CONFORMED COPY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 31, 1997 Commission File Number 0-6365
---------------------- ----------
APOGEE ENTERPRISES, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Minnesota 41-0919654
-------------------------- ---------------------
(State of Incorporation) (IRS Employer ID No.)
7900 Xerxes Avenue South, Suite 1800, Minneapolis, Minnesota 55431
-------------------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number (612) 835-1874
--------------
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
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at June 30, 1997
- -------------------------------- ----------------------------
Common Stock, $.33-1/3 Par Value 27,756,713
APOGEE ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MAY 31, 1997
Description Page
----------- ----
PART I
- ------
Item 1. Financial Statement
Consolidated Balance Sheets as of May 31, 1997
and March 1, 1997 3
Consolidated Results of Operations for the
Quarters Ended May 31, 1997 and June 1, 1996 4
Consolidated Statements of Cash Flows for the
Quarters Ended May 31, 1997 and June 1, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II Other Information
- -------
Item 6. Exhibits 11
Exhibits Index 13
Exhibit 11 14
Exhibit 27 Financial Data Schedule (EDGAR filing only)
2
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
May 31, 1997 March 1, 1997
------------ -------------
ASSETS
Current assets
Cash and cash equivalents (including
restricted funds of $ 9,722 $ 4,065
$-0- and $208, respectively)
Receivables, net of allowance for 205,820 204,259
doubtful accounts
Inventories 62,343 58,261
Costs and earnings in excess of
billings on uncompleted 17,288 25,653
contracts
Refundable income taxes - 1,004
Deferred tax assets 5,317 4,486
Other current assets 6,546 7,466
-------- --------
Total current assets 307,036 305,194
-------- --------
Property, plant and equipment, net 121,824 118,799
Marketable securities - available for 26,496 19,656
sale
Investments 838 738
Intangible assets, at cost less 52,113 52,431
accumulated amortization
Deferred tax assets 1,997 1,090
Other assets 2,998 3,036
-------- --------
Total assets $513,302 $500,964
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 66,842 $ 73,325
Accrued expenses 58,122 61,435
Billings in excess of costs and
earnings on uncompleted 40,003 40,154
contracts
Accrued income taxes 9,063 -
Current installments of long-term debt 1,707 1,707
-------- --------
Total current liabilities 175,737 176,621
-------- --------
Long-term debt 140,379 127,640
Other long-term liabilities 21,670 24,554
Shareholders' equity
Common stock, $.33 1/3 par value;
authorized 50,000,000
shares; issued and outstanding 9,277 9,294
27,830,412 and 27,882,000
shares, respectively
Additional paid-in capital 36,907 34,686
Retained earnings 130,184 129,424
Cumulative translation adjustment and (852) (1,255)
unearned compensation
-------- --------
Total shareholders' equity 175,516 172,149
-------- --------
Total liabilities and shareholders' $513,302 $500,964
equity
======== ========
See accompanying notes to consolidated financial statements.
3
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED May 31, 1997 and JUNE 1, 1996
(Thousands of Dollars Except Share and Per Share Amounts)
Quarter Ended
---------------------------
May 31, 1997 June 1, 1996
------------- ------------
Net sales $ 244,782 $ 228,608
Cost of sales 199,101 192,080
------------- ------------
Gross profit 45,681 36,528
Selling, general and administrative 32,353 26,171
expenses
------------- ------------
Operating income 13,328 10,357
Interest expense, net 2,304 2,355
------------- ------------
Earnings before income taxes and 11,024 8,002
other items below
Income taxes 4,000 2,954
Equity in net loss of affiliated 250 60
companies
Minority interest - 12
------------- ------------
Net earnings $ 6,774 $ 4,976
============= ============
Earnings per share $ 0.24 $ 0.18
============= ============
Weighted average number of common
shares and common 28,509,000 27,662,000
share equivalents outstanding
============= ============
Cash dividends per common share $ 0.045 $ 0.043
============= ============
See accompanying notes to consolidated financial statements.
