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 November 29, 1997May 30, 1998 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_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 December 31, 1997June 30, 1998
- --------------------------------- ------------------------------------------------------------
Common Stock, $.33-1/$.33 1/3 Par Value 27,798,190
-1-27,583,435
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED NOVEMBER 29, 1997MAY 30, 1998
Description Page
----------- ----
PART I
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of November 29, 1997May 30, 1998
and March 1, 1997February 28, 1998 3
Consolidated Results of Operations for the
Three MonthsQuarters Ended May 30, 1998 and Nine Months Ended
November 29,May 31, 1997 and November 30, 1996 4
Consolidated Statements of Cash Flows for the
Nine MonthsQuarters Ended November 29,May 30, 1998 and May 31, 1997 and November 30, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-107-11
PART II Other Information
- -------
Item 5. Other Information 12
Item 6. Exhibits 11
Exhibitand Reports on Form 8-K 12
Exhibits Index 13
Exhibit 11 14
Exhibit 27 (EDGAR filing only)
-2-2
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
November 29, March 1,
1997 1997
------------- --------------May 30, 1998 February 28, 1998
------------ -----------------
ASSETS
ASSETS
Current assets
Cash and cash equivalents (including restricted funds of
$-0- and $208, respectively) $ 3,00911,701 $ 4,0657,853
Receivables, net of allowance for doubtful accounts 186,489 204,259148,823 145,121
Inventories 65,917 58,26163,908 64,183
Costs and earnings in excess of billings on uncompleted
contracts 19,361 25,6538,939 6,796
Refundable income taxes - 1,0046,573 16,533
Deferred tax assets 11,149 4,48612,955 14,218
Other current assets 5,165 7,466
------------- --------------5,968 7,540
--------- ---------
Total current assets 291,090 305,194
------------- --------------258,867 262,244
--------- ---------
Property, plant and equipment, net 128,992 118,799132,954 129,937
Marketable securities - available for sale 27,269 19,65626,738 18,706
Investments 934 738609 709
Intangible assets, at cost less accumulated amortization 51,401 52,451
Deferred tax assets 2,890 1,09057,061 50,500
Other assets 2,250 3,036
------------- --------------2,026 2,025
--------- ---------
Total assets $504,826 $500,964
============= ==============$ 478,255 $ 464,121
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 68,94259,573 $ 73,32544,055
Accrued expenses 69,203 61,435101,033 108,893
Billings in excess of costs and earnings on uncompleted
contracts 34,575 40,15424,572 23,141
Current installments of long-term debt 1,671 1,707
------------- --------------1,279 1,679
--------- ---------
Total current liabilities 174,391 176,621
------------- --------------186,457 177,768
--------- ---------
Long-term debt 136,151 127,640153,838 151,967
Other long-term liabilities 22,894 24,55424,481 24,785
Shareholders' equity
Common stock, $.33-1/$.33 1/3 par value; authorized 50,000,000
shares; issued and outstanding 27,897,00027,621,000 and 27,882,00027,453,000
shares, respectively 9,299 9,2949,207 9,151
Additional paid-in capital 39,208 34,68640,969 38,983
Retained earnings 125,088 129,424
Cumulative translation adjustment and unearned64,294 61,899
Unearned compensation (2,205) (1,255)
------------- --------------(1,188) (686)
Net unrealized gain on marketable securities 197 254
--------- ---------
Total shareholders' equity 171,390 172,149
------------- --------------113,479 109,601
--------- ---------
Total liabilities and shareholders' equity $504,826 $500,964
============= ==============$ 478,255 $ 464,121
========= =========
See accompanying notes to consolidated financial statements.
