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) <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------------- -------------------------------------- August 30, 1997 August 31, 1996 August 30, 1997 August 31, 1996 ---------------- ------------------ ------------------ ------------------ <S> <C> <C> <C> <C> 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 ================ ================== ================== ================== </TABLE> -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. <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------------- ------------------------------------- August 30, August 31, % August 30, August 31, % (In Thousands) 1997 1996 Chg 1997 1996 Chg ------------------------------------- ------------------------------------- <S> <C> <C> <C> <C> <C> <C> 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 ===================================== ===================================== </TABLE> 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. <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------- ----------------------- Aug. 30, Aug. 31, Aug. 30, Aug. 31, 1997 1996 1997 1996 ------------------------- ----------------------- <S> <C> <C> <C> <C> 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% </TABLE> 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-