4
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MAY 31, 1997 AND JUNE 1, 1996
(Thousands of Dollars)
1997 1996
-------- --------
OPERATING ACTIVITIES
Net earnings $ 6,774 $ 4,976
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Depreciation and amortization 5,766 6,135
Provision for losses on accounts 408 485
receivable
Deferred income tax (benefit) (1,738) 281
expense
Minority interest - 13
Equity in net earnings of 250 60
affiliated companies
Other, net 1,742 (403)
Changes in operating assets and
liabilities, net of effect of
acquisitions
Receivables (1,342) (6,090)
Inventories (3,970) (4,039)
Costs and earnings in excess of
billings on uncompleted 8,443 3,856
contracts
Other current assets 933 (860)
Accounts payable and accrued (10,145) 19,173
expenses (1)
Billings in excess of costs and
earnings on uncompleted (151) 5,871
contracts
Accrued income taxes 9,967 1,948
Other long-term liabilities (4,297) (2,056)
-------- --------
Net cash provided by 12,640 29,350
operating activities -------- --------
INVESTING ACTIVITIES
Capital expenditures (8,356) (6,743)
Acquisition of businesses, net of cash (500) (21,186)
acquired (1)
Increase in marketable securities (6,821) (761)
Investments in and advances to (350) -
affiliated companies
Proceeds from sale of property and 77 1,826
equipment
Other, net (62) (483)
-------- --------
Net cash used in investing (16,012) (27,347)
activities
-------- --------
FINANCING ACTIVITIES
Payments on long-term debt (518) (688)
Proceeds from issuance of long-term debt 13,257 4,600
Repurchase and retirement of common (5,289) -
stock
Proceeds from issuance of common stock 2,825 2,506
Dividends paid (1,246) (1,158)
-------- --------
Net cash provided by 9,029 5,260
financing activities
-------- --------
Increase in cash 5,657 7,263
Cash at beginning of period 4,065 7,389
-------- --------
Cash at end of period $ 9,722 $ 14,652
======== ========
(1) In 1996, the estimated cost of the Marcon and Viratec acquisition,
subsequently determined in January 1997, was included in investing
activities and was offset by an increase in accrued expenses in operating
activities.
See accompanying notes to consolidated financial statements.
5
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of May 31, 1997 and March 1, 1997, and the results of operations and cash
flows for each of the thirteen week periods ended May 31, 1997 and June 1,
1996. Certain prior year amounts have been reclassified to conform to the
current period presentation.
The financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
financial statements and notes.
The results of operations for the thirteen week periods ended May 31, 1997
and June 1, 1996 are not necessarily indicative of the results to be
expected for the full year.
Accounting period
The Company's fiscal year ends on the Saturday closest to February 28. Each
interim quarter ends on the Saturday closest to the end of the months of
May, August and November.
2. Earnings per share
Share and per share amounts have been restated to reflect the two-for-one
stock split, effected in the form of a 100% stock dividend, issued in
February 1997.
3. Inventories
Inventories consist of the following:
May 31, 1997 March 1, 1997
------------ -------------
Raw materials and supplies $19,274 $14,760
In process 4,106 3,863
Finished goods 38,963 39,638
------------ -------------
$62,343 $58,261
============ =============
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sales and Earnings
First quarter earnings rose 36% to $6.8 million, or 24 cents per share, from
$5.0 million, or 18 cents per share, a year ago. Last year's per share figure
reflects the two-for-one stock split, effected in the form of a 100% stock
dividend, issued to shareholders in February, 1997. Sales were $244.8 million,
a 7% increase over the $228.6 million reported a year ago.
The following table presents sales and operating income data for the Company's
three segments and on a consolidated basis for the first quarter, when compared
to the corresponding period a year ago. Operating results are discussed below.
Quarter Ended
------------------------
May 31, June 1, Percentage Change
1997 1996 1996
========== =========== ===================
Sales
Glass technologies $ 52,045 $ 44,269 18
Auto glass 90,257 78,418 15
Building products & services 104,723 109,190 (4)
Eliminations (2,243) (3,269) (31)
---------- ----------
Total $ 244,782 $ 228,608 7
========== ==========
Operating Income (Loss)
Glass technologies $ 5,277 $ 4,023 31
Auto glass 6,345 6,205 2
Building products & services 1,734 $ 561 209
Corporate and other (28) (432) (94)
---------- ----------
Total $ 13,328 $ 10,357 29
========== ==========
Glass Technologies (GT)
Apogee's Glass Technologies segment reported another quarter of improved sales
and operating earnings in the first quarter. Sales increased by 18%, while
earnings jumped 31%. Both improvements were primarily due to the development of
significantly higher sales for Viratec Thin Films' coating of curved glass
surfaces of cathode ray tubes (CaRT). CaRT sales more than doubled for the
quarter and allowed the unit to report a small operating profit for that
business. Viratec's flat glass coating business had a double-digit sales gain
and solid earnings for the period.