-3-3
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHSQUARTERS ENDED MAY 30, 1998 AND NINE MONTHS ENDED
NOVEMBER 29,MAY 31, 1997 AND NOVEMBER 30, 1996
(Thousands of Dollars Except Share and Per Share Amounts)
Three MonthsQuarter Ended
Nine Months Ended
------------------------------- ------------------------------
November 29, NovemberMay 30, November 29, November 30,1998 May 31, 1997
1996 1997 1996
------------- -------------- ------------- ------------------------- ------------
Net sales $ 250,946 $ 228,781 $ 748,800 $ 710,543$233,127 $223,851
Cost of sales 208,924 187,356 612,245 585,298
------------- -------------- ------------- -------------187,804 176,962
-------- --------
Gross profit 42,022 41,425 136,555 125,24545,323 46,889
Selling, general and administrative expenses 32,560 28,942 97,134 87,88136,045 32,353
Provision for restructuring and other unusual items 26,031 - 26,031 -
------------- -------------- ------------- --------------- 1,208
-------- --------
Operating income (loss) (16,569) 12,483 13,390 37,3649,278 13,328
Interest expense, net 1,510 1,912 5,569 6,168
------------- -------------- ------------- -------------2,646 2,304
-------- --------
Earnings (loss) before income taxes and other items below (18,079) 10,571 7,821 31,1966,632 11,024
Income taxes (7,894) 3,667 1,171 11,2502,454 4,000
Equity in net loss of affiliated companies 300 250
- 654 60
Minority interest - (698) - (672)
------------- -------------- ------------- --------------------- --------
Net earnings (loss) $ (10,435)3,878 $ 7,6026,774
======== ========
Earnings per share-Basic $ 5,9960.14 $ 20,558
============= ============== ============= =============0.24
======== ========
Earnings (loss) per share $(0.37)share-Diluted $ 0.27 $0.21 $0.74
============= ============== ============= =============
Weighted average number of
common shares and common
share equivalents outstanding 28,545,000 28,053,000 28,499,000 27,910,000
============= ============== ============= =============0.14 $ 0.24
======== ========
Cash dividends per common share $0.050$ 0.050 $ 0.045
$0.140 $0.125
============= ============== ============= ===================== ========
See accompanying notes to consolidated financial statements.
-4-4
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHSQUARTERS ENDED NOVEMBER 29,MAY 30, 1998 AND MAY 31, 1997 AND NOVEMBER 30, 1996
(Thousands of Dollars)
1998 1997
1996
----------- ------------------- --------
OPERATING ACTIVITIES
OPERATING ACTIVITIES
Net earnings $ 5,9963,878 $ 20,5586,774
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 18,394 17,3956,958 5,766
Provision benefit for losses on accounts receivable (282) 1,492639 408
Deferred income taxes (8,463) 486
Provision for restructuring and
and other unusual items 26,030 -
Foreign currency translation loss 4,097 -
Minority interest - (672)tax (benefit) expense 1,263 (1,738)
Equity in net lossearnings of affiliated companies 654 60300 250
Other, net 1,036 1,071(1) 1,742
Changes in operating assets and liabilities, net of effect of
acquisitions
Receivables 4,761 (36,936)(4,263) (1,342)
Inventories (7,544) (4,563)308 (3,970)
Costs and earnings in excess of billings on uncompleted
contracts 6,017 3,204(2,143) 8,443
Other current assets 2,314 (356)2,648 933
Accounts payable and accrued expenses (1) (10,994) 28,6156,929 (10,145)
Billings in excess of costs and earnings on uncompleted
contracts (5,579) 23,047
Accrued1,431 (151)
Refundable income taxes 1,754 2,897and accrued income taxes 9,991 9,967
Other long-term liabilities (2,345) 3,830
--------------- -------------(806) (4,297)
-------- --------
Net cash provided by operating activities 35,846 60,128
--------------- -------------27,132 12,640
-------- --------
INVESTING ACTIVITIES
Capital expenditures (27,998) (22,512)(9,483) (8,356)
Acquisition of businesses, net of cash acquired (1) (537) (28,969)(4,701) (500)
Increase in marketable securities (7,462) (4,896)(8,120) (6,821)
Investments in and advances to affiliated companies (200) (350)
Proceeds from sale of property and equipment 768 1,88968 77
Other, net (1,186) (649)
--------------- -------------(41) (62)
-------- --------
Net cash used in investing activities (36,415) (55,137)
--------------- -------------(22,477) (16,012)
-------- --------
FINANCING ACTIVITIES
Payments on long-term debt (1,114) (6,700)(526) (518)
Proceeds from issuance of long-term debt 9,589 -1,997 13,257
Repurchase and retirement of common stock (7,149) (1,396)(115) (5,289)
Proceeds from issuance of common stock 4,112 3,3802,056 2,825
Dividends paid (3,876) (3,555)
--------------- -------------(1,382) (1,246)
Increase in deferred debt expense (2,837) --
-------- --------
Net cash (used in) provided by financing activities 1,562 (8,271)
--------------- -------------(807) 9,029
-------- --------
Increase (decrease) in cash and cash equivalents before
effect of exchange rate changes on cash 993 (3,280)
Effect of exchange rate changes on cash (2,049) -
--------------- -------------
Decrease in cash and cash equivalents (1,056) (3,280)3,848 5,657
Cash at beginning of period 7,853 4,065
7,389
--------------- --------------------- --------
Cash at end of period $ 3,00911,701 $ 4,109
=============== =============9,722
======== ========
(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.
