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 30, 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 September 30, 1997
- ---------------------------------- ---------------------------------
Common Stock, $.33-1/3 Par Value 27,853,952
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED AUGUST 30, 1997
Description Page
----------- ----
PART I
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of August 30, 1997
and March 1, 1997 3
Consolidated Results of Operations for the
Three Months and Six Months Ended
August 30, 1997 and August 31, 1996 4
Consolidated Statements of Cash Flows for
the Six Months Ended August 30, 1997 and
August 31, 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 4 Submission of matters to a Vote of Security Holders 11
Item 6. Exhibits 11
Exhibit Index 13
Exhibit 11 14
Exhibit 27 (EDGAR filing only)
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
August 30, March 1,
1997 1997
--------- ----------
ASSETS
Current assets
Cash and cash equivalents (including restricted
funds of $-0- and $208, respectively) $ 8,547 $ 4,065
Receivables, net of allowance for doubtful
accounts 183,921 204,259
Inventories 63,475 58,261
Costs and earnings in excess of billings on
uncompleted contracts 18,696 25,653
Refundable income taxes - 1,004
Deferred tax assets 5,037 4,486
Other current assets 4,967 7,466
-------- ---------
Total current assets 284,642 305,194
-------- ---------
Property, plant and equipment, net 126,032 118,799
Marketable securities - available for sale 28,188 19,656
Investments 984 738
Intangible assets, at cost less accumulated
amortization 51,608 52,431
Deferred tax assets 1,090 1,090
Other assets 2,382 3,036
-------- ---------
Total assets $494,927 $500,964
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 60,365 $ 73,325
Accrued expenses 60,752 61,435
Billings in excess of costs and earnings
on uncompleted contracts 36,183 40,154
Accrued income taxes 6,047 -
Current installments of long-term debt 1,671 1,707
-------- ---------
Total current liabilities 165,018 176,621
-------- ---------
Long-term debt 125,183 127,640
Other long-term liabilities 22,825 24,554
Shareholders' equity
Common stock, $.33 1/3 par value; authorized
50,000,000 shares; issued and outstanding
27,818,000 and 27,882,000 9,273 9,294
shares, respectively
Additional paid-in capital 38,298 34,686
Retained earnings 137,025 129,424
Cumulative translation adjustment and unearned
compensation (2,695) (1,255)
-------- ---------
Total shareholders' equity 181,901 172,149
-------- ---------
Total liabilities and shareholders' equity $494,927 $500,964
======== =========
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 30, 1997 AND AUGUST 31, 1996
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
------------------------------------- --------------------------------------
August 30, 1997 August 31, 1996 August 30, 1997 August 31, 1996
---------------- ------------------ ------------------ ------------------
Net Sales $ 253,072 $ 253,154 $ 497,854 $ 481,762
Cost of sales 204,220 205,865 403,321 397,942
---------------- ------------------ ------------------ ------------------
Gross profit 48,852 47,289 94,533 83,820
Selling, general and
administrative expenses 32,221 32,765 64,574 58,939
---------------- ------------------ ------------------ ------------------
Operating income 16,631 14,524 29,959 24,881
Interest expense, net 1,755 1,901 4,059 4,256
---------------- ------------------ ------------------ ------------------
Earnings before income
taxes 14,876 12,623 25,900 20,625
and other items below
Income taxes 5,065 4,629 9,065 7,583
Equity in net loss of
affiliated 154 - 404 60
companies
Minority interest - 14 - 26
---------------- ------------------ ------------------ ------------------
Net Earnings $ 9,657 $ 7,980 $ 16,431 $ 12,956
================ ================== ================== ==================
Earnings per share $ 0.34 $ 0.28 $ 0.58 $0.47
================ ================== ================== ==================
Weighted average number of
common shares and common
share equivalents outstanding 28,441,000 28,015,000 28,475,000 27,839,000
================ ================== ================== ==================
Cash dividends per common share $ .045 $ 0.040 $ 0.090 $.080
================ ================== ================== ==================
-4-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 30, 1997 AND AUGUST 31, 1996
(Thousands of Dollars)
1997 1996
------- --------
OPERATING ACTIVITIES
Net earnings 16,431 $ 12,956
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 11,890 11,945
Provision for losses on accounts receivable 353 987
