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 30, 1996 Commission File Number 0-6365
----------------- ------
APOGEE ENTERPRISES, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Minnesota 41-0919654
------------------------ ---------------------
(State of Incorporation) (IRS Employer ID No.)
7900 Xerxes Avenue South, Suite 1800, Minneapolis, Minnesota 55431
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(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 December 31, 1996
- -------------------------------- --------------------------------
Common Stock, $.33-1/3 Par Value 13,712,500
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED NOVEMBER 30, 1996
Description Page
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PART I
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Item 1. Financial Statements
Consolidated Balance Sheets as of November 30, 1996
and March 2, 1996 3
Consolidated Results of Operations for the
Three Months and Nine Months Ended
November 30, 1996 and December 2, 1995 4
Consolidated Statements of Cash Flows for
the Nine Months Ended November 30, 1996 and December 2, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II Other Information
- -------
Item 6. Exhibits 11
Exhibit Index 13
Exhibit 11 14
Exhibit 27 (EDGAR filing only)
-2-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
November 30, March 2,
1996 1996
------------ --------
ASSETS
Current assets
Cash and cash equivalents (including restricted funds of
$61 and $885, respectively) $ 4,109 $ 7,389
Receivables, net of allowance for doubtful accounts 198,705 158,368
Inventories 61,584 54,484
Costs and earnings in excess of billings on uncompleted contracts 23,072 26,276
Deferred tax assets 5,253 6,689
Other current assets 6,115 5,353
-------- --------
Total current assets 298,838 258,559
-------- --------
Property, plant and equipment, net 110,947 78,485
Marketable securities - insurance subsidiary 17,172 12,231
Investments in and advances to affiliated companies - 15,821
Investments 868 612
Intangible assets, at cost less accumulated amortization 24,077 10,332
Deferred tax assets 8,220 6,970
Other assets 2,344 3,126
-------- --------
Total assets $462,466 $386,136
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 63,046 $ 57,678
Accrued expenses 83,577 52,430
Billings in excess of costs and earnings on uncompleted contracts 42,517 19,470
Accrued income taxes 10,840 7,634
Current installments of long-term debt 5,254 5,265
-------- --------
Total current liabilities 205,234 142,477
-------- --------
Long-term debt 72,413 79,102
Other long-term liabilities 28,010 24,180
Minority interest - 1,456
Shareholders' equity
Common stock, $.33-1/3 par value; authorized 50,000,000 shares; issued
and outstanding 13,683,000 and 13,517,000 shares, respectively 4,561 4,506
Additional paid-in capital 23,671 20,445
Retained earnings 129,662 113,970
Unamortized deferred compensation (1,500) -
Unrealized gain on marketable securities 45 -
Foreign currency translation 370 -
-------- --------
Total shareholders' equity 156,809 138,921
-------- --------
Total liabilities and shareholders' equity $462,466 $386,136
======== ========
See accompanying notes to consolidated financial statements.