-5-5
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 November 29, 1997May 30, 1998 and March 1,May 31, 1997, and the results of operations for the
three months and nine months ended November 29, 1997 and November 30, 1996
and
cash flows for each of the nine monthsthirteen week periods ended November 29, 1997May 30, 1998 and
November 30,
1996.May 31, 1997. 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 consolidated financial statements and notes. The results of operations for
the nine-month periodthirteen week periods ended November 29,May 30, 1998 and May 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
During the first quarter of fiscal 1999, the Company adopted Statement
of Financial Accounting period
-----------------Standards No. 130 (FAS 130), "Reporting
Comprehensive Income." The adoption of FAS 130 had no effect on the
consolidated financial statements.
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
The following table presents a reconciliation of the denominators used
in the computation of basic and diluted earnings per share.
May 30, 1998 May 31, 1997
------------ ------------
Basic earnings per share-weighted
common shares outstanding
27,536,441 27,903,938
Weighted common share assumed upon
exercise of stock options
246,077 605,469
---------- ----------
Diluted earnings per share-weighted
common shares and common shares
equivalent outstanding
27,782,518 28,509,407
========== ==========
3. Inventories
Inventories consist of the following:
November 29, March 1,
1997 1997May 30, 1998 February 28, 1998
------------ ---------------------------
Raw materials and supplies $16,998 $14,760$19,835 $20,017
In process 4,233 3,8634,452 4,749
Finished goods 44,686 39,638
---------- ----------
$65,917 $58,261
========== ==========
-6-39,621 39,417
------- -------
$63,908 $64,183
======= =======
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SALES AND EARNINGS
- ------------------
For the third quarter ended November 29, 1997, Apogee reported a net loss of
$10.4 million, or 37 cents per share, compared with net earnings of $7.6
million, or 27 cents per share, which reflects the Company's 2:1 stock split
effective February 14, 1997. The Company's third quarter results included a
nonrecurring after-tax charge of $16.0 million, or 56 cents per share, related
to the Building Products & Services segment's curtainwall operations. Excluding
that charge, Apogee had net earnings of $5.6 million, or 20 cents per share.
Sales for the period rose 10% to $250.9 million, up from $228.8Net sales were $233.1 million, a year
ago.
For4% increase over the nine-month period ended November 29, 1997, Apogee's net earnings were
$6.0$223.9 million or 21 cents per share, compared with $20.6 million, or 74 cents
per share, reported a
year ago. Year-to-dateFirst quarter earnings fell 43% to $3.9 million, or 14 cents per
share, from $6.8 million, or 24 cents per share, a year ago. Last year's net
sales rose by 5%have been restated to $748.8
million.reflect the deconsolidation of the Company's
European curtainwall operations, reflecting our ceding of control over those
entities.
The following table presents the percentage change in net sales and operating income (loss)data for the Company's
three segments and on a consolidated basis for three and nine monthsthe first quarter, when compared
to the corresponding periodsperiod a year ago.
