our product choices allow architects to create distinctive looks for office towers, hotels, education facilities and dormitories, health care facilities, government buildings, retail centers and condominiums. Our services allow our customers to meet the timing and cost requirements of their jobs.
Geographic location – From our domestic glass fabrication locations, we supply products primarily to the U.S. market, with some international distribution of our high-performance architectural glass. We estimate the U.S. market for architectural glass fabrication in commercial buildings is approximately $1.5 billion in annual sales. From our newly acquired Brazilian glass fabrication facility, we primarily supply architectural glass to the Brazilian market. We estimate this market to be approximately $0.4 billion in annual sales. Our aluminum framing systems, including custom and standard windows, storefront and entrances, are marketed in North America, where we estimate the market size is approximately $2.0 billion in annual sales. We estimate the U.S. market for installation services is approximately $7.5 billion in annual sales. Within the installation services market, Apogee is one of only a few companies to have a national presence, with offices in eight locations serving multiple U.S. markets. We estimate that these areas represent approximately 20 percent of the total installation market. Although installation of building glass in new commercial and institutional construction projects is the primary focus of our business; we also offer glass services and retrofitting or renovating the outside skin of older commercial and institutional buildings.
Project size – The projects on which our Architectural segment businesses bid and work vary in size. Our aluminum framing systems, storefront and entrance systems, and glass installation products and services, in particular, are targeted toward mid-size projects, while our high-performance architectural glass fabrication products are often supplied to monumental, high-profile projects, as well as smaller, broader market projects. We estimate that we are awarded over a 70 percent share of the high-profile architectural glass projects that we target.
Level of customization – Most projects have some degree of customization, as the end product or service is based on customer specifications. The only constant is the substrates of the products and the processes we utilize to fabricate, manufacture or install the products. However, within our aluminum framing systems businesses, we also produce glass windows and storefront and entrance products in standard, modified standard and custom configurations.
LSO Segment. The Company’s Tru Vue brand is the largest domestically manufactured brand for value-added glass and acrylic for the custom picture framing market. Under this brand, products are distributed primarily in North America through independent distributors, which supply national and regional chains and local picture framing shops, as well as through mass merchandisers. The Company has also been successful in supplying products directly to museums and public and private galleries. We also have limited distribution in other global markets through independent distributors.
Through the Company’s leadership, the custom picture framing industry continues to convert from clear glass to value-added picture framing glass and acrylic, a trend that is expected to continue and has helped the Company offset market softness over the past several years. We believe today’s market for custom picture framing glass to be approximately 50 million square feet annually. We believe that our share of the market is approximately 70 percent, and the majority of the valued-added glass market our target sector.
Warranties
We offer product warranties which we believe are competitive for the markets in which those products are sold. The nature and extent of these warranties depend upon the product, the market and, in some cases, the customer being served. Our standard warranties are generally from two to 10 years for our architectural glass, curtainwall and window system products, while we offer warranties of two years or less on our other products and installation services. In the event of a claim against a product for which we have received a warranty from the supplier, we pass the claim back to our supplier. Although we carry liability insurance with very high deductibles for product failures, we reserve for warranty exposures, as our insurance does not cover warranty claims. There can be no assurance that our insurance will be sufficient to cover all product failure claims in the future; that the costs of this insurance and the related deductibles will not increase materially; or that liability insurance for product failures will be available on terms acceptable to the Company in the future.
Sources and Availability of Raw Materials
Materials used within the Architectural segment include raw glass, aluminum billet and extrusions, vinyl, metal targets, insulated glass spacer frames, silicone, plastic extrusions, desiccant, chemicals, paints, lumber and urethane. All of these materials are readily available from a number of sources, and no supplier delays or shortages are anticipated. While certain glass products may only be available at certain times of the year, all standard glass types and colors are available throughout the year in reasonable quantities from multiple suppliers. Glass manufacturers have applied surcharges to the cost of glass over the past several years to help offset increases in energy and fuel costs, which we try to pass on to our customers through surcharges. We have also seen recent volatility in the cost of aluminum that is used in our window, storefront, entrance and curtainwall systems. Where applicable, we have passed the changes in cost of materials on to our customers in the form of pricing adjustments and/or surcharges. Chemicals purchased range from commodity to specifically formulated chemistries.
Materials used within the LSO segment include glass, hard-coated acrylic, acrylic substrates, coating materials and chemicals. This segment has also incurred energy surcharges from glass manufacturers over the past several years. Historically, we have passed on these costs to our customers in the form of price increases where possible.
The Company believes a majority of its raw materials are available from a variety of domestic and international sources.
Trademarks and Patents
The Company has several trademarks and trade names which it believes have significant value in the marketing of its products, including APOGEE®. Trademark registrations in the United States are generally for a term of 10 years, renewable every 10 years as long as the trademark is used in the regular course of trade. Within the Architectural segment, VIRACON®, LINETEC®, FINISHER OF CHOICE®, VIRAGUARD®, WAUSAU WINDOW AND WALL SYSTEMS®, ADVANTAGE BY WAUSAU®, VIRACON VUE-50®, 300ES®, GUARDVUE®, STORMGUARD®, TUBELITE®, DFG®, ECOLUMINUM®, HARMON GLASS®, HI - 5000®, HI - 7000®, THE LEADER IN GLASS FABRICATION®, MORE POSSIBILITIES FROM THE LEADER IN GLASS FABRICATION®, and VIRACONSULTING® are registered trademarks of the Company. In addition, GLASSEC®, INSULATTO® and BLINDATTO® are registered trademarks in Brazil. HARMON™, 500LS™, ALUMINATE™, FORCEFRONT™, GET THE POINT™, MAXBLOCK™ and INvent™ are unregistered trademarks of the Company.
Within the LSO segment, TRU VUE®, CONSERVATION CLEAR®, CONSERVATION MASTERPIECE ACRYLIC®, CONSERVATION REFLECTION CONTROL®, CONSERVATION ULTRACLEAR®, SCRATCH GUARD®, MUSEUM GLASS®, OPTIUM®, PREMIUM CLEAN®, REFLECTION CONTROL®, AR REFLECTION – FREE®, TRU VUE AR®, OPTIUM ACRYLIC®, OPTIUM MUSEUM ACRYLIC®, and CONSERVATION MASTERPIECE® are registered trademarks. PRESERVATION CLEAR™, PRESERVATION MASTERPIECE™, PRESERVATION REFLECTION CONTROL™, ULTRAVUE™ and PRICING FOR PROFIT™ are unregistered trademarks of the Company.