-3-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 30, 1996 AND DECEMBER 2, 1995
(Thousands of Dollars Except Share and Per Share Amounts)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
November 30, December 2, November 30, December 2,
1996 1995 1996 1995
------------ ----------- ------------ -----------
Net sales $ 228,781 $ 215,487 $ 710,543 $ 656,705
Cost of sales 188,664 187,223 591,723 564,692
---------- ---------- ----------- ----------
Gross profit 40,117 28,264 118,820 92,013
Selling, general and
administrative expenses 27,634 20,027 81,456 65,280
---------- ---------- ----------- ----------
Operating income 12,483 8,237 37,364 26,733
Interest expense, net 1,912 1,145 6,168 4,608
Other income, net - - - (161)
---------- ---------- ----------- ----------
Earnings before income taxes
and other items below 10,571 7,092 31,196 22,286
Income taxes 3,667 2,509 11,250 8,207
Equity in (net earnings) loss of
affiliated companies - (305) 60 (156)
Minority interest (698) (284) (672) (64)
----------- ---------- ----------- ----------
Net earnings $ 7,602 $ 5,172 $ 20,558 $ 14,299
========== ========== ========== ==========
Earnings per share $ 0.54 $ 0.38 $ 1.47 $ 1.05
========== ========== ========== ==========
Weighted average number of
common shares and common
share equivalents outstanding 14,027,000 13,599,000 13,955,000 13,620,000
========== ========== ========== ==========
Cash dividends per common
share $ .090 $ .085 $ .260 $ .245
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
-4-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1996 AND DECEMBER 2, 1995
(Thousands of Dollars)
OPERATING ACTIVITIES 1996 1995
-------- --------
Net earnings $ 20,558 $ 14,299
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 17,395 12,615
Provision for losses on accounts receivable 1,492 421
Deferred income tax 486 (1,800)
Gain on sale of Nanik Window Covering Group - (4,709)
Equity in loss (net earnings) of affiliated companies 60 (156)
Minority interest (672) (64)
Other, net 1,071 (1,172)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (36,936) (8,336)
Inventories (4,563) (3,223)
Costs and earnings in excess of billings on
uncompleted contracts 3,204 (7,144)
Other current assets (356) 1,506
Accounts payable and accrued expenses (1) 28,615 4,018
Billings in excess of costs and earnings
on uncompleted contracts 23,047 1,273
Accrued income taxes 2,897 (552)
Other long-term liabilities 3,830 709
-------- --------
Net cash provided by operating activities 60,128 7,685
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INVESTING ACTIVITIES
Capital expenditures (22,512) (16,677)
Acquisition of businesses, net of cash acquired (1) (28,969) (446)
Investments in and advances to affiliated companies - (1,318)
Increase in marketable securities (4,896) -
Proceeds from sale of Nanik Window Coverings Group - 18,250
Proceeds from sale of property and equipment 1,889 313
Other, net (649) (65)
-------- --------
Net cash (used in) provided by investing activities (55,137) 57
-------- --------
FINANCING ACTIVITIES
Increase in notes payable - 5,485
Payments on long-term debt (6,700) (5,280)
Proceeds from issuance of common stock 3,380 1,015
Purchase and retirement of common stock (1,396) (240)
Dividends paid (3,555) (3,304)
-------- --------
Net cash (used in) financing activities (8,271) (2,324)
-------- --------
(Decrease)/increase in cash (3,280) 5,418
Cash and cash equivalents at beginning of period 7,389 2,894
-------- --------
Cash and cash equivalents at end of period $ 4,109 $ 8,312
======== ========
(1) The estimated cost, as of November 30, 1996, for the Marcon and Viratec
acquisition included in investing activities is offset by an increase in
accrued expenses included in operating activities.
See accompanying notes to consolidated financial statements.
-5-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
---------------------------
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
November 30, 1996 and March 2, 1996, and the results of operations for the
three months and nine months ended November 30, 1996 and December 2, 1995
and cash flows for the nine months ended November 30, 1996 and December 2,
1995.
The financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
consolidated financial statements and notes.
The results of operations for the nine-month period ended November 30, 1996
are not necessarily indicative of the results to be expected for the full
year.
Accounting period
-----------------
The Company's fiscal year ends on the Saturday closest to February 28. Each
interim quarter ends on the Saturday closest to the end of the months of
May, August and November. The first quarter of fiscal 1997 consisted of 13
weeks, while the first quarter of fiscal 1996 had 14 weeks. Consequently,
fiscal 1997 is a 52 week year while fiscal 1996 is a 52 week year.
2. Inventories
Inventories consist of the following:
November 30, March 2,
1996 1996
------------ --------
Raw materials and supplies $13,154 $10,402
In process 5,243 3,964
Finished goods 43,187 40,118
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$61,584 $54,484
======= =======
3. Subsequent events
On January 13, 1997, the Company and Marvin Lumber and Cedar Company
announced that they agreed to a comprehensive settlement of all claims with
respect to the Marcon Coatings and Viratec Thin Films transaction.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SALES AND EARNINGS
- ------------------
Net earnings for the third quarter rose 47 percent to $7.6 million, or 54 cents
per share, from $5.2 million, or 38 cents per share, a year earlier. Sales for
the period rose 6 percent to $228.8 million, up from $215.5 million a year ago.