Deferred income tax (benefit) expense (551) 374
Minority interest - 26
Equity in net earnings of affiliated companies 404 60
Other, net 1,595 452
------- --------
Changes in operating assets and liabilities,
net of effect of acquisitions 30,122 26,800
Receivables 17,353 (21,098)
Inventories (5,102) (2,563)
Costs and earnings in excess of
billings on uncompleted contracts 6,377 (15,222)
Other current assets 2,512 30
Accounts payable and accrued expenses (1) (10,514) 33,370
Billings in excess of costs and earnings on
uncompleted (3,971) 12,239
contracts
Accrued income taxes 7,451 3,358
Other long-term liabilities (2,663) 3,967
------- --------
Net cash provided by operating activities 41,565 40,881
------- --------
INVESTING ACTIVITIES
Capital expenditures (18,218) (15,087)
Acquisition of businesses, net of cash acquired (1) (500) (23,671)
Increase in marketable securities (8,405) (2,802)
Proceeds from sale of property and equipment 108 1,853
Other, net (1,578) (684)
------- --------
Net cash used in investing activities (28,593) (40,391)
------- --------
FINANCING ACTIVITIES
Payments on long-term debt (2,493) (1,947)
Proceeds from issuance of long-term debt - -
Repurchase and retirement of common stock (7,017) (1,396)
Proceeds from issuance of common stock 3,517 3,091
Dividends paid (2,497) (2,322)
------- --------
Net cash provided by financing activities (8,490) (2,574)
------- --------
Increase in cash 4,482 (2,084)
Cash at beginning of period 4,065 7,389
------- --------
Cash at end of period $ 8,547 $ 5,305
======= ========
(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
August 30, 1997 and August 31, 1996, the results of operations for the three
months and six months ended August 30, 1997 and August 31, 1996 and cash
flows for the six months ended August 30, 1997 and August 31, 1996.
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.
Certain amounts from prior-years' financial statements have been
reclassified to conform with this year's presentation.
The results of operations for the six-month period ended August 30, 1997 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. INVENTORIES
Inventories consist of the following:
August 30, 1997 March 1, 1997
----------------- ----------------
Raw materials and supplies $17,287 $14,760
In process 4,674 3,863
Finished goods 41,514 39,638
----------------- ----------------
$63,475 $58,261
================= ================
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SALES AND EARNINGS
- ------------------
Record second quarter net earnings of $9.7 million, or 34 cents per share, were
21% greater than last year's $8.0 million, or 28 cents per share. Revenues for
the quarter were even with a year ago at $253 million. Year-to-date net
earnings rose 27% to $16.4 million, or 58 cents per share, from $13.0 million,
or 47 cents per share, a year ago. Revenues for the first six months increased
3%, to $498 million compared to $482 million a year ago.
The following table presents the percentage change in net 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
------------------------------------- -------------------------------------
August 30, August 31, % August 30, August 31, %
(In Thousands) 1997 1996 Chg 1997 1996 Chg
------------------------------------- -------------------------------------
NET SALES
Glass technologies $ 58,005 $ 49,474 17 $ 110,050 $ 93,743 17
Auto glass 97,296 84,429 15 187,553 162,847 15
Building products & 100,464 122,012 (18) 205,187 231,202 (11)
services
Intersegment eliminations (2,693) (2,761) (2) (4,936) (6,030) (18)
------------------------------------- -------------------------------------
Total $ 253,072 $ 253,154 - $ 497,854 $ 481,762 3
===================================== =====================================
OPERATING INCOME
Glass technologies $ 7,907 $ 3,904 103 $ 13,184 $ 7,927 66
Auto glass 11,417 8,769 30 17,762 14,974 19
Building products & (2,374) 2,125 N/M (640) 2,686 N/M
services
Corporate and other (319) (274) 16 (347) (706) 51
------------------------------------- -------------------------------------
Total $ 16,631 $ 14,524 15 $ 29,959 $ 24,881 20
===================================== =====================================
Glass Technologies (GT)
- -----------------------
GT's second quarter produced significant revenue and earnings gains when
compared to the same period a year ago. The growth was largely due to strong
product demand along with improved product mix experienced at Viracon, the
segment's high-performance architectural glass fabricator. Tru Vue, the
segment's custom picture framing glass unit, also reported revenue and earning
gains, largely due to increased volume.