The Company has several patents pertaining to our glass coating methods and products, including our UV coating and etch processes for anti-reflective glass for the picture framing industry. Despite being a point of differentiation from its competitors, no single patent is considered to be material to the Company.
Seasonality
Within the Architectural segment, there is a slight seasonal effect following the domestic commercial construction industry, with higher demand May through December. However, a bigger impact to revenues is the fact that the construction industry is highly cyclical in nature and can be influenced differently by the effects of the localized economy in geographic markets.
Within the LSO segment, picture framing glass sales tend to increase in the September to December timeframe. However, the timing of customer promotional activities may offset some of this seasonal impact.
Working Capital Requirements
Within the Architectural segment, receivables relating to contractual retention amounts can be outstanding throughout the project duration. Payment terms offered to our customers are similar to those offered by others in the industry. Inventory requirements are not significant to the businesses within this segment since we make-to-order rather than build-to-stock for the majority of our products. As a result, inventory levels follow the customer demand for the products produced.
Since the LSO segment builds to stock for the majority of its products, it requires greater inventory levels to meet the demands of its customers.
Dependence on a Single Customer
We do not have any one customer that exceeds 10 percent of the Company’s consolidated revenues. However, there are important customers within each of our segments; the loss of one or more customers could have an adverse effect on the Company.
Backlog
At February 26, 2011, the Company’s total backlog of orders considered to be firm was $238.4 million, compared with $228.5 million at February 27, 2010. Of these amounts, approximately $237.2 million, including $15.2 million for GlassecViracon, and $227.5 million of the orders were in the Architectural segment at February 26, 2011 and February 27, 2010, respectively. We expect to produce and ship $199.9 million, or 84 percent, of the Company’s February 26, 2011 backlog in fiscal 2012 compared to $183.2 million, or 81 percent, of the February 27, 2010 backlog that was expected to be produced and shipped in fiscal 2011.
The Company views backlog as an important statistic in evaluating the level of sales activity and short-term sales trends in its business. However, as backlog is only one indicator, and is not an effective indicator of the ultimate profitability of the Company, we do not believe that backlog should be used as the sole indicator of future earnings of the Company.
Competitive Conditions
Architectural Segment . The markets served by the businesses within the Architectural segment are very competitive, price and lead-time sensitive, and are primarily affected by changes in the North American commercial construction industry as well as changes in general economic conditions, including: interest rates, credit availability for commercial construction projects, material costs, employment rates, office vacancy rates, building construction starts and office absorption rates. As each of these economic indicators moves favorably, our businesses typically experience sales growth, and vice-versa. The recent trends in the U.S. and world economies have had a significant adverse impact on the commercial construction industry as a whole. As a result, the competitive environment in which the Architectural segment operates has become more competitive, increasing the number of re-bid construction projects and length of time between bidding and award of a project, reducing selling prices and causing competitors to expand the geographic scope and type of projects on which they bid. The companies within the Architectural segment primarily serve the custom portion of the commercial construction market, which is generally highly fragmented. The primary competitive factors are price, product quality, reliable service, on-time delivery, warranty and the ability to provide technical engineering and design services. The competitive environment in Brazil is similar to that of the United States; however, the Brazilian commercial construction market appears to be relatively strong as the Brazilian economy has recovered from the recent worldwide economic downturn. Additionally, we believe we are in the midst of an increasing worldwide trend in commercial construction – building with energy efficient or “green” products. This has the potential to increase demand for some of our segment’s products and services due to their premium energy-efficiency properties combined with custom aesthetics. The potential for increased renovation of the exteriors of commercial and institutional buildings for improved energy efficiency may also offset some competitive pressures.
Throughout a construction project, the Architectural segment must maintain significant relationships with general contractors, who are normally each business’ direct or indirect customers, and architects, who influence the selection of products and services on a project. This is due to the high degree of dependence on general contractors and architects for project initiation and development of specifications. Additionally, the timing of a project depends on the schedule established by the general contractors and ability to maintain this schedule. If a general contractor fails to keep a construction project on its established timeline, the timing and profitability of the project for our Architectural segment could be negatively impacted.
We believe that our domestic competition does not provide the same level of custom coatings to the market, but regional glass fabricators can provide somewhat similar products with similar attributes. Regional fabricators incorporate high performance, post-temperable glass products, procured from primary glass suppliers, into their insulated glass products. The availability of these products has enabled regional fabricators in some cases to bid on more complex projects than in the past. Since we typically target the more complex projects, of which there are fewer in the market because of the recent economic downturn, we have encountered significant competition from these suppliers. Conversely, since the commercial construction cycle has slowed and demand for high-end products is lower, our architectural glass fabrication business increasingly competes for business at the lower end of the high-performance spectrum where these regional fabricators vigorously compete, and pricing is generally lower.
The commercial window manufacturing market is highly fragmented, and we compete against several major aluminum window and storefront manufacturers in various market niches. With window products at the high-end of the performance scale and one of the industry’s best standard window warranties for repair or replacement of defective product, we effectively leverage a reputation for engineering quality and delivery dependability into a position as a preferred provider for high-performance products. Our custom and standard windows business and storefront and entrance business typically compete on quality and service levels, price, lead-time and delivery services. Within the architectural finishing market, we compete against regional paint and anodizing companies, typically on price and delivery. With the slowdown in the commercial markets, there is a higher level of competition for these products.
When providing glass installation and services, we largely compete against local and regional construction companies and installation contractors, and more recently against other larger national companies. The primary competitive factors are quality engineering, price and service.
LSO Segment. Product attributes, pricing, quality, marketing, and marketing services and support are the primary competitive factors in the markets within the LSO segment. The Company’s competitive strengths include our excellent relationships with our customers and the product performance afforded by our proprietary and/or patented processes. While there is significant price sensitivity in regard to sales of clear glass to picture framers, there is somewhat less price sensitivity on our value-added glass products since there is less competition for these products.
Although there has been recent activity with respect to new entrants in the North American valued-added products for picture framing, this segment competes against many suppliers of clear glass. Our customers’ selection of value-added products is driven by product attributes, price, quality, service and capacity.