Three Months Ended Nine Months Ended
-------------------------------------------------------------------
Nov. 29, Nov. 30, % Nov. 29, Nov. 30, %
1997 1996 Chg 1997 1996 Chg
-------------------------------------------------------------------
NET SALES
Glass technologies $ 61,431 $ 50,133 23 $ 171,481 $ 143,876 19
Auto glass 83,971 73,553 14 271,524 236,400 15
Building products &
services 109,012 107,347 2 314,198 338,549 (7)
Eliminations (3,468) (2,252) 54 (8,403) (8,282) 1
-------------------------------------------------------------------
Total $ 250,946 $ 228,781 10 $ 748,800 $ 710,543 5
===================================================================
OPERATING INCOME (LOSS)
Glass technologies $ 8,228 $ 6,535 26 $ 21,412 $ 14,462 48
Auto glass 2,953 3,891 (24) 20,715 18,865 10
Building products &
services (27,473) 677 NM (28,113) 3,363 NM
Corporate and other (277) 1,380 NM (624) 674 NM
-------------------------------------------------------------------
Total $ (16,569) $ 12,483 NM $ 13,390 $ 37,364 (64)
===================================================================
Operating results are discussed below.
QUARTER ENDED
--------------------------
MAY 30, 1997 MAY 30, 1998 PERCENTAGE CHANGE
============ ============ =================
NET SALES
Glass technologies $ 52,045 $ 54,539 5
Auto glass 90,257 96,756 7
Building products & services $ 83,792 84,184 -
Eliminations (2,243) (2,352) 5
-------- ---------
Total $223,851 $ 233,127 4
======== =========
OPERATING INCOME (LOSS)
Glass technologies $ 5,277 $ 3,093 (41)
Auto glass 6,345 4,913 (23)
Building products & services $ 1,734 1,091 (37)
Corporate and other (28) 181 NM
-------- ---------
Total $ 13,328 $ 9,278 (30)
======== =========
Glass Technologies (GT)
- -----------------------
GT reported strong sales andFirst quarter earnings growth whendecreased to $3.1 million compared to $5.3 million in the
same period a
year ago. Operating income rose 26% asyear-ago quarter. Net sales increased 23%. Mostcontinued to improve increasing 5% over the prior
period. Earnings dipped due to the temporary suspension of Viratec's Optium(TM)
cathode ray tube (CRT) coating line in conjunction with its relocation from
Minnesota to the improvement came fromWest Coast, the effect of production expansion and softening in
selected products due to the Asian Crisis.
Viracon, the segment's largest operating unit, produced another quarter of
improved results, with earnings rising 26% on a sales gain of 13%. Customer
demand for Viracon's high-performance architectural glass fabricator, which continued to experience strong product demand and
improved product mix.products remained
strong. Despite its seasonally soft first quarter, the segment's Tru Vue unit
recorded a net sales improvement.
GT's Viratec unit reported an operating loss for the segment's custom picture framing glassquarter compared to
operating income a year earlier. In addition to the suspension of the Optium
coating line, GT's Viratec unit also reported higher revenues and solid earnings, bolsteredwas adversely affected by sales in advance
of the retail holiday season.
Viratec Thin Films (Viratec) reported mixed results. Viratec continued to
operate its coating of curved glass surfaces cathodes ray tubes (CaRT) business
at a modest profit. As reported earlier, this operation will need to
significantly improve order levels in order to achieve adequate returns. During
the quarter, the unit added 50 percent additional capacity to its CaRT line.
Viratec's overall operating earnings failed to match those of the first half of
the year primarily due to reduced operating income in its flat glass coating
operation, which experienced production downtime due to ongoing capacity
expansion. By quarter-end, the coater had returned to productive operation with
additional capacity.
Based on its backlog and stronglower demand for
its anti-glare filter and front-surface mirror products due to the economic
slowdown in Asia.
GT currently
anticipates year-over-yearcontinued to proceed with its announced capital expenditure program. The most
significant projects were the construction of a new Viracon facility in
Statesboro, Georgia, and the relocation of the Optium CRT coating line to a West
Coast location, as noted above. The Optium coating line is expected to be
operating by calendar year-end, while the Statesboro facility is anticipated to
begin generating significant sales and earnings growth in the fourth quarter ofnext fiscal 1998.