Year-to-date net earnings and sales have risen by 44 percent and 8 percent,
respectively. Earnings per share grew to $1.47, compared to $1.05 a year ago.
The following table presents the percentage change in sales and operating income
for the Company's three segments and on a consolidated basis, for three and nine
months when compared to the corresponding periods a year ago.
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -------------------
NOV. 30, DEC. 2, % NOV. 30, DEC. 2, %
1996 1995 Change 1996 1995 Change
=========================== ===========================
SALES
Building products & services 107,347 116,353 (8)% 338,549 343,398 (1)%
Glass technologies 50,133 39,797 26 % 143,876 113,429 27 %
Auto glass 73,553 62,774 17 % 236,400 210,306 12 %
Eliminations (2,252) (3,437) (34)% (8,282) (10,428) (21)%
--------------------------- --------------------------
Total 228,781 215,487 6 % 710,543 656,705 8 %
=========================== ==========================
OPERATING INCOME
Building products & services 677 (1,044) N/M 3,363 (3,347) N/M
Glass technologies 6,535 5,598 17 % 14,462 12,565 15 %
Auto glass 3,891 3,343 16 % 18,865 17,006 11 %
Corporate and other 1,380 340 N/M 674 509 (32)%
--------------------------- --------------------------
Total 12,483 8,237 52 % 37,364 26,733 40 %
=========================== ==========================
Building Products & Services (BPS)
- ----------------------------------
BPS reported its fourth consecutive quarter of operating income, versus an
operating loss in the same period a year ago. The segment's operating profit was
due to the solid operating results of the Detention/Security, Full Service and
Architectural Products business units which produced nearly half of the
segment's third quarter sales. The segment's results were offset by a $2 million
loss suffered by BPS's New Construction unit as its European operations reported
disappointing results in the third quarter. Lower revenues were also experienced
by the New Construction unit and resulted in a decrease when compared to a year
ago. The lower revenues for New Construction were expected and reflect the
strict bidding disciplines instituted during fiscal 1995. BPS believes the same
disciplines and project management which has produced four consecutive quarters
of earnings improvement should enable it to report favorable comparisons through
fiscal year end.
Glass Technologies (GT)
- -----------------------
As a result of the litigation and court proceedings described in the next
paragraph, Marcon Coatings (Marcon) and Viratec Thin Films (Viratec) were
consolidated in Apogee's financial statements beginning with this fiscal year,
and are reflected in the GT segment. Through fiscal 1996, Marcon and Viratec
were accounted by the equity method, with the 50% equity in Marcon's and
Viratec's net earnings included in "Equity in net earnings of affiliated
companies" in Apogee's Consolidated Results of Operations.
In November 1995, Apogee's 50% joint venture partner (JV Partner) in
Marcon/Viratec commenced litigation against Apogee, alleging claims for damages
and seeking to have the Minnesota State Court (Court) order Apogee to sell its
50% interest to the JV Partner. Apogee filed counterclaims seeking to have the
JV Partner's 50% interest sold to Apogee. In March 1996, the Court ordered the
JV partner to sell shares representing its 50% interest in Marcon/Viratec to
Apogee upon payment by Apogee of fair value for those shares as determined by
the Court.
On January 13, 1997, the parties announced that they agreed to a comprehensive
settlement of all claims with respect to the Marcon/Viratec matter described
above. Apogee agreed to pay $41 million, in cash, to the JV Partner on or before
-7-
January 27, 1997, in exchange for the JV Partner's 50% interest, and the parties
agreed irrevocably to release each other from all outstanding claims, other than
certain trade accounts payable.