Research and Development
The amount spent on research and development activities over the past three fiscal years was $6.3 million, $6.8 million and $9.3 million in fiscal 2011, 2010 and 2009, respectively. Of this amount, $1.8 million, $3.2 million and $6.3 million, respectively, was focused primarily upon design of custom window and curtainwall systems in accordance with customer specifications and is included in cost of sales in the accompanying consolidated financial statements.
Environment
We use hazardous materials in our manufacturing operations, and have air and water emissions that require controls. As a result, we are subject to stringent federal, state and local regulations governing the storage, use and disposal of wastes. We contract with outside vendors to collect and dispose of waste at our production facilities in compliance with applicable environmental laws. In addition, we have procedures in place that we believe enable us to properly manage the regulated materials used in our manufacturing processes and wastes created by the production processes, and we have implemented a program to monitor our compliance with environmental laws and regulations. Although we believe we are currently in material compliance with such laws and regulations, current or future laws and regulations could require us to make substantial expenditures for compliance with chemical exposure, waste treatment or disposal regulations. During each of fiscal 2011 and 2010, we spent approximately $0.3 million, and in fiscal 2009 we spent $0.1 million at facilities to reduce wastewater solids and hazardous air emissions. We expect to incur costs to continue to comply with laws and regulations in the future for our ongoing manufacturing operations but do not expect these to be material to our financial statements.
As part of the acquisition of Tubelite Inc. (Tubelite) on December 21, 2007, we acquired a manufacturing facility which has a history of environmental conditions. We believe that Tubelite is a “responsible party” for certain historical environmental conditions, and the Company intends to remediate those conditions. The Company believes the remediation activities can be conducted without significant disruption to manufacturing operations at this facility. As part of the purchase price allocation, the Company recorded $2.5 million in environmental reserves. As of February 26, 2011, the environmental reserve balance was $2.0 million.
Employees
The Company employed 3,555 and 3,407 persons on February 26, 2011 and February 27, 2010, respectively. At February 26, 2011, 394 of these employees were represented by U.S. labor unions and 250 of these employees were represented by labor unions in Brazil.
The Company is a party to approximately 40 collective bargaining agreements in the United States with several different unions. The number of collective bargaining agreements to which the Company is a party varies with the number of cities in which our glass installation and services business has active construction contracts. The Company considers its employee relations to be very good, even in light of volume-related workforce reductions in the later half of fiscal 2009 through fiscal 2011, and has not experienced any loss of workdays due to strike. We are highly dependent upon the continued employment of certain technical and management personnel.
CEO BACKGROUND
ROBERT J. MARZEC , age 66
Biography – Retired Audit Partner of PricewaterhouseCoopers LLP, an international public accounting firm. Our director since 2005. Chair of our Audit Committee and member of our Nominating and Corporate Governance Committee.
Mr. Marzec retired from PricewaterhouseCoopers LLP in 2002 after spending 36 years in its Assurance and Business Advisory Services (financial and regulatory reporting division). He held various leadership and audit positions, including Managing Partner of the Minneapolis office of PricewaterhouseCoopers LLP from 1991 to 1998.
Key Attributes, Experience and Skills – Mr. Marzec has extensive public accounting and auditing experience at public, private and non-profit organizations and has a strong background in financial controls and reporting, financial management, financial analysis, SEC reporting requirements, mergers and acquisitions, and international business. During his service at PricewaterhouseCoopers LLP and on boards at other public and mutual companies, Mr. Marzec gained broad knowledge of many different companies and industries, and public company board and corporate governance practices.
Other Directorships Since 2006 – Director of Medtox Scientific, Inc. Formerly a director of Health Fitness Corporation.
STEPHEN C. MITCHELL , age 67
Biography – President and Chief Operating Officer of The Knight Group, LLC, a firm providing services for the start-up and management of new ventures, and Vice Chairman of Knight Facilities Management, Inc., a company providing facilities management services for industrial and commercial buildings worldwide. Our director since 1996. Chair of our Nominating and Corporate Governance Committee and member of our Compensation Committee. Our Lead Director from May 2006 to January 2011.
Mr. Mitchell has more than 35 years of leadership experience in the facilities management and commercial construction industries, serving as Vice Chair of Knight Facilities Management, Inc. since 1995 and as President and Chief Operating Officer of Lester B. Knight & Associates, a company that provided engineering, architectural and management consulting services in connection with the planning, design and construction of advanced technology research and development and manufacturing facilities and other commercial buildings, from 1975 to 2001. Mr. Mitchell has provided consulting services to new business ventures as President and Chief Operating Officer of The Knight Group, LLC since 2001.
Key Attributes, Experience and Skills – Mr. Mitchell’s more than 35 years of service in senior leadership positions at privately held companies in the facilities management and commercial construction industries provides valuable business, management and leadership experience, including expertise in strategy development, construction project management, building technology, international business, leadership development and succession planning. His role on another public company board provides him with public board and corporate governance experience.
Other Directorships Since 2006 – Director of Landauer, Inc.
DAVID E. WEISS , age 67
Biography – Retired Chairman, President and Chief Executive Officer of Storage Technology Corporation, a publicly-held developer, manufacturer and distributor of data storage solutions for the management, retrieval and protection of business information. Our director since 2005. Chair of our Compensation Committee and member of our Audit Committee.
Mr. Weiss has 33 years of leadership experience in the computer and information technology industry, serving as Chairman, President and Chief Executive Officer of Storage Technology Corporation from 1996 to 2000 and in other executive positions with Storage Technology Corporation from 1991 to 1996, including Chief Operating Officer, Executive Vice President, Senior Vice President for Marketing and Vice President – Global Marketing. Prior to joining Storage Technology Corporation, Mr. Weiss worked in various engineering management positions with IBM Corporation, a global computer and information technology company, from 1967 to 1991.
Key Attributes, Experience and Skills – As Chairman, President and Chief Executive Officer of Storage Technology Corporation, Mr. Weiss led a global public company and public company board. Through his service at Storage Technology Corporation and IBM Corporation, he gained expertise in the areas of business operations, strategy development, information technology, mergers and acquisitions, financial management, leadership development and succession planning, executive compensation, marketing, investor relations and corporate governance.