-7-year.
7
Auto Glass (AG)
- ---------------
Sales for AG rose $10.4continued its revenue improvements generating a net sales gain of 7% over the
prior period. Earnings decreased from $6.3 million to $84.0$4.9 million with about half of the sales
growth due to
the fourth quarter fiscal 1997 acquisition of Portland Glass. The
segment's revenue growth continued to outpace the industry. Market data
indicated that unit demand for replacement auto glassincreases in the U.S. fell
significantly year over year. Margin pressures intensified during the period,
particularly at the retail level. These pressures combined with higher selling and administrative costs produced a 24 percent declineexpenses. Such increases resulted from
investments in operating incomeinformation systems technology and an aggressive advertising
campaign. These investments are expected to $3.0 million. Earnings results forcontribute to future earnings.
On May 29, 1998, the segment acquired an 80% interest in VIS'N Service
Corporation (VIS'N), an insurance claims and policy processing outsource company
headquartered in Red Wing, Minnesota. This acquisition will expand the segment's
distributioncapabilities to outsource insurance claims and fabrication
businesses were flatpolicy processing beyond its
traditional auto glass market.
During the quarter, AG began to see additional sales as insurance companies
adjusted their allocations of business in response to a merger of two
industry participants. The segment also continued to proceed with a year ago.efforts to
improve productivity for its auto glass repair and replacement operations.
At November 29, 1997, the segmentclose of the first quarter, AG had 327346 retail in 40 states.
The fourth quarter is the segment's seasonally weakest periodlocations, 73 wholesale
depots and if industry
trends do not improve the segment could lose $1.0 million or more in that
quarter. Meanwhile, the segment is taking action to reduce its cost structure,
particularly in its retail operations.8 Midas Muffler franchises.
Building Products & Services (BPS)
- ----------------------------------
BPS reported a $27.5The Building Products & Services segment (BPS) earned $1.1 million operating loss forin the thirdfirst
quarter of fiscal 19981999 compared withto an operating incomeprofit of $0.7$1.7 million in the
samecomparable period a year ago. SegmentNet sales increased 2 percentwere flat compared to $109.0 million. The operating loss was
primarily duelast year, which
have been restated to a $26.0 million pre-tax provision for restructuring and other
unusual items mainly related toreflect the segment's internationaldeconsolidation of European curtainwall
operations. ExcludingLast year's results benefited from the charge, internationalcompletion of one significant
curtainwall operations still
posted an operating loss of $5.0 million, mainly due to foreign currency
translation losses in Malaysia, where the Company held retainage receivables
related to several projects, included the already completed Kuala Lumpur City
Centre, and due to additional cost overruns at one project in France. New
Construction'sthe first quarter.
For the quarter, domestic curtainwall operations reported breakeven results on
an anticipated net sales decline of 28%. The Detention/Security group reported
flat net sales and breakeven results for the period due to losses from a
start-up operation. The segment's Architectural Products and Full Service units
reported solid profits on improved net sales.
The exit from European curtainwall operations remained on track, and the Asian
curtainwall unit had nearly completed the remaining projects in its backlog. All
of the segment's Asian projects are expected to be substantially complete by the
end of the second quarter.
Backlog
- -------
At May 30, 1998, Apogee's consolidated backlog was $312 million, up slightly
from February 28, 1998. The backlogs of BPS's operations represented over 80% of
Apogee's consolidated backlog. The domestic curtainwall backlog stood at $96
million. The Asian curtainwall backlog declined to $5 million as the remaining
projects neared completion. GT's Viracon operation reported a solid operating profitbacklog of
orders for the quarter, aided by the completion of the Getty Museum project. The Full
Service unit continued to produce solid earningsits architectural glass products and the Architectural Products
groupViratec Thin Films' backlog more
than doubled its operating income from the prior year, benefiting
from higher sales and improved margins.