Viratec Thin Films (Viratec) had modest operating income versus last year's
small operating loss. Viratec's flat glass operations continued to show solid
results and reported marked improvement in its coating of curved glass surfaces
of cathode ray tubes (CaRT). The CaRT line operated at a modest profit for the
quarter. However, the unit needs to significantly improve volumes for the CaRT
line to achieve adequate returns. The unit is currently expanding the capacity
of both its flat glass and CaRT operations.
Based on its backlog and strong demand for its products, GT currently
anticipates year-over-year profit growth for all of its units during the
latter half of fiscal 1998.
Auto Glass (AG)
- ---------------
AG achieved double-digit growth in both revenues and earnings during the
quarter. Approximately one-half of the revenue growth was due to the fourth
quarter fiscal 1997 acquisition of Portland Glass. The earnings growth was due
in part to better selling prices and cost reductions at the retail and
distribution units. During the quarter, same-location sales rose slightly from a
year-ago quarter. Curvlite, the segment's
-7-
windshield fabricating unit, had higher revenues and reported solid earnings
growth, due in part to a modest price improvement.
At the close of the first six months, the segment had 323 retail and
distribution locations in over 40 states.
Despite solid earnings results through six months, uncertain demand for
automotive replacement glass may cause the segment to report quarterly earning
deviations, particularly in the latter half of the fiscal year, the segment's
seasonally slower time of the year.
Building Products & Services (BPS)
- ----------------------------------
BPS reported an operating loss for the second quarter compared with operating
income for the same period a year ago. The loss was primarily due to a
single curtainwall project in the New Construction unit's European operations.
New Construction's domestic operations had a solid operating profit for the
quarter and showed marked improvement for the period over a year ago. The
unit's focus on job selection and cost reductions resulted in lower revenues
with improved margins. The Architectural Products, Detention & Security and
Full Service units continued to turn out improved operating results. Improved
volume levels along with good product mix led to both revenue and earnings
growth for these units.
In an August 21, 1997 press release, the Company announced a restructuring
charge for BPS's New Construction curtainwall unit. The Company anticipates
taking a third-quarter after tax charge of between $11 million and $16 million
to exit the unit's Asian operations and rationalize its excess manufacturing
capacity in Europe.
BPS plans to continue its focus on cost reductions and process improvements,
particularly for its European operations, while looking to grow its profitable
operations. It currently anticipates favorable year over year comparisons for
its New Construction domestic operations and other operating units, but
overseas operating losses from New Construction activities will continue to
adversely influence earnings, possibly resulting in operating losses for the
remainder of the year.
Backlog
- -------
On August 30, 1998, Apogee's consolidated backlog stood at $332 million, down
17% from the $399 million reported a year ago. The most notable variances were
sizable declines in the BPS's New Construction unit's Asian and European
backlogs.
-8-
Consolidated
- ------------
The following table compares quarterly results with year-ago results, as a
percentage of sales, for each caption.
Three Months Ended Six Months Ended
------------------------- -----------------------
Aug. 30, Aug. 31, Aug. 30, Aug. 31,
1997 1996 1997 1996
------------------------- -----------------------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 80.7 81.3 81.0 82.6
------------------------- -----------------------
Gross profit 19.3 18.7 19..0 17.4
Selling, general and administrative 12.7 12.9 13.0 12.2
expenses
------------------------- -----------------------
Operating income 6.6 5.7 6.0 5.2
Interest expense, net 0.7 0.8 0.8 0.9
------------------------- -----------------------
Earnings before income taxes
and other items below 5.9 5.0 5.2 4.3
Income taxes 2.0 1.8 1.8 1.6
Equity in net earnings of affiliated 0.1 - 0.1 -
companies
Minority interest - - - -
------------------------- -----------------------
Net earnings 3.8 3.2 3.3 2.7
========================= =======================
Income tax rate 34.0% 36.7% 35.0% 36.8%
On a consolidated basis for the three-month and six-month periods, gross
profit, as a percentage of net sales, rose as AG and GT reported slightly
better pricing and volume growth and BPS reported improved margins for all but
its international operations. In addition, the change in sales mix away from
the lower-margin curtainwall business also contributed to the improvement. The
Company's gross margin also improved due to notably lower insurance costs.