Quarterly earnings at Viracon, the segment's largest business, were flat due
partly to an unusually large number of customer shipments delayed to following
quarters, as sales rose by just 4%. Customer demand for Viracon's products
remains strong and the shipments delayed in the first quarter should boost
future results. The segment's Tru Vue unit also improved its sales and earnings
in its seasonally soft first quarter.
The Glass Technologies segment expects to experience positive quarterly earnings
comparisons for the remainder of the year as Viracon anticipates continued
strong demand for fabricated architectural glass products and Viratec is
experiencing strong order rates for its coated glass products.
Auto Glass (AG)
AG reported 15% sales growth in the first quarter, with just over half of the
increase due to the Portland Glass units acquired in the fourth quarter of
fiscal 1997. However, operating income rose only 2% to $6.3 million as retail
margins were affected by competitive industry conditions and the costs of long-
term business initiatives, including both marketing efforts and information
systems development. The segment's Glass Depot and Curvlite units produced good
sales and earnings for the period.
7
At the close of the first quarter, Harmon had 323 retail locations in over 40
states. The segment also had 66 wholesale depots and 8 Midas Muffler franchises.
The segment continues to explore opportunities to expand the reach of its
businesses.
Although AG expects to produce solid operating results for the year, the
uncertainty of industry unit sales and pricing continues to make it difficult to
project operating earnings for the remainder of the fiscal 1998.
Building Products & Services (BPS)
BPS reported another quarter of improved year-over-year results. As expected,
net sales decreased four percent to $104.7 million, representing just 43% of
consolidated net sales. This decline reflected lower revenues at the segment's
New Construction unit, partly offset by the Detention/Security unit's 28% sales
increase. US and Asian New Construction revenues fell by 28% and 27%,
respectively, while revenues in Europe rose by 13%.
Operating earnings more than tripled to $1.7 million, up from $561,000 a year
ago. The Detention/Security group leveraged its sales improvement into a solid
profit versus a small loss in the comparable quarter a year ago. Domestic New
Construction operations reported a nominal profit compared to a loss in last
year's first quarter. International curtainwall operations experienced a $1.4
million operating loss, primarily due to poor results at our French unit. The
Wausau Architectural Products group contributed a slightly improved profit for
the period.
The New Construction business continued to be the primary focus of management
efforts to improve profitability. During the quarter, administrative and
engineering staffing levels were reduced to more appropriately match the unit's
current backlog and anticipated revenue base. New Construction also took steps
to begin closure of its Asian contract offices. Management is exploring various
strategic alternatives for its New Construction unit, particularly for its
European operation. Although European operations are likely to continue to
experience losses in the next few quarters, the Company believes that earnings
from the segment's other businesses will more than offset such losses and the
segment will continue to show steady, if modest, earnings improvement.
Backlog
At May 31, 1997, Apogee's consolidated backlog was $373 million, up 4% from
fiscal year end, but down 14% from a year ago. The backlogs of the Building
Products & Services segment's operations, which represent over 80% of Apogee's
consolidated backlog, were down slightly from March 1, 1997, but were 25% lower
than twelve months earlier. Asian and European New Construction backlogs were
both down by over 50% year-to year, while the US backlog was essentially
unchanged from a year ago. Glass Technologies' Viracon operation reported a
higher backlog of sales for its architectural glass products and Viratec Thin
Films' backlog more than doubled, partly due to higher order levels for the CaRT
business.
8
Consolidated
The following table compares quarterly results with year-ago results, as a
percentage of sales, for each caption.
Percentage of Sales
--------------------
1998 1997
--------- ---------
Net sales 100.0 100.0
Cost of sales 81.3 84.1
--------- ---------
Gross profit 18.7 15.9
Selling, general and administrative
expenses 13.2 11.4
--------- ---------
Operating income 5.4 4.5
Interest expense, net 0.9 1.0
--------- ---------
Earnings before taxes 4.5 3.5
Income taxes 1.6 1.3
Equity in net loss of affiliated
companies 0.1 -
Minority interest - -
--------- ---------
Net earnings 2.8 2.2
========= =========
Effective tax rate 36.3% 36.9%
On a consolidated basis, cost of sales, as a percentage of net sales, fell to
its lowest figure this decade. This reflected productivity gains at BPS's
Detention unit, all of GT's operating units, particularly Viratec, and the AG's
Curvlite unit, as well as the change in sales mix reflecting lower New
Construction revenues. These factors were partly offset by higher material costs
experienced by the AG segment's Retail and Distribution operations.