The $26.0 million pre-tax charge, which was announced by the Company in August
21, 1997 and November 21, 1997 press releases includes amounts for restructuringlast fiscal year-end, primarily due to orders of BPS's international curtainwall activities and other nonrecurring items
associated with the unit's European operations. The restructuring plan involves
the closing of the curtainwall unit's Asian offices and the rationalization of
its project management, engineering and European manufacturing capacity. The
charge for restructuring includes amounts for severance and termination benefits
for employees in France, Asia and the U.S., the write-down of property and
equipment and other long-term assets to their net realizable values, and for
other items such as lease termination costs. The provision also includes amounts
for the estimated loss associated with certain disputed construction contracts
receivable in Europe, including the accrual of certain penalty amounts, and the
accrual of costs associated with the resolution of legal proceedings related to
organizational changes in its European curtainwall unit.
The Company believes that overseas operating losses from curtainwall activities
will continue to adversely influence earnings comparisons in the near-term,
possibly resulting in operating losses in the fourth quarter for BPS. The
segment's noncurtainwall business units are currently expected to be profitable.
Backlog
- -------
On November 29, 1997, Apogee's consolidated backlog stood at $292 million, down
19 percent from a year ago and down 18 percent since the beginning of the year.
As expected, notable declines were reported for all regions of BPS's curtainwall
operations, with the unit's Asian and European backlogs down over 50 percent
from a year ago.
-8-Optium coated
products.
8
Consolidated
- ------------
The following table compares quarterlyfirst quarter results with year agoyear-ago results, as a
percentage of sales, for each caption.
Three Months Ended Nine Months Ended
----------------------- -----------------------
Nov. 29, Nov. 30, Nov. 29, Nov. 30,
1997 1996 1997 1996
----------------------- -----------------------
Percentage of Net Sales
-----------------------
1998 1999
----- -----
Net sales 100.0 100.0 100.0 100.0
Cost of sales 83.3 81.9 81.8 82.4
----------------------- -----------------------
Gross profit 16.7 18.1 18.2 17.6
Selling, general and administrative 13.0 12.7 13.0 12.4
expenses
Provision for restructuring and other
unusual items 10.4 - 3.5 -
----------------------- -----------------------
Operating income (loss) (6.6) 5.5 1.8 5.3
Interest expense, net 0.6 0.8 0.7 0.9
----------------------- -----------------------
Earnings (loss) before income taxes
and other items below (7.2) 4.6 1.0 4.4
Income taxes (3.1) 1.6 0.2 1.6
Equity in net loss of affiliated companies 0.1 - 0.1 -
Minority interest - (0.3) - (0.1)
----------------------- -----------------------
Net earnings (loss) (4.2) 3.3 0.8 2.9
======================= =======================
Income tax rate (43.7)% 34.7% 15.0% 36.1%
During the third quarter, productivity improvements at the Company's
manufacturing operations and stronger domestic curtainwall margins were more
than offset by poor margins at the Asian and European curtainwall operations.
The decline in the most recent period narrowed the gross margin improvement on a
year-to-date basis. The nine-month improvement also reflected the productivity
improvements at the Company's manufacturing operations and better domestic
curtainwall margins. 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 benefited from notably lower property/casualty insurance
costs.100.0 100.0
Cost of sales 79.1 80.6
----- -----
Gross profit 20.9 19.4
Selling, general and administrative expenses (SG&A) were flat for the first two
quarters of the fiscal year due to Companywide efforts to control such costs.
SG&A costs, however, were 10.5% higher than a year ago, reflecting the higher
commissions and profit sharing expenses for many of its businesses and increased
costs related to information systems upgrades and conversions throughout the
Company. Net interest expense fell during the quarter. Increased interest
income from investments held by the Company's captive insurance subsidiary and
lower interest rates on its revolver and uncommitted credit lines accounted for
the slight decline.
The effective income tax rate for the nine-month period fell to 15.0%, mainly
reflecting the marginal tax benefit associated with the third quarter charge
discussed above. In addition, results in the third quarter, exclusive of the
charge on an after-tax basis, benefited from a reduction in the Company's tax
rate caused by changes in the domestic and international jurisdictional mix of
the Company's operations and lower estimated full-year earnings.