Other Directorships Since 2006 – Formerly a director of Incentra Solutions, Inc.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overview
We are a leader in certain technologies involving the design and development of value-added glass products, services and systems. The Company is comprised of two segments: Architectural Products and Services (Architectural) and Large-Scale Optical Technologies (LSO). Our Architectural segment companies design, engineer, fabricate, install, maintain and renovate the walls of glass, windows, storefront and entrances comprising the outside skin of commercial and institutional buildings. Businesses in this segment are: Viracon, Inc., including GlassecViracon, fabricator of coated, high-performance architectural glass for global markets; Harmon, Inc., one of the largest U.S. full-service building glass installation and renovation companies; Wausau Window and Wall Systems, a manufacturer of standard and custom aluminum window systems and curtainwall for the North American commercial construction market; Linetec, a paint and anodizing finisher of architectural aluminum and PVC shutters for U.S. markets; and Tubelite Inc. (Tubelite), a fabricator of aluminum storefront, entrance and curtainwall products for the U.S. commercial construction industry. Our LSO segment consists of Tru Vue, Inc., a manufacturer of value-added glass and acrylic for the custom picture framing market.
Strategy. The following describes our business strategy for each of our segments.
Architectural segment. Our Architectural segment serves the commercial construction market, which is highly cyclical. We have five business units within this segment that participate at various stages of the glass fabrication, window and wall supply chain – each with nationally recognized brands and leading positions in their target market segments. The glass and window and wall systems enclose commercial buildings such as offices, hospitals, educational facilities, government facilities, high-end condominiums and retail centers. We believe building contractors value our ability to deliver quality, customized window and curtainwall solutions to projects on time and on budget, helping to minimize costly job-site labor overruns. Their customers – building owners and developers – value the distinctive look, energy efficient and hurricane and blast protection features of our glass systems. These benefits can contribute to higher lease rates, lower operating costs due to the energy efficiency of our value-added glass, a more comfortable environment for building occupants, and protection for buildings and occupants from hurricanes and blasts.
We look at several market indicators, such as office space vacancy rates, architectural billing statistics, employment, and other economic indicators, to gain insight into the commercial construction market. One of our primary indicators is the U.S. non-residential construction market activity as documented by McGraw-Hill Construction (McGraw-Hill), a leading independent provider of construction industry analysis, forecasts and trends. We utilize the information for the building types that we typically supply (office towers, hotels, retail centers, education facilities and dormitories, health care facilities, government buildings and high-end condominiums) and adjust this information (which is based on construction starts) to align with our fiscal year and the lag that is required to account for when our products and services typically are initiated in a construction project – approximately eight months after project start. From the McGraw-Hill data, our markets had an annual compounded growth rate of negative 16 percent over our past three fiscal years. Our segment’s compounded annual growth rate over that same period was negative 14 percent.
Our overall strategy in this segment is to defend and grow market share over a cycle by extending our presence while remaining focused on distinctive solutions for enclosing commercial buildings. We draw upon our leading brands, energy-efficient products and reputation for high quality and service in pursuit of our strategy. Each of our existing businesses has the ability to grow through geographic or product line expansion, and we regularly evaluate acquisition opportunities in adjacent segments. Finally, we aspire to lead our markets in the development of practical, energy-efficient products for “green” buildings and the ability to deliver them in a sustainable manner. Our architectural businesses have introduced products and services designed to meet the growing demand for green building materials. These products have included new energy-efficient glass coatings, thermally enhanced aluminum framing systems and systems with high amounts of recycled content.
While our lag-adjusted markets are projected to continue to contract slightly into fiscal 2012, we are pursuing the same basic strategy with some adjustment for market conditions. We have raised pricing of our architectural glass products to better take advantage of our position as a leader in the marketplace, and we have been and continue to take measures to keep our cost structure in line with revenue, including continuing to focus on productivity while maintaining capacity in order to gain market share when the market recovers. We acquired Glassec, a leading architectural glass fabricator in Brazil, in November 2010, increasing our architectural glass footprint in a market where we can provide technical and operational excellence to this developing, but fast-growing, market. We have been successful in bidding installation work in new metropolitan markets to offset declines in core markets. We are focusing on renovation and new projects in the institutional sector, including government buildings, a sector that continues to be more stable than private sector construction. We have tightened our capital spending criteria, although we continue to have cash available for strategic investments for both international and domestic initiatives. We expect to emerge from the current downturn poised to win market share from competitors who were not as well positioned or do not have funds available to weather the current down cycle.
LSO segment. Our basic strategy in this segment is to convert the custom picture framing market from clear uncoated glass to value-added glass that protects art from UV damage while minimizing reflection from the glass so that viewers see the art rather than the glass. We estimate that over 50 percent of the retail picture framing market has converted to value-added glass, although we are finding it more difficult to convert the ultimate potential is significantly higher. We offer a variety of products with varying levels of reflection control and promote the benefits to consumers with point-of-purchase displays and other promotional materials. We also work to educate the fragmented custom picture framing market about the opportunity to improve the profitability of their framing business by offering value-added glass.
In fiscal 2009, we extended this strategy to the fine art market, which includes museums and private collections. We also made capital investments to support the conversion to value-added picture framing products as well as to grow the fine art market. As part of that extension, we developed value-added acrylic products in addition to glass. Acrylic is a preferred material in the fine art markets because the art can be much larger and weight is an important consideration. In fiscal 2010, we expanded our strategies to include other markets that can be served with anti-reflective acrylic products.
Fiscal 2010 Compared to Fiscal 2009
Consolidated gross profit improved by 1.6 percentage points primarily due to improvements in margins in the installation and window businesses as a result of project mix and execution of work that was largely bid in stronger markets. In addition, our picture framing business saw a positive mix of our best value-added glass and acrylic products in fiscal 2010. Cost management and productivity improvements throughout the Company, partially offset by the impact of fixed costs on lower sales and lower pricing in the second half fiscal 2010 for the architectural glass business, also contributed to the improvement in gross profit margin.
Selling, general and administrative (SG&A) expenses increased as a percent of sales to 16.8 percent in fiscal 2010 from 13.3 percent in fiscal 2009, while spending decreased by $6.4 million. The decrease in spending primarily related to lower sales and marketing expenses; reduced salaries and employee-related expenses as a result of headcount reductions; and lower spending on consulting and other discretionary items as we focused on cost management. These items were partially offset by a year-over-year increase in bonus and long-term incentive expenses. The fiscal 2009 bonus and long-term incentive compensation expenses were impacted by lower projected payouts of stock-based incentives as a result of reducing the outlook for future years. The increase as a percent of sales was largely due to our inability to leverage expenses over a lower level of sales dollars.