Selling, general and administrative (SG&A) expenses rose by $6.2 million, or
24%. The increase included higher salaries, commissions and bonus expenses, the
latter two items associated with increased sales and profitability, as well as
severance costs associated with certain management changes and the reduction of
administrative and engineering staffing levels at BPS. Apogee expects that SG &
A costs for the remainder of the year will exceed last year's levels, but by
lower amounts than experienced in the first quarter. Net interest expense was
essentially unchanged from last year. Slightly lower interest rates offset the
increase in interest-bearing liabilities.
The effective income tax rate was slightly lower than a year ago. Among other
items, Apogee's tax rate continued to reflect the benefit of significant export
sales and favorable international tax activity.
Liquidity and Capital Resources
At quarter end, the Company's working capital was marginally above that reported
at March 1, 1997. An $8.4 million reduction in costs and earnings in excess of
billings on uncompleted contracts was partly offset by small increases in
receivables and inventories, resulting in a $5.7 million increase in cash for
the quarter.
Bank borrowings stood at $137.8 million at May 31, 1997, $13.3 million higher
than at March 1, 1997. The additional borrowings were required to cover the gap
by which capital spending, the buyback of 320,000 common shares pursuant to the
Company's previously announced share repurchase program and working capital
requirements exceeded net earnings and noncash charges. At May 31, 1997, long-
term debt stood at 42% of total capitalization.
Additions to property, plant and equipment totaled approximately $8.4 million.
Major items included expenditures for data management, information processing
and manufacturing capacity. The AG segment also completed one acquisition of
retail auto glass replacement stores for $500,000.
9
Cautionary Statements
- ---------------------
A number of factors should be considered in conjunction with any discussion of
operations or results by the Company or its representatives and any forward-
looking discussion, as well as comments contained in press releases,
presentations to securities analysts or investors, or other communications by
the Company.
These factors are set forth in the cautionary statements filed as Exhibit 99 to
the Company's Form 10-K and include, without limitation, cautionary statements
regarding 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, industry
conditions, including that the industries in which the business segments compete
are cyclical in nature and sensitive to changes in general economic conditions,
the competitive environment in which the Company's business segments operate,
including that the industries are highly competitive and fairly mature, and the
Company's international operations which are subject to the general risks of
doing business abroad and of entering new markets. The Company wishes to caution
investors and other to review the statements set forth in Exhibit 99 and that
other factors may prove to be important in affecting the Company's business or
results of operations. These cautionary statements should be considered in
connection with this Form 10-Q, including the forward looking statements
contained in the Management's discussion and analysis of the Company's three
business segments. These cautionary statements are intended to take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995.
10
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit 11. Statement of Determination of Common Shares and
Common Share Equivalents.
Exhibit 27. Financial Data Schedule (EDGAR filing only)
(b) The Company did not file any reports on Form 8-K during the quarter for
which this report is filed.
11
CONFORMED COPY
SIGNATURES
Pursuant to the requirements 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.
APOGEE ENTERPRISES, INC.
Date: July 15, 1997 /s/Donald W. Goldfus
---------------- --------------------
Donald W. Goldfus
Chairman of the Board,
Chief Executive Officer and President
Date: July 15, 1997 /s/Terry L. Hall
---------------- ----------------
Terry L. Hall
Vice President Finance and
Chief Financial Officer
12
EXHIBITS INDEX
Exhibit Page
- ------- ----
Exhibit 11 Statement of Determination of Common Shares
and Common Share Equivalents 14
Exhibit 27 Financial Data Schedule (EDGAR filing only)
13
EXHIBIT 11
STATEMENT OF DETERMINATION OF COMMON SHARES AND COMMON SHARE EQUIVALENTS
------------------------------------------------------------------------
Average No. of Common Shares
& Common Share Equivalents
Assumed to be Outstanding
During the Quarter Ended:
----------------------------------
May 31, 1997 June 1, 1996(c)
------------ ---------------
Weighted average number of common
shares outstanding (a) 27,903,938 27,143,020
Common share equivalents resulting
from the assumed exercise of stock 605,469 519,338
options (b)
------------ ---------------
Total primary common shares and
common share equivalents 28,509,407 27,662,358
============ ===============
(a) Beginning balance of common stock adjusted for 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) Restated to reflect the stock split, effected in the form of a 100% stock
dividend, issued in February 1997.
14
5
1,000
3-MOS
FEB-28-1998
MAR-02-1997
MAY-31-1997
9,722
26,496
213,498
7,678
62,343
307,036
250,335
128,511
513,302
175,737
0
0
0
9,277
166,239
513,302
244,782
244,782
199,101
31,945
0
408
2,304
11,024
4,000
6,774
0
0
0
6,774
0.24
0.24