Primarily due to the provision14.5 15.5
Provision for restructuring and other unusual items 0.5 -
----- -----
Operating income 6.0 4.0
Interest expense, net 1.0 1.1
----- -----
Earnings before taxes 4.9 2.8
Income taxes 1.8 1.1
Equity in net loss of affiliated companies 0.1 0.1
----- -----
Net earnings 3.0 1.7
===== =====
Effective tax rate 37.0% 36.3%
On a consolidated basis, cost of sales, as a percentage of net sales, rose
slightly. The primary factors underlying this increase were the effect of the
planned suspension of the Optium cathode ray tube (CRT) coating line and poor operating results from internationalthe
absence of significant margin recognized upon the completion of one large
curtainwall operations, the Company
currently expects that it will not achieve fiscal 1997 net earnings.
Liquidityproject included in last year's first quarter results. These items
were partly offset by productivity gains at AG, Viracon and Capital Resources
- -------------------------------
Working capital declined for the nine months ended November 29, 1997BPS's Architectural
Products unit, and a continuation of a change in sales mix reflecting higher GT
and AG revenues and lower curtainwall revenues.
Selling, general and administrative (SG&A) expenses rose by $3.7 million, or
11%. The rise included increased investment in information systems technology,
and higher employee and advertising costs. Interest expense rose over last year
primarily due to lower receivableshigher borrowing levels. The effective income tax rate of 37.0%
was up slightly from 36.3% a year ago.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Financial Condition
- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating activities produced $27.1 million in cash flow for the quarter. That
figure reflected the combination of net earnings, noncash charges and costsa $15.9
million reduction in working capital, excluding cash. At quarter end, the
Company's working capital stood at $72.4 million. The primary factors underlying
the reduction in working capital were the receipt of approximately $9.6 million
in refundable income taxes and earningsan increase in accounts payable.
Offsetting these items were increases in accounts receivable and in costs in
excess of billings which was
partially offset byon uncompleted contracts.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Bank borrowings stood at $152.5 million at May 30, 1998, slightly higher inventory levels, and
-9-
lower accounts payable, accrued expenses and billings in excess of costs and
earnings. This reduction inthan
the $150.5 million outstanding at February 28, 1998. The nominal additional
borrowings reflected normal working capital combined with net earningsvariations. Cash provided by
operating activities was sufficient to finance the period's investing activities
and noncash charges to providecash dividend requirements. At May 30, 1998, long-term debt stood at 58% of
total capitalization.
In May 1998, the Company with $36.8obtained a five-year, committed secured credit facility
in the amount of $275 million. This new credit facility requires Apogee to
maintain minimum levels of net worth and certain financial ratios, and is
collateralized by the Company's receivables, inventory, equipment and
intangibles. This facility replaced a $150 million five-year, multi-currency
committed credit facility which had been obtained in May 1996.
The Company anticipates bank borrowings to increase over the next few quarters
as capital spending for productive capacity increases and working capital
requirements are expected to exceed the Company's cash flow from operating
activities.
Investing activities consumed $36.4 million through nine months of fiscal 1998.9
NET CASH USED IN INVESTING ACTIVITIES
Additions to property, plant and equipment during the quarter totaled
$28.0approximately $9.5 million. Major items included expenditures for the GT
expansion activities noted above as well as expenditures on information systems
projects throughout the Company. Capital expenditures are expected to increase
primarily due to capacity additions at the Company's new Statesboro, Georgia
facility and other capacity expansions in GT. The AG segment completed the VIS'N
Service Corporation acquisition and one acquisition of retail auto glass
replacement stores for a total of $4.7 million.
Cash increased $3.8 million for the first
nine monthsquarter.
Shareholders' Equity
- --------------------
At May 30, 1998, Apogee's shareholders' equity stood at $113.5 million. Book
value per share was $4.11, up from $3.99 per share at February 28, 1998, with
outstanding common shares increasing nominally during the period. Net earnings
and proceeds from common stock issued in connection with our stock-based
compensation plans accounted for the increase, slightly offset by dividends
paid.