Interest expense decreased $1.1 million in fiscal 2010 due to reduced debt levels.
Results from equity method investee in fiscal 2009 reflected the gain on sale of our 34 percent interest in an automotive replacement glass distribution business, PPG Auto Glass, LLC. During fiscal 2009 and in connection with PPG’s sale of its automotive replacement glass businesses, we exercised our right to sell our minority interest in the PPG Auto Glass joint venture, resulting in cash proceeds of $27.1 million and a pretax gain on sale of approximately $2.0 million. During fiscal 2009, the joint venture reported a loss of $0.1 million primarily due to soft conditions in the auto glass replacement market. As a result of the sale, there was no impact from the joint venture in fiscal 2010.
The effective income tax rate for continuing operations for fiscal 2010 was 32.1 percent compared to 35.0 percent in fiscal 2009. The decrease in the effective tax rate was primarily due to reductions in reserves and deferred tax accounts in fiscal 2010 as a result of changes in estimates for previous tax positions taken.
Fiscal 2010 earnings from discontinued operations were $0.5 million compared to a loss of $0.2 million in fiscal 2009. The fiscal 2010 earnings were due to the favorable resolution of an outstanding lease claim and a reduction in reserves related to the expiration of warranty periods.
Fiscal 2010 Compared to Fiscal 2009. LSO revenues were down $0.8 million in fiscal 2010 to $70.7 million from $71.5 million in fiscal 2009. LSO segment operating income as a percent of sales improved to 23.9 percent in fiscal 2010 from 23.6 percent in fiscal 2009 while operating income was relatively flat year-on-year. We maintained revenues and operating income despite weak custom picture framing market conditions as new and ongoing value-added product customers converted to our best picture framing products. The business also benefited from productivity improvements due to leveraging significant investments made in this business during fiscal 2009 and 2010. These items were partially offset by the write-off of certain production equipment held for sale in the fourth quarter of fiscal 2010.
Consolidated Backlog
At February 26, 2011, our consolidated backlog was $238.4 million, up 4 percent over the $228.5 million reported at February 27, 2010; fiscal 2011 included $15 million in backlog from GlassecViracon. The backlog of the Architectural segment represented more than 99 percent of consolidated backlog. We expect 84 percent of our total backlog to be recognized in fiscal 2012 revenue. We view backlog as an important statistic in evaluating the level of sales activity and short-term sales trends in our business. However, as backlog is only one indicator, and is not an effective indicator of our ultimate profitability, we do not believe that backlog should be used as the sole indicator of future earnings of the Company.
Acquisitions
On November 19, 2010, we acquired 100 percent of the stock of Glassec Vidros de Segurança Ltda., a privately held business, for $20.6 million, net of cash acquired of $1.1 million. Glassec is a leading architectural glass fabricator in Brazil. The business operates under the name GlassecViracon as part of the Company’s architectural glass business. GlassecViracon’s fiscal year ends December 31 and is reported in the consolidated financial statements within our Architectural segment for the period subsequent to the acquisition date on a two-month lag. The purchase is part of our strategy to increase our architectural glass penetration in international markets. Goodwill recorded as part of the purchase price allocation was $7.6 million and is not tax deductible. Identifiable intangible assets acquired as part of the acquisition were $7.3 million and include customer relationships, trademarks, patents and non-compete agreements with a weighted average useful life of 18 years.
Discontinued Operations
In several transactions in fiscal years 1998 through 2000, we completed the sale of our large-scale domestic curtainwall business, the sale of our detention/security business and the exit from international curtainwall operations. The remaining estimated cash expenditures related to these discontinued operations are recorded as liabilities of discontinued operations, and a majority of the remaining cash expenditures related to discontinued operations is expected to be paid within the next year. The majority of these liabilities relate to the international curtainwall operations, including bonds outstanding, which have been settled and will be paid in the next year. The reserve for discontinued operations also covers other liability issues, consisting of warranty and other costs relating to these and other international construction projects that we expect to be resolved over the next five years.
In the fourth quarter of fiscal 2011, expected settlement of an outstanding legal claim related to a foreign discontinued operation resulted in a $1.6 million increase in reserves and a pre-tax loss from discontinued operations. This settlement was finalized in March 2011, and we expect to pay approximately $3.0 million in the first half of fiscal 2012 for final resolution of this matter. In the second quarter of fiscal 2011, the favorable resolution of an outstanding tax exposure related to a foreign operation discontinued in 1998 resulted in the release of $4.9 million of uncertain tax positions and non-cash income from discontinued operations. The settlements of these two items represent the last significant remaining items with respect to our international curtainwall business. During fiscal 2010, a favorable resolution of an outstanding lease claim and a reduction in reserves related to the expiration of warranty periods resulted in pre-tax income from discontinued operations of $0.8 million. For fiscal 2009, we reported a net loss from discontinued operations of $0.2 million.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Overview
We are a leader in certain technologies involving the design and development of value-added glass products, services and systems. The Company is comprised of two segments: Architectural Products and Services (Architectural) and Large-Scale Optical Technologies (LSO). Our Architectural segment companies design, engineer, fabricate, install, maintain and renovate the walls of glass, windows, storefront and entrances comprising the outside skin of commercial and institutional buildings. Businesses in this segment are: Viracon, Inc. (including GlassecViracon), a fabricator of coated, high-performance architectural glass for global markets; Harmon, Inc., one of the largest U.S. full-service building glass installation and renovation companies; Wausau Window and Wall Systems, a manufacturer of standard and custom aluminum window systems and curtainwall for the North American commercial construction market; Linetec, a paint and anodizing finisher of architectural aluminum and PVC shutters for U.S. markets; and Tubelite, Inc, a fabricator of aluminum storefront, entrance and curtainwall products for the U.S. commercial construction industry. Our LSO segment consists of Tru Vue, Inc., a manufacturer of value-added glass and acrylic for the custom picture framing market.
The following selected financial data should be read in conjunction with the Company’s Form 10-K for the year ended February 26, 2011 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.
