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
For the quarterly period ended June 2, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-6365
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APOGEE ENTERPRISES, INC.
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(Exact Name of Registrant as Specified in Charter)
Minnesota 41-0919654
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(State of Incorporation) (IRS Employer ID No.)
7900 Xerxes Avenue South, Suite 1800, Minneapolis, Minnesota 55431
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(Address of Principal Executive Offices)
Registrant's Telephone Number (952) 835-1874
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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, 2001
- --------------------------------- ------------------------------
Common Stock, $.33/1/3/ Par Value 28,232,716
1
APOGEE ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 2, 2001
Description Page
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PART I
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 2, 2001
and March 3, 2001 3
Consolidated Results of Operations for the
Quarters Ended June 2, 2001and June 3, 2000 4
Consolidated Statements of Cash Flows for the
Quarters Ended June 2, 2001and June 3, 2000 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11-12
PART II Other Information
- -------
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit Index 15
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 2, 2001 AND MARCH 3, 2001
(Thousands)
June 2, 2001 March 3, 2001
------------------ -------------------
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 3,862 $ 4,689
Receivables, net of allowance for doubtful accounts 127,784 121,461
Inventories 40,923 40,434
Deferred tax assets 5,141 4,854
Other current assets 3,394 3,753
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Total current assets 181,104 175,191
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Property, plant and equipment, net 143,843 147,593
Marketable securities - available for sale 23,141 24,451
Investments in affiliated companies 35,017 32,530
Intangible assets, at cost less accumulated amortization of
$13,039 and $12,520, respectively 49,640 50,145
Other assets 2,733 2,769
------------------ -------------------
Total assets $435,478 $432,679
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 57,861 $ 59,537
Accrued expenses 51,943 57,571
Current liabilities of discontinued operations, net 2,991 2,578
Billings in excess of costs and earnings on uncompleted
contracts 10,494 10,330
Accrued income taxes 9,546 7,093
Current installments of long-term debt 361 328
------------------ -------------------
Total current liabilities 133,196 137,437
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Long-term debt, less current installments 104,256 104,206
Other long-term liabilities 26,165 24,466
Liabilities of discontinued operations, net 19,360 18,278
Commitments and contingent liabilities (Note 6)
Shareholders' equity
Common stock, $.33/1/3/ par value; authorized 50,000,000
shares; issued and outstanding 28,212,000 and 27,825,000
shares, respectively 9,404 9,275
Additional paid-in capital 49,164 45,773
Retained earnings 97,437 93,543
Unearned compensation (2,111) (757)
Accumulated other comprehensive (loss) income (1,393) 458
------------------ -------------------
Total shareholders' equity 152,501 148,292
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Total liabilities and shareholders' equity $435,478 $432,679
================== ===================
See accompanying notes to consolidated financial statements.
3
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED JUNE 2, 2001 AND JUNE 3, 2000
(Thousands except Per Share Data)
(unaudited)
Quarter Ended
June 2, 2001 June 3, 2000
---------------- -------------------
Net sales $203,606 $237,253
Cost of sales 158,302 189,339
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Gross profit 45,304 47,914
Selling, general and administrative expenses 37,332 40,959
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Operating income 7,972 6,955
Interest expense, net 1,921 2,783
Equity in income (loss) of affiliated companies 2,068 (692)
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Earnings from continuing operations before income taxes 8,119 3,480
Income taxes 2,517 1,460
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Earnings from continuing operations 5,602 2,020
Earnings from operations of discontinued businesses,
net of income taxes --- --
---------------- -------------------
Net earnings $ 5,602 $ 2,020
================ ===================
Earnings per share-basic
Continuing operations $ 0.20 $ 0.07
Discontinued operations -- --
---------------- -------------------
Net earnings $ 0.20 $ 0.07
================ ===================
Earnings per share-diluted
Continuing operations $ 0.20 $ 0.07
Discontinued operations -- --
---------------- -------------------
Net earnings $ 0.20 $ 0.07
================ ===================
Weighted average basic shares outstanding 27,985 27,801
Weighted average diluted shares outstanding 28,319 27,801
See accompanying notes to consolidated financial statements.