GT demonstrated significant growth in operating income and sales for the third
quarter when compared to a year ago. Driven by solid bookings at Viracon, GT's
high-performance architectural glass fabricator, and the inclusion of Viratec
sales, the segment reported another quarter of revenue growth. Strong demand for
Viracon's architectural products and producing at near full capacity levels led
to double-digit operating income growth for the quarter. Viracon increased
production capacity by 20% this summer and plans to meet the continued demand
for its products by expanding its existing production an additional 20% by March
1997 and also anticipates a new plant opening in the spring of 1998.
Viratec's flat glass business operated at capacity levels and plans to expand
its product lines in fiscal 1998. The unit's direct coating business continued
to experience soft product demand which led to low operating earnings for the
unit. The segment's custom picture framing glass unit, Tru Vue, reported another
quarter of operating growth.
GT anticipates strong product demand to lead to further profit growth for its
Viracon and Tru Vue units through fiscal year end, while Viratec expects to face
continued insufficient product demand at least through early 1997.
Auto Glass (AG)
- ---------------
AG recorded substantial operating income and revenue gains in the third quarter
compared to a year ago. Same-store sales were up 7% compared to the same period
a year ago. The gains were due to a combination of increased unit demand for
automotive replacement glass and a firming in prices at both its automotive
replacement glass manufacturing business and its distribution and installation
units. The segment continues to invest in information technology to provide
leading-edge claims processing systems to its insurance company customers while
creating operating efficiencies for all of its businesses.
On January 3, 1997, AG's Harmon AutoGlass (Harmon) unit acquired Portland Glass
in a stock-for-stock transaction. Portland Glass is a large regional auto glass
retailer with 46 auto glass shops in the Northeast. The transaction will add
four states to Harmon's geographic coverage.
As the segment heads into its seasonally slowest sales period, it anticipates
lower earning levels than experienced in the first three quarters of the fiscal
year.
Backlog
- -------
Apogee's consolidated backlog stood at $362 million on November 30, 1996, down
17% from the $438 million reported at the end of last year's third quarter.
Disciplined project selection has contributed to the lower order rate, though
BPS's New Construction unit was awarded $50 million in new U.S. projects during
the quarter.
-8-
Consolidated
- ------------
The following table compares quarterly results with year ago results, as a
percentage of sales, for each caption.
Three Months Nine Months
Ended Ended
------------------------- -----------------------
Nov. 30, Dec. 2, Nov. 30, Dec. 2,
1996 1995 1996 1995
------------ ----------- ----------- ----------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 82.5 86.9 83.3 86.0
------------ ----------- ----------- ----------
Gross profit 17.5 13.1 16.7 14.0
Selling, general and
administrative expenses 12.1 9.3 11.5 9.9
------------ ----------- ----------- ----------
Operating income 5.5 3.8 5.3 4.1
Interest expense, net 0.8 0.5 0.9 0.7
Other income, net - - - -
------------ ----------- ----------- ----------
Earnings before income taxes
and other items below 4.6 3.3 4.4 3.4
Income taxes 1.6 1.2 1.6 1.2
Equity in (net earnings) loss
of affiliated companies - (0.1) - -
Minority interest (0.3) (0.1) (0.1) -
------------ ----------- ----------- ----------
Net earnings 3.3 2.4 2.9 2.2
============ =========== =========== ==========
Income tax rate 35% 35% 36% 37%
============ =========== =========== ==========
For the three months ended November 30, 1996, gross profit, as a percentage of
net sales, improved over the year-ago figures due to firm margins experienced at
GT and a shift in revenue mix at AG. Selling, general and administrative
expenses (SG &A) rose reflecting the higher commissions and profit sharing
expenses relating to higher sales activity and earnings growth and higher costs
related to information systems upgrades and conversions throughout the Company.
Year-to-date net interest expense rose despite a decline in borrowing levels.
The increase reflects the accrual of interest connected with the Viratec and
Marcon matter discussed on previous pages.