Investing Activities. Through the first nine months of fiscal 2012, investing activities provided $21.1 million of cash, compared to cash used of $11.3 million in the same period last year. The current year included $10.3 million in proceeds from the sale and leaseback of equipment. Net proceeds of $12.7 million from restricted investments impacted the current year as some of the letters of credit that were being held outside of our credit facility were moved under the facility, releasing the money market funds we had been required to maintain to cover those exposures. The net position of our investments for the nine-month period resulted in $5.8 million in net sale proceeds, as we sold investments to fund current operating activities. New capital investments through the first nine months of fiscal 2012 totaled $6.2 million, primarily for safety and maintenance projects, as well as productivity improvements. In the first quarter of fiscal 2012, we invested in corporate-owned life insurance policies (COLI) of $1.4 million with the intention of utilizing them as a long-term funding source for our deferred compensation plan.
The prior-year period included $21.2 million for the acquisition of the GlassecViracon business. Prior-year investing activities included $29.0 million in net sales proceeds on marketable securities as we converted those investments to cash equivalents to support higher working capital. The prior year included net purchases of restricted investments of $11.8 million related to the funds received as a result of the recovery zone facility bonds that were made available for future investment in our architectural glass fabrication facility in Utah. New capital investments for the first nine months of fiscal 2011 were $7.5 million, primarily for safety and maintenance projects.
We expect fiscal 2012 capital expenditures to be less than $15 million, primarily for maintenance and safety projects.
We continue to review our portfolio of businesses and their assets in comparison to our internal strategic and performance objectives. As part of this review, we may acquire other businesses, further invest in, fully divest and/or sell parts of our current businesses.
Financing Activities. Total outstanding borrowings at November 26, 2011, were $21.2 million compared to $22.4 million as of February 26, 2011 and $23.5 million at November 27, 2010. Long-term debt consists of $12.0 million of recovery zone facility bonds, $8.4 million of industrial development bonds and other debt incurred by GlassecViracon. The industrial development and recovery zone facility bonds mature in fiscal years 2021 through 2036 and the other debt matures in fiscal years 2012 through 2021. Our debt-to-total-capital ratio was 6.2 percent at November 26, 2011 and 6.4 percent at February 26, 2011.
We maintain an $80.0 million revolving credit facility, which expires in January 2014. No borrowings were outstanding as of November 26, 2011 or February 26, 2011. The credit facility requires that we maintain a minimum level of net worth as defined in the credit facility based on certain quarterly financial calculations. The minimum required net worth computed in accordance with the credit agreement at November 26, 2011 was $271.4 million, whereas our net worth as defined in the credit facility was $320.4 million. The credit facility also requires that we maintain an adjusted debt-to-EBITDA ratio of not more than 2.75. This ratio is computed quarterly, with EBITDA computed on a rolling four-quarter basis. For purposes of calculating the adjusted debt in the debt-to-EBITDA ratio, we reduce non-credit facility debt for up to $25 million to the extent of unrestricted cash balances, cash equivalents and short-term marketable securities available for sale in excess of $15 million. Our ratio was 0.00 at November 26, 2011. If we are not in compliance with either of these covenants, the lenders may terminate the commitment and/or declare any loan then outstanding to be immediately due and payable. At November 26, 2011, we were in compliance with the financial covenants of the credit facility. In addition to the financial covenants of the credit facility, the facility limits our dividends and equity repurchases to $12 million per fiscal year until the occurrence of two consecutive fiscal quarter-ends after the closing date of the facility in which our trailing 12-month EBITDA exceeds $20.0 million. Our trailing 12-month EBITDA exceeded $20.0 million at November 26, 2011, representing the first quarter that we exceeded the threshold under the credit facility.
During fiscal 2004, the Board of Directors authorized a share repurchase program of 1,500,000 shares of common stock. The Board of Directors increased this authorization by 750,000 shares in January 2008 and by 1,000,000 in October 2008. We purchased 275,000 shares under the program during the first nine months of fiscal 2012. There were no share repurchases during fiscal 2011. We have purchased a total of 2,279,123 shares, at a total cost of $29.7 million, since the inception of this program. We have remaining authority to repurchase 970,877 shares under this program, which has no expiration date.
CONF CALL
Mary Ann Jackson
Good morning and welcome to the Apogee Enterprises fiscal 2010 fourth quarter and year end conference call on Thursday, April 8, 2010. With us on the line today are Russ Huffer, Chairman and CEO, and Jim Porter, CFO. Their remarks will focus on our fiscal 2010 fourth quarter and full year results and the outlook for fiscal 2011.
During the course of this conference call, we’ll make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and are of course subject to risks and uncertainties, which are beyond the control of management. These statements are not guarantees of future performance and actual results may differ materially. Important risk and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the company’s annual report on Form 10-K for the fiscal year ended February 28, 2009 and in our earnings release issued last night and filed on Form 8-K.
Russ will now give you a brief overview of the results, and then Jim will cover the financials. After they conclude, Russ and Jim will answer your questions.
Russell Huffer
Thank you, Mary Ann. Good morning and welcome to our conference call. Apogee achieved solid operating performance and our third highest earnings ever during fiscal 2010, even though we experienced difficult domestic commercial construction market conditions.
We executed well as we worked off Architectural segment backlog booked in a stronger market and focused on improving productivity and aggressively managing costs in the face of the most difficult market in my career.
It was a year that saw pricing and margins decline as the year progressed. Despite the challenges, I’m proud of our success at positioning Apogee with a strong balance sheet, leading products, services and brands and people focused on the company’s future opportunities.
Apogee earned $1.13 per share from continuing operations on revenues of $696 million, which was down 25%. I’m pleased that we further strengthened our balance sheet as cash and short-term investments grew to $102.6 million at the end of fiscal 2010.
Architectural segment revenues declined 27% while operating income decreased 51%. Architectural segment revenues were down comparable to our markets served which have been impacted by tight commercial real estate credit and depressed employment levels.
The fiscal 2010 market for large projects, those projects greater than ten storeys which are especially important to our Architectural glass business was down 50% to 60%; this twice the decrease for overall market for Apogee project types. Our success and growth in institutional market share were not enough to offset the decline in large office projects.
We have also been successful with our strategy to grow share in underserved architectural glass markets. We grew international export revenues 45% to $36 million in fiscal 2010 and made significant inroads serving new and existing customers in the smaller project market.
Earnings declined with low Architectural segment capacity utilization, declining pricing, as we completed work bid in stronger commercial construction markets. In the fourth quarter, only about 20% of the Architectural revenue was from work that had been booked in stronger markets.