4
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 2, 2001 AND JUNE 3, 2000
(Thousands)
(unaudited)
Quarter Ended
June 2, 2001 June 3, 2000
------------------- -------------------
OPERATING ACTIVITIES
Net earnings $ 5,602 $ 2,020
Adjustments to reconcile net earnings to net cash (used in)/
provided by operating activities:
Depreciation and amortization 6,963 9,795
Deferred income tax benefit (309) (1,543)
Equity in net income of affiliated companies (in excess of)
less than dividends received (2,412) 8
Other, net (208) (67)
Changes in operating assets and liabilities, net of effect of
acquisitions:
Receivables (6,323) 727
Inventories (362) 1,277
Accounts payable and accrued expenses (7,368) 1,711
Accrued income taxes 2,453 (1,918)
Other, net (724) 2,726
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Net cash (used in) provided by operating activities (2,688) 14,736
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INVESTING ACTIVITIES
Capital expenditures (2,651) (3,587)
Acquisition of businesses, net of cash acquired (247) ---
Purchases of marketable securities --- (4,821)
Sales/maturities of marketable securities 1,374 5,140
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Net cash used in investing activities (1,524) (3,268)
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FINANCING ACTIVITIES
Increase/(decrease) in net borrowings under revolving credit
agreement 2,500 (12,200)
Payments on other long-term debt (2,417) (121)
Increase in deferred debt expense (5) (521)
Proceeds from issuance of common stock 3,577 517
Repurchase and retirement of common stock (284) (50)
Dividends paid (1,481) (1,451)
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Net cash provided by (used in) financing activities 1,890 (13,826)
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Cash provided by discontinued operations 1,495 3,845
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(Decrease)/increase in cash and cash equivalents (827) 1,487
Cash and cash equivalents at beginning of period 4,689 7,192
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Cash and cash equivalents at end of period $ 3,862 $ 8,679
==================== ===================
See accompanying notes to consolidated financial statements.
5
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as
of June 2, 2001 and June 3, 2000, and the results of operations and cash
flows for the three-month periods ended June 2, 2001 and June 3, 2000.
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 information included in this Form 10-Q
should be read in conjunction with Management's Discussion and Analysis and
financial statements and notes thereto included in the Company's Form 10-K
for the year ended March 3, 2001. The results of operations for the 13-week
period ended June 2, 2001 and the 14-week period ended June 3, 2000 are not
necessarily indicative of the results to be expected for the full year.
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 fiscal 2002 three-month period, ended June 2,
2001, contains 13 weeks whereas the fiscal 2001 three-month period contains
14 weeks.
2. Inventories
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(Thousands) June 2, 2001 March 3, 2001
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Raw materials $20,431 $20,124
Work-in process 5,528 6,259
Finished 12,747 12,406
Cost and earnings in excess of billings on
uncompleted contracts 2,217 1,645
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Total inventories $40,923 $40,434
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3. Investments
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The Company has acquired, through joint ventures, investments that are
accounted for by the equity method. The nature and extent of these
investments change over time.
On July 29, 2000, the Company and PPG Industries combined their U.S.
automotive replacement glass distribution businesses in a new entity, PPG
Auto Glass, LLC (PPG Auto Glass) of which the Company has a 34% interest.
On June 2, 2001, the Company's investment in PPG Auto Glass was $34.6
million, of which $7.5 million represents the unamortized excess of the cost
of the investment over the value of the underlying net tangible assets when
the joint venture was formed. This excess is being amortized over a life of
20 years. In connection with the formation of PPG Auto Glass, the Company's
autoglass fabrication business agreed to supply the joint venture, through
PPG Industries, with most of this unit's windshield capacity on market-based
terms and conditions. In addition, the Company's autoglass replacement
business agreed to purchase most of its windshield needs from PPG Auto Glass
on market-based terms and conditions.
The Company's investment in TerraSun LLC relates to a research and
development joint venture of which the Company has a 50 percent interest.
6
4. Discontinued Operations
-----------------------
During fiscal 2001, the Company completed the sale of substantially all of
the assets of VIS'N Service Corporation (VIS'N), a non-auto glass focused,
third-party administered claims processor, in two separate transactions.
This transaction effectively removed the Company from the third-party
administered claims processing business. This business is presented as
discontinued operations in the consolidated financial statements and notes.