Impact of Year 2000
- -------------------
We are reviewing the potential impact of the fiscal year. Major components"Year 2000" date change which
involves the inability of certain software and systems to properly recognize and
process date information relating to the Year 2000. We have assigned a team to
evaluate the nature and extent of the work required to make our systems,
products and infrastructure Year 2000 compliant. A number of existing systems
projects are either underway or under review within our various business units
to incorporate Year 2000 compliance, the cost of which has not been determined.
We continue to evaluate the estimated costs associated with our efforts to
ensure that our systems, products and infrastructure are Year 2000 compliant.
While these additions included
expenditures for manufacturing facilities expansionon-going efforts will involve additional costs, we believe, based on
available information, that we are and upgradingwill continue to effectively manage our
Year 2000 transition without any material adverse effect on our business,
results of information
systems throughout the Company. The increase in investments held by the
Company's captive insurance subsidiary was $7.5 million.
Borrowing levels rose during the quarter. Total long-term debt, including
current installments, totaled $137.8 million. Debt represented 41.2% of invested
capital.
Through November 29,1997, the Company has repurchased 448,000 shares of common
stock for $7.2 million, while issuing 211,000 common shares under its stock-
based incentive plans. During the quarter, the Company raised its quarterly cash
dividend 11% to 5.0 cents per share, the 23rd consecutive year of increase.operations or financial condition.
10
CAUTIONARY STATEMENTSSTATEMENT
- -----------------------------------------
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-
lookingforward-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
or restructuring of core business units, expected cost savings from the restructuringrestructurings
cannot be fully realized or realized within the expected timeframe, revenuesnet sales
following the restructuringrestructurings are lower than expected, costs or difficulties related
to the operation of the businesses or execution of the restructuringrestructurings or exit
activities are greater than expected, the impact of foreign currency markets,
the integration of acquisitions, and the realization of expected economies
gained through expansion and information systems technology, the impact of foreign currency markets and other factors set
forth in the cautionary statements filed as Exhibit 99 to the Company's
Form 10-K.technology. The Company wishes
to caution investors and otherothers to review the
cautionary 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-lookingforward looking
statements contained in the Management's Discussiondiscussion and Analysisanalysis 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.
-10-11
PART II
OTHER INFORMATION
ITEM 5. - Other Information
Pursuant to the Company's By-laws, as amended to date, shareholders desiring to
nominate candidates for election as directors or to make proposals for
consideration by the shareholders at the Company's regularly scheduled annual
meeting of shareholders must notify the Company in the manner set forth in the
Company's By-laws at least 120 days prior to the date that is one year after the
prior year's regular meeting. Therefore, shareholders would be required to
submit any such nominations or proposals to the Company on or before February
23, 1999 to be considered at the Company's 1999 Annual Meeting of Shareholders.
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit 11. Statement(3B). Amended and Restated By-Laws of Determination of Common Shares and
Common Share Equivalents.Apogee Enterprises, Inc.
Exhibit 27.(27). Financial Data Schedule (EDGAR filing only)
Exhibit (27.1). Restated Financial Data Schedule (EDGAR filing only)
(b) Registrant filed a Current Report on Form 8-K, dated November 21, 1997,
updatingApril 9, 1998,
providing information on fourth quarter and full-year results for the
Company's third quarter provision for
restructuring and other unusual items related to its international
curtainwall operations.
-11-fiscal year ended February 28, 1998.
12
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: January 13,July 14, 1998 Donald W. Goldfus
---------------- ------------------------
Donald W. Goldfus
Chairman of the BoardRussell Huffer
--------------
Russell Huffer
Chief Executive Officer and President
Date: January 13,July 14, 1998 Terry L. Hall
---------------- ------------------------
Terry L. HallRobert G. Barbieri
------------------
Robert G. Barbieri
Vice President Finance and
Chief Financial Officer
-12-13
EXHIBITEXHIBITS INDEX
Exhibit
Page- -------
----
Exhibit 11 Statement3B Amended and Restated By-Laws of Determination of Common Shares
and Common Share Equivalents 14Apogee Enterprises, Inc.
Exhibit 27 Financial Data Schedule (EDGAR filing only)
15
-13-Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing only)
14