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 August 31, 1996 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 September 30, 1996
- ---------------------------------- -----------------------------------------
Common Stock, $.33-1/3 Par Value 13,666,088
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED AUGUST 31, 1996
Description Page
----------- ----
PART I
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of August 31, 1996
and March 2, 1996 3
Consolidated Results of Operations for the
Three Months and Six Months Ended
August 31, 1996 and September 2, 1995 4
Consolidated Statements of Cash Flows for
the Six Months Ended August 31, 1996
and September 2, 1995 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 4 Submission of matters to a Vote of Security Holders 11
Item 6. Exhibits 11
Exhibit Index 13
Exhibit 11 14
-2-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
August 31, March 2,
1996 1996
---------- --------
ASSETS
Current assets
Cash and cash equivalents (including restricted funds of
$63 and $208, respectively) $ 5,305 $ 7,389
Receivables, net of allowance for doubtful accounts 183,372 158,368
Inventories 59,584 54,484
Costs and earnings in excess of billings on uncompleted contracts 41,498 26,276
Deferred tax assets 5,365 6,689
Other current assets 5,729 5,353
-------- --------
Total current assets 300,853 258,559
-------- --------
Property, plant and equipment, net 110,979 78,485
Marketable securities - insurance subsidiary 14,887 12,231
Investments in and advances to affiliated companies -- 15,821
Investments 999 612
Intangible assets, at cost less accumulated amortization 16,776 10,332
Deferred tax assets 8,220 6,970
Other assets 2,248 3,126
-------- --------
Total assets $454,962 $386,136
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 68,981 $ 57,678
Accrued expenses 81,897 52,430
Billings in excess of costs and earnings on uncompleted contracts 31,709 19,470
Accrued income taxes 11,301 7,634
Current installments of long-term debt 5,254 5,265
-------- --------
Total current liabilities 199,142 142,477
-------- --------
Long-term debt 77,166 79,102
Other long-term liabilities 28,147 24,180
Minority interest 347 1,456
Shareholders' equity
Common stock, $.33 1/3 par value; authorized 50,000,000 shares; issued
and outstanding 13,660,000 and 13,517,000 shares, respectively 4,553 4,506
Additional paid-in capital 23,387 20,445
Retained earnings 123,366 113,970
Unamortized deferred compensation (1,000) --
Unrealized loss on marketable securities (146) --
-------- --------
Total shareholders' equity 150,160 138,921
-------- --------
Total liabilities and shareholders' equity $454,962 $386,136
======== ========
See accompanying notes to consolidated financial statements.
-3-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
AUGUST 31, 1996 AND SEPTEMBER 2, 1995
(Thousands of Dollars Except Share and Per Share Amounts)
Three Months Ended Six Months Ended
------------------------- ---------------------------
August 31, September 2, August 31, September 2,
1996 1995 1996 1995
---------- ----------- ----------- -----------
Net sales $253,154 $222,186 $481,762 $441,218
Cost of sales 210,838 190,362 403,059 377,469
-------- -------- -------- --------
Gross profit 42,316 31,824 78,703 63,749
Selling, general and
administrative expenses 27,792 21,126 53,822 45,253
-------- -------- -------- --------
Operating income 14,524 10,698 24,881 18,496
Interest expense, net 1,901 1,711 4,256 3,463
Other income, net --- (161) --- (161)
-------- -------- -------- --------
Earnings before below taxes
and other items below 12,623 9,148 20,625 15,194
Income taxes 4,629 3,301 7,583 5,698
Equity in net loss of
affiliated companies --- 226 60 149
Minority Interest 14 (25) 26 220
-------- -------- -------- --------
Net earnings $ 7,980 $ 5,646 $ 12,956 $ 9,127
======== ======== ======== ========
Earnings per share: $ .57 $ .41 $ .93 $ .67
======== ======== ======== ========
Weighted average number of
common shares and common share
equivalents outstanding 14,008,000 13,637,000 13,919,000 13,630,000