In fiscal 2000, the Company completed the sale of 100% of the stock of its
large-scale domestic curtainwall business, Harmon, Ltd. In fiscal 1999, the
Company executed the sale of its detention/security business. Combined with
the fiscal 1998 exit from international curtainwall operations, these
transactions effectively removed the Company from the large-scale
construction business. These businesses are presented as discontinued
operations in the consolidated financial statements and notes.
At June 2, 2001, accruals totaling $22.4 million represented the remaining
estimated (net) future cash outflows associated with the exit from
discontinued operations. The majority of these cash expenditures are
expected to be made within the next two to three years. The primary
components of the accruals relate to the completion of certain construction
projects, as well as costs to exit VIS'N, legal costs and other costs
associated with the proceedings noted above.
5. Earnings Per Share
------------------
The following table presents a reconciliation of the denominators used in
the computation of basic and diluted earnings per share.
June 2, 2001 June 3, 2000
------------------- -------------------
(Thousands)
Basic earnings per share -
Weighted common shares outstanding 27,984,738 27,801,040
Weighted common shares assumed upon
exercise of stock options 333,977 --
------------------- -------------------
Diluted earnings per share -
Weighted common shares and
potential common shares outstanding 28,318,715 27,801,040
=================== ===================
6. Commitments and Contingent Liabilities
----------------------------------------
At June 2, 2001, the Company had ongoing letters of credit related to its
risk management programs, construction contracts and certain industrial
development bonds. The total value of letters of credit under which the
Company is obligated as of June 2, 2001 was approximately $13.1 million.
The Company has also entered into a number of noncompete agreements for the
benefit of the Company. As of June 2, 2001, we were committed to make
future payments of $1.3 million under such agreements.
The Company has been party to various legal proceedings incidental to its
normal operating activities. In particular, like others in the construction
industry, the Company's construction businesses are routinely involved in
various disputes and claims arising out of construction projects, sometimes
involving significant monetary damages. Although it is impossible to
predict the outcome of such proceedings, the Company believes, based on
facts currently available, that none of such claims will result in losses
that would have a material adverse effect on its financial condition.
7
7. Comprehensive Earnings
----------------------
(Thousands) June 2, 2001 June 3, 2000
---------------------- ----------------------
Net earnings $ 5,602 $2,020
Transition adjustment related to change in
accounting for derivative instruments and
hedging activities (1,780) ---
Unrealized loss on qualifying cash flow
hedges (113) ---
Unrealized gain (loss) on marketable
securities, net of $22 and $(15), tax
expense (benefit), respectively 42 (27)
---------------------- ----------------------
Comprehensive earnings $ 3,751 $1,993
====================== ======================
8. New Accounting Standards
--------------------------
The Financial Accounting Standards Board (FASB) issued SFAS No. 133
regarding accounting for derivative instruments and hedging activities.
SFAS No. 133, as amended by SFAS No. 137 and No. 138, establishes accounting
and reporting standards requiring that derivative instruments (including
certain derivative instruments embedded in other contracts) be recorded in
the balance sheet either as an asset or liability measured at fair value.
SFAS No. 133 requires changes in the derivative's fair value to be
recognized in earnings or, for derivatives that hedge market risk related to
future cash flows, in accumulated other comprehensive income, unless
specific hedge accounting criteria are met. The Company adopted SFAS No.
133 on March 4, 2001 and determined its derivative instruments consisting of
interest rate swap agreements qualify for hedge accounting treatment. The
adoption resulted in the Company recording the fair value of their interest
rate swap agreements as a liability with an offsetting adjustment to other
comprehensive earnings of $1.8 million. The net present liability
associated with these interest rate swap agreements was $1.9 million at June
2, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
The following selected financial data should be read in conjunction with the
Company's Form 10-K for the year ended March 3, 2001 and the consolidated
financial statements, including the notes to consolidated financial statements,
included therein.
Sales and Earnings
- ------------------
Consolidated net sales for the first quarter ended June 2, 2001 were $203.6
million, a 14% decrease from the $237.3 million reported for the prior year
quarter. The results of the Auto Glass distribution unit, which Apogee
contributed to the PPG Auto Glass joint venture in July 2000, were not included
in the Company's continuing operations for the first quarter of fiscal 2002, as
they were for fiscal 2001. Fiscal 2002 revenues were flat compared to the prior
year quarter after being adjusted for the formation of the PPG Auto Glass joint
venture. Fiscal 2002 earnings from operations were $5.6 million, a 186%
increase over the prior year period's earnings from operations of $2.0 million.