During fiscal 2010, our Large-Scale Optical segment maintained revenues and operating income in weak retail market conditions as new an ongoing value added product customers continued to convert to our best picture framing products.
Turning to the fourth quarter, we generated cash and again reduced costs as the Architectural segment fully felt the impact of the commercial construction downturn, with further volume and pricing declines, resulting in a quarterly loss for the segment.
Company wide fourth quarter revenues were $148.6 million or down 26% and earnings from continuing operations were $0.01 per share versus $0.40 per share in the prior year period. Architectural segment revenues declined 30% with an operating loss of $3.6 million. Revenues declined due to the challenging domestic commercial construction market conditions, as the new business from institutional small projects and international work, couldn’t offset the core market decline, especially for large and office projects which are important to the architectural glass business.
Regarding the Architectural segment operating loss, lower revenues and pricing along with low capacity utilization notably in our Architectural glass business, more than offset productivity improvements, cost reductions and good installation project margins.
The Architectural segment backlog ended at $227.5 million compared to $246.4 million at the end of the third quarter and $316.2 million in the prior year period. Bidding activity has increased slightly, although average project values have declined and bid to award timing continues to be slow.
Institutional work, institutional including stimulus work, remains the largest sector of potential work for Apogee, which is ideally suited to meet the sector’s demand for energy efficient and value added products and services.
As we had expected, our backlog mix shifted even more toward institutional projects in the fourth quarter. Institutional projects now account for 65% to 70% of our backlog, up from 60% to 65% in the third quarter. We also saw a slight increase in the dollar value of the institutional projects from the third quarter to the fourth quarter.
The other sectors of our Architectural backlog are office projects of 20% to 25% of the backlog, hotel/entertainment sector 5% to 10% and condos 0% to 5%.
To illustrate the change in our product mix during fiscal 2010, here’s our backlog by sector a year ago. Institutional was 40% to 45%, Office 35% to 40%, hotel/entertainment 5% to 10% and condos 10% to 15%.
In the fourth quarter Large-Scale Optical segment revenues increased 13%. Volume mix of our best value added picture framing products increased compared to a weak prior year quarter. Large-Scale Optical segment operating margin was 19.9% compared to 22.8%.
Next, I’ll cover our outlook. We’ve been stating since last fall that fiscal 2011 will be very challenging for our architectural businesses, based on the degree of visibility we have from our bidding activity and backlog. Apogee is a late cycle commercial construction company and our markets are worse than the last trough as the commercial construction downturn appears to be deeper and longer than I’ve ever seen before.
In addition, we’ve worked off the majority of projects booked in stronger markets. We believe that the two most important variables that will move commercial construction markets are growth in employment and the thawing of credit for commercial real estate, and we have yet to see the needed improvement in these metrics.
The March employment report was a positive sign, and we are seeing a few examples of financing being provided to commercial real estate projects. Our markets are expected to be down 15% to 20% for fiscal 2011. We’ve adjusted the calendar McGraw Hill forecast for our lag to the market, which is approximately eight months as well as for the sectors we serve.
Our revenue outlook is somewhat better than the forecast for our markets. We are currently estimating companywide revenues for the year will be down 10% to 15%. We believe we are beginning to see some positive movement in our business as our bidding activity and inbound order rates have increased slightly. However, it is too soon to call it a trend.
We have focused on making our business as competitive as possible in difficult market conditions. We have aggressively reduced costs by more than 57 million on an annualized basis over the last year and a half and are working continuously on productivity improvements.
However, we are strategically maintaining architectural capacity and people to respond to the potential growth in fiscal 2012. Further capacity reductions would be structural, difficult, costly and possibly slow to ramp up; but we will continue to monitor the market and evaluate this strategic decision. We are incurring $4 million to $6 million in annual costs to maintain this capacity.
Moving to our earnings outlook, we believe we have the potential for positive earnings per share in fiscal 2011. We anticipate that earnings from our Large-Scale Optical segment will offset losses in our Architectural segment where we expect the second half will be stronger than the first half.
With our $103 million in cash, and short-term investments and our untapped $100 million revolver, we are confident that we have the financial strength to work our way through the expected ongoing weak market conditions and remain focused on our growth strategies for the recovery.
Our Architectural businesses have strong brands and operations that are well positioned to serve the aesthetic, energy efficient, hurricane and blast resistant glass requirements for commercial buildings, while our picture framing business continues to successfully convert customers to its industry leading framing products.
During fiscal 2011, our Architectural segment will be focused on continuing to penetrate underserved markets for smaller architectural glass projects and new installation project geographies; maintaining our facilities at state of the art, including excess capacity if we feel the recovery timing and opportunities support this decision; maintaining and developing our key people; evaluating upgrading facility and equipment capabilities that enable new products and productivity improvements, as well as growth capital for the future; since we have some attractive incentives primarily for architectural glass, that may justify committing sooner than we otherwise would; and completing our analysis of international growth and expansion possibilities for architectural glass.
During this challenging year, we are willing to invest in projects that we believe present attractive long-term opportunities to grow, gain share and create shareholder value. Despite the unprecedented tough market conditions, I’m feeling good about our architectural businesses and the strategic and operational progress we’re making.
Our installation business is winning projects in new markets at decent margins. The window business is successfully penetrating its targeted institutional markets and our architectural glass business is growing previously underserved small project and international export markets. We also believe that international will present some exciting additional growth potential.
In addition, we continue to develop and introduce new products for the new and retrofit green building industry, which is expected to be stronger than ever when markets improve. Curtain walls and windows are cost effective and important contributors to the energy efficiency of green buildings and I’m communicating this message as frequently and as passionately as I can. I’ll be glad to take any questions in this area.
Jim will now comment on the financials.
James Porter
Thanks, Ross. Given the difficult market conditions, our fiscal 2010 performance was solid. We made progress in penetrating target and underserved architectural markets, increased our picture framing glass market share, improved productivity and aggressively managed our costs.
We earned $1.13 per share on revenues of $696.7 million, both down from the prior year, which was a record year for earnings per share and revenues. Overall, full year revenues were down 25%, slightly below the prior guidance of a 22% to 24% decline.
Apogee’s operating margin for the year was 6.5% compared to 8.4% in fiscal 2009, consistent with our prior guidance for margin ranging from 6.3% to 7% for the year.