========== ========== ========== ==========
Cash dividends per common
share $ .085 $ .08 $ .17 $ .16
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
-4-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 1996 AND SEPTEMBER 2, 1995
(Thousands of Dollars)
1996 1995
---- ----
OPERATING ACTIVITIES
Net earnings $ 12,956 $ 9,127
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 11,945 8,283
Provision for losses on accounts receivable 987 632
Deferred income tax expense 374 (1,200)
Gain on sale of Nanik Window Coverings Group --- (4,709)
Equity in net loss of affiliated
companies 60 149
Minority interest 26 220
Other, net 452 (343)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (21,098) (3,892)
Inventories (2,563) (5,280)
Costs and earnings in excess of billings on
uncompleted contracts (15,222) 2,197
Other current assets 30 1,959
Accounts payable and accrued expenses (1) 33,370 1,671
Billings in excess of costs and earnings
on uncompleted contracts 12,239 (988)
Accrued income taxes 3,358 (430)
Other long-term liabilities 3,967 780
-------- -------
Net cash provided by operating activities 40,881 8,176
-------- -------
INVESTING ACTIVITIES
Capital expenditures (15,087) (9,536)
Acquisition of businesses, net of cash acquired (1) (23,671) (446)
Investments in and advances to affiliated companies --- (2,807)
Increase in marketable securities (2,802) ---
Proceeds from sale of Nanik Window Coverings Group --- 18,250
Proceeds from sale of property and equipment 1,853 296
Other, net (684) (65)
--------- -------
Net cash (used in) provided by investing activities (40,391) 5,692
--------- -------
FINANCING ACTIVITIES
Increase in notes payable --- 535
Payments on long-term debt (1,947) (1,030)
Proceeds from issuance of common stock 3,091 819
Purchase and retirement of common stock (1,396) (240)
Dividends paid (2,322) (2,160)
--------- -------
Net cash (used in) financing activities (2,574) (2,076)
--------- -------
(Decrease)/increase in cash (2,084) 11,792
Cash and cash equivalents at beginning of period 7,389 2,894
--------- -------
Cash and cash equivalents at end of period $ 5,305 $14,686
========= =======
(1) The estimated cost of the Marcon and Viratec acquisition, subject to the
determination of the Court as described on page 8, included in investing
activities is offset by an increase in accrued expenses included 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
August 31, 1996 and March 2, 1996, the results of operations for the three
months and six months ended August 31, 1996 and September 2, 1995 and cash
flows for the six months ended August 31, 1996 and September 2, 1995.
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
consolidated financial statements and notes.
The results of operations for the six-month period ended August 31, 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. The first quarter of fiscal 1997 consisted of 13
weeks while the first quarter of fiscal 1996 had 14 weeks. Consequently,
Fiscal 1997 is a fifty-two week year while fiscal 1996 was a fifty-three
week year.
2. INVENTORIES
Inventories consist of the following:
August 31, March 2,
1996 1996
---------- --------
Raw materials and supplies $12,378 $10,402
In process 4,908 3,964
Finished goods 42,298 40,118
------ ------
$59,584 $54,484
====== ======
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SALES AND EARNINGS
- ------------------
Record second quarter net earnings of $8.0 million, or 57 cents per share, were
39% greater than last year's $5.6 million, or 41 cents a share. Revenues rose
14%, to $253 million, from $222 million a year ago. Year-to-date net earnings
rose 42% to $13 million, or 93 cents per share, from $9.1 million, or 67 cents
per share, a year ago. Revenues for the first six months increased 9%, to $482
million compared to $441 million a year ago.
The following table presents the percentage change in sales and operating income
for the Company's three segments and on a consolidated basis, for three and six
months when compared to the corresponding periods a year ago.