Fiscal 2002 figures include one less week in the quarter as compared to the same
quarter a year ago.
8
First Quarter Fiscal 2002 Compared to First Quarter Fiscal 2001
- ---------------------------------------------------------------
The following table illustrates the relationship between various components of
operations, stated as a percent of net sales, for the quarters ended June 2,
2001 and June 3, 2000.
Percentage of Net Sales
-----------------------------------------
Quarter Ended
-----------------------------------------
June 2, 2001 June 3, 2000
----------------- ------------------
Net sales 100.0 100.0
Cost of sales 77.7 79.8
----------------- ------------------
Gross profit 22.3 20.2
Selling, general and administrative expenses 18.4 17.3
----------------- ------------------
Operating income 3.9 2.9
Interest expense, net 0.9 1.1
Equity in income (loss) of affiliated companies 1.0 (0.3)
----------------- ------------------
Earnings from continuing operations before
income taxes 4.0 1.5
Income taxes 1.2 0.6
----------------- ------------------
Earnings from continuing operations 2.8 0.9
Earnings (loss) from discontinued operations 0.0 0.0
----------------- ------------------
Net earnings 2.8 0.9
================= ==================
Effective tax rate 31.0% 42.0%
On a consolidated basis, cost of sales, as a percentage of net sales, fell to
77.7% for fiscal 2002, improving from 79.8% in fiscal 2001. The primary factors
underlying the resulting increase in gross profit percentage were improved
manufacturing performance and improved volume and mix within the Architectural
and Large-Scale Optical segments as well as cost reduction initiatives within
the Automotive Replacement Glass segment.
Selling, general and administrative (SG&A) expenses for the first quarter of
fiscal 2002 decreased $3.6 million, or 9% from fiscal 2001, but increased as a
percentage of net sales to 18.4% from 17.3%. The decrease in SG&A expenses
relates primarily to decreased depreciation expense and bad debts, offset by
increased incentive accruals. The effects of the formation of the PPG Auto
Glass joint venture also reduced the Company's SG&A expenses. The increase in
percentage of net sales is also a result of the formation of the PPG Auto Glass
joint venture.
Net interest expense fell 31% during the quarter as a result of significantly
lower borrowing levels and interest rates.
The Company's equity in income from affiliated companies was $2.1 million in the
first quarter of fiscal 2002 versus an equity in loss of $0.7 million in the
prior-year quarter. The current year results include the Company's portion of
the results of the PPG Auto Glass joint venture formed in the second quarter of
fiscal 2001, offset by continued funding of the TerraSun joint venture. The
results for the first quarter of fiscal 2001 were attributable solely to funding
of the TerraSun joint venture.
The effective income tax rate of 31.0% decreased from the effective rate of
42.0% a year ago.
In the first quarter of fiscal 2002, as previously expected, the Company
received $1.9 million from receivables and settlements of legal issues related
to discontinued operations. These collections exceeded payments of $0.4
million, which caused an increase in the reserves. With respect to the adequacy
of its reserves for the discontinued operations, the Company has not changed its
outlook from year-end.
In the first quarter of fiscal 2002, the Company reported earnings from
continuing operations of $5.6 million, or $0.20 diluted earnings per share.
This compared to earnings from continuing operations of $2.0 million, or $0.07
diluted earnings per share in the first quarter of fiscal 2001. The return on
average shareholders' equity was 3.7% in the first quarter of fiscal 2002 and
1.5% in the first quarter of fiscal 2001.
9
Segment Analysis
- ----------------
During fiscal 2001, the Company realigned its operating business units into
three reporting segments. 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
--------------------------------------
June 2, June 3, Percentage
(Thousands) 2001 2000 Change
================ ================ ================
Net Sales
Architectural $ 116,225 $ 111,007 5%
Large-scale optical 20,507 19,642 4
Autoglass 66,877 106,778 (37)
Intersegment eliminations (3) (174) 98
---------------- ----------------
Net sales $ 203,606 $ 237,253 (14)%
================ ================
Operating Income (Loss)
Architectural $ 7,020 $ 6,334 11%
Large-scale optical (16) (1,058) 98
Autoglass 1,463 2,790 (48)
Corporate and other (495) (1,111) 55
---------------- ----------------
Operating income $ 7,972 $ 6,955 15%
================ ================
Architectural Products and Services (Architectural)
- ---------------------------------------------------
Net sales for the Architectural segment increased 5% to $116.2 million compared
to $111.0 million the same quarter a year ago. Strong growth, year to year,
from Viracon, the largest business in the segment, improved due to increased
volume and mix initiatives.