Architectural segment revenues declined 27%, comparable to our overall markets served, but the large office projects, so important to our architectural glass business, were down significantly more. This illustrates our success in penetrating underserved architectural glass market and serving new geographic markets for installation projects.
Architectural segment operating income for the year was $31.6 million, down 51%. Fiscal 2010 segment earnings were impacted by low segment capacity utilization and declining pricing, somewhat offset with work we completed that was bid in stronger commercial construction markets.
Despite soft retail markets, our Large-Scale Optical segment maintained revenues and operating income for the year. Our superior product attributes, which prevent fading and controls reflection are allowing us to continue to convert more customers to our value added and best value added products. In addition, the business is operating well as it leverages investments made previously.
Fiscal 2010 net earnings including discontinued operations were $1.15 per share compared to $1.81 per share the prior year. Fiscal 2010 and 2009 discontinued operations results reflect settlement of litigation and warranties.
At year-end, our cash and short-term investments totaled $102.6 million compared to $83.1 million at the end of the third quarter and $27.1 million at the end of fiscal 2009. During the year, we generated $87 million of free cash flow. We define free cash flow as net cash from continuing operations less capital expenditures.
Our long-term debt remained at $8.4 million throughout fiscal 2010 as we continue to hold low interest industrial revenue bonds. Capital expenditures for the year were $9.8 million, down from $55.2 million in fiscal 2009.
Key strategic investments for both segments were completed last year. Day sales outstanding at year-end held at 45 days from 44 days at the end of fiscal 2009. In general, we continue to feel good about the quality of our receivables in this tough economy. We closely monitor this and have lien rights on a majority of our outstanding accounts receivables. With the market and industry realities we face, we do expect our DSO’s to increase in fiscal 2011.
In the fourth quarter of fiscal 2010, as Ross said, we fully felt the impact of the commercial construction downturn. Operating earnings from the Large-Scale Optical segment offset losses in the Architectural segment as we continued to reduce costs and generate cash in the quarter.
Apogee revenues of $148.6 million were down 26% and earnings from continuing operations were $0.01 per share compared to $0.40 per share in the prior year period. Fourth quarter architectural segment revenues declined 30% with an operating loss of $3.6 million.
Lower revenues, pricing and capacity utilization more than offset productivity improvement, cost reductions and good margins on installation projects being completed. As expected, approximately 20% of our revenue in the quarter had been booked in stronger markets, down from about 40% in the third quarter.
With this significant decline in revenues booked and healthier market conditions, we really felt the impact of extremely competitive pricing and margins. Overall, pricing is down approximately 10% compared to a year ago and we expect pricing to be pressured until the market recovers or industry capacity declines. Roughly three points of this decline has been offset by cost reductions and productivity improvements.
Fourth quarter capacity utilization in our architectural segment averaged approximately 50%. The full year capacity utilization level is 57% compared to 78% for fiscal 2009. The current segment capacity utilization is lower than it was the last cycle trough which was roughly 60%.
In the fourth quarter, Large-Scale Optical segment revenues increased 13%, as the volume and mix of our best value added picture framing products increased compared to a weak prior year period. Operating income at $3.6 million was down 2%. The Large-Scale Optical operating margin was 19.9% compared to 22.8%.
A $1 million write off of older technology production equipment that we were unable to sell, more than offset improvements in product mix and productivity.
I’ll turn to our outlook. With the current domestic commercial construction downturn appearing to be deeper and longer than the last downturn, we are again expecting revenues to decline in fiscal 2011 and believe we have the potential for positive earnings per share.
We are projecting that earnings from our Large-Scale Optical segment will offset losses in our Architectural segment for the year. On a consolidated basis, we expect losses in the first half of the year in part because we entered the year with a gap between completion of some projects and start up of new project work in our Architectural segment.
We expect our revenues will be down 10% to 15%. We believe we can outperform our markets, despite the historical importance of large and office projects, which are forecast to be continue to be significantly down in the first half of fiscal year 2011.
Our success in the institutional sector, along with the growth of smaller projects and international work are expected to somewhat offset the severe downturn in large building and office projects. We are projecting positive free cash flow for fiscal 2011 based on maintenance capital expenditures of $10 million to $15 million.
As we continue to focus on our longer-term strategic initiatives to expand the breadth and capacity of our energy efficient architectural glass offering in the U.S. and internationally, along with the valuation of incentives we have available, we will consider additional strategic capital spending in fiscal 2011.
For example, just this week, we took advantage of long term low interest financing and received $12 million in recovery zone bonds for future investments in our Architectural glass facility in St. George, Utah. We have three years to invest the dollars, which we’ve primarily targeted for extending the energy efficient products offered out of this facility to better serve the Southwest market, especially California where there are now more stringent energy codes.
We also have been awarded energy investment tax credits available the next three years for similar investments in better energy efficient product capabilities for our architectural glass facilities in Utah and Minnesota.
We expect to complete our analysis regarding whether to expand internationally by the summer. As Russ said, we are willing to invest if the timing is right for attractive, long-term opportunities.
Although we’re facing a tough start to the year, we feel we may be beginning to see small positive signs in our Architectural businesses as bidding, hit rates and inbound order rates appear to be improving slightly. We continue to focus our sales efforts on markets where we can differentiate ourselves with our value added, energy efficient, aesthetic hurricane and blast products.
We’ve seen strong bidding activity for projects in the institutional sector; education, health care and government projects, including Federal stimulus work. We remain focused on productivity improvements and managing our costs in an effort to somewhat offset the impact of declining revenues on earnings.
With more than $100 million in cash and short-term investments, our priorities for use of the cash are that we intend to invest and grow our international architectural glass business where we already have a leading international brand but no offshore fabrication.
We’ll also continue to invest in maintenance and safety, productivity improvement and new product development, and we plan to continue paying our dividend. We are focused on effectively managing through the slowdown and emerging stronger than ever when our markets rebound.
We’re well positioned financially, have leading products, services and brands, and remain focused on operational and strategic initiatives to strengthen our business for the rebound in our markets.
Russell Huffer
I’m very proud of our employees and management team. They have been very proactive in managing costs and profitably gaining market share in this troubled economy. Apogee is in great shape to survive the downturn and thrive when the markets recover.
Let’s turn it over to questions at this time.
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Fund Letters