Selling, general and administrative expenses (SG & A) were flat for the second
quarter due to Company-wide efforts to control such costs. Net interest
expense dipped slightly due to lower interest rates and a decline in borrowing
levels. The decrease reflected better cash flow and a reduction in working
capital needs.
The effective income tax rate of 35% decreased due to changes in the domestic
and international jurisdictional mix of the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash balances were higher at quarter-end due partly to strong receivable
collections. Receivables and costs in excess of billings decreased reflecting
closure on some longer-term projects at BPS. Inventories grew with the higher
sales levels due to the seasonality of many of the Company's businesses.
Accrued expenses, accounts payable and billings in excess of costs also
declined. Borrowing levels declined modestly from year end. Total debt of
$150 million at August 30, 1997, represented 45% of invested capital.
-9-
Additions to property, plant and equipment totaled $18.2 million for the first
half of the fiscal year. Major components of these additions included
expenditures for facility expansion and improvement of information systems at
all segments.
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 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Apogee Enterprises, Inc. Annual Meeting of Shareholders was held on June 17,
1997. The total number of outstanding shares on the record date for the Annual
Meeting was 27,982,038. Seventy-five percent of the total outstanding shares
were represented in person or by proxy at the meeting.
The candidates for election as Class II Directors listed in the proxy statement
were elected to serve three-year terms, expiring at the 2000 annual meeting.
The proposals to approve the 1997 Omnibus Stock Incentive Plan and to ratify the
appointment of KPMG Peat Marwick LLP as independent auditors for the Company for
the 1998 fiscal year were also approved. The results of these matters voted
upon by the shareholders are listed below.
Number of Shares
-----------------------------------------------
In Favor Withheld Abstained
------------- -------------- --------------
Election of Class II Directors
Harry A. Hammerly 20,564,318 418,419
Laurence J. Niederhofer 20,402,265 580,472
Approval of the 1997
Omnibus Stock Incentive Plan 15,683,361 5,193,167 106,209
Ratification of the appointment
of KPMG Peat Marwick LLP
as independent auditors 20,722,643 21,243 238,851
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) Registrant filed a Current Report Form 8-K, dated August 21, 1997,
announcing the Company's plan to record a third quarter restructuring
charge for its New Construction international operations.
-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: October 14, 1997 /s/ Donald W. Goldfus
--------------------------- ---------------------
Donald W. Goldfus
Chairman of the Board,
Chief Executive Officer and President
Date: October 14, 1997 /s/ Terry L. Hall
---------------------------- -----------------
Terry L. Hall
Vice President Finance and
Chief Financial Officer
-12-
EXHIBIT INDEX
Exhibit Page
- ------- ----
Exhibit 11 Statement of Determination of Common Shares
and Common Share Equivalents 14
Exhibit 27 Financial Data Schedule (EDGAR filing only) 15
-13-
EXHIBIT 11
STATEMENT OF DETERMINATION OF COMMON SHARES
--------------------------------------------
AND
---
COMMON SHARE EQUIVALENTS
------------------------
Average No. of Common Shares Average No. of Common Shares
& Common Share Equivalents & Common Share Equivalents
Assumed to be Outstanding Assumed to be Outstanding
During the Three Months Ended: During the Six Months Ended:
------------------------------- ------------------------------
August 30, August 31, August 30, August 31,
1997 1996 (c) 1997 1996 (c)
-------------- ------------- ------------ --------------
Weighted average number of
common shares outstanding (a) 27,764,591 27,357,976 27,834,265 27,250,442
Common share equivalents
resulting from the assumed 676,527 657,076 640,998 588,208
exercise of stock options (b)
-------------- ------------- ------------- --------------
Total primary common shares
and common share equivalents 28,441,118 28,015,026 28,475,263 27,838,650
============== ============= ============= ==============
(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
MAY-31-1997
AUG-30-1997
8,547
28,188
191,214
7,293
63,475
284,642
257,795
131,763
494,927
165,018
0
0
0
9,273
172,628
494,927
253,072
253,072
204,220
31,868
0
353
1,753
14,876
5,065
0
0
0
0
9,657
0.34
0.34