The segment's operating income increased 11% to $7.0 million from $6.3 million
in the prior year quarter. This increase in operating income is a result of
volume and mix initiatives noted above and Viracon's continued improvements in
operating efficiency. These increases were offset by decreases reported by the
other business units within the segment.
The Architectural segment backlog, at June 3, 2001, remained at record levels,
holding at the fiscal 2001 year-end figure of $190.0 million. This is an
increase of 13% compared to the first quarter of fiscal 2001.
Large-Scale Optical Technologies (LSO)
- --------------------------------------
LSO net sales for the quarter of $20.5 million increased 4% from fiscal 2001
sales of $19.6 million. The segment's revenue growth did not meet the Company's
expectations due to the dramatic slump in the PC industry and a slowdown in the
retail picture framing market. During the first quarter of fiscal 2001, the
Company successfully closed its Viratec San Diego computer monitor coating
facility, as planned.
Operating income for LSO increased to a breakeven level as compared to a loss of
$1.0 million a year ago, due to improved manufacturing performance. Despite
reporting increased results over a year ago, the results of the LSO segment were
below the Company's expectations as a result of softness in the LSO segment
markets.
Automotive Replacement Glass and Services (Auto Glass)
- ------------------------------------------------------
Net sales at the Auto Glass segment declined to $66.9 million, compared to
$106.8 million in the prior-year period. Revenues for the segment decreased 10
percent compared to the first quarter of last year after being adjusted for the
PPG Auto Glass joint venture. First quarter revenues for the segment were
impacted by last year's closings of retail stores and strategies to reduce low-
margin business.
10
Operating income at the Auto Glass segment fell to $1.5 million, compared to
$2.8 million a year ago. The significantly improved performance by Harmon
AutoGlass retail, which has made major cost reductions, was offset by the loss
of distribution business earnings with the formation of the PPG Auto Glass joint
venture. These earnings are reported in equity in income of affiliated
companies.
Consolidated Backlog
- --------------------
At June 2, 2001, Apogee's consolidated backlog was $195.4 million, down slightly
from the $200.2 million reported at March 3, 2001. The backlogs of the
Architectural segment, which remained flat from year-end, represented over 97%
of the Company's consolidated backlog. Backlog at the LSO segment fell $5.3
million, mainly as a result of the closing of the Viratec San Diego facility.
Liquidity and Capital Resources
- -------------------------------
Financial Condition
- -------------------
Net cash provided by operating activities
Cash used in continuing operating activities in the first quarter was $2.7
million for the quarter versus cash provided of $14.7 million in the first
quarter of fiscal 2001, primarily due to the timing of expenditures in the
fiscal 2002 first quarter. The Company's receivables increased $6.3 million due
to higher sales levels for the first quarter of fiscal 2002, as compared to the
fourth quarter of fiscal 2001.
Net cash used in investing activities
New capital investment in the first quarter of fiscal 2002 totaled $2.7 million,
versus $3.6 million in the prior-year quarter. For fiscal 2002, the Company
expects to incur capital expenditures as necessary to maintain existing
facilities. Fiscal 2002 capital expenditures are expected to be approximately
$25 million.
Net cash provided by financing activities
Total borrowings stood at $104.6 million at June 2, 2001, virtually unchanged
from the $104.5 million outstanding at March 3, 2001. The majority of all of
the Company's long-term debt consisted of bank borrowings under a revolving
credit agreement. The borrowings were sufficient to finance the period's
investing activities and cash dividend requirements. At June 2, 2001, the
Company's debt-to-total-capital ratio remained at 41%, an improvement from 52%
at the end of last year's first quarter.
The Company anticipates outstanding borrowings to decline over the course of the
year. The Company believes that cash from operating activities and the
available credit facility provide adequate liquidity for the remainder of the
fiscal year.