Liquidity and Capital Resources
- -------------------------------
The November 30, 1996 balance sheet and the statement of cash flows for the nine
months ended reflect the working capital needs associated with the higher sales
levels and the consolidation of the Viratec and Marcon and the related
acquisition costs. Accounts receivable and Billings in excess of costs and
earnings increased from the beginning of the year due to higher business
activity and some project payment delays experienced at BPS. Inventory levels
were also affected by the higher sales level and rose during the quarter. The
Company plans to fund the $41 million purchase of Viratec and Marcon, as noted
in previous discussion, by use of its currently available credit facilities.
Additions to property, plant and equipment totaled $22.5 million for the first
nine months of the fiscal year. Major components of these additions included
expenditures for GT's capacity expansion and information and communications
systems throughout the Company.
During the quarter, the Company raised its quarterly cash dividend 6%, to 9.0
cents per share.
Cautionary Statements
- ---------------------
A number of factors should be considered in conjunction with any discussion of
operations or results by the Company or its representatives and any forward-
looking discussion, as well as comments contained in press releases,
presentations to securities analysts or investors, or other communications by
the Company. These factors are set forth in the cautionary statements filed as
Exhibit 99 to the Company's Form 10-K for the fiscal year ended March 2, 1996
and include, without limitation, cautionary statements regarding (i) industry
conditions, including that the industries in which the business segments compete
are cyclical in nature and sensitive to changes in general economic conditions,
(ii) the
-9-
competitive environment in which the Company's business segments operate,
including that the industries are highly competitive and fairly mature, and
(iii) the Company's international operations are subject to the general risks of
doing business abroad and of entering new markets. The Company wishes to caution
investors and other to review the statements set forth in Exhibit 99 and that
other factors may prove to be important in affecting the Company's business or
results of operations. These cautionary statements should be considered in
connection with this Form 10-Q, including the forward looking statements
contained in the Management's discussion and analysis of the Company's three
business segments. These cautionary statements are intended to take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995.
-10-
PART II
OTHER INFORMATION
ITEM 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 on Form 8-K, dated November 8, 1996,
updating information on the litigation matter discussed on pages 7 and 8.
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 14, 1997 Terry L. Hall
-------------------------- --------------------------------
Terry L. Hall
Vice President of Finance and Chief
Financial Officer
Date: January 14, 1997 Percy C. Tomlinson Jr.
-------------------------- ----------------------------------
Percy C. Tomlinson Jr.
Treasurer and Secretary
EXHIBIT INDEX
Exhibit Page
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Exhibit 11 Statement of Determination of Common Shares
and Common Share Equivalents 13
Exhibit 27 Financial Data Schedule (EDGAR filing only) 14
EXHIBIT 11
STATEMENT OF DETERMINATION OF COMMON SHARES AND COMMON SHARE EQUIVALENTS
------------------------------------------------------------------------
Average No. of Common Average No. of Common
Shares & Common Share Shares & Common Share
Equivalents Assumed to Equivalents Assumed to
be Outstanding During be Outstanding During
the Three Months Ended the Nine Months Ended
------------------------- ----------------------------
November 30, December 2, November 30, December 2,
1996 1995 1996 1995
------------ ----------- ------------ ------------
Weighted average number of
common shares outstanding (a) 13,672,132 13,499,523 13,640,858 13,480,512
Common share equivalents
resulting from the assumed
exercise of stock options (b) 354,615 99,613 314,274 139,009
---------- ---------- ---------- ----------
Total primary common shares
and common share equivalents 14,026,747 13,599,136 13,955,132 13,619,521
========== ========== ========== ==========
(a) Beginning balance of common stock adjusted for changes in amount
outstanding, weighted by the elapsed portion of the period during which the
shares were outstanding.
(b) Common share equivalents computed by the "treasury" method. Share amounts
represent the dilutive effect of outstanding stock options which have an
option value below the average market value for the current period.
5
1,000
9-MOS
MAR-01-1997
MAR-03-1996
NOV-30-1996
4,109
0
206,362
7,657
61,584
298,838
232,300
121,353
462,466
205,234
0
4,561
0
0
152,809
462,466
710,543
710,543
591,723
79,964
0
1,492
6,168
31,196
20,558
20,558
0
0
0
20,558
1.47
1.47