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
AUG. 31, SEPT. 2, % AUG. 31, SEPT. 2, %
1996 1995 CHG 1996 1995 CHG
====================================== ======================================
SALES
Building products & services $ 122,012 $ 115,886 5 $ 231,202 $ 227,045 2
Glass technologies 49,474 34,735 42 93,743 73,632 27
Auto glass 84,429 75,031 13 162,847 147,532 10
Eliminations -2,761 -3,466 -20 -6,030 -6,991 -14
-------------------------------------- --------------------------------------
Total $ 253,154 $ 222,186 14 $ 481,762 $ 441,218 9
====================================== ======================================
OPERATING INCOME
Building products & services $ 2,125 $ -1,304 NM $ 2,686 $ -2,303 NM
Glass technologies 3,904 3,483 12 7,927 6,967 14
Auto glass 8,769 8,090 8 14,974 13,663 10
Corporate and other -274 429 NM -706 169 NM
-------------------------------------- --------------------------------------
Total $ 14,524 $ 10,698 36 $ 24,881 $ 18,496 35
====================================== ======================================
Building Products & Services (BPS)
- ----------------------------------
BPS's continued focus on profitability improvement produced a nominal operating
income in the second quarter. The segment's revenue gain reflected strong
activity levels at all of BPS's units. When adjusted for the July 1995
divestiture of the Nanik group revenues grew 10% on a comparative basis. The
segment's operating income gain was a result of cost reductions and operating
efficiencies at the segment's Harmon Contract and Wausau Architectural Products
operating units.
BPS has reported three consecutive quarters of operating income and it currently
anticipates favorable year over year comparisons for the remainder of the fiscal
year.
Glass Technologies (GT)
- -----------------------
As a result of the litigation and court proceedings described in the next
paragraph, Marcon Coatings (Marcon) and Viratec Thin Films (Viratec) were
consolidated in Apogee's financial statements beginning with this fiscal year,
and are reflected in the GT segment. Through fiscal 1996, Marcon and Viratec
were accounted by the equity method, with the 50% equity in Marcon's and
Viratec's net earnings included in "Equity in net earnings of affiliated
companies" in Apogee's Consolidated Results of Operations.
In November 1995, Apogee's 50% joint venture partner (JV Partner) in
Marcon/Viratec commenced litigation against Apogee, alleging claims for damages
and seeking to have the Minnesota State Court (Court) order Apogee to sell its
50% interest to the JV Partner. Apogee filed counterclaims seeking to have the
JV Partner's 50% interest sold to Apogee. In March 1996, the Court ordered the
JV partner to sell shares representing its 50% interest in Marcon/Viratec to
Apogee upon payment by Apogee of fair value for those shares as determined by
the Court. The JV Partner's rights and status as shareholder, its related
rights to appoint directors, were terminated as of the effective date of the
order and the fair value for the shares is to be determined by the Court after
further proceedings. The Court has not yet scheduled a trial or hearing to
determine fair value. In April 1996, the Court
-7-
ordered Apogee to post security of $50 million for the ultimate payment of the
purchase price for the JV Partner's shares. Accordingly, Apogee posted a letter
of credit in the amount of $50 million in May 1996. The amount of the letter of
credit is intended as security and is not intended to reflect the Court's view
on the fair value for the shares. The Court has taken under advisement certain
motions brought by the parties, including a motion by the JV Partner for
reconsideration of the March 4, 1996 order terminating its rights and status as
a shareholder.
GT's second quarter produced double-digit percentage revenue and earnings gains
when compared to the same period a year ago. After adjusting for the inclusion
of Marcon and Viratec, revenues were up 22% on a quarter to quarter comparison.
The growth was largely due to record bookings and strong demand experienced at
Viracon, the segment's high-performance architectural glass fabricator. The unit
increased its capacity by 25% this year and is moving forward with additional
production capacity expansion plans to meet the current and expected future
demand for its products. Viracon is currently booking production into next
spring.