Shareholders' Equity
- --------------------
At June 2, 2001, Apogee's shareholders' equity stood at $152.5 million. Book
value per share was $5.47, up from $5.33 per share at March 3, 2001, with
outstanding common shares increasing 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.
Outlook
- -------
Despite the softness in the LSO segment markets and minor project delays in the
Architectural segment, the Company anticipates earnings to be above last year's
earnings for the second quarter. Fiscal 2001 second quarter diluted earnings
per share were $0.15.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
The Company's principal market risk is sensitivity to interest rates, which is
the risk that changes in interest rates will reduce net earnings of the Company.
To manage the Company's direct risk from changes in market interest rates,
management actively monitors the interest sensitive components of the Company's
balance sheet, primarily debt obligations, as well as market interest rates in
order to minimize the impact of changes in interest rates on net earnings and
cash flow.
The primary measure of interest rate risk is the simulation of net income under
different interest rate environments. The approach used to quantify interest
rate risk is a sensitivity analysis. This approach calculates the impact on net
earnings, relative to a base case scenario, of rates increasing or decreasing
11
gradually over the next 12 months by 200 basis points. The aforementioned
changes in interest rates affecting the Company's financial instruments would
result in approximately a $400,000 impact to net earnings. As interest rates
increase, net earnings decrease; as interest rates decrease, net earnings
increase.
The Company uses interest swaps to fix a portion of its variable rate borrowings
from fluctuations in interest rates. As of June 2, 2001, the Company has
interest swaps covering $35 million of variable rate debt. The net present
liability associated with these swaps is $1.9 million at June 2, 2001.
The Company has a policy of using forward exchange contracts to hedge its net
exposures, by currency, related to the foreign currency-denominated monetary
assets and liabilities, and future firm commitments of its operations. Forward
exchange contracts are also used from time to time to manage near-term foreign
currency cash requirements. The primary objective of these hedging activities
is to maintain an approximately balanced position in foreign currencies so that
exchange gains and losses resulting from exchange rate changes, net of related
tax effects, are minimized.
Given the Company's balanced foreign exchange position described above, a 10%
adverse change in foreign exchange rates upon which these contracts are based
would result in exchange losses from these contracts that would, in all material
respects, be fully offset by exchange gains on the underlying net monetary
exposures for which the contracts are designated as hedges. As of June 2, 2001,
the Company did not have any forward contracts outstanding as the Company had no
material foreign exchange exposure.
Cautionary Statement
- --------------------
This discussion contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements reflect the
Company's current views with respect to future events and financial performance.
The words "believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project," "should" and similar expressions are intended to identify "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All forecasts and projections in this document are
"forward-looking statements," and are based on management's current expectations
or beliefs of the Company's near-term results, based on current information
available pertaining to the Company, including the risk factors noted below.
The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements.
These uncertainties and other risk factors include, but are not limited to,
those noted below. There can be no assurances given that the ongoing
reorganization and realignment of Harmon AutoGlass will lead to successful
operating results now or in the future. There can be no assurances that PPG Auto
Glass, Apogee's automotive replacement glass distribution joint venture with PPG
Industries, will achieve favorable long-term operating results. In addition,
there can be no assurances that Apogee's expected architectural segment growth
due to its strength serving high-end markets with value-added products will not
be impacted by the slowing economy. There also can be no assurances that there
will not be further erosion in large-scale optical segment revenues due to the
dramatic slump in the PC industry and a slowdown in the retail picture framing
market.
A number of other factors should be considered in conjunction with this report's
forward-looking statements, 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 other factors are set
forth in the cautionary statement filed as Exhibit 99 to the Company's Annual
Report on 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
of business units, greater than expected costs or difficulties related to the
operation of the businesses, the impact of foreign currency markets, the
integration of acquisitions, the realization of expected economies gained
through expansion and information systems technology updates. New factors
emerge from time to time and it is not possible for management to predict all
such factors, nor can it assess the impact of each such factor on the business
or the extent to which any factor, or a combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.
12
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
--------
None
(b) Reports on Form 8-K:
-------------------
None
13
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 12, 2001 /s/ Russell Huffer
--------------
Russell Huffer
Chairman, President and Chief Executive
Officer
Date: July 12, 2001 /s/ Michael B. Clauer
-----------------
Michael B. Clauer
Executive Vice President and
Chief Financial Officer
14
EXHIBITS INDEX
None
15