Viratec's results have been less than were anticipated by the Company at the
beginning of the fiscal year. Depressed sales and lower earnings are a result of
pricing pressures in the flat glass business and weak demand for its direct
coatings business. GT's Tru Vue, the custom picture framing glass unit, reported
solid earnings during the quarter and margin improvements largely due to
favorable material costs.
Through fiscal year end, GT currently anticipates current product demand levels
to lead to further profit growth for its Viracon and Tru Vue units, while
Viratec is expected to face continued pricing issues and soft product demand.
Auto Glass (AG)
- ---------------
AG achieved solid earnings and revenue gains during the quarter. The growth in
operating income occurred despite a charge that was taken due to obsolescent
inventories. Excluding the write-down on inventories, operating income would
have increased 21%. The segment also reported a 6.7% improvement in same-
location sales. The segment's windshield fabricating unit generated higher
windshield sales for the quarter, outpacing industry measures. AG continues to
benefit from a modest industry-wide price increase instituted last spring.
For the first six months, the segment opened 6 distribution centers and 15
retail locations while closing 1 distribution center and 7 retail locations for
a quarter end total of 63 and 262, respectively. The segment also has 8 Midas
Muffler franchises. Expansion opportunities, including both possible
acquisitions and start-up operations, continued to be investigated.
AG continues to anticipate a solid operating profit for the remainder of the
fiscal year. However, wavering demand for automotive replacement glass and price
fluctuations, may cause the segment to report earning deviations on a quarter to
quarter comparison, particularly in the latter half of the fiscal year,
traditionally the segment's seasonally slower time of the year.
Backlog
- -------
On August 31, 1996, Apogee's consolidated backlog stood at $399 million, up 7%
from the $374 million reported a year ago, but down 8% from first quarter. While
all three segments reported mixed changes from first quarter, the most notable
negative variances occurred at BPS's New Construction-International (down 8%)
and GT's Viratec (down 24%) units. Backlog growth was reported at BPS's
Detention and Wausau Architectural Products (Wausau Metals).
-8-
Consolidated
- ------------
The following table compares quarterly results with year-ago results, as a
percentage of sales, for each caption.
Three Months Six Months
Ended Ended
--------------------------------- ---------------------------------
Aug. 31, 1996 Sept. 2, 1995 Aug. 31, 1996 Sept. 2, 1995
------------- ------------- ------------- -------------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 83.3 85.7 83.7 85.6
----- ----- ----- -----
Gross profit 16.7 14.3 16.3 14.4
Selling, general and administrative expenses 11.0 9.5 11.2 10.3
----- ----- ----- -----
Operating income 5.7 4.8 5.2 4.2
Interest expense, net 0.8 0.8 0.9 0.8
Other income, net - (0.1) - -
----- ----- ----- -----
Earnings before income taxes
and other items below 5.0 4.1 4.3 3.4
Income taxes 1.8 1.5 1.6 1.3
Equity in net earnings of affiliated companies - 0.1 - -
Minority interest - - - -
----- ----- ----- -----
Net earnings 3.2 2.5 2.7 2.1
===== ===== ===== =====
Income tax rate 36.7% 36.1% 36.8% 37.5%
===== ===== ===== =====
On a consolidated basis for the three-month and six-month periods, gross profit,
as a percentage of net sales, rose primarily due to BPS's focus on margin
improvement instituted in fiscal 1995. The growth was slightly offset by lower
margins at AG's Curvlite unit as a result of tighter pricing in the auto glass
fabricating market. Selling, general and administrative expenses (SG & A)
increased largely due to higher commissions and profit sharing expenses relating
to higher sales activity and earnings growth. Net interest expense rose despite
a decline in borrowing levels. The increase reflects the accrual of interest
connected with the Viratec and Marcon matter discussed on previous pages.
The effective income tax rate of 36.8% increased slightly due to increased
domestic income in the Company's jurisdictional mix.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash balances were lower at quarter end as cash was used to pay down borrowing
levels. Receivables, inventories and costs in excess of billings increased
reflecting higher sales levels due to the seasonality of the businesses.
Accrued expenses, accounts payable and billings in excess of costs also grew
with the increased activity levels. Despite the 14% sales growth, consolidated
working capital of $101.7 million was 20% lower than last year's $127.7 million
as current liabilities related to higher activity and the Viratec and Marcon
matter out-paced current asset growth. Borrowing levels declined modestly from
year end. Total debt of $82.4 million at August 31, 1996, represented 30% of
invested capital.
Additions to property, plant and equipment totaled $15.1 million for the first
half of the fiscal year. Major components of these additions included
expenditures for information processing systems and facility expansion. For
information relating to the purchase of Marcon and Viratec, please see the cash
flow statement on page 5 and related footnote.
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 for the fiscal year ended March 2, 1996
and include, without limitation, cautionary statements regarding (i) industry
conditions, including that the industries in which the business segments compete
are cyclical in nature and sensitive to changes in general economic conditions,
(ii) the competitive environment in which the Company's business segments
operate, including
-9-
that the industries are highly competitive and fairly mature, and (iii) the
Company's international operations 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 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Apogee Enterprises, Inc. Annual Meeting of Shareholders was held on June 18,
1996. The total number of outstanding shares on the record date for the Annual
Meeting was 13,538,244. Eighty-one percent of the total outstanding shares were
represented in person or by proxy at the meeting.
The candidates for election as Class I Directors listed in the proxy statement
were elected to serve three-year terms, expiring at the 1999 annual meeting. The
proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company was also approved. The results of these matters voted
upon by shareholders are listed below.
Number of Shares
----------------
In Favor Withheld Abstained
-------- -------- ---------
Election of Class I Directors:
Barbara B. Grogan 10,489,258 416,117
Stephen C. Mitchell 10,432,589 472,777
D. Eugene Nugent 10,432,887 472,488
Ratification of the appointment
of KPMG Peat Marwick LLP as
independent auditors 10,723,762 108,082 73,534
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-
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: October 15, 1996 /s/ Terry L. Hall
---------------------------- -----------------------------------------
Terry L. Hall
Vice President of Finance and Chief
Financial Officer
Date: October 15, 1996 /s/ Percy C. Tomlinson Jr.
----------------------------- -----------------------------------------
Percy C. Tomlinson Jr.
Treasurer and Secretary
12
EXHIBIT INDEX
Exhibit Page
- ------- ----
Exhibit 11 Statement of Determination of Common Shares
and Common Share Equivalents 13
Exhibit 27 Financial Data Schedule (EDGAR filing only) 14
13
EXHIBIT 11
STATEMENT OF DETERMINATION OF COMMON SHARES AND COMMON SHARE EQUIVALENTS
------------------------------------------------------------------------
Average No. of Common Average No. of Common
Shares & Common Share Shares & Common Share
Equivalents Assumed to Equivalents Assumed to
be Outstanding During be Outstanding During
the Three Months Ended the Six Months Ended
----------------------------------- -------------------------------
August 31, September 2, August 31, September 2,
1996 1995 1996 1995
---------- ----------- ---------- -----------
Weighted average number of
common shares outstanding (a) 13,678,988 13,482,119 13,625,221 13,450,941
Common share equivalents
resulting from the assumed
exercise of stock options (b) 328,538 154,499 294,104 158,707
---------- ---------- ---------- ----------
Total primary common shares
and common share equivalents 14,007,526 13,636,618 13,919,325 13,609,648
========== ========== ========== ==========
(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.
14
5
1,000
6-MOS
MAR-01-1997
MAR-03-1996
AUG-31-1996
5,305
0
191,836
8,464
59,584
300,853
227,524
116,545
454,962
199,142
0
4,553
0
0
145,607
454,962
481,762
481,762
403,059
52,835
0
987
4,256
20,625
7,583
12,956
0
0
0
12,956
0.93
0.93
